/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/140829.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, August 29, 2014, Vol. 15, No. 171 Headlines B E L G I U M TRUVO NV: S&P Lowers CCR to 'CCC-' on Debt-Restructuring G E R M A N Y MITTELDEUTSCHE FAHRRADWERKE: Hero Cycles to Acquire 89% Stake TREVERIA SILO: JLL Appointed to Sell Portfolio H U N G A R Y KAPUVARI HUS: Tender Offer Called for Assets I C E L A N D * ICELAND: Corporate Insolvencies Down 22% in Last 12 Months I R E L A N D * IVOR CALLELY: Allied Bank Appoints Receiver Over Assets RED KETTLE: Goes Into Liquidation on Trading Difficulties K A Z A K H S T A N EURASIAN NATURAL: Moody's Lowers Corporate Family Rating to 'B3' P O R T U G A L BANCO ESPIRITO: German Creditors to Block Tranquilidade Sale R O M A N I A * ROMANIA: Corporate Insolvencies Drop 13.37% in First 7 Months R U S S I A BELY VETER: Files for Bankruptcy in Ulyanovsk Court IBA-MOSCOW: Moody's Changes B3 Deposit Rating Outlook to Positive PETROPAVLOVSK PLC: Nears Refinancing Deal with Bondholders S W E D E N NATIONAL ELECTRIC VEHICLE: Files for Bankruptcy Protection U N I T E D K I N G D O M COUNTYROUTE PLC: S&P Cuts Rating on GBP5.5MM Bank Loan to 'CCC+' HEALTHCARE SUPPORT: Moody's Cuts Rating on Sr. Sec. Bonds to Ba3 QUINTILLION ASSET: Directors Banned For a Total of 28 Years X X X X X X X X * BOOK REVIEW: Alfred L. Malabre, Jr.'s Lost Prophets ********* ============= B E L G I U M ============= TRUVO NV: S&P Lowers CCR to 'CCC-' on Debt-Restructuring -------------------------------------------------------- Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Belgium-based publisher of classified directories Truvo N.V. to 'CCC-' from 'CCC'. The outlook is negative. At the same time, S&P lowered to 'CCC-' from 'CCC' the issue rating on Truvo's EUR170 million senior secured term loan A due 2015. The recovery rating on this instrument remains unchanged at '4', indicating S&P's expectation of average (30%-50%) recovery in the event of a payment default. In addition, S&P lowered to 'C' from 'CC' the issue rating on Truvo's EUR113 million second-lien term loan B due 2015, and on holding company Talon PIKco N.V.'s EUR71 million payment-in-kind (PIK) notes due 2019. The recovery rating on these instruments remains unchanged at '6', indicating S&P's expectation of negligible (0%-10%) recovery in the event of a payment default. The downgrades reflect S&P's view that Truvo's current capital structure is unsustainable in the long term, which, combined with S&P's expectations of further weakening of liquidity, create a material risk of potential orderly debt-restructuring measures that could be implemented within the next six months. The group has appointed a financial advisor to help consider options on refinancing, restructuring and exit strategies, as required by its 2013 consent request. S&P understands that a potential restructuring would not impact the operating business activities. A continuing slide in the group's earnings, despite recent debt repayments, has resulted in a very high leverage, which S&P believes will hinder a potential timely refinancing of its EUR170 million senior secured term loan A due in May 2015. S&P estimates that Truvo's Standard & Poor's-adjusted debt-to- EBITDA ratio will be 17.4x by Dec. 31, 2014. S&P's estimate includes the EUR71 million in PIK notes at Truvo's holding company, Talon PIKco N.V. (Talon), which S&P fully consolidates in Truvo's accounts. Also by year-end 2014, S&P forecasts EBITDA interest coverage of 1.3x and EBITDA cash interest coverage of 2.5x. S&P expects free operating cash flow to come in at negative EUR10 million for financial 2014. In addition, S&P believes Truvo faces a possible covenant breach in the coming quarters. This, combined with Truvo's high leverage and a tough operating environment, could also lead management to implement credit-dilutive debt restructuring measures. S&P's assessment of Truvo's "vulnerable" business risk profile reflects the significant risk of a continued structural decline in the print directories sector, as well as increased competition as small business advertising expands across a greater number of online marketing channels. S&P considers that Truvo has material exposure to metropolitan markets, representing a further rating constraint that could exacerbate the impact of the structural shift from traditional classified directories to online services. S&P sees increased challenges for the company in containing the pressure on margins, which will likely result in Truvo transitioning to the highly fragmented, intensely competitive, and rapidly evolving online market. In its online business, S&P believes Truvo will have significantly less pricing power compared with its former leading or incumbent position in the traditional classified directories business. S&P believes Truvo will have to establish its competitive edge in the online market. S&P's base-case assumptions for Truvo for financial 2014 are: -- Ongoing macroeconomic uncertainties and structural changes. -- Negative 8% revenue growth mainly owing to the group's decreasing print business. -- Declining underlying profit margins despite the company's achievement to cut costs, leading to adjusted EBITDA of about EUR22 million. -- Capital expenditure of EUR14.5 million (mainly used for developing the online business). -- Cash funds from operations (FFO) of about EUR9 million and free operating cash flow (FOCF) of about negative EUR10 million in 2014. Based on these assumptions, S&P expects: -- The ratio of adjusted debt to EBITDA to jump to 17.4x in 2014 from 13.1x in 2013. -- EBITDA cash interest coverage to drop to 2.5x in 2014 from 3.1x in 2013. The negative outlook primarily reflects S&P's opinion of Truvo's increased short-term liquidity and refinancing risks, in the context of a challenging operating