Sweden-based diagnostic lab operator Unilabs Holding AB (Unilabs) intends to issue incremental debt totaling €270 million to fund recent acquisitions

  • Sweden-based diagnostic lab operator Unilabs Holding AB (Unilabs) intends to issue incremental debt totaling €270 million to fund recent acquisitions, including Portugal-based Base Holdings and repay its drawn revolving credit facility.
  • These bolt-on acquisitions are expected to contribute accretive earnings while also enhancing the group's geographic diversity and exposure to specialty testing volumes.
  • Following the recent re-financing and re-pricing, the group now benefits from reduced interest costs and we expect interest coverage metrics to remain robust following this additional debt issuance.
  • We are therefore affirming our 'B' rating on Unilabs.
  • The stable outlook reflects our view that the group will generate healthy positive free operating cash flow while steadily improving profitability metrics through its continued focus on cost efficiency, productivity, and operational synergies.

At the same time, we affirmed our 'B' issue rating on the €1,080 million term 
loan B due 2024 (including the proposed €140 million add-on) and the upsized 
€200 million revolving credit facility (RCF) with a recovery rating of '3', 
reflecting our expectation of meaningful (50%-70%; rounded estimate 55%) 
recovery in the event of a payment default.

We are also affirming our 'CCC+' issue rating on the €380 million senior notes 
(including the proposed €130 million tap) due 2025 with a recovery rating of 
'6', reflecting our expectation of negligible (0%-10%) recovery in the event 
of a payment default.

The affirmation follows Unilabs' plans to issue an incremental amount of €140 
million on its existing senior secured term loan B facility and tap the senior 
notes by up to €130 million. The group intends to repay the drawn RCF with the 
proceeds, as well as complete the acquisition of a number of targets including 
Blufstein, CGC Genetics, and Base Holdings. We understand the debt indenture 
will remain unchanged, with the margin on the term loan and senior notes 
priced at 3.0% plus EURIBOR and 5.75%, respectively, and mature in 2024 and 
2025. The RCF will also be increased by €25 million while the owners will 
invest new equity instruments totaling €10 million to help fund the 

Unilabs is a European diagnostics company providing clinical testing and 
medical diagnostic imaging services to its clients with a broad geographic 
footprint in Europe. The group generated revenues of €679.6 million in 2016 
(2015: €672.6 million) and is majority-owned by private equity group Apax 

Base Holdings provides diagnostic services to customers in clinical analysis, 
radiology, and cardiology and recorded revenues of close to €80 million in 
2016. We expect this acquisition to give Unilabs increased scale and 
geographic presence in the fragmented Portuguese market while improving the 
existing imaging diagnostic platform, driving organic growth and operational 
synergies. We expect Portugal to account for approximately 15% of the combined 
pro-forma group EBITDA generation, which will reduce Unilabs' dependency on 
the Swiss, French, and Swedish markets. Specialty testing volumes should also 
increase following the acquisition of CGC Genetics, which is also based in 
Portugal. The company specializes in clinical and medical genetic tests in 
areas including cytogenetics, molecular diagnostics, and pathology. We expect 
this acquisition to be complementary and further strengthen the group's 
profitability metrics given the unique and advanced nature of these tests. We 
expect fiscal budgets in Europe, however, to continue to be under pressure, 
which creates challenging market conditions and increased competitive rivalry. 
We view the players with a focus on cost-management and geographic diversity 
in earnings generation as better able to mitigate any adverse movements in 
regulation or contract tariffs in the long-term.