Rating Action: Moody's downgrades Bioplan's PDR to D-PD following debt restructuring; affirms Caa2 CFR and assigns Caa1 to new first-lien facility, Caa3 to new second-lien facility; outlook revised to stable from negativeGlobal Credit Research - 24 Mar 2021Approximately $349.4 million of new debt ratedNew York, March 24, 2021 -- Moody's Investors Service ("Moody's") has downgraded Bioplan USA, Inc.'s ("Bioplan" or the "company") Probability of Default Rating ("PDR") to D-PD from Caa2-PD, following the recent restructuring of the company's first-lien and second-lien credit facilities. Moody's considers the restructuring as a distressed exchange and thus a default under Moody's definition. Concurrent with this rating action, Moody's affirmed Bioplan's Caa2 Corporate Family Rating (CFR). Moody's also assigned a Caa1 rating to the new senior secured first-lien term loan credit facility and Caa3 rating to the new senior secured second-lien term loan credit facility, and withdrew ratings on the old credit facilities. The D-PD will be a temporary assignment and shortly after this action, the PDR will be revised to Caa2-PD reflecting the still high probability of an additional default given Moody's view that the debt capital structure may still be unsustainable. The outlook was revised to stable from negative.The default assignment is driven by the company's effective restructuring by agreeing with all of its existing creditors to extend the maturities of its entire debt capital structure. Proceeds from the new bank credit facilities were used to refinance an exact amount of outstanding borrowings under the existing first-lien and second-lien facilities via amendments to the respective credit agreements with the same lender groups. The new credit facilities were repriced with a higher annual interest expense, a portion of which was structured as payment-in-kind (PIK) that will increase the facilities' principal balances. In connection with the refinancing transaction, Bioplan received a $20 million capital contribution as new cash equity from its private equity sponsor, Oaktree Capital Management, L.P.Following is a summary of today's rating actions:Affirmations:..Issuer: Bioplan USA, Inc.Corporate Family Rating, Affirmed at Caa2Downgrades:..Issuer: Bioplan USA, Inc..... Probability of Default Rating, Downgraded to D-PD from Caa2-PDAssignments:..Issuer: Bioplan USA, Inc. (Co-Borrower: Tripolis US LLC)$246.9 Million Senior Secured First-Lien Term Loan due December 2023, Assigned Caa1 (LGD3)..Issuer: Bioplan USA, Inc.$102.5 Million Senior Secured Second-Lien Term Loan due December 2024, Assigned Caa3 (LGD5)Withdrawals:$246.9 Million Senior Secured First-Lien Term Loan due September 2021, Withdrawn, Previously Rated Caa1 (LGD3)$102.5 Million Senior Secured Second-Lien Term Loan due September 2022, Withdrawn, Previously Rated Caa3 (LGD5)Outlook Actions:..Issuer: Bioplan USA, Inc.Outlook, Changed to Stable from NegativeRATINGS RATIONALEWhile the refinancing has extended Bioplan's debt maturities by approximately 2.25 years and eliminated near-term refinancing risk, the total debt quantum remains unchanged and will subsequently increase due to the new PIK structure that adds roughly a third of the increased interest expense to the principal balances annually.The affirmation of Caa2 CFR reflects Moody's continued view that Bioplan's total debt to EBITDA leverage will remain elevated this year in the 8x-9x range after peaking in Q3 2020 at roughly 12x (leverage metrics are Moody's adjusted) due to the earnings nadir resulting from the economic downturn triggered by the COVID-19 pandemic. The rating also embeds the expectation for negative free cash flow generation over the coming year. Moody's expects Bioplan will experience an earnings rebound in 2021 as economies, retail establishments and beauty salons in North America and Europe continue to slowly reopen, vaccines are more widely administered, customer retail traffic increases and sampling product demand improves from historic lows. However, Moody's does not project sales volumes, revenue and EBITDA to return to 2019 levels due to uneven recoveries across North American and European markets. Notably, the recent recovery in Europe could be short-lived given the slower rollout of vaccines compared to North America, renewed lockdown measures in some European countries and slower pace of sustained reopenings amid circulation of new variants of the virus, which Moody's believes could lead to fluctuating demand volumes over the near-term. Despite management's plan to achieve $10 million in annual operating cost savings this year, Moody's expects EBITDA will remain subdued and debt to increase owing to the new PIK structure, which will sustain leverage at high levels.The revision of the outlook to stable from negative reflects the removal of refinancing risk associated with the old first-lien term loan facility