/raid1/www/Hosts/bankrupt/TCREUR_Public/170412.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
Wednesday, April 12, 2017, Vol. 18, No. 73
Headlines
B E L A R U S
BELARUS: S&P Affirms 'B-/B' Sovereign Credit Ratings
C R O A T I A
AGROKOR DD: Croatia Struggles to Contain Economic Fallout
F R A N C E
FAURECIA SA: Fitch Affirms BB Long-Term IDR, Outlook Stable
IKKS SAS: Fitch Lowers LT Issuer Default Rating to 'CCC'
G E R M A N Y
WITTUR INTERNATIONAL: S&P Lowers CCR to 'B-', Outlook Stable
I R E L A N D
CELF LOAN IV: Moody's Affirms Ba3(sf) Rating on Class E Sr. Notes
QUIRINUS PLC 23: Fitch Cuts Rating on EUR8.8MM Cl. E Notes to D
I T A L Y
ASTALDI SPA: Moody's Lowers CFR to B3 on Weak Liquidity
ATLANTE FINANCE: Fitch Raises Rating on Class C Notes to 'BB+sf'
ISLAND REFINANCING: Moody's Affirms C Rating on EUR46M X Notes
N E T H E R L A N D S
FAB CBO 2003-1: Moody's Hikes Rating on Class A-3F Debt to Ba1
RENOIR CDO: Moody's Affirms Ca(sf) Rating on EUR8.5MM Debt
P O R T U G A L
CAIXA GERAL: S&P Affirms 'BB-/B' Counterparty Credit Ratings
R U S S I A
KARELIA: Fitch Affirms B+ LT Issuer Default Ratings
MOSCOW: Fitch Revises Outlook to Positive, Affirms BB+ IDR
TATFONDBANK: Declared Bankrupt by Tatarstan Arbitration Court
S P A I N
BANCO MARE: Fitch Places BB IDR on RWP on Potential Merger
BANCO POPULAR: S&P Lowers Counterparty Credit Rating to 'B'
GRUPO COOPERATIVO: Fitch Revises Outlook to Pos., Affirms BB- IDR
IBERCAJA BANCO: Fitch Affirms BB+ IDR, Outlook Positive
LIBERBANK SA: Fitch Affirms BB Long-Term IDR, Outlook Stable
TDA PASTOR 1: S&P Affirms Then Withdraws 'CC' Notes Rating
U K R A I N E
FERREXPO PLC: Moody's Hikes Corporate Family Rating to Caa2
PRIVATBANK: Moody's Lowers Senior Unsecured Debt Rating to C
SBERBANK PJSC: Moody's Reviews Caa2 Deposit Rating for Downgrade
U N I T E D K I N G D O M
EMF UK 2008-1: Fitch Assigns 'CCCsf' Rating to Class B2 Debt
JAEGER: Enters Administration, 700 Jobs at Risk
MIND CANDY: Obtains US$1.5MM in New Funds, Averts Bankruptcy
NOMAD FOODS: Moody's Affirms B1 CFR, Outlook Stable
PETERBOROUGH PLC: Moody's Hikes Rating on Sr. Sec. Bonds to Ba2
RSA INSURANCE: Fitch Rates Restricted Tier 1 Notes 'BB'
SHS INTEGRATED: In Administration, Owes GBP235K to Finance Wales
* UK: Quarter of Retail Shops in Scotland Could Shut by 2025
*********
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B E L A R U S
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BELARUS: S&P Affirms 'B-/B' Sovereign Credit Ratings
----------------------------------------------------
S&P Global Ratings affirmed its 'B-/B' long- and short-term
foreign and local currency sovereign credit ratings on the
Republic of Belarus. The outlook is stable.
RATIONALE
S&P's ratings on Belarus remain constrained by the country's low
institutional effectiveness, vulnerable fiscal and balance of
payments positions, and limited effectiveness of the monetary
policy conducted by the National Bank of the Republic of Belarus
(NBRB; the central bank). The ratings are primarily supported by
the potential for financial support from the Russian government,
which has been extended multiple times in the past despite
occasional disputes between the two countries.
In S&P's view, Belarus continues to face substantial balance of
payments pressures. Although last year's external performance
exceeded S&P's prior expectations, the economy's external debt
net of liquid public and financial sector foreign assets remains
high at a projected 85% of current account receipts in 2017. The
bulk of the country's gross external debt pertains to the public
sector and is characterized by a heavy and uneven debt service
profile with repayment peaks every few years.
Belarus' external government debt payments are projected to spike
in 2018 at nearly US$2.8 billion, up from an already substantial
$1.8 billion this year. This is primarily due to the $800
million Eurobond redemption in January 2018.
Historically, Belarus has relied on Russia to secure financing in
order to meet its external obligations. A dispute over the price
of gas supplied from Russia to Belarus has, however, led to a
deterioration in bilateral relations over recent months. While
Belarus has unilaterally reduced the price it pays for Russian
gas, Russia responded by lowering the amount of duty-free oil
supplied to Belarus' export-oriented refineries, putting pressure
on the latter's important source of foreign exchange as well as
the country's GDP performance.
The strained bilateral relations appear to have also affected the
financial support Belarus was scheduled to receive from the
Eurasian Fund for Stabilization and Development (EFSD).
Specifically, Belarus has not received the $300 million tranche
from EFSD originally planned for the fourth quarter of 2016.
Although S&P understands that some of the formal lending
conditions have apparently not been met, S&P believes political
developments could have been one of the driving factors behind
the aforementioned delays given the Russian influence on the
activities of the EFSD.
The relations between Russia and Belarus have tended to be
volatile in the past and, over the years, the countries have gone
through multiple disputes relating to the terms on which
hydrocarbons are supplied to Belarus. S&P's baseline forecast
remains that the bilateral relations will normalize. The recent
meeting between the presidents of Russia and Belarus suggests
that disagreements will likely be ironed out, potentially
unlocking the EFSD lending.
In addition, the government of Belarus is eyeing other financing
sources to meet its external repayments. These include
commercial market borrowing, bilateral loans from other countries
such as China, as well as an International Monetary Fund (IMF)
program. In S&P's view, downside risks remain if Belarus does
not manage to secure acceptable terms for borrowing on the
commercial markets while the conditions of IMF lending turn out
to be politically sensitive. Nevertheless, based on the strong
track record of the government's successful refinancing, S&P's
baseline forecast assumes that a combination of borrowing from
the aforementioned sources will allow Belarus to meet its foreign
debt redemptions in 2017 and accumulate liquidity ahead of the
bond bullet repayment in early 2018.
S&P views Belarus' own buffers to meet the upcoming debt
repayments as constrained. S&P notes that as of end-2016, NBRB's
gross foreign exchange (FX) reserves totaled about $5 billion.
However, given the NBRB's FX obligations to domestic banks of
about $2 billion and a similar-sized government FX deposit, net
reserves are estimated at less than $1 billion. Consequently,
S&P believes that the government may not be able to draw on
resources at the NBRB in full, given the necessity to maintain a
balance of payments buffer.
In parallel to external financing pressures, Belarus continues to
post weak broader macroeconomic performance. The economy has
contracted by a cumulative 6% over the past two years and S&P
expects the output to stagnate in 2017. Growth should gradually
recuperate but we expect it will still average a modest 1% a year
over 2018-2020, which is relatively low compared with countries
with similar levels of economic development. S&P believes a
return to growth will be supported by normalization of relations
with Russia as well as some recovery in oil prices. In S&P's
view, broader-based growth will remain constrained by the lack of
fundamental economic and institutional reforms.
In S&P's view, Belarus' institutional effectiveness remains weak,
with President Alexander Lukashenko controlling the government's
branches of power. High centralization of power makes
policymaking difficult to predict, which may constrain Belarus'
ability to attract foreign direct investment (FDI) and fully
realize the economic potential stemming from its strategic
geographic location, comparatively high levels of education, and
low unit labor costs. Although headline net FDI has averaged
close to 3% of GDP annually in 2014-2016, the lion's share is
explained by reinvested profits of existing companies rather than
by new investments coming in. S&P believes that risks to both
FDI and domestic investment have recently increased owing to the
widespread public protests that have taken place across the
country against some of the government's decisions.
S&P believes Belarus' fiscal position also remains weak.
Although the general government sector has posted headline
surpluses averaging an estimated 1% of GDP over the past five
years, debt has been increasing at a considerably faster pace,
averaging over 6% of GDP annually over the same time period.
This has been primarily due to the depreciation of the local
currency (given that over 90% of government debt is denominated
in FX) as well as the materialization of some contingent
liabilities. S&P notes that throughout 2015 and 2016, the
government has cleaned up the balance sheets of several banks by
swapping nonperforming loans in the wood processing and
agricultural sectors for central and local government bonds. S&P
estimates that the gross government debt reached 41.5% of GDP in
2016.
In S&P's view, the domestic banking system remains under stress
and consequently it poses a moderate contingent liability for the
government, which may need to undertake more balance sheet clean-
ups in the future. Coupled with a projected further moderate
currency weakening, S&P believes general government debt will
continue to increase faster than the headline fiscal deficits
imply even if the fiscal stance remains relatively tight.
S&P's ratings on Belarus remain constrained by the limited
effectiveness of the country's monetary policy. Although
transitioning to a more flexible exchange rate arrangement has
allowed NBRB to relieve some external pressures, its ability to
influence domestic economic conditions remains restricted. In
S&P's view, the institution still lacks independence in key
decisions while the weak position of the banking system and very
high deposit and loan dollarization inhibit the monetary
transmission channel.
OUTLOOK
The stable outlook reflects S&P's expectation that Belarus will
be able to implement its government debt refinancing plans to
secure the needed foreign financing, for instance from Russia or
another bilateral lender, or through commercial market borrowing
over the next 12 months.
S&P could consider a negative rating action if the government's
existing refinancing plans become derailed, for example due to
difficulties in access to the capital markets or to concessional
funding. Russia's unwillingness to provide financial support to
Belarus, demonstrated by delays in the resolution of the gas
price dispute, could also lead to a downward pressure on the
ratings. S&P could also take a negative rating action if
contingent fiscal risks from the banking or public enterprise
sector in excess of S&P's present expectations had crystallized.
S&P could consider an upgrade if Belarus implemented a robust
reform program that resulted in a reduction of the country's
external vulnerabilities, placed its public enterprises on a
sounder commercial footing, and boosted economic growth.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable. At the onset of the committee, the chair
confirmed that the information provided to the Rating Committee
by the primary analyst had been distributed in a timely manner
and was sufficient for Committee members to make an informed
decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee agreed that the economic and external assessments
had improved while the fiscal flexibility had deteriorated. All
other key rating factors were unchanged.
The chair ensured every voting member was given the opportunity
to articulate his/her opinion. The chair or designee reviewed
the draft report to ensure consistency with the Committee
decision. The views and the decision of the rating committee are
summarized in the above rationale and outlook. The weighting of
all rating factors is described in the methodology used in this
rating action.
RATINGS LIST
Rating
To From
Belarus (Republic of)
Sovereign Credit Rating
Foreign and Local Currency B-/Stable/B B-
/Stable/B
Transfer & Convertibility Assessment B- B-
Senior Unsecured
Foreign and Local Currency B- B-
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C R O A T I A
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AGROKOR DD: Croatia Struggles to Contain Economic Fallout
---------------------------------------------------------
Igor Ilic at Reuters reports that Croatia is struggling to
contain the economic fallout from problems at heavily indebted
food group Agrokor.
Agrokor, the biggest employer in the Balkan region with some
60,000 staff, racked up debts during a rapid expansion, notably
in Croatia, Slovenia, Bosnia and Serbia, Reuters discloses. Its
debts totaled around HRK45 billion (GBP5.16 billion), or six
times its equity, Reuters relays, citing latest data from last
September.
"We're struggling to prevent Agrokor's problems spilling over to
the whole Croatian economy and wider across the (Balkan) region,"
Reuters quotes Ante Ramljak, an investment banking expert, as
saying. Mr. Ramljak's nomination to lead Agrokor's restructuring
was approved by the Zagreb commercial court on April 10, Reuters
relates.
Agrokor said on April 7 it was handing control to the state under
an emergency law introduced last week to deal with big companies
facing financial trouble, Reuters recounts. Under the law, the
state must appoint an executive to steer a restructuring, Reuters
notes.
Mr. Ramljak is expected to assemble a team of experts and
advisers to guide the process, which will include refinancing of
debts and possibly selling parts of the company, Reuters states.
Six banks, including Agrokor's biggest creditors Russian lenders
Sberbank and VTB, said on April 10 they were working to conclude
an initial cash injection, Reuters relays.
Analysts say this is a good first step, but a solution for
Agrokor's problems is still far away, Reuters notes.
Agrokor struck a deal last week with the banks to freeze
repayments and get an unspecified cash injection before
restructuring the business, Reuters discloses. But suppliers,
who were worried about delayed payments under a restructuring,
did not sign up, according to Reuters.
Without broad agreement of all the stakeholders, Agrokor was left
little choice but to seek state assistance, Reuters states. The
emergency law envisages any restructuring taking 15 months,
Reuters says.
It was unclear on April 10 what role the restructuring expert
Agrokor appointed under last week's deal -- Antonio Alvarez III
-- would have under Mr. Ramljak, Reuters notes.
The Zagreb commercial court also unfroze the accounts of Agrokor
and its firms on April 10, and has asked creditors to submit
their claims within 60 days, Reuters relates.
Zagreb-based Agrokor is the biggest food producer and retailer in
the Balkans, employing almost 60,000 people across the region
with annual revenue of some HRK50 billion (US$7billion).
* * *
The Troubled Company Reporter-Europe reported on April 10, 2017,
that S&P Global Ratings said it lowered its long- and short-term
corporate credit ratings on Croatian retailer Agrokor d.d. to
'CC/C' from 'B-/B'. The outlook is negative. At the same time,
S&P lowered the issue rating on the senior unsecured notes to
'CC' from 'B-'.
On April 2, 2017, a spokesperson for the Agrokor group said that
the company reached an agreement with its bank creditors to
freeze debt payments. The creditor group includes Sberbank, VTB,
and Erste Bank, which together account for most of the EUR2.5
billion loan debt for the Agrokor group, as of Sept. 30, 2016.
The TCR-Europe on March 31, 2017, reported that Moody's Investors
Service downgraded the Croatian retailer and food manufacturer
Agrokor D.D.'s corporate family rating (CFR) to Caa1 from B3 and
its probability of default rating (PDR) to Caa1-PD from B3-PD.
Moody's has also downgraded the senior unsecured rating assigned
to the notes issued by Agrokor and due in 2019 and 2020 to Caa1
from B3. The outlook on the company's ratings remains negative.
"Our downgrade of Agrokor's rating reflects Moody's views that
the company is no longer able to sustain its high level of trade
payables, which may constrain its liquidity position," says
Vincent Gusdorf, a Vice President -- Senior Analyst at Moody's.
"This comes at a time when the company has limited means to raise
additional sources of liquidity owing to its restricted access to
credit markets and its reliance on a limited number of banks."
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F R A N C E
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FAURECIA SA: Fitch Affirms BB Long-Term IDR, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Faurecia's S.A.'s Long-Term Issuer
Default Rating (IDR) and senior unsecured debt at 'BB'. The
Outlook on the Long-Term IDR is Stable.
The ratings reflect the auto supplier's solid positions in the
segments it covers, as well as the recent strengthening of key
credit ratios and Fitch projections of a further moderate
improvement in 2017-2018. However, the ratings are constrained by
the company's weak free cash flow (FCF), which is just at around
breakeven.
KEY RATING DRIVERS
Leading Market Positions: Faurecia's ratings are supported by its
diversification, size and leading market positions as the eighth-
largest global automotive supplier. Its large and diversified
portfolio is a strength in the global automotive market, which is
being reshaped by the development of global platforms and the
acceleration of new technologies and demand from large
manufacturers. Fitch also believes that the group is well
positioned in some fast-growing segments to outperform the
overall auto supply market, notably by offering products
increasing the fuel efficiency of its customers' vehicles.
Business Refocus: Fitch believes that the exterior business (FAE)
disposal in 2016 is an illustration of the group's aim to
gradually refocus its business. Fitch expects Faurecia to use
some of the FAE proceeds to acquire businesses active in higher
added-value and faster-growing segments and to accelerate
investment in sustainable mobility and the interior business.
This should help address some of the longer-term risks associated
with Faurecia's smaller exposure to fast-growing and more
profitable segments such as connectivity and autonomous driving,
compared with large peers such as Continental and Bosch.
Sound Diversification: Faurecia's healthy diversification by
product, customer and geography can smooth the potential sales
decline in one particular region or lower orders from one
specific manufacturer. Its broad industrial footprint matching
its customers' production sites and needs enables Faurecia to
follow its customers in their international expansion. Faurecia
has greatly reduced its dependence on some of its large
historical customers and no manufacturer now represents more than
20% of product sales.
