/raid1/www/Hosts/bankrupt/TCREUR_Public/160216.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
Tuesday, February 16, 2016, Vol. 17, No. 032
Headlines
A U S T R I A
HETA ASSET: Austrian Provinces Support Carinthia Debt Offer
A Z E R B A I J A N
SOCAR: Moody's Says Azerbaijan Downgrade Credit Negative
B U L G A R I A
CORPORATE COMMERCIAL: NAO to Inspect Magistrates' Deposits
C R O A T I A
HRVATSKA ELEKTROPRIVREDA: Moody's Affirms Ba2 CFR, Outlook Stable
G R E E C E
FAGE INTERNATIONAL: Moody's Raises CFR to B2, Outlook Stable
NAVIOS PARTNERS: Moody's Lowers CFR to 'B2', Outlook Stable
H U N G A R Y
BUDA-CASH: BSE Shares Successfully Sold, Liquidator Says
QUAESTOR: Sale of BSE Shares Unsuccessful, Liquidator Says
I R E L A N D
ARBOUR CLO III: Moody's Assigns B2 Rating to Class F Notes
BACCHUS 2006-1: Moody's Raises Class E Notes Rating to Ba1
BLACKROCK CLO I: Moody's Assigns (P)Ba2 Rating on Class E Debt
MENOLLY HOMES: Subsidiaries Set for Liquidation
TALISMAN-6 FINANCE: S&P Reinstates CCC- Rating on Cl. C Notes
I T A L Y
ENEL SPA: Moody's Affirms Ba1 Rating on Subordinated Debt
MANUTENCOOP FACILITY: S&P Lowers Corporate Credit Rating to 'B-'
P O R T U G A L
ENERGIAS DE PORTUGAL: Moody's Affirms Ba2 Sub. Debt Rating
R U S S I A
BENEFIT-BANK JSC: Deemed Insolvent, Prov. Administration Halted
EUROCREDIT LLC: Deemed Insolvent, Prov. Administration Halted
KAPITALBANK OJSC: Placed Under Provisional Administration
KHANTY-MANSIYSK: S&P Affirms 'BB+' ICR, Outlook Negative
POLYUS GOLD: S&P Lowers CCR to 'BB-', Outlook Stable
SAMARA CITY: Fitch Affirms 'BB+' LT Issuer Default Ratings
SMOLENSK REGION: Fitch Withdraws 'B+' Issuer Default Ratings
SURGUT CITY: S&P Affirms 'BB+' ICR, Then Withdraws Rating
UNITED NATIONAL: Deemed Insolvent, Prov. Administration Halted
UNIVERSALNYE FINANCY: Placed Under Provisional Administration
S P A I N
CATALONIA: Fitch Affirms 'BB' Long-Term Issuer Default Ratings
T A J I K I S T A N
BANK ESKHATA: Moody's Changes Outlook on B3 Rating to Negative
T U R K E Y
TURKISH BANKS: Fitch Affirms IDRs of Six Small Institutions
U N I T E D K I N G D O M
ASCENTIAL PLC: Moody's Assigns 'Ba3' Corporate Family Rating
TATA STEEL: Moody's Cuts Corporate Family Rating to 'Ba3'
TRINITY SQUARE 2016-1: Moody's Gives (P)Ba1 Rating to Cl. E Notes
* UK: Steel Cos. in "Significant" Finc'l Distress Up 46% in 2015
X X X X X X X X
* S&P Takes Various Rating Actions on Four Repack Tranches
*********
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A U S T R I A
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HETA ASSET: Austrian Provinces Support Carinthia Debt Offer
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Kirsti Knolle and Michael Shields at Reuters report that support
from other Austrian provinces for Carinthia's offer to buy back
debt of "bad bank" Heta will boost acceptances for its proposed
deal by around 15%.
According to Reuters, Finance Minister Hans-Joerg Schelling said
in a statement he "welcomes the unanimous decision by all
Austrian provinces and their finance secretaries to support
Carinthia's offer to buy EUR10.8 billion (US$12.2 billion) of
Heta Asset Resolution bonds at a discount and expects this
decision to translate into additional acceptances of nearly 15%".
It did not give a breakdown of the 15% figure, but some Austrian
provinces still own mortgage lenders that, together with covered-
loan issuer Pfandbriefbank, control EUR1.2 billion in Heta bonds,
Reuters notes.
Carinthia, the southern province home to more than 500,000
people, aims to avert insolvency by buying back state-guaranteed
bonds for 75% of their nominal value with the help of federal
loans, Reuters discloses.
Heta Asset Resolution AG is a wind-down company owned by the
Republic of Austria. Its statutory task is to dispose of the
non-performing portion of Hypo Alpe Adria, nationalized in 2009,
as effectively as possible while preserving value.
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A Z E R B A I J A N
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SOCAR: Moody's Says Azerbaijan Downgrade Credit Negative
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Moody's Investors Service said that it views as credit negative
for the State Oil Company of the Azerbaijan Republic (SOCAR, Ba1
review for downgrade) the recent downgrade of the Government of
Azerbaijan's bond and issuer ratings to Ba1 (review for
downgrade) from Baa3. The downgrade is credit negative primarily
because of the strong linkages between the sovereign and SOCAR as
a wholly owned state company. This action has no immediate impact
on SOCAR's ratings.
As a 100% state-owned entity, Moody's determines SOCAR's
corporate family rating by applying its Joint Default Analysis
and methodology for government-related issuers (GRIs). The
company's Ba1 CFR reflects (1) a baseline credit assessment (BCA)
of ba3; (2) very high dependence; and (3) high support. This
assessment also takes into account the Azerbaijan government's
Ba1 rating.
Moody's had already placed SOCAR's Ba1 rating on review for
downgrade on January 2, 2016, reflecting the potential weakening
in credit metrics due to oil prices, which have fallen
substantially in the past few weeks and have reached nominal
levels not seen in more than a decade.
In 2016, Moody's expects that SOCAR's credit metrics will weaken
further as a result of the lower oil price environment, which
could put the company's BCA under pressure. Oil prices fell to
about $30/ barrel (bbl) in January 2016. As part of its ongoing
assessment of energy markets, the rating agency sharply reduced
its oil price assumptions on January 21, 2016, in light of
continuing oversupply in the global oil markets and ongoing tepid
demand growth. Moody's does not expect oil prices to shift
significantly in 2016 from their early 2016 levels, which touched
multi-year lows in January, but forecasts that Brent crude, the
international benchmark, will average $33/bbl for 2016.
SOCAR's financial covenant headroom will likely reduce in 2016 as
a result of significant Azerbaijani manat devaluation in December
2015. The company has a maintenance covenant on a number of its
term loans by which the tangible net worth of the company is not
to fall below $4 billion. This covenant is tested on a semi-
annual basis. As of 30 June 2015, SOCAR was in compliance with
this covenant, with a tangible net worth of approximately $8.6
billion, and the company expects to be in compliance with this
covenant as of end-2015. However, low oil prices, if sustained,
could put further pressure on the Azerbaijani manat in 2016. This
would negatively affect the company's tangible net worth,
creating the potential risk that the company could breach the
covenant in 2016.
SOCAR is the backbone of Azerbaijan's national economy and the
consolidator of the country's oil and gas assets. Moody's
generally expects that the strong linkages between SOCAR and the
sovereign will be retained going forward, with a high level of
state ownership and probability of provision of state support in
extraordinary circumstances.
The review of SOCAR will focus on (1) the sovereign rating of
Azerbaijan as well as the foreign-currency bond country ceiling;
(2) our reassessment of SOCAR's BCA in this low oil price
environment. The BCA will depend on the company's operating
performance and financial metrics, which the rating agency
expects to deteriorate in 2016 due to lower oil prices as well
the depreciation of the manat.
In the course of the review, Moody's will also assess the
company's likely response to pressures stemming from lower oil
prices, including capex cuts for 2016 and beyond, and the
effectiveness of government measures aimed at avoiding the
company's covenant falling below its threshold levels, including,
among other things, via possible capital injections from the
state.
SOCAR's rating is currently on par with the sovereign foreign-
currency bond rating. While Moody's expects that strong linkages
with the sovereign will remain, the CFR could remain at the
sovereign level or could be lower, depending largely on its
assessment of the company's underlying credit profile.
Headquartered in Baku, Azerbaijan, State Oil Company of the
Azerbaijan Republic is a 100% state-owned, vertically integrated
national energy company in Azerbaijan. The company has a monopoly
position in supplying oil and gas products to the domestic
market, and is the state's official representative in all oil and
gas projects. SOCAR also participates in all international
consortia developing new oil and gas projects in Azerbaijan.
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B U L G A R I A
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CORPORATE COMMERCIAL: NAO to Inspect Magistrates' Deposits
----------------------------------------------------------
FOCUS News Agency reports that commenting on the origin of the
money deposited by magistrates in bankrupt Corporate Commercial
Bank, Yasen Todorov, Chairperson of the Ethics Commission with
the Supreme Judicial Council, said "We will require the National
Audit Office to carry out an inspection on the property
declarations filed by the magistrates and the lists from
Corporate Commercial Bank (CorpBank)".
According to FOCUS News, Mr. Todorov said, "The commission will
require the temporary assignees of the bank to provide the
original lists because as you know the media release different
information. There was constant change of the names and the sums
for two days. This way, we will see the concrete names of the
active magistrates. After this filter, we will refer these names
to the National Audit Office and asks it to make an inspection on
the accuracy of the information in the declarations and in the
list of the bank".
Corporate Commercial Bank AD is the fourth largest bank in
Bulgaria in terms of assets, third in terms of net profit, and
first in terms of deposit growth.
Bulgaria's central bank placed Corpbank under its administration
and suspended shareholders' rights in June 2014 after a run
drained the bank of cash to meet client demands.
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C R O A T I A
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HRVATSKA ELEKTROPRIVREDA: Moody's Affirms Ba2 CFR, Outlook Stable
-----------------------------------------------------------------
Moody's Investors Service has affirmed the Ba2 corporate family
rating, Ba2-PD probability of default rating, and Ba2 senior
unsecured ratings of Croatian national electricity company
Hrvatska Elektroprivreda d.d. (HEP). The LGD4 assessment of
HEP's senior unsecured notes remains unchanged. The outlook
remains stable.
RATINGS RATIONALE
The rating affirmation reflects Moody's expectation that HEP will
be able to maintain a financial profile commensurate with the
current ratings, despite the current constrained power prices and
risks that these could continue, given its modest debt leverage
and its business mix. More particularly, the rating affirmation
recognizes HEP's financial flexibility to withstand a potential
prolonged period of lower power prices.
As seen elsewhere in Europe, Balkan power prices have declined
(with HUPX prices dropping by some 12% since November 2015), but
remain somewhat higher than those in Western Europe, given the
very limited interconnector capacity. HEP is the dominant power
supplier in Croatia, with an approximately 84% share in the
domestic retail electricity market. Similarly to many other
Balkan countries, Croatia has a short generation position, which
mitigates its exposure to lower power prices. Nevertheless, a
high percentage of HEP's generation is hydro-based and it
currently has a material capital expenditure program.
HEP's generation fleet is predominantly fixed-cost in nature,
with approximately 60% of total installed capacity represented by
hydro and nuclear assets, albeit low carbon in nature. Hence,
fixed-cost generation accounts for the vast majority of HEP's
generation EBITDA. Nevertheless, regulated electricity
distribution and transmission activities contribute approximately
45% of group EBITDA. This should afford a stable and reliable
cash flow to offset the more volatile generation and sales
business.
The rating affirmation reflects the significant financial
flexibility that HEP has at its current rating level, with key
ratios of funds from operations (FFO)/interest cover of 9.3x and
FFO/net debt of 87.0% as of June 30, 2015, vs. Moody's guidance
of a minimum of 4.0x and 20%, respectively. This should allow
the company to absorb significant cash flow pressures in the
medium-term at the current rating level.
HEP's CFR continues to reflect (1) the vertically integrated
position in the Croatian electricity market, where the group
benefits from an 84% market share; (2) its electricity-generation
mix, with a high share of low cost and low carbon hydro and
nuclear output; and (3) the group's sound financial profile with
low leverage levels and strong credit metrics.
However, the ratings are significantly constrained by (1) HEP's
lack of diversification in terms of market presence; (2) the
developing profile of the regulatory framework in Croatia, with a
limited track record of transparent and consistent application;
(3) HEP's underlying earnings volatility driven by its dependence
on volatile hydro-based electricity generation; and (4) its
considerable investment program, which includes new generation
capacity and replacement of an aging asset base. The ratings
incorporate one notch of uplift given the Croatioan government's
100% ownership.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on HEP's Ba2 ratings reflects Moody's view
that (1) the group will manage its financial profile in line with
the current rating category; and (2) its rating would remain
unchanged should limited negative pressure develop on the
Croatian sovereign rating.
WHAT COULD CHANGE THE RATING UP/DOWN
Given the negative outlook on the Croatian sovereign rating,
Moody's does not expect any upward rating pressures in the near
term. Nevertheless, HEP's rating could come under positive
pressure if the company is able to demonstrate a more stabilized
operating and cash flow profile. This might be achieved by a
change in the current generation profile and/or a change in the
regulatory environment, following evidence of consistent and
transparent application of economic principles to the business of
the group.
HEP's earnings remain exposed to a number of factors outside of
management control, most notably domestic rainfall, commodity and
regional power prices. As the dominant energy company in the
country, HEP is also exposed to any additional loss of market
share in the supply segment as a result of market liberalization.
Downward pressure could develop if any of these risks translate
into a weakening of HEP's liquidity and/or financial position,
which would be evidenced by credit metrics of FFO/net debt of
less than 20%, or FFO interest cover below 4.0x.
The methodologies used in these ratings were Unregulated
Utilities and Unregulated Power Companies published in October
2014, and Government-Related Issuers published in October 2014.
LIST OF AFFECTED RATINGS
Issuer: Hrvatska Elektroprivreda d.d.
Affirmations:
LT Corporate Family Rating, Affirmed Ba2
Probability of Default Rating , Affirmed Ba2-PD
Senior Unsecured Regular Bond/Debenture, Affirmed Ba2
Outlook, Remains Stable
Headquartered in Zagreb, Croatia, HEP is the holding company for
Croatia's incumbent vertically integrated utility group. HEP
operates across three main energy industry segments of (1)
electricity generation, transmission, distribution and supply;
(2) district heating generation, distribution and supply; and (3)
natural gas distribution and supply. HEP is 100% owned by the
Government of Croatia (Ba1 negative). For the six months ended
June 30, 2015, HEP generated 6.2 terawatt hours of electricity
and HRK6.6 billion in sales revenue.
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G R E E C E
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FAGE INTERNATIONAL: Moody's Raises CFR to B2, Outlook Stable
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Moody's Investors Service has upgraded the corporate family
rating of FAGE International S.A. to B2 from B3 and the
Probability of Default Rating (PDR) to B2-PD from B3-PD.
Concurrently, Moody's has upgraded the rating of USD400 million
unsecured notes due 2020 jointly issued by FAGE International
S.A. and FAGE USA Dairy Industry, Inc., a subsidiary of FAGE, to
B2 from B3. The outlook on all ratings is stable.
RATINGS RATIONALE
The rating action reflects the strong improvement in FAGE's
financial and credit metrics supported by continued growth in its
markets outside of Greece. Moody's adjusted LTM September 2015
debt/EBITDA stood at 2.6x whereas LTM EBIT margin increased to
19% and free cash flow turned positive. The upgrade also
reflects an expectation that FAGE's metrics will remain strong
for its rating category, despite the remaining exposure to the
economic situation in Greece and a potential increase in milk
prices.
FAGE's ratings primarily reflect its (1) small size relative to
Moody's rated universe of packaged goods issuers and narrow focus
on yogurt production; (2) continued exposure to the Greek
economy, although reduced to the lowest ever level; (3) exposure
to volatile milk prices and USD FX rate; and (4) pricing and
competitive pressures, including in the US, as the market
matures.
More positively, the rating reflects (1) FAGE's strong growth in
its core US market, as well as in the rest of Europe, which has
strongly offset the revenue decline in Greece; (2) ability to
increase prices to offset milk costs; (3) strength of FAGE's
product brands; and (4) strengthening of key adjusted credit
metrics, mainly driven by the company's US expansion.
