/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/130619.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 Wednesday, June 19, 2013, Vol. 14, No. 120 Headlines A U S T R I A EUROCONNECT ISSUER: Fitch Raises Rating on Class C Notes to 'B+' B E L G I U M ALFACAM GROUP: Euro Media Group to Buy Business C Y P R U S BANK OF CYPRUS: Ex-Board Member to Sue Over Restructuring F R A N C E VIRGIN MEGASTORE: Paris Court Orders Liquidation G E R M A N Y ASOLA SOLARPOWER: STGCON Acquires Firm Out of Insolvency FRESENIUS SE: Fitch Affirms 'BB+' LT Issuer Default Ratings HAUS-1998-1: S&P Lowers Rating on Class B-2 Notes to 'CCC' TALISMAN-4 FINANCE: Fitch Cuts Ratings on 3 Note Classes to 'D' G R E E C E INTRALOT SA: Fitch Assigns 'B+' IDR & Rates EUR300MM Bonds 'BB-' INTRALOT SA: Moody's Assigns '(P)B1' Corp. Family Rating INTRALOT SA: S&P Assigns 'B-' CCR & Rates EUR300MM Notes 'B+' SEANERGY MARITIME: Swings to US$1.06-Mil. Profit in 1st Quarter I R E L A N D * Moody's Notes Worsening Performance of Irish RMBS in April I T A L Y BANCA MONTE: S&P Cuts Long-Term Counterparty Credit Rating to 'B' CAPITAL MORTGAGE: Moody's Cuts Rating on EUR5.5MM E Notes to Caa1 N E T H E R L A N D S AVOCA CLO II: Moody's Affirms 'Caa3' Rating on Class D Notes CARLYLE GLOBAL: S&P Assigns BB Rating to Class E Notes LEOPARD CLO II: Moody's Lowers Rating on Class C Notes to 'Caa2' P O L A N D MALMA: Lubella Acquires Assets P O R T U G A L CHAVES SME I: Moody's Confirms 'Ba2' Ratings on 2 Note Classes PORTUCEL SA: Moody's Rates EUR350MM Senior Notes Issue 'Ba3' R O M A N I A BELROM GROUP: Court Okays Insolvency Request for Promenada Mall R U S S I A BASHNEFT CAPITAL: Moody's Assigns '(P)Ba2' Rating to USD LPNs BASHNEFT CAPITAL: Fitch Assigns 'BB(EXP)' Rating to USD LPNs ROSAGROLEASING JSC: Fitch Affirms 'BB+' LT Issuer Default Rating S P A I N LA SEDA: Begins Insolvency Proceedings After Creditor Talks Fail SANTANDER HIPOTECARIO 9: Moody's Rates Series C Notes '(P)Caa3' U N I T E D K I N G D O M AA BOND: S&P Assigns Preliminary BB Rating to Class B Notes FAIRHOLD SECURITISATION: Fitch Affirms BB Rating on Class B Notes HEARTS FC: To Go Into Administration, Approaches KPMG HMV GROUP: To Return to its Oxford Street Flagship Store IMPERIAL HOME: Partnership DC Pension Scheme R&R ICE CREAM: S&P Cuts Corp. Credit Rating to B; Outlook Stable VIRGIN MEDIA: Fitch Cuts Long-Term IDR to 'B+'; Outlook Stable X X X X X X X X * EUROPE: Moody's Says Outlook for Tobacco Industry Stable * Rising Benchmark Interest Rates Threaten EM, EMEA Issuers ********* ============= A U S T R I A ============= EUROCONNECT ISSUER: Fitch Raises Rating on Class C Notes to 'B+' ---------------------------------------------------------------- Fitch Ratings has upgraded EuroConnect Issuer SME 2007 Ltd's class B and class C notes, due 2030, as follows: EUR43.25m class B (XS0336040331): upgraded to 'BB+sf' from 'BB-sf'; Positive Outlook EUR37.1m class C (XS0336040505): upgraded to 'B+sf' from 'B-sf'; Stable Outlook Key Rating Drivers The upgrade reflects the stable pool performance and the increased credit protection for the rated notes as a result of pool amortization. The portfolio quality and composition have remained largely unchanged since the last review in June 2012. Fitch used its Portfolio Credit Model to estimate the portfolio loss rates for different rating scenarios. Fitch reviewed historical observed default rates provided by the originator including values for 2012. Based on the data, Fitch updated the PD mapping of the internal rating system using an annual average originator default probability assumption of 2.6%. No historical recovery rate data was available but the originator provided the share of available collateral for each loan in the portfolio. The portfolio's weighted average collateralization rate is 52%. Fitch applied a base case recovery assumption of 40%. Taking into account the transaction's stable performance, the increased credit enhancement levels available to the class B and C notes led to the upgrade of the notes' ratings. In addition, synthetic excess spread is available as a loss threshold in an amount of 24bps pa on the performing reference pool balance. The transaction is amortizing with a current portfolio factor of 27% (as of the April 2013 investor report) compared with 41% at the time of the last rating action in June 2012. Due to pool amortization, the credit protection for the class B and C notes has increased to 16.09% and 11.68%, respectively, from 11.2% and 8.3% at the last review. Rating Sensitivities In Fitch's view, the risk of portfolio concentration remains limited due to the granularity of the asset pool. The 10 largest obligor groups make up 13.35% of the pool compared with 10.55% at the last review. The current credit enhancement for the class B notes is sufficient to provide for a default of the 12 largest obligor groups. The class C credit enhancement could cover the eight largest obligor groups. Defaulted assets in the portfolio currently amount to 0.7% of the initial portfolio balance (EUR3.1bn), which is a marginal increase from 0.6% at the last review. Delinquencies (31-90 days) have remained virtually unchanged at 0.45% of the outstanding balance. Cumulative realised losses amount to EUR18.4m. However, EUR15.7m of this was covered by synthetic excess spread. The remaining losses were allocated to the unrated class D notes. The transaction is a partially-funded synthetic CDO securitization with exposures to small- and medium-sized enterprises, primarily in Germany and Austria. Originators are UniCredit Bank AG (A+/Stable/F1+) and UniCredit Bank Austria AG (A/Stable/F1). ============= B E L G I U M ============= ALFACAM GROUP: Euro Media Group to Buy Business ----------------------------------------------- Robert-Jan Bartunek at Reuters reports that Alfacam said on Tuesday the company will be bought by France's Euro Media Group. Euro Media did not disclose financial details but a report in Belgian business daily De Tijd put the deal at EUR25 million (US$33.4 million), Reuters discloses. Alfacam was granted creditor protection in October and has been seeking investors since then, Reuters recounts. It announced an agreement with Indian investment group Hinduja in December, but the deal eventually fell through, Reuters notes. Alfacam Group is a Belgium-based the provider of Europe's largest fleet of outside broadcast vans. The company also provides broadcast services and TV studios. =========== C Y P R U S =========== BANK OF CYPRUS: Ex-Board Member to Sue Over Restructuring --------------------------------------------------------- Elias Hazou at Cyprus Mail reports that a former Bank of Cyprus board member is mounting a legal challenge against the decision to place the island's largest lender under administration. In an application filed with the Supreme Court earlier this month, Irini Karamanou, formerly a non-executive member of the bank's board, is also contesting the decision for the fire-sale of the bank's Greek operations, as well as the transfer of all of Laiki's emergency liquidity -- which are liabilities on the balance sheet -- to BoC, Cyprus Mail relates. Ms. Karamanou's application is directed against both the Central Bank of Cyprus and the finance ministry, the two entities co- responsible for restructuring the two Cypriot banks, Cyprus Mail discloses. She claims the appointment of an administrator for BoC was illegal as the bank was neither bankrupt nor insolvent at the time of the appointment, Cyprus Mail notes. Therefore the decisions subsequently taken to the detriment of the bank's shareholders should likewise be considered illegal and void, Cyprus Mail states. Bank of Cyprus is a major Cypriot financial institution. In terms of market capitalization of 350 million in March 2013, it is the country's biggest bank. As of September 2012, the bank held a 26.7% share of the Cypriot deposit market and a 22.5% share of the Cypriot loan market, making it the largest bank in Cyprus. The Bank of Cyprus Group employs 11,326 staff worldwide. * * * As reported by the Troubled Company Reporter-Europe on April 16, 2013, Moody's Investors Service downgraded Bank of Cyprus Public Company Limited's deposit ratings to Ca, negative outlook, from Caa3 and senior unsecured debt ratings to C, from Caa3. The subordinated and junior subordinated debt ratings of BoC were affirmed at C. =========== F R A N C E =========== VIRGIN MEGASTORE: Paris Court Orders Liquidation ------------------------------------------------ Marine Pennetier and Natalie Huet at Reuters report that a Paris court ordered the liquidation of Virgin Megastore France on Monday, sending hundreds more people to join France's record jobless queues. Virgin Megastore France, which employs 960 people in France, filed for insolvency in January, blaming high property rental costs and an industry-wide slump in CD and DVD sales as consumers download more film and music online, Reuters recounts. The court last week rejected two takeover offers by clothing group Vivarte and specialist retailer Cultura, deeming neither sufficient to safeguard Virgin's future, Reuters relates. "It's not a surprise, but it's a very sad day for Virgin and its employees," Virgin CEO Christine Mondollot told Reuters. "We had no other choice but to put the company under liquidation." According to Reuters, union leaders will meet on June 24 to discuss the conditions in which staff will be laid off and found new jobs. They have called on staff to occupy stores to heap pressure on management, Reuters discloses. Private equity firm Butler Capital Partners, Virgin Megastore's main shareholder, said last month it would give EUR2 million (US$2.7 million) to help staff find new jobs, Reuters recounts. Media group Lagardere, which owns a 20% stake, offered to rehire 80 employees, Reuters notes. Virgin Megastore is a French books, music and movies chain. ============= G E R M A N Y ============= ASOLA SOLARPOWER: STGCON Acquires Firm Out of Insolvency -------------------------------------------------------- Edgar Meza at pv-magazine.com reports that Shanghai-based STGCON, which has opened a new office near Munich, has acquired the insolvent Asola Solarpower. pv-magazine.com relates that the Erfurt-based company will continue to manufacture and sell solar modules while focusing on the development of prototypes and production of special and non-standard module applications. The group will also revive its automotive business, the report notes. "For us it's a strategic investment, particularly for the globalization of our electronic products in the automotive business," the report quotes Helmut Teschner, CEO of STGCON Germany, as saying. "We found an ideal partner, who fits 100% with Asola," added Asola insolvency administrator Jochen Grentzebach, pointing out that STGCON was medium-sized, privately owned and solidly financed company that has insured Asola's continuation, pv- magazine.com reports. STGCON's takeover of Asola is expected to be finalized in the coming days, with the legal transfer of the company to its new owner set for July 1, according to the report. Asola Solarpower GmbH is a Germany-based solar company. The company filed for insolvency in January in the face of high restructuring costs, oversupply and a declining European market. Former trustee, lawyer Jochen Grentzbach, has been appointed insolvency administrator of the company. FRESENIUS SE: Fitch Affirms 'BB+' LT Issuer Default Ratings ----------------------------------------------------------- Fitch Ratings has affirmed Germany-based healthcare group Fresenius SE & Co KGaA's (FSE) and Fresenius Medical Care AG & Co. KGaA's (FMC) Long-term Issuer Default Ratings (IDR) at 'BB+' and instrument ratings excluding the senior secured debt ratings, which are downgraded to 'BBB-' from 'BBB', to align them with Fitch's existing recovery ratings methodology. The Short-term IDRs and commercial paper program have been affirmed at 'B'. The Outlook is revised to Positive from Stable. The revision of the Outlook to Positive from Stable follows a sustained improvement in FSE's and FMC's consolidated (together 'Fresenius') business profile. Since Fitch upgraded Fresenius' IDR to 'BB+' from 'BB' in August 2011, the group has integrated Liberty Dialysis Group, Damp Group and Fenwal Holdings and pursued a string of smaller bolt-on acquisitions which have improved its business diversification and strengthened its earnings profile. The Positive Outlook also follows a change in Fresenius' acquisition policy towards smaller - mostly cash flow funded - bolt-on acquisitions. Any potential acquisition of Rhoen-Klinikum AG (Rhoen), is seen by Fitch as an event risk, given the uncertainty about the possibility for Fresenius to be able to acquire Rhoen. An upgrade will be considered once the group has proven that it will continuously operate at the lower end of its net leverage guidance range. Fresenius' ratings reflect the group's diversified healthcare- related businesses with its number one position in the global dialysis industry, where it benefits from vertical integration. They also reflect Fresenius' solid organic growth prospects and geographical diversification which supports its stable and predictable cash flow generation. In our view, Fresenius' business profile shares characteristics with some investment grade peers rated 'BBB-', but its financial metrics remain weaker than for most other 'BBB-' healthcare peers. Key Rating Drivers Improved business profile: FSE's business profile continues to improve through organic growth and acquisitions in non-dialysis business areas (Kabi, Helios, Vamed). As a result, Fresenius is less reliant on one disease area, which should help its earnings profile and the long-term stability of cash flow generation. Commitment to Financial Targets and Reduced M&A Appetite: Fresenius has track record of meeting guidance and financial targets. One of Fresenius' financial goals is to maintain a net debt to EBITDA at the lower end of 2.5x-3.0x - although that range might be breached for about 18 months if a debt-funded acquisition opportunity occurs. We believe that large debt funded acquisitions are unlikely to make a significant part of Fresenius' strategy in the medium term. Any potential acquisition of Rhoen, is seen by Fitch as event risk, given the uncertainty about the possibility for Fresenius to be able to acquire Rhoen. Market leadership positions expected to continue: Fresenius benefits from the leading market shares of FMC in the dialysis business across most regions the group operates in as well as from Kabi, the European leader in infusion and clinical nutrition therapy and the US number two in generic intravenous (IV) drugs, a non-cyclical business with solid growth prospects. Helios has critical size in the German private hospitals market. Relatively solid and predictable earnings / cash flow generation to continue: Fresenius has a solid cash flow generation, with Fresenius' free cash flow margin amounting to 6%in FY12, while the adjusted funds from operations (FFO) net leverage was 4.0x (FY11: 4.3x) and FFO fixed charge cover stood at 3.2x (FY11: 3.1x). FMC has predictable income streams, driven by the steadily growing demand for dialysis services (6% p.a. on average) and recurrence of treatment due to the life-threatening aspects of the disease. FSE's businesses Kabi and Helios also operate in non-cyclical segments and both benefit from stable growth prospects. Vertical integration helps to compensate for potential reimbursement cuts: Vertical integration provides cost advantages and bargaining power to the group. Fresenius could theoretically build a hospital and equip it with machinery (Vamed) and medicines (Kabi), supply it with dialysis machines and run a dialysis centre (FMC). As a majority of FMC's dialysis services sales are generated by Medicare/Medicaid patients, the group is exposed to increasing pricing pressure over the medium term. Other elements of the US healthcare reform are likely to have a detrimental yet manageable impact on FMC's performance such as the medical device tax and the effect of public spending cuts. As the world's number one market player in dialysis FMC is however able to benefit from economies of scale and vertical integration. This provides a competitive advantage compared to peers. Rating Sensitivities Positive: Future developments that could lead to positive rating actions include: FFO lease adjusted net leverage of 4.0x or below, FFO net fixed charge cover above 3.2x - both on a continuing basis Negative: Future developments that could lead to negative rating action include: FFO lease adjusted net leverage above 4.5x, FFO fixed charge cover below 2.5x - both on a continuing basis The rating actions are: FSE: Long-term IDR: affirmed at 'BB+', Positive Outlook Short-term IDR: affirmed at 'B' Senior unsecured debt affirmed at 'BB+' Senior secured debt downgraded to 'BBB-' from 'BBB' Fresenius Finance B.V.: Guaranteed senior notes affirmed at 'BB+' Fresenius US Finance II. Inc.: Guaranteed senior notes affirmed at 'BB+' FMC: Long-term IDR: affirmed at 'BB+', Positive Outlook Short-term IDR: affirmed at 'B' Senior unsecured debt affirmed at 'BB+' Senior secured debt downgraded to 'BBB-' from 'BBB' HAUS-1998-1: S&P Lowers Rating on Class B-2 Notes to 'CCC' ---------------------------------------------------------- Standard & Poor's Ratings Services said that it lowered to 'B (sf)' from 'BBB (sf)' its credit rating on Haus-1998-1 Ltd.'s class B-1 notes. At the same time, S&P has lowered to 'CCC (sf)' from 'B- (sf)' its rating on the class B-2 notes. The rating actions follows S&P's review of the transaction, and reflect its view that the rated classes of notes are exposed to increased credit risk since its previous Oct. 1, 2012 review. Cumulative net losses have increased to approximately EUR5.9 million from approximately EUR4.6 million in October 2012. On the May 14, 2013 payment date, S&P observed that about EUR1.42 million of the transaction's balance underwent the foreclosure process, leading to a loss allocation of about EUR1.33 million. This reduced the first-loss piece--the unrated class B-3 notes--to EUR1.36 million from EUR2.69 million. This is the highest loss allocation on one interest payment date in the transaction's life. Recovery rates remained at what S&P considers to be low to very low levels. The diminishing of the first-loss piece led to decreasing credit protection for the senior subordinated classes and to increased credit risk for the rated classes of notes. Terminated and foreclosed loans currently total 8.2%. Credit enhancement by subordination to the class B-2 notes is 7.8%. Severe delinquencies of 90+ days remained what S&P considers to be very low. Considering