[March 07, 2013]

Fitch Affirms Allergan's IDR at 'A+'; Rates New Debt

Fitch Ratings has affirmed Allergan Inc.'s (Allergan) Issuer Default Rating (IDR) at 'A+'. A complete list of ratings affirmed is provided at the end of this release.

The Rating Outlook is Stable. The ratings apply to approximately $1.52 billion of outstanding debt.

In addition, Fitch has assigned an 'A+' rating to Allergan's proposed issuance of $600 million in senior unsecured debt due 2018 and 2023. Proceeds of the new debt are expected to be used for general corporate purposes, including funding for the recent acquisition of MAP Pharmaceuticals.

KEY RATING DRIVERS

Allergan sustained a trend of solid revenue growth for the third consecutive year with a sales increase of 7.1% in 2012 despite pressures from U.S. health care reform and growing European austerity measures. Fitch forecasts continuation of the positive trend with average sales growth of greater than 5% in 2013 through 2015 accounting for the discontinuation of the obesity intervention business in 2013 and the potential introduction of generic Restasis products in 2014.

Last year, the company's cash-pay businesses, representing around 40% of total revenues, performed well with global sales of Botox Cosmetic, facial fillers, and breast augmentation products increasing 8.4%, 6.9%, and 8%, respectively. The company's glaucoma franchises Alphagan and Lumigan generated sales growth of 8.1% and 1.6% while competing with generic versions of Xalatan throughout the year. Moreover, franchise sales were dampened by Allergan's decision to halt U.S. distribution of the first-generation Lumigan 0.03% by the end of 2012.

Allergan continues to drive productivity from its research program that has already launched over 20 novel eye-care treatments, line extensions, and new medical devices since 2010. Most recently, the FDA granted approval for the company's long-delayed next generation breast implant, Natrelle Style 410, as well as an idiopathic overactive bladder indication for Botox. In Fitch's view, the company will continue to devote significant resources to the internal R&D program, supplemented by business development activities including in-licensing new treatment projects.

Fitch sees continued benefits from commercialization of the R&D pipeline helping offset the negative affect of patent losses, primarily the potential U.S. expiration of the Restasis formulation patent in May 2014. Patent expiration exposure is manageable as revenues from Restasis represented 13.6% of total sales in 2012. Allergan has also proactively minimized the risk from the looming U.S. patent expiration of Lumigan 0.03% in 2014 with the discontinuation of U.S. distribution of the eye care drug in 2012.

Margins expanded in 2012 despite increased expenses for a deeper research pipeline. Allergan is seeing the benefits of leveraging its sales and marketing spending to promote complementary products and indications launched since 2010. As such, EBITDA margin was 34.6% in 2012 compared to 32% i 2011 as SG&A was relatively consistent on a dollar basis with the prior year while revenues increased 7.1%. Fitch believes that efforts to extract efficiencies from sales and marketing expenses will offset downward pressure from incremental investment into the R&D program leading to EBITDA margins greater than 33% in 2013-2015.

Fitch believes that Allergan can maintain solid liquidity driven by steady free cash flow of greater than $1 billion annually in 2013 to 2015 despite rising capital spending in the intermediate term. The company reached a peak in free cash flow generation at $1.38 billion (representing a margin of 23.8%) in 2012. Additional liquidity is provided by full availability under an $800 million credit facility maturing in October 2016, serving to back up an $800 million commercial paper program, and cash and short-term investments of $2.96 billion at the end of 2012.

Debt leverage has been maintained below 1.0 times (x) since 2011 and was 0.8x in 2012 due to a combination of EBITDA growth and debt reduction. Debt leverage is expected to remain consistent with the current rating category below 1.1x at the end of 2013 and beyond despite incremental debt to be used for funding the MAP Pharmaceutical acquisition. Allergan has no refinancing risk given the next significant debt maturity of $800 million in 5.75% senior notes in April 2016.

Fitch anticipates Allergan to remain prudent with returning value to equity shareholder. The company has historically prioritized investment to support growth strategies over satisfying shareholder interests, which comprises a small dividend and share repurchases to offset stock option dilution. After a temporary increase in share repurchasing to 10 million shares (from 6 million) in 2012, Fitch expects no significant changes to Allergan's annual dividends of $.20 per share or the company's 'evergreen' share repurchase program. In 2012, Allergan paid $60.4 million in dividends and repurchased a net of $662.6 million in common equity.

RATING SENSITIVITIES

Positive momentum to the rating would be supported by continued strong operational performance and total debt leverage sustained at 1.0x or below through the intermediate term. Incremental debt used for the recent purchase of MAP Pharmaceuticals makes the leverage goal difficult to maintain over the ratings horizon. In addition, Fitch would like to see a meaningful increase in scale such that EBITDAR approaches $2.5 billion.

Fitch does not anticipate negative rating action given Allergan's proven ability to leverage its operating cost base in light of reimbursement and demand pressures stemming from macroeconomic headwinds, U.S. healthcare reform efforts, and European austerity measures. However, negative pressure would result from a leveraging transaction such that gross debt leverage rises and stays around 1.5x through the intermediate term.

Fitch has affirmed the following ratings:

--Issuer Default Rating (IDR) at 'A+';

--Senior unsecured debt at 'A+';

--Bank loan at 'A+';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Pharmaceutical Companies - Sector Credit Factors' dated Aug. 9, 2012;

--'Corporate Rating Methodology' dated Aug. 8, 2012.

Applicable Criteria and Related Research

Rating Pharmaceutical Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=684459

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=684460

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