Although the company's YTD September 2015 sales declined year-on-
year by 2%, this was primarily driven by a negative translation
impact (around 6.8%) of stronger USD versus EUR and GBP. The
company's sales volume growth in Italy, the UK and the US
increased by 42%, 33% and 3% respectively. FAGE didn't implement
any price increases in 2015 as milk prices declined significantly
from its peak in 2014 both in Europe and the US. Despite
promotional activity in some markets the company's profitability
improved year-on-year by 10% during the first nine months of
2015.
FAGE's B2 CFR is three notches above the Caa2 Greek government
country ceiling, reflecting the company's limited exposure to
Greek banking system and international diversification. FAGE's
sales in Greece contributed c. 18% of total YTD September 2015
sales although cash contribution from its operations within
Greece is much more limited. FAGE's US operations with its own
production facility are now key to the group profitability and
represented 60% of overall sales and 53% of EBITDA in FY14. The
pace of decline in the company's sales volume in Greece
accelerated in Q3 2015 to 13% post the introduction of capital
controls by the Greek government in June 2015. The decline was
primarily driven by preventative measures taken by the company to
curtail customer credit risk.
FAGE's yogurt facility in Greece remains its only factory in
Europe, contributing c. 19% of sales from exports mainly to the
UK and Italy. FAGE has efficient liquidity and cash management
tools in place and does not rely on banks in Greece for day-to-
day cash management. As of September 2015 FAGE maintained 93% of
cash on its balance sheet with international banks outside of
Greece. Whilst the economic and political situation in Greece
remains fragile Moody's believes that potential further decline
in volume, price pressure and customer bankruptcies in case of a
prolonged crisis in Greece is manageable as it would be offset by
growth elsewhere, although at a slower pace reflecting the
maturing yogurt market in the US. The company's next challenge
is to ramp-up the capacity utilization of its US plant expanded
in 2015 from 100 tonnes to 160 tonnes capacity.
FAGE achieved a significant deleveraging to 2.6x LTM September
2015 from 4.0x at the end of FY14 and 6.4x in FY13 (gross Moody's
adjusted) primarily through EBITDA growth outside of Greece.
Moody's expect further deleveraging to remain vulnerable to
potential increase in milk prices from 2015 levels.
Moody's recognizes that the company's profitability benefited
from low milk prices during FY15 which, if reversed, will result
in reduced EBITDA and hence an increase in leverage. However,
the financial metrics, currently positioned strongly within the
rating category, provide some headroom.
FAGE's cash flow generation has strongly improved, both due to
growth and a significant reduction in Capex following the
completion of the expansion of its US facility in 2015. The
company has spent c. USD26 million capex YTD Q3 2015 (versus
USD86 million YTD Q3 2014). Moody's expect capex spending to
stay at normalized levels of around USD30 million in 2016 and
free cash flow to remain positive, despite a dividend to be paid
in 2015 (USD10 million YTD September 2015).
Moody's considers the company's liquidity to be adequate,
consisting as of the end of September 2015 of USD68 million cash
on balance sheet and USD35 million availability under USD42
million credit lines. The credit lines consist of (i) USD35
million revolving credit facility (RCF) with Citibank in the US,
secured by inventories and accounts receivable of FAGE USA Dairy
Industry, Inc. and (ii) EUR5 million bilateral line of credit
with Alpha Bank in Greece. Moody's liquidity assessment also
includes an expectation that the RCF maturing in October 2016
will be duly extended. Moody's also assumes a prudent policy of
the company in relation to its shareholder compensation, which
excludes a significant increase in dividends.
RATIONALE FOR STABLE OUTLOOK
The stable rating outlook reflects the rating agency's
expectation that FAGE's growth in operations outside of Greece
will continue to offset the negative trends in its domestic
market and potential increase in milk prices.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Positive pressure on the ratings could occur upon the company
improving its business profile through increased scale and
product portfolio diversity while demonstrating (1) adjusted
debt / EBITDA decline below 2.5x on a sustainable basis; and (2)
EBIT/interest expense ratio improvement to around 3.0x.
Negative pressure on the ratings could occur if (1) adjusted EBIT
margin declines below 10%; (2) free cash flow turns negative; or
(3) adjusted debt/EBITDA trends above 4.5x on a sustainable
basis.
The principal methodology used in these ratings was Global
Packaged Goods published in June 2013.
FAGE International S.A. manufactures and markets dairy products
in North America, Greece, the UK, Italy and Germany. While the
business was founded in Greece in 1926, it has significantly
diversified its revenues into other geographies (notably the US)
over the past 10 years. In Greece, FAGE is the market leader for
branded yoghurts and in the US, the company is the third-largest
branded yoghurt company, by sales value. The Filippou family,
which founded the company, still retains full control. FAGE
reported USD668 million in revenues for the year ended December
2014.
NAVIOS PARTNERS: Moody's Lowers CFR to 'B2', Outlook Stable
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Moody's Investors Service downgraded the corporate family rating
(CFR) of Navios Maritime Partners L.P. (Navios Partners) to B2
from Ba3, its probability of default rating (PDR) to B2-PD from
Ba3-PD and the rating on Navios Partners' $411.3 million senior
secured term loan B due in June 2018 to B2 from Ba3. The outlook
on all ratings of Navios Partners is stable.
"Our downgrade reflects the weakened operating performance of
Navios Partners' dry bulk operations coupled with an elevated
number of contract maturities in the next 12-18 months, the
challenges faced by Navios Holdings, its parent company, and the
difficulties faced by Navios Partners' largest customer which
could affect its performance," says Marie Fischer-Sabatie, a
Moody's Senior Vice President and lead analyst for the issuer.
RATINGS RATIONALE
The downgrade to B2 mainly reflects (1) the weakened operating
performance of Navios Partners' dry bulk operations and
subsequent weaker financial profile of the company; (2) Moody's
expectations that dry bulk shipping rates will remain weak in
2016 and that Navios Partners' financial profile will further
weaken; (3) the challenges faced by Navios Partners' parent
company, Navios Maritime Holdings, Inc. (Navios Holdings, Caa1
stable); and (4) the difficulties faced by Navios Partners'
largest customer which could affect its performance. Navios
Partners' credit metrics have sat outside our guidance for a Ba3
rating since 2013 and, in the current challenging environment, we
expect them to deteriorate in the next 12-18 months, with
debt/EBITDA moving towards 4-5x.
On January 12, 2016, Moody's downgraded the CFR of Navios
Holdings to Caa1 from B2, on the back of (1) a weakened financial
profile, which has been affected by the challenging dry bulk
market since end-2014 and corresponding weak shipping rates; and
(2) Moody's expectations that the company's financial profile
will not recover in 2016 and that it will generate negative free
cash flow and its liquidity profile will consequently weaken.
Navios Holdings, which is its largest shareholder, owns 20.1% of
Navios Partners and manages its vessel fleet.
Moody's nevertheless views positively the recent decision by
Navios Partners to fully cut its dividend, after a first cut by
50% in November 2015, which will result in the company no longer
paying dividends and preserving cash (Navios Partners paid a $132
million dividend in 2015). This will give the company the ability
to build a cushion to cover for the next two years' debt
maturities ($58 million in 2017) and for potential further
underperformance of its dry bulk operations. This cash cushion
would also cover for any potential revenue loss from its largest
customer, Hyundai Merchant Marine Co., Ltd (HMM, unrated), which
is undergoing a liquidity crisis and accounted for 23.1% of
Navios Partners' revenues in the nine-month period to September
2015.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects the comfortable positioning of Navios
Partners in its rating category and Moody's expectation that its
financial profile will remain well within the boundaries of the
B2 rating in the next 12-18 months.
WHAT COULD CHANGE THE RATING UP/DOWN
Navios Partners' ratings could be upgraded if the company's (1)
debt/EBITDA ratio is sustained comfortably below 4.5x and (2)
funds from operations (FFO) interest coverage (i.e. FFO +
interest expense/interest expense) above 5x.
Navios Partners' ratings could be downgraded if the company's (1)
debt/EBITDA increases above 5.5x for a prolonged period of time
and (2) FFO interest coverage decreases below 3.5x. Downward
rating pressure would also develop if Navios Partners' liquidity
profile materially weakens.
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H U N G A R Y
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BUDA-CASH: BSE Shares Successfully Sold, Liquidator Says
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Budapest Business Journal, citing Hungarian news agency MTI,
reports that shares in the Budapest Stock Exchange held by failed
brokerage Buda-Cash have been successfully sold while other sales
were less successful.
According to BBJ, liquidator PSFN said the 4,842 shares held by
Buda-Cash were sold at "the highest possible" price.
The initial offer for the stake was called by PSFN in January,
BBJ recounts.
QUAESTOR: Sale of BSE Shares Unsuccessful, Liquidator Says
----------------------------------------------------------
Budapest Business Journal, citing Hungarian news agency MTI,
reports that sales of shares in the Budapest Stock Exchange held
by Quaestor and Hungaria Ertekpapir, the two independent
brokerages that went bust last year, were unsuccessful.
According to BBJ, liquidator PSFN said new offers for the 65,124
shares held by Quaestor and the 32,878 shares held by Hungaria
Ertekpapir will be called.
The initial offer for the stakes was called by PSFN in January,
BBJ recounts.
As reported by the Troubled Company Reporter-Europe on April 20,
2015, Reuters related that the National Bank of Hungary suspended
the license of Quaestor on March 10, 2015, saying it had sold
about HUF150 billion (US$536 million) worth of bonds beyond what
was permitted under its issuance program.
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I R E L A N D
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ARBOUR CLO III: Moody's Assigns B2 Rating to Class F Notes
----------------------------------------------------------
Moody's Investors Service announced that it has assigned these
definitive ratings to notes issued by Arbour CLO III Limited:
EUR10MM Class A-1 Senior Secured Fixed Rate Notes due 2029,
Definitive Rating Assigned Aaa (sf)
EUR230MM Class A-2 Senior Secured Floating Rate Notes due 2029,
Definitive Rating Assigned Aaa (sf)
EUR25MM Class B-1 Senior Secured Fixed Rate Notes due 2029,
Definitive Rating Assigned Aa2 (sf)
EUR19MM Class B-2 Senior Secured Floating Rate Notes due 2029,
Definitive Rating Assigned Aa2 (sf)
EUR23MM Class C Senior Secured Deferrable Floating Rate Notes
due 2029, Definitive Rating Assigned A2 (sf)
EUR23.5MM Class D Senior Secured Deferrable Floating Rate Notes
due 2029, Definitive Rating Assigned Baa2 (sf)
EUR27.5MM Class E Senior Secured Deferrable Floating Rate Notes
due 2029, Definitive Rating Assigned Ba2 (sf)
EUR11.75MM Class F Senior Secured Deferrable Floating Rate
Notes due 2029, Definitive Rating Assigned B2 (sf)
RATINGS RATIONALE
Moody's definitive rating of the rated notes addresses the
expected loss posed to noteholders by the legal final maturity of
the notes in 2029. The definitive ratings reflect the risks due
to defaults on the underlying portfolio of loans given the
characteristics and eligibility criteria of the constituent
assets, the relevant portfolio tests and covenants as well as the
transaction's capital and legal structure. Furthermore, Moody's
is of the opinion that the collateral manager, Oaktree Capital
Management (UK) LLP, has sufficient experience and operational
capacity and is capable of managing this CLO.
Arbour CLO III is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured loans and senior secured
floating rate notes and up to 10% of the portfolio may consist of
unsecured loans, second-lien loans, mezzanine obligations and
high yield bonds. The bond bucket gives the flexibility to
Arbour CLO III to hold bonds. The portfolio is expected to be
70% ramped up as of the closing date and to be comprised
predominantly of corporate loans to obligors domiciled in Western
Europe.
Oaktree will manage the CLO. It will direct the selection,
acquisition and disposition of collateral on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's four-year reinvestment period.
Thereafter, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
risk and credit improved obligations, and are subject to certain
restrictions.
In addition to the eight classes of notes rated by Moody's, the
Issuer issued EUR44.6 mil. of subordinated notes, which is not
rated.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Factors that would lead to an upgrade or downgrade of the
ratings:
The rated notes' performance is subject to uncertainty. The
notes' performance is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. Oaktree's investment
decisions and management of the transaction will also affect the
notes' performance.
Loss and Cash Flow Analysis:
Moody's modeled the transaction using CDOEdge, a cash flow model
based on the Binomial Expansion Technique, as described in
Section 2.3 of the "Moody's Global Approach to Rating
Collateralized Loan Obligations" rating methodology published in
December 2015. The cash flow model evaluates all default
scenarios that are then weighted considering the probabilities of
the binomial distribution assumed for the portfolio default rate.
In each default scenario, the corresponding loss for each class
of notes is calculated given the incoming cash flows from the
assets and the outgoing payments to third parties and
noteholders. Therefore, the expected loss or EL for each tranche
is the sum product of (i) the probability of occurrence of each
default scenario and (ii) the loss derived from the cash flow
model in each default scenario for each tranche. As such,
Moody's encompasses the assessment of stressed scenarios.
Moody's used these base-case modeling assumptions:
Par amount: EUR400,000,000
Diversity Score: 35
Weighted Average Rating Factor (WARF): 2750
Weighted Average Spread (WAS): 3.9%
Weighted Average Recovery Rate (WARR): 42%
Weighted Average Life (WAL): 8 years.
Moody's has analyzed the potential impact associated with
sovereign related risk of peripheral European countries. As part
of the base case, Moody's has addressed the potential exposure to
obligors domiciled in countries with local currency country risk
ceiling of A1 or below. Following the effective date, and given
the portfolio constraints and the current sovereign ratings in
Europe, such exposure may not exceed 10% of the total portfolio.
As a result and in conjunction with the current foreign
government bond ratings of the eligible countries, as a worst
case scenario, a maximum 10% of the pool would be domiciled in
countries with A3 local currency country ceiling. The remainder
of the pool will be domiciled in countries, which currently have
a local or foreign currency country ceiling of Aaa or Aa1 to Aa3.
Stress Scenarios:
Together with the set of modeling assumptions above, Moody's
conducted additional sensitivity analysis, which was an important
component in determining the definitive rating assigned to the
rated notes. This sensitivity analysis includes increased
default probability relative to the base case. Below is a
summary of the impact of an increase in default probability
(expressed in terms of WARF level) on each of the rated notes
(shown in terms of the number of notch difference versus the
current model output, whereby a negative difference corresponds
to higher expected losses), holding all other factors equal:
Percentage Change in WARF: WARF + 15% (to 3163 from 2750)
Ratings Impact in Rating Notches:
Class A-1 Senior Secured Fixed Rate Notes: 0
Class A-2 Senior Secured Floating Rate Notes: 0
Class B-1 Senior Secured Fixed Rate Notes: -2
Class B-2 Senior Secured Floating Rate Notes: -2
Class C Senior Secured Deferrable Floating Rate Notes: -2
Class D Senior Secured Deferrable Floating Rate Notes: -2
Class E Senior Secured Deferrable Floating Rate Notes: -1
Class F Senior Secured Deferrable Floating Rate Notes: -1
Percentage Change in WARF: WARF +30% (to 3575 from 2750)
Class A-1 Senior Secured Fixed Rate Notes: -1
Class A-2 Senior Secured Floating Rate Notes: -1
Class B-1 Senior Secured Fixed Rate Notes: -3
Class B-2 Senior Secured Floating Rate Notes: -3
Class C Senior Secured Deferrable Floating Rate Notes: -3
Class D Senior Secured Deferrable Floating Rate Notes: -2
Class E Senior Secured Deferrable Floating Rate Notes: -2
Class F Senior Secured Deferrable Floating Rate Notes: -3
Given that the transaction allows for corporate rescue loans
which do not bear a Moody's rating or Credit Estimate, Moody's
has also tested the sensitivity of the ratings of the notes to
changes in the recovery rate assumption for corporate rescue
loans within the portfolio (up to 5% in aggregate). This
analysis includes haircuts to the 50% base recovery rate which we
assume for corporate rescue loans if they satisfy certain
criteria, including having a Moody's rating or Credit Estimate.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Collateralized Loan Obligations"
published in December 2015.
