S&P Global Ratings placed Teva Pharmaceutical Industries Ltd.'s ratings on CreditWatch negative following the company's proposed global settlement framework in relation to the U.S. opioid litigation.
Teva's ratings were put on CreditWatch with negative implications after the Israeli pharmaceutical company agreed to pay $20 million up front and offer $25 million worth of the opioid addiction drug Suboxone to settle cases by Ohio's Cuyahoga and Summit counties.
Additionally, Teva said it designed a framework for a global settlement of opioid cases under which it would donate about $23 billion worth of addiction drugs, as well as $250 million over 10 years.
Ratings put on CreditWatch negative include the company's BB long-term issuer credit and senior unsecured issue-level ratings.
The rating agency said the CreditWatch placement reflects the higher probability that it would downgrade the company's ratings due to significant costs under the settlement framework to resolve the opioid litigation. The rating agency said the final amount to settle all opioid-related claims is uncertain, but the estimated tax-adjusted discounted cash liability of the proposed framework could be less than $2 billion.
The rating agency expects Teva to incur an annual cash cost of between $250 million and $400 million over a decade to fulfill the proposed settlement framework.
If the framework materially exceeds $2 billion, the rating agency could resolve the CreditWatch placement and lower the company's rating. The agency could also consider resolving the placement when more plaintiffs agree to the proposed deal and it is established that the ultimate liability would be below $2 billion — anticipated in the next four to six months.
Additionally, the rating agency said it could resolve the CreditWatch placement after the company releases full-year results and 2020 guidance.
Teva is also facing other uncertainties, including the result of an investigation by the U.S. Department of Justice and certain state attorneys general into allegations that the company colluded with other drug manufacturers to block generic competition and hike prices, the agency noted.
Previously, Moody's said Teva's settlement is credit negative as it will impact the company's earnings as well as deleveraging efforts.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.