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Rating Action:

Moody's downgrades Grifols' CFR to Ba3 from Ba2, stable outlook

15 Dec 2016

Moody's downgrades senior secured bank credit facilities ratings to Ba2 from Ba1; and senior unsecured notes to B2 from B1; assigns Ba2 to the additional term loan

NOTE: On January 13, 2017, the press release was corrected as follows: In the Ratings Rationale section, the first header was changed to “RATIONALE FOR THE STABLE OUTLOOK.” Revised release follows.

London, 15 December 2016 -- Moody's Investors Service has today downgraded to Ba3 from Ba2 the corporate family rating (CFR) and to Ba3-PD from Ba2-PD the probability of default rating (PDR) of Grifols S.A. (Grifols), a global healthcare company primarily focused on human blood plasma-derived products and transfusion medicine.

Today's downgrade of the CFR reflect the following inter-related drivers:

-- Grifols leverage, as measured by Moody's-adjusted debt/EBITDA, will increase to 4.7x, pro forma for the announced USD1.85 billion largely debt-financed acquisition of Hologic Inc's NAT (Nucleic Acid Test) blood screening business, from 4.0x as of 30 September 2016

-- Moody's expects that Grifols' leverage will slowly decrease to 4.5x over the next 12-18 months based on a low-single-digit organic growth in the Diagnostics division and a high-single-digit organic growth in the Bioscience division

Concurrently, Moody's has downgraded to Ba2 from Ba1 the ratings of the senior secured bank credit facilities, including the USD700 million term loan A due 2020, the USD3.25 billion term loan B due 2021, the EUR400 million term loan B due 2021, and the USD300 million revolving credit facility due 2019. The bank credit facilities are co-borrowed by Grifols World Wide Operations Ltd and Grifols World Wide Operations USA, Inc. Moody's also downgraded to B2 from B1 the rating of the USD1 billion senior unsecured notes due 2022 issued by Grifols World Wide Operations Ltd. Finally, Moody's has assigned a Ba2 rating to the additional proposed USD1.7 billion term loan due 2023. The outlook on all ratings is stable.

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

RATINGS RATIONALE

"The acquisition of Hologic's NAT (Nucleic Acid Test) blood screening business will be largely debt-financed therefore at closing of the acquisition Grifols' leverage will increase notably by 0.7x to 4.7x. We previously expected that Grifols will delever below 4.0x by the end of 2016. We currently expect that the company will not delever below 4.0x until the end of 2019. Therefore Grifols' expected leverage is now more commensurate with the Ba3 CFR" says Andrey Bekasov, AVP and Moody's lead analyst for Grifols.

"The acquisition makes strategic sense for Grifols because it will notably diversify its product exposure and increase the share of the diagnostics products in terms of their contribution to Grifols' total EBITDA. The acquisition will also improve Grifols' profitability, as measured by Moody's-adjusted EBITDA, by over 2% to 34% pro forma for the acquisition based on Moody's estimates. However, the organic growth prospects for the types of the diagnostics assays, which Grifols is acquiring, are in the low-single-digit percent range because it is a fairly mature market", adds Andrey Bekasov.

Grifols S.A.'s (Grifols) Ba3 corporate family rating (CFR) reflects: (1) the company's good scale with a high degree of vertical integration and leading market positions in human blood plasma-derived products; (2) the barriers to entry including, but not limited to, a high degree of capital-intensity and regulatory constraints in a consolidated market; and (3) the favourable fundamental drivers, with volume growth supported by improving diagnostics.

Conversely, the rating reflects: (1) the company's narrow, albeit improving, diversification, with a high dependence on human blood plasma-derived products and vulnerability to market imbalances and negative pricing movements; (2) our view of the potential high impact - albeit low probability - of safety risks relating to product contamination; and (3) leverage of 4.7x at closing of the acquisition of Hologic's NAT blood screening business, with slow deleveraging expected.

The acquisition of Hologic Inc's NAT blood screening business is subject to customary closing and regulatory approvals, and Grifols expects to close it during the first quarter 2017. This business has high barriers to entry with only a few global leading players. However, it has also relatively higher customer concentration because customers include several large Red Cross organizations (for example, The Japanese Red Cross, The American Red Cross), which results in reasonably volatile earnings. Grifols will acquire a complete family of Procleix (trademark) assays for blood screening and related assets including manufacturing facilities and intellectual properties from Hologic. Moody's understands that Procleix assays have good market shares and compete mainly with Roche Holding AG's (A1 stable) diagnostics division products.

Moody's expects that pro forma for the acquisition Grifols will maintain good liquidity supported by no meaningful debt amortizations until 2019; undrawn USD300 million revolving credit facility and cash of around EUR700 million; positive free cash flows of around EUR220 million in 2017; and good headroom under its senior secured bank credit facilities' single financial covenant.

The Ba2 senior secured bank credit facilities rating reflects the loss absorption cushion provided by the senior unsecured notes rated B2. The Ba3-PD probability of default rating (PDR) is in line with the Ba3 CFR reflecting Moody's 50% corporate family recovery rate.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's view that Grifols' leverage will slowly decrease to 4.5x over the next 12-18 months. The stable outlook does not incorporate significant capital structure changes from shareholder friendly actions or large debt-financed acquisitions.

WHAT COULD CHANGE THE RATING UP/DOWN

Positive rating pressure could develop if:

- Grifols' leverage, as measured by Moody's-adjusted debt/EBITDA, were to decrease below 4.0x sustainably;

- CFO/Debt were to improve sustainably above 15%; and

- Stable operating performance were to continue with market share gains in major products

Negative rating pressure could develop if:

- Grifols' leverage, as measured by Moody's-adjusted debt/EBITDA, were to remain over 5.0x for a prolonged period;

- CFO/Debt were to fall towards 5%;

- Profitability, as measured by Moody's-adjusted EBITDA margin, were to drop notably;

- Liquidity were to deteriorate significantly; or

- Quality concerns were to emerge about Grifols' major products

List of affected ratings:

Downgrades:

..Issuer: Grifols S.A.

....LT Corporate Family Rating, Downgraded to Ba3 from Ba2

....Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD

..Issuer: Grifols World Wide Operations Ltd.

....Backed Senior Secured Bank Credit Facilities, Downgraded to Ba2 from Ba1

....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to B2 from B1

Assignments:

..Issuer: Grifols World Wide Operations Ltd.

....Backed Senior Secured Bank Credit Facility, Assigned Ba2

Outlook Actions:

..Issuer: Grifols S.A.

....Outlook, Remains Stable

..Issuer: Grifols World Wide Operations Ltd.

....Outlook, Remains Stable

The principal methodology used in these ratings was Global Medical Product and Device Industry published in October 2012. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Grifols S.A. (Grifols), headquartered in Barcelona, Spain, is a global healthcare company primarily focused on human blood plasma-derived products and transfusion medicine. Grifols extracts essential proteins from human blood plasma, the liquid portion that constitutes 50% of the total blood volume, and uses these proteins to produce and distribute therapeutic medical products to treat a range of rare, chronic and acute conditions. Grifols also supplies devices, instruments and assays for clinical diagnostic laboratories. Grifols is listed (also via ADR in the US) on the Madrid Stock Exchange and is part of the IBEX 35 Index.

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.

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

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

No Related Data.
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