BACCHUS 2006-1: Moody's Raises Class E Notes Rating to Ba1
----------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the
following notes issued by Bacchus 2006-1 plc:
-- EUR19.66 million Class D Senior Secured Deferrable Floating
Rate Notes due 2022, Upgraded to Aa2 (sf); previously on
Jul 16, 2015 Upgraded to A2 (sf)
-- EUR10 million Class E Senior Secured Deferrable Floating Rate
Notes due 2022, Upgraded to Ba1 (sf); previously on Jul 16,
2015 Upgraded to Ba2 (sf)
-- EUR69 million Class Y Combination Notes, Upgraded to
Aa2 (sf); previously on Jul 16, 2015 Upgraded to Aa3 (sf)
Moody's also affirmed the ratings on the following notes issued
by Bacchus 2006-1 plc:
-- EUR25.54 million (currently EUR5,220,696.39 outstanding)
Class C Senior Secured Deferrable Floating Rate Notes due
2022, Affirmed Aaa (sf); previously on Jul 16, 2015 Upgraded
to Aaa (sf)
-- EUR5 million Class W Combination Notes, Affirmed Aaa (sf);
previously on Jul 16, 2015 Upgraded to Aaa (sf)
Bacchus 2006-1 plc, issued in March 2006, is a collateralized
loan obligation ("CLO") backed by a portfolio of mostly high-
yield senior secured European loans. The portfolio is managed by
IKB Deutsche Industriebank AG. The transaction's reinvestment
period ended in April 2012.
RATINGS RATIONALE
The rating upgrades of the notes are primarily a result of the
redemption of the senior notes and subsequent increases of the
overcollateralization ratios (the "OC ratios") of the remaining
classes of notes. Moody's notes that the class C notes have
redeemed by approximately EUR20.3 million, 80.0% of their
original balance and expects the notes to be fully redeemed at
the next payment date in April 2016. As a result of the
deleveraging the OC ratios of the remaining classes of notes have
increased significantly. According to the December 2015 trustee
report, the classes C, D and E OC ratios are 838.32%, 175.90% and
125.47% respectively compared to levels just prior to the payment
date in September 2015 of 405.32%, 158.50% and 121.01%.
The ratings on the combination notes address the repayment of the
rated balance on or before the legal final maturity. For the
Classes W and Y, the rated balances at any time are equal to the
principal amounts of the combination notes on the issue date
minus the sum of all payments made from the issue date to such
date, of either interest or principal. The rated balances will
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 balance of EUR34.4 million, a weighted average
default probability of 23.16% (consistent with a WARF of 3634 and
a weighted average life of 3.41 years), a weighted average
recovery rate upon default of 47.81% for a Aaa liability target
rating and a diversity score of 7.
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. 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.
BLACKROCK CLO I: Moody's Assigns (P)Ba2 Rating on Class E Debt
--------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following provisional ratings to notes to be issued by BlackRock
European CLO I Designated Activity Company (the "Issuer" or
"BlackRock CLO I"):
-- EUR215,000,000 Class A-1 Senior Secured Floating Rate Notes
due 2029, Assigned (P)Aaa (sf)
-- EUR21,843,000 Class A-2 Senior Secured Fixed Rate Notes due
2029, Assigned (P)Aaa (sf)
-- EUR35,000,000 Class B-1 Senior Secured Floating Rate Notes
due 2029, Assigned (P)Aa2 (sf)
-- EUR22,895,000 Class B-2 Senior Secured Fixed Rate Notes due
2029, Assigned (P)Aa2 (sf)
-- EUR22,500,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2029, Assigned (P)A2 (sf)
-- EUR19,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2029, Assigned (P)Baa2 (sf)
-- EUR24,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2029, Assigned (P)Ba2 (sf)
Moody's issues provisional ratings in advance of the final sale
of financial instruments, but these ratings only represent
Moody's preliminary credit opinions. Upon a conclusive review of
a transaction and associated documentation, Moody's will endeavor
to assign definitive ratings. A definitive rating (if any) may
differ from a provisional rating.
RATINGS RATIONALE
Moody's provisional rating of the rated notes addresses the
expected loss posed to noteholders by legal final maturity of the
notes in 2029. The provisional ratings reflect the risks due to
defaults on the underlying portfolio of loans given the
characteristics and eligibility criteria of the constituent
assets, the relevant portfolio tests and covenants as well as the
transaction's capital and legal structure. Furthermore, Moody's
is of the opinion that the Collateral Manager, BlackRock
Investment Management (UK) Limited ("BlackRock"), has sufficient
experience and operational capacity and is capable of managing
this CLO.
BlackRock CLO I is a managed cash flow CLO. At least 90% of the
portfolio must consist of secured senior loans or senior secured
bonds and up to 10% of the portfolio may consist of unsecured
senior loans, second-lien loans, high yield bonds and mezzanine
loans. The portfolio is expected to be at least 70% ramped up as
of the closing date and to be comprised predominantly of
corporate loans to obligors domiciled in Western Europe. The
remainder of the portfolio will be acquired during the six month
ramp-up period in compliance with the portfolio guidelines.
BlackRock will manage the CLO. It will direct the selection,
acquisition and disposition of collateral on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's four-year reinvestment period.
Thereafter, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
risk and credit improved obligations, and are subject to certain
restrictions.
In addition to the seven classes of notes rated by Moody's, the
Issuer will issue EUR 50,000,000 of subordinated notes. Moody's
has not assigned rating to this class of notes.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Factors that would lead to an upgrade or downgrade of the
ratings:
The rated notes' performance is subject to uncertainty. The
notes' performance is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. BlackRock's investment
decisions and management of the transaction will also affect the
notes' performance.
Loss and Cash Flow Analysis:
Moody's modeled the transaction using CDOEdge, a cash flow model
based on the Binomial Expansion Technique, as described in
Section 2.3 of the "Moody's Global Approach to Rating
Collateralized Loan Obligations" rating methodology published in
December 2015. The cash flow model evaluates all default
scenarios that are then weighted considering the probabilities of
the binomial distribution assumed for the portfolio default rate.
In each default scenario, the corresponding loss for each class
of notes is calculated given the incoming cash flows from the
assets and the outgoing payments to third parties and
noteholders. Therefore, the expected loss or EL for each tranche
is the sum product of (i) the probability of occurrence of each
default scenario and (ii) the loss derived from the cash flow
model in each default scenario for each tranche.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR 400,000,000
Diversity Score: 37
Weighted Average Rating Factor (WARF): 2750
Weighted Average Spread (WAS): 4.00%
Weighted Average Coupon (WAC): 5.50%
Weighted Average Recovery Rate (WARR): 45.00%
Weighted Average Life (WAL): 8 years
As part of the base case, Moody's has addressed the potential
exposure to obligors domiciled in countries with local currency
country risk ceiling (LCC) of A1 or below. As per the portfolio
constraints, exposures to countries with local currency country
risk ceiling rating of between A1 to A3 cannot exceed 10%.
Following the effective date, and given these portfolio
constraints and the current sovereign ratings of eligible
countries, the total exposure to countries with a LCC of A1 or
below may not exceed 10% of the total portfolio. The remainder of
the pool will be domiciled in countries, which currently have a
LCC of Aa3 and above. Given this portfolio composition, the model
was run without the need to apply portfolio haircuts as further
described in the methodology.
Stress Scenarios:
Together with the set of modelling assumptions above, Moody's
conducted an additional sensitivity analysis, which was an
important component in determining the provisional rating
assigned to the rated notes. This sensitivity analysis includes
increased default probability relative to the base case. Below is
a summary of the impact of an increase in default probability
(expressed in terms of WARF level) on each of the rated notes
(shown in terms of the number of notch difference versus the
current model output, whereby a negative difference corresponds
to higher expected losses), holding all other factors equal:
Percentage Change in WARF: WARF + 15% (to 3163 from 2750)
Ratings Impact in Rating Notches:
Class A-1 Senior Secured Floating Rate Notes: -1
Class A-2 Senior Secured Fixed Rate Notes: -1
Class B-1 Senior Secured Floating Rate Notes: -2
Class B-2 Senior Secured Fixed Rate Notes: -2
Class C Senior Secured Deferrable Floating Rate Notes: -2
Class D Senior Secured Deferrable Floating Rate Notes: -1
Class E Senior Secured Deferrable Floating Rate Notes: -1
Percentage Change in WARF: WARF +30% (to 3575 from 2750)
Class A-1 Senior Secured Floating Rate Notes: -1
Class A-2 Senior Secured Fixed Rate Notes: -1
Class B-1 Senior Secured Floating Rate Notes: -3
Class B-2 Senior Secured Fixed Rate Notes: -3
Class C Senior Secured Deferrable Floating Rate Notes: -4
Class D Senior Secured Deferrable Floating Rate Notes: -2
Class E Senior Secured Deferrable Floating Rate Notes: -2
MENOLLY HOMES: Subsidiaries Set for Liquidation
-----------------------------------------------
Irish Times reports that a number of developer Seamus Ross's
Menolly Homes group companies look set to be placed in
liquidation at a creditors' meetings Feb. 15.
Mr. Ross was one of the most active housebuilders in Dublin,
through the Menolly Homes group, over the last decade, according
to Irish Times. Last December, he became one of the well-known
developers to exit NAMA when Cardinal Capital refinanced the
final part of his group's debts, the report notes.
According to legal notices, Menolly Homes, Menolly Properties and
Menolly Construction, along with six other group companies, will
hold creditors' meetings in Lucan, Co Dublin, Feb. 15, the report
notes.
One of the subsidiaries is Brisa Developments, set up to build
and sell houses in the K Club in Co Kildare, the report relays.
It signalled several years ago that it would be wound up once
this was completed.
All nine companies will propose appointing Derek Earl --
dearl@somers.ie -- of accountants Somers, Murphy Earl --
mearl@somers.ie -- as liquidator.
Menolly Homes was a big client of the former Anglo Irish Bank and
its debt transferred Nama.
TALISMAN-6 FINANCE: S&P Reinstates CCC- Rating on Cl. C Notes
-------------------------------------------------------------
Standard & Poor's Ratings Services corrected by reinstating its
'CCC- (sf)' rating on Talisman-6 Finance PLC's class C notes.
S&P had withdrawn this rating in error on Feb. 10, 2016.
Talisman-6 Finance closed in April 2007 with notes totaling
EUR1.076 billion. The notes have a legal final maturity date in
October 2016 and a current balance of EUR260 million.
=========
I T A L Y
=========
ENEL SPA: Moody's Affirms Ba1 Rating on Subordinated Debt
---------------------------------------------------------
Moody's Investors Service has affirmed the Baa2/(P)Baa2 senior
unsecured ratings of Enel S.p.A.
At the same time, Moody's affirmed the Baa2/(P)Baa2 senior
unsecured ratings of guaranteed subsidiaries Enel Investment
Holding B.V., Enel Finance International N.V. and the debt it has
assumed of ENEL Finance International S.A., the Prime-2 (P-2)
short-term rating of Enel Finance International N.V., and the Ba1
rating of Enel's subordinated debt.
Moody's has also affirmed the Baa2/(P)Baa2 ratings of Enel-owned
Endesa S.A. and its guaranteed subsidiaries, International Endesa
B.V. and Endesa Capital, S.A.; as well as the P-2 ratings of
Endesa and International Endesa.
The outlook on all ratings is stable.
RATINGS RATIONALE
The rating affirmation follows a review by the rating agency of
Enel's exposure to a weakening power price environment. Power
prices in Italy and Spain have declined by 14% and 11%
respectively in the last three months, reflecting a fall in
commodity prices, including coal and gas which dropped by about
20% over the same period. In Italy current one-year forward
baseload prices of around EUR39/MWh are below Moody's estimates
published in June 2015 of a EUR42-47/MWh range over 2015-20. In
Spain current one-year forward baseload prices of around
EUR41/MWh are below Moody's June 2015 estimates of a EUR45-50/MWh
range over 2015-20.
The affirmation reflects both Enel's business mix and relatively
low exposure to lower power prices. It also factors in the
group's financial flexibility, which should allow it to absorb
the negative impact of a prolonged period of low power prices,
and maintain a leverage profile which is consistent with Moody's
guidance for the Baa2 rating.
Enel's generation and trading businesses in Italy and Iberia,
without considering Enel Green Power, accounted for 14% of group
EBITDA of EUR12.2 billion in the first nine months of 2015, and
it is additionally exposed to power prices in Eastern Europe
(approximately 7% of group EBITDA) mainly through its stake in
Slovenske Elektrarne, which it has entered into an agreement to
sell. Overall, however, the proportion of Enel's earnings
exposed to merchant generation in Europe is low relative to other
European utilities. Moody's estimates that approximately 70% of
group EBITDA comes from a combination of regulated/contracted
activities that support cash flow stability.
The rating affirmation therefore reflects that although lower
power prices will likely result in a reduction in the group's
operating cash flow from its market exposed generation assets in
the next two to three years as hedges roll off, Moody's expects
that the significant contribution from stable regulated/
contracted activities combined with the group's progress on
deleveraging should allow Enel to preserve its financial risk
profile in the medium term.
Enel's Baa2 rating continues to reflect (1) its large scale and
geographic diversity, with growth in its Spanish, Latin American
and renewables businesses helping offset pressure on earnings in
its core Italian markets; (2) the strategic emphasis on
investment in regulated and contracted businesses; (3) and a
slowly improving, but lacklustre, macroeconomic backdrop in Italy
and Spain.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's view that Enel's diversified
asset base and focus on reducing its exposure to commodity risk
should help offset pressures on domestic generation and network
earnings and allow it to preserve credit metrics in line with
guidance for the rating. This includes funds from operations
(FFO)/net debt of around 20% and retained cash flow (RCF)/net
debt in the mid-teens, and takes account of the dilutive effect
of sizeable minorities in core businesses.
RATIONALE FOR AFFIRMATION OF ENDESA
The affirmation of Endesa's ratings follows that of its 70.101%
ultimate parent, Enel. Its Baa2 ratings are based upon its
business and financial profile, as well as its integral position
within the broader Enel group. They take account of (1) its
position as a leading player in the Iberian market; (2) the
macroeconomic, political and regulatory challenges for utilities
in its core Iberian markets; and (3) the company's high
proportion of regulated businesses and strong liquidity position,
which provide protection against volatile market conditions.
WHAT COULD MOVE THE RATING UP/DOWN
Enel's ratings could be upgraded in the event that macroeconomic
and operating conditions were to strengthen more than expected
such that profitability and cash flow growth were to result in a
sustainable improvement in the group's financial profile -- as
would be reflected in credit metrics including FFO/net debt in
the mid-20s in percentage terms, and RCF/net debt in the high
teens.
The ratings could be downgraded if recent deleveraging momentum
were to be reversed whether because a significant downturn in the
company's operating environment and performance, or higher than
expected debt-funded investment were to result in a deterioration
in the group's financial profile such that FFO/net debt and
RCF/net debt weakened to the mid to upper-teens and low double
digits in percentage terms respectively.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Unregulated
Utilities and Unregulated Power Companies published in October
2014, and Government-Related Issuers published in October 2014.
LIST OF AFFECTED RATINGS
Issuer: Endesa Capital, S.A.
Affirmations:
Senior Unsecured MTN Program Affirmed (P)Baa2
Senior Unsecured Regular Bond/Debenture, Affirmed Baa2
Outlook, Remains Stable
Issuer: ENEL Investment Holding B.V.
Affirmations:
Senior Unsecured MTN Program, Affirmed (P)Baa2
Senior Unsecured Regular Bond/Debenture, Affirmed Baa2
Outlook, Remains Stable
Issuer: International Endesa B.V.
Affirmations:
Senior Unsecured Commercial Paper,Affirmed P-2
Senior Unsecured Regular Bond/Debenture, Affirmed Baa2
Outlook, Remains Stable
Issuer: Endesa S.A.
Affirmations:
Short-Term Rating , Affirmed P-2
Issuer: ENEL Finance International N.V.
Affirmations:
Senior Unsecured Commercial Paper, Affirmed P-2
Senior Unsecured MTN Program, Affirmed (P)Baa2
Senior Unsecured Regular Bond/Debenture,Affirmed Baa2
Outlook, Remains Stable
Issuer: ENEL Finance International S.A.
Affirmations:
Senior Unsecured Regular Bond/Debenture, Affirmed Baa2
Issuer: ENEL S.p.A.
Affirmations:
LT Issuer Rating, Affirmed Baa2
Junior Subordinated Regular Bond/Debenture, Affirmed Ba1
Subordinate Regular Bond/Debenture, Affirmed Ba1
Senior Unsecured MTN, Affirmed (P)Baa2
Senior Unsecured Regular Bond/Debenture, Affirmed Baa2
Outlook, Remains Stable
Headquartered in Rome, Italy, Enel SpA is one of the world's
leading energy providers. It reported (preliminary) group
turnover of EUR75.7 billion and EBITDA of EUR15.3 billion for
financial year 2015.
