/raid1/www/Hosts/bankrupt/TCREUR_Public/161111.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, November 11, 2016, Vol. 17, No. 224
Headlines
A R M E N I A
ARMENIA: On the Verge of Insolvency, Economist Says
G E R M A N Y
CRISTALLE GARNELEN: Cara Royal Eyes Farm Following Insolvency
H U N G A R Y
KERESKEDELMI & HITEL: Moody's Raises Deposit Rating to Ba1
I R E L A N D
AMERICAN APPAREL: Provisional Liquidator Appointed to Irish Unit
GLG EURO CLO II: Moody's Assigns (P)B2 Rating to Class F Notes
I T A L Y
MANIFATTUR: Calls for Expressions of Interest for Capital Raising
PRIVILEGE YARD: Nov. 25 Expressions of Interest Deadline Set
SIENA PMI 2016: DBRS Assigns B Rating to Class C Notes
N E T H E R L A N D S
DCDML 2016-1: Moody's Assigns B2 Rating to Class E Notes
P O R T U G A L
SAGRES NO.3: Moody's Assigns (P)B1 Rating to Class C Notes
R O M A N I A
COMPLEXUL ENERGETIC: Exits Insolvency After Appeal Court Ruling
S P A I N
TELEFONICA SA: Moody's Lowers Preferred Stock Ratings to Ba2
S W E D E N
PERSTORP HOLDING: Moody's Assigns (P)B3 Rating to USD800MM Notes
U N I T E D K I N G D O M
AERO INVENTORY: FRC Imposes GBP4MM Fine on Deloitte Over Audit
CO-OPERATIVE BANK: Fitch Affirms 'B' LT Issuer Default Rating
EDU UK: Moody's Withdraws B3 Corporate Family Rating
GALA ELECTRIC: Moody's Withdraws B1 Corporate Family Rating
HONOURS SERIES 2: Moody's Lowers Rating on Class B Notes to Ba1
LADBROKES CORAL: Fitch Affirms 'BB' LT Issuer Default Rating
LONDON & REGIONAL: Moody's Confirms B1 Rating on Class C Notes
LONDON WELSH: Still Hopeful of Phoenix Group Takeover
WILLIAM ANELAY: Owes GBP12.6MM to Creditors After Administration
* UK: Government to Bail Out Insolvent Colleges
X X X X X X X X
* BOOK REVIEW: Transnational Mergers and Acquisitions
*********
=============
A R M E N I A
=============
ARMENIA: On the Verge of Insolvency, Economist Says
---------------------------------------------------
Rashid Shirinov at AzerNews reports that Armenian economist
Vahagn Khachatryan has admitted that the country is on the verge
of insolvency.
AzerNews relates that Khachatryan announced about this while
commenting on the statement by Armenia's first president Levon
Ter-Petrosyan, who said that the country may face default soon.
The expert stated that the Armenian government, state and other
officials also confirm this problem, the report says.
According to AzerNews, Armenia's external debt is growing, as
well as the budget deficit; economic growth is significantly
lower than it was foreseen. As of late September, the country's
external debt hit $5.6 billion, while 5.1 billion of them is the
debt of the government, and 500 million -- of the Central Bank.
While considering the size of the budget and national debt, it is
obvious that Armenia is in quite a problematic situation,
Khachatryan noted, AzerNews relays. "The country has problems
even in servicing the public debt, and this allows to say that
Armenia is on the verge of insolvency," AzerNews quotes
Khachatryan as saying.
"The economy is collapsing, there is no economic growth, and
resources either are limited or exhausted. The government should
have been thinking about correcting the situation through new
approaches," the economist warned, says the report.
AzerNews adds that Khachatryan believes that the economic chaos
can be somehow prevented through the fight against corruption and
the shadow economy.
Along with the large-scale corruption, the Armenian economy also
has a problem of "monopolies," AzerNews says.
=============
G E R M A N Y
=============
CRISTALLE GARNELEN: Cara Royal Eyes Farm Following Insolvency
-------------------------------------------------------------
Undercurrent News, citing NNN, reports that German land-based
shrimp farm Cristalle Garnelen has declared insolvency.
The recirculating aquaculture system has been in operation around
a year, but according to investor Andreas Kleinselbeck, the farm
was not producing enough shrimp and had failed to supply
customers, Undercurrent News says.
It had supplied restaurants in Berlin, southern and western
Germany, as well as its base of Mecklenburg-Vorpommern, with
fresh shrimp. It is linked via a management agreement with the
nearby, identical, farm Cara Royal, which is now looking to buy
it from insolvency, says Undercurrent News.
According to the report, Kleinselbeck is apparently seeking legal
action against the entrepreneur who founded both farms, claiming
far fewer than the expected 16 metric tons of shrimp (per year)
had been harvested.
The investor feels it is now almost impossible to produce fresh
shrimp in Germany in the manner these farms have attempted; they
would need to sell at EUR60-65 per kilogram, an amount which too
few will pay, adds Undercurrent News.
=============
H U N G A R Y
=============
KERESKEDELMI & HITEL: Moody's Raises Deposit Rating to Ba1
----------------------------------------------------------
Moody's Investors Service has taken rating actions on four
Hungarian banks, prompted by the upgrade of the Hungarian
government's debt rating to Baa3 with a stable outlook from Ba1
(previously positive), and raising of Hungary's country ceiling
for long-term foreign-currency deposits to Baa3 from Ba2.
These banks are affected by the rating actions:
-- Upgrade of MFB Hungarian Development Bank Private Limited
Company's (MFB) backed long-term foreign currency senior
unsecured debt rating to Baa3 with a stable outlook from
Ba1 (previously positive); its backed long-term foreign
currency deposit rating to Baa3 with a stable outlook from
Ba2 (previously positive) and its backed short-term
foreign-currency deposit rating to Prime-3 from Not Prime;
-- Upgrade of OTP Bank NyRt's (OTP) long-term foreign currency
deposit rating to Baa3 with a stable outlook from Ba2
(previously positive), its short-term foreign-currency
deposit rating to Prime-3 from Not Prime, its long-term
Counterparty Risk Assessment (CRA) to Baa2(cr) from
Baa3(cr) and its short-term CRA to Prime-2(cr) from
Prime-3(cr);
-- Upgrade of OTP Jelzalogbank Zrt.'s (OTP Mortgage Bank)
long-term CRA to Baa2(cr) from Baa3(cr) and its short-term
CRA to Prime-2(cr) from Prime-3(cr);
-- Upgrade of Kereskedelmi & Hitel Bank Rt.'s (K&H) long-term
foreign currency deposit rating to Ba1 with a stable
outlook from Ba2 (previously positive), its long-term CRA
to Baa2(cr) from Baa3(cr) and its short-term CRA to
Prime-2(cr) from Prime-3(cr).
All other ratings and rating inputs of the banks captured by
today's rating actions remain unaffected. In addition, the
ratings and outlook of other Moody's rated Hungarian banks --
such as Erste Bank Hungary Zrt., MKB Bank Zrt., Budapest Bank Rt.
and FHB Mortgage Bank Co. Plc. -- are unaffected by today's
actions.
RATINGS RATIONALE
MFB Hungarian Development Bank Private Limited Company (MFB)
The upgrade of MFB's backed long-term foreign currency debt
rating to Baa3 with a stable outlook from Ba1 is driven by the
upgrade of the Hungarian government's debt rating to Baa3 from
Ba1. MFB is a development bank that is owned and guaranteed by
the Hungarian government, and it plays a vital role in the
government's policy to support domestic economic development.
Moody's continues to assume a very high probability of support
from the Hungarian government for MFB, reflected in the framework
of explicit and irrevocable state guarantees for the bank's
liabilities.
The upgrade of MFB's backed long-term foreign currency deposit
ratings to Baa3 with a stable outlook from Ba2, and backed short-
term foreign currency deposit ratings to Prime-3 from Not Prime
is driven by the upgrade of Hungary's country ceiling for long-
term foreign-currency deposits to Baa3 from Ba2. As this ceiling
is now at the same level as the bank's backed senior unsecured
debt rating of Baa3, MFB's foreign-currency ratings are no longer
constrained by the country ceiling.
OTP Bank NyRt's (OTP)
The upgrade of OTP's long-term foreign currency deposit ratings
to Baa3 with a stable outlook from Ba2, and short-term foreign
currency deposit ratings to Prime-3 from Not Prime is driven by
Moody's raising of Hungary's country ceiling for long-term
foreign-currency deposits to Baa3 from Ba2. The positive outlook
on OTP's Baa3 long-term local-currency deposit rating, which is
driven by the upward pressure on the bank's standalone baseline
credit assessment (BCA), is not translated to the long-term
foreign-currency deposit rating as the latter will be constrained
by the respective country ceiling and will not be affected by a
potential upgrade of the bank's BCA and local-currency deposit
rating.
The upgrade of OTP's long-term and short-term CRA to
Baa2(cr)/Prime-2(cr) from Baa3(cr)/Prime-3(cr) is driven by the
upgrade of Hungarian government's debt rating to Baa3 from Ba1.
CRAs are typically capped at the level of government debt rating
plus one additional notch unless the bank's adjusted BCA is
higher that the government debt rating. Consequently, OTP's
long-term CRA was previously capped at Baa3(cr), one notch higher
than the government debt rating. The new long-term CRA of
Baa2(cr) receives three notches of uplift from the bank's ba2
adjusted BCA under Moody's Advanced Loss-Given-Failure (LGF)
analysis and currently is not constrained by the government debt
rating.
OTP Jelzalogbank Zrt. (OTP Mortgage Bank)
The upgrade of OTP Mortgage Bank's long-term and short-term CRA
to Baa2(cr)/Prime-2(cr) from Baa3(cr)/Prime-3(cr) is driven by
the upgrade of its parent OTP's CRA, reflecting the high level of
integration, the full ownership and the guarantee from the
parent. OTP fully, irrevocably and unconditionally guarantees all
of OTP Mortgage Bank's unsubordinated obligations. Consequently,
the CRA of OTP Mortgage Bank is at the same level as that of OTP.
Kereskedelmi & Hitel Bank Rt. (K&H)
The upgrade of K&H's long-term foreign currency deposit rating to
Ba1 with a stable outlook from Ba2 is driven by Moody's raising
of Hungary's country ceiling for long-term foreign-currency
deposits to Baa3 from Ba2. The Ba1 rating is at the same level
as K&H's local-currency deposit rating and is no longer
constrained by the country ceiling.
The upgrade of K&H's long-term and short-term CRA to
Baa2(cr)/Prime-2(cr) from Baa3(cr)/Prime-3(cr) is driven by the
upgrade of Hungarian government's debt rating to Baa3. CRAs are
typically capped at the level of government debt rating plus one
additional notch unless the bank's adjusted BCA is higher that
the government debt rating. Consequently, K&H's long-term CRA
was previously capped at Baa3(cr), one notch higher than the
government debt rating. The new long-term CRA of Baa2(cr)
receives three notches of uplift from the bank's ba2 adjusted BCA
under Moody's Advanced Loss-Given-Failure (LGF) analysis and is
not constrained by the government debt rating.
-- WHAT COULD MOVE THE RATINGS UP/DOWN
An upgrade of Hungary's government ratings and/or improvements in
the country's Macro Profile and the affected banks' asset
quality, profitability and capitalisation, could have positive
rating implications.