environment, high leverage, and what S&P sees as an unsustainable capital structure. S&P sees an increased risk that management may implement credit- dilutive debt restructuring measures over the next six months, although S&P' is not currently aware that Truvo has taken any such steps. A revision of the outlook to stable and potential rating upside depend on Truvo maintaining at least 15% covenant headroom and stabilizing its revenues, EBITDA, and free cash flow, while successfully addressing the 2015 debt maturities. At this stage, S&P views this scenario as remote. ============= G E R M A N Y ============= MITTELDEUTSCHE FAHRRADWERKE: Hero Cycles to Acquire 89% Stake ------------------------------------------------------------- Bike Europe reports that India's Hero Cycles has offered to take up as much as an 89% ownership stake in troubled MIFA Mitteldeutsche Fahrradwerke AG under a restructuring worth in excess of EUR32 million -- a deal that would stave off bankruptcy for the listed German bike-maker and force existing investors to bear the brunt of its near collapse. According to Bike Europe, under the three-pronged restructuring and recapitalization proposed by OPM Global B.V. -- the Dutch-registered vehicle through which Punjab-based Hero Cycles is negotiating -- shareholders would see their holdings fall to 1/100th of their current levels. Meanwhile, investors in the company's EUR25 million bond would absorb a reduction in principal of three-fifths, with Hero Cycles making an equivalent EUR15 million cash injection to stabilize MIFA's finances ahead of a proposed debt-for-equity swap that would leave the self-proclaimed world's largest maker with a minimum 60% stake, Bike Europe notes. TREVERIA SILO: JLL Appointed to Sell Portfolio ---------------------------------------------- Mark Wilding at Property Week reports that JLL has been appointed to sell 127 properties in the Treveria Silo E portfolio, which went into insolvency at the start of 2013. ============= H U N G A R Y ============= KAPUVARI HUS: Tender Offer Called for Assets -------------------------------------------- MTI-Econews reports that the liquidator of Kapuvari Haus said on Wednesday, August 27, another tender is being called for the company's assets after the winner of the previous tender failed to meet a payment deadline. According to MTI-Econews, the local press reported that a Saudi Arabian investor won the previous tender with an offer of HUF650 million. The assets have been under liquidation since the autumn of 2012, MTI-Econews notes. Kapuvari Haus is a meat plant in Kapuvar, Hungary. ============= I C E L A N D ============= * ICELAND: Corporate Insolvencies Down 22% in Last 12 Months ------------------------------------------------------------ Statistics Iceland reports that corporate insolvencies over the last 12 months, from August 2013 to July 2014, decreased by 22% compared to the prior 12 months. According to Statistics Iceland, there were 845 corporate insolvencies in that period. The highest number of insolvencies was in wholesale and retail trade, repair of motor vehicles and motorcycles and in construction, both categories had 156 insolvencies, Statistics Iceland discloses. ============= I R E L A N D ============= * IVOR CALLELY: Allied Bank Appoints Receiver Over Assets --------------------------------------------------------- Irish Independent reports that Allied Irish Bank has appointed a receiver over property assets owned by jailed politician Ivor Callely. The bank made the move to take control of the assets after the disgraced former junior minister was imprisoned last month for fiddling expenses, according to Irish Independent. Ernst & Young director Marcus Purcell was appointed receiver over a number of Callely assets. The report notes that the former Dublin Fianna Fail TD and senator borrowed heavily from AIB during the boom, using investment properties as security for the loans. On one day alone in March 2007, he and his wife Jennifer re-mortgaged five investment properties with the bank, the report relates. The values of these properties subsequently collapsed and they remain well below boom-time levels, the report discloses. In total, his name has appeared on AIB mortgage documents for eight different properties on Dublin's northside, the report says. The report notes that residents in one of Callely's investment properties, a terraced house in Dublin's East Wall, confirmed they had been made aware AIB now controlled the property. The report notes that it is thought the money borrowed by Mr. Callely from AIB in 2007 was used to fund his involvement in a property deal in Clontarf. Mr. Callely and three businesses associates also borrowed EUR10 million from Investec in connection with that plan, with the aim of building 44 seafront apartments, the report relays. However, the report discloses that the project ran into planning difficulties and ended up being shelved. Investec issued legal proceedings against Mr. Callely, who consented to a judgment for EUR11 million in July last year, the report notes. Legal The report relays that the lender has also initiated further legal proceedings against Mr. Callely and his wife. These relate to property matters, but the details of what is involved have yet to be disclosed. Last month, the report notes the 56-year-old was jailed for five months at Dublin Circuit Court after he pleaded guilty to four counts of using bogus invoices to claim mobile phone expenses from the Oireachtas between 2007 and 2009. He is serving the sentence at Wheatfield Prison. Callely served as a junior minister for health and later transport between 2002 and 2005. RED KETTLE: Goes Into Liquidation on Trading Difficulties --------------------------------------------------------- Ciaran Hanna at insideireland.ie reports that Fianna Fail Spokesperson on