TSX runs higher on rate cut expectations
Investing.com -- S&P Global Ratings has raised its rating on Endo Inc. to ’BB-’ from ’B+’ and assigned a stable outlook following the completion of its merger with Mallinckrodt (OTC:MNKKQ) PLC on Friday.
The rating agency subsequently withdrew its issuer credit rating on Endo, now considering it a core subsidiary of Mallinckrodt due to operational alignment with the parent company’s business and strategy.
S&P also upgraded Endo’s debt instruments, raising the super-priority revolving credit facility issued by Endo Finance Holdings Inc. to ’BBB-’ from ’BB’ with a recovery rating of ’1+’, indicating expectations for full recovery in case of default. The senior secured term loan and notes were upgraded to ’BB-’ from ’B+’ with a recovery rating of ’3’, suggesting meaningful recovery of 50%-70%.
While the merger moderately improves Mallinckrodt’s business strength, S&P notes that Mallinckrodt plans to divest the generics business. The company intends to spin off Par Health, a new segment containing both companies’ generics businesses, Mallinckrodt’s API business, and Endo’s sterile injectables business.
This divestiture would reduce Mallinckrodt’s scale back to about $2 billion in revenues and increase product concentration, with the top three products representing approximately 62% of revenue. S&P views this planned separation as a slight credit negative due to reduced scale and diversity, though partially offset by the better growth profile and higher EBITDA margins of the remaining branded business.
Key products in Mallinckrodt’s portfolio include Xiaflex and Acthar Gel, each contributing about 13% of revenue, which S&P expects to continue growing over the next few years. The agency also notes that Terlivaz, approved in September 2022, has revenue potential of $200-$300 million, though generic competition is expected by 2029.
S&P identifies the absence of additional assets in the company’s branded product pipeline as a key weakness and credit risk, suggesting acquisitions will be essential for long-term viability.
The stable outlook reflects S&P’s expectation that Mallinckrodt will see modest revenue growth over the next 12 months while maintaining adjusted debt to EBITDA between 2.5x and 3.5x.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.