The ratings will experience negative pressure if the outlook on
the government ratings is changed to negative and/or there is a
deterioration the country's Macro Profile and/or the banks' asset
quality, capitalisation and profitability.
Further, alterations in the banks' liability structures may
change the amount of uplift provided by Moody's LGF analysis and
lead to a higher or lower notching from the banks' adjusted BCAs,
thereby affecting their deposit ratings and CRAs.
LIST OF AFFECTED RATINGS
Upgrades:
Issuer: Kereskedelmi & Hitel Bank Rt.
LT Bank Deposits (Foreign Currency), Upgraded to Ba1 Stable
from Ba2 Positive
LT Counterparty Risk Assessment, Upgraded to Baa2(cr) from
Baa3(cr)
ST Counterparty Risk Assessment, Upgraded to P-2(cr) from P-
3(cr)
Issuer: OTP Bank NyRt
LT Bank Deposits (Foreign Currency), Upgraded to Baa3 Stable
from Ba2 Positive
ST Bank Deposits (Foreign Currency), Upgraded to P-3 from NP
LT Counterparty Risk Assessment, Upgraded to Baa2(cr) from
Baa3(cr)
ST Counterparty Risk Assessment, Upgraded to P-2(cr) from P-
3(cr)
Issuer: OTP Jelzalogbank Zrt. (OTP Mortgage Bank)
LT Counterparty Risk Assessment, Upgraded to Baa2(cr) from
Baa3(cr)
ST Counterparty Risk Assessment, Upgraded to P-2(cr) from P-
3(cr)
Issuer: MFB Hungarian Development Bank Ltd.
BACKED LT Bank Deposits (Foreign Currency), Upgraded to Baa3
Stable from Ba2 Positive
BACKED ST Bank Deposits (Foreign Currency), Upgraded to P-3
from NP
BACKED Senior Unsecured Regular Bond/Debenture (Foreign
Currency), Upgraded to Baa3 Stable from Ba1 Positive
Outlook Actions:
Issuer: Kereskedelmi & Hitel Bank Rt.
Outlook, Changed To Stable From Positive(m)
Issuer: OTP Bank NyRt
Outlook, Changed To Stable(m) From Positive
Issuer: OTP Jelzalogbank Zrt. (OTP Mortgage Bank)
Outlook, Remains Positive
Issuer: MFB Hungarian Development Bank Ltd.
Outlook, Changed To Stable From Positive
PRINCIPAL METHODOLOGY
The principal methodology used in rating MFB Hungarian
Development Bank Private Limited Company was Government-Related
Issuers published in October 2014. The principal methodology
used in rating OTP Bank NyRt, OTP Jelzalogbank Zrt. and
Kereskedelmi & Hitel Bank Rt. was Banks published in January
2016.
=============
I R E L A N D
=============
AMERICAN APPAREL: Provisional Liquidator Appointed to Irish Unit
----------------------------------------------------------------
Aodhan O'Faolain at The Irish Times reports that the High Court
has appointed a provisional liquidator to the American Apparel
clothing retailer in Dublin city centre.
Mr. Justice Paul Gilligan appointed insolvency practitioner
Kieran Wallace -- kieran.wallace@kpmg.ie -- of KPMG, as
provisional liquidator on Nov. 9 to American Apparel Ireland
Ltd., which operates a store on Grafton Street, after being told
the company was insolvent and unable to pay its debts, The Irish
Times relates.
The company, part of the US-based American Apparel group, had
been trading in Ireland since December 2007, The Irish Times
notes.
Kelley Smyth BL, for the company, petitioned for the appointment
of a liquidator following its American parent's decision to file
for bankruptcy in the United States, The Irish Times discloses.
This meant the parent could no longer support the Irish firm with
stock supplies, credit and finance management, The Irish Times
states.
The judge appointed Mr. Wallace and granted him several powers,
including to trade and sell the company's stock, secure the
company's assets and retain the employees, The Irish Times
relays.
The matter will return before the court in December, according to
The Irish Times.
About American Apparel
American Apparel, Inc., American Apparel (USA), LLC, American
Apparel Retail, Inc., American Apparel Dyeing & Finishing, Inc.,
KCL Knitting, LLC and Fresh Air Freight, Inc. sought Chapter 11
bankruptcy protection (Bankr. D. Del. Proposed Lead Case No.
15-12055) on Oct. 5, 2015. The petition were signed by Hassan
Natha, the chief financial officer.
The Debtors reported total assets of $199,360,934 and total
liabilities of $397,576,744.
The Debtors and their non-debtor affiliates operate a vertically
integrated manufacturing, distribution, and retail business
focused on branded fashion-basic apparel, employing approximately
8,500 employees across six manufacturing facilities and
approximately 230 retail stores in the United States and 17 other
countries worldwide.
The Debtors have engaged Jones Day as restructuring counsel,
Pachulski Stang Ziehl & Jones LLP as local counsel, Moelis &
Company as investment banker, FTI Consulting, Inc. as financial
advisor, DJM Real Estate as real estate consultant and Garden
City Group, LLC as claims and noticing agent.
* * *
The Debtors filed a proposed Joint Plan of Reorganization that
contemplates converting more than $200 million of senior notes
into equity interests of the reorganized American Apparel.
On Nov. 20, 2015, the Court approved the Disclosure Statement and
set a Jan. 7, 2016 voting deadline and a Jan. 20 plan
confirmation
hearing.
On Jan. 10, 2016, the Debtors received a letter from former CEO
Dov Charney disclosing a proposed $300 million alternative
transaction that will be funded by Hagan Capital Group and Silver
Creek Capital Partners but American Apparel rejected the
proposal.
On Jan. 25, 2016, the Court held a telephonic hearing, granting
confirmation of the Debtors' First Amended Plan, provided certain
revisions were made to the First Amended Plan and the proposed
confirmation order.
On Jan. 27, 2016, the Court entered an order confirming American
Apparel's First Amended Joint Plan of Reorganization, under
which, on Feb. 5, 2016, the Effective Date of the Plan, all
shares of Common Stock and other equity interests in the Company
were cancelled and terminated, and the Company was converted into
a Delaware limited liability company with membership interests
issued to unitholders, including certain Reporting Persons, in
accordance with the Plan.
GLG EURO CLO II: Moody's Assigns (P)B2 Rating to Class F Notes
--------------------------------------------------------------
Moody's Investors Service announced that it has assigned these
provisional ratings to notes to be issued by GLG Euro CLO II
D.A.C.:
EUR207,000,000 Class A-1 Senior Secured Floating Rate Notes due
2030, Assigned (P)Aaa (sf)
EUR10,000,000 Class A-2 Senior Secured Fixed Rate Notes due
2030, Assigned (P)Aaa (sf)
EUR43,900,000 Class B Senior Secured Floating Rate Notes due
2030, Assigned (P)Aa2 (sf)
EUR17,700,000 Class C Deferrable Mezzanine Floating Rate Notes
due 2030, Assigned (P)A2 (sf)
EUR17,300,000 Class D Deferrable Mezzanine Floating Rate Notes
due 2030, Assigned (P)Baa2 (sf)
EUR19,200,000 Class E Deferrable Junior Floating Rate Notes due
2030, Assigned (P)Ba2 (sf)
EUR7,700,000 Class F Deferrable Junior Floating Rate Notes due
2030, 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 the legal final maturity of
the notes in 2030. 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, GLG Partners LP,
has sufficient experience and operational capacity and is capable
of managing this CLO.
GLO Euro CLO II D.A.C. is a managed cash flow CLO. At least 90%
of the portfolio must consist of senior secured loans and senior
secured bonds and up to 10% of the portfolio may consist of
unsecured obligations, second-lien loans, mezzanine loans and
high yield bonds. The bond bucket gives the flexibility to GLO
Euro CLO II D.A.C. to hold bonds if Volcker Rule is changed. The
portfolio is expected to be approximately 60-70% ramped up as of
the closing date and to be comprised predominantly of corporate
loans to obligors domiciled in Western Europe.
GLG Partners will manage the CLO. It will direct the selection,
acquisition and disposition of collateral on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's four-year reinvestment period.
Thereafter, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
risk and credit improved obligations, and are subject to certain
restrictions.
In addition to the seven classes of notes rated by Moody's, the
Issuer will issue EUR 41.2 mil. of subordinated notes, which will
not be rated.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Factors that would lead to an upgrade or downgrade of the
ratings:
The rated notes' performance is subject to uncertainty. The
notes' performance is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. GLG Partners' 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
October 2016. The cash flow model evaluates all default
scenarios that are then weighted considering the probabilities of
the binomial distribution assumed for the portfolio default rate.
In each default scenario, the corresponding loss for each class
of notes is calculated given the incoming cash flows from the
assets and the outgoing payments to third parties and
noteholders. Therefore, the expected loss or EL for each tranche
is the sum product of (i) the probability of occurrence of each
default scenario and (ii) the loss derived from the cash flow
model in each default scenario for each tranche. As such,
Moody's encompasses the assessment of stressed scenarios.
Moody's used these base-case modeling assumptions:
Par amount: EUR 350,000,000
Diversity Score: 43
Weighted Average Rating Factor (WARF): 2700
Weighted Average Spread (WAS): 4.20%
Weighted Average Recovery Rate (WARR): 44%
Weighted Average Life (WAL): 8 years.
Moody's has analysed the potential impact associated with
sovereign related risk of peripheral European countries. As part
of the base case, Moody's has addressed the potential exposure to
obligors domiciled in countries with local currency country risk
ceiling of A1 or below. Following the effective date, and given
the portfolio constraints and the current sovereign ratings in
Europe, such exposure may not exceed 10% of the total portfolio.
As a result and in conjunction with the current foreign
government bond ratings of the eligible countries, as a worst
case scenario, a maximum 5% of the pool would be domiciled in
countries with A3 and a maximum of 5% of the pool would be
domiciled in countries with Baa3 local currency country ceiling
each. The remainder of the pool will be domiciled in countries
which currently have a local or foreign currency country ceiling
of Aaa or Aa1 to Aa3. Given this portfolio composition, the model
was run with different target par amounts depending on the target
rating of each class as further described in the methodology.
The portfolio haircuts are a function of the exposure size to
peripheral countries and the target ratings of the rated notes
and amount to 0.75% for the Class A-1 and A-2 notes, 0.50% for
the Class B notes, 0.38% for the Class C notes and 0% for Classes
D, E, and F.
Stress Scenarios:
Together with the set of modeling assumptions above, Moody's
conducted 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 3105 from 2700)
Ratings Impact in Rating Notches:
Class A-1 Senior Secured Floating Rate Notes: 0
Class A-2 Senior Secured Fixed Rate Notes: 0
Class B Senior Secured Floating Rate Notes: -1
Class C Deferrable Mezzanine Floating Rate Notes: -1
Class D Deferrable Mezzanine Floating Rate Notes: -1
Class E Deferrable Junior Floating Rate Notes: 0
Class F Deferrable Junior Floating Rate Notes: 0
Percentage Change in WARF: WARF +30% (to 3510 from 2700)
Ratings Impact in Rating Notches:
Class A-1 Senior Secured Floating Rate Notes: 0
Class A-2 Senior Secured Fixed Rate Notes: 0
Class B Senior Secured Floating Rate Notes: -3
Class C Deferrable Mezzanine Floating Rate Notes: -3
Class D Deferrable Mezzanine Floating Rate Notes: -2
Class E Deferrable Junior Floating Rate Notes: -1
Class F Deferrable Junior 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 October 2016.