Arts and Culture, Sean O Fearghail, has expressed his disappointment at the liquidation of Waterford's Red Kettle Theatre Company. It was confirmed that the company had gone into liquidation due to trading difficulties and a statement issued by the board on August 14, according to insideireland.ie. The statement said Red Kettle is no longer a viable enterprise. The statement said the move is due to "the cumulative effect of recent and severe cuts to funding and grant aid, set against a background of six years of economic erosion," with Waterford being especially hard hit, the report notes. It is understood some full-time and part-time jobs will go as a result of the closure, the report adds. =================== K A Z A K H S T A N =================== EURASIAN NATURAL: Moody's Lowers Corporate Family Rating to 'B3' ---------------------------------------------------------------- Moody's Investors Service has downgraded the corporate family rating (CFR) of Eurasian Natural Resources Corporation Ltd (ENRC Limited, formerly ENRC Plc) to B3, its Baseline Credit Assessment ('BCA') to b3, and its probability of default rating (PDR) to B3- PD, all with negative outlook. Moody's will subsequently withdraw these ratings due to the recent corporate reorganization of the group following the successfully completed takeover offer on ENRC Limited in October 2013, with Eurasian Resources Group S.a r.l. (ERG Sarl) established as the new parent company and reporting entity of the now delisted ENRC group. Moody's has also downgraded by two notches the provisional rating on ENRC Limited's US$3 billion euro medium-term note (EMTN) program to (P)Caa1 (LGD4), with negative outlook. Moody's has concurrently assigned a new CFR of B3 and a new B3- PD, all with negative outlook, to ERG Sarl, the new holding company and owner of ENRC Ltd. ERG Sarl is considered by the rating agency as a Government-Related Issuer ('GRI'), given the Government of Kazakhstan is a main shareholder with a 40% stake. As such, ERG Sarl's CFR reflects also the application of Moody's rating methodology for GRIs. In accordance with this methodology, the B3 CFR of ERG Sarl reflects the combination of the following inputs: Baseline Credit Assessment ('BCA') of b3, which reflects the company's stand alone credit quality; The local currency issuer rating of the Government of Kazakhstan of Baa2 with positive outlook; Default Dependence: Very High; Support: Low. =============== P O R T U G A L =============== BANCO ESPIRITO: German Creditors to Block Tranquilidade Sale ------------------------------------------------------------ Peter Wise at The Financial Times reports that a group of German creditors is attempting to block the planned sale of Tranquilidade, a Portuguese insurance company, in a move that could disrupt the disposal of assets belonging to the collapsed Espirito Santo business empire. The attempt to stop the sale of Tranquilidade to Apollo Global Management, a US private equity fund manager, in a deal worth about EUR200 million could mark the beginning of other legal challenges to attempted disposals by the failed business group, the FT says. When Banco Espirito Santo was split into "good" and "bad" banks this month as part of a EUR4.9 billion bailout, Tranquilidade came under the ownership of Novo Banco, the "good" bank, the FT notes. Apollo has since been in exclusive talks with Novo Banco to acquire Tranquilidade in a deal that is expected to be finalized shortly, the FT discloses. But the group of about 10 German creditors say such a disposal would be illegal and would "seriously damage their legitimate interests", according to the FT. The group is comprised of creditors of Espirito Santo Financial Group-Portugal (ESFP), which indirectly owns 45% of Tranquilidade, the FT relays. Together, the creditors hold 12% of a EUR70 million bond issued by ESFP, which is due to be redeemed in May 2016, the FT states. Lawyers representing the German creditors have written to Novo Banco saying they will take legal action to annul the transaction if the planned sale to Apollo goes ahead, the FT relates. Novo Banco, as cited by the FT, said talks on the planned sale of Tranquilidade were continuing, but made no comment on any potential legal challenge. Before BES was bailed out, the Bank of Portugal determined that Tranquilidade shares should be pledged to BES as a guarantee that Espirito Santo Financial Group (ESFG) would repay group debt that it had sold to BES's retail clients, the FT recounts. According to the FT, the German creditors say they "strongly disagree with the legal validity of the pledge." About Banco Espirito Santo Banco Espirito Santo is a private Portuguese bank based in Lisbon. It is 20% owned by Espirito Santo Financial Group. In August 2014, Banco Espirito Santo had been split into "good" and "bad" banks as part of a EUR4.9 billion rescue of the distressed Portuguese lender that protects taxpayers and senior creditors but leaves shareholders and junior bondholders holding only toxic assets. A total of EUR4.9 billion in fresh capital is being injected into this "good bank", which will subsequently be offered for sale. It has been renamed "Novo Banco", meaning new bank, and will include all BES's branches, workers, deposits and healthy credit portfolios. In August 2014, Espirito Santo Financial Portugal, a unit fully owned by Espirito Santo Financial Group, filed under Portuguese corporate insolvency and recovery code. In August 2014, Espirieto Santo Financiere SA, another entity of troubled Portuguese conglomerate Espirito Santo International SA, filed for creditor protection in Luxembourg. In July 2014, Portuguese conglomerate Espirito Santo International SA filed for creditor protection in a Luxembourg court, saying it is unable to meet its debt obligations. ============= R O M A N I A ============= * ROMANIA: