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Moody's affirms Teva ratings; outlook negative on exposure to opioid litigation

Credit rating agency Moody's flagged Teva Pharmaceutical Industries Ltd. for a potential downgrade based on the company's high leverage and large refinancing needs due to opioid-related litigation.

Teva has a Ba2 corporate family rating, Ba2-PD probability of default rating and Ba2 senior unsecured ratings at Moody's.

In May, the Israel-based maker of generic drugs agreed to pay $85 million to settle a lawsuit filed by Oklahoma Attorney General Mike Hunter, who alleged that Teva and other major drugmakers misrepresented the risks of prescription opioid painkillers that fueled an addiction crisis in the U.S. The lawsuit was one of many the company is facing.

According to The Wall Street Journal, Teva recorded $646 million in costs for legal settlements in the quarter ended June 30, the majority related to opioid litigation. A litigation against the company pending in the U.S. District Court for the Northern District of Ohio could also cost the company at least $1 billion, according to the same report.

The rating agency expects that negative performance of the company, such as weak uptake of Teva's Ajovy and faster erosion of Copaxone, in addition to large payments related to opioid lawsuits, will further delay deleveraging.

Analysts at Moody's expect that Teva's free cash flow will be sufficient to repay debts due 2020, however, they believe that the company will not generate enough cash flow to pay back about $4.2 billion due 2021.

The agency added that the uncertainty of opioid lawsuits poses a risk to Teva's ability to receive debt at attractive interest rates to refinance bonds maturing 2021.

Moody's said Teva's ratings are constrained by high financial leverage and expects the company's adjusted debt/EBITDA ratio to remain above 5x in 2020.