/raid1/www/Hosts/bankrupt/TCREUR_Public/170120.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, January 20, 2017, Vol. 18, No. 15
Headlines
A U S T R I A
KA FINANZ: Fitch Affirms 'B' Rating on Subordinated Tier 2 Debt
C Y P R U S
BANK OF CYPRUS: Offers First Public Tier 2 Bond
F R A N C E
AREVA: S&P Lowers CCR to 'B', Outlook Remains Developing
CGG SA: Moody's Lowers CFR to Caa3, Outlook Negative
DEXIA CREDIT: Fitch Affirms 'B-' Rating on Sub. Debt Securities
G E R M A N Y
AUCTIONATA PADDLE8: Files for Preliminary Insolvency Proceedings
XELLA INTERNATIONAL: S&P Affirms 'B+' CCR; Outlook Stable
G R E E C E
TRAINOSE: Greece Wraps Up Sale of Business to Italy's FS Railway
I C E L A N D
KAUPTHING BANK: To Press Ahead with Arion's Stock Market Listing
I R E L A N D
CARLYLE GMS 2014-1: Fitch Assigns 'B-' Rating to Class F Notes
K A Z A K H S T A N
KAZKOMMERTSBANK: Moody's Puts LT 'B3' Deposit Ratings on Review
N E T H E R L A N D S
DRYDEN 29: Moody's Hikes Class E Notes Rating to Ba1
EURO-GALAXY III: Fitch Assigns 'B-' Rating to Class F Notes
JUBILEE CLO 2014-XII: Fitch Affirms 'B-' Rating on Class F Notes
P O R T U G A L
BANCO BPI: S&P Revises CreditWatch on 'BB-' LT Rating to Positive
S P A I N
MADRID RMBS I: S&P Affirms 'CCC-' Rating on Class E Notes
U K R A I N E
KERNEL HOLDING: Fitch Puts 'B-' LT FC IDR on Rating Watch Pos.
U N I T E D K I N G D O M
AIRDRIE SAVINGS: To Shut Down Branches, 70 Jobs Affected
ASSURED GUARANTY: S&P Puts 'BB' FS Rating on CreditWatch Positive
AXON ENERGY: In liquidation, Cuts 9 Jobs
HALL CONSTRUCTION: Up for Sale Following Administration
KARHOO: Bought by Renault Out of Administration
X X X X X X X X
* BOOK REVIEW: Transnational Mergers and Acquisitions
*********
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A U S T R I A
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KA FINANZ: Fitch Affirms 'B' Rating on Subordinated Tier 2 Debt
---------------------------------------------------------------
Fitch Ratings has affirmed KA Finanz AG's (KF) Long-Term Issuer
Default Rating at 'BBB+' with a Stable Outlook.
The rating actions are part of a review of Fitch-rated eurozone
institutions in wind-down.
KEY RATING DRIVERS
IDRs, SUPPORT RATING, SUPPORT RATING FLOOR (SRF) AND SENIOR DEBT
KF's Long- and Short-Term IDRs, senior debt ratings, Support
Rating, and SRF reflect Fitch's assessment of the high likelihood
that support for KF would be made available by the Republic of
Austria (AA+/Stable/F1+), if required. Fitch's assessment is
driven primarily by KF's state ownership, significant state-
guaranteed funding and the reasonable flexibility available to
Austria to support KF. The government has stated that it intends
to remain KF's sole shareholder until the bank's wind-down is
completed.
Fitch believes that the Austrian government's propensity to
provide capital or funding support to KF would remain high, even
if substantial additional capital is required. This could be the
case, for example, if KF posts large credit losses following an
accelerated wind-down or asset disposal.
However, this is not our base case expectation as we believe that
its orderly wind-down will progress as planned, without requiring
recapitalisation from the state.
As a regulated bank, KF would be subject to the EU's Bank
Recovery and Resolution Directive (BRRD), which together with the
Single Resolution Mechanism (SRM), could require KF to take
resolution measures including senior creditor bail-in instead of
or ahead of a bank receiving sovereign support. The BRRD and its
bail-in tool were fully implemented into Austrian law on Jan. 1,
2015. Nonetheless, Fitch believes that the effectiveness of bail-
in would be limited as it would predominantly hit the state as
owner and funding guarantor and only more moderately third-party
creditors.
Austria's approach to KF's wind-down plan was clearly formulated
at an early stage and has been consistently implemented. Under
reasonable stress assumptions, we expect KF to incur only
manageable losses commensurate with its loss absorption capacity.
Similar to other monoline public-sector lenders, we view KF's
high concentration on single exposures as the main potential
source of large, unexpected losses. However, concentration has
been declining rapidly, which makes the risk of large single
losses increasingly manageable.
Since 2009, KF has received EUR2.2 bil. of state support net of
guarantee fees paid to the government, including EUR1 bil. in
2011 following Greece-driven losses, and a EUR350 mil.
contribution in 2013 to ensure compliance with Basel III
regulations while actively reducing risk-weighted assets via
asset disposals. At end-1H16 KF's common equity Tier 1 ratio was
16.9% and its total capital ratio 20.7%.
Beside KF's state ownership, our assumption that Austria will
remain committed to supporting KF is underpinned by state
guarantees covering a large share of KF's funding. These were
substantially increased after the implementation of BRRD. KF has
EUR1bn of guaranteed five-year notes outstanding, and the maximum
volume that it can draw under its guaranteed commercial paper
(CP) programme is EUR3.5 bil. Assuming full utilization of the
CP programme, these funding guarantees are the equivalent of
around one-third of KF's total end-1H16 liabilities.
This extensive guaranteed funding significantly mitigates KF's
refinancing risk, both directly and indirectly by raising
confidence, especially among unguaranteed creditors. However,
adverse market developments obliging KF to increase durably its
usage of guaranteed funding could erode its loss absorption
capacity due to the relatively high cost of state guarantees.
Fitch do not assign a Viability Rating to KF because due to its
wind-down status, it would not be viable without external
support.
SUBORDINATED DEBT
The subordinated lower Tier 2 notes maturing between 2021 and
2031 have been affirmed at 'B' to reflect Fitch's analysis of the
risks of non-performance and loss severity in the absence of a VR
or alternative anchor rating. While the notes are performing,
the 'B' factors in the lack of financial flexibility for
subordinated debt, which could be bailed in if additional state
support is required to accompany KF's orderly wind-down under the
BRRD.
We derive the lower Tier 2 debt rating by stressing profit
forecast and credit exposures of KF and similar issuers and
comparing their related potential losses with their respective
available capital buffers to determine and compare the potential
need for extraordinary state support.
STATE-GUARANTEED DEBT
The EUR1 bil. guaranteed senior notes' long-term rating of 'AA+'
and the EUR3.5 bil. guaranteed CP programme's short-term rating
of 'F1+' reflect the state guarantees supporting the notes and
the programme as Fitch believes that Austria will honour its
guarantees in full even in a scenario in which a resolution of KF
would trigger a bail-in of senior unsecured creditors.
RATING SENSITIVITIES
IDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND SENIOR DEBT
KF's ratings are primarily sensitive to Austria's propensity and
ability to provide support. The latter is unlikely to diminish
materially as long as the sovereign rating remains in the 'AA'
category and we do not expect a change in Austria's propensity to
provide support based on KF's current wind-down plan. The
ratings are also sensitive to large single credit losses that may
necessitate a capital injection from the state, increasing the
risk of senior unsecured creditor bail-in under BRRD.
SUBORDINATED DEBT
If KF's capital ratios and ability to absorb large losses from
single borrower defaults improves significantly as its wind-down
progresses, this could create upside for the lower Tier 2 notes'
rating. However, this potential will be low in the medium term
as the large guarantee fees to be paid to the state will prevent
capitalisation from materially strengthening. Downside arises
from the risk of the notes being bailed-in if new state aid is
required. A bail-in would likely result in high loss severity,
which could trigger a downgrade to 'CC' or 'C'.
STATE-GUARANTEED DEBT
The ratings of the EUR1 bil. government-guaranteed senior notes
and the EUR3.5 bil. state-guaranteed CP programme have the same
sensitivities as the sovereign's IDRs.
The rating actions are:
KA Finanz AG (KF)
Long-Term IDR: affirmed at 'BBB+'; Outlook Stable
Short-Term IDR: affirmed at 'F2'
Support Rating: affirmed at '2'
Support Rating Floor: affirmed at 'BBB+'
Long-term senior unsecured notes: affirmed at 'BBB+'
State-guaranteed Long-term senior unsecured note
(XS1270771006): affirmed at 'AA+'
State-guaranteed commercial paper programme: affirmed at 'F1+'
Debt issuance programme: affirmed at 'BBB+'/'F2'
Commercial paper programme: affirmed at 'F2'
Subordinated tier 2 debt (XS0257275098, AT0000441209,
XS0185015541, XS0144772927 and XS0255270380): affirmed at 'B'
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C Y P R U S
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BANK OF CYPRUS: Offers First Public Tier 2 Bond
-----------------------------------------------
Alice Gledhill at Reuters reports that Bank of Cyprus will
discover whether investors have bought into its recovery story as
it offers its first public bond since imposing losses on
bondholders in 2013 during the Cypriot banking crisis.
The bank began marketing a EUR200 million minimum 10-year non-
call five-year Tier 2 bond at 9.5% area on Jan. 12 via Bank of
America Merrill Lynch, Credit Suisse, Deutsche Bank and HSBC,
Reuters relates.
The transaction is expected to be rated Caa3 by Moody's, Reuters
states. Bank of Cyprus is rated Caa2 by Moody's and B- by Fitch,
Reuters notes.
Investors suffered heavy losses during the Cypriot banking
crisis, but the lender repaid in full its EUR11.4 billion
Emergency Liquidity Assistance in what it described as a
"significant milestone" in its journey back to strength, Reuters
relays.
The issuer met investors in London and only needs to raise EUR200
million, Reuters says.
According to Reuters, Bank of Cyprus said as part of its Q3
results that it was examining various funding opportunities
including both senior debt and/or subordinated capital to
optimize the level and composition of its liabilities.
It cited existing and upcoming regulatory requirements, including
the European Union's Minimum Requirement for Own Funds and
Eligible Liabilities (MREL), Reuters discloses.
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F R A N C E
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AREVA: S&P Lowers CCR to 'B', Outlook Remains Developing
--------------------------------------------------------
S&P Global Ratings said that it lowered to 'B' from 'B+' its
long-term corporate credit ratings on France-based nuclear
services group AREVA and its currently wholly owned subsidiary
New Co. The outlook on both entities remains developing.
S&P also lowered its ratings on:
-- AREVA's EUR1,250 million revolving credit facility (RCF) to
'B' from 'B+'. The recovery rating is unchanged at '3',
indicating S&P's expectation of recovery in the higher half
of the 50%-70% range in the event of a default.
-- New Co's various senior unsecured bonds to 'B+' from 'BB-'.
The recovery rating is unchanged at '2', indicating S&P's
expectation of recovery in the higher half of the 70%-90%
range in the event of a default.
