March 8, 2017 / 2:25 PM / 5 months ago

Fitch Affirms RPI Finance Trust's IDR at 'BBB-'; Stable Outlook

(The following statement was released by the rating agency) CHICAGO, March 08 (Fitch) Fitch Ratings has affirmed the ratings of RPI Finance Trust (RPI FT), including the 'BBB-' Issuer Default Rating (IDR). The rating action applies to approximately $5.85 billion of debt outstanding on Sept. 30, 2016. In addition, Fitch has assigned a 'BBB-' rating to the proposed Term Loan B-6. The Rating Outlook is Stable. KEY RATING DRIVERS --Royalty Pharma will acquire the rights to the royalty stream of the drug, Tysabri for $2.2 billion cash, while maintaining a credit profile supportive of its 'BBB-' rating. --RPI FT will experience pressure on revenues in 2019 as patents lapse for pharmaceuticals generating the company's royalty stream, if it does not acquire royalty assets, in addition to its action of Tysabri royalties. --Fitch expects leverage to range between 3.0x and 4.0x as acquisitions drive up debt, followed by increased EBITDA (partly acquisition related) and debt reduction. --RPI FT has generated strong EBITDA with margins annually exceeding 90% due to minimal operating costs. --Resolution of an investment/liquidity event scheduled to occur in late 2018 could affect RPI FT's ability to acquire more royalty generating assets. Acquisition(s) Needed to Sustain Growth: Contract and patent expirations of pharmaceuticals that weigh on RPI FT's revenues will ramp up over the next few years. Revenues from drugs with patents expiring during 2017-2018 represent nearly 20% of the company's estimated royalty stream for 2017. Fitch anticipates mid-single-digit average revenue and earnings growth through 2018 followed by meaningful declines in 2019, if RPI FT does not acquire continue to acquire royalty assets, in addition to Tysabri. Fitch expects leverage to range between 3.0x-4.0x, with acquisitions periodically driving leverage above the higher end of this range before EBITDA contributed by newly acquired products normalizes leverage. Asset purchases totalled roughly $1.2 billion during the nine-month period ended Sept. 30, 2016 without significantly affecting pro forma leverage. An excess free cash flow (FCF) recapture provision in the company's secured term loan facility also results in debt reduction. Acquisitions Key Variable for Credit: RPI FT's ratings reflect Fitch's assumption that the company will maintain a disciplined approach to acquiring royalty assets in order to maintain significant dividend payouts in the face of patent and contract expiries. The company will need to balance a mix of pipeline products with those already approved and on the market. While the risk is higher in acquiring drug assets in late-stage development, the upfront cost to acquire developmental-stage assets is generally lower. Tysabri Royalties: Royalty Pharma intends to acquire rights to the royalty stream from the global net sales of Tysabri, a biologic drug that treats symptoms of multiple sclerosis and Crohn's disease, from Perrigo. RPI FT will pay total consideration of up to $2.85 billion, consisting of $2.2 billion in cash at closing and up to $650 million in potential milestone payments, based upon future global net sales of Tysabri in 2018 and 2020. Borrowings from a $1.1 billion term loan and $1.1 billion of balance sheet cash will finance the acquisition. A $3.4 billion delayed-draw add-on to the new term loan-B6 will be used to refinance the existing term loan-B5. Fitch estimates pro forma leverage including the projected EBITDA contribution of Tysabri immediately following the transaction close of 3.2x-3.3x. The transaction will give RPI FT the rights to Tysabri royalties in perpetuity. Tysabri royalties paid to Perrigo during 2016 were roughly $350 million. Tysabri's U.S. and European patents expire in 2024, at the earliest,. The drug is also a biologic, which tends to experience more moderate market share losses to biosimilar competition over time, when compared to that of a small-molecule branded drug facing generic competition for the first time. Omecamtiv Mecarbil Royalties: In February 2017, Royalty Pharma acquired a 4.5% royalty on potential worldwide sales of omecamtiv mecarbil, an experimental treatment for heart failure, for $90 million cash upfront from Cytokinetics. The drug is currently in phase III clinical trials, with an expected commercial launch in 2021-2022. Amgen and Servier are slated to market the drug upon regulatory approval. The acquired royalty rate may increase up to an additional 1% under certain conditions, and the drug should enjoy patent protection until 2032. Royalty Pharma has also agreed to