/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/160429.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, April 29, 2016, Vol. 17, No. 084 Headlines B E L G I U M DEXIA SA: Egan-Jones Assigns BB+ Sr. Unsecured Debt Rating G R E E C E GREECE: Creditors Leave Athens, Progress Made in Bailout Talks I R E L A N D INOVYN LTD: Moody's Assigns Provisional B2 CFR, Outlook Stable I T A L Y POPOLARE DI MILANO: Egan-Jones Assigns BB+ Sr. Unsec. Rating K A Z A K H S T A N KAMAZ PTC: Moody's Lowers CFR to B1, Outlook Negative KAZAKHSTAN ENGINEERING: Moody's Cuts CFR to B1, Outlook Negative L U X E M B O U R G ARDAGH PACKAGING: Moody's Hikes Corporate Family Rating to B2 N E T H E R L A N D S CONTEGO CLO III: Moody's Assigns Ba2 Rating to Cl. E Notes ELM PARK: Moody's Assigns (P)B2(sf) Rating to Class E Debt R U S S I A AHML INSURANCE: Moody's Reviews Ba2 IFS Rating for Downgrade ALROSA PJSC: Moody's Hikes Corporate Family Rating to Ba1 ASIAN-PACIFIC BANK: Moody's Lowers Deposit Ratings to B3 IRKUT CORPORATION: Moody's Confirms Ba3 CFR, Outlook Negative NLMK: Moody's Confirms Ba1 CFR, Outlook Negative PHOSAGRO OJSC: Moody's Confirms Ba1 CFR, Outlook Negative POWER MACHINES: Moody's Confirms Ba2 CFR, Outlook Negative * Moody's Confirms Ratings of 9 Russian Sub-Sovereigns * Moody's Confirms Ratings of 5 Russian Non-Financial Corporates * Moody's Confirms Ba1 CFRs of 4 Russian Oil & Gas Companies S P A I N ABENGOA SA: Obtains Bankruptcy Protection Under Chapter 15 U K R A I N E BANK SOYUZ: NBU Balks at Judge's Decision to Void Liquidation U N I T E D K I N G D O M BHS GROUP: PPF Rejected Owners' Pension Scheme Rescue Proposals CARE UK: Moody's Cuts Probability of Default Rating to Caa1 T&A KERNOGHAN: Goes Into Administration TATA STEEL UK: Port Talbot Closure May Worsen Pension Deficit THAME AND LONDON: Moody's Assigns B3 Corporate Family Rating TOWD POINT: S&P Assigns B Rating to Class G Deferred Notes X X X X X X X X * UK: R3 Proposes Introduction of "Business Rescue Moratorium" * BOOK REVIEW: EPIDEMIC OF CARE ********* ============= B E L G I U M ============= DEXIA SA: Egan-Jones Assigns BB+ Sr. Unsecured Debt Rating ---------------------------------------------------------- Egan-Jones Rating Company assigned BB+ senior unsecured rating debt issued by Dexia SA on April 27, 2016. Based in Brussels, Belgium, Dexia SA is a financial services holding company. The Company, through its subsidiaries, offers consumer loans, life and non-life insurance, pension plans, securities brokerage services, asset management, private banking, and financing of public service facilities and financial services for local governments. Dexia operates in Europe, Asia, and the United States. =========== G R E E C E =========== GREECE: Creditors Leave Athens, Progress Made in Bailout Talks -------------------------------------------------------------- Ian Wishart at Bloomberg News reports that representatives of Greece's international creditors are leaving Athens, saying they've made headway in discussions that could lead to the disbursal of more aid funds. Euro-area, International Monetary Fund, and Greek officials "have made important progress on a policy package that should pave the way for discussions on the conclusion of the first review of the Greek program and debt sustainability," Bloomberg quotes European Commission spokeswoman Mina Andreeva as saying. The commission will continue to work on "the final elements of an overall policy package," Ms. Andreeva, as cited by Bloomberg, said. Greece has been locked in negotiations with its creditors over a demand that Athens legislate additional austerity steps equal to 2% of gross domestic product that would kick in if budget targets are missed, Bloomberg relays. This is in addition to a package of "upfront" measures it agreed to as part of a July 2015 bailout, Bloomberg notes. The latest assessment of its aid terms is already six months behind schedule, raising renewed doubts about whether it will secure emergency loans soon enough to avert a default in July when bonds held by the European Central Bank come due, Bloomberg discloses. Greece and its creditors have nearly sealed an agreement on the package of upfront measures, which includes pension-system and income-tax reform and how to treat non-performing loans of the banking sector, leaving the two sides to work on the contingency proposals, Bloomberg relates. This remains the focus, European Commission Vice President Valdis Dombrovskis, as cited by Bloomberg, said after meeting Italian Finance Minister Pier Carlo Padoan in Rome on April 28. ============= I R E L A N D ============= INOVYN LTD: Moody's Assigns Provisional B2 CFR, Outlook Stable -------------------------------------------------------------- Moody's Investors Service has assigned a provisional (P)B2 corporate family rating to chemical company Inovyn Limited. Concurrently, Moody's has assigned a (P)B2 rating to the senior secured facilities borrowed by Inovyn Finance Plc (formerly Kerling Limited and Kerling plc), a subsidiary of INOVYN, comprising a EUR240 million term loan A and a term loan B sized up to EUR835 million, all of which rank pari-passu. The outlook on all ratings is stable. "We have assigned a provisional (P)B2 corporate family rating to INOVYN to reflect our expectation that it will maintain the strong operating performance seen in 2015. We anticipate that the company's EBITDA margin, leverage and free cash flow will continue to improve in 2016", says Douglas Crawford, VP-Sr Credit officer. INOVYN is a holding company formed on July 1, 2015, as a joint venture between INEOS Group Investments Limited (unrated) and a subsidiary of Solvay S.A. (Baa2, negative) to hold the former Kerling's chlorvinyls and related businesses, and Solvay's vinyl assets, which are part of Solvin, as well as its chlor chemicals business. INOVYN's shareholders have signed a binding agreement that will result in INEOS taking full control of the group by 2017, subject to receipt of relevant competition authority approvals. The proceeds of the loans will be used to refinance the company's EUR785 million notes due February 2017, as well as to pay out the EUR335 million exit payment to Solvay. Should the transaction not occur before March 31, 2017, after which time the Solvay exit agreement automatically expires, EUR335 million will be repaid to the lenders. Inovyn Finance Plc's Caa1 CFR, Caa1-PD probability of default rating, and the Caa1 rating on the existing senior secured notes will remain under review for upgrade. Upon the completion of the transaction and repayment of its outstanding debt, Moody's expects to withdraw the CFR and instrument ratings of Inovyn Finance Plc (formerly Kerling Limited and Kerling plc). Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavor to assign a definitive rating to the facilities. A definitive rating may differ from a provisional rating. RATINGS RATIONALE The rating assignment reflects Moody's view that INOVYN's 2016 operating performance will remain strong, with an adjusted EBITDA margin of at least 14%, on the back of continued positive industry trends and cost-synergies; approximately EUR50 million of run-rate costs synergies were already achieved as of March 31, 2016, compared to a reported EBITDA of EUR465 million for the last 12 months (LTM). The rating agency expects that the company's Moody's-adjusted gross leverage will stand at approximately 3.7x pro-forma of the refinancing transaction and to remain below 4.0x in 2016, which is commensurate with a single B-rated company. The assignment of a provisional (P)B2 CFR and provisional (P)B2 ratings on its term loan A and B follows INOVYN's strong operating performance in 2015, which Moody's expects to continue in the next 12 to 18 months. The company's strong performance in 2015 was mainly achieved on the back of (1) a robust Suspension PVC margin, improved by outages and high operating rates following the closure of the Schkopau plant; (2) the weak euro, which boosted polyvinyl chloride (PVC) export margin; and (3) stronger caustic soda prices. Kerling's business, before the joint venture formation on July 1, 2015, already performed strongly in the first six months of 2015. Based on the LTM ended June 30, 2015, Kerling had an EBITDA and EBITDA margin on a Moody's-adjusted basis of EUR257 million, and 10.8%, respectively, compared to EUR160 million, and 6.5% in FY2014, respectively. This led to a significant decrease in Moody's-adjusted leverage to 5.2x from 8.4x over the same period. Moody's estimates that INOVYN's pro-forma Moody's-adjusted EBITDA, EBITDA margin and leverage were EUR425 million-EUR440 million, 13.5%-14% and 3.0x in FY2015. Moody's also estimates that the joint venture transaction had a deleveraging impact of approximately 1.0x turn; the Solvay assets were transferred on a debt free basis, at the exception of EUR163 million related to pensions, but accounted for at least 50% of INOVYN's FY2015 EBITDA. Moody's views INOVYN's liquidity as adequate with (1) EUR63 million of cash on balance sheet as of March 31, 2016: (2) approximately EUR245 million available under its EUR300 million securitisation facility due July 2018; and (3) expected positive free-cash flow (FCF) generation with FCF/Debt between 6% to 9% in the next 12 to 18 months, despite additional capital expenditures of approximately EUR100 million to be spent on its mercury-based plants in Lillo and Stenungsund. The (P)B2 CFR reflects (1) that the group is the number one PVC player in the European market, and has integrated and well- invested production facilities at its major sites located in Germany, the UK, Norway, Sweden, Belgium and France, which are largely converted to the more competitive membrane production technology; (2) that the company is a solid low-cost producer benefitting from a good track record of cost-cutting implementation in the Ineos family, with expected cost savings of EUR150 million per year to be achieved by year-end 2017 compared to Moody's expectation of a reported EBITDA of approximately EUR450 million; (3) that the company is expected to benefit from a recovering European PVC market; and (4) INOVYN's favourable long-term feedstock arrangements with strategic suppliers and partners, including Ineos Group Holdings SA (B1 stable). However, the rating also incorporates the group's significant exposure to a cyclical European PVC market environment and caustic soda prices. The inherent cyclicality of the business and its exposure to volatile raw materials (mainly ethylene) represent a structural weakness of the issuer's credit profile, as historically evidenced by volatile earnings displayed through the cycle. Moody's notes that the high degree of cyclicality of the issuer's revenues and operating cash flows derives from the composition of its portfolio, which is geared towards PVC, a commodity chemical highly exposed to applications in the construction and building material markets. In addition, the rating also reflects: (1) the company's limited product diversification; (2) risk related to the implementation of the restructuring program following the recent joint venture transaction; (3) capital expenditure requirements related to its mercury based plants, that are required to be converted into a membrane cell by year-end 2017 according to the EU regulation; and (4) the company's shareholder-friendly policy. RATIONALE FOR STABLE OUTLOOK The stable outlook reflects Moody's view that INOVYN will continue to operate at satisfactory margin levels, successfully implement its cost-savings program in a timely matter and will continue to generate positive free cash flow. It also assumes that the company successfully refinances its debt due February 2017 and maintains adequate liquidity. WHAT COULD CHANGE THE RATING UP/DOWN The ratings could be upgraded if (1) the company's Moody's- adjusted EBITDA margin were to rise sustainably in the mid-teens; and (2) it were to reduce its Moody's-adjusted Debt/EBITDA to less than 3.0x on a sustained basis and substantially reduces debt. Conversely, INOVYN's ratings could be downgraded if its performance were to deteriorate such that (1) the company's Moody's-adjusted EBITDA margin falls below 10% for a prolonged period; (2) the criteria for the stable outlook are not met; or (3) its Moody's adjusted Debt/EBITDA rises above 4.0x on a persistent basis. The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. INOVYN Limited is a leading pan-European polyvinyl chloride (PVC) and caustic soda producer, with additional positions in salt and brine. It was formed on July 1, 2015 as a joint-venture between INEOS Group Investments Limited (unrated) and a subsidiary of Solvay S.A. For the 12 months ended Dec. 31, 2015, on an un- audited basis, INOVYN had Post-Remedy Revenue (after the sale of Kerling-owned assets to International Chemical Investors Group (ICIG, unrated) in August 2015) of approximately EUR3.1 billion, and Post-Remedy Adjusted EBITDA before exceptionals of EUR429 million. ========= I T A L Y ========= POPOLARE DI MILANO: Egan-Jones Assigns BB+ Sr. Unsec. Rating ------------------------------------------------------------ Egan-Jones Rating Company assigned BB+ senior unsecured rating on debt issued by Banca Popolare Di Milano on April 27, 2016. Based in Milan, Italy, Banca Popolare di Milano Scarl (BPM) attracts deposits and offers commercial banking services. The Bank offers brokerage, trust, lease financing, asset management, private banking, and factoring services, manages mutual funds, and offers insurance services. BPM serves its customers through a branch network located primarily in Italy, London, and New York. =================== K A Z A K H S T A N =================== KAMAZ PTC: Moody's Lowers CFR to B1, Outlook Negative ----------------------------------------------------- Moody's Investors Service has downgraded to B1 from Ba3 the corporate family rating and to B1-PD from Ba3-PD the probability of default rating (PDR) of KAMAZ PTC (Kamaz), a government- controlled leading Russian truck producer. The outlook on the ratings is negative. The downgrade factors in these drivers: -- deterioration in Kamaz's standalone credit profile -- Its reliance on government support -- The company's exposure to further weakness of the Russian economy and domestic truck market The action concludes the rating review initiated by Moody's on March 10, 2016, and follows Moody's confirmation of Russia's Ba1 government bond with a negative outlook on April 22, 2016. For additional information, please refer to the related announcement: http://is.gd/oH1AkP RATINGS RATIONALE The downgrade of Kamaz's rating to B1 from Ba3 was triggered by deterioration in Kamaz's standalone creditworthiness, as measured by the company's baseline credit assessment (BCA), to caa1 from b3 under Moody's government-related issuer (GRI) methodology. That said, Kamaz's B1 rating continues to factor in sizeable uplift to its caa1 BCA, given Moody's assumption of the strong probability of state support in the event of financial distress. The deterioration of Kamaz's standalone creditworthiness has been driven by the severe and rapid deterioration of the domestic truck market on the back of Russia's weakening economy, as captured by the negative outlook on the sovereign rating. According to different industry sources, the market further contracted by approximately 42% in 2015 after a 25% contraction in 2014. In addition to market weakness and contracted sales volumes, Kamaz's profitability and cash generation were also negatively affected by a significant depreciation of the Russian rouble in 2014-15. This increased costs as some truck components are priced in hard currency, while the bulk of the company's revenue is generated in roubles. As a result, in 2015, Kamaz's EBITDA and EBITA turned negative, despite the company's focus on cost savings, efforts to pass higher costs onto customers through price increases, and some growth in exports. Accordingly, Kamaz's end-2015 leverage, measured as adjusted debt/EBITDA, rose to double-digit negative levels. This follows its placement of two 15-year domestic bonds of RUB5 billion each in August and December 2015, under the state guarantee, to finance its modernization program. The risk of elevated leverage is somewhat mitigated by Kamaz's long-term debt maturity profile and in particular by the government's support, with the company's debt being predominantly guaranteed by the government or issued by the government and government-controlled banks. Given the continued economic weakness in Russia, we expect only a marginal recovery, if any, in the company's financial profile in the next 12-18 months, with EBITDA margins to return to low single digits. The government's day-to-day support to Kamaz, ranging from demand-supportive measures to investment and liquidity funding, is the key factor driving the expected improvements, even if these improvements would be limited. Moody's assumes that the Russian government's guarantee of RUB35 billion, of which RUB10 billion covered Kamaz's domestic bonds issued in 2015, will cover any new debt that Kamaz takes on to fund capex, and that this debt will be fully incurred during 2016-17. As such, Moody's expects the company's total leverage to remain elevated in the medium term. However, Moody's considers that government-related and/or government-guaranteed debt will continue to dominate Kamaz's debt portfolio. RATIONALE FOR THE NEGATIVE OUTLOOK The negative outlook on Kamaz's rating reflects the pressured standalone credit quality and the negative outlook on the Russian sovereign rating. A further weakening of Russia's operating environment and hence of the Russian truck market may result in further deterioration of the company's very weak financial profile and liquidity position. WHAT COULD CHANGE THE RATING DOWN/UP Kamaz's rating could be downgraded if (1) Russia's sovereign rating were downgraded; (2) the company's key market were to show no material recovery and its financial and/or liquidity profile were to deteriorate, further challenging its business operations and debt service capacity; or (3) the probability were to fall of government extraordinary support being extended to Russian GRIs and/or Kamaz, in particular in the event of financial distress. Given the negative outlook and operational weakness Moody's does not envisage positive pressure on Kamaz's rating in the next 12 to 18 months. