Key points:
- Fitch Ratings published a report on July 1 discussing the implications of a potential default of France’s Cerba, which has the largest leveraged loan exposure on the agency’s European Top Market Concern Loan list, at €2.7 billion.
- Private laboratories — most of them backed by private-equity sponsors — became household names in 2020 and 2021 during the Covid-19 pandemic. Now, many of them are on the radar of special situations specialists.
- Europe’s medical laboratories sector’s business model is not broken, but it is suffering from excessive leverage.
Cerba’s managers could be forgiven for thinking that the profit windfall from the Covid-19 pandemic was also a curse. Like all the medical diagnostics laboratories — but perhaps more than most — the French company saw its revenue soar through the provision of routine tests, and spent vast sums on acquisitions.
Private laboratories became household names in 2020 and 2021, but now many of them are on the radar of special situations specialists. “Laboratories in France had it too good for too long,” says Pierre Verlé, head of credit and co-head of fixed Income at Carmignac. “The French government is now aware that for years it was over-generous with reimbursements, but some investors live in denial.”
Wheel of fortune
Indeed, the change of fortune for these companies has been quite spectacular, with the downgrade of Cerba in September 2024 by Moody’s to Caa1, from B3, firing a warning shot for the bioanalytical testing service sector. Fast forward to July 1, 2025, and Fitch Ratings published a report discussing the implications of a potential default of Cerba — which has the largest leveraged loan exposure on the agency’s European Top Market Concern Loan list, at €2.7 billion.
“Medical laboratories expanded during the 2010s in a very orderly manner, and with a clear blueprint,” explains Rémi Bringuier, a lead analyst Pharma and Healthcare Services at S&P Global Ratings. But things changed during the Covid years, due to the “PCR [test] windfall profit” in France, he adds, which allowed these companies to make much larger acquisitions, but at higher multiples — and without following the blueprint that had allowed them to successfully integrate the previous acquisitions.
This is what Kepler Cheuvreux described in its European High Yield 2025 Outlook as a “virtuous cycle of M&A, synergies, and FCF generation” that had come to an end.
On paper, labs looked like a sensible diversification play for asset managers because demand for their products is quite inelastic. What’s more, the increased focus on well-being and a shift to preventive medicine should bring more demand for their services in the coming years. But these long-term trends are overshadowed by the sector’s current woes.
“The medical laboratories sector is suffering from excessive leverage, which is the consequence of LBOs done at the top of the market,” points out Akram Gharbi, head of high yield and convertible bonds at Credit Mutuel Asset Management. “This is similar to what we saw in the NPL [non-performing loan] sector: inflated valuations, aggressive LBOs. Laboratories have good prospects; this is not like the auto-parts sector or retail, where the underlying trends are unfavourable. But these companies need to adjust their capital structures and operate with lower leverage.”
Main players
Companies such as Cerba and Biogroup form part of a sub-group within the healthcare providers and services sector. This is a niche that has proved popular among CLO managers.
According to BofA Global Research, in January 2025 Cerba Healthcare (Chrome) was the eighth-largest exposure for European CLOs, accounting for 0.69% of collateral and included in 77% of all European deals, ahead of high-profile names such as VodafoneZiggo and Ineos Quattro. Biogroup came nineteenth on BofA’s list, accounting for 0.59% of European CLOs’ collateral, and included in 72.5% of the deals.
Cerba Healthcare sold off in early March following media reports that it might be exploring a liability management exercise, according to BofA, which estimated in a report dated July 7 that CLO managers have sold €158.2 million gross (€118.3 million net) of Chrome Bidco in the year to date, at a weighted average price of 85.2 — an 8% reduction of their holdings, compared to a year-to-date reduction of 28% in the case of Altice France. Cerba was the twenty-fifth largest exposure in early July, representing 0.54% of European CLOs’ collateral.
The notional exposure of European CLOs to Cerba was estimated at €1.69 billion around mid-March 2025 by Deutsche Bank, mostly through the Chrome Bidco – Facility B due June 2028, while CLO exposure to Biogroup was estimated at €1.83 billion.
