/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/160908.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, September 8, 2016, Vol. 17, No. 178 Headlines A U S T R I A HETA ASSET: Bondholders Offered Discounted Buyback A Z E R B A I J A N ACCESSBANK: Fitch Affirms 'BB+' Long-Term Issuer Default Rating C R O A T I A BADEL 1862: Meteor Acquires 67.5% Pre-Bankruptcy Claims I R E L A N D M&J WALLACE: Three Banks Recoup EUR5MM From Asset Receiverships I T A L Y GE CAPITAL: Moody's B2 LT Deposit Rating on Review for Downgrade WIND TELECOMUNICAZIONI: Fitch Affirms B+ LT Issuer Default Rating L U X E M B O U R G MINERVA LUXEMBOURG: S&P Assigns 'BB-' Rating to Sr. Unsec. Notes N E T H E R L A N D S VIMPELCOM LTD: Fitch Says Impact of Wind-3 Italia Merger Neutral R U S S I A MOSTOTREST PJSC: Moody's Withdraws Ba3 Corporate Family Rating NOVIKOMBANK: Moody's Confirms B2 Ratings, Outlook Developing S P A I N MADRID AEROSPACE: ST Engineering Liquidates Business U N I T E D K I N G D O M DUKINFIELD II PLC: Moody's Assigns (P)Ba3 Rating to Class E Notes LONDON WELSH: Avoids Liquidation, US Group to Take Over OXFORD CITY: Averts Liquidation Following Tax Bill Payment RAME ENERGY: Mulls Sale of Operations Following Administration TURNSTONE MIDCO: Fitch Cuts LT IDR to 'B'; Removes from Watch Neg WAGAMAMA LTD: S&P Raises Parent's CCR to 'B', Outlook Stable ********* ============= A U S T R I A ============= HETA ASSET: Bondholders Offered Discounted Buyback -------------------------------------------------- Kirsti Knolle at Reuters reports that bondholders of the "bad bank" for collapsed Austrian bank Hypo Alpe Adria were offered a discounted buyback on Sept. 6 that could bankrupt the province of Carinthia if rejected. According to Reuters, the offer to buy back around EUR11 billion (US$12.3 billion) in bonds of Hypo wind-down vehicle Heta at a discount follows new EU rules that require creditors, not taxpayers alone, fund bank rescues. The Austrian government and province agreed an improved offer with bondholders including Commerzbank and Dexia Kommunalbank in May after creditors rejected a first proposal in March, Reuters relates. Deutsche Bank, which holds junior bonds with a nominal value of EUR200 million, had complained about the difference in treatment of creditors in the first offer, Reuters discloses. According to Reuters, under the revised offer, Carinthia, helped by loans from the federal government, is offering senior creditors 75% of the original face value and junior creditors 30%. With a population of 560,000 and an annual budget of just over EUR2 billion, Carinthia faces bankruptcy if no agreement with creditors is reached, Reuters says. Creditors have until Oct. 7 to respond, Reuters notes. The members of the three largest creditor groups have already said they will support the offer, according to Reuters. A two-thirds majority is needed to accept the offer, including at least 25% of senior bondholders and 25% of junior bondholders, Reuters states. Heta Asset Resolution AG is a wind-down company owned by the Republic of Austria. Its statutory task is to dispose of the non-performing portion of Hypo Alpe Adria, nationalized in 2009, as effectively as possible while preserving value. =================== A Z E R B A I J A N =================== ACCESSBANK: Fitch Affirms 'BB+' Long-Term Issuer Default Rating --------------------------------------------------------------- Fitch Ratings has affirmed Azerbaijan-based Accessbank's (AB) and Pasha Bank's (PB) Long-Term Issuer-Default Ratings (IDRs) at 'BB+' and 'BB-', respectively. The Outlooks on both banks are Negative. The agency has also downgraded AB's Viability Rating (VR) to 'b+' from 'bb-' and affirmed PB's VR at 'b+'. KEY RATING DRIVERS AB AB's Long-Term IDR of 'BB+' and Support Rating of '3' reflect the moderate probability that the bank would receive support from the bank's international financial institution (IFI) shareholders. The European Bank for Reconstruction and Development (AAA/Stable), KfW (AAA/Stable), International Finance Corporation and the Black Sea Trade and Development Bank each hold a direct 20% stake in AB. A further 16.5% is held by Access Microfinance Holding, in turn also controlled by IFIs. Fitch views the propensity of AB's shareholders to provide support as high because of (i) the IFIs' strategic commitment to microfinance lending in developing markets; (ii) the IFIs' direct ownership of AB, stemming from their participation as founding shareholders; (iii) the significant integration of IFI guidelines into AB's risk management; and (iv) Fitch's expectation that a full exit of the IFIs from the bank in the next few years is unlikely. However, AB's ability to receive and utilize any potential support could be restricted by transfer and convertibility restrictions, as reflected in Azerbaijan's Country Ceiling of 'BB+' The downgrade of AB's VR to 'b+' from 'bb-' reflects significant deterioration in the bank's asset quality and performance following the devaluations of the Azerbaijan manat in 2015. Positively, AB's VR reflects the bank's still reasonable capital levels and manageable refinancing risks. At end-1H16, AB reported sizable non-performing loans (NPLs; loans 90+ days overdue) at 20% of the total portfolio (57% covered with impairment reserves), up from a moderate 5% at end- 2015 (97% covered). Restructured loans comprised a further substantial 54% of the portfolio, as the bank actively extended maturities on USD-denominated exposures following the devaluation of the manat in February and December 2015. The ultimate credit quality and recoverability of these restructured loans is yet to be tested. In 1H16, AB reported pre-impairment profit of AZN13m or 3.1% (annualized) of average gross loans. This figure would be a negative AZN10 million (-2.4%) if adjusted for interest accrued, but not received in cash. The bottom line was further negatively affected by elevated impairment charges (11.5% of average loans, annualized) resulting in a net reported loss of AZN28 million in 1H16 (equal to 19% of end-2015 equity). Despite the weak performance, AB's reported Fitch Core Capital (FCC) ratio remained a high 16% at end-1H16, only down by 1ppt from end-2015. The capital position was supported by deleveraging, as the loan book contracted 21% in 1H16. Fitch sees significant further downside to AB's asset quality, performance and capital, since at least some of the AZN64 million of unreserved NPLs (68% of FCC at end-1H16) or AZN388 million of restructured loans (4.1x FCC) may result in additional impairment charges. Fitch estimates that AB's regulatory capital buffer is only sufficient to absorb additional charges of 5% of gross loans before reaching the regulatory minimum of 10%, which would be barely sufficient to fully cover existing NPLs. Near-term refinancing needs moderated in 1H16, but remain significant. At end-1H16, the bank's wholesale funding maturing within 12 months was equal to around 30% of total liabilities, although the available liquidity buffer was equal to 92% of this. Refinancing risks are reduced by AB's firm access to IFIs and parent funding. PB PB's IDRs, SR and SRF are underpinned by the moderate probability of support from the Azerbaijan authorities, in case of need. Fitch's view on support takes into account: (i) PB's moderate systemic importance as part of the largest privately-owned banking group in the country, as together with its sister bank Kapital Bank (KB) they hold around 15% of sector deposits; (ii) the somewhat improved track record of sovereign support for the banking sector in light of the ongoing financial rehabilitation of International Bank of Azerbaijan (IBA, BB/Negative/b-); and (iii) the benefits of PB being ultimately owned by a structure closely connected to the Azerbaijani authorities, which at least in the near term should make support more likely, in Fitch's view. The Negative Outlook on PB's IDR mirrors that on the sovereign. The two-notch differential between the sovereign's and bank's ratings reflects the uneven track record of sovereign support for the sector and PB's more moderate systemic importance relative to the larger IBA, which at end-2015 held around 41% of sector deposits and is rated one notch higher than PB. PB's VR reflects the bank's solid capitalization, ample liquidity and so far manageable asset quality deterioration amid the downturn in the broader economy. At the same time, the rating remains constrained by (i) fragile operating environment, which is currently in credit downcycle due to a fall in oil prices, (ii) only moderate operating profitability, if adjusted for one- off gains in 2015, (iii) the bank's still limited franchise and track record; and (iv) some uncertainty with respect to the long- term sustainability of the bank's sizeable related-party