Research: Rating Action: Moody’s Confirms BVI Medical’s Caa1 CFR, Negative Outlook


New York, September 02, 2022 — Moody’s Investors Service (“Moody’s”) has affirmed BVI Medical, Inc.’s (“BVI”) Caa1 Corporate Family Rating (CFR), Probability of Default (PDR) Caa1-PD ) and the Caa1 Rating on the company’s senior secured debt.

The confirmation of the rating reflects improved liquidity as the company repaid its revolving loan with proceeds from a new €85 million junior term loan.

As a result of this action, Moody’s will remove the Corporate Family Rating (CFR) and Probability of Default Rating (PDR) from the borrowing entity (BVI Medical, Inc.). The CFR and PDR will pass to the parent guaranteeing entity (BVI Holdings Mayfair Limited). In addition, a negative outlook will be assigned to the parent guarantor entity (BVI Holdings Mayfair Limited). This change places the CFR, PDR and outlook at the entity, which represents the entire credit group, and reports as such in the audited financial statements provided by the company. The change in location of the CFR does not imply any change in the company’s credit profile or the creditworthiness of Moody’s rated debt.

The negative outlook reflects the company’s very high leverage due to the disruption caused by the coronavirus crisis, large one-time expenses and a gradual recovery in profits. While freeing up the revolver’s borrowing capacity is helpful, any deviation from current earnings recovery expectations can increase the firm’s leverage and thus limit its borrowing base to 35% of the amount. total of the revolver to avoid testing the covenants.

Statement:

..Issuer: BVI Medical, Inc.

…. Classification of the family of companies, Caa1 confirmed

…. Default scoring probability, Caa1-PD confirmed

…. Senior Secured Senior Revolving Credit Facility, Confirmed Caa1 (LGD3)

….Senior Secured 1st Privilege Term Loan, Confirmed Caa1 (LGD3)

Duties:

..Issuer: BVI Holdings Mayfair Limited

…. Classification of the family of companies, awarded Caa1

…. Default scoring probability, assigned Caa1-PD

Outlook Actions:

..Issuer: BVI Medical, Inc.

….Outlook, changed to no Outlook from Stable

Outlook Actions:

..Issuer: BVI Holdings Mayfair Limited

….Perspectives, Attributed Negative

RATINGS RATIONALE

BVI’s Caa1 CFR reflects the company’s moderate scale based on sales and narrow focus within its chosen ophthalmology markets. The rating also reflects Moody’s expectation that debt/EBITDA will remain above 8x over the next 12-18 months. The company faces headwinds from one-time costs and upfront expenses for new product launches, at least in the next two quarters, making the company’s earnings recovery uncertain. However, over the longer term, Moody’s expects improved case volumes and lower costs to help the company’s operating performance. The company also competes with many larger competitors who have much larger financial resources. This rating is underpinned by BVI’s long-standing presence in the materials, equipment and intraocular lens (IOL) market for cataract surgery, strong operating margins and a diverse global customer base.

The company’s liquidity is low – with $34 million in cash at the end of 06/30/2022, a substantial portion of which may be needed to cover potential cash burn over the next 6-12 months. Moody’s notes that the company has struggled to generate positive free cash flow over the past 3 years. At present, the company has access to almost all of the 65 million revolver. However, if profits remain low and the first lien net leverage ratio exceeds the level of the commitment (8.6 times – credit agreement calculation). the company’s revolver loan base could be limited to 35% of total renewable capacity.

ESG considerations have a very strong negative impact (CIS-5) on BVI’s rating. BVI’s credit exposure to environmental risk considerations is neutral to low (E-2) consistent with the overall exposure of the medical products and devices industry. BVI has a very negative credit exposure (S-4) to social risk considerations arising from responsible production, including meeting regulatory requirements for the safety of its products as well as adverse reputational risks arising from recalls associated with manufacturing defects. Many of the company’s products are implanted inside the human eye and are subject to harsh regulatory actions and product liability litigation. BVI’s credit exposure to governance risk considerations is very strongly negative (G-5). The Company’s governance risks reflect its very aggressive financial strategy and risk management, as the Company maintains very high leverage. Additionally, the company has a board structure, which is dominated by members representing the company’s private equity sponsor – TPG Capital.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The ratings could be upgraded if the company’s operating performance recovers, resulting in EBITDA comparable to pre-pandemic levels and positive free cash flow. Quantitatively, the ratings could be improved if BVI maintains its debt/EBITDA below 8.0 times while maintaining a good liquidity profile.

Ratings could be downgraded if elective vision procedures remain postponed beyond our current expectations, if free cash flow remains negative for an extended period or if liquidity erodes further.

Based in Waltham, Massachusetts, BVI Medical, Inc. (BVI) is a global manufacturer of products used in eye surgeries (primarily cataract procedures). BVI was acquired by private equity firm TPG Capital in August 2016. LTM revenue is approximately $325 million.

The main methodology used in these ratings was Medical Products and Devices published in October 2021 and available at https://ratings.moodys.com/api/rmc-documents/75796. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Kailash Chhaya, CFA
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Ola Hannoun-Costa
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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