/raid1/www/Hosts/bankrupt/TCREUR_Public/120427.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, April 27, 2012, Vol. 13, No. 84
Headlines
D E N M A R K
GREEN WIND: Finalizes Sale of GW Energi Unit to Danish Investor
G E R M A N Y
ARCANDOR AG: Ex-CEO Liable for Management Failures, Court Says
G R E E C E
TITAN CEMENT: S&P Affirms 'BB-/B' Corporate Credit Ratings
I R E L A N D
ALL JAZZ III: S&P Lowers Ratings on Two Note Classes to 'CCC-'
DRYDEN X-EURO 2005: S&P Raises Rating on Class S Notes to 'BB-'
HOUSE OF EUROPE: Moody's Raises Rating on EUR8.5MM Notes to 'B3'
MEZZVEST INVESTMENTS: Moody's Cuts Rating on Class C Notes to B3
TITAN EUROPE: Fitch Downgrades Rating on Two Note Classes to 'D'
WOLFHOUND FUNDING: Moody's Lifts Rating on Cl. A Notes From 'Ba2'
R U S S I A
BALTINVESTBANK: Moody's Issues Summary Credit Opinion
EVRAZ GROUP: Fitch Rates US$600-Mil. Five-Year Eurobonds 'BB-'
PROMSVYAZBANK: Moody's Changes Outlook on 'D' BFSR to Negative
RUSSIAN STANDARD: Moody's Issues Summary Credit Opinion
SVIAZ-BANK: Fitch Rates RUB5-Bil. Senior Unsecured Bonds 'BB'
VIMPELCOM LTD: Moody's Says Vietnamese JV Stake Sale Credit Pos.
VTB24: Moody's Issues Summary Credit Opinion
S L O V E N I A
* SLOVENIA: Moody's Cuts Long-Term Deposit Ratings on Three Banks
S P A I N
* SPAIN: S&P Downgrades Sovereign Credit Rating on Debt Concerns
S W I T Z E R L A N D
INEOS GROUP: S&P Raises Corp. Credit Rating to 'B'; Outlook Pos
U N I T E D K I N G D O M
BRITISH MIDLAND: BA Pilots Make Pledge; Takeover Issues Arise
CONERSTONE TITAN: Fitch Affirms Rating on Class G Notes at 'Csf'
D&D WINES: Goes Into Administration, Cuts 12 Jobs
PETROPLUS HOLDINGS: Coryton Refinery to Close if Buyer Not Found
RANGERS FC: Should Have Been Placed Into Administration Earlier
SKIPTON BUILDING: Moody's Issues Summary Credit Opinion
* UK: Scottish Company Failures Up 31% in First Quarter
U Z B E K I S T A N
ORIENT FINANS: S&P Assigns 'CCC+/C' Counterparty Credit Ratings
X X X X X X X X
* BOOK REVIEW: Hospital Turnarounds - Lessons in Leadership
*********
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D E N M A R K
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GREEN WIND: Finalizes Sale of GW Energi Unit to Danish Investor
---------------------------------------------------------------
Sally Bakewell at Bloomberg News reports that Green Wind Energy
A/S is finalizing the sale of one of its units to a Danish
investor in renewables to reduce debt.
According to Bloomberg, John Schmidt, a partner at the Danish law
firm Gorrissen Federspiel and a Green Wind Energy trustee, said
that the GW Energi A/S unit is expected to be sold within days.
He declined to name the buyer as the sale is not yet final,
Bloomberg says.
Mr. Schmidt, as cited by Bloomberg, said that Green Wind Energy,
in liquidation, is disposing of assets after accruing too much
debt.
Bloomberg relates that Mr. Schmidt said poor wind conditions in
Germany, where the company has all its wind assets, in 2009 and
2010 failed to generate enough revenue to repay debts of about a
quarter-billion Danish kroner (US$44 million).
Mr. Schmidt said that the GW Energi unit operates four wind parks
in Germany, with the Prignitz facility the largest at 25.5
megawatts, Bloomberg notes. According to Bloomberg, he said that
the unit is expected to undergo a "debt restructuring" in the
coming weeks as parent Green Wind is in liquidation.
The parent went into liquidation on April 4, and Green Wind's
listing on Nasdaq OMX Copenhagen was deleted April 11, the
exchange, as cited by Bloomberg, said in a statement at the time.
Mr. Schmidt was appointed trustee by the bankruptcy court,
Bloomberg discloses.
He said that Green Wind still has a few small wind parks and
"single" windmills to be sold as part of the liquidation,
Bloomberg relates.
As reported by the Troubled Company Reporter-Europe on April 25,
2012, Sally Bloomberg News related that Epuron Holding GmbH, a
wind-power developer held by an Impax Asset Management Ltd. fund,
bought a German wind park from a unit of Green Wind. London-
based Impax said in a statement on Monday that Epuron bought the
28-megawatt Cottbuser Halde park in eastern Germany that has 14
turbines made by Vestas Wind Systems A/S and has operated since
early 2009, according to Bloomberg. Impax said Green Wind "is
currently in reconstruction proceedings under Danish bankruptcy
law," Bloomberg disclosed.
Green Wind Energy A/S is a Danish-owned company operating in the
two business areas of energy and investment.
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G E R M A N Y
=============
ARCANDOR AG: Ex-CEO Liable for Management Failures, Court Says
--------------------------------------------------------------
Karin Matussek at Bloomberg News reports that Arcandor AG's
insolvency administrator won a German ruling holding former Chief
Executive Officer Thomas Middelhoff and other former management
board members liable for management failures.
Bloomberg notes that while dismissing most of the EUR175 million
(US$231 million) suit, the Essen Regional Court said the former
management board members should have stopped or unwound a sale
and lease-back transaction concerning a Wiesbaden department
store. The agreements under which Karstadt sold the five stores
and agreed to later lease them back were closed in 2001 and 2002,
Bloomberg recounts. Arcandor's insolvency administrator Gerd
Jauch claims that the sale prices were too low and the lease
prices too high, Bloomberg discloses.
Bloomberg relates that court spokesman Stephan Hackert said
similar claims regarding four others transactions were rejected,
as was the case against six former supervisory board members.
"The court didn't rule on the amount of damages, which will have
to be determined in a separate proceeding," Bloomberg quotes
Mr. Hackert as saying. Mr. Hackert, as cited by Bloomberg, said
that an expert hired by Arcandor's administrator claims that
damage to be between EUR30 million and EUR46 million.
Arcandor, the former parent of German department-store chain
Karstadt, filed for insolvency in June 2009, Bloomberg recounts.
Mr. Middelhoff's attorney Winfried Holtermueller described the
liability ruling as wrong and said he will appeal, Bloomberg
notes.
About Arcandor AG
Germany-based Arcandor AG (FRA:ARO) -- http://www.arcandor.com/
-- formerly KarstadtQuelle AG, is a tourism and retail group.
Its three core business areas are tourism, mail order services
and department store retail. The Company's business areas are
covered by its three operating segments: Thomas Cook, Primondo
and Karstadt.
As reported by the Troubled Company Reporter-Europe, a local
court in Essen formally opened insolvency proceedings for
Arcandor on September 1, 2009. The proceedings started for the
Arcandor holding company and for 14 units, including the Karstadt
department-store chain and Primondo mail-order division.
Arcandor filed for bankruptcy protection after the German
government turned down its request for loan guarantees.
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G R E E C E
===========
TITAN CEMENT: S&P Affirms 'BB-/B' Corporate Credit Ratings
----------------------------------------------------------
Standard & Poor's Ratings Services revised its outlook on Greece-
based heavy materials manufacturer Titan Cement Co. S.A. to
stable from negative. "At the same time, we affirmed our 'BB-'
long-term and 'B' short-term corporate credit ratings on the
group," S&P said.
"The outlook revision reflects our view that Titan will be able
to sustain solid cash flows and an 'adequate' liquidity profile
over the next 24 months," S&P said.
"Titan was able to maintain solid cash flows despite disruption
in its key markets in the year ended Dec. 31, 2011. This
disruption was most notable in Greece, where Titan's combined
domestic and export sales declined by 41% in 2011; as well as in
Egypt due to recent political disruption and market volatility.
These difficult market conditions, combined with the group's
loss-making U.S. operations, contributed to a 19% reduction in
overall group turnover to EUR1,091 million and a 34% decline in
Standard & Poor's-adjusted EBITDA to EUR205 million in 2011," S&P
said.
"Despite this, Titan reported EUR82 million of adjusted
discretionary cash flow in 2011, with which it continued to
reduce net debt. As a result, the group maintained credit metrics
with a degree of headroom for the ratings. Titan's adjusted funds
from operations (FFO) to debt was 19.2% on Dec. 31, 2011, in line
with our base-case forecast," S&P said.
"We believe that 2012 will be another challenging year for Titan,
and the group could see its adjusted EBITDA margin decline
further toward the mid-teens from 18.8% at year-end 2011.
Nevertheless, we forecast that Titan should be able to maintain
robustly positive discretionary cash flow, resulting in broadly
stable credit metrics," S&P said.
"In our opinion, Titan's proactive liquidity management has
allowed the group to maintain an 'adequate' liquidity profile
throughout the ongoing crisis in the global construction
industry. We believe that Titan's liquidity will remain
'adequate' in the next 24 months, even excluding commitments from
the 'CCC' rated Greek banking sector that make up approximately
one-third of the group's funding," S&P said.
"In our view, Titan will continue to effectively manage
significant market disruption in the regions that it operates in,
sustaining positive discretionary cash flow, broadly stable
credit metrics, and 'adequate' liquidity over the next 12
months," S&P said.
"Downward pressure on the ratings could arise if Titan were
unable to maintain an 'adequate' liquidity profile. This could
occur if the group's earnings were to fall further than we
forecast in our base case, resulting in reduced headroom or a
breach of the group's debt-to-EBITDA covenant on its debt.
Downward ratings pressure could also arise if we were to see a
more substantial weakening of credit metrics than we account for
in our base case, for example FFO to debt in the low teens," S&P
said.
"Our criteria for non-sovereign ratings that exceed the ratings
on European Economic and Monetary Union sovereigns limit any
ratings upside until we raise our long-term rating on Greece to
'B' or higher," S&P said.
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I R E L A N D
=============
ALL JAZZ III: S&P Lowers Ratings on Two Note Classes to 'CCC-'
--------------------------------------------------------------
Standard & Poor's Ratings Services lowered its credit ratings on
all of Jazz III CDO (Ireland) PLC's U.S. dollar-denominated
notes. "We subsequently removed from CreditWatch negative our
ratings on the class A-1, B-1, B-2, C-1, D-1, E-1, and Q
combination notes," S&P said.
"Jazz III CDO is a hybrid cash/synthetic arbitrage collateralized
debt obligation (CDO) of corporates and sovereigns, managed by
AXA Investment Managers Paris S.A. The asset structure combines
elements of cash CDOs (purchasing bonds and loans with the
proceeds of the note issuance) and synthetic CDOs (selling
protection through a portfolio of credit-default swaps [CDSs] and
total-return swaps). The liability structure combines both a
funded and an unfunded element. The transaction closed in August
2006," S&P said.
"In July 2011, we placed on CreditWatch negative the class A-1,
B-1, B-2, C-1, D-1, E-1, and Q combination notes, due to
deterioration in the portfolio's credit quality," S&P said.
"The rating actions follow our assessment of credit quality
deterioration in the portfolio," S&P said.
CAPITAL STRUCTURE
Notional
Current as of OC as of
notional Dec.2010 Current Current Dec.2010
Class (mil. $) (mil. $) interest OC (%) (%)
Unfunded 1,371.18 1,507.63 N/A N/A N/A
S 122.50 122.50 6mLIBOR+0.30% 8.5 8.3
A-1 78.75 78.75 6mLIBOR+0.45% 4.4 4.5
B-1 10.70 10.70 6mLIBOR+0.90% 3.5 3.6
B-2 6.80 6.80 6.38% 3.5 3.6
C-1 17.50 17.50 6mLIBOR+1.40% 2.5 2.8
D-1 21.00 21.00 6mLIBOR+3.00% 1.4 1.8
E-1 21.00 21.00 6mLIBOR+5.25% 0.3 0.7
Subordinated 100.63 100.63 N/A 0.0 0.0
N/A-Not applicable.
OC-Overcollateralization = (total funded collateral - tranche
balance [including tranche balance of all senior tranches])/
total risky exposure.
COMBINATION NOTES
Rated
Current balance
rated as of
balance Dec.2010
Class (mil. $) (mil. $) Interest Components ($ mil.)
Q 6.19 7.12 N/A 6.80 in ppal of class B-2
3.20 in ppal of class E-1
N/A-Not applicable.
Ppal-Principal.
Since S&P's review in December 2010, S&P considers that the
transaction has been negatively impacted by:
* Defaulted assets: "The portfolio currently contains three
assets that we consider to be defaulted, compared with none
in December 2010. We expect losses on these assets to amount
to $16.28 million," S&P said.
* Negative ratings migration of the cash obligations and long
CDSs: The amount of assets rated below 'BBB-' increased to
17% from 9% in December 2010; and
* "Increased credit risk on the funded basis obligations: In
January 2012, we lowered to 'A' from 'A+' our long-term
issuer credit rating on default protection provider Natixis
S.A.(A/Stable/A-1)," S&P said.
"We subjected the rated notes to various cash flow scenarios
incorporating different default patterns, and exchange rate and
interest rate curves, to determine each tranche's break-even
default rate at each rating level," S&P said.
KEY MODEL ASSUMPTIONS
As of
Current Dec.2010
Total funded collateral (mil. $) 284.58 293.12
Total risky exposure (mil. $) 1,910.08 2,048.01
'AAA' WARR (%) 16 16
'AA' WARR (%) 18 18
'A' WARR (%) 21 20
'BBB' WARR (%) 24 23
'BB' WARR (%) 26 25
'B'/'CCC' WARR (%) 28 27
Class E overcollateralization ratio (%) 104 104
Total funded collateral = cash obligations + funded basis
obligations + principal cash - loss amount on defaulted synthetic
assets.
Total risky exposure = cash obligations + long CDS + funded basis
obligations.
WARR-Weighted average recovery rate.
