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. announced on Oct. 3, 2012, that it obtained the consent of its banking partners to amend its leverage and interest cover financial covenants under its credit facility.

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

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

Rating Action

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

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


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

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

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


We view Cegedim's liquidity as "less than adequate" under our criteria, with a ratio 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 million of 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 issues from June 2014 onward.

Recovery analysis

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

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

Our simulated default scenario contemplates a payment default if the ongoing reduction in the size of pharmaceutical companies' medical sales forces led to customer loss, which would ultimately result in operating underperformance. Combined with increased competition, this could lead Cegedim to default in 2014.

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

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


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

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

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

Related Criteria And Research

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

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

-- Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' 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 4135 5898, Bhanu.priya@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net))