that was scheduled to mature in September 2021. It also reflects Moody's expectation for a global economic recovery, albeit uneven, leading to Bioplan's organic revenue growth rebounding this year in the 15%-20% range coupled with 14%-16% adjusted EBITDA margins, financial leverage in the 8x-9x band (Moody's adjusted), positive free cash flow generation expected in the second half of 2021 (albeit negative for the entire year) and positive free cash flow to debt approaching 2% (Moody's adjusted) in 2022.While many regions in North America and Europe are gradually reopening their economies, Moody's expects in-store retail and salon customer traffic to remain below historical levels due to a lag in consumer purchasing behavior, reduced occupancy guidelines, permanent closure of some establishments and patrons opting for online shopping, home delivery and DIY at-home beauty and skin-care regimens to avoid in-store product testing/sampling and large crowds. Owing to the discretionary nature of Bioplan's products, Moody's projects profitability will remain depressed compared to pre-pandemic levels arising from reduced marketing spend and product sampling volumes from consumer packaged goods (CPG) clients who, in turn, are experiencing decreased demand for cosmetics and fragrances given that consumers are spending more time indoors even as work-from-home measures are slowly relaxed. Though quarantine caused consumers to reduce normal makeup, hair-care, beauty and skin-care regimens, Moody's expects these routines to gradually recover as consumers spend more time outdoors once a greater number of out-of-home venues and businesses reopen. The pandemic and recession accelerated a downward trend in North American demand for makeup and fragrance products, which was evident since 2017. Consistent with this industry trend, Bioplan's EBITDA has declined each year since its 2016 post-restructuring peak. Moody's believes the company will gradually offset volume declines resulting from contraction in print media sampling (i.e., fragrance inserts in magazines and catalogs) and permanent closures of some medium-to-large sized apparel/specialty retailers by shifting its channel mix to e-commerce retail, digital/mobile contactless sampling, mini-products (e.g., travel size), and wellness, beauty and non-fragrance products.Bioplan's Caa2 CFR is constrained by high financial leverage, weak liquidity and negative free cash flow generation relative to a small revenue base. Moody's forecasts continued volatile and cyclical revenue due to pressured volumes arising from an unsynchronized economic recovery, exposure to consumer discretionary spend and lower CPG client marketing spend. Additionally, there are secular industry pressures due to the ongoing shift to internet, social media and e-commerce platforms for the consumption of beauty products, and reduced product sampling demand, particularly from North American fragrance and CPG clients. Cyclical increases in raw material prices, changes in customer product sales and marketing plans, client consolidation, shifts in product mix as well as aggressive competitor pricing behavior may also contribute to volatility and operating margin compression.The Caa2 rating is supported by Bioplan's position as the leading global provider of sampling and packaging services for the beauty, fragrance and personal care industries around the globe. The company enjoys a reputation for new product innovation and patented and proprietary technologies through effective R&D investment, facilitating an extensive, one-stop shopping product portfolio, which has also led to long-standing customer relationships. Bioplan benefits from clients' use of product sampling as part of their marketing to attract customers. The company has experienced steady growth in its e-commerce distribution channel and digital/mobile contactless sampling and mini-product solutions for its beauty, cosmetics and personal care clients. We also recognize the growth in Bioplan's independent brands, facilitated by the rise of social media influencers that trial and test products, and increasingly impact consumer purchasing decisions.Moody's expects Bioplan to maintain weak liquidity over the coming 12-15 months. Given the expectation for weak earnings relative to the sizable interest burden, Moody's projects that Bioplan will produce negative free cash flow generation in 2021 in the range of -$15 million to -$20 million (excluding proceeds from the sale of beneficial interests in securitized trade receivables). As such, the $20 million cash equity contribution from the sponsor is essential to offset negative operating cash flow and support the company's weak liquidity profile, in Moody's opinion. Moody's expects positive free cash flow generation beginning in the fourth quarter due to the seasonal nature of the business when customer volumes typically pick up and working