Moody’s stops covering Grifols because it believes it has information "insufficient or inadequate"

The company reveals that it has terminated the contract with Moody’s, which would explain why it has withdrawn its rating

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Credit rating agency Moody’s announced on Friday at market close that it has withdrawn its ratings on Grifols because it believes it has “insufficient or inadequate” information to support maintaining the ratings.

Sources close to the Catalan company have explained to Europa Press that Moody’s is no longer covering them because their contract has been terminated, although they will continue to work with the agencies Standard & Poor’s (S&P) and Fitch.

These sources also claimed that Moody’s is withdrawing the ratings because, once the contract is terminated, it will only be able to access the company’s publicly available information.

Going into the details of Moody’s statement, the agency has withdrawn the Catalan blood derivatives company’s corporate family rating (CFR) of ‘B3’ and its probability of default rating (PDR) of ‘B3-PD’.

In addition, the senior unsecured ratings backed by ‘Caa2’ of Grifols Escrow Issuer, the senior secured ratings backed by ‘B2’, the senior secured term rating of B2 of Grifols and the senior secured ratings of bank credit lines backed by ‘B2’ of Grifols World have been removed.

Prior to the withdrawal, the outlook was ‘stable’ for all ratings.

Moody’s said in a statement that it had decided to withdraw the ratings because it believes it has “insufficient or inadequate” information to support maintaining the ratings.

THE AGENCY DOWNGRADED THE COMPANY’S RATING TWO WEEKS AGO

On June 26, Moody’s downgraded Grifols’ rating to ‘B3’ from ‘B2’ due to the company’s leverage levels and its governance model, thus ending the review initiated on March 5 due to lower cash generation and the delay in the publication of its audited accounts.

The statement released at the time explained that the downgrade to ‘B3′ reflected Grifols’ high leverage – even despite the expected debt reduction from its recent asset sale – as well as the slower than expected recovery of free cash flow, resulting in credit metrics that would be in line with a ‘B3’ rating in the next 12 to 18 months.

Moody’s also argued that governance considerations were also a key factor in the downgrade: “In particular, limited predictability of financial performance, the company’s risk management, a poor performance history, a complex and opaque organizational structure involving related party transactions.” [en referencia a la relación de Grifols con Scranton, Haema y BPC]as well as management rotation.”

“We acknowledge that Grifols has made some positive changes to its governance, including the recent separation of management from shareholders and the appointment of a new CEO; however, there is currently a limited track record of the company’s operations following these changes,” Moody’s said.

In parallel, the following day, on June 27, the Fitch Ratings agency revised the outlook for Grifols’ long-term credit rating from negative to stable and confirmed the rating at ‘B+’.

Grifols shares responded to the news with a 12% drop in the stock market, leaving the stock at 7.97 euros.

POSSIBLE TAKEOVER

More recently, Grifols has ended this week with a 9.39% rise on the stock market, placing the share at 9.834 euros, after it was announced last Monday that the Grifols family is negotiating with the Brookfield fund a possible takeover bid for the Catalan company.

In a communication sent to the CNMV, the Catalan company explained that its board of directors, meeting in an extraordinary session, received a request on Sunday through the family shareholders of Grifols and Brookfield Capital Partners “to allow access to certain information” of the company in order to carry out a ‘due diligence’ process in relation to a possible acquisition of shares of the blood derivatives firm.

At the meeting, it was reported that the purpose of the transaction would be to delist Grifols if the operation is finally carried out.

For his part, the Minister of Economy, Trade and Business, Carlos Cuerpo, said on Thursday that the Government will have “something” to say if the Public Offer for the Acquisition of shares (OPA) takes place, since this offer “will have to go through the usual channels.”

Grifols has had a year marked by accusations about its accounting made last January by the hedge fund Gotham City Research, while since then the Ibex 35 listed company has accumulated a stock market depreciation of more than 36%.

CREATION OF A MONITORING COMMITTEE

Grifols’ board of directors agreed on Friday to create a committee, called the ‘transaction committee’, to monitor the possible takeover bid that would be carried out jointly by family shareholders and the Brookfield fund.

Grifols has also agreed to give Brookfield access to certain information under a confidentiality agreement in the context of the work aimed at the possible presentation of a takeover bid for the shares of the company listed on the Ibex 35.