Frankfurt am Main, January 13, 2011 -- Moody's Investors Service has today assigned a provisional (P)B3 senior
unsecured rating to the proposed US$1.100 million notes
issuance of Giant Funding Corp. The outlook on the rating is stable.
The rating actions follows the initial assignment of B1 corporate family
and probability of default ratings to Grifols SA ("Grifols" or "the company"),
which were assigned in July 2010 in the context of the planned acquisition
of Talecris Biotherapeutics Holdings Corp. ("Talecris", rated
Ba3, review for possible downgrade) which is expected to close in
Q1 2011 following regulatory clearance as well as approval of Grifols'
and Talecris' shareholders. The initial rating action also included
the assignment of certain instrument ratings, including a US$1.100
million senior unsecured bond bridge facility, which will be replaced
with the proposed notes in advance of the closing of the transaction.
The (P)B3 rating of the senior unsecured bond bridge facility will be
withdrawn upon the successful issuance of the proposed senior unsecured
notes, which will initially be issued by Giant Funding Corp,
an entity outside the Grifols group. The proceeds of the notes
issuance will be placed in an escrow account (unguaranteed but secured
by first priority liens on the funds held in escrow) and will only be
released upon closing of the Talecris acquisition, in the case of
which Grifols Inc would assume the obligations under the notes.
If the Talecris acquisition does not materialize, Giant Funding
Corp will be required to redeem the notes at a redemption price of 101%
of the initial issue price plus accrued and unpaid interest.
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 as well as the instrument
ratings assigned assume the successful closing - without major
conditions set by regulatory authorities - and financing of the
Talecris acquisition in line with the terms outlined in Moody's
press release dated 20 July 2010. It is important to note that
the B1 corporate family rating does not reflect Grifols' stand alone credit
profile as of today.
RATINGS RATIONALE
The B1 corporate family rating of Grifols incorporates (i) the increased
scale with a high degree of vertical integration and solid market position
of the combined group, (ii) the numerous barriers to entry including,
but not limited to, the high degree of capital-intensiveness
and regulatory constraints, (iii) favourable market dynamics with
growth to come from emerging markets, earlier diagnosis of patients
as well as line-extensions of existing products and (iv) a significant
potential for synergies to be generated. These positive rating
drivers are balanced by (i) the high initial leverage (expected to be
around 5.5x pro-forma adjusted gross Debt/EBITDA at closing)
that is expected to remain elevated until major synergies kick in c.
12-18 months after the closing, (ii) the weak diversification
with plasma-derived products being the main activity and the corresponding
vulnerability with regard to market-imbalances and negative pricing-movements,
(iii) the execution risk inherent in a transaction of this size as well
as (iv) certain safety risks relating to product contamination.
The stable outlook reflects Moody's expectations that the transaction
will go through as scheduled under the terms and conditions outlined in
previous publications. Moreover, the stable outlook also
incorporates our assumption that the initial leverage will come down relatively
rapidly to a level more commensurate with the B1 rating-category
as synergies materialize and cash flows are applied to debt-reduction.
Grifols' financing package will consist of the following debt instruments:
US$3,100 million of senior secured, backed bank debt
consisting of US$1,500 million Term Loan A due in 2016 (increased
from initially US$750million), US$1,600million
Term Loan B due in 2017 (decreased from initially US$2,350million)
as well as a revolving credit facility of US$300 million due in
2016, which is assumed to be undrawn at the time of closing.
Assuming the successful issuance of the notes rated today, the package
also includes US$1,100 million senior unsecured notes due
2018, which replaces the US$1,100million one year backed
bond bridge facility initially in place. After Grifols Inc.'s
assumption of Giant Funding Corp.'s obligations under the
notes, the notes will be Grifols Inc.'s senior unsecured
obligations, which 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. We have thus
identified two primary layers of debt in (i) the senior secured instruments
(LGD3, 35%) and (ii) the unsecured instrument (LGD5,
88%). The transaction is expected to be partially funded
by non-voting shares which should cover c. US$1,200
million (increased from initially US$940 million to cover the increase
in purchase price) of the purchase price and which are, based on
the draft terms provided, treated as another form of equity for
financial leverage purposes.
Issuer: Giant Funding Corp.
..Assignments:
....US$1100M Senior Unsecured Regular
Bond/Debenture, Assigned (P)B3
....US$1100M Senior Unsecured Regular
Bond/Debenture, Assigned a range of LGD5, 88 %
Issuer: Grifols SA
..Upgrades:
....US$1500M Senior Secured Bank Credit
Facility, Upgraded to a range of LGD3, 35 % from a
range of LGD3, 37 %
....US$1600M Senior Secured Bank Credit
Facility, Upgraded to a range of LGD3, 35 % from a
range of LGD3, 37 %
....US$300M Senior Secured Bank Credit
Facility, Upgraded to a range of LGD3, 35 % from a
range of LGD3, 37 %
....US$1100M Senior Unsecured Bank
Credit Facility, Upgraded to a range of LGD5, 88 %
from a range of 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 Grifols was implemented on 20 July 2010 when
Moody's assigned first time ratings to the company and certain debt
instruments. The last rating action on Talecris was implemented
on 21 July 2010, when Moody's placed the Ba3 rating on review for
possible downgrade.
The principal methodology used in this rating was Global Medical Products
& Device Industry published in October 2009.
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 September 2010 amounted to US$1.3 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 September 2010 amounted to US$1.6 billion.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings and public 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
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
Sabine Renner
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
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
Moody's assigns (P)B3 senior unsecured rating to Giant Funding Corp's (to be assumed by Grifols Inc) proposed USD1.1 billion senior unsecured notes due 2018