"Natixis currently provides currency hedges on 75% of the total
funded collateral in Jazz III CDO (Ireland). We have applied our
counterparty criteria. In our view, our rating on Natixis
and its replacement covenants are appropriate to support
liabilities rated 'A+' and below," S&P said.
"None of the ratings was affected by either the largest obligor
default test or the largest industry default test--two
supplemental stress tests we introduced as part of our criteria
update," S&P said.
"In view of the above developments, and as a result of our credit
and cash flow analysis, we consider that the credit enhancement
available to the class S, A-1, B-1, B-2, C-1, D-1, E-1, and Q
combination notes is now commensurate with lower ratings than we
previously assigned. We have therefore lowered our ratings on
these classes of notes, and removed from CreditWatch negative our
ratings on the class A-1, B-1, B-2, C-1, D-1, E-1, and Q
combination notes," S&P said.
STANDARD & POOR'S 17G-7 DISCLOSURE REPORT
SEC Rule 17g-7 requires an NRSRO, for any report accompanying a
credit rating relating to an asset-backed security as defined in
the Rule, to include a description of the representations,
warranties and enforcement mechanisms available to investors and
a description of how they differ from the representations,
warranties and enforcement mechanisms in issuances of similar
securities. The Rule applies to in-scope securities initially
rated (including preliminary ratings) on or after Sept. 26, 2011.
If applicable, the Standard & Poor's 17g-7 Disclosure Reports
included in this credit rating report are available at:
http://standardandpoorsdisclosure-17g7.com
RATINGS LIST
Class Rating Rating
To From
Jazz III CDO (Ireland) PLC
US$388.875 Million Fixed- and Floating-Rate Notes
Rating Lowered
S A+ (sf) AA- (sf)
Ratings Lowered and Removed From CreditWatch Negative
A-1 BBB- (sf) A+ (sf)/Watch Neg
B-1 BB (sf) A- (sf)/Watch Neg
B-2 BB (sf) A- (sf)/Watch Neg
C-1 B (sf) BBB+ (sf)/Watch Neg
D-1 CCC- (sf) BB+ (sf)/Watch Neg
E-1 CCC- (sf) B+ (sf)/Watch Neg
Q combo BB+ (sf) A- (sf)/Watch Neg
DRYDEN X-EURO 2005: S&P Raises Rating on Class S Notes to 'BB-'
---------------------------------------------------------------
Standard & Poor's Ratings Services raised its credit ratings on
Dryden X-Euro CLO 2005 PLC's class A-1, A-2, B-1, B-2, C-1, C-2,
D-1, D-2 notes and the class S Combo notes, and affirmed its
ratings on the class E-1 and E-1B notes. "At the same time, we
have withdrawn our rating on the class A-1D notes," S&P said.
"The rating actions follow our assessment of the transaction's
performance and take into account recent developments in the
transaction," S&P said.
"For our review of the transaction's performance, we used data
from the trustee report dated March 15, 2012, in addition to our
cash flow analysis. We have applied our 2010 counterparty
criteria, as well as our cash flow criteria," S&P said.
"From our analysis, we have observed a general improvement in the
credit quality of the portfolio since our previous review. The
proportion of defaulted assets (those rated 'CC', 'SD' [selective
default], and 'D') have increased, to 2.32% from 1.48%. At the
same time, the proportion of assets that we consider to be rated
in the 'CCC' category ('CCC+', 'CCC', and 'CCC-') has fallen to
3.43% from 9.96%," S&P said.
"Our analysis indicates that the weighted-average spread earned
on the collateral pool has increased. The weighted-average
maturity of the portfolio has decreased since our previous review
in May 2010, which has led to a reduction in our scenario default
rates (SDRs) for all rating categories. In our view, this
supports higher ratings on the class A-1, A-2, B-1, B-2, C-1, C-
2, D-1, and D-2 notes," S&P said.
"We subjected the capital structure to a cash flow analysis to
determine the break-even default rate for each rated tranche. In
our analysis, we have used the reported portfolio balance,
weighted-average spread, and weighted-average recovery rates that
we consider to be appropriate. We have incorporated various cash
flow stress scenarios, using alternative default patterns,
levels, and timings for each liability rating category (i.e.,
'AAA', 'AA', and 'BBB' ratings), in conjunction with different
interest rate stress scenarios," S&P said.
At closing, Dryden X-Euro CLO 2005 entered into option agreements
to mitigate currency risks in the transaction.
"We have applied our 2010 counterparty criteria and, in our view,
the option agreements in this transaction do not entirely reflect
these criteria. Considering this, we have assessed our ratings,
taking into account the transaction's exposure to the
counterparty and the potential impact if it did not perform.
However, none of the ratings on any class of notes are
constrained by our rating on the option counterparty," S&P said.
"In our view, our cash flow analysis and the reduction in our
SDRs indicate that the credit enhancement available to the class
A-1, A-2, B-1, B-2, C-1, C-2, D-1, and D-2 notes is commensurate
with higher rating levels than we previously assigned. Therefore,
we have raised our ratings on the class A-1 and A-2 notes to 'AA+
(sf)' from 'AA (sf)', on the class B-1 and B-2 notes to 'A+ (sf)'
from 'A (sf)', on the class C-1 and C-2 notes to 'BBB+' (sf) from
'BBB- (sf)' and on the class D-1 and D-2 notes to 'BB+ (sf)' from
'BB (sf)'," S&P said.
"At the same time, we have raised our rating on the class S Combo
(combination) notes, as the cash flow stresses support a higher
rating on these notes. Moreover, the class S Combo notes have
consistently deleveraged since the transaction closed. Therefore,
we have raised our rating on the class S Combo notes to 'BB-
(sf)' from 'B+ (sf)'," S&P said.
"We have also affirmed our ratings on the class E-1 and E-1B
notes, as our cash flow analysis is not commensurate with higher
ratings. Our analysis also shows that these classes are
constrained by our largest obligor default test," S&P said.
"Additionally, we have withdrawn our rating on the class A-1D
notes, following the consolidation of this class of notes into
the class A-1 notes, which now represents an amount equal to the
aggregate principal amount outstanding of the class A-1 and A-1D
notes," S&P said.
"Dryden X-Euro CLO 2005 is a cash flow collateralized loan
obligation (CLO) transaction that closed in January 2006 and
securitizes loans to primarily speculative-grade corporate firms.
The reinvestment period for this transaction ended in January
2012," S&P said.
STANDARD & POOR'S 17G-7 DISCLOSURE REPORT
SEC Rule 17g-7 requires an NRSRO, for any report accompanying a
credit rating relating to an asset-backed security as defined in
the Rule, to include a description of the representations,
warranties and enforcement mechanisms available to investors and
a description of how they differ from the representations,
warranties and enforcement mechanisms in issuances of similar
securities. The Rule applies to in-scope securities initially
rated (including preliminary ratings) on or after Sept. 26, 2011.
If applicable, the Standard & Poor's 17g-7 Disclosure Reports
included in this credit rating report are available at:
http://standardandpoorsdisclosure-17g7.com
RATINGS LIST
Class Rating
To From
Dryden X-Euro CLO 2005 PLC
EUR344.55 Million and GBP52.324 Million Floating- and Fixed-Rate
Notes
Ratings Raised
A-1 AA+ (sf) AA (sf)
A-2 AA+ (sf) AA (sf)
B-1 A+ (sf) A (sf)
B-2 A+ (sf) A (sf)
C-1 BBB+ (sf) BBB- (sf)
C-2 BBB+ (sf) BBB- (sf)
D-1 BB+ (sf) BB (sf)
D-2 BB+ (sf) BB (sf)
S BB- (sf) B+ (sf)
Ratings Affirmed
E-1 B+ (sf)
E-1B B+ (sf)
Rating Withdrawn
A-1D NR AA (sf)
NR-Not rated.
HOUSE OF EUROPE: Moody's Raises Rating on EUR8.5MM Notes to 'B3'
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of the
following notes issued by House of Europe Funding IV PLC:
EUR8,500,000 Class E Floating Rate Notes, Due December 1, 2090
(current rated balance of EUR6,677,921), Upgraded to B3 (sf);
previously on November 19, 2008 Downgraded to C (sf).
Ratings Rationale
According to Moody's, the rating upgrade is the result of a
correction to Moody's analysis of the Class E Protection Assets
which form part of the Collateral Assets and are held primarily
as security for the benefit of the Class E Notes. Due to an input
error, when the previous rating actions were taken, adequate
credit was not given to the Class E Protection Assets, resulting
in an overestimation of the expected loss to the Class E Notes.
This has been corrected and appropriate credit has been given to
the Class E Protection Assets in the rating action.
House of Europe IV PLC, issued in September 2005, is a
collateralized debt obligation backed primarily by a portfolio of
RMBS, CMBS and Corporate CDOs originated from 2005 to 2007.
The methodologies used in this rating were "Moody's Approach to
Rating SF CDOs" published in November 2010, and "Using the
Structured Note Methodology to Rate CDO Combo-Notes" published in
February 2004.
Moody's applied the Monte Carlo simulation framework within
CDOROMv2.8 to model the loss distribution for SF CDOs. Within
this framework, defaults are generated so that they occur with
the frequency indicated by the adjusted default probability pool
(the default probability associated with the current rating
multiplied by the Resecuritization Stress) for each credit in the
reference. Specifically, correlated defaults are simulated using
a normal (or "Gaussian") copula model that applies the asset
correlation framework. Recovery rates for defaulted credits are
generated by applying within the simulation the distributional
assumptions, including correlation between recovery values.
Together, the simulated defaults and recoveries across each of
the Monte Carlo scenarios define the loss distribution for the
reference pool.
Once the loss distribution for the collateral has been
calculated, each collateral loss scenario derived through the
CDOROM loss distribution is associated with the interest and
principal received by the rated liability classes via the CDOEdge
cash-flow model . The cash flow model takes into account the
following: collateral cash flows, the transaction covenants, the
priority of payments (waterfall) for interest and principal
proceeds received from portfolio assets, reinvestment
assumptions, the timing of defaults, interest-rate scenarios and
foreign exchange risk (if present). The Expected Loss (EL) for
each tranche is the weighted average of losses to each tranche
across all the scenarios, where the weight is the likelihood of
the scenario occurring. Moody's defines the loss as the shortfall
in the present value of cash flows to the tranche relative to the
present value of the promised cash flows. The present values are
calculated using the promised tranche coupon rate as the discount
rate. For floating rate tranches, the discount rate is based on
the promised spread over Libor and the assumed Libor scenario.
MEZZVEST INVESTMENTS: Moody's Cuts Rating on Class C Notes to B3
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of the
following notes issued by Mezzvest Investments I Limited.:
Issuer: AIG-MezzVest Investments, Limited
EUR290M Class A1 Secured Floating Rate Facilities, due 2023,
Upgraded to A2 (sf); previously on Sep 21, 2011 Upgraded to Baa1
(sf)
EUR105M Class A2 Secured Floating Rate Variable Funding
Facilities, due 2023, Upgraded to A2 (sf); previously on Sep 21,
2011 Upgraded to Baa1 (sf)
EUR50M Class B Secured Floating Rate Facilities, due 2023,
Upgraded to Ba1 (sf); previously on Sep 21, 2011 Upgraded to Ba3
(sf)
EUR55M Class C Secured Deferrable Floating Rate Facilities,
due 2023, Upgraded to B3 (sf); previously on Sep 21, 2011
Upgraded to Caa1 (sf)
Mezzvest Investments I Limited, issued in July 2007, is a single
currency Collateralised Loan Obligation ("CLO") backed by a
portfolio of European mezzanine and second lien loans. The
portfolio is managed by Mezzvest. It is predominantly composed of
loans that pay some, or all, of their interest in kind (PIK). The
performing pool is non granular, currently referencing eleven
separate issuers, with a diversity score of 7.1. This transaction
will be in its reinvestment period until July 2012.
Ratings Rationale
According to Moody's, the rating actions taken on the notes are
primarily a result of deleveraging of the senior notes in
conjunction with improvement in the performing pool.
Moody's notes that the Class A notes have been paid down by
approximately 38%, or EUR75.3 million, since the last rating
action in September 2011. As a result of this deleveraging, the
overcollateralization ratios have increased since the rating
action in September 2011. As of the latest trustee report dated
31 March 2012, the Class A/B, Class C and Class D
overcollateralization ratios are reported at 171%, 129.5% and
113.4% respectively, versus August 2011 levels of 141.3%, 115.6%
and 104.40%, respectively. All OC tests are currently in
compliance.
Improvement in the credit quality is observed through a better
average credit rating of the portfolio (as measured by the
weighted average rating factor "WARF") and a decrease in the
proportion of securities from issuers rated Caa1 and below. In
particular, as of the latest trustee report dated March 2012, the
WARF is currently 3122 compared to 3170 in the August 2011
report, and securities rated Caa1 or lower make up approximately
11.21% (or EUR 36m) of the underlying portfolio versus 20.3% (or
EUR 67m) in August 2011.
In its base case, Moody's analyzed the underlying collateral pool
to have a performing par and principal proceeds balance of EUR
292.7 million, defaulted par of EUR142.8 million, a weighted
average default probability of 35.5% (consistent with a WARF of
4876), and a weighted average recovery rate upon default of
20.0%.
Moody's supplemented its base case analysis with further scenario
analyses to assess the ratings impact of jump-to-default by
certain large obligors, applying a lower recovery rate to the
performing pool and assuming a lower recovery on its current
defaulted bucket.
Moody's also notes that the transaction's performance is highly
sensitive to the credit conditions of a few large single B
obligors, as the two largest obligors constitute 42.7% of the
performing pool. As a result, the notes ratings could subject to
more volatility than typically more diversified CLO structures.
Moody's notes that this transaction is subject to a high level of
macroeconomic uncertainty, as evidenced by uncertainties of
credit conditions in the general economy. CLO notes' performance
may also be impacted by 1) the manager's investment strategy and
behavior and 2) divergence in legal interpretation of CDO
documentation by different transactional parties due to embedded
ambiguities.
Sources of additional performance uncertainties are described
below:
1) Recovery of defaulted assets: The pool is exposed to a large
proportion of mezzanine loans, the recoveries on which are
subject to a high degree of volatility in the event of default.
2) Deleveraging: The main source of uncertainty in this
transaction is whether deleveraging from unscheduled principal
proceeds will continue and at what pace. Deleveraging may
accelerate due to high prepayment levels in the loan market
and/or collateral sales by the manager, which may have
significant impact on the notes' ratings.