The downgrade is mainly driven by the Flamanville-related
condition attached to the EC's recent approval of AREVA's planned
EUR5 billion capital increase. Contrary to S&P's previous
expectations, the approval is subject to a positive outcome on
tests by the French nuclear safety authority, ASN, on the carbon
segregation of the Flamanville reactor vessel constructed by
AREVA. While S&P knew that the ASN's pending decision created
uncertainty, it had so far assumed that the capital increase
proceeds would be in place in early 2017 and that New Co would
have been separated from AREVA S.A., the latter becoming a
minority shareholder. S&P now expects this to occur by around
mid-2017, and only after a positive outcome of the ongoing
quality test on the carbon segregation of the Flamanville
pressure vessel.
S&P has little visibility at this stage regarding the outcome,
given its regulatory and technical nature, although the company
is confident that, based on its recent report sent to the ASN,
the carbon segregation of the Flamanville nuclear pressure vessel
meets ASN's requirements. A negative development on this front
could impair, or -- in a worst-case scenario -- jeopardize,
AREVA's restructuring plans.
Mitigating the delay of the capital increase, however, is the
large EUR3.3 billion short-term (six months) shareholder loan
from the French state, which S&P thinks should provide a
liquidity cushion for 2017, but not necessarily for 2018. S&P
understands the first drawing is to occur in April 2017, with the
facility maturing six months thereafter. The shareholder loan is
to be repaid from the capital increase proceeds. If such were
delayed, S&P understands that AREVA could ask for a short-term
extension of the shareholder loan (based on other restructuring
examples).
S&P notes that Electricite De France (EDF), France's largest
electric utility, signed a binding agreement with AREVA to buy
New NP's activities for EUR2.5 billion last year. S&P expects
the sale will be completed only in the second half of 2017, thus
after the capital increase. If the sale were unsuccessful, which
is not S&P's base case, it would entail major costs and raise the
requirement for financial support, while potentially jeopardizing
the restructuring of Areva.
S&P still sees a high likelihood of extraordinary government
support for the AREVA group, due to AREVA's important role as
France's leading nuclear services provider, and its very strong
link with the French State, which owns 87% of AREVA. S&P
therefore adds three notches of uplift to its assessment of
AREVA'S stand-alone credit profile.
AREVA'S highly leveraged financial risk profile reflects its very
high S&P Global Ratings-adjusted debt of more than EUR9 billion
as of June 30, 2016, which S&P estimates will have increased
further by year-end 2016, given continued significant uses of
cash. S&P expects the capital structure to remain unsustainable,
with S&P Global Ratings-adjusted debt to EBITDA above 8x in 2016-
2017.
The developing outlook on the group AREVA reflects S&P's view of
its unsustainable capital structure in 2017, the resolution of
which will depend on the ongoing restructuring and planned
capital increase.
The developing outlook on New Co will continue to mirror that on
the parent AREVA until other shareholders take a majority share
and S&P considers that the rating on New Co can be delinked from
that on AREVA.
S&P could raise the ratings on AREVA SA and New Co by one notch
if the ASN provides a positive decision on Flamanville (expected
by mid-2017).
Subsequent positive rating action on the parent AREVA could
occur, once the EUR5 billion capital increase is effectively
implemented, and after New NP is sold.
As for New Co, S&P would consider raising the rating by several
notches, up to 'BB' or 'BB+, if AREVA were no longer New Co's
majority owner after the capital increase and the EC condition on
the disposal of New NP is met.
S&P could lower its ratings on AREVA and New Co if AREVA does not
execute its planned capital increase this year, as a result of a
materially adverse outcome from the ASN in relation to
Flamanville (expected by mid-2017), or if it fails to sell New
NP.
S&P also notes the other risk factors that could create downside
rating pressure, notably on AREVA parent:
-- The outcome of the ongoing audit regarding possible
irregularities in the manufacturing tracking records for
equipment at AREVA NP's Le Creusot plant, which could cause
reputation issues or costs to repair defective equipment;
and
-- The complexity of the State's future risk and liability
assumptions in relation to the OL3 plant and associated
outstanding litigation claims related to Finnish electric
utility Teollisuuden Voima Oyj (BB+/Stable/B).
LIKELIHOOD OF EXTRAORDINARY STATE SUPPORT
The French government owns 87% of the AREVA group, including
indirect stakes, notably about 54% held by the Commissariat a
l'Energie Atomique et aux Energies Alternatives. S&P views the
state as committed to ensuring that any of AREVA 's potential
liquidity pressure will be addressed in a timely manner, and S&P
expects the state will provide significant equity and
intermediate funding to AREVA by early 2017.
S&P bases its view of AREVA as a government-related entity with a
high likelihood of receiving extraordinary government support on
AREVA's:
-- Important role as France's leading nuclear services
provider, notably to EDF, the country's largest power
producer. AREVA ensures supplies of uranium and enriched
uranium for France, which generates about 75% of its
electricity from nuclear plants; and
-- Very strong link with the French government. The
Commissariat a l'Energie Atomique et aux Energies
Alternatives must be AREVA's majority shareholder according
to a French decree. The group's ties with the government
are reinforced by the politically sensitive nature of its
enrichment and back-end recycling activities and its
strategic importance to France's energy policies. As a
commercial enterprise, AREVA operates autonomously. The
French state, through its board representatives, closely
follows AREVA's performance and must authorize strategic
investments and acquisitions. AREVA also has to provide
its analysis of events and answer questions from specific
parliamentary committees. The French government is heavily
involved in AREVA's ongoing discussions with EDF and has
publicly commented on the situation.
As in the past, S&P assumes that any future change in French
government will not change the state's strategy and support of
AREVA's restructuring plan.
CGG SA: Moody's Lowers CFR to Caa3, Outlook Negative
----------------------------------------------------
Moody's Investors Service downgraded the ratings of CGG SA,
including the Corporate Family Rating (CFR) to Caa3 from Caa1 and
the Probability of Default Rating (PDR) to Ca-PD from Caa1-PD.
Concurrently, Moody's has downgraded to Caa1 from B2 the ratings
on the senior secured French revolving credit facility (RCF)
borrowed by CGG SA, and the senior secured US RCF and senior
secured term loan due 2019 borrowed by CGG Holding (U.S.) Inc, a
subsidiary of CGG SA. Finally, Moody's also downgraded the
ratings on the outstanding senior notes to Ca from Caa2. The
outlook on all ratings is negative.
RATINGS RATIONALE
The downgrade of CGG's ratings follows the announcement of the
company entering into debt restructuring negotiations expected to
be conducted under the supervision of a court appointed
mandataire ad hoc. The downgrade also reflects the significant
deterioration of the company's financial performance since FYE
2015, with revenues and profitability negatively affected by the
prolonged downturn of the seismic exploration sector.
While the company has not yet announced the details of the
restructuring, Moody's expects that the recovery rates for all
debt instruments would be impaired, although the secured
instrument should be less affected than the unsecured notes that
rank behind the revolver facilities and secured term loan in
terms of priority of payments. CGG's Moody's adjusted leverage at
the end of September 2016 was high at 12.2x. Based on the high
leverage and current depressed earnings, Moody's views the
current capital structure as unsustainable and believes that in
absence of a strong recovery this year, any restructuring of the
company's debt would result in a distressed exchange.
STRUCTURAL CONSIDERATION
CGG total gross reported financial indebtedness amounted to
approximately USD2.9 billion at the end of September 2016. It
consists of a mix of secured debt such as the French, US and
Nordic RCF, term loan facilities due in 2019 and unsecured debt
such as senior notes with various maturities from 2020 onward and
convertible bonds due in 2019 and 2020 (not rated). Moody's
believes that the recovery rate that could be expected for the
secured facilities and term loans could range between 85% to 95%,
while for the unsecured notes the recovery rate could be below
50%. This is reflected in the respective ratings given to the
outstanding debt instruments.
LIQUIDITY
At the end of September 2016, CGG's liquidity consisted of cash
and cash equivalents of USD603 million. The company has no more
headroom under its RCF facilities and the company is now
dependent on the cash on balance sheet to service its debt and
cover its operating needs. However, the company has a rather
favorable maturity profile with only approximately USD60 million
repayment this year. The next significant maturity consists of
the RCF and part of the Nordic facility in 2018.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the lack of visibility on the final
capital structure and liquidity for this year. There is execution
risk in the restructuring process and, although not assumed at
this stage, failure to complete the financial restructuring could
lead the company entering into an insolvency procedure in France
with the risk to lower recoveries than those currently assumed in
the CFR and instrument ratings. The negative outlook also
reflects the company's continuing decline in revenues and cash
flow.
WHAT COULD CHANGE THE RATING -- UP
Although unlikely in the short term, given the negative outlook,
Moody's anticipates no upward pressure on the CFR and existing
bonds rating. Moody's could stabilise the outlook if CGG's
capital structure is successfully restructured and the company is
able to deliver a sustained revenues and EBITDA growth and
generate meaningful positive free cash flow allowing the company
to de-leverage over time.
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 further weakening
liquidity and increased refinancing risk associated to the
restructuring process, including the company entering an
insolvency process.
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: CGG Holding (U.S.) Inc
Backed Senior Secured Bank Credit Facility, Downgraded to Caa1
from B2
Senior Secured Bank Credit Facility, Downgraded to Caa1 from B2
Issuer: CGG SA
LT Corporate Family Rating, Downgraded to Caa3 from Caa1
Probability of Default Rating, Downgraded to Ca-PD from Caa1-PD
Backed Senior Secured Bank Credit Facility, Downgraded to Caa1
from B2
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to
Ca from Caa2
Senior Unsecured Regular Bond/Debenture, Downgraded to Ca from
Caa2
Outlook Actions:
Issuer: CGG Holding (U.S.) Inc
Outlook, Remains Negative
Issuer: CGG SA
Outlook, Remains Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Oilfield Services Industry Rating Methodology published in
December 2014.
CGG ranks among the top three players in the seismic industry. In
2015, CGG generated USD2.1 billion in revenues. It is listed on
both Euronext Paris and the New York Stock Exchange.
DEXIA CREDIT: Fitch Affirms 'B-' Rating on Sub. Debt Securities
----------------------------------------------------------------
Fitch Ratings has affirmed Dexia Credit Local's (DCL) Long-Term
Issuer Default Rating at 'BBB+' and its Italian subsidiary Dexia
Crediop S.p.A.'s Long-Term IDR at 'BBB-'. The Outlooks are
Stable. At the same time, Fitch has withdrawn Crediop's ratings
for commercial reasons. Therefore, Fitch will no longer provide
ratings or analytical coverage for Crediop.
In addition, Fitch has assigned a Derivative Counterparty Rating
(DCR) of 'BBB+(dcr)' to DCL as part of its roll out of DCRs to
significant derivative counterparties in Western Europe and the
US.
These rating actions are part of a review of eurozone wind-down
institutions rated by Fitch.
KEY RATING DRIVERS
DCL
IDRs, SUPPORT RATING, SUPPORT RATING FLOORS AND SENIOR DEBT
DCL's Long-Term IDR reflects Fitch's view that it is highly
likely that additional support would be provided by the
authorities (Belgium, AA-/Stable and or France, AA/Stable) to DCL
if required in order to ensure an orderly wind-down of the
company. Fitch's view is derived from DCL's majority ownership,
the sizeable funding guarantees provided by Belgium and France
and the financial flexibility of the two countries to provide
financial support. DCL is the main operating entity of Dexia,
which is 50% owned by Belgium and 44% by France.