funding. PB is strongly capitalized, as expressed by its solid 31% FCC ratio at end-2015. In Fitch's view, PB is unlikely to consume this large capital buffer in the near-term given moderate growth plans (and limited actual growth in 1H16) and manageable loan impairment to date. According to PB's unconsolidated regulatory disclosures NPLs were around 9% of gross loans at end-2015 while restructured loans added a further 6%; however, the former ratio was supported by significant write-offs in 2015, equal to 6% of average loans. The major downside risk to asset quality stems from PB's foreign currency loans (51% of the portfolio, or 1.2x end-2015 FCC), although some of PB's largest borrowers may benefit from access to foreign currency revenue or state support. The bank's unconsolidated regulatory accounts show a rise in NPLs to 11% at end-4M16. PB's 2015 profitability was largely supported by one-off gains, including an AZN13 million translation gain and a AZN5.5 million gain on FX derivatives. Fitch estimates that net of these gains PB would have been marginally above break-even in 2015. PB's performance on the pre-impairment level is undermined by significant accrued interest income (AZN11.3 million or 16% of 2015 pre-impairment profit) but remains reasonable. Fitch estimates that PB's core pre-impairment profit in 2015 equalled to a sizable 6.7% of average gross loans (this may have reduced to around 5% in 1H16 according to PB's management accounts). PB's total available liquidity, net of potential wholesale debt repayments, comfortably covered around 62% of the bank's end-1H16 customer accounts. However, this should be viewed against significant related-party funding (around 51% of end-2015 liabilities) and high single name concentration of liabilities (at end-2015 the three largest customers contributed 26% of total liabilities). RATING SENSITIVITIES IDRS, SRs AND SRFs The Negative Outlooks on both banks reflect that on the sovereign. Accordingly, the support-driven IDRs on the banks will likely be downgraded in case of the sovereign and the Country Ceiling being downgraded. Conversely, a revision of the Outlook on the sovereign to Stable will likely result in a similar action on the banks. Downside pressure on the banks' IDRs could also result from a potential weakening of support from the sovereign (for PB) or from IFI shareholders (for AB), although Fitch views this unlikely in the near-term. Upside for PB, implying a reduction of the notching between the bank's ratings and that of the sovereign, is limited at present. However, (i) further development of PB's franchise resulting in a marked increase in the bank's systemic importance; or (ii) improvements in the track record of sovereign support for the banking sector as a whole would be credit-positive. VRs Negative pressure on the VRs could stem from significant asset quality deterioration at either of the banks, if this results in significant erosion of the capital base. These risks are markedly higher for AB given its higher share of foreign currency- denominated loans, and a smaller capital buffer. Upside for the banks' VRs is limited given the weak outlook for the broader economy. However, stabilization of economic performance and of the banks' asset quality metrics would reduce downward pressure on their VRs. The rating actions are as follows: AccessBank -- Long-Term IDR: affirmed at 'BB+'; Outlook Negative -- Short-Term IDR: affirmed at 'B' -- Viability Rating: downgraded to 'b+' from 'bb-' -- Support Rating: affirmed at '3' Pasha Bank -- Long-Term IDR: affirmed at 'BB-'; Outlook Negative -- Short-Term IDR: affirmed at 'B' -- Viability Rating: affirmed at 'b+' -- Support Rating: affirmed at '3' -- Support Rating Floor: affirmed at 'BB-' ============= C R O A T I A ============= BADEL 1862: Meteor Acquires 67.5% Pre-Bankruptcy Claims ------------------------------------------------------- SeeNews reports that Croatian chemical products producer Meteor has acquired over 67.5% of the claims registered in the pre-bankruptcy settlement procedure of local alcoholic and soft drinks producer Badel 1862, allowing it alone to make a decision on the company's financial and operational restructuring. Badel 1862 said in a statement filed with the Zagreb Stock Exchange that Meteor has purchased over two thirds of all claims held by Badel creditors and hence gained control over the company's pre-bankruptcy settlement, SeeNews relates. In May, Badel 1862 said it has received letters of intent in a strategic partnership tender from Meteor, Zagreb-based trade company Ostrc, Split-based Stanic Grupa and Slovakia's largest producer of spirit drinks St. Nicolaus, SeeNews recounts. The company was due to hold a session Sept. 7 to make a final decision on its future strategic investor, SeeNews discloses. ============= I R E L A N D ============= M&J WALLACE: Three Banks Recoup EUR5MM From Asset Receiverships --------------------------------------------------------------- Gordon Deegan at Irish Examiner reports that three banks have recouped nearly EUR5 million, between them, from the receivership of assets formerly owned by M&J Wallace, the main building arm of independent TD Mick Wallace. Documents recently filed with the Companies Office show ACC Bank, Bank of Scotland (Ireland) and AIB have received a combined EUR4.8 million to date from the receivership of the assets, Irish Examiner relates. The first bank to move against the firm was ACC, which appointed receiver, Declan Taite to Wallace properties in May 2011, Irish Examiner discloses. It is understood Mr. Wallace's firm owed ACC around EUR20 million, Irish Examiner notes. The Wexford TD has admitted he owed EUR40 million to various banks, Irish Examiner relays. The documents show ACC Bank has, to date, received EUR2.65 million from the sale and rent of M&J Wallace properties, Irish Examiner states. In 2011, Mr. Taite was appointed as receiver to company assets at the Italian Quarter on Dublin's Ormond Quay, the Behan Square apartment complex on Russell Street near Croke Park, and to development land in Rathgar, Irish Examiner recounts. Tom Kavanagh -- tkavanagh@deloitte.ie -- of Deloitte was appointed by Bank of Scotland (Ireland) as receiver to other assets owned by M&J Wallace in September 2013, Irish Examiner relays. Documents filed by Mr. Kavanagh show Bank of Scotland (Ireland) Ltd. has received EUR977,134 from the EUR1 million in receipts he received, according to Irish Examiner. Separate documents lodged by a third receiver, Gerry McInerney show AIB received EUR1.19 million from the receivership of a number of M&J Wallace assets, Irish Examiner discloses. ========= I T A L Y ========= GE CAPITAL: Moody's B2 LT Deposit Rating on Review for Downgrade ---------------------------------------------------------------- Moody's Investors Service has placed GE Capital Interbanca S.p.A.'s B2 long-term deposit rating on review for downgrade, following the announcement that its parent GE Capital International Holdings Limited (unrated), a subsidiary of General Electric Company (GE, senior unsecured A1) will sell its 99.99% share of Interbanca to Banca IFIS (unrated). At the same time, the rating agency put Interbanca's standalone caa1 baseline credit assessment (BCA) and adjusted BCA on review for upgrade, while Interbanca's B1(cr) long-term Counterparty Risk Assessment was put on review with direction uncertain. Moody's said that the review for upgrade of the caa1 BCA and adjusted BCA reflects the potential for improvements in the bank's fundamentals following the transaction, as well as the possibility of extraordinary support from its new owner. Nevertheless, the B2 long-term deposit rating was placed on review for downgrade, because the funding structure of the new banking group once Interbanca is consolidated into Banca IFIS's accounts would likely result in a higher loss-given-failure for junior depositors than currently. This is because GE currently provides substantial funding to Interbanca through its subsidiaries; this group funding is bail-in-able in resolution and would therefore benefit wholesale depositors; however, the transaction will see this replaced with more senior retail deposits and secured funding. The deposit rating is on review for downgrade, as the negative impact deriving from higher loss- given-failure is unlikely to be offset by an upgrade of the adjusted BCA. During the review period Moody's will further the potential for the transaction to enhance the creditworthiness of Interbanca. Moody's said that the review will likely conclude following regulatory approval of the transaction, which Interbanca and Banca IFIS expect by year-end. RATINGS RATIONALE -- EXPECTATIONS OF SUPPORT FROM BANCA IFIS DRIVES REVIEW FOR UPGRADE ON BCA AND ADJUSTED BCA Moody's said that the review for