=========
I T A L Y
=========
MANIFATTUR: Calls for Expressions of Interest for Capital Raising
-----------------------------------------------------------------
As part of an internal restructuring process in a procedure for
an arrangement with creditors (Concordato Preventivo), MIT is
soliciting expressions of interest for either, (i) the
subscription to a capital increase for the purpose of gaining
full control of MIT, or (ii) the acquisition of the business unit
involved in the production and distribution on the domestic and
international markets or cigarettes and fine-cut tobacco under
the FUTURA, LINDA, CHIARAVALLE and 821 brands with "100% Made in
Italy Certification".
This announcement and the receipt of any expressions of interest
and/or bids shall not imply any disposal obligation and
commitment towards the bidders, as well as any right for the
bidders to claim reimbursement or compensation of any kind
(including brokerage commissions and any consulting fees).
Additionally, this announcement does not constitute either a
public offering, pursuant to art. 1336 of the Italian Civil Code,
or a solicitation of public savings.
The Sole Director, having received expressions of interest and/or
bids at his sole discretion and with no obligation to state any
reason whatsoever, expressly reserves the right to (i) make a
comparative assessment of the expressions of interest and/or bids
in order to call the bidders to increase their bid, (ii) launch
competitive bidding procedures in order to identify the highest
bidder according to Court instructions, (iii) withdraw from
negotiations with the bidders, whatever their level, and, if the
case, interrupt the sale process.
To submit expressions of interest and/or bids and request any
information, please contact STVDIO LA CROCE, via Vittor Pisani
8/a - Milan, tel 0039 02 6709466, mail lacroix@studelacroce.it
PRIVILEGE YARD: Nov. 25 Expressions of Interest Deadline Set
------------------------------------------------------------
Avv. Daniela De Rosa, the Official Receiver of Privilege Yard
S.p.A. (Bankruptcy No. 19/2015), disclosed that Bankruptcy Judge
Giuseppe Bianchi has authorized the collection of expressions of
interest in the purchase or rental of the business entity
referring to the shipbuilding complex situated in Civitavecchia
(RM), specifically in the La Mattonara - Port Area, considering
its tangible and intangible elements, namely:
-- Luxury ship (the "Privilege One P430") holding under 36
passengers under construction, with steel hull, listed
under no. 2/2008 in the Registry of Ships under
Construction at the Port of Civitavecchia, length overall
approximately 125.30 m, breadth 18.32 m, moulded depth 7.50
m, TSL (provisional gross tonnage) approximately 7500 GT,
as explained in the appraisal drawn up by Prof. Ing. Dario
Boote;
-- Industrial site built on a State-owned area, Merchant Navy
Section, under the Concession dated November 29, 2007, ref.
no. 3315 and ensuing addenda dated July 29, 2009, ref. no.
3540, and dated January 5, 2011, ref. no. 3784, on a total
surface of 102,200 sq.m, occupied by no. 11 buildings and
no. 3 electrical substations, all registered under Category
D/7, as explained in the appraisal drawn up by Arch.
Claudia Ferreri;
-- A 1,130 kWp photovoltaic system installed on almost all of
the rooftops of the buildings, covering a surface of 24,500
sq.m, as explained in the appraisal drawn up by Arch.
Claudia Ferreri;
-- Movable property, excluding property on board the ship,
relating to the property under the leases, as well as to
claims and/or restitution, as referred to in the appraisal
drawn up by Ing. Bruno Del Pico.
Both the subrogation and the granting of the use of the
Concession are subject to prior authorization by the Port
Authority of Civitavecchia, Fiumicino and Gaeta, pursuant to
art. 45 bis and art. 46 of the Navigation Code, to art. 30 of the
Navigation Code Rules, and to art. 18 of the Regulations of the
Public Sea Areas of the ports of Civitavecchia, Fiumicino and
Gaeta.
Expressions of interest shall envisage one of the two following
options:
1.) Proposed purchase at a price not below EUR35,000,000 in
additional expenses;
2.) Proposed rental of the business entity of the complex for a
maximum period of 12 months, renewable only once for a further of
12 months, at a monthly fee not below EUR150,000, with concurrent
irrevocable bid to purchase the shipbuilding complex for a total
price of EUR40,000,000 in addition to expenses, less the amount
paid as rent and as security.
In the event of valid expressions of interest for both the
unified purchase of the shipbuilding complex and for the rental
of the business entity, those for the unified purchase shall
prevail. Expressions of interest shall be submitted, under
penalty of exclusion, as set out in the tender specifications by
6:00 p.m. on the day before the tender, scheduled at 4:00 p.m. on
November 25, 2016, at the office of delegated notary Andrea
Panno, in via Tagliamento no. 14, Rome.
The notice of sale and the tender specifications, in full, as
well as all of the documents relating to the sale, including the
appraisals, will be made available prior to application to be
e-mailed to fallimentopy@gmail.com and payment of the sum of
EUR200 to be made on the current account of the bankruptcy, as
indicated in the email reply.
For further information, one may contact telephone number +39-
0637-20-146
SIENA PMI 2016: DBRS Assigns B Rating to Class C Notes
------------------------------------------------------
DBRS Ratings Limited released a report on Siena PMI 2016 S.r.l.
that provides further detail on the recent assignment of its
ratings.
RATINGS
Issuer Debt Rated Rating Action Rating
------ ---------- ------------ ------
Siena PMI Class A1 Notes New Rating AAA
2016 S.r.l.
Siena PMI Class A2 Notes New Rating AA
2016 S.r.l.
Siena PMI Class B Notes New Rating A
2016 S.r.l.
Siena PMI Class C Notes New Rating B
2016 S.r.l.
=====================
N E T H E R L A N D S
=====================
DCDML 2016-1: Moody's Assigns B2 Rating to Class E Notes
--------------------------------------------------------
Moody's Investors Service has assigned definitive credit ratings
to these classes of notes issued by DCDML 2016-1 B.V.:
EUR250.2 mil. Class A Notes 2016 due 2049, Definitive Rating
Assigned Aaa (sf)
EUR6.9 mil. Class B Notes 2016 due 2049, Definitive Rating
Assigned Aa2 (sf)
EUR6.7 mil. Class C Notes 2016 due 2049, Definitive Rating
Assigned A1 (sf)
EUR3.7 mil. Class D Notes 2016 due 2049, Definitive Rating
Assigned Baa2 (sf)
EUR4.4 mil. Class E Notes 2016 due 2049, Definitive Rating
Assigned B2 (sf)
Moody's has not assigned any ratings to the class F notes or
class RS notes. The class A to F are mortgage backed notes. The
proceeds of the class RS notes are partially used to fund the
reserve account. Moody's assigned provisional ratings to the
notes on Oct. 13, 2016.
The transaction represents the securitisation of Dutch prime
mortgage loans backed by residential properties located in the
Netherlands and originated by Dynamic Credit Woninghypotheken
B.V. (Dynamic Credit, not rated). The portfolio is serviced by
Quion Services B.V. (Quion, not rated) and Intertrust Management
B.V. acts in the role of issuer administrator.
RATINGS RATIONALE
The ratings of the notes take into account the credit quality of
the underlying mortgage loan pool and the legal and structural
features of this transaction, from which Moody's determined the
MILAN Credit Enhancement (CE) and the portfolio expected loss.
The expected portfolio loss of 1.5% of current balance of the
portfolio at closing and the MILAN CE of 11.0% served as input
parameters for Moody's cash flow model.
The key drivers for the MILAN CE number, which is higher than the
Dutch Prime RMBS sector average, are (i) the limited historical
performance data for the originator's portfolio; (ii) the
weighted average current loan-to-market-value (LTMV) of 98.4%,
and (iii) the weighted average seasoning of 0.4 years with the
maximum vintage concentration of 55.2% in 2015.
The key drivers for the portfolio expected loss, which is higher
than the Dutch Prime RMBS sector average, are (i) the limited
historical performance data for the originator's portfolio; (ii)
benchmarking with comparable transactions in the Dutch RMBS
market, and (iii) the current economic conditions in the
Netherlands.
Interest rate risk analysis: BNP Paribas (A1/P-1/Aa3(cr)) acts as
the swap counterparty for the fixed-rate mortgages in the
transaction. The floating-rate loans are unhedged. Moody's has
taken into consideration the interest rate swap in its cash flow
modeling.
The transaction has the benefit of liquidity through a reserve
account fully funded at 1.1% of the rated note balance which
consists of five sub-ledgers for each of the class A-E notes.
Only the class A ledger will amortise subject to a floor of 50%
of the initial amount. Amortisation will occur subject to
certain strict conditions when the outstanding balance of class A
notes is less than 50% of the amount at closing. After the
respective classes of notes have amortised the corresponding
reserve sub-ledgers will be equal to zero and will be released to
the principal waterfall. On legal final maturity of the notes
any remaining amounts will be released to the principal
waterfall. In addition, principal to pay interest is available
to pay the interest rate on the class A notes or for class B to E
notes in case they become the most senior notes outstanding.
Moody's Parameter Sensitivities: At the time the rating was
assigned, the model output indicated that class A would have
achieved Aaa rating if the expected loss was as high as 4.5%
assuming MILAN CE of 11.0% and all other factors remained the
same.
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 servicer Quion is not rated by Moody's, which introduces
operational risk into the transaction. Operational risk is
mitigated by the appointment of a back-up servicer facilitator
(BNP Paribas Securities Services, Luxembourg Branch (part of BNP
Paribas, rated A1/P-1/ Aa3(cr)) who will assist the Issuer in
appointing a back-up servicer on best effort basis upon
termination of servicing agreement. The documentation also
contains estimation language if the servicer report is not
available due to the servicer disruption. In addition,
Intertrust Management B.V. (Intertrust, not rated) acts in the
role of cash manager.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
September 2016.
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 Moody's 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 would result in downgrade of the ratings. In
addition, a deterioration in the notes available credit
enhancement or counterparty risk due a weakening of the credit
profile of a transaction counterparty could result in a downgrade
of the ratings. Deleveraging of the capital structure or better-
than-expected performance of the underlying assets could result
in upgrade of the ratings.
The 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 and ultimate
payment of principal with respect to the class A, class B and
class C notes by the legal final maturity. In Moody's opinion,
the structure allows for ultimate payment of interest and
principal with respect to the class D and class E notes by the
legal final maturity. Moody's ratings only address the credit
risk associated with the transaction. Other non-credit risks
have not been addressed, but may have a significant effect on
yield to investors.
===============
P O R T U G A L
===============
SAGRES NO.3: Moody's Assigns (P)B1 Rating to Class C Notes
----------------------------------------------------------
Moody's Investors Service has assigned these provisional ratings
to Lusitano SME No.3 ABS notes to be issued by SAGRES Sociedade
de Titularizacao de Creditos S.A.:
EUR385.6 mil. Class A asset backed Floating Rate Notes due
2037, Assigned (P)A3 (sf)
EUR62.7 mil. Class B asset backed Floating Rate Notes due 2037,
Assigned (P)Baa3 (sf)
EUR62.7 mil. Class C asset backed Floating Rate Notes due 2037,
Assigned (P)B1 (sf)
Moody's has not assigned ratings to the EUR116.0 mil. Class D
asset backed Floating Rate Notes due 2037, EUR9.5 mil. Class E
Notes due 2037 and EUR88.8 mil. Class S asset backed residual
variable funding Notes due 2037 also to be issued in the
transaction.
