TEXT-S&P affirms Cegedim S.A. at 'B'; off watch neg; outlook stable

(The following statement was released by the rating agency)

Oct 09 - Overview

-- French healthcare software and services group Cegedim S.A. announcedon Oct. 3, 2012, that it obtained the consent of its banking partners to amendits leverage and interest cover financial covenants under its credit facility.

-- We are affirming our 'B' long-term corporate credit and issue ratingson Cegedim and removing them from CreditWatch negative.

-- The stable outlook reflects our view that Cegedim will take thenecessary steps to further improve its liquidity position by addressing themismatch between cash flow generation and debt amortization.

Rating Action

On Oct. 9, 2012, Standard & Poor's Ratings Services affirmed its 'B' long-termcorporate credit ratings on French healthcare software and services providerCegedim S.A. At the same time, we removed the ratings from CreditWatch, wherewe had placed them with negative implications on Aug. 9, 2012. The outlook isstable.

We also affirmed our 'B' issue rating on Cegedim's EUR280 million 7% unsecurednotes due in 2015, in line with the corporate credit rating, and removed itfrom CreditWatch negative, where we had placed it on the same date. Therecovery rating on the notes remains at '3', reflecting our expectation ofmeaningful (50%-70%) recovery for creditors in the event of a payment default.


The affirmation reflects our assessment that Cegedim's liquidity position hasbeen strengthened by the covenant reset announced on Oct. 3, 2012, althoughthe mismatch between cash flow generation and debt amortization was notaddressed. We now estimate the reset will enable Cegedim to post headroomunder its financial covenants above 15% in the next 18 months. We also factorin Cegedim's agreement under the covenant reset not to pay a dividend or makesignificant acquisitions until its credit metrics improve.

Given our expectation of continued difficult economic conditions in the secondhalf of 2012 and based on the company's half-year results on June 30, ourprojections still show that free cash flow generation will not be in line withthe EUR40 million annual debt amortization in 2012 and 2013. However, factoringin low-but-positive free cash flows, the cash available on June 30, and theundrawn portion of the revolving credit facility, our projections show Cegedimwill be able to meet its financial obligations in 2012 and 2013.

Still, we remain concerned about Cegedim's ability to face financialobligations from June 2014. We therefore expect the company to address theliquidity mismatch in the coming months through a refinancing, a renegotiationof the debt amortization schedule, or the repayment of a substantial amount ofdebt through asset disposals.


We view Cegedim's liquidity as "less than adequate" under our criteria, with aratio of liquidity sources to uses of 1.1x.

As of June 30, 2012, we factor in the following sources:

-- EUR37 million of cash and equivalents, taking into account EUR20 millionof trapped cash;

-- EUR40 million undrawn under the revolving credit facility; -- EUR5 million proceeds from the disposal of Pharmapost in May 2012; and -- EUR85 million of funds from operations. This compares with our estimate of the following needs: -- EUR40 million of debt repayment under the term loan A; -- EUR80 million of annual capital expenditures; -- Acquisitions of EUR23 million, including ASP Line; and -- No dividend payment and negligible working capital needs.

Our "less than adequate" qualifier also reflects potential liquidity issuesfrom June 2014 onward.

Recovery analysis

The EUR280 million unsecured notes due 2015 issued by Cegedim are rated 'B', inline with the corporate credit rating. The notes have a recovery rating of'3', indicating our expectation of meaningful (50%-70%) recovery prospects fornoteholders in the event of default.

The ratings on the notes reflect their unsecured nature and Cegedim'spost-default exposure to the French insolvency regime, which we view asunfavorable for creditors.

Our simulated default scenario contemplates a payment default if the ongoingreduction in the size of pharmaceutical companies' medical sales forces led tocustomer loss, which would ultimately result in operating underperformance.Combined with increased competition, this could lead Cegedim to default in2014.

At our hypothetical point of default, EBITDA would have declined toapproximately EUR96 million. We estimate Cegedim's enterprise value at thesimulated point of default to be about EUR480 million, which corresponds to anenterprise-value-to-EBITDA multiple of about 5.0x.

For more details, see our recovery report titled "Cegedim S.A. Recovery RatingProfile," published on July 12, 2012.


The stable outlook reflects our view that, owing to the covenant reset, theundrawn portion of the revolving credit facility, and the cash on hand,Cegedim will meet its interest payments, financial covenants, and debtinstallments in the next 18 months. It also factors in our anticipation thatCegedim will take the necessary steps in the short term to refinance orsignificantly reduce the scheduled amortization under its bank facility.

We could lower the ratings if Cegedim doesn't fully address the mismatchsituation through one of the abovementioned steps. We could also lower theratings if operating performance doesn't at least stabilize.

We could consider raising the ratings if the company were to substantiallyimprove its free cash flow generation and lower its annual debt amortization,while sustainably showing comfortable covenant headroom of above 15%. Apositive rating action would however depend on Cedegim's sustainable operatingrecovery.

Related Criteria And Research

-- Methodology And Assumptions: Liquidity Descriptors For GlobalCorporate Issuers, Sept. 28, 2011

-- Key Credit Factors: Criteria For Rating The Global Branded NondurableConsumer Products Industry, April 28, 2011

-- Criteria Guidelines For Recovery Ratings On Global IndustrialsIssuers' Speculative-Grade Debt, Aug. 10, 2009

-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,May 27, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008 Ratings List Ratings Affirmed; CreditWatch/Outlook Action To From Cegedim S.A. Corporate Credit Rating B/Stable/-- B/Watch Neg/-- Senior Unsecured B B/Watch Neg Recovery Rating 3 3 ((Bangalore Ratings Team, Hotline: +91 80 41355898, Bhanu.priya@thomsonreuters.com,Group id: BangaloreRatings@thomsonreuters.com,Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net))