Fitch revises Elanco outlook to positive

Fitch Ratings said it changed the outlooks for Elanco Animal Health Inc. and Elanco US Inc. (ELAN) to positive from stable and affirmed their issuer default ratings at BB-. The agency also affirmed Elanco Animal's senior unsecured notes at BB-/RR4 and ELAN's senior secured debt ratings at BB+.

Fitch, however, revised the recovery ratings to RR2 from RR1 and removed the ratings from under criteria observation.

Elanco plans to sell its aqua business to Merck Animal Health for about $1.3 billion. The company intends to use the proceeds of about $1.1 billion to pay down a portion of the term loan B debt. “Fitch views this transaction as strategically constructive as it allows Elanco to focus on sectors of the market that offer better economics for the firm. In addition, it will leave the company only modestly less diversified. The transaction is expected to close mid-year 2024 and is subject to regulatory approval,” the agency said in a press release.

The improved outlook reflects the expectation that ELAN will cut its leverage and stabilize its operating performance, Fitch said.

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