/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/161209.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, December 9, 2016, Vol. 17, No. 244 Headlines G E R M A N Y ATU AUTO-TEILE-UNGER: Store Chain on Brink of Insolvency PRESTIGEBIDCO GMBH: S&P Assigns Preliminary 'B' CCR PROGROUP AG: S&P Affirms 'B+' Rating on EUR345MM Fixed-Rate Notes UNISTER GLOBAL: Back in Profit, Insolvency Administrator Says G R E E C E ESTIA MORTGAGE: S&P Affirms 'CCC' Ratings on Three Note Classes I R E L A N D BUS EIREANN: Faces Strike Threat as Unions Seek 21pc Wage Hike I T A L Y CANTARELLI SS71: Launches Tendering Procedure for Business Unit MERCURY BONDCO: S&P Assigns 'B' Rating to PIK Toggle Notes MONTE DEI PASCHI: Italy Requests More Time for Rescue Plan UNICREDIT SPA: To Offload Bank Pekao Stake to Boost Capital N E T H E R L A N D S JUBILEE CDO I-R: S&P Affirms B+ Rating on Class E Notes * NETHERLANDS: Number of Bankruptcies Rises to 461 in November R U S S I A BAIKALBANK PJSC: Liabilities Exceed Assets, Inspection Shows RUSCOBANK JSC: Liabilities Exceed Assets, Investigation Shows RUSSIAN TRUST: Liabilities Exceed Assets, Assessment Shows VODOKANAL ST. PETERSBURG: S&P Affirms 'BB/B' CCRs, Outlook Stable T U R K E Y TURKIYE SISE: S&P Affirms 'BB/B' CCRs, Outlook Stable U N I T E D K I N G D O M IENERGIZER LIMITED: Moody's Affirms Caa1 Corporate Family Rating * UK: Brexit Puts 5,000 Restaurants at Risk of Insolvency X X X X X X X X * BOOK REVIEW: Risk, Uncertainty and Profit ********* ============= G E R M A N Y ============= ATU AUTO-TEILE-UNGER: Store Chain on Brink of Insolvency -------------------------------------------------------- Axel Hopner at Handelsblatt Global reports that ATU Auto-Teile- Unger has gone into administration after months of rescue talks seemingly ended in failure. Barring an 11th-hour deal being reached, the company will have little option but to file for insolvency by the end of the week, according to industry insiders, Handelsblatt relays. "It doesn't look at all hopeful," Handelsblatt quotes one investor as saying. Handelsblatt says the embattled firm, which employs 10,000 people at 600 workshops across Germany, has been owned by a group of hedge funds since 2013 and has been in financial difficulty for years. ATU Auto-Teile-Unger is a Germany-based car repair and tire chain. PRESTIGEBIDCO GMBH: S&P Assigns Preliminary 'B' CCR --------------------------------------------------- S&P Global Ratings said that it assigned its preliminary 'B' long-term corporate credit rating to PrestigeBidCo GmbH, the parent of Germany-based off-price apparel retailer Schustermann & Borenstein (S&B). The outlook is stable. At the same time, S&P assigned its preliminary 'B' issue rating to PrestigeBidCo's proposed EUR260 million senior secured notes. The recovery rating on the notes is '3', reflecting S&P's expectation of meaningful (50%-70%) recovery in the event of default. S&P also assigned a preliminary 'BB-' issue rating to Prestige's proposed EUR35 million super senior secured revolving credit facility (RCF). The recovery rating on this instrument is '1', reflecting S&P's expectation of very high (90%-100%) recovery in the event of default. The preliminary rating is subject to the successful issuance of the senior secured notes and the RCF as well as S&P's review of the final documentation. If S&P Global Ratings does not receive the final documentation within a reasonable time frame, or if the final documentation departs from the materials S&P has already reviewed, it reserves the right to withdraw or revise its ratings. The long-term rating on S&B primarily reflects the limited scale of the company and its relatively aggressive financial policy that underpins the high leverage exceeding 5x, on an S&P Global Ratings-adjusted basis pro forma the transaction. S&P views S&B's track record of earnings growth, its well-established customer and supplier relationships, and its robust interest cover metrics as supporting the rating. S&P considers that the main supports to Germany-based off-price apparel retailer S&B's business risk profile are its track record of strong growth through the economic cycle and its solid market position within the niche off-price fashion market, in particular in the online segment of the German off-price market. The company's solid share in German off-price fashion market and its loyal and affluent invitation-only customer base with above- average frequency of purchases allow the company access to an attractive stock mix. This includes the ability to offer the current season goods at discounted prices as part of overall product mix. S&B benefits from the long-term retail supplier relationships, mainly in the European off-price market, where the company sources premium brand products. In S&P's view, S&B's offering provides an important channel for premium brand retailers to reduce their less liquid stocks with limited margin erosion. S&B's business model also benefits from significant diversity of supplier brands and therefore lower susceptibility to earnings shortfall resulting from a poor performance of any one seasonal collection. S&P also considers that S&B's unique business model with its relatively flexible and scalable cost structure, low customer acquisition costs, strong online presence, and diverse supplier base will underpin growth at a higher rate than the high-single- digit compound annual growth rate industry data providers forecast for the off-price apparel market over the medium term. S&B's international expansion strategy--with a focus on Austria and Switzerland--and planned new store openings will contribute to this growth. S&P considers that the main constraints on S&B's business risk profile assessment are the relatively low level of adjusted EBITDA compared with other companies in the retail sector and its geographical concentration. With EUR50.7 million adjusted EBITDA generated in 2015, even a relatively small shortfall in earnings could have a material effect on credit metrics, thereby restricting headroom for any operational setbacks. In addition, the company generates 100% of its earnings in an off-price niche of the apparel market in Western Europe, of which over 85% is in Germany. This, in S&P's opinion, could limit S&B's ability to weather any unfavorable changes in the underlying market fundamentals. S&P also views S&B's business profile to be limited by a high seasonality in its earnings, with about 33% of sales generated in the last quarter of the year. This is exacerbated by S&B's comparably high working capital requirements due to the inherent seasonality of off-price and off-season fashion product availability on attractive terms. Following the proposed transaction, S&B's debt, with S&P's adjustments, will comprise the proposed EUR260 million senior secured notes and an operating lease adjustment of EUR57.8 million as of Dec. 31, 2015, which is increasing with sales. S&P understands that the RCF of EUR35 million will be undrawn at closing. S&P excludes from its adjusted debt about EUR420 million of proposed preferred shares due to: -- The subordinated status of this instrument; -- Its cash-preserving nature; and -- S&P's understanding that--in line with the stated financial policy--if this instrument were to be refinanced in the medium term, it would not lead to weakening of the credit metrics from the level S&P anticipates S&B will post in 2017. If any future refinancing were to lead to weakening of the credit metrics, S&P could revise the treatment of the preferred shares. "We forecast that S&B will post S&P Global Ratings-adjusted EBITDA of EUR60 million-EUR62 million in 2016, compared with EUR50.7 million in 2015 including the expenses related to the change in inventory allowances, which amounted to EUR1.3 million in 