/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/141015.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, October 15, 2014, Vol. 15, No. 204 Headlines G E R M A N Y * Global Signs of Slowdown Ripple Across Markets I R E L A N D BARION FUNDING: S&P Raises Rating on Tier 22 Notes From 'BB-' SLOYAN BROTHERS: Liquidator Accuses Family Members of Fraud I T A L Y FIAT CHRYSLER: S&P Assigns 'BB-' CCR; Outlook Stable K A Z A K H S T A N KAZKOMMERTSBANK: S&P Puts 'B' ICR on CreditWatch Negative L U X E M B O U R G ESPIRITO SANTO: Declared Bankrupt by Luxembourg Court N E T H E R L A N D S WOOD STREET II: Moody's Affirms B1 Rating on EUR9MM Cl. E Notes * NETHERLANDS: Company Bankruptcies Up in September 2014 N O R W A Y BAYERNGAS NORGE: S&P Assigns 'B+' CCR; Outlook Negative P O R T U G A L BANCO ESPIRITO: S&P Withdraws 'R/R' Counterparty Credit Ratings R U S S I A KAMAZ OJSC: Moody's Lowers Corporate Family Rating to 'Ba2' MECHEL OAO: Losses Down in 1H14; Debt Restructuring Talks Ongoing S P A I N BANKIA SA: High Court Investigates Credit Card Scandal FUNDACION BANCARIA: S&P Affirms 'BB/B' Counterparty Ratings U N I T E D K I N G D O M ROYAL BANK OF SCOTLAND: Deed Poll No Impact on Moody's D+ BFSR * U.S. & UK Meet to Discuss Key Components for G-SIB Resolution X X X X X X X X * EUROPE: Fitch Says ECB Program May Affect Finance Market ********* ============= G E R M A N Y ============= * Global Signs of Slowdown Ripple Across Markets ------------------------------------------------ Ian Talley, Brian Blackstone and Raymond Zhong, writing for The Wall Street Journal, reported that gathering signs of slowdown across many parts of the world, including Germany, China, Japan, Brazil and South Africa, are roiling financial markets and confounding policy makers, who after years of battling anemic economic growth have limited tools left to jump-start a recovery. According to the report, the pullback is sending tremors through global markets, hammering equities after years of steady gains and knocking down commodity prices, although the U.S. remains a relative bright spot, particularly its job market, which is gaining traction after years of fitful growth. ============= I R E L A N D ============= BARION FUNDING: S&P Raises Rating on Tier 22 Notes From 'BB-' ------------------------------------------------------------- Standard & Poor's Ratings Services took various credit rating actions in Barion Funding Ltd. Specifically, S&P has: -- Raised its ratings on all of the junior senior notes, except the junior senior series 2010-1 tranche 1 tier 4 notes; -- S&P has affirmed its 'AA+ (sf)' rating on the junior senior series 2010-1 tranche 1 tier 4; -- Affirmed its ratings on the super senior, fast pay, and slow pay income notes; and -- Withdrawn its ratings on the US$5.394 million tier 1 slow pay income and US$5.394 million tier 1 slow pay income notes following the issuer's exchange offer in March 2014. The rating actions follow S&P's assessment of the transaction's performance using the latest available data, in addition to S&P's cash flow analysis. S&P has taken into account recent developments in the transaction and reviewed the transaction under S&P's relevant criteria. "We subjected the capital structure to a cash flow analysis based on the methodology and assumptions as outlined by our criteria, to determine the break-even default rate (BDR) for each rated class of notes at each rating level. The BDR represents our estimate of the maximum level of gross defaults, based on our stress assumptions, that a tranche can withstand and still fully repay interest and principal on notes. At the same time, we conducted a credit analysis based on our assumptions, to determine the scenario default rate (SDR) at each rating level, which we then compared against its respective BDR. The SDR is the minimum level of portfolio defaults we expect each CDO tranche to be able to support at the specific rating level using Standard & Poor's CDO Evaluator," S&P said. "In our analysis, we used the reported portfolio balance that we considered to be performing, the weighted-average spread, and the weighted-average recovery rates that we considered to be appropriate. We applied various cash flow stress scenarios using our standard default patterns and timings for each rating category assumed for all classes of notes, in conjunction with different interest rate stress scenarios," S&P added. The Barion portfolio comprises approximately 84% structured finance securities, of which nearly 38% of the performing balance comprises European and U.S. residential mortgage-backed securities (RMBS). The remaining portion of the structured finance securities mainly comprises a diversified mix of high- grade commercial mortgage-backed securities (CMBS), collateralized loan obligations (CLOs), and student loans. Since S&P's previous review on April 19, 2012, the super senior notes have amortized to US$1.789 billion from US$3.500 billion. This amounts to an almost 50% reduction in the notional outstanding amount and is the primary driver behind today's rating actions. As a result, the available credit enhancement for all classes of notes has increased over the same period, and therefore the structure is now able to withstand higher losses. S&P's credit analysis of the transaction highlights that the overall credit quality of the underlying portfolio has not changed since S&P's previous review. The current weighted- average rating on the assets in the portfolio is in the 'A' category, unchanged from the weighted-average rating at S&P's previous review. The SDRs at all rating levels have either remained stable or decreased since S&P's previous review. The deleveraging of the super senior notes has, in S&P's view, increased the available credit enhancement for all other tranches to the extent that it is now commensurate with higher ratings. S&P has therefore raised its ratings on all junior senior tranches, except the junior senior series 2013-1 tranche 1 tier 4 notes. While the available credit enhancement for both the super senior notes and the junior senior series 2013-1 tranche 1 tier 4 notes has also increased since S&P's previous review, its analysis shows that the BDRs for these classes of notes are unable to surpass S&P's modeled SDR at the 'AAA' rating level. S&P has therefore affirmed its 'AA+ (sf)' rating on these classes of notes. At the same time, S&P has affirmed its 'CCC- (sf)' ratings on the fast pay and slow pay income notes. While S&P's cash flow results indicate that these notes are able to withstand its credit and cash flow stresses at a 'B+' rating level, S&P's supplemental stress tests constrain its ratings on these tranches of notes at 'CCC- (sf)'. In March 2014, the issuer conducted an exchange offer on some of the outstanding notes that Barion Funding issued, purchasing and subsequently cancelling the notes. As part of the exchange offer, the issuer purchased and fully cancelled the $5.394 million tier 1 slow pay income and $5.394 million tier 1 slow pay income notes. S&P has therefore withdrawn its ratings on these classes of notes. RATINGS LIST Class Rating Rating To From Barion Funding Ltd. Ratings Raised $165 Million Junior Senior Series 2010-2 Tranche 1 Tier 6 AA (sf) AA- (sf) $165 Million Junior Senior Series 2010-3 Tranche 1 Tier 8 AA- (sf) A+ (sf) $110 Million Junior Senior Series 2010-4 Tranche 1 Tier 10 A+ (sf) BBB+ (sf) $110 Million Junior Senior Series 2010-5 Tranche 1 Tier 12 A (sf) BBB+ (sf) EUR15 Million Junior Senior Series 2010-6 Tranche 1 Tier 14 A (sf) BBB (sf) $70 Million Junior Senior Series 2010-7 Tranche 1 Tier 16 A- (sf) BB+ (sf) $50 Million Junior Senior Series 2010-8 Tranche 1 Tier 18 A- (sf) BB+ (sf) $50 Million Junior Senior Series 2010-9 Tranche 1 Tier 20 BBB+ (sf) BB+ (sf) $50 Million Junior Senior Series 2010-10 Tranche 1 Tier 22 BBB (sf) BB- (sf) $50 Million Junior Senior Series 2010-11 Tranche 1 Tier 24 BBB (sf) B+ (sf) $35 Million Junior Senior Series 2010-12 Tranche 1 Tier 26 BBB- (sf) B+ (sf) Ratings Affirmed $802.95 Million Floating-Rate Notes Euro Super Senior Term Repurchase Facility AA+ (sf) $303.572 Million Floating-Rate Notes GBP Super Senior Term Repurchase Facility AA+ (sf) $2.524 Billion Floating-Rate USD Super Senior Term Repurchase Facility AA+ (sf) $191.06 Million Junior Senior Series 2010-1 Tranche 1 Tier 4 AA+ (sf) EUR28.291 Million Tier 1 Fast Pay Income Notes CCC- (sf) GBP5.783 Million Tier 1 Fast Pay Income Notes CCC- (sf) $33.233 Million Tier 1 Fast Pay Income Notes CCC- (sf) $3.808 Million Tier 1 Fast Pay Income Notes CCC- (sf) EUR19.875 Million Tier 1 Slow Pay Income Notes CCC- (sf) GBP16.509 Million Tier 1 Slow Pay Income