/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/161117.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Thursday, November 17, 2016, Vol. 17, No. 228 Headlines C R O A T I A BADEL 1862: Calls on Meteor to Help in Financial Restructuring G E R M A N Y LANXESS AG: Moody's Assigns (P)Ba2 Rating to Subordinated Notes G R E E C E GREECE: Launches New Round of Bailout Talks with Creditors I R E L A N D EUROCREDIT CDO V: S&P Raises Rating on Class E Notes to B+ IARNROD EIREANN: May Face Insolvency, More Funding Needed I T A L Y BANCA MONTE: Unveils Terms of Proposed Debt-to-Equity Conversion N E T H E R L A N D S BBVA GLOBAL: Moody's Lowers Rating on Series No. 64 Notes to Ba1 CADOGAN SQUARE CLO VII: S&P Affirms BB Rating on Class E Notes PDM CLO I: S&P Raises Rating on Class E Notes to BB- N O R W A Y ISLAND OFFSHORE: In Creditor Talks, Halts Amortization Payments R U S S I A SOVCOMBANK: Fitch Hikes Long Term Issuer Default Ratings to 'BB-' U K R A I N E UKRAINE: Fitch Hikes Long Term Issuer Default Ratings to 'B-' U N I T E D K I N G D O M BIBBY OFFSHORE: Moody's Lowers CFR to Caa2, Outlook Negative KAYBOO LTD: In Administration, Corran's Operations Continue SALISBURY 2015-1: Fitch Puts 'BB-' Class N Notes Rating on RWP SOUTHERN PACIFIC 05-2: S&P Cuts Rating on Class D1a Notes to BB ********* ============= C R O A T I A ============= BADEL 1862: Calls on Meteor to Help in Financial Restructuring -------------------------------------------------------------- SeeNews reports that Croatian alcoholic and soft drinks producer Badel 1862 on Nov. 16 announced a decision to invite a potential strategic investor, local chemical products maker Meteor, to aid with the company's financial and operational restructuring as part of pre-bankruptcy proceedings. Badel 1862 has extended the invitation to Meteor under a public call for strategic investors launched in May, it said in a filing with the Zagreb bourse, SeeNews relates. According to SeeNews, Badel also said that together with Meteor and Badel's creditors, it will work intensively towards ending the pre-bankruptcy procedure and achieving capital adequacy, both of which are essential in ensuring the company's long-term viability. In May, Badel 1862 said it had received letters of intent in a strategic partnership tender from Meteor, Zagreb-based trade company Ostrc, Split-based Stanic Grupa and Slovakia's largest producer of spirit drinks St. Nicolaus, SeeNews recounts. In September, however, Badel announced that Meteor had acquired over 67.5% of the claims registered in the pre-bankruptcy settlement of the company -- a move allowing Meteor alone to make a decision on the company's financial and operational restructuring, SeeNews relays. ============= G E R M A N Y ============= LANXESS AG: Moody's Assigns (P)Ba2 Rating to Subordinated Notes --------------------------------------------------------------- Moody's Investors Service has assigned a provisional (P)Ba2 rating to the proposed issuance of Subordinated Resettable Fixed Rate Notes by Lanxess AG. The rating outlook is stable. The size and completion of the Hybrid transaction are subject to market conditions. In September 2016, Lanxess announced its decision to acquire US based specialty chemical company, Chemtura Corporation ("Chemtura", Ba3 review for upgrade) for an enterprise value of approximately EUR2.4 billion. The transaction, which is expected to close around mid-2017, remains subject to approval by Chemtura shareholders, regulatory approvals and certain other customary closing conditions. Following the placement of two EUR500 million senior unsecured bonds at the end of September, Lanxess intends to issue hybrid securities in benchmark size as part of the long-term financing of the Chemtura transaction. RATINGS RATIONALE The rating of (P)Ba2 is two notches lower than Lanxess's Baa3 senior unsecured rating. This reflects the features of the proposed Hybrid securities in relation to the existing senior unsecured obligations of Lanxess rated Baa3. The proposed Hybrid is deeply subordinated, has a 60-year maturity, no events of default and Lanxess can opt to defer coupons on a cumulative basis. In Moody's view, the Hybrid has equity-like features that allow it to receive basket 'C' treatment, which corresponds to 50% equity treatment of the borrowing for the calculation of the credit ratios by Moody's. Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign definitive ratings to the Hybrid and senior unsecured bonds. A definitive rating may differ from a provisional rating. As the Hybrid rating is positioned relative to another rating of Lanxess, either (i) a change in the senior unsecured rating of Lanxess, or (ii) a re-evaluation of its relative notching, could impact the Hybrid rating. Downward pressure on the ratings may result from (i) Lanxess's failure to sustain the ongoing recovery in its operating profitability and/or (ii) another large debt funded acquisition, either of which would lead to some permanent deterioration in financial metrics (leaving aside potential near-term volatility in pension adjustment), including total debt to EBITDA rising towards 4x and retained cash flow (RCF) to net debt falling below 20%. Conversely, the rating could be upgraded following the successful completion of Phase 2 of the realignment and efficiency programme in parallel with the smooth integration of Chemtura, as evidenced by an EBITDA margin rising into the mid-teens and sustained strengthening in financial metrics including RCF to total debt in the mid-20s. The principal methodology used in this rating was Global Chemical Industry Rating Methodology published in December 2013. Headquartered in Cologne, Germany, Lanxess AG is a leading European chemical company with reported sales of EUR7.9 billion and reported EBITDA of EUR885 million for the financial year ended Dec. 31, 2015. =========== G R E E C E =========== GREECE: Launches New Round of Bailout Talks with Creditors ---------------------------------------------------------- The Associated Press reports that the Greek government has launched a new round of talks with bailout creditors on demanded reforms and cutbacks, whose success could lead to a lightening of the country's debt load. The negotiations started in Athens on Nov. 15 with meetings between the ministers of finance, energy and development and representatives of Greece's European partners and the International Monetary Fund, The Associated Press relates. Bailout inspectors are also due to meet the labor minister to discuss potentially thorny issues such as pensions reform, The Associated Press discloses. Greece's left-led government wants to have the talks wrapped up by a Dec. 5 meeting of finance ministers from the 19-country eurozone, The Associated Press notes. Greek officials hope the ministers will back some short term debt relief measures, and specify further medium- and long-term debt assistance, The Associated Press states. ============= I R E L A N D ============= EUROCREDIT CDO V: S&P Raises Rating on Class E Notes to B+ ---------------------------------------------------------- S&P Global Ratings raised its credit ratings on Eurocredit CDO V PLC's class C, D, and E notes. At the same time, S&P has affirmed its rating on the class B notes. The rating actions follow S&P's assessment of the transaction's performance using data from the Sept. 2, 2016 note valuation report. Eurocredit CDO V has been amortizing since the end of its reinvestment period in September 2012. Since S&P's previous review on Oct. 8, 2015, the aggregate collateral balance has