Improving Earnings: The operating margin, based on total sales,
strengthened to 5.2% in 2016 from 4.4% in 2015 and Fitch expects
a further progression to more than 6% through 2019. Based on
value-added sales, Fitch projects the operating margin to reach
7.5% in 2019, a level more in line with close peers and a 'BB'
rating. Cash generation is also improving to levels more
commensurate with the 'BB' category with the FFO margin
increasing to 6.3% in 2016.
Weak FCF: The FCF margin just around 0% remains weak for the
rating after adjusting for derecognised trade receivables that
boosted working capital and, in turn CFO and FCF. Fitch projects
that the FCF margin will increase gradually to just more than
1.5% by 2019 as the company further optimises its cash conversion
and working capital, but this incorporates a lower capex ratio
than close competitors.
Stronger Financial Structure: Faurecia's financial structure
improved further in 2016 following the FAE disposal and thanks to
better underlying FFO, leading FFO adjusted net leverage to
decline to 1.7x at end-2016 from 2.3x at end-2015 and 3.2x at
end-2014. However, Fitch believes that a modest increase in
dividends and potential small acquisitions with part of the FAE
proceeds will limit the improvement in leverage in 2017-2018.
Fitch projects FFO adjusted net leverage will decrease gradually
to just above 1x by end-2019 in the absence of major acquisition.
Weak Linkage with PSA: Fitch applied Fitch parent and subsidiary
rating linkage (PSL) methodology and assessed that Faurecia has a
slightly weaker credit profile compared to its parent PSA (46.3%
stake and 62.9% voting rights). Fitch also deem the legal,
operational and strategic ties between the two entities weak
enough to rate Faurecia on a standalone basis.
DERIVATION SUMMARY
Faurecia's business profile compares adequately with auto
suppliers at the high-end of the 'BB' rating category/low-end of
the 'BBB' category. The share of its aftermarket business, less
volatile and cyclical than sales to original equipment
manufacturers (OEMs), is smaller than tyre manufacturers such as
Michelin and Continental. Faurecia's portfolio has fewer products
with higher added value and substantial growth potential than
other leading and innovative suppliers including Bosch,
Continental, Delphi and Valeo. However, similar to other large
and global suppliers, it has a broad and diversified exposure to
the large international auto manufacturers.
With an EBIT margin around 5%, profitability is lower than that
of investment grade-rated peers, such as Continental (BBB+, 10%
EBIT margin), BorgWarner (BBB+, 13.5%) and Delphi (BBB, 13.5%)
and 'BB+'-rated Tenneco (7.5%). Faurecia's FCF is at the low-end
of Fitch's portfolio of auto suppliers. Adjusted net leverage is
around 1.5x, lower than Tenneco and improving but still higher
than investment-grade peers.
KEY ASSUMPTIONS
Fitch's key assumptions within Fitch ratings case are listed
below.
- Revenue growth in mid-single digits in 2017-2019. Fitch will
continue to use total sales, including monoliths, in its analysis
in 2017 to maintain consistency between historical figures and
projections. Fitch deem 2017 a transition year and will move to
value-added sales as soon as the group reports its full financial
statements based on this accounting standard.
- Operating margins to increase to more than 6% of total sales
by 2019.
- Restructuring cash outflows to increase to nearly EUR100m in
2017 and decline to about EUR50m per year in the years after.
- Moderate cash outflow from working capital in 2017-2019.
- Capex, including capitalised development costs, to increase
gradually to about EUR1.1 billion per year.
- Dividend payout ratio of around 25%.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action:
- Operating margins above 6%.
- FCF margins around 2%.
- FFO adjusted net leverage of 1.5x or below.
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action:
- Operating margins below 4%.
- FCF margins below 1%.
- FFO adjusted net leverage above 2.5x at any point.
LIQUIDITY
Sound Liquidity: Liquidity is supported by EUR1.2billion of
readily available cash according to Fitch's adjustments for
minimum operational cash of about EUR0.4billion and total
committed and unutilised credit lines maturing in June 2021 were
EUR1.2 billion at end-2016, largely covering short-term debt of
EUR0.3 billion at end-2016. The group's financial flexibility and
liquidity were further strengthened by the issuance of EUR700
million in senior unsecured notes in April 2016 and maturing in
June 2023. This issue refinanced the anticipated repayment of
EUR490 million of notes maturing in December 2016 and carrying a
coupon of 9.375%.
IKKS SAS: Fitch Lowers LT Issuer Default Rating to 'CCC'
--------------------------------------------------------
Fitch Ratings has downgraded IKKS S.A.S.'s (IKKS) Long-Term
Issuer Default Rating (LT IDR) to 'CCC'. Fitch has also
downgraded HoldIKKS S.A.S.'s senior secured notes to 'CCC'/RR4
(50% recovery) and IKKS Group S.A.S.'s super senior revolving
credit facility (RCF) to 'B-'/'RR2' (90%).
The downgrade reflects the substantial credit risk to which
IKKS's lenders are now exposed. This results from four quarters
of negative like-for-like (LfL) sales, a contraction of
consolidated EBITDA during 2016 and low visibility over a
potential recovery of sales. In addition, the company now has
significantly tight liquidity due in part to the fact that while
covenants on the RCF have been temporarily reset, they remain
tight in relation to the company's potentially weak performance
in 2017. Finally, based on preliminary reported 2016 figures
Fitch calculates that leverage has materially increased. Further
trading underperformance could make the leverage positon
unsustainable.
KEY RATING DRIVERS
Trading Underperformance: IKKS reported on 5 April 2017 a LfL
revenue decline of -5.8% for 2016, resulting from consistently
negative performance (LfL) during each quarter of the year (-0.8%
in Q116, -4.1% in Q216, -16.3% in Q316, -3.4% in Q416) as the
company's collections were not received well by customers and had
to be marked down. IKKS's total revenue in 2016 only grew by 1.0%
yoy and EBITDA contracted by 36%. This was in spite of
significant store openings. Fitch estimates that its 2016 EBITDA
margin dropped to 12.4% (2015: 19.6%).
Operational Challenges Continue: Execution risk has increased.
The head of design at the main division IKKS Women, appointed in
this role from mid-2014, has recently left the company. Her
replacement will arrive in June 2017 but Fitch believes it will
take some time to turnaround IKKS Women's operating performance.
IKKS's operating performance is likely to remain challenging in
2017 and Fitch has consequently cut sales growth expectations for
2017-2019 to at best 1%, compared to 2-4% in Fitch previous
rating case forecasts. In the oversupplied clothing retail
industry, repeated collection misses can quickly lead to customer
disaffection and materially affect cash-flow generation.
Weakening Free Cash Flow: IKKS has been persistently funding
working-capital outflows over 2014-2016. In 2016 Fitch estimates
that the EUR5.4 million outflow, although better than Fitch
forecast of EUR11 million, led to negative free cash flow (FCF)
of EUR6 million. It is possible that through tighter working-
capital controls and a shift of store openings towards the more
asset-light model of affiliated stores, annual working-capital
outflows may moderate to around EUR2 million between 2017 and
2019. Overall cash-flow absorption could be limited if the
company's products sell well, but IKKS is exposed to a heightened
risk of collection miss.
Increasing Leverage: Based on Fitch preliminary calculation, 2016
FFO-based net leverage has jumped to 8.7x from 2015's already
high 6.7x. Based on Fitch expectations of continued weak trading
performance, in the absence of an equity injection from the
company's equity sponsors, Fitch do not expects this metric to
fall below the negative sensitivity guidance of 8.0x over 2017-
2019.
Tight Covenant, Liquidity Headroom: Fitch expects an inventory-
led slowdown of the cash conversion cycle to continue in 2017,
leading to permanent use of IKKS's RCF and/or ancillary
facilities of EUR30 million during the rest of the year, which
will probably further increase by EUR5 million to EUR10 million
in the third quarter when inventories tend to peak. The company
will fully rely on debt drawdowns. IKKS has successfully reset
the RCF maintenance covenant last September and has complied with
the covenant at end-Q416 and end-Q117.
However, any further EBITDA contraction would immediately put
pressure on the already tight covenant headroom and prejudice the
company's ability to draw on its RCF.
Recoveries for Debt Instruments: Recovery rates for the debt
instruments are based on Fitch's post restructuring going-concern
estimate. Fitch applied a discount of 0% to the 2016 EBITDA of
EUR42.7 million. After applying a distressed EV/EBITDA multiple
of 5.0x and customary restructuring charges, the rating for the
super senior RCF is 'B-' with a Recovery Rating 'RR2' reflecting
a cap of 90% recovery rate for the French jurisdiction. Fitch
expects IKKS to frequently draw on an uncommitted ancillary
facility separately provided, which currently amounts to EUR15
million.
Fitch treats this debt as a de facto committed line, and have
included it as a super senior claim in the debt waterfall. The
EUR320 million senior secured notes, which are secured by certain
share pledges, bank accounts and intercompany receivables, are
rated 'CCC', the same level as IKKS's IDR at 'CCC', derived from
a Recovery Rating of 'RR4' (50% recovery rate).
DERIVATION SUMMARY
IKKS has a high concentration on France and its core brand IKKS
Women. It is less well positioned than competitor Group SMCP in
the affordable luxury clothing market. SMCP is more diversified
geographically and its total revenue grew 16% in 2016. IKKS's
total revenue only grew by 1.0% despite 82 new store additions.
Compared to New Look Retail Group Ltd ('B-'/Stable Outlook), IKKS
is about 5x smaller in total revenue. New Look reported a 3.2%
revenue decline in the financial year to March 17, but its
multichannel sales platform (stores, e-commerce, international
and franchise) is a key differentiating and success factor in the
fast-fashion business. New Look also has a more comfortable
liquidity position than IKKS, with no material debt maturity
until 2022. IKKS's FFO adjusted gross leverage is also higher
than New Look's FFO adjusted gross leverage at around 7.0x. No
Country Ceiling, parent/subsidiary or operating environment
aspects impacts the rating.
KEY ASSUMPTIONS
Fitch's key assumptions within Fitch ratings case for the issuer
include:
- sales growth ranging from 0.2%-1% pa;.
- EBITDA margins (incl. creation costs) around 13%;
- inventory-led working-capital outflow around EUR2 million pa
over 2017-2019;
- capex at EUR15 million in 2017, falling towards EUR10m in 2019
(excluding creation costs);
- EUR30 million to be drawn under the RCF in 2017-2019.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
- Evidence of sustainable turnaround in sales and EBITDA
Trajectory
- Improving liquidity position
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action
- Further deterioration in trading performance leading the
company towards default on its RCF
- Breach of maintenance covenants of RCF resulting in further
liquidity erosion
LIQUIDITY
Increased Reliance on External Liquidity: In order to support
operations, most notably to finance working-capital needs, Fitch
has projected IKKS will consistently use the RCF and/or ancillary
facilities for at least EUR30 million (EUR15 million drawn at
end-2016), and generally more in the third quarter when inventory
investments tend to be the highest. Fitch projects IKKS will
still need to rely on its committed RCF and uncommitted bilateral
facility to close its funding gap at the end of 2017.
FULL LIST OF RATING ACTIONS
IKKS S.A.S.
- Long-Term IDR: downgraded to 'CCC', from 'B-'/Negative Outlook
HoldIKKS S.A.S.
- Senior secured bond: downgraded to 'CCC', from 'B'
IKKS Group S.A.S
- Super senior revolving credit facility: downgraded to 'B-',
from 'B+'
=============
G E R M A N Y
=============
WITTUR INTERNATIONAL: S&P Lowers CCR to 'B-', Outlook Stable
------------------------------------------------------------
S&P Global Ratings said that it had lowered its corporate credit
rating on Wittur International Holding GmbH to 'B-' from 'B'.
The outlook is stable.
S&P also lowered the issue rating on Wittur subsidiary,
Paternoster Holding IV GmbH's EUR80 million revolving credit
facility (RCF) and the EUR449 million term loan B, including the
new EUR39 million add-on, to 'B-' from 'B'. The recovery rating
remains at '3', indicating S&P's expectation of meaningful
ecovery in the 50%-70% range (rounded average: 60%) in the event
of a payment default.
S&P lowered the issue rating on the EUR225 million senior notes
to 'CCC' from 'CCC+'. The recovery rating on these notes remains
at '6', indicating S&P's expectation of recovery in the 0%-10%
range (rounded estimate: 0%).
S&P lowered its rating on Wittur following the upsizing of the
term loan, which in S&P's view is a result of continuous material
integration costs for Sematic SpA previously financed with
drawings on the RCF. Since the closing of the Sematic
acquisition on April 1, 2016, Wittur has increased the amount of
its term debt twice, for a total of EUR74 million, to finance
operations and the acquisition and integrating costs. S&P
assumes that the integration costs, which, according to
management have been frontloaded, will be materially higher in
2016 than what S&P assumed in its previous base case at the time
of the acquisition, and sees a risk that these costs will
continue to negatively affect earnings and cash flow in 2017.
The downgrade reflects S&P's expectations that Wittur's credit
ratios will not recover to levels commensurate with the 'B'
rating over the coming 12 months.
Wittur's revenue growth and profitability have been hit by the
challenging conditions in China, and negative currency
translation effects from the strengthening of the euro in
relation to the Chinese yuan. This, together with the
reorganization costs and increased debt, put pressure on Wittur's
credit ratios in 2016. Although the upsizing has been used to
refinance the drawings under the RCF, the group's current debt is
higher than what S&P previously expected, and S&P don't believe
that the company's operating performance will recover enough in
the near term to compensate for the higher debt burden. The
upsizing of the term loan followed a successful re-pricing of the
group's term loan from Euribor+6.125 to Euribor+5.00%, which S&P
notes will have a slightly positive effect on interest costs.
S&P expects the slowdown in China, representing about 35% of the
combined group's sales, to continue to weigh on revenue growth
and margins over the near term, and to partly offset otherwise
solid growth in Europe and Asian countries besides China. S&P
forecasts revenue growth will turn slightly positive in 2017, and
continue to improve in 2018, when the company expects China to be
back on a growth trajectory in new installations. Although S&P
expects the group's revenue growth and margins to improve over
time, with lower integration cost, achievement of planned
synergies, and ongoing operational efficiency initiatives, S&P
still forecasts Wittur's key credit ratios will remain at a
relatively weak level over the medium term.
S&P notes that 2016 has been a transformational year for Wittur
and S&P's credit metrics are based on pro-forma average ratios
over 2017 and 2018 to fully reflect the post-acquisition capital
structure and combined operations. S&P forecasts leverage of
about 6.5x-7.5x in 2017, improving to 5.5x-6.5x in 2018. S&P
further forecasts funds from operations (FFO) cash interest
coverage of about 2.0x-2.5x over 2017-2018.
The ratings continue to reflect the group's weak business risk
profile, which in S&P's view is constrained by the group's
concentrated business in terms of scope, end markets, and
customers relative to peers. The group's sales exposure to its
top four customers is around 65%-70%. Moderating some of these
weaknesses is the group's leadership position in its addressable
markets, well-established relationships with its key customers,
and good geographic diversity.
The stable outlook reflects S&P's expectation of stabilizing
financial and operational performance, despite the challenging
environment in some countries, as well as gradually dwindling
Sematic-related integration costs over the next 12 months. It
further reflects S&P's expectations that Wittur will maintain
adequate liquidity, with cash sources covering uses by more than
1.2x over the coming 12 months, as well as maintaining adequate
headroom under it financial covenant.
S&P could raise the rating by one notch if Wittur manages to
significantly improve its operating and financial performance,
such that FFO cash interest coverage improves to above 2.5x, and
leverage decreases to below 6.5x on a sustained basis. This
could result from stronger-than-expected improvement in
operational and financial performance, in particular related to
in China, or
improvements in its cost base, thanks to synergies following the
Sematic integration.
A lower rating could result from a deterioration of the company's
liquidity or weaker-than-expected operating performance, such
that the capital structure becomes unsustainable.
These scenarios could materialize in the event of contractions in
revenue and EBITDA or continued integration costs at a
significantly higher magnitude than S&P currently anticipates.
