Investing.com -- Moody’s Ratings has upgraded the ratings of Teva Pharmaceutical Industries (NYSE: TEVA ) Ltd and its subsidiaries. The firm’s Corporate Family Rating (CFR) has been raised to Ba1 from Ba2, while its Probability of Default Rating (PDR) has also been increased to Ba1-PD from Ba2-PD. In addition, the senior unsecured ratings have been upgraded to Ba1 from Ba2. Teva’s Speculative Grade Liquidity Rating remains unchanged at SGL-2. Moody’s also revised the company’s outlook from positive to stable.

The ratings upgrade reflects a significant improvement in Teva’s credit metrics, driven by ongoing growth in the company’s branded franchises and a stabilization of its generic business. Moody’s Ratings’ Vice President-Senior Analyst, Vladimir Ronin, stated that Teva’s credit profile has benefited from conservative financial policies and a focus on debt reduction. The company has also made progress in resolving various legal liabilities.

Over the next 2-3 years, Moody’s expects Teva to benefit from product launches across both branded and biosimilar portfolios. Ongoing cost-saving initiatives are also expected to further strengthen the company’s credit profile.

Teva’s Ba1 Corporate Family Rating is a reflection of its significant global scale, its leading position in generic pharmaceuticals, and its diverse portfolio, including a branded pharmaceutical business. The company’s future earnings growth is dependent on the relative stability of its global generics business, coupled with the ramp up of branded drugs like Austedo, Ajovy and Uzedy. The company’s pipeline of branded drugs, along with biosimilar launches, is expected to improve its growth.

Despite significant debt reduction, Teva’s ratings are constrained by its moderately high financial leverage. As of March 31, 2025, Moody’s adjusted debt/EBITDA was approximately 4.3x. Teva’s national opioid settlement currently adds approximately 0.3x turn of incremental financial leverage to Moody’s calculations and will reduce the company’s cash flows over the next 4-5 years. However, Teva maintains a target net debt financial leverage of 2.0x by 2027 on a management basis.

As of March 31, 2025, Teva had approximately $1.7 billion in cash. Over the next 12 months, the company is expected to generate roughly $1.8 billion of free cash flow, including $600-$700 million of litigation payouts. Moody’s believes that Teva will successfully address its upcoming debt maturities of roughly $3.4 billion and $2.9 billion in 2026 and 2027, respectively, through a combination of internally generated cash flow and refinancing.

Teva has a $1.8 billion unsecured revolving credit facility that will expire in April 2027. As of March 31, 2025, there were no borrowings on this facility. Moody’s expects Teva to remain compliant with the financial covenants included in the facility over the next twelve months.

All of Teva’s debt is rated Ba1, the same as its Ba1 Corporate Family Rating. All of the company’s debt is unsecured and unconditionally guaranteed by Teva Pharmaceutical Industries Limited, the parent company.

The stable rating outlook reflects Moody’s expectation that Teva will continue to grow earnings, along with sustained strong cash flow, over the next 12 to 18 months. The outlook also incorporates the expectation of successful pipeline execution along with conservative financial policies.

Potential factors that could lead to an upgrade of the ratings include Teva’s ability to sustain long-term growth along with successful commercial and pipeline execution. Conservative financial policies, partially reflected in debt/EBITDA sustained below 3.5x, along with strong free cash flows would support an upgrade.

However, factors that could lead to a downgrade include material erosion in core product revenues, or significant weakening in profitability. A shift towards more aggressive financial policies, including debt-financed acquisitions, share repurchases, or dividends such that debt/EBITDA is sustained above 4.5x, could also result in a downgrade.

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