Headquartered in Madrid, Spain, Endesa S.A. is the 70.101%-owned
Spanish electric and gas subsidiary of Enel. It reported group
turnover of EUR15.4 billion and EBITDA of EUR2.8 billion in the
first 9 months of 2015.
MANUTENCOOP FACILITY: S&P Lowers Corporate Credit Rating to 'B-'
----------------------------------------------------------------
Standard & Poor's Ratings Services said it has lowered its long-
term corporate credit rating on Italy-based facility services
provider Manutencoop Facility Management SpA (MFM) to 'B-' from
'B'. The ratings remain on CreditWatch with negative
implications.
S&P has lowered its issue rating on MFM's EUR425 million senior
secured notes (outstanding nominal value of EUR293 million) to
'B-' from 'B', in line with the downgrade of MFM to 'B-'. The
issue rating remains on CreditWatch with negative implications.
The recovery rating on these notes is unchanged at '3', with
recovery prospects in the upper half of the 50%-70% range.
The downgrade follows Consip SpA's decision to initiate a
procedure to determine whether the Italian Competition
Authority's (ICA) decision to levy a EUR48.5 million fine on MFM
entitles it to terminate MFM's current school cleaning contract.
As part of the process, Consip may also decide to exclude MFM
from future tender offers within the Italian school cleaning
contracts system. S&P understands that Consip will take a
decision within the next 30 days. S&P believes an extended
period of significant uncertainty could have an influence on
MFM's operating environment and could result in contract losses
and modest new contract wins.
S&P also believes that the reputational damage could also
influence the group's efforts to arrange new long-term committed
facilities to address its liquidity needs, including the
potential EUR48.5 million ICA fine and EUR24.5 million in
performance bonds relating to the school cleaning contract
termination.
Consip is an important central purchasing body in Italy, in
charge of procurement for national and local government bodies,
and the scope of its role has expanded in recent years as various
public administration bodies are encouraged to consolidate their
procurement needs.
S&P understands Consip:
-- Accounted for about EUR140 million of MFM's revenues during
financial year 2015 (including EUR42 million relating to
Consip's school cleaning contract);
-- Accounts for about EUR300 million of MFM's EUR2.8 billion
contract backlog (including EUR68 million relating to
Consip's school cleaning contract); and
-- Accounts for about EUR1.7 billion of MFM's EUR2.4 billion
pipeline (There are no contracts relating to school
cleaning in the pipeline).
While S&P acknowledges that Consip has not yet made a final
decision, S&P believes that Consip's decision to initiate
proceedings could have significant reputational implications for
MFM. There is material uncertainty over the outcome for MFM
should Consip decide to exclude the company from school cleaning
tender and the effect this could have on other contract tenders
managed by Consip. It is also probable that Consip may decide to
postpone its decision until the final appellate court hearing
relating to the ICA fine. This, S&P believes, could extend the
period of uncertainty, which in turn, could have an influence on
the group's operating environment.
MFM stated it will appeal to the Italian administrative tribunal
(TAR) against the merits of the ICA's decision and will also seek
suspension of the EUR48.5 million penalty payment until the
appeal process is completed. Given the material uncertainty
about the likely outcome of TAR's decision, S&P has not included
the payment of a fine in itsour base-case assumptions. However,
there could be a scenario where the TAR (first appeal) and the
Council of State (second and last appeal) rule not to suspend the
paying of the fine, resulting in MFM having to pay the penalty
amount before the end of April 2016. S&P considers the
probability of this scenario as less likely, but if this is the
case, S&P believes that MFM would be subject to a liquidity
shortage unless additional new committed sources of funding are
put in place.
In S&P's base case, it assumes:
-- Italy's GDP will increase by 1.3% in 2016;
-- Forecast revenue to decline by 5%-10% in the financial year
ending Dec. 31, 2016 (FY16) due to competitive pricing, the
potential contract cancellation, and the company winning
fewer new contracts; and
-- Forecast reported EBITDA could decline to about
EUR75 million-EUR80 million. S&P understands that
management's forecast for revenue and EBITDA are relatively
higher than S&P's base case.
Based on these assumptions, S&P arrives at these credit measures:
-- Adjusted ratio of debt to EBITDA of about 5.7x-6.0x for
FY16.
At this juncture, S&P continues to consider that MFM's capital
structure is sustainable.
The negative CreditWatch reflects S&P's view that it could lower
the ratings further due to the possible repayment of the ICA fine
by the end of April or if there is significant deterioration in
the company's operating environment, resulting in unsustainable
business or capital structure.
S&P could affirm the ratings if MFM is able to put in place new
committed funding to meet any potential payment of fines and
performance bonds, or if there is a favorable decision from TAR,
the fine is materially reduced, or Consip decides against
cancelling MFM's contract.
===============
P O R T U G A L
===============
ENERGIAS DE PORTUGAL: Moody's Affirms Ba2 Sub. Debt Rating
----------------------------------------------------------
Moody's Investors Service has affirmed the Baa3/Prime-3 senior
unsecured debt and issuer ratings of EDP - Energias de Portugal,
S.A. (EDP, the group), EDP Finance B.V. and Hidroelectrica del
Cantabrico, S.A. Moody's also affirmed the Ba2 subordinated debt
rating. The outlook on all ratings is stable.
RATINGS RATIONALE
The rating affirmation follows a review by the rating agency of
EDP's exposure to a weakening power price environment. Power
prices in Iberia have declined by 11% in the past three months,
reflecting a fall in commodity prices, including coal and gas
which dropped by about 20% over the same period. Current one-
year forward baseload prices of around EUR41/MWh are below
Moody's estimates published in June 2015 of a EUR45-50/MWh range
over 2015-20.
The affirmation reflects EDP's business mix and relatively low
exposure to lower power prices. It also factors in the group's
financial flexibility which should allow it to absorb the
negative impact of a prolonged period of low power prices, and
maintain a leverage profile consistent with Moody's guidance for
the Baa3 rating.
The proportion of EDP's earnings exposed to merchant generation
in Europe is low by comparison with other European utilities.
Moody's estimates that overall earnings from regulated
distribution networks and contracted generation activities
(renewables and conventional) accounted for around 90% of
adjusted EBITDA in the first three quarters of 2015, although
this will reduce to around 70% by 2017.
The rating affirmation therefore reflects that although lower
power prices will likely result in a reduction in EDP's operating
cash flow from its market exposed generation assets in the next
two to three years as hedges roll off, Moody's expects that the
significant contribution from stable regulated/contracted
activities combined with the group's slow but steady de-
leveraging should allow EDP to preserve its financial risk
profile in the medium term.
EDP's Baa3 rating continues to factor in (1) that the Portuguese
economy has been on an improving trend since early 2014, after
three years of contraction; (2) signs that the tariff deficit
borne by Portugal's electricity system is gradually stabilizing
in 2015 and expected to decrease in subsequent years, and the
lower likelihood that further regulatory cuts will be needed; (3)
the continued support of its strategic shareholder, China Three
Gorges Corporation; and (4) the group's solid liquidity. The
rating continues to incorporate a number of risks, which include:
(1) the negative effect of an uncertain economic outlook and weak
hydrological conditions on the profitability, liquidity and
capitalization of the group's Brazilian operations; (2) the
residual risk that a change in economic and market conditions
(and therefore variables including the pace of electricity demand
recovery, access tariff increases, and the level of renewable
energy system costs) causes the tariff deficit to resume growing
beyond 2015, and reduces the appetite for monetization of
receivables; and (3) the group's relatively high dividend payout
and leverage.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on all ratings is based upon EDP's continued
and consistent delivery of EBITDA growth, capital discipline and
deleveraging in accordance with its strategic plan, such that
RCF/net debt is sustainably in the low double digits and FFO/net
debt in the mid-teens by 2015/16.
RATIONALE FOR AFFIRMATION OF HIDROELECTRICA DEL CANTABRICO
The affirmation of the Baa3/Prime-3 ratings of Hidroelectrica del
Cantabrico (HC Energia) follows that of its 99.87% parent, EDP.
Its ratings reflect the small size of the company, and its close
integration into EDP. This allows its parent to implement its
pan-Iberian strategy and operate a complementary generation
portfolio more effectively, given the strong hydro component in
the Portuguese generation fleet versus HC Energia's strong
thermal bias in its plants. As a result of (i) EDP's influence
over HC Energia's business and financial profile, and (ii) its
access to liquidity via its parent, HC Energia's rating is
closely aligned with that of its parent.
WHAT COULD MOVE THE RATING UP/DOWN
The rating could be upgraded in the event that improving
conditions were to be reflected in more rapid and extensive de-
leveraging than currently contemplated, such as would be
reflected in RCF/net debt in the mid-teens and FFO/net debt of
around 20% on a sustainable basis.
The rating could be downgraded if deleveraging were to be
significantly delayed or there were a significant downturn in the
company's operating environment, as would be evidenced by RCF/net
debt and FFO/net debt in single digits and the low-teens
respectively.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Unregulated
Utilities and Unregulated Power Companies published in October
2014.
LIST OF AFFECTED RATINGS
Issuer: EDP - Energias de Portugal, S.A.
Affirmations:
LT Issuer Rating , Affirmed Baa3
Junior Subordinated Regular Bond/Debenture, Affirmed Ba2
BACKED Senior Unsecured MTN, Affirmed (P)Baa3
Commercial Paper, Affirmed P-3
Outlook, Remains Stable
Issuer: EDP Finance B.V.
Affirmations:
BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
BACKED Senior Unsecured MTN, Affirmed (P)Baa3
BACKED Commercial Paper, Affirmed P-3
Outlook, Remains Stable
Issuer: Hidroelectrica del Cantabrico, S.A.
Affirmations:
LT Issuer Rating, Affirmed Baa3
Commercial Paper, Affirmed P-3
Outlook, Remains Stable
EDP based in Lisbon, Portugal, is the country's largest
vertically integrated utility. The company also has interests in
Spain, Brazil and the US. It is active in the renewables sector
through EDP Renovaveis. In the first three quarters of 2015, EDP
had revenues of EUR11.6 billion and EBITDA of EUR3 billion.
Hidroelectrica del Cantabrico, headquartered in Oviedo, Spain, is
the 99.87%-owned Spanish electric and gas subsidiary of EDP. In
FYE 2014, it had revenues of EUR4.1 billion and operating profit
of EUR270 million.
===========
R U S S I A
===========
BENEFIT-BANK JSC: Deemed Insolvent, Prov. Administration Halted
---------------------------------------------------------------
The Arbitration court of the city of Moscow entered a ruling
dated January 27, 2016, on case A40-226048/15-38-631B, on
recognizing that credit institution closed joint-stock company
Joint-stock Commercial Bank Benefit-bank is insolvent and
ordering the appointment of a receiver for the entity.
Accordingly, by virtue of the Arbitration Court ruling, the Bank
of Russia decided (via Order No. OD-503, dated February 12, 2016)
to terminate from February 15, 2016, the activity of the
provisional administration of Benefit-bank.
The Bank of Russia previously appointed the provisional
administration of JSCB Benefit-bank, via Order No. OD-2980, dated
November 2, 2015, following the revocation of the entity's
banking license.
EUROCREDIT LLC: Deemed Insolvent, Prov. Administration Halted
-------------------------------------------------------------
The Court of Arbitration of Moscow issued a ruling dated January
26, 2016, with regard to case No. A40-242071/15-38-659B,
recognizing that Commercial Bank Eurocredit LLC is insolvent
(bankrupt) and ordering the appointment of a receiver for the
entity.
Accordingly, by virtue of the Arbitration Court's ruling, the
Bank of Russia entered a decision, Order No. OD-501, to terminate
from February 12, 2016, the activity of the provisional
administration of Eurocredit LLC.
The Bank of Russia previously appointed the provisional
administration of Eurocredit LLC, by Order No. OD-3465 dated
December 4, 2015, following the revocation of the entity's
banking license.
KAPITALBANK OJSC: Placed Under Provisional Administration
---------------------------------------------------------
The Bank of Russia, by its Order No. OD-521, dated February 15,
2016, revoked the banking license of Rostov-on-Don-based credit
institution Rostov-on-Don Joint-stock Commercial Bank
Kapitalbank, open joint-stock company, or OJSC JSCB Kapitalbank
from February 15, 2016.
The Bank of Russia took such an extreme measure -- revocation of
the banking license -- because of the credit institution's
failure to comply with federal banking laws and Bank of Russia
regulations, and repeated application within a year of measures
envisaged by the Federal Law "On the Central Bank of the Russian
Federation (Bank of Russia)", taking into account a real threat
to the interests of creditors and depositors.
OJSC JSCB Kapitalbank implemented high-risk lending policy and
deposited funds in low-quality assets. Adequate assessment of
the risks assumed and fair presentation of the bank's assets
resulted in the reasons for implementing insolvency (bankruptcy)
prevention measures by the credit institution. The management
and owners of the bank did not take required measures to
normalize its activities.
The Bank of Russia, by its Order No. OD-522, dated February 15,
2016, appointed a provisional administration to OJSC JSCB
Kapitalbank for the period until the appointment of a receiver
pursuant to the Federal Law "On Insolvency (Bankruptcy)" or a
liquidator under Article 23.1 of the Federal Law "On Banks and
Banking Activities". In accordance with federal laws, the powers
of the credit institution's executive bodies are suspended.
OJSC JSCB Kapitalbank is a member of the deposit insurance
system. The revocation of banking license is an insured event
envisaged by Federal Law No. 177-FZ "On Insurance of Household
Deposits with Russian Banks" regarding the bank's obligations on
deposits of households determined in accordance with the
legislation. This Federal Law provides for the payment of
insurance indemnity to the bank's depositors, including
individual entrepreneurs, in the amount of 100% of their balances
but not exceeding the total of 1.4 million rubles per depositor.
According to the financial statements, as of February 1, 2016,
OJSC JSCB Kapitalbank ranked 364th by assets in the Russian
banking system.
KHANTY-MANSIYSK: S&P Affirms 'BB+' ICR, Outlook Negative
--------------------------------------------------------
Standard & Poor's Ratings Services affirmed its 'BB+' long-term
issuer credit rating on Russian region Khanty-Mansiysk Autonomous
Okrug (KMAO). The outlook is negative.
At the same time, S&P affirmed its 'ruAA+' Russia national scale
rating on KMAO.
RATIONALE
S&P caps the long-term rating on KMAO at the level of the 'BB+'
long-term foreign currency sovereign credit rating on Russia. In
S&P's view, KMAO does not meet the criteria under which S&P would
rate a local or regional government (LRG) higher than its
sovereign.
Based on KMAO's intrinsic credit strengths and in accordance with
S&P's criteria, it assess its stand-alone credit profile (SACP)
at 'bbb-'. The SACP is not a rating but a means of assessing the
intrinsic creditworthiness of an LRG under the assumption that
there is no sovereign rating cap.
The SACP assessment on KMAO reflects the okrug's strong
liquidity, very low contingent liabilities, low debt, and average
budgetary performance. S&P assess KMAO's economy as average
overall and neutral for its creditworthiness because its very
high wealth levels are subject to high concentration and the
economy has only limited growth prospects, in S&P's opinion.
The SACP is constrained by S&P's view of Russia's volatile and
unbalanced institutional framework and weak budgetary
flexibility. S&P also takes into account the okrug's weak
financial management in an international context.
KMAO is very wealthy by international standards, with the gross
regional product (GRP) per capita at about $43,000 on average in
2013-2015. But its economy is highly concentrated on the
cyclical oil production industry. The okrug accounts for more
than 45% of Russia's oil production, and the oil sector
contributes 60% of the region's GRP. Moreover, the overall
medium- to long-term prospects of output growth remain severely
constrained. Economic growth in KMAO has slowed since the mid-
2000s, owing to the depletion of mature oil basins.
Like that of Russian peers, KMAO's financial position is highly
dependent on the federal government's decisions under Russia's
institutional framework. Decisions regarding regional revenues
and expenditures are centralized at the federal level, leaving
little budgetary flexibility to the okrug's authorities. More
than 90% of KMAO's tax revenues are controlled by federal
legislation, which obstructs the okrug's ability to address
potential revenue volatility.