decreased by 16% to EUR101.45 million from EUR120.15 million. S&P subjected the capital structure to a cash flow analysis to determine the break-even default rate (BDR) for each rated class at each rating level. The BDR represents S&P's estimate of the maximum level of gross defaults, based on its stress assumptions, that a tranche can withstand and still fully repay the noteholders. In S&P's analysis, it used the portfolio balance that it considers to be performing (EUR101,448,370), the current weighted-average spread (3.62%), and the weighted-average recovery rates calculated in line with S&P's revised corporate collateralized debt obligations (CDOs) criteria. S&P applied various cash flow stresses, using its standard default patterns, in conjunction with different interest rate and currency stress scenarios. The class B notes (the senior-most class of notes outstanding) have continued to pay down since S&P's previous review and currently have a note factor (the current notional amount divided by the notional amount at closing) of 16.5% following repayments of EUR25.95 million in the last year. In S&P's view, this has increased the available credit enhancement for all of the rated notes. The weighted-average spread earned on the assets has marginally dropped to 362 basis points (bps) from 368 bps since S&P's previous review. At the same time, the number of distinct obligors in the portfolio has reduced to 26 from 32 over the same period as the portfolio is deleveraging, post the transaction's re-investment period. The top 10 largest obligors account for 65.5% of the portfolio. The portfolio's average credit quality has remained stable as an increase in the proportion of assets rated in the 'CCC' category ('CCC+', 'CCC', or 'CCC-') is mitigated by the positive migration to the 'BB' category from the 'B' category. The par coverage tests comply with the documented required triggers. Non-euro-denominated assets currently comprise 2.25% of the total performing assets. Any resultant currency risk (all outstanding liabilities are denominated in euros) is unhedged and S&P modeled this as an additional risk in our analysis. S&P has also applied its structured finance ratings above the sovereign criteria. S&P considers the transaction's exposure to sovereign risk to be within the threshold levels detailed in these criteria and have therefore not applied any additional stress in S&P's analysis. In S&P's opinion, the increased available credit enhancement for the class C, D, and E notes is now commensurate with higher ratings than those previously assigned. S&P has therefore raised to 'AAA (sf)' from 'AA+ (sf)' its rating on the class C notes, to 'BBB+ (sf)' from 'BB+ (sf)' our rating on the class D notes, and to 'B+ (sf)' from 'B- (sf)' our rating on the class E notes. S&P has affirmed its 'AAA (sf)' rating on the class B notes as it believes the available credit enhancement remains commensurate with that rating level. Eurocredit CDO V is a cash flow collateralized loan obligation (CLO) transaction that securitizes loans to primarily speculative-grade corporate firms. The transaction closed in September 2006 and is managed by Intermediate Capital Group PLC. RATINGS LIST Eurocredit CDO V PLC EUR606 Million Senior Secured Deferrable Floating-Rate Notes Class Rating To From Ratings Raised C AAA (sf) AA+ (sf) D BBB+ (sf) BB+ (sf) E B+ (sf) B- (sf) Rating Affirmed B AAA (sf) IARNROD EIREANN: May Face Insolvency, More Funding Needed --------------------------------------------------------- Less than one-tenth of those who commute into and around Dublin travel by rail, The Irish Times' Sarah Bardon relays, citing a major report on Ireland's railways which warns that Iarnrod Eireann could face insolvency unless it gets more State money. The National Transport Authority's review was considered by Cabinet on Nov. 15 and later published -- it declares the semi- State needs an extra EUR103 million a year over the next five years to ensure its survival, The Irish Times relates. The report argues some rural routes should be considered for closure, The Irish Times notes. The review, as cited by The Irish Times, said all five stations between Ballybrophy and Limerick -- Roscrea, Cloughjordan, Nenagh, Birdhill and Castleconnell -- and all four stations between Limerick Junction and Waterford -- Tipperary town, Cahir, Clonmel and Carrick-on-Suir -- are among the 15 least-used on the network. Labour TD Alan Kelly criticized closure calls, saying more investment is needed, The Irish Times discloses. According to The Irish Times, David Franks, chief executive of Iarnrod Eireann, said the State subvention must rise, or else fares will have to do so. The current level of funding is "unsustainable" and was the primary cause for the deterioration of the infrastructure, The Irish Times notes. ========= I T A L Y ========= BANCA MONTE: Unveils Terms of Proposed Debt-to-Equity Conversion ---------------------------------------------------------------- Silvia Aloisi and Stephen Jewkes at Reuters report that ailing Italian lender Monte dei Paschi di Siena on Nov. 14 announced the terms of a planned debt-to-equity conversion, a key plank of a rescue scheme aimed at averting the bank being wound down. The bank said the voluntary debt swap offer would target EUR4.289 billion (GBP3.68 billion) of subordinated bonds, Reuters relates. It was also considering converting a hybrid financial instrument known as Fresh 2008 worth EUR1 billion, Reuters discloses. The debt-to-equity swap is a crucial leg of a EUR5 billion (US$5.4 billion) rescue plan aimed at meeting regulators' concerns about the bank's capital position and bad loans, Reuters notes. The bank aims to raise its equity by more than EUR1 billion as a result of the debt conversion, Reuters relays, citing a source with knowledge of the matter, with the rest of the EUR5 billion coming from one or more cornerstone investors and a share sale on the market. Under the rescue plan, the bank also aims to transfer some EUR28 billion of bad loans to a special vehicle, which will securitize them and put them up for sale, Reuters says. A debt swap would reduce the amount of cash Monte dei Paschi needs to raise on the market, boosting its chances of pulling off the rescue plan which is seen as a test of investor confidence in Italy's battered banking sector, Reuters states. According to Reuters, the bank said that if take-up of the planned conversion offer was judged not to be successful, it would be unable to launch the share sale and could be subject to European bail-in rules for dealing with bank crises, which include among other things the forced conversion of subordinated bonds. The bank aims to launch the debt swap by the end of this month, after a Nov. 24 shareholder meeting which is due to approve the rescue scheme, Reuters discloses. About Monte dei Paschi Banca Monte dei Paschi di Siena SpA -- http://www.mps.it/-- is an Italy-based company engaged in the banking sector. It provides traditional banking services, asset management and private banking, including life insurance, pension funds and investment trusts. In addition, it offers investment banking, including project finance, merchant banking and financial advisory services. The Company comprises more than 3,000 branches, and a structure of channels of distribution. Banca Monte dei Paschi di Siena Group has subsidiaries located throughout Italy, Europe, America, Asia and North Africa. It has numerous subsidiaries, including Mps Sim SpA, MPS Capital Services Banca per le Imprese SpA, MPS Banca Personale SpA, Banca Toscana