Moody's downgrades Elanco

Moody's Investors Service said it downgraded Elanco Animal Health Inc.'s corporate family rating to Ba3 from Ba2, probability of default rating to Ba3-PD from Ba2-PD, senior secured bank credit facilities' ratings to Ba2 from Ba1 and unsecured ratings to B2 from B1. Moody's also downgraded the speculative grade liquidity rating to SGL-2 from SGL-1.

“The ratings downgrade primarily reflects Elanco's operational underperformance relative to Moody's expectations, driving slower deleveraging and weaker credit metrics than Moody's previously expected. On Moody's adjusted basis, debt to EBITDA was 5.8x as of Dec. 31, 2022, and Moody's expects that leverage will increase to over 6x in FY2023 on continued earnings declines. To that end, Moody's expects that Elanco will continue to be negatively impacted by competitive animal health products and macroeconomic headwinds in 2023.

“That said, Moody's notes the earnings upside and potential deleveraging from Elanco's innovation portfolio that will ramp up over the next two to three years with five potential ‘blockbusters’ (defined as peak revenues of over $100 million),” the agency said in a press release.

The outlook is stable.

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