French lab company Cerba’s creditors are gearing up for debt talks with the company by forming a group and hiring advisors, according 9fin sources. 

The group, which consists of mainly secured TLB and SSN holders as well some crossholders of the SUNs, have hired Milbank and Willkie as legal advisors, the sources said.

9fin previously reported that secondary funds have been buying into the debt as they want a stake in a possible A&E.

Last week, Investcorp’s Harvest CLO IX sold €2m of Cerba’s TLB maturing in 2028 in a BWIC at 76.11, according to 9fin sources.

The sale comes after S&P downgraded Cerba to CCC+ on 2 June on the back of its unsustainable capital structure and strained liquidity. 9fin wrote about how this put a strain on CLO’s European triple-C buckets here.

Investors have been wondering whether Cerba may resort to an LME to bolster its liquidity given its loose debt documentation. 9fin’s LME analysis shows that the company has significant capacity for value leakage away from the restricted senior secured group of between €782.3m to €1,487.9m (subject to used capacity and the application of the super grower/high watermark).

Whether or not EQT will step into support the business has been on the forefront of investors minds. Last month the sponsor provided €200m to its other portfolio business French care home provider Colisée, as 9fin reported. However in Cerba’s case, 9fin’s analysis shows there is no equity value in the business so there may be no incentive to inject capital.

9fin calculated Cerba’s net leverage based on reported EBITDA of €421m in FY 24 at 11.3x. Our analysis shows that a healthier net leverage would be around 6x, which would require a haircut of 44%-48%. 

Cerba’s underperformance is mainly due to several tariff cuts to French routine testing, delayed research segment recovery, and cost base pressures. The group is trying to address this with a €100m cost saving plan, as 9fin reported.

The group’s adjusted EBITDA is padded by staggering €146m of synergy and pro forma items that are yet to materialise, so the company has been burning FCF after interest in the last two years, according to 9fin’s analysis.

Cerba is being advised by Gibson Dunn and its sponsor EQT is being advised by Latham & Watkins, as 9fin reported.

Cerba, Milbank, and Willkie did not respond to requests for comment.