Deutsche Bank AG and J.P.Morgan Securities plc have acted as co-
arrangers and lead managers.
Lusitano SME No.3 is a cash securitisation of EUR627.0M SME loan
receivables originated by Novo Banco S.A. (Caa1 /NP, "Novo
Banco") and granted to small and medium-sized enterprises (SME)
domiciled in Portugal. Novo Banco was created in August 2014 as
a bridge bank by Bank of Portugal's resolution measure on Banco
Espirito Santo. The bank will service the securitized portfolio
and a back-up servicer, Finsolutia, SA (not rated), will be
appointed at closing ready to step in as needed upon a servicer
termination event.
RATINGS RATIONALE
According to Moody's, the rating takes into account, among other
factors, (i) a loan-by-loan evaluation of the underlying
portfolio, complemented by the historical performance information
as provided by Novo Banco, (ii) the structural features of the
transaction with the inclusion of an amortising cash reserve (EUR
9.5 millions, amortizing down to the lowest of 0.5% of
outstanding A, B, C and D notes at closing and 1.5% of A, B, C
and D notes at that date if certain conditions are met) designed
to provide liquidity coverage over the life of the transaction
(only to provide credit support at maturity); and (iii) the sound
legal structure of the transaction.
Moody's notes that the transaction benefits from a series of
credit strengths, such as (i) the presence of a third party
highly rated account bank where the issuer accounts sit; (ii) the
relative low concentration in the construction and real estate
sector (20%); and (iii) a set-off dedicated reserve (either in
form of cash or in form of extra collateral) to cover for
potential set-off risk in the transaction.
On the other hand, Moody's notes that the transaction features a
number of credit weaknesses, including (i) the poor credit
quality of the originator; (ii) the back-up servicer arrangement
is rather cold, as Finsolutia, SA (not rated) in order to be
ready to step in within 90 days still needs to review in detail
Novo Banco's internal procedures; (iii) some borrower
concentration exposure with top 1, 10 and 20 accounting for
2.26%, 20.5% and 31.1%, respectively of the total portfolio
(corresponding to an effective number of 188); (iv) Novo Banco
has retained the option to replace loans whose warranties or
representation are proven untrue or have been renegotiated
outside of the permitted variations. Such substitutions may
affect up to 30% of the pool; (v) lack of a hedging mechanism to
mitigate any potential interest rate mismatch between the
portfolio and the notes, mainly related to the 35.4% of the
floating rate loans paying 1 or 6 months Euribor, the notes are
paying 3 months Euribor; and (vi) the interest on the class B and
C notes will be subordinated below principal repayments on the
class A notes in case the cumulative net default rate is above
15% of the initial portfolio. These characteristics, amongst
others, were considered in Moody's analysis and ratings.
As of the cut-off date (Sept. 9, 2016,) the portfolio principal
balance amounted to EUR 627.0 million. The portfolio is composed
of 4,545 amortizing contracts granted to 3,321 borrowers groups,
mainly small and medium-sized companies. The loans were
originated between 2004 and 2016, with a weighted average
seasoning of 4.1 years and a weighted average remaining term of
4.1 years. Around 40% of the pool is made up of mortgage loans,
mainly on commercial real estate properties. The interest rate
is floating for 99.3% of the pool current principal balance, with
a weighted average margin of 3.53%.
In its quantitative assessment and because of relative low
industry concentration of the securitised portfolio, Moody's
assumed an inverse normal default distribution for this
securitised portfolio. The rating agency derived the default
distribution, namely the relevant main inputs such as the mean
default probability and its related standard deviation, via the
analysis of: (i) the characteristics of the loan-by-loan
portfolio information, complemented by the available historical
vintage data; (ii) the potential fluctuations in the
macroeconomic environment during the lifetime of this
transaction; and (iii) the portfolio concentrations in terms of
industry sectors and single obligors. Moody's assumed the mean
cumulative default probability of the portfolio to be equal to
around 16% (equivalent to a rating proxy of B2/B3) with a
coefficient of variation (i.e. the ratio of standard deviation
over mean default rate) of around 51%. The coefficient of
variation takes into account also the uncertainties regarding the
selling process of Novo Banco and the cold back-up servicer
arrangement in place. The rating agency has assumed stochastic
recoveries with a mean recovery rate of 40%, a standard deviation
of 20% and a weighted average recovery time of around 4 years
after the default occurrence. In addition, Moody's has assumed
the prepayments to be 5% per year. The base case mean loss rate
and the coefficient of variation assumption results in a
portfolio credit enhancement of around 32%.
Furthermore, Moody's has considered: the amortisation and a
stressed yield vector of the portfolio, accounting for 100% of
the portfolio being un-hedged, and some renegotiations
possibilities. Commingling risk was also factored into the
analysis assuming the loss of the equivalent of 3 month
collection upon originator insolvency, driven also by a cold
back-up servicer arrangement.
The resolution measure and the decisions of BoP are currently
being challenged in court proceedings. However, Moody's believes
that it is unlikely the court will declare the resolution measure
invalid and, even if it were to do so, Moody's considers it
highly likely that the claimants would be awarded financial
compensation as an alternative to annulment of the resolution.
The main source of uncertainty in the analysis relates to (i) the
originator credit quality (also due to the selling process); (ii)
the servicer's renegotiation possibilities (that are however
limited by contract provisions); (iii) the potential
deterioration in the portfolio credit quality due to the addition
of substituted loans (that are however limited by contract
provisions), as well as (iv) the sovereign risk.
Stress Scenarios:
Moody's also tested other assumptions under its Parameter
Sensitivities analysis. The results show that the model output
would have been Baa2, Ba2 and Caa1 for Class A, B and C
respectively if the mean default rate assumption was to increase
to 20% (corresponding to a weak B3 proxy rating) and the mean
recovery rate was to decrease to 30%, all other parameters being
kept unchanged.
For rating this transaction Moody's used the following models:
(i) ABSROM to model the cash flows and determine the loss for
each tranche and (ii) CDOROM to derive the default distribution
applicable to this transaction.
More specifically, Moody's ABSROM cash flow model evaluates all
default scenarios occurring that are then weighted considering
the probabilities of such default scenarios as defined by the
transaction-specific default distribution. On the recovery side
Moody's assumes a stochastic (normal) recovery distribution which
is correlated to the default distribution. 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 for each tranche is the sum product of (i) the
probability of occurrence of each default scenario; and (ii) the
loss derived from the cash flow model in each default scenario
for each tranche. As such, Moody's analysis encompasses the
assessment of stressed scenarios.
Moody's used CDOROM to derive the coefficient of variation of the
default distribution for this transaction. The Moody's CDOROM
model is a Monte Carlo simulation which takes borrower specific
Moody's default probabilities as input. Each borrower reference
entity is modelled individually with a standard multi-factor
model incorporating intra- and inter-industry correlation. The
correlation structure is based on a Gaussian copula. In each
Monte Carlo scenario, defaults are simulated.
The 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 and ultimate
payment of principal with respect to the Notes by the legal final
maturity for Class A only. Moody's ratings address only the
credit risk associated with the transaction, Other non-credit
risks have not been addressed but may have a significant effect
on yield to investors.
No previous ratings were assigned to this transaction.
Factors that would lead to an upgrade or downgrade of the
ratings:
Factors or circumstances that could lead to a downgrade of the
rating affected by today's action would be (1) the worse-than-
expected performance of the underlying collateral; (2)
deterioration in the credit quality of the counterparties; and
(3) an increase in Portugal's sovereign risk.
Factors or circumstances that could lead to an upgrade of the
ratings affected by today's action would be a marked improvement
in Novo Banco credit profile.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating SME Balance Sheet Securitizations"
published in October 2015.
=============
R O M A N I A
=============
COMPLEXUL ENERGETIC: Exits Insolvency After Appeal Court Ruling
---------------------------------------------------------------
Romania Insider reports that Romanian state-owned energy complex
Complexul Energetic Hunedoara will exit insolvency after the Alba
Iulia Court of Appeal decided on Nov. 8 to cancel the decision of
the Hunedoara Court from June, which approved the company's
insolvency.
The decision of the Alba Iulia Court of Appeal is final, Romania
Insider notes. According to Romania Insider, the insolvency
house GMC SPRL Craiova, which has managed the energy complex
since June, will receive a fixed amount of RON32,000 (EUR7,100)
for its work in the last three months.
On December 28 last year, the power producer's administration
board agreed that CE Hunedoara needed to enter insolvency and
restructure to avoid bankruptcy, Romania Insider recounts. The
company entered the insolvency procedure in January, Romania
Insider relays, citing the decision made by the Hunedoara Court.
This was followed by a series of court decisions that cancelled
or approved again the insolvency, Romania Insider notes.
The company has total debts of over EUR332 million, and some
EUR266 million of them are debts to the Finance Ministry, Romania
Insider discloses.
=========
S P A I N
=========
TELEFONICA SA: Moody's Lowers Preferred Stock Ratings to Ba2
------------------------------------------------------------
Moody's Investors Service has downgraded the long-term senior
unsecured ratings of leading global integrated telecommunications
provider Telefonica S.A. and its guaranteed subsidiaries to Baa3
from Baa2, the preferred stock ratings to Ba2 from Ba1, and the
short-term ratings to Prime-3 from Prime-2. These rating actions
follow Telefonica's recent decision to revise its financial
strategy such that it is now unlikely to meet the previously
stated deleveraging targets by December 2017. The revised
financial strategy includes organic deleveraging targets, such as
growing free cash flow generation and a reduction of dividend
payments. Additionally inorganic measures or asset sales remain
available but execution will be de-risked and based on strategic
plus value creation merits. The outlook on the ratings is
stable.
"Downgrading Telefonica's ratings by one notch to Baa3 reflects
the company's revised strategy to pay down debt through organic
free cash flow and only sell non-strategic assets on an
opportunistic basis. While its dividend reduction is a step in
the right direction as it will preserve cash and help to
progressively reduce debt, this change in strategy will delay its
efforts to de-lever by December 2017," says Carlos Winzer, a
Moody's Senior Vice President and lead analyst for Telefonica.
Telefonica recently confirmed that it is no longer committed to a
maximum reported leverage ratio of 2.35x (which is broadly
equivalent to a Moody's net adjusted debt/EBITDA ratio of around
3.0x) and slowed down the execution of a plan to reduce debt
through asset sales and the IPOs of O2 plc and Telxius Telecom
S.A. (Telxius).
Moody's had stated back in May 2016 that Telefonica's Baa2 rating
could be downgraded without clear evidence of progress made by
the company toward deleveraging this calendar year, with the
expectation of full deleveraging by the second half of 2017.
RATINGS RATIONALE
The rating downgrades reflect Telefonica's weaker than previously
expected financial ratios because it is unlikely to meet the
previous deleveraging plan through December 2017. Although
Moody's expects underlying operating performance to continue to
improve, this -- together with the cut in dividend -- is not
sufficient to fully offset the expected delay in deleveraging at
the previous rating level.
The Baa3 senior unsecured rating reflects the rating agency's
expectation that Telefonica will continue to improve its
underlying operating performance. Recently announced Q3 results
support this thesis, with the improving operating performance
trend in Spain, UK and Germany gaining traction and operations in
Brazil remaining resilient to the economic recession.
