Fitch: Fresenius' Quironsalud Buy Adds Scale, Diversification; No Rating Impact
Despite being predominantly debt-funded, the transaction will use headroom available under the current rating, as Fitch estimates consolidated funds from operations (FFO) adjusted net leverage upon completion to peak at 4.1x in 2017, comfortably within Fitch's negative rating sensitivity of 4.5x. The manageable leverage post-acquisition is helped by EUR400m of new Fresenius shares that will be issued to finance part of the transaction, as well as the defensive and resilient operational qualities of the acquired business.
Fitch expects Quironsalud to be cash-generative and earnings-accretive for Fresenius, supporting a smooth deleveraging path over the four-year rating horizon. Fitch forecasts net debt-to-EBITDA will return inside Fresenius' long-term leverage guidance of 2.5x-3.0x within 18 months of completion. Fitch also projects FFO fixed charge cover will remain comfortably above 3.0x, fully consistent with its 'BBB-' rating, even once a more permanent debt structure has been established from planned debt capital market issues.
While the Quironsalud transaction will temporarily increase financial leverage at FSE, Fitch is confident in its satisfactory deleveraging capacity. Moreover we do not expect a significant divergence in FSE's and FMC's individual credit profiles, supporting the alignment of their respective IDRs at 'BBB-'.
We expect Fresenius to continue to scale up its existing four divisions by way of acquisitions. In this context, we view the addition of Quironsalud as positive for the group's business risk profile, adding further scale and diversification to its Fresenius Helios unit. The transaction represents a significant strategic step to expand private hospital operations outside Germany, where limited opportunities for further growth and consolidation exist. Fitch views the transaction as a strategic move towards the creation of a pan-European private hospital player.
Fitch expects synergy opportunities between the German and Spanish operations to develop over time, stemming from scale benefits, administration efficiencies, knowledge transfer and procurement, although we expect Fresenius' immediate focus would be on continuing the integration efforts at Quironsalud. Fitch views the execution risk associated with this acquisition as moderate, since management has a strong record and experience in integrating private hospital chains as evidenced by the acquisition of hospitals from Rhoen-Klinikum in 2013.
Fitch believes the Spanish private healthcare sector offers some attractive fundamentals, and is somewhat resilient from the recent economic downturn given its non-discretionary nature, strong secular growth trends, a recent focus on liberalisation and the creation of public-private partnerships.
Furthermore, Fitch expects private health insurance cover in Spain to grow from the current penetration of around 20% as insurers target the market with tailored products, supporting positive growth dynamics in the private healthcare sector. Quironsalud generates just above 50% of its revenues from private payers and health insurances. These benefits, however, are conditional on strict cost control and a focus on working capital, which has led to some pressure on performance for Fitch-rated peers in the region.
Quironsalud is the leading private hospital operator in Spain, having been created in 2014 by a series of mergers under private equity ownership. The group operates 43 hospitals, 39 outpatient centres and around 300 occupational risk prevention centres in Madrid, Barcelona and other key Spanish cities, generating around EUR2.4bn of revenues in 2015.