/raid1/www/Hosts/bankrupt/TCREUR_Public/160616.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
Thursday, June 16, 2016, Vol. 17, No. 118
Headlines
F R A N C E
AREVA SA: Collapse of TVO Talks Won't Impact State Bailout
G E R M A N Y
KRAUSSMAFFEI GROUP: Moody's Withdraws B1 CFR, Outlook Stable
XELLA INT'L: Moody's Affirms B1 CFR, Outlook Stable
I C E L A N D
LANDSVIRKJUN: Moody's Puts Ba1 Rating on Review for Upgrade
ORKUVEITA REYKJAVIKUR: Moody's Reviews Ba3 Rating for Upgrade
I R E L A N D
LAURELIN 2016-1: Moody's Assigns (P)B2 Rating to Class F Notes
N E T H E R L A N D S
AI AVOCADO: Moody's Affirms B2 CFR, Outlook Remains Stable
MALIN CLO: Moody's Raises Rating on Class E Notes to 'Ba2'
NXP BV: Moody's Affirms Ba1 CFR & Revises Outlook to Positive
P O R T U G A L
BANCO COMERCIAL: Moody's Affirms B1 Long-Term Deposit Ratings
CAIXA ECONOMICA: Moody's Cuts Rating on Senior Program to (P)B3
R U S S I A
SOVCOMFLOT PAO: Moody's Assigns (P)Ba2 Rating to Sr. Unsec. Bond
U N I T E D K I N G D O M
AUSTIN REED: Administrators Reveal Six-Figure Creditors Claims
BHS GROUP: Goldman Sachs Executive to Face Probe Into Collapse
DEUTSCHE PFANDBRIEFBANK: Moody's Cuts Rating on A2 Notes to C
MERGERMARKET MIDCO 2: Moody's Affirms B3 CFR, Outlook Positive
OLD MUTUAL: Moody's Confirms Ba1(hyb) Rating on Subordinated Debt
TATA STEEL UK: Port Talbot Steel Plant Sale Faces Delay
TATA STEEL UK: Outlines Benefits of EU Membership to Business
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F R A N C E
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AREVA SA: Collapse of TVO Talks Won't Impact State Bailout
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Michael Stothard at The Financial Times reports that French
nuclear group Areva said that the collapse of talks with Finnish
counterpart TVO would not hinder its proposed state-backed
bailout or the sale of its nuclear reactor division to utility
EDF.
Areva and TVO have been in negotiations to resolve multibillion-
euro legal claims relating to cost overruns at the Olkiluoto 3
nuclear plant in Finland, but the talks collapsed two weeks ago,
the FT relates.
This raised fears that, without clarity on the future of the
project, Areva would be unable to sell its Areva NP reactor
division, valued at EUR2.5 billion, to EDF, the FT says. This
sale is seen as a crucial part of a wider restructuring to save
the company, the FT notes.
According to the FT, on June 15, Philippe Knoche, Areva chief
executive, said that the "door was open" to a deal with TVO but
outlined "other options" to push ahead with the restructuring
without a settlement.
Areva was brought to its knees in part due to the Finland
project, with TVO the first customer for its European pressurized
reactor technology -- due to also be used at the UK's
controversial Hinkley Point power station, the FT discloses.
The project is already 10 years behind schedule and EUR5 billion
over budget, helping to push the group to a record EUR4.8 billion
net loss for 2014 and EUR2 billion for 2015, the FT says. This
led to a state-funded bailout being agreed this year, the FT
recounts.
Mr. Knoche, as cited by the FT said, on June 15 that the company
had worked out a "Plan B" if the TVO talks do not restart. This
would involve moving all the activities of the old Areva NP
except the Finnish project into a new company that could then be
bought by EDF, the FT relays. The risk for the Olkiluoto 3
project would then remain indirectly with the French state,
according to the FT.
The government rescue package will see the company raise EUR5
billion in the markets, the FT states.
Areva SA is a France-based company that offers technological
solutions for nuclear power generation.
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G E R M A N Y
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KRAUSSMAFFEI GROUP: Moody's Withdraws B1 CFR, Outlook Stable
------------------------------------------------------------
Moody's Investors Service has withdrawn KraussMaffei Group's B1
corporate family rating, the B1-PD probability of default rating
(PDR) and its stable outlook.
RATINGS RATIONALE
Moody's has withdrawn the rating for its own business reasons.
KraussMaffei Group is the global leader for machines and system
solutions for the plastics and rubber processing industry. Its
business portfolio covers the full range of technologies
including (1) injection molding machinery, (2) extrusion
technology, as well as (3) reaction process machinery. In fiscal
year ended Dec. 31, 2015, the group generated sales of more than
EUR1.2 billion and EBITDA (as adjusted by the group) of
EUR138 million with around 4,600 employees worldwide.
KraussMaffei Group is owned by a consortium of investors led by
China National Chemical Corporation (ChemChina), which acquired
the business from Canadian private equity firm Onex Corporation
in April 2016.
XELLA INT'L: Moody's Affirms B1 CFR, Outlook Stable
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Moody's Investors Service has changed the outlook on Xella
International Holdings S.a r.l.'s ratings to stable from
negative. At the same time, the B1 corporate family rating and
B1-PD probability of default rating of Xella, as well as the B1
senior secured instrument ratings of its subsidiaries have been
affirmed.
"The stable outlook reflects our expectation of Xella's improving
performance in 2016 resulting from successfully implemented
X-celerate measures, termination of the loss-making Ecoloop
business unit executed in December 2015 as well as the
restructuring program in China," says Falk Frey, Senior Vice
President and lead analyst at Moody's for Xella. "As a result,
Moody's anticipates a material improvement in Xella's key credit
metrics through 2016 and beyond, including leverage and coverage
ratios that that will recover to levels commensurate with the B1
rating", Frey added.
RATINGS RATIONALE
The B1 CFR recognizes Xella's (1) high exposure to the cyclical
residential construction sector mainly via its building materials
division, representing approximately 64% of 2015 revenue; (2)
exposure to raw materials and energy costs fluctuation; and (3)
high level of leverage in 2015 as a result of weak EBITDA
generation (Moody's adjusted). Notwithstanding, the rating also
benefits from (1) Xella's strong market position in its key
geographies, supported by its continuous focus on products
innovation; (2) its diversification in the more resilient lime
and dry lining businesses; and (3) some degree of flexibility in
its cost structure, altogether resulting in a fairly resilient
performance over the past few years in comparison with its peers.
Xella's performance in 2015 was weak, heavily impacted by
substantial one-off expenses relating to the company's X-celerate
cost reduction program, with Moody's adjusted EBITDA of EUR155
million, gross adjusted Debt/EBITDA ratio of 7.3x and interest
coverage ratio of approximately 0.5x. In 2016-17, however,
Moody's expects to see a robust recovery trend in Xella's
performance, in particular an increase in its adjusted EBITDA
margin towards 20%, positive development in leverage metrics to
around or below 5x as well as significantly improved interest
coverage. This performance will be driven by successfully
implemented X-celerate measures, a substantial reduction in
restructuring expenses compared to 2015, termination of the
Ecoloop activities, Xella's restructuring initiatives in China
together with favorable market conditions in countries such as
Poland and the Netherlands.
Xella initiated its X-celerate cost saving program at the end of
2014, which aims at reducing SG&A, procurement and manufacturing
costs through various initiatives as well as enhancing top line
growth. The complete implementation of the program is expected
by the end of 2016. X-celerate comes at significant costs, which
have largely been expensed in 2014 and 2015. As at March 31,
2016, Xella has already realized measures , leading to annualized
gross savings of approximately EUR75 million, well above the
initial target of EUR70 million. The total cash out of the
program is estimated at EUR92 million. Moreover, as of end of Q1
2016 more than 90% of the overall measures have been implemented
or signed-off and the interim target of the program had been
exceeded.
LIQUIDITY
Moody's regards Xella's liquidity profile as good, supported by a
cash balance per March 2016 of EUR122.6 million and EUR55 million
availability (including ancillary facilities but excluding
fronted ancillary facilities) for cash drawings under its EUR75
million revolving credit facility. Following the successful
completion of the refinancing and "amend and extend" exercise,
there will be no significant debt maturities until December 2018,
when the amended term loan F in the amount of approximately
EUR300 million and RCF fall due. All facilities agreements
including RCF are subject to financial covenants, with currently
ample headroom. Combination of internal and external liquidity
sources allows Xella to cover all expected cash obligations over
the next 18 months.
WHAT COULD CHANGE THE RATINGS -- UP/DOWN
Positive pressure could arise if the company (1) decreases its
gross Debt-to-EBITDA ratio (Moody's adjusted) towards 4.5x; (2)
improves its EBIT-to-Interest ratio towards 2.0x; and (3)
achieves a Free Cash Flow-to-Debt ratio towards 5% on a sustained
basis.
The ratings could be downgraded should Xella fail to (1) reduce
gross debt to EBITDA towards 5.5x during 2016, or if there is
visibility during that period that this will not be achieved; (2)
improve EBIT-to-interest ratio to around 1.5x; and (3) generate
positive free cash flow by 2016. Any significant debt-financed
acquisitions or shareholder distribution could also weigh on the
ratings.
List of Affected Ratings:
Affirmations:
Issuer: Xella International Holdings S.a r.l.
Corporate Family Rating, Affirmed B1
Probability of Default Rating, Affirmed B1-PD
Issuer: Xefin Lux S.C.A.
Backed Senior Secured Regular Bond/Debenture, Affirmed B1
Issuer: Xella International S.A.
Senior Secured Bank Credit Facility, Affirmed B1
Outlook Actions:
Issuer: Xella International Holdings S.a r.l.