2015. We anticipate that this amount will increase with sales growth, and could affect intra-year earnings to a higher extent at the time of seasonal peak in inventory purchases. At the same time, we recognize a noncash nature of this expense, and acknowledge the conservative effect that this accounting treatment has on profitability," S&P said. In addition, S&P's adjustments to 2015 EBITDA include: -- EUR10.8 million added back on account of operating leases; -- EUR3.2 million added back on account of amortization and financing expenses related to historical acquisitions; and -- EUR3.6 million deducted on account of capitalized development costs, largely related to website development. S&P further forecasts its adjusted EBITDA of EUR65 million-EUR70 million in 2017, leading to S&P's adjusted debt to EBITDA of a little higher than 5.0x and funds from operations (FFO) to debt of about 10%. At the same time, we believe S&B will benefit from robust interest cover metrics with EBITDA interest coverage of 3x or higher over the 2017-2018 forecast period. In S&P's base case it forecasts that over the next two years, S&B will reduce its leverage, mainly due to EBITDA growth, and generate positive, but relatively low, free operating cash flow (FOCF) due to the planned expansionary investment in working capital and capital expenditure (capex). S&P do, however, acknowledges the discretionary nature of these growth investments, with S&B having the flexibility to wind-back growth expenditure should it encounter operating underperformance. S&P's base case assumes: -- A moderately growing German economy, with S&P's forecast of GDP growth of 1.5% in 2017 and 1.4% in 2018, as well as private consumption growth of 1.2% and 1.1% for 2017 and 2018, respectively; -- Strong double-digit organic sales growth driven by underlying fundamentals of the off-price fashion market and S&B's well-established online business tapping successfully into larger international markets; -- Smooth execution of the store network expansion strategy, with two openings planned over the next four years in other German cities; -- Continuing integration of recently acquired Swiss business with positive EBITDA contribution from the last quarter of 2016 on, which then results in EBITDA margins of about 16%- 18% on an S&P Global Ratings-adjusted basis; -- Capex of about EUR5 million-EUR10 million in 2017 and greater than EUR10 million in 2018; and -- No shareholder returns or acquisitions over the next two years. Based on these assumptions, and following the expected completion of the refinancing transaction, S&P arrives at these credit measures over 2017 and 2018: -- Adjusted debt to EBITDA of 5.0x-5.2x in 2017, improving to 4.4x-4.8x in 2018; -- FFO to debt of 8%-11% in 2017 and 2018; and -- EBITDA to interest coverage of about 3x. The stable outlook reflects S&P's expectation that S&B will continue its strong growth over the next 12 months. This is due to the contribution of recently acquired Swiss Online Shopping AG and organic growth underpinned mainly by its well-established online business in both the home market and internationally. S&P considers that the headroom under S&B's rating is limited, with debt to EBITDA of above 5.0x and FFO to debt at about 10% in the 12 months following the transaction, allowing little cushion for any operating underperformance. At the same time, S&P believes that S&B will benefit from adequate liquidity. S&P could lower the ratings if management's growth strategy faltered, resulting in overall lower earnings than S&P anticipates in its base case. This could be demonstrated by deteriorating margins or significantly lower sales, which result in weakened credit metrics that may include sustainable weakening of FFO to debt to materially lower than 10%, debt to EBITDA sustainably exceeding 5x, or FOCF turning negative. S&P could also lower the rating if S&B faced material deterioration in its customer base, if, for example, there was a significant change in customer behavior affecting either churn or total customer spending on products offered by S&B, without any offsetting measures to replenish its customer base. That said, based on the company's strong track record, S&P do not consider this likely to occur in the next 12 months. An upgrade would likely require a successful operating track record under the new ownership, and S&P's view of financial policy as supportive of stronger credit metrics over time. PROGROUP AG: S&P Affirms 'B+' Rating on EUR345MM Fixed-Rate Notes ----------------------------------------------------------------- S&P Global Ratings revised up to '3' from '4' its recovery ratings on German corrugated board and containerboard producer Progroup AG's EUR345 million fixed-rate notes and its floating- rate senior secured notes. S&P affirmed its issue rating at 'B+'. At the same time, S&P affirmed the 'B-' issue rating on the EUR125 million payment in kind (PIK) toggle notes issued by JH- Holding Finance. The '6' recovery rating on this debt is unchanged. The 'B+' long-term corporate credit rating on Progroup is unaffected by these actions. The outlook remains positive as a result of strong performance. RECOVERY ANALYSIS Key analytical factors -- The recovery ratings on Progroup's senior secured fixed- and floating-rate notes were revised upward after the company redeemed EUR75 million of the floating-rate notes early, reducing the amount of secured debt that would rank pari passu at default. The recovery rating of '3' indicates S&P's expectation of meaningful recovery in the event of a payment default, in the lower half of the 50%-70% range. The issue ratings are unchanged at 'B+'. -- The recovery rating on the senior secured notes is supported by the company's valuation as a going concern and the comprehensive guarantor and security package, but constrained by the notes' contractual subordination to prior-ranking debt, including the senior secured revolving credit facility (RCF), and the amount of equally ranked secured debt at default (although this amount is decreasing). -- The issue rating on the EUR125 million PIK toggle notes issued by JH-Holding Finance S.A. is unchanged at 'B-', two notches below the corporate credit rating. The recovery rating on the PIK notes is unchanged at '6', reflecting S&P's expectation of negligible recovery (0%-10%) in the event of a payment default. The recovery rating is constrained by the notes' structural subordination to a substantial amount of senior debt at Progroup. -- The documentation has few covenants and was lately amended to reflect the combined heat and power acquisition; the RCF's springing net leverage covenant (triggered if the outstanding revolver plus letters of credits exceed 30% of commitment) threshold was altered to 4.90x, stepping down to 4.0x, from 4.75x stepping down to 3.50x over the life of the facility. -- S&P's hypothetical default scenario assumes substantial overcapacity in Progroup's markets, combined with weaker demand, which would result in downward pressure on prices. Furthermore, an increase in the price of raw materials, such as recycled paper, would erode the company's operating margins, given its limited ability to automatically pass these cost increases on to customers. This would result in liquidity shortfalls and a payment default in 2020. -- S&P values Progroup as a going concern, underpinned by its presence in a profitable product grade and stable end markets, its long-standing customer relationships, and its relatively new, efficient, and well-invested asset base. Simulated default assumptions -- Year of default: 2020 -- EBITDA at default: about EUR66 million -- Implied enterprise value multiple: 5.5x -- Jurisdiction: Germany Simplified waterfall -- Gross enterprise value at default: about EUR360 million -- Administrative costs: EUR22 million -- Net value available to creditors: EUR339 million -- Priority claims: EUR78 million* -- Secured debt claims: about EUR453 million* -- Recovery expectation: 50%-70% (lower half of the range) -- Subordinated debt claims: EUR130 million* -- Recovery expectation: 0%-10% *Priority claims include factoring facilities, finance leases, and the super senior RCF, which is assumed to be 85% drawn. All debt amounts include six months' prepetition interest. RATINGS LIST Recovery Ratings Revised; Ratings Affirmed To From Progroup AG Senior Secured B+ B+ Recovery Rating 3L 4H Ratings Affirmed JH-Holding Finance S.A. Subordinated B- Recovery Rating 6 UNISTER GLOBAL: Back in Profit, Insolvency Administrator Says ------------------------------------------------------------- fvw reports that Unister Global is "back in profit" with improving revenues and reduced costs five months after declaring insolvency, the Leipzig-based group's insolvency administrator Lucas Flother has announced. According to fvw, revenues in the tourism business, based around the Ab-in-den-Urlaub portal, are now "only slightly lower than last year" despite a major reduction in marketing activities, while bookings for in-house tour operator Urlaubstours are increasing. Revenues in the flight sales business, primarily through the fluege.de portal, are now on a constant upward path, he declared, fvw.com relates. However, competitors claim that the group's tourism revenues are still well below last year and estimated that fluege.de's revenues are down by 50%, relays fvw. fvw relates that Mr. Flother also said that there are still a number of potential investors in Unister's travel business but emphasised that the group now has "the necessary time" to find the "best-possible investor solution" thanks to its improving financial situation. "Our aim is not a sale as quickly as possible but a sale at the best-possible conditions," he commented. However, according to fvw information, the planned sale is barely making any progress, apparently due to excessive price demands by Mr. Flother. It is unclear whether he is still aiming to sell the travel business as one unit or the tourism and flight portals separately, adds fvw. About Unister Unister Holding GmbH is a German operator of travel, e-commerce and news websites. The Leipzig-based company operates more than 40 websites and employs about 1,100 people. As reported in the Troubled Company Reporter-Europe on July 20, 2016, Bloomberg News said Unister Holding GmbH filed for preliminary insolvency proceedings after its managing director died in a plane crash. According to Bloomberg, the company said on July 18 in a statement that Unister, known for hiring celebrities including soccer star Michael Ballack to woo users to portals such as holiday-booking service ab-in-den- urlaub.de, filed with a Leipzig court. Lucas Floether has been appointed as the company's preliminary administrator, Bloomberg said. Unister's founder and managing director Thomas Wagner, 38, died July 14 in Slovenia when his plane crashed en route from Venice to Leipzig, Bloomberg disclosed. =========== G R E E C E =========== ESTIA MORTGAGE: S&P Affirms 'CCC' Ratings on Three Note Classes --------------------------------------------------------------- S&P Global Ratings affirmed its 'CCC (sf)' credit ratings on Estia Mortgage Finance PLC's class A, B, and C notes. According to structured finance ratings above the sovereign criteria (RAS criteria), S&P's ratings in a transaction in a country with significant adverse country redenomination risk (one in three or greater likelihood of exiting the currency regime and where S&P expects the redenomination to have a negative credit effect on structured finance ratings) are capped at 'B'. The rating differential between the foreign currency rating on the sovereign and the securitization's maximum potential rating will narrow as the risk of exiting the currency regime increases. Furthermore, when the likelihood of exiting exceeds one in three, S&P expects to lower its ratings in structured finance transactions in that jurisdiction to below the RAS criteria cap. On July 22, 2016, S&P affirmed its 'B-' foreign currency long- term sovereign rating on Greece. The affirmation reflected S&P's assessment that the Greek government continues to fulfill the formal conditions attached to its EUR86 billion financial support program, albeit with delays. However, the delivery on structural reforms has been piecemeal, the economy remains fragile, and the banks distressed. S&P could lower its ratings on Greece if the new government 'doesn't implement the reforms it has agreed to with the European Stability Mechanism (ESM) in their memorandum of understanding. Prolonged non-implementation of the ESM program could lead to a general default on Greek government debt. In S&P's analysis, it still considers the increased sensitivity of Greek residential and consumer assets to the Greek economy and the likely effect on structured finance transactions' rating volatility. S&P continues to take into account the increased likelihood of Greece eventually exiting the eurozone and defaulting on its commercial debt. Therefore, the application of S&P's RAS criteria still caps its ratings in this transaction at 'CCC (sf)' (the level that S&P downgraded the class A, B, and C notes to in S&P's previous review), in spite of the 'B-' local and foreign currency long-term ratings on Greece. Total arrears have been increasing since 2010 and peaked in September 2015 at 19.22%. As of September 2016, total arrears were 11.61%, with 90+ days arrears representing 2.87%. In addition, the deal is currently fully collateralized, with the cash reserve being at its target level. The available credit enhancement has increased for all classes of notes (see below). AVAILABLE CREDIT ENHANCEMENT (%) Class Sept. June 2016 2016 A 32.8 22.5 B 13.3 5.7 C 3.6 0.0 As of September 2016, the cumulative net default ratio was 4.17% of the total original balance. The net default ratio has remained fairly stable since the beginning of 2015, due to the fact that because of legal limitations in Greece, the servicer did not classify loans as defaulted over the last two years. The transaction has an interest payment deferral mechanism for the class B and C notes, providing additional protection for the class A notes. This mechanism applies if the net cumulative default ratio exceeds 9.2% for the class B notes, or 5.8% for the class C notes. S&P do not expect the transaction to breach the interest deferral trigger for the class C notes over the next 12 to 18 months, while it is possible that it might happen over a longer period of time. This reflects that the cumulative net default ratio has remained stable since the beginning of 2015. Consequently, S&P has affirmed its 'CCC (sf)' rating on the class C notes, reflecting the application of S&P's criteria for assigning 'CCC' ratings. S&P also believes that it is possible that interest will be deferred on the class B notes, but in an even longer period of time. S&P has therefore affirmed its 'CCC (sf)' rating on the class B notes. Despite the significant rise in available credit enhancement for the class A notes (to 32.8% in September 2016 from 22.5% in June 2016), S&P has affirmed its 'CCC (sf)' rating on this class of notes following the application of S&P's RAS criteria. Estia Mortgage Finance is a Greek residential mortgage-backed securities (RMBS) transaction backed by Greek mortgage loans that Piraeus Bank S.A. originated. RATINGS LIST Class Rating Estia Mortgage Finance PLC EUR750 Million Mortgage-Backed Floating-Rate Notes Ratings Affirmed A CCC (sf) B CCC (sf) C CCC (sf) ============= I R E L A N D ============= BUS EIREANN: Faces Strike Threat as Unions Seek 21pc Wage