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Rating Action: Moody's affirms Emergent's Ba2 CFR; revises outlook to negativeGlobal Credit Research - 30 Apr 2021New York, April 30, 2021 -- Moody's Investors Service ("Moody's") affirmed the ratings of Emergent BioSolutions Inc. ("Emergent") including the Ba2 Corporate Family Rating, the Ba2-PD Probability of Default Rating and the Ba3 senior unsecured rating. At the same time, Moody's revised the outlook to negative from stable. The Speculative Grade Liquidity Rating remains unchanged at SGL-1.The revision in the outlook to negative reflects increasing business risk related to compliance problems at Emergent's Bayview, Maryland facility that is involved in COVID-19 vaccine production. Although the company is taking swift corrective steps, timing of resolution is uncertain, and these problems may also jeopardize momentum in the company's contract development and manufacturing organization (CDMO) business. At the same time, Emergent faces greater scrutiny on other parts of its business including its ongoing role in supplying anthrax vaccines to the US Strategic National Stockpile. In addition, Moody's believes that weak share price performance raises event risk.Despite these challenges, the affirmation reflects Moody's expectations that problems at the Bayview facility are addressable. In addition, the affirmation reflects Emergent's low financial leverage. Emergent's gross debt/EBITDA was approximately 1.3x as of March 31, 2021, and liquidity is strong, with over $500 million of cash on hand.The rating affirmation also reflects certain social considerations that are positive to Emergent's credit profile. Emergent plays a niche role in addressing public health threats including pandemics and potential bioterrorism incidents. Moody's believes that Emergent's Bayview facility remains important in expanding COVID-19 vaccine production capacity to continue US vaccination efforts. The company's role in pandemic preparedness and its manufacturing capabilities led to contracts with the US government and various vaccine developers, bringing significant revenues to Emergent that enhanced its credit quality. COVID-19 vaccine-related revenues will continue in 2021, although at a lower and less certain pace than the company's original expectations. The timing and amount will also depend on resolution of the manufacturing challenges.Ratings affirmed:Corporate Family Rating, Ba2Probability of Default Rating, Ba2-PDSenior unsecured notes, Ba3 (LGD5)Outlook actions:Revised to negative from stableRATINGS RATIONALEEmergent's Ba2 Corporate Family Rating reflects its niche position developing and manufacturing products that treat public health threats. Areas of focus include public health outbreaks such as COVID-19, vaccines for military and civilian use, travel health, and the US opioid epidemic. Moody's anticipates steady ongoing growth in Emergent's anthrax and smallpox vaccines supplied to the US Strategic National Stockpile, presuming no material changes to the government's ordering patterns. The CDMO business remains an important growth driver as Emergent aims to continue growth outside of its COVID-19 business, which is likely to ebb in 2022. As that occurs, Moody's anticipates that Emergent will sustain modest financial leverage, with debt/EBITDA in the range of 2.5x-3.5x using Moody's calculations.In addition to manufacturing compliance challenges, key credit risks include modest scale compared to global pharmaceutical companies, with somewhat limited diversity at the product and customer level. Contracting with the US government subjects Emergent to compliance with numerous laws and regulations, and cash flow volatility associated with ordering patterns. There is also risk that changes in the government's strategic priorities or budgetary constraints reduce demand for Emergent's products.The SGL-1 Speculative Grade Liquidity Rating reflects Moody's expectation that Emergent will maintain very good liquidity based on positive free cash flow, availability under the $600 million revolving credit agreement expiring in 2023, and ample cushion under financial maintenance covenants in the term loan and revolver. These include net debt/EBITDA of below 4.5x, and interest coverage (EBITDA less maintenance capex divided by interest cost and principal payments) of greater than 2.5x.The outlook is negative, reflecting higher business risks stemming from manufacturing compliance challenges. Until these issues are resolved, Emergent's credit profile will also be more sensitive to any unforeseen setbacks in other parts of the company's business.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors that could lead to a downgrade include escalation of manufacturing compliance challenges, delays in anthrax or smallpox vaccine purchase orders from the US government, or material litigation. Quantitatively, debt/EBITDA sustained above 3.5x could also result in a downgrade although a downgrade is possible based solely on the qualitative factors listed above.Factors that could lead to an upgrade include successful resolution of manufacturing compliance challenges, increased scale and diversity, and good momentum in non-COVID business lines including other vaccines and other CDMO contracts. Quantitatively, debt/EBITDA sustained below 2.5x would support an upgrade.Headquartered in Gaithersburg, Maryland, Emergent BioSolutions Inc. is a life sciences company that provides pharmaceuticals, vaccines, medical devices and contract manufacturing services related to public health threats affecting civilian and military populations. Revenues for the 12 months ended March 31, 2021 totaled approximately $1.7 billion.The principal methodology used in these ratings was Pharmaceutical Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062755. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Michael Levesque, CFA Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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