Grünenthal : 2026 tender and new 2031 SSNs; we believe 5% is attractive

Grünenthal launched a tender offer for the 2026 notes and aims to issue new EUR 500m SSNs due 2031. The tender is in our view unattractive at 100%, given the current applicable call price of 100.906%. Subject to the otherwise assumed call on 15 May 2025, the paper yields 3.6%. Grünenthal baits investors with a priority allocation in case they accept the tender and subscribe to the new instrument. We can imagine that some investors will not participate in the tender, but it remains to be seen.
The other two existing instruments, the 2028 and 2030 SSNs, offer a bit more of yield, but are nevertheless unattractive currently.
The new 2031 paper would be attractive at 5% or more, representing a good uplift to the existing 2030 SSNs and in comparison with European healthcare and pharma peers sub investment grade.
We like that Grünenthal has a conservative cap structure (starting PF net leverage of 2.5x), the ability to produce a levered free cash flow of EUR 150-200m p.a., that it maintains substantial in-house production capacity (which is in contrast to some other HY pharma names in Europe) and that the portfolio is subject to some revenue growth (Qutenza, on which Grünenthal depends to some extent) and EBITDA growth (Qutenza, Grünenthal Meds) elements. This can help to overcompensate structural earnings erosion among certain products that are off-patent already (Palexia, Nebido, among others).
We had also the hope that RTX, which is in phase III, will contribute strongly in the next years given the EUR 2bn peak sales scenario, but the top line results of the first of two pivotal Phase III studies were statistically insignificant. Hence, the study has not met its primary endpoint. There is risk that RTX won’t become a significant driver for Grünenthal, albeit this is the worst case then (nothing more).
We still say that Grünenthal can become a full-fledged BB- risk, but Moody’s denied this some months ago. Hence, there is some uncertainty.