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Rating Action:

Moody's assigns a first-time B2 CFR to Sunrise, stable outlook

14 Mar 2018

London, 14 March 2018 -- Moody's Investors Service has assigned a first-time B2 corporate family rating (CFR) to Cidron Ollopa Holding B.V. (Sunrise), a global manufacturer of premium mobility products. The rating agency has concurrently assigned a B2-PD probability of default rating (PDR) and B1 rating to the senior secured first lien facilities, comprising the EUR445 million 7-year term loan B and EUR70 million 6.5 year revolving credit facility (RCF) to be borrowed by Cidron Ollopa Holding B.V. The outlook on all ratings is stable.

A full list of assigned ratings can be found at the end of this press release.

Today's rating action reflects the following drivers:

- The company's leverage, as measured by Moody's-adjusted debt/EBITDA, is high at 7.3x on LTM January 2018 basis pro forma for the proposed capital structure.

- Moody's expects a considerable deleveraging with leverage falling below 6.5x within the next 18 months.

- The company's strong market positions in its key product segments and currently benign regulatory environment.

The rating action follows the announcement of the transfer of a portfolio of assets (including Sunrise) from Nordic Capital Fund VII to a Continuation Vehicle, also advised by Nordic Capital. The company will be transferred between Fund VII and the Continuation Vehicle at fair market value. The proceeds from the first lien facilities, together with EUR122.5 million second lien facility (unrated) and EUR31 million excess cash on balance sheet, will be used to refinance the existing debt, repay the vendor loan to Handicare Mobility and pay transaction costs. Additionally, EUR147.6 million of cash proceeds will stay in the Continuation Vehicle for reinvestment into the Vehicle's portfolio of companies.

RATINGS RATIONALE

The B2 CFR assigned to Cidron Ollopa Holding B.V. ('Sunrise' or the 'Company') is supported by: 1) Sunrise's strong market shares in the otherwise fragmented and niche mobility market, which are underpinned by a range of brands; 2) high barriers to market entry; 3) Sunrise's focus on the complex rehab segment of the market, which is a higher margin and less commoditised area than standard rehab (most complex rehab products are manufactured to end-user specifications); 4) the company's asset light structure with large parts of the production process outsourced to third parties, which translates into high cash conversion rates; and 5) the resilient nature of demand for mobility products, which is underpinned by a growing and aging population, the increasing incidence of chronic diseases and increased standards of living in emerging markets

Conversely, the rating is constrained by: 1) Sunrise's relative size when compared to Moody's broader rated universe, together with its strong dependency on the niche mobility market; 2) high Moody's adjusted leverage of 7.3x pro forma for the proposed transaction; 3) exposure to pricing pressure and changes in reimbursement regimes, albeit partly mitigated by strong geographical diversification; and 4) reliance on third party manufacturers for the production of almost all mobility product components. This exposes the Company to possible supplier production issues (both in terms of quality and speed of delivery) in a highly regulated industry, although also allows potential additional production cost flexibility in case of increased reimbursement pressures.

RATING OUTLOOK

The stable outlook reflects Moody's expectation that Sunrise will continue to reduce leverage supported by organic revenue growth with an increasing weighting towards the complex rehab segment. The stable outlook also encompasses the expectation that there will be no major impact on earnings from potential reimbursement reductions.

FACTORS THAT COULD LEAD TO AN UPGRADE

Positive rating pressure could arise if: 1) Moody's adjusted gross debt/EBITDA reduces sustainably below 5.0x; and 2) Sunrise's FCF to debt ratio increases towards 7%.

FACTORS THAT COULD LEAD TO A DOWNGRADE

Negative rating pressure could arise if: 1) adjusted gross debt/EBITDA fails to decline below 6.5x within 18 months; 2) Sunrise's adjusted EBITDA margin falls sustainably below 13%; 3) major reimbursement cuts occur in one of its key markets; or 4) if the Company embarks on a sizeable debt-financed acquisition or should it distribute material amounts of cash to shareholders.

LIQUIDITY ANALYSIS

Pro forma for the refinancing, Sunrise's liquidity profile is adequate supported by €11 million cash at closing and an undrawn RCF of €70 million which is subject to a springing total net leverage covenant set at 40% headroom, tested only when more than 40% of the RCF is drawn. Given modest mandatory capex and limited working capital requirements the Company has the ability to generate significant underlying free cash flow (i.e. before one off items / acquisitions). In this regard Moody's liquidity analysis does not contemplate material acquisition activity.

STRUCTURAL CONSIDERATIONS

The B1 rating of the senior secured first lien facilities, one notch above of the B2 CFR and the B2-PD probability of default rating (PDR) reflects the presence of the lower-ranked second lien facility in the structure and Moody's 50% corporate family recovery rate assumption. Moody's understands that any shareholder funding into Cidron Ollopa Holdings B.V.'s restricted group comes in a form of cash.

LIST OF ASSIGNED RATINGS

Issuer: Cidron Ollopa Holding B.V.

Assignments:

....LT Corporate Family Rating, Assigned B2

....Probability of Default Rating, Assigned B2-PD

....Senior Secured Bank Credit Facility, Assigned B1 (LGD3)

Outlook Action:

....Outlook, Assigned Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Medical Product and Device Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

PROFILE

Sunrise is a leading provider of premium mobility products including manual and powered wheelchairs, mobility scooters and other mobility aids. Sunrise reported revenues and EBITDA for the year ending 30 June 2017 of EUR469.8 million and EUR75.9 million respectively. The Company's business is global, incorporating a manufacturing and distribution presence in all regions of the world.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Tanya Savkin
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Richard Etheridge
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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