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Global Credit Research - 20 Jul 2010
First time rating
Frankfurt, July 20, 2010 -- Moody's Investors Service has today assigned B1 corporate family and probability
of default ratings to Grifols SA ("Grifols" or "the company").
Moody's has also assigned a (P)Ba3 rating to the proposed Senior Secured
Backed Bank Debt consisting of Term Loans of US$750 million (Term
Loan A) and US$2350 million (Term Loan B) as well as the US$300
million Revolving Credit Facility. The US$ 1100 million
Senior Unsecured Backed Bond Bridge Facility was rated (P)B3. The
outlook on the ratings is stable. This is the first time that Moody's
has rated Grifols.
The ratings have been assigned in the context of the planned acquisition
of Talecris Biotherapeutics Holdings Corp. ("Talecris",
rated Ba3, outlook developing), which was announced on 7 June
2010 and which is expected to close in Q4 2010 following the approval
of Grifols' as well as Talecris' shareholders and regulatory
clearance. Certain of Grifols' and Talecris shareholders,
owning 35% and 49% of shares respectively, have indicated
to vote in favor of the transaction.
Moody's issues provisional ratings in advance of the final sale of securities
and these reflect Moody's credit opinion regarding the transaction only.
Upon a conclusive review of the final documentation, Moody's will
endeavor to assign a definitive rating to the different capital instruments.
A definitive rating may differ from a provisional rating. Moody's
also notes that the B1 corporate family rating assumes the successful
closing - without major conditions set by regulatory authorities
- and financing of the transaction in line with the terms outlined
in this press release. Any major deviation, e.g.
in terms of purchase price, the financing package (size as well
as terms and conditions) and/or the combined business profile of the group
could lead to a revision of the ratings assigned by Moody's.
The instrument ratings assigned are based on the assumption that the debt
which is currently outstanding at Grifols and Talecris will be repaid.
It is important to note that the B1 corporate family rating does not reflect
Grifols' stand alone credit profile as of today.
Moody's understands that Grifols will acquire all outstanding shares
of Talecris for a total consideration of US$3.4 billion,
which leads, including net debt at Talecris, to a total transaction
value of approximately US$4.0 billion. The cash balance
of the group after closing is expected to be c. US$180 million.
The transaction will be financed with a mix of debt and equity-like
instruments (issuance of non-voting shares which will cover c.
US$940 million of the purchase price). Total unadjusted
pro-forma debt outstanding after the transaction is expected to
amount to c. US$4.2 billion and will consist broadly
of the instruments referred to above.
The B1 rating takes into account the significant increase in scale the
combined group will reach and which will position it as a solid number
three player in the consolidating blood plasma derivatives industry.
Moody's considers positively the complementary aspects of the transaction
in terms of geographic footprint, a portfolio of different plasma
derived products and R&D pipeline, and improved capacity utilization.
The new entity will be operating with a high level of vertical integration
-- allowing for stronger visibility in the supply-chain.
Moody's considers scale to be an important element as it enhances
a company's purchasing power and allows it to leverage costs.
We recognize that barriers to entry are relatively high in the plasma-industry
but caution that the lack of diversification still makes Grifols vulnerable
to market imbalances, as the capital intensive production of plasma
derived products remain the major activity of the combined group,
which is expected to contribute c. 90% of combined 2010
Moody's believes that the market for blood plasma derivatives exhibits
certain characteristics which are likely to support a continuation of
the growth trend seen in the recent past, such as growing demand
in emerging markets, an up-tick in rates of diagnosed patients
as well as further product innovation. However, potential
imbalances in supply and demand, that could lead to pricing pressure,
are in Moody's opinion a risk-factor, although the
company's vertical integration, which provides for a better
visibility with regard to demand and supply, is a somewhat mitigating
factor. In this context Moody's notes the company's
continued investments in new capacity, which may require a careful
balancing to avoid any major market imbalance.
Moody's considers the synergy potential arising from the transaction
to be relatively significant. Moody's understands that the
company expects to generate US$230 million of synergies by 2014
requiring c. US$ 100 million of restructuring costs.
We do consider, however, that the acquisition is a transforming
acquisition with a significant level of execution risk.