=============
I R E L A N D
=============
CELF LOAN IV: Moody's Affirms Ba3(sf) Rating on Class E Sr. Notes
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the
following notes issued by CELF Loan Partners IV plc:
-- EUR39M Class C Senior Secured Deferrable Floating Rate Notes
due 2023, Upgraded to Aaa (sf); previously on Aug 12, 2016
Upgraded to Aa3 (sf)
-- EUR33M Class D Senior Secured Deferrable Floating Rate Note
due 2023, Upgraded to Baa1 (sf); previously on Aug 12, 2016
Affirmed Ba1 (sf)
Moody's also affirmed the ratings on the following notes issued
by CELF Loan Partners IV plc:
-- EUR150M (Current outstanding balance of EUR28.4M) Class A-1
Senior Secured Floating Rate Variable Funding Notes due 2023,
Affirmed Aaa (sf); previously on Aug 12, 2016 Affirmed Aaa
(sf)
-- EUR50M (Current outstanding balance of EUR17.1M) Class A-2b
Senior Secured Floating Rate Notes due 2023, Affirmed Aaa
(sf); previously on Aug 12, 2016 Affirmed Aaa (sf)
-- EUR42M Class B Senior Secured Deferrable Floating Rate Notes
due 2023, Affirmed Aaa (sf); previously on Aug 12, 2016
Upgraded to Aaa (sf)
-- EUR25.5M (Current outstanding balance of EUR20.1M) Class E
Senior Secured Deferrable Floating Rate Notes due 2023,
Affirmed Ba3 (sf); previously on Aug 12, 2016 Affirmed Ba3
(sf)
CELF Loan Partners IV plc, issued in May 2007, is a
Collateralised Loan Obligation ("CLO") backed by a portfolio of
mostly high yield senior secured European and US loans. The
portfolio is managed by CELF Advisors LLP. This transaction's
reinvestment period ended in May 2014.
RATINGS RATIONALE
The upgrades of the ratings of notes are primarily a result of
the repayment of the collateral of the transaction since the last
rating action in August 2016. Consequently Class A Notes have
partially redeemed by approximately EUR154.5 million (or 77% of
their original balance) including EUR82.4 million at the last
payment date in November 2016. As a result of the deleveraging
the OC ratios of the remaining classes of notes have increased.
According to the February 2017 trustee report, the Classes A, B,
C, D and E ratios are 444.10%, 230.84%, 159.65%, 126.61% and
112.44% respectively compared to levels just prior to the payment
date in November 2016 of 221.38%, 166.60%, 135.47%, 116.98% and
108.00%.
The key model inputs Moody's uses 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. In its base
case, Moody's analysed the underlying collateral pool as having
performing par and principal proceeds balance of EUR156.8 million
and GBP39.0 million, a defaulted par of EUR2.4 million, a
weighted average default probability of 21.31% (consistent with a
WARF of 3075 over a weighted average life of 4.24 years), a
weighted average recovery rate upon default of 45.11% for a Aaa
liability target rating, a diversity score of 24 and a weighted
average spread of 3.99%.
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on
future defaults is based primarily on the seniority of the assets
in the collateral pool. Moody's generally applies recovery rates
for CLO securities as published in "Moody's Approach to Rating SF
CDOs". In some cases, alternative recovery assumptions may be
considered based on the specifics of the analysis of the CLO
transaction. In each case, historical and market performance and
a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analyzing.
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.
Factors that would lead to an upgrade or downgrade of the
ratings:
In addition to the base-case analysis, Moody's conducted
sensitivity analyses on the key parameters for the rated notes,
for which it lowered the weighted average recovery rate by 5
percentage points; the model generated outputs that were in line
with the base-case results for Classes A, B and C, within a notch
for Classes D and E.
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
notes, in light of uncertainty about credit conditions in the
general economy. CLO notes' performance may also be impacted
either positively or negatively by 1) the manager's investment
strategy and behaviour and 2) divergence in the legal
interpretation of CDO documentation by different transactional
parties because of embedded ambiguities.
Additional uncertainty about performance is due to the following:
* Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager
or be delayed by an increase in loan amend-and-extend
restructurings. Fast amortisation would usually benefit the
ratings of the notes beginning with the notes having the highest
prepayment priority.
* Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's over-
collateralisation levels. Further, the timing of recoveries and
the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's
analysed defaulted recoveries assuming the lower of the market
price or the recovery rate to account for potential volatility in
market prices. Recoveries higher than Moody's expectations would
have a positive impact on the notes' ratings.
* Foreign currency exposure: The deal has significant exposure to
non-EUR denominated assets. Volatility in foreign exchange rates
will have a direct impact on interest and principal proceeds
available to the transaction, which can affect the expected loss
of rated tranches.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
QUIRINUS PLC 23: Fitch Cuts Rating on EUR8.8MM Cl. E Notes to D
---------------------------------------------------------------
Fitch Ratings has downgraded Quirinus (European Loan Conduit No.
23) Plc's class E notes, affirmed the class F notes and withdrawn
the ratings:
EUR8.8m Class E (XS0259563624) downgraded to 'Dsf' from 'CCsf';
RE 0%, withdrawn
EUR1.8m Class F (XS0259564192 affirmed at 'Dsf'; RE 0%, withdrawn
Quirinus was a securitisation originally of 10 commercial
mortgage loans made by Morgan Stanley for EUR700.8 million. No
collateral remains in the portfolio.
KEY RATING DRIVERS
The portfolio supporting the last loan in the transaction, the
Eurocastle Retail Loan, has been sold. The proceeds led to the
full repayment of the class A to D notes and the partial
repayment of the class E notes. No collateral remains in the
portfolio and the last two tranches have already been written
off. As a result, the ratings have been withdrawn.
RATING SENSITIVITIES
Not applicable.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pool and the transaction. There were no findings that were
material to this analysis. Fitch has not reviewed the results of
any third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided
about the underlying asset pool ahead of the transaction's
initial closing. The subsequent performance of the transaction
over the years is consistent with the agency's expectations given
the operating environment and Fitch is therefore satisfied that
the asset pool information relied upon for its initial rating
analysis was adequately reliable.
Overall, Fitch's assessment of the information relied upon for
the agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Issuer reports dated February 10, 2017 and provided by Wells
Fargo.
- Servicer reports dated January 15, 2017 and provided by Mount
Street LLP.
=========
I T A L Y
=========
ASTALDI SPA: Moody's Lowers CFR to B3 on Weak Liquidity
-------------------------------------------------------
Moody's Investors Service has downgraded the corporate family
rating (CFR) and the senior unsecured rating of Astaldi S.p.A.
(Astaldi) to B3 from B2. Concurrently Moody's has downgraded the
probability of default rating (PDR) to B3-PD from B2-PD. The
outlook on the ratings is changed to stable from negative.
RATINGS RATIONALE
"The rating downgrade reflects Astaldi's ongoing high financial
leverage and weakened liquidity profile. Despite some
deleveraging driven by achieved asset disposals and moderate
earnings improvements, Moody's expects leverage to remain above
Moody's expectations for the previous B2 rating for the next 12-
18 months." said Matthias Heck, Moody's lead analyst for Astaldi.
Moody's recognized the benefits from Astaldi's recently announced
new strategic plan for 2017-21, however, Moody's believes this
remains exposed to execution risk while in the meantime the
leverage will remain high. The company failed to meet Moody's
expectation of a gradual deleveraging to below 7.0x debt/EBITDA
(as adjusted by Moody's) per year-end 2016 and further towards
6.0x by the end of 2017. As of December 2016, leverage rose to
8.6x (pro forma at 7.8x including the effects of achieved asset
disposals) and is expected to be slightly below 7.5x in the next
12-18 months. This is not commensurate with Moody's guidance of
5.0-6.0x leverage for the previous B2 rating. The higher than
expected leverage is explained by weaker than expected operating
performance and negative free cash flow generation.
Potential deleveraging and improvement in liquidity are highly
reliant on back-end loaded asset disposal plan which is, in the
rating agency's view, subject to execution risk. Astaldi updated
its asset disposal plan with a total amount of EUR750 million in
May 2016, of which nearly 1/3 has been achieved. A total of
EUR137 million cash proceeds has already been secured for 2017
with additional EUR100 million de-consolidation of debt, which
will result in a deleveraging towards 7.0x at the end of this
year. However, the remaining assets primarily consist of large
concessions located in Turkey and the company is targeting the
finalization of the disposals expected by 2019. Given the current
political tensions in Turkey, Moody's views the timing and
valuation for the asset disposals there, as well as further
deleveraging due to these disposals as challenging. Moody's
believes that the capital structure will not worsen further in
coming years based on the recent strategy update of the company,
hence the change of the outlook from negative to stable.
Astaldi's liquidity profile remains weak given its very limited
ability to generate positive free cash flow without asset
disposals in the next two to three years. Despite the EUR110
million proceeds 2016 asset disposals, Astaldi reported a
negative free cash flow of EUR107 million in 2016. This has led
to a weakening of liquidity during last year as evidenced by
lower cash balance and higher usage (EUR420 million) of the
EUR500 million revolving credit facility (unrated) compared to
one year ago. However, Moody's expects the liquidity profile to
improve in 2017 given lower capex going forward and the company's
reinforced focus on working capital management underpinned by the
renewed strategy and cash-in of already signed assets disposals.
In Moody's view, the company is on the right way to improve its
working capital in 2017 thanks to the shifting to contracts with
advance payment and the resolution of certain specific issues
like the Muskrat falls project.
With regard to the updated strategic plan for 2017-2021, the
company set up a clear risk-reduction strategy, which focuses on
less risky geographical areas and a new capital light model. In
addition, the company introduced the new Operation & Maintenance
business line to further strengthen its revenue growth from
existing concession backlog. This new business line has a low
capital intensity with most of the contracts are already secured.
This should help the company to reduce project execution risk and
gradually improve its cash conversion. However, this will also
put profit margins under pressure due to increasing exposure in
highly competitive mature countries.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectations of moderate
growth in revenues and EBITDA in the next 12-18 months on the
back of the current sizable order backlog. The EUR10 billion
construction order book as of December 2016 and a construction
book-to-bill ratio of 1.25x indicate an improving trend in
operating performance absent any unexpected one-off problems.
Moody's expects to see a deleveraging to below 7.5x at the end of
this year driven by asset disposals achieved in 2017, which will
remain relatively stable beyond 2017 without the support from
further significant asset disposals. The realization of the
remaining asset disposal plan will help the company to deleverage
towards or even below 6.0x debt/EBITDA, positioning Astaldi
solidly at B3 category or even putting upward pressure on the
rating.
WHAT COULD CHANGE THE RATING UP / DOWN
The B3 ratings could be upgraded in the event of (1) sustainable
and meaningful improvement in operating margins and cash
generation, with particular regard to the generation of
sustainable positive free cash flows; (2) improved leverage, as
evidenced by a debt/EBITDA ratio (as adjusted by Moody's) falling
below 6.0x on a sustainable basis; (3) interest coverage measured
as EBIT/ interest expense (as adjusted by Moody's) exceeding
1.5x, and (4) improvements in the liquidity profile to adequate
levels.
The B3 ratings could be downgraded in the event of (1)
debt/EBITDA (as adjusted by Moody's) exceeding 7.5x; (2) interest
coverage measured as EBIT/ interest expense (as adjusted by
Moody's) failing to remain above 1.0x; or (3) the inability to
generate positive free cash flows (as adjusted by Moody's) net of
investments in and disposals of concessions. Also, a further
weakening of the company's liquidity profile could result in a
downgrade.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Construction
Industry published in March 2017.
Headquartered in Rome, Italy, Astaldi S.p.A. provides general
contracting, construction and procurement services with
consolidated construction revenue of EUR2.9 billion in 2016.
Projects include highways, railways, bridges, tunnels, subways,
airports, commercial and civil buildings, mining and industrial
facilities. Astaldi is the second largest construction company in
Italy by revenue and has developed an international presence for
a long time. The company also holds a portfolio of minority
stakes in concessions, which are not consolidated and will be
further developed and partly monetized in the next three years.
Established in 1926 and listed since 2002, the majority of the
company's capital stock is owned by the Astaldi family.
ATLANTE FINANCE: Fitch Raises Rating on Class C Notes to 'BB+sf'
----------------------------------------------------------------
Fitch Ratings has upgraded Atlante Finance S.r.l.'s class C notes
(ISIN IT0004069057) to 'BB+sf' from 'BBsf' with Positive Outlook.
Atlante is a securitisation of a mixed portfolio comprising:
loans to Italian SMEs backed by mortgages on residential and/or
commercial properties (the commercial sub-pool); residential
mortgage loans to individuals (the residential sub-pool);
unsecured loans to Italian local public entities (municipalities,
provinces and small companies, or utilities owned by them). Loans
were originated and are serviced by Unipol Banca S.p.A. (Unipol,
BB/Stable/B).
As of December 31, 2016, commercial loans accounted for 57.1% of
the total pool balance (including defaulted loans), residential
loans 42.5% and loans granted to Italian public entities 0.4%. As
at December 31, 2016, the portfolio outstanding balance
(including defaulted loans) was EUR272.1 million (18% of the
initial portfolio balance at closing in May 2006).
KEY RATING DRIVERS
Increased Credit Enhancement (CE)
The upgrade of the class C notes reflect increased available CE,
based on the total pool balance including the outstanding amount
of defaulted assets, to 60.9% in January 2017 from 52.5% in
January 2016, and the stable performance of the deal since
December 2015. The Positive Outlook reflects an expected further
increase in CE due to the continued deleveraging and full
trapping of excess spread.
Stable Performance
Between December 2015 and December 2016, 90-day+ delinquencies
ranged between 0.7% and 1.3% of the outstanding delinquent and
performing portfolio, and were 0.8% at end-December 2016.
Cumulative defaults as a percentage of the initial portfolio
balance at closing had only marginally increased to 18.9% at
December 31, 2016 from 18.8% at December 31, 2015.
In December 2016, the unpaid principal deficiency amount
decreased to EUR76.6 million from EUR84.9 million in December
2015, due to the low new default rate and continued recovery
inflows from December 2015. However, outstanding defaults,
including loans that have been in arrears for more than six
calendar months during the life of the deal, or classified as
non-performing by the servicer, remain high both in absolute
terms and as a percentage of the portfolio balance. At end-
December 2016, outstanding defaulted loans accounted for 55% of
the total outstanding balance, 83% of which related to the
commercial sub-pool.
Recoveries from Outstanding Defaults
Atlante benefits from recoveries from existing defaults. At 31
December 2016, cumulative recoveries over cumulative defaults
since closing were 50.5%, up from 47.3% in December 2015, with
most coming from the defaulted loans in the commercial sub-pool.
As for last year, Fitch has assumed in its analysis that at the
notes' current rating, the transaction would benefit from further
recoveries on defaulted assets outstanding as at December 31,
2016, at a rate of 3.1% per year for the next four years. The sum
of recoveries to date and recoveries from existing defaults is in
line with the recovery rate Fitch expects from new defaults. (see
VARIATIONS FROM CRITERIA below)
Reducing Obligor Concentration
The high obligor concentration in the commercial sub-pool was the
main reason for Atlante's past volatile performance. However,
obligor concentration has now reduced thanks to the amortisation
and defaults of the largest obligors in the commercial sub-pool,
and the increasing share of residential mortgage loans granted to
individuals over the total performing and delinquent portfolio.
Fitch estimates the largest 10 obligor groups accounted for 6.3%
of the performing and delinquent portfolio balance as at December
31, 2016, down from 8.6% as at December 31, 2015.
Payment Interruption Risk Mitigated
The servicer of the portfolio is Unipol (BB/Stable/B). Payment
interruption risk is mitigated by a liquidity facility of EUR63.8
million, which can be used by the issuer in case of payment
shortfalls relating to interest due and payable on the rated
notes and other items payable in priority. The liquidity facility
was fully collateralised after the downgrade of the liquidity
facility provider (Royal Bank of Scotland, BBB+/Stable/F2) below
'F1' in May 2015, and the collateral is held in an account in the
name of Atlante with BNP Paribas (A+/Stable/F1).
VARIATIONS FROM CRITERIA
Under its SME Balance Sheet Securitisation Rating Criteria (SME
criteria), Fitch gives some credit to recoveries on already
defaulted assets if it receives data that allow it to identify
where the assets are in the recovery process. Even though Fitch
does not receive this information, it decided to give some credit
to recoveries from existing defaults in rating scenarios below
the 'BBBsf' category. This is a criteria variation from the SME
criteria that the agency has deemed necessary to properly address
a factor specifically relevant to this transaction, due to the
large amount of defaulted loans in the Atlante portfolio.
Furthermore, unlike in other comparable SME securitisation
transactions, all outstanding defaulted loans in Atlante are
secured by mortgages on residential or commercial properties and
the transaction has shown a good recovery performance over its
10-year history.
The rating impact of the variation is described in RATING
SENSITIVITIES.
RATING SENSITIVITIES
The class C notes are resilient to high-stress scenarios.
Increasing the probability of default of each obligor in the
portfolio by 25% or haircutting recoveries on outstanding and
future expected defaults by 25% would not affect the class C
notes' rating.
The class C notes' rating is sensitive to the amount of
recoveries expected to come from outstanding defaults. Assuming
no recoveries on already defaulted assets would result in a
downgrade of two rating categories.