upgrade on Interbanca's caa1 BCA and adjusted BCA reflects potential benefits deriving from the acquisition by Banca IFIS. Banca IFIS has announced that it will substitute GE's long-term funding, which was relatively costly, with a combination of Banca IFIS's excess deposits and securitizations, which will likely reduce the cost of funding; this would improve Interbanca's profitability whilst maintaining a stable funding profile. Moody's expects Banca IFIS to be committed to providing support to Interbanca, as shown by Banca IFIS's plan to merge the two legal entities by the end of 2018. Banca IFIS is significantly smaller than GE, and its creditworthiness is likely to be weaker than GE's (GE's senior unsecured rating is A1, whilst the average Italian senior unsecured bank rating is Ba1). However, Moody's had already eliminated potential extraordinary support from GE as a source of ratings uplift for Interbanca, given GE's intention to sell. Following the acquisition by Banca IFIS, the likely increased probability of support from the new shareholder will be credit positive for Interbanca; Moody's will assess during the review period the possibility that this could result in some uplift via affiliate support to the adjusted BCA and hence Interbanca's ratings. -- BANCA IFIS'S FUNDING PLAN FOR INTERBANCA INDICATES HIGHER LOSS-GIVEN-FAILURE Notwithstanding the potential for improvements to Interbanca's standalone BCA and support from its new parent, the new group's funding structure will likely result in high loss-given-failure for wholesale depositors, which would more than offset the lower probability of failure. Currently Interbanca's deposit rating benefits from very low loss-given-failure, which results in a two-notch uplift for the long-term deposit rating. In resolution, corporate depositors would rank pari passu with funding from the GE group, which stood at EUR2.4 billion as at December 2015; this compares with just EUR0.2 billion corporate deposits. According to Banca IFIS's announcement, GE's funding will be substituted by resources that will rank senior to corporate depositors in resolution: excess liquidity at Banca IFIS, which is mostly generated by interbank repos or retail deposits, additional retail deposits, and asset-based funding. This would disadvantage corporate depositors as they would no longer benefit from the loss absorption offered by GE's funding, exposing them to greater loss-given-failure. -- COUNTERPARTY RISK ASSESSMENT IS ON REVIEW WITH DIRECTION UNCERTAIN Moody's said it put Interbanca's B1(cr) Counterparty Risk Assessment (CR Assessment) on review with direction uncertain. The CR Assessment, which is not a rating, reflects an issuer's probability of defaulting on certain bank operating liabilities, such as covered bonds, derivatives, letters of credit and other contractual commitments. In Moody's judgment, the Interbanca's CR Assessment is likely to be less affected than the bank's deposits by its changing liability structure, and the potentially higher adjusted BCA may more than offset this, leading to an upgrade of one notch. However, if the adjusted BCA were not upgraded, then the CR Assessment would likely be downgraded. Moody's considers that the probabilities that Interbanca's CR Assessment is upgraded, confirmed, or downgrade, are broadly equal. FACTORS THAT COULD LEAD TO AN UPGRADE Moody's said Interbanca's BCA could be upgraded following a substantial reduction of the very high stock of problem loans and a return to a sustainable level of profitability, if the bank's capitalization were broadly maintained. The adjusted BCA could be upgraded following an upgrade of the BCA; the adjusted BCA could also be upgraded if, following the acquisition by Banca IFIS, our analysis shows that Banca IFIS has sufficient capacity and willingness to provide additional support to Interbanca in case of need. An upgrade of the long-term deposit ratings is unlikely at the moment, as indicated by the current review for downgrade. FACTORS THAT COULD LEAD TO A DOWNGRADE A downgrade of Interbanca's BCA and adjusted BCA is unlikely, as indicated by the current review for upgrade. Interbanca's long-term deposit rating could be downgraded if the planned liability structure results in an increased loss-given- failure, which is not offset by a higher standalone rating and the potential for support from Banca IFIS. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks published in January 2016. LIST OF AFFECTED RATINGS Issuer: GE Capital Interbanca S.p.A Placed on Review for Downgrade: Long-term Deposit Ratings, currently B2, outlook changed to Rating Under Review from Stable Placed on Review for Upgrade: Adjusted Baseline Credit Assessment, currently caa1 Baseline Credit Assessment, currently caa1 Placed on Review Direction Uncertain: Long-term Counterparty Risk Assessment, Placed on Review Direction Uncertain, currently B1(cr) Affirmations: Short-term Counterparty Risk Assessment, affirmed NP(cr) Short-term Deposit Ratings, affirmed NP Outlook Actions: Outlook changed to Rating Under Review from Stable WIND TELECOMUNICAZIONI: Fitch Affirms B+ LT Issuer Default Rating ----------------------------------------------------------------- Fitch Ratings has affirmed Wind Telecomunicazioni S.p.A's (WIND) Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. Fitch has simultaneously upgraded WIND's instrument ratings. The rating actions reflect that the proposed merger of WIND and 3 Italia should result in an enlarged entity with a stronger operating profile and lower leverage. Greater scale from a higher mobile market share should improve the company's ability to compete. A 'BB-' rating for the merged entity is possible over the medium term as the integration process is completed and leverage falls. CK Hutchison Holdings Ltd. (A-/Stable), parent company of Italian mobile operator 3 Italia, and VimpelCom Ltd. (BB+/Stable), parent company of WIND, received regulatory clearance to form a 50/50 joint venture (JV) of their telecommunication businesses in Italy on 1 September 2016. KEY RATING DRIVERS Stronger Strategic Position in the Italian Market A merger of WIND and 3 Italia will create a stronger operator in the Italian market. The new company will control slightly above one-third of the country's mobile subscribers and revenues, making it a closer peer for Vodafone (BBB+/Stable) and Telecom Italia (BBB-/Stable), both of which also have approximately one- third of the market. The enlarged company is likely to significantly benefit from its larger scale. It will be able to increase the absolute size of its infrastructure capex, which would allow it to quicker patch the current gap in terms of LTE coverage and improve the quality of its network. It will be better positioned to compete in the corporate segment, the so far almost uncharted territory for both merging operators. Its larger size will also make it easier to absorb the financial impact of future spectrum investments, including potentially into 700 MHz frequencies that are likely to become available after 2020. Unlikely Disruptive Impact Of New Operator Iliad agreed to launch a new facilities-based operator in Italy, but is unlikely to become a fiercely disruptive player in this market, in our view. After years of intense pricing wars in Italy, the current mobile average revenues per user are already among the lowest in Europe, limiting the scope for further pricing pressure. The new operator will need to address issues of low brand recognition and the lack of own distribution platform. Its fixed-mobile bundling options will be limited as it will depend on fixed-line infrastructure providers for non-mobile service elements of its bundles. However, the visibility of Iliad's strategic plans in the Italian market remains low, which increases market risk for all operators. Significant Synergies The combination of WIND and 3 Italia should result in significant synergies, with a likely positive impact on margins over the next three years. With integration costs estimated at significantly below the targeted opex synergies run-rate, a positive impact on EBITDA generation is likely to be achieved in the next one to two years. In addition, management expects capex synergies of approximately EUR200m per year. However, their net impact on cash flow may be dwarfed by the intention to increase absolute capex spend to around EUR7bn in the coming years. Management is targeting EUR700m of opex and capex savings per year (before tax and integration costs) with 30% relating to capex and 70% to opex, 90% of which should be realised by the third year after the deal closing. Substantial Remedy Proceeds The agreed merger remedies package will bring in substantial one- off proceeds and additional revenue for the use of the JV's infrastructure and roaming over the next