Fitch continues to factor in state support for DCL despite the
implementation of the Bank Recovery and Resolution Directive
(BRRD). This reflects Fitch's view that the BRRD will not be
applied retroactively to DCL, at least as long as its orderly
wind-down progresses in line with plans agreed with the European
Commission (EC).
Fitch considers that the risk of senior creditor bail-in remains
low for DCL and that the Belgian and French states will act pre-
emptively to the extent possible to maintain DCL's capitalisation
above minimum requirements. Belgium and France's sizeable
investment in Dexia (94% of the group's equity, and funding
guarantees granted to DCL for up to EUR85 bil. together with
Luxembourg) represent a very strong incentive for the authorities
to provide additional support, if required.
Any new requirement for extraordinary support beyond the state
aid already agreed would require approval from the EC. Fitch
would then expect the EC to liaise about the action to take with
the Single Resolution Board, which took over decisions on bank
resolution from national authorities from January 2016. Fitch
believes it likely that both parties would seek the least
disruptive solution. However, we also believe that the decision
would depend on specific circumstances, especially the extent to
which the orderly wind-down is proceeding according to plan.
Fitch does not assign a Viability Rating to DCL because it cannot
be meaningfully analysed as a viable entity in its own right as
it is in run-off and relies on state guarantees for funding.
STATE-GUARANTEED DEBT
The ratings on DCL's debt guaranteed by Belgium (51.4%), France
(45.6%) and Luxembourg (3%) are aligned with the ratings of
Belgium as the lowest-rated guarantor, the guarantee being
several but not joint. Each of the three states is responsible
for a share of the overall guarantee and Fitch rates DCL's state-
guaranteed debt on a 'first-dollar loss' basis.
The 'F1+' rating on DCL's state-guaranteed debt reflects the
'F1+' Short-Term IDR of all three guarantors.
DCR
Fitch has assigned DCL a DCR because we view it as a notable
derivative counterparty. The DCR is at the same level as DCL's
Long-Term IDR as the IDR is based on sovereign support (no
Viability Rating).
SUBORDINATED DEBT AND HYBRID SECURITIES
DCL's subordinated debt instruments XS0307581883 and XS0284386306
are dated bonds (maturing in 2017 and 2019, respectively) with
contractually mandatory coupon payment. The 'B-' rating of these
securities reflects a bespoke analysis of the risks of non-
performance and loss severity in the absence of a Viability
Rating or alternative anchor rating. Although the notes are
fully performing, the rating factors in the lack of financial
flexibility for subordinated debt, which could be bailed in
should DCL receive additional state support to accompany its
orderly wind down. Fitch derives the securities ratings by
stressing profit forecast and credit exposure of DCL and similar
issuers, and comparing the potential losses with their respective
available capital buffers to determine and compare the potential
need for extraordinary state support.
Fitch has affirmed the 'C' rating of DCL's (FR0010251421) hybrid
Tier 1 securities. The rating reflects the continued ban on
coupon payment of subordinated debt and hybrid securities (unless
contractually mandatory) imposed by the EC since 2010.
DEXIA DELAWARE'S SHORT-TERM DEBT RATINGS
The Short-Term ratings on the notes issued under Dexia Delaware
LLC's (Dexia Delaware) US Commercial Paper (USCP) programme have
been affirmed at 'F2' in line with DCL's Short-Term IDR. This
reflects DCL's unconditional guarantee for the securities issued
under the programme. Dexia Delaware is a fully-owned funding
vehicle of DCL.
CREDIOP
IDRs AND SUPPORT RATING
Crediop's ratings are based on institutional support from its
majority shareholder, DCL, which has 70% ownership. Fitch
believes the probability that DCL would provide support to
Crediop, if needed, remains high, as a default of Crediop would
result in high financial and reputational risk for its parent's
wind-down process. DCL would likely be able to provide support
to Crediop if necessary without needing to call on further state
support itself, given the manageable size of Crediop relative to
DCL.
The two-notch difference between Crediop's Long-Term IDR and
DCL's reflects a remote possibility that sovereign support would
be required or that problems would arise at Crediop and DCL at
the same time. In this case, Crediop would be less likely than
DCL to receive support from Belgium and France given it is not
based in Belgium or France and its residual assets were
originated in Italy.
The Stable Outlook on Crediop's Long-Term IDR reflects that on
DCL.
RATING SENSITIVITIES
DCL
IDRs, SUPPORT RATING, SUPPORT RATING FLOORS AND SENIOR DEBT
DCL's ratings are sensitive to a reduction in the Belgian or
French state's ability or propensity to provide additional state
support, including a downgrade of Belgium's sovereign rating by
one notch or France's sovereign rating by two notches. A
significant reduction in state ownership or state-guaranteed
funding that would not be a result of lower funding needs,
reducing the incentive to provide additional support, would also
be rating negative. Any upgrade would be contingent on the two
states demonstrating greater support. This is highly unlikely in
Fitch's view, although not impossible.
The ratings are also sensitive to DCL progressing with its
orderly wind-down in accordance with the plan agreed with the EC.
Deviation from the plan would likely trigger a fresh state aid
review and heighten the likelihood of the Commission and/or
Single Resolution Board requiring more stringent measures, which
could include burden-sharing for senior creditors.
STATE-GUARANTEED DEBT
The 'AA-' Long-Term rating on DCL's state-guaranteed debt is
sensitive to any rating action on the lowest-rated guarantor,
which is currently Belgium. The 'F1+' Short-Term rating on DCL's
state-guaranteed debt would be downgraded if the Short-Term IDR
of any guarantor is downgraded.
DCR
The DCR of DCL is primarily sensitive to changes in DCL's Long-
Term IDR.
SUBORDINATED DEBT AND HYBRID SECURITIES
Upside potential for the ratings of DCL's subordinated debt
instruments may result from its wind-down progressing
significantly with capital being maintained at solid levels.
Downside pressure may arise from any risk of further state
support being needed. Should these instruments be bailed-in,
loss severity would likely be high, which could result in a
downgrade to 'CC' or 'C'.
Fitch does not expect coupon payment to resume on DCL's hybrid
Tier 1 securities (FR0010251421) and therefore sees no upside for
the instruments' rating.
DEXIA DELAWARE'S SHORT-TERM DEBT RATINGS
Dexia Delaware's short-term debt guaranteed by DCL is sensitive
to the same factors that would affect DCL's Short-Term IDR.
CREDIOP's IDRs AND SUPPORT RATING
Not applicable.
The rating actions are:
Dexia Credit Local
Long-Term IDR: affirmed at 'BBB+'; Stable Outlook
Short-Term IDR: affirmed at 'F2'
Support Rating: affirmed at '2'
Support Rating Floor: affirmed at 'BBB+'
Derivative counterparty rating assigned at 'BBB+(dcr)'
State-guaranteed debt: affirmed at 'AA-/F1+'
Senior debt: affirmed at 'BBB+'
Market-linked notes: affirmed at 'BBB+(emr)'
Commercial paper: affirmed at 'F2'
Subordinated debt securities XS0307581883 and XS0284386306:
affirmed at 'B-'
Tier 1 hybrid securities FR0010251421: affirmed at 'C'
Dexia Delaware LLC
USD5 bil. US commercial paper programme: affirmed at 'F2'
Dexia Crediop S.p.A.
Long-Term IDR: affirmed at 'BBB-'; Stable Outlook; withdrawn
Short-Term IDR: affirmed at 'F3'; withdrawn
Support Rating: affirmed at '2'; withdrawn
=============
G E R M A N Y
=============
AUCTIONATA PADDLE8: Files for Preliminary Insolvency Proceedings
----------------------------------------------------------------
Reuters reports that Auctionata Paddle8 has filed a preliminary
insolvency proceedings and is in talks about continuation of
financing.
The profit and loss account of German Startups Group in fiscal
year 2017 will not be affected by the events (IFRS), Reuters
notes.
According to Reuters, the events could negatively affect net
group result of German Startups Group in fiscal 2016 by up to
0.17 euro per share (IFRS)
XELLA INTERNATIONAL: S&P Affirms 'B+' CCR; Outlook Stable
---------------------------------------------------------
S&P Global Ratings affirmed its 'B+' long-term corporate credit
rating on Xella International S.A., the parent company of
Germany-based building products manufacturer Xella. At the same
time, S&P assigned its preliminary 'B+' long-term corporate
credit rating to LSF10 XL Investments Sarl and also to LSF10 XL
Bidco SCA, the issuer of the group's proposed new debt. The
outlook is stable.
S&P also affirmed its 'B+' issue rating on the group's existing
facilities issued by special-purpose vehicle Xefin Lux Sarl. The
proceeds of the bond were on-lent to Xella as a term loan under
facility D2, the terms of which are back-to-back with those of
the notes. The issue rating on facility D2 is 'B+' and the
recovery rating is '3', reflecting that facility D2 forms part of
the existing senior facility agreement and ranks pari passu with
Xella's other senior secured facilities, including the
EUR235 million facility G, the recovery rating on which is '3'
and issue rating is 'B+'. S&P's recovery expectations are in the
upper half of the 50%-70% range.
S&P assigned its 'B+' issue rating to the group's proposed new
facilities, to be issued by LSF10 XL Bidco SCA, including a new
EUR175 million revolving credit facility (RCF), and a new
EUR1.15 billion term loan B. The recovery rating on these
proposed instruments is '3', in the lower half of the 50%-70%
range.
Xella has announced that, as part of this refinancing, it plans
to issue EUR250 million of new senior secured notes in the next
two-to-three weeks. S&P Global Ratings intends to assign new
proposed issue and recovery ratings to these notes once they are
formally launched.
Xella is one of Europe's largest autoclaved aerated concrete
producers by capacity and the largest producer of calcium
silicate units by production facility. The company's
diversification across a variety of product lines and, to a
lesser extent, end markets, is a key factor supporting its credit
quality. S&P also believes that regulatory initiatives could
support growth in the medium term. S&P also views the low
volatility in the company's profitability over the past seven
years as a key rating factor.
That said, Xella operates in a highly cyclical industry owing to
its high exposure to new construction markets that can exhibit
volatile demand. Xella has sizable exposure to energy prices and
commodity price fluctuations, which put pressure on the company's
profitability. However, Xella's branding and technology, which
distinguish its products from those of its more commoditized
peers, give the company a relatively strong degree of pricing
power.
The success of the company's restructuring program (X-Celerate)
is resulting in higher profitability and a stronger cost
position. Margins should rise to over 21% in fiscal 2017 (ending
Dec. 31, 2017) or possibly higher depending on the final
synergies and efficiencies.
In S&P's view, Xella's relatively weak geographic diversity
compared with some of its larger peers constrains the rating.
Xella has significant concentration in Central Europe, with very
limited revenues derived outside European markets.
S&P's business risk assessment also incorporates its view of the
global building materials industry's intermediate risk and the
low country risk in the markets in which Xella operates.