ISLAND REFINANCING: Moody's Affirms C Rating on EUR46M X Notes
--------------------------------------------------------------
Moody's Investors Service has affirmed the ratings of four
classes of Notes issued by Island Refinancing S.r.l.
Moody's rating action is as follows:
-- EUR62M B Notes, Affirmed Baa3 (sf); previously on Aug 10,
2015 Affirmed Baa3 (sf)
-- EUR60M C Notes, Affirmed B3 (sf); previously on Aug 10, 2015
Confirmed at B3 (sf)
-- EUR32M D Notes, Affirmed Ca (sf); previously on Aug 10, 2015
Downgraded to Ca (sf)
-- EUR46M X Notes, Affirmed C (sf); previously on Aug 10, 2015
Downgraded to C (sf)
RATINGS RATIONALE
The affirmation action reflects Moody's unchanged loss
expectations for the four note tranches compared to the last
review. Moody's has updated its performance expectation based on
the actual recovery rate and the remaining outstanding gross book
value of assets.
The Class C Notes are expected to amortise once the Class B Notes
are fully repaid. However, the current rating level reflects the
likelihood of a technical note event of default if there are
insufficient funds to immediately repay the outstanding deferred
interest once the Class C becomes the most senior Class of Notes.
The payment of deferred interest will be subject to timely and
sufficient cash collections and the available liquidity facility
(currently EUR7.4 million, amortising). With the majority of the
recoveries in this transaction resulting from court proceedings,
there is a high degree of uncertainty around the timing and
quantum of receipts in view of the long time remaining until
legal final maturity of the transaction.
Moody's has updated its performance expectation following an in-
depth review of (i) the updated Special Servicer's portfolio
business plan (ii) the portfolio's expected remaining collections
until the legal final maturity, (iii) the availability of cash
held by courts as well as the work-out of the remaining
portfolio, (iv) historical recoveries and collections as well as
transaction costs and swap payments, (v) overall worsening
quality of the loan pool due to adverse selection, its
increasingly concentrated nature, and ageing of the underlying
property portfolio.
Moody's analysis focused in particular on (i) a historical
comparison of various business plan forecasts against actual
collections for the forecast period, (ii) the level of historical
transaction costs, (iii) the payments under the swap, and (iv)
other factors that could potentially impact the servicer's
recovery and timing expectations going forward.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was Moody's
Approach to Rating Securitisations Backed by Non-Performing and
Re-Performing Loans published in August 2016.
Factors that would lead to an upgrade or downgrade of the
ratings:
Main factors or circumstances that could lead to a downgrade of
the Notes are (i) lower than expected net recoveries until the
legal final maturity of the Notes and (ii) longer than expected
collection timing increasing the amount of deferred interest.
Main factors or circumstances that could lead to an upgrade of
the Notes are (i) higher than expected net recoveries until the
legal maturity of the Notes and (ii) shorter than expected
collection timing reducing the amount of deferred interest.
MOODY'S PORTFOLIO ANALYSIS
Island Refinancing S.r.l. is an Italian non-performing loan
transaction which closed in December 2007. The Notes issued by
Island Refinancing S.r.l. funded the acquisition by Island
Finance (ICR4) S.p.A and Island Finance 2 (ICR 7) S.r.l. of two
portfolios of non-performing mortgage and connected loans and the
related transaction costs. The legal final maturity of the Notes
is July 2025. At the cut-off date (June 30, 2007), the portfolio
comprised of 7,824 loans granted to 3,395 borrowers representing
approximately EUR1.9 billion of outstanding gross book value. As
of closing, nearly 90% of the pool was concentrated in Sicily.
Since Moody's last rating action in August 2015, the average
collections have increased. Compared to August 2015, the average
gross collections per semester since S2 2015 amounted to EUR16.4
million vs. EUR11.1 million, with maximum collections of EUR21.0
million vs. EUR13.4 million and minimum collections of EUR11.0
million vs. EUR8.4 million. In comparison, the average gross
collections between closing in S2 2007 and S2 2012 were approx.
EUR31.2 million per semester.
Actual receipts for S2 2016 totalled EUR11.0 million whilst the
expected collections target for the period was EUR26.4 million
(as per the business plan 2014 of the special servicer), i.e. 58%
below the target. The servicer's expected collection amounts and
timing are a key factor in Moody's updated assessment. Moody's
collection expectations, which have been used in the cash flow
model, were derived on the basis of the remaining outstanding
gross book value of assets and the actual recovery rate achieved
to date in terms of cash collections.
To compute net cash flows, Moody's assumed senior expenses of up
to 35% of expected gross collections. Over the last four interest
payment date periods, senior expenses were on average c.26% of
actual gross collections.
Moody's used a gradually increasing stressed interest rate
payable on the Notes in order to derive swap payments to the
interest rate hedge counterparty and coupon payments to the
notes.
=====================
N E T H E R L A N D S
=====================
FAB CBO 2003-1: Moody's Hikes Rating on Class A-3F Debt to Ba1
--------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the
following notes issued by FAB CBO 2003-1 B.V.:
-- EUR10.5M (Current outstanding balance of EUR4M) Class A-2aE
Floating Rate Notes, Upgraded to Aaa (sf); previously on Jul
15, 2016 Upgraded to Aa1 (sf)
-- EUR12.9M (Current outstanding balance of EUR4.9M) Class A-2bE
Floating Rate Notes, Upgraded to Aaa (sf); previously on Jul
15, 2016 Upgraded to Aa1 (sf)
-- EUR6.6M (Current outstanding balance of EUR2.5M) Class A-2F
Fixed Rate Notes, Upgraded to Aaa (sf); previously on Jul 15,
2016 Upgraded to Aa1 (sf)
-- EUR14.5M Class A-3E Floating Rate Notes, Upgraded to
Ba1 (sf); previously on Jul 15, 2016 Upgraded to Ba3 (sf)
-- EUR8M Class A-3F Fixed Rate Notes, Upgraded to Ba1 (sf);
previously on Jul 15, 2016 Upgraded to Ba3 (sf)
-- EUR15M (Current outstanding balance of EUR0.3M) Class S2
Combination Notes, Upgraded to Aaa (sf); previously on
Jul 15, 2016 Upgraded to Aa1 (sf)
Moody's also affirmed the ratings on the following notes:
-- EUR8M (Current outstanding balance of EUR8.5M) Class BE
Floating Rate Notes, Affirmed Ca (sf); previously on Jul 15,
2016 Affirmed Ca (sf)
-- EUR7M (Current outstanding balance of EUR8.1M) Class BF Fixed
Rate Notes, Affirmed Ca (sf); previously on Jul 15, 2016
Affirmed Ca (sf)
This transaction is a structured finance collateralized debt
obligation ("SF CDO") backed by a portfolio of European SF assets
composed primarily of RMBS.
RATINGS RATIONALE
The rating actions on the notes are a result of the deleveraging
of the senior notes. Since the last rating action, Class A-2
Notes have paid down by EUR 16.7m. As per the February 2017
trustee report, Class A coverage test is reported at 134.94%
compared to 123.6% as per the May 2016 trustee report.
The ratings of the Combination Notes address the repayment of the
Rated Balance on or before the legal final maturity. For Class
S2, the 'Rated Balance' is equal at any time to the principal
amount of the Combination Notes on the issue date minus the
aggregate of all payments made from the issue date, either
through interest or principal payments. The Rated Balance may not
necessarily correspond to the outstanding notional amount
reported by the trustee.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Approach to Rating SF CDOs" published in October 2016.
Factors that would lead to an upgrade or downgrade of the
ratings:
In addition to the base-case analysis, Moody's conducted
sensitivity analyses on the key parameters for the rated notes:
Defaulting the largest unrated exposure - Moody's considered a
model run where the largest unrated exposure was assumed to be
defaulted. The model outputs for these runs are unchanged for
Classes A-2aE, A-2bE, A-2F, BE and BF, and within one notch from
the base case results for Classes A-3E and A-3F.
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
notes, in light of 1) uncertainty about credit conditions in the
general economy 2) divergence in the legal interpretation of CDO
documentation by different transactional parties due to or
because of embedded ambiguities.
Additional uncertainty about performance is due to the following:
* Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high prepayment
levels or collateral sales by the collateral manager. Fast
amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
* Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's over-
collateralisation levels. Further, the timing of recoveries and
the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries
higher than Moody's expectations would have a positive impact on
the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
RENOIR CDO: Moody's Affirms Ca(sf) Rating on EUR8.5MM Debt
----------------------------------------------------------
Moody's Investors Service has taken the following rating actions
on the notes issued by Renoir CDO B.V.:
-- EUR230MM (outstanding balance EUR10.04MM) Class A Floating
Rate Notes, Affirmed Aa1 (sf); previously on June 15, 2016
Upgraded to Aa1 (sf)
-- EUR10.5MM Class B Deferrable Floating Rate Notes, Upgraded to
Aa1 (sf); previously on June 15, 2016 Upgraded to Aa2 (sf)
-- EUR14.8MM Class C Deferrable Floating Rate Notes, Upgraded to
A3 (sf); previously on June 15, 2016 Upgraded to Baa2 (sf)
-- EUR4.25MM (outstanding balance EUR4.86MM) Class D-1
Deferrable Fixed Rate Notes, Affirmed Caa3 (sf); previously
on June 15, 2016 Upgraded to Caa3 (sf)
-- EUR5.05MM (outstanding balance EUR5.39MM) Class D-2
Deferrable Floating Rate Notes, Affirmed Caa3 (sf);
previously on June 15, 2016 Upgraded to Caa3 (sf)
-- EUR8.5MM (Rated Balance outstanding EUR5.25MM) Combination
Notes, Affirmed Ca (sf); previously on Jun 15, 2016 Affirmed
Ca (sf)
Renoir CDO B.V. is a managed cash-flow collateralized debt
obligation backed primarily by a portfolio of Euro dominated
Structured Finance securities with up to 20% of the portfolio
assets exposed to synthetic securities. At present, the portfolio
is composed mainly of Prime RMBS (32.5%), Subprime RMBS (34.7%),
CMBS (9.0%), CLOs (10.8%) and other ABS (13%).The portfolio is
managed by BNP Paribas Asset Management (previously Fortis
Investment Management France S.A.) and the transaction passed its
reinvestment period in April 2010.
RATINGS RATIONALE
The rating actions on the notes are primarily a result of the
deleveraging of the Class A notes, following amortisation of the
underlying portfolio and subsequent improvement of over-
collateralisation ratios. Class A notes have paid down in total
by EUR 25.2M (or 11% of Class A original balance) since the last
rating action in June 2016.
As a result of the deleveraging, over-collateralisation ratios
have increased. As per the latest trustee report dated February
2017, the Classes A/B, C and D over-collateralisation ratios are
reported at 236.74% 139.01% and 108.21% respectively, compared to
152.72%, 116.41% and 99.22% in the April 2016 report.
The rating on the combination notes address the repayment of the
rated balance on or before the legal final maturity. The rated
balance at any time is equal to the principal amount of the
combination notes on the issue date minus the sum of all payments
made from the issue date to such date, of either interest or
principal. The rated balance will not necessarily correspond to
the outstanding notional amount reported by the trustee.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Approach to Rating SF CDOs" published in October 2016.
Factors that would lead to an upgrade or downgrade of the
ratings:
In addition to the base-case analysis, Moody's conducted
sensitivity analysis on the key parameters for the rated notes:
Amount of defaulted assets - Moody's considered a model run where
all of the Caa rated assets in the portfolio were assumed to be
defaulted with zero recovery. The model output for this run was
in line with the base-case model output for Classes A, B and C
and within one notch of the base-case model output for Classes D1
and D2.
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
notes, in light of 1) uncertainty about credit conditions in the
general economy 2) divergence in the legal interpretation of CDO
documentation by different transactional parties due to or
because of embedded ambiguities.
Moody's notes the maximum achievable rating in this transaction
is Aa1 (sf) due to linkage with Deutsche Bank AG as the Account
Bank.
The Credit Ratings of the notes issued by Renoir CDO B.V. were
assigned in accordance with Moody's existing Methodology entitled
"Moody's Approach to Temporary Use of Cash in Structured Finance
Transactions: Eligible Investments and Account Banks," dated
December 08, 2015. Please note that on March 22, 2017, Moody's
released a Request for Comment, in which it has requested market
feedback on potential revisions to its Methodology for Risks
related to Account Banks and Investments in structured finance
transactions. If the revised Methodology is implemented as
proposed, the Credit Ratings of the notes issued by Renoir CDO
B.V. are not expected to be affected. Please refer to Moody's
Request for Comment, titled " Moody's Proposes Revisions to Its
Approach to Assessing Counterparty Risks in Structured Finance,"
for further details regarding the implications of the proposed
Methodology revisions on certain Credit Ratings.
Additional uncertainty about performance is due to the following:
* Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high prepayment
levels or collateral sales by the collateral manager. Fast
amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
* Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's over-
collateralization levels. Further, the timing of recoveries and
the manager's decision whether to hold or sell defaulted assets
can also result in additional uncertainty. Recoveries higher than
Moody's expectations would have a positive impact on the notes'
ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
===============
P O R T U G A L
===============
CAIXA GERAL: S&P Affirms 'BB-/B' Counterparty Credit Ratings
------------------------------------------------------------
S&P Global Ratings said it has affirmed its 'BB-/B' long- and
short-term counterparty credit ratings on Portugal-based Caixa
Geral de Depositos S.A. (CGD). At the same time, S&P removed the
long-term rating on the bank from CreditWatch with positive
implications, where S&P placed it on Aug. 31, 2016.
S&P also raised its issue ratings on the nondeferrable
subordinated debt issued or guaranteed by CGD to 'CCC+' from
'CCC', its junior subordinated debt to 'CCC' from 'CCC-', and its
preference shares to 'CCC-' from 'CC'.
S&P then withdrew the ratings at the issuer's request, including
all of the issue ratings.
The outlook was positive at the time of the withdrawal.
The affirmation followed CGD's completion, on March 30, 2017, of
its recapitalization plan announced back in August 2016, for a
total final amount of EUR4.4 billion. This enabled CGD to
comply -- with an ample buffer -- with its 2017 European Central
Bank's SREP requirement. In particular, CGD estimated that its
pro forma phased-in Common Equity Tier 1 (CET1) ratio at end-2016
would stand at 12.0% compared to an 8.25% SREP requirement. S&P
also expected its risk-adjusted capital (RAC) ratio for the bank
to strengthen, hovering at about 5% at end-2017.
The second stage of CGD's recapitalization entailed the market
placement of a EUR0.5 billion additional Tier 1 instrument among
private investors, together with a EUR2.5 billion cash injection
from the government. These capital enhancing measures complement
the conversion of CGD's EUR0.9 billion contingent convertible
securities into equity in January 2017 and the transfer of the
government's shares in ParCaixa SGPS, S.A. -- with a
EUR0.5 billion book value -- to the bank.
Although the recapitalization provided the bank with an
additional capital buffer, in S&P's view, CGD still needs to
demonstrate its ability to deliver on its recently announced
2017-2020 strategic plan, in particular, turning around its weak
profitability and managing down its stock of nonperforming
assets.
Among others, CGD aims to achieve a cost-to-income ratio below
45% and a return on equity above 9% by end-2020, reaching a
phased-in CET1 ratio of at least 14% by then. S&P considers the
bank's strategic targets as reasonable but expect progress to be
limited over the next 12 months, given its very initial stage and
modest recovery prospects in Portugal.
As result of the recapitalization, S&P changed its assessment of
CGD's capital position to weak from very weak. This led S&P to
revise CGD's stand-alone credit profile (SACP) to 'b+' from 'b'.
Despite the improved SACP, S&P's long-term rating on the bank
remained unchanged, incorporating one notch of government support
instead of two. The latter reflects S&P's view that CGD will
continue to benefit from a very high likelihood of timely and
sufficient extraordinary support from the government if needed.
S&P's raising of the issue ratings on CGD's nondeferrable
subordinated instruments, junior subordinated debt, and
preference shares reflected S&P's upward revision of the bank's
SACP. The bank recently resumed coupon payments on its junior
subordinated debt and preference shares.
At the time of the withdrawal, the outlook was positive,
reflecting the possbility that S&P could has raised its long-term
rating on CGD in the next 12 months if the bank was able to
maintain a RAC ratio sustainably above 5%. This would result
from CGD delivering on its recently announced strategy to enhance
its profitability more than S&P had contemplated in its
forecasts.
The outlook could have been revised to stable if CGD proved
incapable of making any progress in tackling its strategic
challenges, such that S&P concluded that it would be unable to
operate with an enhanced level of capital.