SpA, Monte Paschi Ireland Ltd. and Banca MP Belgio SpA. ===================== N E T H E R L A N D S ===================== BBVA GLOBAL: Moody's Lowers Rating on Series No. 64 Notes to Ba1 ---------------------------------------------------------------- Moody's Investors Service has downgraded the rating on these notes issued by BBVA Global Markets B.V.: Series Number 64 (under the Euro 2,000,000,000 Structured Medium Term Note Programme), USD15,000,000 Credit Linked Notes due 2018, Downgraded to Ba1 (sf); previously on June 19, 2015, Upgraded to Baa3 (sf) RATINGS RATIONALE Moody's explained that the rating action taken today is the result of a rating action on Telefonica S.A., which was downgraded to Baa3 from Baa2 on Nov. 7, 2016. The transaction is a credit linked note issued by BBVA Global Markets B.V., referencing Telefonica S.A. and guaranteed by Banco Bilbao Vizcaya Argentaria, S.A. Methodology Underlying the Rating Action: The principal methodology used in this rating was "Moody's Approach to Rating Repackaged Securities" published in June 2015. Factors that would lead to an upgrade or downgrade of the rating: The noteholders are mainly exposed to the credit risk of the guarantor and the underlying asset. A downgrade or upgrade of either the guarantor and the underlying asset could trigger a downgrade or upgrade on the Notes. Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, which could negatively impact the ratings of the notes, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) more specifically, any uncertainty associated with the underlying credits in the transaction could have a direct impact on the repackaged transaction. Loss and Cash Flow Analysis: Moody's quantitative analysis focuses on the risks relating to the credit quality of the guarantor and the underlying asset. Moody's generally determine the expected loss posed to securities holders by adding together the severities for loss scenarios arising from either Underlying Asset default, and if applicable, hedge counterparty risk, each weighted according to its respective probability. Moody's then translate the expected loss to a rating using its idealized loss rates. CADOGAN SQUARE CLO VII: S&P Affirms BB Rating on Class E Notes -------------------------------------------------------------- S&P Global Ratings affirmed its credit ratings on Cadogan Square CLO VII B.V.'s class A, B, C, D, and E notes following the transaction's effective date. Most European cash flow collateralized loan obligations (CLOs) close before purchasing the full amount of their targeted level of portfolio collateral. On the closing date, the collateral manager typically covenants to purchase the remaining collateral within the guidelines specified in the transaction documents to reach the target level of portfolio collateral. Typically, the CLO transaction documents specify a date by which the targeted level of portfolio collateral must be reached. The "effective date" for a CLO transaction is usually the earlier of the date on which the transaction acquires the target level of portfolio collateral, or the date defined in the transaction documents. Most transaction documents contain provisions directing the trustee to request the rating agencies that have issued ratings upon closing to affirm the ratings issued on the closing date after reviewing the effective date portfolio (typically referred to as an "effective date rating affirmation"). An effective date rating affirmation reflects S&P's opinion that the portfolio collateral purchased by the issuer, as reported to us by the trustee and collateral manager, in combination with the transaction's structure, provides sufficient credit support to maintain the ratings that S&P assigned on the transaction's closing date. The effective date reports provide a summary of certain information that S&P used in its analysis and the results of S&P's review based on the information presented to S&P. S&P believes the transaction may see some benefit from allowing a window of time after the closing date for the collateral manager to acquire the remaining assets for a CLO transaction. This window of time is typically referred to as a "ramp-up period". Because some CLO transactions may acquire most of their assets from the new-issue leveraged loan market, the ramp-up period may give collateral managers the flexibility to acquire a more diverse portfolio of assets. For a CLO that has not purchased its full target level of portfolio collateral by the closing date, S&P's ratings on the closing date and prior to its effective date review are generally based on the application of S&P's criteria to a combination of purchased collateral, collateral committed to be purchased, and the indicative portfolio of assets provided to S&P by the collateral manager, and may also reflect its assumptions about the transaction's investment guidelines. This is because not all assets in the portfolio have been purchased. When S&P receives a request to issue an effective date rating affirmation, it performs quantitative and qualitative analysis of the transaction in accordance with S&P's criteria to assess whether the initial ratings remain consistent with the credit enhancement based on the effective date collateral portfolio. S&P's analysis relies on the use of CDO Evaluator to estimate a scenario default rate at each rating level based on the effective date portfolio, cash flow modeling to determine the appropriate percentile break-even default rate at each rating level, the application of S&P's supplemental tests, and the analytical judgment of a rating committee. In S&P's published effective date report, it discusses its analysis of the information provided by the transaction's trustee and collateral manager in support of their request for effective date rating affirmation. In most instances, S&P intends to publish an effective date report each time it issues an effective date rating affirmation on a publicly rated European cash flow CLO. On an ongoing basis after S&P issues an effective date rating affirmation, it will periodically review whether, in its view, the current ratings on the notes remain consistent with the credit quality of the assets, the credit enhancement available to support the notes, and other factors, and take rating actions as S&P deems necessary. RATINGS LIST Class Rating Cadogan Square CLO VII B.V. EUR411.35 Million Senior Secured Floating-Rate Notes And Subordinated Notes Ratings Affirmed A AAA (sf) B AA (sf) C A (sf) D BBB (sf) E BB (sf) PDM CLO I: S&P Raises Rating on Class E Notes to BB- ---------------------------------------------------- S&P Global Ratings raised its credit ratings on PDM CLO I B.V.'s class B, C, and E notes. At the same time S&P has affirmed its ratings on the class A and D notes. The rating actions follow S&P's analysis of the transaction's performance and the application of its relevant criteria. Since S&P's March 21, 2016 review, the class A notes have amortized by nearly EUR28 million, representing a more than 22% reduction in the principal amount outstanding. Taking into account the notes' amortization and the evolution of the total collateral amount, overcollateralization has increased for all the rated classes of notes since S&P's previous review. S&P subjected the capital structure to its cash flow analysis to determine the break-even default rate (BDR) for each class of notes at each rating level. The BDRs represent S&P's estimate of the level of asset defaults that the notes can withstand and still fully pay interest and principal to the noteholders. S&P