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Pharma's VTRS & Bayer fair better on today's spread sell-off

HEALTHCARE

* Viatris (Baa3 S, BBB- Neg, BBB) was moving wider with Bayer on yesterday's spread sell-off - we flagged that it had less rating risk on earnings vs. Bayer & should hold onto IG ratings after committing to $3.5b debt paydown in FY24 - leverage should fall to bottom end of 2.8*-3.2* target based on EBITDA guidance & keep raters' satisfied.

* Equities didn't take yesterday's FY23 results well (-11%). Only miss in guidance we saw was on EBITDA (FCF came higher) - noting FY23 earnings missed as well - both marginal and little relevance for credit/paydown commitments.

* Bayer had some some positive news late yesterday on a California judge cutting jury award from $332m to $28m - not sizeable vs. provisions & larger $2.25b loss last month, but does a marked a positive after a series of (large) losses in Roundup verdicts.

* $ vs € curve still disagree on pricing between the two. Bayer is priced firmly above VTRS in the belly (~+30bps) vs. € that still prices the two tight. The two markets did price the curves similarly pre-Nov/Bayer's Asundexian Phase 2 & $1.5b payout decision.

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