===========
R U S S I A
===========
KARELIA: Fitch Affirms B+ LT Issuer Default Ratings
---------------------------------------------------
Fitch Ratings has affirmed the Russian Republic of Karelia's
Long-Term Foreign- and Local-Currency Issuer Default Ratings
(IDRs) at 'B+'. The agency has also affirmed the republic's
Short-Term Foreign-Currency IDR at 'B'. The Outlook on the Long-
Term IDRs is Stable. Karelia's senior unsecured debt ratings have
also been affirmed at 'B+'.
The ratings reflect Karelia's weak debt metrics, a prolonged
difficult economic environment in Russia, and a volatile
institutional framework for Russian subnationals. The ratings
also factor in the gradual improvement of a fragile operating
balance, which Fitch expects to continue over the medium term.
KEY RATING DRIVERS
Karelia demonstrated a slow recovery of its budgetary performance
in 2016, but its operating balance remained negative. Thereafter
Fitch expects the operating balance to turn to low positive
values in 2017-2019, driven by growing tax revenues due to profit
recovery of the republic's key industrial tax payers and
favourable changes to corporate income tax regulation. Operating
performance will be also supported by higher transfers from the
federal government, while operating expenditure should remain
under control. However, the current balance will continue to be
negative, reflecting prolonged structural imbalances of the
region's budget.
Fitch expects Karelia to gradually narrow its deficit before debt
variation to 6%-7% of total revenue in 2017, and further to 5%-6%
in 2018-2019. The republic's deficit before debt narrowed to 6.3%
in 2016 after double-digit deficits averaging 14.4% in 2013-2015.
Fitch expects the shrinkage of deficit in 2017-2018 will be also
driven by restrictions on debt stock and budget deficits imposed
by the Ministry of Finance in return for financial support.
The region's expenditure flexibility is limited, as the scope for
capex reduction is almost exhausted, with the share of capital
outlays decreasing to about 10% of total spending in 2014-2016
(2011-2013: average 15%). Fitch expects capex to remain at this
level in 2017-2019, unless Karelia receives additional capital
transfers from the federal government. Karelia intends to
implement several measures aimed at current expenditure cut but
this could be challenging given inflexible staff cost and current
transfers in excess of 90% of operating expenditure in 2016.
Fitch expects the republic's direct risk to edge higher to 85% of
current revenue over the medium term. It increased in absolute
terms to RUB22.2 billion at end-2016, from RUB21 billion in 2015.
However, following an almost 10% increase in revenue, debt
decreased to 76.6% of current revenue at end-2016 from the peak
80% a year earlier. Further budget loans as a share direct risk
increased to 53% at end-2016 from 43% in 2015. Those loans bear
almost zero interest rates, hence saving interest expense.
Karelia is exposed to material refinancing risk, which stems from
the region's high dependence on access to capital market to
service its debt. The debt maturity profile is stretched to 2034,
but about 96% of the risk is concentrated in 2017-2019. This
results in a weighted average maturity of its debt of about two
years, which is short in an international context.
Karelia's tax base has historically been sound, supporting above-
national median wealth metrics. However, fiscal changes
introduced in 2012-2013 by the federal government have had a
deeply negative effect on the republic's fiscal capacity. In
addition, prospects for a swift recovery of Russia's economy
remain weak; in its forecast Fitch expects moderate recovery of
the national economy at 1.4% yoy in 2017 (2016: -0.2%) and the
local economy will likely follow this mild trend in 2017-2019.
Russia's institutional framework for subnationals is a constraint
on the republic's ratings. Frequent changes in the allocation of
revenue sources and assignment of expenditure responsibilities
between the tiers of government limit Karelia's forecasting
ability and negatively affect the republic's fiscal capacity and
financial flexibility. Fitch expects the region's dependence on
financial support from the federal government to increase in
2017-2019.
RATING SENSITIVITIES
Growth of direct risk above 85% of current revenue, together with
a negative operating balance for two years in a row, would lead
to a negative rating action.
A positive rating action could result from stabilised fiscal
performance with operating surpluses leading to sufficient
coverage of interest costs.
MOSCOW: Fitch Revises Outlook to Positive, Affirms BB+ IDR
----------------------------------------------------------
Fitch Ratings has revised Moscow Region's Outlook to Positive
from Stable and affirmed the Long-Term Foreign- and Local-
Currency Issuer Default Ratings (IDRs) at 'BB+' and Short-Term
Foreign-Currency IDR at 'B'. Moscow Region's outstanding senior
unsecured domestic bonds have been affirmed at 'BB+'.
The revision of the Outlook to Positive reflects the improvement
of the region's fiscal performance accompanied by sound debt
metrics.
KEY RATING DRIVERS
The Outlook revision reflects the following rating drivers and
their relative weights:
HIGH
Fitch forecasts Moscow Region will record a sound operating
balance at 13%-15% of operating revenue in 2017-2019, supported
by growing tax revenue, which contribute about 90% of operating
revenue. The region's operating balance had been gradually
improving over the last two years, to reach 16% in 2016, up from
an average 10.2% in 2013-2015, as tax revenue growth outpaced
operating expenditure growth. In 2016, tax revenue increased
14.6% (2015: 7%) due to an expanding tax base, restored
profitability in the financial sector and higher excise proceeds.
Fitch expects the region's self-financing capacity will remain
strong over the medium term. Fitch projects a low deficit before
debt of 1%-2% of total revenue in 2017-2019 after a surplus of
3.2% in 2016 and a balanced budget in 2015, as the region
increases investment in infrastructure to 15% of total
expenditure from 13% in 2016. About 90% of capex will be funded
by the region's current balance and capital revenue (2015-2016:
100%) and new borrowing requirements will be low.
Fitch expects the region's debt metrics will remain strong over
the medium term. Under Fitch's base case scenario, the region's
direct risk will not exceed 30% of current revenue in 2017-2019
(2016: 23.4%) and debt servicing (both interest and principal
repayments) will be comfortably covered by the operating balance.
In 2016, direct risk payback improved to 1.5 years from 2.1 years
in 2015, supported by sound fiscal performance. This is well
below the region's weighted average debt maturity, which Fitch
estimates to have totalled 3.3 years at end-2016.
In 2016, the region's direct risk stabilised at RUB98.1 billion
(2015: RUB98.4 billion). About half of the risk is bank loans
while the remainder is almost equally split between bonds and
budget loans. The region diversified its debt portfolio in 2016
by issuing RUB25 billion seven-year bonds, which extended 25% of
its debt maturities to 2020-2023.
Nevertheless, its debt maturity profile remains short by
international standards with material concentration in 2017-2019,
when 72% of the risk is due (RUB70.5 billion). In Fitch's view,
the region's refinancing risk is moderate due to a low debt
burden compared with the region's budget size and high RUB69.4
billion liquidity accumulated by Moscow Region on its accounts at
end-2016.
MEDIUM
Moscow Region has a well-diversified economy based on services
and processing industries. Proximity to the City of Moscow (BBB-
/Stable/F3) supports the region's wealth and economic indicators,
which are strong in the national context. According to the
region's estimates, GRP increased 0.4% in 2016 after a 2.9%
contraction in 2015. Fitch expects the national economy to
recover in 2017 and projects Russia's GDP to grow 1.4%-2.2% per
annum in 2017-2018, which will be positive for the region's
economy. The regional government expects GRP will grow 1%-3.6%
per year in 2017-2019.
The region's ratings also reflect the following key rating
drivers:
Moscow Region directly and indirectly controls an extensive
public sector, consisting of more than 100 companies, although
their number has decreased over the last two years. This creates
contingent risk for the regional budget through administrative
expenses, current subsidies and potential demand on extraordinary
support to the sector. At present, Fitch does not consider risk
from the sector to be significant due to the large size of the
region's budget and prudent debt practice, with no material
guarantees provided to the public sector.
The region's credit profile remains constrained by the weak
institutional framework for Russian local and regional
governments (LRGs), which has a shorter record of stable
development than many of its international peers. Weak
institutions lead to lower predictability of Russian LRGs'
budgetary policies, which are subject to the federal government's
continuous reallocation of revenue and expenditure
responsibilities within government tiers.
RATING SENSITIVITIES
Maintaining a sound operating balance at above 10% of operating
revenue, accompanied by sound debt metrics, with direct risk-to-
current balance below average debt maturity could lead to an
upgrade.
TATFONDBANK: Declared Bankrupt by Tatarstan Arbitration Court
-------------------------------------------------------------
Interfax reports that the Arbitration Court of Tatarstan
recognized Tatfondbank as bankrupt, opening a bankruptcy
procedure against the bank.
The court determined the period for bankruptcy proceedings -- one
year, Interfax discloses. The suit was filed by the Central Bank
of Russia, Interfax notes.
According to Interfax, Central Bank representative
Dmitry Malinovsky said during the meeting that the total value of
the property and assets of the bank is estimated by the temporary
administration at the date of revocation of the license (March 3)
to be RUR71.393 billion, and the bank's liabilities amounted to
RUR189.74 billion.
"The Interim Administration conclusion reasonably concluded that
the lack of value of the property and assets for the performance
of its obligations to creditors and payment of obligatory
payments. Lack of property to fulfill its obligations on the
date of revocation of the license amounted to RUR118.347 billion.
Thus, the interim administration conclusion confirmed the
presence of Tatfondbank such signs of insolvency and bankruptcy
as lack of value of the property (assets) of the credit
institution to fulfill its obligations Before the creditors on
the date of revocation of the license," Interfax quotes
Mr. Malinovsky as saying.
The Bank of Russia confirmed the findings of the interim
administration, Interfax relates.
The representative of the temporary administration of Tatfondbank
said that among the bank's liabilities the debt to the Central
Bank is RUR3 billion, other credit organizations -- RUR27
billion, customer funds -- RUR109.6 billion, including debts to
legal entities -- RUR37 billion, the insurance agency Deposits
-- RUR52.5 billion and to individuals -- RUR20.2 billion, as well
as issued promissory notes for RUR16 billion, Interfax discloses.
Earlier it was reported that the Bank of Russia revoked the
license from Tatfondbank on March 3, Interfax recounts.
According to Interfax, the Central Bank said the "hole" in the
capital of Tatfondbank was estimated at RUR97 billion.
The bank's problems are related to the captive business model of
the bank, which is oriented towards lending to end-users,
Interfax states.
Tatfondbank in the first three quarters of 2016 ranked 43rd in
terms of assets in the Interfax-100 ranking prepared by Interfax-
CEA.
=========
S P A I N
=========
BANCO MARE: Fitch Places BB IDR on RWP on Potential Merger
----------------------------------------------------------
Fitch Ratings has placed Banco Mare Nostrum S.A.'s (BMN) Long-
Term Issuer Default Rating (IDR) of 'BB' on Rating Watch Positive
and affirmed its Viability Rating (VR) at 'bb'. This follows the
decision by the FROB, known in English as the Fund for Orderly
Bank Restructuring, to merge the bank with Bankia S.A. (BBB-
/Stable/bbb-) to optimise the recovery of state aid given to both
banks.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
The RWP on BMN's IDRs and debt ratings reflects Fitch's belief
that there is a high likelihood that the merger between the two
banks will go ahead given that the FROB is the controlling
shareholder of both entities.
The merger is pending the agreement from both boards of
directors, their general assemblies, as well as other
administrative and regulatory approvals. BMN has already hired
external advisors to assess the transaction and both banks have
set up independent commissions, comprising independent board
members, to protect minority interests.
Fitch affirmed Bankia's ratings on February 15, 2017 (see "Fitch
Affirms Bankia at 'BBB-'; Stable Outlook" on
www.fitchratings.com). The agency considered that Bankia was
likely to operate with a lower capital ratio in the future
because excess capital could be subject to a variety of actions,
including the acquisition of BMN. Fitch will reassess the
financial impact of the merger once information is made
available.
BMN's ratings reflect the bank's capital levels maintained with
moderate buffers, improving but still weak asset quality and low
core profitability. The ratings also factor in the bank's sound
regional franchise, and adequate funding and liquidity.
The bank's Fitch Core Capital (FCC) ratio was 11% at end-2016 as
lower risk-weighted assets from balance sheet de-risking offset
the small loss in 2016. BMN's capital is still highly vulnerable
to unreserved problem assets (which include non-performing loans
and foreclosed assets) which represented about 1.3x end-2016 FCC.
The bank's problem asset ratio declined to 14.9% at end-2016
(end-2015: 15.4%), supported by active management of recoveries
and an improved economic environment. BMN's core income
profitability remains undermined by low interest rates, which
eroded its earning generation capacity.
SUPPORT RATING AND SUPPORT RATING FLOOR
BMN's Support Rating (SR) of '5' and Support Rating Floor (SRF)
of 'No Floor' reflect Fitch's belief that senior creditors can no
longer rely on receiving full extraordinary support from the
sovereign in the event that BMN becomes non-viable. The EU's Bank
Recovery and Resolution Directive and the Single Resolution
Mechanism for eurozone banks provide a framework for resolving
banks that is likely to require senior creditors participating in
losses, instead of or ahead of a bank receiving sovereign support
SUBORDINATED DEBT
The bank's subordinated debt is notched down once from the bank's
VR for loss severity because of lower recovery expectations
relative to senior unsecured debt. These securities are
subordinated to all senior unsecured creditors.
RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT
Fitch expects to resolve the RWP on BMN's ratings once the merger
is completed, which Fitch expects to take place in the second
half of the year. At that time, Fitch will reassess the financial
impact of the merger on both banks.
Upside rating potential on BMN's VR is contingent on a material
reduction in problem assets resulting in lower capital
encumbrance from unreserved problem assets. Improving core
earnings generation could also be rating positive.
Conversely, the inability to improve asset-quality metrics or to
sustain recurrent internal capital generation could put downward
pressure on the VR.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support domestic banks. While not impossible, this is highly
unlikely, in Fitch's view.
SUBORDINATED DEBT
The RWP on the bank's subordinated debt reflects a potential
upgrade for the instrument if the merger is completed as Fitch
believes the acquirer would be forthcoming to neutralise the non-
performance risk of the instruments, preventing the bank from
hitting loss-absorption features. In case the merger is not
successful, the issue ratings are primarily sensitive to any
change in the VR of BMN.
The rating actions are:
Banco Mare Nostrum S.A.
Long-Term IDR of 'BB', placed on RWP
Short-Term IDR of 'B', placed on RWP
Viability Rating affirmed at 'bb'
Support Rating Affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
Senior unsecured debt Long-Term rating of 'BB', placed on RWP
Senior unsecured debt Short-Term rating of 'B', placed on RWP
Commercial paper of 'B', placed on RWP
Subordinated debt of 'BB-', placed on RWP
BANCO POPULAR: S&P Lowers Counterparty Credit Rating to 'B'
-----------------------------------------------------------
S&P Global Ratings said it has lowered its long-term counterparty
credit rating on Banco Popular Espanol S.A. to 'B' from 'B+'.
The outlook is negative. At the same time, S&P affirmed its 'B'
short-term rating.
S&P also lowered its issue ratings on Banco Popular's
nondeferrable subordinated debt to 'CCC-' from 'CCC+' and its
preference shares to 'CC' from 'CCC'.
The rating action follows Banco Popular's announcement on April
3, 2017, that it will undertake additional provisions and
regulatory capital adjustments that will be reflected in its
first-half 2017 financial statements. This will lower its total
capital ratio to 11.70%-11.85% according to the bank's estimates,
compared to 12.33% on Jan. 1, 2017 and its 11.375% supervisory
review and evaluation process (SREP) requirement. S&P estimates
that such adjustments will result in Banco Popular operating with
a risk-adjusted capital (RAC) ratio of 4.75%-5.0% by end-2017.
As a result, S&P now assess Banco Popular's capital position as
weak instead of moderate. This has led S&P to revise the bank's
stand-alone credit profile to 'b' from 'b+' and S&P's issuer
credit rating to 'B' from 'B+'.
The adjustments total an initial estimated gross amount of EUR549
million and were announced as a result of an internal audit
conducted by the bank. They relate mainly to the identification
of certain provision shortfalls and financing granted to clients
that may have been used for the acquisition of shares in the last
rights issue that took place in May 2016. S&P believes that this
announcement creates uncertainty over the possibility of
additional future charges, because certain adjustments are an
initial estimate based on currently available information.
In addition to its weak capital position, S&P believes that Banco
Popular's ability to generate capital organically is limited, as
is its financial flexibility. S&P thinks that further capital
might be required in order for Banco Popular to reinforce its
provisions coverage of problematic assets, such that it can
accelerate their disposal, and to comply with regulatory capital
ratios that will become more stringent as Basel III deductions
are fully implemented.