has estimated future defaults in the portfolio in each rating scenario by applying its updated corporate collateralized debt obligation (CDO) criteria. S&P's analysis shows that the available credit enhancement for the class B, C, and E notes is now commensurate with higher ratings than those previously assigned. Therefore, S&P has raised its ratings on the class B, C, and E notes. While the available credit enhancement for the class D notes has increased since S&P's previous review, the increase is insufficient to pass its credit and cash flows at higher rating levels. S&P has therefore affirmed its 'BBB+ (sf)' rating on the class D notes. S&P's credit and cash flow analysis indicates that the class A notes can support the stresses that it applies at the 'AAA' rating level. S&P has therefore affirmed its 'AAA (sf)' rating on the class A notes. PDM CLO I is a cash flow collateralized loan obligation (CLO) transaction managed by Permira Debt Managers Group Holdings Ltd. A portfolio of loans to U.S. and European speculative-grade corporates backs the transaction. PDM CLO I closed in December 2007 and its reinvestment period ended in February 2015. RATINGS LIST PDM CLO I B.V. EUR300 Million Secured Floating-Rate And Subordinated Notes Class Rating To From Ratings Raised B AAA (sf) AA+ (sf) C AA (sf) A+ (sf) E BB- (sf) B+ (sf) Ratings Affirmed A AAA (sf) D BBB+ (sf) =========== N O R W A Y =========== ISLAND OFFSHORE: In Creditor Talks, Halts Amortization Payments --------------------------------------------------------------- Offshore Energy Today reports that Island Offshore has decided to stop amortization payments, citing tough market conditions. According to Offshore Energy Today, the company has said the move is a part of the company's strategy to address its long-term financing structure with the aim of restructuring its balance sheet. "The Group has, as many others within our industry, during the last two years suffered from the general deterioration in the offshore service market. The Group has taken a number of measures to improve its financial situation but the continued deterioration/lack of improvement to the general market conditions necessitates a more structured approach to the Group's financial and operational situation," Offshore Energy Today quotes Island Offshore as saying. Presenting its plan to tackle its financing woes on Nov. 15, Island Offshore said that it began discussions with its creditors, Offshore Energy Today relates. "While these discussions are ongoing, the Group has decided with effect from November 14, 2016, to temporarily halt all payments of amortization to its secured finance providers. The Group will, however, continue paying interest on the debt to the finance providers as it falls due. The secured finance providers have been informed of such payment halt," the company, as cited by Offshore Energy Today, said. Island Offshore is a Norwegian offshore vessel owner. It had 28 vessels at the end of the second quarter 2016. =========== R U S S I A =========== SOVCOMBANK: Fitch Hikes Long Term Issuer Default Ratings to 'BB-' ----------------------------------------------------------------- Fitch Ratings has upgraded Sovcombank's (SCB) and SDM Bank's (SDM) Long-Term Issuer Default Ratings (IDRs) to 'BB-' from 'B+'. The Outlooks on both banks' ratings are Stable. Fitch has also affirmed the IDRs of Locko-Bank (Locko), Absolut Bank (Absolut), Expobank (EB) at 'B+', and Russian Universal Bank (Rusuniversal) at 'B'. The Outlook on Locko has been revised to Stable from Negative. The Outlook on Absolut remains Negative and those on EB and Rusuniversal remain Stable. The rating actions reflect the banks' fairly stable financial performance through the credit downcycle, in particular (i) limited asset quality deterioration (somewhat higher in Absolut, partly due to the acquisition of a small failed bank), (ii) generally healthy performance (especially robust in SCB, but weak in Absolut), and (iii) reasonable capital buffers (stronger in SDM and EB). Negatively, the ratings continue to reflect the banks' fairly narrow franchises resulting in, among other things, significant balance sheet concentrations and some uncertainty regarding the future growth strategy in a still challenging environment. The upgrade of SDM and SCB and their one-notch higher ratings than Locko, Absolut and EB reflect their stronger financial metrics relative to peers and an extended track record of more resilient asset quality and earnings through the credit cycle. The one-notch lower rating of Rusuniversal compared with Locko, Absolut and EB reflects its limited franchise, which effectively caps the rating at 'B'. The Negative Outlook on Absolut reflects (i) considerable downside asset quality risks mostly stemming from reportedly performing but potentially vulnerable credit exposures and investment properties, (ii) and modest pre-impairment profitability, which may be insufficient to absorb impairment losses related to the above-mentioned exposures. The Stable Outlooks on the other five banks reflect Fitch's view that their pre-impairment profitability should be sufficient to cover potential loan impairments and avoid losses hitting capital. KEY RATING DRIVERS IDRS, VRS AND NATIONAL RATINGS SCB At end-1H16, SCB's reported NPLs were at low 4.2% of gross loans and were mainly attributable to the bank's retail book (37% of total loans). Corporate book was mainly represented by granular, low-risk exposures to Russian sub-sovereigns and municipalities or top tier companies, which are predominantly state-owned or rated at' BB' or higher. The quality of bond portfolio (around 60% of total assets) is also strong as 85% of bonds are also rated 'BB' or higher. Downside asset quality risks stem from sizable exposure to a failed Russian bank (15% of end-1H16 Fitch Core Capital (FCC)). Subsequently this exposure was 50% provisioned and reduced to 6-7% of FCC at end-3Q16. Fitch views SCB core performance as robust despite around 60% of operating profit in 1H16 being derived from positive mark-to- market (MTM) revaluation of the bond portfolio, which is a volatile income source. But even net of these MTN gains annualised return on average equity (ROAE) for 1H16 and 2015 was solid at 37% and 28%, respectively. Material interest rate risk exists given the size of the bond book, but this is mitigated by the high issuer diversification and solid capital buffer relative to potential MTM losses and the bank's track record of managing this risk (in the worst case there is an option to classify bonds into held to maturity category to avoid MTM losses). SCB has predominantly been funded by fairly granular retail deposits (43% of total liabilities at end-1H16) and secured repo borrowings from the Central Bank of Russia (CBR) and large Russian banks (a further 45% of liabilities). Liquidity is supported by a sizable liquidity cushion, including cash and unpledged securities (29% of end-1H16 total liabilities), and a high-quality loan book (11% of liabilities), which also, at least partially, could be pledged with the CBR. SDM SDM's NPLs remained a low 1.3% of end-1H16 gross loans with restructured loans accounting for an additional 2.3%, compared with 5.6% loan impairment reserves. Despite high concentrations (top 25 borrowers accounted for 58% of end-1H16 corporate loans or 1.8x FCC), Fitch views the quality of SDM's largest exposures as generally adequate. The higher-risk part is exposure to construction and property rental businesses (48% of FCC), but these are well covered by hard collateral. SDM's capital