Hike -------------------------------------------------------------- Anne-Marie Walsh and Niall O'Connor at Irish Independent report that Bus Eireann passengers face a fresh strike threat in the new year as the company and unions clash over pay. Irish Independent relates that unions are demanding a 21pc pay rise as Bus Eireann considers pay cuts that would reduce its 2,600 workers' wages by EUR5 million. Unions have accused the company of "thumbing its nose" at their claim for a wage increase, the report says. According to Irish Independent, Union sources warned they have no alternative but to consult their members on industrial action after accusing management of pulling out of a Labour Court hearing on Dec. 6. Their fury grew after Transport Minister Shane Ross announced that Bus Eireann is facing a financial crisis and could be insolvent in two years, with some claiming the move was "choreographed," the report relays. "We have exhausted all processes available to us and there is no option left but to take industrial action," the report quotes a senior source as saying. "We lodged a pay claim 18 months ago and it is not acceptable for the company to decide at the eleventh hour that it will not engage and does not have its restructuring plan ready." Irish Independent says several Cabinet sources agreed that the issue is one of the most serious to emerge in the transport system in some time. It is understood Mr. Ross met senior figures in Bus Eireann and the CIE group this week, according to Irish Independent. Irish Independent reports that Mr. Ross told his Cabinet colleagues that at least six routes on the Expressway service are now at immediate risk. He did not name the routes under severe threat. He also warned the company could be insolvent in two years, adds Irish Independent. According to the report, Unions lodged a claim for a pay rise of 21pc, similar to a pay claim lodged at Dublin Bus which was in turn based on a pay rise won by Luas drivers earlier this year. They are demanding 5pc a year over three years, plus a 6pc pay increase due under a previous social partnership agreement, the report states. But chief executive Martin Nolan on Dec. 6 insisted that the company could not afford the increase, Irish Independent relates. Bus Eireann suffered losses of EUR5.6 million last year and predicts losses of EUR6 million next year, the report discloses. One of the most immediate services under threat is the loss-making Expressway, adds Irish Independent. ========= I T A L Y ========= CANTARELLI SS71: Launches Tendering Procedure for Business Unit --------------------------------------------------------------- A tendering procedure has been launched, pursuant to articles 62 et seq. of Legislative Decree no. 270/1999, for the sale of the business unit owned by Cantarelli SS71 S.p.A. under Extraordinary Administration. This notice calls interested parties to submit a formal non- binding Expression of Interest, drawn up in written form in Italian, duly signed in original by a person vested with representative powers in the case of a legal person, accompanied by copies of the documents indicated in the Tender Specifications, all placed in a closed envelope to be delivered by hand or to be sent by registered mail with return receipt and/or by courier, bearing on the outside, in addition to the party's company name and the reference "Confidential", the wording "Expression of Interest in the CANTARELLI Business Unit" and the recipient: Cantarelli SS71 S.p.A., addressed to the Official Receiver Avv. Leonardo Romagnoli in Piazza Massimo d'Azeglio 18, 50121 Florence. For details regarding the tendering procedure launched under this announcement, please refer to the above Tender Specifications and the annexes thereto, available on the website www.cantarelliss71as.it MERCURY BONDCO: S&P Assigns 'B' Rating to PIK Toggle Notes ---------------------------------------------------------- S&P Global Ratings said that it has assigned its 'B' long-term issue rating to the payment-in-kind (PIK) toggle notes to be issued by Mercury BondCo PLC. The notes will be used to finance part of the acquisition of ISP Processing, Intesa Sanpaolo's payment processing platform. In accordance with S&P's methodology on PIK instruments it is assigning the PIK toggle notes a 'B' rating. S&P equalizes the rating on the PIK notes with the counterparty credit rating on the issuer, Mercury BondCo. In S&P's view, PIK features do not require an instrument to be rated below the rating on the issuer. Mercury BondCo is the issuing vehicle for a wider group, in which Istituto Centrale delle Banche Popolari Italiane (ICBPI) constitutes the main operating entity and the biggest part, in S&P's view. The group now includes ISP Processing. "Our 'B' rating on Mercury BondCo is based on our view that it is an issuing vehicle of a nonoperating holding company (NOHC). We usually derive the issuer credit rating for a NOHC by applying standard notching down from the group's main operating entity. This is to reflect the reliance of the NOHC on dividend distributions from the operating company to meet its obligations, as well as supervisory barriers to payments, potentially different treatment in a default situation, and the structural subordination of NOHC obligations to those at the operating company level. When the group credit profile (GCP) is lower than 'bbb-', we rate NOHCs at least two notches below operating companies," S&P said. S&P's rating on Mercury BondCo incorporates its subordination to ICBPI, ICBPI's regulated nature, and Mercury BondCo's debt- servicing ability. Because ICBPI is a regulated entity, S&P considers that the Bank of Italy could restrict payment distribution between ICBPI and the sponsors' holding companies. Given this subordination, S&P considers that Mercury BondCo carries more credit risk than ICBPI. S&P has not widened the gap beyond the two notches because it considers that its assessment of the GCP already captures the double leverage the transaction generates. MONTE DEI PASCHI: Italy Requests More Time for Rescue Plan ---------------------------------------------------------- Rachel Sanderson, Alex Barker and Claire Jones at The Financial Times report that Italy is demanding the European Central Bank give it more time to rescue Monte dei Paschi di Siena and is preparing to blame the bank for losses imposed on bondholders if Rome is forced into an urgent state bailout. According to the FT, four people close to the process said the board of MPS, which has the Italian Treasury as its largest shareholder, is asking the ECB's supervisory arm to give it until mid-January to pull off a EUR5 billion equity injection and try to avoid forcing losses on some debtholders as required under new EU bailout rules. These people said that in a letter to the ECB, MPS says political instability unleashed by the resignation of prime minister Matteo Renzi following his defeat in the Dec. 4 referendum has made it impossible to get the deal done until a new government is formed, the FT notes. If the ECB fails to approve the extension, MPS could be heading for a recapitalization by the Italian state in the next few days, the FT relays, citing a person close to the issue. At stake is the stability of the Italian banking system and the potential wider repercussions on Europe's financial system, which continues to struggle to recover from the eurozone debt crisis of 2010, the FT states. The people, as cited by the FT, said a so-called precautionary recapitalization would involve imposing losses on subordinated debtholders and the indemnification of retail bondholders. 