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TEXT-S&P rates Fresenius' credit facilities 'BBB-'
October 15, 2012 / 1:35 PM / 5 years ago

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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