Waterfall Analysis: Cerba’s Transformation Plan Hindered by Potential Further Tariff Cuts; High Leverage 8.4x Despite Large PF Adjustment; No Immediate Triggers; Full Recovery in Base Case; SUNs Yield at 16.5% 

Editor’s Note: The Moody’s credit rating for Cerba in the peer table has been amended to Caa1 to reflect the corporate family rating. An earlier version of this story incorrectly showed Caa3, which is the credit rating  for the company’s SUNs. The EBITDA item name in the Waterfall Analysis below has been updated to correct post-IRFS 16 to pre-IFRS 16. Credit Research: Mengdi Zhang, CFA Relevant Items: Q2’2024 Results Historical Financials on Fundamentals by Reorg 2028 and 2029 Notes OM Covenant Analysis These are testing times for French clinical laboratory Cerba. A sharper-than-expected cut to French regulatory tariffs in September triggered a drop in its debt prices. And its ambitious transformation plan to regrow its top line to support its highly leveraged capital structure after the loss of Covid-related revenues will be hindered by potentially more tariff cuts over the next two years. The loss of Covid-testing revenue, coupled with rising interest rates and an over-leveraged capital structure (net leverage of 11.4x adjusted EBITDA, and 8.4x pro forma EBITDA), has left the group with current EBITDA that is insufficient to cover its significant interest expenses, resulting in six consecutive quarters of cash burn. Cerba’s immediate priority is to reverse negative cash flow and rapidly[...]