Bayer outlook revised to negative by S&P on litigation risks

Investing.com -- S&P Global Ratings revised its outlook on Bayer AG to negative from stable on Thursday, citing increased risks to growth while affirming the company’s ’BBB’ credit rating.

The rating agency noted that recent large litigation provisions will result in a material decline in Bayer’s adjusted EBITDA and credit metrics this year. In the second quarter, Bayer recognized about €1.2 billion in additional provisions for glyphosate cases and about €530 million for PCB cases linked to its Monsanto acquisition.

S&P now forecasts Bayer’s adjusted EBITDA to reach €6.6 billion-€6.7 billion this year, down from €8.49 billion in 2024, before recovering to about €8.5 billion next year. As of June 30, Bayer had provisioned $7.4 billion for potential liabilities regarding glyphosate-related litigation.

The rating agency expressed concern about Bayer’s ability to effectively allocate capital for sustainable growth due to uncertainty around litigation provisions and related cash settlements. The company has already paid €13 billion in litigation-related payouts between 2019-2023, limiting its ability to reduce leverage and support business growth.

S&P expects Bayer’s adjusted debt to EBITDA ratio to deteriorate to 4.5x-4.7x in 2025 before improving to 3.5x-3.7x in 2026. The company has proposed cutting its dividend payout by up to 95%, with S&P assuming dividend payments of up to €150 million annually in 2025 and 2026.

Bayer’s annual revenue growth is projected to be less than 1% in 2025 and 2026, affected by sales decline of its top-selling drug Xarelto and regulatory pressure on certain crop-protection products. The Crop Science division is forecast to maintain stable revenue in 2025 and 2026.

S&P forecasts Bayer’s adjusted EBITDA margins at 14.0%-14.5% this year, significantly lower than the 18.2% in 2024, before recovering to 18.0%-18.5% in 2026. The agency also projects annual free operating cash flow of close to €2 billion in 2025 and 2026.

The negative outlook reflects the risk that ongoing litigation provisions could increase volatility in Bayer’s credit metrics, while large annual cash settlements may prevent effective capital allocation to growth opportunities.

S&P could lower Bayer’s ratings if its debt to EBITDA ratio remains close to 4.0x or higher in 2026, or if the company loses market share in crop protection and seed activities. Conversely, the outlook could be revised to stable if Bayer improves its debt to EBITDA ratio to well below 4.0x and establishes a clear timeline to resolve glyphosate-related litigation.

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