Corporate Insolvencies Drop 13.37% in First 7 Months --------------------------------------------------------------- Irina Popescu at Romania Insider reports that the number of companies that entered insolvency in the first seven months of 2014 dropped by 13.37% year-on-year, to 15,124, according to data from National Trade Registry (ONRC). Romania Insider relates that the largest decreases in the number of insolvencies were recorded in Giurgiu -- down 69.49%, Mehedinti -- down 67.25% and Vaslui -- down 66.77%. In the same period, Alba, Caras-Severin and Prahova registered the largest increases. At a national level, 15 counties registered increases in the number of insolvencies, with rates between 1.71% and 75.82%, while the rest recorded decreases between 6.28% and 69.49%, according to the report. Bucharest recorded the highest number of insolvencies in the first seven months of this year -- 2,421, followed by Bihor -- 1,029 and Prahova -- 603, Romania Insider relays. The lowest number of insolvency cases were recorded in Calarasi, Neamt and Giurgiu, the report adds. A total of 1.1 million companies were active in Romania at the end of July this year, the report adds. =========== R U S S I A =========== BELY VETER: Files for Bankruptcy in Ulyanovsk Court --------------------------------------------------- ROS, citing Kommersant newspaper, reports that Bely Veter has applied for its own bankruptcy in the Ulyanovsk Region Arbitration Court. According to ROS, the company's debt totals RUB7.2 billion (approximately US$199.22 million), of which RUB4 billion (approximately US$110.68 million) is a debt to suppliers and contractors, RUB3.1 billion (approximately US$85.78 million) is loans, and RUB3.6 million (approximately US$99,613) is wage arrears. Bely Veter claims that it cannot repay debts because of low sales margin and high operating expenses, ROS relays. Since the beginning of 2014, suppliers and creditors have filed over 50 lawsuits demanding Bely Veter to repay debts, ROS relates. The biggest claim worth RUB456.9 million (approximately US$12.64 million) was made by diHouse, an Apple distributor, ROS notes. The Russian representative office of Sony, Sony Electronics CJSC, demands a repayment of a RUB100.1 million (approximately US$2.77 million) debt, according to ROS. Infoline Analytics General Director Mikhail Burmistrov commented that Bely Veter got into too much debt in a bid to expand its network and was hit by weak consumer demand, ROS recounts. Bely Veter is a Russian electronics retailer. IBA-MOSCOW: Moody's Changes B3 Deposit Rating Outlook to Positive ----------------------------------------------------------------- Moody's Investors Service has changed to positive from stable the outlook on IBA-Moscow's B3 long-term local- and foreign-currency deposit ratings and affirmed the ratings. Concurrently, IBA- Moscow's standalone bank financial strength rating (BFSR) was upgraded to E+, equivalent to a baseline credit assessment (BCA) of b3, from E (formerly equivalent to caa1). The outlook on the bank's BFSR is stable. The bank's Not-Prime short-term local- and foreign-currency deposit ratings were also affirmed; the short- term ratings carry no specific outlook. Moody's assessment is primarily based on IBA-Moscow's audited financial statements for 2013, prepared under IFRS. Ratings Rationale Standalone Ratings The rating outlook change to positive from stable is driven by IBA-Moscow's sustained progress in strengthening its credit profile. The rating action reflects the bank's (1) improved asset quality metrics; and (2) improving capital adequacy following the recent Tier 1 capital contribution from the parent -- International Bank of Azerbaijan (IBA, deposits Ba3 positive; BFSR E+ stable/BCA b3). Moody's notes that IBA-Moscow's standalone E+ BFSR remains constrained by: (1) the bank's limited local market franchise; (2) high loan book concentration, including high exposure to the construction and real estate sectors; (3) high level of restructured loans; and (4) high dependence on the parent's related business projects and funding. At the same time, Moody's notes that IBA-Moscow's standalone ratings are supported by the bank's adequate liquidity profile and moderate profitability. Moody's notes that in July 2014 International Bank of Azerbaijan approved a RUB1.25 billion capital injection into IBA-Moscow's equity. The proceeds have been allocated to IBA-Moscow's statutory fund, while the Central Bank of Russia's registration of the equity issue is scheduled for October. This contribution is the largest in the past five years and will increase Tier 1 capital by 63% by year-end 2014 compared to year-end 2013. In Moody's opinion, IBA-Moscow's asset quality remains challenged by a relatively high -- albeit decreasing -- level of restructured loans; under audited IFRS statements restructured loans as a proportion of gross loans fell to 19% at 31 December 2013 (year-end 2012: 30%; year-end 2011: 42%). Moody's understands that these loans have been granted for long-term investment projects, and are funded and guaranteed by International Bank of Azerbaijan. IBA-Moscow's high credit concentration represents a key risk. As reported in audited IFRS statements at year-end 2013, the bank's aggregate exposure to the 23 largest customers amounted to 42% of total gross loans or 567% of its Tier 1 capital, although more than half of them is guaranteed by the parent. In Moody's opinion, these concentration levels render the bank vulnerable to the financial performance of a limited number of borrowers in risky market segments. Moody's says that a significant portion of the bank's funding is parent-related, accounting for approximately 23% of IBA-Moscow's total liabilities as at 30 June 2014 (year-end 2013: 27%; year- end 2012: 38%) while customer accounts represented 58% of