Moody's lowers Axcan to SGL-2

Moody's Investors Service said it lowered the speculative grade liquidity rating of Axcan Intermediate Holdings, Inc., the parent of Axcan Pharma Inc., to SGL-2 from SGL-1 and confirmed its corporate family and probability of default ratings at B1, its $115 million senior secured revolving credit facility due 2014, $175 million senior secured term loan A due 2014 and $228 million 9¼% senior secured notes due 2015 at Ba2 (LGD2) and its $235 million 12¾% senior unsecured notes due 2016 at B3 (LGD5).

The loss-given-default rate was changed to 27% from 28% for the senior secured debt and to 82% from 83% for the senior unsecured notes.

This concludes the review for possible downgrade that began on April 14, and the outlook is negative.

The downgrade to SGL-2 reflects a tightening liquidity profile over the next 12 to 18 months due to covenant step-downs, although Moody's expects that Axcan will be in compliance with financial covenants in most scenarios.

Axcan recently ceased the distribution of Ultrase and Viokase in order to comply with a Food and Drug Administration requirement that all marketers of unapproved pancreatic enzyme products suspend distribution by April 28. The agency said the confirmation incorporates its view that the ratings can absorb a delay in receiving FDA approval for Ultrase and Viokase and some loss of market share assuming reintroduction of the products within the next several months.

However, the negative outlook reflects the potential for a delay beyond the next several months and the challenges Axcan may face in regaining lost market share, Moody's said.

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