Bausch Health Companies Inc.

The remaining entity (RemainCo) is a weaker business with $4.9 billion in revenue and $2.5 billion in EBITDA by our estimate, based on 2019 pro forma financials. In our opinion, the biggest risk for RemainCo is the lack of a clear growth driver beyond Xifaxan (29.6% of RemainCo's revenue, based on 2019 pro forma financials), which will begin facing generic competition in 2028. This raises the risk for a debt-funded acquisition in the future if the company's new product launches and internal research and development (R&D) pipeline prove unable to offset Xifaxan's decline. We therefore will place significant emphasis on assessing RemainCo's financial policy. In addition, RemainCo will be more exposed to drug pricing reform. In particular, we estimate that

...RemainCo is a weaker company and financial policy is key to watch. Bausch Health Cos. Inc. (BHC) announced its intention to spin off its eye health businesses. Precedent transactions took somewhere around 18 months to complete. Management recently guided to a target leverage of ~5.5x for RemainCo and ~4x for SpinCo, at time of spinoff. In our opinion, it would be challenging for the company to reach this level organically within 18-24 months, even if we assume a $1 billion debt repayment (through organic cash generation) in each of 2021 and 2022. That said, we think the company could execute inorganic transactions such as small divestitures or equity raises to reduce leverage, ahead of the official spin. Furthermore, we think the spinoff announcement could hurt employee morale and add to the uncertainties to the near-term financial performance. The remaining entity (RemainCo) is a weaker business with $4.9 billion in revenue and $2.5 billion in EBITDA by our estimate, based on 2019 pro...

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