total liabilities (year-end 2013: 43%, year-end 2012: 33%). Moody's notes that in recent years IBA-Moscow notably decreased its dependence on parental funding and its main strategy is to further diversify funding sources. In 2013, IBA-Moscow recognized a net income of RUB238 million which translates into 0.77% return on average assets (ROAA) and 8.91% return on equity (ROE). Profitability has been influenced by (1) pressured net interest margin (NIM); (2) deteriorated cost efficiency; and (3) moderate cost of risk. Moody's notes that NIM has been under pressure because it has been outpaced by the increase in cost of funds. Supported Ratings Moody's assessment of a high probability of parental support from International Bank of Azerbaijan results in no rating uplift, as the parent's standalone BCA of b3 is at the same level as IBA- Moscow's standalone BCA. What Could Move The Ratings Up/Down IBA-Moscow's ratings, which carry a positive outlook, will likely be upgraded concurrently with the upgrade of the bank's parent, International Bank of Azerbaijan, whose ratings also carry positive outlook. The outlook on IBA-Moscow's ratings could be changed to stable following a similar change of outlook on the parent bank's ratings, or if the bank's sustainable positive trend in financial performance were to reverse. Principal Methodologies The principal methodology used in this rating was Global Banks published in July 2014. Headquartered in Moscow, Russia, IBA-Moscow is a 100% subsidiary of International Bank of Azerbaijan. IBA-Moscow reported total audited IFRS assets of RUB33.4 billion, total shareholders' equity of RUB2.8 billion and a net income of RUB238 million for year-end 2013. PETROPAVLOVSK PLC: Nears Refinancing Deal with Bondholders ---------------------------------------------------------- Thomas Biesheuvel at Bloomberg News reports that Petropavlovsk Plc is "much closer" to agreeing a deal with bondholders as the producer of Russian gold seeks to refinance almost a US$1 billion of debt. The company identified most of its bondholders after last month saying its banks agreed in principle to refinance debt, Bloomberg relates. According to Bloomberg, Petropavlovsk, which lost 80% of its market value last year, has said that it expected to breach so-called debt covenants and would be unable to repay US$310.5 million of bonds in early 2015 without a refinancing. Petropavlovsk on Aug. 28 posted a first-half loss of US$54 million, narrowing from a loss of US$666.1 million a year earlier, Bloomberg relays. Petropavlovsk seeks to reduce net debt to US$850 million by the end of the year from US$924 million, Bloomberg discloses. Petropavlovsk PLC is a London-listed mining and exploration company with its principal assets located in Russia. =========== S W E D E N =========== NATIONAL ELECTRIC VEHICLE: Files for Bankruptcy Protection ---------------------------------------------------------- Deutsche Presse-Agentur reports that National Electric Vehicle Sweden (NEVS), the Chinese-backed consortium that owns Saab, said on Aug. 28 it had filed for bankruptcy protection. National Electric Vehicle Sweden (NEVS) took over the ailing carmaker in 2012, dpa recounts. "Negotiations we have with two global vehicle manufacturers are still progressing, but are complex and have taken more time than we predicted," dpa quotes NEVS president Mattias Bergman as saying in a statement. "We intend to fully pay our debts to our suppliers." The district court in Vanersborg, where the application was filed, will review the application, dpa discloses. If approved, the court will appoint an administrator to review NEVS and its business plans, dpa notes. Production at the company's main plant in Trollhattan, in western Sweden, was halted in May over cash flow problems, dpa relates. By filing for reorganization, NEVS hopes to postpone demands to pay suppliers or creditors that have filed complaints to the Swedish Enforcement Authority, dpa states. If the authority orders NEVS to sell assets to pay creditors, the consortium fears that talks with the foreign manufacturers could fail, according to dpa. National Electric Vehicle Sweden AB is a Swedish holding company. Nevs is majority owned by British Virgin Islands-registered, Hong Kong-based, National Modern Energy Holdings Ltd., an energy company with operations in China, Macau, and Hong Kong. =========================== U N I T E D K I N G D O M =========================== COUNTYROUTE PLC: S&P Cuts Rating on GBP5.5MM Bank Loan to 'CCC+' ---------------------------------------------------------------- Standard & Poor's Ratings Services lowered to 'CCC+' from 'B-' its long-term issue rating on the GBP5.5 million subordinated secured mezzanine bank loan, due 2026, issued by U.K.-based concessionaire CountyRoute (A130) PLC. At the same time, S&P removed the issue rating on the subordinated loan from CreditWatch, where it placed it with negative implications on April 23, 2013. The outlook is negative. In addition, S&P revised to stable from negative its outlook on the GBP88 million senior secured bank loan, due 2026, also issued by CountyRoute. S&P affirmed its 'B+' long-term issue rating on this instrument. The senior secured bank loan and the subordinated secured mezzanine loan each have a recovery rating of '1', reflecting S&P's expectation of a very high (90%-10%) recovery of principal in the event of a payment default. The rating actions follow S&P's analysis of the most recently approved financial model provided by CountyRoute, which is dated March 2014. This model incorporates a number of improvements and in particular, now accurately reflects the impact of the distribution and junior debt lockup covenants on project liquidity. This model demonstrates that, despite currently strong traffic growth on the road, both shareholder distributions and junior