3) Moody's also notes that 100% of the collateral pool consists
of debt obligations whose credit quality has been assessed
through Moody's credit estimates. Large single exposures to
obligors bearing a credit estimate have been subject to a stress
applicable to concentrated pools as per the report titled
"Updated Approach to the Usage of Credit Estimates in Rated
Transactions" published in October 2009.
In addition, Moody's notes the "Termination Event" experienced by
the transaction in relation to the class D overcollateralization
failure has been cured. As reported by the trustee, in August
2009 the transaction experienced a "Termination Event" caused by
a failure of the overcollateralization ratio with respect to the
Class D Notes to be at least equal to 105%, as required under
Section 26.3 of the Funding Agreement dated July 30, 2007.
The class D OC ratio is currently reported as 113.4% and as such
the trustee has reported that there is no termination event
outstanding.
The principal methodology used in this rating was "Moody's
Approach to Rating Collateralized Loan Obligations" published in
June 2011.
Due to the low diversity of the collateral pool, Moody's used
CDOROM to simulate the default and recovery scenario for each
asset in the portfolio. Losses on the portfolio derived from
those scenarios have then been applied as an input in the cash
flow model to determine the loss for each tranche. In each
scenario, the corresponding loss for each class of notes is
calculated given the incoming cash flows from the assets and the
outgoing payments to third parties and noteholders. By repeating
this process and averaging over the number of simulations, an
estimate of the expected loss borne by the notes is derived. The
Moody's CDOROM(TM) relies on a Monte Carlo simulation which takes
the Moody's default probabilities as an input. Each portfolio is
modelled individually with a standard multi-factor model
reflecting Moody's asset correlation assumptions. The correlation
structure implemented in CDOROM is based on a Gaussian copula.
The cash flow model used for this transaction, whose description
can be found in the methodology listed above, is Moody's EMEA
Cash-Flow model.
In addition to the quantitative factors that are explicitly
modeled, qualitative factors are part of the rating committee
considerations. These qualitative factors include the structural
protections in each transaction, the recent deal performance in
the current market environment, the legal environment, specific
documentation features, the collateral manager's track record,
and the potential for selection bias in the portfolio. All
information available to rating committees, including
macroeconomic forecasts, input from other Moody's analytical
groups, market factors, and judgments regarding the nature and
severity of credit stress on the transactions, may influence the
final rating decision.
TITAN EUROPE: Fitch Downgrades Rating on Two Note Classes to 'D'
----------------------------------------------------------------
Fitch Ratings has downgraded Titan Europe 2006-3 plc's class E
and F notes as follows:
-- EUR32.0m Class E (XS0257770007) downgraded to 'D' from
'Csf''; RE0%
-- EUR0m Class F (XS0257770775) downgraded to 'D' from 'Csf';
RE0%
The rating actions reflect the note loss allocation which
occurred on the April interest payment date, as a result of the
crystallization of losses following the sale of the SQY Ouest
loan. Loss crystallization reflects the abandonment by the
servicer of a negligence claim against the original valuer by the
issuer (to which Fitch had given no credit).
The EUR82 million losses have led to a complete write-down of the
class F, as well as a partial (12.6%) loss on the Class E notes.
Fitch expects no recovery to be made on the Class E notes.
WOLFHOUND FUNDING: Moody's Lifts Rating on Cl. A Notes From 'Ba2'
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of the Class A
notes issued by Wolfhound Funding 2008-1 Limited ("Wolfhound
2008-1") and the Class A notes issued by Wolfhound Funding 2
Limited ("Wolfhound 2") to A2 (sf). This follows recent
amendments to the two transactions.
Ratings Rationale
The rating action reflects: (i) a substantial increase in
available credit enhancement following recent amendments to the
deal documentation ; (ii) revision of key collateral assumptions
due to continued deterioration in asset performance and (iii) the
credit quality of transaction parties as well as structural
features modified by the deal amendments.
- Key collateral assumptions revised
Moody's has revised its expected loss assumptions for these
deals, completing a roll rate analysis of delinquencies based on
the assumption that most of the currently delinquent loans will
not be able to cure their arrears.
As of January 2012, loans more than 90 days in arrears have
increased to 11.6 per cent of current balance in Wolfhound 2008-1
and 8.2 per cent in Wolfhound 2, which constitutes an
approximately 18 per cent and 21 per cent increase, respectively,
compared to the levels as of June 2011. Cumulative losses
realized since closing remain very low at 0 per cent of original
pool balance in Wolfhound 2008-1 and 0.01 per cent in Wolfhound
2. Moody's notes that loss realization is slow for Irish RMBS
given lengthy enforcement procedures in Ireland and moratorium
imposed. For this reason, Moody's considers loans with
delinquencies exceeding 360 days as a proxy for defaults. As of
January 2012, the 360+ delinquencies in the transactions have
increased by 13 per cent for Wolfhound 2008-1 and by 42 per cent
for Wolfhound 2 compared to June 2011, reaching 3.8 per cent of
the current pool balance in Wolfhound 2008-1 and 1.5 per cent in
Wolfhound 2.
Moody's expects that the increasing unemployment and lower income
arising from the austerity measures will continue to hurt
borrowers' ability to fulfill their financial obligations. In
addition the loss severity will also be high as a result of the
oversupply of housing, lack of refinancing and further decline in
house prices, expected to be equal to approximately 60 per cent
from peak to trough. Approximately 83 per cent of the portfolio
in Wolfhound 2008-1 and 86 per cent in Wolfhound 2 is currently
in negative equity. As a result Moody's has increased the
portfolio expected loss assumptions to 11.5 per cent of original
pool balance for Wolfhound 2008-1 and 11 per cent for Wolfhound
2, corresponding to 10.1 per cent of current pool balance for
Wolfhound 2008-1 and 9.9 per cent for Wolfhound 2.
Moody's has also re-assessed updated loan-by-loan information and
increased its MILAN CE assumption to 35 per cent for both
transactions. The increase in the MILAN CE takes into account the
relatively high weighted average indexed LTV (174.1 per cent for
Wolfhound 2008-1 and 183.5 per cent for Wolfhound 2) as well as
the non owner-occupied portion in both portfolios (20.7 per cent
in Wolfhound 2008-1 and 17.2 per cent in Wolfhound 2).
- Increase in available credit enhancement
Following the restructuring, the credit enhancement available to
class A notes has increased from 10.3 per cent to 42.5 per cent
for Wolfhound 2008-1 and from 14.5 per cent to 42.5 per cent for
Wolfhound 2. The credit enhancement is in excess of Moody's
current collateral score of 35 per cent. Additional cash flow
analysis was conducted to ensure the resilience of the notes to a
further deterioration of the collateral given the uncertain
economic environment in Ireland.
Additional sensitivity analysis has been performed to assess the
proportion of mortgage debt susceptible to write-down under the
new Irish personal insolvency legislation proposed in January
(see Moody's special report Proposed Irish Legislation Opens the
Door To Widespread Debt Forgiveness published in February 2012).
With Moody's predicted peak-to-trough house price fall of 60 per
cent, approximately 83 per cent of the mortgage loans in
Wolfhound 2008-1 and 86 per cent in Wolfhound 2 would be left in
negative equity. Although Moody's views it as unlikely that all
these loans would be written down to the market value of the
property, the proportion of debt susceptible to write-down is
equivalent to 35.2 per cent for Wolfhound 2008-1 and 37.8 per
cent for Wolfhound 2. Moody's therefore views the current credit
enhancement levels of 42.5 per cent for both transactions as
sufficient to withstand significant write-downs under the
proposed legislation.
- Deal amendments and counterparty risk
Bank of Scotland plc (A1/P-1 both under review for downgrade)
acts as liquidity facility provider, interest rate swap provider,
transaction account bank, collections account bank, servicer and
cash manager in both transactions.
As part of the amendments, the interest rate swap agreement has
been terminated. The swap was in place to help mitigate the
potential mismatch between interest payments received on the
mortgage loans, which are a combination of fixed rate and
floating rate linked to either ECB base rate or the lenders
standard variable rate, versus interest payments due on the
notes, which are linked to EURIBOR. To account for the lack of
swap Moody's has performed a sensitivity analysis by compressing
the pool yield to a floor of EURIBOR minus 1 per cent after three
years.
In both transactions, the trigger level for authorized
investments, the liquidity facility provider and issuer account
bank has been lowered from P-1 to P-2. Sensitivity analysis
showed that the lowering of the triggers for authorized
investments and bank accounts does not have significant impact on
the rating of the Class A notes. The relaxation of the trigger
levels for the liquidity facility provider has also minimal
impact given the small liquidity facility amount of EUR 10M which
corresponds to 0.27 per cent of the total pool as of closing for
both transactions.
- Factors and Sensitivity Analysis
The new Irish personal insolvency legislation proposed in January
could have a negative impact on the transactions as it might lead
to a write-down of the mortgage debt supporting the notes (see
Moody's special report "Proposed Irish Legislation Opens Door To
Widespread Debt Forgiveness" published in February 2012).
As the euro area crisis continues the rating of the notes remain
exposed to the uncertainties of credit conditions in the general
economy. The deteriorating creditworthiness of euro area
sovereigns as well as the weakening credit profile of the global
banking sector could negatively impact the ratings of the notes.
Following the downgrade of Ireland's long-term government bond
rating to Ba1, Moody's lowered the maximum achievable ratings in
Ireland to A1(sf). Furthermore, as discussed in Moody's special
report "Rating Euro Area Governments Through Extraordinary Times
-- An Updated Summary," published in October 2011, Moody's is
considering reintroducing individual country ceilings for some or
all euro area members, which could affect further the maximum
structured finance rating achievable in those countries. Moody's
is also continuing to consider the impact of the deterioration of
sovereigns' financial condition and the resultant asset portfolio
deterioration on mezzanine and junior tranches of structured
finance transactions.
The principal methodology used in these ratings was Moody's
Approach to Rating RMBS in Europe, Middle East, and Africa,
published in October 2009.
In reviewing the transactions, Moody's used ABSROM to model the
cash flows and determine the loss for each tranche. The cash flow
model evaluates all default scenarios that are then weighted
considering the probabilities of the lognormal distribution
assumed for the portfolio default rate. In each default scenario,
the corresponding loss for each class of notes is calculated
given the incoming cash flows from the assets and the outgoing
payments to third parties and noteholders. Therefore, the
expected loss or EL for each tranche is the sum product of (i)
the probability of occurrence of each default scenario; and (ii)
the loss derived from the cash flow model in each default
scenario for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
Wolfhound 2008-1 RESTRUCTURING OVERVIEW
On the 20 April 2012 the Wolfhound 2008-1 transaction documents
were amended to incorporate the following main changes:
1. New Class Z loan of EUR1,252M has been added to the structure
2. The reserve fund has been reduced from EUR 172 M to EUR 132 M
which is equivalent to 3.5 per cent of the pool balance as of
closing
3. Class A Notes have been partially redeemed using the proceeds
of the Class Z loan, thereby increasing the total credit
enhancement to 42.5 per cent
4. The swap agreement has been terminated. The swap was in place
to help mitigate the potential mismatch between interest payments
received on the mortgage loans, which are a combination of fixed
rate and floating rate linked to either ECB base rate or the
lenders standard variable rate, versus interest payments due on
the notes, which are linked to EURIBOR
5. Liquidity Facility amount has been decreased from EUR 129M to
EUR 10M
6. The trigger level for authorized investments, the liquidity
facility provider, bank accounts and clearing accounts has been
lowered from P-1 to P-2
Wolfhound 2 RESTRUCTURING OVERVIEW
On the 24 April 2012 the Wolfhound 2 transaction documents were
amended to incorporate the following main changes:
1. New Class Z loan of EUR 805M has been added to the structure
2. The reserve fund has been reduced from EUR 124 M to EUR 97 M
which is equivalent to 3.5 per cent of pool balance as of closing
3. Class A Notes have been partially redeemed using the proceeds
of the Class Z loan, thereby increasing the total credit
enhancement to 42.5 per cent
4. The swap agreement has been terminated. The swap was in place
to help mitigate the potential mismatch between interest payments
received on the mortgage loans, which are a combination of fixed
rate and floating rate linked to either ECB base rate or the
lenders standard variable rate, versus interest payments due on
the notes, which are linked to EURIBOR
5. Liquidity Facility amount has been decreased from EUR 93M to
EUR 10M
6. The trigger level for authorized investments, the liquidity
facility provider, bank accounts and clearing accounts has been
lowered from P-1 to P-2
LIST OF RATING ACTIONS:
Issuer: Wolfhound Funding 2008-1 Limited
EUR4,085M A Notes, Upgraded to A2 (sf); previously on Mar 10,
2011 Downgraded to Ba2 (sf)
Issuer: Wolfhound Funding 2 Limited
EUR2,821M A Notes, Upgraded to A2 (sf); previously on Mar 10,
2011 Downgraded to Baa1 (sf)
===========
R U S S I A
===========
BALTINVESTBANK: Moody's Issues Summary Credit Opinion
-----------------------------------------------------
Moody's Investors Service issued a summary credit opinion on
Baltinvestbank and includes certain regulatory disclosures
regarding its ratings. The release does not constitute any
change in Moody's ratings or rating rationale for Baltinvestbank.
Moody's current ratings on Baltinvestbank are:
Senior Unsecured (domestic currency) ratings of B3
Long Term Bank Deposits (domestic and foreign currency) ratings
of B3
Bank Financial Strength ratings of E+
Short Term Bank Deposits (domestic and foreign currency) ratings
of NP
Ratings Rationale
Moody's assigns an E+ standalone bank financial strength rating
(BFSR) to Baltinvestbank, which maps to b3 on the long-term
scale. The rating is constrained by (i) the bank's low capital
adequacy, (ii) high single-name concentration in the bank's loan
book and (iii) related-party lending. However, the BFSR is
underpinned by the established banking franchise in the City of
St. Petersburg with a growing share of revenue stemming from the
more sustainable and less concentrated retail business.
Baltinvestbank's global local currency (GLC) deposit ratings of
B3/Not Prime do not incorporate any element of systemic support,
given the bank's limited size and low importance for the Russian
banking system as a whole. Nor do Baltinvestbank's current
ratings factor in Moody's assessment of any probability of
support from the bank's shareholders in case of distress.
