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Fitch Rates Amgen's Senior Notes 'BBB'May 15, 2012 (Close-Up Media via COMTEX) -- Fitch Ratings has assigned a 'BBB' rating to Amgen Inc.'s (Amgen) proposed senior unsecured debt issuance comprising five-, 10-, and 31-year bonds. Proceeds of the new debt are expected to be used for general corporate purposes, including funding of an acceleration of the company's financial policy. See the full list of Amgen's ratings at the end of this release. Amgen is in the midst of accelerating activities under a new financial policy, originally announced in April 2011, directed at returning a significant portion of profit to equity holders via the initiation of a new dividend and aggressive share repurchasing. Amgen's management stated a target payout ratio of 60 percent, which does not deviate significantly from prior payouts made solely through share repurchases. However, Fitch anticipates that the payout target will be far exceeded over the intermediate term from expected increases to the dividend and aggressive share repurchasing activity including the tender offer for $5 billion in common shares in December 2011. Fitch expects funding for the new strategy over the ratings horizon to be primarily derived from new debt issuances, as domestic cash is utilized to conduct the expected shareholder-friendly actions. Resulting leverage from the incremental debt in 2011 and 2012 is anticipated to push adjusted debt leverage to around 3.5 times (x) at the end of 2012. Fitch sees some relief to the credit profile longer term, as leverage improves to 3.0x by 2014 mainly from strengthening profitability. Leverage that falls outside of this expectation over the long term could prompt further negative rating action. While debt leverage is more reflective of a lower rating category, Amgen's credit profile is supported by very strong liquidity. Liquidity is provided by solid free cash flow generation, around $2.5 billion of unused revolver capacity and $19.3 billion of cash and marketable securities, of which the vast majority is domiciled internationally, at the end of the first quarter of 2012. Free cash flow in 2011 was $4.1 billion, representing a margin of 26 percent. Fitch still anticipates cash flow generation to remain indicative of a higher-rated rated entity despite stresses from a rapidly growing dividend stream and higher interest payments in the intermediate term. Fitch expects free cash flow margin to fall to a run rate hovering around 20 percent in 2012-2014 (excluding legal settlements) from a minimum of 35 percent since 2008. Fitch recognizes Amgen's strong profitability, indicated by EBITDA and EBITDAR margins of 36.7 percent and 37.5 percent in 2011, respectively, which was pressured somewhat from promotional spending for the newer therapies Prolia and Xgeva. Fitch expects margin expansion from the 2011 levels due to operational leverage. Fitch views improving profitability (EBITDA and EBITDAR) as the main driver of leverage improvement over the long term. The key factor for driving sales growth over the ratings horizon is Amgen's ability to successfully commercialize Prolia and Xgeva in order to counter the potential loss of patent protection for key drug products. Prolia and Xgeva generated sales of $264 million and $462 million, respectively, for the latest 12 months (LTM) period at the end of the first quarter of 2012. Uptake of the new medicines as well as demand increases for Nplate, Vectibix, and Sensipar fully offset the negative demand pressures on the maturing product portfolio from brand name and biosimilar competition, and government reimbursement changes, resulting in a 4.7 percent rise in total revenues for the LTM period at the end of the first quarter of 2012. Fitch sees continued benefits of Prolia and Xgeva supporting moderate sales increases through 2013. Fitch currently rates Amgen as follows: --Issuer Default Rating (IDR), 'BBB'; --Senior unsecured debt, 'BBB'; --Bank loan, 'BBB'; --Short-term IDR, 'F2'; --Commercial paper, 'F2'. The Rating Outlook is Stable. Additional information is available at 'fitchratings.com'. ((Comments on this story may be sent to [email protected])) |