Cerba Healthcare's Debt Dilemma: Can EQT Navigate Regulatory Storms and High Leverage?

France's healthcare sector is a battleground, and Cerba Healthcare—a private equity-backed laboratory giant—finds itself in the trenches. With leverage ratios at unsustainable levels and regulatory headwinds intensifying, the question isn't whether Cerba must restructure its debt, but whether it can do so before financial covenants trigger a crisis. For investors, this is a cautionary tale of overleveraged balance sheets colliding with unforgiving industry dynamics. Let's dissect why Cerba's senior secured notes due 2028 warrant a short position today.

The Regulatory Tsunami: France's Price Cuts and EBITDA Collapse

The French government's relentless push to cut laboratory testing tariffs has become Cerba's fiscal Achilles' heel. A 9% price reduction in 2024, layered on top of prior cuts, has slashed revenue growth and EBITDA margins. Even as Cerba reported LTM pro forma adjusted EBITDA of €570.2 million as of June 2025, the trend is unmistakable: margins are eroding faster than cost-cutting can offset.

Analysts note that Cerba's 2024 leverage peaked at an unsustainable 14.1x debt/EBITDA before adjustments—a stark reminder of how fragile its financial footing truly is. While management claims adjustments have brought leverage down to 8.3x, this masks a critical nuance: the senior secured leverage ratio (excluding unsecured debt) sits at 7.4x. This narrow margin of safety leaves little room for error in an environment where EBITDA is stagnant at best.

The Debt Mountain: How High Can Cerba Climb?

Cerba's total net financial debt stands at €4.737 billion, split across a labyrinth of instruments: a €450 million revolving credit facility, a €1.875 billion term loan B (due 2028), senior secured notes, unsecured notes, and bilateral loans. The term loan B—a key focal point for investors—is structured with covenant triggers tied to leverage ratios. If adjusted senior secured leverage breaches 6.5x, Cerba could face restrictive financial covenants or even a default scenario.

The math is grim. Even if EBITDA stabilizes at €570 million, Cerba's debt/EBITDA would need to fall to 6.0x-6.5x to create a sustainable buffer—a target requiring €1.5–2.0 billion in debt reduction. With limited organic growth prospects and refinancing markets wary of leveraged healthcare issuers, this goal feels increasingly out of reach.

EQT's Tightrope Walk: Restructuring or Default?

As Cerba's private equity owner, EQT faces a stark choice: restructure the debt stack now or risk covenant breaches by 2026. Proposed solutions—hedging, cost-cutting, and asset sales—sound familiar but lack teeth. Cost reductions have already been front-loaded, and asset sales would require finding buyers in a sector where peers are equally cash-strapped. Meanwhile, refinancing risks loom large.

• Liquidity Strains: Cerba's revolving credit facility is already partially drawn, leaving little flexibility for emergencies.
• Market Access: Investors are skittish about leveraged healthcare debt post-pandemic. Cerba's 2028 notes currently trade at distressed levels, reflecting skepticism about their refinancing prospects.
• Covenant Triggers: The 6.5x threshold is a red line. If EBITDA slips further, Cerba could face restrictive covenants that stifle operational flexibility.

Investment Thesis: Short the 2028 Notes—A High-Yield, High-Risk Opportunity

The senior secured notes due 2028 are the optimal short target here. While secured debt typically offers downside protection, Cerba's case is an exception. Key reasons to bet against these notes:

1. Leverage Reduction Pipeline Is Blocked: Regulatory headwinds ensure EBITDA won't grow sufficiently to deleverage meaningfully. Even if Cerba sells non-core assets, the scale required to lower leverage to 6.5x is unrealistic.
2. Refinancing is a Hail Mary: With €1.875 billion due in 2028 and no credible plan to refinance before then, investors will price in default risk. The notes' current yield (~12%) may seem attractive, but the risk of a haircut post-restructuring makes them a prime short candidate.
3. Covenant Breach Catalyst: If leverage breaches 6.5x by mid-2026, the term loan B's covenants could force immediate action—potentially triggering a refinancing squeeze or restructuring that dilutes note holders.

Bottom Line: Short the Notes, Hedge the Risk

Investors should short Cerba's 2028 senior secured notes while hedging against near-term volatility. Pair the short with a long position in a French healthcare ETF (e.g., HSCI) to offset sector-wide beta. The asymmetry here is clear: the upside for the short is limited to the notes' price drop, while the risk of a sudden EBITDA rebound is minimal given entrenched regulatory pressures.

In a world of overleveraged balance sheets, Cerba's story is a microcosm of what happens when debt outpaces earnings recovery. For now, the smart money bets against its ability to dodge the restructuring bullet—and the 2028 notes are the best vehicle to profit from that inevitability.