Therefore, Baltinvestbank's deposit ratings are at the same level
as its standalone credit strength.
- Low capital adequacy
- High single-name credit concentration
- Historical appetite for related-party risk
- Low level of non-performing loans (NPLs) - compared to peers
- Established banking franchise in St Petersburg with a growing
share of retail business.
Rating Outlook
Baltinvestbank's B3 debt and deposit ratings carry a positive
outlook. Moody's expects ongoing diversification into the high-
margin retail segment to improve Baltinvestbank's net interest
margin, thus positively affecting the bank's operating efficiency
and profitability.
What Could Change the Rating - Up
An upgrade of Baltinvestbank's B3 ratings would be contingent on
the bank's ability to increase its capital adequacy level, and to
sustain improvements in profitability and operating efficiency.
What Could Change the Rating - Down
Any deterioration of the bank's capital position - resulting from
mismanaged growth in the retail segment or impairment of large
corporate exposures - could have negative rating implications.
The methodologies used in this rating were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Global Methodology published in March 2012.
EVRAZ GROUP: Fitch Rates US$600-Mil. Five-Year Eurobonds 'BB-'
--------------------------------------------------------------
Fitch Ratings has assigned Evraz Group S.A.'s US$600 million
five-year Eurobonds a final 'BB-' rating.
Evraz's Long-term foreign currency Issuer Default Rating (IDR) is
'BB-', with a Stable Outlook. Its Short-term foreign currency IDR
is 'B' and senior unsecured rating is 'BB-'.
Evraz has 100% self-sufficiency in iron ore and 56% in coking
coal (without OAO Raspadskaya, 'B+'/Stable), meaning it is better
placed to control the cost base of its upstream operations than
steelmakers with a lower level of vertical integration. The cash
cost of slab production at Evraz's Russian steel mills is
approximately 25% lower than the global average. This resulted
in the full capacity utilization rate of the company's
steelmaking facilities in Russia.
Russia continues to be the largest regional market for Evraz (40%
of revenues in 2011), where the company is focusing mainly on
long products' sales. Fitch considers the demand driving factors
for steel products in Russia, including long products, is strong.
Evraz controls more than 30% of long products production capacity
in Russia, and consequently is the main beneficiary of the
expected demand growth. In 2011 Evraz sold 4,3m tons of
construction steel products in Commonwealth of Independent States
(CIS), 22% higher compared with 2010 yoy. This also contributed
to an improvement in the product mix of Evraz's CIS mills. The
portion of semi-finished products in revenue decreased to 26%
compared with 34% in 2010.
Evraz is the only Russian producer of rails and the second-
largest supplier of wheels with 86% and 36% of domestic market
share, respectively. Taking into account that the main portion
of rail products is directed for maintenance, demand is quite
stable through the cycle.
The company's liquidity position is healthy, with USD626m of
short-term loans compared with USD801m of cash on hand, USD562m
of unutilized committed bank loans and an expected positive free
cash flow margin in 2012.
During 2011, the company continued deleveraging. Funds from
operations (FFO) adjusted gross leverage decreased to 2.3x at
end-2011 compared with 3.0x at end-2010. The conversion of
USD650m convertible notes into equity and the improvement of
working capital management were among the contributing factors
for deleveraging. Fitch expects the increase of FFO adjusted
gross leverage to 3.3x-3.5x by end-2012 with it deleveraging to
2.0x-2.2x by end-2014.
Fitch notes the progress in the company's corporate governance
practices. A new holding company of the group incorporated under
UK law, EVRAZ plc, received admittance to the London Stock
Exchange plc (LSE) in Q411, which means that the company complies
with the LSE's admission and disclosure standards. The
independent directors also have a majority in all of EVRAZ plc's
board committees.
The ratings are supported by Fitch's expectations of positive
free cash flow generation over the medium term. Evraz's ratings
remain constrained by its large Russian operational base, which
exposes it to higher than average political, business and
regulatory risks.
The deterioration of its financial and operational profile
resulting in an EBITDAR margin below 15% and FFO adjusted gross
leverage above 3.5x on a sustained basis would put negative
pressure on the ratings. Conversely, further deleveraging to FFO
adjusted gross leverage below 2.0x with an EBITDAR margin above
20% on a sustained basis would put positive pressure on the
ratings.
PROMSVYAZBANK: Moody's Changes Outlook on 'D' BFSR to Negative
--------------------------------------------------------------
Moody's Investors Service has changed to negative from stable the
outlook on the following ratings of Promsvyazbank (Russia): D
standalone bank financial strength rating ("BFSR"), and Ba2 long-
term global local and foreign currency deposit ratings. The
standalone D BFSR maps to ba2 on the long-term scale. The outlook
on Promsvyazbank's Ba2 local and foreign currency senior
unsecured debt rating and the bank's Ba3 foreign currency
subordinate debt rating was also changed to negative from stable.
In addition to the above ratings Moody's Investors Service
maintains the following credit ratings on Promsvyazbank:
- Senior Unsecured Medium Term Notes Program (foreign currency)
rating of (P)Ba2 with negative outlook
- Subordinate Medium Term Notes Program (foreign currency)
rating of (P)Ba3 with negative outlook
- Short Term Medium Term Notes Program (foreign currency) rating
of (P)NP
- Short Term Bank Deposits (global local and foreign currency)
ratings of NP
Moody's said the revised outlook on Promsvyazbank's ratings is
primarily based on the bank's audited financial statements for
2011 prepared under IFRS.
Ratings Rationale
The change in the outlook on Promsvyazbank's ratings to negative
from stable reflects Moody's view of the continued insufficiency
of the bank's capital level that has remained one of the lowest
compared to similarly rated Russia-based peers. Despite the fresh
capital injection completed by the bank's shareholders in late
2011, Promsvyazbank's Basel I Tier 1 ratio and its total capital
adequacy ratio (CAR) stood at just 10.0% and 13.9%, respectively,
as at year-end 2011, providing only a limited cushion against any
unforeseen losses that may crystallize in Russia's currently
volatile operating environment. Other factors that burden the
bank's capitalization are (i) high credit concentrations in the
loan book (as at year-end 2011, the aggregate share of
Promsvyazbank's 10 largest customer credit exposures amounted to
18% of its gross loan book and 136% of its Tier 1 capital) and
(ii) consumption of a significant proportion of Promsvyazbank's
capital by sizeable investments in fixed assets, which includes
property and equipment used for core banking activities as well
as non-core investments in land and property (49% and 7%,
respectively, of the bank's Tier 1 capital as of year-end 2011).
Promsvyazbank has recently announced its intention to increase
its total loan portfolio by approximately 15% in 2012. The bank
has also embarked on a strategy of rapidly augmenting the level
of higher-yielding loans to small and medium-sized entities
(SMEs) and retail borrowers; however, the rating agency is
concerned that the rapid growth in these riskier segments may
lead to higher provisioning charges in the medium to long term,
which might require higher capital buffers.
Moody's does not expect a new capital to be injected in the bank
in the next several months, whilst the bank's modest
profitability also does not allow for a sufficient capital
replenishment. Although Promsvyazbank's Return on Average Equity
amounted to 11.2% in 2011, its Basel I Risk-Weighted Assets
increased much faster -- by 22% -- during the same period.
More positively, in 2011, Moody's observed some improvements in
Promsvyazbank's asset quality: the share of loans overdue for
more than 90 days decreased to 6.2% of gross loans compared to
10.9% reported in 2010; however, this improvement was partly
driven by (i) the sale of a sizeable portfolio of problem
corporate and retail loans totalling 5.4% of the bank's gross
loans as of year-end 2010, and (ii) 22% overall growth of the
loan book during 2011. The coverage of 90+ days overdue loans by
loan loss reserves improved to 111% at year-end 2011 (2010: 99%).
Promsvyazbank's ratings are also underpinned by its well-
diversified liquidity profile with no reliance on any single
source of funding, and a good match of its assets and liabilities
by time buckets.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The rating agency may downgrade Promsvyazbank's ratings if it
witnesses no material improvement in the bank's capital levels in
the medium term or if the bank's modest capital adequacy starts
to constrain its business development in comparison to other
Russia-based peers.
The bank's ratings are unlikely to be upgraded in the foreseeable
future given the negative outlook assigned on the ratings. For
any upgrade to be warranted, Moody's would expect to observe
further diversification of Promsvyazbank's business (in terms of
geographical location of clients, contribution of different
business segments to overall results and more granular single-
name concentrations), accompanied by sustainable strong financial
fundamentals, including a more solid capital cushion to bolster
the bank's business diversification and expansion.
Principal Methodologies
The methodologies used in this rating were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: Global Methodology published in March 2012.
Domiciled in Moscow, Russia, Promsvyazbank reported -- at year-
end 2011 -- total consolidated assets of US$17.5 billion and
total equity of US$1.7 billion, under audited IFRS. In the same
reporting period, the bank posted net IFRS profits of US$178
million.
RUSSIAN STANDARD: Moody's Issues Summary Credit Opinion
-------------------------------------------------------
Moody's Investors Service issued a summary credit opinion on
Russian Standard Bank and includes certain regulatory disclosures
regarding its ratings. The release does not constitute any
change in Moody's ratings or rating rationale for Russian
Standard Bank.
Moody's current ratings on Russian Standard Bank are:
Senior Unsecured (domestic currency) ratings of Ba3
Senior Unsecured MTN Program (foreign currency) ratings of (P)Ba3
Long Term Bank Deposits (domestic and foreign currency) ratings
of Ba3
Bank Financial Strength ratings of D-
Subordinate (foreign currency) ratings of B1
Short Term Bank Deposits (domestic and foreign currency) ratings
of NP
BACKED Subordinate (foreign currency) ratings of B1
Ratings Rationale
Moody's assigns a standalone bank financial strength rating
(BFSR) of D- to Russian Standard Bank ("RSB"), which maps to ba3
on the long-term scale. The BFSR is underpinned by: (i) the
bank's ample internal capital generation capacity, supported, in
turn, by RSB's strong expertise in consumer lending, (ii) its
relatively good capital, with some protection against possible
loan losses, and (iii) RSB's position among leaders in consumer
lending in Russia.
At the same time, RSB's BFSR is constrained by: (i) threats to
the bank's franchise value from growing competition in its core
market segments, while the bank is gradually entrenching its
positions, (ii) risks of deterioration in the bank's financial
fundamentals due to potential relaxing of underwriting and
liquidity standards in an effort to achieve stronger credit
growth and leverage, and (iii) limited growth potential if the
major shareholder's recent divestments from RSB's capital fully
materialize and are not reversed.
The bank's Ba3/Not Prime long- and short-term global local
currency (GLC) deposit ratings do not factor in any support
assumptions and, consequently, the bank's deposit and debt
ratings incorporate its ba3 standalone credit strength and the
seniority of its deposits and debt.
RSB's long-term ratings carry a stable outlook.
Rating Outlook
RSB's long-term ratings carry a stable outlook.
What Could Change the Rating - Up
Upward pressure could be exerted on RSB's ratings if the bank:
(i) demonstrates the ability to strengthen its franchise value
via protecting its current market shares or tapping other market
segments, and (ii) maintains financial fundamentals - mainly
capital, funding diversification, liquidity and capital
generation capacity - adequate to its business model.
What Could Change the Rating - Down
RSB's ratings might be downgraded if: (i) the bank is unable to
maintain its liquidity or internal capital generation capacity;
(ii) asset-quality deterioration is more severe than expected; or
(iii) the bank is unable to sustain its competitive edge in the
core market segments.
The methodologies used in this rating were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: Global Methodology published in March 2012.
SVIAZ-BANK: Fitch Rates RUB5-Bil. Senior Unsecured Bonds 'BB'
-------------------------------------------------------------
Fitch Ratings has assigned Sviaz-Bank's Series 04 RUB5 billion
10-year issue of senior unsecured bonds, due April 13, 2022 a
final Long-term local currency rating of 'BB' and a National
Long-term rating of 'AA-(rus)'.
The rate of the first two semi-annual coupons has been set at
8.75%. The bonds have a put option on 26 April 2013.
The bank has a Long-term Issuer Default Rating (IDR) of 'BB' with
a Stable Outlook, Short-term IDR of 'B', Viability Rating of
'b+', a National Long-term rating of 'AA-(rus)' with Stable
Outlook and a Support Rating of '3'.
Sviaz-Bank is a mid-sized Russian bank fully owned by
Vnesheconombank ('BBB'/Stable) and is the 22nd-largest bank in
Russia at end-Q112.
VIMPELCOM LTD: Moody's Says Vietnamese JV Stake Sale Credit Pos.
----------------------------------------------------------------
Moody's Investors Service has said that it views as credit
positive for VimpelCom Ltd. (Ba3 stable) the announced sale of
its indirect 49% stake in its Vietnamese joint venture GTEL
Mobile for a cash consideration of US$45 million. Notwithstanding
the relatively small size of the transaction, Moody's regards
this divestment as evidence of VimpelCom pursuing its new
strategy, which is focused on operating efficiencies. One of the
building blocks of this strategy is a review of VimpelCom's
developing businesses and their value for the group.
VimpelCom acquired a 40% stake in GTEL Mobile in 2008 for a
consideration of US$267 million and increased it to 49% in 2011
for an additional US$196 million. VimpelCom's operations in
South-East Asia (Vietnam, Laos and Cambodia) have consistently
generated negative EBITDA. Moody's considers VimpelCom's exit
from GTEL Mobile to be a credit positive despite the fact that
cash proceeds from the disposal of this stake will be
incomparably lower than VimpelCom's investment in the business.
In Moody's view, this confirms management's cautious approach to
investments in developing businesses that have uncertain
perspective, and its commitment to the new strategy.
Moody's anticipates that VimpelCom will continue to review its
portfolio of assets, particularly in South-East Asia. Here, the
group currently retains businesses in Laos and Cambodia, which
demonstrated poor subscriber base growth as of end-2011. On its
own, the disposal of non-profitable assets in South-East Asia
will have no impact on VimpelCom's rating given their
insignificant scale (below 2% of the group's consolidated
revenue). Nevertheless, it will allow the group to cut losses and
optimize future capital investments, directing them to businesses
that are value-accretive for the group.