S&P believes that KMAO's budgetary performance will likely stay
average by international standards over the medium term. S&P
forecasts that KMAO's operating balance will be about 4% of
operating revenues on average in 2016-2018, down from more than
10% over 2013-2015. S&P forecasts that in 2016-2018 revenue
growth will be subject to variability due to its high correlation
with the oil industry that S&P expects to exhibit significant
volatility. In 2014-2015, KMAO's tax revenue growth was
supported by the strong financial performance of the oil
industry. However, S&P expects this growth will decelerate as
the depreciation effect on exporters' profits will be exhausted
and the oil price stays low. In 2015, the personal income tax
(PIT) rate demonstrated an almost 20% increase compared with the
previous year, following a change in the portion of the tax
distributed between the okrug and municipalities. S&P believes
PIT growth will decelerate and remain below inflation during
2016-2018. The okrug's revenues continue to be supported by the
property tax increase, thanks to the cancellation of a property
tax relief that was granted to corporate entities on the federal
level a few years ago.
"At the same time, we expect expenditure growth to stay broadly
in line with inflation. Based on KMAO's track record, management
effectively controls spending, and we think there is leeway in
particular within its capital program. In 2015, KMAO's spending
included a Russian ruble (RUB) 11.5 billion (approximately $149
million at the time of publication) rescue facility (about 5% of
operating revenues) provided by the okrug to UTair Aviation, a
Russian airline headquartered in KMAO. As a result, the okrug
has acquired 38.8% of UTair. The airline recently suffered
financial distress due to the re-evaluation of its foreign-
currency leasing liabilities, and it restructured its bank debt.
Given the airline's poor financial shape and the okrug's
willingness to provide financial support, we include UTair's
liabilities in our calculation of the okrug's tax-supported debt.
We expect the deficit after capital accounts will average 5% of
total revenues in 2016-2018, compared with 3% in 2015-2018," S&P
said.
S&P believes that okrug's debt burden will remain low. Following
the consolidation of UTair's liabilities in 2016, S&P anticipates
that the okrug's tax-supported debt will reach 48% of
consolidated operating revenues at year-end 2018.
In S&P's view, KMAO's contingent liabilities are very low. S&P
estimates that the extraordinary financial support that its
government-related entities (GREs) might need over the next two
years is unlikely to exceed 2% of its operating revenues,
including any financing provided to KMAO's pension plan.
S&P views KMAO's financial management as weak in an international
comparison, as S&P do that of most Russian LRGs. This is mainly
because the region lacks reliable long-term financial and capital
planning, including that for its GRE sector. Nevertheless, S&P
believes the okrug will maintain a cautious liquidity policy with
ample cash reserves and a smooth debt repayment schedule. Also,
the region has a solid track record of cutting expenditures when
faced with revenue stress.
S&P might revise the SACP downward if consistently larger-than-
anticipated deficits after capital accounts and new sizable
short-term borrowing constrains the okrug's liquidity.
LIQUIDITY
S&P revised its assessment of KMAO's liquidity to strong from
adequate, based on S&P's view of the region's exceptional
internal liquidity position, combined with its limited access to
external liquidity. S&P now forecasts that, throughout 2016,
KMAO's average free cash, net of the deficit after capital
accounts, will be about RUB47.8 billion. This amount will exceed
the okrug's very low debt service over the next 12 months, which
S&P estimates at RUB6.5 billion, by a comfortable margin.
S&P believes that the okrug could spend part of its current cash
reserves in 2016 due to potentially weaker operating results.
Similar to S&P's opinion of KMAO's Russian peers, S&P views the
okrug's access to external liquidity as limited because of the
weaknesses of the domestic capital market and the banking system.
OUTLOOK
The negative outlook reflects S&P's outlook on Russia. Any
rating action S&P takes on the sovereign would likely be followed
by a similar action on KMAO, as long as the okrug's intrinsic
credit characteristics remain aligned with those in S&P's base
case. S&P views an intrinsic downside scenario as highly
unlikely because the SACP assessment on KMAO is higher than the
long-term rating.
S&P would likely revise the outlook on KMAO to stable, all else
being equal, if S&P revised the outlook on Russia to stable, and
if the okrug's performance remained within our base-case
projections.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable. At the onset of the committee, the chair
confirmed that the information provided to the Rating Committee
by the primary analyst had been distributed in a timely manner
and was sufficient for Committee members to make an informed
decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity
to articulate his/her opinion. The chair or designee reviewed
the draft report to ensure consistency with the Committee
decision. The views and the decision of the rating committee are
summarized in the above rationale and outlook. The weighting of
all rating factors is described in the methodology used in this
rating action.
RATINGS LIST
Rating Rating
To From
Khanty-Mansiysk Autonomous Okrug
Issuer Credit Rating
Foreign and Local Currency BB+/Neg./-- BB+/Neg./--
Russia National Scale ruAA+/--/-- ruAA+/--/--
POLYUS GOLD: S&P Lowers CCR to 'BB-', Outlook Stable
----------------------------------------------------
Standard & Poor's Ratings Services lowered its long-term
corporate credit rating on Russian gold miner Polyus Gold
International Ltd. to 'BB-' from 'BB+'. The outlook is stable.
S&P removed the rating from CreditWatch, where it had placed it
with negative implications on Nov. 12, 2015.
The downgrade follows the acquisition of Polyus by Wandle
Holdings Ltd., a financial vehicle ultimately controlled by the
Suleyman Kerimov Foundation and Mr. Said Kerimov, and also
reflects the subsequent changes in Polyus' capital structure.
In November 2015, Wandle completed the acquisition of 60% of
Polyus' shares. Polyus then delisted its shares from the London
Stock Exchange. The subsidiary OJSC Polyus Gold remained listed
on the Moscow Exchange (free float of 4.7%). The acquisition
imparted a value of $9.1 billion to Polyus. S&P understands that
the acquisition was funded by a $5.5 billion bridge facility,
including some short-term tranches. As of Dec. 31, 2014, Wandle
had existing short-term debt of about $3.0 billion, which was
secured against its previous 40% stake in Polyus. S&P has
limited visibility on debt structure at the parent company post
the completion of the acquisition.
Recently, Polyus signed a $2.5 billion facility with Sberbank,
which could be used to make a special dividend, in S&P's view.
Given Polyus' very comfortable debt position (as of Dec. 31,
2015, it had net debt of $143 million with cash on hand of about
$2.0 billion), a distribution of a hefty dividend will have a
material impact on the company's leverage. Under S&P's base-case
scenario, it projects FFO-to-debt to be 30%-35% over the forecast
horizon.
Given the limited visibility on the assets and liabilities of the
Kerimov Foundation, S&P considers Polyus to be the sole source
servicing the debt at Wandle's level. S&P cannot exclude
potential further dividend pay-outs. As a result, S&P has
lowered Polyus' stand-alone credit profile by two notches to
'bb-'.
Under S&P's base-case scenario, it projects that Polyus' adjusted
EBITDA will be about $750 million-$800 million in 2015 (excluding
the losses on the currency hedging, EBITDA is estimated at $1.2
billion-$1.25 billion) and $1.2 billion-$1.3 billion in 2016 and
2017. S&P's base-case scenario assumes:
-- A gold price of $1,150/oz for 2016 and for 2017, compared
with a gold price of $1,170/oz in 2015. In addition, S&P
assumes that the company will see a further $75/oz benefit
from its revenue stabilizer mechanism in 2016.
-- Total attributable production of 1.76 million-1.80 million
ounces in 2016, in line with the company's guidance. S&P
factors in an increase in production starting 2017, when
the company plans to ramp-up its Natalka project, as well
as other brownfield projects.
-- 65 rubles per U.S. dollar in 2016 and 2017 (current spot
price is around 77 rubles). If using current exchange
rate, the EBITDA would increase by more than $100 million.
-- Change in capital expenditure (capex) plans. Over the last
two years, amid a lower gold price environment, the company
has taken what S&P views as very prudent capex decisions.
S&P understands that the capex budget is expected to
increase to about $600 million-$700 million for the next
few years.
-- A special dividend in 2016 and ongoing dividend of 30% of
net income.
S&P assesses Polyus' liquidity as adequate. S&P estimates the
ratio of sources to uses of liquidity to be more than 2.0x in
2016, after the payout of the special dividend.
Under S&P's base-case scenario, it projects these liquidity
sources as of Jan. 1, 2016:
-- About $2.0 billion of cash, excluding $100 million of cash
that S&P estimates is not immediately available for debt
repayment.
-- FFO of about $0.9 billion for 2016.
-- $2.5 billion long-term facility recently secured from
Sberbank.
S&P projects these consolidated uses of liquidity as of Jan. 1,
2016:
-- Sizable capex of about $0.7 billion in 2016. S&P
understands that the maintenance capex is below $200
million. However, given that most of the expansion
programs are already underway, S&P sees a high level of
commitment to finish them. Modest debt maturities in 2016.
The company's main $750 million Eurobond matures in 2020.
-- A special dividend. No material investment in working
capital, as S&P expects flat prices and volumes compared to
2015.
The stable outlook reflects the group's adequate liquidity, post
a potential special dividend, and strong free operating cash
flows. S&P also assumes that the Russian gold miner Polyus will
be able to execute its various ongoing expansion projects.
S&P could consider a downgrade if Polyus' adjusted ratio of FFO
to debt dropped below 30%, without any near-term prospects of
improvement, or if FOCF turned negative. This could be triggered
if the company embarked on more capex and dividends than S&P
currently factored into its base case.
An upgrade is unlikely over the next 12-18 months. An upgrade
will be ultimately linked to S&P gaining a clearer picture of the
debt position at Wandle and how this impacts the risk of
extraordinary dividends from Polyus.
STRUCTURAL SUBORDINATION
The issue rating on the company's $750 million senior unsecured
note due 2020 is 'BB-', in line with the corporate credit rating.
S&P understands that the notes are ranked pari passu with the
bank debt. Moreover, in S&P's view, the liabilities that it
views as ranking prior to the notes comprise less than 15% of the
group's total assets.
SAMARA CITY: Fitch Affirms 'BB+' LT Issuer Default Ratings
----------------------------------------------------------
Fitch Ratings has affirmed the Russian City of Samara's Long-term
foreign and local currency Issuer Default Ratings (IDRs) at 'BB+'
with Stable Outlooks, Short-term foreign currency IDR at 'B' and
its National Long-term rating at 'AA(rus)' with a Stable Outlook.
The affirmation reflects Fitch's unchanged base line scenario
that the city will continue to record stable operating balance in
line with 2015 actuals and moderate direct risk, which growth
will be limited by narrowing fiscal deficit.
KEY RATING DRIVERS
The 'BB+' rating reflects the city's stable budgetary performance
underpinned by a diversified local economy and potential
financial support from Samara Region. It also factors in the
city's moderate direct risk, albeit with a high bias toward
short-term bank loans. This exposes the city to high refinancing
risk and makes Samara dependent on access to financial markets in
order to refinance maturing debt.
Fitch expects the operating balance to hover close to a sound
11%-12% of operating revenue in 2016-2018, which is in line with
the 2015 outrun of 12%. This is slightly below the strong average
of 16% in 2013-2014, but still commensurate with Samara's rating.
The weaker 2015 operating balance derived from city's tax revenue
contraction by 10% as a result of the weak economic environment.
Growth in current transfers and cost-efficiency measures
implemented by the administration help mitigate tax revenue drop
but cannot fully compensate it.
Weaker operating balance and increased interest expenditure
caused narrowing of current balance, which led to reduction in
city's self-financing capacity for capex and induced widening of
deficit before debt variation to 5.6% of total revenue in 2015
(2014: -1.6%). The city intends to conduct a prudent budgetary
policy and budgeted zero deficit for 2016-2018. However, Fitch
expects that weak economic environment will curb tax revenue
recovery and city's deficit before debt variation stays at 2.5%
of total revenue in 2016 and gradually narrow to 2% in 2017-2018.
According to Fitch's projections, the city's direct risk will
remain moderate at RUB7.7 billion (35.8% of current revenue) by
end-2016, slightly up from RUB7.1 billion (35.1%) a year earlier.
The prudent budgetary policy of the city's administration aiming
to limit fiscal deficit should lead to direct risk stabilization
below 40% of current revenue in 2017-2018. Contingent risk is low
as the city does not have outstanding guarantees and its public
sector entities are self-sufficient.
Despite the moderate debt burden, Samara is exposed to
refinancing risk as it mostly relies on short-term bank loans for
deficit financing. By end-2016 the city needs to refinance RUB6
billion of maturing bank loans. To meet this obligation, in
December 2015 the city contracted several revolving credit lines
with banks with two years maturity. Most of these credit
facilities were not used and are available at first demand. At 1
January 2016, these credit lines amounted to RUB3.5 billion and
cover about 60% of bank loans due till year-end. Fitch expects
the city to be able to roll over the remaining maturing bank
loans, although the short-term tenor of its loans means that it
will continue to face refinancing risk.
With a population of above one million, the city is the capital
of Samara region, which has a well-developed diversified economy,
based on a processing industries and services. However, Fitch
estimates there was a 3.5% contraction of national GDP in 2015,
and expects a further 1% decline in 2016. We believe the city
will also face a slowdown of its economic activity, which would
have negative repercussions for the city's tax revenue.
RATING SENSITIVITIES
A strong budgetary performance with sustainable operating margin
above 15% and maintenance of moderate debt with lengthening of
debt maturity profile in line with debt payback (direct risk to
current revenue, 2015: 4 years) could lead to an upgrade.
Continuous deterioration of the budgetary performance leading to
a direct risk growth above 50% of current revenue (2015: 35.2%)
driven by short-term financing would lead to a downgrade.
SMOLENSK REGION: Fitch Withdraws 'B+' Issuer Default Ratings
------------------------------------------------------------
Fitch Ratings has withdrawn Russian Smolensk Region's Long-term
foreign and local currency Issuer Default Ratings (IDRs) of 'B+'
and National Long-term rating of 'A-(rus)', both with Stable
Outlooks, and its Short-term foreign currency IDR of 'B'.
Smolensk Region's outstanding senior unsecured domestic bonds'
ratings of 'B+' and 'A-(rus)' have also been withdrawn.
Fitch has chosen to withdraw the ratings of Smolensk region for
commercial reasons.
SURGUT CITY: S&P Affirms 'BB+' ICR, Then Withdraws Rating
---------------------------------------------------------
Standard & Poor's Ratings Services affirmed its 'BB+' long-term
issuer credit rating and its 'ruAA+' Russia national scale rating
on the Russian City of Surgut. S&P subsequently withdrew the
ratings at the issuer's request. At the time of the withdrawal,
the outlook was negative.
RATIONALE
S&P capped the long-term rating on Surgut at the level of S&P's
'BB+' long-term foreign currency rating on the Russian
Federation. In S&P's view, Surgut did not meet the criteria under
which S&P would rate a local or regional government (LRG) higher
than its sovereign.
Based on Surgut's intrinsic credit strengths, and in accordance
with S&P's criteria, at the time of the withdrawal, S&P assessed
the city's stand-alone credit profile (SACP) at 'bbb-'. The SACP
is not a rating but a means of assessing the intrinsic
creditworthiness of an LRG under the assumption that there is no
sovereign rating cap.
The SACP on Surgut was supported by the city's average budgetary
performance based on its strong financial results that S&P
adjusts for the city's volatility, very low debt burden,
exceptional liquidity, and very low contingent liabilities.
S&P's view of the volatile and unbalanced institutional framework
for Russian cities, Surgut's weak budgetary flexibility and
predictability, and the city's overall weak economy constrained
the SACP. Despite being very wealthy compared with peers,
Surgut's economy suffers from limited growth prospects and
exposure of the tax base to the volatile oil industry. S&P
viewed the city's financial management as satisfactory for the
SACP, which compares favorably with most Russian peers.
S&P also believed that Surgut's high dependence on transfers from
Khanty-Mansiysk Autonomous Okrug (KMAO) constrained the SACP.
In an international context, Surgut's economic wealth is higher
than average because of oil production in the surrounding region.
However, the city's economic and tax base is concentrated on the
oil industry, which exposes its budget revenues to volatility. A
single enterprise, Surgutneftegas -- one of Russia's largest oil
producers -- employs about 15% of the city's workforce and
accounts for more than 35% of its tax revenues, primarily via
personal income tax (PIT) paid by its employees. S&P also
factors in the city's limited growth prospects compared with
peers', owing to the gradual depletion of the oil fields, which
in turn undermines production levels.
In S&P's opinion, Surgut's budgetary flexibility is also
restricted by its dependence on decisions by the federal
government and KMAO regarding municipal revenues and spending
responsibilities. About 90% of total revenues are not regulated
by the city, and there is limited predictability of KMAO's and
the federal government's decisions. KMAO sets an additional
share of PIT that the city receives on top of what is outlined in
the federal budget code. This share, fixed in KMAO's one-year
budget, represents over 50% of the city's PIT.