position improved in 1H16, as expressed by a 17.2% FCC ratio (compared with14.6% at end-2015), due to a 16.5% return on equity for 2015. Current regulatory capitalisation allows absorption of about 12% of loan losses, which is a solid buffer. Fitch does not expect capital ratios to materially decrease in the near-term due to limited loan growth. Pre-impairment profit (annualised 9% of average loans in 1H16) benefits from fairly low funding costs (5% in 1H16), reflecting SDM's high share of interest-free customer accounts (37% of end- 1H16 liabilities). Liquidity risks are mitigated by a considerable liquidity cushion, which was sufficient to withstand a substantial 65% reduction in customer funding at end-9M16. LOCKO NPLs accounted for a moderate 7% of gross loans at end-1H16 (5% at end-2015), while restructured loans made up an additional 7% (4.3% at end-2015). NPLs were 0.8x covered by reserves at same date, which is adequate in Fitch's view, because the bank has sound recovery prospects for few largest NPLs. Single borrower concentration is moderate: top 25 borrowers accounted for 1x FCC and most of them were exposed to real estate and construction (total 0.6x FCC). Fitch views half of these loans as of adequate risk since they are amortising and underlying projects are performing, while the other half (0.3x FCC) is of higher risk, as the collateral is fairly illiquid real estate objects, although loan-to-value (LTV) is reasonable in most cases. Restructured loans perform adequately under renegotiated terms. The bank's FCC ratio was a sound 18.3% at end-1H16 (20.3% at end- 2015), regulatory Tier 1 ratio was lower 10.3% (6% required minimum) at end-9M16 and total ratio was 11.6% (8% required minimum), due to more conservative risk weighting in regulatory accounts. The bank would have been able to book additional impairment reserves equal to 8% (up to 14% total) of gross loans without breaching the regulatory minimum. Annualised pre- impairment profit equalled 7% (largely due to high securities gains, while net of that it would be 5%) of gross loans also underpins adequate loss absorption capacity. Funding concentration is low (20-largest clients accounted for a moderate 20% of end-1H16 total customer accounts). Locko had a large cushion of liquid assets as of end-8M16: net of potential money market repayments maturing within the next 12 months, liquidity buffer covers customer accounts by 39%. EB EB's asset quality has slightly deteriorated over the last 12 months as NPLs increased to 3.6% of gross loans at end-1H16 (1.3x reserved) from a negligible 0.6% at end-2015 (2.3x reserved), due to the default of two of its largest borrowers, which had been fully reserved. The bank's loan book is highly concentrated by name (25-largest borrowers made up 78% of total loans, or 1.5x FCC). The potentially more volatile real estate and construction sector represented 43% of gross loans; however, in many cases the collateral is completed projects with reasonable LTVs. The bank's FCC ratio was a comfortable 18.5% at end-1H16. The regulatory Tier 1 ratio was a lower 10.5% (6% required minimum) at end-9M16 due to more conservative risk-weighted assets calculation in regulatory accounts and current year earnings of around 2% of RWAs, which were not audited and therefore accounted as Tier 2 capital. Fitch estimates that the bank's regulatory capital buffer is sufficient to increase impairment reserves up to a considerable 23%, from the current 7%. EB demonstrates reasonable execution of M&A deals, including the recent (in 1H16) acquisition of Royal Bank of Scotland Russia (RBSR) with a substantial discount resulting in a RUB1.8bn gain. This also supported the overall profitability (annualised ROAE of 54% in 1H16), while net of that gain, ROAE would have been 18%, although also largely due to MTM gains on securities. The profitability of the core banking business is modest. The bank's liquidity cushion covered customer accounts by a high 80% at end-1H16, while market refinancing needs are limited. EB is likely to repay at least a part of corporate accounts inherited from RBSR although these made up only 15% of total customer accounts at end-9M16. Absolut Absolut's credit profile benefits from a strong commitment of the majority shareholder, Non-State Pension Fund Blagosostoyanie (NPFB), ultimately controlled by JSC Russian Railways (BBB- /Negative), in assisting the bank in its development. The fund has a track record of providing considerable funding and equity capital to the bank and Absolut's significant involvement in servicing companies related to NPFB and Russian Railways. At end-1H16, the bank's reported FCC ratio was at 9.4%, which improved to 11.3% after a new RUB5bn equity injection by NPFB in September 2016. Regulatory core tier 1 capital ratio at end-9M16 was also reasonable at 7.9% (minimum 6%). However, Fitch views Absolut's capital in the context of bank's vulnerable asset quality and modest core performance (the bank's ROAE of 8% in 1H16 was solely due to a gain from the recognition of negative goodwill on the acquisition of failed BaltInvestBank). Absolut's NPLs were at 7.8% of gross loans at end-1H16, up from 3% at end-1H15, due to failure of two fairly large borrowers. Restructured loans made up a further 17% (14% at end-2015) due to the acquisition of BaltInvestBank. Additional downside asset quality risks stem from considerable exposure to potentially low liquid, high risk unrated domestic bonds (32% of post-recap FCC), and sizable non-core investment properties (69% of post- recapitalisaion FCC). The bank's liquidity is moderate with a buffer covering 21% of customer accounts at end-1H16. Absolut faces only moderate refinancing risk as wholesale funding maturing within 12 months (RUB19bn, or 7% of end-1H16 liabilities) was significantly below the bank's liquid assets, which equalled RUB43bn (16% of end-1H16 liabilities). Rusuniversal Rusuniversal's IDRs are constrained by the bank's narrow franchise, highly concentrated mostly relationship-based concentrated business and tighter regulation on banking services to defence industry enterprises that may adversely affect Rusuniversal's business. Positively, the ratings acknowledge Rusuniversal's strong financial metrics. Rusuniversal focuses mainly on defence sector companies with whom the bank's management and shareholders have long-standing relations. Both loans and deposits are extremely concentrated. The bank had only 13 corporate loans (while retail lending is negligible), while the top 10 depositors represented 86% of total customer accounts at end-1H16. Regulatory risk stems from some overlap between depositors and borrowers. Fitch also believes that tighter regulation may result in about 25% of Rusuniversal's customer accounts moving to other banks. Although this would be manageable for the bank given full coverage of customer accounts by liquid assets, this could negatively affect Rusuniversal's business and performance. Rusuniversal's metrics remain robust. The bank has zero NPLs and very high regulatory capitalisation (total capital ratio was above 100% at end-9M16). SUPPORT RATINGS AND SUPPORT RATING FLOORS The '5' Support Ratings (SRs) for all six banks reflect Fitch's view that support from the banks' shareholders, although possible, cannot be relied upon. The Support Ratings and Support Rating Floors (SRFs) of 'No Floor' also reflect that support from the Russian authorities, cannot be relied upon due to the banks' small size and lack of overall systemic importance. Accordingly, the IDRs of all six banks are