Perrigo Finance Unlimited Company — Moody’s assigns ratings to Perrigo’s new senior secured credit facilities; affirms Ba1 CFR, outlook remains negative

Rating Action: Moody’s assigns ratings to Perrigo’s new senior secured credit facilities; affirms Ba1 CFR, outlook remains negativeGlobal Credit Research – 29 Mar 2022New York, March 29, 2022 — Moody’s Investors Service (« Moody’s ») today took several rating actions on Perrigo Company plc (« Perrigo ») in connection with the refinancing of its existing debt and financing of the Hera SAS (« HRA ») acquisition, including affirming the Ba1 Corporate Family Rating, Ba1-PD Probability of Default Rating, and continuing the negative outlook. Moody’s assigned Baa3 ratings to the proposed senior secured revolver and term loans issued by new borrower Perrigo Investments LLC., and downgraded Perrigo’s senior unsecured notes to Ba2 from Ba1. Perrigo’s SGL-3 Speculative Grade Liquidity rating is unchanged. »Today’s actions recognize the benefits of Perrigo refinancing near term maturities, which is a credit positive as it enhances liquidity, » stated Moody’s VP/Senior Credit Officer Charlie O’Shea. « Included is its financing for the pending acquisition of HRA for total consideration of roughly $2 billion, which we view as a long-term positive as it enhances Perrigo’s product and geographic diversity. The negative outlook reflects in part the execution risk to reducing the high leverage upon completion of the HRA acquisition. »Moody’s affirmed Perrigo’s Ba1 CFR because the company’s good growth prospects, a more normal cough and cold season, and free cash flow provide a means to reduce the very high leverage resulting from the HRA acquisition. Moody’s projects debt-to-EBITDA will decline to around 4.5x in 2023 from approximately 6.0x as of December 2021 pro forma for the HRA acquisition with the company also likely to focus on reducing leverage in advance of the acquisition close, which is expected to be during Q2 2022The Baa3 credit facility ratings reflect the company’s announced plan to issue approximately $500 million of other incremental unsecured debt. The downgrade of the senior unsecured notes to Ba2 from Ba1 reflects the introduction of a significant amount of secured debt to the debt structure that weakens recovery prospects for unsecured debt in the event of a default.Ratings Affirmed:..Issuer: Perrigo Company plc…. Corporate Family Rating, Affirmed Ba1…. Probability of Default Rating, Affirmed Ba1-PDNew Assignments:..Issuer: Perrigo Investments LLC….GTD Senior Secured Term Loan A, Assigned Baa3 (LGD2)….GTD Senior Secured Term Loan B, Assigned Baa3 (LGD2)….GTD Senior Secured Delayed Draw Term Loan B, Assigned Baa3 (LGD2)….GTD Senior Secured Multi Currency Revolving Credit Facility, Assigned Baa3 (LGD2) Ratings Downgraded: ..Issuer: Perrigo Company plc ….Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 (LGD5) from Ba1 (LGD4)..Issuer: Perrigo Finance Unlimited Company ….Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 (LGD5) from Ba1 (LGD4) Outlook Actions: ..Issuer: Perrigo Company plc ….Outlook, Remains Negative ..Issuer: Perrigo Finance Unlimited Company….Outlook, Remains Negative..Issuer: Perrigo Investments LLC….Outlook, Assigned NegativeRATINGS RATIONALEPerrigo’s Ba1 CFR is supported by its leading positions in the relatively stable over-the-counter (OTC) market in the US and Europe. Perrigo has meaningful scale in its key product categories, as well as good product and customer diversity, which the HRA acquisition will enhance. Earnings growth will outpace revenue growth for the next few years, driven by cost savings and portfolio mix shifts towards higher margin products. The credit profile is constrained by its elevated leverage, which proforma for the HRA acquisition debt will be around 6x, and the rating is based on Moody’s expectations that the company will make substantive progress toward achieving 4.5x by the end of 2023 due to improved organic earnings, as well as contribution from HRA and the related cost synergies. Moody’s forecasts mid-single digit earnings growth through 2023, with potential improvement in the critical cough and cold segment a key driver of that view. The positive resolution of the Irish tax liability for around €266 million, with more than sufficient funds coming from a favorable settlement relating to its Belgian divestiture, removes a significant risk component.The SGL-3 reflects Perrigo’s adequate liquidity and considers the execution risk relating to Moody’s projection for free cash flow exceeding $200 million over the next 12 months because of cost pressures and integration risks. Liquidity is bolstered by an approximate $300 million cash balance pro forma for the financing transactions, an undrawn $1 billion five-year revolver, and good projected covenant headroom.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe negative outlook reflects the execution risk for Perrigo to deleverage to 4.5x by the end of 2023. Risks to Perrigo’s earnings include a slower recovery for the products sold by HRA, some of which have been negatively impacted by the pandemic. The negative outlook also reflects that cost pressures including labor and materials, and continued acquisition activity could slow deleveraging.Given the negative outlook, there is little upward rating pressure. Over time, ratings could be upgraded if Perrigo generates good operating performance including consistent organic revenue growth, stable to higher EBITDA margin, and solid free cash flow. Debt/EBITDA is sustained below 3.5x, and a firm commitment to an investment grade capital structure and financial strategy would also be necessary for an upgrade.Ratings could be downgraded if substantive deleveraging does not occur over the next 12-18 months because of factors such as revenue weakness, higher costs or additional acquisitions, any of which lead to debt/EBITDA sustained above 4.5x. A deterioration in liquidity could also lead to a downgrade.ESG considerations are material to the rating. Social considerations include Perrigo’s legal exposures, as evidenced by the recently resolved Irish Tax Assessment litigation and alleged drug price-fixing. Governance considerations include Perrigo’s aggressive approach to M&A during a time of unresolved tax liabilities. Perrigo is targeting a net debt to EBITDA leverage ratio of 3.0x (based on the company’s calculation) within 18-to-24 months of the HRA closing. Because pro forma leverage on this basis is 5.1x, the target indicates the company is focused on material deleveraging.As proposed, the new credit facilities are expected to provide covenant flexibility that if utilized could negatively impact creditors. Notable terms include the following:Incremental debt capacity up to the greater of $625 million and 100% of consolidated EBITDA for the last four quarters, plus unlimited amounts subject to a first lien secured net leverage ratio not to exceed the ratio at close plus 0.5x. Amounts up to the greater of $390 million and 62.5% of LTM EBITDA may be incurred with an earlier maturity date. The credit agreement permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities, subject to « blocker » provisions which prohibit the transfers of any material intellectual property from any Loan Party to an unrestricted subsidiary. Non-wholly-owned subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees subject to protective provisions which only permit guarantee releases if such disposition or other transaction was entered into for bona fide business purposes. The credit agreement provides some limitations on up-tiering transactions, including the requirement of the consent of each lender directly and adversely affected to subordinate the obligations or the liens securing such obligations to any other indebtedness.Perrigo, with registered offices in Dublin, Ireland and principal executive offices in Allegan, Michigan, develops, manufactures, and distributes over-the-counter drugs, infant formulas, and nutritional products. Perrigo has agreed to acquire Hera SAS (« HRA ») for total consideration of around $2 billion, which is expected to close in Q2 2022. FYE 2021 revenues were approximately $4.1 billion and will increase to approximately $4.6 billion pro forma for the HRA acquisition.The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Charles O’Shea VP – Senior Credit Officer Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 John E. Puchalla, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY’S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY’S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody’s Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody’s Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​