realized losses, delinquencies, and fee allocation to date--and taking into account historical recovery rates in this particular portfolio-- S&P has assessed the likelihood of future losses for the collateral pool's performing and nonperforming parts. Fixed fees rank senior to interest and principal payments in the waterfall. While the transaction amortizes, interest rate risk to the rated classes B-1 and B-2 notes increases owing to fixed fees. Since S&P's October 2012 review, the class B-3 notes have experienced two more interest shortfalls. S&P believes that a main cause of these shortfalls is the relatively high fixed fees unevenly applied throughout the year in the "miscellaneous fees" bucket. The transaction continues to amortize and, because of the circumstances described above, S&P believes that tail risk--the probability of high losses--to the rated classes of notes is increasing further. Therefore, S&P has lowered to 'B (sf)' from 'BBB (sf)' its rating on the class B-1 notes. S&P has also lowered to 'CCC (sf)' from 'B- (sf)' its rating on the class B-2 notes. Haus-1998-1 is a true-sale German residential mortgage-backed securities (RMBS) transaction. The pool factor has reduced to 2.4%, from 2.9% on Oct. 1, 2012. STANDARD & POOR'S 17G-7 DISCLOSURE REPORT SEC Rule 17g-7 requires an NRSRO, for any report accompanying a credit rating relating to an property-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 Report included in this credit rating report is available at: http://standardandpoorsdisclosure-17g7.com RATINGS LIST Class Rating To From Haus-1998-1 Ltd. EUR718.15 Million Mortgage-Backed Floating-Rate Notes Ratings Lowered B-1 B (sf) BBB (sf) B-2 CCC (sf) B- (sf) TALISMAN-4 FINANCE: Fitch Cuts Ratings on 3 Note Classes to 'D' --------------------------------------------------------------- Fitch Ratings has downgraded Talisman-4 Finance Plc's notes due 2015 as follows: EUR220.1m class A (XS0263096389) downgraded to 'BBsf' from 'BBBsf'; Outlook Negative EUR39.4m class B (XS0263098161) downgraded to 'Bsf' from 'BBB- sf'; Outlook Negative EUR39.4m class C (XS0263098914) downgraded to 'CCsf' from 'BBsf'; Recovery Estimate (RE) RE50% EUR25.6m class D (XS0263099722) downgraded to 'Csf' from 'Bsf'; RE0% EUR17.3m class E (XS0263100835) downgraded to 'Dsf' from 'CCCsf'; RE0% EUR0m class F (XS0263101304) downgraded to 'Dsf' from 'CCsf'; RE0% EUR0m class G (XS0263101569) downgraded to 'Dsf' from 'CCsf'; RE0% Key Rating Drivers The downgrades reflect the loss allocation following the sale of the collateral of the EUR52.2 million Dandelion DIV loan (class E, F and G notes), the expected ultimate losses from the Valentine and DT-12 loans (class C and D notes) and the overall reduction in credit enhancement (class A and B notes). The short remaining time until bond maturity (just over two years) has also been incorporated. In April 2013, the EUR15.9 million DC Properties loan repaid at its maturity. The principal proceeds were allocated to the notes sequentially. All three remaining loans are scheduled to mature in July 2013 but are already in special servicing. The EUR113.4 million Valentine loan defaulted in February 2011 as the result of an uncured loan-to-value (LTV) covenant breach. A further revaluation in November 2012 raised the LTV to 125.7%, well above the 87% covenant. The vacancy rate across the portfolio of 11 office properties located across Germany (predominantly the east) increased to 26% in April 2013 from 17% one year previously. The weighted average (WA) remaining lease term is short at 4.3 years. Fitch expects a significant loss from this loan. The EUR168.6 million DT-12 loan defaulted together with the Valentine loan as both facilities are cross-defaulted. However, the loan would have defaulted in its own right in 2012 following a revaluation of the 12 office properties located in western Germany, which resulted in an LTV of 126.9% as of April 2013, well above the 85% covenant. Like in Valentine, all debt service continues to be paid. The collateral is fully let to Deutsche Telekom (BBB+/Stable), on leases expiring in four years (on a WA basis). However, as part of the space has either been vacated or sub-let, a gradual renewal of all leases seems unlikely. The servicer is trapping surplus cash from both portfolios. The funds are used to cover third-party costs. In April 2013, EUR1 million of DT-12 and EUR0.4 million of Valentine surplus was held by the special servicer. The EUR113.4 million Barthonia was transferred into special servicing in 2011 due to an uncured LTV covenant breach. In April 2013, the securitized leverage was reported at 96%. Surplus funds are trapped and invested into capital expenditure. The collateral is a mixed-use property located in Cologne. The occupancy has been stable over the past year around 92%, despite the short remaining lease term (2.4 years) and tenant churn. The capex program (and positive effect on lease renewal/re-letting) will likely improve the sales prospects, although the upcoming bond maturity limits the duration of capex and marketing schemes. Fitch expects a moderate loss from this loan. Rating Sensitivities Delays in the recovery process, even if aimed at maximizing proceeds, or lower than expected recoveries would result in further downgrades given the approaching legal final maturity in July 2015. =========== G R E E C E =========== INTRALOT SA: Fitch Assigns 'B+' IDR & Rates EUR300MM Bonds 'BB-' ----------------------------------------------------------------- Fitch Ratings has assigned Intralot SA a Long-term Issuer Default Rating (IDR) of 'B+'. The Outlook is Stable. Fitch has also assigned Intralot's planned issue of EUR300 million bonds an expected senior unsecured rating of 'BB-(EXP)'/'RR3'. The final rating for the bonds is contingent upon receipt of final documents conforming to information already received by Fitch. The 'B+' IDR reflects the strength of Intralot's business capabilities -- namely its established track record of winning and retaining high profile gaming contracts -- good scope for steady EBITDA growth from its Licensed Operations division, a well-diversified contract portfolio, as well as its currently moderate leverage. These positives are contrasted by the low credit quality of some of the countries in which it operates, the important role of minorities and the vulnerability associated with an increasingly spread out business strategy that could require further investments in future, thus compromising free cash flow (FCF) generation capability. The ratings are premised on the successful issuance of the prospective notes, so that sufficient liquidity is available to refinance the convertible bonds maturing in December 2013. Should Intralot fail to raise at least EUR150 million of new funding, Fitch would likely place the IDR on Rating Watch Negative to reflect the refinancing risk. The planned EUR300 million bond is expected to be raised by a Luxembourg-based financial vehicle wholly owned by Intralot through Intralot Global Securities B.V. and will rank as a senior unsecured obligation pari passu with its bank debt. It will benefit from guarantees from Intralot SA and by the main operating subsidiaries of Intralot Global Securities B.V. The aggregate of these guarantors will account in total for approximately 70% of group assets and EBITDA. Intralot intends to use the bond proceeds to repay the principal amount of EUR140 million outstanding of the convertible bond as of March 31, 2013 and maturing in December 2013 plus the applicable redemption premium and to refinance other bank debt due in December 2014. Fitch conducted a bespoke recovery analysis to derive the debt instrument ratings, in line with its methodology 'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers'. Fitch considers that expected recoveries upon default would be maximized in a going-concern scenario rather than in a liquidation scenario given the asset-light nature of Intralot's business. Fitch has applied a discount of 40% to the FY12 consolidated EUR177 million EBITDA of Intralot to reflect downside risks as well as the material minority interests in some of its subsidiaries and a 4x distressed multiple to derive a distressed enterprise value of EUR431 million. Taking into account the pro-forma debt structure for the notes issuance and including the EUR150 million RCF as being fully drawn, Fitch estimates that the recovery rate for the senior notes would fall within the 51%-70% range ('RR3'), leading to a one-notch uplift from the IDR of 'B+'. KEY RATING DRIVERS Limited Linkage with Greece Intralot generates only 5% of its revenues and 8% of its EBITDA in Greece. While its management and a major proportion of its software developers and machine designers are based in Greece, overall Greece-based employees only account for 15% of the total. Finally, Intralot is in the process of completing a restructuring, whereby most operations (representing 88% of LTM Q113 EBITDA) will be owned via Intralot Global Securities B.V. (a Dutch sub-holding) while all debt will be issued under Luxembourg or UK-based vehicles controlled by the same Dutch sub-holding. As of YE12 less than 10% of group cash was lodged in Greece or Cyprus. Reputable Gaming Technology Supplier Intralot has established itself in the international gaming sector as a reputable provider of, among other products, systems to manage lotteries through software platforms and hardware terminals and in betting, a large sportsbook. This has enabled it to win important contracts for the supply of technology and for the management of lotteries in the US and Greece in the earlier part of the past decade and for sportsbetting in Turkey and Greece. We expect Intralot should be able to leverage on its existing platform to win additional contracts. Visible Core EBITDA More contracts in several other jurisdictions were gained following on from the ones in Greece, Turkey and the US. Intralot's Technology and Management divisions benefit from the oligopolistic structure of the gaming systems and equipment industry. Mostly recurring revenues from contracts with EBITDA- weighted average life of four to five years generate Intralot's core EBITDA of EUR106m (60% of total). Due to the high switching costs of changing supplier, many of these have good chances of renewal although Fitch believes that under some circumstances, Intralot may be required to disburse a renewal fee. Geographic Diversification Positive on Balance A supporting rating factor is Intralot's diversity by countries of operation spanning from Europe to the Americas with only one individual contract contributing more than 10% of group EBITDA. While Fitch views the risks of adverse regulatory changes as minimal, Intralot's diversification provides further comfort. Nevertheless, a constraining factor to its rating is that approximately one-third of Intralot's EBITDA is generated on aggregate in countries rated 'B' or below, including Cyprus, Greece, Argentina and Jamaica. Increasing Exposure to Competition As national gaming markets liberalize and governments exert downward pressure on the profitability of their suppliers, Intralot has been successfully expanding in new geographies and increasingly becoming a licensee itself. Fitch views this line of business as promising. However, new projects require investments and increasingly move the company to a full scale operator in new geographies. This may expose it to a variety of competitors that provide games to consumers and innovate regularly. Some mitigation to capital outlays comes from Intralot's model of operating mostly through franchised points of sale and its intention to restrain major disbursements to acquire licenses. Scope for Growth The gradual liberalization of gaming markets, governments' keenness to find ways to raise tax proceeds and the increasing supply of new games, should all provide increasing opportunities for Intralot. The company should be able to leverage on its experience and reputation and also benefit from the limited number of reputable suppliers in the industry. Low to Negative FCF Over 2007-2012, Intralot's FCF has consistently been negative, mostly due to expansionary capex (also including investments in equipment initially booked as inventory) of EUR100 million to EUR150 million per annum. Another factor of cash flow absorption is linked to the significant proportion of EBITDA that does not belong to Intralot (although fully consolidated), linked to joint ventures. This results in approximately EUR20 million of annual minority dividend distributions. A move of FCF into positive territory in 2014 is premised on a reduction of capex and on expected returns from the projects in which the company is currently investing. Moderate Leverage After a peak of 4.3x in 2010, FFO-based net lease adjusted leverage dropped to 3.1x in 2012. In 2013, Fitch expects a rebound in leverage towards 3.5x, due to a likely contraction of profits and capex disbursements, which are assumed to be only mildly lower than 2012's EUR120m. Should management pursue a more moderate pace of expansionary investment from 2014 onwards -- with annual capex in the region of EUR40 million to EUR60 million -- FCF generation has scope to take leverage well below 3.0x during 2015-2016. Ratings Sensitivities Positive pressure on the ratings would occur if Intralot met most of the following rating factors on a sustained basis: - Positive EBITDA growth derived from stronger return on capital on existing and future contracts with limited capex outlays. - FFO-based net lease adjusted leverage reducing sustainably below 3.0x, with cash deposited predominantly in investment grade-rated counterparties. - FFO fixed charge cover above 4.0x unaided by favorable interest carry. - Evidence of sustained positive FCF generation. Negative pressure on the ratings would occur if Intralot met most of the following rating factors on a sustained basis: - Evidence that new contracts or renewals are occurring at materially more onerous conditions for Intralot, such as lower margins, large upfront concession fees or capex outlays. - FFO-based net lease adjusted leverage permanently above 3.5x. - FFO fixed charge cover below 2.0x. INTRALOT SA: Moody's Assigns '(P)B1' Corp. Family Rating -------------------------------------------------------- Moody's has assigned a provisional (P)B1 Corporate Family Rating to Intralot S.A. Upon confirmation of the capital structure and assignment of definitive ratings, Moody's would expect to assign a Probability of Default Rating of B1-PD. Concurrently, Moody's assigned a provisional (P)B1 (LGD4, 50%) rating to the proposed EUR300 million senior unsecured notes to be issued by Intralot Finance Luxemburg S.A. The outlook on the ratings is stable. This is the first time that Moody's has rated Intralot. Moody's issues provisional ratings for debt instruments in advance of the final sale of securities or conclusion of credit agreements. Upon a conclusive review of the final documentation, Moody's will endeavor to assign a definitive rating to the different capital instruments. A definitive rating may differ from a provisional rating. Ratings Rationale: The (P)B1 ratings primarily reflect (i) Intralot's leading market position as a global supplier of integrated gaming systems and services; (ii) Intralot's globally diversified activities with presence in 36 countries, although with some dependency on some individual countries; (iii) a good visibility and predictability of future revenue generation given a large number of long-term contracts; (iv) an experienced management team with a proven track record of winning and retaining new contracts; (v) growth potential from market liberalization especially in Asia as well as (vi) a moderate financial leverage. On the more negative side, the rating takes into account (vii) Intralot's significant exposure to emerging market risk where it generates a good share of group revenues and EBITDA (e.g. Greece, Argentina, Jamaica, Morocco); (viii) Intralot's weak historic free cash flow generation with negative free cash flows over the period 2009-2012 with only a marginally positive free cash flow in 2011; (ix) a significant erosion in profit margins from the peak levels achieved in 2007, however still in line with its major peers; (x) Intralot's high fluctuation in capital expenditures resulting from business growth or new contract wins; (xi) the regulatory risk regarding the gaming market and tax regime in various jurisdictions in which Intralot operates as well as (xii) some exposure to currency fluctuation due to the fact that the majority of debt going forward is denominated in EUR whilst a significant part of cash flows in currencies other than the EUR with possibly some fluctuation in exchange rates over time. Furthermore, the rating considers that the consolidated reported EBITDA has to be adjusted for minority stakes and needs to be shared with partners which is not adequately reflected in the calculation of leverage metrics based on consolidated results (e.g Debt/EBITDA). This also applies to the reported cash balance of around EUR 135 million, out of which a significant part is located in subsidiaries with substantial minority interest or trapped in individual countries. Despite the fact that Intralot is based in Greece, the current rating reflects (1) the group's modest reliance on its Greek operations, which represent around 5.6% of group's revenues in fiscal year 2012; (2) the fact that Intralot will raise all its financing needs and service its debt outside of Greece (i.e., the group generates most of its cash flows outside of Greece and will use them to service the note interest and principal payments before they are passed to the Greek parent company); and (3) the bond and the bank facilities will be governed under New York and English law. Therefore, the rating assigned is higher than the country ceiling of Greece. However, the rating is also negatively impacted by the high dependence of Intralot on other markets with generally low sovereign ratings, such as Argentina (B3 negative); Jamaica (Caa3 stable) or Morocco (Ba1 negative). Rating Outlook The stable outlook assumes a pro forma leverage of 3.2x for the current fiscal year and a gradual de-leveraging over the coming years driven predominantly by a steady increase in EBITDA with a preservation of current EBITDA margins and positive free cash flow generation from 2014 onwards applied to debt reduction. In addition the stable outlook anticipates Intralot to sustain a solid liquidity profile. What Could Change The Ratings Down/Up The B1 ratings could be downgraded in case of (i) Debt/EBITDA (as adjusted by Moody's) exceeding 4.0x in any year going forward; (ii) interest coverage measured as EBIT/ interest expense (as adjusted by Moody's) falling below 2.0x; or the inability to generate positive free cash flows (as adjusted by Moody's) from 2014 onwards. Also, a weakening of the company's short term liquidity could result in a downgrade. An upgrade over the next 12-18 months is rather unlikely, however the ratings could be upgraded in case of (i) an improved business profile with a higher exposure to more regulated markets; (ii) Intralot being able to generate positive free cash flows on a sustainable basis; as well as (iii) leverage ratio measured as Debt/EBITDA (as adjusted by Moody's) falling well below 3.0x; and (iv) interest coverage measured as EBIT/ interest expense (as adjusted by Moody's) exceeding 3.5x. Also for an upgrade Moody's would expect a higher cash balance available at subsidiaries that are fully owned by Intralot. Liquidity Moody's deems Intralot's liquidity profile as adequate. Following the assumed successful placement of the notes, cash and cash equivalents available are anticipated to amount to EUR140 million (although approximately half of that amount is deemed to be trapped), together with the unused EUR125 million under the revolving credit facility and cash flows from operations are expected to be sufficient to cover the expected cash needs resulting from working capital needs, capital expenditures, dividend payout and debt maturities over the next 12-18 months. Moody's also anticipates that Intralot will be able to maintain a comfortable headroom under its financial covenants. Structural Considerations The (P)B1 rating on the proposed senior unsecured notes reflects their position as unsecured obligations within Intralot's capital structure. The notes benefit from unconditional and irrevocable guarantees from Intralot S.A. and certain subsidiaries of Intralot S.A. which represented approximately 68% of Intralot's consolidated total assets and generated approximately 67% of Intralot's consolidated EBITDA over the last twelve months period ended March 31, 2013 . Moody's anticipates the guarantors assets as well as EBITDA to exceed 70% of the group's consolidated figures respectively going forward. In Moody's waterfall the notes would rank on the same level of all of the issuer's existing indebtedness including trade payables and pension obligations. The principal methodology used in these ratings was the Global Gaming published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Headquartered in Athens, Greece, Intralot is a leading vendor in the gaming sector and at the same time a licensed gaming operator through 28 individual licenses across 16 jurisdictions. Intralot designs, develops, operates and supports custom-made gaming solutions and provides innovative content, services and technology to lottery and gaming organizations on a global scale with presence across 55 jurisdictions in 36 countries worldwide. In fiscal year 2012 Intralot generated revenues of approximately EUR1.37 billion and reported an EBITDA of EUR178 million. INTRALOT SA: S&P Assigns 'B-' CCR & Rates EUR300MM Notes 'B+' ------------------------------------------------------------- Standard & Poor's Ratings Services said that it assigned its 'B-' long-term corporate credit rating to Greece-based gaming company Intralot S.A. At the same time, S&P placed the corporate credit rating on Intralot on CreditWatch with positive implications. In addition, S&P assigned its 'B+' issue rating to the EUR300 million proposed senior unsecured notes to be issued by Intralot's 100% subsidiary Intralot Finance Luxembourg S.A. The ratings on Intralot reflect S&P's assessment of the company's business risk profile as "fair" and financial risk profile as "aggressive." Intralot operates internationally and is one of the leading players in the supply of integrated gaming systems and services. In addition, the company is a licensed gaming operator and is active in game management on behalf of third parties such as state operators. "Our assessment of Intralot's business risk profile as "fair" reflects Intralot's diversified geographic exposure and presence in various gaming segments. The company is one of the leading players in the gaming technology industry, which is consolidated and has high barriers to entry in terms of know-how and the need for sizable investments. After adjusting for industry-typical accounting methods, such as reported revenues net of payouts and taxes, we calculate that Intralot has a profitability margin of more than 30%, at the high end of the gaming sector range of 15%- 35%. The contract-based nature of Intralot's business provides some medium-term visibility on its top line," S&P said. "We assess Intralot's financial risk profile as "aggressive," mostly reflecting what we view as its fairly aggressive approach to managing its debt maturity profile and free cash flow generation so far," S&P added. S&P aims to resolve the CreditWatch placement within the next 30- 90 days and following the completion of the EUR300 million notes issuance and partial refinancing of Intralot's upcoming debt maturities. In resolving the CreditWatch, S&P will review the size and documentation of Intralot's notes offering, along with the company's use of the proceeds. S&P will likely raise the rating on Intralot to 'B+' on the successful completion of the notes issuance and partial refinancing. The upgrade would reflect that the company had addressed its main near-term liquidity issues, specifically, its 2013-2014 debt maturities, with a refinancing that is neutral to leverage and improves liquidity tangibly. If management fails to implement the planned changes to the company's capital structure, S&P would likely lower the rating on Intralot to the 'CCC' category. SEANERGY MARITIME: Swings to US$1.06-Mil. Profit in 1st Quarter --------------------------------------------------------------- Seanergy Maritime Holdings Corp. reported net income of US$1.06 million on US$5.64 million of net vessel revenue for the three months ended March 31, 2013, as compared with a net loss of US$6.36 million on US$17.41 million of net vessel revenue for the same period a year ago. As of March 31, 2013, the Company had US$93.01 million in total assets, US$193.56 million in total liabilities and a US$100.54 million total deficit. "I am pleased to announce our first profitable financial quarter since 2011, despite the challenging dry bulk market conditions. Our net income was US$1.1 million compared to a net loss of US$6.4 million for the same period last year. During the first quarter of 2013 charter rates continued to deteriorate and our average daily Time Charter Equivalent ("TCE") rate decreased to US$6,004 per vessel as compared to US$9,546 in the first quarter of 2012. "Regarding our financial restructuring, since the beginning of 2012 and as of the date of this press release, we managed to reduce our indebtedness to US$176.9 million, from US$346.4 million, through finalized agreements with three out of our five lenders. In addition, we have entered into an agreement with our fourth lender for the sale of three MCS's vessel owning subsidiaries in exchange for a nominal cash consideration and full satisfaction of the underlying loan of approximately US$38 million. After giving effect to this transaction, we will have reduced our indebtedness by approximately 61% to US$135 million. We continue discussions with our remaining lender, aiming to reach a solution that will enable Seanergy to complete the restructuring of its outstanding debt." A copy of the press release is available for free at: http://is.gd/0gV4BH About Seanergy Athens, Greece-based Seanergy Maritime Holdings Corp. is an international company providing worldwide seaborne transportation of dry bulk commodities. The Company owns and operates a fleet of seven dry bulk vessels that consists of three Handysize, two Supramax and two Panamax vessels. Its fleet carries a variety of dry bulk commodities, including coal, iron ore, and grains, as well as bauxite, phosphate, fertilizer and steel products. In its audit report on the consolidated financial statements for the year ended Dec. 31, 2012, Ernst & Young (Hellas) Certified Auditors Accountants S.A., in Athens, Greece, expressed substantial doubt about Seanergy Maritime's ability to continue as a going concern. The independent auditors noted that the Company has not complied with the principal and interest repayment schedule and with certain covenants of its loan agreements, which in turn gives the lenders the right to call the debt. "In addition, the Company has a working capital deficit, recurring losses from operations, accumulated deficit and inability to generate sufficient cash flow to meet its obligations and sustain its operations." The Company reported a net loss of US$193.8 million on US$55.6 million of net vessel revenue in 2012, compared with a net loss of US$197.8 million on US$104.1 million of net vessel revenue in 2011. ============= I R E L A N D ============= * Moody's Notes Worsening Performance of Irish RMBS in April ------------------------------------------------------------ The performance of the Irish prime residential mortgage-backed securities market continued to deteriorate during the three-month period leading to April 2013, according to the latest indices published by Moody's Investors Service. From January to April 2013, the 90+ day delinquency trend and 360+ day delinquent loans (which are used as a proxy for defaults) reached a new peak, rising steeply to 18.1% from 17.3% and to 9.4% from 8.5%, respectively, of the outstanding portfolios. However, 30+ day delinquencies are increasing at a slower pace, which could lead to a similar decrease for later stage arrears in the coming quarters. Moody's annualized total redemption rate (TRR) trend was 2.7% in April 2013, down from 3.3% in April 2012. Moody's outlook for Irish RMBS is negative. The steep decline in house prices since 2007 has placed the majority of borrowers deep into negative equity. Low house prices increased the severity of losses on defaulted mortgages. On March 13, Moody's placed on review for downgrade the ratings of Phoenix Funding 4 Limited, as part of 60 classes of notes in 41 RMBS and 7 asset-backed securities (ABS) transactions in Spain, Italy and Ireland, as a result of potentially insufficient credit enhancement. The determination of the applicable credit enhancement that drives these rating actions reflects the introduction of additional factors in Moody's analysis to better measure the impact of sovereign risk on structured finance transactions. As of April 2013, 18 Moody's-rated Irish prime RMBS transactions had an outstanding pool balance of EUR43.18 billion. This constitutes a year-on-year decrease of 13.8% compared with EUR50.07 billion for the same period in the previous year. ========= I T A L Y ========= BANCA MONTE: S&P Cuts Long-Term Counterparty Credit Rating to 'B' ----------------------------------------------------------------- Standard & Poor's Ratings Services said that it lowered its long- term counterparty credit rating on Italy-based Banca Monte dei Paschi di Siena SpA (MPS) to 'B' from 'BB', and affirmed the 'B' short-term rating. S&P also lowered its rating on MPS' Lower Tier 2 subordinated notes to 'CCC-' from 'CCC+'. S&P affirmed the ratings on MPS' junior subordinated debt at 'CCC-' and on its preferred stock at 'C'. At the same time, S&P removed the ratings from CreditWatch, where it placed them with negative implications on Dec. 5, 2012. S&P subsequently withdrew all ratings at MPS' request. The downgrade reflects S&P's view of the reduction of about EUR1 billion in MPS' total adjusted capital (TAC) for 2011 following MPS' restatement of its accounting of certain transactions. The downgrade also reflects S&P's view of MPS' recently published results for fiscal-year 2012 and first-quarter 2013. On March 28, 2013, MPS restated its treatment of the Alexandria, Santorini, and Nota Italia structured transactions, as well as in respect of some staff costs. Overall, the restatement resulted in a reduction of about EUR1 billion in MPS' total adjusted capital (TAC) in December 2011. Furthermore, MPS reported losses of EUR3.2 billion for fiscal 2012, higher than S&P expected. In addition, MPS reported a still-high EUR101 million net loss in first-quarter 2013. These higher losses mainly resulted from MPS' high loan loss provisions due to increased nonperforming assets (NPAs). In 2012, MPS' net inflow of NPAs amounted to 4.2% of gross loans at year-end 2011, and MPS posted an additional 1.2% inflow of NPAs for first- quarter 2013. As a result, MPS' cost of risk increased, by S&P's calculation, to 187 basis points (bps) in 2012 and about 140 bps (annualized) in the first quarter of 2013. S&P expects that the economic environment in Italy will likely continue to deteriorate in 2013, with GDP contracting by about 1.4% in 2013, having declined by 2.4% in 2012. In S&P's opinion, given Italy's deep and prolonged economic deterioration, MPS is likely to face more difficulties in improving performance than S&P previously anticipated. "In particular, we expect that MPS' operating profitability will continue to be squeezed in 2013 and 2014 by continued pressures on revenues, notwithstanding its cost-cutting efforts. Furthermore, we anticipate that MPS' NPAs will continue accumulating in 2013 and 2014. We anticipate continued deterioration in construction and real estate sectors and small and midsize enterprise segments, to which MPS is exposed and which are particularly affected by the prolonged downturn. Because of this deterioration, we consider that MPS' cost of risk is likely to remain significantly higher than the average for the Italian banking sector. In our view, such high credit losses will significantly affect MPS' ability to retain earnings to sustain its capital position over the next 18-24 months," S&P said. "In addition, we have incorporated into our assessment of MPS' capital the effect of MPS' restated accounting and the higher- than-expected losses that MPS recorded in 2012 and first-quarter 2013. As a consequence, it is unlikely in our view that MPS' Standard & Poor's risk-adjusted capital (RAC) ratio, before diversification adjustments, will be above 3% by the end of 2014. Therefore, we have changed our assessment of MPS' capital and earnings to "very weak" from "weak," as our criteria define such terms," S&P added. "We forecast a declining trend in 2013-2014 in MPS' TAC because of our expectation of MPS' limited ability to retain earnings. Therefore, an increasing part of the Nuovi Strumenti Finanziari (NSF; the government instruments MPS issues) will not form part of our TAC measure by year-end 2014. This is because under our criteria we limit capital credit assigned to hybrids with intermediate equity content. That said, we think that NSFs may effectively cushion some of the bank's vulnerabilities in ways not fully captured in our rating. Our criteria, however, contain the possibility to give an issuer's stand-alone credit profile (SACP) a one-notch uplift to reflect certain credit positives relative to peers not captured elsewhere in the rating. In MPS' case, therefore, we have incorporated such an uplift to reflect the size of MPS' cushion compared with that of its peers that have a similar SACP," S&P noted. In early 2013, MPS increased its dependence on short-term sources of funding, which S&P considers inherently less stable than long- dated funding. MPS' ratio of broad liquid assets to short-term wholesale funding decreased to 1.4% at the end of March 2013 from about 2% at the end of December 2012. Moreover, MPS' loan-to- deposit ratio has continued to increase to about 144% at the end of March 2013 from about 130% at year-end 2011. S&P's view of MPS' worsened liquidity position has led it to revise its liquidity assessment to "moderate" from "adequate." Moreover, S&P considers that MPS' increased dependence on short-term funding sources will make it less likely that MPS will reach a more balanced funding structure by the time its long-term refinancing operations (LTROs) expire, in contrast with S&P's previous expectation. S&P previously incorporated one notch of short-term support as it anticipated that MPS' ongoing access to European Central Bank (ECB) funding facilities, particularly the LTROs, should have created enough time for it to rebalance and make more sustainable its funding profile. As S&P now expects that MPS will maintain a proportionally high reliance on short- term ECB funding, even after 2014, it has removed the one notch of short-term support. As a result of S&P's lowering MPS' SACP, it also lowered its ratings on its nondeferrable subordinated debt to 'CCC-' from 'CCC+' and affirmed its rating on its Upper Tier 2 debt at 'CCC- '. Despite the usual "notching down from the SACP" treatment for such instruments, S&P has not lowered the relevant ratings in this case because, according to its criteria, it rates an instrument 'CC' only when the relevant issuer has announced that it will miss its next interest or principal payment. S&P affirmed its ratings on MPS' Tier 1 hybrid instruments at 'C'. The rating reflects MPS' suspension of these instruments' coupon payment. At the time of the withdrawal, the outlook on MPS was negative, reflecting the possibility that S&P could have lowered the ratings if it had perceived that MPS' capitalization had continued to deteriorate. In particular, S&P could have lowered the ratings if it anticipated that its forecast RAC ratio for the end of 2014 would fall below 2%, deviating from its baseline expectation. This would most likely have occurred because of a weaker earnings profile than S&P anticipated. The negative outlook also reflected S&P's view that it could have lowered the ratings if it had anticipated that deteriorating economic and banking industry conditions in Italy could have impaired MPS' financial profile. CAPITAL MORTGAGE: Moody's Cuts Rating on EUR5.5MM E Notes to Caa1 ----------------------------------------------------------------- Moody's Investors Service has downgraded the ratings of four senior and five junior and mezzanine notes in four Italian residential mortgage-backed securities (RMBS) transactions: Capital Mortgage S.r.l. (BIPCA Cordusio RMBS), Capital Mortgage S.r.l. (Capital Mortgages Series 2007-1), Eurohome (Italy) Mortgages S.r.l. and Eurohome Mortgages 2007-1 plc.. Insufficiency of credit enhancement to address sovereign risk and revision of key collateral assumptions have prompted the downgrade. The rating action concludes the review of two notes placed on review on August 2, 2012, following Moody's downgrade of Italian government bond ratings to Baa2 from A2 on July 13, 2012 and five notes placed on review on November 