OREANDA-NEWS. December 08, 2015. Fitch Ratings has assigned a 'BBB-' rating to the new notes issued by Mylan N.V. (Mylan, NYSE: MYL).

Proceeds are expected to be used to fund a portion of the firm's recently announced \\$1 billion share repurchase program and to repay amounts outstanding under the firm's revolver and A/R facilities. The 'BBB-' ratings assigned to Mylan by Fitch on Nov. 20, 2015 incorporated such an offering before the end of 2015.

A full list of Mylan's ratings follows at the end of this release. The Rating Outlook is Stable.

KEY RATING DRIVERS

Diversified, Scaled Operations: Mylan is a well-diversified top-five global generic drug firm. Scale and diversification are important for generic drug companies to maintain stable and durable margins, especially given recent large-scale consolidation of generic drug purchasing groups.

Aggressive Capital Deployment: Mylan's recent hostile bid for Perrigo illustrated management's willingness to aggressively deploy capital for acquisitions. Still, Fitch believes the pursuit was within a commitment to investment grade ratings. Fitch expects the firm to actively pursue other acquisition targets over the ratings horizon, including generic and/or branded generic, OTC, and possibly specialty drugmakers in the wake of ongoing large-scale industry consolidation.

Growth, 'Spinversion' Driving De-Leveraging: Gross debt/EBITDA at Sept. 30, 2015 was 2.25x, reduced from 3.6x at year-end 2013, though net debt repayment over the period was less than \\$500 million (7% of debt). Strong growth from a good product launch pipeline is expected to contribute to EBITDA growth, but Fitch expects the new notes to raise debt leverage to around 2.3x at year-end 2015.

Favorable Industry Outlook: Fitch's outlook for global generic pharma, particularly the largest players, is generally favorable. Growth opportunities are found in increasing generic penetration in many European markets, aging populations in developed markets, and improving access to healthcare in emerging markets.

Adequate Liquidity, Ample FCF: Liquidity is adequate, and free cash flow (FCF) is expected to outpace relatively well-laddered debt maturities. Fitch projects FCF to exceed \\$1.7 billion in 2015 and \\$2 billion in 2016.

EpiPen Losses Imminent, Delayed: Fitch expects generic competition to the firm's top-selling EpiPen is imminent, though now delayed, likely until second-half 2016. Generic substitution will be slower than that of a typical small-molecule product but will likely still dent EpiPen's blockbuster status. The recall of Auvi-Q, EpiPen's primary branded competition, in October 2015 should support improved product sales until a generic version is made available.

RATING SENSITIVITIES

The 'BBB-' ratings consider gross debt/EBITDA around 3x, along with continued operational stability and the successful integration of the recently acquired Abbott EPD business. The firm's currently low leverage (2.25x at Sept. 30, 2015) provides good flexibility to pursue debt-funded, strategic M&A over the ratings horizon. Scale and diversification are appropriate for the ratings, and strong FCF is well in excess of annual debt maturities.

Negative rating pressure would likely be the result of management's abandonment of its fairly recent commitment to operating in the context of investment grade ratings, demonstrated by a willingness to sustain gross debt/EBITDA near 3.5x. Failure to launch meaningful new products, contributing to weaker growth prospects than Fitch currently expects, could also exert negative rating pressures.

An upgrade to 'BBB' is unlikely over the ratings horizon, given the firm's demonstrated willingness to add meaningful leverage to the balance sheet for M&A. Top-line growth and/or margin expansion in excess of Fitch's base case, particularly from successful launches of key products like generic Advair, could contribute to positive ratings momentum in the 2017+ timeframe, depending on capital deployment in the meantime. A commitment to operating with debt leverage near 2.5x could support 'BBB' ratings.

KEY ASSUMPTIONS

--Revenue growth in the mid-20% range in 2015, largely from the addition of Abbott EPD business and solid growth in the U.S. business from better volumes and favorable pricing trends, offset by currency headwinds outside the U.S. Double-digit top-line growth in 2016, owing to two incremental months and growth of the Abbott EPD business, the addition of Famy Care, growth in the company's injectables and anti-retrovirus portfolios, and continued strong results from the U.S. business.

--Modest EBITDA margin compression beginning in 2016 due to lower sales and associated margins from EpiPen competition and less favorable (albeit more normalized) generic pricing in the U.S. Biosimilar launches could offset this assumption.

--Operating cash flows exceeding \\$2.1 billion in 2015 and \\$2.6 billion in 2016. Capex of \\$400 million to \\$500 million annually, resulting in FCF of \\$1.8 billion in 2015 and \\$2.2 billion in 2016.

--Absent M&A, and incorporating incremental debt to fund the recently announced share repurchase program, gross debt/EBITDA of about 2.3x at year-end 2015. Cash flows are sufficient to repay maturing debt over the ratings horizon.

Fitch currently rates Mylan as follows:

Mylan N.V.
--Long-term IDR 'BBB-';
--Senior unsecured notes 'BBB-'.

Mylan, Inc.
--Senior unsecured bank facility 'BBB-';
--Senior unsecured notes 'BBB-'.

The Rating Outlook is Stable.