three to five years. These proceeds will be a significant contributor to the JV's deleveraging. Iliad has agreed to acquire a spectrum portfolio for EUR450m with payments phased across 2017-2019. It has also made an undertaking to acquire or lease a few thousand mobile towers for an undisclosed amount. Iliad has also entered into a renewable five- year roaming agreement for the use of the JV's network. Taking into account that proprietary infrastructure roll-out is likely to take time, the new operator will initially heavily depend on the JV to carry voice and data traffic, implying substantial additional revenues for the JV. Loss of Parental Support WIND'S ratings no longer reflect shareholder support from Vimpelcom as strategic incentives for support have significantly diminished. Vimpelcom's shareholder interest is being diluted to 50% and any decisions regarding WIND need to be coordinated with the other shareholder. JV will have a stronger operating and leverage profile than WIND standalone, and its creditworthiness is less sensitive to expectations of shareholder support. Improved Leverage "We expect the JV's leverage to significantly improve after the merger, compared with WIND'S net debt/EBITDA of 5.9x and funds from operations (FFO) adjusted net leverage of 6.6x at end-2015. The enlarged operator will have a better deleveraging capacity primarily driven by the gradual realization of its expected opex synergies. Targeted opex synergies in the range of EUR500 million are equal to almost a quarter of combined Wind/3 Italia EBITDA in 2015. The JV is likely to have more stable free cash flow (FCF) generation than Wind on a standalone basis, with FCF margin forecast by Fitch in the low-single digit range." Fitch said. "We project that the JV's leverage may improve to approximately 4.5x net debt/EBITDA and FFO adjusted net leverage slightly above 5x by end-2017, assuming moderate lease payments by 3 Italia. The largest positive impact on leverage will be from 3 Italia's EBITDA, which will be contributed to the JV on a debt-free basis. Additionally, 3 Italia's shareholders have agreed to inject EUR200 million of cash, which will reduce leverage by 0.1x. Expected spectrum divestment proceeds are equal to 0.2x of combined Wind/3Italia EBITDA. We expect that the enlarged operator would benefit from organic revenue stabilization, with merger synergies leading progressively to EBITDA margin and cash flow improvement." Fitch said. "We forecast that the JV's leverage may improve to a level inside the threshold required for an upgrade by the end of 2019. Management has a long-term net debt/EBITDA target of 3.0x for the enlarged entity." Fitch said. Debt Structure After Closing WIND's instrument ratings have been upgraded reflecting the company's stronger IDR on a standalone basis, i.e. without parental support. Fitch said, "We do not expect that the proposed merger will trigger any change of control clauses of WIND's debt, nor will bond holders' consent be required for WIND's debt to be transferred to the merged entity." However, under the terms of the proposed merger, WIND's existing debt will not immediately benefit from any guarantees from the combined entity. Therefore, Fitch's recovery expectations for WIND's instruments only reflect assets that are owned by WIND. The approach to recovery calculations may change depending on the financial and legal integration of the two companies once the deal has closed. Management plans to merge all assets into a single legal entity shortly after the deal closes. Fitch said, "In particular, we will examine how the company's legal structure is adjusted so that existing debt holders benefit from the entire cash flow of the enlarged entity, as well as the terms of the subordinated shareholder loans from the JV's holding company to the operating subsidiaries." No Refinancing Exposure Before 2019 WIND does not face any significant refinancing exposure before 2019 when EUR700m of its debt becomes due. Fitch said, "We expect the company to generate sufficient internal cash flow to finance its capex, with any liquidity gaps covered by undrawn EUR400m RCF with a maturity in 2019." KEY ASSUMPTIONS Fitch's key assumptions within the rating case for WIND include the following: -- Successful completion of the merger of WIND and 3 Italia -- Flat organic mobile revenue in 2017-2019 -- Mid- to low-single digits revenue decline in fixed-line segment in 2016 and 2017 with stabilization from 2018 -- EBITDA margin in the range of 32-35% in 2017-2019 -- No dividends in 2016 and 2017 -- Zero profit tax in 2017-2019 on the back of tax loss carry- forward -- Capex of EUR1.4bn per year in 2017-2019 RATING SENSITIVITIES Positive: Future developments that may individually or collectively lead to positive rating action include: -- FFO adjusted net leverage sustainably below 4.8x, driven by the successful integration of WIND and 3 Italia. Negative: Future developments that may individually or collectively lead to negative rating action include: -- A deterioration in leverage beyond FFO adjusted net leverage sustainably above 5.5x. -- Continuing operating and financial pressures leading to negative FCF generation. FULL LIST OF RATING ACTIONS Wind Telecomunicazioni S.p.A. -- Long-Term IDR: affirmed at 'B+'; Stable Outlook -- Short-Term IDR: affirmed at 'B' -- Senior credit facilities: upgraded to 'BB'/'RR2' from 'BB- '/'RR2' Wind Acquisition Finance S.A. -- Senior secured fixed and floating 2020 notes: upgraded to 'BB'/'RR2' from 'BB-'/'RR2' -- Senior unsecured 2021 notes: upgraded to 'B'/'RR5' from 'B-'/'RR5' =================== L U X E M B O U R G =================== MINERVA LUXEMBOURG: S&P Assigns 'BB-' Rating to Sr. Unsec. Notes ---------------------------------------------------------------- S&P Global Ratings assigned its 'BB-' issue-level rating to Minerva Luxembourg S.A.'s proposed senior unsecured notes due 2026. S&P also assigned the recovery rating of '3' to the debt, indicating a meaningful recovery expectation (50%-70%; in the lower band of the range) under a hypothetical default scenario. The parent company, Minerva S.A. (BB-/Positive/--), will fully guarantee the notes, and net leverage impact is expected to be neutral because the company intends to use the proceeds to cover a cash tender offer for any and all of the 2023 outstanding notes and other short-term debt pre-payments. In this scenario, S&P continues to forecast the company's funds from operations to debt improving close to 20% and debt to EBITDA below 3x over the next few years, while Minerva maintains its strong liquidity. RATINGS LIST Minerva S.A. Corporate Credit Rating BB-/Positive/-- Rating Assigned Minerva Luxembourg S.A. Senior Unsecured BB- Recovery Rating 3L ===================== N E T H E R L A N D S ===================== VIMPELCOM LTD: Fitch Says Impact of Wind-3 Italia Merger Neutral ---------------------------------------------------------------- Fitch Ratings says the impact of a merger of Vimpelcom's Wind and Hutchison's 3 Italia and deconsolidation of Wind's results from Vimpelcom's financial reporting is largely neutral for Vimpelcom's credit profile as Fitch has always excluded Wind from its analysis of the Vimpelcom group. Fitch has calculated Vimpelcom's leverage metrics without Wind because the entity is ring-fenced and its default would not trigger a default by the parent. Cash flow from the entity has been restricted by the terms of Wind's loan and bond documentation. CK Hutchison Holdings Ltd. (A-/Stable), parent company of Italian mobile operator 3 Italia, and VimpelCom Ltd. (BB+/Stable), parent company of Wind (B+/Stable), received regulatory clearance to form a 50/50 joint venture (JV) of their telecommunication businesses in Italy on 1 September 2016. "We have never expected Vimpelcom to provide significant shareholder support to Wind, and estimated any potential impact on the parent's leverage as modest." Fitch said. Vimpelcom was likely to extend liquidity support on an as necessary basis or make modest equity injections to facilitate Wind's refinancing efforts, but we have always assumed that a large-scale bail-out was a remote possibility. The new JV will have a stronger credit profile than Wind on a standalone basis, and be much less dependent on any additional parental contributions. Vimpelcom's equity interest in the JV has been diluted to 50%, reducing economic incentives for providing shareholder support. Fitch said, "We no longer expect that Vimpelcom would need to extend any additional shareholder support to the JV." Any significant dividends from Wind are unlikely in the short to medium term. Management estimates that the JV's leverage will be close to 5x net debt/EBITDA after the deal closes, and it expects to start paying dividends once leverage drops to below 4x, a covenanted