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Rating Action:

Correction to Text, January 21, 2011 Release: Moody's assigns Ba2 rating to Fresenius Medical Care's proposed USD900 million senior notes (Germany)

24 Jan 2011

Approximately USD900 million worth of ten-year senior notes to be issued

Frankfurt am Main, January 24, 2011 -- Substitue eleventh paragraph, third sentence, with USD 634 million from USD63463 million. Revised Release follows.

Moody's Investors Service has today assigned a Ba2 rating to the following proposed bond issuances of finance companies wholly owned by Fresenius Medical Care AG & Co. KGaA ("FME" or "the group"): approximately USD500 million worth of senior unsecured notes by Fresenius Medical Care US Finance, Inc.; and around EUR300 million worth of senior unsecured notes by FMC Finance VII S.A. FME, together with the intermediate holding companies Fresenius Medical Holdings, Inc. and Fresenius Medical Care Deutschland GmbH, guarantees the notes. The senior unsecured notes are expected to be used to refinance short-term debt and to fund acquisitions.

RATINGS RATIONALE

"The Ba2 rating on the new senior unsecured notes to be issued at the level of the financing subsidiaries reflects the instrument's relative position in the capital structure of FME and a Loss Given Default ("LGD") assessment of LGD 5 (74%)," says Wolfgang Draack, a Moody's Senior Vice President and lead analyst for FME. "The notes benefit from a downstream senior guarantee by FME, and upstream guarantees by Fresenius Medical Care Holdings Inc. and Fresenius Medical Care Deutschland GmbH, in line with the outstanding senior unsecured notes of various finance issuers in the group," adds Mr Draack.

FME's Ba1 corporate family rating (CFR) is supported by: (i) its absolute scale and a strong market position as a leading global provider of dialysis products and private dialysis services; (ii) continued favourable industry growth trends as well as the recurring nature of the group's revenues; (iii) high profitability levels; and (iv) good financial flexibility. However, the rating is constrained by: (i) FME's relatively high adjusted financial leverage; (ii) the potential risks from the group's pure-play focus on the dialysis market, albeit mitigated by its position as a provider of both products and services; (iii) regional concentration on the North American market, which is nonetheless likely to be reduced over the medium term; (iv) the group's exposure to regulatory changes, government investigations, pricing pressure from governments and healthcare organisations or changes in the payer mix; and (v) a growth strategy that involves organic growth as well as acquisitions, which are usually debt-financed.

FME recently announced (i) a joint venture agreement with Galenica Ltd. to develop and distribute on a worldwide basis products to treat iron deficiency anaemia and bone mineral metabolism, which will require compensating payments from FME; and (ii) on January 4th, 2011, the acquisition of International Dialysis Centers, a segment of Euromedic International, for approximately USD650 million. Moody's expects these, and possible further growth investments, to be funded by internally generated cash flow and debt issuance.

As a result of its solid performance and restrained acquisition activity after the 2006 purchase of Renal Care Group, FME has built significant headroom into its credit metrics versus rating guidance. In Moody's view, for FME to avoid rating pressure on its Ba1 CFR, the group will need to maintain a debt/EBITDA ratio of below 3.5x (3.1x LTM to September 2010) and achieve a cash flow from operations (CFO)/debt ratio of at least 15% (20%). Moody's believes that this metric headroom will be sufficient to accommodate FME's investment strategy.

In Moody's view, downward rating pressure would likely be the result of: (i) unfavourable reimbursement changes in core markets or changes in payer mix, affecting the group's profit generation; (ii) an increase in financial leverage, evidenced by a debt/EBITDA ratio above 3.5x and a CFO/debt ratio below 15%; or (ii) material litigation.

A rating upgrade would require enhanced regional diversification and continued growth with profitability at current levels (EBIT margin in the high teens) contributing to gradual improvements in leverage, such that the group's debt/EBITDA ratio moves towards 3.0x and its and CFO/debt ratio approaches 20%. Without acquisitions, FME would be on course to achieve this.

The Ba2 rating for the proposed issuance of approximately USD900 million worth of senior unsecured notes is two notches below the Baa3 (LGD 2, 23%) rating for the group's USD4.1 billion worth of senior credit facilities. This reflects the effective subordination of the senior unsecured notes relative to the sizeable proportion of secured debt in the capital structure. The facilities, guaranteed on a senior basis by most of the operating companies, are secured by a share pledge by most of the group's operating subsidiaries and by a springing lien on substantially all assets, which becomes effective if FME's credit ratings deteriorate below the Ba3 category.

The Ba2 rating on the proposed senior unsecured notes is one notch below FME's Ba1 CFR, reflecting the dominant position of the senior secured credit facility in the group's capital structure. The Ba2 rating on the group's senior unsecured notes is one notch above the Ba3 rating for the group's trust-preferred securities. The Ba3 (LGD 6, 97%) rating on the USD634 million worth of trust-preferred securities -- issued at the level of Fresenius Medical Care Capital Trusts and guaranteed on a subordinated basis by FME, Fresenius Medical Care Deutschland GmbH and Fresenius Medical Care Holdings Inc. -- reflects their contractual subordination to the senior credit facilities as well as to the operating company obligations, including the senior unsecured notes.

Moody's previous rating action on FME was implemented on 11 January 2010, when the rating agency assigned a Ba2 rating to the group's proposed issuance of approximately EUR250 million worth of senior unsecured notes due in 2016, which were to be issued by FMC Finance VI S.A. and guaranteed by FME, Fresenius Medical Holdings, Inc. and Fresenius Medical Care Deutschland GmbH. At the same time, Moody's affirmed all the other ratings of FME.

The principal methodology used in rating FME's new bonds was "Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Based in Bad Homburg, Germany, FME is the world's leading providers of dialysis products and services. In the first nine months of FY 2010, the group generated net revenues of USD8.9 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

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Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Wolfgang Draack
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Correction to Text, January 21, 2011 Release: Moody's assigns Ba2 rating to Fresenius Medical Care's proposed USD900 million senior notes (Germany)
No Related Data.
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