S&P rates PharmaZell, loan B-

S&P said it gave B- ratings to European Medco Development 3 Sarl (PharmaZell) and its senior secured term loan. The recovery rating on the loan is 3 (50%).

The rating considers PharmaZell's relatively small size and narrow focus on niche active pharmaceutical ingredients in a challenging industry. “The group's pipeline hinges on the core products, primarily steroids, mesalazine (5-ASA) and N-acetylcysteine (NAC), as well as new product development such as the ursodeoxycholic acid (UDCA) franchise, which will translate into compound annual growth in revenue of 6% between FY2020 and FY2023. Given the group's current high plant utilization rates, we expect capital expenditure (capex) will be elevated over the next 12-24 months to meet its growth target,” S&P said in a press release.

The agency said it sees PharmaZell posting adjusted debt to EBITDA in 7x-8.x range on average between FY2022 and FY2023.

PharmaZell plans to issue a €70 million payment-in-kind note, with proceeds to be used to repay the previous PIK loan issued by its shareholders and the remainder to finance a dividend.

The outlook is stable, reflecting the view that PharmaZell's EBITDA will continue to rise, underpinned by volume growth in its core products, its increasing product line and its sustained strong market share in regulated markets, leading to gradual deleveraging, the agency said.

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