In light of the above, S&P sees an increasing likelihood of
hybrid instruments incurring losses. As such, S&P has lowered
its issue ratings on Banco Popular's nondeferrable subordinated
debt to 'CCC-' from 'CCC+' and its preferred stock to 'CC' from
'CCC'. In particular, S&P's subordinated debt and preferred
stock issue ratings reflect a default risk consistent with a
'CCC+' and 'CCC' scenario, respectively, with an additional two-
notch deduction for subordination in each case.
Banco Popular also announced on April 3, 2017 that its CEO will
be stepping down for personal reasons. This announcement comes
only a few months after his appointment and the appointment of a
new chairman in February 2017. Following the replacement of the
previous chairman, the strategy and targets announced at the time
of the rights issue in May 2016 were placed under revision.
Banco Popular still needs to work out its high stock of
nonperforming assets (NPAs) and turn around its profitability.
At end-2016, Banco Popular's NPAs represented 36.7% of its gross
loans. This level is very high compared to S&P's 15% estimate
for the system. S&P expects that the new management team will
prioritize a new financial plan to tackle these issues.
The negative outlook reflects the possibility that S&P could
lower its long-term rating on Banco Popular in the next 12
months, if the management team fails to demonstrate tangible
progress in turning around the institution. S&P could also lower
the rating if the influx of negative news erodes customers'
confidence in the bank, damaging its franchise value, business
stability, or funding and liquidity profile, which S&P believes
is more vulnerable to changes in investor confidence than peers.
A downgrade could also occur if the bank posts additional losses
or adjustments to capital that cause S&P's RAC forecast to
decline sustainably below 4%.
S&P could revise the outlook to stable if it thinks it is less
likely that the above conditions will materialize.
GRUPO COOPERATIVO: Fitch Revises Outlook to Pos., Affirms BB- IDR
-----------------------------------------------------------------
Fitch Ratings has revised the Outlook on Grupo Cooperativo
Cajamar's (GCC) Long-Term Issuer Default Rating (IDR) to Positive
from Stable. Fitch also affirms GCC's Long-Term IDR at 'BB-',
Short-Term IDR at 'B' and Viability Rating (VR) at 'bb-'.
At the same time, Fitch has affirmed the IDRs of GCC's central
bank, Banco de Credito Social Cooperativo, S.A. (BCC) and GCC's
largest cooperative bank, Cajamar Caja Rural, Sociedad
Cooperativa de Credito.
GCC is not a legal entity, but a cooperative banking group. Its
19 credit cooperatives and BCC are bound by a mutual support
mechanism under which members mutualise 100% of profits and have
a cross-support mechanism for capital and liquidity. Accordingly,
Fitch assigns the same IDRs to the group members.
KEY RATING DRIVERS
IDRs AND VR
GCC's IDRs and VR reflect the group's poor asset quality, the
vulnerability of its capital to unreserved problem assets and the
challenge the group faces to improve its core banking
profitability. They also factor in its adequate funding and
liquidity profile.
The Positive Outlook on GCC's Long-Term IDR reflects Fitch's
expectations that GCC's problem asset volume will continue to
decline in line with recent trends, driven by larger recoveries
and economic growth in Spain above the eurozone average. This
will reduce capital vulnerability to unreserved problem assets.
GCC's non-performing loan ratio remains high by national and
international standards. However, it improved to 13.6% at end-
2016, as recoveries, write-offs, sales and foreclosures outpaced
new non-performing loans. The problem assets ratio including
foreclosed assets was 18.7% at end-2016. Fitch expects asset-
quality metrics to continue to improve due to further recovery of
the Spanish economy and the stabilisation of the domestic
property market.
At end-2016 GCC's Fitch Core Capital (FCC) and fully loaded
Common Equity Tier 1 ratios were acceptable at 10.8% and 11%,
respectively. However, unreserved problem assets accounted for
176% of FCC, highlighting the bank's vulnerability to unexpected
asset quality shocks.
GCC's earnings were modest in 2016 and affected by EUR200 million
provisions for interest rate floors. Profits have relied on non-
recurrent items in recent years, mainly capital gains from the
sale of government debt securities. GCC will be challenged to
improve its core banking profitability. The group intends to
increase lending to the SME and consumer sectors and enhance fee-
income generation, which, combined with lower funding costs and
cost control, should support earnings.
GCC's funding structure is adequate for the group's business
model, as loans are mainly funded with retail deposits. However,
ECB funding remains higher than at peers and is largely used to
finance the government bonds portfolio. The bank's liquidity
position is acceptable in the context of relatively modest
upcoming debt maturities.
SUPPORT RATING AND SUPPORT RATING FLOOR
GCC's Support Rating (SR) of '5' and Support Rating Floor (SRF)
of 'No Floor' reflect Fitch's belief that senior creditors can no
longer rely on receiving full extraordinary support from the
sovereign if GCC becomes non-viable. The EU's Bank Recovery and
Resolution Directive and the Single Resolution Mechanism for
eurozone banks provide a framework for resolving banks that is
likely to require senior creditors to participate in losses,
instead of or ahead of a bank receiving sovereign support.
SUBORDINATED DEBT
BCC's subordinated debt is notched down once from the group's VR
for loss severity because of lower recovery expectations relative
to senior unsecured debt. These securities are subordinated to
all senior unsecured creditors.
RATING SENSITIVITIES
IDRS AND VR
The ratings could be upgraded if GCC continues to reduce the
stock of problem assets and builds additional loss-absorption
buffers, resulting in a reduction of its capital's vulnerability
to unreserved problem assets. Improved earnings from its banking
business would also be rating positive. A negative asset quality
shock, lack of further credible reduction of problem assets or a
material weakening of profitability, although not envisaged by
Fitch, would be rating negative.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support domestic banks. While not impossible, this is highly
unlikely, in Fitch's view.
SUBORDINATED DEBT
The subordinated notes' rating is sensitive to changes to GCC's
VR, which drives BCC's Long-Term IDR. The rating is also
sensitive to a widening of notching if Fitch's view of the
probability of non-performance increases relative to the
probability of the group failing, as captured by its VR.
The rating actions are:
Grupo Cooperativo Cajamar
Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive from
Stable
Short-Term IDR affirmed at 'B'
Viability Rating affirmed at 'bb-'
Support Rating Affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
Banco de Credito Social Cooperativo, S.A.
Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive from
Stable
Short-Term IDR affirmed at 'B'
Support Rating Affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
Subordinated debt: affirmed at 'B+'
Cajamar Caja Rural, Sociedad Cooperativa de Credito
Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive from
Stable
Short-Term IDR affirmed at 'B'
Commercial paper: affirmed at 'B'
IBERCAJA BANCO: Fitch Affirms BB+ IDR, Outlook Positive
-------------------------------------------------------
Fitch Ratings has affirmed Ibercaja Banco S.A.'s Long-Term Issuer
Default Rating (IDR) at 'BB+' and Viability Rating (VR) at 'bb+'.
The Outlook on the Long-Term IDR is Positive.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
Ibercaja's ratings and Positive Outlook reflect Fitch's
expectation that capital levels will be strengthened through
internal capital generation. This, combined with asset quality
improvements, would result in a lower capital-at-risk from
unreserved problem assets and could trigger a rating upgrade.
Asset quality and capital ratios are improving although they
remain weak and below that of many peers. The ratings also factor
in the bank's strong regional franchise, modest earnings
generation, stable funding structure and liquidity profile.
Ibercaja's capitalisation levels are maintained with moderate
buffers over regulatory minimums. The fully loaded common equity
Tier (CET) 1 ratio increased to 10.2% at end-2016 (9.7% at end-
2015). In 1Q17 the bank repaid the outstanding state-owned
contingent convertible bonds (originally EUR407 million) ahead of
schedule. This will reduce the overall funding cost and should
support the bank's plan to strengthen capital through earnings
retention. Ibercaja's capital remains vulnerable to asset quality
shocks because unreserved problem assets still accounted for 108%
of the fully loaded CET1 capital at end-2016.
The bank's asset quality metrics are relatively weak compared to
those of its international peers, but are broadly in line with
the Spanish banking sector average. The non-performing loans
(NPL) ratio remained broadly stable at 9.2% at end-2016 (11.4%
including foreclosed assets) as the implementation the Bank of
Spain's new circular in October 2016 resulted in additional NPL
recognition and offset the positive asset quality trend
experienced in 2016. The NPL reserve coverage level stood at a
just adequate 44% at end-2016. Fitch expects asset quality to
continue improving in 2017 as the unemployment rate and the real-
estate sector recover further.
Ibercaja's profitability is modest and remains under pressure in
the context of low interest rates and muted business volumes.
However, the group's business model benefits from a degree of
diversification relative to peers thanks to its meaningful
insurance and asset management businesses. This provides some
stability to revenues through the economic and interest-rate
cycle. The bank also has the potential to improve operating
efficiency as it achieves the synergies planned upon the
acquisition of a competitor in 2013.
The bank's main funding source is a stable and granular retail
deposit base which broadly funds the loan book. Wholesale funding
is mostly in the form of repos, covered bonds and ECB funding.
The bank has a comfortable liquidity position, in light of debt
maturities, including mostly unencumbered sovereign debt.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating (SR) of '5' and Support Rating Floor (SRF) of
'No Floor' reflect Fitch's belief that Ibercaja's senior
creditors can no longer rely on receiving full extraordinary
support from the sovereign in the event that Ibercaja becomes
non-viable. The EU's Bank Recovery and Resolution Directive
(BRRD) and the Single Resolution Mechanism (SRM) for eurozone
banks provide a framework for resolving banks that is likely to
require senior creditors participating in losses, instead of, or
ahead of a bank receiving sovereign support
SUBORDINATED DEBT
The bank's subordinated debt is notched down one level from the
bank's VR for loss severity because of lower recovery
expectations relative to senior unsecured debt. These securities
are subordinated to all senior unsecured creditors.
RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT
The ratings could be upgraded if the bank strengthens its loss-
absorbing buffers and raises capital ratios to a level more
commensurate with investment-grade rated peers. This could be
achieved either through internal capital generation or a rights
issue and would provide further protection to the bank's senior
creditors against downside risks. Reducing exposure to problem
assets would also be rating-positive.
Downward rating pressure could arise from the bank's failure to
build additional capital buffers in the next two years or from a
sharp deterioration in asset quality, which Fitch does not
currently expect. A material weakening of core profitability
would also put pressure on the ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support Ibercaja Banco. While not impossible, this is highly
unlikely, in Fitch's view.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt ratings are sensitive to changes in Ibercaja
Banco's VR and therefore to the same factors that would determine
a change in the VR.
The rating actions are:
Long-Term IDR: affirmed at 'BB+'; Outlook Positive
Short-Term IDR: affirmed at 'B'
Viability Rating: affirmed at 'bb+'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Subordinated debt: affirmed at 'BB'
LIBERBANK SA: Fitch Affirms BB Long-Term IDR, Outlook Stable
------------------------------------------------------------
Fitch Ratings has affirmed Liberbank, S.A.'s Long-Term Issuer
Default Rating (IDR) at 'BB' and Viability Rating (VR) at 'bb'.
The Outlook on its Long-term IDR is Stable.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
The bank's IDRs and VR reflect its large problem assets,
including a legacy real estate-related portfolio, relative to
capital and its modest profitability. The ratings also factor in
its stable funding structure and liquidity position.
Liberbank's asset quality is heavily affected by a legacy
portfolio of foreclosed real-estate assets and loans to
developers that until end-2016 was under an asset protection
scheme (APS) granted by Spain's deposit guarantee fund. This
portfolio is carried at fair value with expected losses
calculated by an independent consultant. This exposure results in
a problem asset ratio (including non-performing loans and
foreclosed assets) well above domestic peers at 20.9% at end-
2016.The volume of problem assets decreased by 22% yoy in 2016
and Fitch expects the bank to actively further reduce this
exposure in the coming years, helped by the recovery of the
property sector in Spain.
In Fitch views, the bank's capitalisation is maintained with
moderate buffers over regulatory minimums. In line with Fitch
expectations, the bank's fully loaded Common Equity Tier 1 (CET1)
ratio declined to 10.7% at end-2016 (from 11.7% at end-2015), as
a result of the increase in risk-weighted assets following the
expiration of the APS. At end-2016 unreserved problem assets
accounted for 2x the fully loaded CET1, meaning that capital is
highly vulnerable to asset quality shocks.
Liberbank is focused on retail banking activities in its home
regions, Asturias, Castile-La Mancha and Extremadura, where it
has high market shares. However, the bank's profitability remains
under pressure amid the low interest-rate and business volume
environment. Its effort to cut funding and operating costs
together with lower loan impairment charges should provide some
relief, although Fitch anticipates that profitability will remain
modest in 2017.
Liberbank's funding structure is well balanced with customer
deposits fully funding the loan book. The bank's liquidity
position is adequate as debt maturities are manageable and well
spread over time. Refinancing risk is limited in light of the
bank's ample stock of unencumbered ECB-eligible assets.
Banco de Castilla-La Mancha (Banco CLM) is a 75%-owned bank
subsidiary of Liberbank and fully consolidated into the group's
accounts. Banco CLM is highly integrated into the group,
including in terms of capital and liquidity fungibility between
the entities, hence Fitch assigns a common VR. The group's
management is centralised at Liberbank, underlining Fitch's view
that individual credit profiles cannot be meaningfully
disentangled. Banco CLM strengthens the group's franchise in
Castile-La Mancha and provides geographical diversification.
SUPPORT RATING AND SUPPORT RATING FLOOR
Liberbank's and its subsidiary's Banco CLM's Support Ratings (SR)
of '5' and Support Rating Floors (SRF) of 'No Floor' reflect
Fitch's belief that senior creditors of the banks can no longer
rely on receiving full extraordinary support from the sovereign
in the event that Liberbank becomes non-viable. The EU's Bank
Recovery and Resolution Directive (BRRD) and the Single
Resolution Mechanism (SRM) for eurozone banks provide a framework
for resolving banks that is likely to require senior creditors
participating in losses, instead of, or ahead of a bank receiving
sovereign support
SUBORDINATED DEBT
Liberbank's subordinated Tier 2 debt issue is rated one notch
below its VR to reflect the notes' greater expected loss severity
than senior unsecured debt.
RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT
Upside rating potential could arise from a swift and material
reduction in the bank's stock of problem assets without erosion
of the capital ratios. Improvements in core banking earnings that
result in better internal capital generation would also be
ratings-positive.
Conversely, a rating downgrade could come from an inability to
significantly manage down its stock of problem assets which would
keep capital at risk from asset quality shocks. A material
deterioration in the bank's funding and liquidity profile would
also put pressure on the ratings.
Banco CLM's ratings are sensitive to a change in its integration
in the group, which Fitch does not currently expect.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support its banks. While not impossible, this is highly unlikely,
in Fitch's view.
SUBORDINATED DEBT
The rating of Liberbank's subordinated debt is primarily
sensitive to a change in the bank's VR.
The rating actions are:
Liberbank
Long-Term IDR: affirmed at 'BB'; Outlook Stable
Short-Term IDR: affirmed at 'B'
VR: affirmed at 'bb'
Support Rating: affirmed at '5'
SRF: affirmed at 'No Floor'
Subordinated debt: affirmed at 'BB-'
Banco CLM
Long-Term IDR: affirmed at 'BB'; Outlook Stable
Short-Term IDR: affirmed at 'B'
VR: affirmed at 'bb'
Support Rating: affirmed at '5'
SRF: affirmed at 'No Floor'
Senior unsecured debt: affirmed at 'BB'
TDA PASTOR 1: S&P Affirms Then Withdraws 'CC' Notes Rating
----------------------------------------------------------
S&P Global Ratings affirmed its 'CC (sf)' credit rating on TDA
Pastor Consumo 1, FTA's class C notes. S&P has subsequently
withdrawn its rating at the issuer's request.
The affirmation follows S&P's review of the transaction's
performance and structural features, and the application of its
relevant criteria.
S&P expects the default of the class C notes to be a virtual
certainty based on the current undercollateralization and S&P's
expectation of recoveries even under the most optimistic
collateral performance scenario, which remain unchanged since
S&P's previous review.
Taking into account the above considerations, S&P has affirmed
its 'CC (sf)' rating on the class C notes. S&P has subsequently
withdrawn its rating at the issuer's request.
RATINGS LIST
Class Rating
To From
Rating Affirmed And Withdrawn
TDA Pastor Consumo 1, FTA
EUR300 Million Asset-Backed Floating-Rate Notes
C CC (sf)
NR CC (sf)
NR-Not rated.
=============
U K R A I N E
=============
FERREXPO PLC: Moody's Hikes Corporate Family Rating to Caa2
-----------------------------------------------------------
Moody's Investors Service has upgraded Ferrexpo Plc (Ferrexpo)'s
Corporate Family Rating (CFR) to Caa2 from Caa3, probability of
default rating (PDR) to Caa2-PD from Caa3-PD and senior unsecured
notes rating to Caa2 from Caa3 issued by Ferrexpo Finance plc.
