Cerba - Still Waiting At The Starting Line - Model Update

All,

Please find our updated analysis on Cerba here.

With a large advisory roster ready to accrue fees, negotiations on the Cerba restructuring are about to begin. The outcome was inevitable and should have materialised months ago, but the formal launch of a mandat ad hoc at least allows the process to move forward. Value breaks within the senior debt, with subordinated bonds likely to hold out for nuisance value. Senior creditors, however, must contend with potential leakage to minority shareholders, who retain the ability to exercise their put option. With no visibility on the future pricing framework, any new capital will require a leap of faith that downward pressure on tariffs remains contained.

Investment Rationale

- Having covered our senior short position at 75% in November 2025, our core thesis remains: Cerba is overleveraged and will struggle to generate positive free cash flow after interest in FY26. However, concentrated ownership of the senior secured debt has curtailed liquidity, making a short position less attractive. With the restructuring now active, we anticipate muted price volatility. 

- Achieving a sustainable capital structure would require equitising 50% of the senior debt, creating up to 20 points of downside. Our recapitalisation scenario envisages a €300m super-senior cash injection, further reducing the sustainable residual debt load.

- In the near term, tightly held debt limits immediate downside to 5–10 points, though adverse French regulatory shifts remain a risk. Conversely, the necessity of a comprehensive balance-sheet overhaul caps upside at roughly 80 (c. 5 points). 

- Ultimately, this process requires fresh capital; creditors participating in a new-money solution will likely see superior recoveries. 

Mandat ad Hoc:

- Cerba HealthCare has formally initiated its long-anticipated balance sheet restructuring by opening two mandat ad hoc procedures at both the operating and top holding company levels. This specific process will likely be protracted, as Cerba requires clarity on French government pricing before solidifying its path forward. We expect the mandat ad hoc to occupy the summer months, with little visibility until September or October when pricing talks with the state should conclude. Following this phase, the group will likely transition into a conciliation process to bind any dissenting minority creditors.

- In general terms, a mandat ad hoc is a confidential, court-supervised French restructuring mechanism designed to facilitate negotiations between a distressed company and its key stakeholders before any formal insolvency filing. A court-appointed mandataire ad hoc oversees discussions on debt rescheduling, covenant relief, or new financing, while management retains full operational control. The process is highly flexible and typically lasts several weeks to months, which is appropriate given the added complexity posed by Cerba’s minority biologists.

- Crucially, the mandat ad hoc has no binding or “cram-down” power and therefore requires unanimous stakeholder consent to be implemented. If unanimity cannot be achieved, which appears unlikely in Cerba’s case, the Company would likely move into a conciliation process and, if necessary, into a formal restructuring procedure such as sauvegarde or sauvegarde accélérée, where a court can impose a majority-approved plan on dissenting creditors.

Adviser list:

- The sheer volume of firms advising different stakeholders, coupled with the uncertainty surrounding future pricing, ensures a complex process ahead. Specifically, the Biologist shareholder Group’s put options create additional friction. These hurdles will inevitably drive up restructuring charges just as Cerba’s liquidity remains under significant pressure.

- Sponsor (EQT): Financial adviser: Ondra Partners

- Company (Cerba HealthCare / Chrome HoldCo): Financial adviser: Rothschild Legal adviser: Gibson Dunn

- Independent Business Review (2026–2028): EightAdvisory

- RCF Lenders (EUR 450m revolving credit facility): Financial adviser: Evercore Legal adviser: Paul Hastings

- First-lien creditor group: Financial adviser: PJT Partners Legal advisers: Milbank; Willkie Farr & Gallagher

- Biologist shareholder group (put option holders): Financial adviser: Lazard Legal adviser: Linklaters

Next Steps:

- The Independent Business Review (IBR), being conducted by Eight Advisory, has commenced. We do not expect rapid completion, as Cerba has indicated that pricing negotiations with French authorities will begin shortly. Any regulatory pricing outcome could materially impact future cash flows and must be concluded before the IBR finalises.

- Pricing talks are slated to start before month-end (April), with initial indications expected in June or July and a final pricing agreement/budget likely by late Q3/early Q4. Given this timing, meaningful progress on financial restructuring is unlikely before year-end.

- Q1 and Q2 financial reporting will likely proceed without material commentary on restructuring, reflecting continued uncertainty.

- One key unresolved issue is how Cerba intends to manage minority biologist shareholders who hold equity put rights. These puts may be triggered in the near term, creating additional cash outflows on a strained balance sheet.

Restructuring Scenario:

- With limited clarity available, we have conservatively assumed that all potential put liabilities held by the minority Biologists are fully exercised and therefore must be repaid. This creates a further cash requirement, with super-senior debt issued to address the minority Biologists.

- With c.50% write-down in Senior Debt, we expect the Senior Lenders to take the majority of the restructured equity. Our scenario assumes 90%, although a portion of this will need to be shared with the Senior (sub) Notes.

- Total theoretical recovery is c.70c, broadly in line with trading levels; however, this comprises only c.50c of debt recovery, with the balance attributable to equity upside.

- We have assumed the €100m of new debt provided by EQT will be treated pari passu with existing Senior Debt. However, this may instead be fully equitised to allow for greater equity participation for EQT.

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk