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Rating Action:

Moody's assigns B3 rating to Care BidCo S.A.S. (Cooper); stable outlook

06 Apr 2021

Milan, April 06, 2021 -- Moody's Investors Service ("Moody's") has today assigned a B3 corporate family rating (CFR) and a B3-PD probability of default rating (PDR) to Care BidCo S.A.S., the new parent company of the French OTC pharma manufacturer and distributor Cooper Consumer Health (Cooper or the Group). Concurrently, Moody's has also assigned a B2 rating to the proposed new €920 million senior secured first-lien term loan B (TLB) maturing in 2028 and €160 million senior secured revolving credit facility (RCF) maturing in 2027 and a Caa2 rating to the €235 million second-lien term loan maturing in 2029, all to be issued by Care BidCo S.A.S. Moody's has assigned a stable outlook.

The rating assignment follows the proposed acquisition of Cooper by funds advised by CVC Capital Partners (CVC), alongside with other investors including the current shareholder Charterhouse, who will reinvest part of proceeds, maintaining a minority stake in Cooper. The acquisition is funded with the proposed €1,155 million new debt and a nearly €1.1 billion equity contribution. Approximately €400 million of equity will enter the restricted group as a shareholder loan that Moody's assumes will be eligible to receive equity credit under Moody's criteria, subject to review of the final documentation.

As part of the deal, Cooper plans to repay its outstanding debt, including the €776 million senior secured term loan due 2025, borrowed by different group entities, and the currently undrawn €60 million senior secured revolving credit facility (RCF) due 2024. The ratings on the existing instruments, together with the B2 CFR and the B2-PD PDR of the previous parent company of the Cooper group, Alpha Bidco SAS, will be withdrawn upon repayment at completion of the refinancing.

A full list of affected ratings is provided towards the end of the press release.

RATINGS RATIONALE

The B3 rating reflects Cooper's highly leveraged capital structure following the proposed transaction, as well as Moody's expectation that leverage will gradually reduce already from 2022 on the back of continued EBITDA growth. The agency expects that Cooper's Moody's-adjusted gross leverage will peak at 8.1x in 2021, which is high for the B3 rating. However, continued organic growth and the contribution of recent acquisitions and new distribution agreements will support increasing earnings leading to gradual deleveraging.

The company has a solid track record of revenue and EBITDA growth. Despite some challenges because of the Covid pandemic that weighted on sales, operating performance remained solid in 2020 with Moody's adjusted EBITDA increasing to about €130 million from €114 million in 2019, thanks to cost containment. Moody's expects the positive trend to continue with EBITDA gradually growing towards €165 million in 2023. As a result, leverage will reduce to 7.5x already in 2022 and will further improve towards 7.0x afterwards, which would more comfortably position the rating at the B3 level.

Cooper's high EBITDA margins and the low capital intensity of the business, with limited capex needs, support its strong free cash flow generation profile. Cooper's free cash flow generation was strong at €67 million in 2020 (€35 million in 2019) and Moody's expects that annual free cash flow will remain in the €60 million-€65 million range through 2022, which provides some flexibility to finance bolt-on acquisitions. The good liquidity position is also a credit strength.

Cooper's rating continues to be supported by the company's strong market positions in the fragmented self-care market and by the solid industry fundamentals. The company has also good distribution capabilities, especially in France where it has access to almost all pharmacies which are likely to remain the key distribution channel for OTC.

The rating assigned remains constrained by Cooper's small size relative to global peer in the OTC pharma segment and by some degree of geographical concentration, with the French market representing around 60% of sales. The rating also factors some M&A risk, given the acquisitive strategy of the company, although this is mitigated by Cooper's solid track record in integrating the acquired brands and Moody's view that the company will maintain a predictable financial policy.

LIQUIDITY

Cooper's liquidity is good, supported by €30 million cash position pro-forma for the transaction and the fully available new €160 million RCF, which is sizable compared to the company's operational needs. Working capital has seasonal swings of up to €15 million-€20 million, with cash absorption in the first half of the year and release in the second half. Capital spending needs are modest at around €15 million per year on average. Despite the higher interest costs resulting from the new structure, Moody's expects Cooper to maintain positive free cash flow.

The RCF has a maximum senior secured net leverage springing covenant of 9.75x to be tested if the RCF is drawn by more than 40%. Moody's does not expect the covenant to be tested over the next 12-18 months. Cooper would have ample capacity under this covenant, in case it is tested.

STRUCTURAL CONSIDERATIONS

Cooper's B3-PD probability of default rating is in line with the CFR and reflects the use of a 50% family recovery rate, consistent with an all-loan debt structure with a single financial maintenance covenant. The B2 instrument ratings on the term loan B and RCF are one notch above the company's CFR reflecting the senior position of these instruments relative to the junior instruments in the capital structure, the €235 million second-lien term loan, which is rated Caa2.

The debt facilities benefit from pledges over shares, material bank accounts and intercompany receivables and benefit from guarantees by certain subsidiaries representing at least 80% of the group's EBITDA.

Moody's does not include in its adjusted debt calculations the €400 million shareholder loan, maturing in 2030 borrowed by Care BidCo S.A.S. and indirectly lent by its majority shareholders, based on the assumption that this instrument will be eligible to receive equity credit under Moody's criteria.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the rating reflects Moody's expectation that Cooper will maintain its trajectory of continued revenue and EBITDA growth, with leverage trending towards 7.5x already in 2022. Bolt- on acquisitions financed by free cash flow can be accommodated in the rating category; however, there is limited room for further debt-financed acquisitions.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure on the ratings is unlikely in the next 12-18 month because of the initial high leverage. The rating could be upgraded if (1) Moody's adjusted Debt/EBITDA falls well below 6.5x on a sustainable basis and (2) the company shows a continued track-record of sustained profit growth and positive FCF, whilst maintaining a solid liquidity profile.

Negative rating pressure would be exerted on the rating if (1) Cooper's Moody's adjusted gross debt/EBITDA remains sustainably well above 7.5x beyond 2021; (2) free cash flow turns negative on a sustained basis; (3) liquidity deteriorates including potential reduction in headroom under financial covenants; (4) the company were to embark upon a larger debt funded acquisition prior to the recovery of credit metrics.

LIST OF AFFECTED RATINGS:

..Issuer: Care BidCo S.A.S.

Assignments:

.... Probability of Default Rating, Assigned B3-PD

.... LT Corporate Family Rating, Assigned B3

....Senior Secured Bank Credit Facilities, Assigned B2

....Senior Secured Bank Credit Facility, Assigned Caa2

Outlook Action:

....Outlook, Assigned Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Care BidCo S.A.S. is the parent company of Cooper Consumer Health, a leading European self-care company providing a complete range of self-care products, food supplements, medical devices and active pharmaceutical ingredients. Cooper operates in five core markets, France, the Netherlands, Italy, Iberia and Belgium, as well as in export markets. Cooper revenue and reported EBITDA were €440 million and €142 million, respectively, in 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lorenzo Re
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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