If KMAO were continuously under financial pressure, it could
reduce this share, cutting Surgut's budget revenues.
S&P believes that the city's budgetary performance will likely
stay average by international standards in the medium term.
S&P's scenario is based on what it regards as an established
track record of cautious spending policies, which will allow the
city to continue posting strong operating margins of about 6.5%
of operating performance in 2016-2018. This will, however, be
somewhat weaker than 2015, when the city posted an exceptionally
strong operating surplus of 13.8% on the back of strong grants
from KMAO (35% growth year on year) which benefited from the deep
ruble depreciation in late 2014-2015. In S&P's assessment, it
therefore factors in the potential volatility of the city's
performance due to low visibility of KMAO's tax-sharing and
grant-allocation policies.
In addition, S&P thinks that co-financing and direct investment
in Surgut's infrastructure from higher-tier budgets should
support its balance after capital accounts and translate into
only moderate deficits of about 3.6% of total revenues over 2016-
2018, which will be higher than 2.8% on average in 2013-2015.
Given that Surgut's infrastructure is already in better shape
than the average for LRGs in Russia, S&P believes that the city,
if needed, could downsize the self-financed part of its capital
spending program, which represents less than 10% of total
expenditures.
Under S&P's base-case scenario, it therefore assumes that Surgut
will incur only modest new borrowing (if any) and that tax-
supported debt will remain very low over the medium term. S&P
forecasts that tax-supported debt will remain below 15% of
consolidated operating revenues until the end of 2018, and will
mostly consist of medium-term bank loans that the city incurs and
repays gradually. S&P includes in tax-supported debt guarantees
that Surgut has provided for local water, sewage, and housing
construction projects, and the minor debt of city-owned
companies. In S&P's view, the amount of contingent liabilities is
very low because Surgut has limited involvement in the local
economy.
S&P sees Surgut's financial management practices as satisfactory
for its creditworthiness in a global context. In S&P's opinion,
the city has a sound track record of implementing a cautious
financial policy and strict control over expenditures. S&P also
recognizes the city's prudent approach to debt and liquidity
management, and S&P thinks these compare favorably among most
Russian peers.
LIQUIDITY
S&P considers Surgut's liquidity to be exceptional, based on a
combination of an exceptional debt-service coverage ratio and
limited access to external liquidity. S&P expects that the
city's average cash reserves net of the deficit after capital
accounts will exceed its very low debt service falling due in the
next 12 months by more than 6x.
During the past 12 months, Surgut's cash stood at Russian ruble
(RUB) 1.6 billion (about US$22.5 million) on average. S&P
expects that in 2016, the city's average cash position, factoring
in deficit financing needs, will exceed the city's debt service
of about RUB200 million by a comfortable margin. In S&P's
assessment of the city's liquidity, S&P also factors in Surgut's
robust cash-flow-generating capacity, thanks to a high projected
operating balance in the next few years.
OUTLOOK
At the time of the withdrawal, the outlook was negative,
reflecting S&P's outlook on Russia. If S&P had not withdrawn the
rating on Surgut, any rating action S&P would have taken on the
sovereign would likely have been followed by a similar action on
Surgut, as long as the city's intrinsic credit characteristics
remained aligned with S&P's base-case scenario.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable. At the onset of the committee, the chair
confirmed that the information provided to the Rating Committee
by the primary analyst had been distributed in a timely manner
and was sufficient for Committee members to make an informed
decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity
to articulate his/her opinion. The chair or designee reviewed
the draft report to ensure consistency with the Committee
decision. The views and the decision of the rating committee are
summarized in the above rationale and outlook. The weighting of
all rating factors is described in the methodology used in this
rating action.
RATINGS LIST
Rating Rating
To From
Surgut (City of)
Issuer Credit Rating
Foreign and Local Currency BB+/Neg./-- B+/Neg./--
Russia National Scale ruAA+/--/-- ruAA+/--/--
Ratings Subsequently Withdrawn
Surgut (City of)
Issuer Credit Rating
Foreign and Local Currency NR BB+/Neg./--
Russia National Scale NR ruAA+/--/--
NR -- Not rated.
UNITED NATIONAL: Deemed Insolvent, Prov. Administration Halted
--------------------------------------------------------------
The Court of Arbitration of the Nizhny Novgorod Region, entered a
ruling dated February 1, 2016, with regard to case No. A43-
27886/2015, on recognizing insolvent (bankrupt) the credit
institution United National Bank, LLC, and appointing a receiver
in compliance with Clause 3 of Article 18927 of the Federal Law
"On the Insolvency (Bankruptcy).
Accordingly, by virtue of the Arbitration Court ruling, the
Bank of Russia took a decision (Order No. OD-505, dated February
12, 2016) to terminate from February 15, 2016, the activity of
the provisional administration of United National Bank.
Previously, the Bank of Russia, via Order No. OD-2663, dated
October 6, 2015, ordered the appointment of provisional
administration to United National Bank, following the revocation
of the entity's banking license.
UNIVERSALNYE FINANCY: Placed Under Provisional Administration
-------------------------------------------------------------
The Bank of Russia, by its Order No. OD-523, dated February 15,
2016, revoked the banking license of Moscow-based credit
institution Joint-stock Company Commercial Bank Universalnye
Financy or UNIFINBANK from February 15, 2016.
The Bank of Russia took such an extreme measure -- revocation of
the banking license -- because of the credit institution's
failure to comply with federal banking laws and Bank of Russia
regulations, inability to satisfy its creditors' claims on
monetary liabilities, and taking into account the repeated
application within a year of measures envisaged by the Federal
Law "On the Central Bank of the Russian Federation (Bank of
Russia)".
Due to the fact that UNIFINBANK failed to meet its obligations to
creditors on a timely basis, the Bank of Russia performed its
duty on the revocation of the banking license from the credit
institution in accordance with Article 20 of the Federal Law "On
Banks and Banking Activities".
The Bank of Russia, by its Order No. OD-524, dated February 15,
2016, has appointed a provisional administration to UNIFINBANK
for the period until the appointment of a receiver pursuant to
the Federal Law "On the Insolvency (Bankruptcy)" or a liquidator
under Article 23.1 of the Federal Law "On Banks and Banking
Activities". In accordance with federal laws, the powers of the
credit institution's executive bodies are suspended.
UNIFINBANK is a member of the deposit insurance system. The
revocation of the banking license is an insured event as
stipulated by Federal Law No. 177-FZ "On the Insurance of
Household Deposits with Russian Banks" in respect of the bank's
retail deposit obligations, as defined by law. The said Federal
Law provides for the payment of indemnities to the bank's
depositors, including individual entrepreneurs, in the amount of
100% of the balance of funds but no more than 1.4 million rubles
per one depositor.
According to the financial statements, as of February 1, 2016,
UNIFINBANK ranked 239th by assets in the Russian banking system.
=========
S P A I N
=========
CATALONIA: Fitch Affirms 'BB' Long-Term Issuer Default Ratings
--------------------------------------------------------------
Fitch Ratings has affirmed the Autonomous Community of
Catalonia's Long-term foreign and local currency Issuer Default
Ratings (IDRs) at 'BB' with Negative Outlooks. Fitch has also
affirmed the Short-term foreign currency IDR at 'B'. The ratings
on the senior unsecured outstanding bonds have been affirmed at
'BB'.
KEY RATING DRIVERS
The political uncertainty in the region continues, notably
regarding relations with the central government. Fitch assumes
the Regional Liquidity Fund (FLA) will be covering Catalonia's
debt obligations in 2016. The Negative Outlook reflects the
potential outcome either from an abrupt separation from Spain or
the withdrawal of the state liquidity support, the growing
liquidity risk, as well as Catalonia's weak performance and
growing debt.
Political Tensions Ongoing
The relationship between the central government and Catalonia has
deteriorated after the regional parliament passed a resolution to
formally start the process for independence from the rest of
Spain on November 2015. The Constitutional Court subsequently
suspended the resolution under request from the central
government. A new government was formed in January 2016 with the
statement of pushing for independence, which in Fitch's view will
lead to further confrontation between the Catalan and the central
governments as well as with the Constitutional Court.
Debt Redemption Supported
Fitch is monitoring the central government's assistance in
assuming Catalonia's long-term debt redemptions of EUR5,921
million in 2016 through the FLA, and will take rating action if
this supports weakens. This includes EUR2,863 million from state
mechanisms, and Fitch assumes timeliness and willingness in the
servicing of these obligations. The region will also redeem
EUR4,627 million in short-term debt in 2016, which will be
rolled-over by Catalonia with the knowledge of the Ministry of
Finance and Public Administration (MinHap). Fitch believes this
monitoring, and the fact FLA may be a last resort to cover these
maturities, mitigates the liquidity risks.
Catalonia borrowed EUR11.7 billion from the FLA in 2015,
including a EUR3 billion extraordinary instalment in December.
Its FLA needs are estimated as at least EUR7.5 billion for 2016,
making Catalonia the major recipient of state mechanisms. Fitch
acknowledges the central government has wide powers to intervene
in the affairs of the Catalan government. It includes the
withholding of both ordinary funds and extraordinary liquidity
support, and the suspension of the regional autonomy under
article 155 of the Spanish Constitution and direct central
government control.
Weak Performance, But Potential Improvement
Catalonia's budgetary performance has been weak for a number of
years, with negative current balances since 2009. November
preliminary results from the MinHap showed Catalonia breached the
0.7% fiscal deficit goal in 2015, and Fitch expects it will hover
around 2.5%-3.0% at year-end. The deficit before debt is expected
at close to EUR5 billion to, or 25% of total revenue.
The region recently rolled-over the 2015 budget, impeding
expenditures from increasing in 2016. Thanks to the strengthened
revenues from the funding system in 2016 (EUR1.9 billion), higher
expected collection of self-collected taxes, and interest
expenses lowered by EUR1 billion after the restructuration of the
state mechanisms, Catalonia has a margin for budgetary
improvement. In Fitch's base case scenario, the current margin
could improve to minus 7.0% in 2016 from minus 17.9% in 2014.
Total debt grew to EUR62 billion in 2015 from EUR55.4 billion in
2014, equivalent to 311% of current revenues. Approximately 70%
is held by the central government under state mechanisms.
However, debt growth is expected to abate on the back of higher
revenues in 2016, so Fitch expects debt to account for about
300%-305% of current revenue at end-2016.
Regional Economy Growing
Catalonia has an above-average economic profile, and is
recovering more quickly than the national economy. GDP grew 1.3%
against 0.9% nationally in 2014, and preliminary data for 2015
indicate Catalonia was among the top Spanish regions in GDP
growth, surpassing 3% in nominal terms. At this stage, Fitch
assumes the process of independence will not disrupt economic
activity.
RATING SENSITIVITIES
Fitch will continue to monitor developments in Catalonia and may
take negative rating action if the liquidity support weakens. If
the situation normalizes, the region may be again supported by
the rating floor.
===================
T A J I K I S T A N
===================
BANK ESKHATA: Moody's Changes Outlook on B3 Rating to Negative
--------------------------------------------------------------
Moody's Investors Service has changed the outlook to negative
from stable on Tajikistan-based OJSC Bank Eskhata's B3 long-term
local-currency deposit rating and Caa2 long-term foreign -
currency deposit rating and affirmed the ratings. At the same
time, Moody's affirmed the bank's baseline credit assessment
(BCA) and adjusted BCA at b3, and the Not-Prime short-term local-
and foreign-currency deposit ratings.
"T[he] outlook change on Bank Eskhata primarily reflects the
weakening operating environment in Tajikistan, as the local
currency depreciates and remittances from Russia fall," says Lev
Dorf, a Moody's Assistant Vice President - Analyst. "These
factors all weigh on Bank Eskhata's asset quality and
profitability, because borrowers' repayment capability has
deteriorated as a result."
Concurrently, Moody's downgraded the bank's long-term
Counterparty Risk Assessment (CR Assessment) to B3(cr) from
B2(cr) and affirmed the bank's short-term CR Assessment of Not-
Prime(cr).
RATINGS RATIONALE
RATIONALE FOR NEGATIVE OUTLOOK
The outlook change to negative from stable reflects: (1) Bank
Eskhata's increased vulnerability to the deteriorating operating
and economic environment in Tajikistan; (2) the increasing
negative pressure on the bank's asset quality and profitability
resulting from the Tajik somoni depreciation, and the significant
decrease of remittances from Russia; and (3) Moody's expectation
of further pressure on the bank's credit profile from a
heightened provisioning burden.
Moody's notes that Bank Eskhata's asset quality deteriorated in
2015 and will likely remain on a weakening trend over the next
12-18 months. This is because of the very high proportion of
foreign-currency-denominated loans on bank's loan portfolio,
which is common for Tajik banks. These loans accounted for
approximately 69% of the bank's loan book at the end of 2015,
rendering asset-quality vulnerable to a local-currency
depreciation.
Since the end of 2014, the Tajik somoni has weakened against the
US dollar by more than 30%. The depreciation and risk of further
currency weakness create challenges for the bank by reducing the
capacity of local borrowers, most of which do not have foreign-
currency revenues, to service their foreign-currency loans. As
the streams of regular remittances from Russia that have
supported local consumer incomes dry up, bank's loans to
individuals and to small and medium-sized enterprises (SMEs) that
depend on sales of goods and services to consumers will see their
performance deteriorate. Remittances have been an important
source of income for most of Bank Eskhata's clients, supporting
borrowers' repayment capability.
RATIONALE FOR RATINGS AFFIRMATION
The affirmation of Bank Eskhata's ratings reflects (1) the bank's
still-adequate capital position, which is supported by its
healthy internal capital generation, and (2) solid liquidity and
funding profiles.
Moody's expects Bank Eskhata's capital levels to remain adequate
over the next 12-18 months, mainly supported by the bank's
internal capital generating capacity, which, in turn, benefits
from its healthy net interest margin and strong fees and
commissions. With a total regulatory capital ratio of 21% and
Tier 1 ratio of 15% reported at end-2015, Bank Eskhata's capital
buffers are sufficient to absorb the bank's expected credit
losses, according to Moody's central scenario.
The rating agency also expects Bank Eskhata's liquidity profile
to remain solid, in line with recent years. This is supported by
an ample liquidity cushion, which is necessary for its money
transfer operations. The bank's liquid assets (cash and nostro
accounts) accounted for approximately 36% of its total assets as
at Dec. 31, 2015. Bank Eskhata's non-equity liabilities
represent a relatively stable and balanced funding mix between:
(1) Interbank funding, which accounted for almost 54% of total
liabilities, and includes bilateral and subordinated loans from
International Financial Institutions; and (2) customer deposits,
which accounted for 42% of total liabilities.
WHAT COULD MOVE THE RATINGS UP/DOWN
The ratings could be downgraded if the bank's loss-absorption
capacity and financial fundamentals erode beyond Moody's current
expectations, resulting from a further worsening in operating
conditions. Conversely, stabilization in the Tajikistan
operating environment and/or the bank's demonstrated resilience
could drive a return to a stable rating outlook.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
published in January 2016.
===========
T U R K E Y
===========
TURKISH BANKS: Fitch Affirms IDRs of Six Small Institutions
-----------------------------------------------------------
Fitch Ratings has affirmed the Long-term foreign and local
currency Issuer Default Ratings (IDRs) of six small Turkish
banks: domestically-owned Anadolubank A.S. and Sekerbank T.A.S.,
and foreign-owned Alternatifbank A.S. (ABank), BankPozitif Kredi
ve Kalkinma Bankasi A.S. (BankPozitif), ICBC Turkey, and Turkland
Bank A.S (T-Bank).
The Outlook on the Sekerbank's ratings has been revised to
Negative from Stable and the Outlook on T-Bank is Negative. The
Outlooks on the other banks are Stable.
Alternatifbank's leasing subsidiary, Alternatif Finansal Kiralama
A.S. has also been affirmed.
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SUPPORT RATINGS OF FOREIGN-OWNED BANKS
Institutional support drives the IDRs, National Ratings and
Support Ratings of ABank (75% owned by Commercial Bank of Qatar,
CBQ, A+/Stable) and its leasing subsidiary Alternatif Finansal
Kiralama (100% owned by ABank), BankPozitif (69.8% controlled by
Bank Hapoalim, A-/Stable), T-Bank (50% owned by Arab Bank group,
BBB-/Negative) and ICBC Turkey (92.8% owned by Industrial and
Commercial Bank of China, ICBC, A/Stable).