Notes CCC- (sf) JPY1.191 Billion Tier 1 Slow Pay Income Notes CCC- (sf) $216.44 Million Tier 1 Slow Pay Income Notes CCC- (sf) $3.88 Million Tier 1 Slow Pay Income Notes CCC- (sf) Ratings Withdrawn $5.394 Million Tier 1 Slow Pay Income Notes NR CCC- (sf) $5.394 Million Tier 1 Slow Pay Income Notes NR CCC- (sf) NR--Not rated. SLOYAN BROTHERS: Liquidator Accuses Family Members of Fraud ----------------------------------------------------------- The Irish Times reports that Aidan Garcia, liquidator of the Sloyan Brothers building/development company wound up in 2007, has alleged members of a family perpetrated a fraud against the development firm before it went bust by transferring a EUR4 million company property to themselves for no charge. A tax bill of EUR4.4 million remains unpaid, The Irish Times notes. According to The Irish Times, Mr. Garcia claims a property at Abbeyglen, Johnstown Road, Cabinteely, Co Dublin, where 44 apartments were built, was transferred to company shareholders Joseph, Seamus and Sean Sloyan and Catherine Doherty, and also to Maura Sloyan and Clare Sloyan-Roche, in March 2006. Mr. Garcia, of Copsey Murray Chartered Accountants, claims these individuals never paid the Sloyan Brothers company for the land, The Irish Times discloses. He also alleges Allied Irish Banks knew the company had not been paid for the land when the bank sanctioned a mortgage for the lands to be repaid once the apartments were built, The Irish Times relays. AIB says it lent the money to the Sloyan family members, not to the company, while the Sloyans contend EUR4 million was repaid to the company for the Abbeyglen lands, The Irish Times relates. Mr. Garcia is suing the six family members and AIB seeking the return to the company of either the Abbeyglen asset or its current estimated value of EUR8 million, The Irish Times discloses. Mr. Justice Brian McGovern granted an application by Gary McCarthy SC, for the liquidator, to fast-track the case in the Commercial Court, The Irish Times relates. According to the report, the judge rejected arguments by counsel for the six Sloyan shareholders and family members of culpable delay in bringing proceedings. ========= I T A L Y ========= FIAT CHRYSLER: S&P Assigns 'BB-' CCR; Outlook Stable ---------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BB-' long-term and 'B' short-term corporate credit ratings to Fiat Chrysler Automobiles N.V. (FCA). The outlook is stable. S&P understands that FCA, the group's new parent holding company, has succeeded to and assumed all of the rights and obligations, as well as the assets, liabilities, and other legal relationships of Fiat SpA under a universal title of succession. FCA has replaced Fiat SpA as issuer and guarantor on debt previously issued by Fiat SpA, or guaranteed by Fiat SpA and issued by finance subsidiaries Fiat Finance and Trade Ltd. and Fiat Finance North America Inc. The 'BB-' issue and '4' recovery ratings are therefore unchanged. At the same time, S&P affirmed and withdrew the corporate credit ratings on Fiat SpA, at the issuer's request. The existing corporate credit, debt, and recovery ratings on FCA's wholly-owned subsidiary, Chrysler Group LLC, are unaffected. S&P continues to assess Chrysler as "core" to the group, and expects the rating on Chrysler to move in tandem with that on FCA. The ratings on FCA are the same as those on Fiat SpA before the withdrawal because, in S&P's view, the creation of FCA as the new parent holding company of the group has no material impact on the group's operations or credit quality. S&P understands that FCA has taken over the assets and liabilities and all legal obligations of Fiat SpA, including its debt obligations. Furthermore, S&P sees no change to the group's financial performance or liquidity as a result of the transaction. S&P has also made no changes to its analytical approach in assessing the group. FCA is listed in New York; we consider that this is intended to improve the group's access to equity and debt capital markets, but S&P do not factor any near-term change in financial policy or dividend policy into S&P's expectations. The corporate credit ratings on FCA reflect S&P's view of the group's well-established market positions in passenger cars and light trucks and its good regional diversity in the North American Free Trade Agreement (NAFTA) region, Europe, the Middle East, and Africa (EMEA), and Latin America. Improving market conditions in the U.S. also support S&P's assessment. These strengths are partly offset by the group's focus on the small to midsize car and light truck segments. In the European volume segment, the group also faces ongoing overcapacity and low capacity utilization. As a result of this, losses have continued, although they are narrowing. Furthermore, market conditions in Latin America have deteriorated significantly. S&P continues to assess the group's business risk profile as "fair." The ratings also reflect S&P's view of FCA's significant cash balances of EUR8.7 billion in its industrial business (excluding cash held by Chrysler) as at June 30, 2014, which provides a buffer against a market downturn, and may be used as a source of financing. These strengths are partly offset by S&P's forecast that free operating cash flows (FOCF) will be negative in both 2014 and 2015 at EUR2.0 billion-EUR2.5 billion because of capital expenditure (capex) in support of the company's expansion plans of EUR8.0 billion-EUR9.0 billion in each year. However, should capex spending this year be lower than S&P's forecast, it would expect to see more moderately negative FOCF. S&P continues to assess the group's financial risk profile as "aggressive." S&P's base case assumes: -- Low-single-digit revenue growth in 2014 and 2015, mainly due to higher volumes in NAFTA and Asia-Pacific, offsetting weak conditions in Latin America and EMEA. -- For 2014, S&P forecasts a reported EBITDA margin (before unusual items) of 8.5%-9.0%, with a slight improvement to 9.0%-9.5% in 2015. -- S&P forecasts negative free operating cash flows of EUR2.0 billion-EUR2.5 billion in both 2014 and 2015, depending in part on the level of capex, which S&P expects to be EUR8.0 billion-EUR9.0 billion in each year, leading to rising adjusted debt. -- No dividends are expected during 2014 and 2015. -- S&P continues to exclude sizable cash balances in Chrysler from S&P's leverage and liquidity analysis. Based on these assumptions, S&P arrives at these credit measures: -- During 2014 and 2015, S&P sees the ratio of funds from operations (FFO) to debt in the 10%-13% range, and the ratio of adjusted debt to EBITDA in the 4.5x-5.0x range. S&P expects FCA and Chrysler to continue to operate their treasury and liquidity separately, as FCA's access to Chrysler's cash flow and retained cash is significantly constrained by terms and conditions in Chrysler's debt agreements. As a result, S&P excludes Chrysler's cash balances from S&P's leverage metrics and liquidity analysis. That said, S&P assess FCA's business and financial risk profiles on a consolidated basis. S&P also excludes FCA's financial services activities from S&P's analysis. Over the next one-to-two years, S&P expects FCA and Chrysler to operate its treasury and liquidity on a more integrated basis, as it seeks to remove restrictions on the movement of cash within the group. This could allow FCA to gain full access to Chrysler's cash flow and retained cash. S&P makes no assumptions on this integration at this stage, until it sees the company take concrete steps in this direction. As at June 30, 2014, Standard & Poor's-adjusted debt was EUR28.8 billion. S&P makes analytical adjustments to reported gross debt of EUR32.0 billion, mainly by adding EUR6.9 billion for pensions, subtracting EUR4.8 billion for captive finance debt, and EUR6.9 billion for surplus cash. For S&P's surplus cash adjustment, it deducts EUR10.0 billion, which is held by Chrysler and the captive finance operations, and apply a 25% haircut to the remaining EUR9.1 billion. S&P also adds EUR1.4 billion to debt for trade receivables sold and operating leases. The stable outlook on FCA reflects S&P's view that the company will demonstrate credit metrics which S&P considers to be consistent with the ratings during 2014 and 2015, namely adjusted debt to EBITDA of 4.5x-5.0x, and FFO to adjusted debt of 10%-13%. These ratio levels are at the weaker end of the range for the rating. Although S&P anticipates that FCA will begin to take measures to facilitate cash flow movements within the group during the next one or two years, S&P do not factor this into its current expectations. S&P could lower the long-term rating on weaker-than-expected