/raid1/www/Hosts/bankrupt/TCREUR_Public/170526.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, May 26, 2017, Vol. 18, No. 104
Headlines
A Z E R B A I J A N
STATE OIL: Moody's Puts Ba1 CFR on Review for Downgrade
C Y P R U S
BANK OF CYPRUS: Fined Over Credit Card Market Position Abuse
F R A N C E
ELIS SA: S&P Affirms 'BB' CCR After Proposal to Acquire Berendsen
NOVACAP GROUP: Moody's Assigns B1 CFR, Outlook Stable
NOVALIS SAS: Moody's Reviews Ba2 CFR with Direction Uncertain
I R E L A N D
BLACK DIAMOND 2015-1: S&P Affirms 'B' Rating on Class F Notes
DRYDEN XXVII-R EURO: S&P Assigns 'B-' Rating to Class F Notes
IRISH BANK: Liquidation Consultant Bill Amounts to EUR215 Million
RMF EURO V: Moody's Hikes Rating on Cl. V Notes From Ba2(sf)
ZOO ABS IV: Fitch Raises Rating on Class C Notes to 'BBsf'
L I T H U A N I A
BALTLITSTROJ OOO: Court Commences Bankruptcy Proceedings
L U X E M B O U R G
ARCELORMITTAL: S&P Raises CCR to 'BB+' on Lower Leverage
M O N T E N E G R O
MONTENEGRO AIRLINES: Tax Debt Restructuring Proposal Rejected
N E T H E R L A N D S
CL INTERMEDIATE: S&P Lowers CCR to 'B-', Outlook Stable
SMILE SECURITISATION: Fitch Withdraws 'D' Rating on Class E Notes
N O R W A Y
LYNGEN MIDCO: S&P Affirms 'B+' CCR & Revises Outlook to Positive
P O R T U G A L
PORTUGAL: EDP Exit Shows Fiscal Progress, Fitch Says
R U S S I A
BANK OTKRITIE: S&P Lowers Counterparty Credit Rating to 'B+'
U N I T E D K I N G D O M
BRITAX GROUP: Moody's Alters Outlook to Stable & Affirms Caa1 CFR
ELEMENT MATERIALS: Moody's Affirms B2 CFR, Outlook Stable
EQUITICORP INTERNATIONAL: May 30 Proof of Debt Deadline Set
FOLKSAM INTERNATIONAL: Scheme of Arrangement Terminated
SEADRILL LTD: Debt Restructuring Talks Progressing
PARAGON OFFSHORE: UK Court Okays Deloitte as Administrators
PARAGON OFFSHORE: Kahn & Soden of Deloitte Named as Administrators
X X X X X X X X
* Payment Default Risk in Eastern Europe Expected to Worsen
* BOOK REVIEW: Risk, Uncertainty and Profit
*********
===================
A Z E R B A I J A N
===================
STATE OIL: Moody's Puts Ba1 CFR on Review for Downgrade
-------------------------------------------------------
Moody's Investors Service has placed on review for downgrade the
Ba1 corporate family rating (CFR), Ba1-PD probability of default
rating (PDR) and Ba1 senior unsecured notes rating of State Oil
Company of the Azerbaijan Republic (SOCAR), following the
placement of Azerbaijan's rating on review.
"Our decision to place SOCAR's ratings on review for downgrade
reflects the fact that it is wholly state-owned, as well as the
company's exposure to Azerbaijan's weakening operating and credit
environment. Furthermore, there is increasing risk that the
government's capacity and willingness to provide extraordinary
support to SOCAR may become more limited if stresses in the
banking system worsen," says Denis Perevezentsev, Vice President -
- Senior Credit Officer at Moody's.
On May 19, Moody's placed Azerbaijan's Ba1 long-term issuer rating
and senior unsecured rating on review for downgrade, prompted by
the unexpected announcement of a restructuring plan for the
country's largest bank, state-owned International Bank of
Azerbaijan (IBA, Caa3/on review for downgrade), which could imply
that Azerbaijan's credit profile is weaker than Moody's had
previously expected.
