Endo Luxembourg Finance I Company S.a.r.l. -- Moody's assigns B2 rating to Endo's proposed secured notes

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Rating Action: Moody's assigns B2 rating to Endo's proposed secured notesGlobal Credit Research - 11 Mar 2021New York, March 11, 2021 -- Moody's Investors Service ("Moody's") assigned a B2 rating to the new senior secured notes being issued by Endo Luxembourg Finance I Company S.a.r.l. ("collectively, Endo"), a finance subsidiary of Endo International plc. Endo U.S. Inc. is a co-issuer of the new notes. There is no change to Endo's existing ratings, including the B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating (PDR), B2 rating on the senior secured credit facilities and existing 1st lien secured notes issued by Par Pharmaceuticals Inc., (a subsidiary of Endo), or the Caa2 rating on the 2nd lien secured notes and unsecured notes issued by Endo Finance LLC and Endo Finance Co. There is no change to the SGL-3 Speculative Grade Liquidity Rating. The outlook is stable.Endo will be using proceeds from the proposed secured notes, along with proceeds from its recently issued senior secured term loan to refinance its existing term loan that matures in 2024. The refinancing improves Endo's debt maturity profile, extending a portion of its revolver expiration to March 2026 and making debt maturities over the next 3-4 years more manageable with existing and future cash flow.The stable outlook reflects Moody's view that Endo's earnings will decline in 2021 but that it's large cash balance will provide adequate liquidity for operations and potential opioid-related settlements. The stable outlook also incorporates the assumption of a favorable patent litigation outcome on Vasostrict, the trial for which is scheduled for July 2021.Assignments:Issuer: Endo Luxembourg Finance I Company S.a.r.l.New 1st lien senior secured notes at B2 (LGD3)RATINGS RATIONALEEndo's B3 Corporate Family Rating reflects its persistently high financial leverage and exposure to opioid-related litigation. Despite growth in Endo's branded business in 2021, Moody's believes that earnings will continue to decline due to ongoing challenges in its US generics business. Moody's does not believe that the generics business will return to growth for the foreseeable future due to continued pricing pressure. Moody's also expects moderate declines in the sterile injectables business driven by normalization in demand for Vasostrict, which saw outsized use in 2020 as a treatment for COVID-19. The rating is also constrained by product concentration risk as Vasostrict, Endo's largest product, contributes more than 30% of Endo's earnings. Uncertainty around patent litigation on Vasostrict exposes it to risk of earnings declines that would increase financial leverage if generic challengers are successful.Endo's rating is supported by strong scale, good potential for growth from its branded portfolio including the commercial launch of Qwo for cellulite, and its balanced business mix between branded and generic drugs. The ratings are also supported by Endo's high cash balance and strong cash flow before litigation payments.The SGL-3 Speculative Grade Liquidity Rating is supported by Endo's unrestricted cash, which was around $1.2 billion at December 31, 2020. Moody's expects that Endo will generate cash flow prior to litigation payments. Endo has nearly $360 million of litigation payments remaining in 2021 -- related to vaginal mesh - roughly half of which is already reserved in restricted cash. Endo has $300 million of revolver borrowings. A portion of the $1 billion revolver is being extended and will still be subject to a 4.5x secured net debt to EBITDA covenant that springs with any more borrowings than it currently has. Endo would have modest cushion, given shrinking EBITDA through 2021. $76 million of Endo's revolver commitments will continue to mature in April 2022, with additional maturities in 2024, and the remainder extending into 2026.ESG considerations include high social risks for Endo reflected in its high exposure to opioid-related litigation and residual payments related to its surgical mesh products. Other risks include the potential for disruption along a complex supply chain, including plant closures, for instance, during a prolonged pandemic. Governance considerations are its high financial leverage in light of the opioid-related litigation exposure.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGMaterially negative developments related to Endo's opioid-related litigation could lead to a downgrade. A negative outcome stemming from ongoing patent litigation on its largest product, Vasostrict, could also lead to a downgrade. A reduction in cash for acquisitions or shareholder initiatives ahead of clarity on opioid litigation could also lead to a downgrade.The rating could be upgraded if debt/EBITDA is expected to be sustained below 6.0x. Sustainable revenue and earnings growth, reduced concentration in Vasostrict, and reduced uncertainty related to the impact of opioid-related legal matters and Vasostrict litigation would also be needed to support an upgrade.Headquartered in Luxembourg, Endo Luxembourg Finance I Company S.a.r.l. is a subsidiary of Endo International plc, which is headquartered in Dublin, Ireland. Endo is a specialty pharmaceutical company offering branded and generic drugs. Endo generated approximately $2.9 billion in revenue for the twelve months ended December 31, 2020.The principal methodology used in this rating was Pharmaceutical Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062755. 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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. Morris Borenstein VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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