operating cash flows or profitability at FCA -- for example, if results in Latin America were persistently weak -- and FCA also maintained its high level of capital expenditures, such that leverage metrics became sustainably weaker than adjusted debt to EBITDA of above 5.0x and FFO to debt below 12%. S&P could raise the long-term rating if FCA achieved far stronger credit metrics on a sustainable basis -- such as debt to EBITDA below 4.0x and adjusted FFO to debt above 20% -- and reduced its absolute amount of adjusted debt. Actions to permanently strengthen access to Chrysler's cash flows and retained cash balances could also result in a positive rating action. =================== K A Z A K H S T A N =================== KAZKOMMERTSBANK: S&P Puts 'B' ICR on CreditWatch Negative --------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B' long-term issuer credit rating on Kazakhstan-based Kazkommertsbank (KKB) on CreditWatch with negative implications. S&P affirmed the short- term rating at 'C'. At the same time, S&P lowered its national scale rating on the bank to 'kzBB' from 'kzBB+' and its rating on its subordinated debt to 'CCC' from 'CCC+'. S&P placed both ratings on CreditWatch with negative implications. The CreditWatch placement reflects S&P's view that KKB's capitalization on a consolidated basis has weakened following its acquisition of 46.5% of Kazakhstan-based BTA Bank and the subsequent buyback of shares in both banks. The buyback amount totaled Kazakhstani tenge (KZT) 54.8 billion (US$304 million), or 11.8% of KKB's capital on a consolidated basis as of June 30, 2014. S&P believes that the bank's capital will likely remain weak given the weak earnings generation of both KKB and BTA. As of June 30, S&P's risk-adjusted capital (RAC) ratio for KKB on a consolidated basis was 5% before adjustments for diversification. S&P projects that this ratio will be in the range of 4.5%-4.8% over the next 12-24 months, incorporating the impact of the share buyback program, and assuming no significant growth of earning assets of the bank and no meaningful relief materializing for its large problem loan portfolio. S&P also expects the bank's profitability to remain low in the coming two years, largely due to the significant amount of problem assets at BTA and KKB (63% of the total loan book of two banks combined) and low new business generation. S&P believes that it will be extremely challenging for KKB to achieve meaningful problem asset recovery at BTA and KKB without material government support. S&P's understanding is that, given the significant market share of the combined bank in the banking sector of Kazakhstan (about 40% of total loans in the banking sector and over 70% of total assets overdue more than 90 days), the government might be willing to provide some support. One of the plans under discussion is the involvement of the state- controlled Problem Asset Fund (PAF) in recovery of problem assets of BTA and KKB. In principle, this may enable KKB and BTA to clean up their balance sheet, supporting the banks' capitalization. When S&P has clarity on this, it will reassess the potential impact on KKB's capital position. S&P will resolve the CreditWatch once it has information regarding the possibility of Kazakhstan government providing support for the working-out of problem assets at KKB and BTA, taking into account any other developments that might change S&P's assessment of the capital of the consolidated bank. S&P expects to have more clarity on these issues toward the end of 2014. S&P could lower the ratings if KKB does not receive sufficient capital relief to cause S&P's forecast RAC ratio to rise above 5%. A downgrade would become more likely if S&P observes a further deterioration in the quality of the loan portfolio, weakening the capital position. =================== L U X E M B O U R G =================== ESPIRITO SANTO: Declared Bankrupt by Luxembourg Court ----------------------------------------------------- Robert-Jan Bartunek at Reuters reports that a Luxembourg court on Oct. 10 declared two holding companies of Portugal's Espirito Santo family bankrupt. According to Reuters, the court said this meant that the companies concerned, Espirito Santo Financial Group and its subsidiary Espirito Santo Financiere, had ceased payments and that they no longer had access to credit. As reported by the Troubled Company Reporter-Europe on Oct, 10, 2014, Bloomberg News related that Espirito Santo Financial Group was forced to file for bankruptcy after a court rejected a request for creditor protection. ESFG said in a regulatory filing on Oct. 9 that the board's decision follows a ruling by a Luxembourg court on Oct. 3, rejecting the July request, Bloomberg disclosed. While Banco Espirito Santo SA, formerly partly owned by ESFG, received a EUR4.9 billion (US$6.3 billion) rescue by the Bank of Portugal in August, the court ruled a restructuring of ESFG was "impossible", Bloomberg noted. About Espirito Santo Espirito Santo Financial Group SA is the owner of about 20% of Banco Espirito Santo SA. Banco Espirito Santo is a private Portuguese bank based in Lisbon, Portugal. In August 2014, Banco Espirito Santo was 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. Also 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, Espirito 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. ===================== N E T H E R L A N D S ===================== WOOD STREET II: Moody's Affirms B1 Rating on EUR9MM Cl. E Notes --------------------------------------------------------------- Moody's Investors Service announced that it has upgraded the ratings on the following notes issued by Wood Street CLO II B.V.: EUR31.08M Class B Senior Secured Floating Rate Notes, Upgraded to Aaa (sf); previously on Aug 28, 2013 Upgraded to Aa2 (sf) EUR25.84M Class C Senior Secured Deferrable Floating Rate Notes, Upgraded to A1 (sf); previously on Aug 28, 2013 Affirmed Baa1 (sf) Moody's also affirmed the ratings on the following notes issued by Wood Street CLO II B.V.: EUR228.12M (currently EUR67.4M outstanding) Class A-1 Senior Secured Floating Rate Notes, Affirmed Aaa (sf); previously on Aug 28, 2013 Affirmed Aaa (sf) EUR40M (currently EUR11.8M outstanding) Class A-2 Senior Secured Floating Rate Notes, Affirmed Aaa (sf); previously on Aug 28, 2013 Affirmed Aaa (sf) EUR25.26M Class D Senior Secured Deferrable Floating Rate Notes, Affirmed Ba2 (sf); previously on Aug 28, 2013 Affirmed Ba2 (sf) EUR9.135M Class E Senior Secured Deferrable Floating Rate Notes, Affirmed B1 (sf); previously on Aug 28, 2013 Affirmed B1 (sf) EUR4.5M (current rated balance outstanding is EUR 3.1M), Class Z Combination Notes, Affirmed Baa3 (sf); previously on Aug 28, 2013 Affirmed Baa3 (sf) Wood Street CLO II B.V., issued in March 2006 and managed by Alcentra Limited, is a Collateralised Loan Obligation ("CLO") backed by a portfolio of mostly high yield European loans. The transaction passed its reinvestment period in March 2011. Ratings Rationale According to Moody's, the upgrade of the notes is primarily a result of continued deleveraging of the senior notes and subsequent increase in the overcollateralization (the "OC ratios"). Moody's notes that as of the September 2014 payment date report, the Class A-1 and class A-2 notes have amortized by approximately EUR 189 million (or 70.5% of its original balance). As a result of this deleveraging, the OC ratios of the senior notes have significantly increased. As per the latest trustee report dated September 2014, the Class A/B and Class C OC ratios are 149.43%% and 125.87%, respectively, versus March 2014 levels of 138.44% and 121.15%. Moody's notes the actual OC ratios are likely to be higher than those reported because the levels reported per the September 2014 trustee report do not reflect the principal payments that occurred in September 2014. The rating of the Combination Notes address the repayment of the Rated Balance on or before the legal final maturity. For Class Z, the 'Rated Balance' is equal at any time to the principal amount of the Combination Note on the Issue Date minus the aggregate of all payments made from the Issue Date to such date, either through interest or principal payments. The Rated Balance may not necessarily correspond to the outstanding notional amount reported by the trustee. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's analyzed the underlying collateral pool as having a performing par and principal proceeds balance of approximately EUR173.8 million, defaulted par of EUR15.5 million, a weighted average default probability of 22.22%% (consistent with a WARF of 3199 with a weighted average life of 4.2 years), a weighted average recovery rate upon default of 48.73% for a Aaa liability target rating, a diversity score of 16 and a weighted average spread of 4.26%. In its base case, Moody's addresses the exposure to obligors domiciled in countries with local currency country risk bond ceilings (LCCs) of A1 or lower. Given that the portfolio has exposures to 3.5% of obligors in Italy, whose LCC is A2 and 12.8% in Spain, whose LCC is A1, Moody's ran the model with different par amounts depending on the target rating of each class of notes, in accordance with Section 4.2.11 and Appendix 14 of the methodology. The portfolio haircuts are a function of the exposure to peripheral countries and the target ratings of the rated notes, and amount to 2.51% for the Class A-1, Class A-2 and class B notes, 0.63% for the Class C notes and 0% for the Class D and Class E notes. The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate 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 96.9% of the portfolio exposed to senior secured corporate assets would recover 50% upon default, while the remainder non first-lien loan corporate assets would recover 15%. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analyzing. Methodology Underlying the Rating Action: The principal methodology used in this rating was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in February 2014. Factors that would lead to an upgrade or downgrade of the rating: In addition to the base-case analysis, Moody's conducted sensitivity analyses on the key parameters for the rated notes, for which it assumed a lower credit quality in the portfolio to address refinancing risk. Loans to European corporates rated B3 or lower and maturing between 2014 and 2015 make up approximately 6.97% of the portfolio, which could make refinancing difficult. Moody's ran a model in which it raised the base case WARF to 3617 by forcing ratings on 50% of the refinancing exposures to Ca; the model generated outputs that were within one notch of the base- case results. This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the note, in light of 1) uncertainty about credit conditions in the general economy and 2) the concentration of lowly- rated debt maturing between 2014 and 2015, 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 the legal interpretation of CDO documentation by different transactional parties due to because of embedded ambiguities. Additional uncertainty about performance is due to the following: 1) Portfolio amortization: The main source of uncertainty in this transaction is the pace of amortization of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortization could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortization would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. 2) Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over- collateralization levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analyzed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. 3) Around 14% of the collateral pool consists of debt obligations whose credit quality Moody's has been assessed by using credit estimates. 4) Long-dated assets: Moody's notes that the underlying portfolio includes investments in securities that mature after the maturity date of the notes. As of September, reference securities that mature after the maturity date of the notes currently make up approximately 6.5% of the underlying reference portfolio. These investments potentially expose the notes to market risk in the event of liquidation at the time of the notes' maturity. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the 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, can influence the final rating decision. * NETHERLANDS: Company Bankruptcies Up in September 2014 -------------------------------------------------------- Statistics Netherlands reports that 524 businesses and institutions (excluding one-man businesses) were declared bankrupt in September 2014, 59 more than in the preceding month. According to Statistics Netherlands, the increase was caused by the fact that September had one court session day more than August. Compared with July, which had the same number of court session days as September, the number of bankruptcies was considerably lower, Statistics Netherlands notes. The trade sector (wholesale and retail) had the highest number of bankruptcies (115), Statistics Netherlands discloses. The number of bankruptcies was also relatively high in the financial services sector (83), Statistics Netherlands says. =========== N O R W A Y =========== BAYERNGAS NORGE: S&P Assigns 'B+' CCR; Outlook Negative ------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' long-term corporate credit rating to Norway-based oil and gas exploration and production company Bayerngas Norge AS. The outlook is negative. The rating on Bayerngas Norge reflects S&P's view of its business risk profile as "vulnerable" and its financial risk profile as "highly leveraged." S&P's assessment of Bayerngas Norge's business risk profile as vulnerable takes into account the company's activity in a cyclical, competitive, and capital-intensive industry, characterized by large investments for exploration and development. Furthermore, Bayerngas Norge's business risk profile reflects the small scale of its production and its modest reserves base by global standards. Bayerngas Norge produced 13.6 thousands of barrels of oil equivalent per day (Kboepd) in 2013. As of Jan. 1, 2014, the company had reserves of 111 million barrels of oil equivalent (boe). Bayerngas Norg's production is concentrated in a few producing fields, all of which are in Norway except for Clipper South and Babbage, both in the U.K., and the company is not presently the operator of any of its fields. In addition, Bayerngas Norge's capital expenditures (capex) are sizable (standing at Norwegian krone [NOK] 3.2 billion (about US$520 million) in 2013) and will remain so in the coming years, owing to its aggressive growth strategy. Offsetting these risks, in S&P's view, are ongoing shareholder support, the likelihood of further production growth in the long term, mainly thanks to Bayerngas Norge's potential to grow its resource base, and its major presence in Norway. The company has an established regulatory framework and stable taxation regime in its domestic market, even though upstream taxation remains high at 78% and it could be subject to change. Despite a track record of lower-than-anticipated production (owing for instance to production delays and operational disruptions at the Trym oil and gas field in 2013), S&P anticipates that the company will increase its production in 2014 to about 17 Kboepd and benefit from supportive oil and gas prices in 2014-2016. S&P also forecasts that oil will account for one- half of Bayerngas Norge's total production, although it might decline to about 40% in 2015-2016 because of increasing gas production at the Trym and Clipper South fields while the company's oil fields deplete. S&P notes that Bayerngas Norge is exposed to commodity prices and currency risk. This is because it does not have any hedging instruments in place and there is a currency mismatch between its U.S. dollar- and NOK-denominated cash flows and euro-denominated debt. Bayerngas Norge's highly leveraged financial risk profile mainly reflects the company's weak credit metrics and that its strategy to develop its assets is a constraint. S&P treats the shareholder loans as debt, mostly due to S&P's understanding that Bayerngas Norge's production does not meet Stadtwerke Munchen asbeteiligungs GmbH & Co. KG (SWM)'s expectations, although S&P notes that a portion has been converted to equity. The development entails substantial capex, continuing material negative free cash flow, high debt, additional financing needs over the next few months, and, critically, dependence on the shareholders' funding support. S&P foresees that Standard & Poor's-adjusted funds from operations (FFO) to debt will continue to be less than 10% in 2014-2016. This is predominantly due to Bayerngas Norge's substantial amount of new debt to develop its assets and despite S&P's assumption of supportive energy prices and a relatively sound adjusted EBITDA margin at about 60%. In S&P's calculations, it assumes a 78% tax rate (comprising "special tax" of 51%, plus "ordinary tax" of 27%) on Bayerngas Norge's upstream oil and gas activities in Norway, as well as a reduction of up to 30% against the tax base for capex on new fields approved before May 5, 2013 (the tax rate is 22% for projects approved after this date). S&P also takes into consideration a tax refund in relation to 78% of Bayerngas