These two names were present in 504 and 513 deals, respectively. Groupe Inovie was present in 468 CLOs for a notional amount of €1.37 billion, according to Deutsche Bank, while Synlab (Ephios Subco 3) was present in 249 European CLOs for a notional amount of €554 million.
Cerba’s TLB has had a bumpy ride this year in the secondary market, with its daily price particularly volatile around the mid-March sell-off.
The Cerba case
Within this sector, Cerba’s situation is particularly tricky. It is burdened by its 2021 LBO, which was made at very high multiples and at a time of low interest rates, and a series of expensive acquisitions — also made at high multiples.
Cerba’s DNA is different from the other laboratories in the sense that the French company has sought to diversify away from routine testing, and grow its historic specialised medical biology business as well as a research segment, notes S&P’s Rémi Bringuier. But some of Cerba’s investments fell short of expectations and have weighed on the company’s results.
All labs followed buy-and-build strategies, but Cerba was especially active. Natixis analysts Fanny Meindre and Dimitri Alamé wrote in a report dated June 6, 2025, that 2021 and 2022 marked a turning point in Cerba’s development strategy, with acquisitions amounting to €3.8 billion in the first year and €1.187 billion the second year.
In May 2021, Cerba completed the term loan and high-yield bond financing backing its EQT-led buyout. A €1.525 billion, seven-year term loan priced at E+375/99.75, while the high-yield bond offering was split between a €420 million tranche of seven-year (non-call three) secured notes and a €325 million tranche of eight-year (non-call three) unsecured notes.
The debt issuance came in the context of strong cash generation at the firm. In 2021 Cerba’s unlevered free cash flow (FCF) growth was particularly eye-catching, reaching as much as €376 million (20.1% of revenue), according to Natixis. As Covid-related revenue started to decline, however, unlevered FCF also decreased — amounting to €275 million in 2022 (10.9% of revenue), €124 million in 2023 (6.4% of revenue) and €114 million in 2024 (6% of revenue).
Cerba generated negative free cash flow of €130 million in 2023, after taking into account interest payments on the group’s borrowings, Natixis estimates.
In the June 2 release announcing the downgrade of Cerba to CCC+, S&P made a direct reference to the firm’s diversification efforts in the biology sector. The rating agency indicated that Cerba’s overall business assessment needed to be re-examined, as its previous mergers and acquisitions strategy “aimed at transitioning away from the routine and specialty segments through acquisitions in research and clinical trials, has not delivered the expected results.”
Refinancing risk
“The problem for Cerba is the refinancing of its debt,” explains Rémi Ramadou, deputy head of Credit Research at Spread Research. “The company issued unsecured bonds at 5% and secured bonds at 3.5% in 2021. This is not possible anymore, especially for a company like Cerba which has leverage of over 10x.”
S&P Global Ratings calculates that Cerba’s debt to EBITDA reached 14.1x in 2024, and its FOCF after leases was negative €143 million. At end-March, Cerba’s senior secured net leverage ratio, as per its financial documentation, stood at 7.7x, and at 8.6x when factoring in the unsecured debt. Its total net financial debt amounted to €4.83 billion, including senior unsecured notes — up from €4.78 billion at the end of December.
CMAM’s Gharbi says that Cerba’s leverage is simply not sustainable, and that the market understands this. “The market is clearly pricing in a debt restructuring for Cerba, pointing to haircuts for unsecured notes of about 75%, and 25% for the senior notes,” he suggests.
In early July the bid yield for Cerba’s unsecured bonds was 64%, and 16% for the secured bonds. The E+375 loan due June 2028 was marked around 75, for a yield of roughly 14.5% and an all-in spread of 12.1%.
Cerba’s owner EQT declined to comment.
Biogroup model
The other medical laboratories are in better shape, and trading levels for bonds issued for a company such as Biogroup suggest the market is open for these borrowers, notes Gharbi.
Biogroup’s business model and debt maturity schedule are fairly similar to Cerba’s, but this company — which is mostly family-owned — is in a stronger position, points out Spread Research’s Ramadou. “Biogroup has always had slightly higher EBITDA margins than Cerba, its strategy focuses more on routine medical diagnostic tests, and its M&A policy was less aggressive, making a successful refinancing of its debt a realistic prospect,” he notes.