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. UNICREDIT SPA: To Offload Bank Pekao Stake to Boost Capital ----------------------------------------------------------- Ben Martin at The Telegraph reports that UniCredit is offloading a stake in Poland's second largest bank for GBP2.1 billion as the troubled lender scrambles to boost its capital position amid mounting fears about the stability of Italy's financial system. Italy's biggest lender is selling a 33% shareholding in Bank Pekao to Polish insurer PZU and Polski Fundusz Rozwoju, a state development fund, for PLN10.6 billion, The Telegraph discloses. According to The Telegraph, the deal will lift UniCredit's common equity tier one ratio -- a key measure of the bank's capital buffer -- by 55 basis points and forms part of a broader plan by boss Jean Pierre Mustier to reinforce its balance sheet. As well as selling shares in Pekao, UniCredit will on Dec. 12 unveil a raft of measures to strengthen its capital position, which are thought to include tapping investors for a share sale to raise as much as EUR13 billion (GBP11.07 billion), The Telegraph states. There is growing concern that Italy's fragile banking system will be crippled by EUR360 billion of non-performing loans, worries that have been exacerbated by the country's constitutional referendum at the weekend that sparked the resignation of Matteo Renzi, the prime minister, The Telegraph notes. Headquartered in Milan, Italy, UniCredit S.p.A. operates as a commercial bank in Europe. The company primarily operates through Commercial Banking Italy, Commercial Banking Germany, Commercial Banking Austria, Poland, Central and Eastern Europe, Corporate & Investment Banking, Asset Management, Asset Gathering, and Non-core segments. ===================== N E T H E R L A N D S ===================== JUBILEE CDO I-R: S&P Affirms B+ Rating on Class E Notes ------------------------------------------------------- S&P Global Ratings raised its credit ratings on Jubilee CDO I-R B.V.'s class A and B notes. At the same time, S&P has affirmed its ratings on the class C, D, and E notes. The rating actions follow S&P's review of the transaction's latest performance. S&P performed a credit and cash flow analysis and assessed the support that each participant provides to the transaction by applying S&P's criteria for rating corporate collateralized debt obligation (CDO) transactions and S&P's current counterparty criteria. In S&P's analysis, it used data from the latest available trustee report. "We subjected the capital structure to a cash flow analysis to determine the break-even default rate for each rated class of notes at each rating level. In our analysis, we used the reported portfolio balance that we considered to be performing (EUR395.6 million, down from EUR638.2 million at our previous review), the weighted-average spread, and the weighted-average recovery rates for the performing portfolio. We applied various cash flow stress scenarios, using our standard default patterns in conjunction with different interest stress scenarios for each liability rating category," S&P said. Non-euro-denominated assets comprise 13.53% of the aggregate collateral balance, down from 15.60% at our previous review, and are hedged by cross-currency swap agreements. In S&P's opinion, the documentation for the cross-currency swap agreement does not fully reflect S&P's current counterparty criteria. In S&P's cash flow analysis, for ratings above the issuer credit rating plus one notch on the swap counterparty, S&P considered scenarios where the counterparty does not perform, and where the transaction is therefore exposed to changes in currency rates. S&P's corporate CDO criteria incorporate supplemental tests intended to address both event risk and model risk that may be present in rated transactions, consisting of both a "largest obligor default test" and "largest industry test." Both tests allow the loss amounts calculated for the largest obligor default test to be run through our cash flow model to take into account excess spread and to ensure that the tranche subject to the test receives timely interest and ultimate principal in S&P's analysis. S&P's supplemental tests do not constrain the ratings on any tranche. Repayments in the transaction have, in S&P's view, increased the available credit enhancement for all of the rated classes of notes apart from the class E notes, whose available credit enhancement has fallen due to defaults in the transaction. S&P's credit and cash flow analysis indicates that the available credit enhancement for the class A and B notes is commensurate with higher ratings than those currently assigned. Therefore, S&P has raised its ratings on the class A and B notes. S&P's credit and cash flow analysis also indicates that the available credit enhancement for the class C, D, and E notes is commensurate with the currently assigned ratings. Therefore, S&P has affirmed its ratings on these classes of notes. Jubilee CDO I-R is a cash flow collateralized loan obligation (CLO) transaction that securitizes loans granted to primarily European speculative-grade corporate firms. Alcentra Ltd. manages the transaction. The transaction closed in May 2007 and entered its amortization period in July 2014. RATINGS LIST Class Rating To From Jubilee CDO I-R B.V. EUR900 Million Senior Secured Fixed- And/Or Floating-Rate And Subordinated Notes Ratings Raised A AAA (sf) AA+ (sf) B AA+ (sf) AA (sf) Ratings Affirmed C A+ (sf) D BBB- (sf) E B+ (sf) * NETHERLANDS: Number of Bankruptcies Rises to 461 in November -------------------------------------------------------------- Statistics Netherlands reports that the number of bankruptcies rose substantially in November, by 106 relative to October. This rise is largely due to the bankruptcy of one particular company existing of dozens of entities, all of which were declared bankrupt separately, Statistics Netherlands says. In October, the number of bankruptcies remained more or less at the same level, Statistics Netherlands states. Statistics Netherlands reports that most bankruptcies in November were filed in the financial services sector. If the number of court session days is not taken into account, 461 businesses and institutions (excluding one-man businesses) were declared bankrupt in November 2016, Statistics Netherlands relates. With a total of 117, the financial services sector was hit the hardest, Statistics Netherlands discloses. In the trade sector, 76 bankruptcies were filed, Statistics Netherlands notes. Trade and financial services are among the sectors with the highest number of businesses, Statistics Netherlands relays. In November, the number of bankruptcies was relatively high in the sector transport and storage, according to Statistics Netherlands. =========== R U S S I A =========== BAIKALBANK PJSC: Liabilities Exceed Assets, Inspection Shows ------------------------------------------------------------ The management of BaikalBank PJSC failed to provide original credit contracts worth approximately RUR1.4 billion to the provisional administration appointed by virtue of Bank of Russia Order No. OD-2676, dated August 18, 2016, following the revocation of the banking license, according to the press service of the Central Bank of Russia. During the inspection of the bank's financial standing, the provisional administration has also revealed the operations conducted by its management, owners and officials, which bear evidence of moving out liquid assets in the amount of over RUR4.2 billion. According to the provisional administration estimates, the value of BaikalBank PJSC assets does not exceed RUR2 billion, while its liabilities to creditors amount to RUR8.2 billion, of which RUR7.1 billion are liabilities to individuals. On October 24, 2016, the Court of Arbitration of the Republic of Buryatia made a ruling to recognize BaikalBank PJSC as bankrupt with the state corporation Deposit Insurance Agency appointed as