Norge's exploration costs in the prior year. S&P forecasts that Bayerngas Norge's free operating cash flow (FOCF) will remain negative after capital investments in the next couple of years. In particular, S&P anticipates that capex will be about NOK4.5 billion in 2014 and NOK3.5 billion in 2015. S&P do not factor any acquisition into its base case because it thinks that the company will focus on developing existing assets rather than growing through acquisitions. "We expect debt, which consists only of shareholder loans, to remain high. Moreover, we project that Bayerngas Norge will need additional funding from its shareholders to execute its capex plan, and we consider that there is a risk that Bayerngas Norge may not secure this funding in the near term. We understand that Bayerngas Norge's shareholders' existing loans, totaling EUR1.5 billion, have been fully drawn since September 2014. A NOK1.3 billion (about EUR160 million) bridge loan facility was put in place in August 2014 to provide short-term funding, but it matures at the end of October 2014. S&P anticipates that the shareholders will very likely increase the loan funding limit to approximately EUR1.85 billion in October while providing further additional equity of about EUR150 million. However, these plans are not yet set and remain uncertain. S&P anticipates that Bayerngas Norge's ability to finance its capex program and meet its financial obligations will be impaired in the near term if it does not receive further funding above the EUR1.5 billion limit. Under S&P's base case, it assumes: -- Production will increase in 2014, including average production of between 15 Kboepd and 20 Kboepd, with 2015 production generally stable compared with 2014's. -- A Brent oil price of $105 per barrel (bbl) for the rest of 2014 and in 2015, and $100/bbl in 2016. -- A gas price of close to NOK2.0 per standard meter cubed (Sm3) (about NOK0.56 per Btu) in 2013 and between NOK2.0 per Sm3 and NOK2.5 per Sm3 in 2015. -- Annual revenues of about NOK2.5 billion in 2014 and 2015. -- A tax refund related to 78% of exploration costs incurred in previous years. -- Capex of about NOK4.5 billion in 2014 and NOK3.5 billion in 2015. Based on these assumptions, S&P arrives at these credit measures for Bayerngas Norge: -- Adjusted debt to EBITDA at between 6.5x and 7.5x in 2014, and between 7x and 10x in 2015. -- Adjusted FFO to debt at 5%-10% in 2014 and less than 10% in 2015. -- Revenues of roughly NOK2.5 billion per year in 2014 and 2015. -- EBITDA margin of about 60% in 2014 and 2015. The rating on Bayerngas Norge includes three notches of uplift from S&P's 'ccc+' stand-alone credit profile (SACP) assessment for the company to reflect likely support from the shareholders in the event of financial distress, based on S&P's view that Bayerngas Norge is a strategically important subsidiary to SWM. The uplift is mainly based on SWM's ownership of about 90% of Bayerngas Norge (directly and through subsidiary Bayerngas GmbH), its full consolidation of Bayerngas Norge, and Bayerngas Norge's importance to SWM's long-term strategy. S&P considers that Bayerngas Norge could increase its production so that SWM in turn has higher gas production and can diversify its energy sources within the next several years, which is increasingly relevant in the context of increased political tensions in Russia. Moreover, S&P thinks that Bayerngas Norge is unlikely to be sold, given the high capital that the shareholders have already invested in the company. However, S&P's view of the strength of the relationship between Bayerngas Norge and SWM under S&P's parent-subsidiary criteria is weakened by two considerations in particular: -- Ongoing support is not unlimited. S&P understands that the whole EUR1.5 billion limit on support is already committed. Although S&P assumes that the shareholders will increase the existing limit, Bayerngas Norge effectively must become self-financing if further funding is not provided. -- SWM does not currently benefit to a large extent from Bayerngas Norge's gas production, nor is it in need of this gas. The benefit of Bayerngas Norge providing for SWM's gas needs is therefore low, whereas Bayerngas Norge's funding needs remain sizable. Potentially, the likelihood of support in the event of financial distress at Bayerngas Norge could increase if Bayerngas Norge raised production in the future. The negative outlook reflects a one-in-three possibility that S&P could downgrade Bayerngas Norge if its shareholders do not increase their funding limit or inject further equity in the next few months. S&P projects that daily production will be between 15,000 Kboepd and 20,000 Kboepd in 2014 and 2015, assuming that the shareholders continue to provide ongoing support for Bayerngas Norge's investment strategy, which is not yet finalized. S&P could downgrade Bayerngas Norge if we see indications of weaker support or negative intervention from the shareholders. More specifically, S&P could revise down its assessment of exceptional support from the group, leading potentially to a multiple-notch downgrade if the shareholders fail to increase their funding limit or inject further equity in the near term or if S&P assess Bayerngas Norge's funding strategy as unsustainable. Downward rating pressure could also arise if production decreased or costs increased markedly compared with S&P's base case. Deterioration in liquidity could also lead to rating downside. S&P could revise the outlook to stable if shareholders increase their total investment limit or inject further equity in the near term for a total of at least EUR500 million, which S&P would consider as a sustainable funding strategy over the next couple of years. S&P would also factor in no deterioration in liquidity, and S&P's view that Bayerngas Norge could achieve its production plan, including daily production of 15,000-20,000 Kboepd in 2014 and 2015. =============== P O R T U G A L =============== BANCO ESPIRITO: S&P Withdraws 'R/R' Counterparty Credit Ratings --------------------------------------------------------------- Standard & Poor's Ratings Services said that it has lowered its long- and short-term counterparty credit ratings on Portugal- based Banco Espirito Santo S.A. (BES) to 'R/R' from 'CC/C'. S&P also lowered its issue credit rating on BES Finance's EUR600 million variable-rate perpetual callable non-cumulative preference shares series A, guaranteed by BES, to 'D' from 'C'. S&P also affirmed all its remaining issue credit ratings on BES' subordinated debt at 'C'. In addition, S&P also removed the ratings from CreditWatch, where they were placed with negative implications on July 11, 2014 and Aug. 11, 2014. S&P has subsequently withdrawn all its issuer and issue credit ratings on BES. The rating action on the counterparty credit rating on BES reflects S&P's understanding that BES, owing to its financial condition, is under regulatory supervision where the Bank of Portugal has the power to authorize payment of some obligations and not others. As a result of the resolution plan implemented by the Bank of Portugal, BES was required to retain certain senior obligations, including customer deposits owed to certain individuals or entities affiliated with BES, as specified by the Bank of Portugal in its resolution plan. The payment at contractual maturity and reimbursement of the above-mentioned obligations is conditioned by the one-year renewable waiver that the Bank of Portugal has granted BES, as part of which S&P understands BES can only make payments upon Bank of Portugal's authorization. The waiver dispenses BES from compliance with the prudential rules and the timely fulfillment of previously contracted obligations -- including contractually senior financial obligations -- except where such fulfillment is deemed indispensable for the preservation and valuation of BES' assets, in which case the Bank of Portugal may authorize, under a BES proposal, the operations required for the purpose. S&P has therefore lowered its long-term counterparty credit rating on BES to 'R' from 'CC'. According to S&P's rating definitions criteria, it assigns a counterparty credit rating of 'R' if the issuer is under regulatory supervision owing to its financial condition, during the pendency of which the regulator may have the power to favor one class of obligations over others or pay some obligations and not others. BES Finance has not declared the coupon on its EUR600 million variable-rate perpetual callable non-cumulative preference shares series A, which are guaranteed by BES. As a result, neither BES Finance nor BES, acting as guarantor, have paid the coupon on these preference