Fitch places rpi finance trusts ratings on negative watch

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(The following statement was released by the rating agency) CHICAGO, May 16 (Fitch) Fitch Ratings has placed the ratings of RPI Finance Trust (RPI FT), including the 'BBB-' Issuer Default Rating (IDR), on Rating Watch Negative. The rating action follows RPI FT's intention to acquire Elan Corp. plc (Elan). The rating action applies to approximately $3.5 billion of debt outstanding on Dec. 31, 2012. A full list of ratings placed on Negative Watch is listed below. Fitch placed RPI FT's IDR on Negative Watch given incremental debt required for the potential acquisition of Elan which would pressure the credit profile and possibly lead to a downgrade of the ratings. RPI FT's interest in Elan lies primarily in the royalty-bearing interest in the multiple-sclerosis medicine Tysabri. RPI FT initiated the acquisition process under Irish takeover rules on May 2, when the company made a formal offer of $11.25 per share to Elan shareholders. The process runs 60 days and may involve revisions to the current offer price. The outcome to RPI FT's credit profile is uncertain and could be influenced over the next two months by: --The offer price, which could increase to garner more shareholder interest. --The incremental debt needed to complete the transaction. Fitch expects cash on hand and equity proceeds to partially fund the acquisition; however, leverage may approximate 5.0x on a pro forma basis with additional debt upon closing of the acquisition. --Plans for debt reduction over the next 18 months following the transaction, if successful. --The outcome of the potential transaction between Elan and Theravance Inc. (Theravance) in which Elan would buy royalty-bearing interests in a portfolio of Theravance's respiratory treatments. The transaction would cost $1 billion, essentially erasing one-half of Elan's present cash balance, with an expectation to close by the end of June. --Any changes to the terms of the bank credit facilities that could potentially accelerate debt repayment through the excess cash flow recapture provision. KEY RATING DRIVERS Average Life of Royalty Portfolio to Increase: RPI FT shares a portfolio of 38 royalty-bearing interests with RP Select Finance Trust due to an investment event that occurred in August 2011. In 2012, RPI FT acquired around $900 million of new assets including the purchase of an interest in an earn-out pertaining to the recently launched multiple sclerosis medicine, Biogen's Tecfidera (BG-12). Given the new assets, the weighted average useful life of the portfolio is estimated at 7.0 years. The addition of the Tysabri royalty, which does not expire, would push useful life to beyond 13 years. Fitch expects RPI FT to maintain a weighted average useful life of the diversified asset portfolio commensurate with the leverage and debt maturity schedule. EBITDA Generation and FCF Remain Strong: RPI FT's low operating expense base results in exceptional EBITDA generation, which was approximately $1.1 billion in 2012 representing a margin of greater than 99%. Fitch anticipates operating costs to remain low, yielding sustained high EBITDA margins through the ratings horizon. Fitch believes that RPI FT will maintain free cash flow margins above 30% over the ratings horizon despite generous distributions to equity holders of around 45% of EBITDA. RPI FT had cash and cash equivalents of $1.1 billion at the end of 2012. Debt maturities are highly manageable over the intermediate term and are isolated to 1% amortization of secured term loan B facilities. RATING SENSITIVITIES Positive rating action is unlikely for RPI FT as any reduction in leverage signals future acquisition activity. A downgrade would result from RPI FT's inability to rapidly reduce high leverage to below 3.5x following the leveraging acquisition of Elan, if the company is successful in its takeover effort. In addition, an intention to completely wind down the royalty-bearing assets would pressure the rating. A fall in the average weighted useful life of the royalty asset portfolio such that it is no longer commensurate with the debt maturity schedule will also pressure the rating. Fitch has placed the following ratings of RPI FT on Rating Watch Negative: --Issuer Default Rating (IDR) at 'BBB-'; --Senior secured bank loan rating at 'BBB-'. Contact: Primary Analyst Michael Zbinovec Senior Director +1-312-368-3164, Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Megan Neuburger Senior Director +1-212-908-0501 Chairperson Bill Densmore Senior Director +1-312-368-3125 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.this site Additional information is available at 'this site'. Applicable Criteria and Related Research: 'Corporate Rating Methodology' Aug. 8, 2012 Applicable Criteria and Related Research Corporate Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW. FITCHRATINGS. COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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