Outlook, Changed To Stable From Negative
Issuer: Xefin Lux S.C.A.
Outlook, Changed To Stable From Negative
Issuer: Xella International S.A.
Outlook, Changed To Stable From Negative
PRINCIPAL METHODOLOGIES
The principal methodology used in these ratings was Building
Materials Industry published in September 2014.
Headquartered in Duisburg, Germany, Xella is a leading European
multi-brand manufacturer of wall-building materials and premium
dry lining products as well as a leading European lime producer.
The company offers a broad range of wall-building material and
dry lining products for use in residential, industrial and
commercial construction, as well as lime and limestone for a
variety of applications. Xella has a strong presence in
established markets such as Germany, the Netherlands and Belgium
as well as in growing markets with considerable medium and long-
term growth potential such as many Eastern European countries as
well as in selected regions in Russia and China. As of Dec. 31,
2015, the company operated 96 plants in 20 different countries,
sold products in more than 30 countries on three continents and
had 5,960 employees. In the fiscal year 2015, Xella generated
total sales of EUR1,271.8 million and Normalized EBITDA of
EUR226.4 million.
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I C E L A N D
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LANDSVIRKJUN: Moody's Puts Ba1 Rating on Review for Upgrade
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Moody's Investors Service has placed all of Landsvirkjun's
ratings on review for upgrade, including the Baa2/(P)P-2 senior
unsecured rating benefitting from a guarantee of collection from
the Government of Iceland (Baa2, RUR) and the Ba1/(P)NP senior
unsecured un-guaranteed ratings.
The rating action was driven by the potential strengthening of
the Icelandic government's credit profile, as captured by Moody's
review for upgrade of Iceland's Baa2 issuer and government bond
ratings initiated on June 10, 2016.
RATINGS RATIONALE
Given its 100%-ownership by the Government of Iceland,
Landsvirkjun is considered a government-related issuer under
Moody's methodology. Therefore, its rating is determined by an
assessment of the BCA and factors pertaining to the likelihood of
extraordinary support being provided by the Government of
Iceland. The review for upgrade on both Landsvirkjun's guaranteed
and unguaranteed debt ratings reflects Moody's view that the
government's ability to provide support to the company is likely
to strengthen.
Moody's estimate of a very high level of government support in
the event of financial distress is underpinned by the strategic
importance of Landsvirkjun to Iceland, given the company's
position as the country's dominant power producer and the role it
plays in the provision of electricity to the aluminium smelting
industry, which directly contributes to about 40% of Icelandic
exports. Moreover, the very high support assumption incorporated
in Landsvirkjun's ratings reflects the high level of commitment
that the government has shown in the past by the provision of
guarantees of collection to support the company's debt.
The (P)Ba1/(P)NP unguaranteed ratings of Landsvirkjun's USD1
billion EMTN program benefit from two notches of uplift from the
company's Baseline Credit Assessment (BCA) of ba3 reflecting
Moody's assessment of the likelihood of extraordinary support
being provided by the Government of Iceland in case of need.
The (P)Baa2/(P)Prime-2 guaranteed ratings of Landsvirkjun's
USD2.5 billion EMTN backed program benefit from four notches of
uplift from Landsvirkjun's ba3 BCA and reflect the additional
credit support provided by the guarantee of collection from the
Icelandic government. Moody's notes that guarantees of
collection do not offer bondholders the same degree of protection
as a timely payment guarantee. There is a potential risk of non-
timely repayment should the company fail to meet its obligations,
as exhaustive administrative and legal procedures must be
followed before the shareholders are obliged to pay. However,
given Landsvirkjun's strategic role for Iceland and other
incentives for the shareholders (such us its liability for
penalty interest), Moody's expects that the state would intervene
in a timely fashion and provide financial or other assistance to
ensure timely payments under the guaranteed bonds.
WHAT COULD CHANGE THE RATING UP/DOWN
In its review, Moody's will consider the extent to which the
strengthening of the Icelandic government's credit profile will
translate into its increased ability to provide support to
Landsvirkjun in the event this was needed to avoid a payment
default. Moody's will also reassess the strength of the
guarantee of collection provided to Landsvirkjun's USD2.5 billion
EMTN backed programme in light of its intrinsic characteristics
described above. Moody's will endeavor to conclude the rating
review within 90 days.
The methodologies used in these ratings were Unregulated
Utilities and Unregulated Power Companies published in October
2014, and Government-Related Issuers published in October 2014.
LIST OF AFFECTED RATINGS
Issuer: Landsvirkjun
Senior Unsecured Regular Bond/Debenture, Placed on Review for
Upgrade, currently Ba1
BACKED Senior Unsecured Regular Bond/Debenture, Placed on
Review for Upgrade, currently Baa2
Senior Unsecured MTN, Placed on Review for Upgrade, currently
(P)Ba1
BACKED Senior Unsecured MTN, Placed on Review for Upgrade,
currently (P)Baa2
Other Short Term, Placed on Review for Upgrade, currently (P)NP
BACKED Other Short Term, Placed on Review for Upgrade,
currently (P)P-2
Outlook Actions:
Outlook, Changed To Rating Under Review From Stable
CORPORATE PROFILE
Headquartered in Reykjavik, Landsvirkjun is Iceland's dominant
power producer. It is responsible for about 70% of Iceland's
total electricity production of 18 terawatt hours (TWh) and owns
the majority of the transmission grid. It provides 100%
renewable energy for domestic users via electricity sales to
public utilities, although the majority of sales are to power
intensive industries, mostly for aluminium smelting, under long-
term take-or-pay contracts.
ORKUVEITA REYKJAVIKUR: Moody's Reviews Ba3 Rating for Upgrade
-------------------------------------------------------------
Moody's Investors Service has placed Orkuveita Reykjavikur's Ba3
long-term issuer rating on review for possible upgrade.
The rating action was driven by the potential strengthening of
the Icelandic government's credit profile, as captured by Moody's
review for possible upgrade of Iceland's Baa2 issuer and
government bond ratings initiated on June 10, 2016.
RATINGS RATIONALE
Orkuveita Reykjavikur (OR) is considered a government-related
issuer under Moody's methodology because of its ownership by
municipal authorities, which include the City of Reykjavik
(93.5%), the Town of Akranes (5.5%) and the Municipality of
Borgarbyggd (1%). The owners provide a guarantee of collection
in support of OR, which currently covers more than 95% of the
total outstanding debt.
The current issuer rating of OR does not represent a credit view
of debt subject to the guarantee of collection provided by its
owners, but it does incorporate an assumption of a moderate level
of support to avoid a payment default if this were required.
This recognizes that despite the very strong incentives of the
owners to provide timely financial support to OR its ability to
do so in potential stress case scenarios may be constrained,
given OR's very significant debt burden relative to the financial
resources of its shareholders. Therefore, considering the
critical nature of utility services that OR provides to the City
of Reykjavik and the surrounding communities, covering more than
70% of the Icelandic population, Moody's would expect the central
government to try and coordinate with the local governments to
arrange timely intervention, if necessary. Moody's notes that
instances of default by municipalities in Iceland during the 2008
crisis indicate a low probability of extraordinary support could
be forthcoming directly from the central government in the event
that OR were to face financial distress.
Overall, the Ba3 rating of OR incorporates one notch of uplift
for potential extraordinary support to its standalone credit
quality, as expressed by OR's baseline credit assessment (BCA) of
b1.
WHAT COULD CHANGE THE RATING UP/DOWN
In its review, Moody's will consider whether the strengthening of
the Icelandic government's credit profile will translate into a
higher ability and willingness to provide financial support to
OR, directly or indirectly thorough support to the company's
shareholders, in case of need. In addition, the review will
focus on the potential liberalization of capital controls in
Iceland, the improving macroeconomic environment, the
strengthening of the sovereign credit profile, and the impact of
these on OR's standalone credit profile. Moody's will endeavor
to conclude the rating review within 90 days.
The principal methodology used in this rating was Government-
Related Issuers published in October 2014.
Headquartered in Reykjavik, Orkuveita Reykjavikur is the largest
multi-utility in Iceland. The company operates its own power
plants, electricity distribution system, geothermal district
heating system and provides cold water and waste services in 20
communities in the southwest of the country, covering more than
70% of the Icelandic population.
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I R E L A N D
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LAURELIN 2016-1: Moody's Assigns (P)B2 Rating to Class F Notes
--------------------------------------------------------------
Moody's assigns provisional ratings to six classes of notes to be
issued by Laurelin 2016-1 Designated Activity Company
Global Credit Research - 13 Jun 2016
Frankfurt am Main, June 13, 2016
Moody's Investors Service announced that it has assigned these
provisional ratings to notes to be issued by Laurelin 2016-1
Designated Activity Company:
EUR221,000,000 Class A Senior Secured Floating Rate Notes due
2029, Assigned (P)Aaa (sf)
EUR67,500,000 Class B Senior Secured Floating Rate Notes due
2029, Assigned (P)Aa2 (sf)
EUR27,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2029, Assigned (P)A2 (sf)
EUR19,500,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2029, Assigned (P)Baa2 (sf)
EUR21,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2029, Assigned (P)Ba2 (sf)
EUR7,000,000 Class F 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, GoldenTree Asset
Management LP, has sufficient experience and operational capacity
and is capable of managing this CLO.
Laurelin 2016-1 Designated Activity Company is a managed cash
flow CLO. At least 90% of the portfolio must consist of secured
senior loans and bonds and up to 10% of the portfolio may consist
of Second-lien loans, unsecured loans, Mezzanine loans and high
yield bonds. The portfolio is expected to be approximately 70%
ramped up as of the closing date and to be comprised
predominantly of corporate loans to obligors domiciled in Western
Europe. The remainder of the portfolio will be acquired during
the six month ramp-up period in compliance with the portfolio
guidelines.