Telefonica's Baa3 senior unsecured rating primarily reflects (1)
the group's large size and scale; (2) the diversification
benefits associated with its strong positions in many different
markets; (3) the enhanced technology deployment and ample fibre
roll-out in its networks, rich TV-content and bundled offers that
improve its market positioning; (4) management's track record and
ability in terms of executing a well-defined and concise business
strategy; (5) Telefonica's continued access to debt capital
markets and, as such, continued adequate liquidity, supported by
recent bond issuances; and (6) its operating cash flow generation
and management's commitment to a lower dividend pay-out
reflecting the need to reduce debt gradually without depending on
the sale of assets.
Telefonica's Baa3 senior unsecured rating also reflects the
highly competitive markets in Spain, UK and Germany and the
challenge to report revenue growth across the group. Although
the company has made a big effort to invest in enhancing its
networks, it is important that the company maintain its focus on
delivering on data monetization and the "more for more" value
strategy.
The rating also reflects the company's exposure to emerging
market risks, and to foreign currency volatility. Moody's also
notes that Telefonica fully consolidates assets that it does not
fully own, such as Telefonica Deutschland (63%), Telefonica
Brasil (74%) and Telefonica de Colombia (68%). Moody's estimates
that Telefonica's leverage on a pro rata consolidated basis would
be 0.3x higher than leverage reported on a fully consolidated
basis.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on the ratings primarily reflects Telefonica's
improving operating performance coupled with management's
willingness to progressively reduce debt and achieve its
deleveraging plan organically over time. Moody's expects that
Telefonica will continue to operate in an improved domestic
market, with more rational competition focused on value and
better underlying economic conditions that will support medium-
term revenue growth. The rating is well positioned in the Baa3
rating category, as Moody's expects that net adjusted debt/EBITDA
will progressively improve from 3.7x in 2016 to around 3.2x in
2018.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's would consider an upgrade of Telefonica's rating to Baa2
if the company's credit metrics were to strengthen significantly
as a result of improved operational cash flows and debt
reduction. More specifically, the rating could benefit from
positive pressure if it became clear that the group were able to
achieve sustainable improvements in its debt ratios, such as an
adjusted retained cash flow/net debt ratio above 22% in
percentage terms and an adjusted net debt/EBITDA ratio
comfortably below 3.0x.
Conversely, a rating downgrade could result if (1) Telefonica
were to deviate from its financial-strengthening plan, as a
result of weaker cash flow generation or difficulty in executing
announced debt reduction measures; and/or (2) the group's
operating performance in Spain and other key markets were to
deteriorate with no likelihood of short-term improvement in
underlying trends. Resulting metrics would include a retained
cash flow/net adjusted debt ratio of less than 15% and/or a net
adjusted debt/EBITDA ratio of 3.75x or higher with no expectation
of improvement.
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: Telefonica S.A.
Commercial Paper, Downgraded to P-3 from P-2
Senior Unsecured Bank Credit Facility, Downgraded to Baa3 from
Baa2
Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3
from Baa2
Issuer: Telefonica Emisiones S.A.U.
Backed Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to
Baa3 from Baa2
Issuer: Telefonica Europe B.V.
Backed Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2
Backed Preferred Stock, Downgraded to Ba2 from Ba1
Backed Senior Unsecured Bank Credit Facility, Downgraded to
Baa3 from Baa2
Backed Commercial Paper, Downgraded to P-3 from P-2
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to
Baa3 from Baa2
Backed Senior Unsecured Shelf, Downgraded to (P)Baa3 from
(P)Baa2
Issuer: Telefonica Finance USA LLC
Backed Preferred Stock, Downgraded to Ba2 from Ba1
Issuer: Telefonica Participaciones, S.A.U.
Backed Senior Unsecured Conv./Exch. Bond/Debenture, Downgraded
to Baa3 from Baa2
Outlook Actions:
Issuer: Telefonica S.A.
Outlook, Changed To Stable From Negative
Issuer: Telefonica Emisiones S.A.U.
Outlook, Changed To Stable From Negative
Issuer: Telefonica Europe B.V.
Outlook, Changed To Stable From Negative
Issuer: Telefonica Finance USA LLC
Outlook, Changed To Stable From Negative
Issuer: Telefonica Participaciones, S.A.U.
Outlook, Changed To Stable From Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Telecommunications Industry published in December 2010.
Telefonica S.A., domiciled in Madrid, Spain, is a leading global
integrated telecommunications provider, delivering a full range
of fixed and mobile telecommunications. Telefonica is one of the
world's leading telecommunications carriers, with some 349.4
million customers worldwide as of September 2016. In Latin
America (LatAm), Telefonica provided services to around 232.7
million customers as of the end of September 2016 and is the
leading operator in Brazil, Argentina, Chile and Peru, with
substantial operations in Colombia, Ecuador, El Salvador,
Guatemala, Mexico, Nicaragua, Panama, Uruguay, Costa Rica and
Venezuela. In addition to its LatAm presence since 1991,
Telefonica has a strong footprint in the UK and Germany,
providing services to around 74.9 million customers as of
September 2016. As of September 2016, approximately 75% of group
revenues and 67% of group reported EBITDA were generated outside
Spain. Moody's estimates that EBITDA minus Capex generated in
Spain represents nearly 57% of total.
===========
S W E D E N
===========
PERSTORP HOLDING: Moody's Assigns (P)B3 Rating to USD800MM Notes
----------------------------------------------------------------
Moody's Investors Service has assigned provisional (P)B3 ratings
to Perstorp Holding AB's proposed approximately USD800 million
equivalent Senior Secured First Lien Notes due in 2021, which are
expected to be split in EUR and USD, and assigned a provisional
(P)Caa2 rating to the proposed USD420 million Senior Secured
Second Lien Notes due in 2021. The notes will be used to
refinance the company's existing first lien and second lien debt
and repay approximately USD150 million of existing mezzanine
loans. The notes will benefit from a guarantee package covering
91% of EBITDA as of the twelve months to June 2016. The outlook
on all ratings is stable, conditional on the refinancing
completing as proposed. The provisional ratings are assigned
pending the completion of the refinancing transaction.
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, as well as the final terms of
the transaction, Moody's will endeavour to assign definitive
ratings to the new contemplated notes. A definitive rating may
differ from a provisional rating.
RATINGS RATIONALE
The provisional (P)B3 ratings on the proposed USD800 million
equivalent of Senior Secured First Lien Notes reflects their
priority ranking ahead of the proposed USD420 million of Senior
Secured Second Lien Notes and a proposed USD281 million mezzanine
facility (unrated), as outlined in the intercreditor agreement.
The provisional (P)Caa2 rating for the Senior Secured Second Lien
Notes reflects the relatively large amount of first priority
debt. Moody's notes that the revolving credit facility (unrated)
ranks ahead of all notes with regard to priority of payment
according to the intercreditor agreement.
Perstorp's Caa1 Corporate Family Rating (CFR) reflects (1) its
high Moody's adjusted gross leverage of 9.6x as of June 2016,
including a Mezzanine layer that accrues non-cash interest to
existing debt levels; (2) an interest expense of approximately
SEK1.5 billion (including approximately SEK1.1 billion in cash
interest expense) that is nearly equivalent to EBITDA; (3)
Moody's expectation of leverage only falling slightly below 9.0x
in FY2016, with limited deleveraging thereafter and weak cash
flow generation due to the high interest burden and capital
expenditure; (3) a degree of concentration in the company's
operating capacity, with facilities at Stenungsund and Perstorp;
(4) its exposure to a weak oxo-chemicals market leading to
declining EBITDA in 1H 2016 and cyclical customer industries; (5)
exposure to exchange rate fluctuations with a considerable cost
base in Swedish Krona; as well as (6) challenges from volatile
feedstock prices.
However, the rating also reflects (1) Perstorp's strong position
as an established independent player in the niche chemical
markets for polyols and oxo intermediates, and the benefits from
an integrated business model that underpin solid margins; (2)
improvement in 2014, 2015 and Q3 2016 operating performance
supported by higher sales volume following capacity increases
over the past two years, lower feedstock prices as well as
favorable FX movements; and (3) adequate liquidity assuming the
proposed refinancing despite weak cash generation due to the size
of the SEK1 billion revolver, which is fully available.
Moody's understands that Perstorp has a leading market position
in Capa, Penta and TMP products and the rating agency believes
that it is currently number three in the European oxo chemical 2-
EH market after Oxea S.ar.l (B3 negative) and Zaklady (unrated).
The oxo market has suffered from a buildup of capacity in China
and more recently in the Middle East. In combination with
slowing demand growth in Asia, this has led to global capacity
utilisation declining from around 90% in 2013 to close to 80% in
2015 and through the first half of this year. Going forward
Moody's expects a lack of new capacity additions will allow oxo
market capacity utilization to slowly improve from 2017 onwards,
driven by demand in line with GDP growth.
Perstorp reported sales of SEK11.1billion (EUR1.2 billion) in
2015, flat with 2014. When 3% volume increases and favourable FX
movements, especially the stronger USD vs SEK, were offset by an
8% fall in prices, driven by reduced raw material prices.
Volumes benefitted from the startup of Perstorp's major capex
project, Valerox, in January 2015 but were impacted by the
shutdown of its Stenungsund plant in the second half of the year.
In 2015, reported EBITDA of SEK1.7 billion was up 26%, with
EBITDA margins increasing to 15% from 11.9%. The company
benefited from increasing unit margins in its specialties &
solutions division throughout the year but had an estimated
SEK130 million hit to EBITDA from the plant shutdown. Moody's
adjusted funds from operations (FFO) was only SEK134 million (1%
of debt) due to Perstorp's large approximately SEK1.5 billion
interest expense, including the 7.5% PIK interest on the
approximately SEK3.2 billion mezzanine loan during 2015. This,
in combination with Moody's adjusted capital expenditure of
SEK687 million led to negative free cash flow of SEK332 million.
Gross adjusted debt/EBITDA declined to 8.3x from 10.3x, as EBITDA
growth far outweighed the increase in debt from the PIK interest
on the mezzanine facility, but leverage still remained very high.
For FY 2016, Moody's expects sales to decline approximately 4%,
following a 9% decline in the first nine months of the year,
driven by the advanced chemicals & derivatives division, which
has suffered from a weak oxo market. For 2017, we then expect
low single digit growth as Perstorp benefits from additional
volumes from its new Valerox business and focuses on high growth
areas of its other businesses, like powder coatings and PVB
plasticisers.
Moody's expects reported EBITDA for FY 2016 of approximately
SEK1.7 billion, roughly flat with 2015 after falling 3% in the
first nine months of the year. The rating agency expects the
significant declines in the oxo market to stabilize by the fourth
quarter and the specialties & solutions division to continue to
build on the 30% growth it showed in the first half of the year.
For 2017, Moody's expects reported EBITDA to remain at
approximately SEK1.7 billion because sales growth is offset by
declining group EBITDA margins, as the oxo market slowly recovers
but the specialties business margins reduce from very elevated
levels. The rating agency expects the company to spend
approximately SEK500-600 million in adjusted capital expenditure
a year (including approximately SEK350 million for maintenance),
leading to negative free cash flow of between SEK50-150 million
in FY2016 and FY2017. Moody's expects leverage to be slightly
below 9.0x in 2016 with only limited deleveraging thereafter.
