OREANDA-NEWS. Fitch Ratings has assigned a 'BBB+' rating to the unsecured Euro bond offering issued by Teva Pharmaceutical Finance Netherlands II, B.V. (Israel) part of Teva Pharmaceuticals Industries Ltd. (Teva).

Proceeds are expected to be used for general corporate purposes. Fitch does not expect a material change in total debt balances to result as a net effect of this issuance, the February 2015 tender of USD-denominated bonds, and the firm's \$1 billion June 2015 note maturity.

A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

--Teva is the world's largest generic drug manufacturer and a top-20 global pharmaceutical company. Such scale, combined with good product and geographic diversification (except Copaxone), provides the firm with strong positions in most relevant pharmaceutical markets and superior flexibility with which to expand into emerging markets.

--Teva's top-selling drug, Copaxone (approximately 20% sales; approximately 50% operating profit before G&A expenses) is expected to face generic competition in the U.S. in September 2015 and by May 2015 in most of Europe. While still material, this risk has been mitigated by Teva's successful conversion of nearly two-thirds of U.S. patients to a new formulation with less frequent dosing.

--A significant reduction in working capital drove stronger cash generation in 2014 than Fitch originally expected, despite significant non-recurring cash outflows for legal settlements and restructuring. Better cash flows allowed the firm to reduce gross debt-to-EBITDA to 1.7x at Dec. 31, 2014.

--Management's tone toward capital deployment has become more aggressive over the course of 2014, as the firm has outlined up to \$2.3 billion in shareholder payments in 2015. Public comments support Fitch's expectation for Teva's M&A activity to be elevated in 2015-2016 in order to fill its medium-term growth gaps and to build out its CNS/pain and respiratory portfolios.

--Fitch expects overall weak medium-term organic growth, as most of Teva's key specialty products are set to face generic competition over the next few years. Certain products currently in R&D could contribute to better growth in 2017 and beyond but probably not early enough to offset expected losses in the meantime.

--Teva's accelerated restructuring program (targeting \$2 billion in annual cost savings) is on track and showing early signs of success. The firm's renewed commitment to its generics business, narrowed focus on CNS/pain and respiratory in the specialty segment, and recent and expected steps to improve its corporate governance should also contribute to improving operations over the ratings horizon.

--Near-term generic drug industry growth may appear somewhat stagnant compared to the unprecedented but now-subsiding generic wave of 2011-2014. Business mix decisions may also reduce top-line growth but support profitability in 2015-2016. Fitch expects aging populations in developed markets and increasing access to healthcare in emerging markets will support solid base business growth for Teva and its peers over the ratings horizon.

RATING SENSITIVITIES

Teva has good flexibility at its current 'BBB+' ratings, likely sufficient for the firm to engage in targeted M&A while also funding its outlined shareholder payouts for 2015.

Maintenance of Teva's 'BBB+' ratings will require gross unadjusted debt/EBITDA of 2x-2.5x over the ratings horizon, with continued execution of the firm's restructuring program and expected associated improvements in profit margins. Temporary increases in debt leverage to fund M&A will be appropriate at the 'BBB+' level, so long as the firm is committed to de-leveraging back to below 2.5x within 12-18 months.

Though debt leverage moderated in 2014 (1.7x at Dec. 31, 2014), Fitch does not expect positive ratings momentum in the near term. Declining sales, management's more aggressive tone toward capital deployment, and Fitch's belief that M&A could be material in the aggregate during 2015-2016 support this view.

Negative ratings pressure could result from a failure to execute on the firm's ongoing cost restructuring efforts and/or more aggressive shareholder-friendly payouts requiring debt funding. Notably, a downgrade is not expected to be caused by the launch of generic competition to Copaxone 20mg in the U.S.

KEY ASSUMPTIONS

--Total revenues of approximately \$19 billion, including \$9.3 billion from generics (including API) and \$3.5 billion from the Copaxone franchise.
--Modest EBITDA growth despite top-line declines, owing to successful cost reductions and generally favorable drug pricing in the U.S.
--Relatively steady gross debt/EBITDA of 1.7x-2.0x, absent debt-funded M&A.
--Solid free cash flow (FCF) of \$3 billion to \$3.5 billion in 2015.

Fitch rates Teva as follows:

Teva Pharmaceutical Industries Limited
--IDR at 'BBB+', Outlook Stable.

Teva Pharmaceuticals USA, Inc.
--Senior unsecured bank facility at 'BBB+'.

Teva Pharmaceutical Finance Company LLC
--Senior unsecured notes at 'BBB+'.

Teva Pharmaceutical Finance II, LLC
--Senior unsecured notes at 'BBB+'.

Teva Pharmaceutical Finance IV, LLC
--Senior unsecured notes at 'BBB+'.

Teva Pharmaceutical Finance Company, B.V.
--Senior unsecured notes at 'BBB+'.

Teva Pharmaceutical Finance II, B.V.
--Senior unsecured notes at 'BBB+'.

Teva Pharmaceutical Finance IV, B.V.
--Senior unsecured notes at 'BBB+'.

Teva Pharmaceutical Finance V, B.V.
--Senior unsecured notes at'BBB+'.

Teva Pharmaceutical Finance Netherlands II B.V.
--Senior unsecured notes at 'BBB+'.