May 18, 2015 by Mark Hollmer ConvaTec, with a new CEO at the helm, plans to raise nearly $1.9 billion in loan and credit facilities in a bid to refinance its debt. ConvaTec, which just named a new CEO and is rumored to be up for sale, plans to raise nearly $1.9 billion in loan and credit facilities in a debt-refinancing move. The Luxembourg-based medical device company will seek $1.65 billion in term loan facilities and a $200 million revolving credit facility, both due in 2020. Plans call for using the money to refinance existing credit facilities and senior secured notes, the company said. A ConvaTec representative told MassDevice.com that the refinancing is "leverage-neutral, and will provide us with an improved maturity profile." ConvaTec said it will offer further details about the refi plan during a lender meeting in London planned for tomorrow and another in New York May 20. Private equity firms Avista Capital Partners and Nordic Capital own ConvaTec. They brought on Moraviec in 2009 to lead Convatec's business in Europe, the Middle East and Asia. He became interim CEO last December. Earlier this month, it named its interim CEO, former EMEA president Paul Moraviec, as its new, permanent CEO. In late 2014, reports surfaced that ConvaTec had appointed Morgan Stanley and Goldman Sachs to explore a sale of the company that could be worth as much as $10 billion.
10 billion, that's a joke right? All propaganda, bunch of horse shit this firm is going absolutely nowhere accept straight now the toilet.
Is ConvaTec taking on more debt to pay off the share holders in cash while they wait for the sale? I don't understand what an "improved maturity profile means", unless it means improving the maturity of the share holders. Are they leveraging the company to improve cash flow in the absence of actual growth by the company? What in the world else could have been improved by this move?
Remember to cast you vote in the poll under the "ConvaTec plans $1.9B refi " thread. I want to see how many unique hits this blog is actually getting. Seems like people are losing interest. Or their heads hurt from hitting the wall over and over. If you research (i.e. surf the net) to try to learn about this kind of debt, IMO the loan money is supposed to be used to improve the cash flow of the business. One example would be to purchase another company. Another might be to pay severance for reduced head count to reduce costs (theoretically, at least from some perspectives). In one case CVT expands, in the other it contracts, in my opinion. Of course, if that isn't how it works then who knows where the money goes. No one is being very forthcoming with that information by describing the arrangement as an "improved maturity profile." If it is revenue neutral could they pay out the cash as a dividend? I don't know. But as a private company it doesn't seem like they have to say where the money goes, so why not pocket it.
CVT needs to pay back debt $1.3B in 2016 and some in 2017+2018. It is all shown in their public financial report from 1 Q 2015 at page 28 (F-12). Maturity here means refinancing the repayment untill 2020. Their Stockholder's Deficit at - $ 2.1B makes it hard to believe CVT will pay out dividends from this refinance sesson.
So if that is correct then what is Moody's talking about in the article at https://www.moodys.com/research/Moodys-affirms-ConvaTecs-B2-CFR-rates-the-new-bank-debt--PR_325524 which I quote from below. Among other things they are saying that the dividends being paid out constitute a risk to the company's credit rating, and that CVT is leveraged at 7x Ebidta. In my opinion the company is borrowing and paying dividends at the same time. Rating Action: Moody's affirms ConvaTec's B2 CFR; rates the new bank debt Ba2; outlook negative Global Credit Research - 15 May 2015 Approximately $3.5 billion rated debt affected New York, May 15, 2015 -- Moody's Investors Service assigned a Ba2 rating to the proposed $1.85 billion senior secured credit facilities by ConvaTec Inc. and ConvaTec Healthcare E.S.A., the subsidiary companies of ConvaTec Healthcare A S.a.r.l (collectively "ConvaTec"). At the same time, Moody's affirmed ConvaTec Healthcare A S.a.r.l's B2 Corporate Family Rating and B2-PD Probability of Default Rating. The rating outlook remains negative. The proceeds of the debt offering will be used to refinance the company's existing senior secured term loan due 2016 and senior secured notes due 2017, and to pay related fees and expenses. The new credit facility will be comprised of a $200 revolving credit facility (undrawn upon closing) and $1.65 billion term loans denominated in Euro and USD. The new revolver will replace the existing $250 million senior secured revolving credit facility that expires this year. The affirmation of the B2 CFR assumes timely completion of the proposed refinancing. Moody's expects operating performance to stabilize in the coming year despite the company's recently reported weak operating performance and near-term earnings headwinds from unfavorable foreign exchange movements. ConvaTec's diversified business franchise, solid market positions across business units and recurring nature of some of its revenue base provide a buffer against operating challenges. Moody's expects ConvaTec's EBITDA to stabilize over the next 6-12 months amid foreign exchange headwinds, then gradually improve in 2016, leading to steady deleveraging over time. The proposed refinancing will improve the company's debt maturity profile, thus enhancing liquidity. Moody's notes the company's liquidity is weak absent the refinancing. "There is significant downside risk to the rating should operating performance and the pace of deleveraging deviate from our current expectations hence we are maintaining the negative outlook," commented Moody's senior analyst, John Zhao, a Vice President. ConvaTec's new management faces many challenges to turn around the weak operating results in 2014. These challenges stem from product quality related recalls, inventory write-downs and on-going pricing pressure due to competition and reimbursement cuts. Moody's also remains concerned about outstanding or recently-developed regulatory, legal and compliance issues, ranging from FDA warning letters and 483 observations, Department of Justice subpoenas, product liability litigation and internal control deficiencies in financial reporting. "While it's difficult to assess potential impact at this juncture, we believe ConvaTec's overall business risk has increased due to uncertainty related to these events," Added Zhao. Should the expected recovery in operating performance fail to materialize and the company is unable to de-lever in 2015, or the refinancing does not transpire, Moody's could downgrade the rating. Moody's also revised the ratings on ConvaTec's existing senior secured revolving credit facility and term loan to Ba2 from Ba3 to reflect the repayment of senior secured debt in the past year, which has resulted in improved recovery prospects for the remaining secured debt in a distressed scenario. RATING RATIONALE ConvaTec's B2 corporate family rating (CFR) reflects its high financial leverage, with debt/EBITDA above 7.0x and modest free cash flow. The rating also incorporates the company's heightened business risks due to on-going operational challenges as well as compliance, legal and regulatory issues. While Moody's expects the company's leverage to decline gradually in the next 12 months, there is a significant downside risk to earnings and cash flows due to uncertainty potentially arising from these challenges, thus hindering the company's ability to de-lever. Moody's is also mindful of the company's historically aggressive financial policies that resulted in repeated re-leveraging in recent years, either via acquisitions or a significant dividend payment. ConvaTec's B2 rating also reflects Moody's expectation of an attractive EBITDA margin of around 30% and good liquidity following the refinancing transaction. The company has a leading position in non-cyclical, predictable markets and a recurring revenue stream. It also has a broad product portfolio and track record of product life-cycle management and innovation, which together with its solid geographic diversification and limited customer concentration partially mitigate the company's high leverage. Moody's could downgrade ConvaTec if debt/EBITDA remains sustainably above 7.0x. A material adverse event, debt-funded acquisition, and/or sizeable restructuring costs could also trigger a downgrade. Also, a weakening of the company's liquidity profile could lead to a downgrade.