debt service are currently being prevented. As a result, since Jan. 2014, junior debt service has been met using the junior debt service reserve. This had a balance of GBP575,000 in Dec. 2013 and a projected balance of GBP292,000 in Sept. 2014. Unless the junior debt service lockup is lifted, S&P forecasts that the junior debt service reserve account will be fully drawn by Sept. 2015. The junior debt lockup covenant requires a minimum senior annual debt service coverage ratio (ADSCR) of 1.125x on a two-year forward- and six month-backward looking basis. Under S&P's base- case scenario, it forecasts a minimum ADSCR of 1.05x in 2024. In addition, the senior ADSCR falls to 1.08x in March 2016. According to S&P's modeling, traffic growth over the next two years will need to average at least 4% per year in order to improve the minimum ADSCR in 2016 sufficiently to enable junior debt service to restart in time to prevent the junior debt deferring the payment of interest and principal. Positively, as no cash distributions have been made in the past 12 months, CountyRoute has a current surplus cash balance of GBP3.3 million. S&P understands that an agreement will be put in place to ensure that, irrespective of whether the lockup is released in the future, this cash will remain in the project until the peak of major maintenance expenditure has passed. Assuming that the current lockup continues, S&P forecasts that the surplus cash balance will exceed GBP11 million by 2018. This cash is sufficient to ensure that, despite further future weak projected ADSCRs, S&P believes that the project is likely to be able to meet the expected peak in major maintenance costs in the period from 2020 to 2025. Traffic growth over the past 12 months has been robust. For the 12 months ending July 2014, traffic growth on the northern section of the road increased by 3.7% and 6.5% for the southern section. Much of the growth for this period was concentrated on the southern section and occurred in March 2014, reflecting the conclusion of works on contiguous roads in the area. Accordingly, despite strong recent growth, S&P has amended its base-case traffic forecast for the next two years to 2.5% per year from its previous forecast of 1.5% for heavy goods vehicles and 1.3% for other vehicles. S&P's forecast for major maintenance expenditure remains unchanged. CountyRoute is a special-purpose, bankruptcy-remote entity wholly owned by John Laing Infrastructure Ltd. Under a 30-year concession granted by Essex County Council in 1999, CountyRoute operates the A130, a 15-kilometer road from Chelmsford to Basildon in southeastern England. The road's construction was completed in 2003. The present financing was executed in 2004 to refinance the original debt package after actual traffic volumes were 25% lower than the original forecast. The ratings reflect the exposure of 60% of the project's revenues to traffic risk through the shadow toll payment mechanism; the uncertainty as to whether actual major maintenance costs over the 30-year concession may exceed those forecast currently; and the project's aggressive financial structure, demonstrated by weak senior ADSCRs. Certain protections available to the senior debt, such as a junior debt service lockup, increase the risk of untimely service of the mezzanine debt, in our view. The ratings are supported by the successful operation of the road to date, with no penalty points or unavailability deductions; the project's positive relationship with the council as offtaker; and the positive experience of the project sponsor, John Laing Infrastructure. Furthermore, both tranches of debt benefit from typical protections such as debt service reserve accounts and distribution restrictions. The stable outlook on the senior secured debt rating reflects S&P's forecast of the project's strong liquidity as a result of the ongoing junior debt and distribution lockup. This liquidity supports S&P's view that, despite weak projected ADSCR's, the project will be able to meet its operational costs and senior debt service requirements in full and on schedule. S&P could take a negative rating action on the senior debt if project liquidity were to materially weaken as a result of reduced cash balances, for example if junior debt service were to resume, or higher-than-expected operating and major maintenance costs were incurred. Although S&P views it as unlikely, it could take a positive rating action on the senior debt if the project's financial profile were to materially improve. This would most likely require a material reduction in major maintenance costs over the remaining life of the project. The negative outlook on the junior debt reflects S&P's forecast that junior debt service will continue to be prevented by the terms of the senior debt in the medium term. S&P therefore projects a deferral of junior debt service in 2015. S&P could take a negative rating on the junior debt as deferral approaches. In accordance with S&P's criteria, it would consider the junior debt to default after 12 months of a deferral. S&P could take a positive rating action on the junior debt if it forecasts that the junior debt service covenant will be lifted prior to the first deferral in late 2015. This could result from faster-than-expected traffic growth or reduced major maintenance expenditure. HEALTHCARE SUPPORT: Moody's Cuts Rating on Sr. Sec. Bonds to Ba3 ---------------------------------------------------------------- Moody's Investors Service, has downgraded to Ba3 from Ba1 the ratings of the GBP197.8 million (plus GBP40million variation bonds) of 2.187% index-linked guaranteed senior secured bonds due 2041 issued by Healthcare Support (Newcastle) Finance plc (the "Issuer") and a GBP115.0 million index-linked guaranteed senior secured loan facility due 2038 provided by the European Investment Bank. The