GoldenTree will manage the CLO. I t 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 six classes of notes rated by Moody's, the
Issuer will issue EUR 44,400,000 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. GoldenTree's investment
decisions and management of the transaction will also affect the
notes' performance.
Loss and Cash Flow Analysis:
Moody's modeled the transaction using CDOEdge, a cash flow model
based on the Binomial Expansion Technique, as described in
Section 2.3 of the "Moody's Global Approach to Rating
Collateralized Loan Obligations" rating methodology published in
December 2015. The cash flow model evaluates all default
scenarios that are then weighted considering the probabilities of
the binomial distribution assumed for the portfolio default rate.
In each default scenario, the corresponding loss for each class
of notes is calculated given the incoming cash flows from the
assets and the outgoing payments to third parties and
noteholders. Therefore, the expected loss or EL for each tranche
is the sum product of (i) the probability of 0 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 400,000,000
Diversity Score: 38
Weighted Average Rating Factor (WARF): 2800
Weighted Average Spread (WAS): 4.30%
Weighted Average Coupon (WAC): 5.25%
Weighted Average Recovery Rate (WARR): 43%
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 A1. 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 3220 from 2800)
Ratings Impact in Rating Notches:
Class A Senior Secured Floating Rate Notes: 0
Class B Senior Secured Floating Rate Notes: -1
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: 0
Class F Senior Secured Deferrable Floating Rate Notes: 0
Percentage Change in WARF: WARF +30% (to 3640 from 2800)
Ratings Impact in Rating Notches:
Class A Senior Secured Floating Rate Notes: 0
Class B Senior Secured Floating Rate Notes: -3
Class C Senior Secured Deferrable Floating Rate Notes: -4
Class D Senior Secured Deferrable Floating Rate Notes: -2
Class E Senior Secured Deferrable Floating Rate Notes: -1
Class F Senior Secured Deferrable Floating Rate Notes: 0
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.
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N E T H E R L A N D S
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AI AVOCADO: Moody's Affirms B2 CFR, Outlook Remains Stable
----------------------------------------------------------
Moody's Investors Service has affirmed the B2 corporate family
rating and B2-PD probability of default rating of AI Avocado
Holding B.V., controlling shareholder of Dutch software provider
UNIT4, and downgraded the senior secured first lien bank credit
facilities of AI Avocado B.V. to B2 from B1. The actions follow
an announcement that the company plans to add a EUR230 million
first lien tranche to its credit facilities, primarily to
refinance its EUR 165 million senior secured second lien credit
facility. The outlook on all ratings remains stable.
The affirmations were driven by:
-- Expectation of deleveraging in H2 2016, towards 5.2x on
Moody's adjusted debt/EBITDA basis by December 2016
-- Improvement in UNIT4's free cash flow profile in 2016-17,
as a result of EBITDA growth and lower restructuring and
exceptional items
-- UNIT4's stable market position in its core geographies
The downgrade of the senior secured first lien bank credit
facilities was driven by the proposed change in the group's
financing to an all senior structure and assumes that the
transaction successfully completes as proposed.
Concurrently, Moody's has assigned a provisional (P)B2 rating to
the proposed new EUR230 million senior secured first lien term
loan B, which shall be borrowed by UNIT4 N.V. 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
instrument rating. A definitive rating may differ from a
provisional rating.
RATINGS RATIONALE
The affirmation primarily reflects Moody's expectation that the
0.5x increase in Moody's adjusted gross debt to EBITDA as a
result of the group's proposed transaction will be temporary as
Moody's anticipates that it will be mitigated by EBITDA growth in
the second half of 2016. Furthermore, Moody's expects that
UNIT4's free cash flow will improve in 2016 as a result, also
aided by a material decrease in restructuring and exceptional
items and a slight reduction in interest costs under the new
structure.
"Despite the addition of approximately EUR65 million of gross
debt and Moody's adjusted leverage rising above 5.5x as a result
of the proposed refinancing, we expect that adjusted leverage
will decrease towards 5.2x by the end of 2016, following EBITDA
growth in the second half of 2016" says Frederic Duranson, a
Moody's Analyst and lead analyst for UNIT4. "UNIT4's leverage
will remain elevated, however, and we highlight that the proposed
amendments to the senior facilities will result in weaker lender
protection" says Mr. Duranson.
UNIT4's B2 CFR is supported by (1) its stable position in the
mid-market sector of its core geographies; (2) good revenue
visibility owing to the recurring nature of maintenance and SaaS
fees and the low customer churn; (3) high switching costs for
some of the group's products; (4) improving free cash flow
generation in 2016-17 and; (5) adequate liquidity, supported by
an upsized revolving credit facility (RCF) of up to EUR80
million.
Nevertheless, UNIT4's CFR is constrained by (1) high competition
in its markets; (2) its limited geographic diversification, with
circa 75% of revenues coming from the Benelux, the UK and the
Nordics; (3) its reliance on a limited number of core product
families and; (4) elevated debt/EBITDA, with deleveraging largely
dependent upon revenue growth.
Moody's expects that EBITDA will increase in the 9 months to
December 2016, thereby reducing adjusted leverage back towards
5.2x by the end of 2016. This is supported by Moody's
expectation of revenue growth in the range of 2-3%, driven by a
continued strong uptake in Software-as-a-Service (SaaS) products
among medium-sized firms and public sector entities. This will
outweigh reductions in license revenues, with maintenance
contracts and services mildly growing to flat respectively.
Deleveraging will hinge mostly on revenue growth given the
largely fixed nature of the cost base, which Moody's expects will
be managed tightly.
Moody's expects that UNIT4's free cash flow (after interest,
restructuring and exceptional items) will return to positive
territory in 2016 and will reach at least EUR20-EUR30 million, as
a result of the expected growth in EBITDA and owing to the
material planned decrease in restructuring and exceptional items.
However, Moody's highlights that the proposed amendments to the
senior facilities are credit negative for lenders. The risk of
cash leakage from the restricted group will be heightened by the
ability to fund up to EUR35.5 million to unrestricted
subsidiaries until 2021 and various incurrence ratios will be
reset to higher levels. Meanwhile, UNIT4 retains the ability to
incur over one extra turn of leverage under its EUR150 million
incremental facilities basket. Moody's expects that it could be
used to fund larger acquisitions as the rating agency expects
that the group will continue to be acquisitive.
UNIT4's liquidity profile remains adequate but has improved, in
Moody's view. The proposed transaction will increase the
existing cash balance by approximately EUR52 million to EUR73
million at closing but Moody's expects this headroom to be used
for acquisitions, in due course. Moreover, the RCF, which is
being upsized to up to EUR80 million, will support liquidity.
Moody's anticipates that UNIT4 will maintain material headroom of
35% or more under its net leverage-based maintenance covenant on
the term loans and RCF in the next 12 to 18 months.
The B2-PD, in line with the CFR, assumes a 50% recovery rate.
The senior secured first lien term loans and RCF are the only
financial debt instruments in the capital structure, hence they
are rated in line with the CFR.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's view that UNIT4 will maintain
reported EBITDA margins above 25% and maintain debt/EBITDA
(excluding FinancialForce.com) below 5.5x in the next 12-18
months. The outlook also assumes that FinancialForce.com does
not create a management distraction or need further financial
support from UNIT4 beyond what is currently planned. No debt-
funded acquisitions or dividends to shareholders, as well as
ongoing adequate liquidity are also factored into the stable
outlook.
WHAT COULD CHANGE THE RATING UP/DOWN
Positive rating pressure could develop if UNIT4 (1) reduces its
debt/EBITDA (excluding FinancialForce.com) sustainably below
5.0x; (2) increases its free cash flow/debt to above 5% on a
sustainable basis; while maintaining an adequate liquidity
profile.
Negative rating pressure could materialize if (1) UNIT4's
debt/EBITDA (excluding FinancialForce.com) increases above 6.0x;
(2) its churn rate increases; (3) its free cash flow becomes
negative, including from permitted funding outflows to
FinancialForce.com or; (4) concerns about the group's liquidity
position arise, including reduced headroom under the financial
maintenance covenants.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Software
Industry published in December 2015.
AI Avocado Holding B.V. is the ultimate parent of UNIT4, which is
based in the Netherlands. UNIT4 is an enterprise resource
planning (ERP) and standalone financial management systems (FMS)
software vendor catering for mid-market companies, which have
between 100 and 10,000 employees, as well as public sector
organizations. UNIT4's products are focused on applications such
as finance, procurement, projects, payroll and human resources
(HR).
UNIT4 operates in 24 countries and employed more than 3,400
employees (FTEs excluding FinancialForce.com) at the end of 2015.
For the fiscal year ended December 2015, UNIT4 reported revenues
of EUR 503 million and EBITDA before non-recurring items of EUR
131 million (excluding FinancialForce.com).
Funds advised and ultimately controlled by Advent currently own
more than 95% of the share capital of UNIT4.