S&P's base case for fiscal 2017 assumes:
-- Revenue growth of 1% to 2% to more than EUR1.3 billion;
-- A continued, gradual improvement in the group's EBITDA
margin to 21%-22%;
-- Capital expenditure (capex) of up to EUR100 million; and
-- No major acquisitions or divestitures.
Based on these assumptions, and with supportive market
conditions, S&P arrives at these credit measures:
-- S&P Global Ratings-adjusted debt to EBITDA of about 5.5x
(6.7x including preferred equity certificates);
-- Adjusted FFO to debt of about 10% (7%-8% including
preferred equity certificates); and
-- Adjusted cash interest coverage of more than 3x over the
12-month rating horizon.
S&P notes that Xella's proposed new capital structure will
include EUR300 million of new preferred equity certificates that
accrue payment-in-kind interest. S&P considers these instruments
to be debt under its non-common equity criteria.
The stable outlook reflects S&P's view of Xella's improving and
historically stable profitability, which will continue to support
the group's cash flows. The outlook also reflects S&P's forecast
that Xella will maintain adjusted funds from operations (FFO)
interest coverage of above 3x over the next 12 months.
Downward rating pressure could arise from increased competition
and a sustained decline in construction in Xella's key markets,
which together would constrain its cash flow and result in
sustained negative FOCF. S&P could consider lowering the rating
if it sees a deterioration in Xella's credit metrics, including
FFO cash interest coverage falling below 3x. This could result
from depressed end markets and pricing pressure or the incurrence
of additional cash-interest paying debts to replace existing
payment-in-kind (PIK) interest accrued under the preferred equity
certificates. Additionally, S&P could downgrade Xella if the
group's liquidity deteriorates.
S&P believes that the likelihood of an upgrade is limited at this
stage because of Xella's tolerance for high leverage and the low
prospect that the group will strengthen and sustain its credit
metrics to a level commensurate with an aggressive financial risk
profile within S&P's rating horizon. S&P notes that private
equity sponsor ownership brings an element of uncertainty
regarding the potential for future releveraging, shareholder
returns, and changes to the group's acquisition or disposal
strategy.
===========
G R E E C E
===========
TRAINOSE: Greece Wraps Up Sale of Business to Italy's FS Railway
----------------------------------------------------------------
Kerin Hope at The Financial Times reports that Greece has wrapped
up the sale of its struggling rail operator TrainOSE to Italy's
state railway company as the leftwing government comes under
pressure from bailout lenders to accelerate the country's
flagging privatization program.
According to the FT, the sale of 100% of TrainOSE to Ferrovie
dello Stato Italiane will bring in only EUR45 million.
TrainOSE runs a lossmaking international freight business and a
subsidized passenger service linking mainland Greece with central
Europe through Macedonia and Serbia, the FT relays. FS is
expected to take over the operation of TrainOSE this year, the FT
discloses.
The sale has still to be approved by the European Commission and
ratified by the Greek parliament, the FT notes. Taiped
officials, as cited by the FT, said following the signing of the
sale agreement, the commission is expected to drop an
investigation into allegations that EUR700 million of government
subsidies pumped into TrainOSE amounted to illegal state aid.
Taiped was set up as part of Greece's first international bailout
in 2010 with a brief to raise EUR50 billion by 2025 from sales of
public sector corporations, infrastructure organizations and
state-owned real estate, the FT recounts.
=============
I C E L A N D
=============
KAUPTHING BANK: To Press Ahead with Arion's Stock Market Listing
----------------------------------------------------------------
Arno Schuetze at Reuters reports that failed Icelandic bank
Kaupthing is pressing ahead with a stock market listing of its
domestic arm Arion, people close to the matter said, a key step
in Iceland's rehabilitation in the global financial system.
Kaupthing, once a major international bank, went into
administration and its domestic operations were separated into
Arion Bank in 2009, Reuters recounts.
According to Reuters, the sources said Kaupthing -- now a holding
company -- has mandated Swedish investment bank Carnegie to act
as global coordinator for Arion's initial public offering
together with Citi and Morgan Stanley.
They said other banks, including Deutsche Bank, have secured
roles as bookrunners that will help with the share sale, which
may take place as early as April, Reuters relates.
Citi and Morgan Stanley were asked in 2016 to do preparatory work
for the IPO, almost a decade after Iceland's banking sector
collapsed, Reuters discloses.
In late 2015, Kaupthing finished its winding up process and
reached an agreement which turned its creditors into
shareholders, Reuters relays. It owns 87% of Arion, which
includes insurance, asset management and retail banking assets,
while Iceland's government owns the rest, Reuters notes.
About Kaupthing Bank
Headquartered in Reykjavik, Iceland Kaupthing Bank --
http://www.kaupthing.com/-- is Iceland's largest bank and among
the Nordic region's 10 largest banking groups. With operations
in more than a dozen countries, the bank offers a range of
services including retail banking, corporate finance, asset
management, brokerage, private banking, treasury, and private
wealth management. Kaupthing was created by the 2003 merger of
Bunadarbanki and Kaupthing Bank. In October 2008, the Icelandic
government assumed control of Kaupthing Bank after taking similar
measures with rivals Landsbanki and Glitnir.
As reported by the Troubled Company Reporter-Europe, on Nov. 30,
2008, Olafur Gardasson, assistant for Kaupthing Bank hf, filed a
petition under Chapter 15 of title 11 of the United States Code
in the United States Bankruptcy Court for the Southern District
of New York commencing the Debtor's Chapter 15 case ancillary to
the Icelandic Proceeding and seeking recognition for the
Icelandic Proceeding as a "foreign main proceeding" under the
Bankruptcy Code and relief in aid of the Icelandic Proceeding.
=============
I R E L A N D
=============
CARLYLE GMS 2014-1: Fitch Assigns 'B-' Rating to Class F Notes
--------------------------------------------------------------
Fitch Ratings has assigned Carlyle GMS Euro CLO 2014-1 Designated
Activity Company's refinancing notes final ratings and affirmed
the transaction's remaining notes, as:
Class A: rated 'AAAsf'; Outlook Stable
Class B: rated 'AAsf'; Outlook Stable
Class C: rated 'A+sf'; Outlook Stable
Class D: affirmed at 'BBB+sf'; Outlook Stable
Class E: affirmed at 'BBsf'; Outlook Stable
Class F: affirmed at 'B-sf'; Outlook Stable
Carlyle GMS Euro CLO 2014-1 is a cash flow collateralised loan
obligation. Net proceeds from the refinancing notes were used to
redeem the existing class A, B and C notes at par (plus accrued
interest). The portfolio is managed by CELF Advisors LLP (part
of The Carlyle Group LP).
KEY RATING DRIVERS
Carlyle GMS Euro CLO 2014-1 closed in 2014. The issuer has
issued new notes with the aim of refinancing part of the original
liabilities. The refinanced notes have been redeemed in full as
a consequence of the refinancing.
The new notes bear interest at a lower margin over EURIBOR than
the notes being refinanced. The remaining terms and conditions
of the refinancing notes (including seniority) are the same as
the refinanced notes.
The final ratings reflect Fitch's view that the refinancing notes
are substantially similar position as the notes being refinanced.
The affirmation of the remaining notes reflects the stable
performance since the last review in November 2016. Credit
quality has remained virtually unchanged, with the weighted
average rating factor as calculated by Fitch standing at 33.65,
down from 33.74. Recovery prospects are similarly stable with
Fitch-calculated weighted average recovery rate of 68.40%, down
from 68.48%. There have been no defaults in the portfolio since
the November 2016 review.
RATING SENSITIVITIES
As the loss rates for the current portfolios are below those
modeled for the respective stress portfolio, the sensitivities
shown in the new issue reports for the transaction still apply.
===================
K A Z A K H S T A N
===================
KAZKOMMERTSBANK: Moody's Puts LT 'B3' Deposit Ratings on Review
---------------------------------------------------------------
Moody's Investors Service has placed on review with direction
uncertain Kazkommertsbank's long-term B3 deposit ratings, its
Caa2 Senior Unsecured ratings and all long-term debt ratings, and
downgraded the bank's standalone baseline credit assessment (BCA)
by two notches to ca from caa2. These actions reflect a higher
probability that the bank will need external support in order to
address solvency risks related to its large stock of problem
assets and its increased reliance on funding facilities from the
National Bank of Kazakhstan (NBK). Moody's believes that further
support will be forthcoming from the government, as evidenced by
an NBK announcement and other official statements. While the
rating agency believes that any support will be designed to
benefit depositors and, to a lesser extent, bondholders, the form
of any government aid remains subject to considerable
uncertainty, and any failure to secure additional capital may
expose creditors to higher losses over time.
RATINGS RATIONALE
--- LOWER BCA REFLECTS HIGHER NEED FOR EXTERNAL SUPPORT
Moody's has said that the two-notch downgrade of
Kazkommertsbank's BCA to ca from caa2 was driven by an increased
probability that the bank will require external support to
address problems related to its large stock of problem assets, as
well as its recently increased reliance on liquidity facilities
from NBK following the repayments of wholesale debts in 2016 and
recently increased deposit volatility.
On December 26, 2016, NBK announced that it is currently in talks
with Kazkommertsbank's shareholders on additional measures to
increase the bank's capital adequacy and that, given the bank's
systemic importance, it provided the bank with additional short-
term liquidity of KZT400 billion (US$1.2 billion; the bank repaid
KZT200 billion shortly after that in December 2016) in order to
better service clients' needs.
As of June 30, 2016, Kazkommertsbank's exposure to its largest
borrower -- which Moody's considers problematic despite its non-
overdue status -- peaked at KZT2.4 trillion or about 56% of the
bank's gross loans. According to Kazkommertsbank's regulatory
filings at 30 September 2016, another 7.99% of its gross loans
were non-performing. As of September 30, 2016, the bank's loan
loss reserves (under IFRS) amounted to only 12.6% of total gross
loans and provide only a limited buffer for the above-mentioned
asset risks, given weak macroeconomic conditions.
As of December 1, 2016, Kazkommertsbank reported the following
regulatory capital adequacy ratios: 9.0% Core Tier 1; 9.7% Tier
1; and 12.8% Total Capital Adequacy Ratio. Although
Kazkommertsbank complied with all regulatory capital adequacy
requirements, Moody's consider these levels to be modest, given
the high risk of asset deterioration related to a large stock of
problem assets. Moody's estimates that the disposal of problem
assets in the currently challenging operating environment would
lead to a substantial capital shortfall.
The BCA downgrade also reflects weakened liquidity after
Kazkommertsbank increased its reliance on NBK short-term
liquidity facilities, following unexpected deposit outflows in Q4
2016 and the need to temporarily maintain higher liquidity
buffers in anticipation of a seasonal surge in customer payments.
-- INCREASED PROBABILITY OF GOVERNMENT SUPPORT
Moody's notes that the recent statements made by the Kazakhstan
authorities, including the President of Kazakhstan and NBK,
signal the increased likelihood that government support will be
provided to Kazkommertsbank in case of need. In Moody's view,
such statements indicate a very high likelihood of a bail-out for
depositors and has led the rating agency to change its view on
the probability of government support for deposits to "very high"
from "high".
