On Wednesday, Fitch Ratings upgraded the Issuer Default Ratings (IDRs) of Bausch Health Companies (NYSE: BHC ) Inc. and its subsidiary Bausch Health Americas, Inc. to ’CCC+’ from ’ CCC (WA: CCCP )’. The upgrade reflects a successful refinancing effort by the company that addressed its upcoming debt maturities. Despite the positive step, the ratings agency maintains the ’CCC’ category rating due to ongoing long-term refinancing risks, potential for a distressed debt exchange in the future, and the possibility of a weakened balance sheet as revenues from XIFAXAN decline and if Bausch Health proceeds with the separation of Bausch + Lomb Corporation.
The refinancing initiative has significantly reduced Bausch Health’s near-term refinancing risk, a factor that previously contributed to its ’CCC’ rating. The company now has limited near-term maturities and sufficient liquidity to manage them. The successful debt transactions negated the need for off-market transactions or distressed debt exchanges that Fitch had previously anticipated. However, the medium-term refinancing risk remains high, especially as revenue and EBITDA are expected to decline starting in 2027 due to reduced XIFAXAN sales and the potential separation of Bausch + Lomb.
Bausch Health’s first lien debt issued by 1261229 B.C. Ltd received a ’B’ rating with a Recovery Rating of ’RR2’. The company’s existing first lien notes were affirmed at ’B’, with their Recovery Rating revised to ’RR2’ from ’RR1’. Additionally, the second lien and unsecured notes were upgraded to ’CCC-’/’RR6’ and ’CC’/’RR6’, respectively.
Despite current solid financial metrics, Fitch anticipates a deterioration in Bausch Health’s credit profile by 2027 and 2028, coinciding with significant debt maturities and a decrease in XIFAXAN revenues. The company’s operating fundamentals improved in 2024, following a strong performance in 2023, with increased revenue from its subsidiaries contributing to better cash generation and a moderate reduction in debt. However, the potential separation of Bausch + Lomb remains a critical factor that could significantly impact the company’s long-term credit profile.
Bausch Health’s credit rating is currently lower than those of its industry peers, reflecting the expected challenges the company faces. The rating could face further pressure if the company pursues additional separation of Bausch + Lomb, leading to even weaker credit metrics. Conversely, maintaining lower leverage levels and solid interest coverage could lead to positive rating actions in the future. The company’s next steps, particularly regarding its strategic decisions around Bausch + Lomb and managing XIFAXAN’s market position, will be closely watched by Fitch for potential rating implications.
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