Relevant Document:Curaeos FY’19 Report
EQT Partners, sponsor to Dutch dental practice operator Curaeos Holdings, is preparing for possible restructuring talks with lenders, sources told Reorg. EQT is working with longstanding legal advisor Clifford Chance and is seeking a financial advisor. Lenders are holding preliminary discussions among themselves, sources added.
The group issued a going concern notice in its full-year report as a result of the Covid-19 crisis and has been struggling to integrate its dental clinic and laboratory acquisitions.
On government advice the company closed its clinics which affected its ability to generate revenue and source supplies from March onward. Clinics reopened at the end of April and the company does not expect a severe impact on liquidity and EBITDA from June 2020.
Despite all sites being able to operate again, the current Covid-19 conditions and the unpredictability of the situation results in the existence of a material uncertainty which may cast significant doubt on the group's ability to continue as a going concern, according to auditors.
The group has a €268 million first lien TLB quoted at 61 paying a margin of Euribor+400 basis points maturing on May 25, 2025. The company also has a €75 million revolving credit facility due May 23, 2024, with a 3.25% margin; and a €64 million second lien term loan maturing May 23, 2026 with a cash margin of E+7.5% and a PIK margin of 8.25%. An extensive list of pre-approved transferees is restricting trading in the company’s debt.
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Curaeos’ cash EBITDA was €15.34 million
in 2019, with an EBITDA margin of 4.9% according to Reorg’s calculations.
The company reported a 16.5% year-over-year rise in revenue to €316.6 million in 2019. The majority of the revenue comes from the Netherlands (65%), followed by Germany (16%) and Italy (10.5%). The company also operates in Denmark, Belgium and Norway.
Cash flow from operating activities was negative €262.5 million compared with negative €89.6 million in 2018. At year end 2019 the company had €17.76 million of cash at bank and in hand, compared with €25.29 million a year prior. Net debt at year end was €389.5 million.
Acquisition Strategy
Curaeos has been struggling to integrate its recent acquisitions, sources said. The company recorded an impairment of €181.2 million in 2019. This relates to the current performance of the group compared with the expected performance at the time of the goodwill valuation but doesn't include the effect of Covid-19.
In 2019 several clinics and labs were acquired by the company. These acquisitions had an impact on goodwill amounting to €2.9 million in the Netherlands based on a purchase price of €3.4 million, and €5.2 million in Germany based on a purchase price of €6.4 million.
The revolver is principally used to fund acquisitions. Under the terms of the RCF up to 30% of consolidated EBITDA is permitted to be added back as synergies. Curaeos says its acquisitions are valued based upon the current client base, expected developments and synergies and, in the case of clinics, whether the dentists of the acquired practice are allowed to start their own practice again if they leave the company.
The RCF has a springing net debt to EBITDA covenant set at 10.8x when drawn more than 40%. As of Dec. 31, the covenant was not tested. In January, the company’s sponsor EQT provided an equity cure in the range of €15 million to €20 million to reduce amounts drawn under the RCF, as
reported. EQT is
committed to Curaeos’ “buy-and-build” growth strategy. In December, €38 million outstanding of an €80 million shareholder loan to the company was converted into equity. A maximum of four cures are permitted over the life of the facility.
Debt Explained has analyzed Curaeos’ May 2018 SFA. To see the full report or to talk to one of our legal analysts click HERE. You can access this product if you have a copy of the SFA.
EQT declined to comment to Reorg.
-- Connor Lovell, Aurelia Seidlhofer