Assuming the proposed refinancing is successful, Moody's views
Perstorp's liquidity as adequate for the next 12-18 months. As
of 30 June 2016, the company had SEK502 million of unrestricted
cash and pro forma for the refinancing, an undrawn new SEK1
billion revolver credit facility (RCF).
Assuming the cash interest expense does not increase following
the proposed refinancing, Moody's views liquidity as sufficient
to cover expectations of SEK50-150 million negative free cash
flow a year. A successful refinancing will also deal with the
current debt structure, which matures during the course of next
year. The new RCF and extended mezzanine will have maintenance
covenants referencing net leverage and interest cover and Moody's
expects them to have adequate headroom over the next 12-18
months.
RATING OUTLOOK
The stable outlook reflects Moody's view that the company's
operating performance and cash flow will continue the improvement
seen in Q3 2016, benefitting from increased volumes and lower
capex from the completion of the Valerox project and that it will
maintain an adequate liquidity position, addressing its debt
instruments well in advance of their maturities. It also assumes
that the interest expense slightly decreases following the
proposed refinancing.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's currently does not expect any upwards pressure on the
rating, but it may occur if the company successfully executes on
its growth plans, resulting in sustained visible EBITDA growth
and Moody's adjusted debt/EBITDA falling below 5.5x. The rating
agency would also expect sustained free cash flow generation
while the company maintains solid liquidity, including
refinancing the current debt for any positive pressure.
Conversely, negative pressure would develop if EBITDA growth
fails to materialize, Moody's adjusted debt/EBITDA increases from
the current level or if the company's liquidity profile becomes
inadequate. Negative pressure also increases as the company
approaches its debt maturity dates.
The principal methodology used in these ratings was Global
Chemical Industry Rating Methodology published in December 2013.
Headquartered in Perstorp, Sweden, Perstorp Holding AB, is a
chemical company mainly producing Polyols and Oxo intermediates
that are used in a variety of products, including resins,
coatings and plasticisers for various end markets. The company
is owned by funds managed by private equity firm PAI partners SAS
(86%) and management (14%). For the year ending December 2015,
Perstorp reported SEK11.1 billion in revenues and EBITDA of
SEK1.7 billion.
===========================
U N I T E D K I N G D O M
===========================
AERO INVENTORY: FRC Imposes GBP4MM Fine on Deloitte Over Audit
--------------------------------------------------------------
Ben Martin at The Telegraph reports that Deloitte has been hit by
a record GBP4 million fine and must pay at least GBP2.3 million
in costs after the accountancy watchdog found that misconduct by
the "Big Four" firm led to a now-collapsed aircraft parts
wholesaler giving misleading financial information to investors.
The Financial Reporting Council (FRC) also issued John Clennett,
a partner at Deloitte, with a severe reprimand and a GBP150,000
penalty following a long-running investigation into the auditing
of Aim-listed Aero Inventory, which fell into administration
seven years ago, The Telegraph relates. Deloitte has been
ordered to bear all the costs relating to the case and must make
an initial payment of GBP2,275,000, with the bill potentially
rising, The Telegraph discloses.
The fines were levied after a five-week hearing by an independent
tribunal found that both Deloitte and Mr. Clennett's conduct
"fell significantly short of the standards reasonably to be
expected" of them as members of the Institute of Chartered
Accountants in England and Wales and brings an end to the
watchdog's probe into Aero, The Telegraph relays.
Aero was a supplier of spare parts such as air conditioning
systems to airlines including Ryanair and easyJet and failed
following the discovery of accounting irregularities, which
eventually prompted its banks to pull their funding from the
company, The Telegraph recounts.
The irregularities came to light when accountants began readying
the business for a move from Aim to the prestigious main market
of the stock exchange, The Telegraph relays. Auditors raised
questions about not just the book value of its stock but also the
physical quantities it held, The Telegraph notes.
The FRC, as cited by The Telegraph, said the tribunal had upheld
three allegations against Deloitte and Mr. Clennett linked to
Aero's accounts between 2006 and 2008.
CO-OPERATIVE BANK: Fitch Affirms 'B' LT Issuer Default Rating
-------------------------------------------------------------
Fitch Ratings has affirmed The Co-operative Bank Plc's (Co-op
Bank) Long-Term Issuer Default Rating (IDR) at 'B' and Viability
Rating (VR) at 'b'. The Outlook on the Long-Term IDR is Stable.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
Co-op Bank's IDRs and VR reflect our expectation of a continued
erosion of its capital through losses, counterbalanced by a
stabilisation of its franchise, improving underwriting standards
and asset quality, and relatively sound liquidity. Fitch said,
"We believe the bank will continue to maintain sufficient capital
to remain viable, but its margin of safety is limited and
vulnerable to a change in economic or business conditions."
"We expect the bank to continue to report losses until at least
2017. As a result, we expect its already weak capital to reduce
further and to remain well below its Individual Capital Guidance
(ICG) set by the UK regulator, until at least 2019." Fitch said.
Its ability to generate profits is under pressure from low base
rates and high costs, and following the June 2016 EU referendum,
from a highly uncertain and possibly weakening economic
environment in the UK.
At the same time, the bank continues to face the challenge of
having to make further investments in its IT systems and risk
controls, both of which require greater investment than
originally envisaged. The highest risk the bank faces is its
ability to fund all the investments it needs from its current
capital base. "Alongside weak earnings capacity, we believe that
its ability to raise external capital is limited." Fitch said.
The structural profitability of its core business should begin to
improve from 2018, particularly once it completes unwinding the
fair value adjustments associated with its 2009 merger with
Britannia Building Society. These have had a large negative
impact on the bank's net interest margin and profitability in
2016 and will continue to impinge profitability in 2017. However,
as these reduce the profitability of its core business should
start to improve.
Nonetheless, a return to profitability is highly correlated with
its ability to generate new, better quality and higher yielding
mortgage loans and for operating costs to continue to reduce.
Costs are particularly important given the bank's strategic focus
on building up a low-risk mortgage book to form the majority of
its loan portfolio.
To improve efficiency the bank has to make further significant
investments in IT systems, to improve automation, digitalisation
and improve risk controls. It will also have to embed its risk
management framework across the organisation.
The bank has made some improvements since its turnaround strategy
was announced. Asset quality has improved significantly, with
impaired loans falling to just 4.4% of gross loans at end-1H16.
The bank achieved this by selling non-core assets and thanks to
benign economic conditions, with low levels of unemployment and
rising house prices. The latter have helped Co-op Bank's asset
performance, particularly given the high proportion of non-
conforming mortgages (in its Optimum loans and its available for
sale portfolios) in its books. However, reserve coverage of
impaired loans remains lower than average, and renders the bank's
capital somewhat vulnerable to falling real estate prices.
The bank has also made some improvements in its underwriting
standards and new mortgages are of better quality.
Co-op Bank's funding and liquidity profile have remained
relatively sound. Funds are largely obtained from customer
deposits, mostly retail but also from SMEs. Primary liquidity was
held at a reasonable 12.7% of total assets at end-1H16, which is
in line with the sector, and is of good quality. In addition, the
bank has significant access to contingent sources. Fitch said,
"However, we continue to believe that access to funding and
liquidity is correlated with banks' capital positions."
"We expect the bank's current CET1 ratio of 13.4% (end-1H16) to
reduce by end-2016 and again by end-2017, unless it is able to
reduce risk weighted assets further in a capital accretive way
during the period." Fitch said. While this continues to place it
in regulatory forbearance in terms of guidance, our base case is
that it will not break minimum capital requirements. Nonetheless,
it is vulnerable to potentially worse economic conditions (higher
unemployment, falling house prices) or higher IT requirements,
either of which could place the bank at risk of failure.
The bank's senior debt is rated in line with its IDR, reflecting
Fitch's expectations of average recovery prospects for senior
debt holders in the event of default or resolution (Recovery
Rating of 'RR4').
The bank's junior debt is not sufficient to allow for a higher
IDR than its VR.
SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)
Co-op Bank's SR and SRF reflect Fitch's view that senior
creditors cannot rely on extraordinary support from the UK
authorities in the event the group becomes non-viable given the
resolution legislation in place as well as its low systemic
importance. In our opinion, it is likely that on resolution, the
bank's senior creditors will be required to participate in losses
to resolve the bank.
RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT
Co-op Bank's ratings could be negatively affected by larger than
expected one-off losses and a continued erosion of capital,
without an improvement in the profitability of the core
franchise, or materially higher than budgeted investment needs.
The ratings could also be downgraded if management does not
continue to unwind the legacy portfolio and improve risk
management and other IT infrastructure, as this could mean that
the bank's business model becomes structurally unprofitable. A
material weakening of the economic environment in the UK could
also lead us to question the viability of the business model.
Positive rating action is highly unlikely until the bank improves
underlying profitability and capital generation, and risk control
measures strengthen further.
Senior debt is also sensitive to our assessment of recoveries
that the bank's senior debt holders could expect in the case of
default.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support its banks. While not impossible, this is highly unlikely,
in Fitch's view.
The rating actions are as follows:
-- Long-Term IDR affirmed at 'B'; Outlook Stable
-- Short-Term IDR affirmed at 'B'
-- Viability Rating affirmed at 'b'
-- Support Rating affirmed at '5'
-- Support Rating Floor affirmed at 'No Floor'
-- Senior unsecured notes' Long-term rating affirmed at
'B'/'RR4'
-- Senior unsecured notes' Short-term rating affirmed at 'B'
EDU UK: Moody's Withdraws B3 Corporate Family Rating
----------------------------------------------------
Moody's Investors Service has withdrawn the B3 corporate family
rating and B3-PD probability of default rating of EDU UK
Intermediate Limited (Study Group), following the company's
refinancing and repayment of the entire debt structure.
Concurrently, Moody's has also withdrawn the B3 instrument rating
of the GBP205 million Senior Secured Notes by EDU UK BondCo PLC.
RATINGS RATIONALE
Based on the early redemption of the GBP205 million Senior
Secured Notes on the Nov. 5, 2016, Moody's has withdrawn the B3
CFR and B3-PD PDR ratings of EDU UK Intermediate Limited, as well
as the B3 instrument rating of the GBP205 million Senior Secured
Notes, as the obligation is not outstanding.
GALA ELECTRIC: Moody's Withdraws B1 Corporate Family Rating
-----------------------------------------------------------
Moody's Investors Service has withdrawn all ratings of Gala
Electric Casinos Plc (GEC) following completion of the merger
with Ladbrokes Plc (renamed Ladbrokes Coral Group plc, Ba2
stable) on Nov. 1, 2016, and the redemption or cancellation of
all outstanding debt obligations. At the time of withdrawal, all
debt instruments have been already either redeemed or cancelled
and their ratings withdrawn.
List of affected ratings:
Withdrawals:
Issuer: Gala Electric Casinos Plc
Corporate Family Rating, Withdrawn, previously rated B1, under
review for upgrade
Probability of Default Rating, Withdrawn, previously rated B1-
PD, under review for upgrade
Outlook Actions:
Issuer: Gala Electric Casinos Plc
Outlook, Changed To Rating Withdrawn From Rating Under Review
RATINGS RATIONALE
Moody's has withdrawn the ratings of GEC for reorganization
reasons following the merger into Ladbrokes Plc which completed
on Nov. 1, 2016. In conjunction with the closing of the
transaction, all outstanding debt obligations of GEC, including
the rated debt and the unrated senior secured bank facilities,
have been either redeemed or cancelled.
