Seqens Loans Slide as PAP Slump Causes Q3 EBITDA to Be 54% Below Budget; Group Guides to €110M FY’24 EBITDA

French pharmaceutical solution and specialty chemicals producer Seqens’ loans dropped around 8 to 9 points after third-quarter earnings missed budget by 54% as a result of a deepening slump in the group’s core para-aminophenol, or PAP, market. Seqens’ cashburn continued, however management guided to a sequential improvement in earnings and cash generation during the fourth quarter, sources said.

Third-quarter sales reached €203 million, which fell short of the €235.8 million budgeted, while EBITDA came in at €12.5 million, well below the €27 million budgeted. The shortfall was mainly driven by PAP, however the group’s remaining businesses were also below budget, sources noted.

The PAP division had budgeted €8 million EBITDA but ended up generating a €1.6 million loss. Volumes maintained their downward trajectory, falling to 3.6 kilotonnes during the quarter from 4.3 kilotonnes in the second quarter and 5.3 kilotonnes in the first quarter, while prices dropped by another 3% during the quarter.

China-based BaYi, the market leader, continued to supply PAP during the quarter despite failing an inspection by the European Directorate for the Quality of Medicines & HealthCare, or EDQM, for the renewal of its Global Manufacturing Practices, or GMP, certificate, in July. While this may yet result in constraining supply, BaYi could get its plant re-certified within six months, sources noted.

Year-to-date revenue came to €723.5 million versus €751.2 million budgeted, while EBITDA reached €81.8 million versus €94.8 million budgeted.

Seqens burned another €37.4 million of cash during the third quarter. This was partly driven by minority shareholder payments and partly due to a €25.3 million working capital increase on the back of a jump in receivables relating to a summer shutdown that should reverse during October and November. Year-to-date free cash flow was still positive at the end of Q3 at €19 million.

The group ended the quarter with €56 million of cash (excluding cash sitting at its CellforCure cell therapy business, which is not part of the restricted group) and €70 million available under its €130 million RCF as of quarter-end. The revolver is subject to an 8.8x springing senior secured net leverage quarterly test when the facility net of cash on balance sheet is more than 40% drawn.

Senior facilities agreement, or SFA, adjusted senior secured net leverage climbed to 7.6x at the end of the third quarter from 6.9x at the end of the second quarter. Actual net leverage based on €101 million LTM reported EBITDA climbed to 9.9x from 9x over the same period, sources noted.

Management guided to a recovery in EBITDA and free cashflow in the fourth quarter and is targeting full-year EBITDA of €110 million. It expects the recovery to continue in 2025 and is forecasting growing EBITDA around 20% over the next four years to €225 million by the end of 2028, sources said.

But given the recent underperformance, Seqens could be downgraded to triple C, one source commented. The group is rated B3 by Moody’s and B- by S&P, both with a stable outlook.

Sponsor SK Capital owns a 76.9% stake in Seqens, while previous sponsors Eurazeo, Ardian, Mérieux Equity Partners and Eximium own a minority stake.

Seqens’ term loan B is quoted at 82.5/82.5, down from 91/92 last week, one source noted.

The group’s capital structure as of Sept. 30 is below:

According to Octus’ CLO database, Seqens’ loans are held by the following managers. Click HERE to see the full list of holders in the database.

To see the covenant analysis or to talk to one of our legal analysts, click HERE.

SK Capital and Seqens did not return a request for comment.