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I AGREE
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.
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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
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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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