RATINGS RATIONALE
The action reflects Moody's view that a potential downgrade of
Azerbaijan's ratings would lead to a downgrade of SOCAR's rating,
to reflect its exposure to a weaker operating and credit
environment of Azerbaijan. SOCAR's rating is currently on par with
the sovereign foreign-currency bond rating of Azerbaijan. While
Moody's expects that strong linkages with the sovereign will
remain, the CFR could remain at the sovereign level or could be
lower, depending largely on Moody's assessment of the company's
underlying credit profile, as well as the level of extraordinary
support the Azerbaijani government could provide to the company.
Given that SOCAR is 100% state-owned, Moody's determines its CFR
by applying its methodology for government-related issuers (GRIs).
The Ba1 CFR of SOCAR incorporates: (1) a baseline credit
assessment (BCA), which indicates the company's standalone credit
strength, of ba3; (2) the Ba1 local-currency debt rating of the
government of Azerbaijan; (3) very high default dependence between
the state and the company; and (4) Moody's assumptions of a high
level of extraordinary support from the state in case of need.
Although Moody's expects that SOCAR will continue to maintain
strong linkages with the sovereign, the rating agency also notes
increasing risks that the government's capacity and willingness to
provide extraordinary support to SOCAR may become more limited
should the increase in government debt resulting from the severe
financial stress at IBA and other banks lead to a material
weakening of Azerbaijan's fiscal strength beyond Moody's current
expectations alongside the negative impact of lower oil prices on
the economy.
FACTORS TO BE CONSIDERED IN THE RATING REVIEW
The review for downgrade will take into account (1) the sovereign
rating of Azerbaijan and its outlook as well as the foreign-
currency bond country ceiling following conclusion of the
sovereign review; and (2) Moody's reassessment of SOCAR's
standalone credit strength, captured by its BCA. The review will
focus on SOCAR's response to multiple challenges, including the
company's resilience to potential further depreciation of the
Azerbaijani manat and exposure to the domestic banking system as
well as the company's ability to maintain adequate operating and
financial profile and implement its key investment projects amid
low oil price environment and potentially higher risk aversion of
its creditors.
In addition, Moody's will consider the need for adjustments to its
assumptions regarding the government's willingness and ability to
provide extraordinary support to SOCAR in the event of need, given
increasing pressures developing at the sovereign level.
Moody's will aim to finalise its review of SOCAR's ratings
following conclusion of the sovereign review.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Global Integrated Oil
& Gas Industry published in October 2016, and Government-Related
Issuers published in October 2014.
State Oil Company of the Azerbaijan Republic is a 100% state-
owned, vertically integrated national oil and gas company
headquartered in Baku, Azerbaijan. The company has a monopoly
position supplying oil and gas products to the domestic market and
is the state's official representative in all oil and gas projects
in Azerbaijan, including all international consortia. In addition
to Azerbaijan, SOCAR operates in Turkey, United Arab Emirates,
Georgia, Switzerland, Romania, Ukraine and other countries. For
the last twelve months ended June 30, 2016, SOCAR reported revenue
of AZN37.6 billion and its Moody's-adjusted EBITDA amounted to
AZN3.2 billion. In 2016, SOCAR produced 7.5 million tonnes of oil
and 6.3 billion cubic meters of gas.
===========
C Y P R U S
===========
BANK OF CYPRUS: Fined Over Credit Card Market Position Abuse
------------------------------------------------------------
John Murray Brown at The Financial Times reports that Bank of
Cyprus, the only eurozone bank to forcibly bail in depositors
during the financial crisis, has been fined EUR18 million by the
island's competition regulator for abusing its dominant market
position in the credit cards.
According to the FT, the bank, which was restructured as part of
the EUR10 billion international rescue of the Cypriot banking
sector in 2013, said in a statement on May 24 it would appeal the
fine "through all available court processes".