Still, Biogroup is also highly exposed to tariff adjustments imposed by the French government, with 76% of its revenue generated in France in 2024, according to Natixis’ estimates, versus 72% for Cerba. Moreover, Biogroup has not remained immune to the sector’s exuberance. In their 2025 outlook, Kepler Cheuvreux’s credit analysts pointed to Biogroup’s “aggressive financial policy (including M&A) despite a family-owned majority shareholder structure.”
Meanwhile, Lahlou Meksaoui, vice-president senior analyst at Moody’s Ratings, acknowledges that Biogroup’s adjusted leverage remains elevated, but stresses that other credit metrics are well within the B3 rating guidance, and that liquidity is strong. “Considering the company’s strong liquidity position, we expect the company to pursue strategic mergers and acquisitions, especially outside of France,” he says.
Natixis estimates that, as of end-2024, Biogroup’s net debt reached €2.799 billion, including unsecured senior bonds. Leverage was 5.4x for secured senior debt and 5.9x for the group’s total debt. This compares to senior net leverage of 3.6x in 2022.
Synlab spotlight
The other key name in this sector is Munich-headquartered Synlab, which was in the market in early July with the repricing of its €1 billion term loan due April 2031 — a transaction that was postponed amid heavy primary loan issuance in Europe.
Synlab is geographically diversified, with France representing only 19% of its consolidated revenue, according to Natixis. Synlab benefited from increased activity generated by Covid and suffered when the pandemic receded, which was compounded by higher inflation — Natixis estimates that the company’s FCF dropped by 91.6% in 2023 from 2022.
Moody’s projects that Synlab’s adjusted ratios will remain aligned with guidance for a B2 rating, while noting that to improve its profitability, the firm is actively streamlining its portfolio by divesting lower-margin assets.
In its June 6 report, Natixis had a buy recommendation on Synlab’s 7.875% notes due 2031 (issued by Ephios). The analysts pointed to spreads and a yield to worst that were significantly above market levels for equivalent ratings, while the issuer has a more diversified operational profile, with less exposure to tariff risk in France.
Tariff risk
The tariff risk mentioned by the Natixis analysts is very real — particularly in France, with negotiations between laboratories and the French government being closely watched by bondholders in recent months.
Tariff cuts to routine testing were implemented by the French authorities in January 2024 and September 2024, but a reimbursement pricing freeze was agreed upon in December 2024 for 2025 and 2026, thereby improving near-term visibility.
According to Carmignac’s Pierre Verlé, what is happening now is not cyclical. “This is a trend: the French health service needs to cut spending and will keep doing so in the years ahead.” There is also a better understanding in France of the financial engineering that typically comes with LBOs, he notes.
“The French government has understood that complex capital structures can be dissociated from the businesses themselves,” points out Verlé. “This signals a structural shift in that the French health system is set to continue exerting downward pressure on margins, constrained only by the need to preserve sector viability; and that private equity firms must come to terms with a new reality, which is that returns will no longer match the levels of the past.”
CMAM’s Gharbi echoes this view: “We must not bury our heads in the sand — the French health service needs to save money. We know what to expect in the coming years.”
Near-term outlook
The near-term outlook may, however, be slightly more supportive, or at least less dire than last year. “I was more pessimistic over the sector in 2024, because the French government was implementing drastic cuts and was seeking to recover some of the profits diagnostics laboratories made during the Covid period,” says Spread Research’s Ramadou. “But the government appears to be more constructive now.”
In Ramadou’s view, with the tariff freeze for the 2025-2026 period, lab companies should see their EBITDA grow through a combination of cost-saving measures and organic expansion.
Ramadou acknowledges that the ‘golden age’ for the medical laboratories sector is gone, but that these companies can realistically target pre-Covid EBITDA margins, as long as they manage to implement cost-saving plans.
S&P’s Bringuier also believes the business model of the diagnostics laboratories is not broken, and that they must be credited for having met the demands of the French health services during the pandemic, investing heavily to adapt and expand their businesses.
Now, it’s about right-sizing for all of these companies — and in the case of Cerba, probably writing off some debt.
Credit: Anchalee Phanmaha/Getty Images
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