based on their intrinsic financial strengths, as reflected by their VRs. SENIOR UNSECURED DEBT RATINGS The banks' senior unsecured debt, where rated, is affirmed at the same level as their Long-Term IDRs and National Ratings, reflecting Fitch's view of average recovery prospects, in case of default. SUBORDINATED DEBT RATINGS Absolut's 'new-style' Tier 2 subordinated debt rating is affirmed and is one notch below the bank's VR, in accordance with Fitch's criteria for rating such instruments. This includes (i) zero notches for additional non-performance risk relative to the VR, as Fitch believes these instruments should only absorb losses once a bank reaches, or is very close to, the point of non- viability; (ii) one notch for loss severity, reflecting below- average recoveries in case of default. RATING SENSITIVITIES IDRS, VRS, NATIONAL RATINGS Downside pressure on all six banks' IDRs stems from potential asset quality deterioration if it erodes any of the banks' profitability and capital. These risks are higher for Absolut bank as expressed by the Negative Outlook on its ratings. A significant liquidity squeeze would also be credit-negative. Upside for SCB and SDM is limited by their small franchises. Upside for Locko's and EB's ratings would be contingent on improvement in asset quality, an extended track record of reasonable financial metrics and adaptation of business models to more traditional banking (EB) and a low interest rate environment. Franchise limitations also constrain any upside for Rusuniversal's ratings. The rating could be downgraded if the bank's franchise narrows as a result of tightening regulation. SUPPORT RATINGS AND SUPPORT RATING FLOORS Positive rating action is unlikely in the foreseeable future, although acquisition by a stronger owner could lead to an upgrade of the Support Ratings. SENIOR UNSECURED DEBT AND SUBORDINATED DEBT Senior unsecured debt ratings are sensitive to changes in banks' IDRs. Absolut's subordinated debt rating will move in tandem with the bank's VR. The rating actions are as follows: SCB -- Long-Term Foreign and Local Currency IDRs: upgraded to BB- from 'B+'; Outlooks Stable -- Short-Term Foreign Currency IDR: affirmed at 'B' -- National Long-Term Rating: upgraded to 'A+(rus)'from 'A(rus)'; Outlook Stable -- Viability Rating: upgraded to 'bb-' from 'b+' -- Support Rating: affirmed at '5' -- Support Rating Floor: affirmed at 'No Floor' -- Senior unsecured debt: assigned at 'BB-' SDM -- Long-Term Foreign and Local Currency IDRs: upgraded to 'BB- ' from 'B+'; Outlooks Stable -- Short-Term Foreign Currency IDR: affirmed at 'B' -- Viability Rating: upgraded to 'bb-' from 'b+' -- Support Rating: affirmed at '5' -- Support Rating Floor: affirmed at 'No Floor' -- National Long-Term Rating: upgraded to 'A+(rus)' from 'A- (rus)'; Outlook Stable Locko -- Long-Term Foreign and Local Currency IDRs: affirmed at 'B+', Outlooks revised to Stable from Negative -- Short-Term Foreign Currency IDR: affirmed at 'B' -- Viability Rating: affirmed at 'b+' -- Support Rating: affirmed at '5' -- Support Rating Floor: affirmed at 'No Floor' -- National Long-Term Rating: affirmed at 'A-(rus)', Outlook revised to Stable from Negative -- Senior unsecured debt: affirmed at 'B+'/Recovery Rating 'RR4' and 'B+(EXP)'/Recovery Rating 'RR4(EXP)' -- Senior unsecured debt National long-term rating: affirmed at 'A-(rus)'and 'A- (rus)(EXP)' Expobank LLC: -- Long-Term Foreign and Local Currency IDRs: affirmed at 'B+'; Outlooks Stable -- Short-Term Foreign Currency IDR affirmed at 'B' -- Support Rating affirmed at '5' -- Viability Rating affirmed at 'b+' -- Support Rating Floor affirmed at 'No Floor' -- National Long-Term Rating affirmed at 'A-(rus)'; Outlook Stable -- Senior unsecured debt affirmed at 'B+'/Recovery Rating 'RR4' -- Senior unsecured debt National long-term rating affirmed at 'A-(rus)' Absolut Bank -- Long-Term Foreign and Local Currency IDRs: affirmed at 'B+'; Outlooks Negative -- Short-Term Foreign Currency IDR: affirmed at 'B' -- Viability Rating affirmed at 'b+' -- Support Rating affirmed at '5' -- Support Rating Floor: affirmed at 'No Floor' -- National Long-Term Rating affirmed at 'A-(rus)'; Outlook Negative -- Senior unsecured debt: affirmed at 'B+'/Recovery Rating 'RR4' -- Senior unsecured debt National long-term rating: affirmed at 'A-(rus)' -- Subordinated debt: affirmed at 'B'/Recovery Rating 'RR5' -- Subordinated debt National long-term rating: affirmed at 'BBB+(rus)' Russian Universal Bank: -- Long-Term Foreign and Local Currency IDRs affirmed at 'B', Outlook Stable -- National Long-Term Rating affirmed at 'BBB-(rus)', Outlook Stable -- Short-Term Foreign Currency IDR affirmed at 'B' -- Viability Rating affirmed at 'b' -- Support Rating affirmed at '5' -- Support Rating Floor affirmed at 'No Floor' ============= U K R A I N E ============= UKRAINE: Fitch Hikes Long Term Issuer Default Ratings to 'B-' ------------------------------------------------------------- Fitch Ratings has upgraded Ukraine's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B-' from 'CCC'. The Outlook is Stable. The issue ratings on Ukraine's long-term senior unsecured foreign- and local-currency bonds are also upgraded to 'B-' from 'CCC', and the sovereign's short-term senior unsecured foreign- and local-currency bonds are upgraded to 'B' from 'C'. The Country Ceiling has been upgraded to 'B-' from 'CCC' and the Short-Term Foreign- and Local-Currency IDRs to 'B' from 'C'. KEY RATING DRIVERS The upgrade of Ukraine's IDRs reflects the following key rating drivers and their relative weights: High External financing pressures have eased. International reserves have increased by USD2bn over the first 10 months of 2016 to USD15.5bn (around 3.5 months of current external payments), due to bilateral and multilateral support, improvement in some export prices, greater domestic confidence and increased exchange rate flexibility. However, the liquidity ratio remains weak and well below the 'B' median. The IMF disbursed USD1bn after completing the delayed second review of Ukraine's Extended Fund Facility (EFF) in September, and a third USD1bn US-guaranteed Eurobond issue was placed. Further disbursements from the IMF and other international partners depend on progress in structural reform, which is subject to execution risks, and developments in bilateral relations. External debt repayments to multilateral and bilateral creditors are manageable, and external market debt amortisations resume only in 2019. Domestic debt roll-over risk is limited, as 91% of the debt stock is held by the central bank and state-owned banks. Some USD1.5bn in cash in Ukraine's treasury provides the sovereign with space to bridge gaps in external disbursements in the short-term. The current account deficit is expected to widen moderately to 2.5% of GDP in 2016 from 0.2% in 2015 and approach 3% over the forecast period to 2018 However, multilateral and bilateral financing, as well as improving domestic confidence supporting higher net capital inflows, will generate increases in international reserves forecast to average USD2.3bn over 2017- 2018. The macroeconomic policy framework has been strengthened through increased exchange rate flexibility and tight monetary policy. Macroeconomic stability has improved, despite the delay in completing the second EFF review, as reflected by rapidly declining inflation, slower currency depreciation and a mild growth recovery. Inflation is forecast to average 14.9% in 2016, down from 48.5% in 2015, but well above the 4.6% 'B' median. The National Bank of Ukraine (NBU) is