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Investing.com -- S&P Global Ratings has upgraded the issuer credit rating of Bausch Health Cos. Inc. to ’B-’ from ’CCC+’, as the company is refinancing $6.87 billion of secured and unsecured debt due from 2025 to 2028. This move eliminates a significant near-term refinancing risk. The rating agency also assigned a ‘B’ issue-level rating and ‘2’ recovery rating to the new revolving credit facility, term loan, and senior secured notes issued by 1261229 B.C. Ltd. (NumberCo), a restricted subsidiary at closing.
In addition, S&P Global Ratings raised the issue-level ratings on the second-lien notes and unsecured notes to ’CCC+’ from ’ CCC (WA:CCCP)’, while affirming the ‘B-‘ issue-level ratings on the existing outstanding senior secured notes. Despite these upgrades, the outlook for Bausch Health remains negative, reflecting several risks to the base-case scenario, including an earlier-than-expected generic launch for Xifaxan, a significant Medicare price reduction in 2027, and a potential Bausch + Lomb sale with uncertain proceeds.
The partial refinancing alleviates immediate maturity issues, providing Bausch Health with time to improve the sustainability of its capital structure. The company previously had over $2 billion of notes due in 2025, which could have been covered with cash on hand, revolver capacity, and a recently issued $700 million bridge loan. No significant maturities are expected until 2028, removing substantial refinancing risk over the next few years.
Bausch Health’s recent strong operating performance also supports the upgrade. The company has seen seven straight quarters of revenue expansion, driven by Xifaxan’s continued double-digit percent growth. Free operating cash flow (FOCF) generation was strong in 2024, at $1.3 billion, resulting in adjusted leverage declining to 6.4x, from 7.5x in 2023.
However, the negative outlook reflects numerous risks, including the potential for an earlier-than-expected generic competitor to Xifaxan, which currently accounts for around 40% of sales, excluding B+L, and an even higher proportion of EBITDA. Any generic launch before 2028 would make it much more difficult for Bausch to delever to a sustainable level or invest in growth.
Additional risk was introduced in January when Xifaxan was selected for the second round of Medicare Part D price negotiations under the Inflation Reduction Act (IRA). The impact of any price reduction on Xifaxan revenues is uncertain at this time.
The company is also looking to separate B+L, but the process was halted in February 2025. A separation of B+L could be credit negative due to a material reduction in scale and diversity. The proceeds of a potential sale could be used to pay down Bausch’s sizable debt balance.
Despite the expectation for continued strong operating performance in the near term, the negative outlook reflects significant uncertainty over the coming years, including the risk of further distressed exchanges. The rating could be lowered if Bausch’s capital structure was found to be unsustainable, most likely due to weakened cash flows. This could occur if a generic competitor to Xifaxan launches earlier than expected, or if Medicare price renegotiation results in significant price declines, effective 2027, or if the proceeds from a potential B+L separation are not sufficiently deleveraging.
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