Research: Rating Action: Moody’s upgrades Bioplan USA, Inc.’s CFR to Caa1 following restructuring of capital structure; outlook stable

New York, March 29, 2023 — Moody’s Investors Service (Moody’s) upgraded Bioplan USA, Inc.’s (d.b.a Arcade Beauty, Bioplan) Corporate Family Rating (CFR) to Caa1 from Caa2 following the recent restructuring of its capital structure in which all prior debt was impacted. Moody’s also assigned a B1 rating to the new senior secured priority term loan, Caa1 rating to the new senior secured takeback term loan and withdrew ratings on the old credit facilities. Concurrent with this rating action, Moody’s downgraded Bioplan’s Probability of Default Rating (PDR) to D-PD from Caa2-PD because the restructuring is considered a distressed exchange and thus a default under Moody’s definition. The D-PD will be a temporary assignment and the PDR will be upgraded to Caa1-PD in around three business days. The outlook is stable.

The rating action follows Bioplan’s completion of a comprehensive restructuring of its capital structure in which all prior debt was impacted. The lenders of the prior first lien term loan due December 2023 converted to a $160 million senior secured takeback loan and received 92.5% of the new common equity of the company while the existing 2024 second lien term loan lenders received 7.5% of the common equity in exchange for the cancellation of their prior claims. A large portion of the outstanding unsecured revolving credit facility expiring December 2023 was cancelled. In addition, the lenders of the prior first lien term loan provided $50 million of additional capital in connection with a new senior secured priority term loan.

Upgrades:

..Issuer: Bioplan USA, Inc.

…. Corporate Family Rating, Upgraded to Caa1 from Caa2

Downgrades:

..Issuer: Bioplan USA, Inc.

…. Probability of Default Rating, Downgraded to D-PD from Caa2-PD

Assignments:

..Issuer: Bioplan USA, Inc.

….Senior Secured Priority Term Loan, Assigned B1 (LGD1)

….Senior Secured Takeback Term Loan, Assigned Caa1 (LGD4)

Withdrawals:

..Issuer: Bioplan USA, Inc.

….Backed Senior Secured First Lien Term Loan, Withdrawn, previously rated Caa1 (LGD3)

….Backed Senior Secured Second Lien Term Loan, Withdrawn, previously rated Caa3 (LGD5)

Outlook Actions:

..Issuer: Bioplan USA, Inc.

….Outlook, Remains Stable

RATINGS RATIONALE

On March 8, 2023, Bioplan completed an out-of-court restructuring that significantly reduced total funded debt and resulted in the company’s former creditors becoming majority equity holders of the company. The restructuring reduced total debt (excluding account receivable facilities) by 45% to $210 million from approximately $384 million. The debt post-restructuring consists of a new $50 million senior secured priority term loan due March 2027 and a $160 million senior secured takeback term loan due March 2028.

Post-restructuring, Bioplan extended the debt maturities by an additional 2.75 years which reduced refinancing risks in the near term and improved financial flexibility during a period of macroeconomic uncertainty and tighter financial conditions. With the sizable reduction in total debt, adjusted total debt to EBITDA is expected to be in the mid-5x in 2023. Total interest expense will be in line with the prior year although cash interest costs will be lower due to reduced debt levels.  

However, the take back term loan contains an option to pay interest expense fully in cash or a mix of cash and payment-in-kind (PIK) toggle until the maturity date. The PIK toggle is structured to have the cash portion increase each year. The company is expected to elect the PIK toggle option at least for the first year to preserve cash holdings.

The 2023 debt restructuring follows a period in which Bioplan operated with unsustainably high financial leverage in the 9x-11x range and persistently negative free cash flow which made it challenging for the company to address scheduled debt maturities in 2023. This is the second debt restructuring following a 2021 restructuring which Moody’s deemed a distressed exchange.

Governance risks have a very highly negative impact on Bioplan’s credit profile and remain a key consideration to the ratings.

The Caa1 CFR reflects Moody’s view that Bioplan will have improved financial flexibility resulting from the balance sheet restructuring and additional liquidity, which provides the company with the buffer to invest in premium product sampling and new initiatives to enhance productivity and quality. However, there are secular industry pressures due to the ongoing shift to the internet, social media and e-commerce platforms for the purchase of beauty products, and reduced product sampling demand, particularly from North American fragrance and consumer packaged goods (CPG) clients. Additionally, lower CPG client marketing spend, changes in customer product sales and marketing plans as well as shifts in product mix may also contribute to volatility and operating margin compression.

Bioplan’s ESG Credit Impact Score is very highly-negative (CIS-5), reflecting the company’s highly-negative exposure to demographic and societal trends and very highly-negative governance risks. Social considerations are highly-negative (S-4) driven principally by demographic and societal trends. As consumer purchasing behavior of beauty products is evolving, Bioplan’s clients are shifting advertising dollars to digital, social media and e-commerce platforms which has impacted the company’s overall volumes. In order to mitigate the impact of the changing behavior, the company is expanding its customer relationships with newer, independent online brands that are emerging. Governance risks are very highly-negative (G-5) due to Bioplan’s history of elevated and untenable financial leverage, missed forecasts, negative free cash flow generation and weak liquidity.

The stable outlook reflects Moody’s view that Bioplan will grow revenue in the low-single digits and maintain adjusted EBITDA margins at approximately 16% over the next 12 to 18 months resulting from the demand for fragrance sampling in Europe, North and Latin America despite secular declines in magazines and catalogs mainly in North America. Moody’s expects Bioplan to partially offset higher raw material costs through price increases. While the total leverage ratio will remain in the mid-5x from the restructuring efforts, free cash flow will remain negative.

Moody’s expects Bioplan to maintain adequate liquidity over the next 12-18 months. While Moody’s expects Bioplan to generate negative free cash flow driven by one-off expenses related to the transaction and increased capital expenditures to support growth initiatives, the proceeds from the $50 million new priority term loan is expected to offset negative operating cash flow and support the company’s liquidity profile. While Bioplan’s liquidity is limited by the absence of a committed revolving credit facility, the company maintains access to a €39 million accounts receivable factoring program (i.e., Europe: €29 million; North America: €10 million post-recapitalization), of which $32 million was outstanding as of end-September 2022.

The B1 rating on the new senior secured priority term loan reflects the instrument’s small size and priority position in the capital structure versus the new takeback term loan. The Caa1 rating on the takeback term loan reflects the instrument’s subordinated position relative to the priority loan and low anticipated recovery prospects as a result of its junior position. The new term loans are secured by substantially all tangible as well as intangible assets.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Bioplan effectively navigates the rapidly changing purchasing behavior in the beauty industry by developing new sampling products and generating sustained revenue and EBITDA growth. In addition, the company would need to maintain stable EBITDA margins amid an expanding revenue base, generate positive free cash flow, maintain a good liquidity position and exhibit prudent financial policies.

The rating could be downgraded if Moody’s adjusted total debt to EBITDA or liquidity materially weakens or the operating and competitive environments were to weaken as evidenced by erosion in market share, product prices and/or EBITDA 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. The company does business under the name Arcade Beauty and has operations in the United States, France, Poland, Brazil and China. Following the recapitalization, Bioplan is now owned by a consortium of global investment firms. Net revenue totaled approximately $303.3 million for the twelve months ended 30 September 2022.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.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 https://ratings.moodys.com

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Alison Chisuhl Jung
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653