Given the substantially decreased share of foreign creditors in
total liabilities, any bail-in of bondholders will provide
limited capital benefits, contrary to previous instances where
debt holders accounted for a large portion of banks' funding and
suffered significant losses. Moody's now considers it more likely
that bondholders will benefit from a capital restructuring and
has accordingly reassessed the probability of government support
as "high" from "low" previously.
FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE
A significant increase in the bank's capital and/or reduction in
its problem assets could lead to an upgrade in the BCA. This may
also lead to an upgrade in the long-term debt and deposit
ratings, depending on the extent to which creditors were shielded
from losses as well as the probability of further government
support.
A further downgrade in the BCA to c is unlikely unless the bank
were likely to be placed in liquidation. The long-term ratings
could be downgraded in the event that government support were
unlikely to benefit depositors and bondholders who therefore
faced potential losses as a result of the bank's resolution.
LIST OF AFFECTED RATINGS
Issuer: Kazkommertsbank
Downgrades:
Adjusted Baseline Credit Assessment, Downgraded to ca from caa2
Baseline Credit Assessment, Downgraded to ca from caa2
Placed On Review Direction Uncertain:
LT Bank Deposits (Local & Foreign Currency), previously B3
Negative
BACKED Senior Unsecured Regular Bond/Debenture (Foreign
Currency), previously Caa2 Negative
Senior Unsecured Regular Bond/Debenture (Foreign Currency),
previously Caa2 Negative
Subordinate (Foreign Currency), previously Caa3
BACKED Junior Subordinate (Foreign Currency), previously Ca
(hyb)
Senior Unsecured MTN (Foreign Currency), previously (P)Caa2
LT Counterparty Risk Assessment, previously B2(cr)
Outlook Actions:
Outlook, Changed To Rating Under Review From Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
published in January 2016.
=====================
N E T H E R L A N D S
=====================
DRYDEN 29: Moody's Hikes Class E Notes Rating to Ba1
----------------------------------------------------
Moody's Investors Service has assigned definitive ratings to five
classes of notes ("Refinancing Notes") issued by Dryden 29 Euro
CLO 2013 B.V. (Dryden 29 Euro CLO, the "Issuer"):
EUR150,250,000 Class A-1A-R Senior Secured Floating Rate Notes
due 2026, Definitive Rating Assigned Aaa (sf)
EUR75,000,000 Class A-1B-R Senior Secured Fixed Rate Notes due
2026, Definitive Rating Assigned Aaa (sf)
EUR25,500,000 Class B-1A-R Senior Secured Floating Rate Notes due
2026, Definitive Rating Assigned Aa1 (sf)
EUR25,000,000 Class B-1B-R Senior Secured Fixed Rate Notes due
2026, Definitive Rating Assigned Aa1 (sf)
EUR32,750,000 Class C-R Mezzanine Secured Deferrable Floating
Rate Notes due 2026, Definitive Rating Assigned A1 (sf)
Additionally Moody's has upgraded and affirmed the ratings on the
existing following notes issued by Dryden 29 Euro CLO:
EUR23,250,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2026, Upgraded to Baa1 (sf); previously on Dec 19, 2013
Definitive Rating Assigned Baa2 (sf)
EUR22,000,000 Class E Mezzanine Secured Deferrable Floating Rate
Notes due 2026, Upgraded to Ba1 (sf); previously on Dec 19, 2013
Definitive Rating Assigned Ba2 (sf)
EUR17,500,000 Class F Mezzanine Secured Deferrable Floating Rate
Notes due 2026, Affirmed B2 (sf); previously on Dec 19, 2013
Definitive Rating Assigned B2 (sf)
Moody's had assigned provisional ratings to the Refinancing Notes
in this transaction on 20 December 2016.
RATINGS RATIONALE
Moody's ratings of the Notes address the expected loss posed to
noteholders. The ratings reflect the risks due to defaults on the
underlying portfolio of assets, the transaction's legal
structure, and the characteristics of the underlying assets.
The Issuer has issued the Refinancing Notes in connection with
the refinancing of the following classes of original notes: Class
A-1A Notes, Class A-1B Notes, Class B-1A Notes, Class B-1B Notes
and Class C Notes due 2026 (the "Original Notes"), previously
issued on December 19, 2013 (the "Original Closing Date"). On the
refinancing date, the Issuer will use the proceeds from the
issuance of the Refinancing Notes to redeem in full its
respective Original Notes that will be refinanced. On the
Original Closing Date the Issuer also issued the Class D, Class E
Notes and the Class F notes as well as one class of subordinated
notes, which will remain outstanding.
The rating action on the Class D and Class E is primarily a
result of the increase in the excess spread available to the
transaction resulting from today refinancing of Class A, Class B
and Class C.
Dryden 29 Euro CLO is a managed cash flow CLO. The issued notes
are collateralized primarily by broadly syndicated first lien
senior secured corporate loans. At least 85% of the portfolio
must consist of senior secured loans and eligible investments,
and up to 15% of the portfolio may consist of non-senior secured
loans and non senior secured bonds. The underlying portfolio is
100% ramped as of the second refinancing closing date.
PGIM Limited (the "Manager") manages the CLO. It directs the
selection, acquisition, and disposition of collateral on behalf
of the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's reinvestment
period. After the reinvestment period, which ends in January
2018, the Manager may reinvest unscheduled principal payments and
sale proceeds from credit risk and credit improved obligations,
subject to certain restrictions.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Loss and Cash Flow Analysis:
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in October 2016. The
key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. For modeling
purposes, Moody's used the following base-case assumptions:
Performing par and principal proceeds balance: EUR 400,000,000
Diversity Score: 40
Weighted Average Rating Factor (WARF): 2872
Weighted Average Spread (WAS): 4.30%
Weighted Average Recovery Rate (WARR): 41.1%
Weighted Average Life (WAL): 5.05 years
As part of its analysis, Moody's has addressed the potential
exposure to obligors domiciled in countries with a local currency
country risk bond ceilings (LCC) of A1 and lower. Following the
effective date, and given the portfolio constraints and the
current local currency country ceilings rating in Europe, such
exposure may not exceed 15% of the total portfolio, where
exposures to countries rated below A3 cannot exceed 10% and
exposures to countries rated below Baa3 cannot exceed 0%. As a
result and in conjunction with the current local country ceiling
ratings of the eligible countries, as a worst case scenario, a
maximum 5% of the pool would be domiciled in countries with
single A local currency country ceiling and 10% in Baa2 local
currency country ceiling. The remainder of the pool will be
domiciled in countries which currently have a local currency
country ceiling of Aaa. Given this portfolio composition, the
model was run with different target par amounts depending on the
target rating of each class of notes as further described in
Appendix 14 of the methodology. The portfolio haircuts are a
function of the exposure size to peripheral countries and the
target ratings of the rated notes and amount to 3.33% for the
Refinancing Class A-1A and A-1B notes, 2.42% for the Refinancing
Class B-1A and B-1B notes, 1.17% for the Refinancing Class C
notes, 0.33% for the Class D notes and 0% for Classes E and F
notes.
Stress Scenarios:
Together with the set of modelling assumptions above, Moody's
conducted an additional sensitivity analysis, which was an
important component in determining the provisional rating
assigned to the rated notes. This sensitivity analysis includes
increased default probability relative to the base case. Below is
a summary of the impact of an increase in default probability
(expressed in terms of WARF level) on each of the rated notes
(shown in terms of the number of notch difference versus the
current model output, whereby a negative difference corresponds
to higher expected losses), holding all other factors equal:
Percentage Change in WARF: WARF + 15% (to 2872 from 3303)
Ratings Impact in Rating Notches:
Class A-1A-R Senior Secured Floating Rate Notes: 0
Class A-1B-R Senior Secured Fixed Rate Notes: 0
Class B-1A-R Senior Secured Floating Rate Notes: 0
Class B-1B-R Senior Secured Fixed Rate Notes: 0
Class C-R Mezzanine Secured Deferrable Floating Rate Note: 0
Class D Mezzanine Secured Deferrable Floating Rate Note: -2
Class E Mezzanine Secured Deferrable Floating Rate Note: -1
Class F Mezzanine Secured Deferrable Floating Rate Note: -1
Percentage Change in WARF: WARF +30% (to 2872 from 3734)
Ratings Impact in Rating Notches:
Class A-1A-R Senior Secured Floating Rate Notes: 0
Class A-1B-R Senior Secured Fixed Rate Notes: 0
Class B-1A-R Senior Secured Floating Rate Notes: -1
Class B-1B-R Senior Secured Fixed Rate Notes: -1
Class C-R Mezzanine Secured Deferrable Floating Rate Note: -2
Class D Mezzanine Secured Deferrable Floating Rate Note: -3
Class E Mezzanine Secured Deferrable Floating Rate Note: -2
Class F Mezzanine Secured Deferrable Floating Rate Note: -3
Factors that would lead to an upgrade or downgrade of the
ratings:
The rated notes' performance is subject to uncertainty. The
notes' performance is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. PGIM Limited's investment
decisions and management of the transaction will also affect the
notes' performance.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Collateralized Loan Obligations"
published in October 2016.
EURO-GALAXY III: Fitch Assigns 'B-' Rating to Class F Notes
-----------------------------------------------------------
Fitch Ratings has assigned Euro-Galaxy III CLO B.V.'s refinanced
notes final ratings as:
EUR67 mil. Class A-R senior secured variable funding notes:
'AAAsf'; Outlook Stable
EUR153 mil. Class A senior secured floating-rate notes:
'AAAsf'; Outlook Stable
EUR9.5 mil. Class B-1senior secured fixed-rate notes: 'AAsf';
Outlook Stable
EUR38.5 mil. Class B-2 senior secured floating-rate notes:
'AAsf'; Outlook Stable
EUR23.3 mil. Class C senior secured deferrable floating-rate
notes: 'Asf'; Outlook Stable
EUR20 mil. Class D senior secured deferrable floating-rate
notes: 'BBBsf'; Outlook Stable
EUR23.5 mil. Class E senior secured deferrable floating-rate
notes: 'BBsf'; Outlook Stable
EUR8.4 mil. Class F senior secured deferrable floating-rate
notes: 'B-sf'; Outlook Stable
Euro-Galaxy III CLO B.V. is a cash flow CLO. Net proceeds from
the refinancing notes were used to redeem the existing notes at
par and to invest in additional leveraged loans and bonds. The
additional investment follows a EUR42.25 mil. increase in the
portfolio target par amount to EUR370 mil. from EUR327.75 mil.
The portfolio is managed by Pinebridge Investments Europe
Limited. The transaction features a four-year reinvestment
period, which is scheduled to end in 2021, during which time
Credit Industriel et Comercial will act as junior collateral
manager.
KEY RATING DRIVERS
Average Portfolio Credit Quality
The average credit quality of obligors in the portfolio is in the
'B' category. Fitch has either public ratings or credit opinions
on 100% of the assets in the portfolio. The weighted average
rating factor (WARF) of the current portfolio is 31.8, as per the
January 2016 trustee report, below the maximum covenanted WARF of
33.