MALIN CLO: Moody's Raises Rating on Class E Notes to 'Ba2'
----------------------------------------------------------
Moody's Investors Service has upgraded the ratings on these notes
issued by Malin CLO B.V.:
EUR25 mil. Class C Third Priority Deferrable Secured Floating
Rate Notes due May 7, 2023, Upgraded to Aa1 (sf); previously
on Nov. 6, 2015, Upgraded to Aa3 (sf)
EUR35 mil. Class D Fourth Priority Deferrable Secured Floating
Rate Notes due May 7, 2023, Upgraded to Baa1 (sf); previously
on Nov. 6, 2015, Upgraded to Baa2 (sf)
EUR18.75 mil. Class E Fifth Priority Deferrable Secured
Floating Rate Notes due May 7, 2023, Upgraded to Ba2 (sf);
previously on Nov. 6, 2015, Affirmed B1 (sf)
Moody's has also affirmed the ratings on these notes:
GBP11.017219 mil. (current outstanding balance of EUR36,318.08)
First Priority Senior Secured Floating Rate Variable Funding
Notes due May 7, 2023, - GBP, Affirmed Aaa (sf); previously on
Nov 6, 2015 Affirmed Aaa (sf)
EUR45.170887 mil. (current outstanding balance of
EUR25,130,119.46) First Priority Senior Secured Floating Rate
Variable Funding Notes due May 7, 2023, - EUR, Affirmed
Aaa (sf); previously on Nov 6, 2015 Affirmed Aaa (sf)
EUR188 mil. (current outstanding balance of EUR 56,725,538.00)
Class A-1a First Priority Senior Secured Floating Rate Notes
due May 7, 2023, Affirmed Aaa (sf); previously on Nov. 6,
2015, Affirmed Aaa (sf)
EUR47 mil. Class A-1b First Priority Senior Secured Floating
Rate Notes due May 7, 2023, Affirmed Aaa (sf); previously on
Nov. 6, 2015, Affirmed Aaa (sf)
EUR32.5 mil. Class B Second Priority Deferrable Secured
Floating
Rate Notes due May 7, 2023, Affirmed Aaa (sf); previously on
Nov. 6, 2015, Upgraded to Aaa (sf)
Malin CLO B.V., issued in May 2007, is a Collateralised Loan
Obligation backed by a portfolio of mostly senior secured
European leveraged loans. The portfolio is managed by Babson
Capital Management (UK) Limited. This transaction's reinvestment
period ended in May 2014.
RATINGS RATIONALE
The rating actions on the notes are the result of the
deleveraging that has occurred since last rating action in
November 2015 and the improvement in the credit quality of the
underlying collateral pool.
The Class A notes have amortized by approximately EUR84.4 million
over the last three quarterly payment dates. As a result of
deleveraging, over-collateralization (OC) ratios have increased.
According to the April 2016 trustee report the OC ratios of
Classes A, B, C, D and E are 208.7%, 166.7%, 144.3%, 121.5% and
112.0% compared to 163.9%, 142.4%, 129.3%, 114.6% and 108.1%,
respectively in September 2015.
The credit quality has improved as reflected in the improvement
in the average credit rating of the portfolio (measured by the
weighted average rating factor, or WARF) and a decrease in the
proportion of securities from issuers with ratings of Caa1 or
lower. According to the trustee report dated April 2016, the
WARF was 2428, compared with 2507. Securities with ratings of
Caa1 or lower currently make up approximately 6.3% of the
underlying portfolio, versus 9.43% in September 2015.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base
case, Moody's analyzed the underlying collateral pool as having a
performing par and principal proceeds balance of EUR269.4 million
and GBP10.8 million, defaulted par of EUR1.0 million, a weighted
average default probability of 20.0% over a 4.2 years weighted
average life (consistent with a WARF of 2904), a weighted average
recovery rate upon default of 46.5% for a Aaa liability target
rating, a diversity score of 34 and a weighted average spread of
3.8%. The GBP-denominated liabilities are naturally hedged by
the GBP assets.
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on
future defaults is based primarily on the seniority of the assets
in the collateral pool. In each case, historical and market
performance and a collateral manager's latitude to trade
collateral are also relevant factors. Moody's incorporates these
default and recovery characteristics of the collateral pool into
its cash flow model analysis, subjecting them to stresses as a
function of the target rating of each CLO liability it is
analyzing.
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:
In addition to the base-case analysis, Moody's conducted
sensitivity analyses on the key parameters for the rated notes,
for which it assumed a lower weighted average recovery rate for
the portfolio. Moody's ran a model in which it reduced the
weighted average recovery rate by 5%; the model generated outputs
were unchanged for the senior notes and Class B and within one to
two notches of the base-case results for rest of the classes.
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
note, in light of uncertainty about credit conditions in the
general economy. CLO notes' performance may also be impacted
either positively or negatively by 1) the manager's investment
strategy and behaviour and 2) divergence in the legal
interpretation of CDO documentation by different transactional
parties because of embedded ambiguities.
Additional uncertainty about performance is due to:
Portfolio amortization: The main source of uncertainty in this
transaction is the pace of amortization of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes'
ratings. Amortization could accelerate as a consequence of
high loan prepayment levels or collateral sales by the
collateral manager or be delayed by an increase in loan amend-
and-extend restructurings. Fast amortization would usually
benefit the ratings of the notes beginning with the notes
having the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes
have defaulted can result in volatility in the deal's over-
collateralization levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell
defaulted assets can also result in additional uncertainty.
Moody's analyzed defaulted recoveries assuming the lower of
the market price or the recovery rate to account for potential
volatility in market prices. Recoveries higher than Moody's
expectations would have a positive impact on the notes'
ratings.
Foreign currency exposure: The deal has exposure to one non-EUR
denominated asset. Volatility in foreign exchange rates will
have a direct impact on interest and principal proceeds
available to the transaction, which can affect the expected
loss of rated tranches.
In addition to the quantitative factors that Moody's explicitly
modeled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available
to rating committees, including macroeconomic forecasts, input
from other Moody's analytical groups, market factors, and
judgments regarding the nature and severity of credit stress on
the transactions, can influence the final rating decision.
NXP BV: Moody's Affirms Ba1 CFR & Revises Outlook to Positive
-------------------------------------------------------------
Moody's Investors Service revised NXP B.V.'s outlook to positive
and affirmed NXP's ratings-- Ba1 Corporate Family Rating, Baa2
senior secured rating, Ba2 senior unsecured ratings, Ba1-PD
Probability of Default Rating, and SGL-1 Speculative Grade
Liquidity.
On June 13, 2016, NXP announced an agreement to sell its Standard
Products division, NXP's discrete semiconductor business, to
JianGuang Asset Management Company for $2.75 billion, or about
$2.3 billion of proceeds net of taxes. The Divestiture is
expected to close in the first quarter of calendar 2017. Should
NXP use a significant portion of the Divestiture net proceeds to
repay senior secured debt, the senior unsecured rating could be
upgraded.
RATINGS RATIONALE
The Ba1 CFR reflects NXP's leadership position in automotive
semiconductors and consistent free cash flow generation due to
NXP's fab-lite manufacturing model. The ratings are constrained
by the significant execution risks involved in integrating NXP
and Freescale due to the large operating scale of both companies.
Moody's expects that NXP will direct a majority of FCF to reduce
debt such that through the combination of debt reduction and
EBITDA growth, debt to EBITDA (Moody's adjusted) will decline
toward 2.5x during 2017.
The positive outlook reflects Moody's expectation that NXP will
use a portion of the net proceeds of the Divestiture to repay
debt and that the integration of Freescale will proceed smoothly
over the next year. Moody's expects that FCF will remain strong
in spite of near term revenue headwinds driven by a slowing
global economy and the cash costs of the Freescale integration.
The rating could be upgraded if NXP successfully integrates
Freescale and is making progress in capturing the anticipated
$500 million of operating synergies. Moody's would expect NXP to
sustain leverage of around 2.5x debt to EBITDA (Moody's adjusted)
and to remain committed to a conservative financial policy.
The rating outlook could be changed to stable if NXP fails to
receive regulatory approval to close the Divestiture or if
regulatory approval includes materially negative closing
conditions. The rating could be downgraded if the integration
encounters significant operational disruptions or the business
otherwise deteriorates or if NXP fails to reduce debt such that
Moody's expects that debt to EBITDA (Moody's adjusted) will be
maintained above 3.5x.
The Baa2 (LGD2) senior secured rating reflects the collateral,
the guarantees from operating subsidiaries, and the significant
cushion of unsecured liabilities. Freescale's Senior Secured
Notes and NXP's senior secured debt share in each other's
collateral and guarantees.
The Ba2 (LGD4) senior unsecured rating reflects the significant
quantity of secured debt, which is structurally senior to the
senior unsecured debt, and the guarantees from operating
subsidiaries. The Ba2 (LGD6) rating of the cash convertible
notes of NXP Semiconductors reflects both the absence of
collateral and the absence of upstream guarantees from operating
subsidiaries, which renders the cash convertible notes
structurally subordinated to the debt of NXP. Although the cash
convertible notes are expected to have lower recovery in a
default scenario than the guaranteed unsecured notes, the
expected recovery differential is not sufficient to lead to a
notching differential.
The SGL-1 rating reflects the company's very strong liquidity
profile, which is supported by strong FCF and a large cash
balance which we expect will remain over $500 million (excluding
the cash of NXP's joint venture with TSMC, which was $528 million
at April 3, 2016).
Affirmations:
Issuer: NXP B.V.
Corporate Family Rating , Ba1
Probability of Default Rating, Ba1-PD
Speculative Grade Liquidity Rating, SGL-1
Senior Secured Bank Credit Facility, affirmed at Baa2 (LGD2)
Senior Unsecured Regular Bond/Debentures, affirmed at
Ba2 (LGD4)
Issuer: NXP Semiconductors N.V.
Senior Unsecured Conv./Exch. Bond/Debenture, Ba2 (LGD6)
Issuer: Freescale Semiconductor, Inc.
Senior Secured (6% Senior Secured Notes), affirmed at Baa2
(LGD2)
Outlook Actions:
Issuer: NXP B.V.
