Moody's might downgrade Mallinckrodt

Moody's Investors Service said it placed the ratings of Mallinckrodt plc under review for possible downgrade. The ratings include Mallinckrodt's Ba2 corporate family rating, its Ba2-PD probability of default rating and the Ba2 (LGD4, 59%) rating on the senior notes issued by Mallinckrodt International Finance SA and guaranteed by Mallinckrodt. The SGL-1 speculative grade liquidity rating is unchanged.

The review follows Mallinckrodt's announcement that it agreed to acquire Cadence Pharmaceuticals Inc. for about $1.3 billion. The review is prompted by Moody's expectation that Mallinckrodt's ratio of debt to EBITDA will substantially exceed the 3x level that had been incorporated into the Ba2 rating. The review of the notes is further prompted by the concern that the addition of secured debt to Mallinckrodt's capital structure will result in existing bondholders being effectively subordinated, the agency said.

Mallinckrodt's Ba2 rating reflects a good balance between its two business segments, specialty pharmaceuticals and global medical imaging, but is constrained by its overall modest scale with a $2 billion revenue base, Moody's said.

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