Fitch Affirms Allergan's IDR at 'A-'.

CHICAGO -- Fitch Ratings has affirmed Allergan, Inc.'s (Allergan) 'A-' Issuer Default Rating and bank loan and senior unsecured debt ratings. In addition, Fitch affirms Allergan's 'F2' commercial paper rating. The Rating Outlook is Stable. The ratings apply to approximately $1.71 billion of outstanding debt.

Allergan's acquisition of Inamed Corp. (Inamed) for approximately $3.3 billion in March 2006 resulted in an increase of total debt and leverage (total debt-to-EBITDA) to record high levels of $1.71 billion and 2.3 times (x), respectively. The current leverage is weak for Allergan's rating category. Fitch will monitor near-term leverage for steady improvement, which is anticipated to be achieved by operational improvement as there are no plans for significant debt reduction since the next material debt maturity occurs in 2016. Strengthening of operations is expected to be driven by sustained attractive growth of Allergan's organic product portfolio and recent market launches of key Inamed R&D projects, specifically silicone breast implants and next generation dermal fillers. Additionally, the full financial effect of the Inamed purchase will occur by the second quarter of 2006.

Allergan broadened its product offering with the Inamed acquisition, which mitigated Fitch's concerns pertaining to revenue concentration with the Botox, Lumigan and Alphagan franchises. However, the company experienced EBITDA margin compression in 2006, which contributed to higher-than-anticipated leverage. The margin decline can be attributed to integration costs and increased marketing expenditures together with unabsorbed overhead at Inamed from delays in new product commercialization. The market introductions of the Juvederm family of facial fillers to the U.S. in January and re-introduction of silicone breast implants in the U.S. and Canada in late-2006 are expected to be leveraged by the increase to the company's sales force during 2006, which is anticipated to expand EBITDA margin.

Liquidity strengthened in 2006 despite the integration of Inamed as demonstrated by free cash flow increasing to $557.1 million from $293.8 million in 2005. The company also doubled the capacity of its credit facility to $800 million, which backs up a $600 million commercial paper program (up from $300 million). Additionally, the company had cash and marketable securities of $1.37 billion at the end of 2006. Fitch projects free cash flow generation exceeding $400 million annually through the long term.

Litigation exposure from Allergan's 'organic' business is relatively benign. However, the company assumed a level of product liability risk associated with silicone breast implants in conjunction with the Inamed acquisition. Present breast implant product liability is limited to personal injury alleged outside the U.S. from rupture of defunct soybean oil-filled implants and has been fully reserved.

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