The rating company S&P announced last night that it had downgraded Teva's credit rating by one level - from BB to BB - which is a rating of junk bonds and 3 levels lower than an investment rating.
S&P, which set a stable rating outlook, justified the downgrade by an increase in the legal risk that Teva faces (+ 0.66% 9.19) and its exposure to the payment of substantial sums in lawsuits related to claims of marketing policies that increased the narcotics-opioid epidemic that caused 400 deaths. -2017; Coordinated price and tender affair in the U.S. generic drug market and in the case of providing illegal subsidy to MS patients in a way that helped inflate the prices of the original drug Copaxone at the expense of the Medicare federal health insurance plan.
"We estimate that these cases could damage the company's reputation and put it in an inferior position relative to its competitors," the rating agency explained. S&P noted that it has raised the estimate of the payments that Teva will be required to pay in order to settle the lawsuits from $ 2.5 billion to $ 3.0 billion. This amount is almost double the provision made by Teva for its legal obligations, which amounted to $ 1.6 billion as of the end of June 2020.
"These legal costs are detrimental to Teva's financial relationship related to the coverage of its liabilities, which were also weak in relation to the company's previous credit rating," S&P wrote.
Teva shares were not affected by the downgrade and rose 0.66% at the close of trading on Wall Street, probably because the market overtook the rating agency and Teva shares fell 28% from the beginning of August 2020.
Teva's bonds responded to the downgrade. Teva's bond, due in October 2026, fell by 1.5% and its yield rose to 4.962%, 4.58 percentage points higher than the yield on a similar long - term government bond. The euro-denominated bond, due in October 2028, fell 0.4% and its yield rose to 3.977%, 4.54 percentage points higher than the government bond yield for a similar term.