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Teva downgraded by Moody's on concerns over debt reduction

Moody's downgraded the senior unsecured ratings of Teva Pharmaceutical Industries Ltd. and its units to Baa3 from Baa2.

The rating agency maintained the rating outlook at negative.

The downgrade reflects the slower progress of deleveraging than the agency expected, as Teva faces weakness in its U.S. generics business and the threat of generic competition on its multiple sclerosis treatment Copaxone, said Morris Borenstein, a Moody's assistant vice president.

Borenstein added the agency believes debt/EBITDA will remain elevated above 4x over the next 18 months, while pricing pressure and delays in new product launches will continue to be headwinds in the U.S. generics business through 2018.

The negative outlook reflects Moody's view that Teva's rating will remain pressured over the next 12 to 18 months due to these concerns.

Moody's also believes that earnings and cash flow will contract in 2018.

Teva's Baa3 rating reflects its notable scale, global diversity and position as the world's largest generic drug company, as well as one of the largest manufacturers of active pharmaceutical ingredients. It is also supported by the company's strong cash flow. The rating is constrained by the company's high financial leverage and high profit concentration in Copaxone.

Moody's said it believes that Teva is committed to deleveraging as signified by the 75% reduction of its quarterly dividend. The dividend cut, together with asset sale proceeds, will support debt repayment over the next 12 months but the pace of deleveraging is uncertain, the rating agency added.