In addition, Moody's reiterates that VimpelCom's Ba3 rating with
a stable outlook is primarily based on the rating agency's
assessment of the business and financial profile of VimpelCom's
Russian and Ukrainian operations, consolidated under VimpelCom
Holdings B.V. These entities continue to determine the financial
flexibility of the group.
Domiciled in Bermuda, VimpelCom Ltd. is a holding company for
OJSC Vimpel Communications (VimpelCom OJSC), Kyivstar, Wind
Telecomunicazioni S.p.A., and Orascom Telecom Holding S.A.E.,
with leading or strong positions in Russia, Ukraine, Kazakhstan,
Italy, Algeria, Pakistan, and operations in countries in the
Commonwealth of Independent States (CIS), Africa, South-East Asia
and North America. For 2011, VimpelCom reported US$20.3 billion
in revenue and US$8.1 billion in EBITDA. Russian VimpleCom OJSC
and Ukrainian Kyivstar, the major cash-contributing subsidiaries
of VimpelCom, generated US$10.7 billion in revenue and US$4.5
billion in EBITDA in the same period.
VTB24: Moody's Issues Summary Credit Opinion
--------------------------------------------
Moody's Investors Service issued a summary credit opinion on
VTB24 and includes certain regulatory disclosures regarding its
ratings. The release does not constitute any change in Moody's
ratings or rating rationale for VTB24.
Moody's current ratings on VTB24 are:
Senior Secured (domestic currency) ratings of Baa1
Senior Unsecured (domestic currency) ratings of Baa1
Long Term Bank Deposits (domestic and foreign currency) ratings
of Baa1
Bank Financial Strength ratings of D-
Short Term Bank Deposits (domestic and foreign currency) ratings
of P-2
Ratings Rationale
Moody's assigns a D- bank financial strength rating (BFSR) to
VTB24, which translates into a ba3 on the traditional scale. The
rating is supported by the bank's position as of one of the
country's leaders in retail and SME banking, and its adequate
capitalization and profitability.
The standalone credit profile is constrained by Moody's concerns
about the bank's asset quality, particularly due to a rapid
lending growth. In addition, the bank has large maturities
mismatches between assets and liabilities, and corporate
governance concerns reflecting the parent's (Bank VTB)
shortcomings in this area.
VTB24's Baa1 long-term deposit / senior debt ratings of Baa1 are
based on (i) the ba3 standalone credit strength, and (ii) Moody's
opinion that the probability of support from both its parent,
Bank VTB (BFSR: D-, which maps into ba3; and local and foreign
currency deposit ratings of Baa1), and the Russian government
(Baa1/Stable). According to Moody's, the probability that VTB24
would receive external support in case of need is unquestionable.
VTB24 is a fully controlled and integrated subsidiary of Bank
VTB, and operates in banking segments of strategic importance for
VTB (retail and SME).
Rating Outlook
VTB24's deposit and debt ratings carry a negative outlook, driven
by the negative outlook on the deposit ratings of parent VTB. The
outlook on the BFSR is stable, driven by the stable trends in the
bank's financial fundamentals.
What Could Change the Rating - Up
In order to improve its standalone creditworthiness, VTB24 has to
sort out its fundamental weaknesses that include asset quality,
and large negative maturity gaps between assets and liabilities.
What Could Change the Rating - Down
A material deterioration of asset quality, capitalization, or a
significant decline in market share could result in a BFSR
downgrade.
VTB24's supported ratings will be downgraded in case of a
downgrade of the supported ratings of VTB.
The methodologies used in this rating were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Global Methodology published in March 2012.
===============
S L O V E N I A
===============
* SLOVENIA: Moody's Cuts Long-Term Deposit Ratings on Three Banks
-----------------------------------------------------------------
Moody's Investors Service has downgraded by one notch the long-
term deposit ratings of three Slovenian banks. Concurrently,
Moody's downgraded one bank's standalone bank financial strength
rating (BFSR) and remapped the other two banks' standalone credit
strength within the relevant BFSR category. The downgrades
reflect the sharp asset-quality deterioration in the banks' loan
portfolios and high provisioning needs that have eroded their
capital buffers and loss-absorption capacity:
(i) Nova Ljubljanska banka (NLB): Deposit ratings downgraded to
Ba2 from Ba1; E+ standalone BFSR, remapped to b2 from b1 on the
long-term scale.
(ii) Nova Kreditna banka Maribor (NKBM): Deposit ratings
downgraded to Ba2 from Ba1; standalone BFSR downgraded to E+/b1
from D/ba3.
(iii) Abanka Vipa (Abanka): Deposit ratings downgraded to Ba3
from Ba2; E+ standalone BFSR, remapped to b2 from b1 on the long-
term scale.
Moody's has also placed the ratings of these banks on review for
further downgrade to assess (i) the implementation of the banks'
capital raising plans; (ii) the degree to which the banks can
successfully stabilize the formation of new problem loans; and
(iii) the government's ability and willingness to provide timely
and sufficient support to these banks, in case of need.
As part as the wider review of European bank subordinated debt,
Moody's has removed systemic support rating uplift from the
subordinated debt ratings of NLB and NKBM and repositioned junior
subordinated debt ratings relative to subordinated debt. This is
to reflect the decreased probability of government support for
holders of subordinated debt issued by financial institutions in
Slovenia. These subordinated ratings were placed on review in
November 2011 in the context of reassessing systemic support
assumptions for a number of European banks.
RATINGS RATIONALE
-- DOWNGRADES DRIVEN BY EROSION OF CAPITAL BUFFERS
The downgrades reflect the sharp deterioration in asset quality
incurred by all three banks, leading to large losses that
undermine their future loss-absorption capacity.
Due to the ongoing difficulties in the Slovenian operating
environment, the aggregate level of non-performing loans (NPLs)
in the portfolios of the banks rose sharply, exceeding 17% in
2011 from 14% in 2010. The un-provisioned portion of NPLs has
increased to 54.4% as of end-2011 from 51.5% a year ago, exerting
pressure on their capitalization levels.
In addition, losses announced by all three banks at end-2011
reduced their Tier 1 capital base by 24% (as reported in end-2010
and excluding new capital injections during 2011). In Moody's
view, the banks' capital bases are very weak and insufficient to
absorb any sizeable losses in 2012.
In terms of funding profiles, Moody's notes that the government-
guaranteed funding facilities -- which supported NLB and Abanka's
wholesale funding profiles -- will mature in H2 2012 and are
unlikely to be renewed. Although these two banks are facing
sizeable repayment pressures during this year, they have
accumulated sufficient liquid resources to meet this challenge
and extend the refinancing risk to 2014-15.
The lowering of the banks' standalone credit strength assessments
prompted the downgrade of long-term deposit ratings. The current
rating uplift from Moody's assessment of systemic support from
the government remains unchanged at this stage.
-- RATIONALE FOR THE FURTHER REVIEW
Due to the banks' asset-quality challenges, recapitalization
needs and funding constraints, Moody's expects that the three
banks are likely to further deleverage and contract their
operations. This will weaken their respective franchises and
revenue potential as the operating conditions are unlikely to
improve in 2012. As such, all three banks require timely Tier 1
capital injections, albeit to different degrees, in order to
continue their lending operations and mitigate losses expected
from future provisioning needs. Moody's also notes that the rated
banks and Slovenian authorities recognize the necessity of
capital injections and are at the preparatory stages of these
initiatives.
FACTORS TO BE CONSIDERED DURING THE REVIEW
The review for downgrade of the standalone BFSRs of these banks
will focus on three principal issues:
1. The feasibility of capital raising plans and sufficiency of
these amounts to counter future losses;
2. The banks' ability to reverse deteriorating asset-quality
trends and stabilize provisioning needs; and
3. The resilience of the banks' customer deposit bases and
capacity to alleviate the pressure on their franchise caused by
deleveraging.
Moody's review will focus on these factors bank-by-bank. If
capitalization plans do not materialize or the proposed amounts
fail to address the loss expectations the conclusion of the
reviews might result in downgrades of more than one notch in the
banks' standalone credit strength. In this respect, post-
provisioning profitability trends in H1 2012 will be an important
rating driver.
The review of the supported deposit ratings will focus on a re-
evaluation of the existing notching uplift from Moody's systemic
support assumptions. Currently, Moody's factors in a relatively
high 2-3 notches of uplift, which is based on the majority direct
and indirect government ownership of these banks and past
precedents of governmental support to the banking system.
However, Moody's also notes that the Slovenian government may
face resistance to use additional taxpayers' money in
recapitalizing banks that have become increasingly loss-making.
Therefore, the review of the notching uplift will focus on the
assessment of recent developments that may signal potential
shifts in the government's willingness and capability to provide
on-going and timely assistance to the banking system, in the
context of further incurred losses.
NOVA LJUBLJANSKA BANKA (NLB)
NLB's E+ standalone BFSR was re-mapped to b2 from b1 on the long-
term scale and placed on review for downgrade. The long-term bank
deposit ratings were downgraded by one notch to Ba2 from Ba1 and
remains on review for downgrade. Subordinated and junior
subordinated debt ratings of NLB were downgraded to B3 (from Ba2)
and Caa1 (from B1), respectively one and two notches below the
bank's standalone credit strength of b2. The government-
guaranteed senior unsecured debt was not affected and remains at
A2 (negative outlook), in line with the sovereign debt rating of
Slovenia.
WHAT CAN CHANGE RATINGS UP/DOWN
Moody's considers that the EUR239 million loss (24% of 2010 Tier
1 capital) that NLB posted in end-2011 -- which lowered the
group's Tier 1 capital to 7.2% -- significantly undermined the
bank's future loss-absorption capacity. Although Moody's takes
into account that NLB benefited from a capital injection of
EUR250 million in March 2011.
The review of the standalone BFSR will assess the feasibility of
NLB's capital raising plans and whether the proposed amount is
sufficient to absorb losses stemming from further asset-quality
deterioration. The failure of these plans might result in a
downgrade of more than one notch in the bank's standalone credit
strength. This is because in Moody's view, NLB has depleted its
capital resources to absorb any sizeable losses that might occur
in 2012.
The long-term deposit ratings, which currently incorporate a
relatively high three notches of rating uplift, were also placed
on review for downgrade. The conclusion of the review of the
long-term deposit ratings will be driven by (i) the results of
the standalone BFSR review; and (ii) Moody's reassessment of
systemic support assumptions in light of the willingness of the
Slovenian government to continue to underwrite losses incurred by
the largest bank in the country, balanced against the need
provided by the bank's dominant market share (27%) and its
importance to the Slovenian economy and payment system.
NOVA KREDITNA BANKA MARIBOR (NKBM)
NKBM's standalone BFSR was downgraded to E+ (mapping to b1 on the
long-term scale) from D-. The b1 standalone credit strength
remains on review for downgrade. The long-term deposit ratings
were also downgraded to Ba2 from Ba1 and remain on review for
downgrade. The backed junior and junior subordinated debt ratings
were also lowered to B3 from Ba3, on review for downgrade, two
notches below the bank's b1 standalone credit strength.
WHAT CAN CHANGE RATINGS UP/DOWN
Moody's notes that NKBM's capital and funding position is
relatively stronger compared with those of its peers. However, in
line with its peers, the losses of EUR81.1 million (22% of 2010
Tier 1 capital) incurred by end-2011 reduced the bank's Tier 1
capital ratio to 8.47%. This will require additional capital
injections or deleveraging in the near-term.
The review of the standalone BFSR will focus on the bank's
ability to sustain its franchise in a very difficult operating
environment, and stabilize its asset quality without weakening
its capital position and operating revenues. Moody's notes that
NKBM's refinancing needs are relatively smaller compared with
those of its peers, partly due to having no government-guaranteed
liabilities maturing in 2012 and a better loan-to-deposit ratio
compared with its peers.
As the second-largest bank, which is directly and indirectly
government-owned, NKBM's long-term deposit ratings benefit from
two notches of rating uplift, due to systemic support
assumptions. The conclusion of the review on these long-term
deposit ratings will be driven by (i) the results of the review
of the standalone BFSR; and (ii) Moody's reassessment of the
systemic support assumptions, in light of the willingness of the
Slovenian government to provide timely and on-going support the
second-largest bank in the country.
ABANKA VIPA
Abanka's E+ standalone BFSR was re-mapped one notch lower to b2
from b1 on the long-term scale and placed on review for
downgrade. The long-term bank deposit ratings were also
downgraded by one notch to Ba3 from Ba2 and remain on review. The
preferred stock non-cumulative rating was downgraded to Caa2 from
Caa1, and placed on review for downgrade. The government-
guaranteed senior unsecured debt was not affected and remains at
A2 (negative outlook), in line with the sovereign debt rating of
Slovenia.
WHAT CAN CHANGE RATINGS UP/DOWN
Moody's notes that Abanka group incurred net losses of EUR110
million (28% of 2010 Tier 1 capital) by end-2011, which lowered
its Tier 1 capital ratio to 7.6% from 10.2% and considerably
eroded its future loss-absorption capability.
The review of the bank's standalone BFSR will focus on the
feasibility and sufficiency of the capital-injection plans to
absorb future losses and will take into account whether the
bank's deleveraging efforts erode its franchise position and
operating revenues.
The long-term deposit ratings, which currently incorporate a
relatively high two notches of rating uplift, were also placed on
review. This was influenced by (i) the review of the standalone
rating; and (ii) Moody's reassessment of systemic support
assumptions in light of the mounting losses of other larger
Slovenian banks and the willingness of the Slovenian government
to extend on-going and timely support to the third-largest bank
in the country.
FULL LIST OF RATING ACTIONS
The following ratings were downgraded:
Issuer: Nova Ljubljanska banka d.d.
Banking financial strength rating of E+ on review for downgrade
(mapping to b2 from b1, on the long-term scale)
Long-term local- and foreign-currency deposit ratings to Ba2
from Ba1, on review for downgrade
Subordinate debt ratings to B3 from Ba2, on review for
downgrade
Junior subordinate debt rating to Caa1(hyb) from B1, on review
for downgrade
Issuer: Nova Kreditna banka Maribor
Banking financial strength rating of E+ (mapping to b1 on the
long-term scale) from D-, on stable outlook
Long-term local- and foreign-currency deposit ratings to Ba2
from Ba1, on review for downgrade
Junior subordinate debt ratings to B3(hyb) from Ba3(hyb), on
review for downgrade
Backed junior subordinate debt ratings to B3(hyb) from
Ba3(hyb), on review for downgrade
Issuer: Abanka Vipa d.d.
