Moody's affirms Endo

Moody's Investors Service said it affirmed Endo Health Solutions Inc.'s Ba3 corporate family rating, Ba3-PD probability of default rating, Ba1 (LGD2, 21%) senior secured bank credit facilities, B1 (LGD5, 72%) senior notes and SGL-2 speculative grade liquidity rating. The outlook remains negative.

The affirmation follows the announcement that Endo will acquire Paladin Labs Inc. for about $1.6 billion, to be funded primarily with stock. The transaction also involves an inverse-merger structure in which both Endo and Paladin Labs will be acquired by a newly formed Irish holding company.

Moody's views the Paladin Labs acquisition as credit-positive because Endo will gain EBITDA and cash flow as well as improved revenue diversity without any substantial increase in debt, and the Irish ownership structure provides tax savings that will be reflected in Endo's future cash flow.

Despite these benefits, the outlook remains negative primarily because of Endo's somewhat-high financial leverage, the risks associated with ongoing surgical mesh litigation and the uncertainty created by a dynamic acquisition strategy, the agency said.

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