working towards putting in place an inflation- targeting regime that seeks to gradually reduce inflation to 5% by 2019, a goal that depends on coordination with fiscal policy and maintaining policy credibility. Ukraine's 'B' IDRs also reflect the following key rating drivers: General government debt is high, and Fitch forecasts debt to increase to 74% of GDP (89% including guarantees) in 2016, from 67% in 2015. After a sharp narrowing in the general government deficit in 2015, the challenge for authorities is to anchor fiscal gains, taking advantage of external bond debt rescheduling. Fitch expects the general government to meet its 3.7% of GDP deficit target (3.9% including Naftogaz) for 2016. The 2017 budget targets a 3% deficit, reflecting improvement in tax revenues. Failure to keep current expenditure pressures in check and to address the public pension deficit, combined with a proposed increase in minimum wage, are risks for the government's plans to gradually shrink the deficit to 2.3% by 2019. Fitch forecasts a general government deficit of 3.7% of GDP in 2017. Political risks remain significant, but near-term political volatility has eased. The slim majority government of PM Volodomyr Groysman has hit structural benchmarks to complete the EFF review in September. Continued progress with the EFF will depend on domestic and intra-government political support and continued conservative policy-making. Ukraine has never completed an IMF programme. Growth is forecast to accelerate to 2.5% in 2017 and 3% in 2018, from a projected 1.1% in 2016. While investment has supported growth in 2016, it is likely to remain low relative to 'B'-rated peers, highlighting the importance of improving the business environment. Privatisation has yet to gain momentum. The unresolved conflict in eastern Ukraine will continue to weigh on growth performance and expectations. The banking sector has stabilised, but is weak with low capitalisation levels and non-performing loans of over 50%, and poses a risk to economic stability and constrains economic recovery. Banks continue to improve capitalisation levels after an asset quality review in 2015. State-owned banks may see additional government injections, albeit at a lower level than in previous years. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Ukraine a score equivalent to a rating of 'CCC' on the Long-Term Foreign Currency IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign Currency IDR by applying its QO, relative to rated peers, as follows: -- Macro: +1 notch, to reflect Ukraine's strengthened monetary and exchange rate policy which will likely support improved macroeconomic performance and domestic confidence. Increased exchange rate flexibility allows to the economy to absorb shocks without depleting reserves. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable or not fully reflected in the SRM. RATING SENSITIVITIES The main factors that could, individually or collectively, lead to a negative rating action are: -- Re-emergence of external financing pressures, loss of confidence and increased macroeconomic instability stemming from delays to disbursements from, or the collapse of, the IMF programme. -- External or political/geopolitical shock that weakens macroeconomic performance and Ukraine's fiscal and external position. The main factors that could, individually or collectively, lead to positive rating action are: -- Increased external liquidity and external financing flexibility. -- Sustained fiscal consolidation leading to improved debt dynamics. -- Improved macroeconomic performance KEY ASSUMPTIONS -- Fitch expects neither resolution of the conflict in eastern Ukraine nor escalation of the conflict to the point of compromising overall macroeconomic performance. -- Fitch assumes the status of the outstanding USD3bn debt with Russia does not create risks for Ukraine's sovereign debt service and access to external financing. =========================== U N I T E D K I N G D O M =========================== BIBBY OFFSHORE: Moody's Lowers CFR to Caa2, Outlook Negative ------------------------------------------------------------ Moody's Investors Service downgraded Bibby Offshore Holdings Ltd's Corporate Family Rating to Caa2 from B3 and the Probability of Default Rating to Caa2-PD from B3-PD. Concurrently, Moody's also downgraded the rating of Bibby Offshore Services Plc GBP175 million senior secured notes due 2021 to Caa2 from B3. The outlook on all ratings is negative. RATINGS RATIONALE The action reflects the heightened stress on the company's operating performance, cash flow and the deterioration of the liquidity profile. Moody's expects Bibby Offshore market environment to remain difficult next year, with lack of visibility around an eventual recovery of prices. Moody's believes that the company will report a negative EBITDA this year in the range of GPB20 million to GBP25 million with limited improvement for 2017. The company's backlog remains low at GBP30 million at the end of September 2016, giving little visibility on revenue trend past 3 months. While Moody's expects some improvements in volumes next year, the rating agency believes that Bibby Offshore will continue to face pricing pressure as customers continue to cut costs in this low oil price environment. Moody's also anticipates higher idle time between jobs owing to lower visibility on tenders and hence, greater difficulty in optimizing vessel utilization. Bibby Offshore cash generation has been negative since the beginning of the year resulting in a reduction of cash on balance sheet of approximately GBP40 million out of the GBP97.1 million it had at the start of the year. Moody's believes that cash generation will remain negative in 2017 to approximately GBP30 million with increased pressure in the first half of 2017 due to seasonality. Cash generation in the second half of 2017 should slightly improve due to the anticipated positive effects of the renegotiation of charter rates. While Moody's notes that the company does not have any debt maturing before 2021 when the senior secured notes are due, the Bibby Offshore liquidity profile is weak. As at Sept. 30, 2016, the company had cash of GBP55.7 million and a super senior RCF of GBP20 million (unrated), currently used for performance bonds for an amount of GBP2.9 million. Moody's believes that the company has limited access to the RCF because of the financial covenant. Given the expected negative free cash flow, Moody's remains cautious about the level of available cash to service the debt next year. Moody's expects an adjusted EBITDA of GBP12 million for this year (including Moody's standard adjustment for operating leases), at which Moody's adjusted leverage increases to levels above 20x from 4x at the end of 2015, which is high and outside the levels expected for the B rating category. More positively, the ratings reflect: (1) the company's position as a leading regional competitor with control of key operating assets; (2) its project track record and exposure to less cyclical opex related projects and less risky reimbursable type contracts; and (3) its ability to scale investment spend to changing demand. RATING OUTLOOK The negative outlook reflects the weak market conditions and low day rates, which pressurize cash generation. WHAT COULD CHANGE THE RATING - UP Although unlikely in the short term, there could be positive pressure if (1) Moody's-adjusted debt/EBITDA ratio is below 6.0x on a sustained basis; (2) the company improves its operating performance resulting in sustained positive reported