TEXT-S&P rates Fresenius' credit facilities 'BBB-'
Oct 15 - Standard & Poor's Ratings Services today said it assigned its 'BBB-' issue rating to the proposed senior secured credit facilities, totaling about $3.85 billion, to be borrowed by German health care group Fresenius Medical Care AG & Co. KGaA (FME; BB+/Stable/--), Fresenius Medical Care Holdings Inc. (FMCH; not rated), and some of FME's subsidiaries. The issue rating is one notch above the corporate credit rating on FME. We have also assigned a recovery rating of '2' to the proposed senior secured facilities, indicating our expectation of substantial (70%-90%) recovery in the event of a payment default. We have not reviewed the full draft of the credit agreement for the proposed senior secured credit facilities, but only detailed terms and conditions. Our ratings are subject to our satisfactory review of the credit agreement. At the same time, we affirmed the 'BBB-' issue rating on FME's existing senior secured debt facilities. The '2' recovery rating on these instruments remains unchanged, reflecting our expectation of substantial (70%-90%) recovery for creditors in the event of a payment default. We expect to withdraw the recovery and issue ratings on these instruments upon refinancing completion. We also affirmed the 'BB+' issue rating on the existing senior unsecured notes. The '3' recovery rating on these instruments remains unchanged, reflecting our expectation of meaningful (50%-70%) recovery for noteholders in the event of a payment default. We understand that FME will use the proceeds of the proposed senior secured credit facilities to fully refinance the existing facilities maturing March 2013, and for general corporate purposes. Recovery prospects for the various debt facilities are supported by our expectation that, in a default, the company would be reorganized rather than liquidated, and by our understanding that the proposed senior secured credit facilities will substantially benefit from a similar position to the existing senior secured debt. Despite numerical coverage in excess of 100% for the proposed senior secured credit facilities, our recovery rating of '2' reflects our view that the structural and contractual seniority of the senior secured facilities and the recovery value available would unlikely be sufficient to maintain any upward notching of the issue rating under our criteria in the event that the corporate credit rating were raised to 'BBB-'. (For more details, see "2008 Corporate Criteria: Analytical Methodology," published April 15, 2008.) Our underlying assessment of recovery prospects for the group's debt has not altered materially, however. The proposed facilities, including revolving credit and term loan facilities (RCF) (together, "the proposed senior secured credit facilities"), will be senior secured obligations of FME and some of its subsidiaries. The proposed senior secured credit facilities will be guaranteed by FME, FMCH, and some of FME's subsidiaries. The security package provided to the proposed senior secured creditors is substantially similar to the one provided to the existing senior secured creditors, with one major exception, the loss of the springing lien. We view the security package for the proposed senior secured credit facilities as somewhat weak because it only covers share pledges. Moreover, unlike the existing senior secured credit facilities, we understand that the proposed senior secured credit facilities will not benefit from a springing lien on FME's assets that enables the borrowers and guarantors to provide comprehensive asset security if the debt rating falls below 'BB-' or the equivalent. The documentation for the proposed senior secured credit facilities will be substantially similar to the existing credit agreement, and will include: -- Maintenance financial covenants, in terms of maximum net-debt-to-EBITDA ratio, and minimum EBITDA-to-net interest expense, both tested quarterly; -- Restrictions on debt incurrence, although this is subject to a number of carve-outs; -- Restrictions on liens, acquisitions, and dividend payments, although subject to carve-outs. Our hypothetical default scenario for FME contemplates a payment default in 2017, with EBITDA declining to about $1,255 million. At our hypothetical point of default, we value FMC at about $8,160 million using a market multiple approach. We deduct from this stressed enterprise value priority liabilities of about $2,350 million, comprising about $735 million of enforcement costs, priority debt facilities that include securitization and prepetition interest, some finance leases, local bilateral bank lines, European Investment Bank (EIB) loans, and prepetition interest. The numerical recovery prospects for the proposed senior secured credit facilities are in excess of 100%. The recovery prospects for the various unsecured debt instruments, including the proposed notes, are in the 50%-70% range, leading to a recovery rating of '3' on these instruments. For more information, please see "Fresenius Medical Care AG & Co. KGaA Recovery Rating Profile," published April 11, 2012, on RatingsDirect on the Global Credit Portal. RATINGS LIST New Rating Fresenius Medical Care AG & Co. KGaA Senior Secured BBB- Recovery Rating 2 Fresenius Medical Care Holdings Inc. Senior Secured* BBB- Recovery Rating 2 Ratings Affirmed Fresenius Medical Care AG & Co. KGaA Senior Secured BBB- Recovery Rating 2 FMC Finance VI S.A. Senior Unsecured* BB+ Recovery Rating 3 FMC Finance VII S.A. Senior Unsecured* BB+ Recovery Rating 3 FMC Finance VIII S.A. Senior Unsecured* BB+ Recovery Rating 3 Fresenius Medical Care US Finance II, Inc Senior Unsecured* BB+ Recovery Rating 3 Fresenius Medical Care US Finance, Inc Senior Unsecured* BB+ Recovery Rating 3 *Guaranteed by Fresenius Medical Care AG & Co. KGaA RELATED CRITERIA AND RESEARCH -- Fresenius Medical Care AG & Co. KGaA Recovery Rating Profile, April 11, 2012 -- Research Update: Germany-Based Fresenius And Fresenius Medical Care 'BB+' Ratings Affirmed On Aborted Takeover Bid; Outlook Stable, Sept. 19, 2012 -- Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt, Aug. 10, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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