a receiver. The Bank of Russia submitted the information on financial operations bearing evidence of criminal offences of the bank's former management and owners to the Prosecutor General's Office of the Russian Federation, the Russian Ministry of Internal Affairs and the Investigative Committee of the Russian Federation for consideration and procedural decision-making. RUSCOBANK JSC: Liabilities Exceed Assets, Investigation Shows ------------------------------------------------------------- During the inspection of the financial standing of JSC Ruscobank, its provisional administration appointed by virtue of Bank of Russia Order No. OD-1913, dated June 21, 2016, following the revocation of the banking license, has revealed that the main part of the bank's loan portfolio worth over 3 billion rubles is represented by claims to insolvent companies and shell companies, according to the press service of the Central Bank of Russia. The provisional administration has also revealed that prior to the revocation of the license, the bank conducted operations related to the sale of assets worth about RUR1.8 billion, allowing payment delays to counterparties with dubious solvency. According to the initial estimates by provisional administration, the value of JSC Ruscobank assets does not exceed RUR3 billion, while its liabilities to creditors amount to RUR7.4 billion, of which RUR6.1 billion are liabilities to individuals. On August 1, 2016, the Bank of Russia submitted a petition to the Court of Arbitration of the city of Saint Petersburg and the Leningrad Region to recognize JSC Ruscobank as insolvent (bankrupt) and initiate bankruptcy proceedings. The hearing of the case was scheduled for 9 December 9, 2016. The Bank of Russia submitted the information on financial operations bearing evidence of criminal offences of JSC Ruscobank former management and owners to the Prosecutor General's Office of the Russian Federation, the Russian Ministry of Internal Affairs and the Investigative Committee of the Russian Federation for consideration and procedural decision-making. RUSSIAN TRUST: Liabilities Exceed Assets, Assessment Shows ---------------------------------------------------------- During the inspection of the financial standing of JSCB Russian Trust Bank (JSC), its provisional administration appointed by virtue of Bank of Russia Order No. OD-2637, dated August 16, 2016, following the revocation of the banking license, has revealed operations, conducted by the bank's former management and owners and bearing evidence of moving out assets worth over RUR3 billion through providing loans to shell companies, according to the press service of the Central Bank of Russia. Moreover, the inspection revealed the operations related to moving out liquid assets through reassignment of claims on existing loans of legal entities and individuals. According to the provisional administration estimates, the value of JSCB Russian Trust Bank (JSC) assets does not exceed RUR1,004 million, while its liabilities to creditors amount to RUR4,456 million, of which RUR3,729 million are liabilities to individuals. On November 2, 2016, the Court of Arbitration of the city of Moscow made a ruling to recognize JSCB Russian Trust Bank (JSC) as insolvent (bankrupt) and initiate bankruptcy proceedings with the state corporation Deposit Insurance Agency appointed as a receiver. The Bank of Russia submitted the information on financial operations bearing evidence of criminal offences of JSCB Russian Trust Bank (JSC) former management and owners to the Prosecutor General's Office of the Russian Federation, the Russian Ministry of Internal Affairs and the Investigative Committee of the Russian Federation for consideration and procedural decision- making. VODOKANAL ST. PETERSBURG: S&P Affirms 'BB/B' CCRs, Outlook Stable ----------------------------------------------------------------- S&P Global Ratings said that it had affirmed its long- and short- term corporate credit ratings on Russian regional water utility Vodokanal St. Petersburg (VKSPB) at 'BB/B'. The outlook is stable. S&P also affirmed the 'BB' issue ratings on the company's senior unsecured debt and the 'ruAA' Russia national scale rating on VKSPB. The affirmation reflects S&P's view of VKSPB's improved stand- alone credit profile (SACP), as well as S&P's unchanged expectation of a very high likelihood that the utility would receive timely and sufficient extraordinary support from the city of St. Petersburg, if needed. Given the current level of the SACP, S&P no longer includes uplift from the 'bb' SACP in the rating on VKSPB. S&P continues to believe that there is a very high likelihood of extraordinary government support based on S&P's assessment of VKSPB's very important role for and very strong link with the city's government. S&P has reassessed its view of the company's financial risk profile to modest from intermediate. This reflects S&P's view of less volatile revenues and operating cash flows. Although the general regulatory framework remains weak, nontransparent, and politicized, the regulator has approved tariffs for the entire five-year period starting 2016, whereas previously, the tariff horizon was limited to one year. The company has a track record of comfortable financial metrics. S&P therefore anticipates the volatility of future operating cash flows will reduce and believe that the 10% annual tariff increases partly mitigate the risk of still significant investment program the city has mandated. This should allow VKSPB to maintain comfortable financial metrics of debt to EBITDA below 1.5x and funds from operations to debt above 60% at least in the next two years. S&P expects that high investments will lead to moderately negative discretionary cash flow in 2016, which is likely to be covered by new bank debt, in S&P's view. Still, despite water consumption gradually decreasing, by 1%-2% annually, S&P forecasts VKSPB to maintain an EBITDA margin about 40% in 2016-2018, thanks to the favorable tariff increases. At 10% annually, they are higher than average uplifts for utilities, which are usually capped at the level of the consumer price index. S&P also thinks the company's currently relatively low leverage is not fully representative of its financial policy framework, which allows taking a more leveraged position than S&P currently forecasts; for example, St. Petersburg could require the company to undertake unanticipated high investments, without supporting those investments with timely funding. VKSPB's business risk profile remains constrained by a relatively aged asset base and resulting sizable medium-term investment needs, a politicized and nontransparent regulation regime (although in December 2015 the regulator approved tariffs for a five-year period, they could nevertheless be revised at any time during this period), operating risk stemming from deteriorating water quality, and exposure to Russian country risk, which S&P assess as high. These weaknesses are partly offset by utility's monopoly position in its service area, fairly stable earnings and cash flows derived primarily from regulated activities, a diverse customer base, and improving operating efficiency. The stable outlook on VKSPB reflects S&P's view of stable trends in St. Petersburg's creditworthiness and S&P's expectations of the company's stable operating and financing performance. S&P also factors in its belief that financial risks associated with VKSPB's ambitious investment program will continue to be mitigated by its monopoly position as the water service provider in St. Petersburg, as well as strong ongoing support from the city government, including cofinancing of capital expenditures. S&P could take a positive rating action on VKSPB if S&P sees improvements in St. Petersburg's credit