Banking financial strength rating of E+ on review for downgrade
(mapping to b2 from b1, on the long-term scale)
Long-term local- and foreign-currency deposit ratings to Ba3
from Ba2, on review for downgrade
Preferred stock non-cumulative rating to Caa2(hyb) from
Caa1(hyb), on review for downgrade
The following ratings were unaffected:
Issuer: Nova Ljubljanska banka d.d.
Short-term local- and foreign-currency deposit ratings of Non-
prime
Government-guaranteed senior unsecured bond/debenture ratings
of A2 with negative outlook
Issuer: Nova Kreditna banka Maribor
Short-term local- and foreign-currency deposit ratings of Non-
prime
Issuer: Abanka Vipa d.d.
Short-term local- and foreign-currency deposit ratings of Non-
prime
Government-guaranteed senior unsecured bond/debenture ratings
of A2 with negative outlook
The methodologies used in these ratings were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology published in March 2012.
Other Factors used in these ratings are described in Special
Comment Reassessment of Government Support Assumptions in
European Bank Subordinated Debt published in November 2011.
=========
S P A I N
=========
* SPAIN: S&P Downgrades Sovereign Credit Rating on Debt Concerns
----------------------------------------------------------------
David Roman at The Wall Street Journal reports that Standard &
Poor's said Thursday it downgraded Spain's sovereign credit
rating by two notches, citing "a challenging fiscal outlook" amid
worries on the ability of the country's regions to curb spending.
The downgrade to BBB-plus from A moves Spain into new rating
territory, with the credit scores from the other two major rating
firms above that from S&P, the Journal says.
In a news release, S&P cited the worse-than-expected
deterioration of Spain's budget trajectory since last year, and a
growing likelihood that the government will need to provide aid
for the banking sector, hit by mounting real estate losses, the
Journal relates.
S&P, as cited by the Journal, said it expects Spain's economy to
contract by 1.5% in 2012 and 0.5% for 2013. It previously
forecast GDP growth of 0.3% for 2012 and 1% for 2013, the Journal
discloses.
According to the Journal, because of higher-than-previously-
expected deficit projections and other debt-increasing items, S&P
sees net general government debt at 76.6% of GDP in 2014, against
its prior estimate of 64.6% of GDP.
S&P kept a negative outlook on Spain when it downgraded the
country's credit rating by two notches in February, as part of a
number of downgrades of euro-zone countries, the Journal notes.
The latest rating cut comes as Spain's central government is
intensifying efforts to curb spending by the country's powerful
regional governments, which manage key public services such as
health-care and education, the Journal relates. It also comes as
European leaders are voicing concerns about the effect of drastic
austerity measures amid a deep economic contraction and a lack of
plans to foster growth and employment, the Journal relates
states.
According to the Journal, a government spokeswoman said senior
government officials are expected to comment on the S&P downgrade
after the government's weekly cabinet meeting today.
Spain's cabinet is set to approve today the all-important fiscal
report that European Union countries use to show they are serious
about sticking to their debt and deficit rules, the Journal
discloses.
Earlier on Thursday, Spanish Prime Minister Mariano Rajoy said
the austerity policies implemented by the Spanish government form
part of long-standing EU commitments to have a single currency,
the Journal recounts.
The so-called stability report details plans for tens of billions
in spending cuts and tax increases the government hopes will
enable it to achieve fiscal targets set by the European
Commission, the EU executive body that polices fiscal discipline
in the 27-nation bloc, the Journal notes.
The European Commission the EU executive body that polices fiscal
discipline in the 27-nation bloc, has given Spain until April 30
to submit a report on further budget cuts, the Journal says.
S&P's Rating Action
In an April 26, 2012 press release, Standard & Poor's Ratings
Services said it lowered its long-term sovereign credit rating on
the Kingdom of Spain to 'BBB+' from 'A'. At the same time, the
ratings agency lowered the short-term sovereign credit rating to
'A-2' from 'A-1'. The outlook on the long-term rating is
negative..
"Our transfer and convertibility (T&C) assessment for Spain, as
for all European Economic and Monetary Union (EMU or eurozone)
members, is 'AAA', reflecting Standard & Poor's view that the
likelihood of the European Central Bank (ECB) restricting non-
sovereign access to foreign currency needed for debt service of
non-euro obligations is low. This reflects the full and open
access to foreign currency that holders of euro currently enjoy
and which we expect to remain the case in the foreseeable
future," S&P said.
The downgrade reflects S&P's view of mounting risks to Spain's
net general government debt as a share of GDP in light of the
contracting economy, in particular due to:
The deterioration in the budget deficit trajectory for 2011-
2015, in contrast with our previous projections, and
The increasing likelihood that the government will need to
provide further fiscal support to the banking sector.
"Consequently, we think risks are rising to fiscal performance
and flexibility, and to the sovereign debt burden, particularly
in light of the increased contingent liabilities that could
materialize on the government's balance sheet," S&P said.
"These concerns have led us to conclude a two notch downgrade is
warranted in accordance with our methodology," S&P said.
"Under our revised base-case macroeconomic scenario, which we
view as consistent with the downgrade and the negative outlook,
we have lowered our forecast for GDP to contract in real terms by
1.5% in 2012 and 0.5% for 2013. We had previously forecast real
GDP growth of 0.3% in 2012 and 1% in 2013," S&P said.
S&P believes that negative drags on GDP include:
* Declining disposable incomes;
* Private-sector deleveraging;
* Implementation of the government's front-loaded fiscal
consolidation plan; and
* The uncertain outlook for external demand in many of Spain's
key trading partners.
"In our opinion, the Spanish economy is rebalancing, and the
measures the government has taken should facilitate this process.
Spain's current account deficit (CAD) is on a narrowing
trajectory, significantly supported by the Spanish economy's
strong export performance, especially since 2009. The CAD was
3.5% of GDP at year-end 2011, compared with 10.0% in 2007.
Excluding the income deficit, the current account is in balance.
The income deficit, which reflects net interest and dividend
payments on Spain's net liabilities to the rest of the world,
widened in 2011 on the back of increased external funding costs.
We expect the current account to broadly balance in 2013-2014,
before posting a higher surplus thereafter. In contrast to 2008-
2010, the Bank of Spain -- through Target2 overdrafts with the
ECB (exceeding EUR250 billion in March 2012, from around EUR150
billion at the end of 2011) -- has now become the major source of
financing Spain's CAD. In our opinion, this reflects the extent
to which Spain's commercial banking system has sharply increased
its dependency on official funding sources to a considerably
higher level than we anticipated in January, when we last revised
our rating on Spain," S&P said.
"Despite the unfavorable economic conditions, we believe that the
new government has been front-loading and implementing a
comprehensive set of structural reforms, which should support
economic growth over the longer term. In particular, authorities
have implemented a comprehensive reform of the Spanish labor
market, which we believe could significantly reduce many of the
existing structural rigidities and improve the flexibility in
wage setting. Even if, in our opinion, the reform is unlikely to
eliminate the structural duality in the Spanish labor market, we
believe it will ultimately benefit employment growth once a
sustainable recovery sets in. In the near term, increased labor
market flexibility is likely to accelerate the necessary wage
adjustment and reduce the pace of job-shedding. At the same time,
we do not believe the labor reform measures will create net
employment in the near term. As a consequence, the already high
unemployment rate--especially among the young -- will likely
worsen until a sustainable recovery sets in," S&P said.
"Financial sector reform, announced in February 2012, requires
banks to allocate additional loan loss provisions and raise
capital buffers on exposure to real estate developments and
construction projects. We believe these sectors will continue to
be the main sources of asset quality deterioration. The reform
has also led to further banking sector consolidation. Recent
acquirers have benefited from asset protection schemes, with
potential losses covered by a partial (80%) guarantee provided by
the Deposit Insurance Fund to absorb future credit losses from
the acquired banks' legacy portfolios. We estimate that the
guarantees related to these schemes, combined with those that
will likely be provided in the upcoming sale of three entities
currently controlled by the Fondo de Reestructuracion Ordenada
Bancaria (FROB), represent a contingent liability for the
sovereign in the amount of about 3.75% of GDP. Combined with
embedded risks in the rest of the banking sector, public
enterprises, and other state guarantees, we now estimate
contingent fiscal risks to the sovereign as moderate, as defined
in our criteria," S&P said.
"We believe the ECB's recent long-term repurchase operations
(LTROs) have significantly reduced the risks the Spanish banking
sector faced in refinancing its medium-term external debt and its
short-term interbank liabilities maturing in the first half of
2012. The LTRO also helped banks to finance their government debt
portfolios cheaply. Nevertheless, we do not view the provision of
liquidity support by the monetary authorities as a substitute for
financial sector restructuring and economic rebalancing," S&P
said.
"In our view, the strategy to manage the European sovereign debt
crisis continues to lack effectiveness. We think credit
conditions, and hence the economic outlook for Spain, could now
deteriorate further than we anticipated earlier this year unless
offsetting eurozone policy measures are implemented to support
investor confidence and stabilize capital flows with the rest of
the world. Such measures at the eurozone level could include a
greater pooling of fiscal resources and obligations, possibly
direct bank support mechanisms to weaken the sovereign-bank
links, and a consolidation of banking supervision or a greater
harmonization of labor and wage policies," S&P said.
"In light of the rapid rise in public debt since 2008, we expect
the Spanish government to implement a sustained budgetary
consolidation effort -- including strengthening fiscal
surveillance frameworks at the regional government level -- aimed
at gradually reducing the government's net financing needs.
Balancing this commitment to stabilizing public finances with
policymakers' clear interest in preventing an acceleration of the
economic downturn will be challenging in the absence of fiscal
transfers from abroad, or private-sector credit creation at home.
At the same time, we believe front-loaded fiscal austerity in
Spain will likely exacerbate the numerous risks to growth over
the medium term, highlighting the importance of offsetting
stimulus through labor market and structural reforms," S&P said.
"Following budgetary slippage of 2.5% of GDP in 2011 beyond the
6.0% target, the government has committed to a target of 5.3% of
GDP in 2012 and 3.0% in 2013. In our opinion, these targets are
currently unlikely to be met given the economic and financial
environment. We forecast a budget deficit of 6.2% of GDP in 2012
and 4.8% in 2013 (our previous forecasts were 5.1% and 4.4%). We
also believe the delay to adopting the 2012 budget could reduce
the government's capacity to prevent deviations from its budget
plans," S&P said.
"Given the significant and regular budgetary slippages at the
regional level -- the main contributor to the deviations from the
government's targets--the national government's willingness to
fully enforce its new budget will likely be tested as we expect
the regions to post a shortfall of around 0.4% of GDP in 2012,
above their 1.5% of GDP 2012 target. Because of higher-than-
previously-expected deficit projections, and other debt-
increasing items such as arrears resolutions (estimated at 3.9%
of GDP in 2012), we forecast net general government debt at 76.6%
of GDP in 2014, against our previous projection of 64.6% of GDP.
State guarantees to the European Financial Stability Fund, the
European Stability Mechanism, and the Electricity Deficit
Amortization Fund, which are included in the government's own
debt projections, are not part of our debt estimate and are
instead classified with other state guarantees," S&P said.
"In line with the increasing risks we see to Spain's recovery, we
have also considered a downside scenario that, if it were to
eventuate, could lead us to lower the ratings again. This
downside scenario assumes a deeper recession in Spain this year,
as a result of weaker external and domestic demand, with real GDP
declining by 4% in real terms, followed by a contraction of 1% in
2013 and a weak recovery thereafter. Under this downside
scenario, the current account would adjust faster, but the
general government deficit trajectory would deteriorate further.
The net general government debt ratio would breach 80% of GDP,"
S&P said.
"The negative outlook reflects our view of the significant
external and domestic risks to Spain's economic growth and
budgetary performance, and the impact we believe this may have on
the sovereign's creditworthiness," S&P said.
"We could lower the ratings if we were to see a rise in net
general government debt to above 80% of GDP during 2012-2014,
reflecting fiscal deviations, weakening growth, or the
crystallization of contingent liabilities on the government's
balance sheet beyond our current projections. We could also
consider a downgrade if political support for the current reform
agenda were to wane. Moreover, we could lower the ratings if we
see that Spain's external position worsens or its competitiveness
does not continue to approach that of its trading partners, a key
factor for Spain to return to sustainable economic and employment
growth," S&P said.
"We could revise the outlook to stable if we see that risks to
external financing conditions subside and Spain's economic growth
prospects improve, enabling the net government debt ratio to
stabilize below 80% of GDP," S&P said.
=====================
S W I T Z E R L A N D
=====================
INEOS GROUP: S&P Raises Corp. Credit Rating to 'B'; Outlook Pos
---------------------------------------------------------------
Standard & Poor's Ratings Services raised its long-term corporate
credit rating on Swiss chemicals producer Ineos Group Holdings
S.A. and its U.K. subsidiary Ineos Holdings Ltd. to 'B' from 'B-
'. The outlook is positive.
"At the same time, we raised our issue ratings on Ineos' existing
senior secured debt to 'B+' from 'B' and our ratings on the
existing unsecured debt to 'CCC+' from 'CCC'. The recovery
ratings remain at '2' and '6'," S&P said.
"We have also assigned our 'B+' issue ratings to Ineos' proposed
EUR1,663 million equivalent senior secured notes due 2020 and its
prospective EUR1,113 million senior facility agreement due 2018.
The recovery rating on these debt issues is '2', indicating our
expectation of substantial (70%-90%) recovery in the event of a
payment default," S&P said.
"The rating actions reflect our view of Ineos' resilient
operating performance in recent quarters, reflected in EUR465
million of EBITDA reported for the first quarter of 2012. We have
consequently revised our forecast for Ineos' 2012 EBITDA upward
in our base-case scenario. In addition, we anticipate an
improvement of Ineos' debt maturity profile following the
prepayment of Term Loan B (due 2013) with proceeds from EUR1.3
billion in bonds Ineos issued in February 2012," S&P said.