EBITDA; (3) free cash flow generation turns positive and (4) liquidity profile improves with notably pressure on covenant to access RCF alleviated. Any potential upgrade would also include an assessment of market conditions. WHAT COULD CHANGE THE RATING - DOWN Moody's could downgrade the ratings in the event of continued deterioration in operating performance and/or weakening liquidity position including negative FFO, restricted access to the RCF due to financial covenant and an unsustainable capital structure. Bibby Offshore Holdings Ltd, headquartered in Aberdeen, UK, is a leading provider of offshore and subsea services in the UK North Sea. For the financial year ended Dec. 31, 2015, Bibby Offshore reported revenues of approximately GBP241 million. Bibby Offshore is wholly owned by Bibby Line Group Limited, a diversified group of companies with international interests in shipping, marine services, logistics, financial services, offshore services and retailing, with revenue of GBP1.4 billion for the year ended Dec. 31, 2015. KAYBOO LTD: In Administration, Corran's Operations Continue ----------------------------------------------------------- Lee MacGregor at WalesOnline reports that Kayboo Ltd., the company behind plans to build 200 two, three and four bedroom lodges, a swimming pool and restaurant at the Corran Resort and Spa in Laugharne, has gone into administration. Despite an administrator being appointed at Kayboo, the Corran said it remains open for business, WalesOnline relates. General manager Sharon Adams, as cited by WalesOnline, said: "The hotel is under new management and open for business as usual. "We are unable to comment on any matters relating to the administration of Kayboo Ltd." Back in December Mr. Burnett, who lodged the application, said the plans could create 200 new jobs and bring in between GBP12 million and GBP15 million a year to the local economy, WalesOnline relays. But in December, members of the planning committee voted against the project by 12 votes to two, WalesOnline recounts. SALISBURY 2015-1: Fitch Puts 'BB-' Class N Notes Rating on RWP -------------------------------------------------------------- Fitch Ratings has placed Salisbury 2015-1's notes on Rating Watch Positive (RWP) as following: -- Class C: 'AA+(EXP)sf'; on RWP -- Class D: 'AA(EXP)sf'; on RWP -- Class E: 'AA-(EXP)sf'; on RWP -- Class F: 'A+(EXP)sf'; on RWP -- Class G: 'A(EXP)sf'; on RWP -- Class H: 'A-(EXP)sf'; on RWP -- Class I: 'BBB+(EXP)sf'; on RWP -- Class J: 'BBB(EXP)sf'; on RWP -- Class K: 'BBB-(EXP)sf'; on RWP -- Class L: 'BB+(EXP)sf'; on RWP -- Class M: 'BB(EXP)sf'; on RWP -- Class N: 'BB-(EXP)sf'; on RWP -- Class A: 'AAA(EXP)sf'; unaffected -- Class B: 'AAA(EXP)sf'; unaffected -- Class Z: not rated; unaffected KEY RATING DRIVERS The RWP reflects a model correction, which leads to a higher Rating Recovery Rate (RRR) in the Portfolio Credit Model (PCM) output. The PCM used at closing did not correctly apply the market value decline as specified by Fitch's UK RMBS Criteria. The error is related to the Region - Postcode mapping in PCM, which passes a postcode that is not recognised by Resi EMEA, the agency's residential mortgage default model. As a result the RRR produced by the PCM is lower than the correct approach. Fitch will conduct an annual surveillance review to resolve the RWP. RATING SENSITIVITIES The resolution of the RWP may result in an upgrade by one or two notches. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets have ratings from Fitch and other Nationally Recognized Statistical Rating Organizations. Fitch has relied on the practices of the relevant groups within Fitch and other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION No data has been used. SOUTHERN PACIFIC 05-2: S&P Cuts Rating on Class D1a Notes to BB --------------------------------------------------------------- S&P Global Ratings lowered to 'BB (sf)' from 'BBB- (sf)' its credit rating on Southern Pacific Securities 05-2 PLC's class D1a notes. At the same time, S&P has affirmed its ratings on all other classes of notes. The rating actions follow S&P's credit and cash flow analysis of the most recent information that S&P has received for this transaction (September 2016) and the application of its relevant criteria. In this transaction, the servicer first allocates any arrears payments to other amounts owed, then to interest amounts, and subsequently to principal. From a borrowers' perspective, the servicer first allocates any arrears payments to interest and principal amounts, and secondly to other amounts owed. This difference in the servicer's allocation of payments for the transaction and the borrower results in amounts outstanding being greater than delinquencies. Total delinquencies (including repossessions) have marginally reduced to 35.32% in September 2016 from 39.59% three years earlier at S&P's previous review. Over the same period, other amounts owed have almost doubled to 4.5%. Acenden Ltd. uses amounts outstanding to determine the level of 90+ day arrears. The transaction pays principal sequentially because the 90+ day arrears trigger of 22.5% (the current level is 45.7%) remains breached. As the amounts outstanding continue to increase, S&P considers that the transaction will likely continue paying principal sequentially and S&P has incorporated this assumption in its cash flow analysis. The transaction's total delinquencies are higher than S&P's U.K. nonconforming residential mortgage-backed securities (RMBS) index. Given the slow pace of the reduction in arrears, despite the overall improvement in S&P's index, and to address the potential for increasing arrears in the pool, S&P has projected arrears of 2.0% in its credit analysis. However, S&P has lowered its weighted-average foreclosure frequency (WAFF) assumptions since its previous review, due to greater seasoning, lower modeled arrears, and a lower proportion of second-lien and cash- out mortgages. Given the servicer's method of payment allocation for other amounts owed for the transaction, in S&P's analysis, it expects potential losses to be higher and have factored the other amounts owed into S&P's weighted-average loss severity (WALS) assumptions. Rating WAFF WALS level (%) (%) AAA 51.70 55.06 AA 46.22 46.52 A 40.53 34.45 BBB 34.96 27.64 BB 28.84 22.92 B 25.95 19.61 S&P's current counterparty criteria continue to cap the maximum achievable ratings on the classes of notes in this transaction at S&P's long-term 'A-' issuer credit rating on Barclays Bank PLC as the guaranteed investment contract (GIC) account provider. S&P has therefore affirmed its 'A- (sf)' ratings on the class C1a and C1c notes. Based on S&P's credit and cash flow analysis, the class D1a notes have experienced some interest shortfalls resulting from the amortization of the liquidity facility. S&P has therefore lowered to 'BB (sf)' from 'BBB- (sf)' its rating on the class D1a notes. S&P do not expect the class E1c notes to experience interest shortfalls in the next 12 to 18 months. S&P has therefore affirmed its 'B- (sf)' rating on the class E1c notes. Southern Pacific Securities 05-2 is a securitization of nonconforming U.K. residential mortgages originated by Southern Pacific Mortgages Ltd. and Southern Pacific Personal Loans Ltd. RATINGS LIST Class Rating To From Southern Pacific Securities 05-2 PLC EUR145.8 Million, GBP310.75 Million, And $205 Million Mortgage- Backed Floating-Rate Notes Rating Lowered D1a BB (sf) BBB- (sf) Ratings Affirmed C1a A- (sf) C1c A- (sf) E1c B- (sf) ********* 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 * * *