shares due, according to contractual terms, on Oct. 2, 2014. Therefore, S&P has lowered its issue credit rating on this instrument to 'D' from 'C'. S&P is affirming all its remaining issue credit ratings on BES' subordinated debt at 'C'. BES has stated in a press release published on Sept. 12, 2014, that it will not make payments of coupons and reimbursements at maturity in connection with at least certain of its debt instruments whilst the Bank of Portugal's waiver of fulfillment of obligations is in force. In this context and given the above- mentioned resolution process, S&P expects all subordinated debt instruments to default, according to its ratings definitions of a 'D' rating, on the following coupon payment dates according to contractual terms: -- Nov. 8, 2014 -- BES Finance's EUR500 million variable-/fixed- rate perpetual junior subordinated hybrid series 18 (ISIN: XS0147275829). -- Nov. 27, 2014 -- BES' EUR50 million floating-rate/step-up callable subordinated medium-term notes series 9 due May 27, 2018 (ISIN: PTBERYOM0012). -- Nov. 28, 2014 -- BES' EUR750 million 7.125% subordinated callable medium-term notes series 34 due Dec. 28, 2023 (ISIN: PTBEQJOM0012). -- March 16, 2015 -- BES Finance's EUR500 million variable- rate fixed/step-up/floating junior subordinated callable perpetual hybrid (ISIN: XS0207754754). Following the rating actions, S&P has subsequently withdrawn all issuer and issue credit ratings on BES as it considers that S&P no longer has sufficient information of satisfactory quality to perform surveillance of the ratings going forward. The waiver, including the necessary authorization by Bank of Portugal to make payments for as long as the above-mentioned waiver is in force could result, in S&P's view, in the waiver acting as a de facto quasi-moratorium on BES' senior financial debt, including deposits. However, S&P currently do not have reliable information to conclude on whether a default according to its ratings definition criteria has occurred. S&P understands that the institution is under a wind-down process that is most likely, in S&P's view, to ultimately end in its liquidation -- a situation which would be consistent with all of S&P's issuer and issue credit ratings either being revised to, or remaining at, 'D'. =========== R U S S I A =========== KAMAZ OJSC: Moody's Lowers Corporate Family Rating to 'Ba2' ----------------------------------------------------------- Moody's Investors Services has downgraded to Ba2 from Ba1 the corporate family rating (CFR) and to Ba2-PD from Ba1-PD the probability of default rating (PDR) of OJSC KAMAZ (KAMAZ). The outlook is negative. Rating Rationale As KAMAZ is 49.9% owned by the Russian government through State Corporation Rosstechnologii (RosTec, unrated) Moody's determines KAMAZ's CFR in accordance with its government related issuer (GRI) methodology, which consists of the following inputs: (1) a baseline credit assessment (BCA) of b2, which measures the company's underlying fundamental credit strength, excluding government support; (2) the Baa1 local-currency rating of the Russian government with a negative outlook; (3) strong probability of the provision of state support to the company in the event of financial distress; and (4) high default dependence between the company and the government. The downgrade was triggered by Moody's decision to lower KAMAZ's BCA to b2 from b1. The other rating inputs of support and dependence are not affected. The downgrade of the BCA to b2 is triggered by Moody's expectation that KAMAZ's financial metrics will weaken in 2014 and 2015. In particular, Moody's expects that KAMAZ's adjusted EBITA margin will reduce below 4% and KAMAZ's leverage (measured by adjusted debt/EBITDA) grows above 4x. This weakening of metrics is driven by the slowdown of the Russian truck market, which is negatively affected by the weakening domestic economy (Moody's forecasts anemic growth of 0.5% of Russia's GDP in 2014 and contraction of GDP by 1% in 2015). In the first half 2014, the domestic truck market contracted by around 20%, which was reflected in the reduction of KAMAZ's revenue and adjusted EBITDA in this period by 10% and 90% respectively in comparison with first half-2013. As of June 2014, KAMAZ's adjusted EBITA margin dropped to 0.6% (FY2013: 4.7%), and adjusted leverage (measured as debt/EBITDA) increased to 6.6x (FY: 2.4x). Moody's also forecasts that government efforts to support the market (such as the recently introduced "utilization program") will not be sufficient to fully offset negative trends in the truck market but should result in some recovery of the demand. In addition to market weakness, KAMAZ's profitability will be also negatively affected by around 20% devaluation of the Russian rouble since the beginning of 2014, which will add to cost increases as certain truck components are priced in hard currency. Moody's also forecasts that KAMAZ's leverage will be affected by growing debt in 2015 to finance KAMAZ's capex program, a program aimed at supporting the company's strategy. However, Moody's notes that this new debt will be covered by the RUB35 billion (around US$700 million) guarantee which has been recently approved by the Russian state in favor of KAMAZ, which also supports the view that Kamaz should continue to benefit from strong state support. KAMAZ's BCA also reflects its (1) geographical concentration of sales in Russia, which exposes KAMAZ to the weaknesses and volatility of this particular market; (2) concentration on the production of trucks and spare truck parts (around 85% of revenue in 2013) exposing the company to cycles of the truck market; and (3) modest size in an international context in comparison to its global peers such as Daimler AG (A3 stable) or MAN SE (A3 positive), which may constrain KAMAZ's ability to diversify globally and compete with larger global peers, or to perform sufficient R&D. More positively, the BCA factors in (1) KAMAZ's strong position in the Russian truck market, with its share in the domestic market exceeding 40% and likely to benefit from lower foreign competition; (2) the company's close co-operation through joint ventures and partnerships with leading global auto parts and automotive producers such as Cummins Inc. (A3 stable), ZF Friedrichshafen AG (unrated) and KAMAZ's minority shareholder Daimler; (3) the expectation that the truck market should benefit from the "utilization program" put in place by the government; and (4) the company's focus on efficiency improvements and cost optimization. Rationale for the Negative Outlook The negative outlook for the ratings reflects Moody's concerns that challenges for the Russian economy as well as in Russian truck market may be deeper and longer than the rating agency currently anticipates, possibly resulting in KAMAZ's (1) continued erosion in sales and/or profitability; (2) increase in leverage above current Moody's expectations, which anticipates leverage not sustainably exceeding 5x; and (3) deterioration of the liquidity position. What Could Change the Rating - Up/Down Given the current negative trends in the domestic track market and negative outlook for the rating Moody's does not envisage positive pressure on KAMAZ's ratings in the next 12-18 months. Nevertheless, Moody's would consider an upgrade if (1) conditions in the domestic trucks market recover and start strengthening; and (2) the company were to demonstrate a track record of solid profitability, with EBITA margin of above 4% on a sustainable basis, financial metrics within its stated financial policy and leverage (measured as adjusted debt/EBITDA) below 3.5x and a solid liquidity profile on a sustainable basis. If the Russian market recovers from a poor first half-2014 and KAMAZ's EBITA margin stabilizes above 3%, the rating outlook could be stabilized. Downward pressure could be exerted on KAMAZ's rating on evidence of (1) the market environment becoming more challenging than currently anticipated in terms of volumes or prices, resulting in a material deterioration in profitability (measured as adjusted EBITA margin) below 2.5% on a sustained basis, and in KAMAZ's leverage (measured as adjusted debt/EBITDA) above 5x on a sustained basis; and (2) material debt-financed expansion projects and/or acquisitions, or shareholder initiatives, which cause the company to materially deviate from its stated financial policies or abovementioned financial thresholds; or (3) liquidity deterioration. A revision of Moody's macroeconomic forecasts might also negatively affect the rating or the outlook. A one- notch downgrade or upgrade of the sovereign rating would not in itself trigger a rating action on