News Column

Fitch Affirms & Removes CFR Pharmaceutical's Ratings from Negative Watch; Outlook Stable

February 17, 2014

Fitch Ratings has affirmed the ratings of CFR Pharmaceutical S.A. (CFR) and has removed them from Rating Watch Negative.

The Rating Outlook is Stable. A full list of ratings follows.

CFR's ratings were placed on Rating Watch Negative on July 3, 2013 after it announced a non-binding offer to purchase 100 percent of Adcock Ingram Holdings Ltd. (Adcock Ingram), a pharmaceutical company in South Africa, for USD1.2 billion.

KEY RATING DRIVERS

The removal of the ratings from Rating Watch Negative is a result of CFR and Adcock Ingram's mutual agreement to enter into a 'Termination Agreement' after several months of negotiation. CFR had faced opposition from Public Investment Corp., previously Adcock Ingram's largest shareholder, and Bidvest, a rival bidder and now the largest shareholder. Both CFR and Adcock Ingram concluded that CFR's offer would not receive the necessary 75 percent shareholder majority.

CFR will continue to focus on growing its business both organically and inorganically. Management has signaled that they are currently searching for opportunities.

CFR's ratings continue to reflect a rapid pace of acquisitions, increasing size of acquisition targets, and improved credit metrics due to its consolidation of recent acquisition, Lafrancol. As of Sept. 30, 2013, CFR generated USD153 million consolidated EBITDA compared to USD497 million consolidated debt and USD121 million cash balance, resulting in a net debt/EBITDA of 2.4x and debt/EBITDA of 3.2x. The ratios have improved over those achieved at Dec. 31, 2012 of 3.6x and 5.2x, respectively.

RATING SENSITIVITIES

Ratings could experience downward pressure if a material acquisition increases leverage above 2.5x-3.0x net debt to EBITDA on a sustained basis, and management is unable to quickly obtain synergies to return its capital structure to targeted leverage levels below 2.5x.

Fitch removes from Rating Watch Negative and affirms CFR's ratings as follows:

--Foreign and local currency Issuer Default Rating at 'BBB-';

--Senior unsecured notes of CFR International SpA at 'BBB-';

--Long-term national rating at 'A(cl)';

--Senior unsecured national debt at 'A(cl)';

--National Equity Rating Primera Clase Nivel at '3(cl)'.

The Rating Outlook is Stable.

Additional information is available at fitchratings.com.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2013);

--'National Scale Ratings Criteria' (Oct. 30, 2013);

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=715139

National Scale Ratings Criteria

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=720082

Additional Disclosure

Solicitation Status

http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=820393

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