Moody’s trims Mallinckrodt International

Moody’s Investors Service said it downgraded Mallinckrodt International Finance SA’s corporate family rating to Caa2 from Caa1. Moody’s also trimmed the senior secured revolver and term loans to Caa1 from B2, the guaranteed senior unsecured notes to Ca from Caa2 and the unguaranteed senior unsecured notes to Ca from Caa3. Moody’s affirmed the probability of default rating at Caa1-PD and added an /LD designation, which the agency will remove after three business days. The speculative grade liquidity rating is unchanged at SGL-4. The outlook remains negative.

The actions follow the completion of Mallinckrodt’s debt exchange transaction that started on Nov. 5. The results indicate that about $700 million of principal of unsecured notes (about 12% of total debt) will be exchanged for new second-lien secured notes with a longer maturity. The net debt reduction will be around $380 million. Most notably, participation to exchange the upcoming April 2020 maturity was low, amounting to only a 10% reduction of principal, Moody’s said.

“The ratings downgrade reflects weak liquidity, highlighted by a sizable debt maturity in April 2020; the risk of additional distressed exchanges; and exposure to opioid litigation. In Moody’s view, risks stemming from Mallinckrodt’s exposure to opioid litigation are high, in both its branded and generics businesses, posing a challenge to capital market access. Moody’s lowered its assumption for family recovery to 35% from 50% to reflect Moody’s view of weaker than average recovery prospects on the unsecured debt in a liquidation scenario,” the agency said in a press release.

Moody’s considers the debt exchange transaction a distressed exchange, which is a default under the rating agency’s definition, which explains the LD designation, the agency said.

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