He has only been the chief executive of Grifols for three weeks, but Nacho Albia has just completed the first of the three operations necessary to move forward in the process of restructuring his debt, although it will be expensive. The pharmaceutical company has successfully raised €1 billion with a private sale of ‘senior’ secured bonds (backed by some type of asset or property). Grifols will therefore pay an annual coupon of 7.5% (75 million euros annually), four and a half times more than the 1.6% of its comparable 2019 senior debt issue still in force.
The increase in the cost of this type of debt is the result of the change in the interest rate scenario, the crisis of investor confidence in the company after the Gotham case and the deterioration of its credit risk profile. This is attested to by the recent rating downgrades to high risk levels by Fitch (B+), S&P (B) and the threat by Moody’s (B2) to do the same. Grifols assures that it will use these 1,000 million euros to pay ‘unsecured’ debt that matures in May 2025 for the same amount and for which it was paying 3.2% annually.
“The truth is that the note only refers to the fact that it is a private placement, so we do not know what discount it has been issued with. Let us remember that one thing is the interest rate that you will pay on the nominal amount, in this case a 7 .5% on the 1,000 million euros, and another what it has achieved in the issue.
“In this case, we do not know if the discount (the less than those 1,000 million euros it has achieved in the issue) is very large. Specifically, the company will use that issue to pay the non-guaranteed debt maturity of 2025”, explains Javier Cabrera, analyst at the XTB broker.
“We think that the rate to be paid is quite high, taking into account that it is a guaranteed issue, which means that it is backed by assets. This means that it is the type of debt with the highest credit quality that the company can issue, so That interest rate is the lowest possible that Grifols can pay in that time period,” adds Cabrera.
In his opinion, the situation in which interest rates find themselves is different, but so is that of Grifols, which is why he estimates that there will be a significant increase in its financial costs in the coming years, further harming its flows. . of box. “In fact, the bonds that mature in 2025 are unsecured (of poorer credit quality) and were issued in 2017 for 8 years with a coupon of 3.2% and a final cost of 3.25%, which contrasts with current conditions.” , he concludes.
Third phase: bank debt
Once this movement is closed, Grifols moves to a second phase and is focusing on closing the sale of 20% of the Chinese company Shanghai Raas to the group of that same nationality Haier, which it signed in December but which is still pending to become a reality. It is estimated that it will earn 1.8 billion dollars (about 1.6 billion euros) with this divestment, the funds of which it plans to use to amortize the series of senior ‘secured’ bonds of 837 million euros for which it pays the aforementioned 1.6% annually and which also expire next year.
When this step is completed, Grifols will have to refinance a line of bank debt worth an additional 1 billion euros, also with imminent maturity. The pharmaceutical company will find itself with around 1.4 billion euros of liquidity, which it plans to allocate mostly to reducing its debt, according to the approach it communicated to the market in March. At that point, the firm plans to face negotiations with creditor banks to carry out another refinancing of its bank debt, like the one it carried out in 2019, worth more than 5.4 billion euros and which led it to issue long-term bonds. term. term.
Grifols is also facing a scenario that is not conducive to reducing its financial costs because central banks have not yet begun to cut interest rates. The European Central Bank (ECB) has indicated that it will almost certainly do so in June, while the Federal Reserve (Fed) may postpone this cut, according to many experts. The pharmaceutical company has debt issued in both euros and dollars at this time.
Before this week’s bond placement, Grifols had issued five series with maturities between 2025 and 2028 for an import of 4.5 billion euros, which pay semiannual coupons ranging from 1.62% to 4.75%. The interest burden on these bonds amounts to about 150 million euros annually, but now it will have to face higher rates and a greater interest burden, but with a smaller business perimeter because it will have to divest from the Chinese company.