Outlook, Positive
Issuer: NXP Semiconductors N.V.
Outlook, Positive
NXP B.V., based in Eindhoven, Netherlands, makes high performance
mixed signal integrated circuits and discrete semiconductors used
in a wide range of applications, including automotive,
identification, wireless infrastructure, lighting, industrial,
mobile, consumer and computing.
The principal methodology used in these ratings was Semiconductor
Industry Methodology published in December 2015.
===============
P O R T U G A L
===============
BANCO COMERCIAL: Moody's Affirms B1 Long-Term Deposit Ratings
-------------------------------------------------------------
Moody's Investors Service has affirmed Banco Comercial Portugues,
S.A.'s (BCP) long-term deposit and senior debt ratings at B1. At
the same time, the rating agency has upgraded: (1) The bank's
baseline credit assessment (BCA) and adjusted BCA to b3 from
caa1; (2) the bank's subordinated program ratings to (P)Caa1 from
(P)Caa2; (3) the bank's preference shares to Caa3(hyb) from
Ca(hyb); and (4) the bank's long-term Counterparty Risk
Assessment (CR Assessment) to Ba2(cr) from Ba3(cr). The outlook
on the long-term deposit ratings remains stable and the outlook
on the senior debt ratings has been changed to negative.
BCP's Not Prime short-term deposit and (P)NP short-term program
ratings were unaffected by today's rating action as well as the
short-term CRA of Not-Prime(cr).
The upgrade of BCP's standalone BCA reflects the improvement of
the bank's financial performance from previous very weak levels,
notably in terms of profitability and capital. Moody's views
that the bank continues to display a modest risk-absorption
capacity but the likelihood that it would require external
support to recapitalize has diminished on the back of a weak but
improving credit profile.
The affirmation of BCP's long-term deposit and senior debt
ratings reflects: (1) The upgrade of the standalone BCA to b3;
and (2) the outcome of Moody's Advanced Loss Given Failure (LGF)
Analysis after incorporating the bank's balance sheet structure
at end-December 2015 and its near-term funding plan.
The rating action does not incorporate the impact of a potential
acquisition of Novo Banco, S.A (Caa1/Caa1 developing; caa2), in
which BCP has publicly stated that it is interested. Moody's
notes that, as of today, BCP is not allowed to make any
acquisition and that the European Commission needs to lift this
ban before the bank formally presents a bid for Novo Banco. In
case BCP finally receives all relevant authorizations and
launches a formal offer for Novo Banco, Moody's will assess the
implications of such a transaction to the credit profile of BCP.
RATINGS RATIONALE
--- RATIONALE FOR UPGRADING THE BCA
The upgrade of BCP's BCA to b3 from caa1 reflects the bank's
improved financial performance from very weak levels, notably in
terms of profitability and capital. At end-December 2015, BCP
reported a net profit of EUR361 million, equivalent to 0.5% of
tangible assets, which represents a major improvement in its
credit profile given the large losses booked in 2012-2014. This
improvement was mainly driven by the recovery of the Portuguese
operations, which had been loss making over the past three years.
This trend is expected to continue in 2016 as shown by its Q1
2016 results that provided a net profit of EUR83 million, albeit
the bank's profitability ratios are expected to remain at modest
levels. Moody's expects BCP's operating revenues to remain
challenged by Portugal's very modest growth economic prospects
(i.e. the rating agency expects GDP growth to be 1.5% in 2016 and
1.8% in 2017), the low interest rates and persistent subdued
business volumes. However, Moody's also considers that BCP's
stabilizing asset risk trends are likely to translate into a
gradual decline of provisioning costs from past very high levels,
which should benefit bottom line profitability.
In upgrading the bank's BCA, Moody's has also incorporated BCP's
improved capital buffers, namely driven by the continued balance
sheet deleveraging and regained profitability. Moody's adjusted
Tangible Common Equity (TCE) / Risk-Weighted Assets (RWAs) ratio
reached 6.6% at end-March 2016 broadly in line with the level
reported at end-December 2015. This ratio should be further
enhanced after incorporating the benefits from the merger of its
majority-owned Angolan subsidiary with another domestic player,
that took place in April 2016 and has led to the deconsolidation
of these operations.
From a regulatory perspective, the bank's capital ratios have
also improved. On a pro-forma basis (including the impact of the
merger in Angola), BCP reported a phased-in Common Equity Tier 1
(CET 1) ratio of 13.2% at end-March 2016, which compares to 11.6%
a year earlier. The bank's pro-forma fully loaded CET 1 ratio
increased to 10.1% at end-March 2016 from 8.9% a year earlier.
Despite the mentioned improvements, Moody's notes that BCP's b3
BCA also reflects the bank's very weak asset risk profile. BCP
displays a very high stock of problematic exposures, which
despite stabilizing continue to challenge the bank's credit
profile. At end-March 2016, the bank reported problematic assets
(measured as credit-at-risk loans and foreclosed real estate
assets) of 13.8%, indicating the existing balance sheet pressure
which the bank faces.
BCP still has to address the repayment of EUR750 million of the
contingent capital securities (CoCos) that it received from the
Portuguese government in 2012, which needs to be completed before
mid-2017. This will have an impact on BCP's regulatory capital
ratios, but Moody's expectation is that the bank will manage to
meet prudential capital requirements set up for next year. SREP
requirements have not been publicly disclosed for BCP; the bank
will also have to comply with an additional 1% CET1 buffer (as a
systemic institution in Portugal) from January 2017 onwards.
Overall, Moody's views that BCP's risk-absorption capacity is
very modest when compared to other large European banks.
However, given the stabilizing asset risk and improved
profitability trends, the rating agency expects that the bank
will be able to meet forthcoming additional capital buffers
without requiring any external support.
--- RATIONALE FOR AFFIRMING THE LONG-TERM DEPOSIT AND SENIOR
DEBT RATINGS
The affirmation of BCP's long-term deposit and senior debt
ratings at B1 reflects: (1) The upgrade of the bank's BCA and
adjusted BCA to b3 from caa1; (2) the result from the rating
agency's Advanced Loss-Given Failure (LGF) analysis which results
in one notch of uplift for the deposit and senior debt ratings;
and (3) Moody's assessment of moderate probability of government
support for BCP, which results in an unchanged further one notch
of uplift for both the deposit and the senior debt ratings.
Taking account of the bank's balance sheet structure at end-
December 2015 and its near term funding plan, the rating agency's
LGF Analysis indicates that the bank's deposits and senior debt
are likely to face low loss-given failure, due to the loss
absorption provided by subordinated debt, as well as the volume
of deposits and senior debt themselves. This results in a
Preliminary Rating Assessment (PRA) of b2 for deposits and senior
debt, one-notch above the BCA. This is lower than under the
previous analysis, which was based on data as of end June 2015
and resulted in a two notch uplift from the BCA, because the bank
has since amortized a significant volume of debt instruments,
which have reduced the loss absorption for deposits and senior
debt liabilities issued by the bank.
--- RATIONALE FOR UPGRADING THE CR ASSESSMENT
As part of the rating action, Moody's has also upgraded to
Ba2(cr) from Ba3(cr) the long-term CR Assessment of BCP, four
notches above the adjusted BCA of b3.
The upgrade of the CR Assessment follows the upgrade of BCP's BCA
to b3 from caa1. The CR Assessment is driven by standalone
assessment and by the considerable amount of subordinated
instruments likely to shield counterparty obligations from
losses, accounting for three notches of uplift relative to the
BCA, as well as one notch of government support, in line with the
agency's support assumptions on the bank's deposits and senior
debt.
--- RATIONALE FOR THE OUTLOOK
The outlook on the deposit ratings is stable. This reflects
Moody's view that BCP's credit profile will remain resilient
despite persistent challenges stemming from the weak operating
environment in the countries in which the group operates, namely
Portugal.
The outlook on the senior debt ratings is negative, reflecting
the downward pressure that could develop if the bank does not
achieve Moody's expectation regarding its liability structure and
balance sheet deleveraging, which could result in higher loss
given failure for this type of debt.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward pressure on BCP's BCA could be driven by: (1) Stronger TCE
levels; (2) a material improvement in its asset risk profile; and
(3) a sustainable recovery in the bank's recurring earnings.
Downward pressure on the bank's BCA could develop as a result of:
(1) A reversal in current asset risk trends with an increase in
the stock of nonperforming loans (NPLs) and/or other problematic
exposures; and (2) a weakening of BCP's internal capital-
generation and risk-absorption capacity as a result of
deteriorating profitability levels.
As the bank's debt and deposit ratings are linked to the
standalone BCA, any change to the BCA would likely also affect
these ratings.
BCP's deposit and senior debt ratings could also change due to
movements in the loss-given failure faced by these securities.
In addition, any changes to Moody's considerations of government
support could trigger downward pressure on the bank's deposit and
debt ratings.
LIST OF AFFECTED RATINGS
Issuer: Banco Comercial Portugues, S.A.
Upgrades:
Adjusted Baseline Credit Assessment, upgraded to b3 from caa1
Baseline Credit Assessment, upgraded to b3 from caa1
Long-term Counterparty Risk Assessment, upgraded to Ba2(cr)
from Ba3(cr)
Subordinate Medium-Term Note Program, upgraded to (P)Caa1 from
(P)Caa2
Pref. Stock Non-cumulative, upgraded to Caa3(hyb) from Ca(hyb)
Affirmations:
Senior Unsecured Medium-Term Note Program, affirmed (P)B1
Senior Unsecured Regular Bond/Debenture, affirmed B1, outlook
changed to Negative from Stable
Long-term Deposit Ratings, affirmed B1 Stable
Outlook Actions:
Outlook changed to Stable(m) from Stable
Issuer: BCP Finance Bank, Ltd.