Headquartered in Nottingham, England, Gala Electric Casinos Plc
was a diversified gaming company with with on and off-line
activities. The company operated primarily in the UK, although
it is also present in Italy. At the end of fiscal year ended
September (FY) 2015, and pro forma for the disposal of its retail
bingo division in Q1 2016, the company generated over GBP1
million of revenues and GBP205 of reported EBITDA.
HONOURS SERIES 2: Moody's Lowers Rating on Class B Notes to Ba1
---------------------------------------------------------------
Moody's Investors Service has downgraded the ratings of class B
notes' to Ba1 (sf) from A3 (sf), the ratings of class C notes' to
B1 (sf) from Ba2 (sf) and class D notes' ratings to Caa1 (sf)
from B3 (sf), in Honours PLC Series 2 and kept these three
ratings on review for downgrade. At the same time, Moody's
placed on review for downgrade the ratings of class A1 and class
A2 notes' A3 (sf). Honours PLC Series 2 is a UK asset-backed
securities (ABS) transaction backed by student loans.
The rating action affecting this student loans transaction was
prompted by the sharp increase in future costs associated with
the non-compliance with applicable consumer credit legislation.
Issuer: Honours PLC Series 2
GBP291.95 mil. Class A1 Notes, A3 (sf) Placed Under Review for
Possible Downgrade; previously on Aug. 31, 2011, Downgraded to
A3 (sf)
GBP54.2 mil. Class A2 Notes, A3 (sf) Placed Under Review for
Possible Downgrade; previously on Aug. 31, 2011, Downgraded to
A3 (sf)
GBP33.35 mil. Class B Notes, Downgraded to Ba1 (sf) and Placed
Under Review for Possible Downgrade; previously on July 28,
2016, Confirmed at A3 (sf)
GBP18 mil. Class C Notes, Downgraded to B1 (sf) and Placed
Under Review for Possible Downgrade; previously on July 28,
2016, Downgraded to Ba2 (sf)
GBP11.95 mil. Class D Notes, Downgraded to Caa1 (sf) and Placed
Under Review for Possible Downgrade; previously on July 28,
2016, Downgraded to B3 (sf)
RATINGS RATIONALE
In February 2016, a provision of GBP10.9 million was included in
the 2015 audited financial statements.
On Oct. 31, 2016, a notice to noteholders published by the issuer
gave an updated estimate of these future costs of up to
GBP34 million. The Issuer has estimated that around
GBP22,500,000 of interest and charges would need to be refunded
either via account book adjustments or by way of cash refunds.
The issuer also mentioned that refunds may be owed to the
Authority (UK Government) in respect of loans repurchased by the
Authority under the cancellation indemnity. The amount is
estimated to be at least GBP750,000 however, this amount is
subject to further investigation as there may be additional
amounts associated with subsidy payments that the Authority has
already made.
The Issuer informed noteholders that it will not be possible for
the relevant affected accounts to be remediated through an
automated process and that each account must be manually
processed in order to properly remediate them. The remediation
includes accounts that have repaid but could have been affected
since the change in Consumer Credit Act 2006. This brings the
total number of loans that must be investigated as part of the
remediation up to 159,621. As a result, the Issuer estimated
that the remediation process is going to be a lengthy one and is
likely to cost in the region of GBP5 million to GBP10 million for
the services of third parties to complete such remediation.
Assuming third party cost of GBP10 million, the updated
remediation plan cost would total GBP34 million. The Closing
Qualifying Loan Balance as at Sept. 30, 2016, is GBP167 million.
The current downgrade of class B, C and D Notes is based on the
assumption that the updated remediation plan cost will be fully
borne by the transaction, without any recoveries from a
counterclaim against any third party, therefore reducing
significantly future cash flow available to repay the notes.
Moody's will also await for further information to be disclosed
at the noteholder's meeting scheduled Nov. 15, 2016, and
incorporate the additional information in our analysis.
The principal methodology used in these ratings was "Moody's
Approach to Monitoring Scheduled Amortisation UK Student Loan-
Backed Securities" published in April 2015.
Factors that would lead to an upgrade or downgrade of the
ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) a decrease in the remediation plan costs, (2)
performance of the underlying collateral that is better than
Moody's expected, (3) deleveraging of the capital structure and
(4) improvements in the credit quality of the transaction
counterparties.
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in the remediation plan costs,
(2) performance of the underlying collateral that is worse than
Moody's expected, (3) deterioration in the notes' available
credit enhancement, (4) deterioration in the credit quality of
the transaction counterparties and (5) costs an increase in
sovereign risk.
LADBROKES CORAL: Fitch Affirms 'BB' LT Issuer Default Rating
------------------------------------------------------------
Fitch Ratings has affirmed Ladbrokes Coral Group plc's (Ladbrokes
Coral) Long-Term Issuer Default Rating (IDR) at 'BB', Short-Term
rating at 'B', and removed them from Rating Watch Negative (RWN).
A Stable Outlook has been assigned to the Long-Term IDR. The
affirmation follows the merger of Ladbrokes plc with GC Group
Jersey Ltd (Gala Coral).
Fitch has also assigned a final rating of 'BB' to Ladbrokes Group
Finance plc's GBP400m 5.125% notes due 2023, which is rated at
the same level as Ladbrokes Coral's IDR of 'BB', as it ranks
equally with the company's existing senior unsecured debt.
The existing ratings on the senior unsecured debt instruments of
Ladbrokes Group Finance plc are also affirmed at 'BB', and
removed from RWN.
The ratings reflect the enlarged group's strengthened business
profile, strong brand names, large retail network, growing online
presence as well as limited geographic diversity. The merger will
help the group to maintain its market position, improve
profitability through synergies and benefit from shared
innovation. The key constraints are intense competition and
moderate execution risk post-merger. Other factors are exposure
to cyclicality, technological innovation and declining over the
counter (OTC) trends, notably in horseracing.
The Stable Outlook is driven by our view of a compelling
strategic logic of the merger strengthening the group's business
profile and this is reflected in solid free cash flow (FCF)
generation in light of manageable integration risks.
KEY RATING DRIVERS
Strengthened Business Profile
Fitch expects cost savings from the merger to better position the
enlarged group against the impact of increased regulation,
allowing for further profitable growth. "We forecast revenue for
the combined group to rise to GBP2.4bn by 2018 and for EBITDA
margin to trend towards 19.5%, driven by cost savings and
improved operating performance, a strong level for the 'BB'
rating category relative to sector peers," Fitch said.
Moderate Integration Risk
"We view integration risk as moderate, which is fully reflected
in the 'BB' rating," Fitch said. Management's past M&A experience
should give them the necessary skills and knowledge needed to
combine the similar business profiles.
"We conservatively include GBP50m in our rating case forecast of
the GBP65m of synergies by 2019 expected by management," Fitch
said. Any meaningful outperformance in cost savings leading to a
permanent profit margin expansion will be deemed credit-positive.
Retail Remains Challenged
Fitch expects the combined group's net revenue and EBITDA in the
retail estate (after shop disposals) to be steady over our rating
horizon to 2018 but that OTC staking will decline. However, this
should be partly offset by improved gross win margin, in line
with the sector trends. Rising machine game revenue will also
help to offset this, underpinned by Ladbrokes' successful rollout
of machines over the past few years.
Moreover, the enlarged group will not be immune to the
forthcoming machines triennial review by the regulators. In our
rating case, we expect the group to be compliant with all
requirements; however, any material unexpected findings could be
negative for the ratings. The combined estate will have around
3,600 shops (after disposals), and about 14,500 machines and
generate about 67% of pro forma group EBITDA in 2016 (pre-
synergies).
Growth in Digital
Fitch expects the digital division to continue to grow,
underpinned by Gala Coral's successful track record and
Ladbrokes' slowly recovering performance which has gained
traction in 3Q16 (ending September 2016). "However, as
competition remains intense we expect the group will to continue
to invest heavily in marketing and content to keep its products
innovative and appealing to consumers." Fitch said. Ongoing
challenges will be maintaining its competitive position and
developing loyalty with its customer base.
"In our base case projections we forecast that digital represents
24% (pre-synergies) of group pro forma EBITDA in 2016 and will be
an increasingly important contributor to future profitability,"
Fitch said.
Steady International Performance
"Although Ladbrokes Coral will remain highly concentrated in UK
operations, we expect international performance to be fairly
steady despite challenges in certain markets," Fitch said.
Ireland continues to recover. However potential regulatory
challenges exist in Belgium while the Australian market continues
to evolve and is heavily competitive. Overall contribution to
group pro forma EBITDA at 2016 will be around 10% (pre-
synergies).
Improving Credit Metrics
"We expect 2016 (pro-forma) free cash flow (FCF) to be low due to
one-off integration costs and transaction fees. FCF margin (as a
percentage of sales) should, however, improve towards 8% in 2018
as synergies are realised. In our rating case we assume the
dividend pay-out will remain at 2015 levels. Our forecasts show
fund from operations (FFO) adjusted net leverage of around 4.0x
in 2017 before falling to 3.3x by 2018, while FFO fixed charge
cover will strengthen to 3.4x in the same period," Fitch said.
The trend in credit metrics demonstrates sound deleveraging
capacity trending towards our positive guideline by 2018, in the
absence of any adverse regulatory or tax changes, delays in the
integration process or ramp up in dividend policy post 2017.
Fitch said, "Currently we expect the group's financial discipline
will help achieve management's 2.0x net debt/EBITDA target within
18-24 months of completion of the merger (equivalent to around
3.5x Fitch-calculated FFO-adjusted net leverage)."
Average Recovery Expectations for Unsecured Creditors
The new bond issue is unsecured and ranks pari passu in line with
all existing debt. "Under the transitional considerations within
Fitch's Recovery Ratings and Notching Criteria for Non-Financial
Corporates, we assign average recovery prospects and align the
bond rating with the IDR," Fitch said.
DERIVATION SUMMARY
Ladbrokes Coral has become the UK's largest bookmaker ahead of
the incumbent, William Hill, as is well-positioned against its
peers in both licenced betting offices (LBOs) and pure online
players. The defensive merger has created a group comprising
around 3,600 LBOs, making it the owner of the largest betting
shop estate in the UK. It also benefits from two multi-channel
networks increasing market share to about 40% for the retail
business and 12.5% for the online business. No country-ceiling,
parent/subsidiary or operating environment aspects impact the
ratings.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer
include:
-- Pro forma net revenue growth of approximately 3.5% per
annum, partly offset by the disposal of stores in 2016/17
-- EBITDA margin reaching 19.5% by 2018. The improvements will
be driven by realised cost savings and synergies, as well
as improvements in the digital business following continued
top line growth in this segment surpassing operating
expenses.
-- Capex assumed at 6% of sales in 2016 and 2017, and 5%
thereafter
-- Dividends assumed to remain at 3p per share in the short-
to medium-term
-- Shop Disposals: "We have included GBP53.5m of cash received
net of costs following the disposal of 359 shops from the
group to Betfred and Stan James," Fitch said.