purchase $10 million of Cytokinetics common stock. The transaction is consistent with RPI FT's strategy of acquiring royalty rights for both late-stage drug candidates and currently marketed therapies to fill a portion of its royalty portfolio. High Operating Leverage: RPI FT's modest operating expenses result in EBITDA margins exceeding 90% annually. The company produced EBITDA of $1.83 billion and revenue of $2.12 billion during the LTM ended Sept. 30, 2016. Fitch anticipates operating costs to remain low, sustaining high EBITDA margins. Any meaningful increases in operating costs would likely come from Royalty Pharma entering into agreements in which it takes a more active financial role in funding research and development of specific assets. Solid FCF: RPI FT should maintain FCF margins above 25% over the ratings horizon, despite some pressures on revenues and EBITDA and meaningful cash distributions to unitholders. Fitch's assumptions include cash distributions of around 30% of EBITDA to unitholders. The estimate for the distributions is lower than the maximum level of "permitted distributions" of 45% of EBITDA in the company's credit facilities. 2018 Investment/Liquidity Event Possible: The company's limited partnership agreement requires it to provide an option to unitholders to vote by the end of 2018 on whether to allow RPI FT to continue making investments in additional revenue-generating assets. All investment activity must cease, absent any extensions to the investment period by unitholders. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: --RPI FT continues to generate strong EBITDA, with margins exceeding 90% due to minimal operating costs; --Dividends to unitholders at roughly 30% of EBITDA; --Leverage to range between 3.0x-4.0x as acquisitions drive up debt, followed by increased EBITDA and debt reduction; --RPI FT will experience pressure on revenues as contracts and patents lapse for pharmaceuticals that underlie a portion of the company's royalty stream in 2019; --RPI FT's investment horizon runs to end of 2018, when unitholders will vote on whether to extend it further. RATING SENSITIVITIES An upgrade is unlikely for RPI FT given the company's business strategy is reliant on active asset purchases that occasionally push leverage to a level inconsistent with the 3.0-4.0x Fitch considers appropriate for the 'BBB-' rating. In addition, uncertainty surrounding the resolution of the approaching investment/liquidity event in 2018 limits ratings upside. A downgrade would likely result if: --RPI FT were intent on completely winding down the royalty-bearing assets without a concomitant expectation that leverage will remain below 4.0x. --A fall in the average weighted useful life of the royalty asset portfolio occurred such that it is no longer commensurate with the debt maturity schedule or if anticipated cash flows cannot satisfy the outstanding debt level. --The company were unable or unwilling to rapidly reduce high debt leverage following leveraging asset acquisitions. LIQUIDITY Sources of liquidity at Sept. 30, 2016 include $1.27 billion cash and $583 million of short-term investments. RPI FT generates robust CFO that comfortably covers scheduled loan amortizations and potentially provides for additional debt reduction. FCF is generally very strong, although occasional larger-than-normal dividends create some volatility in this metric. Nevertheless, consistently positive CFO provides RPI FT the flexibility to service debt, as well as rewarding unitholders. Debt amortization is manageable (including the new $1.1 billion term loan) with $294 million due in 2017, $294 million, in 2018 and $184 million in 2019. An excess FCF recapture provision in the company's secured term loan facilities moderately strengthens debt reduction. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: RPI Finance Trust --Issuer Default Rating at 'BBB-'; --Senior secured bank credit facility at 'BBB-'. The Rating Outlook is Stable. Fitch has also assigned a 'BBB-' rating to RPI Finance Trust's proposed Secured Term Loan B-6. Contact: Primary Analyst Bob Kirby, CFA Director +1-312-368-3147 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Megan Neuburger, CFA Managing Director +1-212-908-0501 Committee Chairperson Bill Densmore Senior Director +1-312-368-3125 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: --Historical and projected Revenue and EBITDA are adjusted to reflect cash received from royalty interests, as well as cash paid for operating expenses and royalties owed to RP Select Finance Trust. Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020215 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below