High Expected Recovery
At least 90% of the portfolio will comprise senior secured
obligations. Fitch views the recovery prospects for these assets
as more favorable than for second-lien, unsecured and mezzanine
assets. The weighted average recovery rate (WARR) of the current
portfolio is 72.6%, as per the January 2016 trustee report, above
the minimum covenanted WARR of 67%.
Partial Interest Rate Hedge
Between 0% and 7.5% of the portfolio may be invested in fixed-
rate assets while fixed-rate liabilities represent 2.5% of the
total amount outstanding at origination. The transaction
therefore has a partial hedge against rising interest rates.
Exposure to Unhedged Non-Euro-Denominated Assets
The transaction is allowed to invest up to 5% of the portfolio in
non-euro-denominated assets. Unhedged non-euro-denominated
assets are limited to a maximum exposure of 2.5% of the portfolio
subject to principal haircuts, and any other non-euro-denominated
asset will be hedged with FX forward agreements within from
settlement date up to 90 days from of the settlement date. The
manager can only invest in unhedged or forward hedged assets if,
after the applicable haircuts, the aggregate balance of the
assets is above the reinvestment target par balance. Investment
in non-euro-denominated assets hedged with perfect asset swaps as
of the settlement date is allowed up to 20% of the portfolio.
Limited FX Risk
Asset swaps are used to mitigate currency risk on non-euro-
denominated assets. Exposure to any single swap provider may not
exceed 20% of the portfolio.
TRANSACTION SUMMARY
The issuer has issued new notes to refinance the original
liabilities. The refinancing notes bear interest at a lower
margin over EURIBOR or lower fixed-rate coupon than the notes
being refinanced and cannot be refinanced at a future date. The
issuer has amended the capital structure and extended the
maturity of the notes.
In conjunction with the refinancing, certain provisions of the
transaction documents have been amended. The amendment addresses
Volcker Rule concerns and results in the introduction of voting,
non-voting and non-voting exchangeable notes.
RATING SENSITIVITIES
A 25% increase in the obligor default probability could lead to a
downgrade of up to two notches for the rated notes, while a 25%
reduction in expected recovery rates could lead to a downgrade of
up to four notches for the rated notes.
JUBILEE CLO 2014-XII: Fitch Affirms 'B-' Rating on Class F Notes
----------------------------------------------------------------
Fitch Ratings has assigned Jubilee CLO 2014-XII B.V. refinancing
notes new ratings and affirmed the others, as:
EUR302 mil. class A-R notes: assigned 'AAAsf'; Outlook Stable
EUR51 mil. class B1-R notes: assigned 'AA+sf'; Outlook Stable
EUR5 mil. class B2-R notes: assigned 'AA+sf'; Outlook Stable
EUR26.5 mil. class C: affirmed at 'A+sf'; Outlook Stable
EUR24.9 mil. class D: affirmed at 'BBB+sf'; Outlook Stable
EUR36.9 mil. class E: affirmed at 'BB+sf'; Outlook Stable
EUR19 mil. class F: affirmed at 'B-sf'; Outlook Stable
Jubilee CLO 2014-XII B.V is a cash flow collateralized loan
obligation securitizing a portfolio of mainly European leveraged
loans and bonds. The portfolio is managed by Alcentra Ltd.
KEY RATING DRIVERS
'B' Portfolio Credit Quality
Fitch assesses the average credit quality of obligors in the 'B'
category. The agency has public ratings or credit opinions on
all the obligors in the current portfolio. The weighted average
rating factor of the current portfolio is 32.4.
High Recovery Expectation
At least 90% of the portfolio will be comprised of senior secured
loans and senior secured bonds. Recovery prospects for these
assets are typically more favorable than for second-lien,
unsecured, and mezzanine assets. The weighted average recovery
rate of the indicative portfolio is 67.8%.
Limited Interest Rate Risk
No more than 10% of the portfolio may consist of fixed-rate
assets. Consequently, the majority of this risk is naturally
hedged, as fixed rate notes represent 1% of the target par.
Fitch modelled a 10% fixed-rate bucket in its analysis, which
showed that the rated notes can withstand excess spread
compression in a rising interest rate environment.
Limited FX Risk
Any non-euro-denominated assets have to be hedged with perfect
asset swaps as of the settlement date, limiting foreign exchange
risk. The transaction is permitted to invest up to 30% of the
portfolio in non-euro-denominated assets.
Performance within Expectations
The affirmation of the class C to F notes reflects the stable
performance of the transaction, in line with Fitch's
expectations. The transaction is 0.36% above par, there are no
defaults in the portfolio and assets rated 'CCC' and below
represent 1.6% of the current portfolio. All coverage,
collateral and portfolio profile tests are passing.
TRANSACTION SUMMARY
On Jan. 17, 2017, Jubilee CLO 2014-XII issued the class A, B1 and
B2 refinancing notes and applied the net issuance and sales
proceeds to redeem the existing class A, B1 and B2 notes at par
(plus accrued interest).
The transaction documents may be amended subject to rating agency
confirmation or noteholder approval. Where rating agency
confirmation relates to risk factors, Fitch will analyze the
proposed change and may provide a rating action commentary if the
change has a negative impact on the ratings. Such amendments may
delay the repayment of the notes as long as Fitch's analysis
confirms the expected repayment of principal at the legal final
maturity.
If in the agency's opinion the amendment is risk-neutral from a
rating perspective Fitch may decline to comment. Noteholders
should be aware that confirmation is considered to be given if
Fitch declines to comment.
RATING SENSITIVITIES
As the loss rates for the current portfolio are below those
modeled for the respective stress portfolio, the sensitivities
shown in the new issue report still apply.
===============
P O R T U G A L
===============
BANCO BPI: S&P Revises CreditWatch on 'BB-' LT Rating to Positive
-----------------------------------------------------------------
S&P Global Ratings revised its CreditWatch status to positive
from developing on its 'BB-' long-term counterparty credit
ratings on Portugal-based Banco BPI S.A. and its core subsidiary
Banco Portugues de Investimento S.A. At the same time, S&P
affirmed its 'B' short-term ratings on both banks.
S&P also revised the CreditWatch status to positive from
developing on S&P's issue ratings on BPI's senior unsecured debt,
subordinated debt, and preference shares.
The CreditWatch revision follows Caixabank's announcement on
Jan. 16 of the tender offer registration to acquire the majority
(55%) stake in Portugal-based BPI that it does not already own.
Caixabank expects to close the acquisition process by the end of
the first quarter of 2017.
The CreditWatch positive reflects the possibility of Caixabank
taking control of the bank, and therefore the potential for the
long-term rating on BPI to benefit from parental support. S&P
sees the potential rating uplift as limited to two notches
because S&P expects BPI to be considered at least a moderately
strategic subsidiary of Caixabank immediately after completion.
The ratings on BPI would therefore be constrained at the level of
the long-term sovereign credit rating on Portugal (BB+/Stable/B).
Becoming part of a larger and financially stronger banking group
would consolidate S&P's view of BPI's corporate governance and
divided shareholder base, easing its previous concerns about
management's ability to effectively run the bank and execute its
plans.
Moreover, with the sale of a 2% stake in its Angolan subsidiary
Banco de Fomento de Angola (BFA) to telecommunications company
Unitel in mid-December, BPI finally resolved its notable single-
name concentration in Angola. This is because BPI transfered
control of BFA (48% stake after the sale) to Unitel (52%) and S&P
understands that BPI will consolidate its participation in BFA
using the equity method, from full consolidation previously.
S&P anticipates the sale of BPI's 2% stake in BFA might somewhat
negatively affect S&P's measure of BPI's solvency--the risk-
adjusted capital (RAC) ratio--which was 5.8% as of year-end 2015.
That said, to reassess S&P's projected RAC ratio, it would need
more visibility on the restructuring costs and the dividend
policy that Caixabank's integration plan entails.
Finally, S&P would also need to consider what could be the
implications of this sale for BPI's risk profile, seeing that BPI
is relinquishing management and risk control of BFA.
The affirmation of the short-term rating on BPI reflects that, at
present, S&P considers the maximum upside potential for the long-
term counterparty credit rating to be up to two notches.
The CreditWatch positive on S&P's long-term rating on BPI
reflects the possibility of an up to two-notch upgrade if the
acquisition by Caixabank is finalized successfully. The level of
rating uplift that BPI could benefit from will depend on S&P's
view of the likelihood of BPI receiving financial support from
its parent if needed and S&P's assessment of its strategic
importance to its parent. In any event, the rating will not be
above that on the sovereign.
At the same time, if the acquisition is finalized as planned S&P
will reassess its opinion of BPI's stand-alone creditworthiness
depending on the new owner's plans for BPI in terms of business
and capital management. S&P will also consider the implications
of BPI loosening management control over its Angolan subsidiary.
Conversely, if Caixabank's plans to take full control of BPI were
to fail S&P would likely affirm the ratings on BPI.
=========
S P A I N
=========
MADRID RMBS I: S&P Affirms 'CCC-' Rating on Class E Notes
---------------------------------------------------------
S&P Global Ratings has raised its credit ratings on Madrid RMBS
I, Fondo de Titulizacion de Activos' class A2 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 credit and cash flow analysis of
the most recent transaction information that S&P has received as
of the November 2016 investor report. S&P's analysis reflects
the application of its European residential loans criteria, S&P's
structured finance ratings above the sovereign (RAS) criteria,
and S&P's current counterparty criteria.
Under S&P's RAS criteria, it applied a hypothetical sovereign
default stress test to determine whether a tranche has sufficient
credit and structural support to withstand a sovereign default
and so repay timely interest and principal by legal final
maturity.
S&P's RAS criteria designate the country risk sensitivity for
residential mortgage-backed securities (RMBS) as moderate. The
class A2 notes do not pass S&P's severe stress under its RAS
criteria. Therefore, S&P's rating on the class A2 notes is
capped at 'BBB+', its foreign currency long-term sovereign rating
on Spain.
The transaction features an interest deferral trigger for the
class B to E notes. If breached, the interest payments are
subordinated below principal in the priority of payments. These
triggers are based on cumulative net defaults over the closing
portfolio balances and are irreversible. Therefore, if the
triggers are breached, interest payments will be subordinated for
the life of the transaction.
Available credit enhancement for the class A2, B, C, and D notes
has increased since S&P's previous review due to the amortization
of class A2 notes. At the same time, available credit
enhancement for the class E notes has decreased due to the full
depletion of the reserve fund, limited prepayments, and uncured
defaults, which have led to the class E notes being
undercollateralized.
Class Available credit enhancement,
excluding defaulted loans (%)
A1 -
A2 25.41
A3 -
B 15.94
C 5.79
D 1.20
E (1.65)
Madrid RMBS I features a reserve fund, which can amortize to a
target amount. However, it is now depleted as it was used to
provision for defaulted assets.
Severe delinquencies of 90-180 days, excluding defaults, are
0.25%, which is below S&P's Spanish RMBS index, although they
have been above the index in the past.
Defaults are defined as mortgage loans in arrears for more than
180 days. This is the most conservative default definition that
S&P has seen in a Spanish RMBS transaction that it rates and,
apart from transaction's performance, partly explains the high
level of defaults in the transaction. At 16.84%, defaults are
higher than in other Spanish RMBS transactions that S&P rates.
