Grifols : Focus Emission

Grifols is preparing à € 1,000 senior unsecured note issue with an eight-year maturity (2025). Bonds will be non-callable during the first three years. Use of proceeds will allow the company to refinance its existing $1.0bn senior unsecured notes due in April 2022. The transaction will have very little impact on the company’s net leverage but will enable the company to lower its average cost of debt while extending its average maturity./Source : GrifolsThe new notes will be issued at the parent company level, Grifols SA, whom along with its subsidiaries, will guarantee the notes on a senior unsecured basis. The notes will be junior to the company’s existing Term Loans and RCF and be rated B2 at Moody’s and B at S&P. Note that in its Covenant Quality Pre-Sales Snapshot, Moody’s has underlined that the notes’ covenant package provides “weakest” covenant protection as the company is able to incur significant additional amount of more senior debt. Grifols has had an impressive sales growth and profitability track record over the past 10 years, on the back of strong organic growth as well as structuring acquisitions. With an 18% market share, the company is among the top three players, alongside CSL Limited (25%) and Shire plc (22%) in the $ 19bn global human blood plasma-derived market, which is supported by strong drivers and is expected to grow 6/7% in coming years. With strong positions in key proteins, we believe Grifols is poised to benefit from this expected positive trend. In Diagnostics, the acquisition of Hologic’s NAT blood screening activity will improve the group’s diversification, enhance its vertical integration and strengthen its margins.Grifols boasts a significant financial risk profile, especially after the Hologic deal, with a reported net leverage of 4.7x vs. 3.6x before recent and planned refinancing. This is somewhat mitigated by the company’s recurrent FCF generation though it has proved to be volatile in the past given working capital swings. Moreover, as the company plans to further expand its plasma donor centres as well as its fractionation and purification capacities, capex should remain elevated in the next couple of years. At the end we are expecting mild deleveraging in the next two years. Last, we see the company’s liquidity position is comfortable. We expect a tight pricing for the new issue compared to our “single B-rated” peer group (Price talk in the 3.375% area). We believe this is due to the overall strong fundamentals of the company. Grifols is a well-diversified large cap company with well-established position in growing key markets in the defensive pharmaceutical industry. MATTER 3.25% 2023, UNITY 3.75% 2027 notes, which we believe are good peers for the new Grifols bonds (large cap companies evolving in the defensive European telecom market) offer YTM of 3.4% and 3.7% respectively. Also keep in mind that the company’s CFR is Ba3/Stable at Moody’s and its corporate credit profile is BB/stable at S&P which we believe deserves a premium to single B rated issuer. Ultimately, we recommend to subscribe to the new issue. >