Fitch views ABank and ICBC Turkey as strategically important
subsidiaries for CBQ and ICBC, respectively. However, the banks'
Long-term foreign currency IDRs are constrained by Turkey's 'BBB'
Country Ceiling. CBQ's ability to provide support could be
constrained by Qatari regulatory limits in respect of the amount
of support banks can extend to their foreign subsidiaries. The
ratings of Alternatif Finansal Kiralama are equalized with those
of ABank, reflecting its high integration with the parent.
ICBC Turkey's ratings are driven by support from ICBC and the
Stable Outlook mirrors that on its parent. This view of support
is based on ICBC Turkey's strategic importance to its parent
based on its jurisdiction of operation that falls within China's
"One Belt, One Road" strategy. ICBC's own ratings are driven by
Fitch's expectation of a very high probability of support from
the Chinese government, should it be required.
T-Bank is notched down twice from Arab Bank Plc reflecting its
only 50% ownership, which could limit the probability of support,
in Fitch's view. It also considers its non-core jurisdiction
relative to its parent's other strategically important
subsidiaries. The remaining 50% stake in T-Bank is owned by
Lebanon's BankMed Sal.
Fitch views BankPozitif as being of limited importance to
Hapoalim due to its small size and lack of strategic fit, and
considers the sale of the bank to be possible (although no sale
process has so far been formally initiated). BankPozitif's Long-
term IDRs are consequently three notches lower than those of its
parent. Fitch could revise its support assumptions should the
sale of BankPozitif become more likely.
IDRS, NATIONAL RATINGS AND SUPPORT RATINGS OF DOMESTICALLY-OWNED
BANKS
The IDRs and National Ratings of Anadolubank and Sekerbank are
driven by their Viability Ratings (VRs). The banks' '5' Support
ratings and 'No Floor' Support Rating Floors reflect Fitch's view
that support cannot be relied upon either from shareholders, or
the Turkish authorities.
VIABILITY RATINGS
The VRs of the six banks reflect their limited franchises, small
absolute size (combined assets equal to around 3% of sector
assets) and limited competitive advantages. Most offer a mixture
of general commercial and retail banking services but with a
focus on small and medium-sized companies, an increasingly
competitive segment in Turkey. The banks' financial metrics have
weakened moderately, but generally remain adequate particularly
considering the challenging operating environment.
The historically higher VRs of Anadolubank (bb) and Sekerbank
(bb-) relative to peers, reflect their larger and somewhat more
established franchises, and notably Sekerbank's regional micro
and SME franchise. For Anadolubank, it also considers the bank's
track record of generally better asset quality, profitability and
capitalisation. The bank's performance weakened in 9M15, mainly
due to higher swap costs, but Fitch considers underlying
profitability to be reasonable, supported by good cost
efficiency; the costs/assets ratio is not out of line with the
largest banks' in the sector despite Anadolubank's significantly
smaller size.
The revision of the Outlook on Sekerbank to Negative from Stable
reflects pressures on asset quality in the context of the bank's
weaker capitalisation. Non-performing loans (NPLs), defined as
loans overdue by 90 days, were broadly flat in 9M15. However, the
bank sold off 1.2% of its loan book in 9M15 and restructured
'watch' list loans were equal to a further 5% of gross loans at
end-9M15, up slightly versus end-2014. Furthermore, the NPL
origination rate rose to 2.1% in 9M15 (annualized) from 1.1% in
2014 and interest income accrued but not received rose to a high
14% of gross interest income (9M14: 4%). Such trends could be
indicative of an underlying deterioration in asset quality, in
Fitch's view, particularly considering growth in regulatory group
2 'watch' list loans in 9M15, which could migrate to the non-
performing category as loans season.
At the same time, Sekerbank's capitalization has weakened due to
the depreciation of the Turkish lira. Capital ratios should be
considered in light of the bank's weaker internal capital
generation capacity (ROE of 3.5% in 9M15 and budgeted to remain
subdued in 2016), moderate NPL coverage and the expected negative
impact of Basel III capital requirements on the bank's capital
ratios. The bank is currently seeking a capital injection from
new strategic or existing shareholders but the timing and amount
remains uncertain. In the event that the bank is unable to
attract new capital, it plans to manage loan growth to ensure it
does not breach the recommended 12% total capital adequacy ratio
set by the BRSA.
The affirmation of ICBC Turkey's VR reflects its limited
franchise and weak performance. However, the latter has been
exacerbated by a period of stagnation pending the bank's sale,
and performance should start to pick up as loan growth resumes.
Fitch views positively the improved prospects for the bank's
franchise thanks to its new owner and particularly the benefits
this can bring in terms of capturing potential trade flows
between China and Turkey. The availability of cheap, long-term
funding from its parent enables ICBC Turkey to pursue its
strategy of offering long-term foreign currency (FC) loans to
large corporates, although this also gives rise to significant
potential credit risks.
The 'b+' VR of A-bank reflects its weak Fitch Core Capital (FCC)
ratio of 7.4%, which is significantly below peers'. The bank's
capitalization should also be considered in light of a high level
of FC lending, which is higher than both peers and the sector
average. However, the bank is budgeting for a USD50m capital
injection from CBQ in 1Q16 and internal capital generation is
also reasonable, despite having weakened. In addition, the bank's
total capital ratio is more in line with peers (13.5%) and is set
to benefit from USD250m of planned new subordinated debt issuance
in 1H16.
T-bank's 'b+' VR is constrained by its high risk appetite, as
evidenced by above sector average loan growth in recent years
(albeit slowing to below the sector average in 9M15), and the
bank's ensuing weak asset quality. Consequently, Fitch considers
the bank's capital ratios to be moderate. This is offset by its
reasonable funding base and decent liquidity position.
BankPozitif's 'b+' VR reflects frequent changes in the bank's,
the bank's only moderate capitalization and reliance on wholesale
funding as its sole source of funding, due to the absence of a
deposit license. Refinancing risk is mitigated in part by access
to parental funding and committed lines.
Asset quality has deteriorated mildly across the banks due to
lira depreciation, slower economic growth and loan book
seasoning. While the average NPL ratio for the banks fell to 4.3%
at end-3Q15 from 4.8% at end-2014, this should be considered in
light of loan growth (up around 20% on average in 9M15) and NPL
sales. Furthermore, the level of NPL generation (net of
recoveries) accelerated at most of the banks in 9M15, albeit to a
still moderate 2.0%-2.5%. A high level of FC and FC-indexed
lending (around 30%-40% at most of the banks; exception
BankPozitif; 70%) also heightens credit risk, particularly
considering that borrowers are smaller companies and as such will
typically be less well hedged.
FCC ratios fell at all banks in 9M15 as a result of weaker
internal capital generation and lira depreciation. Capital
remains sensitive to potential further NPL growth, given the
sensitivity of the banks' target customer segments to economic
performance, while the ratio of net NPLs to FCC is fairly high at
Abank, Sekerbank and T-bank. In addition, the implementation of
Basel III capital requirements could necessitate further capital
strengthening measures at some banks.
Funding and liquidity ratios are generally reasonable. The
foreign-owned banks should be able to rely on liquidity support
from parent institutions in case of need. In the case of the
domestically owned banks, Anadolubank has some reliance on short-
term FC repo funding from international banks (comfortably
covered by available FC liquidity), while Sekerbank primarily
sources longer-term wholesale funding from international
development institutions.
RATING SENSITIVITIES
IDRS, SRs, SRFs, NATIONAL RATINGS AND DEBT RATINGS
The ratings of ABank and ICBC Turkey could be downgraded in case
of multi-notch downgrades of their respective parents. The
ratings of Alternatif Finansal Kiralama are sensitive to those of
Abank.
The Negative Outlook on T-Bank's ratings reflects that on Arab
Bank, and a downgrade of the parent would likely result in a
downgrade of the subsidiary. A material change in Fitch's view of
support available to the bank from its parents would also result
in rating action.
BankPozitif's Long-term IDRs are sensitive to changes in the
ratings of Bank Hapoalim and in the bank's strategic importance
to its parent. Significant progress with the bank's sale would
likely result in BankPozitif being placed on Rating Watch.
Sekerbank and Anadoloubank's Long-term IDRs are sensitive to
changes in their VRs. A purchase of a majority stake in either
bank by a higher rated institution could result in an upgrade of
its ratings.
VRs
The VRs of all six banks could be downgraded in case of a
significant deterioration in asset quality that put pressure on
capital ratios and performance. A sharp tightening of liquidity
could also result in pressure on the banks' VRs.
Upside potential for the VR of Anadolubank is limited, given its
current high level, while that of Sekerbank's IDRs is under
greater downward pressure, as reflected in the Negative Outlook
on the Long-term IDR.
An improvement of the franchises of ICBC Turkey and T-bank
without a corresponding sharp increase in risk appetite or
weakening of underwriting standards could result in upside
potential for the banks' VRs. A track record of successful
implementation of its new strategy could also help to support an
upgrade of ICBC Turkey's VR.
An upgrade of ABank's VR depends on a strengthening of its core
capital ratios along with a proven track record of successfully
executing its new corporate strategy.
Bank Pozitif's VR has limited upside potential given its specific
niche franchise and could be downgraded in case of further
weakening of the bank's capital adequacy or escalation of
refinancing risk.
The rating actions are as follows:
Alternatifbank A.S.
Long-term FC IDR affirmed at 'BBB'; Stable Outlook
Long-term LC IDR affirmed at 'BBB+'; Stable Outlook
Short-term FC IDR affirmed at 'F2'
Short-term LC IDR affirmed at 'F2'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '2'
National Long-term Rating affirmed at 'AAA(tur)' Stable Outlook
USD250m senior notes guaranteed by Commercial Bank of Qatar
affirmed at 'A+'
Alternatif Finansal Kiralama A.S.
Long-term FC IDR affirmed at 'BBB'; Stable Outlook
Long-term LC IDR affirmed at 'BBB+'; Stable Outlook
Short-term FC IDR affirmed at 'F2'
Short-term LC IDR affirmed at 'F2'
Support Rating affirmed at '2'
National Long-term Rating affirmed at 'AAA(tur)' Stable Outlook
Anadolubank A.S.
Long-term FC and LC IDRs affirmed at 'BB' ; Stable Outlook
Short-term FC and LC IDRs affirmed at 'B'
Viability Rating affirmed at 'bb'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
National Long-term Rating affirmed at 'AA-(tur)' ; Stable Outlook
BankPozitif Kredi ve Kalkinma Bankasi A.S.
Long-term FC and LC IDRs: affirmed at 'BBB-'; Stable Outlook
Short-term FC and LC IDRs affirmed at 'F3'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '2'
National Long-term Rating affirmed at 'AA+(tur)' ; Stable Outlook
Senior unsecured debt: affirmed at 'BBB-'
Senior unsecured debt issued out of Commerzbank International
S.A.: affirmed at 'BBB-'
Sekerbank T.A.S.
Long-term FC and LC IDRs affirmed at 'BB-'; Outlook revised to
Negative from Stable
Short-term FC and LC IDRs affirmed at 'B'
Viability Rating affirmed at 'bb-'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
National Long-term Rating affirmed at 'A+(tur)'; Outlook revised
to Negative from Stable
ICBC Turkey A.S.
Long-term FC IDR affirmed at 'BBB'; Stable Outlook
Long-term LC IDR affirmed at 'BBB+'; Stable Outlook
Short-term FC IDR affirmed at 'F2'
Short-term LC IDR affirmed at 'F2'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '2'
National Long-term Rating affirmed at 'AAA(tur)' Stable Outlook
Turkland Bank A.S.
Long-term FC and LC IDRs affirmed at 'BB'; Negative Outlook
Short-term FC and LC IDRs affirmed at 'B'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '3'
National Long-term Rating affirmed at 'AA-(tur)'; Negative
Outlook
===========================
U N I T E D K I N G D O M
===========================
ASCENTIAL PLC: Moody's Assigns 'Ba3' Corporate Family Rating
------------------------------------------------------------
Moody's Investors Service has assigned a Ba3 Corporate Family
Rating and B1-PD probability of default rating to Ascential Plc
which is the indirect parent of Ascential Holdings Limited, which
operates a global provider of industry specific exhibitions,
festivals and information services. Concurrently, Moody's has
withdrawn the B2 CFR, B2-PD PDR (effectively relocating them to
the new holding company level) at Ascential Holdings Limited and
the B2 instrument ratings at Eden Bidco Limited and TRG Financing
LLC.
The rating actions follow the company's successful Initial Public
Offering (IPO), which saw Ascential float 35% of its shares
raising net funds of GBP183.2 million at the company. At
admission, the company also entered into a new senior secured
bank facility agreement for a total of GBP263.1 million
equivalent. These new facilities along with the proceeds of the
IPO have been used to refinance the entirety of Ascential's debt.
This led to a material reduction in Moody's adjusted gross
leverage to 3.4x (pro-forma) from 5.4x as previously expected for
the year ending 2015. In addition, the interest margin on the
new facilities is on average 200bps below the margin paid on the
refinanced facilities, combined with the reduction in debt
quantum we estimate that the transaction will reduce Ascential's
interest expense by around GBP15-GBP20 million per annum although
part of these savings are likely to be paid out given the
company's targeted dividend payout ratio of 30% of net income.
Ascential Plc's ownership is split in the following way: funds
managed by Apax Partners Europe Managers Limited (38.9%),
Guardian Media Group plc (23.3%), publicly held (35%) with the
remainder owned by management.
RATINGS RATIONALE
Ascential's Ba3 CFR reflects (i) the company's reduced leverage
post-IPO of around 3.4x based on Moody's adjusted EBITDA
estimated at the end of 2015; (ii) strong brand names in the i2i
and Lions businesses which host and manage long standing
successful events; (iii) the good proportion of recurring
revenues generated by the subscription businesses; (iv) the
decrease in reliance on traditional advertising revenues for the
contents and subscription businesses; and (v) the company's
strong liquidity profile supported by a new GBP95 million
Revolving Credit Facility (RCF).
The Ba3 CFR also reflects (i) the inherent cyclicality of the end
markets serviced by some of the company's products which target
the retail, fashion and construction sectors; (ii) concentration
of revenues and EBITDA around certain events (such as the Cannes'
Lions and the Spring Fair); (iii) Moody's expectations that
Ascential will continue to seek acquisitions to reinforce its
offering, and the potential for further performance-based earn-
outs to be paid as part of previous as well as future
acquisitions.
Ascential is a business-to-business media company focusing on
Events, Information Services and Subscription Content with
international operations.
The company's operations are organised into two segments: (i)
Exhibitions and Festivals: i2i Events Group and Lions Festivals;
and (ii) Information Services: WGSN Group and Plexus.
In the nine months to September 2015, around 51% of the company's
revenues were generated from exhibitions and festivals which
typically take bookings 12-18 months in advance. In addition,
the company generated around 49% of its revenues through its
subscription based activities, which have historically enjoyed
high renewal rates (around 91% for WGSN). These levels of
upfront payments and the proportion of recurring subscribers
provide the company with some visibility over future earnings,
although on a short-term (12-18 months) basis only.
Ascential's revenues and EBITDA bear concentration risk on the
company's top 5 events, exhibitions and congresses (including the
material Cannes Lions event) which generates around 30% of the
company's revenue. Moody's do however recognize that this
concentration risk is partly mitigated by the very strong brand
names and long-standing reputation of these events.
Ascential's growth strategy is mainly centred around expanding
its portfolio of existing events, exhibitions and congresses
internationally by "geo-cloning" successful fairs in local
markets where the company sees strong demand potential for
similar events. The cloned events capitalise on the success of
the original ones but they remain only marginally profitable in
their first two years. As such, we expect Ascential to continue
to seek to grow its events business, through bolt-on
acquisitions. Ascential's Ba3 rating does not incorporate any
transformational future M&A activity and assumes that the company
will prudently manage any future earnout payment schedule and
that it will fund these through available funds.
Ascential has a very good liquidity profile, supported by a new
GBP95 million RCF -- as part of the current refinancing -- which
is expected to remain undrawn in the coming 18 months as the
company generates positive free cash flow. Under the terms of
the new RCF the company will have to comply with a leverage
maintenance covenant (tested twice annually) which requires that
the ratio of total net debt to consolidated EBITDA does not
exceed the level of 4.5x (then decreasing to 4.0x on Dec. 31,
2017, and 3.5x on June 2019). Ascential's capital expenditure
requirements are expected to be in line with historical
investment and will focus around product development, information
technology and business applications.
