Lannett downgraded by S&P Global Ratings to CCC+ on weakening credit metrics

Lannett Co. Inc. was downgraded today by S&P Global Ratings to CCC+, from B-, with Ratings citing its projections of negative EBITDA in 2022 and free operating cash flow deficits "through at least fiscal 2024." The company's senior secured debt was downgraded as well, to B- from B.

Ratings said a "very competitive pricing environment" for the company's generic products will lead to negative free operating cash flow, or FOCF, and the company's capital structure "is unsustainable over the long term." Ratings projects revenue declines in fiscal 2022 of 25%-30% leading to $40 million to $50 million of negative FOCF, although the agency foresees improvement in the next two years primarily from cost savings and its Advair Diskus product.

Ratings said Lannett has "less than adequate" liquidity, with just under $100 million in cash at Dec. 31, 2021, and available liquidity at that time of $136 million, although no meaningful debt maturities until 2026. The agency noted that if operating conditions do not improve, the FOCF deficits "increase the likelihood that the company could consider a distressed exchange or sub-par redemption" in the next year.

In November 2021, Lannett was downgraded by Moody's to Caa1 from B3, with the agency also citing weakening operating performance caused by competitive pricing pressures. At the time, Lannett's first-lien senior secured notes were downgraded as well, to B3 from B1.

Philadelphia-based Lannett is a generic drug manufacturer and distributor.