Could the lawsuit lead to a credit rating downgrade or affect the company’s cost of capital?

Potential credit‑rating impact

A class‑action suit that still has a lead‑plaintiff deadline of Sept 12 2025 signals that the litigation could stretch for another two‑plus years. While the case is not a direct default or bankruptcy claim, the exposure to a potentially large, undisclosed settlement creates a “contingent liability” that rating agencies watch closely. If the alleged losses affect a material share of Biohaven’s cash‑flow or equity (e.g., a settlement that would consume >10‑15 % of projected 2025‑2026 cash), agencies may issue a “negative outlook” or a downgrade to reflect higher credit‑risk. The negative sentiment score (‑70) in the news further underscores market perception of heightened risk.

Cost‑of‑capital considerations

Even without an immediate downgrade, the lawsuit adds a risk premium to Biohaven’s financing. Debt holders will demand tighter covenants or higher yields, and equity investors will require a higher expected return to compensate for the litigation tail‑risk. In practice, you can expect a modest widening of the company’s credit‑default‑swap (CDS) spreads and a modest upward drift in its borrowing costs on any new debt issuance. The market will price the “legal‑risk” into the equity discount rate, which can depress the stock’s intrinsic valuation.

Trading implications

* Short‑term: The stock is likely to stay under pressure, with the price testing the lower end of the recent 10‑day range (≈ $0.90‑$1.00) and facing bearish volume. A break below the $0.90 support could trigger a 5‑10 % slide as investors price‑in a possible downgrade.

* Medium‑term: If the lawsuit proceeds without a material settlement, the risk premium will stay embedded, capping upside. Consider a short‑position or a protective put to hedge against a downgrade‑driven pull‑back. Conversely, if you hold a bullish view on the underlying drug pipeline, a tight‑stop‑loss around $0.88 and a target near $1.15 (the recent swing‑high) can capture upside while limiting exposure to the legal‑risk tail.

In short, the pending class‑action increases both credit‑rating and cost‑of‑capital risk for Biohaven. Until the litigation outcome is clearer, the market will likely price the stock at a discount, and a cautious, risk‑managed short‑to‑neutral stance is advisable.