capital needs diminish coupled with our expectation for a broader and more sustained reopening of economies. Unaudited cash balances were $23.2 million at fiscal year ended 31 December 2020 (up from $17.8 million at 30 September 2020), which included $19.8 million in borrowings drawn under the unrated $20 million unsecured revolving credit facility (RCF). The RCF's maturity was extended to October 2023 in connection with the refinancing. New covenants and basket limitations were added to the amended first-lien and second-lien credit agreements including: (i) minimum liquidity of $13 million (i.e., U.S.: $10 million; Europe: $3 million); (ii) debt incurrence capped at $4 million; (iii) a 25% ECF sweep for the RCF if consolidated LTM EBITDA is at least $60 million; (iv) dividends limited to $1 million per year; and (v) monthly financial reporting. To provide further liquidity support, Bioplan maintains access to a E39 million accounts receivable factoring program (i.e., Europe: E25 million; North America: E14 million) maturing March 2022, of which $23.2 million was outstanding at 30 September 2020.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of corporate assets arising from the current weakness in US and European economic activity and gradual recovery over the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Bioplan faces certain risks associated with social trends that include consumers' increasing focus on sampling beauty and skin care products and less on sampling fragrances chiefly due to the secular decline in magazine sales and associated decrease in magazine fragrance inserts. Also, the shift of beauty product sales direct-to-consumer via the internet and e-commerce is being facilitated by social influencers that trial and test products as well as new virtual try-on apps, which increasingly impact purchasing behavior by Millennials and Generation Z consumers, two large and growing demographic segments in the US.Governance risk for Bioplan is elevated due to ownership of private equity sponsor Oaktree, which creates risk of cash distributions to facilitate a partial return of the equity sponsor's aggregate investment in the company, M&A and excessive financial leverageSTRUCTURAL CONSIDERATIONSThe Caa1 rating on the first-lien term loan is one notch lower than the outcome from our Loss Given Default (LGD) model to reflect the instrument's diminished expected recovery prospects arising from the numerous challenges facing the company. The Caa1 rating on the first-lien term loan reflects the instrument's priority position in the capital structure versus the second-lien term loan. The first-lien term loan is secured by a first-priority lien on substantially all tangible as well as intangible assets and derives support from the second-lien term loan. The Caa3 rating on the second-lien term loan reflects the instrument's subordinated position relative to the first-lien term loan and low anticipated recovery prospects as a result of its very junior position.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSA ratings upgrade would require Bioplan to navigate the secular decline in magazine sales, direct-to-consumer purchases of online beauty products and permanent closure of retail store locations by effectively shifting its channel and product mix. An upgrade could occur if EBITDA margins remain stable (at a minimum) amid an expanding revenue base resulting in sustained reduction in total debt to EBITDA below 8x (Moody's adjusted), free cash flow to adjusted debt of at least 2% and adjusted EBITDA interest coverage at or above 1.5x. The company would also need to maintain a good liquidity position and exhibit prudent financial policies.Ratings could experience downward pressure if financial leverage, as measured by total debt to EBITDA, were sustained above 9x (Moody's adjusted), EBITDA interest coverage declines to below 1x or liquidity experiences further deterioration such that free cash flow generation becomes meaningfully negative. Downward pressure could also occur if the operating and competitive environments were to weaken as evidenced by erosion in market share, product prices and/or operating margins.Headquartered in New York, NY, privately-owned Bioplan USA, Inc., through its direct parent, Tripolis Holdings Sàrl, is a leading global provider of marketing, packaging and interactive sampling products to the fragrance, beauty, cosmetic and personal care industries. Oaktree Capital Management, L.P. ("Oaktree") currently owns 100% of Bioplan USA. Net revenue totaled approximately $284.7 million for the twelve months ended 30 September 2020.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. 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Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Gregory A. Fraser, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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