Upgrades:
Backed Subordinate Medium-Term Note Program, upgraded to
(P)Caa1 from (P)Caa2
Backed Subordinate Regular Bond/Debenture, upgraded to Caa1
from Caa2
Affirmations:
Backed Senior Unsecured Medium-Term Note Program, affirmed
(P)B1 Backed Senior Unsecured Regular Bond/Debenture, affirmed
B1, outlook changed to Negative from Stable
Outlook Actions:
Outlook changed to Negative from Stable
Issuer: BCP Finance Company
Upgrades:
Backed Subordinate Shelf, upgraded to (P)Caa1 from (P)Caa2
Backed Pref. Stock Non-cumulative, upgraded to Caa3(hyb) from
Ca(hyb)
Outlook Actions:
No Outlook
Issuer: Banco Comercial Portugues, SA, Macao Br
Upgrades:
Long-term Counterparty Risk Assessment, upgraded to Ba2(cr)
from Ba3(cr)
Subordinate Medium-Term Note Program, upgraded to (P)Caa1
from (P)Caa2
Affirmations:
Senior Unsecured Medium-Term Note Program, affirmed (P)B1
Long-term Deposit Rating, affirmed B1 Stable
Outlook Actions:
Outlook remains Stable
Issuer: Banco Comercial Portugues, SA, Madeira
Upgrades:
Long-term Counterparty Risk Assessment, upgraded to
Ba2(cr) from Ba3(cr)
Outlook Actions:
No Outlook
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
published in January 2016.
CAIXA ECONOMICA: Moody's Cuts Rating on Senior Program to (P)B3
---------------------------------------------------------------
Moody's Investors Service has downgraded to (P)B3 from (P)B1 the
senior program ratings of Caixa Economica Montepio Geral, Cay.
Is. Br. (a branch of Portugal's Caixa Economica Montepio Geral).
The rating agency has also downgraded: (1) the bank's dated
subordinated program ratings to (P)Caa2 from (P)Caa1; (2) the
bank's junior subordinated program ratings to (P)Caa3 from
(P)Caa2; and (3) the bank's long-term Counterparty Risk
Assessment (CR Assessment) to B1(cr) from Ba3(cr).
RATINGS RATIONALE
Moody's explained that the rating action taken today is the
result of a rating action on Caixa Economica Montepio Geral on 7
June 2016, in which the following ratings were downgraded: (1)
the senior debt rating to B3 from B1 (2) the bank's dated
subordinated program ratings to (P)Caa2 from (P)Caa1; (3) the
bank's junior subordinated program ratings to (P)Caa3 from
(P)Caa2; and (4) the bank's long-term Counterparty Risk
Assessment (CR Assessment) to B1(cr) from Ba3(cr).
The bank's (P)Not-Prime short-term program ratings and its short-
term CRA at NP(cr) were unaffected by the rating action.
LIST OF AFFECTED RATINGS
Issuer: Caixa Economica Montepio Geral, Cay. Is. Br.
Downgrades:
Long-term Counterparty Risk Assessment, downgraded to B1(cr)
from Ba3(cr)
Senior Unsecured Medium-Term Note Program, downgraded to (P)B3
from (P)B1
Junior Subordinate Medium-Term Note Program, downgraded to
(P)Caa3 from (P)Caa2
Subordinate Medium-Term Note Program, downgraded to (P)Caa2
from (P)Caa1
Outlook Action:
No Outlook
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
published in January 2016.
===========
R U S S I A
===========
SOVCOMFLOT PAO: Moody's Assigns (P)Ba2 Rating to Sr. Unsec. Bond
----------------------------------------------------------------
Moody's Investors Service has assigned a provisional (P)Ba2
rating to the new senior unsecured bond to be issued by SCF
Capital Limited and guaranteed by Sovcomflot PAO (SCF, Ba1 CFR,
negative), a 100% Russian state-owned energy shipping company and
provider of seaborne energy solutions, which is domiciled in
Russia (Ba1 negative). The outlook on the rating is negative,
which is in line with the outlook on the Ba1 corporate family
rating (CFR) of SCF and the Ba1 sovereign bond rating of Russia.
Moody's understands that SCF will apply the proceeds of the
proposed new bond, which will total up to $750 million, on (1)
partially refinancing its outstanding $800 million Eurobond; and
(2) other corporate purposes, including repayment of other
existing indebtedness. The instrument will rank pari passu with
SCF's other unsecured and unsubordinated debts. The transaction
is credit positive as it will improve SCF's liquidity profile and
eliminate the refinancing risk associated with the company's $800
million Eurobond maturity in 2017.
The bondholders will have the benefit of a negative pledge and
certain covenants in respect of mergers, asset disposals and the
payment of taxes for the issuer and the guarantor. The cross-
default clause embedded in the bond documentation will cover,
inter alia (1) a failure by the issuer, the guarantor or a
principal subsidiary to pay any of its financial indebtedness
equaling an aggregate amount of $50.0 million; and (2) the
presentation or filing of a petition, for the issuer's
bankruptcy, insolvency, dissolution or any analogous proceeding.
RATINGS RATIONALE
The rating action reflects Moody's view that the proposed
instrument will rank pari passu with SCF's outstanding $800
million Eurobond maturing in 2017. The one-notch differential
between the provisional (P)Ba2 senior unsecured rating of the
SCF-guaranteed bond and SCF's corporate family rating of Ba1
reflects the fact that a large amount of SCF's debt
(approximately $1.9 billion as of end-March 2016, or 70% of total
debt), is raised by the company's operating subsidiaries and is
secured against its vessels, with a carrying value of
approximately $3.9 billion.
While maintaining the one-notch differential between the CFR and
the senior unsecured rating of both the outstanding and new rated
instruments, the agency notes, that the issuer's unencumbered
asset value at approximately $1.6 billion as of end-March 2016
substantially exceeds the amount of the unsecured rated debt
post-issuance of the new bond and the financing of the tender
offer for the outstanding bond. The rating agency also believes
that support from the Russian government, if required, will
likely apply across all tranches of debt, should the government
step in to help avoid a default.
Rating Outlook
The negative outlook on SCF's ratings is in line with the outlook
on Russia's sovereign rating (Ba1 negative). This reflects
Moody's view that the company's resilience to the increased risk
arising from the prevailing negative operating conditions is
limited, as reflected by the alignment of the country ceiling for
foreign-currency debt with the sovereign bond rating.
What Could Change the Rating -- UP
An upgrade of Russia's government bond rating, provided that
there is an improvement in SCF's standalone credit profile,
such that its adjusted debt/EBITDA sustainably remains below
3.5x and its adjusted funds from operations interest coverage
remains above 4.5x.
What Could Change the Rating -- DOWN
-- A downgrade of Russia's sovereign rating and lowering of the
foreign-currency bond ceiling, and/or
-- A deterioration in the company's standalone credit profile
so that its adjusted debt/EBITDA rises above 4.5x and its
adjusted funds from operations interest coverage declines
below 3.5x on a prolonged basis.
The principal methodology used in this rating was Global Shipping
Industry published in February 2014. Other methodologies used
include the Government-Related Issuers methodology published in
October 2014.
===========================
U N I T E D K I N G D O M
===========================
AUSTIN REED: Administrators Reveal Six-Figure Creditors Claims
--------------------------------------------------------------
Laurence Kilgannon at Insider Media reports that new
documentation has shone a light on the multimillion-pound
creditor shortfall expected following the collapse of tailoring
group Austin Reed, with many supplier claims running into six
figures.
According to Insider Media, a statement of affairs, which is
prepared by directors and outlines an expected outcome for
creditors, has been filed by administrators for main trading arm
Austin Reed Group Ltd.
Established more than 100 years ago, the Thirsk-headquartered
retailer entered administration at the end of April and in the
absence of a buyer for anything but the Austin Reed and Country
Casual brands its 120 stores are being wound down, with the loss
of 1,000 jobs, Insider Media recounts.
A total deficit of GBP51.9 million is estimated for creditors of
Austin Reed Group Ltd., with unsecured claims accounting for
GBP29.6 million of that sum, Insider Media discloses.
Designers, textile businesses, clothing manufacturers and
packaging groups are among the unsecured creditors with
six-figure claims which look set to go unpaid, Insider Media
states.
HM Revenue & Customs is behind one of several claims for more
than GBP1 million, while the ARG Pension Scheme is owed GBP13
million, Insider Media notes.
BHS GROUP: Goldman Sachs Executive to Face Probe Into Collapse
--------------------------------------------------------------
Martin Arnold and Mark Vandevelde at The Financial Times report
that Michael Sherwood, the co-head of Goldman Sachs in Europe,
has bowed to pressure from MPs to appear before a parliamentary
inquiry into the collapse of high street retailer BHS a year
after it was sold by his client Sir Philip Green.
Mr. Sherwood is a close confidant of Sir Philip, often attending
the lavish parties thrown by the retailer, and Goldman Sach's
informal and unpaid role in the BHS sale was instigated by a call
between the two men, the FT discloses.
MPs said last week that they planned to ask Mr. Sherwood to
appear before them along with Anthony Gutman, the co-head of
European investment banking services who has already given
evidence once, and Michael Casey, a London-based managing
director, the FT relates.
According to the FT, Goldman responded by saying it did not
believe that its employees would be "able to provide the
committees with any fresh evidence" and instead offered to answer
in writing any further questions the MPs had.
