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TEXT-S&P rates Fresenius senior secured facilities 'BBB-'
December 10, 2012 / 5:13 PM / 5 years ago

TEXT-S&P rates Fresenius senior secured facilities 'BBB-'

Dec 10 - Standard & Poor's Ratings Services today said it assigned its
'BBB-' issue rating to the proposed EUR2.25 billion equivalent senior secured
debt facilities to be borrowed by Fresenius SE & Co. KGaA (FSE;
BB+/Stable/--), Fresenius Finance II BV, and Fresenius US Finance I Inc. At the
same time, we assigned a recovery rating of '2' to the proposed facilities,
reflecting our expectation of substantial (70%-90%) recovery for debtholders in
the event of a payment default.

In addition, we affirmed our 'BB+' issue rating on FSE's senior unsecured, 
guaranteed debt facilities. The recovery rating on this debt remains unchanged 
at '3', reflecting our expectation of meaningful (50%-70%) recovery for 
debtholders in the event of a payment default. 

Finally, we affirmed our 'BB-' issue rating on FSE's EUR300 million euro notes. 
The recovery rating on this debt remains unchanged at '6', reflecting our 
expectation of negligible (0%-10%) recovery for debtholders.

The issue and recovery ratings on the existing senior secured debt remain 
unchanged at 'BBB-' and '2', respectively, although we expect to withdraw 
these ratings on completion and drawdown of the proposed debt facilities.

The ratings on the proposed debt facilities are subject to our review of the 
final documentation.

The proposed refinancing leads to a significant potential increase in the 
amount of senior secured debt in the capital structure (assuming full drawings 
on the revolving credit facilities ). Nevertheless, recovery prospects 
for the proposed facilities would, in our view, remain above 100%, and benefit 
from a material simplification of the collateral structure compared with the 
existing senior secured facilities. However, the recovery rating of '2' on the 
proposed (and existing) facilities reflects our view that their structural and 
contractual seniority, and the recovery value available, would unlikely be 
sufficient to support, in line with our criteria, any upward notching of the 
issue rating in the event that we raise the corporate credit rating on FSE to 
'BBB-'. (For more details, see "2008 Corporate Criteria: Rating Each Issue," 
published April 15, 2008.) 

The subordination of the senior unsecured notes means that we view recovery 
prospects for these instruments as more volatile than for the senior secured 
debt. Although we maintain a recovery rating of '3' on the unsecured notes, 
the proposed senior secured facilities make provisions for significant levels 
of incremental debt. This, in our view, leaves the unsecured notes exposed to 
lower recovery prospects if FSE uses the flexibility under the senior secured 
facilities' documentation to increase the proportion of secured debt in the 
capital structure. However, any increase is subject to a limitation on senior 
secured debt leverage at the point of incurrence.

We understand that FSE will use the proposed facilities to meet debt 
maturities, including refinancing existing commitments under its senior 
secured RCF and term loan A. The documentation provides for additional 
issuance (currently uncommitted) under a term loan B, which FSE will utilize 
to refinance commitments under the existing senior secured term loan D. We 
understand that FSE can only draw on the proposed facilities on full 
refinancing of the existing senior secured facilities, including term loan D.

The proposed facilities have direct security from share pledges over and 
guarantees from Fresenius Kabi, as well as a guarantee from Fresenius ProServe 
GmbH. We consider the security package to be relatively weak, albeit somewhat 
less complex than that for the existing senior secured facilities. 

The documentation for the proposed facilities provides for the refinancing of 
the existing term loan D, as well as providing significant flexibility for 
additional indebtedness to be incurred under certain circumstances. The 
facilities also benefit from interest coverage and total leverage financial 
maintenance covenants.

Our simulated default scenario envisages distressed operations at: 
     -- Fresenius Kabi, stemming from increased competition for key products 
including Heparin, and delayed intravenous drug launches; 
     -- Fresenius Helios, due to some hospital acquisitions, which we assume 
Fresenius Helios would not be able to make profitable fast enough; and 
     -- Fresenius Vamed, although to a lesser extent than at Fresenius Kabi 
and Fresenius Helios. 

We have revised our year of default to 2018, from 2015, assuming that FSE is 
unable to refinance the senior secured facilities due that year. At the point 
of default, we assume that EBITDA would have declined to EUR694 million, higher 
than our previous assessment of EUR530 million. 

Based on an EBITDA multiple of 6.5x, our stressed enterprise value is EUR4.5 
billion, which we adjust upward to EUR5.0 billion to account for a stressed 
valuation of FSE's stake in Fresenius Medical Care. From this, we deduct 
enforcement costs of EUR350 million and priority liabilities totaling EUR699 
million, leaving EUR3.7 billion available for the secured creditors. Assuming 
EUR2.2 billion of senior secured debt outstanding at default, there is 
sufficient value for full recoveries, with the surplus available to the senior 
unsecured notes. We assume EUR1.6 billion of unsecured notes outstanding at the 
point of default. Thereafter, there is negligible value for the EUR300 million 
euro notes due 2014, which we assume will be refinanced on similar terms.

Although coverage on the senior unsecured notes is nominally higher than 70%, 
we cap the recovery rating on these instruments at '3' in accordance with our 
criteria for rating unsecured debt.

     -- Fresenius SE & Co. KGaA Recovery Rating Profile, April 11, 2012 
     -- Criteria Guidelines For Recovery Ratings On Global Industrial Issuers' 
Speculative-Grade Debt, Aug. 10, 2009

Ratings List
New Rating

Fresenius SE & Co. KGaA
 Senior Secured Debt                    BBB-               
   Recovery Rating                      2                  

Ratings Affirmed

APP Pharmaceuticals LLC
 Senior Secured Debt*                   BBB-               
   Recovery Rating                      2                  

Fresenius Finance B.V.
 Senior Unsecured Debt*                 BB+                
   Recovery Rating                      3                  
 Subordinated Debt*                     BB-                
  Recovery Rating                       6                  

Fresenius Finance I S.A. (Luxembourg)
 Senior Secured Debt*                   BBB-               
  Recovery Rating                       2                  

Fresenius U.S. Finance I Inc.
 Senior Secured Debt*                   BBB-               
   Recovery Rating                      2                  

Fresenius U.S. Finance II Inc.
 Senior Unsecured Debt*                 BB+                
   Recovery Rating                      3                  

*Guaranteed by Fresenius SE & Co. KGaA

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left 

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