Prepayment levels remain low and the transaction is unlikely to
pay down significantly in the near term, in S&P's opinion.
After applying S&P's European residential loans criteria to this
transaction, its credit analysis results show a decrease in the
weighted-average foreclosure frequency (WAFF) and a decrease in
the weighted-average loss severity (WALS) for each rating level.
Rating level WAFF WALS CC
(%) (%) (%)
AAA 48.31 45.71 22.08
AA 35.62 42.04 14.98
A 29.10 34.89 10.15
BBB 21.06 30.94 6.52
BB 13.04 28.13 3.67
B 10.82 25.50 2.76
CC--Credit coverage.
Following the application of S&P's relevant criteria, it has
determined that its assigned rating on each class of notes in
this transaction should be the lower of (i) the rating as capped
by S&P's RAS criteria, (ii) the rating as capped by S&P's current
counterparty criteria, and (iii) the rating that the class of
notes can attain under its European residential loans criteria.
In this transaction, S&P's rating on the class A2 notes is
constrained by its rating on the sovereign.
S&P's credit and cash flow analysis indicates that the class A2
notes have sufficient credit enhancement to withstand its
stresses at the 'A-' rating level. However, the class A2 notes
do not pass S&P's cash flow stresses under its RAS criteria, and
therefore do not achieve any notches of uplift above the
sovereign rating. S&P has therefore raised to 'BBB+ (sf)' from
'BBB (sf)' its rating on the class A2 notes.
S&P's analysis also indicates that the class B notes have
sufficient credit enhancement to withstand its stresses at the
'BBB' rating level. Therefore, S&P has raised to 'BBB (sf)' from
'BB+ (sf)' its rating on the class B notes.
The class C, D, and E notes do not pass any of S&P's stresses
under its cash flow analysis. S&P do not expect the class C to
have interest shortfalls in the next 12 months in its cash flow
analysis. At the same time, S&P considered the interest deferral
trigger to this transaction at 13.2% to be far from being
breached because current net cumulative defaults represent 7.52%
and have stagnated around 7.5% in the past year. Therefore, in
accordance with S&P's criteria, it has affirmed its 'B- (sf)'
rating on the class C notes.
The class D and E notes do not pass S&P's cash flow analysis
stresses. The available credit enhancement is only 1.20% and -
1.65% for the class D and E notes, respectively. At the same
time, there is an amortization deficit in the transaction. The
class E interest deferral trigger is 8.00%, which is only
slightly above the 7.52% of current net cumulative defaults. S&P
has taken the proximity of the interest deferral trigger into
consideration in its analysis. Therefore, in accordance with
S&P's criteria, it has affirmed its 'CCC+ (sf)' and 'CCC- (sf)'
ratings on the class D and E notes, respectively.
In S&P's opinion, the outlook for the Spanish residential
mortgage and real estate market is not benign and it has
therefore increased its expected 'B' foreclosure frequency
assumption to 3.33% from 2.00%, when S&P applies its RMBS
criteria, to reflect this view. S&P bases these assumptions on
its expectation of modest economic growth, continuing high
unemployment, and house prices stabilization during 2017.
On the back of improving but still depressed macroeconomic
conditions, S&P don't expect the performance of the transactions
in our Spanish RMBS index to improve in 2017.
MADRID RMBS I is a Spanish RMBS transaction, which securitizes
first-ranking mortgage loans. Bankia S.A. originated the pool,
which comprise loans granted to prime borrowers, mainly located
in Madrid.
RATINGS LIST
Class Rating
To From
MADRID RMBS I, Fondo de Titulizacion de Activos
EUR2 Billion Mortgage-Backed Floating-Rate Notes
Ratings Raised
A2 BBB+ (sf) BBB (sf)
B BBB (sf) BB+ (sf)
Ratings Affirmed
C B- (sf)
D CCC+ (sf)
E CCC- (sf)
=============
U K R A I N E
=============
KERNEL HOLDING: Fitch Puts 'B-' LT FC IDR on Rating Watch Pos.
--------------------------------------------------------------
Fitch Ratings has placed Kernel Holding S.A.'s Long-Term Local-
Currency (LC) and Foreign-Currency (FC) Issuer Default Ratings
(IDRs) on Rating Watch Positive (RWP). The agency has also
assigned Kernel Holding S.A.'s planned benchmark USD unsecured
Eurobond an expected rating of 'B+(EXP)'.
The RWP reflects the scope for improvement in the company's
liquidity if Kernel successfully refinances a substantial portion
of its debt with the planned Eurobond and potentially a
lengthening of pre-export financing (PXF) facilities. If
successful, this could lead to a one-notch upgrade of Kernel's LC
IDR to 'B+' (from 'B') and its FC IDR being rated above Ukraine's
'B- 'Country Ceiling and be aligned with the company's LC IDR.
The final ratings of the bonds are contingent upon receipt of
final documents conforming to the information already received by
Fitch.
KEY RATING DRIVERS
Potential LC IDR Upgrade
Kernel intends to improve its debt structure by substituting its
mostly short-term debt with a five-year benchmark Eurobond issue
and/or new three-year PXF facilities. As a result, post-
refinancing most of Kernel's current debt (approximately USD600m
as of January 2017) would carry maturities of between three and
five years and there will be sufficient, long-dated extra
resources to cover working capital peaks.
Kernel's LC IDR is currently capped at 'B' by liquidity risks due
to a high proportion of short-term debt and the company's
dependence on one-year PXF facilities to fund seasonal
procurement of sunflower seeds and grain. Should the refinancing
complete successfully, we expect an improvement in Kernel's
liquidity ratio to 1.5x-1.8x (0.8x as at end-September 2016). An
enhanced financial flexibility would allow an upgrade of the LC
IDR by one notch to 'B+'.
FC IDR Likely Above Country Ceiling
We also expect to upgrade Kernel's FC IDR above Ukraine's Country
Ceiling of 'B-' due to the improvement in the company's hard-
currency external debt service ratio upon successful refinancing.
Assuming the refinancing of most of Kernel's current debt
(approximately USD600m as of January 2017) with a five-year bond
issue and new three-year PXF lines, Fitch expects Kernel's hard-
currency external debt service ratio to be sustained above 1.5x
for between 18 months and two years to be commensurate with
ratings above the Country Ceiling by up to two notches at 'B+'.
This would enable us to align Kernel's FC IDR with the LC IDR.
Rating Sustainability Above Country Ceiling
Our projections are premised on the expectation that the company
will maintain substantial off-shore cash balances and a
comfortable schedule of repayments for its foreign currency debt
over financial years ending 30 June 2017-2020. Moreover, since
the company does not rule out investments (capex, M&A and higher
working capital to support its suppliers) that could require
raising further debt over this period, maintaining the FC IDR on
a par with the LC IDR will also be premised on Kernel obtaining
long-term funding of at least three-year tenor for any such
investments if not covered by internally generated cash flow.
Adequate Recovery for Unsecured Bondholders
The proposed Eurobond is rated in line with Kernel's expected FC
IDR of 'B+' after the refinancing, reflecting average recovery
prospects given default. The Eurobond will be issued by the
holding company Kernel Holding S.A. but rank pari passu with
other unsecured debt, which is raised primarily by operating
companies, due to suretyships from operating companies,
altogether accounting for more than 80% of the group's FY16
EBITDA and assets. Fitch's recovery analysis also takes into
account potential significant prior-ranking debt up to USD300
mil., should the company sign new secured PXF facilities.
Moderate Reliance on Domestic Environment
Kernel's LC IDR remains above Ukraine's LC IDR of 'B-',
reflecting the company's limited reliance on Ukraine's banking
system and Fitch's assessment that the company's moderate
dependence on the local operating environment is not prejudicial
to its performance. Kernel performed strongly over the last two
years and had healthy access to external liquidity despite
economic and political turmoil in Ukraine. This is due to its
substantial export-oriented operations (FY16: 96% of revenue) and
therefore limited exposure to recessionary pressures in its
domestic market.
Profits May Slide
Fitch expects Kernel's Fitch-adjusted EBITDA in FY17 will be
supported, as in FY16, by healthy yields in the farming segment
and enlarged crushing capacity following the acquisition of
Creative's sunflower seed-crushing plant. However, a decrease in
EBITDA to USD250 mil. - USD260 mil. is possible from FY18, due to
higher crop-growing costs, assuming no material hryvnia
depreciation, and more conservative crop-yield assumptions for
the farming division. Nevertheless, operating cash flows should
remain sufficient to cover expected capex and dividends.
Re-leveraging Appetite
Kernel plans to increase net debt/EBITDA to 1.5x-2.0x through
bolt-on acquisitions and investments in terminal capacity and its
land bank in Ukraine, after reducing it from to 1.0x in FY16 from
3.6x in FY14. This would correspond to similar net readily
marketable inventories (RMI)-adjusted funds from operations
(FFO)-adjusted leverage in FY17-FY19, which is conservative and
in line with the 'BBB' median for commodity trading and
processing companies.
Fitch also believes that investment plans are largely scalable
and management will not jeopardize Kernel's financial standing
and access to liquidity if operating cash flows are weaker than
expected.
Moderate Commodity Diversification
Kernel is focused only on few commodities, primarily sunflower
oil and meal, corn, wheat and barley, and remains largely reliant
on Ukraine for sourcing them. This exposes it to risks of a
contraction in the Ukrainian harvest, but so far these have not
materialised despite a weakening in farmers' access to external
financing over the past three years. However, even if the
harvest declines, we believe Kernel would be able to manage the
risks due to its leading market position, ownership of port and
other infrastructure assets and its better access to external
liquidity than many of its Ukrainian competitors.
Adequate Sales Diversification
The rating benefits from Kernel's healthy diversification by
destination countries and adequate customer concentration. Some
diversification benefit is also provided from its Russian grain
trading operations, which we estimate will contribute 10%-15% to
Kernel's revenues in FY17-FY19, after the recent increase in
capacity at the Taman port terminal.
Asset-Heavy Business Model
Kernel has a stronger FFO margin (FY16: 11%) than global
agricultural commodity processors and traders. This is due to
Kernel's asset-heavy business model with substantial processing
operations (relative to trading) and infrastructure assets, and
integration into farming. Kernel's asset structure and
integration within operating segments allows the company to
retain leading market positions in sunflower oil and grain
exports and are positive for the credit profile.
DERIVATION SUMMARY
Kernel has smaller business scale and diversification than
international commodity traders and processors. This is balanced
by the company's conservative credit metrics and leading market
position in Ukraine's agricultural exports. The operating
environment in Ukraine contributes to lower ratings than Kernel's
international peers.
Post refinancing, Kernel's ratings will likely be above Ukraine's
Country Ceiling of 'B-' due to improvement of the hard-currency
debt service ratio (as calculated in accordance with Fitch's
methodology Rating Non-Financial Corporates Above the Country
Ceiling).