KAMAZ's rating, assuming all the other GRI inputs remain unchanged. Principal Methodology The principal methodology used in this rating was the Global Manufacturing Companies, published in July 2014. Other methodologies used include the Government-Related Issuers Methodology Update published in July 2010. OJSC Kamaz (KAMAZ) is a leading player in the Russia market producing a wide range of commercial vehicles, including trucks, trailers, tow tractors and buses. The company also manufactures engines, power units, and various tools and auto parts. Russia's 100% state-owned investment holding State Corporation Rosstechnologii (RosTec, not rated) holds a 49.9% stake in KAMAZ. Another key shareholder is Daimler AG (which owns 15% of KAMAZ's share capital). In 2013, KAMAZ generated revenue of RUB114.3 billion (around US$3.5 billion) and adjusted EBIT of RUB6.7 billion (around US$200 million). MECHEL OAO: Losses Down in 1H14; Debt Restructuring Talks Ongoing ----------------------------------------------------------------- Platts reports that Mechel remains in talks with creditors to finalize a debt restructuring to help it cope with low commodity pricing as it narrowed losses in the first-half of 2014 by 69% year on year to US$648 million. "We continue to actively negotiate it with banks and count on promptly reaching agreements," Platts quotes Mechel CEO Oleg Korzhov as saying on its debt restructuring in an earnings statement on Oct. 14. The group suffered a 26% drop in first-half revenue to US$3.4 billion on lower met coal and iron ore prices, decreased third- party iron ore concentrate sales, and a halt at the US Bluestone met coal mining operation, Platts relates. On June 30, Mechel's net debt, excluding financial lease obligations, was US$8.65 billion after nearly US$300 million was paid off in the first half, Platts discloses. Foreseeing the slump in metallurgical coal prices would hit its financial results and affect the ability to service debt, early this year Mechel began negotiations on changing its debt terms, Platts relays. Mechel, as cited by Platts, said that the move was also needed to enable stability for the company's operations. "While continuing to service our debt, we have had a significant decrease in our working capital, which began to have its negative impact on our operations," Platts quotes Mr. Korzhov as saying. He said that currently, creditors have been offered a restructuring option that would enable the company "even now to service our obligations, ensuring debt repayment in the future," Platts notes. Mechel said that over the period, the company's trade working capital went down by 96% to US$40 million, Platts discloses. Mechel OAO is a Russian steel and coking coal producer. As reported by the Troubled Company Reporter-Europe on October 3, 2014, Moody's Interfax Rating Agency downgraded Mechel OAO's national scale rating (NSR) to Caa2.ru from Ba3.ru. The outlook on the rating is negative. Moody's Interfax is majority-owned by Moody's Investors Service (MIS). Moody's Interfax's downgrade of the NSR of Mechel follows MIS's downgrade of the company's corporate family rating to Caa3 with a negative outlook. ========= S P A I N ========= BANKIA SA: High Court Investigates Credit Card Scandal ------------------------------------------------------ Guy Hedgecoe at The Irish Times reports that revelations related to how 82 executives and board members of a Spanish bank were given credit cards to spend freely on personal items and without apparent controls have dealt a blow to efforts to restore the image of the country' financial sector. According to The Irish Times, the high court is investigating the credit cards, which were given out by Caja Madrid savings bank and Bankia, the lender that absorbed it in 2010, and they were not registered in official accounts. The cards were in use between 2003 and 2012, when new leadership took over at Bankia, and an estimated EUR15.5 million was charged to them, The Irish Times discloses. A string of public figures have been forced to resign from their posts after it emerged earlier this month that they had used the cards, The Irish Times relates. Many were politicians from the governing Popular Party and the main opposition Socialist Party, or senior union figures, The Irish Times notes. According to information released by the investigation, the biggest spender was Caja Madrid's former chief financial officer, Ildefonso Sanchez, who charged EUR574,000 to his credit card, The Irish Times states. Miguel Blesa, the former chairman of Caja Madrid, spent EUR437,000, about EUR82,000 of which he withdrew at cash machines, The Irish Times discloses. The government part-nationalized Bankia in 2012 after the lender's mismanagement during the country's property bubble became apparent, The Irish Times recounts. That same year, it became the biggest beneficiary of a EUR40 billion EU bailout for the Spanish banking sector, The Irish Times relays. With the economy finally recovering from a double-dip recession, the government has been trying to restore Spaniards' faith in their financial system, according to The Irish Times. Bankia SA is a Spanish banking conglomerate that was formed in December 2010, consolidating the operations of seven regional savings banks. As of 2012, Bankia is the fourth largest bank of Spain with 12 million customers. FUNDACION BANCARIA: S&P Affirms 'BB/B' Counterparty Ratings ----------------------------------------------------------- Standard & Poor's Ratings Services said that it affirmed its unsolicited 'BB/B' long- and short-term counterparty credit ratings on Spain-based Fundacion Bancaria Caja de Ahorros y Pensiones de Barcelona (la Caixa), as well as S&P's 'B' issue ratings on its nondeferrable subordinated debt. S&P also removed the ratings from CreditWatch negative, where it placed them on April 14, 2014. S&P then withdrew all unsolicited issuer credit ratings on la Caixa and its issue credit ratings owing to reduced market interest. At the time of withdrawal, the outlook was positive. The affirmation reflects S&P's belief that, despite la Caixa's change in legal status and its ongoing corporate reorganization, it will continue to be regulated and supervised by banking authorities for the foreseeable future. S&P understands that authorities will maintain full prudential regulatory powers over the whole la Caixa group. On May 22, 2014, la Caixa transformed its legal form from a savings bank to a banking foundation and announced that it would undertake a group restructuring, which is currently ongoing. While some specific developments of Spanish banking foundations' regulation have not yet been approved by the government and the supervisory authorities, S&P understands that, for the foreseeable future, la Caixa group will continue to be supervised and regulated by banking regulators at a consolidated level and that they will also retain full prudential regulatory powers over la Caixa. S&P's views are supported, among other things, by the fact that the ongoing asset quality review and stress test exercises from European authorities are being conducted at a consolidated group level and that regulatory capital is measured on a consolidated basis. S&P understands that the meaningful reduction of the amount of la Caixa's rated debt following the early redemption of EUR2.5 billion of nondeferrable subordinated debt significantly reduces market interest in S&P's issue and issuer ratings. S&P has therefore withdrawn its counterparty credit ratings on la Caixa, as well as its 'B' issue ratings on la Caixa's EUR1.5 billion nondeferrable subordinated debt -- which accounts for all remaining rated debt. As part of its corporate reorganization, S&P notes that la Caixa will transfer its EUR1.5 billion debt to its controlled subsidiary, Criteria (not rated). In accordance with S&P's methodologies, at the time of the withdrawal it analyzed Caixabank and its controlling holding company, la Caixa, on a consolidated basis, using la Caixa's consolidated financial information. S&P considers Caixabank to be the group's core operating entity. S&P rated la Caixa two notches below Caixabank to reflect the structural subordination of la Caixa's creditors to those of Caixabank. At the time of withdrawal, the outlook was positive, mirroring the positive outlook on S&P's long-term rating on Caixabank. =========================== U N I T E D K I N G D O M =========================== ROYAL BANK OF SCOTLAND: Deed Poll No Impact on Moody's D+ BFSR -------------------------------------------------------------- Moody's Investors Service has announced that the execution of a deed poll by The Royal Bank of Scotland