outlook on the ratings is developing. This concludes the review of the ratings that was initiated on May 30, 2014. The Issuer is a special purpose vehicle formed in 2005 to raise finance and on-lend it to Healthcare Support (Newcastle) Ltd ("ProjectCo"). ProjectCo entered into a 38 year agreement with the Newcastle upon Tyne Hospitals NHS Trust (which became the Newcastle upon Tyne Hospitals NHS Foundation Trust on June 1, 2006, the "Trust") to carry out (1) the construction of new facilities at the Trust's Freeman Hospital and Royal Victoria Infirmary sites; and (2) provide certain services during the term of the concession (together, the "Project"). Ratings Rationale The rating action reflects the risks posed to ProjectCo by the continuing dispute between the project parties and the potential occurrence of an event of default under the project agreement. A Court judgment issued on July 28, 2014 clarifies the conditions which need to be met to allow the Independent Tester to certify Phase 8, which represents the majority of outstanding construction works, as complete. However, the process of certification is ongoing and some works on the final Phase 9 are yet to commence. "The rating action reflects that, whilst the Court judgment represents positive progress to completion of the majority of outstanding construction works, certification remains outstanding. Conclusions to be reached by the Independent Tester are uncertain and the dispute between the project parties may nevertheless continue" says Adam Muckle, an Analyst in Moody's Infrastructure Finance Group and lead analyst for Healthcare Support (Newcastle) Finance plc. Whilst all of the Project's clinical buildings have been certified as complete, and consequently approximately 94% of the maximum unitary payment is being paid by the Trust, certification of Phase 8 (the "Clinical Office Block" or "COB") at the Royal Victoria Infirmary site remains outstanding. The Trust has claimed that the asset does not meet its design specifications in a number of areas and the Independent Tester has hitherto withheld certification of Phase 8 completion pending the resolution of the disputes between the project parties. There are minimal additional construction works which could be undertaken to address the Trust's issues. Practical completion in relation to Phase 9, demolition and landscaping, remains outstanding and these works are unable to progress until the Trust has decanted personnel from existing buildings into the COB. In May 2014 the building contractor, Laing O'Rourke Construction Limited ("LOR"), commenced legal action against the Trust and ProjectCo to clarify the requirements for project works to be certified complete. The Court issued its judgment on July 28, 2014 and subsequently ProjectCo has written to the Independent Tester requesting it to apply the judgment in relation to its assessment of Phase 8. ProjectCo expects this process to be concluded by the end of August 2014. Moody's understands that ProjectCo is having ongoing dialogue with the majority creditors, jointly Syncora Guarantee (U.K.) Ltd. ("Syncora") and the EIB, in relation to the dispute and the judgement. The Ba3 ratings are constrained by the failure by all parties to reach an agreement with respect to completion of Phases 8 and 9, which exposes ProjectCo to risk of termination of the project agreement by the Trust. However the ratings reflect as positives the successful construction completion of the vast majority of the construction works under the PFI contract and the creditor protections included within the financing structure including step-in rights. The Bonds and the EIB Loan are unconditionally and irrevocably guaranteed for payment of scheduled principal and interest by Syncora. Syncora's rating was withdrawn on 8 November 2012 and therefore the ratings of the Bonds and the EIB Loan reflect the standalone credit quality of the Issuer. What Could Change the Rating Up/Down Moody's could upgrade the ratings if an agreement was reached between the Trust and other key project parties to deal with residual construction matters and to sufficiently extend the longstop dates for remaining construction works, as necessary. Conversely, Moody's could downgrade the ratings if the project agreement longstop date is breached without significant progress on resolving the outstanding dispute such that the risk of the Trust terminating the project agreement increases. The principal methodology used in this rating was Operating Risk in Privately-Financed Public Infrastructure (PFI/PPP/P3) Projects published in December 2007. The Issuer and ProjectCo are wholly owned by Healthcare Support (Newcastle) Holdings Ltd which in turn is owned 20% by Interserve PFI 2003 Ltd (50.5% owned by Interserve's pension fund with the remaining 49.5% owned by Dalmore Capital (Para 1) Limited), and 80% by Equion Health (Newcastle) Ltd, which is itself owned 18.75% by John Laing Infrastructure Fund ("JLIF") and 81.25% by Innisfree Nominees Ltd. QUINTILLION ASSET: Directors Banned For a Total of 28 Years ----------------------------------------------------------- Three directors of Quintillion Asset Management have been disqualified from acting as directors for a total of 28 years for making unauthorised investments from client pension funds and inappropriate investments on behalf of clients, resulting in liabilities of over GBP2.4million. The disqualifications follow an investigation by the Insolvency Service after Quintillion Asset went in to liquidation in 2012. Quintillion provides financial investment advice and investment services. Anton David Taylor, 46, of London; Simon Mark Silva-Peake, 41, of Essex; and David Frederick Taylor, 69, of Cumbria are disqualified from acting as directors for 6 to 11 years. All three directors have given undertakings to the Secretary of