Endo International PLC Senior Secured Rating Lowered To 'B+' (Recovery: '2'); Subsidiary's Senior Secured Notes Rated

NEW YORK (S&P Global Ratings) March 14, 2019--S&P Global Ratings today 
assigned its 'B+' issue-level rating and '2' recovery rating to the proposed 
$1 billion senior secured notes due 2027 issued by Endo International PLC's 
subsidiary Par Pharmaceutical Inc. The '2' recovery rating indicates our 
expectation for substantial (70%-90%; rounded estimate: 80%) recovery in the 
event of a payment default. The company will use the proceeds from these notes 
to repay certain of its outstanding unsecured notes.

At the same time, we lowered our issue-level rating on Endo International 
PLC's senior secured debt to 'B+' from 'BB-' and revised our recovery rating 
to '2' from '1' following its subsidiary's proposed senior unsecured note 
offering. The '2' recovery rating indicates our expectation for substantial 
(70%-90%; rounded estimate: 80%) recovery in the event of a payment default.

Additionally, we are affirming our 'CCC+' issue-level rating on Endo's senior 
unsecured debt. The '6' recovery rating remains unchanged, indicating our 
expectation for negligible (0%-10%; rounded estimate: 0%) recovery in the 
event of a payment default.

We lowered our issue-level rating on Endo's senior secured debt to reflect the 
incremental weakening of their recovery prospects because secured debt will 
now represent a larger proportion of the company's capital structure. That 
said, we view the transaction--including the proposed extension of its 
revolver to 2024--as positive for Endo's liquidity profile because it extends 
the company's overall maturity schedule and lowers the amount due in 2022.

Our 'B' long-term issuer credit rating and stable outlook on Endo remain 
unchanged following the proposed transaction. We continue to believe that 
opioid litigation is a significant risk for the company, though the U.S. 
generic market is stabilizing and Endo's top branded products still have 
significant runway.

For our issuer rating rationale, please see our most recent summary analysis 
on Endo, published Oct. 26, 2018, on RatingsDirect.

ISSUE RATINGS--RECOVERY ANALYSIS

Key analytical factors
  • Endo's capital structure comprises a $1 billion senior secured revolver (assumed 85% drawn at default with an interest rate of LIBOR+500 basis points) due in 2024, a $3.364 billion senior secured term loan B due 2024, $300 million of senior secured notes due in 2024, $3.673 billion of senior unsecured notes with various maturities from 2022-2025, and the new $1 billion senior secured notes due 2027.
  • We believe Endo's EBITDA would need to decline by about 20% for the company to default, which would likely be due to much higher-than-expected litigation expenses or widespread pricing and supply problems with its largest products.
  • We believe Endo would reorganize in the event of a default because of the strength of its intellectual property--including its patented drugs and generic drug approvals--as well as its organizational development, manufacturing, and marketing expertise.
  • We have used an enterprise value methodology to evaluate Endo's recovery prospects. We valued the company on a going-concern basis using a 6x multiple of our projected EBITDA at emergence from default, which is consistent with the multiples we use for similar generic and specialty pharmaceutical companies.
Simulated default assumptions 
  • Simulated year of default: 2022
  • EBITDA at emergence: $827 million
  • EBITDA multiple: 6x
  • Gross enterprise value at emergence: $4.963 billion
Simplified waterfall
  • Net enterprise value (after 5% admin. costs): $4.715 billion
  • Valuation split (obligors/nonobligors): 96%/4%
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  • Collateral value available to secured creditors: $4.662 billion
  • Secured first-lien debt: $5.590 billion
  • --Recovery expectations: 70%-90% (rounded estimate: 80%)
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  • Total value available to senior unsecured debt: $53 million
  • Unsecured debt: $3.681 billion
  • --Recovery expectations: 0%-10% (rounded estimate: 0%)
Note: All debt amounts include six months of prepetition interest.