Moody's lowers Valeant to B1; remains on review

Moody's Investors Service downgraded the ratings of Valeant Pharmaceuticals International, Inc. ("Valeant") and subsidiaries, including the Corporate Family Rating to B1 from Ba3, the Probability of Default Rating to B1-PD from Ba3-PD, the senior secured rating to Ba2 (LGD2) from Ba1 (LGD2) and the senior unsecured rating to B2 (LGD5) from B1 (LGD5). These ratings remain under review for further downgrade, continuing a rating review initiated on February 29, 2016. Moody's also lowered the Speculative Grade Liquidity Rating to SGL-3 from SGL-2.

Ratings downgraded and remaining under review for downgrade:

Valeant Pharmaceuticals International, Inc.:

Corporate Family Rating to B1 from Ba3

Probability of Default Rating to B1-PD from Ba3-PD

Senior secured bank credit facilities to Ba2 (LGD2) from Ba1 (LGD 2)

Senior unsecured notes to B2 (LGD 5) from B1 (LGD 5)

Valeant Pharmaceuticals International:

Senior unsecured notes to B2 (LGD5) from B1 (LGD 5)

VRX Escrow Corp. (obligations assumed by Valeant Pharmaceuticals International, Inc.):

Senior unsecured notes to B2 (LGD5) from B1 (LGD 5)

Rating lowered:

Valeant Pharmaceuticals International, Inc.:

Speculative Grade Liquidity Rating to SGL-3 from SGL-2

"The downgrade reflects slower progress at deleveraging based on weaker growth in several core businesses, the risks associated with transitioning the dermatology and ophthalmology businesses to the new Walgreens distribution program, and adapting to an environment with limited opportunities to raise prices on its products," stated Michael Levesque, Moody's Senior Vice President.

The B1 rating reflects Moody's view that Valeant's business remains viable despite a lower earnings base, reflecting wide use of its products, good name recognition (particularly at Bausch and Lomb), and a low-cost structure resulting in good margins and profitability.

The continuation of the rating review reflects the late 10-K filing, uncertainties created by the ad hoc board committee's review, as well as uncertainty as to the degree of stabilization in the company's operating performance. Provisions of Valeant's credit agreement and bond indentures could result in debt acceleration following specified cure periods, but only if bank lenders or bondholders serve required notices. Moody's anticipates that Valeant will seek an amendment from its secured lenders to waive cross default provisions in the credit agreement and to extend the time period for the 10-K filing.

In addition to Valeant's progress in obtaining a waiver from credit agreement lenders and filing its 10-K, Moody's review is continuing to focus on underlying trends in Valeant's core businesses.

RATINGS RATIONALE

Valeant's B1 Corporate Family Rating (under review for downgrade) reflects its good scale in the global pharmaceutical industry with annual revenue above $10 billion, its strong diversity, its high profit margins, and its good cash flow. The ratings are supported by low exposure to patent cliffs, and good underlying prescription volumes of products like Jublia (antifungal) and Xifaxan for irritable bowel syndrome. In addition, the ratings are supported by management's commitment to reduce debt/EBITDA, using excess cash flow for debt repayment.

However, the ratings also reflect moderately high financial leverage (pro forma gross debt/EBITDA of 5.8x), and significant business challenges related to Valeant's pricing strategy and aggressive acquisition appetite. Valeant is confronting significant scrutiny on its pricing practices, including those on products acquired through acquisitions, and uncertainty related to government investigations. In late 2015, Valeant announced it was terminating its relationship with specialty pharmacy distributor Philidor, and Valeant is transitioning to a new distribution arrangement with Walgreens.

The lowering of the Speculative Grade Liquidity rating to SGL-3 from SGL-2 reflects tightening but still adequate liquidity based on good cash flow, but weaker cushion under financial maintenance covenants and limited availability under the revolving credit agreement.

Headquartered in Laval, Quebec, Valeant Pharmaceuticals International, Inc. ("Valeant") is a global specialty pharmaceutical company with expertise including branded dermatology, gastrointestinal disorders, eye health, neurology, branded generics and OTC products. Valeant reported approximately $10 billion in total revenue for the 12 months ended September 30, 2015.

The principal methodology used in these ratings was Global Pharmaceutical Industry published in December 2012. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.