EUR 407.14 For Business Accounts Only

CeramTec: New Issue Comment

TRANSACTION SUMMARY

CTC BondCo Gmbh (Ceramtec) is to issue €406m of 8NC3 senior notes. The proceeds, along with €1,117m of new term loans and €1,041m of equity contribution, will be primarily used to fund the acquisition of Ceramtec by BC Part-ners and repay all outstanding debt. The new notes will be subordinated to €1.1bn of senior secured term loan and €75m of undrawn RCF. Notes ratings: CCC+/Caa2

WE INITIATE OUR COVERAGE WITH A POSITIVE CREDIT VIEW

Ceramtec has a very strong position in the ceramic hip implant components niche market, which account for c.50% of the company’s EBITDA (95% of ceramic hip components - including ball heads, insert and options head - are mar-keted by Ceramtec). Meanwhile, as regards its more volatile and competitive industrial division, we take comfort from the company’s presence in a variety of end-markets. In addition, thanks to limited CapEx requirement, Ceramtec has a very strong cash generation profile. Over the last few years, it has consistently delivered EBITDA margin in the 30-35% area with positive free cashflow despite high interest expenses. Looking ahead, despite an increase in interest expenses of c.€5m (our estimation), we anticipate deleveraging on the back of both EBITDA growth and positive FCF, which we expect to represent c.5-6% of net debt. We see adjusted net leverage at 6.0x in 2020 from 8.5x as of end September 2017 (pro forma).