The Cyprus Commission for the Protection of Competition announced
the fine on May 22, the FT relays.
The bank, which moved its listing from Athens to London in
January, was the only eurozone lender to forcibly bail in
depositors to avoid outright collapse, the FT notes.
It has racked up losses of EUR6.3 billion since 2010, the FT
discloses. But in March, it reported a pre-tax profit of EUR139
million for last year, against a loss of EUR391 million in 2015.
This was the first annual profit since 2010, the FT states.
Bank of Cyprus provides banking and financial services on the
Mediterranean island of Cyprus (about 145 branches), in Greece
(some 160 branches), and through its 80%-owned Uniastrum Bank, in
Russia (more than 200 branches). The company also operates in the
UK, the Ukraine, Romania, Canada, South Africa, the Channel
Islands, and Australia. In addition to retail and commercial
banking services, Bank of Cyprus and its subsidiaries offer asset
management, investment banking, factoring, leasing, credit card
processing, property investment, and insurance services. The bank
was founded in 1899.
===========
F R A N C E
===========
ELIS SA: S&P Affirms 'BB' CCR After Proposal to Acquire Berendsen
-----------------------------------------------------------------
S&P Global Ratings affirmed its 'BB' long-term corporate credit
rating on France-based textile and appliances rental company Elis
S.A. following the company's announcement that it intends to
combine with U.K. competitor Berendsen plc in a transaction to be
funded by debt and equity. The outlook is positive.
At the same time, S&P affirmed its 'BB' issue rating on Elis'
senior unsecured notes. The recovery rating on these notes
remains '3' (65% rounded estimate).
On May 18, Elis announced that it intends to combine with U.K.-
based competitors Berendsen plc. Elis has only made a proposal to
Berendsen's shareholders, without making a binding offer.
Berensen's board of directors had rejected prior proposals. The
final terms and conditions of any potential final offer could
differ from those outlined above, which S&P would assess once
announced. If Elis proceeds with a binding offer, S&P would look
at the final terms to reassess the implications for the company's
capital structure.
S&P forecasts that under the current proposal, combined pro forma
leverage would be generally consistent with Elis' current stand-
alone credit profile. S&P anticipates Elis' S&P Global Ratings-
adjusted debt to EBITDA, absent a combination with Berendsen, at
between 3.5x and 4.0x at the end of 2017 (compared with 4.1x in
2016).
S&P understands the current proposal envisages offering GBP4.40 in
cash and 0.426 in new Elis ordinary shares for each Berendsen
share, which at current exchange rates and stock prices results in
a cash offer of about EUR900 million and a EUR1.5 billion share
consideration. S&P also understands that Berendsen currently
holds about EUR600 million in debt.
Although S&P considers the sizeable equity proportion of the
proposal as positive, the significant investment needs S&P expects
at Berendsen would likely constrain the enlarged entity's free
operating cash flow (FOCF) generation potential. Last year,
Berendsen announced a three-year investment program of GBP450
million to upgrade its U.K facilities. Combining with Berendsen
could therefore depress Elis' FOCF generation to a level not
commensurate with a higher rating.
S&P's adjustments to Elis' 2016 debt include about EUR168 million
of obligations under operating leases, about EUR50 million of
postretirement obligations, EUR56 million in guarantees, and
EUR23 million of unamortized financial expenses. In addition, S&P
nets the company's adjusted debt with approximately EUR110 million
of surplus cash, excluding S&P's estimates of trapped cash. In
S&P's forecast period through end 2019, it estimates Berendsen's
off-balance-sheet liabilities could add about EUR120 million to
adjusted debt.
S&P expects Elis' adjusted leverage will further decline to the
3.5x range by the end of 2019 and funds from operations (FFO) to
debt will improve to 20%-25% (19% shown in 2016) under S&P's base
case.
