S&P rates Biofarma, notes B-

S&P said it assigned preliminary B- ratings to Kepler SpA, the parent of Biofarma Group, and its planned €345 million in senior secured floating-rate notes maturing in 2029.

“Biofarma enjoys sound profitability, with our expectation of S&P Global Ratings adjusted EBITDA margins of 23.5%-24.5% over 2022-2023. Because the group has mainly grown through acquisitions, we have limited track-record of Biofarma's organic operating performance on a like-for-like basis. In 2021, the group posted an S&P Global Ratings-adjusted EBITDA margin in the range of 18%-18.5% (before the IHS acquisition). We expect that this will increase to about 23.5%-24% in 2022, supported by anticipated organic volume growth as well as the ability to raise sales prices to more than offset the input cost increase.,” S&P said in a press release.

However, Biofarma’s size and geographical diversity are limited, with 55% of its €205 million revenues generated in Italy in 2021.The rest of its exposure is to other European countries, with 36% of sales, and a minor contribution from Asia and the U.S. Moreover, all four of its manufacturing plants are in the North of Italy, limiting its manufacturing footprint, the agency said.

Sponsor Ardian acquired a 70% stake in Kepler in March. To fund the deal, Biofarma intends to raise €345 million in notes maturing and €878 million of shareholder funding, comprising a €37.5 million vendor loan and a €106 million payment-in-kind facility, issued above the rated entity by Tatooine SpA and Kelt SpA, respectively; both are due in 2030. Additionally, the planned capital structure includes an unrated €60 million super senior revolving credit facility due in 2028 expected to remain fully undrawn at closing.

The outlook is stable reflecting the position that Biofarma has adequate rating headroom within its credit metrics, good deleveraging prospects, and will generate annual free operating cash flow of €15 million or more, S&P said.

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