It also supplied the parliamentary inquiry with a log of its
involvement in the BHS sale and copies of email correspondence,
the FT notes.
BHS Group is a department store chain. The company employs
10,000 people and has 164 shops.
DEUTSCHE PFANDBRIEFBANK: Moody's Cuts Rating on A2 Notes to C
-------------------------------------------------------------
Moody's Investors Service has downgraded one and affirmed six
classes of Notes issued by Deutsche Pfandbriefbank (Estate UK-3)
(amounts reflect initial outstanding):
GBP0.4 mil. A1+ Notes, Affirmed B1 (sf); previously on Aug. 14,
2015, Downgraded to B1 (sf)
GBP110.14 mil. A1+ (CDS) Notes, Affirmed B1 (sf); previously on
Aug. 14, 2015, Downgraded to B1 (sf)
GBP29.8 mil. A2 Notes, Downgraded to C (sf); previously on
Aug. 14, 2015, Downgraded to Ca (sf)
GBP35.76 mil. B Notes, Affirmed C (sf); previously on Aug. 14,
2015, Downgraded to C (sf)
GBP24.56 mil. C Notes, Affirmed C (sf); previously on Aug. 14,
2015, Downgraded to C (sf)
GBP8.24 mil. D Notes, Affirmed C (sf); previously on Aug. 14,
2015, Downgraded to C (sf)
GBP14.92 mil. E Notes, Affirmed C (sf); previously on Aug. 14,
2015, Downgraded to C (sf)
RATINGS RATIONALE
The rating on the Class A2 Notes is downgraded because our loss
expectations are higher than previous review. Since Moody's last
review in August 2015 all assets in Loan reference No. 3 have now
been sold. Although Moody's awaits final confirmation from the
servicer on the finalized recovery proceeds, Moody's view is that
the class A2 will suffer larger losses than originally
anticipated. Moody's has affirmed all other classes as its loss
expectations remain the same.
Moody's downgrade reflects a base expected loss in the range of
50%-60% of the current balance, compared with 45%-55% at the last
review. Moody's derives this loss expectation from the analysis
of expected net recoveries once the loss determination is
finalized.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was Moody's
Approach to Rating EMEA CMBS Transactions published in July 2015.
Other factors used in these ratings are described in European
CMBS: 2016-18 Central Scenarios published in April 2016.
Factors that would lead to an upgrade or downgrade of the
ratings:
Factors that would lead to a downgrade of the Class A1+ CDS and
A1+ would be (i) less than expected final recoveries from Loan
No. 3, and (ii) a decline in the performance and recovery
expectation of Loan No. 13.
Given the expected losses anticipated from Loan No. 3, no rating
upgrade is likely.
MOODY'S PORTFOLIO ANALYSIS
Estate UK-3 closed in 2007 and represents a synthetic
securitization of initially 13 commercial mortgage loans
(reference claims) originated by Hypo Real Estate Bank
International AG, now Deutsche Pfandbriefbank AG. The loans were
secured by first ranking legal mortgages on initially 110
commercial properties located in the United Kingdom.
As of the March 2016 IPD, the transaction balance has declined by
62% to GBP223.82 from GBP596.13 at closing in February 2007 due
to the payoff of 11 loan references originally in the pool.
Since all assets backing Loan No. 3 have been sold, the remaining
85 assets back Loan No. 13. The pool has an above average
concentration in terms of geographic location (100% UK) and
property type (100% showrooms and ancillary buildings let to
Volkswagen Financial Services UK Ltd). Moody's uses a variation
of the Herfindahl Index, in which a higher number represents
greater diversity, to measure the diversity of loan size. Large
multi-borrower transactions typically have a Herf of less than 10
with an average of around 5. This pool has a Herf of 1.51, the
same as Moody's prior review.
SUMMARY OF MOODY'S LOAN ASSUMPTIONS
Below are Moody's key assumptions for the two remaining loans.
Reference Loan 3 - LTV 267% (Whole) / 197% (A-Loan); Defaulted;
Expected Loss 60-70% (securitized portion of A-Loan)
Loan #3 is comprised of a GBP245.8 million whole loan, of which
GBP175.7 million is securitized, GBP6.4 million is subordinated
and the remaining portion ranks pari-passu with the securitized
portion. The loan had its extended maturity date on July 23,
2015 but failed to repay. The loan was secured by three
secondary shopping centers in the UK which are now sold. Because
of the pari-passu share which is not part of the securitization,
the securitized loan will only receive a 74% share of the net
recovery proceeds. Moody's has reflected its view of the net
recovery proceeds, but final proceed amounts have not yet been
confirmed by the servicer.
Reference Loan 13 -- LTV 41.7% (whole) / 17.1% (A-Loan); Total
Default Probability Low; Expected Loss 0% - 10%
The loan is performing well with a low LTV of 17.1% (A-Loan) and
Moody's expects this loan to repay in full. The reference loan
is collateralized by 85 commercial properties with leases to a
leading European car manufacturer. The properties are 100%
occupied with 12 years remaining on the lease term. This was a
sale and leaseback and the tenant has an option to renew for a
further 10, 15, or 20 years at the end of their lease term. Most
sites consist of a showroom and associated ancillary buildings.
Given the low loan leverage and long remaining lease term at
maturity in 2019, Moody's expects this loan to repay in full.
MERGERMARKET MIDCO 2: Moody's Affirms B3 CFR, Outlook Positive
--------------------------------------------------------------
Moody's Investors Service has affirmed Mergermarket Midco 2
Limited's B3 corporate family rating and B3-PD probability of
default rating. Concurrently, Moody's has affirmed the B2 rating
on the 2021 first lien term loans, the B2 rating on the 2019
revolving credit facility and the Caa2 rating on the 2022 second
lien term loan, issued by Mergermarket USA, Inc.
Moody's has changed the outlook on all ratings to positive from
stable.
Moody's decision to change Mergermarket's ratings outlook to
positive reflects the improved performance since the initial
rating in 2014 following positive organic growth combined with
prudently financed acquisitions.
The positive outlook further reflects Moody's expectation of
ongoing improvement in Mergermarket's credit metrics in the next
twelve months as the company fully consolidates recently acquired
businesses and it continues to complement and enhance its product
offerings. The outlook also incorporates Moody's expectation
that the company will not embark on any transforming acquisitions
or make debt-funded shareholder distributions.
RATINGS RATIONALE
Moody's recognizes the improving financial metrics achieved by
Mergermarket as a stand-alone company, since its carve out from
Pearson at the end of 2013, with sustained levels of organic and
external growth. As of March 2016, the company's Moody's
adjusted leverage has reduced to 6.0x from 7.0x at the end of
2014 as a result of growth in EBITDA and the repayment of $10
mil. of Second Lien term loan.
Pro forma for the EBITDA contribution for the acquired businesses
in 2015 and Q1 2016, Mergermarket's gross leverage reached
approximately 5.7x (Moody's adjusted) at the end of March 2016.
The acquisitions help the company to complement the existing
product offerings and to provide growth opportunities into new
areas such as the Compliance and Risk Information market.
While Mergermarket's fixed income division has been facing some
challenging conditions in the last six months, Moody's expects
that the company's ongoing investments in new content, product
development and new launches together with the full consolidation
of recently acquired businesses will provide enough support to
sustain revenue and EBITDA growth in the next 12-18 months.
The B3 CFR reflects the company's (1) leading market position in
niche segments, with an international presence; (2) longstanding
commercial relationships with top-tier players in each business
segment served; (3) strong track record of growth in its largely
subscription-based revenues (more than 90% of revenues); and (4)
high annual renewal rate (91.4% in 2015).
The B3 CFR also reflects (1) the company's high financial
leverage; (2) the company's relatively small scale; (3) revenue
concentrated on two core products and within the financial
services industry; and (4) the execution risks as the company
continues to engage in M&A activities in order to reach
meaningful scale and broaden its product offerings.
WHAT COULD CHANGE THE RATING - UP
Positive pressure on the rating could materialize if (1) FCF to
debt approaches 10%; and (2) Moody's-adjusted EBITDA margin is
sustained at around 30%; and (3) Moody's-adjusted debt/EBITDA
ratio falls sustainably below 6.0x.
WHAT COULD CHANGE THE RATING - DOWN
Conversely, negative pressure could be exerted on the rating if
the company fails to maintain the current momentum in its
operational performance, leading to a deterioration in renewal
rate such that (1) a weakening of its operational performance
results in lower cash generation; (2) there is an aggressive
change in its financial policy; or (3) Moody's-adjusted
debt/EBITDA ratio is sustained above 7.0x.
The principal methodology used in these ratings was Business and
Consumer Service Industry published in December 2014.
OLD MUTUAL: Moody's Confirms Ba1(hyb) Rating on Subordinated Debt
-----------------------------------------------------------------
Moody's Investors Service has confirmed the Baa3 senior debt
rating of Old Mutual plc and the A2 insurance financial strength
rating of Old Mutual Wealth Life Assurance Limited (OMWLAL). The
outlook for both Old Mutual and OMWLAL is negative. The rating
actions conclude the review for downgrade on these ratings
initiated in March 2016.
The review of both ratings reflected the group's announcement in
March of a new strategy to pursue a managed separation of the
group into four key businesses. In addition for OMWLAL the
review focused on the company's stand-alone credit profile,
particularly concerning the progress the company has made in
improving its franchise in the global investment management
market, together with its profitability.
RATINGS RATIONALE
-- OLD MUTUAL PLC
The confirmation of Old Mutual's Baa3 senior debt rating reflects
(i) our expectation of increased holding company liquidity
relative to debt, in the event of individual businesses being
sold and as a result of the more conservative dividend policy,
and (ii) the company's stated intent of reducing Old Mutual's
debt mainly through asset disposals, before considering
additional returns of capital to shareholders. Higher liquidity
at the holding company, or accelerated debt repayments over the
course of the managed separation will offset the negative credit
impact of lower diversification benefits following the separation
of individual businesses.