The outlook on all ratings is stable.
RATINGS RATIONALE
The upgrade of the rating to Caa2 reflects Ferrexpo's improved
liquidity profile with a cash balance of $145 million at the end
of 2016 and expectations of strong cash flow generation in
2017-18 with free cash flow (FCF) of around $250 million in 2017
and $70-100 million in 2018. This improvement was a result of
improved iron ore prices in the last six months to around
$79/tonne as of April 4, 2017 from $55/tonne in September 2016.
The refinancing risk of its debt maturities of $202 million in
2017 is materially reduced as Moody's expects the company should
be able to fund these repayments through cash flow generation and
available cash balance. This will also provide more time to the
company to manage its $328 million debt maturities in 2018, out
of which $173 million mature in April 2018, where some
refinancing risk remains given its presence in Ukraine.
The Caa2 rating remains constrained due to the foreign currency
bond country ceiling of Ukraine at Caa2 and the company's
exposure to Ukraine's (Caa3, stable) political, legal, fiscal and
regulatory environment, given that all of its processing and
mining assets are located within the country. The company exports
all its production abroad and invoices all of its revenues in US
dollars, however the company's capacity to generate cash flows to
service its corporate debt, which is mostly in US dollars, could
be negatively affected by the potential actions taken by the
Ukrainian government.
The rating reflects a stronger business profile with a better
sales mix with 65% Fe pellets, which attract higher pellet
premiums, accounting for 94% of Ferrexpo's production in 2016
compared to 53% in 2014. Moody's also positively notes the
reduction in C1 cost to $27.7/tonne in 2016 compared to
$31.9/tonne in 2015 and $45.9/tonne in FY 2014, which has enabled
Ferrexpo to become one of the lowest cost pellet producers on the
global cost curve.
Ferrexpo's financial profile is strong for a Caa2 rating, as it
has a track record of solid credit metrics, with EBIT margin
expected to be maintained above 20% and Moody's adjusted
debt/EBITDA expected to remain below 2.0x in 2017-18, assuming an
iron ore price of $60/tonne in 2017 and $50/tonne in 2018 and
pellet premiums of around $30-38/tonne. Furthermore, Moody's
acknowledge a number of credit strengths, related to Ferrexpo's
(1) access to sizeable iron ore reserves and unexploited iron ore
resources adjacent to its existing iron ore deposits; (2)
favourable geographic location (close to the Black Sea) and in-
house logistics capabilities, providing advantaged access to
European and seaborne markets; (3) track record as a reliable
high quality iron ore pellet supplier to leading international
steel producers; and (4) profitable mining and processing
operations, also supported by recent cost reductions and
completion of 'Quality Upgrade Programme' in Q1 2015.
The ratings also reflect (1) the group's exposure to a single
commodity, iron ore, whose prices have recovered in the recent
months but are expected to weaken in the coming quarters and are
the biggest driver for Ferrexpo's earnings; (2) the fact that the
company's iron ore resources are concentrated in a single large
deposit in central Ukraine, which increases production outage
risk, albeit this risk is mitigated after the Yeristovo mine was
fully ramped up in 2014; (3) a still high level of customer
concentration risk, with three main customers accounting for
c.40% of the group's revenues in 2016; and (4) a concentrated
ownership structure, with a single individual, Mr. Zhevago -- who
is also the CEO -- retaining a 50.3% ownership interest in the
company.
LIQUIDITY POSITION
Moody's considers Ferrexpo's liquidity profile as adequate. The
company reports cash balance of $145 million in 2016 and is
expected to generate positive FCF of around $250 million in 2017
and $70-100 million in 2018 after capex requirements of $60-70
million and dividend payments of around $40 million in 2017 and
2018. Moody's believes that internal cash flow generation will be
sufficient to manage the debt repayments of $202 million in 2017.
There is some refinancing risk in 2018 given its presence in
Ukraine, however the company should be able to manage its $328
million maturities in 2018 given its strong financial profile.
STRUCTURAL CONSIDERATIONS
Ferrexpo's major borrowings include a secured $350 million pre-
export finance facility (PXF) and the notes totalling $346
million due in equal instalments in April 2018 and 2019. The
notes are unsecured guaranteed obligations issued by Ferrexpo
Finance plc and benefit from a suretyship provided by Ferrexpo
Poltava Mining (FPM). The Caa2 rating on the notes in line with
the CFR reflects the weak collateral package of the PXF secured
against sales export contracts which results in the amount of
debt ranking ahead of the notes as not being material.
RATING OUTLOOK
The stable outlook on Ferrexpo's rating is in line with the
stable outlook on Ukraine's sovereign rating, and reflects the
fact that the company's rating is constrained by the Caa2
foreign-currency bond country ceiling for Ukraine. The stable
outlook also reflects Moody's expectations that the company will
sustain adequate operating and financial performance despite high
country risks, and maintain adequate liquidity.
WHAT COULD CHANGE THE RATING UP
Moody's could upgrade the rating if Moody's was to upgrade
Ukraine's sovereign rating and/or raise the foreign-currency bond
country ceiling, provided there is no material deterioration in
the company-specific factors, including its operating and
financial performance, market position and liquidity.
WHAT COULD CHANGE THE RATING DOWN
Moody's could downgrade the rating if Moody's was to downgrade
Ukraine's sovereign rating and/or lower the foreign-currency bond
country ceiling, or the company's operating and financial
performance, market position or liquidity were to deteriorate
materially.
The principal methodology used in these ratings was Global Mining
Industry published in August 2014.
Ferrexpo, headquartered in Switzerland and incorporated in the
UK, is a mid-sized iron ore pellet producer with mining and
processing assets located in Ukraine. The group has total Joint
Ore Reserves Committee Code (JORC) classified resources of 6.7
billion tonnes, around 1.4 billion tonnes of which are proved and
probable reserves. The average grade of Ferrexpo's ore is
approximately 31% Fe. In 2016, the group achieved a pellet
production of 11.2 million tonnes and generated revenues of $986
million.
PRIVATBANK: Moody's Lowers Senior Unsecured Debt Rating to C
------------------------------------------------------------
Moody's Investors Service has downgraded the long-term foreign-
currency senior unsecured debt rating of Privatbank to C from Ca.
The bank's baseline credit assessment ("BCA"), adjusted BCA, long
and short-term local and foreign currency deposit ratings, and
its long and short-term Counterparty Risk Assessments were
unaffected by rating action.
The downgrade of Privatbank ' senior unsecured debt rating to C
from Ca primarily reflects Moody's expectation that senior debt
holders will sustain material losses as a result of bail-in and
conversion into equity.
The C senior unsecured debt rating does not carry outlooks.
Moody's will then withdraw the C foreign currency senior
unsecured debt rating of Privatbank.
Please refer to the Moody's Investors Service's Policy for
Withdrawal of Credit Ratings, available on its website,
www.moodys.com.
RATINGS RATIONALE
The downgrade of the Privatbank's senior unsecured debt rating to
C from Ca primarily reflects Moody's expectation that
Privatbank's eurobond holders will incur significant losses
consistent with a C rating category as the bank's Eurobonds were
bailed-in and converted into equity as part of the bank's
recapitalisation process.
In December 2016, the government of Ukraine acquired 100 percent
of the shares of Privatbank and thereby nationalized the bank. At
the same time, the National Bank of Ukraine declared the bank
insolvent, estimating its capital shortfall at UAH 148 billion,
which is equivalent to 67.5% of the bank's total unconsolidated
assets as at January 1, 2017.
To cover capital shortfall the government injected capital of UAH
117 billion and bailed-in Privatbank's non-deposit unsecured
creditors for the amount of UAH 29.4 billion ( $1.08 billion)
including bond holders for the amount of $595 million.
Moody's did not rate the bank's subordinated obligations.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Banks published
in January 2016.
SBERBANK PJSC: Moody's Reviews Caa2 Deposit Rating for Downgrade
----------------------------------------------------------------
Moody's Investors Service has placed on review for downgrade
Ukrainian Sberbank PJSC's long-term local currency Caa2 deposit
rating and caa2 adjusted baseline credit assessment (BCA). The
counterparty risk assessment of Caa2(cr) and the national scale
rating of B2.ua were also placed on review for downgrade.
RATINGS RATIONALE
The rating action on Ukrainian Sberbank PJSC's supported ratings
reflects the announced signed legal binding agreement on the sale
of 100% stake in the bank by Russian Sberbank (FC long-term
deposit rating Ba2/ senior unsecured debt Ba1 Stable, BCA ba1) to
the consortium of investors, which include Latvian Norvik Bank
(not rated) and a Belarusian private company. The transaction is
expected to close in the first half of 2017 after receiving
approval of the financial and antimonopoly regulators of the
relevant jurisdictions, including Latvia and Ukraine.
Upon completion of the deal, Moody's will revise its affiliate
support assumptions for the Ukrainian subsidiary from the Russian
Sberbank.
Meanwhile, the rating agency continues to incorporate a high
probability of affiliate support from Russian Sberbank into
Sberbank PJSC's ratings, resulting in a two-notch uplift for the
bank's local-currency deposit rating from its ca BCA. This is
based on the provided capital and liquidity support from
Sberbank, as well as reputation risks stemming from sharing
Sberbank's brand in Ukraine. Parental funding comprised around
58% of the bank's liabilities as of Q3 2016 under IFRS. Moody's
believes that during the transitional period, support in the form
of provided funds will still be in place, especially given the
announced sanctions for Ukrainian subsidiaries of Russian banks,
which ban parent banks' funds withdrawal.
The rating agency will resolve the review for downgrade following
completion of the deal.
LIST OF AFFECTED RATINGS
Placed On Review for Downgrade:
Issuer: Sberbank PJSC
-- LT Bank Deposit (Local Currency), currently Caa2, Outlook
changed To Rating Under Review From Stable
-- NSR LT Bank Deposit (Local Currency), currently B2.ua
-- Adjusted Baseline Credit Assessment, currently caa2
-- LT Counterparty Risk Assessment, currently Caa2(cr)
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
published in January 2016.
Moody's National Scale Credit Ratings (NSRs) are intended as
relative measures of creditworthiness among debt issues and
issuers within a country, enabling market participants to better
differentiate relative risks. NSRs differ from Moody's global
scale credit ratings in that they are not globally comparable
with the full universe of Moody's rated entities, but only with
NSRs for other rated debt issues and issuers within the same
country. NSRs are designated by a ".nn" country modifier
signifying the relevant country, as in ".za" for South Africa.
For further information on Moody's approach to national scale
credit ratings, please refer to Moody's Credit rating Methodology
published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be
inferred from the GSR to which it maps back at that particular
point in time. For information on the historical default rates
associated with different global scale rating categories over
different investment horizons.
===========================
U N I T E D K I N G D O M
===========================
EMF UK 2008-1: Fitch Assigns 'CCCsf' Rating to Class B2 Debt
------------------------------------------------------------
Fitch Ratings took various rating actions on EMF UK 2008-1.
Fitch rated 2, affirmed 1 and upgraded 2 tranches of EMF UK 2008-
1.
The UK non-conforming RMBS transaction is backed by loans
originated by Southern Pacific Mortgage Limited (37.07%),
Preferred Mortgages Limited (39.65%), Alliance & Leicester plc
(18.6%) and London Mortgage Company (4.68%).
KEY RATING DRIVERS
Fitch Assigns Ratings to Tranches B1 and B2
Following its analysis of the collateral and the proposed
structure, Fitch has assigned ratings to tranches B1 and B2.
Tranche B1 was assigned a 'B+sf'rating, and Tranche B2 a 'CCCsf'
rating. The nine-notch difference between the rating of the class
B1 notes and the immediately higher-ranking notes (A3a) is driven
by the interest priority of payments. Interest on the class B1
notes ranks subordinate to the replenishment of class A1a, A2a
and A3 principal deficiency ledgers. Class B2 does not benefit
from credit enhancement (CE) and is reliant solely on excess
spread to meet ultimate payments.
Stable Asset Performance
Near-prime mortgages make up 83.4% of the portfolio and the rest
of the securitised assets are prime loans. As a result EMF has
consistently outperformed the Non-Conforming Index throughout its
life and arrears are relatively low. The portion of loans in
arrears by more than three months has been below 8% since March
2011 and is currently 6.82%, well below the sector average. As a
result, cumulative repossessions have remained limited at 5.7% of
the initial pool balance. The reversal of a previously observed
trend in repossessions has had a positive effect on the ratings
of the class A notes. Weighted-average loss severity is in line
with the sector's level, while the cumulative losses remain low
when compared to peers.
Stable CE
The transaction is well seasoned. As a result, the CE has built
up through note amortisation, and the reserve fund is fully
funded. This driver contributed to the upgrade of the A2a and A3a
notes. EMF has switched to pro rata amortisation of the notes on
the September 2016 payment date. This limits future CE build-up.
However, it will help to limit reductions in excess spread as the
weighted-average margin on the notes remains constant.
Furthermore, the liquidity reserve in EMF has been amortising in
line with class A1a and A2a note balances from the September 2016
payment date.
Unhedged BBR Loans
The Libor-linked notes are exposed to basis risk from the
proportion of unhedged loans that are linked to BBR. In
accordance with its criteria, Fitch has applied a haircut to the
margins on those loans to account for the mismatch in indices.
After applying the stresses, Fitch concluded that the current
levels of CE were sufficient to support the ratings.
Interest-Only Concentration Tested
The transaction has a high proportion of interest-only (IO) loans
(71.34%) and a concentration of more than 20% of IO loans
maturing within a three-year period. In accordance with its
criteria, Fitch carried out a sensitivity analysis assuming a 50%
increase in default probability for these loans and found that
the credit enhancement is able to accommodate these stresses.
RATING SENSITIVITIES
In Fitch's opinion, borrower affordability is being supported by
the low interest-rate environment. This is evidenced by declining
three-month-plus arrears balances. However, low constant
prepayment rates suggest that borrowers have been unable to
refinance, leaving performance of the pools highly sensitive to
future interest increases.
Fitch has taken the following rating actions:
Class A1a (XS0352932643): affirmed at 'AAAsf'; Outlook Stable
Class A2a (XS1099724525): upgraded to 'AA+sf' from 'AAsf';
Outlook Stable
Class A3a (XS1099725415): upgraded to 'A+sf' from 'Asf'; Outlook
Stable
Class B1 (XS0352308075): rated at 'B+sf'; Outlook Stable
Class B2 (XS1099725928): rated at 'CCCsf'; Outlook Stable
JAEGER: Enters Administration, 700 Jobs at Risk
-----------------------------------------------
Press Association reports that fashion chain Jaeger has collapsed
into administration, putting 700 high street jobs at risk.
The group's directors have appointed AlixPartners to oversee the
process following failed attempts by the company's private equity
owner, Better Capital, to sell the struggling business, Press
Association relates.
Jaeger -- which employs around 680 staff across 46 stores, 63
concessions, its London head office and a logistics centre in
Kings Lynn -- had been on the market for around GBP30 million,
Press Association discloses.
However, no buyer materialized and last week Better Capital sold
Jaeger's debt to a company understood to be controlled by the
retail billionaire Philip Day, who heads up Edinburgh Woollen
Mill, Press Association recounts.
According to Press Association, a statement by AlixPartners
explained that the request was made after Jaeger was "unable to
attract suitable offers despite a lengthy and well-publicized
sales process."
MIND CANDY: Obtains US$1.5MM in New Funds, Averts Bankruptcy
------------------------------------------------------------
Jeremy Kahn at Bloomberg News reports that Mind Candy, the
London-based company behind Moshi Monsters, has avoided potential
bankruptcy by renegotiating a critical loan repayment and
securing US$1.5 million in new funds from existing investors.
According to Bloomberg, Mind Candy Chief Executive Officer Ian
Chambers said in an interview on April 10 venture
capital firms Accel Partners and LocalGlobe led the investment
round with participation from other existing investors.
Silicon Valley-based investment firm TriplePoint Capital agreed
to a two-year extension of the GBP6.5 million (US$8.1 million)
loan to Mind Candy, Bloomberg relates.
If Mind Candy had been unable to extend the loan terms the
company might have been forced into bankruptcy, the company had
said in filings with the U.K. business registry Companies House
in October, Bloomberg notes.
"TriplePoint and the existing investors all said we need to give
this company all the oxygen it needs because there are some very
exciting things happening here," Bloomberg quotes Bruce Golden, a
partner at Accel who sits on Mind Candy's board, as saying.
Mind Candy, founded by entrepreneur Michael Acton Smith, rocketed
to success after creating the Moshi Monsters brand in 2007,
becoming one of the most prominent startups in the U.K. capital's
technology scene, Bloomberg relays. But the company had
difficulty managing the transition from desktop gaming to mobile
and failed to come up with another hit on the same scale,
Bloomberg discloses. It saw revenue fall to GBP7 million in 2015
from a peak GBP47 million in 2012, Bloomberg states.