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Other methodologies used include the Government-Related Issuers methodology published in October 2014. KAMAZ PTC is a leading player in the Russia market producing a wide range of commercial vehicles, including trucks, trailers, tow tractors and buses. Russia's 100% state-owned investment holding State Corporation Rosstechnologii (RosTec, not rated) holds a 49.9% stake in Kamaz. In 2015, Kamaz generated revenue of RUB97.5 billion ($1.6 billion). KAZAKHSTAN ENGINEERING: Moody's Cuts CFR to B1, Outlook Negative ---------------------------------------------------------------- Moody's Investors Service has downgraded to B1 from Ba3 the corporate family rating of JSC NC Kazakhstan Engineering (KE), a state-controlled Kazakhstan defence company. Moody's has also downgraded the company's probability of default rating (PDR) to B1-PD from Ba3-PD, and the rating of its three-year $200 million notes due 2016 to B1 (LGD4) from Ba3 (LGD4). The outlook on all the ratings is negative. Concurrently, Moody's placed under review direction uncertain KE's Baa3.kz national scale rating (NSR). The NSR is being placed under review direction uncertain pending a potential revision of the Kazakhstan's NSR map. The action factors in the key drivers: -- state-owned KE's strong link with the recently-downgraded Kazakhstan government -- the company's reliance on the government for financial support -- its very weak standalone credit quality, high refinancing Risk The action concludes the rating review initiated by Moody's on March 10, 2016, and follows the downgrade of Kazakhstan's government bond rating a negative outlook on April 22, 2016. For additional information, please refer to the related announcement: http://is.gd/0frR4j RATINGS RATIONALE The downgrade of KE's ratings is driven by the weakening of Kazakhstan's credit profile, as captured by the sovereign's downgrade, as well as the company's weak standalone credit standing. KE is a government-related issuer (GRI) because it is controlled by the Kazakhstan government. The downgrade of KE's ratings reflects the company's strong linkages with the Kazakhstan sovereign, the strong probability of potential extraordinary state support embedded within KE's ratings, and their consequent high sensitivity to changes in sovereign creditworthiness under Moody's rating methodology for GRIs. Moody's confirmed the strong probability of the state support, given the strategic importance of KE's defense business to the government. However, the amount of government support has been reduced to two notches from KE's baseline credit assessment (BCA) of b3, which measures the company's standalone credit quality, to reflect the weaker sovereign creditworthiness. The reduced uplift to the BCA brings KE's ratings to B1. KE's standalone credit profile remains very weak, with the b3 BCA under pressure from KE's weak liquidity and heightened refinancing risk related to its $200 million Eurobond due 2016. KE's dollar-denominated cash reserves covered just a part of the December-2016 bond maturity, while KE's cash-generation capacity remains insufficient to cover the gap, given (1) the currency mismatch between KE's dollar-denominated debt and tenge- denominated revenue against the background of the depreciating tenge; and (2) the weakening macroeconomic environment. To address the liquidity gap, KE will likely need support from its sole shareholder, Kazakh sovereign wealth fund, Samruk- Kazyna, or the government of Kazakhstan. KE's b3 BCA also factors in Moody's view that the challenging environment predicates a further short-term deterioration of KE's already weak financial metrics and limits their improvement in the medium term. The BCA positively factors in KE's status as the single domestic defense procurement operator for the MoD, which is likely to translate into a higher revenue base and allow the company to negotiate better contract terms and improvement in prices with the MoD in the long term. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook on KE's ratings reflect both the pressures on its BCA from KE's weak liquidity and the negative outlook on the Kazakhstan sovereign rating. WHAT COULD CHANGE THE RATING DOWN/UP KE's ratings are likely to be downgraded if (1) there is a downgrade of Kazakhstan's sovereign rating and the company fails to (i) proactively address refinancing risk related to its maturing notes and (ii) deleverage in 2016; or (2) Moody's revises downwards its assessment of the probability of the Kazakhstan government providing extraordinary support to KE in the event of financial distress. Given the negative outlook on the company's ratings, Moody's does not see positive pressure building on KE's rating in the next 12- 18 months. The rating agency could change its outlook on the company's ratings to stable, if (1) Kazakhstan's sovereign rating and Moody's assumptions of state support for KE do not worsen; and (2) KE's liquidity improves as a result of (i) successful refinancing of its notes due December 2016 and (ii) deleveraging toward 5.0x debt/EBITDA. POTENTIAL MAPPING RECALIBRATION FROM GLOBAL SCALE TO NATIONAL SCALE RATINGS National scale ratings (NSRs) are being placed under review direction uncertain pending a potential revision of the Kazakhstan's NSR map. Following the recent downgrade of Kazakhstan's sovereign rating, the current mapping of global scale ratings to national scale ratings may no longer adequately serve one of its intended purposes, which is to provide greater credit differentiation among issuers in Kazakhstan than is possible on the global rating scale. As a result, the lowest global scale rating that maps to Aaa.kz is likely to fall to Baa3 in line with the new country ceiling, and the new map is likely to associate higher NSRs with a given global scale rating than does the current map. Assuming the map is revised in line with current expectations, Moody's would anticipate that the majority of NSRs being placed under review will be confirmed at their current levels when the reviews conclude, though a small number may be upgraded or downgraded. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Aerospace and Defense Industry published in April 2014. Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. JSC NC Kazakhstan Engineering (KE) is a state-controlled holding company consolidating the machinery building and engineering enterprises in Kazakhstan, which primarily service the domestic defense sector. In the last twelve months to June 2015, KE generated revenue of KZT35.2 billion (around $191.6 million) and had adjusted EBIT of KZT5.4 billion (around $29.0 million). =================== L U X E M B O U R G =================== ARDAGH PACKAGING: Moody's Hikes Corporate Family Rating to B2 ------------------------------------------------------------- Moody's Investors Service upgraded the corporate family rating (CFR) of Ardagh Packaging Group Ltd (Ardagh), a leading global supplier of glass and metal containers, to B2 from B3 and its probability of default rating (PDR) to B2-PD from B3-PD. The outlook on all the ratings is stable. The upgrade primarily reflects the following drivers: -- Ardagh's significant scale and market position across its core European and US markets, following the company's acquisition of the Ball/Rexam divestment assets -- Continuing synergies, cost saving improvements and capital investment, which Moody's expects will drive strongly improving cashflow over the next 12-24 months Concurrently, Moody's has assigned a provisional (P)Ba3 rating to the new USD2,000 million (equivalent) senior secured notes due 2023 and a (P)B3 rating to the new USD850 million (equivalent) senior unsecured notes due 2024 issued by Ardagh Packaging Finance plc. Proceeds from these notes will fund the acquisition of divestment assets by Ball Corporation (Ba1 stable) following its acquisition of Rexam PLC (Baa3 under review for downgrade). The funds will be placed into escrow pending completion, which will take place following regulatory approval by the competition authorities expected mid 2016. Moody's also upgraded to B3 from Caa1 the ratings of the existing senior unsecured notes issued by Ardagh Packaging Finance plc, affirmed the Ba3 ratings of the existing senior secured Term Loan B borrowed at Ardagh Holdings USA Inc., affirmed the Ba3 the ratings of the existing senior secured notes issued by Ardagh Packaging Finance plc and affirmed the Caa2 ratings of the senior unsecured PIK notes issued by Ardagh Finance Holdings S.A. Moody's issues provisional ratings in advance of the final sale of securities. Upon a conclusive review of the final documentation, Moody's will endeavor to assign definitive ratings to the new senior secured and senior unsecured notes. Definitive ratings may differ from provisional ratings. RATINGS RATIONALE The upgrade of Ardagh's CFR takes into account the company's significant scale and market position across its core markets in Europe and the US, following the acquisition of the Ball/Rexam divestment assets. It also considers the continuing synergies from Ardagh's acquisition of Verallia North America in 2014, cost savings in the company's European metal packaging business and the USD220 million capital investment in two new can plants in the US, which Moody's expects will drive strongly improving cashflow over the next 12-24 months. The B2 CFR reflects: (1) the relatively low cyclicality of food and beverage end markets, which account for over 90% of the combined group revenues and provides a floor to volumes; (2) the balanced geographic profile of the group across Europe and the US; (3) the substrate diversification in terms of raw material requirements and the expectation that Ardagh will generate material synergies in the region of $50 million through to the end of 2018 from the inclusion of the acquired Ball/Rexam assets; and (4) positive trading performance, reflected in cash balances reaching around EUR1 billion by the end of 2017. The rating also incorporates: (1) the high leverage, expected to be around 7.4x on a Moody's-adjusted basis immediately after the transaction; (2) the higher share of commoditized products for which pricing pressure will need to be offset by cost/efficiency improvements; (3) the highly competitive operating environment with pricing and some volume pressure, particularly in the more commoditized metals business; and (4) Moody's view that the transaction will incorporate some execution risk and uncertainty over the timing and amount of synergies that will be realised from the acquisition, while acknowledging that Ardagh has demonstrated a proven track record of successfully integrating sizable acquisitions. Moody's considers Ardagh's liquidity profile as good, based on strong internal cash generation, which is sufficient to cover seasonal swings in working capital of approximately EUR150 million in the busy summer months and annual maintenance capex of approximately EUR200 million per annum. Liquidity is supported by cash available on balance sheet expected to be approximately EUR270 million at close and further supported by the company's EUR150 million securitization facility with HSBC and net availability of USD155 million (EUR143 million) under its Bank of America facility, both of which are expected to have significant levels of headroom. The existing senior secured notes and senior secured term loan B are affirmed at Ba3 reflecting the material amount of additional senior secured debt following the transaction and the ratings to the existing senior unsecured notes are upgraded to B3, reflecting the upgrade to the CFR. The senior unsecured PIK notes are affirmed at Caa2 reflecting the material increase in debt that ranks ahead of them. RATIONALE FOR THE STABLE OUTLOOK The rating outlook is stable reflecting Moody's expectation that Ardagh will not enter into further debt-financed acquisitions that would result in an increase in leverage, or fund further dividend payments until operational stability has been achieved with the Ball/Rexam disposal assets being integrated into the overall business. The stable outlook also incorporates Moody's expectation that Ardagh will gradually deleverage over the next 12-18 months and that the anticipated build-up of cash will be used to reduce debt. WHAT COULD CHANGE THE RATING UP/DOWN Given Ardagh's current weak positioning in the B2 category, near- term upward pressure on the company's ratings is unlikely. However, the ratings could come under positive pressure should Ardagh be able to reduce adjusted debt/EBITDA sustainably below 5.5x and maintain free cash flow to debt above 5%. The ratings could come under negative pressure should the company fail to meet the conditions for a stable outlook, or if adjusted debt/EBITDA fails to reduce below 7.0x in the next 12-24 months. Ardagh Packaging Group, registered in Luxembourg, is a leading supplier of glass and metal containers. Pro forma for the acquisition of the Ball/Rexam assets, the company generated sales of approximately EUR7.8 billion in 2015. ===================== N E T H E R L A N D S ===================== CONTEGO CLO III: Moody's Assigns Ba2 Rating to Cl. E Notes ---------------------------------------------------------- Moody's Investors Service announced that it has assigned these definitive ratings to notes issued by Contego CLO III B.V.: EUR178,500,000 Class A Senior Secured Floating Rate Notes due 2029, Definitive Rating Assigned Aaa (sf) EUR38,500,000 Class B Senior Secured Floating Rate Notes due 2029, Definitive Rating Assigned Aa2 (sf) EUR17,250,000 Class C Senior Secured Deferrable Floating Rate Notes due 2029, Definitive Rating Assigned A2 (sf) EUR14,750,000 Class D Senior Secured Deferrable Floating Rate Notes due 2029, Definitive Rating Assigned Baa2 (sf) EUR18,500,000 Class E Senior Secured Deferrable Floating Rate Notes due 2029, Definitive Rating Assigned Ba2 (sf) RATINGS RATIONALE Moody's definitive rating of the rated notes addresses the expected loss posed to noteholders by 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, Five Arrows Managers LLP, has sufficient experience and operational capacity and is capable of managing this CLO. Contego CLO III B.V. is a managed cash flow CLO. At least 90% of the portfolio must consist of secured senior obligations and up to 10% of the portfolio may consist of senior unsecured obligations, second-lien loans, high yield bonds and mezzanine obligations. The portfolio is approximately 81% 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 three month ramp-up period in compliance with the portfolio guidelines. Five Arrows, a Rothschild Group company, 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 improved and credit impaired obligations, and are subject to certain restrictions. In addition to the five classes of notes rated by Moody's, the Issuer issued EUR 40,300,000 of subordinated notes. Moody's will not assign ratings 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. Five Arrows' 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 these base-case modeling assumptions: Par Amount: EUR 300,000,000 Diversity Score: 36 Weighted Average Rating Factor (WARF): 2735 Weighted Average Spread (WAS): 3.95% Weighted Average Coupon (WAC): 4.25% Weighted Average Recovery Rate (WARR): 44.5% 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, only up to 10% of the pool can be domiciled in countries with foreign currency government bond rating below A3. Given this portfolio composition, there were no adjustments to the target par amount, 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 3145 from 2735) Ratings Impact in Rating Notches: Class A Senior Secured Floating Rate Notes: 0 Class B 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 Percentage Change in WARF: WARF +30% (to 3556 from 2735) Ratings Impact in Rating Notches: Class A Senior Secured Floating Rate Notes: -1 Class B 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 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. ELM PARK: Moody's Assigns (P)B2(sf) Rating to Class E Debt ---------------------------------------------------------- Moody's Investors Service announced that it has assigned the following provisional ratings to notes to be issued by Elm Park CLO Designated Activity Company: EUR324,500,000 Class A-1 Senior Secured Floating Rate Notes due 2029, Assigned (P)Aaa (sf) EUR60,500,000 Class A-2 Senior Secured Floating Rate Notes due 2029, Assigned (P)Aa2 (sf) EUR42,500,000 Class B Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)A2 (sf) EUR26,250,000 Class C Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)Baa2 (sf) EUR33,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)Ba2 (sf) EUR14,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)B2 (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, Blackstone / GSO Debt Funds Management Europe Limited, has sufficient experience and operational capacity and is capable of managing this CLO. Elm Park CLO Designated Activity Company is a managed cash flow CLO. At least 90% of the portfolio must consist of secured senior obligations and up to 10% of the portfolio may consist of unsecured senior loans, second lien loans, mezzanine obligations, high yield bonds and/or first lien last out loans. The portfolio is expected to be 75% ramped up as of the closing date and to be comprised predominantly of corporate loans to obligors domiciled in Western Europe. This initial portfolio will be acquired by way of participations which are required to be elevated as soon as reasonably practicable. The remainder of the portfolio will be acquired during the three month ramp-up period in compliance with the portfolio guidelines. Blackstone / GSO Debt Funds Management Europe Limited 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 impaired obligations, and are subject to certain restrictions. In addition to the six classes of notes rated by Moody's, the Issuer will issue EUR 56,930,000 of subordinated notes. Moody's will not assign a rating to this class of notes. The transaction incorporates interest and par coverage tests which, if triggered, will divert interest and principal proceeds to pay down the notes in order of seniority. 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 550,000,000 Diversity Score: 38 Weighted Average Rating Factor (WARF): 2800 Weighted Average Spread (WAS): 4.10% Weighted Average Coupon (WAC): 5.00% Weighted Average Recovery Rate (WARR): 43.0% Weighted Average Life (WAL): 8 years 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 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 3220 from 2800) Ratings Impact in Rating Notches: Class A-1 Senior Secured Floating Rate Notes: 0 Class A-2 Senior Secured Floating Rate Notes: -2 Class B Senior Secured Deferrable Floating 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: 0 Percentage Change in WARF: WARF +30% (to 3640 from 2800) Ratings Impact in Rating Notches: Class A-1 Senior Secured Floating Rate Notes: -1 Class A-2 Senior Secured Floating Rate Notes: -3 Class B Senior Secured Deferrable Floating Rate Notes: -3 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: -2 Further details regarding Moody's analysis of this transaction may be found in the upcoming pre-sale report, available soon on Moodys.com. 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. 