27, 2012, following Moody's revision of key collateral assumptions for the entire Italian RMBS market. This rating action also concludes the review of Class A notes in Eurohome (Italy) Mortgages S.r.l. and Eurohome Mortgages 2007-1 plc, placed on review on 13 Mar 2013, due to the insufficiency of credit enhancement to address sovereign risk following the introduction of additional factors in Moody's analysis to better measure the impact of sovereign risk on structured finance transactions. Ratings Rationale: The rating action primarily reflects the insufficiency of credit enhancement to address sovereign risk and revision of key collateral assumptions. The determination of the applicable credit enhancement driving these rating actions reflects the introduction of additional factors in Moody's analysis to better measure the impact of sovereign risk on structured finance transactions. - Additional Factors Better Reflect Increased Sovereign Risk Moody's has supplemented its analysis to determine the loss distribution of securitized portfolios with two additional factors, the maximum achievable rating in a given country (the Local Currency Country Risk Ceiling) and the applicable portfolio credit enhancement for this rating. With the introduction of these additional factors, Moody's intends to better reflect increased sovereign risk in its quantitative analysis, in particular for mezzanine and junior tranches. The Italian country ceiling, and therefore the maximum rating that Moody's will assign to a domestic Italian issuer including structured finance transactions backed by Italian receivables, is A2. Moody's Individual Loan Analysis Credit Enhancement (MILAN CE) represents the required credit enhancement under the senior tranche for it to achieve the country ceiling. By lowering the maximum achievable rating for a given MILAN, the revised methodology alters the loss distribution curve and implies an increased probability of high loss scenarios. - Revision of Key Collateral Assumptions Moody's has revised its lifetime loss expectation (EL) assumption in Capital Mortgage S.r.l. (BIPCA Cordusio RMBS) to 4.89% from 3.93% and its MILAN CE assumption to 11% from 7.7%. Moody's has maintained its MILAN CE assumption and its lifetime loss expectation (EL) for Capital Mortgage S.r.l. (Capital Mortgages Series 2007-1), Eurohome (Italy) Mortgages S.r.l. and Eurohome Mortgages 2007-1 plc. - Exposure to Counterparty Risk Moody's rating review takes into consideration the exposure to the relevant servicers acting as collection account bank and Treasury Accounts for the four transactions. The sweeping frequency to the treasury account is daily in all four transactions. Moody's has assessed the probability and effect of a default and the ability of the issuers to meet their obligations under the transactions. The conclusion takes also into consideration the fully funded liquidity facility in Eurohome (Italy) Mortgages S.r.l. and Eurohome Mortgages 2007-1 plc. that is available to cover interest shortfalls. Moody's concluded that the presence of the counterparties did not impact the ratings. Other Developments May Negatively Affect The Notes In consideration of Moody's new adjustments, any further sovereign downgrade would negatively affect structured finance ratings through the application of the country ceiling or maximum achievable rating, as well as potentially increased portfolio credit enhancement requirements for a given rating. As the euro area crisis continues, the ratings of structured finance 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 further negatively affect the ratings of the notes. The methodologies used in these ratings were Moody's Approach to Rating RMBS Using the MILAN Framework published in May 2013, and The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines published in March 2013. In reviewing these transactions, Moody's used ABSROM/ ABSCORE 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. In the context of the rating review, the transactions have been remodeled and some inputs have been adjusted to reflect the new approach. List of Affected Ratings: Issuer: Capital Mortgage S.r.l. (BIPCA Cordusio RMBS) EUR61.8M B Notes, Downgraded to Baa2 (sf); previously on Aug 2, 2012 Downgraded to A2 (sf) and Placed Under Review for Possible Downgrade EUR14.3M C Notes, Downgraded to Ba1 (sf); previously on Aug 2, 2012 A2 (sf) Placed Under Review for Possible Downgrade EUR18M D Notes, Downgraded to B1 (sf); previously on Nov 27, 2012 Downgraded to Baa3 (sf) and Remained On Review for Possible Downgrade EUR5.5M E Notes, Downgraded to Caa1 (sf); previously on Nov 27, 2012 Downgraded to B1 (sf) and Remained On Review for Possible Downgrade Issuer: Capital Mortgage S.r.l. (Capital Mortgages Series 2007-1) EUR1736M A1 Notes, Downgraded to Baa1 (sf); previously on Nov 27, 2012 Downgraded to A3 (sf) and Remained On Review for Possible Downgrade EUR644M A2 Notes, Downgraded to Baa1 (sf); previously on Nov 27, 2012 Downgraded to A3 (sf) and Remained On Review for Possible Downgrade EUR74M B Notes, Downgraded to B1 (sf); previously on Nov 27, 2012 Downgraded to Ba1 (sf) and Remained On Review for Possible Downgrade Issuer: Eurohome (Italy) Mortgages S.r.l. EUR211.95M A Notes, Downgraded to Ba2 (sf); previously on Mar 13, 2013 Baa1 (sf) Placed Under Review for Possible Downgrade Issuer: Eurohome Mortgages 2007-1 plc EUR262.5M ANotes, Downgraded to Ba3 (sf); previously on Mar 13, 2013 Ba1 (sf) Placed Under Review for Possible Downgrade ===================== N E T H E R L A N D S ===================== AVOCA CLO II: Moody's Affirms 'Caa3' Rating on Class D Notes ------------------------------------------------------------ Moody's Investors Service upgraded the ratings of the following notes issued by Avoca CLO II B.V.: EUR21M Class A-2 Senior Secured Floating Rate Notes due 2020, Upgraded to Aa1 (sf); previously on Jul 17, 2012 Downgraded to Aa3 (sf) EUR27M Class B Senior Secured Deferrable Floating Rate Notes due 2020, Upgraded to Baa2 (sf); previously on Jul 17, 2012 Downgraded to Baa3 (sf) Moody's also affirmed the ratings of the following notes issued by Avoca CLO II B.V.: EUR256M Class A-1 Senior Secured Floating Rate Notes due 2020, Affirmed Aaa (sf); previously on Sep 2, 2011 Upgraded to Aaa (sf) EUR15.7M Class C-1 Senior Secured Deferrable Floating Rate Notes due 2020, Affirmed B1 (sf); previously on Jul 17, 2012 Downgraded to B1 (sf) EUR7.5M Class C-2 Senior Secured Deferrable Fixed Rate Notes due 2020, Affirmed B1 (sf); previously on Jul 17, 2012 Downgraded to B1 (sf) EUR5M Class D Senior Secured Deferrable Floating Rate Notes due 2020, Affirmed Caa3 (sf); previously on Jul 17, 2012 Downgraded to Caa3 (sf) Avoca CLO II B.V., issued in November 2004, is a Collateralized Loan Obligation ("CLO") backed by a portfolio of mostly high yield European and US loans. The portfolio is managed by Avoca Capital Holdings Limited. The transaction exited its reinvestment period in January 2010. The portfolio is comprised exclusively of senior secured loans, and exposed to 91 obligors with a reported diversity score of 19.88. Ratings Rationale: According to Moody's, the rating actions taken on the notes are primarily a result of continued deleveraging of the senior notes and subsequent increase in the senior overcollateralization ratios since the last rating action in July 2012. Moody's notes that the Class A notes have paid down by approximately 60% or EUR152.8 million since closing and 16% or EUR40.1 million since the rating action in July 2012. As a result of deleveraging, the overcollateralization ratios for the senior notes have increased since the last rating action in July 2012. As of the latest trustee report dated April 30, 2013, the Class A, B, C and D overcollateralization ratios are reported at 145.58%, 119.58%, 103.67%, 100.78%, respectively versus July 2012 levels of 134.08%, 115.16%, 102.70%, 100.36%, respectively. Reported WARF has improved to 2812 from 2940 between July 2012 and April 2013. Additionally, defaulted securities total about EUR6.4 million of the underlying portfolio compared to EUR6.7 million in July 2012. The current exposure of the deal to assets rated Caa is 1.65% compared to 10.38% at the last rating action. In its base case, Moody's analyzed the underlying collateral pool to have a performing par and principal proceeds balance of EUR181.21 million, defaulted par of EUR6.44 million, a weighted average rating factor of 3585 (corresponding to a default probability of 24.71%), a weighted average recovery rate upon default of 50.0% compared to 46.92% previously for a Aaa liability target rating, a diversity score of 19.48 and a weighted average spread of 3.45% compared to 2.99% at last rating action. The default probability is derived from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. For a Aaa liability target rating, Moody's assumed that a portfolio exposed solely to senior secured corporate assets would recover 50% upon default. Historical and market performance trends and collateral manager latitude for trading the collateral are also relevant factors. These default and recovery properties of the collateral pool are incorporated in cash flow model analysis where they are subject to stresses as a function of the target rating of each CLO liability being reviewed. In addition to the base case analysis, Moody's also performed sensitivity analyses on key parameters for the rated notes: Deterioration of credit quality to address the refinancing and sovereign risks -- Approximately 20.98% of the portfolio are European corporate rated B3 and below and maturing between 2014 and 2016, which may create challenges for issuers to refinance. Approximately 7.20% of the portfolio are exposed to obligors located in Italy, Ireland and Spain. Moody's considered model runs where the base case WARF was increased to 3933 and 4341 by forcing ratings on 25% and 50% of such exposures to Ca. These runs generated model outputs that were within one notch from the base case results. Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, which could negatively impact the ratings of the notes, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of speculative-grade debt maturing between 2014 and 2016 which may create challenges for issuers to refinance. CLO notes' performance may also be impacted either positively or negatively 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: 1) Deleveraging: The main source of uncertainty in this transaction is the pace of amortization of the underlying portfolio. Pace of amortization could vary significantly subject to market conditions and this may have a significant impact on the notes' ratings. In particular, amortization could accelerate as a consequence of high levels of prepayments in the loan market or collateral sales by the Collateral Manager or be delayed by rising loan amend-and-extent restructurings. Fast amortization would usually benefit the ratings of the notes. 2) Large Exposure to Credit Estimates: Moody's also notes that around 51.23% 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. 3) Recovery of defaulted assets: Market value fluctuations in defaulted assets reported by the trustee and those assumed to be defaulted by Moody's may create volatility in the deal's overcollateralization levels. Further, the timing of recoveries and the manager's decision to work out versus sell defaulted assets create additional uncertainties. Moody's analyzed defaulted recoveries assuming the lower of the market price and the recovery rate in order to account for potential volatility in market prices. Realization of higher than expected recoveries would positively impact the ratings of the notes. 4) Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which may be extended due to the manager's decision to reinvest into new issue loans or other loans with longer maturities and/or participate in amend-to-extend offerings. Extending the weighted average life of the portfolio may positively or negatively impact the ratings of the notes depending on their seniority within the transaction's structure. The principal methodology used in this rating was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in May 2013. Moody's modeled the transaction using the Binomial Expansion Technique, as described in Section 2.3.2.1 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in May 2013. Under this methodology, Moody's used its Binomial Expansion Technique, whereby the pool is represented by independent identical assets, the number of which is being determined by the diversity score of the portfolio. The default and recovery properties of the collateral pool are incorporated in a cash flow model where the default probabilities are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability range is derived from the credit quality of the collateral pool, and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. The cash flow model used for this transaction is Moody's CDOEdge model. This model was used to represent 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 binomial 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. Therefore, Moody's analysis encompasses the assessment of stressed scenarios. 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. On March 12, 2013, Moody's released a report, which describes how sovereign credit deterioration impacts structured finance transactions and the rationale for introducing two new parameters into its general analysis of such transactions. In the coming months, Moody's will update its methodologies relating to multi- country portfolios including the one for Collateralized Loan Obligations (CLOs) as well as for other types of collateralized debt obligations (CDO), asset-backed commercial paper (ABCP) and commercial mortgage-backed securities (CMBS). Once those methodologies are updated and implemented, the rating of the notes affected by these rating actions may be negatively affected. CARLYLE GLOBAL: S&P Assigns BB Rating to Class E Notes ------------------------------------------------------ Standard & Poor's Ratings Services assigned its credit ratings to Carlyle Global Market Strategies Euro CLO 2013-1 B.V.'s fixed- and floating-rate class A, B-1, B-2, C-1, C-2, D-1, D-2, and E notes. At closing, Carlyle Global Market Strategies Euro CLO 2013-1 also issued unrated class S-1 and S-2 notes. S&P's ratings reflect its assessment of the collateral portfolio's credit quality. S&P considers that the portfolio as of closing is diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. S&P's ratings also reflect the credit enhancement available to the rated notes through the subordination of cash flows payable to the subordinated notes. S&P subjected the capital structure to a cash flow analysis to determine the break-even default rate (BDR) for each rated class of notes. To determine the BDR for each rated class, S&P used the target par amount, the covenanted weighted-average spread, the covenanted weighted-average coupon, and the covenanted weighted- average recovery rates. S&P applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. S&P's ratings are commensurate with its assessment of available credit enhancement following its credit and cash flow analysis. S&P's analysis shows that the available credit enhancement for each class of notes was sufficient to withstand the defaults that it applied in its supplemental tests (not counting excess spread) outlined in its corporate collateralized debt obligation (CDO) criteria. Following the application of S&P's nonsovereign ratings criteria, it considers that the transaction's exposure to country risk is sufficiently mitigated at the assigned rating levels. This is because the concentration of the pool comprising assets in countries rated lower than 'A-' is limited to 10% of the aggregate collateral balance. The transaction's legal structure is bankruptcy-remote, in accordance with S&P's European legal criteria. Carlyle Global Market Strategies Euro CLO 2013-1 is a European cash flow corporate loan collateralized loan obligation (CLO) securitization of a revolving pool, comprising primarily euro- denominated senior secured loans and bonds issued by European borrowers. CELF Advisors LLP is the collateral manager. 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 Standard & Poor's 17g-7 Disclosure Report included in this credit rating report is available at: http://standardandpoorsdisclosure-17g7.com/1574.pdf RATINGS LIST Carlyle Global Market Strategies Euro CLO 2013-1 B.V. EUR350 Million Fixed- And Floating-Rate Notes Class Rating Amount (mil. EUR) A AAA (sf) 210.00 B-1 AA (sf) 29.50 B-2 AA (sf) 9.00 C-1 A (sf) 10.00 C-2 A (sf) 9.825 D-1 BBB (sf) 7.00 D-2 BBB (sf) 8.175 E BB (sf) 24.50 S-1 NR 24.50 S-2 NR 17.50 NR-Not rated. LEOPARD CLO II: Moody's Lowers Rating on Class C Notes to 'Caa2' ---------------------------------------------------------------- Moody's Investors Service has taken the rating actions on the following notes issued by Leopard CLO II B.V. EUR45M Class A-2 Senior Secured Floating Rate Notes due 2019, Upgraded to Aa1 (sf); previously on Jun 19, 2012 Upgraded to Aa3 (sf) EUR15M Class C Senior Secured Deferrable Floating Rate Notes due 2019, Downgraded to Caa2 (sf); previously on Jun 19, 2012 Downgraded to B2 (sf) EUR8.25M Class D Senior Secured Deferrable Floating Rate Notes due 2019 (current balance EUR9.7M), Downgraded to Ca (sf); previously on Jun 19, 2012 Downgraded to Caa3 (sf) Moody's also affirmed the ratings of the following notes issued by Leopard CLO II B.V. EUR245.2M Class A-1 Senior Secured Floating Rate Notes due 2019 (current balance EUR28.2M), Affirmed Aaa (sf); previously on Apr 8, 2004 Assigned Aaa (sf) EUR22M Class B Senior Secured Deferrable Floating Rate Notes due 2019, Affirmed Ba1 (sf); previously on Aug 24, 2011 Upgraded to Ba1 (sf) Leopard CLO II, issued in April 2004, is a Collateralized Loan Obligation ("CLO") backed by a portfolio of mostly high yield senior secured European loans. The portfolio is managed by M&G Investment Management Limited. The transaction passed its reinvestment period in April 2009. Ratings Rationale: According to Moody's, the upgrade of Class A-2 notes is primarily a result of continued deleveraging of the Class A-1 notes and subsequent increase in the Class A overcollateralization (the "OC") ratio since the last rating action in June 2012. The downgrades of the Class C and Class D notes are driven by the decrease of their respective OC ratios and their increased exposure to assets rated B3 and below. Moody's notes that the Class A-1 notes have paid down by approximately 12.7% of its original rated balance or EUR31.3 million since the last rating action in June 2012. As of the latest trustee report dated May 2013, the Class A, Class B, Class C and Class D OC ratios are 153.13%, 117.76%, 101.74% and 94.65%, respectively versus May 2012 levels of 145.29%, 120.03%, 107.31% and 101.40%, respectively. Class C and Class D OC tests are now in breach. The Trustee reported WARF has decreased to 3,129 from 3,150 between May 2012 and May 2013, however during the same period total amount of securities rated B3 and below have increased to 59% from 54%. In its base case, Moody's analyzed the underlying collateral pool to have a performing par and principal proceeds balance of EUR111.8 million, defaulted par of EUR9.8 million, a weighted average default probability of 25.24% over 3.28 years (consistent with a Weighted Average Rating Factor of 4,039), a weighted average recovery rate upon default of 45.38% for a Aaa liability target rating, a diversity score of 20 and a weighted average spread of 3.52%. The default probability is derived from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. For a Aaa liability target rating, Moody's assumed that 86.81% of the portfolio exposed to senior secured corporate assets would recover 50% upon default and 13.19% non first-lien loan corporate assets would recover 15%. In each case, historical and market performance trends and collateral manager latitude for trading the collateral are also relevant factors. These default and recovery properties of the collateral pool are incorporated in cash flow model analysis where they are subject to stresses as a function of the target rating of each CLO liability being reviewed. In addition to the base case analysis, Moody's also performed sensitivity analyses on key parameters for the rated notes: Deterioration of credit quality to address the refinancing and sovereign risks -- Approximately 35.47% of the portfolio is rated B3 and below with maturities between 2014 and 2016, which may create challenges for issuers to refinance. The portfolio is also exposed 7.08% to obligors located in Ireland and Spain. Moody's considered the scenario where the WARF of the portfolio was increased to 4,594 by forcing to Ca the credit quality of 25% of such exposures subject to refinancing or sovereign risks. This scenario generated model outputs that were up to one notch lower than the base case results. Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, which could negatively impact the ratings of the notes, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of speculative-grade debt maturing between 2014 and 2016 which may create challenges for issuers to refinance. CLO notes' performance may also be impacted either positively or negatively by 1) the manager's behavior and 2) divergence in legal interpretation of CDO documentation by different transactional parties due to embedded ambiguities. Sources of additional performance uncertainties: 1) Deleveraging: The main source of uncertainty in this transaction is the pace of amortization of the underlying portfolio. Pace of amortization could vary significantly subject to market conditions and this may have a significant impact on the notes' ratings. In particular, amortization could accelerate as a consequence of high levels of prepayments in the loan market or collateral sales by the Collateral Manager or be delayed by rising loan amend-and-extent restructurings. Fast amortization would usually benefit the ratings of the notes. 2) Large Exposure to Credit Estimates: Moody's also notes that around 61.68% 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. 3) Recovery of defaulted assets: Market value fluctuations in defaulted assets reported by the trustee and those assumed to be defaulted by Moody's may create volatility in the deal's overcollateralization levels. Further, the timing of recoveries and the manager's decision to work out versus sell defaulted assets create additional uncertainties. Moody's analyzed defaulted recoveries assuming the lower of the market price and the recovery rate in order to account for potential volatility in market prices. Realization of higher than expected recoveries would positively impact the ratings of the notes. The principal methodology used in this rating was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in May 2013. Moody's modeled the transaction using the Binomial Expansion Technique, as described in Section 2.3.2.1 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in May 2013. Under this methodology, Moody's used its Binomial Expansion Technique, whereby the pool is represented by independent identical assets, the number of which is being determined by the diversity score of the portfolio. The default and recovery properties of the collateral pool are incorporated in a cash flow model where the default probabilities are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability range is derived from the credit quality of the collateral pool, and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. The cash flow model used for this transaction is Moody's EMEA Cash-Flow model. This model was used to represent 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 binomial 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. Therefore, Moody's analysis encompasses the assessment of stressed scenarios. 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. On March 11, 2013, Moody's released a special comment which describes how sovereign credit deterioration impacts structured finance transactions and the rationale for introducing two new parameters into its general analysis of such transactions. In the coming months, Moody's will update its methodologies relating to multi-country portfolios including the one for CLOs as well as for other types of Collateralized Debt Obligations (CDO), Asset- Backed Commercial Paper (ABCP) and Commercial Mortgage-Backed Securities (CMBS). Once updated methodologies are implemented, the rating[s] of the notes affected by these actions may be negatively impacted. =========== P O L A N D =========== MALMA: Lubella Acquires Assets ------------------------------ Warsaw Business Journal reports that pasta producer Lubella has acquired the assets of Malma. Lubella also announced plans to invest PLN50 million into production and logistics involving the Malma brand, WBJ relates. It will offer jobs to the former employees of the Malma factory in Malbork, WBJ notes. Malma was declared bankrupt in 2010 and stopped production at its Malbork plant in 2011, WBJ recounts. Its problems started when in 2005 lender Bank Pekao demanded that the company pay back its loans, WBJ discloses. Malma is a Polish pasta maker. =============== P O R T U G A L =============== CHAVES SME I: Moody's Confirms 'Ba2' Ratings on 2 Note Classes -------------------------------------------------------------- Moody's Investors Service confirmed the respective Ba2 (sf) and Caa2 (sf) ratings of the Class B and Class C notes issued by Chaves SME CLO No. 1 (Chaves SME). At the same time, the rating agency affirmed the Baa3 (sf) rating of the Class A notes and the respective Ca (sf) and C (sf) ratings of the Class D and Class E notes. Adequate credit enhancement, which protects against sovereign risk and weak performance, primarily drove the rating action. The rating action concludes the review for downgrade initiated by Moody's on September 11, 2012. Chaves SME is a Portuguese asset- backed securities (ABS) transaction backed by loans to small and medium-sized enterprises (SME) originated by BPN - Banco Portuguese de Negocios, S.A. (rating withdrawn following the acquisition by Banco BIC Portuguese in May 2012). Ratings Rationale: The rating action primarily reflects the presence of adequate credit enhancement to address sovereign risk and performance concerns. The introduction of new adjustments to Moody's modeling assumptions to account for the effect of deterioration in sovereign creditworthiness has had no negative effect on the ratings of all classes of notes in this transaction. At present the current level of credit enhancement available under the Class B notes (40.78% as of May 2013) is sufficient to support the confirmation at Ba2 (sf). - Additional Factors Better Reflect Increased Sovereign Risk Moody's has supplemented its analysis to determine the loss distribution of securitized portfolios with two additional factors, the maximum achievable rating in a given country (the local currency country risk ceiling) and the applicable portfolio credit enhancement for this rating. With the introduction of these additional factors, Moody's intends to better reflect increased sovereign risk in its quantitative analysis, in particular for mezzanine and junior tranches. The Portuguese country ceiling is Baa3, which is the maximum rating that Moody's will assign to a domestic Portuguese issuer including structured finance transactions backed by Portuguese receivables. The portfolio credit enhancement represents the required credit enhancement under the senior tranche for it to achieve the country ceiling. By lowering the maximum achievable rating, the revised methodology alters the loss distribution curve and implies an increased probability of high loss scenarios. Under the updated methodology incorporating sovereign risk on ABS transactions, loss distribution volatility increases to capture increased sovereign-related risks. Given the expected loss of a portfolio and the shape of the loss distribution, the combination of the highest achievable rating in a country for structured finance transactions and the applicable credit enhancement for this rating uniquely determine the volatility of the portfolio distribution, which the coefficient of variation (CoV) typically measures for ABS transactions. A higher applicable credit enhancement for a given rating ceiling or a lower rating ceiling with the same applicable credit enhancement both translate into a higher CoV. - Moody's Revises Key Collateral Assumptions Moody's has reviewed its default probability (DP) and recovery rate assumptions for Chaves SME's collateral portfolio taking into account the performance deterioration and the borrower concentration in the portfolio. As of May 2013, the 90-180 day delinquencies were 6.2% of the current pool balance, the cumulative defaults (the balance of loans that are more than 180 days in arrears) increased to 7.16% of the total original balance of the portfolio plus the sum of replenishments, compared to 6.18% in May 2012. Furthermore, the principal deficiency ledger (PDL) stood at EUR29.53 million, or 31.94% of the total outstanding balance of the notes as of the latest reporting date (May 2013). As a result, Moody's has increased its cumulative mean default assumption to 24.0% of the current portfolio balance, corresponding to an average rating proxy of low B3 for the portfolio, under the revised remaining weighted average life assumption of 3.3 years. This assumption on future defaults implies a revised cumulative mean default calculation for the entire life of the transaction of 8.5%, which is expressed as a percentage of the original portfolio balance and all replenishments. Moody's updated the assumption for the fixed recovery rate to 35%. Moody's also took into consideration the fact that the borrower concentration in the portfolio has increased significantly. The top 10 borrowers account for 27.79% and the top single borrow now accounts for 3.85% of the pool in May 2013. According to the updated methodology, Moody's has increased the CoV to 78.0% from 58.0%, which, combined with the revised mean DP and recovery rate, resulted in a portfolio credit enhancement of 43.0%. - Moody's Has Considered Exposure to Counterparty Risk The conclusion of Moody's rating review also takes into consideration the exposure to BPN (now known as Banco BIC), which acts as servicer and collections account bank. The servicer transfers collections of portfolio daily to the transitional account at Citibank International plc -- Sucursal em Portugal (Baa1/P-2). The transaction manager then transfers the cash collections daily from the transitional account to the transaction account at Citibank N.A. (London Branch) (A3/(P)P-2), where the cash reserve are also held. Moody's has incorporated into its analysis the additional potential losses due to commingling risk arising from both Banco BIC and Citibank and the set-off risk (around 8.5%) that borrowers would set their deposits off against outstanding loans following a potential servicer insolvency. The rating agency also assesses the exposure to Royal Bank of Scotland plc (A3/ P-2) as swap counterparty, which does not have a negative effect on the rating levels at this time. - Other Developments May Negatively Affect the Notes In consideration of Moody's new adjustments, any further sovereign downgrade would negatively affect structured finance ratings through the application of the country ceiling or maximum achievable rating, as well as potentially increased portfolio credit enhancement requirements for a given rating. As the euro area crisis continues, the ratings of structured finance 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 further negatively affect the ratings of the notes. Moody's describes additional factors that may affect the ratings in the Request for Comment, "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions: Request for Comment", published in July 2012. In reviewing this transaction, 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 inverse normal distribution assumed for the portfolio default rate. In each default scenario, Moody's calculates the corresponding loss for each class of notes given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss for each tranche is the sum product of the probability of occurrence of each default scenario; and 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. In the context of the rating review, Moody's has remodeled the transactions and adjusted a number of inputs to reflect the new approach. Methodologies The methodologies used in this rating were "Moody's Approach to Rating EMEA SME Balance Sheet Securitizations", published in May 2013 and "The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines", published in March 2013. List of Affected Ratings: Issuer: Chaves SME CLO No. 1 EUR527.55M A Notes, Affirmed Baa3 (sf); previously on Sep 11, 2012 Downgraded to Baa3 (sf) EUR21M B Notes, Confirmed at Ba2 (sf); previously on Sep 11, 2012 Ba2 (sf) Placed Under Review for Possible Downgrade EUR38.05M C Notes, Confirmed at Caa2 (sf); previously on Sep 11, 2012 Caa2 (sf) Placed Under Review for Possible Downgrade EUR4.9M D Notes, Affirmed Ca (sf); previously on Jul 9, 2009 Downgraded to Ca (sf) EUR9.6M E Notes, Affirmed C (sf); previously on Jul 9, 2009 Downgraded to C (sf) PORTUCEL SA: Moody's Rates EUR350MM Senior Notes Issue 'Ba3' ------------------------------------------------------------ Moody's assigned a definitive Ba3 (LGD 4, 50%) rating to the EUR350 million senior unsecured notes issued by Portucel, S.A. The company's Ba3 corporate family rating (CFR) and Ba3-PD probability of default rating (PDR) as well as the stable outlook remain unchanged. Ratings Rationale: Moody's definitive ratings are in line with the provisional ratings assigned on May 7, 2013. Portucel's Ba3 CFR continues to reflect the group's solid business profile, healthy capital structure and strong free cash generation ability on a standalone basis with significant debt sitting at its majority shareholder Semapa, and the historical and likely future significant dividends which may be used to service Semapa's debt. In its analytical consideration, Moody's has therefore included about EUR 900 million of net debt owed by Semapa, reflected in a Corporate Family Rating that is below Portucel's stand-alone credit profile. On this basis, Moody's calculates a pro forma Moody's adjusted leverage of around 4.5x Debt/EBITDA as of March 2013 (including debt at Semapa level), which is fairly high for a Ba3 rating. More fundamentally, the rating is supported by (i) Portucel's well-invested, cost efficient and fully-integrated asset base; (ii) its full integration into pulp and energy with good access to domestic wood supporting (iii) a long-standing track record of stable and comparatively high profitability with adjusted EBITDA margins consistently in the mid to high 20% and low volatility, also when compared to peers. On a more negative note, the rating is constrained by (i) the inherent volatility of the paper and pulp industry which has proven to be highly cyclical and closely linked to overall macroeconomic conditions as well as the declining paper markets in Europe, (ii) the fairly small scale when compared to peers as well as limited geographic diversification; and (iii) the highly focused product portfolio with uncoated fine paper production generating about 80% of group sales. Moody's also noted the event risk related to any production issues given the limited number of mills within Portugal. While Portucel's exposure to Portugal is low, Moody's still considers it a risk factor as the group's entire production base is located in the country, which bears the risk of contagion from a weak sovereign risk profile. The stable outlook reflects Moody's expectation that Portucel will maintain solid credit protection measures for its rating as indicated by Debt/EBITDA (as defined by Moody's) remaining below 3 times (1.9x per December 2012) excluding the debt sitting at Semapa. It also takes into account the likelihood of worsening leverage metrics in the next two to three years should Semapa look to de-lever by increasing debt at Portucel (with corresponding high dividend pay outs). It also expects Portucel to proactively refinance debt maturities, considering its fairly short debt maturity profile. Portucel's short term liquidity is considered adequate given the sizeable cash position pro forma for the refinancing. Other internal sources of cash pertain to operating cash generation. In addition, Moody's notes that Portucel has two EUR50 million unused Commercial Paper programs and a EUR20 million undrawn credit facility, but at relatively short tenor, at its disposal. Cash uses largely pertain to capex and dividend payments as well as seasonal working capital swings. There are no major maturities before 2015 when bond loans of around EUR180 million and commercial papers of around EUR125 million come due. Moody's understands that Portucel's financing arrangements contain various sets of financial covenants and that the group currently is expected to retain ample headroom. The Ba3 rating assigned to the EUR350 million senior unsecured notes is in line with the group's CFR, considering that Portucel's debt arrangements senior unsecured and will rank pari passu with the proposed bond. A higher rating would