quality, all else being equal. Rating upside could also result from an improved SACP on the back of, for example, substantial improvements in the regulatory framework, which S&P views as unlikely in the medium term. Downward rating pressure might stem from deteriorating credit quality of St. Petersburg. On the stand-alone level, rating downside could stem from deteriorating liquidity or maturity profiles that are not offset by city government support. To trigger a downgrade, S&P would have to revise its view of VKSPB's SACP down by two notches, which could happen because of aggressive debt accumulation and weak financial and operational results, although S&P sees this as unlikely in the next two years because of the significant cushion of safety in VKSPB's current credit measures. =========== T U R K E Y =========== TURKIYE SISE: S&P Affirms 'BB/B' CCRs, Outlook Stable ----------------------------------------------------- S&P Global Ratings said that it revised the outlook on Turkey-based glass producer Turkiye Sise ve Cam Fabrikalari A.S. (Sisecam) to stable from negative. At the same time, S&P affirmed the long- and short-term corporate credit ratings at 'BB/B'. The outlook is stable. At the same time, S&P affirmed the issue ratings on Sisecam's $500 million unsecured notes at 'BB'. The recovery rating remains unchanged at '3' indicating recovery expectations of 50%- 70% (at the higher end of the range). S&P's outlook revision on Sisecam reflects the action on the parent, Turkiye Is Bankasi (Isbank) on Nov. 8, 2016, which in turn reflects the stable outlook on Turkey. S&P believes that Turkish banks' financial profiles and performance will remain highly correlated with sovereign creditworthiness at the current rating level, owing to the banks' significant holdings of government securities and exposure to the domestic environment. Although S&P views the stand-alone credit profile of Sisecam as higher than the rating on its parent Isbank, S&P's ratings on Sisecam cannot exceed those on Isbank because the group is 67%- owned by Isbank and, in S&P's opinion, would not be insulated if the parent were distressed. Although S&P continues to view Sisecam's business risk profile as fair, S&P is also mindful that rising country risk in Turkey could lead to lower domestic demand, volatility in export volumes, rising input prices, and pressure on profitability. The heightened political and economic risks in Turkey may exacerbate this trend over our 12-month rating horizon. S&P's base case assumes: -- Revenues increasing to more than Turkish lira (TRY) 8.2 billion by the end of the year ending Dec. 31, 2016, and more than TRY9 billion by the end of 2017. -- Adjusted EBITDA margin of 21%-23%. -- Adjusted funds from operations (FFO) of about TRY1.4 billion-TRY1.6 billion, continuing a trend of robust cash flow generation. -- Capital expenditure (capex) of up to TRY1.4 billion. -- No major acquisitions or divestitures. Based on these assumptions, S&P arrives at these credit measures: -- FFO to debt of more than 65%; and -- Debt to EBITDA of 1.0x-1.5x. The stable outlook on Sisecam reflects that on the parent Isbank, which in turn reflects the stable outlook on Turkey. S&P' believes that Turkish banks' financial profiles and performance will remain highly correlated with sovereign creditworthiness at the current rating level, owing to the banks' significant holdings of government securities and exposure to the domestic environment. On a stand-alone basis, S&P anticipates that Sisecam will maintain its leading market position in Turkey and that its ambitious global expansion plans will continue to support its credit metrics -- specifically, S&P Global Ratings-adjusted FFO to debt above 45% and adjusted debt to EBITDA of less than 1.5x. S&P would lower the rating if it downgraded Isbank. S&P could also lower the ratings on Sisecam if its FFO to debt sustainably fell to less than 45%. This could occur as a result of inflated raw material or energy costs, a significant weakening in demand, or the unsuccessful execution of the group's sizable capacity expansion plans that result in ratios weakening to a level that S&P views as commensurate with an intermediate financial risk profile. S&P believes that the potential for a positive rating action is limited at this stage because the ratings on Sisecam are capped in line with those on Isbank. =========================== U N I T E D K I N G D O M =========================== IENERGIZER LIMITED: Moody's Affirms Caa1 Corporate Family Rating ---------------------------------------------------------------- Moody's Investors Service has affirmed iEnergizer Limited's Caa1 corporate family and senior secured bank credit facility ratings. At the same time, Moody's has changed the outlook on both ratings to stable from negative. RATINGS RATIONALE "The stable outlook reflects our expectation that iEnergizer will sustain its improved earnings performance, which will result in a wider headroom under its covenants," says Kaustubh Chaubal, a Moody's Vice President and Senior Analyst. For the 12 months ended 30 September 2016, iEnergizer reported EBITDA of USD34.3 million compared to USD25.5 million for the financial year ended 31 March 2015 (FY2015). The improved performance was driven by higher revenue from its real-time processing and back office services businesses, as well as the company's continuing cost savings initiatives. These improvements helped boost the company's EBITA margins to 22% from 16%, despite the otherwise modest revenue growth. As a result, the company's leverage improved to 2.58x in September 2016 versus the covenanted limit of 2.85x. As to the company's EBITDA/interest covenant of 3.5x, the actual ratio was a solid 4.6x, indicating a wide headroom. "Stability in revenues, improving earnings and reduced debt levels will drive a further improvement in iEnergizer's credit metrics, such that the covenant headroom will further widen," adds Chaubal, who is also the lead analyst for iEnergizer. Moody's points out that the company continues to generate consistent positive free cash flows, as it does not make dividend payments and has limited capital expenditure requirements due to the asset-light nature of its operations. The available cash flows are applied towards scheduled debt repayments of around USD3.4 million per quarter that iEnergizer has to make under the terms of its loan agreement. The change in outlook to stable also reflects the stability in the company's senior management following several departures in FY2015 and FY2016. In February 2016, the company's board re-designated its founder and former CEO, Mr. Anil Aggarwal, as CEO and executive director, filling the position that had been vacant for 14 months. It also appointed Mr. Richard Day as CFO, a position that had been vacant for 7 months. The CEO and CFO office positions continue to be held by Mr. Aggarwal and Mr. Day respectively. In Moody's view, continued stability in senior management will support the company's revenue and earnings growth and drive its improving trajectory. That said, Moody's believes the company remains exposed to key man risk due to the continued dependence on Mr. Aggarwal to generate new business. The stable outlook reflects Moody's expectation that iEnergizer will maintain its improved operating performance. Moody's also expects positive free cash flow generation and reduced debt levels to drive further improvements in leverage and covenant headroom. iEnergizer's credit metrics are strong for its current rating. Continued stability in its senior management team while the company further grows its earnings and the maintenance of a solid liquidity position will remain key for Moody's to consider a rating in the single-B category. Specifically, Moody's could upgrade the