Galapagos Holdings Credit Report

13 June 2019

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Galapagos Holding, the German heat exchanger manufacturer, which comprises divisions Kelvion and ENEXIO, is to restructure its debt via a scheme of arrangement, as it looks to de-lever to c. 4x from 7.2x at 1Q19. The group is to exit the dry cooling business at a cost of EUR 39m, and implement its ‘FF100’ improvement plan. Galapagos has not agreed the exact treatment of the existing EUR 250m unsecured notes. However, assuming equitisation and a valuation at 25-33% less than peers (10.2x EV/FY19E EBITDA), we estimate recoveries on the EUR 250m 7% unsecured notes at between 11-37% of face value, giving holders a 17-40% stake in the business. We are wary of the group’s revenue and margin guidance, and believe that if it is unable to hit these targets, liquidity may be stretched.