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. Blackstone / GSO Debt Funds Management Europe Limited's investment decisions and management of the transaction will also affect the notes' performance. =========== R U S S I A =========== AHML INSURANCE: Moody's Reviews Ba2 IFS Rating for Downgrade ------------------------------------------------------------ Moody's Investors Service announced that it is continuing its review for downgrade of AHML Insurance's Ba2 insurance financial strength rating. AHMLI is a subsidiary of the Agency for Housing Mortgage Lending JSC ("AHML JSC", Ba1 negative), which in turn is wholly owned by the Russian Federal Government. This rating action follows Moody's recent confirmation of Russia's Ba1 government bond rating and AHML JSC's Ba1 issuer rating and change of respective outlooks to negative (from review for downgrade), reflecting the Russian economy's resilience to the renewed drop in oil prices early this year due to an effective blend of macro policy responses. For additional information, please refer to the related announcements: Moody's confirms Russia's Ba1 sovereign rating; outlook negative: http://is.gd/oH1AkP and Moody's confirms ratings of 26 Russian financial institutions http://is.gd/7UkdKr RATINGS RATIONALE Moody's maintains AHMLI's financial strength rating at Ba2 based on the recent confirmation of the parent's rating. AHMLI's rating reflects a b2 standalone assessment plus three notches of rating uplift based on AHML JSC's parental support. The ratings of AHMLI and its parent are closely linked as the two entities share a public policy mission to promote mortgage lending and increase housing affordability in Russia. AHMLI's rating remains under review for downgrade to reflect meaningful changes at the company and uncertainty about its future role. AHMLI has recently shed most of its personnel and centralized its administrative services with the parent. Furthermore, the lending market for high loan-to-value mortgages (i.e., those that typically carry mortgage insurance) is still frozen. Moody's will use the review period to evaluate management's plans for AHMLI and its policyholders going forward. WHAT COULD CHANGE THE RATING DOWN The following factors would likely lead to a downgrade of AHMLI's rating: (i) management chooses and executes a plan that weakens policyholders' protection; (ii) the parent decides to repatriate significant amounts of capital from AHMLI; (iii) a downgrade of AHML JSC or reduced government support for the mortgage insurance market; (iv) ballooning of mortgage delinquencies beyond those experienced in the 2008-09 crisis; and/or (v) adjusted risk-to- capital ratio significantly greater than 10x (adjusted for nonprime loans and RMBS insured exposure). WHAT COULD CHANGE THE RATING UP An upgrade in the near term is unlikely given that the rating is under review for downgrade. However, the following factors could lead to a confirmation of the rating: (i) management pursues a plan that affirms policyholders' protection, (ii) the parent continues to show a commitment to providing implicit or explicit support to AHMLI. The following rating remains under review for downgrade: AHML Insurance -- Ba2 financial strength. AHML Insurance, based in Moscow, Russia, writes mortgage insurance and reinsurance in all regions of Russia. The company was established in 2010 with a public policy mission to develop the mortgage insurance market, institute legal and regulatory framework and standards for mortgage insurance, and create innovative insurance products. ALROSA PJSC: Moody's Hikes Corporate Family Rating to Ba1 --------------------------------------------------------- Moody's Investors Service has upgraded Russian diamond mining company ALROSA PJSC's corporate family rating (CFR) to Ba1 from Ba2 and probability of default rating (PDR) to Ba1-PD from Ba2- PD. The outlook on these ratings is negative. At the same time, Moody's confirmed the Ba2 CFR and Ba2-PD PDR of JSC Holding Company METALLOINVEST (Metalloinvest) and the Ba3 CFRs and Ba3-PD PDRs of SUEK PLC and Nord Gold N.V., all of which are mining companies. The outlook is stable on Metalloinvest's and SUEK's ratings, and positive on Nord Gold's ratings. The actions conclude the rating reviews initiated by Moody's on January 22, 2016. RATINGS RATIONALE The confirmation of the ratings of Metalloinvest, Nord Gold and SUEK reflects the companies' strong business profiles; low-cost position, which supports their competitiveness in international markets; high profitability; solid/adequate liquidity and Moody's expectation that their financial metrics will remain commensurate with their ratings on a sustainable basis despite the volatility in prices for commodities. The upgrade of ALROSA's ratings primarily reflects the company's strengthened business and financial profile; Moody's expectation that its financial metrics will remain robust, despite demand and price volatility for diamonds; the company's high profitability, positive free cash flow generation and strong liquidity. ALROSA As ALROSA's principal shareholder is the government of the Russian Federation, Moody's applies its government-related issuer (GRI) rating methodology. The Ba1 CFR reflects a combination of (1) a baseline credit assessment (BCA) of ba1; (2) the Russian Federation's Ba1 local currency rating; (3) moderate default dependence between ALROSA and the government; and (4) the moderate probability of government support in the event of financial distress. ALROSA's BCA has been raised to ba1 from ba3, reflecting the fact that its financial metrics have remained strong versus global peers and Moody's expectation that metrics will remain robust, owing to the company's status as a major producer and exporter of diamonds and weak rouble, the company's 29% share in the global diamond output, its low-cost reserve base, technical mining expertise, solid liquidity and conservative financial policy. At the same time, ALROSA's BCA factors in the volatile demand and prices for diamonds and the company's exposure to the Russian macroeconomic environment, despite the high exports, given that its operating facilities are located in Russia. RATIONALE FOR NEGATIVE OUTLOOK FOR ALROSA The negative outlook is in line with the negative outlook for the sovereign rating and reflects the fact that a potential downgrade of Russia's sovereign rating may result in the lowering of Russia's foreign-currency bond country ceiling. This would result in a downgrade of the company's ratings. WHAT COULD CHANGE THE RATINGS UP/DOWN There is no immediate positive pressure on the ratings given the negative outlook. In a longer term, Moody's could upgrade ALROSA's ratings if it were to upgrade Russia's sovereign rating, as well as the diamond market environment were to stabilize, and the company were to maintain its robust financial metrics, continue to generate positive free cash flow and retain solid liquidity. ALROSA's ratings would be downgraded if Russia's sovereign rating were downgraded and/or the foreign-currency bond country ceiling were lowered. Negative pressure could also be exerted on the ratings if the company's operating and financial performance, market position or liquidity were to deteriorate materially. -- METALLOINVEST Metalloinvest's Ba2 rating factors in the company's competitive cost profile, further supported by a weak rouble, high profitability, positive free cash flow generation, solid liquidity, long-life reserve base, integrated steel business model with steel segment profitability negatively correlating with iron ore prices, large share of niche and value-added products (pellets and hot briquetted iron), the prices for which are less volatile than iron ore, diversified customer base and flexibility with respect to the geography of shipments (export markets versus Russia). At the same time, Metalloinvest's rating takes into account its high exposure to iron ore products, the prices for which will likely remain depressed in the medium term; the expected deterioration of its financial metrics because of weak commodity prices; the limited geographic diversification of its assets; and concentrated ownership-related risks, including related-party transactions and shareholder-friendly financial policies with high dividend payouts and shareholder loans. The rating also reflects the company's exposure to the Russian macroeconomic environment, given that its assets are located in Russia where it generates 40%-45% of its revenues. RATIONALE FOR STABLE OUTLOOK FOR METALLOINVEST The stable rating outlook reflects Moody's expectation that Metalloinvest will (1) maintain its Moody's-adjusted debt/EBITDA below 3.0x on a sustainable basis, although this may be exceeded in 2016 as a result of the volatile iron ore prices; (2) continue to generate positive free cash flow; and (3) retain solid liquidity. WHAT COULD CHANGE THE RATINGS UP/DOWN Moody's could upgrade Metalloinvest's ratings if the macroeconomic situation in Russia were to stabilize, and the company were to reduce its Moody's-adjusted debt/EBITDA below 2.0x on a sustainable basis, continue to generate positive free cash flow, maintain solid liquidity, improve corporate governance and curtail related party transactions. Moody's could downgrade Metalloinvest's ratings if the company's Moody's-adjusted debt/EBITDA were to exceed 3.0x on a sustained basis, free cash flow turns negative as a result of low iron ore prices, generous dividend payouts, share buybacks or related- party transactions, or its liquidity deteriorates materially. NORD GOLD Nord Gold's Ba3 rating factors in Nord Gold's competitive cost position and reserve base dominated by open-pit mines, as well as its operational and geographical diversification, with nine active mines and two mines under construction. Nord Gold has robust financial metrics, with Moody's expectation that its adjusted debt/EBITDA will remain below 2.0x on a sustainable basis, conservative financial policy and solid liquidity. The company has built a track record of organic growth and demonstrates strong corporate governance. At the same time, the rating reflects the company's fairly small size, with gold production of 950 thousand ounces (koz) in 2015. The company has substantial capex program and faces execution risks, which are common for mining companies. Nord Gold is exposed to the volatile price of gold and the heightened business, political and event risks in the countries in which the company operates, primarily Burkina Faso and Guinea. The company's product diversification is low as it produces no by- products. RATIONALE FOR POSITIVE OUTLOOK FOR NORD GOLD The positive outlook reflects Moody's expectation that Nord Gold will maintain its robust financial metrics despite the volatility in gold prices, with Moody's-adjusted debt/EBITDA not exceeding 2.0x on a sustainable basis, and continue to generate significant operating cash flows to support the company's capex requirements, while pursuing a conservative financial policy and retaining solid liquidity. The outlook also reflects the rating agency's expectation that Nord Gold will be able to successfully start operations at its Bouly deposit in Burkina Faso in 2016 without significant cost overruns or delays. WHAT COULD CHANGE THE RATINGS UP/DOWN Moody's could upgrade Nord Gold's ratings if the company were to maintain its robust financial metrics, with Moody's-adjusted debt/EBITDA not exceeding 2.0x on a sustainable basis; increase its scale of operations by beginning production at the Bouly deposit; pursue a conservative financial policy and maintain solid liquidity. Moody's could downgrade Nord Gold's ratings if the company's Moody's-adjusted debt/EBITDA were to exceed 3.5x on a sustained basis, or its operating performance and liquidity were to deteriorate materially. SUEK SUEK's Ba3 rating takes into account SUEK's status as a global thermal coal producer, its competitive operating costs on the back of weak rouble and cost efficiency measures, its vast coal reserves and fairly simple geology, well-diversified domestic and international customer base and Moody's expectation that its financial metrics will be resilient to the current global coal market downturn. The rating also reflects the resilience of the company's domestic sales owing to the proximity of its mines to its power generation customers, and its control over a considerable portion of its transportation infrastructure (including ports in Vanino, Murmansk and Maliy), such that it is positioned to efficiently service Pacific and Atlantic export markets. At the same time, the rating factors in weak thermal coal prices in seaborne markets, the company's limited product diversification as a result of its exposure to a single commodity, thermal coal, its sizeable railway expenses and risks related to the company's concentrated ownership structure, although mitigated by corporate governance improvements. RATIONALE FOR STABLE OUTLOOK FOR SUEK The stable rating outlook reflects Moody's expectation that SUEK will (1) maintain its Moody's-adjusted debt/EBITDA below 3.5x on a sustainable basis; (2) continue to generate positive free cash flow; and (3) retain adequate liquidity. WHAT COULD CHANGE THE RATINGS UP/DOWN Moody's could upgrade SUEK's ratings if the macroeconomic environment in Russia were to stabilize, thermal coal prices in export markets were to recover sustainably, the company were to reduce its Moody's-adjusted debt/EBITDA below 2.5x on a sustainable basis and maintain adequate liquidity. Moody's could downgrade SUEK's ratings if the company's Moody's- adjusted debt/EBITDA were to exceed 3.5x on a sustained basis, the company were unable to generate positive free cash flow, or its liquidity and liquidity management were to deteriorate materially. LIST OF AFFECTED RATINGS Upgrades: Issuer: ALROSA PJSC -- Corporate Family Rating, Upgraded to Ba1 from Ba2 -- Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD Issuer: Alrosa Finance S.A. -- BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Ba1 from Ba2 Confirmations: Issuer: JSC Holding Company METALLOINVEST -- Corporate Family Rating, Confirmed at Ba2 -- Probability of Default Rating, Confirmed at Ba2-PD Issuer: Metalloinvest Finance Limited -- BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba2 Issuer: Nord Gold N.V. -- Corporate Family Rating, Confirmed at Ba3 -- Probability of Default Rating, Confirmed at Ba3-PD -- Senior Unsecured Regular Bond/Debenture, Confirmed at Ba3 Issuer: SUEK PLC -- Corporate Family Rating, Confirmed at Ba3 -- Probability of Default Rating, Confirmed at Ba3-PD Issuer: SUEK Finance -- Senior Unsecured Regular Bond/Debenture, Confirmed at Ba3 -- Outlook Actions: Issuer: ALROSA PJSC -- Outlook, Changed To Negative From Rating Under Review Issuer: Alrosa Finance S.A. -- Outlook, Changed To Negative From Rating Under Review Issuer: JSC Holding Company METALLOINVEST -- Outlook, Changed To Stable From Rating Under Review Issuer: Metalloinvest Finance Limited -- Outlook, Changed To Stable From Rating Under Review Issuer: Nord Gold N.V. -- Outlook, Changed To Positive From Rating Under Review Issuer: SUEK PLC -- Outlook, Changed To Stable From Rating Under Review Issuer: SUEK Finance -- Outlook, Changed To Stable From Rating Under Review ASIAN-PACIFIC BANK: Moody's Lowers Deposit Ratings to B3 -------------------------------------------------------- Moody's Investors Service has downgraded the long-term local- and foreign-currency deposit ratings of Asian-Pacific Bank to B3 from B2. The outlook on the bank's long-term deposit ratings is negative. Concurrently, Moody's has downgraded Asian-Pacific Bank's baseline credit assessment (BCA) and adjusted BCA to b3 from b2. The bank's short-term local-currency and foreign-currency deposit ratings were affirmed at Not-Prime. Moody's has also downgraded Asian-Pacific Bank's long-term Counterparty Risk Assessment (CR Assessment) to B2(cr) from B1(cr) and affirmed the bank's short- term CR Assessment of Not-Prime(cr). The downgrade primarily reflects higher-than-expected credit losses and elevated related-party exposure, while the negative outlook on the ratings reflects ongoing pressure on the bank's profitability and capitalization. These actions conclude the review on the bank's ratings initiated on March 9, 2016, when Moody's placed Asian-Pacific Bank's ratings on review for downgrade. RATINGS RATIONALE The downgrade of Asian-Pacific Bank's long-term deposit ratings to B3 primarily reflects higher-than-expected credit losses. This is a result of both the seasoning of the loan portfolio, which is largely represented by unsecured consumer loans (52% of gross loans and the lease portfolio as of Q3-2015) and material exposure to Vneshprombank (unrated), the banking license of which was revoked by the Central Bank of Russia in January 2016. The second driver of the downgrade is increased related-party exposure, which is largely unsecured in nature, exceeding 50% of shareholders' equity as of Q3-2015. Moody's believes Asian- Pacific Bank is likely to be increasingly involved in the financing of the major shareholders' non-banking businesses amid challenging access to funding from other banks. The negative outlook on the bank's ratings reflects ongoing pressure on the bank's profitability and capitalization which stems from elevated provisioning charges. Despite the regular contributions from shareholders in the recent past, the bank's capital adequacy remains modest in the context of heavy exposure to unsecured consumer lending; as of 1 April 2016, the bank reported regulatory Tier 1 (N1.2) and total capital adequacy (N1.0) ratios at 7.0% and 10.1%, respectively, marginally above the regulatory minimum ratios set at 6% and 8%. Moody's considers that additional provisioning charges against the bank's Vneshprombank exposure (c.6% of shareholders' equity) along with negative bottom line result will continue to pressure Asian-Pacific bank's capital cushion at least in the short-term. WHAT COULD MOVE THE RATINGS UP/DOWN Given the negative outlook on the bank's ratings, a ratings upgrade in the next 12-18 months is unlikely. However, the outlook could be changed to stable if the bank proves to be resilient against the asset quality and capital erosion. Negative rating actions could result from any of: (1) Asian-Pacific Bank's pre-provision income materially declining; (2) its loss absorption capacity as measured by its Tier 1 capital adequacy or its problem loan coverage ratio significantly weakens; or (3) further material growth of unsecured related party exposure. IRKUT CORPORATION: Moody's Confirms Ba3 CFR, Outlook Negative ------------------------------------------------------------- Moody's Investors Service has confirmed the Ba3 corporate family rating and the Ba3-PD probability of default rating of IRKUT Corporation, JSC (Irkut), a leading Russian military aircraft producer that is 100% state owned. The outlook on the ratings is negative. The confirmation considers these rating drivers: -- the strong links between Irkut's ratings and those of the sovereign -- the continued high probability of government support in the event of financial need -- Irkut's standalone credit quality unchanged, with the risk of highly elevated leverage mitigated by large share of state-related debt funding The action concludes the rating review initiated by Moody's on March 10, 2016, and follows Moody's confirmation of Russia's Ba1 government bond rating with a negative outlook on April 22, 2016. For additional information, please refer to the related announcement: http://is.gd/oH1AkP RATINGS RATIONALE The confirmation of Irkut's ratings reflects the company's strong link to the Russian sovereign and resulting sensitivity to changes in the sovereign's creditworthiness. The confirmation of Irkut's Ba3 ratings also reflects Moody's view that the existing strong probability of government support embedded within the company's ratings remains appropriate. The agency also notes that Irkut's standalone credit strength remains unchanged, challenged by its highly elevated leverage owing to the company's debt-funded program for new generation civil aircraft development. In Moody's view, the risk is partially mitigated by the fact that the majority of debt funding is provided by the state and state-related entities. In particular, Moody's expects that Irkut's leverage net of state-guaranteed loans and convertible shareholder loans should not exceed 5x debt/EBITDA materially and on a sustained basis over the next 12-18 months. The agency also expects that the company's liquidity will remain adequate supported by solid cash reserves and committed facilities from state banks. As Irkut is controlled by the Russian government, the company is seen by Moody's as a government-related issuer (GRI), whose Ba3 ratings benefit from an uplift to the company's standalone credit strength (as measured by its b3 base line credit assessment) driven by the strong probability of state support in the event of financial distress. In addition, Irkut is very highly dependent on the Russian government for aircraft construction orders and funding. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook on Irkut's ratings reflects that of the sovereign and the risk of highly leveraged standalone financial profile. WHAT COULD CHANGE THE RATING DOWN/UP Irkut's ratings could be downgraded if (1) Russia's sovereign rating were downgraded; (2) Moody's were to revise downward its assessment of the Russian government providing extraordinary support to Russian GRIs and/or Irkut in particular; or (3) the company's financial position were to weaken, with leverage (net state-guaranteed loans and convertible shareholder loans) moving materially above 5x debt/EBITDA and/or its liquidity profile further deteriorated. Upward pressure on Irkut's ratings is unlikely at present, given the negative outlook on the ratings. Moody's could change the outlook on the ratings to stable if it were to change the outlook on Russia's government bond rating to stable and there were sustainable improvements in the company's financial performance and liquidity. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Aerospace and Defense Industry published in April 2014. IRKUT Corporation, JSC (Irkut) is a leading military aircraft producer controlled by the Russian government and one of the largest companies in the Russian aviation industry. In 2014, Irkut generated revenues of approximately $1.7 billion and EBIT of approximately $68 million. NLMK: Moody's Confirms Ba1 CFR, Outlook Negative ------------------------------------------------ Moody's Investors Service has confirmed the Ba1 corporate family ratings and Ba1-PD probability of default ratings of three Russian steel/mining companies: NLMK, PAO Severstal and MMC Norilsk Nickel, PJSC (Norilsk Nickel). At the same time, Moody's upgraded Magnitogorsk Iron & Steel Works' (MMK) CFR to Ba1 from Ba2 and PDR to Ba1-PD from Ba2-PD. The outlook on all the ratings is negative. The actions conclude the rating reviews initiated by Moody's on March 10, 2016, (NLMK, Severstal and MMK) and Jan. 22, 2016, (Norilsk Nickel) and follows Moody's confirmation of Russia's Ba1 government bond rating with a negative outlook on April 22, 2016. For additional information, please refer to the related announcement: http://is.gd/oH1AkP RATINGS RATIONALE The confirmation of the ratings of NLMK, Severstal and Norilsk Nickel reflects the companies' strong business profiles; low-cost position, which supports their competitiveness in international markets; high profitability; solid liquidity and Moody's expectation that their financial metrics will remain commensurate with their ratings despite the volatility in prices for steel and commodities. However, the companies' Ba1 ratings will remain constrained by Russia's Ba1 sovereign rating with a negative outlook and the Ba1 country ceiling for foreign-currency debt. The upgrade of MMK's rating reflects Moody's expectation that the company's financial metrics will remain robust as it proceeds with debt reduction plans and will maintain its strong operating performance, high profitability, positive free cash flow generation and solid liquidity. -- NLMK Despite having considerable international sales and European and US assets, the company remains exposed to Russian macroeconomic challenges as most of its upstream and steel-making production facilities are Russia-based and about 35%-40% of its revenues come from sales in Russia. The company's rating takes into account the weak demand for steel in Russia as a result of Russia's GDP contraction and volatile steel prices in international markets, although the company has been fairly resilient to market challenges. More positively, the Ba1 rating reflects the company's diversified product mix and geography of assets and sales, particularly its rolling assets in the EU and the US which reduce its susceptibility to protective measures against cheap steel imports in those markets, sustainable high utilization rates of above 90% in its core plants in Russia, self-sufficiency in low- cost iron ore concentrate, low costs and high profitability owing to operational enhancements, integration in low-cost feedstock and rouble depreciation. The rating also factors in the company's strong financial metrics, sustainable free cash flow generation, solid liquidity and improved corporate governance. -- SEVERSTAL The company remains exposed to the Russian macroeconomic environment, despite high export volume, given that most of the company's production facilities are located in Russia and that it generates two thirds of its revenues from domestic sales. The company's rating takes into account weak domestic demand for steel as a result of Russia's GDP contraction and volatile steel prices in international markets, although the company has been fairly resilient to market challenges. On a more positive note, the rating reflects the company's low costs and consistently high operating margins owing to operational enhancements, vertical integration and rouble depreciation. The rating also factors in Severstal's product diversification, with a focus on high-value-added products, its solid share in the domestic steel market, low leverage, solid liquidity and good corporate governance. -- NORILSK NICKEL The company remains exposed to the Russian macroeconomic environment, despite the high share of exports, given that most of its production facilities are located in Russia. The rating also takes into account the expected deterioration of the company's financial metrics because of low commodity prices, as well as high dividend pay-outs. Positively, the rating factors in Norilsk Nickel's significant share in the global production of nickel and palladium and low- cost production profile. The company has long-life reserves and benefits from high product diversification, as its mineral deposits contain nickel, copper, palladium and platinum. The company maintains solid liquidity. -- MMK MMK's rating upgrade to Ba1 reflects the company's robust financial metrics and sustainable positive free cash flow generation, low-cost position and high profitability, conservative financial policy, diversified product mix and strong market share for high value-added flat steel products in Russia, substantial share of export sales and strong competitiveness in international markets thanks to its positioning at the very beginning of the global cost curve, and solid liquidity. The rating also factors in the company's exposure to the Russian macroeconomic environment, given that most of the company's upstream and steel-making production facilities are located in Russia where it generates 70%-80% of its revenues. The rating takes into account weak domestic steel demand as a result of Russia's GDP contraction and low steel prices in international markets, as well as the company's limited operational and geographic diversification. As well, the rating considers MMK's limited integration in mining operations, with only 25% self- sufficiency in iron ore and 40% in coking coal by capacity. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook is in line with the negative outlook for the sovereign rating and reflects the fact that a potential downgrade of Russia's sovereign rating may result in the lowering of Russia's foreign-currency bond country ceiling. This would result in a downgrade of the companies' ratings. WHAT COULD CHANGE THE RATINGS UP/DOWN Moody's could upgrade the companies' ratings if it were to upgrade Russia's sovereign rating and/or raise the foreign- currency bond country ceiling. In addition, upward pressure on individual company's ratings could develop for these reasons: -- for NLMK and Severstal, if the companies were to maintain their strong financial metrics, cash flow generation and solid liquidity -- for Norilsk Nickel, if the company were to maintain its Moody's-adjusted gross debt/EBITDA sustainably below 3.0x and retain solid liquidity -- for MMK, if demand for steel in the Russian market were to stabilize and the company were able to maintain its robust financial metrics, continue to generate positive free cash flow and retain solid liquidity The companies' ratings could be downgraded if (1) there were a downgrade of Russia's sovereign rating and/or a lowering of the foreign-currency bond country ceiling; or (2) individual companies' operating and financial performance, market position or liquidity were to deteriorate materially. In addition, downward pressure on Norilsk Nickel's rating could develop if the company's Moody's-adjusted gross debt/EBITDA were to exceed 4.0x on a sustained basis. PRINCIPAL METHODOLOGY The principal methodology used in rating PAO Severstal, Steel Capital S.A., NLMK, Steel Funding Limited and Magnitogorsk Iron & Steel Works was Global Steel Industry published in October 2012. The principal methodology used in rating MMC Norilsk Nickel, PJSC and MMC Finance Limited was Global Mining Industry published in August 2014. LIST OF AFFECTED RATINGS Confirmations: Issuer: NLMK Corporate Family Rating, Confirmed at Ba1 Probability of Default Rating, Confirmed at Ba1-PD Issuer: Steel Funding Limited Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: PAO Severstal Corporate Family Rating, Confirmed at Ba1 Probability of Default Rating, Confirmed at Ba1-PD Issuer: Steel Capital S.A. BACKED Senior Unsecured Medium-Term Note Program, Confirmed at (P)Ba1 BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: MMC Norilsk Nickel, PJSC Corporate Family Rating, Confirmed at Ba1 Probability of Default Rating, Confirmed at Ba1-PD Issuer: MMC Finance Limited BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Upgrades: Issuer: Magnitogorsk Iron & Steel Works Corporate Family Rating, Upgraded to Ba1 from Ba2 Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD Outlook Actions: Issuer: NLMK Outlook, Changed To Negative From Rating Under Review Issuer: Steel Funding Limited Outlook, Changed To Negative From Rating Under Review Issuer: PAO Severstal Outlook, Changed To Negative From Rating Under Review Issuer: Steel Capital S.A. Outlook, Changed To Negative From Rating Under Review Issuer: MMC Norilsk Nickel, PJSC Outlook, Changed To Negative From Rating Under Review Issuer: MMC Finance Limited Outlook, Changed To Negative From Rating Under Review Issuer: Magnitogorsk Iron & Steel Works Outlook, Changed To Negative From Rating Under Review PHOSAGRO OJSC: Moody's Confirms Ba1 CFR, Outlook Negative --------------------------------------------------------- Moody's Investors Service has confirmed the Ba1 corporate family ratings and Ba1-PD probability of default ratings (PDRs) of major Russia-based fertilizer producer, OJSC PhosAgro, and Russian gas processing and petrochemical business, Sibur Holding, PJSC. The outlook is negative on these ratings. At the same time, Moody's confirmed the Ba2 CFR and Ba2-PD PDR of leading potash producer, Uralkali PJSC. The ratings outlook is stable. The confirmation takes into account these drivers: -- the companies' strong export potential -- their sustainably low-cost position -- their high margins, aided by rouble depreciation -- solid liquidity The action concludes the rating review initiated by Moody's on 10 March 2016 and follows Moody's confirmation of Russia's Ba1 government bond rating with a negative outlook on April 22, 2016. For additional information, please refer to the related announcement: http://is.gd/oH1AkP RATINGS RATIONALE The confirmation of the ratings of PhosAgro, Sibur and Uralkali reflects Moody's view that the companies' businesses remain sufficiently resilient to Russia's weakening economy and finances on the back of their strong export potential, sustainably low- cost position and high margins, which are helped by the rouble depreciation and solid liquidity. At the same time, Moody's notes that the companies' resilience does have its limits given that their assets are concentrated in Russia and the alignment of the Russian country ceiling for foreign currency debt with the sovereign rating. Even for these companies, which have effectively dealt with their medium-term foreign currency refinancing needs, a severe deterioration of the operating environment in Russia and increasing pressures at the sovereign level might lead to a substantial weakening in their credit profiles. Country risk combined with the companies' exposure to the weak global commodity markets and some company specific issues, like Sibur's large-scale investment projects resulting in limited credit headroom and Uralkali's higher corporate government risk, will pressure the companies' ratings in the next 12-18 months. RATIONALE FOR NEGATIVE OUTLOOK FOR PHOSAGRO AND SIBUR The negative outlook on the companies' ratings is in line with the negative outlook on the sovereign rating. A potential downgrade of Russia's sovereign rating may result in the lowering of the country's foreign and/or local currency bond ceiling and, as a result downgrades of the companies' ratings. The negative outlook on Sibur's ratings also takes into account a delay in the company's deleveraging as it makes significant investments as part of its ZapSibNeftekhim project. RATIONALE FOR STABLE OUTLOOK FOR URALKALI The stable outlook reflects Moody's expectation that Uralkali's strong market and very competitive cost positions will help it maintain sufficient headroom within the parameters of its Ba2 ratings and support its good liquidity. WHAT COULD CHANGE THE RATING DOWN/UP The companies' ratings could be downgraded if (1) there is a downgrade of Russia's sovereign rating and/or a lowering of the foreign-currency bond country ceiling; or (2) individual companies' liquidity profiles deteriorate. In addition, downward pressure on individual companies' ratings could develop for the following reasons: -- for PhosAgro, if the company is unable to deliver adjusted retained cash flow/net debt above 40% and adjusted debt/EBITDA below 1.5x on a sustainable basis -- for Sibur, if the company's EBITDA margins were to decline materially below 25%, the company were to significantly delay deleveraging to about 2.5x debt/EBITDA and were to fail to maintain retained cash flow/net debt at above 20% -- for Uralkali, if the company's debt/EBITDA were to exceed 3.5x and retained cash flow/net debt were to fall below 25% on a sustained basis. Upward pressure on PhosAgro and Sibur's' ratings is currently unlikely, given the negative outlook. Moody's could confirm individual ratings if the sovereign rating of Russia were confirmed, and there is no material deterioration in operating conditions or individual company-specific factors. Upward pressure on Uralkali could emerge if, in Moody's view, the company is able to deleverage, with adjusted debt/EBITDA below 2.5x and RCF/net debt above 40% on a sustained basis, while maintaining good liquidity. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. OJSC PhosAgro is a holding company of a group of chemical companies engaged in the manufacture of phosphate and complex fertilisers. In 2015, PhosAgro generated sales of RUB189.7 billion ($3.1 billion). Sibur Holding, PJSC is a Russian vertically integrated gas processing and petrochemicals company. In 2015, Sibur generated revenue of RUB379.9 billion ($6.3 billion). Uralkali PJSC is one of the few largest potash producers by capacity globally. In 2015, Uralkali generated revenue of $3.4 billion. LIST OF AFFECTED RATINGS: Confirmations: Issuer: OJSC PhosAgro Corporate Family Rating, Confirmed at Ba1 Probability of Default Rating, Confirmed at Ba1-PD Issuer: PhosAgro Bond Funding Limited Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: Sibur Holding, PJSC Corporate Family Rating, Confirmed at Ba1 Probability of Default Rating, Confirmed at Ba1-PD Issuer: Sibur Securities Limited BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: Uralkali PJSC Corporate Family Rating, Confirmed at Ba2 Probability of Default Rating, Confirmed at Ba2-PD Issuer: Uralkali Finance Limited Senior Unsecured Regular Bond/Debenture, Confirmed at Ba2 Outlook Actions: Issuer: OJSC PhosAgro Outlook, Changed To Negative From Rating Under Review Issuer: PhosAgro Bond Funding Limited Outlook, Changed To Negative From Rating Under Review Issuer: Sibur Holding, PJSC Outlook, Changed To Negative From Rating Under Review Issuer: Sibur Securities Limited Outlook, Changed To Negative From Rating Under Review Issuer: Uralkali PJSC Outlook, Changed To Stable From Rating Under Review Issuer: Uralkali Finance Limited Outlook, Changed To Stable From Rating Under Review POWER MACHINES: Moody's Confirms Ba2 CFR, Outlook Negative ---------------------------------------------------------- Moody's Investors Service has confirmed the Ba2 corporate family rating and Ba2-PD probability of default rating (PDR) of Power Machines OJSC (PM), a major Russian manufacturer of electric power generating equipment. The outlook on all the ratings is negative. The confirmation of the company's ratings with a negative outlook takes into account these drivers: -- expectations that financial performance will rebound from significant metric weakness suffered in 2015 -- solid liquidity -- the vulnerability of its domestic-focused business to further Russian economic deterioration The action concludes the rating review initiated by Moody's on March 10, 2016, and follows Moody's confirmation of Russia's Ba1 government bond with a negative outlook on April 22, 2016. For additional information, please refer to the related announcement: http://is.gd/oH1AkP RATINGS RATIONALE The confirmation of PM's ratings reflects Moody's expectations that the company's operational and financial performance will rebound from significant metric weakness suffered in 2015 despite the fact that the company's Russia-focused business remains susceptible to the risk of further potential Russian economic and financial deterioration, as captured by the negative outlook on the sovereign rating. This view is based on the company's solid backlog and its progress in execution of a few significant export contracts. In 2015, PM's financial performance weakened considerably because of flagging domestic demand and overall operating environment frailty, including rouble depreciation. Company earnings also came under pressure from unplanned costs associated with one of PM's export contracts and a sizable provision for doubtful accounts receivable following the bankruptcy of a private customer. Significant reductions in revenue and margins raised PM's leverage to 4.4x debt/EBITDA, well above the Ba2 rating guidance of 2.5x. However, Moody's expects that PM should be able to restore its financial metrics to the levels more commensurate with the current Ba2 ratings over the next 12-18 months in line with its plan. The expectation considers that despite domestic economic weakness PM will benefit from (1) strong domestic market position, supported by a $5.8 billion order book as of end-2015; (2) execution in progress of sizable export contracts, which provide some respite; and (3) transition to a new dividend policy, which is better aligned with the currently challenging market environment. PM did not pay any dividends to common shareholders in 2015. PM will maintain solid liquidity through Q2 2017, supported by sizable cash reserves and long-term committed bank facilities, provided its prudent dividend policy continues. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook reflects the vulnerability of PM's domestic- focused business to further Russian economic deterioration and the risk in PM's ability to execute on leverage reduction. WHAT COULD CHANGE THE RATING UP/DOWN Downward pressure on the ratings may arise if (1) there were a significant deterioration of Russia's economic and financial environment, which would result in a downgrade of Russia's sovereign rating; and/or (2) PM's financial metrics were not to recover over the next 12-18 months, with debt/EBITDA to sustain materially above 2.5x and liquidity being strained. Upward pressure on PM's ratings is currently unlikely given the negative outlook on the ratings and the risk of further potential deterioration of Russia's economic and financial environment. Moody's could stabilize the ratings if (1) the outlook on Russia's sovereign rating were to stabilize and (2) PM's financial metrics were to recover to 2014 levels and it seemed likely that it were able to sustain debt/EBITDA below 2.5x. