OREANDA-NEWS. Fitch Ratings has assigned a 'BBB-' rating to the unsecured bond offering of Actavis Funding SCS, a wholly-owned subsidiary of Actavis plc (Actavis; NYSE: ACT). The Rating Outlook is Stable.

A full list of ratings follows at the end of this release.

Proceeds from the bonds are expected to be used as a funding component of the approximately \$66 billion acquisition of Allergan, Inc. The offering comprises bonds of a variety of durations, commensurate with management's commitment to direct cash flows toward debt repayment over the next couple of years.


--Fitch views the combination of Actavis and Allergan as strategically compelling. The resulting firm will be among the largest pharmaceutical firms in the world, with a differentiated business model that combines a strong generics business with a well-diversified, durable, and growing specialty drug business.

--Fitch's estimated pro forma gross debt-to-EBITDA, which exceeds 4.8x at deal close (before projected synergies), exhausts Actavis' flexibility at the 'BBB-' rating category in the near term. Nevertheless, strong cash generation is expected to be sufficient to facilitate rapid debt repayment and restore ratings flexibility in relatively short order.

--The Stable Outlook reflects Actavis' history of swift business integration and debt repayment following leveraging transactions and Fitch's expectation for dramatically moderated M&A activity going forward, citing management's strong assertion that the Allergan deal completes its transformation.

--Fitch forecasts organic top-line growth in the upper-single to low-double digits for the combined firm over the ratings horizon, driven by a strong portfolio of long duration assets and a generally favorable outlook for the global generic drug industry.

--Dependent on the faithful and successful completion of the firm's de-leveraging and synergy capture plans, Fitch expects Actavis' credit profile will show meaningful improvement in the years to come. Increased scale, improved profitability and diversification, and very strong cash generation post-deal imply that the business profile could support a higher credit rating.


Ratings flexibility will be exhausted for at least the 12 months following the close of the Allergan deal. Maintenance of the current 'BBB-' ratings and Stable Outlook will require strict adherence to the firm's commitment to direct a significant components of free cash flow (FCF) toward debt repayment, with moderate amounts of cash used for tuck-in deals or the acquisition of developmental assets only.

The use of cash flows for material M&A activity or shareholder payments that disrupt progress reducing gross debt-to-EBITDA to below 3.5x within 18 months post-deal could drive a downward rating action. Nevertheless, the Stable Rating Outlook reflects Fitch's view that the combined firm is committed to de-leveraging and will generate sufficient cash flows to do so. Debt repayment will be facilitated by more than \$9 billion of pre-payable term debt expected to be outstanding at deal close, along with short-dated bonds.

An upgrade will not be considered until material de-leveraging has been accomplished post-deal. But upward ratings momentum is expected to accompany faithful and successful implementation of the firm's integration and de-leveraging plans. Gross debt-to-EBITDA trending toward and expected to be maintained at or below 3x could result in an upgrade to 'BBB'. Fitch notes that several facets of the firm's credit profile, including its growth outlook, profitability, and strong product portfolio could support higher ratings than the current 'BBB-'.


--Top-line growth in the upper-single to low-double digits;
--EBITDA margins approaching the upper-40% range in 2016, with credit for the majority of Actavis' outlined synergy targets;
--Operating cash flow exceeding \$7 billion in 2015 (pro forma) and approaching \$9 billion in 2016;
--Capital expenditures around \$500 million annually;
--Accelerated debt repayment resulting in gross debt/EBITDA trending below 3x by year-end 2016;
--No material share repurchase activity in 2015-2016.

Fitch currently rates Actavis as follows:

Actavis plc
--IDR 'BBB-'.

Warner Chilcott Limited
--IDR 'BBB-'.

Actavis Capital S.a r.l.
--Senior unsecured bank facility 'BBB-'.

Actavis Funding SCS
--Senior unsecured notes 'BBB-'.

Actavis WC 2 S.a r.l.
--Senior unsecured bank facility 'BBB-'.

Actavis, Inc.
--IDR 'BBB-';
--Senior unsecured notes 'BBB-'.

Forest Laboratories, Inc.
--IDR 'BBB-';
--Senior unsecured notes 'BBB-'.

The Rating Outlook for each IDR is Stable.

Fitch currently rates Allergan as follows:

--Long-term IDR at 'A+';
--Short-term IDR at 'F1';
--Senior unsecured bank facility at 'A+';
--Senior unsecured notes at 'A+';
--Commercial paper at 'F1'.

Allergan's ratings were placed on Rating Watch Negative on April 23, 2014 following an unsolicited bid by Valeant Pharmaceuticals International Inc. to acquire the firm.

Actavis has not announced the final guarantee structure associated with the Allergan debt and assets/cash flows. Nevertheless, Fitch expects the debt ratings at Allergan to be equalized with the Actavis debt upon the completion of the merger given the strong operational and strategic ties that will result from completed integration activities.