-- Financing: "We have assumed that the group will refinance
the bridge loan with capital markets debt, resulting in a
long-dated bullet maturity profile, backed up by the two
revolving credit facilities. We expect the group will
redeem the 2017 bond, using existing credit facilities,"
Fitch said.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
-- Successful integration and realisation of synergies
together with an improved business profile, stabilised
underlying performance and diversification of revenues
streams through its customer base, products and geographies
leading to FFO adjusted net leverage below 3.0x on a
sustained basis (2015: 4.5x), FFO fixed charge cover above
3.0x on a sustained basis (2015: 2.0x), and positive FCF on
a sustained basis (2015: 1.5%)
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action
-- Material deterioration in operating performance or
regulation impacting on profitability and financial
flexibility leading to FFO adjusted net leverage trending
towards 4.0x on a sustained basis, FFO fixed charge cover
below 2.5x on a sustained basis and negative FCF
LIQUIDITY
Satisfactory Liquidity
"In 2016 we expect the enlarged group to have sufficient
liquidity supported by a GBP750m revolving credit facility, of
which we expect at least GBP500m to be undrawn, and by
unrestricted cash on balance sheet subject to various financing
transactions related to the merger. The next major maturity is a
GBP225m bond due March 2017. We expect Ladbrokes Coral to repay
this through drawings on its RCF. This will be followed by the
residual debt drawn on the bridge to bond facility of around
GBP200m maturing July 2018, which we expect to be refinanced in
the near term." Fitch said.
LONDON & REGIONAL: Moody's Confirms B1 Rating on Class C Notes
--------------------------------------------------------------
Moody's Investors Service has confirmed the ratings of three
classes of Notes issued by London & Regional Debt Securitisation
No. 2 plc:
GBP190 mil. Class A Notes, Confirmed at Baa1 (sf); previously
on Aug. 1, 2016, Baa1 (sf) Placed Under Review for Possible
Downgrade
GBP16 mil. Class B Notes, Confirmed at Baa3 (sf); previously on
Aug. 1, 2016, Baa3 (sf) Placed Under Review for Possible
Downgrade
GBP50 mil. Class C Notes, Confirmed at B1 (sf); previously on
Aug. 1, 2016, B1 (sf) Placed Under Review for Possible
Downgrade
The Class A, B and Class C Notes were placed on review for
possible downgrade on Aug. 1, 2016.
The action concludes Moody's review of the transaction.
RATINGS RATIONALE
The rating action reflects the confirmation received by Moody's
that the underlying loan repaid in full at loan maturity in
October 2016, the proceeds of which were used to redeem the
outstanding balance of all notes. Moody's will subsequently
withdraw the ratings on the notes.
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.
Factors that would lead to an upgrade or downgrade of the
ratings:
The notes have repaid in full and the ratings will subsequently
be withdrawn.
LONDON WELSH: Still Hopeful of Phoenix Group Takeover
-----------------------------------------------------
Dan Lucas at The Guardian reports that a former managing director
of London Welsh has expressed his confidence that a takeover
aimed at saving the club from insolvency will be completed.
The Guardian relates that the Exiles faced a second winding-up
order hearing at the high court on Oct. 31, less than two months
after they announced that a sale and purchase agreement had been
signed for their acquisition by a "major Californian-based
investment group" -- which the Guardian has learned is the
Phoenix Group -- aimed at securing London Welsh's long-term
financial security.
Their most recent set of accounts showed losses of almost GBP1.2
million, with the club owing GBP855,764 to creditors within a
year and GBP1,007,628 to longer-term creditors, the Guardian
discloses.
However, the future of one of one of the oldest clubs in English
rugby appears uncertain again, says the Guardian. A source at the
Rugby Football Union has confirmed that they have not received an
application from London Welsh for the takeover while insiders at
the club have also expressed their scepticism about the desire of
Phoenix Group, or any other organisation, to secure control of
the Championship club, according to the Guardian.
But, speaking to the Guardian, John Taylor, the former Wales and
British Lions flanker and London Welsh managing director between
2009 and 2013, insisted the takeover is real enough and, having
confirmed Phoenix Group is the interested party, said it remains
likely to go through.
"There is some uncertainty around it still and my understanding
is that it revolves around the sale of a big company to Chinese
investors," the Guardian quotes Mr. Taylor as saying. "The delays
and the uncertainty [are] very definitely about the transaction
on the sale going through."
Mr. Taylor is taking a "backseat" role in the takeover after
being one of those involved in the 2009 purchase of the club by
Neil Hollinshead, who was jailed in 2014 for defrauding the club
when it hit financial difficulties. Mr. Taylor is still involved
behind the scenes in planning for the west London club's future,
which Welsh said could be done "with confidence and renewed
enthusiasm" upon announcing the acquisition, the Guardian
relates.
An earlier winding-up order was dismissed on September 5 after
the club paid its debt to HMRC and it was thought at the time
that the Phoenix Group had put forward the cash, the Guardian
says. However, an anonymous email, which came from a source close
to one of the board members, alleged that this amount, claimed to
be GBP140,000, was paid by one of the club's mini rugby coaches.
The Guardian contacted London Welsh regarding the takeover but a
club spokesman declined to comment.
Meanwhile, BBC Sport reports that London Welsh have been given
more time to pay outstanding debts.
The Championship club announced in a statement on Oct. 31 that an
insolvency court had granted an adjournment "for a number of
weeks".
The statement added: "The club remains confident that it will be
able to satisfy such outstanding amounts," BBC Sport adds.
London Welsh Rugby Football Club, formed in 1885, is a rugby
union club based in Old Deer Park, Richmond-upon-Thames.
WILLIAM ANELAY: Owes GBP12.6MM to Creditors After Administration
----------------------------------------------------------------
The Yorkshire Post reports that William Anelay went into
administration owing more than GBP12 million to creditors.
Family-run William Anelay, which had been trading since 1747, was
placed into administration in September when a company voluntary
arrangement proved unviable, leading to 132 job losses, The
Yorkshire Post recounts.
The GBP38 million-turnover York firm ran into cash flow
difficulties following expansion and problems with some complex
projects, The Yorkshire Post discloses.
An initial report filed by insolvency specialists at Begbies
Traynor said unsecured creditor claims totalled about GBP12.6
million at the time of administration, The Yorkshire Post
relates.
Of the GBP12.6 million, GBP11.8 million was owed to trade
creditors and almost GBP300,000 to HM Revenue & Customs in
respect of PAYE and National Insurance contributions,
The Yorkshire Post notes.
More claims are expected to emerge as the administration
progresses, The Yorkshire Post states.
According to The Yorkshire Post, the outcome for creditors
centers on a deal agreed with restoration firm The Szerelmey
Group, which acquired a controlling interest in four associated
companies of William Anelay following the administration.
* UK: Government to Bail Out Insolvent Colleges
-----------------------------------------------
Jude Burke at FE Week reports that the government has announced
new rules which will allow it to repeatedly bail out failing
colleges that go bust, reneging on a previous commitment.
The new Technical and Further Education Bill announced on Oct. 20
includes provisions to apply a 'special administration regime' to
insolvent colleges and sixth forms in order to put the interests
of learners ahead of the interests of creditors, according to the
report.
FE Week relates that when it first announced the proposals in
March, the Department for Education said it would not provide
financial support to failing colleges once area review
recommendations had been implemented -- and that they would be
allowed to go bust. However, the DfE has now U-turned on that
promise, and confirmed that extra cash would be made available if
needed.
"The Secretary of State would of course want any special
administration to be successful and will have wide powers to
provide funding if necessary to achieve this," it has now said,
in a response to a consultation on the insolvency regime plans,
FE Week relays. "Our intention is that these powers will allow
funding to be provided by grant or loan as well as guarantee or
indemnity".
However, it did warn that colleges shouldn't feel entitled to
repeated bailouts, adding: "While the special administration
regime will provide a necessary safety net for colleges and their
learners, its use will be exceptional," FE Week reports.
FE Week says the DfE's volte-face was met with scorn by the
Association of Employment and Learning Providers, which
represents non-college FE providers.
"Observers might be forgiven for thinking that no matter how
incompetently an institution is managed, the government will
always bail it out," the report quotes chief executive Mark Dawe
as saying.
He reiterated AELP's long-standing call for a level playing-field
between the different types of provider, and urged the SFA to
allow other providers to bid for ownership of failing colleges,
relates FE Week.
David Hughes, meanwhile, the chief executive of the Association
of Colleges, welcomed the government's focus on protecting the
interests of learners -- but didn't comment directly on the U-
turn, adds FE Week.
===============
X X X X X X X X
===============
* BOOK REVIEW: Transnational Mergers and Acquisitions
-----------------------------------------------------
Author: Sarkis J. Khoury
Publisher: Beard Books
Softcover: 292 pages
List Price: $34.95
Review by Gail Owens Hoelscher
Order your personal copy today at http://is.gd/hl7cni
Transnational Mergers and Acquisitions in the United States will
appeal to a wide range of readers. Dr. Khoury's analysis is
valuable for managers involved in transnational acquisitions,
whether they are acquiring companies or being acquired
themselves.
At the same time, he provides a comprehensive and large-scale
look at the industrial sector of the U.S. economy that proves
very useful for policy makers even today. With its nearly 100
tables of data and numerous examples, Khoury provides a wealth of
information for business historians and researchers as well.
Until the late 1960s, we Americans were confident (some might say
smug) in our belief that U.S. direct investment abroad would
continue to grow as it had in the 1950s and 1960s, and that we
would dominate the other large world economies in foreign
investment for some time to come. And then came the 1970s, U.S.
investment abroad stood at $78 billion, in contrast to only $13
billion in foreign investment in the U.S. In 1978, however, only
eight years later, foreign investment in the U.S. had skyrocketed
to nearly #41 billion, about half of it in acquisition of U.S.
firms. Foreign acquisitions of U.S. companies grew from 20 in
1970 to 188 in 1978. The tables had turned an Americans were
worried. Acquisitions in the banking and insurance sectors were
increasing sharply, which in particular alarmed many analysts.
Thus, when it was first published in 1980, this book met a
growing need for analytical and empirical data on this rapidly
increasing flow of foreign investment money into the U.S., much
of it in acquisitions. Khoury answers many of the questions
arising from the situation as it stood in 1980, many of which are
applicable today: What are the motives for transnational
acquisitions? How do foreign firms plans, evaluate, and negotiate
mergers in the U.S.? What are the effects of these acquisitions
on competition, money and capital markets; relative technological
position; balance of payments and economic policy in the U.S.?
To begin to answer these questions, Khoury researched foreign
investment in the U.S. from 1790 to 1979. His historical review
includes foreign firms' industry preferences, choice of location
in the U.S., and methods for penetrating the U.S. market. He
notes the importance of foreign investment to growth in the U.S.,
particularly until the early 20th century, and that prior to the
1970s, foreign investment had grown steadily throughout U.S.
history, with lapses during and after the world wars.
Khoury found that rates of return to foreign companies were not
excessive. He determined that the effect on the U.S. economy was
generally positive and concluded that restricting the inflow of
direct and indirect foreign investment would hinder U.S. economic
growth both in the short term and long term. Further, he found no
compelling reason to restrict the activities of multinational
corporations in the U.S. from a policy perspective. Khoury's
research broke new ground and provided input for economic policy
at just the right time.
Sarkis J. Khoury holds a Ph.D. in International Finance from
Wharton. He teaches finance and international finance at the
University of California, Riverside, and serves as the Executive
Director of International Programs at the Anderson Graduate
School of Business.
*********
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.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000 or Nina Novak at
202-362-8552.
* * * End of Transmission * * *