CFR if the company further improves its operating performance by securing new contracts, such that EBITDA remains above USD35 million on a sustained basis, and if it continues to generate positive free cash flow in excess of its scheduled debt maturities of around USD13.5 million a year. The ratings could be downgraded if the company (1) loses any existing contract and/or is unable to replace such contracts; (2) experiences a weakening operating performance such that its EBITDA falls below USD28-30 million; or (3) sees a decline in cash and cash equivalents from current levels. The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. iEnergizer Limited is an international business process outsourcing (BPO) company, incorporated in Guernsey, and was listed on the Alternative Investment Market (AIM) of the London Stock Exchange on September 14, 2010. iEnergizer is primarily engaged in call center operations, BPO services, content delivery services and back office services (legacy operations). Following the acquisition of Aptara Inc. in 2012, for USD150 million, iEnergizer expanded its business services to the provision of content process outsourcing solutions, delivering a comprehensive offering for the transformation and management of content such as text, audio, video and graphic files. As of March 31, 2016, the company had more than 13,000 employees -- including subcontracted staff -- working from 11 delivery centers located in India, the US, UK, Mauritius, Australia and France. iEnergizer reported revenues totaling USD143 million in the 12 months ended September 30, 2016 and EBITDA of USD34 million. * UK: Brexit Puts 5,000 Restaurants at Risk of Insolvency --------------------------------------------------------- AccountancyAge reports that cost increases following the Brexit vote have put more than 5,000 restaurant companies are at risk of insolvency. A total of 5,570 restaurant companies have at least a 30% chance of going insolvent within the next three years, said Moore Stephens, the top ten accountancy firm, AccountancyAge relates. Higher costs and stagnating incomes have put a strain on businesses, and the sharp fall in sterling since the Brexit vote has added to the pressure, according to the report. "It's been a tough year for many restaurants in the face of rising costs and fierce competition. It is unrealistic to expect UK restaurant groups to avoid the impact of the fall in the pound by substituting for UK produce," AccountancyAge quotes Mike Finch, restructuring partner at Moore Stephens, as saying. The firm's Moore Data service analysed licensed restaurants registered as limited companies to the year ending Nov. 24, 2016, the report notes. AccountancyAge says the UK imports 48% of its food and the fall in sterling has put pressure on the sector by increasing the cost of imports for restaurants. As well as higher raw material costs, restaurant companies have also seen the cost of labour increase, AccountancyAge relates. According to the report, the government raised the National Minimum Wage to GBP7.20 from GBP6.70 earlier this year which has put added strain on restaurants already struggling to remain profitable. The government has announced that it intends to raise the National Minimum Wage to GBP7.50 in April next year. "Restaurants have to make tough decisions as to how much they try to pass on to consumers. All this comes at a time when many consumers are likely to be very price conscious. The high number of potential insolvencies over the next year shows just how fragile finances can be in this sector. There may be further challenges to come as the UK's trading agreements with Europe remain uncertain," Mr. Finch, as cited by AccountancyAge, added. =============== X X X X X X X X =============== * BOOK REVIEW: Risk, Uncertainty and Profit ------------------------------------------- Author: Frank H. Knight Publisher: Beard Books Softcover: 381 pages List Price: $34.95 Review by Gail Owens Hoelscher Order your personal copy today at http://www.amazon.com/exec/obidos/ASIN/1587981262/internetbankrup t The tenets Frank H. Knight sets out in this, his first book, have become an integral part of modern economic theory. Still readable today, it was included as a classic in the 1998 Forbes reading list. The book grew out of Knight's 1917 Cornell University doctoral thesis, which took second prize in an essay contest that year sponsored by Hart, Schaffner and Marx. In it, he examined the relationship between knowledge on the part of entrepreneurs and changes in the economy. He, quite famously, distinguished between two types of change, risk and uncertainty, defining risk as randomness with knowable probabilities and uncertainty as randomness with unknowable probabilities. Risk, he said, arises from repeated changes for which probabilities can be calculated and insured against, such as the risk of fire. Uncertainty arises from unpredictable changes in an economy, such as resources, preferences, and knowledge, changes that cannot be insured against. Uncertainty, he said "is one of the fundamental facts of life." One of the larger issues of Knight's time was how the entrepreneur, the central figure in a free enterprise system, earns profits in the face of competition. It was thought that competition would reduce profits to zero across a sector because any profits would attract more entrepreneurs into the sector and increase supply, which would drive prices down, resulting in competitive equilibrium and zero profit. Knight argued that uncertainty itself may allow some entrepreneurs to earn profits despite this equilibrium. Entrepreneurs, he said, are forced to guess at their expected total receipts. They cannot foresee the number of products they will sell because of the unpredictability of consumer preferences. Still, they must purchase product inputs, so they base these purchases on the number of products they guess they will sell. Finally, they have to guess the price at which their products will sell. These factors are all uncertain and impossible to know. Profits are earned when uncertainty yields higher total receipts than forecasted total receipts. Thus, Knight postulated, profits are merely due to luck. Such entrepreneurs who "get lucky" will try to reproduce their success, but will be unable to because their luck will eventually turn. At the time, some theorists were saying that when this luck runs out, entrepreneurs will then rely on and substitute improved decision making and management for their original entrepreneurship, and the profits will return. Knight saw entrepreneurs as poor managers, however, who will in time fail against new and lucky entrepreneurs. He concluded that economic change is a result of this constant interplay between new entrepreneurial action and existing businesses hedging against uncertainty by improving their internal organization. Frank H. Knight has been called "among the most broad-ranging and influential economists of the twentieth century" and "one of the most eclectic economists and perhaps the deepest thinker and scholar American economics has produced." He stands among the giants of American economists that include Schumpeter and Viner. His students included Nobel Laureates Milton Friedman, George Stigler and James Buchanan, as well as Paul Samuelson. At the University of Chicago, Knight specialized in the history of economic thought. He revolutionized the economics department there, becoming one the leaders of what has become known as the Chicago School of Economics. Under his tutelage and guidance, the University of Chicago became the bulwark against the more interventionist and anti-market approaches followed elsewhere in American economic thought. He died in 1972. ********* 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 * * *