Moody's Rates Perrigo's (PRGO) Latest Notes Offering at 'Baa3'

Moody's Investors Service assigned a Baa3 rating to the $1.6 billion senior unsecured notes offering of Perrigo Finance plc. Perrigo Finance plc is a 100% owned finance subsidiary of Perrigo Company plc (Perrigo) (NYSE: PRGO), which will fully and unconditionally guarantee the notes. The proceeds of the offering along with new term loans, and equity (issued both to the target shareholders and in the secondary market) will be used to finance the acquisition of Omega Pharmaceuticals for €3.6 billion (approximately $4.5 billion). The proceeds will also be used to refinance existing debt of both Perrigo and Omega. The rating outlook is stable.

The following ratings were assigned:

Perrigo Finance plc

Senior Unsecured Notes due 2021, 2024, 2044, at Baa3

The rating outlook is stable.

RATINGS RATIONALE

Perrigo's Baa3 senior unsecured rating is supported by its leading positions in markets that have relatively stable demand characteristics, such as over-the-counter (OTC) medicines and niche, high-barrier to entry generic drugs. The ratings are also supported by the company's scale -- which will be enhanced with the acquisition of Omega -- as well as its good product and manufacturing diversity. The Baa3 also reflects Perrigo's strong profit margins, modest returns to shareholders and tax-efficient corporate structure, all of which allow the company to generate significant free cash flow available to repay debt or make business investments.

The ratings are constrained by the company's high adjusted debt to EBITDA, which will increase to around 4.0x following the Omega acquisition. However, Moody's expects that it will decline rapidly over the next 12-18 months due to growth in EBITDA, which is not contingent on the achievement of any acquisition synergies. The ratings are constrained by the company's concentration in Tysabri royalties, which generate roughly 35% of operating cash flow. Moody's estimates that this reliance will be reduced to roughly 25% of operating cash flow after the Omega acquisition. The ratings are also constrained by Moody's expectation that Perrigo will remain acquisitive which, in the future, could raise leverage and increase business and integration risk.

Perrigo's ratings could be upgraded if Moody's expects the company to sustain debt-to-EBITDA around 2.5x. Further, enhanced scale and reduced reliance on Tysabri royalties as well as a track record of maintaining a balanced approach to shareholder distributions and acquisitions could also support an upgrade.

Moody's could downgrade Perrigo's ratings if the company's financial performance deteriorates, or the company pursues debt-funded acquisitions or shareholder distributions such that debt-to-EBITDA is expected to be sustained above 3.5x. Further, acquisitions that materially increase the operating risk profile of the company without a commensurate reduction in financial leverage could also lead to a rating downgrade.

The principal methodology used in these ratings was Global Packaged Goods published in June 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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