NOMAD FOODS: Moody's Affirms B1 CFR, Outlook Stable
---------------------------------------------------
Moody's Investors Service has affirmed the B1 corporate family
rating (CFR) and B1-PD probability of default rating (PDR) of UK-
based frozen food manufacturer Nomad Foods Europe Finco Limited
(Nomad Foods) as well as the B1 rating on the existing EUR500
million senior secured existing floating rate notes (FRN) issued
by Iglo Foods BondCo Plc.
Concurrently, Moody's has assigned provisional (P)B1 ratings to
the new EUR1,050 million equivalent senior secured credit
facilities to be issued by Nomad Foods Europe Midco Limited and a
new Luxembourg-based entity to be created. The outlook on all
ratings remains stable.
Net proceeds from the new facilities will be used to repay the
existing senior secured credit facilities. Upon completion of the
transaction, Moody's will withdraw the B1 ratings on the existing
senior secured credit facilities.
Moody's issues provisional ratings in advance of the final sale
of securities and these ratings reflect Moody's preliminary
credit opinion regarding the transaction only. Upon a conclusive
review of the final documentation, as well as the final terms of
the transaction, Moody's will endeavour to assign definitive
ratings to the new contemplated senior secured credit facilities.
A definitive rating may differ from a provisional rating.
The affirmation of the B1 CFR reflects Moody's expectation that
merger synergies will help offsetting downward pressure on
profitability due to challenging market conditions including
rising inputs and fierce competition. However, Moody's views the
B1 CFR as weakly positioned due to the high Moody's-adjusted
leverage. The ratings on the new senior secured bank credit
facilities is at the same level as the CFR because of their
expected pari passu ranking with the FRN, also rated B1.
RATINGS RATIONALE
Moody's views the B1 CFR as weakly positioned due to the high
leverage but affirmed the rating based on its expectation that
the company will maintain credit metrics commensurate with the
current rating despite challenging market conditions. In Moody's
view, expected merger synergies will partly help offsetting
downward pressure on profitability due to its exposure to the
mature European frozen food market, rising input costs, and
fierce competition from other brands and private labels.
While the transaction is leverage neutral, it is credit positive
because the interest cover ratio will likely improve due to the
expected lower borrowing costs on the new debt. Should the
transaction conclude as envisaged, Moody's would expect to move
the CFR from Nomad Foods Europe Finco Limited to Nomad Foods
Limited, which is the listed entity, to reflect the change in the
restricted group. Moody's current expectation is that the new CFR
will remain at B1.
The company expects like-for-like sales to be slightly positive
in Q1 2017 after several quarters of decline as its "must win
battles" strategy aims at stabilizing the decline in like-for-
like sales starts bearing fruits. Moody's positively views the
strategic initiatives undertaken to date as well as the slowing
rate of decline in like-for-like sales since the trough of 8.0%
reached in Q3 2015 but cautions that the early signs of
improvements could prove difficult to sustain without further
investments in innovation and advertising and promotion.
EBITDA (before exceptional and non-recurring items) is expected
to be approximately EUR10 million lower this year due to the
reinstatement of the in-year bonus scheme, the fact that 2016 was
a leap year and foreign currency translation due to the weaker
pound. Also, the company expects to mitigate rising input costs,
notably in the UK because of the weaker pound, through a
combination of price increases and pack size adjustments.
However, Moody's views the impact on volumes as uncertain because
this could encourage consumers to switch to cheaper alternatives
such as private labels.
The company also re-affirmed its target of EUR43-48 million
annualised synergies from the Findus acquisition by 2018, albeit
most of the incremental synergies will be realised in 2018
following the closure of the Bjuv factory later this year.
Cumulative annualised synergies in 2017 are expected to increase
to around EUR20 million from EUR12 million in 2016.
The Moody's-adjusted leverage was 5.3x at year-end 2016. Moody's
views this level of leverage as high for the rating category and
anticipates an increase to around 5.5x in the next 12 to 18
months because of the aforementioned downward pressures on
profitability. That being said, the high leverage is partly
offset by the company's strong margins with EBIT margin of 14.2%
in 2016 as well as the good liquidity profile including a track
record of strong cash flow generation. However, free cash flow in
2017 will likely be lower than last year due to higher
restructuring costs related to the closure of the Bjuv factory
and the settlement of legacy tax issues.
The rating also incorporate the company's leading market
positions in its core categories, its portfolio of iconic brands
with strong recognition across European markets, and its good
level of geographic diversification across Europe.
STRUCTURAL CONSIDERATIONS
The provisional (P)B1 ratings on the proposed senior secured
credit facilities reflects their first priority ranking pari
passu with the FRN. The new facilities include a EUR80 million
revolving credit facility (RCF), a EUR500 million term loan and a
USD510 million term loan. The transaction is therefore expected
to be leverage neutral.
Moody's notes that, in contrast with the current structure, the
security package for the new facilities no longer include pledges
on certain tangible assets. However, it is Moody's understanding
that the company intends to refinance the existing FRN in the
near future with new notes whose security package is expected to
be aligned with the new facilities.
LIQUIDITY ANALYSIS
Moody's considers the company's liquidity position to be good,
underpinned by cash balances of EUR330 million at year-end 2016.
The company's EUR80 million revolving credit facility (RCF) is
expected to remain undrawn, and there is no debt amortization
prior to 2020. Moody's also assumes that the company will
maintain good headroom under its single financial maintenance
covenant only applicable to its new RCF and tested when drawn
above 40%.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that sales and
profitability will not materially deteriorate in the next 12 to
18 months. While Moody's understands that the company aims at
making further acquisitions in order to build a global consumer
food business, the stable outlook assumes that any debt-funded
acquisition activity will be small in nature and that there will
be no shareholder-friendly action such as dividend payments or
share buy-backs.
WHAT COULD CHANGE THE RATING UP/DOWN
Although unlikely in the near term, upward ratings pressure could
materialise if the Moody's-adjusted gross debt/EBITDA ratio falls
to 4.5x on a sustained basis, and if the company maintains a
Moody's adjusted EBIT margin in the mid-teens and a solid
liquidity profile.
Conversely, the ratings could be lowered if earnings materially
deteriorate, resulting in the Moody's-adjusted gross debt/EBITDA
ratio remaining sustainably well above 5.5x, or if EBIT margin
falls toward the low teens and/or liquidity concerns emerge.
Moody's could also consider downgrading the ratings in event of
any material debt funded acquisitions or change in financial
policy.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Packaged Goods published in January 2017.
Based in the UK, Nomad Foods is a leading branded frozen foods
producer, supplying much of Western Europe's retail market. It
generated revenues of EUR1.9 billion in 2016.
PETERBOROUGH PLC: Moody's Hikes Rating on Sr. Sec. Bonds to Ba2
---------------------------------------------------------------
Moody's Investors Service has upgraded to Ba2 from Ba3 the
ratings of the GBP446.1 million of fixed rate guaranteed senior
secured bonds due 2042 issued by Peterborough (Progress Health)
plc (the "Issuer"), a GBP14.5 million backed senior secured bank
credit liquidity facility and a GBP7.2 million change in law
backed senior secured bank credit facility (together the "Standby
Facilities"). The action reflects the payment of approximately
GBP6.4 million to the Issuer by North West Anglia NHS Foundation
Trust (the "Acute Trust", the primary offtaker to the project)
upon conclusion of adjudication proceedings undertaken by
Multiplex Construction Europe Limited ("MCEL", the construction
contractor) and Multiplex Services Europe Limited ("MSEL", the
hard facilities management service provider) in the Issuer's name
against the Acute Trust in respect of the fire compartmentation
issues at Peterborough City Hospital ("PCH"). The outlook on the
ratings changed to stable from developing.
The Issuer is a special purpose vehicle that in July 2007 entered
into a project agreement ("Project Agreement") with three NHS
trusts, being the Acute Trust, the Cambridgeshire and
Peterborough Mental Health Partnership NHS Trust (reconstituted,
in June 2008, as the Cambridgeshire and Peterborough NHS
Foundation Trust), and Peterborough Primary Care Trust (whose
payment obligations were transferred to NHS Property Services Ltd
in April 2013). The Project Agreement, which expires 35 years and
4 months from financial close, governs (1) the construction of
PCH and a mental health unit; (2) the construction of a new
integrated care centre; and (3) the provision of certain
services.
RATINGS RATIONALE
The rating action reflects the primary offtaker's acceptance of
the adjudicator's decision and the reduced probability that fire
compartmentation related availability deductions will be made in
the future" says Adam Muckle, an Assistant Vice President in
Moody's Infrastructure Finance Group and lead analyst for
Peterborough (Progress Health) plc.
During January, February and March 2015 the Acute Trust withheld,
in aggregate, approximately GBP6.4 million from approximately
GBP11.5 million of monthly service payments, asserting that PCH
was unavailable but used between November 17, 2014 and January
31, 2015 because fire compartmentation was not compliant with
contractual requirements. In December 2016 the aforementioned
adjudication proceedings concluded that the Acute Trust was not
entitled to make these deductions under the terms of the Project
Agreement.
A standstill agreement remains in place between the Acute Trust
and the Issuer (the "Acute Trust Standstill"). The Issuer's
obligations under the Acute Trust Standstill are effectively
passed down to MCEL and MSEL under a back-to-back standstill
agreement. The terms of the Acute Trust Standstill will allow the
project parties to undertake remedial works whilst preventing the
Acute Trust from claiming deductions or awarding service failure
points, in relation to fire compartmentation issues, during the
period in which the Acute Trust Standstill is in force.
The Ba2 ratings are constrained by (1) fire compartmentation
deficiencies in project buildings, although remedial works are in
progress; and (2) the request from the Acute Trust to terminate
Estates Services at PCH, although Moody's expects a managed
replacement of MSEL, rather than termination.
However, the ratings reflect as positives (1) The Acute Trust's
acceptance of the outcomes of the adjudication proceedings; (2)
The adjudicator's decision and the contractual arrangements of
the project including the standstill agreements and the
construction sub-contract which protect the Issuer from financial
deductions in relation to fire compartmentation deficiencies
whilst remedial works are ongoing; and (3) a range of creditor
protections included within the financing structure, such as a
lifecycle reserve account and a liquidity facility which will
provide the Issuer with liquidity to meet its senior debt service
obligations.
Although the Bonds and Standby Facilities continue to benefit
from an unconditional and irrevocable guarantee provided by FGIC
UK Limited, the Ba2 ratings of the Bonds and the Standby
Facilities are based on the credit quality of the Project on a
standalone basis following the withdrawal of a Moody's rating of
FGIC UK Limited in 2009.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's could upgrade the ratings as and when the fire safety
related remedial works at PCH are complete, as agreed with the
Acute Trust, and there is a high likelihood of the Issuer meeting
its obligations under the Acute Trust Standstill.
Conversely, Moody's could downgrade the ratings if the Issuer
breaches the terms of the Acute Trust Standstill or if progress
on resolving the underlying issues is insufficient, increasing
the risk of financial penalties being imposed on the Issuer.
The principal methodology used in these ratings was Operational
Privately Financed Public Infrastructure (PFI/PPP/P3) Projects
published in March 2015.
The Issuer is wholly owned by Peterborough (Progress Health)
Holdings Ltd, which in turn is 70% owned by Peterborough
Hospitals Investments Limited (a subsidiary of InfraRed
Infrastructure Yield L.P.) and 30% by John Laing Infrastructure
Fund.
RSA INSURANCE: Fitch Rates Restricted Tier 1 Notes 'BB'
-------------------------------------------------------
Fitch Ratings has assigned RSA Insurance Group Plc's SEK2,500
million and DKK650 million perpetual Restricted Tier 1 (RT1)
contingent convertible notes a 'BB' rating.
The notes are rated four notches below RSA Insurance Group Plc's
Issuer Default Rating (IDR) of 'BBB+', comprising two notches for
a 'poor' baseline recovery assumption and two notches for
'moderate' non-performance risk.
KEY RATING DRIVERS
The notes have been issued by RSA Insurance Group Plc, the
group's top holding company. Fitch understands that the proceeds
of the notes will be used to repurchase or refinance existing
debt as well as other general corporate purposes.
The issued notes are floating rate perpetual securities with no
fixed maturity or redemption date. In the event of a winding-up,
the notes rank in priority to ordinary shares, but behind senior
creditors (which are defined as including Solvency II Tier 2 and
3 subordinated debt). The deep level of subordination results in
Fitch baseline recovery assumption of 'poor'. Fitch therefore
notch down the maximum of two from the IDR for recovery.
The notes include a mandatory interest cancellation feature,
which would be triggered if any minimum capital requirement
applicable to the issuer is not met or if the regulator has
notified the issuer that payments under the notes have to be
cancelled.
The issuer also has full discretion to cancel interest payments
at any time at its option. To reflect this fully flexible
interest cancellation feature, which Fitch regard as 'moderate'
non-performance risk, Fitch notch down by a further two notches
from the IDR. (This represents one extra notch compared with
Fitch treatment of standard Solvency II Tier 2 instruments, to
reflect the higher non-performance risk arising from the fully
flexible interest cancellation.)
The notes will convert into ordinary shares if a conversion
trigger event occurs, which is defined as the amount of own funds
eligible to cover the Solvency Capital Requirement (SCR) being
equal or less than 75% of the SCR; or the amount of own funds
eligible to cover the Minimum Capital Requirement (MCR) being
equal or less than the MCR; or a breach of the SCR has occurred
and compliance was not re-established within three months from
the occurrence of the breach. The conversion feature does not
affect Fitch ratings notching over and above that described
above.
The notes are structured to qualify as RT1 capital under Solvency
II. Given that they are non-cumulative perpetual instruments with
no step-ups on call dates, the notes are treated as 100% equity
both in Fitch's Prism Factor-Based Model and in Fitch financial
debt leverage calculation. However, they are treated as 100% debt
in Fitch total financing and commitments (TFC) ratio, in common
with any other debt instrument.
We view the issue as positive for RSA's financial debt leverage
and capital adequacy, and neutral for the TFC ratio. At end-2016,
RSA's financial leverage was 26% and Solvency II coverage was
158%. Fixed charge coverage is expected to remain at around
current levels or to improve, as RSA is expected to repay some of
its more expensive debt and as it continues to improve its
operating profitability.
RATING SENSITIVITIES
The notes' rating is subject to the same sensitivities that may
affect RSA Insurance Group Plc's Long-Term IDR.
SHS INTEGRATED: In Administration, Owes GBP235K to Finance Wales
----------------------------------------------------------------
Sion Barry at WalesOnline reports that Finance Wales is owed
GBP235,000 by a south Wales scaffolding firm which was put into
administration last week with the loss of nearly 150 jobs.
According to WalesOnline, Barry headquartered SHS Integrated
Services, whose core activity was in large scale industrial
scaffolding, collapsed after a challenging two years trading
period.
A creditors report is currently being compiled by professional
advisory firm Deloitte, who were appointed administrators last
week, WalesOnline relates.
In the latter half of 2016, the business negotiated further
investment of GBP1.95 million from the Business Growth Fund and
other shareholders, WalesOnline recounts.
Latest year end audited accounts shows that SHS posted pre-tax
losses of GBP2.2 million for 2015 on revenues of GBP16 million,
WalesOnline discloses.
Finance Wales' latest investment was just weeks before the
collapse of the business, although the terms of the loan gave it
a charge over the company's asset including freehold and
leasehold properties and plant and machinery, WalesOnline notes.
* UK: Quarter of Retail Shops in Scotland Could Shut by 2025
------------------------------------------------------------
Angus Howarth at The Scotsman reports that a quarter of shops in
Scotland could close within the next decade due to the rise of
online retailers and increasing costs, industry research has
found.
According to The Scotsman, a report by the Scottish Retail
Consortium (SRC) said more than 4,000 premises across the
country, particularly those in small towns and rural locations,
could shut by 2025.
The report said technological change and the cost of running
small businesses could see thousands of retail jobs lost as a
result, The Scotsman discloses.
The SRC warned that the rise of online retailers would not lead
to job creation in Scotland, with most staff based at company
head offices in the southeast of England, The Scotsman relates.
It has called on the Scottish Government to adopt a strategy for
the retail sector north of the border to prevent town centres
from being "hollowed out", The Scotsman discloses.
Deloitte, the accountancy firm, has previously suggested that 60%
of all retail jobs are at risk from automation over the next
decade, The Scotsman notes.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
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of interest to troubled company professionals. All titles are
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http://www.bankrupt.com/booksto order any title today.
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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.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000 or Nina Novak at
202-362-8552.
* * * End of Transmission * * *