require Portucel to reduce leverage in terms of Moody's adjusted Debt/EBITDA below 2 times (based on Portucel standalone). In addition, Moody's would expect Portucel to retain a track record of resilient EBITDA margins in the mid to high 20% as well as healthy liquidity, including sufficient headroom under financial covenants. However, as long as Semapa's financial profile is weak and debt servicing reliant on Portucel's cash generation ability, a higher rating is unlikely. Rating pressure would build should Portucel not be able to retain current levels of profitability and leverage, with Debt/EBITDA increasing to above 3 times on a Moody's adjusted basis (based on Portucel standalone) if at the same time, Semapa's debt is not materially reduced. Evidence of Semapa having difficulties in refinancing its debt or should Portucel start to upstream cash to its shareholders by measures other than ordinary dividend payments, this could also put pressure on the rating. The principal methodology used in this rating was the Global Paper and Forest Products Industry published in September 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Portucel, based in Lisbon (Portugal), is a leading producer of office paper, market pulp and energy with revenues generated in the last twelve months ending March 2013 of EUR 1.5 billion and a reported EBITDA of EUR 380 million (25% margin). Majority shareholder Semapa is holding 81% of shares (excluding treasury shares). ============= R O M A N I A ============= BELROM GROUP: Court Okays Insolvency Request for Promenada Mall --------------------------------------------------------------- Balkans.com reports that Romania's Bucharest Court has approved the request to enter insolvency filed by Belgian developer Belrom through the Bel Rom Sapte company, for its Promenada Mall in Focsani, eastern Romania. Balkans.com relates that Bel Rom Sapte's own insolvency request comes after several other companies have filed similar requests. Moreover, this is the second company controlled by Belrom which files for insolvency this year, the report says. According to Balkans.com, Belrom last month filed a similar request for the Electroputere Parc Craiova shopping mall, which was developed by K&S Electric Power Point, another company owned by Belrom. This time around, the Belgian developer opted for the insolvency procedure in order to avoid a foreclosure request filed by NM Construct, the project's general contractor. Electroputere Craiova was opened in 2011. Promenada Mall Focsani was opened in September 2008 and has a total built area of some 51,500 sqm. It is anchored by Carrefour and Bricostore. Belrom was set up in 2004 and has since developed 7 retail parks in Romania. =========== R U S S I A =========== BASHNEFT CAPITAL: Moody's Assigns '(P)Ba2' Rating to USD LPNs ------------------------------------------------------------- Moody's Investors Service has assigned a provisional (P)Ba2 rating to the proposed US dollar-denominated loan participation notes (LPN) of Bashneft Capital S.A., a public limited liability company (societe anonyme) incorporated under the laws of the Grand Duchy of Luxembourg (Aaa negative). The notes will be issued for the sole purpose of financing a loan to Joint Stock Oil Company Bashneft (Bashneft) under a loan facility agreement. Bashneft will use the proceeds from the loan for general corporate purposes. The rating outlook is stable. Moody's issues provisional ratings in advance of the final sale of securities, and these ratings represent only the rating agency's preliminary opinion. Upon a conclusive review of the transaction and associated documentation, Moody's will assign definitive ratings to the bonds. A final rating may differ from a provisional rating. Ratings Rationale: The provisional ratings assigned to the proposed notes are derived from Bashneft's Ba2 corporate family rating and Ba2-PD probability of default rating. They reflect the relative strength of the company's business profile, which benefits from strong vertical integration and adequate leverage and cash flow metrics. In addition, the ratings take into account the company's sizeable capital expenditure (capex) requirements in the near term as a result of it developing its new upstream assets as well as investments in refineries. Moody's also acknowledges the fact that Bashneft operates as part of the Sistema group of companies and constitutes Sistema's fastest-growing asset and one that could also potentially generate the highest levels of cash within the group, which increases the possibility of meaningful shareholder distributions. Moody's also notes that Bashneft benefits from the strategic support of the parent. As Bashneft operates in Russia (Baa1 stable), its ratings are constrained by the country's weak institutional and economic framework compared with those of more developed markets. Structural Considerations The assigned rating on the notes is the same as the corporate family rating of Bashneft. Moody's ranks the proposed notes pari passu with other unsecured debt of Bashneft. The trust deed between Bashneft Capital S.A. and Deutsche Trustee Company Limited relating to the issuance will provide for a mechanism of note holders' recourse to the beneficiary of the notes, Bashneft, in the event of Bashneft Capital S.A.'s default. The noteholders will benefit from certain covenants made by Bashneft in the underlying loan agreement, including a negative pledge and restrictions on mergers and disposals. Bashneft's ratings have a stable outlook which reflects Moody's expectation that Bashneft will maintain (i) its conservative financial policy with leverage, measured by total debt/EBITDA, not exceeding 2.0x on a sustainable basis; and (ii) its RCF/net debt ratio above 20%. What Could Change The Rating Up/Down To consider upgrading Bashneft's ratings, Moody's would require evidence of continued strong operational and financial performance, production and reserves growth. Successful execution of its investment program and free cash flow generation would exert positive pressure on the metrics. Conversely, downward rating pressure could arise if there were to be material adverse developments in the company's financial, business and liquidity profile due to (i) unfavorable macroeconomics and/or material bolt-on acquisitions, driving an increase in leverage beyond 2.0x; and/or (ii) shareholder distributions beyond Moody's current expectations. The principal methodology used in this rating was the Global Integrated Oil & Gas Industry Methodology published in November 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Bashneft is an integrated oil company operating primarily in the Republic of Bashkortostan in the lower Volga region of Russia. The company is 75.4% directly and indirectly owned by Sistema Joint Stock Financial Corporation (Ba3 positive), 20.9% by minority shareholders, and 3.7% are retained by Bashneft as treasury and quasi-treasury shares. Bashneft's annual output of oil and oil refining throughput in 2012 were 15.4 million tonnes and 20.8 million tonnes, respectively. Bashneft's total proved reserves exceeded 2.0 billion barrels of oil equivalent (boe) under the Petroleum Resources Management System (PRMS) classification as of December 31, 2012. BASHNEFT CAPITAL: Fitch Assigns 'BB(EXP)' Rating to USD LPNs ------------------------------------------------------------ Fitch Ratings has assigned Bashneft Capital S.A.'s upcoming USD- denominated loan participation notes (LPNs) issue an expected senior unsecured rating of 'BB(EXP)'. The final rating is contingent upon the receipt of final documentation conforming materially to information already received and details regarding the amount and tenor. The sole purpose of issuing LPNs will be to finance a loan to Joint Stock Oil Company Bashneft (Bashneft, 'BB'/Positive). The gross proceeds of the loans will be used by Bashneft for general corporate purposes. Noteholders will be relying solely on the credit and financial standing of Bashneft in respect of the financial servicing of the notes. In May 2013, we affirmed Bashneft's Long-term Issuer Default Rating (IDR) at 'BB' and revised the Outlook to Positive from Stable. The full list of Bashneft's ratings is at the end of this release. The revision of the Outlook reflects our expectation that over the medium term the company will maintain stable brownfield production levels and strong credit metrics for a 'BB' rated company, i.e., funds from operations (FFO) gross leverage below 2x and FFO interest coverage of above 8x. It also reflects that its Trebs and Titov (T&T) greenfield project are on track to produce its first oil later this year. Bashneft is a second-tier Russian integrated oil company with 2012 upstream production of 308 thousand barrels per day (mbbl/d) and refinery throughput of 415mbbl/d. Key Rating Drivers Stable Brownfields Production: In 2012, Bashneft's crude production was up 2% yoy to 308 mbbl/d, which contrasts well with that of some other Russian oil companies such as OAO LUKOIL ('BBB-'/Stable) that reported a 1% decline in hydrocarbon production in 2012. Our expectation for stable crude production was given initial confirmation over the first five months of 2013, when the company's output averaged 311mbbl/d, up 1% yoy. We recognise Bashneft's efforts in increasing its brownfield production but believe that the company has limited headroom to further increase oil output in Bashkiria, its historical stronghold. T&T Improves Upstream Profile: Bringing the T & T oilfields on-stream, in a joint venture (JV) with LUKOIL, which has a 25% stake, is important for improving Bashneft's upstream profile and bringing it up to match its historically more sizable downstream operations. The company expects the JV to produce its first oil in H213 and to achieve peak production of as much as 95mbbl/d by 2018-2019. However, the free cash flow generated by the JV may not be fully available to service Bashneft's debt as Bashneft will have to coordinate the JV's dividend and capex policy with LUKOIL. Competitive Reserves and Costs: Bashneft's proved oil reserves of 2,007 million barrels of oil at end-2012 imply an 18-year reserve life, in line with that of Russian peers. In 2012, its production costs were manageable at USD6.6/bbl, below that of most international peers but above that of the Russian majors, due to smaller, more mature oilfields compared with those of OJSC OC Rosneft ('BBB'/Rating Watch Negative) or LUKOIL. Fitch expects that Bashneft's operational metrics will remain sound in the medium term. Strong Downstream and Retail: Bashneft is the fourth-largest refiner in Russia; its three refineries have 480mbbl/d total primary capacity and Nelson index of 8.55. In 2012, refining and marketing contributed around 30% to the company's EBITDA (based on IFRS accounts). The company's EBITDA to barrel of oil produced of USD28/bbl in 2012 is one of the highest among Russian peers, partially due to downstream being significantly higher than upstream in size - by 34% by volume in 2012, unlike most other Russian majors. Planned further upgrades of its refineries should improve Bashneft's refining complexity, increase light product yield and help it maintain solid refining margins. Conservative Leverage to Remain: At end-2012 Bashneft's FFO net adjusted leverage was 1.3x, up from 1.0x in 2011, and its FFO coverage improved to 8.4x in 2012 from 6.4x in 2011. Based on the agency's Brent price deck of USD100/bbl in 2013, USD92/bbl in 2014 and USD85/bbl in 2015, we expect that Bashneft's gross leverage will remain below 2x in 2013-2016 and its coverage above 8.0x. Standalone Uncapped Ratings: Fitch rates Bashneft on a standalone basis, and assesses its linkage with Sistema Joint Stock Financial Corp. (Sistema; 'BB- '/Stable), its majority shareholder as moderate. We note that Bashneft remains a key asset for Sistema along with OJSC Mobile TeleSystems (MTS, 'BB+'/Stable). In 2012, Bashneft contributed around 35% to Sistema's EBITDA, and Sistema's ability to service its debt may depend on dividends it receives from Bashneft. Bashneft has material related party transactions, e.g. during 2012 it made a number of deposits with a total amount of RUB24.8bn of cash (or 7.5% of its net revenue) with the Sistema- owned OJSC MTS Bank ('B+'/Stable). However, by the end of the year most of these funds had been repaid, and Bashneft's debit balance with the bank was RUB5.1 billion. While Fitch does not currently constrain Bashneft's ratings (which can be the case if related party transactions intensify and lead to material cash outflow), Bashneft cannot be rated more than two notches higher than Sistema under the agency's criteria. Rating Sensitivities Positive: Successful production launch and development at T&T in 2013-2015 coupled with solid operational and credit metrics, e.g., stable brownfield production and refining volumes and FFO gross adjusted leverage below 2.5x and FFO interest cover above 8x on a sustained basis, may lead to a positive rating action. Negative: Bashneft's failure to maintain crude production or sustained deterioration of its credit metrics, including FFO gross adjusted leverage above 2.5x and FFO interest cover below 8x on a sustained basis owing to higher capex and dividends may lead to a negative rating action. Liquidity and Debt Structure Acceptable Liquidity At March 31, 2013 Bashneft had cash of RUB30.3 billion and RUB32 billion in committed credit facilities, which covered its short- term debt of RUB33.1 billion. In February 2013, Bashneft issued RUB30 billion 10-year bonds (with half having a put option in 2018 and the other half in 2020). Fitch believes that Bashneft has access to the domestic capital markets and would refinance its upcoming maturities if needed. Balanced Debt Portfolio At March 31, 2013 Bashneft's balance sheet debt of RUB125.2 billion was made up of bank loans (51%), domestic bonds (44%) and pre-export finance facilities (5%). As most of its borrowings are RUB-denominated, its effective interest rate remained relatively high at 8.4%. Bashneft's announced USD600 million pre-export finance deal attracted in May 2013, as well as the upcoming LPNs should help to reduce the company's average borrowing rate. LIST OF RATINGS Joint Stock Oil Company Bashneft Long-Term IDR: 'BB', Outlook Positive Short-Term IDR: 'B' Local currency Long-Term IDR: 'BB', Outlook Positive Local currency Short-Term IDR: 'B' National Long-Term Rating: 'AA-(rus)', Outlook Positive Senior unsecured rating: 'BB' National senior unsecured rating: 'AA-(rus)' Bashneft Capital S.A. Senior unsecured rating for upcoming LPNs: 'BB(EXP)' ROSAGROLEASING JSC: Fitch Affirms 'BB+' LT Issuer Default Rating ---------------------------------------------------------------- Fitch Ratings has affirmed JSC Rosagroleasing's (RAL) Long-term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook. KEY RATING DRIVERS - IDRS, NATIONAL RATING, SUPPORT RATING and SUPPORT RATING FLOOR RAL's ratings are driven by potential state support. In assessing potential support, Fitch views positively: (i) RAL's 100% state ownership; (ii) the company's very low leverage, underpinned by repeated government equity injections; and (iii) the company's role (albeit somewhat limited) in the execution of state programs to support the agriculture sector. At the same time, the two-notch difference between the company's Long-term IDR and those of the Russian sovereign (BBB/Stable) reflect (i) limitations in RAL's policy role, given the small size of its balance sheet and the potential for state-owned banks (mainly Russian Agricultural Bank, RAB) to provide support to the agricultural sector; (ii) a history of weak corporate governance; and (iii) some uncertainty about the level of problematic leases and required impairment charges, with the potential for these to moderately increase the company's leverage. RAL acts as an instrument of state support for the agriculture sector by providing leases with a low interest rate of 2.5%. At end-2012, this 'federal leasing' comprised roughly 90% of the total lease book and was financed solely by equity capital. The remaining 10% was 'commercial leasing' with rates closer to market rates, and funded by local and foreign banks. This has resulted in very low leverage: at end-2012, the debt-to-equity ratio was equal to 8%. Fitch notes that although legally the federal and commercial parts of the leasing business are not separate, there is some risk that proceeds from federal leasing operations would not always be available for commercial debt service. However, the track record of debt service to date, currently low leverage and the fact that 64% of debt is sourced from RAB and is long-term mitigate this risk. Asset quality is very weak, mainly due to failings in governance under previous management prior to 2009, but also because of the volatile performance of the agriculture industry, which is partially dependent on climate conditions. In its statutory accounts, RAL reported 24% of the lease book as overdue at end- 2012, while restructured exposures made up a further 10%. Additionally, about half of advances to suppliers at the same date, dating from transactions completed under previous management, were overdue. The company's low leverage (0.7x equity/assets ratio in statutory accounts at end-2012; which would probably be higher under IFRS), means that it can comfortably absorb further significant losses. Furthermore, Fitch believes credit underwriting has improved significantly since 2010, although the newly created lease book also remains exposed to the performance of the agricultural sector. RATING SENSITIVITIES - IDRS, NATIONAL RATING, SUPPORT RATING and SUPPORT RATING FLOOR The ratings could be downgraded if (i) Russia's sovereign ratings were downgraded; (ii) there is a clear reduction in RAL's policy role; (iii) there is a marked increase in the company's leverage; or (iv) renewed failings in the company's governance. There is very limited potential for an upgrade without a marked strengthening of its policy role and the support framework for the company. An upgrade of Russia's sovereign ratings would be unlikely to result in an upgrade of RAL. The rating actions are: Long-term foreign currency IDR: affirmed at 'BB+'; Outlook Stable Short-term foreign currency IDR affirmed at 'B' National Long-term Rating: affirmed at 'AA(rus)', Outlook Stable Support Rating: affirmed at '3' Support Rating Floor: affirmed at 'BB+' ========= S P A I N ========= LA SEDA: Begins Insolvency Proceedings After Creditor Talks Fail ---------------------------------------------------------------- Reuters reports that La Seda de Barcelona said on Monday it would begin insolvency proceedings after failing to reach a deal with creditors. According to Reuters, LSB said it has been in talks with its lenders since September last year after its business ran into trouble because of high raw materials costs and excess supply of the PET plastic containers that it makes. LSB's insolvency filing gives it another chance to negotiate with creditors, while a previous refinancing plan which fell through would have wiped out a large part of shareholders' equity, Reuters notes. La Seda had a debt load of just EUR600 million (US$800 million) at the end of 2012, including debt to providers, Reuters says, citing company filings. According to Reuters, a source familiar with the restructuring talks said that U.S. hedge fund Anchorage is La Seda's single biggest creditor, after it bought 37% of the company's syndicated loans on the secondary market. The group has EUR462 million in syndicated loans from banks, according to Reuters loan market news and analysis service RLPC. Reuters notes that the source close to the talks said of that, a EUR235 million portion needed to be restructured. Portuguese banks Caixa Geral and BCP are also big lenders, while HSBC and Spain's nationalized Catalunya Banc also feature among prominent creditors, Reuters discloses. RLPC reported in late May that La Seda would face insolvency if creditors failed to back a restructuring plan put forward by Anchorage, which offered to inject EUR30 million in the business in exchange for 82% of its equity, Reuters recounts. La Seda de Barcelona said in a statement that a refinancing plan had failed to get the backing it needed from 75% of creditors, Reuters notes. Catalonia-based La Seda de Barcelona makes plastic bottles in Europe, Turkey and North Africa. SANTANDER HIPOTECARIO 9: Moody's Rates Series C Notes '(P)Caa3' --------------------------------------------------------------- Moody's Investors Service has assigned the following provisional ratings to Spanish RMBS notes to be issued by Fondo de Titulizacion de Activos, SANTANDER HIPOTECARIO 9: EUR487.5M Serie A Notes, Assigned (P)A3 (sf) EUR162.5M Serie B Notes, Assigned (P)Ba3 (sf) EUR117M Serie C Notes, Assigned (P)Caa3 (sf) Ratings Rationale: FTA SANTANDER HIPOTECARIO 9 is a securitization of loans granted by Banco Santander (Baa2 /P-2) to Spanish individuals. Banco Santander is acting as Servicer of the loans while Santander de Titulizacion S.G.F.T., S.A. is the Management Company ("Gestora"). As of May 2013, the provisional pool was composed of a portfolio of 4,124 contracts granted to 4,117 obligors located in Spain. The assets supporting the notes are prime High LTV ("HLTV") mortgage loans secured on residential properties located in Spain. 