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Power Machines OJSC (PM) is a Russian manufacturer of a wide range of electric power generating equipment (turbines, generators, boilers and other equipment) and integrated solutions for electric power plants of all types and sizes. 100% of PM's share capital is indirectly controlled by Mr. Aleksey A. Mordashov. In 2015, PM generated revenue of $992 million. * Moody's Confirms Ratings of 9 Russian Sub-Sovereigns ------------------------------------------------------ Moody's Investors Service has confirmed the ratings of 7 Russian regional and local governments (RLGs) and 2 government-related issuers (GRIs) and downgraded the ratings of Republic of Mordovia to B3 from B2. At the same time it has affirmed the ratings of 10 Russian regions and cities; and will withdraw the ratings of 1 region. The outlooks on all these ratings are negative. The actions conclude the review that Moody's initiated on March 9, 2016. These rating actions follow no material change of Russia's credit profile as captured by Moody's confirmation of Russia's Ba1 government bond rating with negative outlook on April 22, 2016. For additional information, please refer to the related announcement: http://bit.ly/1Wu0FqS Specifically, Moody's has confirmed the following ratings with a negative outlook: the cities of Moscow and St. Petersburg, SUE Vodokanal of St. Petersburg, OJSC Western High-Speed Diameter, Republic of Bashkortostan, Republic of Tatarstan, Autonomous- Okrug (region) of Khanty-Mansiysk, Oblast of Moscow and Oblast of Omsk. Concurrently, Moody's has affirmed the ratings with negative outlooks of Oblast of Samara, Chuvashia Republic, Krasnoyarsk Krai, Krasnodar Krai, Republic of Komi, Oblast of Nizhniy Novgorod, City of Krasnodar, City of Volgograd, City of Omsk and Oblast of Belgorod. Moody's will withdraw the ratings of Oblast of Belgorod due to insufficient information. RATINGS RATIONALE --- RATIONALE FOR THE CONFIRMATIONS OF 7 RLGs' AND 2 GRIs' RATINGS The confirmation of the ratings on the cities of Moscow and St. Petersburg directly follows the confirmation of the sovereign bond rating, given their institutional and macroeconomic linkages to the national government which could potentially limit their strong individual performances. The confirmation of the issuer ratings of SUE Vodokanal of St. Petersburg and senior unsecured rating of OJSC Western High- Speed Diameter reflects their status as GRIs, wholly owned by the St. Petersburg government and their strong credit linkages with the City of St. Petersburg. The confirmation of OJSC Western High-Speed Diameter's bond rating reflects its link with the City of St. Petersburg and the guarantee that the Russian government provides on its bond principal payments. The confirmation of ratings of Republic of Bashkortostan, Republic of Tatarstan, Autonomous-Okrug (region) of Khanty- Mansiysk, Oblast of Moscow and Oblast of Omsk reflects no material increase in systemic pressure as reflected in the confirmation of the sovereign bond rating. --- RATIONALE FOR DOWNGRADE ON RATINGS OF THE REPUBLIC OF MORDOVIA The Republic of Mordovia's ratings downgrade reflects its: 1) significantly increased debt burden and 2) consistently weak fiscal performance. The net direct and indirect debt to operating revenues ratio increased to 121% at end-2015 from 90% at end-2014 as the republic has had to finance its large budget deficit (26% of total revenues in 2015) and will likely continue to trend upward. The performance has been consistently weak and no significant improvement is expected. The gross operating balance has been negative for the last seven years (-4% of operating revenues in 2015). --- RATIONALE FOR AFFIRMATION OF 7 REGIONS' AND 3 CITIES' RATINGS The affirmation of the ratings of 10 RLGs (Oblast of Samara, Chuvashia Republic, Republic of Komi, Krasnodar Krai, Krasnoyarsk Krai, Oblast of Belgorod, Oblast of Nizhniy Novgorod, City of Krasnodar, City of Omsk and City of Volgograd) reflects Moody's assessment that these regions' fiscal performances are adequate for their rating categories. Pressure from refinancing risks has partially abated as soft loans from the central government continue to ease the regions' refinancing needs. Debt affordability remains adequate and is supported by ongoing lending from state-owned banks. --- RATIONALE FOR ASSIGNING NEGATIVE OUTLOOKS The negative outlooks on the ratings of the cities of Moscow and St. Petersburg mirror the negative outlook on the sovereign government bond rating. The outlooks reflect the cities' institutional and macroeconomic linkages with the federal government and their lack of special status, which prevents them from being rated above the sovereign. The negative outlooks on the ratings of SUE Vodokanal of St. Petersburg reflect its strong institutional, financial and operational linkages with the city of St. Petersburg. The negative outlook on the rating of OJSC Western High-Speed Diameter mirrors the negative outlook on the City of St. Petersburg and the sovereign government bond rating. The negative outlook on the ratings of another 16 RLGs (Republic of Bashkortostan, Republic of Tatarstan, Autonomous-Okrug (region) of Khanty-Mansiysk, Oblast of Moscow, Oblast of Samara, Chuvashia Republic, Oblast of Omsk, Krasnoyarsk Krai, Krasnodar Krai, Republic of Komi, Oblast of Nizhniy Novgorod, City of Krasnodar, City of Volgograd, City of Omsk, Republic of Mordovia and Oblast of Belgorod) reflects the potential for the further deterioration of these issuers' credit profiles in an environment of increased systemic risk. In addition, the potential for a further weakening of the sovereign's creditworthiness, as reflected in the negative outlook on the government bond rating, could affect the federal government's willingness and ability to provide on-going and extraordinary support to regional and local governments. --- RATIONALE FOR OBLAST OF BELGOROD RATINGS WITHDRAWAL Moody's will withdraw the ratings on Oblast of Belgorod because of inadequate information to monitor the rating, due to the issuer's decision to cease participation in the rating process. The regional government has not communicated any additional information to Moody's since November 2015. At the same time, the publicly available information is not sufficient to analyse the refinancing risks and budgetary performance, and to make reliable assumptions about future performance. WHAT COULD CHANGE THE RATINGS UP/DOWN Given the negative outlooks, an upgrade of the RLG's and GRI's ratings is unlikely. If systemic pressures abate, the negative outlook for the Ba1 and Ba2 rated RLGs and 2 GRIs will likely be changed to stable, provided there is no deterioration in the RLGs' and GRIs' performances. For other entities the outlooks could stabilize following improvements in their performance leading to the stabilization of their debt burden and a decline in refinancing risks. Further deterioration in the sovereign's credit quality and/or deterioration in the RLGs' and GRIs' credit profiles reflected in the worsening fiscal performances and rising debt burdens could exert downward pressure on these sub-sovereigns. LIST OF AFFECTED RATINGS Confirmations with negative outlooks: Issuer: Moscow, City of LT Issuer Rating, Confirmed at Ba1 BACKED Senior Unsecured, Confirmed at Ba1 Outlook Negative Issuer: St. Petersburg, City of LT Issuer Rating, Confirmed at Ba1 Senior Unsecured, Confirmed at Ba1 Outlook Negative Issuer: Moscow, Oblast of LT Issuer Rating, Confirmed at Ba2 Outlook Negative Issuer: Bashkortostan, Republic of LT Issuer Rating, Confirmed at Ba2 Outlook Negative Issuer: Khanty-Mansiysk AO LT Issuer Rating, Confirmed at Ba2 Outlook Negative Issuer: Omsk, Oblast of LT Issuer Rating, Confirmed at Ba3 Outlook Negative Issuer: Tatarstan, Republic of LT Issuer Rating, Confirmed at Ba2 Outlook Negative Issuer: SUE Vodokanal of St. Petersburg LT Issuer Rating, Confirmed at Ba2 Outlook Negative Issuer: OJSC Western High-Speed Diameter BACKED Senior Unsecured, Confirmed at Ba3 Outlook Negative Downgrade with negative outlook: Issuer: Mordovia, Republic of LT Issuer Rating, Downgraded to B3 from B2 Senior Unsecured, Downgraded to B3 from B2 Outlook Negative Affirmations with negative outlooks: Issuer: Nizhniy Novgorod, Oblast LT Issuer Rating, Affirmed at B1 Outlook Negative Issuer: Komi, Republic of LT Issuer Rating, Affirmed at B1 Outlook Negative Issuer: Krasnoyarsk, Krai of LT Issuer Rating, Affirmed at B1 Outlook Negative Issuer: Samara, Oblast of LT Issuer Rating, Affirmed at Ba3 Outlook Negative Issuer: Krasnodar, Krai of LT Issuer Rating, Affirmed at B1 Senior Unsecured, Affirmed at B1 Outlook Negative Issuer: Chuvashia, Republic of LT Issuer Rating, Affirmed at Ba3 Senior Unsecured, Affirmed at Ba3 Outlook Negative Issuer: Belgorod, Oblast of LT Issuer Rating, Affirmed at B1 Senior Unsecured, Affirmed at B1 Outlook Negative Ratings will be withdrawn Issuer: Omsk, City of LT Issuer Rating, Affirmed at B1 Outlook Negative Issuer: Volgograd, City of LT Issuer Rating, Affirmed at B2 Outlook Negative Issuer: Krasnodar, City of LT Issuer Rating, Affirmed at B1 Outlook Negative The sovereign action required the publication of this credit rating action on a date that deviates from the previously scheduled release date in the sovereign release calendar. The specific economic indicators, as required by EU regulation, are not available for these entities. The following national economic indicators are relevant to the sovereign rating, which was used as an input to this credit rating action. Sovereign Issuer: Russia, Government of GDP per capita (PPP basis, US$): 26,138 (2014 Actual) (also known as Per Capita Income) Real GDP growth (% change): -3.7% (2015 Actual) (also known as GDP Growth) Inflation Rate (CPI, % change Dec/Dec): 12.9% (2015 Actual) Gen. Gov. Financial Balance/GDP: -3.5% (2015 Actual) (also known as Fiscal Balance) Current Account Balance/GDP: 5% (2015 Actual) (also known as External Balance) External debt/GDP: 38.9% Level of economic development: Moderate level of economic resilience Default history: At least one default event (on bonds and/or loans) has been recorded since 1983. On April 21, 2016, a rating committee was called to discuss the ratings of the Russian sub-sovereign entities. The main points raised during the discussion were: the systemic risk in which the issuers operate has not materially changed. The Republic of Mordovia's fiscal or financial strength, including its debt profile, has materially decreased. The principal methodology used in rating City of Moscow, Oblast Nizhniy Novgorod, City of St. Petersburg, Oblast of Moscow, Republic of Komi, Krai of Krasnoyarsk, Republic of Tatarstan, Oblast of Samara, Republic of Bashkortostan, Krai of Krasnodar, Khanty-Mansiysk AO, Republic of Chuvashia, Oblast of Omsk, Oblast of Belgorod, City of Omsk, City of Volgograd, City of Krasnodar and Republic of Mordovia, was Regional and Local Governments published in January 2013. The principal methodology used in rating SUE Vodokanal of St. Petersburg and OJSC Western High-Speed Diameter was Government-Related Issuers published in October 2014. The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable. * Moody's Confirms Ratings of 5 Russian Non-Financial Corporates ---------------------------------------------------------------- Moody's Investors Service has confirmed the Ba1 corporate family ratings, the Ba1-PD probability of default ratings of four Russian non-financial corporates and the Ba1 instrument ratings of the entities and their guaranteed subsidiaries: -- Russian Railways Joint Stock Company and its guaranteed debt-issuing subsidiary RZD Capital PLC -- Federal Passenger Company OJSC -- Mobile TeleSystems PJSC and its guaranteed debt-issuing subsidiary MTS International Funding Limited -- Megafon PJSC The outlook on all these ratings is negative. Concurrently, Moody's has also confirmed the Ba2 CFR, Ba2-PD PDR and Ba3 issuer rating of Sovcomflot PAO and the Ba3 senior unsecured rating of its guaranteed subsidiary SCF Capital Limited, with stable outlook. The confirmations take into account these drivers: -- the Russian economy's demonstrated resilience to the drop in oil prices -- anticipated ongoing government support for the GRIs -- somewhat decreased credit risks for corporates The action concludes the rating review initiated by Moody's on March 4, 2016 and follows Moody's confirmation of Russia's Ba1 government bond with a negative outlook on April 22, 2016. For additional information, please refer to the related announcement: https://www.moodys.com/research/--PR_347453 Russia's country ceilings, which include its Ba1/NP country ceilings for foreign currency debt, its Ba2 country ceiling for foreign currency deposits and its Baa3 country ceiling for local currency debt and deposits, were not changed. A country ceiling generally indicates the highest rating level that any issuer domiciled in that country can attain for instruments of that type and currency denomination. RATINGS RATIONALE The confirmations reflect Moody's view that (1) Russia's economy has exhibited resilience to the fresh drop in oil prices early this year thanks to an effective blend of macro policy responses, and (2) the fiscal adjustment underway appears sufficient to reduce the 2016-18 deficits to a level that can be financed in the domestic capital markets and fiscal reserve drawdowns. As a result, the credit risks for the Russian non-financial corporates affected by today's rating actions have somewhat decreased. However, Moody's expects that the operating environment for Russian non-financial corporates will remain challenging, although less than previously expected, over the next 12-18 months. This is the result of continuing weak domestic demand resulting from Russia's structurally weak growth potential, as well as limited availability of favorably priced investment capital. RATIONALE FOR NEGATIVE OUTLOOK ON Ba1-RATED COMPANIES The negative outlook on the four affected non-financial corporates rated Ba1 is in line with the negative outlook for the sovereign rating. This reflects Moody's view that these corporates' ratings will likely follow negative developments at the sovereign rating. RATIONALE FOR STABLE OUTLOOK ON SOVCOMFLOT The stable outlook on Sovcomflot's Ba2 CFR and Ba3 issuer rating reflects Moody's view that these ratings are likely to remain at current levels in the event of a one-notch sovereign downgrade, owing to the company's strengthening standalone positioning and its low default dependence with the sovereign. WHAT COULD CHANGE RATINGS UP/DOWN A downgrade of Russia is likely to result in downgrades of corporates rated Ba1. A material deterioration in company- specific factors, including operating and financial performance, market positions, liquidity and the probability of the Russian government providing extraordinary support to GRIs in the event of financial distress could also put pressure on the ratings. Moody's does not expect positive pressure to be exerted on the ratings in near term, owing to sovereign-related factors, and considering the negative outlook on the sovereign rating of Russia. However, positive pressure could be exerted on the ratings if Moody's were to raise Russia's sovereign rating and/or the foreign-currency bond country ceiling, depending on the company's specific credit factors, including their rating's positioning, operating and financial performance, market positions, liquidity and in the case of the GRIs, Moody's assessment of the credit linkages between a corporate and the state, as well as the probability of the Russian government providing extraordinary support to the GRIs in the event of financial distress. PRINCIPAL METHODOLOGIES The principal methodology used in rating Mobile TeleSystems PJSC, MTS International Funding Limited and MegaFon PJSC was Global Telecommunications Industry published in December 2010. The principal methodology used in rating Federal Passenger Company OJSC was Global Passenger Railway Companies published in March 2013. The principal methodology used in rating Russian Railways Joint Stock Company and RZD Capital PLC was Global Surface Transportation and Logistics Companies published in April 2013. Other methodologies used include the Government-Related Issuers methodology published in October 2014. The principal methodology used in rating Sovcomflot PAO and SCF Capital Limited was Global Shipping Industry published in February 2014. Other methodologies used include the Government- Related Issuers methodology published in October 2014. List of Affected Ratings Confirmations: Issuer: Federal Passenger Company OJSC Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: Russian Railways Joint Stock Company Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: RZD Capital PLC BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: MegaFon PJSC Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: Mobile TeleSystems PJSC Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: MTS International Funding Limited BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: Sovcomflot PAO Issuer Rating (Foreign Currency), Confirmed at Ba3 Issuer Rating (Local Currency), Confirmed at Ba3 Probability of Default Rating, Confirmed at Ba2-PD Corporate Family Rating, Confirmed at Ba2 Issuer: SCF Capital Limited BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba3 Outlook Actions: Issuer: Federal Passenger Company OJSC Outlook, Changed To Negative From Rating Under Review Issuer: Russian Railways Joint Stock Company Outlook, Changed To Negative From Rating Under Review Issuer: RZD Capital PLC Outlook, Changed To Negative From Rating Under Review Issuer: MegaFon PJSC Outlook, Changed To Negative From Rating Under Review Issuer: Mobile TeleSystems PJSC Outlook, Changed To Negative From Rating Under Review Issuer: MTS International Funding Limited Outlook, Changed To Negative From Rating Under Review Issuer: Sovcomflot PAO Outlook, Changed To Stable From Rating Under Review Issuer: SCF Capital Limited Outlook, Changed To Stable From Rating Under Review * Moody's Confirms Ba1 CFRs of 4 Russian Oil & Gas Companies ------------------------------------------------------------ Moody's Investors Service has confirmed at Ba1 the corporate family ratings (CFRs) of four integrated oil & gas companies -- Gazprom, PJSC; Gazprom Neft PJSC; OJSC Oil Company Rosneft; Lukoil, PJSC -- and one independent exploration and production (E&P) company -- OAO Novatek. The outlook on all the ratings is negative. These actions conclude the rating reviews initiated by Moody's on Jan. 22, 2016. "Our decision to confirm the ratings of Russian oil and gas majors reflects our view that they will be able to maintain solid credit metrics in a "lower-for-longer" oil price environment helped by rouble weakness and a favourable tax system. However, their ratings will remain constrained at Ba1 by the sovereign rating and outlook," says Denis Perevezentsev, a Moody's Vice President -- Senior Credit Officer. On Jan. 22, 2016, Moody's placed the ratings of 32 integrated oil, E&P, and OFS companies in the EMEA region on review for downgrade. This reflected the substantial drop of oil prices and the continued oversupply in the global oil markets. Moody's also lowered its oil price estimates on Jan. 21, 2016, and now forecasts that Brent oil price will average $33 per barrel of oil equivalent (boe) in 2016 and $38/boe in 2017 (Moody's base case scenario), with a slow recovery for oil prices over the next several years. The drop in oil prices and weak natural gas prices have caused a fundamental change in the energy industry and significantly hampered the sector's ability to generate cash flow. Moody's believes that this environment will continue for several years. RATINGS RATIONALE The confirmations primarily reflect (1) the favorable taxation system that is tied to oil prices such that when they fall oil and gas companies pay less tax, which in turn lifts the pressure on their credit metrics; (2) their low production costs and the rouble depreciation, which makes average realized prices sustainable in rouble terms and supports companies' profitability metrics; (3) companies' high portion of rouble-denominated operating and capital expenditure, which contains cost inflation; (4) the importance of the oil and gas industry for the Russian economy; and (5) Moody's assessment of high government support for government-related issuers (GRIs) -- Gazprom and Rosneft. However, Russian oil and gas companies' ratings remain constrained by the sovereign rating and outlook. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook on the ratings is in line with the negative outlook for the sovereign rating and reflects the fact that a potential further downgrade of Russia's sovereign rating may lead to downgrade of the companies' ratings. -- CONFIRMATION OF GAZPROM'S Ba1 CFR and Ba1-PD PDR Moody's confirmed the Ba1 CFR and Ba1-PD probability of default rating (PDR) of Gazprom, PJSC (Gazprom) and the Ba1 instruments ratings of its subsidiaries Gaz Capital S.A. and OOO Gazprom Capital with a negative outlook. To determine Gazprom's debt rating and CFR, Moody's applies GRI rating methodology, according to which the CFR is driven by the combination of (1) Gazprom's baseline credit assessment (BCA) of ba1; (2) the Ba1 local-currency debt rating of the Russian government with negative outlook; (3) the high dependence between the state and the company; and (4) Moody's assumptions of a high level of support from the state in case of need. The rating reflects (1) the world's largest natural gas reserves, at 17% of global and 72% of Russian gas reserves; (2) its unique business profile as Russia's largest producer and monopoly exporter of gas, and owner and operator of the world's largest gas transportation and storage system; (3) its market position as Europe's largest gas supplier; (4) its strong financial metrics and free cash flow generation, underpinned by contracted foreign- currency-denominated revenues and modest leverage; and (5) the economic, political and reputational importance of the company to the Russian state. Despite its sizeable capex program and contracting domestic gas sales, Moody's expects that Gazprom's financial metrics will remain fairly robust in 2016-17. This view is underpinned by Gazprom's strong position in the European gas market, in which it is likely to maintain its market share. Also, Gazprom's gas supply to Europe accounts for one third of Europe's total consumption volume and represents more than a half of the company's gas revenues. Gazprom's activity in the European gas market hinges on long-term contracts with oil-pegged prices based on the take-or-pay commitment. The company's leverage as measured by Moody's-adjusted debt/EBITDA stood at 1.7x as of Sept. 30, 2015. Deteriorating EBITDA and operating cash flows amid falling gas prices, potentially resulting in negative free cash flows in 2016, could increase leverage as measured by Moody's-adjusted leverage to 1.8x over the next 12-18 months. Gazprom is not subject to US and EU financial sanctions and retains good access to international capital markets having executed successful notes placements in 2015 and 2016. Headquartered in Moscow, Gazprom is one of the world's largest integrated oil and gas companies. It is focused on the exploration, production and refining of gas and oil (via its subsidiary Gazprom Neft PJSC (Ba1, negative), as well as the transportation and distribution of gas to domestic, former Soviet Union (FSU) and European markets. Gazprom also owns and operates the Unified Gas Supply System in Russia, which is the world's largest gas transportation, storage and processing system, comprising nearly 170,700 kilometres of high-pressure trunk pipelines and 26 underground gas storage facilities, and is the leading exporter of gas to Western Europe. For the first nine months of 2015, Gazprom reported sales of RUB4.2 trillion and EBITDA of RUB1.4 trillion. -- CONFIRMATION OF GAZPROM NEFT'S Ba1 CFR and Ba1-PD PDR Moody's confirmed the Ba1 CFR and Ba1-PD PDR of Gazprom Neft PJSC (Gazprom Neft) and the Ba1 instruments ratings of its subsidiary GPN Capital S.A. with a negative outlook. The ratings reflect (1) the large scale of the company's reserves and operations; (2) its strong operating and financial performance; (3) its track record of production growth and robust reserves replacement; and (4) the close and beneficial linkages between Gazprom Neft and its parent Gazprom. In 2015, the company grew its total proved hydrocarbon reserves, including shares in joint operations and joint ventures, by 5% to 11,268 million barrels of oil equivalent (mmboe). The company's hydrocarbon production including its share in joint ventures increased by 20.3% to 79.7 million tonnes (mt) in 2015 on continued production growth at joint ventures and sustained production at major fields. Lower oil and oil products prices on international markets were offset by higher sales volumes and prices at domestic market, resulting in net 2.1% sales decline. The company's refining throughput is fairly stable. Higher production volumes and higher realised prices in the domestic market allowed the company to grow Moody's-adjusted EBITDA to RUB410 billion in 2015 compared with RUB371 billion in 2014. Capital expenditure increased by 29% to RUB349 billion in 2015 from RUB271 billion in 2014, resulting in negative Moody's- adjusted free cash flows of RUB95 billion in 2015. Moody's expects that capex will remain at an elevated level resulting in negative free cash flows in 2016-17 as the company continues to actively invest in upstream operations and forges ahead with planned production ramp up. Moody's expects that Gazprom Neft's production will continue growing mainly owing to greenfield developments. Despite negative free cash flows, Moody's expects that Gazprom Neft's Moody's-adjusted leverage will remain at around 2.0x in 2016-17. Gazprom Neft refines 77% of its oil production and sells more than half of its refining output via its own distribution network. The scale of the company's downstream assets and their proximity to its main producing fields in West Siberia highlight Gazprom Neft's high level of integration. Gazprom Neft was included in the US and EU sanctions lists, which effectively cut off the company's access to long-term external financing in the Western financial and capital markets, as well as its ability to continue cooperating with Western partners on complex development projects. As a result, Moody's expects that Gazprom Neft will source liquidity from its strong operating cash flows as well as from (1) Russian banks (primarily state-owned); and (2) the issuance of rouble-denominated exchange bonds. Headquartered in St. Petersburg, Gazprom Neft is Russia's fourth- largest vertically integrated oil and gas company by production levels. Gazprom Neft is 95.68% owned by Gazprom. For 2015, Gazprom Neft's revenue amounted to RUB1.7 trillion and its Moody's-adjusted EBITDA to RUB410 billion. -- CONFIRMATION OF ROSNEFT'S Ba1 CFR and Ba1-PD PDR Moody's confirmed the Ba1 CFR and Ba1-PD PDR of OJSC Oil Company Rosneft (Rosneft) and Rosneft International Holdings Limited and the Ba1 instruments ratings of Rosneft's subsidiaries Rosneft Finance S.A. and Rosneft International Finance Limited with a negative outlook. To determine Rosneft's debt rating and CFR Moody's applies its GRI rating methodology, according to which the CFR is driven by a combination of (1) Rosneft's baseline credit assessment (BCA) of ba1; (2) the Ba1 local-currency debt rating of the Russian government with a negative outlook; (3) the high dependence between the state and the company; and (4) Moody's assumptions of a high level of support from the state in case of need. Despite the government's plans to privatize 19.5% of Rosneft's shares, Moody's expects that the company will continue to enjoy high state support owing to its key economic role as one of the biggest tax payers in Russia and the biggest oil company in Russia (with the government continuing to retain controlling stake). The rating reflects the company's strong business profile as one of the world's largest public oil and gas companies in terms of reserves and production. It also has substantial refining footprint. The company enjoys very strong state support, which was called upon at end-2014/early-2015 when the company issued more than RUB1 trillion of rouble-denominated bonds to refinance its upcoming maturities. This issuance came soon after the company appeared on US and EU sanctions lists, which effectively shuttered the company's access to international capital markets, as well as its ability to continue cooperating with western partners on complex development projects. Moody's expects that Rosneft will source additional liquidity from its strong operating cash flows and cash balances as well as from (1) Chinese partners under prepayment crude supply contracts; (2) Russian banks (primarily state-owned); and (3) potential deals, announced in 2015-16, whereby it will sell assets. Rosneft's proved hydrocarbon reserves amounted to 34 billion boe per Securities and Exchange Commission (SEC) classification and 43 billion boe per Petroleum Resources Management System (PRMS) classification as of Dec. 31, 2015. In the Q4 2015, Rosneft's average hydrocarbon production amounted to 5.2 million boe per day. The production of natural and associated gas was 16.62 billion cubic meters in Q4 2015. Moody's-adjusted debt includes about RUB1.9 trillion of prepayments from traders on long-term oil supply agreements, which the rating agency treats as a debt-like item, adding to financial debt. This elevates leverage, as measured by Moody's- adjusted debt/EBITDA, to about 5.3x as of Dec. 31, 2015. The company used these prepayments as a liquidity buffer and also to reduce its financial debt. Despite a sizeable capex programme, which Moody's estimates at about RUB600-RUB750 billion per year in 2016 and 2017, depending on prevailing oil prices, the rating agency expects that the company will be able to generate positive free cash flows in 2016-17. This will allow it to reduce Moody's-adjusted leverage to 3x-4x by end-2017. Sizeable cash and deposits balances of RUB1.3 trillion as of Dec. 31, 2015, aided by operating cash flows estimated by Moody's at about RUB0.8-RUB1 trillion per year in 2016-17, will allow the company to fund its capex and repay its maturing financial debt. Rosneft, in which the Russian state holds a 69.5% share via its fully owned agent OAO Rosneftegaz (not rated), is Russia's largest integrated oil and gas company. The company reported RUB5,150 billion of revenue and RUB1,245 billion of EBITDA in 2015. -- CONFIRMATION OF LUKOIL'S Ba1 CFR and Ba1-PD PDR Moody's confirmed the Ba1 CFR and Ba1-PD PDR of Lukoil, PJSC (Lukoil) and the Ba1 instruments ratings of its subsidiary LUKOIL International Finance B.V. with a negative outlook. The rating reflects (1) the company's unique business profile as Russia's largest private company; (2) sustainable growth rates of both oil and gas production and successful reserve replacement; (3) evolving opportunities from ramping up production at key greenfield projects; and (4) its strong financial metrics, including low leverage. The company's proved reserves at Jan. 1, 2016, fell to 16,558 million barrels of oil equivalent (mmboe) from 17,585 mmboe as of 1 January 2015, with production (890 mmboe) in 2015 and negative reserve revisions (643 mmboe) in the same year exceeding reserve additions (506 mmboe). Moody's positively notes that the company continues to expand reserves and production outside of Russia, with the West Qurna-2 project in Iraq contributing significantly to positive reserves revision in 2016. The project's contribution to total production also rose to about 10% in 2015 (versus 5.7% in 2014) offsetting declining production at Lukoil's mature fields in Western Siberia. This boost in production at West Qurna-2 allowed the company to increase 2015 oil and condensate production to 2,052 thousand barrels of oil equivalent per day (boepd) compared with 1,992 thousand boepd in 2014, even as production in Western Siberia declined. Lukoil's leverage as measured by Moody's-adjusted debt/EBITDA stood at 1.0x as of Dec. 31, 2015, compared with 0.9x as of Dec. 31, 2014, which is low versus both Russian and global oil and gas sector peers. The company was free cash flow positive in 2015, which, alongside its disciplined control over operating expenses and capex, allows it to pay substantial dividends. Moody's expects that under its base case oil price scenario, the company will generate about RUB700 billion of operating cash flows in 2016 and RUB800 billion in 2017, which will allow it to fund about RUB600 billion of annual capex in 2016-17, pay dividends and still remain free cash flow positive. Moody's estimates that the company will be able to maintain its leverage, as measured by Moody's-adjusted debt/EBITDA, at about 1.0x in 2016-17. Lukoil is a private company and is not among the Russian entities affected by US and EU financial sanctions. However, Lukoil is subject to US sanctions banning the provision of goods, services and technology for certain deep-water (greater than 500 feet), Artic offshore, or shale projects that have the potential to produce oil, encompassing license requirements for exports involving certain projects. Lukoil is also subject to similar EU sanctions, which limit the provision of services required for technologically challenging oil exploration and production projects and apply to all such projects in Russia. However, Lukoil is not currently impacted by these sanctions as its production in Western Siberia is mostly conventional and its offshore projects in the North Caspian Sea are at water depths of approximately 20 meters. As such, they do not qualify as deep- water (500 feet equals about 150 m) as indicated by the US sanctions. Lukoil is Russia's third-largest vertically integrated oil & gas company. The company reported revenue of RUB5,749 billion and adjusted EBITDA of RUB946 billion in 2015. -- CONFIRMATION OF NOVATEK'S Ba1 CFR and Ba1-PD PDR Moody's confirmed the Ba1 CFR and Ba1-PD PDR of OAO Novatek (Novatek) and the Ba1 instruments ratings of its subsidiary Novatek Finance Limited with a negative outlook. The rating reflects the company's (1) vast conventional low cost reserves; (2) integrated business model with a high share of processed value added products; (3) track record of strong production growth in gas and liquids (gas condensate and oil); (4) strong domestic market position in gas; (5) strong financial metrics and fairly low leverage; and (6) execution and financing risks related to the development of Yamal LNG project, which have somewhat abated recently. Novatek has 31 E&P licences located mainly above the Arctic Circle in the West Siberian Yamalo-Nenets Autonomous District of Russia, with total proven SEC reserves growing by 1.4% to 12.8 billion boe as of Dec. 31, 2015, from 2014. The company carries out the commercial production of natural gas, gas condensate and crude oil at 13 fields, including the company's flagship Yurkharovskoye and East-Tarkosalinskoye oil and gas condensate fields, with E&P production licences valid until 2034 and 2043, respectively. These fields contributed 53% and 13% of the company's total gas production in 2015. Helped by the growing production of gas and liquids at its joint ventures, the company grew gas production to 68 billion cubic meters (bcm) in 2015 from 62 bcm in 2014 while growing liquids production by 51% to 9.1 million tonnes in 2015 from 6 million tonnes in 2014. Production of gas and liquids at the company's joint ventures with Gazprom Neft, SeverEnergia (not rated), of which the company owns 53.3% (ownership will be reduced to parity during 2016) and Northgas (not rated), of which the company owns 50%, as well as oil production from Yarudeyskoye oil field developed by joint venture Yargeo, of which the company owns 51%, launched in December 2015 and ramped up to full capacity by the end 2015, will continue contributing to growing gas and liquids volumes in 2016. Moody's expects that Novatek will maintain its strong financial metrics in 2016-17 with leverage (as measured by Moody's-adjusted debt/EBITDA) of around 1.5x in 2016-17. The company's solid operating cash flows will be sufficient to fund sharply reduced capex requirements, repay debt and pay dividends. Moody's expects free cash flows after dividends in 2016 at about RUB40 billion potentially growing to RUB70 billion in 2017 under Moody's base case oil price scenario, provided the company does not extend substantial financing to its joint venture Yamal LNG from 2016. Novatek is subject to a US ban on the provision of financing for, and other dealings in, new debt with a maturity of longer than 90 days and all activities related to new debt, which does not impact the company's existing debt or equity instruments. Novatek is not subject to the US technological sanctions, comprising a ban on the provision of goods, services and technology for certain deep-water (greater than 500 feet), Arctic offshore, or shale projects that have the potential to produce oil, encompassing also licence requirements for exports involving certain projects. For that reason, Yamal LNG has not experienced meaningful difficulties, apart from some delays in closing external financing owing to these financial restrictions, while the project continues to receive equipment from foreign suppliers, including from the US. Headquartered in Moscow, Novatek is Russia's largest independent gas producer and second-largest gas company in Russia, after state-controlled Gazprom. In 2015, Novatek reported RUB475 billion in revenue and normalized EBITDA of RUB215 billion. PRINCIPAL METHODOLOGY The principal methodology used in rating Gazprom, PJSC, Gaz Capital S.A., OOO Gazprom Capital, OJSC Oil Company Rosneft, Rosneft International Finance Limited, Rosneft International Holdings Limited and Rosneft Finance S.A. was Global Integrated Oil & Gas Industry published in April 2014. Other methodologies used include the Government-Related Issuers methodology published in October 2014. The principal methodologies used in rating OAO Novatek and Novatek Finance Limited was Global Independent Exploration and Production Industry published in December 2011. The principal methodologies used in rating Lukoil, PJSC, LUKOIL International Finance B.V., Gazprom Neft PJSC and GPN Capital S.A. was Global Integrated Oil & Gas Industry published in April 2014. List of Affected Ratings: Confirmations: Issuer: Gazprom, PJSC Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: Gaz Capital S.A. Senior Unsecured Medium-Term Note Program, Confirmed at (P)Ba1 BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: OOO Gazprom Capital BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: Gazprom Neft PJSC Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: GPN Capital S.A. BACKED Senior Unsecured Medium-Term Note Program, Confirmed at (P)Ba1 BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: OJSC Oil Company Rosneft Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: Rosneft Finance S.A. BACKED Senior Unsecured Medium-Term Note Program, Confirmed at (P)Ba1 BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: Rosneft International Finance Limited BACKED Senior Unsecured Medium-Term Note Program, Confirmed at (P)Ba1 BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: Rosneft International Holdings Limited Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: Lukoil, PJSC Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: LUKOIL International