BioGroup - Just Not Enough - Model Update

All,

Please find our updated analysis on BioGroup post its Q1 numbers here.

BioGroup no longer has a senior–subordinated capital structure following the amend-and-extend (A&E) executed in May. The transaction created a predominantly all-senior structure and materially reduced trading opportunities in the name. We previously invested in the subordinated debt, where the additional yield adequately compensated us for the risks facing the Company. Today, only senior debt remains outstanding. Despite improved downside recovery characteristics, the current yield does not offer sufficient compensation to warrant investment.

Investment Rationale

- We are not taking a position in the newly issued €1.3bn 7.5% 2031 bonds. The bonds trade slightly above par and offer limited near-term downside, but we do not believe a c.7.5% yield adequately compensates investors for the risks associated with upcoming pricing negotiations expected later this year with the French public healthcare system (French National Health Insurance).

- We exited our position in the Senior Unsecured bonds at 94%, prior to the Company launching the A&E transaction that shifted the capital structure to an all-senior format maturing in 2031. Near-term maturities did not drive this decision alone. Both BioGroup and Cerba continue to adopt a wait-and-see approach as they await the outcome of the French government’s review of future pricing, volumes, and regulatory measures.

- If the government provides favourable clarity on the pricing regime, the bonds could trade to a 6% yield, implying approximately 5 points of upside. We do not expect such clarity before late Q3, which limits the near-term risk/reward.

- Downside risk remains highly sensitive to the pricing outcome. Under a more adverse repricing scenario, yields could widen to 10%, equating to roughly 10 points of downside.