plc (RBS; deposits Baa1 negative, standalone bank financial strength rating D+/ adjusted baseline credit assessment ba1) relating to a swap agreement between BA Covered Bond Issuer and RBS would not, in and of itself and as of this time, result in the downgrade or withdrawal of the current rating of the bonds issued by the Issuer. On March 13, 2014, Moody's downgraded the long-term senior unsecured rating of RBS to Baa1 from A3, on watch for downgrade. This resulted in a "ratings trigger event" under the Swap Agreement, which would give rise to an additional termination event, unless RBS took suitable remedial action within 30 days. The Swap Agreement contemplated several alternative remedial actions, which are in each case, broadly: (a) transferring the swap to an appropriately higher-rated third party; (b) obtaining a guarantee by an appropriately rated guarantor; and (c) taking some other action such that the downgrade of RBS does not have a negative rating impact on the Bonds. RBS proceeded to take remedial action under (c) by executing a deed of undertaking. Under the Previous Deed, RBS proposed to take one of the remedial actions (a) to (c) above within 160 business days from the date of the Downgrade. Failure to take one of these actions would constitute an additional termination event under the swap agreement. Therefore, the Previous Deed effectively extended the Cure Period from 30 days to 160 business days. RBS has elected to take such other action, pursuant to remedial action (C) in the Swap Agreement (as outlined above), by executing the New Deed. Pursuant to the New Deed, as long as RBS or a Relevant Entity (any entity which has become co-obligor or guarantor in respect of all of RBS' present and future obligations under the Swap Agreement) does not have the newly introduced Qualifying Transfer Trigger Rating of Baa1, RBS will undertake in favor of the Issuer to (a) transfer the Swap Agreement to a third party, (b) obtain a guarantee, or (c) take some other action that Moody's has confirmed will not negatively affect the ratings of the notes. Moody's has determined that RBS' execution of the New Deed, in and of itself and at this time, will not result in the downgrade or withdrawal of the rating currently assigned to the bonds that BA Covered Bond issues. However, Moody's opinion addresses only the credit impact associated with the New Deed, and Moody's is not expressing any opinion as to whether the New Deed has, or could have, other non-credit-related effects that may have a detrimental impact on the interests of covered bondholders and/or counterparties. Moody's ratings address the expected loss posed to investors by the legal final maturity of the Bonds. Moody's ratings address only the credit risks associated with the transaction. Other risks have not been addressed, but may have a significant effect on yield to investors. The principal methodology used in this rating was "Moody's Approach to Rating Covered Bonds", published in March 2014. Moody's will continue monitoring the ratings. Any change in the ratings will be publicly disseminated by Moody's through appropriate media. * U.S. & UK Meet to Discuss Key Components for G-SIB Resolution --------------------------------------------------------------- The Bank of England and Federal Deposit Insurance Corporation disclosed that the heads of the Treasuries and leading financial regulatory bodies in the United States and United Kingdom on Oct. 13 participated in an exercise designed to further the understanding, communication, and cooperation between U.S. and U.K. authorities in the event of the failure and resolution of a global systemically important bank, or G-SIB. The event was hosted by Federal Deposit Insurance Corporation Chairman Martin Gruenberg. Additional participants from the United States were Treasury Secretary Jacob J. Lew, Board of Governors of the Federal Reserve System Chair Janet Yellen, Comptroller of the Currency Thomas Curry, U.S. Securities and Exchange Commission Chair Mary Jo White, U.S. Commodity Futures Trading Commission Chairman Timothy Massad, Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig, Federal Deposit Insurance Corporation Board Member Jeremiah Norton, Federal Reserve Board Governor Daniel Tarullo, Federal Reserve Bank of New York President William Dudley, and Deputy Treasury Secretary Sarah Bloom Raskin. Participants from the United Kingdom were Chancellor of the Exchequer George Osborne, Bank of England Governor Mark Carney, Deputy Governor for Financial Stability Sir Jon Cunliffe, Deputy Governor for Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority Andrew Bailey, Deputy Governor for Markets & Banking Minouche Shafik; and Financial Conduct Authority Chief Executive Martin Wheatley. The exercise's high level discussion furthered understanding among these principals regarding G-SIB resolution strategies under U.S. and U.K. resolution regimes, aspects of those strategies requiring coordination between U.S. and U.K. authorities, and key challenges to the successful resolution of U.S. and U.K. G-SIBs. This exercise builds on prior bilateral work between U.S. and U.K. authorities, which, since late 2012, has included the publication of a joint paper on G-SIB resolution, participation in detailed simulation exercises for G- SIB resolution, and participation in other joint G-SIB resolution planning efforts. The exercise demonstrates the continued commitment of the United States and the United Kingdom since the financial crisis to promote a safer and sounder financial system by cooperating to address issues involved in the orderly resolution of large and complex financial institutions without cost to taxpayers. Both countries reiterated their commitment to the Financial Stability Board's ongoing work concerning G-SIB resolution. The exercise was timed to coincide with the IMF annual meeting. =============== X X X X X X X X =============== * EUROPE: Fitch Says ECB Program May Affect Finance Market ---------------------------------------------------------- European credit investors expect the European Central Bank's purchase program to influence both supply and spreads in the structured finance market, according to Fitch Ratings' latest investor survey. Nearly 60% of respondents think that structured finance issuance will increase over the next 12 months, compared with 33% in our previous survey. The 3Q14 reading is the highest in our survey history, and is higher than for any other asset class. More than a third (37%) of respondents expect spreads to tighten somewhat and 10% expect them to tighten significantly. Nobody expected spreads to tighten significantly in our previous survey, which closed in May shortly before the ECB said it was accelerating preparations to buy asset-backed securities. Less than a quarter of respondents expected spreads to tighten somewhat. In Fitch's view, spread tightening will improve the economics of structured finance for issuers, but it will not necessarily broaden participation in the market. Existing active structured finance investors have expressed concerns that ECB purchases could see spreads tighten to the point where they do not receive sufficient returns for their funding and capital costs; they also have alternative investment opportunities. In the operational details of its purchase program it gave on 2 October the ECB said that it would buy a maximum of 70% of any issue, suggesting that buying by private sector investors is still key to increasing overall issuance. The effectiveness of the program will depend on whether additional investment funds are allocated to the market due to the presence of the ECB backstopping the sector. The responses of the participants to Fitch's survey suggest that fixed-income investors became more confident about the future of the structured finance market even before the details of the program were announced last week, with the ECB first mooting its interest in using the ABS market for this purpose in May. ECB purchases will start this year and last at least two years. To qualify, ABS senior tranches must be eligible under the collateral framework for Eurosystem credit operations. However, the requirement for a second-best rating of at least 'BBB-sf' does not apply to Greek or Cypriot ABS. The ECB will also buy guaranteed mezzanine tranches, but agreement has yet to be reached about how such guarantees will operate. Fitch's 3Q14 survey closed on October 3. It represents the views of managers of an estimated EUR7.1 trillion of fixed income assets. We will publish the full results later this month. ********* 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 * * *