threshold. Rapid deleveraging seems unlikely as management plans to increase network investments, with Vimpelcom guiding for EUR7bn investments in Italy over the next five years. Vimpelcom's rating continues to be driven by its stable operating performance outside Italy, and most notably in Russia, while its cash flow and leverage profile is sensitive to foreign currency exchange movements. Management expects leverage to approach 2x net debt/EBITDA by end-2016, an increase driven by an acquisition of Warid in Pakistan and emerging markets currencies' weakness. "We estimate that Vimpelcom's leverage at the end of 2016 may approach or slightly exceed Fitch's defined downgrade threshold 2.25x net debt/EBITDA." Fitch said. This is with Wind and the Algerian operations deconsolidated by Fitch but reflecting their regular dividend contributions to Vimpelcom (Wind has not paid any dividends so far). Vimpelcom's current deleveraging capacity is supported by its low dividends. This may be compromised if the company restarts paying higher shareholder remuneration. Management has announced that the closing of the Wind/3 Italia merger could be a major milestone, triggering a dividend policy review no later than in early 2017. A failure to maintain leverage below our downgrade threshold on a sustainable basis, whether due to higher shareholder payouts or weaker than anticipated operational performance, may put pressure on Vimpelcom's ratings. =========== R U S S I A =========== MOSTOTREST PJSC: Moody's Withdraws Ba3 Corporate Family Rating -------------------------------------------------------------- Moody's Investors Service has withdrawn Mostotrest PJSC's Ba3 Corporate Family Rating and Probability of Default Rating of Ba3-PD. At the time of the withdrawal the company's ratings carried a stable outlook. RATINGS RATIONALE Moody's has withdrawn the rating for its own business reasons. NOVIKOMBANK: Moody's Confirms B2 Ratings, Outlook Developing ------------------------------------------------------------ Moody's Investors Service has confirmed the B2 long-term local and foreign currency deposit ratings and the caa1 baseline credit assessment (BCA) of Novikombank. At the same time, the rating agency has affirmed its short-term deposit ratings of Not-Prime and confirmed its Adjusted BCA of caa1. Moody's has also confirmed the bank's long term Counterparty Risk Assessment of B1(cr) and affirmed the short term assessment at Not-Prime(cr). All ratings carry a developing outlook. These actions conclude the rating reviews initiated by Moody's on May 23, 2016. RATINGS RATIONALE The confirmation of Novikombank's BCA of caa1 is supported by the stabilization of the bank's capital profile following the implementation of the recapitalization program by the bank's core shareholder state-controlled corporation Russian Technologies (RosTech, unrated), as well as the accumulation of a full support package associated with the financial rehabilitation of consolidated Fundservicebank. Novikombank's deposit ratings of B2 incorporate Moody's assessment of a high probability of government support in case of need, owing to Novikombank's strategic importance to RosTech, which consolidated 100% ownership in the bank in July 2016. In January-July 2016, Novikombank managed to increase its consolidated core capital by around RUB44 billion, including: -- RUB1.8 billion Tier 1 capital injection; -- RUB10.9 billion cash and non-cash financial aid from RosTech; -- RUB12.8 billion Tier 1 capital converted from Tier 2 debt; and -- RUB18.4 billion one-off gains from initial recognition of 10-year RUB27 billion Tier 2 deposit from State Space Corporation ROSCOSMOS, which was received by Fundservicebank under 0.51% per annum. The rating agency considers these steps to be sufficient to replenish Novikombank's equity back into the positive zone from negative RUB13.7 billion as at Jan. 1, 2016, which was mainly driven by high credit costs. However, the bank's asset quality metrics continued to erode in January-July 2016. In accordance with local GAAP accounts, overdue over one day facilities more than doubled over the period and accounted for 29% of the gross loan book as at Aug. 1, 2016. Loan book deterioration will require further provisioning both under local GAAP and IFRS accounts, which will dilute the positive effect from the executed recapitalization. Although Novikombank's shareholder announced a further capital replenishment program of another RUB28 billion, there is a risk that new problem loans may materialize which are not covered by the approved support package, as well as a possibility of capital injection delays owing to legal and regulatory complexity. Moody's assessment of Novikombank's ratings is based primarily on the bank's audited financial statements for 2015 prepared under IFRS, its unaudited financial statements for 2016 year-to-date prepared under local GAAP, as well as information received from the bank. RATIONALE FOR THE DEVELOPING OUTLOOK The developing outlook reflects the balance between Novikombank's future capital replenishment program and the possibility of further deterioration in the bank's asset quality and profitability metrics. WHAT COULD CHANGE THE RATING UP/DOWN Novikombank's deposit ratings could be upgraded if the bank manages to stabilise its asset quality metrics and succeed in attracting new Tier 1 capital in line with the approved by the RosTech programme. The rating agency could downgrade Novikombank's ratings if the bank fails to attract new capital sufficient to balance existing asset risks, and/or if its currently performing loan book delivers higher-than-expected credit costs, resulting in further erosion of the bank's capital profile. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks published in January 2016. ========= S P A I N ========= MADRID AEROSPACE: ST Engineering Liquidates Business ---------------------------------------------------- Singapore Technologies Engineering Ltd.'s (ST Engineering) aerospace arm, Singapore Technologies Aerospace Ltd. (ST Aerospace) on Sept. 5 disclosed that its 50%-owned associated company, Madrid Aerospace Services S.L. has been liquidated. Consequently, Madrid Aerospace Services has ceased to be an associated company of ST Aerospace. The liquidation of Madrid Aerospace Services, which is based in Madrid, Spain, is result of ongoing business review on the Group's landing gear strategy to streamline capabilities and optimize resources within the aerospace sector. Madrid Aerospace Services is a joint venture between ST Aerospace and Iberia Maintenance, the technical division of Spain's Iberia Airlines. Located in Madrid, Spain, the business specializes in the repair and overhaul of landing gear systems and components. The liquidation of Madrid Aerospace Services is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year. ST Aerospace (Singapore Technologies Aerospace Ltd) -- http://www.staero.aero-- is the aerospace arm of ST Engineering with a revenue of $2.09b in FY2015. Operating a global MRO network with facilities and affiliates in the Americas, Asia Pacific and Europe, it is the world's largest commercial airframe MRO provider with a global customer base that includes leading airlines, airfreight and military operators. ST Aerospace is an integrated service provider that offers a spectrum of maintenance and engineering services that include airframe, engine and component maintenance, repair and overhaul; engineering design and technical services; and aviation materials and asset management services, including Total Aviation Support. ST Aerospace has a global staff strength. ST Engineering (Singapore Technologies Engineering Ltd.) -- http://www.stengg.com-- is an integrated engineering group providing solutions and services in the aerospace, electronics, land systems and marine sectors. Headquartered in Singapore, the Group reported revenue of $6.34b in FY2015 and ranks among the largest companies listed on the Singapore Exchange. It is a component stock of the FTSE Straits Times Index, MSCI Singapore and the SGX Sustainability Leaders Index. ST Engineering has about 23,000 employees worldwide, and over 100 subsidiaries and associated companies in 46 cities across 24 countries. =========================== U N I T E D K I N G D O M =========================== DUKINFIELD II PLC: Moody's Assigns (P)Ba3 Rating to Class E Notes ----------------------------------------------------------------- Moody's Investors Service has assigned provisional long-term credit ratings to Notes to be issued by Dukinfield II PLC: Class A Mortgage Backed Floating Rate Notes due (Dec. 2052), Assigned (P) Aaa (sf) Class B Mortgage Backed Floating Rate Notes due (Dec. 2052), Assigned (P) Aa1 (sf) Class C Mortgage Backed Floating Rate Notes due (Dec. 2052), Assigned (P) A1 (sf) Class