Finance B.V. BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Issuer: OAO Novatek Probability of Default Rating, Confirmed at Ba1-PD Corporate Family Rating, Confirmed at Ba1 Issuer: Novatek Finance Limited BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 Outlook Actions: Issuer: Gazprom, PJSC Outlook, Changed To Negative From Rating Under Review Issuer: Gaz Capital S.A. Outlook, Changed To Negative From Rating Under Review Issuer: OOO Gazprom Capital Outlook, Changed To Negative From Rating Under Review Issuer: Gazprom Neft PJSC Outlook, Changed To Negative From Rating Under Review Issuer: GPN Capital S.A. Outlook, Changed To Negative From Rating Under Review Issuer: OJSC Oil Company Rosneft Outlook, Changed To Negative From Rating Under Review Issuer: Rosneft Finance S.A. Outlook, Changed To Negative From Rating Under Review Issuer: Rosneft International Finance Limited Outlook, Changed To Negative From Rating Under Review Issuer: Rosneft International Holdings Limited Outlook, Changed To Negative From Rating Under Review Issuer: Lukoil, PJSC Outlook, Changed To Negative From Rating Under Review Issuer: LUKOIL International Finance B.V. Outlook, Changed To Negative From Rating Under Review Issuer: OAO Novatek Outlook, Changed To Negative From Rating Under Review Issuer: Novatek Finance Limited Outlook, Changed To Negative From Rating Under Review ========= S P A I N ========= ABENGOA SA: Obtains Bankruptcy Protection Under Chapter 15 ---------------------------------------------------------- Patrick Fitzgerald at The Wall Street Journal reports that Judge Kevin Carey of the U.S. Bankruptcy Court on April 27 granted bankruptcy protection to Spain's Abengoa SA over the objections of a group insurance companies who claimed the energy company's talks to restructure billions in debt was unfair to U.S. creditors. The judge said he would sign off on Abengoa's bid for protection under chapter 15, which recognizes the company's ongoing restructuring talks with its banks and bondholders in Spain, the Journal relates. Recognition of the Spanish proceeding locks in a pre-insolvency standstill agreement Abengoa struck with key creditors that gives it more time -- through Oct. 28 -- to continue negotiations on restructuring its debts, which court papers show total more than EUR14.6 billion (US$16.48 billion), the Journal notes. With Judge Carey's approval, the Seville-based energy company will receive the benefits of U.S. bankruptcy law, including the so-called automatic stay that halts lawsuits and prevents creditors from seizing assets, the Journal discloses. According to the Journal, under a so-called viability plan floated to creditors earlier this year, the new Abengoa would cut costs, shed noncore assets and emerge as a slimmer business valued at EUR5.395 billion with EUR4.9 billion in debt. About Abengoa S.A. Spanish energy giant Abengoa S.A. is a leading engineering and clean technology company with operations in more than 50 countries worldwide that provides innovative solutions for a diverse range of customers in the energy and environmental sectors. Abengoa is one of the world's top builders of power lines transporting energy across Latin America and a top engineering and construction business, making massive renewable- energy power plants worldwide. As of the end of 2015, Abengoa, S.A. was the parent company of 687 other companies around the world, including 577 subsidiaries, 78 associates, 31 joint ventures, and 211 Spanish partnerships. Additionally, the Abengoa Group held a number of other interests of less than 20% in other entities. On Nov. 25, 2015 in Spain, Abengoa S.A. announced its intention to seek protection under Article 5bis of Spanish insolvency law, a pre-insolvency statute that permits a company to enter into negotiations with certain creditors for restricting of its financial affairs. The Spanish company is facing a March 28, 2016, deadline to agree on a viability plan or restructuring plan with its banks and bondholders, without which it could be forced to declare bankruptcy. On March 16, 2016, Abengoa presented its Business Plan and Financial Restructuring Plan in Madrid to all of its stakeholders. U.S. Bankruptcies Abengoa, S.A., and 24 of its subsidiaries filed Chapter 15 petitions (Bankr. D. Del. Case Nos. 16-10754 to 16-10778) on March 28, 2016, to seek U.S. recognition of its restructuring proceedings in Spain. Christopher Morris signed the petitions as foreign representative. DLA Piper LLP (US) represents the Debtors as counsel. Gavilon Grain, LLC, et al., on Feb. 1, 2016, filed an involuntary Chapter 7 petition for Abengoa Bioenergy of Nebraska, LLC ("ABNE") and on Feb. 11, 2016, filed an involuntary Chapter 7 petition for Abengoa Bioenergy Company, LLC ("ABC"). ABC's involuntary Chapter 7 case is Bankr. D. Kan. Case No. 16-20178. ABNE's involuntary case is Bankr. D. Neb. Case No. 16-80141. An order for relief has not been entered, and no interim Chapter 7 trustee has been appointed in the Involuntary Cases. The petitioning creditors are represented by McGrath, North, Mullin & Kratz, P.C. On Feb. 24, 2016, Abengoa Bioenergy US Holding, LLC and 5 five other U.S. units of Abengoa S.A., which collectively own, operate, and/or service four ethanol plants in Ravenna, York, Colwich, and Portales, each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri. The cases are pending before the Honorable Kathy A. Surratt-States and are jointly administered under Case No. 16- 41161. Abeinsa Holding Inc., and 12 other affiliates, which are energy, engineering and environmental companies and indirect subsidiaries of Abengoa, filed Chapter 11 bankruptcy petitions (Bankr. D. Del. Proposed Lead Case No. 16-10790) on March 29, 2016. ============= U K R A I N E ============= BANK SOYUZ: NBU Balks at Judge's Decision to Void Liquidation ------------------------------------------------------------- Interfax-Ukraine reports that the National Bank of Ukraine has asked Ukraine's high qualification commission of judges to apply disciplinary action to judges of the district administrative court in Kyiv because of their decision to void the liquidation of bank Soyuz, the regulator has reported on its website. "The court ruling [voiding the liquidation of the bank] does not contain justified conclusions regarding proofs of the lawful decision of the NBU. The court did not take into account the conclusions of the higher administrative court in similar cases," Interfax-Ukraine quotes the NBU as saying. Additionally, Kyiv's court of appeals on April 26 did not uphold a claim of the NBU and Individuals' Deposit Guarantee Fund, Interfax-Ukraine relates. The NBU intends to file a counterclaim, Interfax-Ukraine discloses. The central bank also will appeal to the high qualification commission of judges regarding violations by the court of appeals, Interfax-Ukraine notes. Bank Soyuz is a universal commercial bank, founded in 1993. =========================== U N I T E D K I N G D O M =========================== BHS GROUP: PPF Rejected Owners' Pension Scheme Rescue Proposals --------------------------------------------------------------- Murad Ahmed, Josephine Cumbo and Scheherazade Daneshkhu at The Financial Times report that BHS's owners made two offers to plug the company's GBP571 million pension scheme deficit in the past three months -- but both were dismissed by the UK's pension rescue fund for falling well short of the action it deemed necessary. According to the FT, people close to the negotiations said one of the proposals would have involved the industry-backed Pension Protection Fund being paid GBP18 million in cash, a GBP10 million loan note and BHS shares worth 33% of the company. However, the PPF deemed the offers inadequate, the people, as cited by the FT, said, and retained the right to pursue more funds from BHS's current and former owners. These include Sir Philip Green, the retail magnate who sold BHS for gBP1 to the little-known Retail Acquisitions consortium last year, the FT notes. Sir Philip has also been reported to have offered ú80m to help pay down the BHS pension deficit, the FT states. The fate of BHS's pension scheme has become a key issue in the fallout over the 88-year-old high-street chain's fall into administration this week, with thousands of current and former staff facing steep cuts to their retirement benefits, the FT relays. Earlier this week, the Pensions Regulator launched a probe into BHS's collapse, which has left 11,000 jobs across 164 stores at risk, the FT recounts. According to the FT, people with knowledge of the negotiations said that during Retail Acquisitions' 13-month ownership of BHS, various parties attempted to negotiate settlements with the Pensions Regulator and the PPF over the pension deficit. People close to the talks said that Retail Acquisitions presented two deals of this sort to the regulator and the PPF, one in February and another this month, both of which were rejected by the fund as they were not judged sufficient, the FT relates. Many of the 20,000 members of the BHS pension scheme face cuts to their retirement income as responsibility for payments passes to the PPF, the FT discloses. BHS Group is a department store chain. The company employs 10,000 people and has 164 shops. CARE UK: Moody's Cuts Probability of Default Rating to Caa1 ----------------------------------------------------------- Moody's Investors Service downgraded the Corporate Family Rating (CFR) and Probability of Default Rating (PDR) of Care UK Health & Social Care Investments Limited (Care UK or the Company) to Caa1 and Caa1-PD from B3 and B3-PD respectively. At the same time, Moody's has downgraded to Caa1 from B3 the rating of the Senior Secured Floating Rate Notes and to Caa3 from Caa2 the rating of the Senior Subordinated Second Lien Notes, both of which are issued by Care UK Health & Social Care PLC. The outlook is stable. RATINGS RATIONALE The downgrade reflects Moody's expectation that earnings through the remainder of FY2016 will contract as a result of ISTC Wave 2 program renewals within the Company's Healthcare division and that, in conjunction with debt increases associated with ongoing cash absorption that is primarily driven by expansion capex: 1) Moody's adjusted credit metrics will deteriorate reasonably materially during FY2016; and 2) FY2016 and beyond will be characterized by depletion of available liquidity. Previously Moody's stable outlook was predicated on already weak credit metrics not worsening during FY2015 before beginning to improve from FY2016 onwards. At the same time, downward rating pressure guidance included free cash flow generation remaining negative and worsening of the liquidity profile. While Moody's recognizes the expectation that newly developed and restructured properties will provide a greater contribution to earnings as their trading activity and occupancy levels mature, we also believe that vulnerabilities to EBITDA generation have been experienced and continue to exist. These include: 1) occupancy levels in new homes growing at slower than forecast rates (the full earnings contribution of new homes opened can take up to two years to materialize); 2) in our view organic earnings growth is relatively weak and can be negatively affected by higher labor costs and pressure on public sector spending; and 3) a key factor in the future profitability of the Health Care business is its ability to attract patients and retain contracts. Against this, Moody's acknowledge that Care UK has also achieved material recent contract wins within its Health Care business and that the Company delivered notable wage cost efficiencies during FY2015, albeit that in the case of the latter these largely reversed in Q1 2016 as increased use of agency personnel impacted negatively. In addition, while there is potential for the National Living Wage to create wage cost pressure, Moody's notes that: 1) the extent to which increased levels of reimbursement funded by the 2% council tax precept might mitigate this feature is not yet known, but may present upside; 2) increasing rates of self-pay and 3) the Company has adopted conservative reimbursement assumptions in its planning process. We also believe that long term demand is driven by favorable demographic trends as well as constraints in public health and social care provision. Nonetheless, even assuming that EBITDA growth is delivered during FY2017, oody's expects that, due to ongoing high maintenance capital expenditure and investment in new homes, free cash generation will remain negative, leading to further reductions in liquidity available in the absence of funding being raised from alternative sources. Moody's said, "While we therefore anticipate reduction both in cash balances and RCF availability during FY2016 and beyond, we also expect Care UK's liquidity to remain adequate over a 12-18 month time horizon. As at December 2015 the Company's cash balances amounted to c.GBP24.7 million and availability under the RCF, which matures in 2019, was GBP29.6 million. The RCF contains a leverage covenant for which we expect good headroom over the time frame detailed. Because the First and Second Lien Notes account for predominately all the Company's debt, short term debt, which consists mainly of finance leases, is also negligible. Finally, while we expect that Care UK will continue to absorb cash, we acknowledge that typically only minimal levels of investment capex are committed at any point in time, which provides flexibility, while the Company has potential alternative sources of liquidity available, including high levels of balance sheet asset backing and the possible repayment of related party intercompany loans made outside the Restricted Group (i.e. to Silver Sea)." Structural Considerations The Senior Secured Notes and the Second Lien Notes are secured by first and second ranking liens, respectively, over all the shares in the Issuer and over substantially all the property and assets of the Issuer and the Guarantors. The Revolving Credit Facility is secured and guaranteed on the same basis as the Senior Secured Notes, but, in accordance with the terms of an Intercreditor Agreement, in the event of enforcement of the security the obligations of the RCF will be satisfied in full before any payment can be made under the Senior Secured Notes or the Second Lien Notes. Facility documentation requires that Guarantors must represent a minimum 85% of each of Consolidated EBITDA and gross assets of the Restricted Group. The First Lien Notes are rated Caa1, in line with the CFR, to reflect the fact that there is limited debt ranking ahead of them, while the Second Lien Notes are rated Caa3, to reflect their subordinated ranking within the capital structure. RATIONALE FOR THE STABLE OUTLOOK Notwithstanding that Moody's expects a deterioration in Care UK's credit metrics during FY2016, the stable outlook assumes that ratios will begin to improve in line with underlying improved operating performance from FY2017 onwards. The stable outlook therefore incorporates limited flexibility for debt funded expansion or continuing underperformance. WHAT COULD CHANGE THE RATING UP/DOWN Positive rating pressure is unlikely over the medium term given the weakness in credit metrics and Moody's expectation of continuing cash absorption, but would be considered if positive free cash generation were to be evidenced on a sustainable basis. Conversely, negative pressure would likely result if the criteria for the stable outlook were not to be met, negative free cash flow generation were to worsen and / or Care UK's liquidity profile were to weaken further than anticipated. The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Care UK is a leading independent provider of health and social care services in the UK. The Company operates a range of facilities delivering residential and nursing care, as well as health care facilities delivering a range of services to NHS patients, including primary, secondary and urgent care services. Care UK is indirectly owned by funds managed by private equity firm Bridgepoint, which owns 79.4% of Care UK Health & Social Care Holdings Limited, the ultimate parent company, while the remaining 20.6% of share capital is owned mainly by management and employees. T&A KERNOGHAN: Goes Into Administration --------------------------------------- Construction Enquirer reports that Contractor T&A Kernoghan has fallen into administration owing suppliers thousands. The firm was based in Northern Ireland but also carried out work across the UK. Michael Jennings -- michael.jennings@bdo.co.uk -- and Brian Murphy -- brian.murphy@bdo.co.uk -- of BDO Northern Ireland were officially appointed as Joint Administrators over T&A Kernoghan by the company's secured lenders, according to Construction Enquirer, the report notes. All staff at the business were made redundant immediately. BDO said that a winding up petition had been presented against the company by one of its creditors, which was subsequently supported by a number of other creditors, the report relays. The report discloses that BDO added: "Following our appointment, it is with regret that due to the extent of the Company's financial difficulties, the Joint Administrators have been required to make all staff redundant and cease operations across the various building sites throughout the UK. "The Administrators and their staff will be responsible for maximising value for the Company's stakeholders through the realisation of the remaining assets of the Company," BDO said. TATA STEEL UK: Port Talbot Closure May Worsen Pension Deficit ------------------------------------------------------------- Jim Pickard at The Financial Times reports that the chief executive of Tata Steel UK on April 28 defended his parent company's decision to sell the business but told MPs that the growing deficit in the British Steel pension fund would be worsened if the Port Talbot plant was closed. Appearing in public for the first time since the company's announcement in March, Bimlendra Jha said it had tried to resolve the pension problem 18 months ago through talks with the unions to avert a "huge economic and social disaster", the FT relates. Tata has put GBP85 million into the pension fund in the last two years and had promised another GBP125 million for 2016-18, the FT discloses. A shutdown of Port Talbot would reduce the number of active contributors to the pension fund by 4,700, the FT says. The fund has liabilities of about GBP15 billion and a widening deficit that is already GBP485 million, according to the FT. There could still be a solution that did not involve "dipping into the pockets of the exchequer but doesn't hurt the company going forward," the FT quotes Mr. Jha as saying. "We are negotiating with the government to protect the interests of existing pensioners." According to the FT, Sajid Javid, the business secretary, confirmed that talks were ongoing between pension trustees, the company, the pension regulator and the government: "We are trying to facilitate a solution in any way we can," he told the business select committee. Mr. Javid, as cited by the FT, said that many buyers were interested in the assets, but not if they had to take responsibility for the pension scheme. Tata Steel is the UK's biggest steel company. THAME AND LONDON: Moody's Assigns B3 Corporate Family Rating ------------------------------------------------------------ Moody's Investors Service assigned a B3 corporate family rating and a B3-PD probability of default rating to Thame and London Limited (Travelodge). Moody's also assigned a (P)Ba3 rating to the proposed Super Senior Revolving Credit Facilities to be issued by Full Moon Holdco 7 Limited, a wholly-owned, indirect subsidiary of Thame and London Limited. Furthermore, Moody's assigned a rating of (P)B3 to