S&P downgrades Mallinckrodt to junk

Standard & Poor's said it removed Mallinckrodt plc's ratings from CreditWatch with negative implications and lowered its corporate credit rating to BB- from BBB-.

The agency also said it lowered the rating on the company's $900 million senior unsecured notes to B from BBB- and assigned a recovery rating of 6, indicating 0 to 10% expected default recovery.

The outlook is stable.

The downgrades follow the company's debt-financed $1.3 billion acquisition of Cadence Pharmaceuticals, S&P said.

The agency also said it assigned a senior secured rating of BB+ to the company's proposed senior secured credit facility that will be used to fund the acquisition. The recovery rating on the facility is 1, reflecting 90% to 100% expected default recovery.

The BB- rating on Mallinckrodt is derived from the anchor of BB- based on its fair business risk and aggressive financial risk profile, S&P said.

The ratings also consider its product and revenue diversity afforded by two businesses, imaging and pharmaceuticals, which is offset by lower than average profitability relative to peers, said Cheryl Richer, an S&P analyst.

"Moreover, performance has fallen short of our expectations given supply constraints experienced by the imaging segment and a somewhat thin pipeline," Richer said in a press release.

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