"We have revised our forecast of Ineos' EBITDA for 2012 to more
than EUR1.45 billion from EUR1.2 billion, which would still
however be down from EUR1.7 billion in 2011. The upward revision
reflects a stronger-than-expected recovery in the chemicals
industry, as shown by Ineos' first-quarter results, and the
structurally higher profitability of Ineos' U.S. olefins and
polyolefin (O&P) activities, which benefited from low cost
feedstocks. In the first quarter of 2012, EBITDA from
intermediates chemicals (phenols, nitriles, oxides, and
oligomers) reached EUR233 million, which reflects favorable, but
not top cycle conditions, while U.S. O&P reported a record EUR175
million in the first quarter. Ineos' European O&P operations
activities recovered somewhat in line with naptha-cracker
spreads, generating EUR57 million of EBITDA after a small loss in
fourth-quarter 2011. However, we continue to expect weak 2012
profits from this division in view of its exposure to Europe and
lower benefits from lighter and cheaper feedstocks," S&P said.
"We estimate that Ineos' adjusted debt-to-EBITDA ratio will
remain at about 4.5x over 2012-2013. We expect only a modest
reduction in adjusted debt over 2012, owing to modest free cash
flow, assuming capital spending of about EUR0.4 billion and
likely higher working capital in view of increased oil and
petrochemical prices," S&P said.
"Under our revised base case, the risk of a covenant breach under
Ineos' senior facilities has decreased. However, headroom under
financial covenants will likely remain very tight over 2012-2014
because of the net-debt-to-EBITDA and EBITDA interest coverage
ratio limits stipulated in the documentation. This is even if we
currently assume that Ineos' lenders would consent to resetting
covenant levels, as they have in the past," S&P said.
"The key risk we see to our forecasts is a deep recession in
Europe. A material deterioration in the European and global
macroeconomic landscape would likely also put pressure on
currently fairly supportive supply-demand fundamentals of many
base and intermediate chemicals sectors, bearing in mind the
cyclicality of the petrochemicals industry," S&P said.
"The positive outlook reflects the possibility of another one-
notch upgrade in the next 12 months in the event that the company
is successful in extending its debt maturity profile and reducing
covenant risk, notably through covenant-lite loans as envisioned
in the announced refinancing. Before upgrading the company we
would, however, seek further evidence of adequate operating
resilience and further deleveraging in 2012 in line with our
base-case scenario, while considering the highly uncertain
economic conditions. At the current rating level, we see a ratio
of adjusted debt to EBITDA of 5.0x-5.5x as adequate; at the 'B+'
level we would expect a ratio in the 4.0x-4.5x range," S&P said.
===========================
U N I T E D K I N G D O M
===========================
BRITISH MIDLAND: BA Pilots Make Pledge; Takeover Issues Arise
-------------------------------------------------------------
Rose Jacobs at The Financial Times reports that British Airways
will be squeezing more work out of its flight crews following the
takeover of BMI, after pilots struck a deal to increase
productivity in exchange for the airline integrating the
lossmaking carrier rather than establishing it as a lower-cost
arm.
BA pilots voted earlier this year to encourage the airline to
merge BMI pilots into the flagship carrier's staffing system
rather than set them up on separate terms and conditions, the FT
recounts.
In agreeing to do so, BA's scope for playing one group off
another is reduced, the FT notes. But by securing BA pilots'
commitment to produce GBP10 million in annual savings by 2015,
the UK flag carrier continues the project of Willie Walsh, its
former chief executive and now head of parent group IAG, the FT
states.
IAG Takeover
In a separate report, the FT's Ms. Jacobs related that
International Airlines Group, the parent company of British
Airways, on April 20 completed its purchase of BMI from Deutsche
Lufthansa but will pay much less than the GBP172.5 million
originally agreed after the German group failed to sell two of
the lossmaking UK carrier's smaller divisions as planned.
According to the FT, IAG will be getting "a significant price
reduction" for taking on BMI's low-cost carrier, BMIbaby, and its
regional operations, neither of which the bigger group wants to
run.
"BMIbaby and BMI Regional are not part of IAG's long-term plans
and will not be integrated into British Airways," the FT quotes
thee company as saying on April 20. "The costs associated with
exiting these businesses, including the impact of operating them
in the short term, are expected to be offset by the price
reduction."
Together BMIbaby and Regional employ 813 staff, including almost
300 pilots, the FT discloses. British Airways, the FT says, is
integrating BMI's mainline operations into its own and expects to
shed about 1,200 jobs of 2,700.
Lufthansa said the new price would be decided at the end of June,
the FT notes.
Takeover Issues
Meanwhile, in an April 22 report, the FT's Ms. Jacobs disclosed
that the completion is not quite closure, and a number of
pressing questions remain unanswered for staff, customers, rivals
and investors.
BMI employees were told this month that 1,200 jobs would be cut
when the carrier was merged into BA, underscoring IAG's
determination to run the lossmaking airline more efficiently, the
FT recounts.
But the extent to which the pain of these cuts can be mitigated
by new positions and redundancy terms is unclear, the FT says.
There is also concern over the degree to which BMI workers'
pension payouts will be dented after Lufthansa transfers the
underfunded scheme to the UK pension insurer, leaving members
exposed to losses, according to the FT.
According to the FT, analysts say that for IAG and Lufthansa
investors, the failure to offload BMIbaby and Regional means even
the basic financial details of the deal are uncertain: the agreed
price of GBP172.5 million could be slashed by GBP80 million-
GBP100 million.
As reported by the Troubled Company Reporter-Europe on Jan. 12,
2012, the Financial Times related that auditors to BMI raised
doubts about its ability to continue as a going concern.
PricewaterhouseCoopers, as cited by the FT, said several
uncertainties surrounding BMI, including plans to sell the
airline to IAG, "may cast significant doubt over the ability of
the company to continue as a going concern".
British Midland Airways, which does business as bmi, --
http://www.iflybritishmidland.com/-- carries passengers to some
30 countries, mainly in the UK but also in continental Europe,
the Middle East, Asia, and Africa. It operates a fleet of about
50 jets, including Airbus and Embraer models. Low-fare
subsidiary bmi baby serves about 30 destinations in Europe with a
fleet of about 20 Boeing 737s. bmi is a member of the Star
Alliance global marketing group, which includes UAL's United
Airlines, Air Canada, and Singapore Airlines. In mid-2009,
fellow Star Alliance member and global airline giant Lufthansa
acquired majority ownership of bmi.
CONERSTONE TITAN: Fitch Affirms Rating on Class G Notes at 'Csf'
----------------------------------------------------------------
Fitch Ratings has affirmed Cornerstone Titan 2005-2 plc's notes
due 2014 as follows:
-- GBP15.3m Class E (XS0237331375) affirmed at 'BBBsf'; Outlook
revised to Negative from Stable
-- GBP15.4m Class F (XS0237331615) affirmed at 'CCsf'; Recovery
Estimate RE10%
-- GBP10.3m Class G (XS0237330302) affirmed at 'Csf'; RE0%
The affirmations reflect the largely unchanged performance of the
two remaining loans since the last rating action in May 2011.
The Negative Outlook reflects the upcoming maturity of the West
Midlands Office loan, the likelihood of a maturity default and
the short tail period of the transaction (two years).
The GBP27.6 million West Midlands Office loan is backed by a
single office property located in Solihull. Although the
property is fully let to the Paragon Group, the tenant vacated
the premises several years ago, subsequently sub-letting floors
one to three. Fitch understands that the ground floor remains
vacant.
Fitch believes much of the asset's current market value is
derived from Paragon's contractual rental obligations, set to
expire in 2019. This is due to a number of factors, including
limited tenant demand, which implies long void periods upon
vacancy, the poor to average condition of the property, which
means considerable capital expenditure will need to be spent to
prolong its operational life, and the over-rented nature of the
property, with current contracted rent 57% above estimated market
rent. The latest vacant possession value of GBP10m, against a
market value of GBP22 million, confirms Fitch's opinion on the
asset.
The interest coverage ratio (ICR) has remained unchanged for four
consecutive quarters, at 1.34x. However, with a reported loan-to-
value ratio (LTV) of 125.4% (based on a 2010 valuation), it seems
unlikely that the borrower will repay the loan at maturity in
October 2012 without any equity injections. Fitch understands
that the primary servicer is in discussions with the borrower
regarding possible exit strategies at the upcoming loan maturity.
The GBP8.1 million Bradford Retail loan is already past its
maturity date (July 2010) and remains in special servicing. The
loan is secured by seven retail units near the main shopping
district in Bradford city centre. Following the demise of
several tenants (including Zavvi and Birthdays), three of the
units remain vacant, although a local tenant will take over Unit
1 on a three-month rolling basis.
Excluding lease contracts still under negotiations, the current
ICR is 0.1x, according to the special servicer. This is due to a
combination of high irrecoverable costs and other liabilities
including default interest. Fitch expects very limited
recoveries from Bradford Retail whose LTV stood at 261.3% in
January 2012.
D&D WINES: Goes Into Administration, Cuts 12 Jobs
-------------------------------------------------
Decanter News reports that D&D Wines International has gone into
administration with the loss 12 jobs.
Accountancy firm RSM Tenon, which has been appointed
administrator, said that the reason for the failure of the
Cheshire-based business is cashflow problems, according to
Decanter News.
The report notes that following RSM Tenon's appointment, the
firm's Chris Ratten said, "It appears the reason for the firm's
decline was due to a lack of cash flow. The first quarter of the
year is traditionally the quietest in terms of sales activity,
which, coupled with a change in trading terms with a supplier
towards the back of 2011 resulted in significant cash flow
pressure. . . . After reviewing overhead costs, we have
unfortunately had to make 12 out of the 27 staff redundant but we
are currently marketing the business and speaking with interested
parties".
A formal notice to creditors will be sent out this week, RSM
Tenon said, the report adds.
D&D Wines sells around 600 wines in the UK and Ireland, sourced
from 25 wineries in ten different countries and supplying
supermarkets and retailers such as Tesco, Sainsbury's, O'Brien's
and Morrisons.
PETROPLUS HOLDINGS: Coryton Refinery to Close if Buyer Not Found
----------------------------------------------------------------
Nidaa Bakhsh at Bloomberg News reports that an administrator for
the insolvent for Petroplus Holdings AG said the unit's Coryton
oil processing complex in the U.K. will probably be idled as soon
as next month if a buyer isn't found.
"If we don't conclude a deal we will have no choice other than to
close the refinery," Bloomberg quotes Steven Pearson, a partner
at PricewaterhouseCoopers LLP in London, as saying in an e-mailed
response to questions on Wednesday. "We are working flat out to
deliver a deal in the time available, rather than focus on the
closure."
Administrators were appointed to secure the future of Petroplus's
five European refineries after the company filed for insolvency
in January, Bloomberg recounts.
Based in Zug, Switzerland, Petroplus Holdings AG is Europe's
largest independent oil refiner.
RANGERS FC: Should Have Been Placed Into Administration Earlier
---------------------------------------------------------------
Stv news reports that Rangers Football Club PLC owner Craig Whyte
said that he should have acted in October last year instead of
appointing Duff and Phelps in February.
The administrators are still trying to find a buyer for the club,
with ex-Rangers director Paul Murray's Blue Knights consortium
and American businessman Bill Miller bidding for the club,
according to Stv news.
On February 14, Stv news recalls that when the club went into
administration, Duff and Phelps revealed the club had not paid
GBP9 million in PAYE and VAT since Mr. Whyte took over in May
2011. Stv news relays that when asked about this non-payment,
Mr. Whyte responded: "We had GBP4 million frozen at the bank.
We took advice at the time to wait until the January transfer
window (before we paid PAYE, VAT etc) but perhaps we should have
put it into administration in October before the debt built up
but it's not a decision to take lightly."
Stv news notes that Mr. Whyte also said he had no preference over
Mr. Miller's bid or that of the Blue Knights and insisted that
his arrival at Rangers did not make things worse for the club.
Stv news relays that when asked about the prospect of Rangers
being liquidated, he commented: "I would really hope not, but the
SFA haven't been helpful. The administration process has taken
longer than it should have done . . . . I don't think I made
anything worse than it already was. I took decisive action to
put the club into administration which should have been the
solution to all the problems."
Meanwhile, Fox News Latino relates that Rangers have been hit
with a 12-month embargo on signing players and owner Craig Whyte
has been banned for life following a Scottish Football
Association hearing into the club's financial affairs.
Fox News Latino notes that Rangers have also been fined a total
of GBP160,000 while Mr. Whyte, who had already been deemed unfit
to hold an official position in the game by the SFA, was handed
fines totaling GBP200,000.
The SFA said their judicial panel would issue reasons for their
findings in "early course" while both parties have three days to
appeal following receipt of those reasons, Fox News Latino adds.
About Rangers Football Club
Rangers Football Club PLC -- http://www.rangers.premiumtv.co.uk/
-- is a United Kingdom-based company engaged in the operation of
a professional football club. The Company has launched its own
Internet television station, RANGERSTV.tv. The station combines
the use of Internet television programming alongside traditional
Web-based services. Services offered include the streaming of
home matches and on-demand streaming of domestic and European
games, which include dedicated pre-match, half-time and post-
match commentary. The Company will produce dedicated news
magazine and feature programs, while the fans can also access a
library of classic European, Old Firm and Scottish Premier League
(SPL) action. Its own dedicated television studio at Ibrox
provides onsite production, editing and encoding facilities to
produce content for distribution on all media platforms.
SKIPTON BUILDING: Moody's Issues Summary Credit Opinion
-------------------------------------------------------
Moody's Investors Service issued a summary credit opinion on
Skipton Building Society and includes certain regulatory
disclosures regarding its ratings. The release does not
constitute any change in Moody's ratings or rating rationale for
Skipton Building Society and its affiliates.
Moody's current ratings on Skipton Building Society and its
affiliates are:
Senior Unsecured (domestic and foreign currency) ratings of Ba1
Senior Unsecured MTN Program (domestic currency) ratings of
(P)Ba1
Long Term Bank Deposits (domestic and foreign currency) ratings
of Ba1
Bank Financial Strength ratings of D+
Subordinate (domestic currency) ratings of Ba2
Subordinate MTN Program (domestic currency) ratings of (P)Ba2
Commercial Paper (foreign currency) ratings of NP
Short Term Bank Deposits (domestic and foreign currency) ratings
of NP
Scarborough Building Society
BACKED Junior Subordinate (domestic currency) ratings of B1 (hyb)
Rating Rationale
Moody's assigns a D+ bank financial strength rating (BFSR) --
mapping to ba1 on the long-term scale -- to Skipton Building
Society (Skipton). The rating is constrained by (i) its low (but
recovering) net interest margin; (ii) high but stabilizing NPL
trends; (iii) high cost-to-income (CTI) ratio; and (iv)
managerial and fixed costs associated with some of its principal
subsidiaries. The rating also reflects Skipton group's
historically robust operating profitability, driven by the solid
performance of its Estate Agency business, its conservative
liquidity position and reliance on member deposits.
