Bausch Health Cos. 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 and higher percentage of earnings, based on 2019 pro forma financials), which will begin facing generic competition in 2028. This raises the risk for debt-funded acquisitions 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

...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 in August 2020. Precedent transactions took about 18 months to complete. Management guided to a target leverage of about 5.5x for RemainCo and about 4x for SpinCo, at the time of spinoff. In our opinion, it would be challenging for the company to reach this level organically within 18-24 months (from August 2020), even if we assume a $1 billion debt repayment in each of 2021 and 2022. That said, we think the company could execute inorganic transactions such as divestitures or partial IPO to reduce leverage, ahead of the official spin. In fact, the company announced it entered into a definitive agreement to sell all of its equity interests in Amoun Pharmaceutical Co. S.A.E. to Abu Dhabi-based ADQ, for approximately $740 million. In addition, we think increased activist shareholder involvement in recent months could possibly accelerate...

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