Old Mutual's senior debt rating (Baa3, negative) is two-notches
lower than Old Mutual Life Assurance Company South Africa Ltd's
(OMLAC(SA)) IFS rating (Baa1, negative) -- Old Mutual's largest
South African operation. This notching is narrower than Moody's
standard three-notch differential between the senior debt rating
and the IFS rating of the lead insurance entity, reflecting the
diversification benefits that Old Mutual derives from its UK and
US based wealth and asset management based businesses, including
OMWLAL. The group's South African operations accounted for
approximately 75% of the group's adjusted operating profit and
67% of dividends remitted to the holding company for 2015.
The negative outlook for Old Mutual reflects: (i) the negative
outlook on the group's main life insurance entity, OMLAC(SA) and
the government of South Africa (Baa2, negative), (ii) execution
risk and uncertainty related to the managed separation strategy,
including the timing and sequence of the respective separations
and debt repayments, and (iii) potential for increased pressure
to return capital to shareholders as individual businesses are
separated.
-- OLD MUTUAL WEALTH LIFE ASSURANCE LIMITED
The confirmation of OMWLAL's IFS rating at A2, which includes an
assessment of the entire Old Mutual Wealth (OMW, unrated) group,
reflects (i) its strong market position in the retail and private
wealth management sector and progress the group has made in
improving net flows and funds under management (FUM) over the
past three years, (ii) its low product risk profile given the
predominance of unit-linked and asset management business, and
(iii) improved operating profit and margins. These strengths are
partially offset by the group's relatively narrow focus on the UK
retail-adviser sector of the wealth market and limited product
and geographic diversification, together with limited track-
record in generating sustained organic growth in FUM through its
relatively new vertically integrated operation.
Moody's notes that OMW has made significant progress in improving
the underlying profitability of its business, with adjusted
operating profit increasing to GBP307 million (41% operating
margin) in 2015 from GBP195 million (38% operating margin) in
2012 as it realised economies of scale -- partly through
acquisitions -- in line with its vertical integration strategy.
In addition, OMW has seen an increase in FUM to GBP104 billion in
2015 from GBP69 billion in 2012 despite the meaningful outflows
on the Heritage book which is running off. Supporting its growth
in NCCF, OMW has made significant progress along its strategy of
vertical integration and has diversified into asset management
and discretionary advice, bolstered its restricted adviser base
through the Intrinsic acquisition, while maintaining a strong
position in the advised platform arena.
Notwithstanding the aforementioned progress, Moody's believes OMW
continues to face important execution challenges as it seeks to
solidify and grow its market position. Given its focus in retail
and high-net worth wealth management, Moody's believes OMW is
very dependent on the success of its platform. The platform is
being updated and upgraded to maintain it as an attractive
proposition for advisers, however, despite the company's recent
risk-mitigating efforts, meaningful execution risk remains in
being able to complete the project without further timeline
delays or cost overruns. In addition, Old Mutual group's managed
separation will consume significant management attention as OMW
seeks to build out infrastructure to operate as a standalone
entity ahead of the separation, targeted for completion by the
end of 2018.
The negative outlook for OMWLAL reflects the challenges the
company faces, including (i) execution risk in its IT
transformation project and the possibility of erosion in its
market position should the IT transformation not be successful or
completed in a timely manner, and (ii) uncertainty and execution
risks associated with OMW's preparation for separation from Old
Mutual.
WHAT COULD CHANGE THE RATING UP OR DOWN -- OLD MUTUAL PLC
Given the negative outlook, upward pressure on Old Mutual's
ratings is unlikely in the near term, however, the outlook could
be changed to stable in the event that the outlook for the
Government of South Africa (Baa2, negative) is changed to stable,
and the level of uncertainty and execution risk around the
managed separation is reduced meaningfully.
Conversely, Moody's stated that these factors could lead to a
downgrade of the group's ratings: (i) a downgrade of South
Africa's government debt rating, (ii) material deterioration in
the creditworthiness of the group's subsidiaries, including
OMLAC(SA), OMWLAL and Nedbank Limited and/or the rest of the
South African banking sector, (iii) a meaningful reduction in the
Group's business and geographic diversification, absent a related
increase in holding company liquidity or debt repayment, (iv)
meaningful return of capital to shareholders ahead of debt
redemption, and (v) a failure to sustain hard interest coverage
of at least 2x.
WHAT COULD CHANGE THE RATING UP OR DOWN -- OLD MUTUAL WEALTH LIFE
ASSURANCE LIMITED
Given the negative outlook, upward pressure on OMWLAL's rating is
unlikely in the near term, however, the following could lead to
the outlook being changed to stable: (i) Significant progress
made toward successful implementation of the platform IT
transformation within current cost and timeline estimates, (ii)
continued organic growth in net client cash flows (NCCF) and FUM
while maintaining the operating profit margin above 35%, and
(iii) substantial progress made toward building management and
operational infrastructure to function as a stand-alone entity,
post managed separation.
Conversely, Moody's stated that the following factors could lead
to a downgrade of the OMW's ratings: (i) Further delays and cost
overruns on the IT transformation project that place undue
pressure on the market position of OMW's platform, (ii) inability
to demonstrate organic growth in NCCF and FUM and/or significant
erosion of operating profits, (iii) meaningful setback in OMW's
preparation for separation from the group, and (iv) meaningful
increase in debt or an expectation thereof under the managed
separation or otherwise.
This insurance financial strength rating was confirmed:
Old Mutual Wealth Life Assurance Limited at A2
These ratings have been confirmed:
Old Mutual Plc senior unsecured at Baa3
Old Mutual Plc EMTN program senior unsecured at (P) Baa3
Old Mutual Plc long term issuer rating at Baa3
Old Mutual Plc EMTN program subordinated at (P)Ba1
Old Mutual Plc subordinated at Ba1(hyb)
Old Mutual Plc preferred stock at Ba2 (hyb)
Old Mutual Plc commercial paper at P-3
Old Mutual Plc EMTN program short-term at (P)P-3
The outlook for Old Mutual Plc and Old Mutual Wealth Life
Assurance is negative.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global Life
Insurers published in April 2016.
TATA STEEL UK: Port Talbot Steel Plant Sale Faces Delay
-------------------------------------------------------
Peter Campbell and Jim Pickard at The Financial Times report that
the sale of Britain's biggest steel plant at Port Talbot has hit
a fresh delay after Tata Steel pressed the seven potential buyers
for more details on their plans for the site.
According to the FT, two people involved in the process said the
shortlist, which had been expected several weeks ago, may not be
finalized until the end of this week or later. In a move dubbed
"unusual" by one person working on the deal, the Indian company
has been back to bidders several times requesting further
information since receiving bids last month, the FT relays.
The latest delay means that a final decision on the fate of the
site will not be taken until next month, the FT notes. The Port
Talbot plant employs 4,000, part of the 11,000 workforce at the
wider Tata Steel UK operation, the FT discloses.
Tata, the FT says, is anxious to go through every step of the
sales process carefully because of the close political scrutiny
of the plant's future. But several bidders have told the FT that
their requests for more information from the company in order to
substantiate their offers have been frustrated, slowing the
process yet further.
Tata's board is understood to be split over the future of the
site, the FT states. At the same time as overseeing the sales
process, the Indian company is also seriously considering keeping
the plant -- if it is given access to the same government
concessions being offered to potential buyers, according to the
FT.
A person close to Tata, as cited by the FT, said priority would
be given to bidders with extensive experience in the steel
industry, in the hope of boosting the operation's long-term
prospects.
The seven bidders are JSW, the Indian conglomerate; a joint bid
between Leeds-based private equity house Endless and US investor
Wilbur Ross; Liberty House, the commodities group founded by
Sanjeev Gupta; a proposed management buyout called Excalibur;
Greybull, the investment fund, which bought Tata's Scunthorpe
plant for GBP1; and Hebei Iron and Steel, China's largest steel
group, the FT relays.
Tata put its UK operations up for sale this year, later saying it
was incurring losses of GBP1 million a day on its businesses, the
FT recounts.
Tata Steel is the UK's biggest steel company.
TATA STEEL UK: Outlines Benefits of EU Membership to Business
-------------------------------------------------------------
Ben Marlow and Alan Tovey at The Telegraph report that the owner
of Port Talbot steelworks has intervened in the Brexit debate
with a memo to staff outlining the benefits of EU membership to
its business.
According to The Telegraph, in a letter urging staff to give
"careful thought" to the referendum "because the choice you make
on June 23 will make a difference to your working life", Tata
says access to the EU market is "fundamental to our business."
The internal document from Tim Morris, Head of Public Affairs for
Tata Steel in Europe, headlined "What the EU referendum means for
Tata Steel" and is dated June 10, The Telegraph relates.
It comes as Tata attempts to offload its UK steel empire to a new
owner so it can pull out after a disastrous decade, and despite
Tata's assertion in the memo that the Indian conglomerate has
"political neutrality as one of its core principles", The
Telegraph relays.
It claims that one of the major risks that could come from
Britain leaving the EU is that Tata would no longer be able to
influence some of the major regulations environmental controls
and anti-dumping which affect its operations, The Telegraph
discloses.
Tata Steel is the UK's biggest steel company.
*********
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,
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Valerie U. Pascual, Marites O. Claro, Rousel Elaine T. Fernandez,
Joy A. Agravante, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2016. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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