The company depends upon a successful implementation of envisaged synergies
in order to reduce the high leverage, which is expected to be around
5.5x adjusted gross Debt/EBITDA (based on 2010 pro forma EBITDA
for the combined group) at the closing of the transaction. Moody's
acknowledges that the initial leverage does not incorporate any of the
expected synergies to be derived from the transaction. Incorporating
the synergies expected for the first year after closing, pro-forma
leverage would be c. 5.2x. Credit metrics are likely
to remain relatively weak initially with a Debt/EBITDA of slightly below
5.0x and FCF/Debt in the low single digits in 2011, i.e.
the first year after the closing of the transaction. Moody's
expects to see a major uptick in synergies in 2012. As the company
-- in line with synergy-achievements -- levers its free
cash flow generation out of which 50% will be used for repayment
of debt, credit metrics are likely to show a strong deleveraging
trend from 2012 that could then trigger upward pressure to the company's
rating. A change in the operating environment leading to lower
prices or a major deviation from the expected growth trajectory of overall
volumes, could however negatively impact the pace of deleveraging.
Like all companies in similar industries, Grifols remains exposed
to an operating environment that may lead to litigation if one of their
products is not safe. Strict safety procedures and stringent follow-ups
from the relevant authorities are however mitigating factors.
Grifols' liquidity-profile is estimated to be strong with
only limited amounts of debt maturing in the intermediate term.
The transaction is envisaging an overfunding providing Grifols with a
satisfactory level of cash-balance at closing. The alternative
source of liquidity -- consisting of a US$300 million RCF
assumed undrawn at closing -- should provide the company with a liquidity-cushion
if needed, although Moody's notes the facility will contain
a MAC-clause and financial covenants, which however are expected
to show a satisfactory headroom upon closing.
Grifols financing package will consist of US$3.1 billion
of Senior Secured Term Loans and a US$300 million Senior Secured
Revolving Credit Facility, which will benefit from defined guarantees.
The US$1.1 billion Senior Unsecured Bond Bridge Facility
will benefit from the same, pari-passu ranking guarantees
but will be subordinated to the Secured Debt which will additionally benefit
from first priority pledges over all of the tangible and intangible assets
of the combined group. Moody's notes that the Bond Bridge
Facility is likely to be refinanced with the proceeds from the issuance
of a high yield bond, which is expected to be unsecured but to benefit
from the same guarantee package as the Senior Unsecured Bond Bridge Facility.
We have thus identified two primary layers of debt in (i) the secured
instruments (LGD3, 37%) and (ii) the unsecured bridge facility
(LGD5, 89%) to be replaced possibly by a future bond.
The transaction is expected to be partially funded by non-voting
shares which should cover c. US$940 million of the purchase
price and which are, based on the draft terms provided, treated
as another form of equity for financial leverage purposes.
..Issuer: Grifols SA
....Probability of Default Rating, Assigned
....Corporate Family Rating, Assigned
....Senior Secured Bank Credit Facility,
Assigned (P)Ba3, LGD3, 37%
....Senior Secured Bank Credit Facility,
Assigned (P)Ba3, LGD3, 37%
....Senior Secured Bank Credit Facility,
Assigned (P)Ba3, LGD3, 37%
....Senior Unsecured Bank Credit Facility,
Assigned (P)B3, LGD5, 89%
An upgrade of the corporate family rating to Ba3 could be considered if
Grifols' average leverage and financial metrics trend toward the
low Ba-category, as exemplified by a Debt/EBITDA of 3.75x.
At the same time, Moody's would expect that envisaged synergies
and margin-improvement are achieved.
Downward pressure could arise if the company is not able to realize material
synergies and thus delever so that its leverage remains above 5.0x
on a sustained basis.
The last rating action on Talecris was implemented on 07 June 2010,
when Moody's changed the outlook to developing from stable following
the announcement of the proposed acquisition of Talecris by Grifols.
The principal methodology used in rating Grifols and Talecris was Moody's
Rating Methodology for the Global Medical Products and Device Industry.
This methodology can be found at www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Rating Methodologies
sub-directory on Moody's website.
Grifols is a Spanish holding company specialized in the pharmaceutical-hospital
sector and is present in more than 90 countries. Since 2006,
the company has been listed on the Spanish Stock Exchange and is part
of the Ibex-35 since 2008. Grifols researches, develops,
manufactures and markets plasma derivatives, IV therapy, enteral
nutrition, diagnostic systems and medical materials. LTM
revenues as per March 2010 amounted to US$1.1 billion.
Talecris Biotherapeutics, Inc. is a leading global manufacturer
of plasma-derived, protein-based products for individuals
suffering from life-threatening diseases. Talecris began
operations on April 1, 2005, when the US assets of Bayer AG's
worldwide plasma derived products business were acquired by financial
sponsors, Cerberus Capital Management and Ampersand Ventures.
The company is listed on the NASDAQ Stock Exchange. LTM revenues
as per March 2010 amounted to US$1.5 billion.
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns B1 corporate family rating to Grifols SA; outlook stable
No Related Data.
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