Grifols faced a sharp reaction from investors after Moody’s lowered the group’s credit rating. The multinational’s shares plunged more than 12% on Thursday, trading around 7.97 euros, reflecting the debt agency’s move that afternoon. Moody’s downgraded the corporate family rating from B2 to B3, with a stable outlook, saying the action completes the review that began on March 5, 2024. The firm noted that the downgrade aligns with its assessment of Grifols’ leverage, although debt-reduction plans and asset sales had been anticipated. The rating action signals concerns about how the company will manage debt against a less favorable cash flow outlook in the near term. [ Moody’s press statement, as reported ]
On the same day, Fitch offered a contrast by keeping the rating at B+ but shifting the outlook to stable rather than negative, albeit with cautions about future developments. Meanwhile, lenders impeded the refinancing of Scranton, the Grifols family vehicle, though industry sources indicated that negotiations to reach a resolution are ongoing. [ Fitch ratings update; industry sources ]
Two weeks earlier, the company had celebrated a general meeting where it received broad backing from shareholders for its strategy to counter the campaigns launched since January by the hedge fund Gotham City. The market reaction underscores the contentious environment as Grifols pursues its long-term plan amid activist pressure. [ Shareholders meeting recap ]
The downgrade by Moody’s reflects what the agency sees as Grifols’ still elevated leverage, even after an expected debt reduction from the recent asset sales, and a slower-than-anticipated recovery in free cash flow (FCF). Moody’s projects that credit metrics will remain in line with a B3 rating over the next 12 to 18 months if earnings and cash generation do not pick up faster. The company recently closed the sale of 20% of its Shanghai RAAS subsidiary to Haier for about 1.6 billion, and it has restructured debt maturities accordingly. [ Moody’s analytical notes; press release paraphrase ]
Moody’s adds that governance considerations weighed heavily in the day’s decision, highlighting limited visibility into Grifols’ financial performance and risk management. The rating agency pointed to a complex and opaque organizational structure, related-party transactions, and senior management turnover as part of the risk assessment. [ Moody’s governance commentary ]
Moody’s also expects the proceeds from the Shanghai RAAS sale to be used to deleverage the secured senior debt on a proportional basis, including the potential repayment of roughly 520 million euros of the 838 million euros outstanding on notes due in February 2025. This use of funds is seen as a key step toward restoring financial flexibility, though the path remains contingent on future cash generation. [ Debt repayment expectations ]
However, Moody’s stresses that the company’s liquidity remains fragile. While it suffices for the next year, long-term liquidity will depend on Grifols returning to positive FCF generation. The agency notes that Grifols must address the upcoming maturity of a 1.0-billion-dollar revolver due in November 2025 to maintain liquidity. [ Liquidity considerations ]
Nevertheless, Moody’s acknowledges Grifols’ strong market position and vertical integration in plasma-derived products, with solid demand fundamentals, regulatory barriers, customer loyalty, and significant capital intensity. The agency argues that these factors underpin the rating and that the stable outlook reflects expectations of gradual improvements in results and FCF over the next 12 to 18 months, potentially reducing leverage to a level that would comfortably align with a B3 rating and turning the free cash flow positive. [ Moody’s market position assessment ]