Outlook
The stable outlook reflects the company's high proportion of
recurring revenues as well as Moody's expectations that Ascential
will continue to maintain a prudent financial policy with regards
to shareholder remuneration such that it maintains meaningful
positive free cash flow (FCF) and a strong liquidity profile.
What Could Change the Rating UP
Positive pressure on the ratings could develop should Ascential's
adjusted leverage sustainably decrease to below 2.75x and FCF to
Debt sustainably above 10%. An upgrade would also require the
company to successfully achieve organic mid-single digit revenue
growth in line with the company's expectations.
What Could Change the Rating DOWN
Negative ratings pressure could develop should Ascential's
leverage increase towards 3.75x as a result of softening in
demand for the company's products or aggressive M&A. Downward
pressure would also ensue should the company's liquidity profile
deteriorate.
The principal methodology used in these ratings was Global
Publishing Industry published in December 2011.
TATA STEEL: Moody's Cuts Corporate Family Rating to 'Ba3'
---------------------------------------------------------
Moody's Investors Service has downgraded Tata Steel Limited's
corporate family rating (CFR) by two notches to Ba3 from Ba1.
At the same time, Moody's has downgraded Tata Steel UK Holdings
Limited's (TSUKH) CFR and probability of default rating to
B3/B3-PD from B2/B2-PD.
The outlook on all ratings is negative.
RATINGS RATIONALE
"The rating actions reflect the weaker-than-expected operating
performance of Tata Steel in its key operating markets of India,
Europe and Southeast Asia as a result of persistently weak steel
prices. Furthermore, with no respite expected from the downward
pressure on international steel prices, we anticipate the
company's leverage and coverage metrics to remain weakly
positioned for the next 12 to 18 months," says Kaustubh Chaubal,
a Moody's Vice President and Senior Analyst.
Consolidated reported leverage -- as indicated by debt/reported
EBITDA -- stood at approximately 9x at end-December 2015, which
is well beyond the tolerance level for a Ba category rating.
Tata Steel's results for the nine months of the fiscal year
ending March 2016 (April -- December 2015) were extremely weak,
with reported consolidated revenue of INR876.4 billion and
consolidated underlying EBITDA of INR56.2 billion, down 17% and
49% respectively from a year ago.
Tata Steel's India (TSI) business revenues and underlying EBITDA
were also down 11% and 38% respectively, at INR276.9 billion and
INR52 billion, over the same period. TSI accounts for
approximately 32% of consolidated revenue and 92% of underlying
EBITDA. On a standalone basis TSI's leverage -- as measured by
adjusted debt to EBITDA - was approximately 6.5x at December
2015.
The rating action also incorporates the impact of the recent
Government of India (Baa3 positive) announcement of the
imposition of a minimum import price (MIP) on certain grades of
steel shipped into the country for a six-month period.
"While earlier measures by the government -- in the form of
increases in import duties and the imposition of a 20% safeguard
duty on certain categories of HRC -- had proved inadequate, we
expect the MIP to be more effective, given it covers some 173
grades of steel imports and the setting of minimum prices for
such imports. This measure should allow domestic steel companies
to raise prices, although gradually," says Chaubal, who is also
Moody's Lead Analyst for Tata Steel and TSUKH.
Moody's notes that Tata Steel has effected a price increase of
INR1,500/tonne (approximately $22) since the announcement of the
MIP. Such price increases -- combined with the 3 mtpa
Kalinganagar operation coming online -- will result in an
improvement in TSI's operating performance in FY2017.
"That said, the continuing weak operating performance of Tata
Steel's European and Southeast Asian operations, and the group's
debt-laden balance sheet, will moderate any correction in
leverage. We forecast consolidated debt/EBITDA for FY2017 to be
around 6.5x-7.5x," adds Chaubal.
Tata Steel's European operations reported net revenue of INR511.5
billion for April-December 2015, down 15%, and an underlying
EBITDA loss of INR2.41 billion versus EBITDA of INR32 billion
over last year.
The downgrade of TSUKH's ratings reflects: (1) the downgrade of
parent Tata Steel's ratings to Ba3 from Ba1; (2) the challenging
industry conditions evident in Europe, with a stressed pricing
environment caused by high levels of competition from cheaper
imported products from Asia and Russia; and (3) Moody's
expectation that TSUKH's credit profile will remain weak, with
leverage in double digits, given current depressed steel prices
and weak utilization rates. At the same time, TSUKH's ratings
continue to benefit from a two-notch uplift for support from Tata
Steel.
Tata Steel remains one of the principal operating entities within
the Tata Group. Moody's favorably notes that Tata Sons' (unrated)
participation in acquiring some of the Tata group holdings from
Tata Steel earlier this year -- as a demonstration of financial
support -- is already reflected in the one-notch rating uplift to
Tata Steel's ratings.
Notwithstanding the recent positive measures implemented by the
Indian government for the domestic steel sector, the negative
outlook for all the ratings reflects Moody's expectation that
global market conditions will remain challenging, with a further
risk to the downside, and that Tata Steel's consolidated credit
metrics will remain pressured for the next 12 to 18 months.
Moody's could downgrade Tata Steel's rating if: (1) its
profitability remains weak, with consolidated EBIT margins below
5% on a sustained basis because of a lack of improvement in
EBITDA/tonne; (2) its ability to generate operating cash flows
deteriorates because of weak sales and unfavorable market
dynamics; or (3) its financial metrics fail to show any signs of
improvement over the next few months.
Specific financial indicators, which Moody's would consider for a
downgrade include adjusted debt/EBITDA remaining above 6.5x, or
EBIT/interest coverage remaining below 1.5x.
An upgrade of Tata Steel's rating is unlikely in the near term,
given the multi-notch downgrade and the negative outlook, and our
expectation that the industry's challenging conditions will keep
the company's credit metrics weakly positioned for the rating.
However, Moody's could change the outlook on Tata Steel's CFR to
stable if: (1) domestic steel prices continue on their recovery
path, or -- on the back of an increase in steel volumes -- Tata
Steel shows a substantial improvement in profitability, with
consolidated EBITDA/tonne in the INR6,000 -- INR7,000 range; or
(2) the company is successful in preserving cash flow during the
current downturn by cutting capex, such that free cash flows turn
positive.
Adjusted consolidated leverage trending towards 4.5-5.0x would
constitute a leading indicator for a change in the outlook for
Tata Steel's CFR.
As to TSUKH's ratings, given the recent downgrade, Moody's does
not anticipate any positive rating pressure. Moreover, the sale
of the long products business and erasing the negative EBITDA
impact of its UK facilities on TSUKH's credit metrics would be
critical for Moody's to consider revising the outlook to stable.
Credit metrics that would support such an action include adjusted
debt/EBITDA trending towards 7.0x and EBIT/interest coverage of
at least 1x, on a sustained basis.
Moody's could downgrade TSUKH's ratings further if there is a
prolonged deterioration in market conditions in Europe, such that
TSUKH is unable to return its EBITDA to positive over the next
few months. A failure to adequately recapitalize the business or
inability to access bank lines could also result in further
negative ratings pressure. Any revision in Moody's support
assumptions from Tata Steel could also lead to a ratings
downgrade.
Tata Steel Limited is an integrated steel company headquartered
in Mumbai. It acquired the operations of Corus plc -- now known
as Tata Steel UK Holdings Limited -- in January 2007.
In FY2015, Tata Steel's business spanned 24 countries. It is one
of the leading steel makers globally, with crude steel production
of 26.85 million tonnes in FY2015. Jamshedpur in India produced
some 9.07 mt, while its European operations and Southeast Asian
operations added 15.17 mt and 2.61 mt respectively, in FY2015.
Production from the company's greenfield expansion at Odisha --
with 3 mtpa in capacity -- is expected to commence in FY2017.
TRINITY SQUARE 2016-1: Moody's Gives (P)Ba1 Rating to Cl. E Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional long-term
credit ratings to Notes to be issued by Trinity Square 2016-1
plc:
-- GBP [*]M Class A mortgage backed floating rate notes due July
2051, Assigned (P)Aaa (sf)
-- GBP [*]M Class M mortgage backed floating rate notes due July
2051, Assigned (P)Aaa (sf)
-- GBP [*]M Class B mortgage backed floating rate notes due July
2051, Assigned (P)Aa2 (sf)
-- GBP [*]M Class C mortgage backed floating rate notes due July
2051, Assigned (P)A2 (sf)
-- GBP [*]M Class D mortgage backed floating rate notes due July
2051, Assigned (P)Baa2 (sf)
-- GBP [*]M Class E mortgage backed floating rate notes due July
2051, Assigned (P)Ba1 (sf)
Moody's has not assigned ratings to the GBP [*]M Class F
mortgage-backed notes due July 2051, GBP [*]M Class X or the GBP
[*]M Class Z floating rate notes due July 2051 or the
Certificates.
The portfolio backing this transaction consists of UK prime
residential loans originated by GE Money Home Lending Limited and
GE Money Mortgages Limited. The legal title to the mortgages will
be held by Kensington Mortgage Company Limited ("KMC", not
rated).
On the closing date, KMC Grosvenor Square Limited will sell the
portfolio to Kayl 2 PL S.a.r.l. (the "Seller", not rated). In
turn the Seller will sell the portfolio to Trinity Square 2016-1
plc.
RATINGS RATIONALE
The rating take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determined the MILAN
Credit Enhancement and the portfolio expected loss, as well as
the transaction structure and legal considerations. The expected
portfolio loss of [2.2]% and the MILAN required credit
enhancement of [13]% serve as input parameters for Moody's cash
flow model and tranching model, which is based on a probabilistic
lognormal distribution.
Portfolio expected loss of [2.2]%: this is higher than the UK
Prime RMBS sector average and is based on Moody's assessment of
the lifetime loss expectation taking into account: (i) the
originators' weaker historical performance relative to the UK
prime sector; (ii) the strong collateral performance to date
along with an average seasoning of [8.4] years; and (iii)
benchmarking with similar UK prime transactions. It also takes
into account Moody's stable UK Prime RMBS outlook and the
improved UK economic environment.
MILAN CE of [13]%: this is higher than the UK Prime RMBS sector
average and follows Moody's assessment of the loan-by-loan
information taking into account the historical performance
available and the following key drivers: (i) although Moody's
have classified the loans as prime, it believes the borrowers
often have characteristics which could lead to them being
declined from a high street lender; (ii) the weighted average
CLTV of [70.1]% on a non-indexed basis and [62.2]% weighted
average indexed LTV; and (iii) good payment history of the
borrowers, with [77.1]% of the borrowers having never been in
arrears, despite [11.8]% of the mortgages loans in the portfolio
granted to borrowers with prior CCJs and [27.3]% granted to self-
employed borrowers that didn't provide verification of their
stated income.
At closing, the mortgage pool balance will consist of GBP [790.5]
million of loans. The total reserve fund will be funded to [3.0]%
of the initial mortgage pool balance and will amortize to [3.0]%
of the outstanding pool balance subject to a floor of [2.0]% of
the initial pool balance. The total reserve fund will be split
into the Liquidity Reserve Fund and the Non Liquidity Reserve
Fund. The Liquidity Reserve Fund Required Amount will be equal to
[2.0]% of Classes A and M outstanding amount and will be
available only to cover senior expenses and Classes A and M
interest. The Non Liquidity Reserve Fund will be equal to the
difference between the total reserve fund and the Liquidity
Reserve Fund, and will be used to cover interest shortfalls and
to cure PDL on Classes A to E.
Operational risk analysis: KMC will be acting as servicer of
record, delegating servicing responsibilities to Acenden Limited
(not rated). The issuer will delegate to KMC as the legal title
holder the responsibility over certain servicing policies and
setting of interest rates. In order to mitigate the operational
risk, there will be a back-up servicer facilitator, and Wells
Fargo Bank, N.A. (Aa1/P-1) will be acting as a back-up cash
manager from close. To ensure payment continuity over the
transaction's lifetime the transaction documents incorporate
estimation language whereby the cash manager can use the three
most recent servicer reports to determine the cash allocation in
case no servicer report is available. The transaction also
benefits from principal to pay interest for the Classes A to E.
Interest rate risk analysis: [99.3]% of the portfolio pay a
floating rate of interest, while the remaining [0.7]% pay a fixed
rate with a weighted-average time to reset of [2] months. The
interest rate risk in the transaction will be unhedged. Moody's
has taken into consideration the absence of an interest rate swap
in its cash flow modelling.
The provisional ratings address the expected loss posed to
investors by the legal final maturity of the Notes. Moody's
issues provisional ratings in advance of the final sale of
securities, but these ratings represent only Moody's preliminary
credit opinions. Upon a conclusive review of the transaction and
associated documentation, Moody's will endeavor to assign
definitive ratings to the Notes. A definitive rating may differ
from a provisional rating. Other non-credit risks have not been
addressed, but may have a significant effect on yield to
investors.
Factors that would lead to an upgrade or downgrade of the
ratings:
Significantly different loss assumptions compared with our
expectations at close due to either a change in economic
conditions from our central scenario forecast or idiosyncratic
performance factors would lead to rating actions. For instance,
should economic conditions be worse than forecast, the higher
defaults and loss severities resulting from a greater
unemployment, worsening household affordability and a weaker
housing market could result in a downgrade of the ratings.
Deleveraging of the capital structure or conversely a
deterioration in the notes available credit enhancement could
result in an upgrade or a downgrade of the ratings, respectively.
Stress Scenarios:
Moody's Parameter Sensitivities: If the portfolio expected loss
was increased from [2.2]% to [6.6]% of current balance, and the
MILAN CE was increased from [13]% to [18.2]%, the model output
indicates that the Class A notes would still achieve (P)Aaa(sf)
assuming that all other factors remained equal. Moody's Parameter
Sensitivities quantify the potential rating impact on a
structured finance security from changing certain input
parameters used in the initial rating.
Moody's Parameter Sensitivities provide a quantitative/model-
indicated calculation of the number of rating notches that a
Moody's structured finance security may vary if certain input
parameters used in the initial rating process differed.
The analysis assumes that the deal has not aged and is not
intended to measure how the rating of the security might migrate
over time, but rather how the initial rating of the security
might have differed if key rating input parameters were varied.
Parameter Sensitivities for the typical EMEA RMBS transaction are
calculated by stressing key variable inputs in Moody's primary
rating model.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
* UK: Steel Cos. in "Significant" Finc'l Distress Up 46% in 2015
----------------------------------------------------------------
Cara McGoogan at The Telegraph, citing new research, reports that
the crisis plaguing the UK steel industry has got significantly
worse over the last 12 months.
According to The Telegraph, the data from Begbies Traynor shows
the number of UK steel production companies suffering
"significant" financial distress increased 46% in 2015, bringing
the total to 108 companies at the end of the year. Companies in
the steel supply chain under "significant" distress increased 21%
in the same period, The Telegraph discloses.
Steel producers took on "worrying levels of debt" in 2015, ending
the year with over GBP1.5 billion of debt, a 75% increase from
the year before, The Telegraph relates. The figures follow the
loss of a quarter of all UK steel-making jobs, 5,000 in total, in
the last year, The Telegraph notes.
Julie Palmer, partner at Begbies Traynor, as cited by The
Telegraph, said, "This cocktail of threats has left the industry
in a severely weakend position." The research shows the
industry's financial problems stem from the slump in global steel
demand, combined with cheap steel imports from Russia and China,
high UK taxes, a strengthening pound and mounting costs from
climate change policies.
Ms. Palmer urged the UK Government to "act quickly" to prevent
more job losses and plant administrations, following the high
profile collapses of Tata Steel and SSI's Redcar blast furnace
that saw 2,000 redundancies, The Telegraph relays.
===============
X X X X X X X X
===============
* S&P Takes Various Rating Actions on Four Repack Tranches
----------------------------------------------------------
Standard & Poor's Ratings Services took various rating actions on
four tranches issued by repackaging transactions.
Specifically, S&P has:
-- Raised and removed from CreditWatch positive its rating on
one tranche;
-- Lowered its ratings on two tranches; and
-- Placed on CreditWatch negative its rating on one tranche.
The rating actions on these four tranches follow S&P's recent
rating actions on the underlying collateral or reference
obligations. Under S&P's criteria applicable to transactions
such as these, it would generally reflect changes to the rating
on the collateral or reference obligation in S&P's rating on the
tranche.
A list of the Affected Ratings is available at:
http://is.gd/LwxX1o
*********
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 2016. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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The TCR Europe subscription rate is US$775 per half-year,
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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
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