the proposed Senior Secured Notes due 2023 to be issued by TVL Finance plc, a wholly-owned, indirect subsidiary of Thame and London Limited. The rating outlook for all ratings is stable. This is the first time Moody's has rated Travelodge. "Travelodge has demonstrated the success of its turnaround strategy following the Company Voluntary Agreement (CVA) in 2012," said Maria Maslovsky, a Vice President at Moody's and lead analyst for Travelodge, "The company has modernized its entire portfolio and re-launched the brand with a new advertising campaign, which have contributed to its RevPAR growth outperforming the market segment by over 4.5% in 2015 and its EBITDA growing to over GBP100 million in 2015 from approximately GBP33 million in 2013 as reported by the company." RATINGS RATIONALE Travelodge's B3 corporate family rating (CFR) reflects (1) the company's leading position in the UK budget hotel industry; (2) the success of the refit program which has delivered three years of positive results; (3) the company's exposure to cyclical demand and high operating leverage; and (4) Travelodge's weak but improving financial metrics which include high leverage and low interest coverage ratios. The operational and financial restructuring helped Travelodge grow its RevPAR which in 2015 in the UK increased by 11.7%, outperforming the market segment's RevPAR growth of 7.2%. The company's revenues and EBITA margins have also shown improvement in the last two years: revenues increased from GBP432.6 million in 2013 to GBP559.6 million in 2015 while EBITA margin grew from 30.3% in 2013 (25.9% in 2012) to 42.0% in 2015, as adjusted by Moody's. The margin growth was helped by operational improvements introduced by Travelodge's management including dedicated revenue management and cost control initiatives. In addition, from December 2013 to March 2016, Travelodge opened 3,872 rooms and has a further secure pipeline of 35 hotels (3,456 rooms) supporting its growth. Despite a strong track record of operational improvements, Travelodge remains a highly leveraged business with approximately 8.0x debt/EBITDA at year-end 2015 (pro forma for the proposed transaction and including Moody's standard adjustments). Moody's expects the company to de-leverage gradually over time as its EBITDA continues to grow; however, Moody's note that it adjusts its leverage calculation for operating leases which results in a material increase in the face value of debt for Travelodge since it leases all of its assets. Encouragingly, the company generated positive free cash flow in 2015 for the first time since the beginning of its turnaround. As a lodging operator, Travelodge is sensitive to economic cycles, and a slowdown in the UK would be a negative. Also, addition of new competitive hotel rooms would be a concern. Although no meaningful new supply is anticipated in the UK regions, London has seen a number of room additions. Ameliorating this challenge is the large size and diversity of London's economy and hotel market which demonstrated great resiliency following large room additions associated with the Olympic Games in 2012. The stable rating outlook reflects Moody's expectation that Travelodge will sustain its improved operations while maintaining sufficient liquidity. Upward rating pressure could result from further operational improvements driven by continued outperformance and successful execution of the development strategy such that Moody's adjusted leverage declines toward 6.5x and free cash flow remains positive on a sustained basis. Adequate liquidity would also be important. Negative rating pressure could arise from operational setbacks such that Moody's adjusted leverage fails to decline from the current level of approximately 8.0x and free cash flow becomes negative on a sustained basis. Any liquidity challenges would also be viewed negatively. The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Travelodge is a top two independent budget hotel chain in the UK operating over 525 hotels and 39,000 rooms across the UK, Ireland and Spain. TOWD POINT: S&P Assigns B Rating to Class G Deferred Notes ---------------------------------------------------------- Standard & Poor's Ratings Services assigned credit ratings to Towd Point Mortgage Funding 2016-Granite1 PLC's (Towd Point) class A to G notes. At closing, Towd Point also issued unrated class Z and X notes, as well as SDC, DC1, DC2, and DC3 certificates. Towd Point purchased the beneficial interest in a portfolio of U.K. residential mortgage loans from the seller (Cerberus European Residential Holdings B.V.; CERH), using the notes' issuance proceeds. The seller in turn purchased the mortgage loans from NRAM PLC (NRAM; formerly Northern Rock (Asset Management) PLC). The pool totals GBP6.086 billion (as of March 31, 2016). The pool comprises first-lien U.K. residential mortgage loans that NRAM originated. Bradford & Bingley PLC (B&B; acting on behalf of NRAM) is the interim servicers of the loans in the pool. The owner of NRAM and B&B, UK Asset Resolution Ltd. (UKAR), is in the process of selling the B&B mortgage servicing business. S&P expects the sale of B&B's mortgage servicing business to complete shortly after this transaction closes. On Feb. 1, 2016, Computershare Ltd. entered into an exclusivity period with UKAR. Should the sale of its mortgage servicing business complete, B&B will continue as interim servicer until a new long-term servicing contract is in place, at which point the purchaser will provide services to NRAM and become the back-up servicer according to pre-defined servicing agreements. Approximately 92.58% of the pool comprises standard variable rate (SVR) loans, or loans which revert to an SVR in the future. Based on S&P's legal analysis and the conditions outlined in the various servicing agreements, S&P has been able to give credit to the documented SVR floor rate for approximately 98% of the SVR loans, which apply post December 2016. For the remaining SVR loans on which S&P has not given credit to the minimum rate, this is due to documented conditions in the underlying mortgage agreements that permit the legal title holder to charge a borrower interest based on the lower of the SVR rate and a rate linked to the bank of England base rate (BBR) plus a margin determined by the legal title holder. S&P rates the class A notes based on the payment of timely interest. Interest on the class A notes is equal to three-month sterling LIBOR plus a class-specific margin. However, the class B to G notes are somewhat unique in the European residential mortgage-backed securities market in that they pay interest based on the lower of the coupon on the notes (three-month sterling LIBOR plus a class-specific margin) and the net weighted-average coupon (WAC) cap. The net WAC on the assets is based on the interest accrued on the assets (whether it was collected or not) during the quarter, less senior fees, divided by the current balance of the assets at the beginning of the collection period. This rate is then divided by the outstanding balance of the rated notes (class A to G) as a percentage of the outstanding balance of the assets at the beginning of the period to derive the net WAC cap. The net WAC cap is then applied to the outstanding balance of the notes in question to determine the required interest. In line with S&P's imputed promises criteria, its ratings address the lower of these two rates. A failure to pay the lower of these amounts, for the class B to G notes, results in interest being deferred. Deferred interest also accrues at the lower of the two rates. S&P's ratings however, do not address the payment of what are termed "net WAC additional amounts" i.e., the difference between the coupon and the net WAC cap where the coupon exceeds the net WAC cap. Such amounts are subordinated in the interest priority of payments. In S&P's view, neither the initial coupons on the notes nor the initial net WAC cap are "de minimis", and nonpayment of the net WAC additional amounts is not considered an event of default under the transaction documents. Therefore, S&P do not need to consider these amounts in its cash flow analysis, in line with S&P's criteria for imputed promises. As previously mentioned, S&P treats the class B to G notes as deferrable-interest notes in S&P's analysis. Under the transaction documents, the issuer can defer interest payments on these notes. While S&P's 'AAA (sf)' rating on the class A notes addresses the timely payment of interest and the ultimate payment of principal, S&P's ratings on the class B to G notes address the ultimate payment of principal and interest. S&P's ratings reflect its assessment of the transaction's payment structure, cash flow mechanics, and the results of S&P's cash flow analysis to assess whether the notes would be repaid under stress test scenarios. Subordination and excess spread (there is no reserve fund to provide credit enhancement in this transaction) provide credit enhancement to the rated notes that are senior to the unrated notes and certificates. Taking these factors into account, S&P considers that the available credit enhancement for the rated notes is commensurate with the ratings assigned. RATINGS LIST Towd Point Mortgage Funding 2016-Granite1 PLC GBP6.269 Billion Floating Rate Notes (Including GBP6.086 Billion Residential Mortgage-Backed Notes) Class Rating Amount (mil. GBP) A AAA (sf) 4,626.0 B-Dfrd AA (sf) 441.2 C-Dfrd A (sf) 395.6 D-Dfrd A- (sf) 182.6 E-Dfrd BBB (sf) 60.8 F-Dfrd BB (sf) 121.7 G-Dfrd B (sf) 54.7 SDC cert. N/A N/A Z NR 204.3 X NR 182.6 DC1 cert. N/A N/A DC2 cert. N/A N/A DC3 cert. N/A N/A NR--Not rated. N/A--Not applicable. =============== X X X X X X X X =============== * UK: R3 Proposes Introduction of "Business Rescue Moratorium" -------------------------------------------------------------- Struggling companies should be given up to six weeks free from creditor pressure to plan a recovery or rescue, says insolvency trade body R3. The UK's insolvency profession believes that the introduction of a "business rescue moratorium" would help save more companies under severe financial strain, saving more jobs and improving returns to creditors. Phillip Sykes, R3 president, says: "The UK insolvency regime is flexible and effective but it needs a simple moratorium procedure to give companies time to plan when there is a chance of rescuing a business and preventing insolvency. It is too easy for anxious creditors to undermine potential rescues with a winding up petition." "As a result, rescue deals are arranged quickly and confidentially, which can leave unsecured creditors in particular feeling left out." "Additionally, faced with losing control of their company when entering an insolvency procedure, directors often wait until it is too late before trying to take decisive action needed to turn their company around." Phillip Sykes adds: "A short moratorium gives struggling companies a chance to be open with their creditors and negotiate a way out of their problems in a transparent fashion. Directors would remain in control of their company, with the supervision of a qualified insolvency practitioner. Business rescue usually means more money back for creditors than would be possible following a liquidation, too." "The UK insolvency regime is already highly regarded, so this is a case of improving rather than replacing what we have already. A moratorium would introduce some positive aspects of the US insolvency regime without also introducing the high costs associated with the US approach." Under R3's proposals, creditors would not be able to pursue debts owed by companies in a moratorium for 21 days. This period could be extended for a further 21 days with court approval. During the moratorium, companies would be overseen by a Moratorium Supervisor who would ensure the directors are using the moratorium as intended. Any company could enter the proposed moratorium, including insolvent companies who might otherwise enter a formal insolvency procedure immediately. The moratorium can be used to put in place plans to restructure a company, negotiate alternative payment terms with creditors, negotiate a Company Voluntary Arrangement, or prepare for an administration or liquidation. Companies in a moratorium must meet any liabilities created during the moratorium. If they can't do this, they must enter an insolvency procedure immediately. Phillip Sykes says: "The insolvency regime already includes the moratorium concept, but it can only be used in limited circumstances. For example, the existing pre-CVA moratorium is only available to small companies and the reporting requirements are so burdensome that it is little-used. The proposed moratorium extends the benefits of the existing moratorium but avoids its shortcomings." A European Commission Recommendation on business failure and insolvency published in 2014 called on Member States to introduce a "stay" (moratorium) for struggling businesses. This Recommendation suggested that the stay last at least four months. Phillip Sykes says: "While a moratorium would be a valuable tool, the moratorium period has to be kept short. Four months is too long to ask creditors to wait, and there is a danger that in a longer moratorium a company would "drift" rather than focus on dealing with its problems." * BOOK REVIEW: EPIDEMIC OF CARE ------------------------------- Author: George C. Halvorson George J. Isham, M.D. Publisher: Jossey-Bass; 1st edition Hardcover: 271 pages List Price: $28.20 Order your personal copy today at http://www.amazon.com/exec/obidos/ASIN/0787968889/internetbankrup t Halvorson and Isham worked together as leaders of the Minneapolis health-care organization HealthPartners; Halvorson as chairman and CEO, and Isham as medical director and chief health officer. From their positions as leaders in the health-care field, they have gained a broad, thorough understanding of the structure, workings, and the problems of America's health-care system. Their "Epidemic of Care" written in a readable, lucid, jargon-free style is a timely work for anyone interested in the pressing matter of satisfactory health care in America. This includes government workers, politicians, executives of HMOs and hospitals, and critics of health care, to individuals making choices about their own health care. It is a notable work both practical and visionary that one hopes legislators and heads of HMOs will take in. For Halvorson and Isham make their way through the daunting complexities of today's health-care system to put their finger on its core problems and offer practicable solutions to these. The two main problematic issues of contemporary health care are health-care costs and quality of care. These two authors offer solutions taking into consideration both of these. They put forth balanced proposals instead of the many one-sided ones which stress cutting costs at the expense of care or favor care regardless of costs, costs usually born by government from tax revenues. In the authors' comprehensive, balanced proposals, corporations and businesses of all sizes, government agencies, health-care organizations of all types, state and local governments and health organizations, and also individuals work together cooperatively for the goal of affordable, effective, and widespread up-to-date health care. Before outlining their program for dealing with the problems in health care, which are only growing worse in the present system, the authors relate information on different parts of today's system most readers would not be aware of. Then they analyze it to focus in on what is causing the problems in the particular area of health care. In some cases, misconceptions held among the public are cleared up, paving the way toward agreement on what are the real problems and coming up with acceptable solutions for them. The percentage of the cost of HMO membership and insurance premiums going for administration is one such misconception. "People guess, in fact, that HMO and insurance administration costs are about 30 to 40 percent of premiums and that insurer profits add another 10 to 20 percent of the total cost." This means that anywhere from about 40 percent to 60 percent of payments for HMOs or insurance doesn't go for health care. The authors clear up this misconception giving rise to much confusion in trying to deal with the serious problems facing the health- care field, as well as a good deal of resentment against HMOs and insurance companies, by citing that "health plan administrative costs, including profits and marketing, average from 5 to 30 percent of total premium, depending on the plan." This leads to the conclusion that it is not a sudden rise in administrative costs or the greed of health-care providers that is mainly responsible for driving up the costs of health care and will continue to do so for the foreseeable future without effective change in the field. Rising costs of health care from new technologies, consumer expectations and demands, and also misuse of drugs and treatments making patients worse or prolonging their medical problems are the main reason for the rising costs. The frequent misuse of modern-day medicines and treatments cited by the authors is an issue that is starting to receive attention in the media. The price of prescription drugs is one health-care issue already receiving much attention that the authors address. In this discussion, they note that because of committees of physicians and pharmacologists set up by HMOs to identify which drugs were most effective for specific medical problems and set standards for prescribing these according to HMO policies, "all Americans benefited from the new focus on drugs that actually work." Before these committees, eighty-four percent of drugs developed by the pharmaceutical companies were what were know as "class C" drugs that were little better than placebos. As the authors note, in those days not so long ago, drugs were being developed and marketed more to generate sales than remedy medical conditions. The high cost Americans pay for prescription compared to buyers in other countries is another matter the two authors take up. In this, they take the position of American buyers of prescription drugs by making the point that they should not be singled out to bear the disproportionate share of the research and marketing costs going into the drug prices since numbers of persons in countries around the world gain health benefits from the drugs. The wasteful similarities between some prescription drugs, the misuse of some, and growing concerns over costs and use of the drugs with persons under sixty-five are other topics dealt with in the discussion and analysis of the issue of prescription drugs. Halvorson and Isham's fair-minded overview and critique of today's health-care field should be read by anyone with an interest in and concern about this field central to the quality of life of Americans and the economy. While they recognize that the field's dysfunctions have such deep roots and thorny complexities that "there is no single villain responsible for our troubles and no silver bullet to cure them," undoubtedly some and likely a number of the two authors' approaches to resolving particular troubles or even their solutions to certain problems will be adopted. There is just no way out of the current health- care crisis other than the clear-sighted, comprehensive, cooperative way Halvorson and Isham present. George Halvorson is currently chairman and CEO of Kaiser Permanente, one of the U. S.'s largest health-care organizations. Isham continues as medical director and chief health officer of HealthPartners. ********* 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 publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000 or Nina Novak at 202-362-8552. * * * End of Transmission * * *