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Refinancing of most of USD600 mil. debt outstanding as of
January 2017 with new five- year bond and/or three year PXF
facilities; full refinancing process to be completed by
September 2017;
-- Capex at around USD100 mil. - USD120 mil. a year, including
construction of new terminal capacity and expansion of land
bank by 150,000 ha;
-- USD60 mil. - USD70 mil. pre-crop financing of farmers in
FY17 and USD100 mil. - USD120 mil. in FY18-FY20;
-- Stable dividends of USD20 mil. a year;
-- M&A spending not exceeding USD400 mil. in total over the
period;
-- USD65 mil. - USD80 mil. of annual cash interest paid;
-- EBITDA of USD255 mil. - USD285 mil. a year;
-- Potential medium-term funding needs related to capex,
acquisitions or working capital requirements covered by new
secured debt of at least three-year tenor;
-- Maintenance of substantial offshore cash balances to
service hard-currency external debt;
-- Internal liquidity ratio maintained at between 1.5-1.8x
(defined as unrestricted cash plus RMI plus accounts
receivables divided by total current liabilities)
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
Fitch is likely to upgrade Kernel's IDR to 'B+' upon completion
of the contemplated refinancing under these conditions:
-- Eurobond issue with maturity of five years and amount of no
less than USD355 mil.
-- Prospective peak working capital requirements over FY17-
FY19 covered by PXF facilities with no less than three-year
tenor
The resolution of the Rating Watch could extend beyond the
typical six-month horizon.
Should the company not be able to procure the proposed
refinancing, ratings will be removed from RWP and affirmed.
LIQUIDITY
Assuming refinancing completes at the expected terms, we project
a liquidity ratio improving to 1.5x-1.8x (from 0.8x as at end-
September 2016).
FULL LIST OF RATING ACTIONS
Kernel Holding S.A.
-- Long-Term Foreign Currency IDR: 'B-'; placed on RWP;
-- Long-Term Local Currency IDR: 'B'; placed on RWP;
-- National Long-Term Rating: 'AA+(ukr)'; placed on RWP;
-- Senior unsecured rating: assigned at 'B+(EXP)'/RR4
===========================
U N I T E D K I N G D O M
===========================
AIRDRIE SAVINGS: To Shut Down Branches, 70 Jobs Affected
--------------------------------------------------------
The Scotsman reports that Airdrie Savings Bank, the last survivor
of Britain's independent savings banks, is to close.
According to The Scotsman, staff were told in a meeting in the
Lanarkshire town on Jan. 17 that the headquarters will shut,
along with the remaining two branches in Bellshill and
Coatbridge. It is understood that 70 jobs will be lost.
The bank is thought to have found the cost of new regulation to
be too great for a small lender, and the Board of Trustees made
the decision to close, The Scotsman relays.
The move came despite many of the new rules being introduced in
response to the errors made before the financial crisis by
Airdrie's much larger competitors, The Scotsman notes.
In 2010, several of Scotland's most prominent leaders each put
GBP1 million investments into Airdrie Savings Bank, to help it
expand, The Scotsman recounts.
However, in recent years, it has struggled as the industry has
seen customers move their banking away from branches, and secure
internet and mobile banking has required very high levels of
investment, The Scotsman discloses.
Airdrie Savings Bank, founded in 1835, had already closed several
branches in central Scotland.
ASSURED GUARANTY: S&P Puts 'BB' FS Rating on CreditWatch Positive
-----------------------------------------------------------------
S&P Global Ratings said it placed its 'BB' financial strength
rating on Assured Guaranty (London) Ltd. (AG London, formerly
MBIA U.K. Insurance Ltd.) on CreditWatch Positive.
Assured Guaranty Ltd. (AGL) has purchased AG London through
Assured Guaranty Corp. (AGC); however, there are no reinsurance
or support agreements between AG London and AGC. "AG London will
remain in runoff as a subsidiary of AGC and we view it as
nonstrategically important to AGC," said S&P Global Ratings
credit analyst David Veno. AGC management is working to combine
AG London with its other affiliated European insurance companies,
at which time the insured obligations of AG London will become
the obligations of the entity surviving the business combination.
The CreditWatch Positive is based on S&P's expectation that AG
London will be folded into Assured's affiliated European
insurance companies and the insured obligations of AG London will
become obligations of Assured and carry the same rating as
Assured. S&P would maintain the rating on AG London if the
company were not combined with Assured's affiliated European
insurance companies or there were no reinsurance or support
agreements that benefit AG London.
AXON ENERGY: In liquidation, Cuts 9 Jobs
----------------------------------------
Jamie Hardesty at Bdaily News reports that a North East
subsidiary of US oil and gas operator Axon Energy Products Group
has entered liquidation, resulting in the loss of 9 jobs.
Axon Energy Products (UK) Limited, previously based on the Team
Valley Trading Estate, Gateshead, was placed into liquidation on
20 December 2016 with Greg Whitehead of Northpoint appointed
Liquidator, according to Bdaily News.
The group specializes in the manufacture of products for global
oil and gas industries, the report notes. The UK operation's
principal activity was the research and development of new and
existing products on behalf of the Group, the report relays.
The report discloses that Greg Whitehead commented "As the oil
and gas sector generally has seen a downturn in spending
following a slump in oil prices, the Group has been unable to
continue its support of the company.
"I understand that steps had been taken to reduce the Company's
overheads including attempting to sub-let part of the company's
under utilised premises, that would have reduced expensive rental
obligations. Unfortunately, this did not prove possible."
HALL CONSTRUCTION: Up for Sale Following Administration
-------------------------------------------------------
Catherine Deshayes at business-sale.com reports that a Hull-based
construction company has gone up for sale after falling into
administration.
Hull Daily Mail said that Hall Construction Group, which was
established 130 years ago and built some of Hull's best-known
buildings, filed for administration, according to business-
sale.com.
Administrators Begbies Traynor said Hall's excellent reputation
and significant client base meant they were hopeful a buyer will
be found, the report notes.
The firm, which employs around 65 people, made significant losses
on two out-of-town design-and-build contracts in York and
Doncaster, the report relays. One of the projects resulted in a
GBP2.9 million loss.
After meeting with staff managing director Martin Hall officially
announced that the company had been placed into administration,
the report relays.
Joint administrator Julian Pitts said Begbies was considering all
options to allow the business to continue to trade, the report
discloses.
"It is extremely sad to see such a long-established Yorkshire-
based business in difficulties," he told the Hull Daily Mail.
"However, with its strong reputation in commercial construction,
together with a number of blue chip and public sector clients
within Yorkshire and Lincolnshire, we are hopeful that Hall
Construction represents an attractive proposition for the right
buyer.
"We are currently marketing the business and our aim is to find a
buyer for the business as a whole, or for parts of the business,
in order to achieve the best return possible for creditors," he
added.
KARHOO: Bought by Renault Out of Administration
-----------------------------------------------
Business Cloud reports that Karhoo had raised GBP250 million in
an ambitious plan to take on cab giant Uber, before it ceased
trading in November 2016, just six months after it launched.
Renault has resurrected the failed taxi-comparison app Karhoo
after buying its parent company out of administration, according
to Business Cloud.
The French car manufacturer's financial services division, RCI
Bank and Services, purchased the start-up for an undisclosed fee
-- believed to be in the region of GBP13 million, the report
notes.
Karhoo went into administration last November, but will now be
incorporated into a new venture called Flit Technologies Ltd, the
report relays.
The app will relaunch under the stewardship of Co-CEOs Boris
Pilichowski and Nicolas Andine, who both took control of Karhoo
in its final weeks, the report discloses.
At its height, the firm employed around 200 staff in various
offices around the world, the report notes.
It had raised $250 million in an ambitious plan to take on cab
giant Uber, before it ceased trading in November 2016, just six
months after it launched, the report relays.
RCI announced the deal would help it 'design simple and
attractive solutions' as part of its Renault-Nissan alliance
brands, the report says.
In a joint statement, the pair said: "There is a need in ground
transportation for someone to aggregate all the independents and
allow them to compete and we are determined to make sure Karhoo
fills that need.
"Karhoo was amazingly successful in ferrying hundreds of
thousands of people around the world but lacked a corporate
backer, but with RCI Bank and Services, we now have that," they
added.
===============
X X X X X X X X
===============
* BOOK REVIEW: Transnational Mergers and Acquisitions
-----------------------------------------------------
Author: Sarkis J. Khoury
Publisher: Beard Books
Softcover: 292 pages
List Price: $34.95
Review by Gail Owens Hoelscher
Order your personal copy today at http://is.gd/hl7cni
Transnational Mergers and Acquisitions in the United States will
appeal to a wide range of readers. Dr. Khoury's analysis is
valuable for managers involved in transnational acquisitions,
whether they are acquiring companies or being acquired
themselves.
At the same time, he provides a comprehensive and large-scale
look at the industrial sector of the U.S. economy that proves
very useful for policy makers even today. With its nearly 100
tables of data and numerous examples, Khoury provides a wealth of
information for business historians and researchers as well.
Until the late 1960s, we Americans were confident (some might say
smug) in our belief that U.S. direct investment abroad would
continue to grow as it had in the 1950s and 1960s, and that we
would dominate the other large world economies in foreign
investment for some time to come. And then came the 1970s, U.S.
investment abroad stood at $78 billion, in contrast to only $13
billion in foreign investment in the U.S. In 1978, however, only
eight years later, foreign investment in the U.S. had skyrocketed
to nearly #41 billion, about half of it in acquisition of U.S.
firms. Foreign acquisitions of U.S. companies grew from 20 in
1970 to 188 in 1978. The tables had turned an Americans were
worried. Acquisitions in the banking and insurance sectors were
increasing sharply, which in particular alarmed many analysts.
Thus, when it was first published in 1980, this book met a
growing need for analytical and empirical data on this rapidly
increasing flow of foreign investment money into the U.S., much
of it in acquisitions. Khoury answers many of the questions
arising from the situation as it stood in 1980, many of which are
applicable today: What are the motives for transnational
acquisitions? How do foreign firms plans, evaluate, and negotiate
mergers in the U.S.?
What are the effects of these acquisitions on competition, money
and capital markets; relative technological position; balance of
payments and economic policy in the U.S.?
To begin to answer these questions, Khoury researched foreign
investment in the U.S. from 1790 to 1979. His historical review
includes foreign firms' industry preferences, choice of location
in the U.S., and methods for penetrating the U.S. market. He
notes the importance of foreign investment to growth in the U.S.,
particularly until the early 20th century, and that prior to the
1970s, foreign investment had grown steadily throughout U.S.
history, with lapses during and after the world wars.
Khoury found that rates of return to foreign companies were not
excessive. He determined that the effect on the U.S. economy was
generally positive and concluded that restricting the inflow of
direct and indirect foreign investment would hinder U.S. economic
growth both in the short term and long term. Further, he found no
compelling reason to restrict the activities of multinational
corporations in the U.S. from a policy perspective. Khoury's
research broke new ground and provided input for economic policy
at just the right time.
Sarkis J. Khoury holds a Ph.D. in International Finance from
Wharton. He teaches finance and international finance at the
University of California, Riverside, and serves as the Executive
Director of International Programs at the Anderson Graduate
School of Business.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
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prices at which equity securities trade in public market are
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Each Friday's edition of the TCR includes a review about a book
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*********
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 2017. All rights reserved. ISSN 1529-2754.
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