49% of the loans correspond to loans from Santander Hipotecario 6. The Current Weighted average LTV is 87.92%. The assets were originated between 1996 and 2013, with a weighted average seasoning of 4 years and a weighted average remaining term of 29.1 years. Geographically, the pool is located mostly in Madrid (27.78%) and Andaluc�a (16.91%). 12.18% of the pool corresponds to loans in principal grace periods. 4.83% of the loans were granted to non Spanish nationals. 50% of the loans have been in arrears less than 90 days at least once since the loans was granted. The initial term of 17% of the loans has been already modified since they were granted. In the majority of the cases, a principal grace periods has been granted. According to Moody's, the deal has the following credit strengths: (i) a reserve fund fully funded upfront equal to 18% of the A and B notes to cover potential shortfall in interest and principal, and (ii) sequential amortization of the notes. Moody's notes that the transaction features a number of credit weaknesses, including: (i) the proportion of HLTV loans in the pool (91.67% with current LTV > 80%); (ii) almost 21% of the portfolio correspond to self employed debtors (iii) and the performance of the Banco Santander's precedent transactions and the performance of the Banco Santander's book. Moody's analysis focused primarily on (i) an evaluation of the underlying portfolio of loans; (ii) historical performance information and other statistical information; (iii) the credit enhancement provided via excess-spread, the cash reserve and the subordination of the notes. The resulting key assumptions of Moody's analysis for this transaction are a MILAN Credit Enhancement of 34% and a Expected Loss of 12%. The V Score for this transaction is Medium, which is in line with the V score assigned for the Spanish RMBS sector. Five sub components underlying the V Score have been assessed higher than the average for the Spanish RMBS sector. Issuer/Sponsor/Originator's Historical Performance Variability is Medium/High because HLTV pools have historically higher defaults and arrears than traditional mortgages pools. Sector's Historical Downgrade Rate is assessed as Medium due to the exposure of the transaction to HLTV's which have suffered more downgrades than traditional mortgages pools, Disclosure of Securitization Collateral Pool Characteristics is assessed as Medium since unemployment information and temporary workers were not provided on a loan by loan basis, Disclosure of Securitization Performance is assessed as Medium since no detailed information on recoveries has been provided for previous Santander Hipotecario transactions in the investor report and Transaction Complexity is assessed as Medium since HLTV loans are more exposed to house price declines. Moody's also ran sensitivities around key parameters for the rated notes. For instance, if the assumed MILAN Aaa Credit Enhancement of 34% used in determining the initial rating was changed to 36% and the expected loss of 12% was changed to 14%, the model-indicated rating for Series A and Series B of (P)A3 (sf) and (P)Ba3 (sf) would have changed to (P)Ba3 (sf) and (P)B1 (sf) respectively. The methodologies used in this rating were Moody's Approach to Rating RMBS Using the MILAN Framework published in May 2013, and The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines published in March 2013. In reviewing these transactions, Moody's used its cash flow model, ABSROM, to 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, Moody's calculates the corresponding loss for each class of notes given the incoming cash flows from the assets and the outgoing payments to third parties and note holders. Therefore, the expected loss for each tranche is the sum product of (1) the probability of occurrence of each default scenario and (2) 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. =========================== U N I T E D K I N G D O M =========================== AA BOND: S&P Assigns Preliminary BB Rating to Class B Notes ----------------------------------------------------------- Standard & Poor's Ratings Services assigned its preliminary credit ratings to the fixed-rate secured class A1, A2, and B notes to be issued by AA Bond Co. Ltd. The transaction is a corporate securitization of the Automobile Association's (AA) operating business. The AA Group operates a roadside assistance service in the U.K. and Ireland and provides complementary services such as insurance, driving services and home emergency response. The AA provides breakdown services either to its own members or to customers of its corporate clients, as part of a business service agreement. Business customers typically include fleet operators and motor manufacturers. The AA Group is also a large U.K. personal lines insurance broker and distributes motor and home insurance. The debt issued will refinance part of the present liabilities of the Acromas Group; it entered into these in 2007, when the AA Group merged with Saga under the parent company Acromas. Acromas is owned by private equity companies Permira, CVC, and Charterhouse. The two class A notes will have equal seniority with the borrower's bank facilities, while the class B notes will be contractually subordinated. At closing, AA Bond Co. will onlend proceeds from the issuance of the three classes to the borrower, AA Senior Co Ltd., via intercompany loans that will feature an expected maturity date designed to accelerate amortization upon failure to refinance. In S&P's opinion, AA Bond Co. will function as two separate transactions. The class A and class B notes will share the same ultimate security, but will each be subject to separate terms and conditions, governed by an intercreditor agreement. The class A1 notes are expected to mature five years after closing, the class A2 notes are expected to mature 12 years after closing, and the class B notes are expected to mature six years after closing. If the class B loan defaults for any reason, including that the business fails to repay the class B loan at expected maturity, the topmost company (Topco) in the AA Group corporate structure will be required to redeem the class B loan along with all accrued interest, thus ensuring that the class B notes are redeemed. Failure to do so will give the class B noteholders the right to enforce the Topco share security. In line with S&P's criteria "Methodology For Rating And Surveilling European Corporate Securitizations," published on Jan. 23, 2008, S&P has assessed the business risk profile, evaluated the risks embedded in the transaction (including structural and legal risks), and submitted the securitized business to a set of cash flow stresses based on the characteristics of the specific industry/sector and business. BUSINESS RISK PROFILE S&P views the AA's business risk profile as satisfactory, reflecting the following key business strengths: -- AA's clear market-leading position in the U.K., which has high barriers to entry; -- Mass membership model with excellent renewal rates and revenue visibility; -- High profitability, which is superior to that of closest competitor; -- Good revenue visibility because of the loyal individual membership base and contracts on corporate service deals lasting three to five years; and -- Good cash flow due to a) minimal working capital needs as a high percentage of members pay their annual membership fees up front, and b) low capital expenditure requirements, with strong cash flow conversion. However, these strengths are tempered by: -- High dependence on a single country--almost all revenues are sourced in the U.K.; -- Some vulnerability to potential reputational damage and subsequent risk of litigation in the insurance and financial services businesses; and -- Some sensitivity to macroeconomic factors such as consumer confidence, driver habits, fuel prices, and weather patterns. LEGAL AND STRUCTURAL FEATURES The creditors are considered to hold a qualifying floating charge; that is, under English law, they can stop the AA Group from going into administration by appointing an administrative receiver. However, because the AA Group's principal operating subsidiary (TAAL) is incorporated in Jersey, the creditors are unable to appoint an administrative receiver for TAAL. TAAL will sign a legally binding agreement to sell its assets, business, and undertakings to a U.K.-incorporated sister company, AADL. TAAL will continue to trade while the business transfer takes place; this could take 18 months or more. Therefore, to eliminate any continuing credit dependency on TAAL while the business transfer completes, the transaction documents state that TAAL must also declare a trust over all of its assets in favor of AADL before the notes may be issued. In addition, TAAL will execute a security power of attorney in favor of AADL. This will enable AADL, as attorney, to take action in TAAL's name against any entity that failed to meet its obligations to TAAL, and to complete the business transfer if TAAL did not do so. The effect of the declaration of trust would be to transfer the beneficial interest (but not the legal title) and the credit exposure on all of the assets of TAAL to AADL. Based on S&P's legal analysis, it has established that the effect of the declaration of trust and the power of attorney would be to enable AADL to "step into the shoes of TAAL" for all the assets within the trust, using the security power of attorney. If an administrative receiver were appointed for AADL, it would have all the powers of the obligor security trustee to run TAAL and to complete the business transfer. Principal on the class A and B notes is not scheduled to amortize before their expected maturity dates. To reduce refinancing risk at the various expected maturity dates, the structure includes a feature to give the AA's management and the equity holders an incentive to refinance the debt before expected maturity. If the business cannot refinance the intercompany loans associated with the class A1 notes or bank debt in year 5, all the AA's excess cash flow may be used to pay down the class A and class B notes before the legal final maturity date. However, the failure to refinance will also be considered an event of default under the common terms agreement. After such an event, the creditors could choose to enforce their security and accelerate the debt, i.e., make it immediately payable in full. In S&P's view, the incentives of the bank lenders at this time may not be aligned with the incentives of the noteholders. The transaction therefore gives the class A noteholders a veto over the option to accelerate the debt. Over 50% of the class A noteholders would need to vote for acceleration. None of the agreements for the swap counterparties, liquidity facility provider, and obligor account providers in the transaction provide a commitment to mitigate a potential downgrade, in line with S&P's criteria. On the closing date, S&P do not consider this a limiting factor for the rating as all counterparties are rated above the rating on the notes. However, if any of the counterparties are downgraded, this may trigger a negative rating action on the notes. The borrower, AA, is highly leveraged. The securitization structure encourages reduction of leverage by sweeping 50% of excess free cash flow to pay down the bank debt while the bank debt is outstanding. In addition, the transaction documents contain restrictions that limit payments to entities outside of the securitization (for example, dividends to shareholders) while the bank debt remains outstanding; this will come into effect at closing. If the AA cannot refinance the loan associated with the class B notes by the expected maturity date, all payments to the class B notes will be delayed. The class B noteholders will not receive interest payments while the class A notes are outstanding. The interest missed will be capitalized and must be repaid by the legal final maturity date. S&P has incorporated this transaction feature in its modeling by verifying that all capitalized interest is repaid by legal final maturity under a stress scenario commensurate with its preliminary rating on the class B notes. S&P's cash flow stresses have been tested under the assumption that the borrower is unable to refinance either the term facilities or the bullet notes. S&P has therefore incorporated in its modeling all transaction features aimed at facilitating the repayment of the issuer's and borrower's liabilities. These include mandatory cash sweeps, lock-up triggers, and liquidity enhancements. S&P's modeling validates that interest and principal are repaid as promised under a stress scenario commensurate with its preliminary ratings on the notes. In S&P's view, this transaction incorporates some key features such as the concept of expected and legal final maturity dates, credit enhancement in the form of a liquidity facility, and covenants that restrict payments outside of the securitization group or facilitate reduction of leverage by sweeping excess cash flow to pay down debt. However, S&P believes the presence of a material obligor incorporated outside the U.K. and the possibility that the debt may be accelerated if the borrower fails to refinance make this transaction more complex than traditional whole-business securitizations. Standard & Poor's has not carried out a complete review of the entire transaction documentation and legal opinions. The ratings below are preliminary. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. RATINGS LIST Class Prelim. Prelim. rating amount (mil. GBP) AA Bond Co. Ltd. British Pound Sterling-Denominated Fixed-Rate Secured Notes A1 BBB- (sf) TBD A2 BBB- (sf) TBD B BB (sf) TBD TBD-To be determined. FAIRHOLD SECURITISATION: Fitch Affirms BB Rating on Class B Notes ----------------------------------------------------------------- Fitch Ratings has affirmed Fairhold Securitisation Limited's class A and class B notes, as follows: GBP413.7m class A due October 2017 (XS0298926360) affirmed at 'BBBsf'; Outlook Stable GBP29.8m class B due October 2017 (XS0298927509) affirmed at 'BBsf'; Outlook Stable Key Rating Drivers The transaction is a single-borrower securitization of freehold cash flows derived from a portfolio of sheltered housing located in the UK and encumbered by long leasehold interests. The affirmation is based on stable collateral performance despite fluctuations of contingent liabilities, in the form of interest rate and inflation swap exposures, which in effect increase the transaction's leverage to 89%, up from 82% a year earlier. The reported leverage, excluding these MtM costs, is 57%, only marginally higher than last year following the latest collateral re-valuation in February 2013. Whilst the debt amount, high leverage and reliance on reserve funds to meet interest payments all indicate that refinancing at the extended loan maturity in 2015 may not be straightforward, Fitch views an inflation-linked income stream derived from a secure source of income such as ground rents as an attractive investment opportunity. However, the relative illiquidity of the collateral may result in refinancing or sale proceeds reflecting some premium above the risk free rate -- the metric generally used to discount the income stream for ground rent portfolios. Fitch views the break- even risk premium for the class A notes to be redeemed commensurate with an investment grade rating. The class B notes continue to rely on a more volatile source of income, such as transfer fees and therefore remain rated 'BBsf'. Rating Sensitivities Although Fitch does not expect material changes to the performance of the underlying collateral, future rating action is possible closer to the loan's maturity in 2015 when the workout strategy taken by the sponsor and noteholders becomes more evident. HEARTS FC: To Go Into Administration, Approaches KPMG ----------------------------------------------------- Andy Newport at Press Association reports that Heart of Midlothian Football Club, the financially-stricken Scottish Premier League club, is in the process of lodging papers at the Court of Session in Edinburgh and have approached accountancy firm KPMG to act as their administrators. The club was faced with a winding-up order last week after Her Majesty's Revenue and Customs threatened action over an unpaid GBP100,000 tax bill, although the majority of that sum has been paid, according to Press Association. The report relates that Hearts were also hit with an immediate transfer embargo by the Scottish Premier League last June 14 after admitting they could not afford to pay their players. The news came just 24 hours after the Gorgie board released a statement saying they had entered a "critical" stage in their battle to pay off debts of GBP25million as well as financing tax and running costs, the report discloses. The report relays that the entire Jambos squad was put up for sale in a desperate bid to raise the reported GBP500,000 needed to see the club through to the start of the new season. The report notes that the situation at the two Lithuanian companies which hold large stakes in the club has also raised fears for the future of the Edinburgh club. The report discloses that majority shareholder UBIG, which owns a 50 per cent stake in the club, and 29.9 per cent shareholder Ukio Bankas were both once controlled by Vladimir Romanov but are now in the midst of being declared insolvent by Kaunas-based authorities. The report relates that Ukio Bankas, which lost an appeal against liquidation, is due GBP15million by Hearts, who also owe another GBP10million to UBIG. Politician Ian Murray is leading the Foundation of Hearts supporters' group who hope to buy the club, with a formal bid expected to be lodged by the end of the month, the report says. There is also interest from a number of other parties, including a Scandinavian consortium, the report adds. HMV GROUP: To Return to its Oxford Street Flagship Store -------------------------------------------------------- NME News reports HMV Group plc is reportedly looking to return to its Oxford Street flagship store in London. HMV Group plc, which is currently controlled by restructuring specialists Hilco after it went into administration earlier this year, is in negotiation to move back into the 20,000 sq ft store at 363 Oxford Street, according to NME News. The site is currently occupied by the US chain Footlocker. NME News notes that the Evening Standard said HMV has exchanged contracts on the shop's lease, subject to landlord approval. The newspaper also reported that the retailer is also considering leaving its 150 Oxford Street store, which is too big for its current requirements, NME News relays. The report discloses that a relaunch of the retailer, which went into administration in January saddled with GBP176 million debt, is expected later this year. The report notes that while no exact details have been confirmed, it is expected that a new HMV website will focus on a music and film streaming service similar to The Vault, the digital streaming platform offered by its sister company in Canada. The report recalls that previously, HMV UK lost money selling CDs and DVDs from its website because of distribution and postage costs. Hilco completed the acquisition of the chain in April, and now operates 141 stores, the report adds. About HMV Group United Kingdom-based HMV Group plc is engaged in retailing of pre-recorded music, video, electronic games and related entertainment products under the HMV and Fopp brands, and the retailing of books principally under the Waterstone's brand. The Company operates in four segments: HMV UK & Ireland, HMV International, HMV Live, and Waterstone's. On Jan. 14, HMV Group went into administration after suppliers refused a request for a GBP300 million lifeline for the company. Deloitte was appointed as administrator to the chain, which was hit by growing competition from online rivals, supermarkets, and illegal downloads. IMPERIAL HOME: Partnership DC Pension Scheme -------------------------------------------- MoneyMarketing reports that Partnership has bought out the defined contribution section of the Imperial Home Decor pension scheme, which will see almost 140 DC members benefit from enhanced incomes. The firm's GBP130 million pension scheme has been in wind-up since October 2003 when the company was declared insolvent with a GBP40 million pension deficit, the report discloses. According to the report, Partnership said it has worked closely with Bridge Trustees and Capita Employee Benefits to put together the buy-out. The deal sees the 140 qualifying DC members, who had been receiving interim pensions, benefit from an enhanced annuity deal worth approximately GBP5 million, the report relays. Scheme members with defined benefit pensions will continue to be paid by the Financial Assistance Scheme, according to the report. "Given the history of the scheme and the unique nature of their requirements, we were delighted to be chosen to work closely with all parties," the report quotes David Harvey, Partnership head of de-risking solutions, as saying. "We feel that the innovative solution we developed allowed the trustees to discharge their liabilities whilst giving all members genuine choice over the shape of their pension." MoneyMarketing quotes Capita Employee Benefits' Kenneth Donaldson says: "Having worked hard on this deal with Bridge Trustees and Partnership for over a year, we feel that we have developed the right de-risking vehicle for the problems that we faced. "Not only will it allow the trustees to discharge their obligations but also help to ensure that the scheme members receive the type of pension provision they had saved for." R&R ICE CREAM: S&P Cuts Corp. Credit Rating to B; Outlook Stable ---------------------------------------------------------------- Standard & Poor's Ratings Services said that it lowered its long- term corporate credit rating on U.K.-based ice cream manufacturer R&R Ice Cream PLC (R&R Ice Cream) to 'B' from 'B+'. At the same time, S&P removed the corporate credit rating from CreditWatch, where it placed it with negative implications on April 29, 2013. The outlook is stable. In addition, S&P lowered to 'B' from 'B+' its issue rating on R&R Ice Cream's existing EUR350 million senior secured notes due 2017. The recovery rating on these notes remains unchanged at '4', indicating S&P's expectation of average (30%-50%) recovery for noteholders in the event of a payment default. Furthermore, S&P assigned its 'B' long-term corporate credit rating to R&R PIK PLC (R&R PIK), an entity that was recently established to fund the acquisition of R&R Ice Cream. R&R PIK is ultimately controlled by funds under the management of PAI Partners SAS. S&P refers to R&R Ice Cream and R&R PIK together as R&R or the group. Finally, S&P assigned its issue rating of 'CCC+' to R&R PIK's EUR253 million subordinated payment-in-kind (PIK) toggle notes due 2018. The recovery rating on these notes is '6', indicating S&P's expectation of negligible (0%-10%) recovery in the event of a payment default. The downgrades follow R&R PIK's issuance of EUR253 million of subordinated payment-in-kind (PIK) toggle notes due 2018 to fund the acquisition of R&R Ice Cream from its previous owners, Oaktree Capital Management LP. The downgrades reflect S&P's view that the additional debt in the group's capital structure has increased its leverage and thereby weakened its credit quality. In particular, S&P believes that the additional cash interest on the PIK toggle notes will impair the group's EBITDA interest coverage ratio. Following the acquisition, S&P estimates that R&R's Standard & Poor's-adjusted debt-to-EBITDA ratio has increased to about 10x from about 8x, and that its EBITDA interest coverage has deteriorated to about 1.9x from about 2.5x. S&P views the current ratios as commensurate with a 'B' corporate credit rating. The ratings on R&R are constrained by S&P's assessment of the group's financial risk profile as "highly leveraged." S&P's assessment of R&R's business risk profile as "fair" partly mitigates this. In S&P's view, the group will likely maintain positive revenue growth and stable margins over the next 12-18 months. An EBITDA- to-cash interest ratio of about 2x and "adequate" liquidity are commensurate with the 'B' rating. In S&P's opinion, a positive rating action on R&R is remote at this stage, due to the group's increased leverage. S&P believes that ratings downside could stem primarily from increases in raw material costs that the group cannot recover from price increases within a short timeframe, and from further deterioration in the performance of the French business. In addition, ratings downside could arise if EBITDA deteriorated on account of unfavorable weather conditions in the peak summer months, and/or higher costs for the integration of recent acquisitions. S&P could also take a negative rating action if liquidity becomes materially weaker due to reduced profitability and/or increased acquisition activity and restructuring costs, and if cash interest coverage falls to less than 1.5x. VIRGIN MEDIA: Fitch Cuts Long-Term IDR to 'B+'; Outlook Stable -------------------------------------------------------------- Fitch Ratings has downgraded Virgin Media Inc.'s (Virgin Media) Long-term Issuer Default Rating (IDR) to 'B+' from 'BB+'. The ratings have been removed from Rating Watch Negative (RWN) and the Outlook on the Long-term IDR is Stable. The downgrade follows the acquisition of Virgin Media by Liberty Global, Inc (LGI). Fitch expects LGI to run Virgin Media's leverage towards the higher end of a 4.0-5.0x net debt/EBITDA ratio, as it does with its other European cable subsidiaries. Total debt at closing, especially senior secured debt, is higher than Fitch initially expected, which has led to lower recovery rates than previous anticipated when Fitch put Virgin Media's ratings on RWN on Feb. 6, 2013. Key Rating Drivers Sharp Increase in Leverage Gross debt to EBITDA (last 12 months) has increased to 5.2x post- acquisition from 3.6x at the end of 2012 as a result of debt from acquisition financing being pushed down to Virgin Media. Fitch expects most of the US$1.5 billion of cash currently at Virgin Media to be used to redeem the company's convertible debt and for distribution to other LGI subsidiaries. Good Recovery Prospects Although the GBP7.2 billion of senior secured debt and finance leases after closing was higher than we expected, recovery prospects for Virgin Media senior secured debt holders are still good, in Fitch's view, given the solid operational profile of the business. We have downgraded the senior secured rating of this debt to 'BB+'/RR1 from 'BBB-'. Recovery prospects for the senior unsecured bonds have suffered as a result of the increased senior secured debt. As a result, the senior unsecured rating has been downgraded to 'B-'/RR6 from 'BB+'. Further increases in senior secured debt are likely to result in lower recoveries, which could lead to a downgrade of the senior secured rating. Changes to Holding Structure Following the closing of the transaction, Fitch anticipates that Virgin Media's holding structure could change in the short term. This might change the parent company Fitch assigns Virgin Media's IDR to but is unlikely to impact the senior secured and unsecured ratings. Solid Operational Profile Virgin Media's Q113 results show that the company's operating and financial results are in line with Fitch's 2013 forecasts. Over the medium term, we expect Virgin Media to deliver increasing operating free cash flow, despite slowing customer and revenue growth. This is underpinned by the company's key strength as a "second-incumbent" in the UK, with its superior network infrastructure and strong market share within its geographical footprint. Rating Sensitivities Negative: - A negative rating action could occur if the company's FFO adjusted net leverage increases above 5.5x, or FFO fixed charge cover falls below 2.5x. Positive: - A firm commitment by Virgin Media to adopt a more conservative financial policy (for example, FFO adjusted net leverage of 4.5x) could lead to a positive rating action. LIQUIDITY AND DEBT STRUCTURE Virgin Media has an undrawn GBP660m revolving credit facility. Excluding the convertible bond, the company's next bond maturity is January 2018. The amount of cash Virgin Media will end up with over the next month or so is unclear, and depends on the proportion of convertible bondholders that exercise their change of control rights and whether there are further cash distributions to LGI. FULL LIST OF RATING ACTIONS Long-term IDR: downgraded to 'B+' from 'BB+', RWN removed, Outlook Stable Short-term IDR: affirmed at B Virgin Media Investment Holdings senior secured bank facilities: downgraded to 'BB+' from 'BBB-', RWN removed, assigned 'RR1' Virgin Media Secured Finance Plc 2018 and 2021 senior secured bonds: downgraded to 'BB+' from 'BBB-', RWN removed, assigned 'RR1' Virgin Media Finance Plc 2019, 2022 and 2023 senior notes: downgraded to 'B-' from 'BB+', RWN removed, assigned 'RR6' =============== X X X X X X X X =============== * EUROPE: Moody's Says Outlook for Tobacco Industry Stable ---------------------------------------------------------- The outlook for the European tobacco industry is now stable, from positive, as consumer spending is likely to remain pressured, leading to lower-than-previously-expected profit growth for the sector, says Moody's Investors Service in an outlook update on the sector entitled "European Tobacco: Slowing Profit Growth Turns European Tobacco Outlook Stable." The European tobacco industry's outlook had been positive since July 2012, when Moody's first published a separate outlook for Europe. "Our outlook on the European tobacco industry has changed to stable from positive as Moody's expects the sector's operating profit growth to fall from 7% to between 4.5% and 5.5% over the next 12-18 months," says Paolo Leschiutta, a Vice President - Senior Credit Officer in Moody's Corporate Finance Group and author of the outlook update. "Our revised expectations reflect the likelihood that people will rein in their spending, leading to lower cigarettes sales or a switch to cheaper products," adds Mr. Leschiutta. In addition, Moody's notes that regulatory pressure has increased, pressuring consumption. Recent changes include a smoking ban in Russia, plain packaging in Australia and a display ban in the UK. While these changes have had minimal impact individually, Moody's expects that, collectively, they will lead to an accelerated rate of the decline in tobacco consumption in the next 12-18 months, particularly in Russia. Moreover, Moody's considers that the new but growing nascent e-cigarette industry could represent an increasing competitive threat for European tobacco manufacturers. Moody's expects players to continue to raise prices above volume declines, that developing market consumers will keep trading up to premium brands and companies will continue to increase efficiency. Moody's would consider moving the outlook to positive if operating profit growth rose to 6% or above and regulatory pressures eased. The rating agency would move the outlook to negative if operating profit contracted or there was a dramatic regulatory change or litigation. * Rising Benchmark Interest Rates Threaten EM, EMEA Issuers ----------------------------------------------------------- Rising benchmark interest rates could pose a threat to the credit quality of some weaker emerging-market and leveraged EMEA issuers, Fitch Ratings says. However, most corporates are well placed as they have not used cheap money for the kind of debt- fuelled expansion that exposed them to changing market sentiment in the past. Investors' concern about the gradual withdrawal of the Federal Reserve's quantitative easing (QE) program is pushing up long- term benchmark yields, which QE seeks to lower. This will lead to higher coupons on new bond issues. The Markit ITRAXX Crossover CDS Index, for example, has widened 16% since the start of May. Higher rates may also reduce risk appetite as investors earn meaningful returns from less risky assets -- making it difficult or impossible for weaker companies to issue economically. Lower-rated emerging-market corporate bonds, of which there was record issuance in EMEA in H112, have been among the worst hit in the selloff. But the liquidity risk from potentially reduced access to bond markets should not be overstated. Emerging European issuers have steadily improved their liquidity profiles, cutting reliance on one- to two-year maturity debt to 36% in 2012 from 48% in 2009. A divergence is likely between borrowers who have taken advantage of the recent window and those who have not. Capex investment needs put emerging-market commodity and infrastructure companies high on the list of those that need to issue fresh debt before the end of 2014. Some of these have already used cheap rates and foreign capital to upgrade plants and equipment, particularly in Russia and the CIS. If such capital becomes scarcer we might see a sharp difference in performance between companies that have procured funding for highly accretive investments and others that will struggle to compete due to outdated plant. The impact on leveraged credits will be complex. There has been significant growth in the European high-yield bond market, which prices off benchmark, long-term bond yields, since 2011. In contrast, rates in the previously dominant leveraged loan market are linked to short-term interbank rates, which are directly influenced by central bank policy rates. "We expect an increase in policy rates -- especially European -- to lag behind a "tapering" of US QE by some time. Even though leveraged loan borrowers are in theory more exposed to interest- rate movements than fixed-rate bond issuers, in practice their Libor and Euribor-based borrowing costs will remain subdued for some time," Fitch says. That is, unless they need to refinance. A more expensive or selective high-yield bond market will remove an important refinancing option for many borrowers. Although interbank rates are likely to remain low, leveraged loan lenders may push for higher spreads and tougher terms when loans are renegotiated. This could pose a challenge to borrowers rated 'B-*' or below, which account for over 40% of our leveraged finance credit opinion portfolio, with about EUR70 billion of leveraged loans and bonds maturing by 2018. ********* 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., Washington, D.C., 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 2013. 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$775 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 215-945-7000 or Nina Novak at 202-241-8200. * * * End of Transmission * * *