State for Business, Innovation & Skills which prevent them from becoming directly or indirectly involved in the promotion, formation or management of a limited company for the duration of their bans. Mr. Frederick Taylor's disqualification of 6 years commenced on June 9, while Messrs. Anton Taylor's and Siva-Peake's disqualifications of 11 years each start on August 28. Commenting on the disqualifications, Ken Beasley, of the Insolvency Service's Public Interest Unit said: "Investors who believed that the company was providing professional investment advice to safeguard their pensions have lost significant sums of money. The company's actions in making high risk investments against the wishes of clients were unacceptable and the directors bear that responsibility. "By failing to preserve the company's accounting records the directors also showed a fundamental disregard for their duties as directors of a limited company. "The disqualifications demonstrate that The Insolvency Service will use its enforcement powers to remove irresponsible and culpable directors from operating with the benefit of limited liability in the business environment." Investigators found that the disqualified directors were responsible for transferring pension funds of at least GBP659,270 in breach of agreements with clients. A further GBP2million was transferred from client funds to investment schemes that were inappropriate to client risk profiles. The directors' failure to deliver up the company's accounting records meant that investigators' were unable to account for unauthorized transfers of client' funds or establish who within the company was responsible for, or had knowledge of, transfers of client monies. =============== X X X X X X X X =============== * BOOK REVIEW: Alfred L. Malabre, Jr.'s Lost Prophets ----------------------------------------------------- Author: Alfred L. Malabre, Jr. Publisher: Beard Books Softcover: 256 pages List Price: $34.95 Review by Henry Berry Lost Prophets -- An Insider's History of the Modern Economists Order your personal copy today at http://is.gd/KNTLyr Alfred Malabre's personal perspective on the U.S. economy over the past four decades is firmly grounded in his experience and knowledge. Economics Editor of The Wall Street Journal from 1969 to 1993 and author of its weekly "Outlook" column, Malabre was in a singular position to follow the U.S. economy in recent decades, have access to the major academic and political figures responsible for economic affairs, and get behind the crucial economic stories of the day. He brings to this critical overview of the economy both a lively, often provocative, commentary on the picture of the turns of the economy. To this he adds sharp analysis and cogent explanation. In general, Malabre does not put much stock in economists. "In sum, the profession's record in the half century since Keynes and White sat down at Bretton Woods [after World War II] provokes dismay." Following this sour note, he refers to the belief of a noted fellow economist that the Nobel Prize in this field should be discontinued. In doing so, he also points out that the Nobel for economics was not one originally endowed by Alfred Nobel, but was one added at a later date funded by the central bank of Sweden apparently in an effort to give the profession of economists the prestige and notice of medicine, science, literature and other Nobel categories. Malabre's view of economists is widespread, although rarely expressed in economic circles. It derives from the plain fact that modern economists, even hugely influential ones such as John Meynard Keynes, are wrong as many times as they are right. Their economic theories have proved incomplete or shortsighted, if not basically wrong-headed. For example, Malabre thinks of the leading economist Milton Friedman and his "monetarist colleagues" as "super salespeople, successfully merchandising.an economic medicine that promised far more than it could deliver" from about the 1960s through the Reagan years of the 1980s. But the author not only cites how the economy has again and again disproved the theories and exposed the irrelevance of wrong-headedness of the policy recommendations of the most influential economists of the day. Malabre also lays out abundant economic data and describes contemporary marketplace and social activities to show how the economy performs almost independently of the best analyses and ideas of economists. Malabre does not engage in his critiques of noted economists and prevailing economic ideas of recent decades as an end in itself. What emerges in all of his consistent, clear-eyed, unideological analysis and commentary is his own broad, seasoned view of 164economics-namely, the predominance of the business cycle. He compares this with human nature, which is after all the substance of economics often overlooked by professional and academic economists with their focus on monetary policy, exchange rates, inflation, and such. "The business cycle, like human nature, is here to stay" is the lesson Malabre aims to impart to readers interested in understanding the fundamental, abiding nature of economics. In Lost Prophets, in language that is accessible and jargon-free, this author, who has observed, written about, and explained economics from all angles for several decades, persuasively makes this point. In addition to holding a top position at The Wall Street Journal, Malabre is also the author of the books, Understanding the New Economy and Beyond Our Means, which received the George S. Eccles Prize from the Columbia Business School as the best economics book of 1987. ********* 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. 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, and Peter A. Chapman, Editors. Copyright 2014. 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 * * *