D Mortgage Backed Floating Rate Notes due (Dec. 2052), Assigned (P) Baa3 (sf) Class E Mortgage Backed Floating Rate Notes due (Dec. 2052), Assigned (P) Ba3 (sf) Moody's has not assigned ratings to the Class F Mortgage Backed Floating Rate Notes due (December 2052) and Class Z Certificates due (December 2052). The portfolio backing this transaction consists of UK non- conforming residential loans originated by multiple lenders: GMAC-RFC Limited (currently known as Paratus AMC Limited, [65.7]% of the loans), Dukinfield Mortgages Limited (not rated, formerly known as Future Mortgages Limited, [14.2]% of the loans), Mortgages 1 Limited (not rated, [11.2]% of the loans), Edeus Mortgage Creators Limited (not rated, [2.8]% of the loans), Wave Lending Limited (not rated, [2.4]% of the loans), Rooftop Mortgages Limited (not rated, [2.0]% of the loans), Southern Pacific Mortgages Limited (not rated, [0.7]% of the loans), Amber Homeloans Limited (not rated, [0.5]% of the loans), Platform Funding Limited (not rated, [0.4]% of the loans , Citibank Trust Limited (not rated), Citibank International Limited (A1, formerly known as Citibank International Plc) and Citifinancial Europe Plc (not rated, formerly known as Associates Capital Corporation plc). On the closing date Drake Recoveries Sarl will sell the portfolio to Dukinfield II PLC. RATINGS RATIONALE The ratings take into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Credit Enhancement (CE) and the portfolio expected loss, as well as the transaction structure and legal considerations. The expected portfolio loss of [7.0]% and the MILAN CE of [30]% serve as input parameters for Moody's cash flow model, which is based on a probabilistic lognormal distribution. The portfolio expected loss of [7.0]%: this is higher than other recent UK non-conforming securitizations and is based on Moody's assessment of the lifetime loss expectation taking into account: (i) the number of loans in arrears at closing including the performance of the pool since January 2011 ([27.8]% of the pool is in arrears as of the end of June 2016, of which [16.9]% is more than 30 days in arrears), (ii) the weighted average current LTV of [84.8]% , (iii) the originator limited historical performance information, (iv) the current macroeconomic environment and our view of the future macroeconomic environment in the UK, and (v) benchmarking with similar transactions in the UK non-conforming sector. The MILAN CE for this pool is [30]%: this is higher than the UK non-conforming sector average and follows Moody's assessment of the loan-by-loan information taking into account the historical performance and the following key drivers: (i) the high weighted average current LTV of [84.8]%, (ii) relatively high balance of loans to self-certified borrowers ( [45.9]% of the pool), (iii) the presence of borrowers with bad credit history ([21.9]% of the pool containing borrowers with CCJ's); (iv) the exposure to interest only loans ([89.9%] of the pool), (v) the weighted average seasoning of the pool of [9.0] years and (vi) the level of arrears (around [27.8]% as of the end of June 2016). At closing the mortgage pool balance consists of GBP [320.6] million of loans. The reserve fund is funded to [2.5]% of the initial mortgage pool balance and will build up to [3.0]% of the initial mortgage pool balance through the accumulation of excess spread. The general reserve fund will be split into a liquidity ledger (the Class A Note Liquidity Reserve Sub-Ledger) and a credit ledger. At closing, the liquidity ledger will be sized at [1.0]% of the Class A notes and will amortize with the Class A notes. As the Class A notes amortize the credit ledger will be sized as the difference between the general reserve fund and the liquidity ledger. Operational Risk Analysis: Pepper (UK) Limited is acting as servicer and is not rated by Moody's. In order to mitigate the operational risk, the transaction has a back-up servicer facilitator (Structure Finance Management Limited (Not rated)); Homeloan Management Limited (Not rated) is acting as back-up servicer and Elavon Financial Services Limited (UK Branch), is acting as an independent cash manager from close. To ensure payment continuity over the transaction's lifetime the transaction documents incorporate estimation language whereby the cash manager can use the three most recent servicer reports to determine the cash allocation in case no servicer report is available. Class A notes benefit from principal to pay interest, a dedicated Class A Liquidity Reserve Fund and the Reserve Fund. Together both reserves provide the Class A notes with the equivalent of [2] quarters of liquidity assuming a LIBOR rate of 5.7%. Interest Rate Risk Analysis: The transaction is unhedged with [46.4]% of the pool balance linked to Bank of England Base Rate (BBR), [44.3]% linked to three-month LIBOR, [7.1] SVR-linked loans, [2.0]% linked to one month-LIBOR. Moody's has taken the absence of basis swap into account in its cashflow modeling. The provisional ratings address the expected loss posed to investors by the legal final maturity of the Notes. In Moody's opinion, the structure allows for timely payment of interest with respect to Class A Notes, ultimate payment of interest to Class B to E Notes and ultimate payment of principal with respect to Class A to E Notes by legal final maturity. Moody's issues provisional ratings in advance of the final sale of securities, but these ratings represent only Moody's preliminary credit opinions. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavor to assign definitive ratings to the Notes. A definitive ratings may differ from a provisional ratings. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors. Moody's Parameter Sensitivities: If the portfolio expected loss was increased from [7.0]% to [10.5]% of current balance, and the MILAN CE was increased from [30]% to [36]%, the model output indicates that the Class A notes would still achieve (P) Aaa (sf) assuming that all other factors remained equal. Moody's Parameter Sensitivities quantify the potential rating impact on a structured finance security from changing certain input parameters used in the initial rating. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might change over time, but instead what the initial rating of the security might have been under different key rating inputs. Moody's Parameter Sensitivities provide a quantitative/model- indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model. The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in January 2015. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Significantly different loss assumptions compared with our expectations at close due to either a change in economic conditions from our central scenario forecast or idiosyncratic performance factors would lead to rating actions. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in downgrade of the ratings. Deleveraging of the capital structure or conversely a deterioration in the notes available credit enhancement could result in an upgrade or a downgrade of the ratings, respectively. LONDON WELSH: Avoids Liquidation, US Group to Take Over ------------------------------------------------------- BBC reports that London Welsh have avoided liquidation after paying their debts, and are now set to be taken over by a United States-based investment group. A winding-up petition was dismissed by the High Court on Sept. 5, BBC relates. The brief hearing in London revealed an undisclosed amount of money owed to Her Majesty's Revenue and Customs had been paid by the Exiles, BBC discloses. According to BBC, a club statement said the takeover had been agreed, subject to the approval of the Rugby Football Union. Welsh -- one of England's oldest clubs, having been formed in 1885 -- said the financial security provided by the unnamed California-based group would allow the club "to plan for the future with confidence and renewed enthusiasm", BBC relays. OXFORD CITY: Averts Liquidation Following Tax Bill Payment ---------------------------------------------------------- Oxford Mail reports that Oxford City has survived liquidation by paying off an outstanding tax bill at the "last-minute." The club had been summoned to the High Court faced with a winding up order which could have seen them go out of business, Oxford Mail relates. A club spokesman told the Oxford Mail: "We had an outstanding HMRC payment that the club has now paid off. "It was paid off at the last minute, and the day before the winding up order and there was no way of cancelling the hearing." The club also confirmed it was in talks with "three or four" potential investors, Oxford Mail discloses. RAME ENERGY: Mulls Sale of Operations Following Administration -------------------------------------------------------------- Stephen