Following the removal of systemic support, the long-term bank
deposit and senior debt rating of Skipton is now Ba1, in line
with the D+ BFSR.
Rating Outlook
The outlook is negative on all the ratings. This reflects Moody's
view that continuing market volatility - and the related losses
on mortgages and savings from other subsidiaries - have the
potential to exert further pressure on Skipton's financial
fundamentals and thus on its ratings.
What Could Change the Rating - Up
Given the current low interest-rate environment, sluggish
economic growth in the UK and pressure on the real-estate market,
an upgrade due to an improvement in Skipton's intrinsic financial
fundamentals is unlikely in the near term.
What Could Change the Rating - Down
Given the sector-wide pressures, containing the trend of asset-
quality deterioration will be a key rating driver. If Skipton
encounters difficulties in managing this objective, downward
pressure on the BFSR could follow.
Maintaining the cost-efficiency of its diverse range of
subsidiaries in the current market downturn would be an important
consideration for rating stability. Difficulties at one of
Skipton's major subsidiaries, leading to a drain on resources
(either financial or managerial) away from the core lending
franchise might also exert downward pressure on the BFSR.
The methodologies used in these ratings were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Global Methodology published in March 2012.
* UK: Scottish Company Failures Up 31% in First Quarter
-------------------------------------------------------
Peter Ranscombe at The Scotsman reports that Scottish companies
are continuing to go bust in record numbers as a "never-ending
period of recession" takes its toll on the private sector.
According to the Scotsman, official statistics published on
Tuesday revealed that a total of 385 business went to the wall in
the three months to March 31, a 31% rise year-on-year and a 38%
jump compared with the final three months of 2011.
The Scotsman relates that Bryan Jackson, a corporate recovery
partner at accountancy firm PKF, said: "These figures show the
real state of the Scottish economy. Companies are simply having
to close down as they cannot see an end to the economic gloom."
"The news that the UK economy has fallen into a double-dip
recession is unlikely to surprise any of the business owners who
have gone bust in the first three months of this year," the
Scotsman quotes Mr. Jackson as saying. "Many of them may have
wondered whether we were ever really out of the recession."
The Scotsman notes that Iain Fraser, a Scottish member of R3, the
trade body for insolvency practitioners, added: "We will continue
to see very high corporate failure rates within the retail,
construction and hospitality sectors as the economy bumps along
the bottom of, what appears to be, a never-ending period of
recession."
===================
U Z B E K I S T A N
===================
ORIENT FINANS: S&P Assigns 'CCC+/C' Counterparty Credit Ratings
---------------------------------------------------------------
Standard & Poor's Ratings Services assigned its 'CCC+' long-term
and 'C' short-term counterparty credit ratings to Uzbekistan-
based Orient Finans Bank. The outlook is stable.
"The ratings on Orient Finans Bank reflect our view of the bank's
'weak' business position, 'weak' capital and earnings, 'moderate'
risk position, 'average' funding, and 'adequate' liquidity, as
our criteria define these terms. The stand-alone credit profile
(SACP) is 'ccc+'," S&P said.
"Under our bank criteria, we use the Banking Industry Country
Risk Assessment (BICRA) economic and industry risk scores to
determine a bank's anchor, the starting point in assigning an
issuer credit rating. Our anchor for a commercial bank operating
only in Uzbekistan is 'b+'," S&P said.
"The economic risk score for Uzbekistan is '7'. Uzbekistan's
economy is predominantly state owned, undiversified, and
commodity dependant, with high political risks and an unfavorable
investment climate. But a low degree of financial intermediation,
relatively low levels of corporate and personal indebtedness in
both private and public sectors, and limited cross-border
borrowing help shelter the country's small banking industry
somewhat from global external shocks. The industry risk score for
Uzbekistan is '9'. The Uzbek banking industry is undermined by
very weak institutional and legal frameworks, limited
transparency and disclosure, a lack of business and funding
diversification, and dominance of state-owned banks, which
distorts domestic competition," S&P said.
"We assess Orient Finans Bank's business position as 'weak' due
to its lack of track record given its short operational history,
limited customer base, and lack of business diversity. The bank
is in an early development phase and possesses all the embedded
weaknesses of a young, small, privately-owned financial
institution in the predominantly government-owned Uzbek banking
system. With total assets of about Uzbek sum (UZS) 143.3 billion
(about US$77 million) at March 31, 2012, it has a negligible
market share below 1% of the total system's assets and a very
small customer base. This currently results in significant
balance sheet concentrations. At the same time, we note that
Orient Finans Bank demonstrates positive development dynamics
driven by its experienced management team of bankers who
previously worked for some of Uzbekistan's largest banks, and by
shareholders' ambitions for the bank. We believe that currently
the development of the bank's business strategy and the dynamism
of its customer base rely heavily on the owners' and managers'
business contacts. This dependence is likely to continue until
the bank develops a stronger brand and franchise," S&P said.
"We assess Orient Finans Bank's capital and earnings as 'weak',
reflected in the projected risk-adjusted capital ratio before
adjustments for concentration and diversification in the 4%-5%
range over the next 12-24 months. Our projection incorporates our
expectation that Orient Finans Bank doubles its loan portfolio
for the next two years without additional external capital
injections from the shareholders. Orient Finans Bank is one of a
few newly created banks with a license for foreign currency
operations. Despite its short operating history it has already
become one of the largest banks in Uzbekistan by volume of
currency conversion operations. The bank performed quite well in
2011, showing a high return on equity of 25%. This was mainly
because of income from currency conversion transactions," S&P
said.
"We view Orient Finans Bank's risk position as 'moderate'. Our
assessment balances the bank's aggressive growth targets and very
high single-name concentrations in the loan book, including those
to related parties, against currently good asset quality metrics
and better customer knowledge compared with peers. As of year-end
2011, the bank's top-20 borrowers accounted for 94% of total
loans or 3x adjusted total equity. Positively, at year-end 2011
the bank had no overdue or restructured loans. Good asset quality
is mainly supported by the bank's unseasoned loan portfolio and
good knowledge of and relationships with its borrowers. However,
we expect problem assets to naturally surface as the loan
portfolio expands to include less-relationship-driven customers,
and as the portfolio matures. We believe that rapid growth masks
asset quality problems, which may materialize when the bank's
asset growth stabilizes. At the same time we note that the bank's
top management has good customer knowledge and banking experience
compared with some other small Uzbek banks," S&P said.
"We assess Orient Finans Bank's funding profile as 'average' and
liquidity as 'adequate'. The bank has one of the lowest loan-to-
deposit ratios in the system (54% as of Dec. 31, 2011) and zero
dependence on market and interbank funding. Its funding base is
undiversified and limited with the top-20 depositors accounting
for 43% of its total deposit base as of year-end 2011, albeit in
line with the sector average. Funding concentrations are already
incorporated into our ratings on Uzbek banks via our BICRA
assessment," S&P said.
"Orient Finans Bank had an adequate liquidity cushion as of year-
end 2011. Cash and cash equivalents together with short-term
(less than 30 days) interbank placements accounted for 64% of
bank assets. However, 45% of these liquid assets are funds in
Uzbek sum, which are blocked at the central bank's accounts for
conversion into foreign currency. We believe Orient Finans Bank
maintains a sizable liquidity buffer, as currency conversion
operations is one of the main income sources for the bank," S&P
said.
"Orient Finans Bank's ultimate beneficiaries are several private
individuals. The issuer credit rating does not include any
notches for extraordinary parental support, which we view as
uncertain as we are unable to ascertain the financial capability
of the shareholders to support the bank, if required. We consider
the bank to be of 'low' systemic importance due to its share in
the total system's retail deposits being below 1%. Thus we do not
give any uplift to the rating for extraordinary government
support," S&P said.
"The stable outlook balances our expectations that the bank will
continue to develop and grow its franchise and gradually
diversify its customer base, with our expectation of pressured
capitalization and potential asset quality deterioration due to
the seasoning of the loan portfolio," S&P said.
"We could lower the ratings if the bank's currently adequate
liquidity position were to materially deteriorate or if rapid
growth were to erode capitalization such that our risk-adjusted
capital ratio fell below 3% (before adjustments)," S&P said.
"We could raise the ratings if capitalization were to strengthen
through either capital injections or through sufficient internal
capital generation that raised our RAC ratio before adjustments
for concentrations and diversification above 7%. We could also
raise the ratings if the bank were to substantially strengthen
its franchise, focusing more on credit-related revenues (which
could result in us revising our assessment of the bank's business
position to 'moderate' from 'weak'), while keeping
capitalization, asset quality, and liquidity metrics at least at
current levels," S&P said.
===============
X X X X X X X X
===============
* BOOK REVIEW: Hospital Turnarounds - Lessons in Leadership
-----------------------------------------------------------
Editors: Terence F. Moore and Earl A. Simendinger
Publisher: Beard Books
Softcover: 244 pages
Price: $34.95
Review by Henry Berry
Hospital Turnarounds - Lessons in Leadership is a compilation of
twelve essays on the many approaches that have been taken to
resuscitate hospitals in distressed situations. Most of the
essayists are CEOs or presidents of hospitals or healthcare
organizations, and their stories are all different and compelling
in their own way. The hospitals differ in their size,
marketplace, facilities, and services offered. The causes of
their distress vary and the strategies that were used to overcome
them are wide-ranging. All-in-all, it makes for an engaging
collection of success stories.
The authors have extensive experience in the healthcare system,
and nearly all have held top leadership posts in several public
and private hospitals. Most importantly, all have been involved
in successful turnarounds at some time in their careers. Two of
the authors are from the field of marketing, which can play a
significant role in hospital turnarounds.
The number of troubled hospitals rises and falls over time,
depending on many factors, including the state of the U.S.
economy. There are always some hospitals in a distressed
situation or teetering close to it. In spite of the fact that
healthcare is a basic need in U.S. society, hospitals are
constantly vulnerable to financial problems because of
competition, changing medical technology, new approaches to
healthcare from improved drugs and public awareness, and medical
malpractice lawsuits. Any or all of these factors can be
financially crippling and, even if the financial impact is
minimized, a hospital's reputation can be damaged. Like any
other business organization, hospitals can also run into
difficulty because of poor management or labor problems.
The first and last chapters, "Introduction" and "Turnarounds: An
Epilogue," respectively, are written by the co-editors. The
balance of the chapters contain first-hand accounts of hospital
turnarounds, with the authors asked by the co-editors to
"document the role of the various publics." The authors do this,
offering their assessment of the role of the board of directors,
medical staff, management team, volunteers, and other relevant
"publics" in the respective turnarounds. A common thread in
this book is that the import and activities of these publics were
different in every turnaround. Each turnaround had to address
its own grievous, overriding problem or set of problems. Each
turnaround had its own cast of characters who brought different
backgrounds and skills to the turnaround. As a result, each path
taken to overcoming the distressed situation was different.
No matter what the cause or causes of a hospital's distressed
situation, in nearly every case the problems were first realized
when a financial problem became apparent. Thus, turnarounds are
inevitably focused on improving a hospital's financial situation.
As one of the authors notes, "A turnaround is most often the
result of increased revenues and decreased expenses." The
approach taken by some of the authors was to focus on
"[increasing] revenues to improve the operating margins of their
organizations." Many other turnarounds were accomplished by
focusing on reducing expenses. Invariably, however, a
combination of both was needed and working toward these paired
objectives required a new strategic thinking and the development
of operational capabilities that prepared the hospital for long-
term survival in continually changing market conditions. One
author's prescription for success was, "Upward communication,
fluidity of organizational structure, a reduction of unnecessary
bureaucratic rules and policies, and ambitious yet realistic
goals and objectives."
These practices are present in healthy companies and usually
missing in distressed companies. Implementation of these
business practices is essential for a hospital to return to a
favorable financial footing.
Another author addressed "organizational burnout," which must be
corrected if a hospital is to survive. Burnout is evident when
"the sum of an organization's actual output is decreasing over
time when compared with its potential output." The challenge
facing hospital executives and turnaround specialists is to
reduce -- and ideally, eliminate -- the gap between actual and
potential output. The smaller the gap, the more efficient,
productive, and healthy the organization.
These are just a few of the observations and lessons provided in
this collection of essays. Through engaging first-person
accounts of rescue stories, the reader learns what a turnaround
is all about, how to diagnose a distressed situation, and how to
formulate a strategy that implements specific corrective actions.
Terence F. Moore has been involved in the Michigan hospital
system as President and CEO of Mid-Michigan Health, Board Member
of the Michigan Hospital Association, and Chair of the East
Michigan Hospital Association. He is also a fellow of the
American College of Healthcare Executives. Earl A. Simendinger
is a professor of management at the College of Business at the
University of Tampa who for 20 years was a hospital
administrator. Also a fellow in the American College of
Healthcare Executives, he has written many books and articles on
management and organizational development.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers'
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than US$3 per
share in public markets. At first glance, this list may look
like the definitive compilation of stocks that are ideal to sell
short. Don't be fooled. Assets, for example, reported at
historical cost net of depreciation may understate the true value
of a firm's assets. A company may establish reserves on its
balance sheet for liabilities that may never materialize. The
prices at which equity securities trade in public market are
determined by more than a balance sheet solvency test.
A list of Meetings, Conferences and Seminars appears in each
Thursday's edition of the TCR. Submissions about insolvency-
related conferences are encouraged. Send announcements to
conferences@bankrupt.com
Each Friday's edition of the TCR includes a review about a book
of interest to troubled company professionals. All titles are
available at your local bookstore or through Amazon.com. Go to
http://www.bankrupt.com/booksto order any title today.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland
USA. Valerie U. Pascual, Marites O. Claro, Rousel Elaine T.
Fernandez, Joy A. Agravante, Ivy B. Magdadaro, Frauline S.
Abangan and Peter A. Chapman, Editors.
Copyright 2012. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$625 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 240/629-3300.
* * * End of Transmission * * *