Fitch cuts Watson to BBB-

Fitch Ratings said it downgraded Watson Pharmaceuticals Inc.'s issuer default, senior unsecured debt and bank loan ratings to BBB- from BBB.

The ratings were removed from Rating Watch negative, where they were placed on March 10, 2006, and outlook is stable.

The agency said the downgrade reflects the higher leverage resulting from Watson's acquisition of Andrx Corp. for $1.87 billion. Total debt to EBITDA is projected to rise to more than 3x at the end of 2006, with minimal EBITDA contribution from Andrx given the recent completion of the transaction.

However, Fitch anticipates that gross debt will decrease in the near term to a level more appropriate for the new rating category due to sustained solid free cash flow generation. Additionally, amortization of the term loan supports rapid debt reduction, which the agency said it expects to lead to a drop in leverage to 2.5x by the end of 2007.

The ratings reflect the company's solid cash generating ability, Fitch said. Free cash flow improved to $283.9 million for the last 12 months ended June 30 from $246.7 million in 2005. Also, the acquisition of Andrx brings additional controlled-release technologies beyond Watson's current capabilities, and the agency predicted that Watson will be able to better concentrate research and development efforts on semi-exclusive generic products - those with only two or three competitors - given Andrx's sustained-release drug delivery technology required to manufacture difficult-to-replicate pharmaceutical products.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.