Farrell at Insider Media Limited reports that a potential sale of Rame Energy and its subsidiaries could be in the offing following its administration last month. The business, which specializes in wind and solar power projects with a particular focus on Chile, blamed the EU referendum result and "difficult market conditions" for problems raising funds, Insider Media relates. Andrew Beckingham -- andrew.beckingham@leonardcurtis.co.uk -- and Colin Prescott -- colin.prescott@leonardcurtis.co.uk -- of Leonard Curtis Recovery were appointed as joint administrators of Rame Energy plc on August 4, 2016, Insider Media recounts. According to Insider Media, the administrators have now prepared a formal statement of proposals for the business. Talks have taken place with existing shareholders and other shareholders regarding new investment in either recapitalizing the group or the acquisition of subsidiary businesses Chile and the UK, Insider Media relays. They have now entered into an exclusivity period with a potential purchaser for interests in the subsidiaries based in Chile and are "continuing to advance discussions" regarding the sale of UK operations, Insider Media discloses. There may also be the potential for a company voluntary arrangement (CVA) to be put to creditors of the company for consideration alongside a possible sale of assets, Insider Media notes. If this is not possible, the administrators have said there could be a dividend paid to unsecured creditors, owed GBP4.4 million, through realizations from asset sales, Insider Media states. Rame Energy is a Plymouth-based renewable energy company. TURNSTONE MIDCO: Fitch Cuts LT IDR to 'B'; Removes from Watch Neg ----------------------------------------------------------------- Fitch Ratings has downgraded Turnstone Midco 2's (Turnstone) Long-Term Issuer Default Rating to 'B' from 'B+' and removed it from Rating Watch Negative. The Outlook is Stable. The downgrade follows the completion of IDH Finance PLC's issue of GBP425 million new senior notes, to which we have assigned a final senior secured rating of 'B+' with a Recovery Rating of 'RR3'. "We have also assigned a final rating of 'BB' with a Recovery Rating of 'RR1' to the GBP100 million super senior revolving credit facility (RCF) with recourse to Turnstone." Fitch said. These rating actions are in line with the agency's expectations as detailed in the Rating Action Commentary dated July 25, 2016, following the launch of the refinancing, with the terms of the final documentation of the bonds in line with the information already reviewed at the time of assigning the expected ratings. The proceeds from the issue, together with the cash on balance sheet and proceeds from an unrated second lien issue, have been used to refinance the group's existing GBP539 million debt (senior and second lien notes, as well as drawings under a senior secured RCF) and associated transaction costs, improving the group's liquidity and maturity profile. The downgrade of Turnstone's IDR reflects weaker debt service and coverage ratios post refinancing to levels more commensurate with a 'B' rating. Funds from operations (FFO)-adjusted net leverage will increase to 6.7x in the financial year ending March 31, 2017 and FFO fixed-charge cover will weaken to below 2.0x, due to the larger amount of debt, higher cost of debt, and weaker profitability as the result of under-delivery of units of dental activity (UDA) and negative FX impact. The rating, however, remains underpinned by the strengths of Turnstone's brand, IDH, which was recently rebranded Mydentist. IDH has a leading market position in the UK's National Health Service (NHS) dental sector. This provides the company with stable cash flow driven by long-term evergreen contracts accounting for around 59% of total revenue. Turnstone also has a record of acquiring and successfully integrating small dental businesses; self-sufficiency in dental supply services; an expanding network of dental practices, which delivers economies of scale; and a close relationship with the NHS. Following the downgrade, the 'B' rating has significant headroom for Turnstone to deliver on its growth strategy as a consolidator in the still fragmented dental services market in the UK. This is reflected in the Stable Outlook. KEY RATING DRIVERS Increased Leverage, Improved Financial Flexibility Debt protection ratios have weakened as the result of the completed refinancing, with FFO adjusted net financial leverage increasing to 6.7x in FY17 from 6.4x a year earlier and FFO fixed charge cover weakening to below 2.0x, from 2.1x per our previous expectations. This will be predominantly driven by the larger amount and higher cost of debt as well as weaker profitability as the result of UDA underperformance and FX headwinds. Fitch said, "We now view these metrics as commensurate with a 'B' rating, although the new debt has lengthened Turnstone's maturity profile and improved liquidity, providing the company with sufficient financial flexibility to continue its strategic development." Lower-than-Average Business Risk Fitch views the business profile of Turnstone as stronger than its financial metrics for the 'B' rating category. The business is supported by growing scale in its operations, self-sufficiency and brand investments. IDH benefits from its leading market position in the UK NHS dental sector, and enjoys stable cash flows, which are underpinned by long-term evergreen contracts. IDH is also well-placed to tap a structurally growing private dental market. "As a result, we project sustainable free cash flow (FCF) margin of 2%-4% for the business over the four-year rating horizon, with the exception of FY17, where FCF will be negative due to exceptional costs, which are mostly associated with the debt refinancing. Constraints are its modest scale and limited diversification, compared with international healthcare peers rated by Fitch." Fitch said. 'Sticky' NHS Contracts "The rating reflects a decrease in UDA delivery to 92.4% in FY16 from 95.8% in FY15 and compared with a target of 96%. The decline was a result of fewer exempt patients due to an improving economy, a change in patient mix, and increased NHS scrutiny on delivery, claims and performance benchmarks, which we view as an industry-wide trend to improve value generated in the system." Fitch said. As a result IDH's productivity suffered and management is taking active measures to recover UDA performance towards the long-term target of 96%, which include actively managing dentist productivity, simplifying administration and achieving an improved patient and appointment mix, in addition to increasing the share of private treatments. Fitch projects a long-term average EBITDA margin trending towards 15% (against historical margins of closer to 19% and FY16 margin at 14.2%) based on expected improvement in UDA performance, greater value focus in NHS contracts, the shifting patient mix to private dental services as well as the integration of the dental supply operations, both of which have structurally lower margins. A key risk to the margin targets are FX headwinds following the recent depreciation of sterling, as some of the Practice Service division's costs are based in euros and US dollars. Acquisitions Add Scale, Diversification Fitch expects Turnstone to continue its targeted and carefully executed acquisition strategy as the fragmented UK dental sector consolidates further. However, the current weaker UDA performance and profitability, together with increased acquisition valuations, have led to management prioritizing improvement of operating performance over aggressive acquisition growth for FY17. Fitch has reflected this strategy shift in its rating case assumptions, lowering the acquisition budget for FY17 to GBP13m (from GBP40 million previously) but increasing thereafter in line with an improvement in operating performance. Fitch said, "We view this change in strategic emphasis as prudent in the current uncertain environment, confirming management's disciplined approach to external growth. We view the integration and execution risk as manageable based on IDH's good track record and will treat larger acquisitions outside our defined parameters as event risk." KEY RATING DRIVERS FOR THE NOTES "Fitch believes that expected recoveries would be maximized in a going-concern scenario rather than a liquidation given the scale benefits, self-sufficiency and increasing investment in the brand, which we believe are key value drivers for the business. The 'RR3' Recovery Rating on the proposed senior secured notes indicates healthy recovery prospects of 51%-70% of current principal and related interest. We estimate a post-restructuring EBITDA of approximately GBP80 million and a going-concern multiple of 6.0x enterprise value (EV)/EBITDA." Fitch said. KEY ASSUMPTIONS Fitch's expectations are based on the agency's internally produced, conservative rating-case forecasts. They do not represent the forecasts of rated issuers individually or in aggregate. Key Fitch forecast assumptions are listed below. -- Recovery in UDA delivery leading to an organic increase in NHS patient services revenues. This, combined with acquisitions, will lead to annual revenue growth of around 7% in 2017 and 2018. -- Continued strong like-for-like growth in private patient services as the rebalancing and rebranding strategies continue to take effect. This is projected to lead to revenue growth of just under 10% a year through to 2018. -- Moderate growth in practice services (3.7% in FY17). -- Increased focus on profitability, UDA performance and mitigation of FX headwinds should see EBITDA margins trending towards 15%. -- Continuation of acquisition strategy, albeit at a slower pace, as management shifts focus to performance improvements over external growth. Acquisition multiples are projected to be greater than 6.0x EV/EBITDA. This will lead to acquisition cash outflows of about GBP20 million on average a year, which will be partly funded by drawings under the RCF. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to positive rating action include: -- Ability to increase diversification and scale via acquisitions without diluting profits or FCF, while maintaining FFO-adjusted net leverage below 6.0x (FYE16: 6.4x) on a sustained basis; -- FFO fixed-charge coverage above 2.0x (FYE16: 1.9x) Future developments that may, individually or collectively, lead to negative rating action include: -- Reduced profitability from failure to achieve UDA delivery, achieve cost synergies or to manage cost inflation, leading to EBITDA margin falling below 10% -- Negative FCF, for example, as a result of an unsuccessful acquisition strategy driving weaker credit metrics such as FFO-adjusted net leverage to above 7.5x (pro forma for acquisitions) -- FFO fixed-charge coverage below 1.5x on a sustained basis LIQUIDITY "With no material debt maturity over the four-year rating horizon post-refinancing, we assess liquidity as adequate for Turnstone to implement its prudent growth strategy. Post refinancing, Turnstone has readily available cash of GBP9 million in addition to the GBP100 million super senior RCF." Fitch said. WAGAMAMA LTD: S&P Raises Parent's CCR to 'B', Outlook Stable ------------------------------------------------------------ S&P Global Ratings said it has raised to 'B' from 'B-' its long- term corporate credit rating on Mabel Topco Ltd., the parent company of U.K.-based casual dining restaurant operator Wagamama Ltd. The outlook is stable. Accordingly, S&P raised its long-term issue rating on the group's GBP150 million senior secured notes to 'B'. The recovery rating on these notes remains unchanged at '4', indicating S&P's expectation of average (30%-50%) recovery prospects in the event of a payment default. At the same time, S&P also raised its long-term issue rating on the group's GBP15 million super senior revolving credit facility (RCF) to 'BB'. The recovery rating on the RCF remains unchanged at '1+', indicating S&P's expectation of full recovery prospects in the event of a payment default. S&P's upgrade primarily reflects Wagamama's very strong like-for- like sales growth in the U.K. (9% in FY2015 and 13% in FY2016) alongside new site openings and restaurant refurbishments, while maintaining S&P's adjusted EBITDA margin at about 22%-23%. Going forward, S&P anticipates that Wagamama will maintain strong operating fundamentals, resulting in our forecast of EBITDAR cash interest coverage (defined as unadjusted EBITDA before deducting rent over cash interest plus rent) being above 1.7x, signaling improved deleveraging prospects. S&P's view of the Wagamama's highly leveraged capital structure reflects its high debt level, sizable operating lease profile, and the inherent risk of dividend recapitalization under financial sponsor ownership. S&P forecasts adjusted debt to EBITDA to remain over 8x in FY2017 and FY2018 (or about 5x in FY2017 and FY2018 when excluding the unsecured shareholder loan notes). S&P treats the unsecured shareholder loan notes as part of its adjusted debt due to insufficient economic incentives aligning with common equity. As Wagamama rapidly opens new sites and refurbishes existing restaurants, S&P also expects the group to reinvest most of its operating cash flow for growth capital expenditure (capex), resulting in minimal reported free operating cash flow (FOCF) generation. Wagamama is the U.K.'s eighth-largest branded casual dining restaurant chain competing in the highly fragmented eating-out market. The group operates about 125 restaurants under its own brand name in prime locations across the country, and is expanding at a steady pace with about five net new restaurants per year. In light of the weakened pound sterling, S&P anticipates that suppliers would negotiate for a moderate rise in food costs over the medium term. Nevertheless, S&P understands that the group has locked in prices on its key ingredients with its major supplier until 2018. This helps the group mitigate some food inflation pressure in the near term. As a result, S&P forecasts that the group's adjusted EBITDA margin could remain at about 22%-23% in FY2017 and FY2018. At the same time, the nature of the restaurant's operations is constrained by the risks of changing trends in consumers' eating- out habits, fierce competition, and the inherit risk of food safety and hygiene issues. Relative to other rated restaurant peers, S&P considers that Wagamama's scale of operations still has significant room to expand. These factors result in a business risk profile assessment at the high end of the weak category. In S&P's base case, it assumes: -- U.K. real GDP growth slowing to 1.5% in 2016 and 0.9% in 2017 following the U.K.'s Brexit vote. -- Increased consumer price index growth of 0.9% in 2016 and 2.2% in 2017. -- Strong sales growth of about 12% in FY2017 and 14% in FY2018, supported by strong like-for-like sales growth in the U.K., restaurant refurbishments, and steady new site openings. -- Adjusted EBITDA margin of about 22%-23% as S&P expects the group should be able to keep costs under control and benefit from economies of scale under a steady pace of expansion. -- Capex at 11%-12% of revenues, most of which would be used to fund restaurant refurbishments and new site expansion. -- Increasing operating lease obligations in line with new site openings. -- No shareholder remunerations in the near term. Based on these assumptions, S&P arrives at these credit measures: -- Adjusted debt to EBITDA of about 8.5x in FY2017 and 8.1x and FY2018 (about 5.3x in FY2017 and 5.0x FY2018 when excluding unsecured shareholder loan notes). -- EBITDAR interest coverage of above 1.7x in FY2017 and FY2018. -- Minimal reported FOCF of less than GBP5 million per year in FY2017 and FY2018 due to elevated capex. Wagamama has one financial covenant, which requires the group to maintain a minimum EBITDA of GBP17 million. S&P believes that the group should exhibit significant covenant headroom over the next 12 months. S&P's stable outlook primarily reflects its expectation that Wagamama should continue to expand on the back of strong like- for-like sales growth, restaurant refurbishments, and new site openings in the U.K. S&P forecasts an adjusted debt-to-EBITDA ratio of above 8.0x (or about 5x when excluding unsecured shareholder loan notes) and EBITDAR cash interest coverage of over 1.7x over the next 12 months. S&P could consider lowering the ratings if the group's operating performance deteriorates and it is unable to rein in capex accordingly, leading to EBITDAR cash interest coverage approaching 1.5x and weakening liquidity. Such a scenario could result from a slowdown in the U.K. economy, increasing competition in the eating-out market, a supply chain disruption, or a food safety scare. S&P could also lower the ratings if the financial sponsor materially increases leverage by adopting a more aggressive financial policy with respect to growth, investments, or shareholder returns. S&P could consider raising the ratings if, on the back of strong reported FOCF generation and an adequate liquidity position, Wagamama reduces its leverage such that S&P's adjusted debt-to- EBITDA ratio improves to below 5x (including the shareholder loan notes) on a sustainable basis. An upgrade would also be contingent on management and the financial sponsor demonstrating a commitment to a conservative financial policy. ********* 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, Julie Anne L. Toledo, 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. 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