Following Elis' potential consolidation of Berendsen, S&P would
likely continue to view Elis' business risk as satisfactory,
reflecting the enlarged entity's leading market position across a
number of European countries, including France. A combined group
would hold leading market positions in a number of European
countries, which is important in a sector where density is
critical to achieve cost advantages through travel time reductions
and route plan optimizations. S&P notes that Berendsen's
geographic split is generally complementary with Elis'. There is
limited overlap of geographic operations, except in Germany, where
both companies are present. Combining the German operations
should enable Elis to improve operating margins through increased
density.
Following Elis' acquisitions of Spain-based Indusal and Brazil-
based Lavebras, S&P anticipates that a combination with Berendsen
could further increase Elis' scale, scope, and diversification.
S&P expects revenues of about EUR3 billion in 2018 for the newly
combined entity (compared with a EUR1.5 billion for Elis
standalone in 2016). The link-up would also further balance out
Elis' geographic footprint, with the expected revenue contribution
from France reducing to about one-third of total revenues, rather
than about two-thirds for 2016.
S&P sees some integration risks related to the proposed
combination with Berendsen. It has recently under performed in
its domestic U.K. market and is embarking on a major investment
plan that S&P expects will further depress FOCF. S&P views Elis'
and Berenden's operating model as highly capital intensive, with
capital expenditures (capex) to sales running well in excess of
15% of sales per year.
The positive outlook reflects S&P's view that Elis could reduce
its debt to EBITDA to below 4.0x one year after acquiring
Berendsen, if the deal goes through, with FOCF to debt exceeding
5%. These credit metrics depend on the final terms of Elis'
potential offer to Berendsen, as well as S&P's assessment of
integration risks, potential synergies, the combined entity's
financial risk profile, and S&P's view of its financial policy.
S&P anticipates continued solid growth and generally stable
margins, but significantly increasing capital requirements if Elis
were to combine with Berendsen.
S&P could consider a positive rating action if Elis decided not to
go ahead with a firm offer for Berendsen because the transaction
carries potential integration risks. S&P sees ratios of debt to
EBITDA well below 4x, FFO to debt well above 20%, and FOCF to debt
of more than 5% as commensurate with a higher rating.
S&P could revise its outlook to stable if Elis' credit metrics
deteriorated to such an extent S&P thinks it is unlikely that it
could achieve debt to EBITDA sustainably below 4.0x. This could,
for example, occur if the possible acquisition of Berendsen was
funded with a larger share of debt and lower share of equity, or
if Elis' operational performance weakened at the same time as it
undertook larger expansionary investments than in our base case.
S&P could also change the Outlook to stable if it assessed that
the acquisition of Berendsen would constrain the enlarged entity's
ability to generate FOCF to such an extent that FOCF to debt would
be below 5%.
NOVACAP GROUP: Moody's Assigns B1 CFR, Outlook Stable
-----------------------------------------------------
Moody's Investors Service has assigned a definitive B1 corporate
family rating (CFR) to Novacap Group Holding, and definitive B1
ratings to the EUR435 million term loan B due 2023 and the EUR90
million revolving credit facility (RCF) due 2022 raised by Novacap
Group Bidco, a direct subsidiary of Novacap. Concurrently, the
rating agency has assigned a B1-PD probability of default rating
(PDR) to Novacap. The outlook on all ratings is stable.
The assigned ratings take into account the capital structure
following the third LBO completed in June 2016, as well as the
main developments since then, including the prospects of a
possible acquisition of French fine chemical company PCAS based on
the terms announced on May 15, 2017.
Moody's has also withdrawn the legacy B1 CFR and B1-PD PDR related
to the old capital structure and rating perimeter of Novacap
International SAS.
RATINGS RATIONALE
Novacap's B1 CFR reflects the company's (1) strong market
positions in Europe in mostly non-cyclical and resilient end
markets, (2) growing focus on penetrating the more profitable and
resilient pharmaceutical industry, with the recently announced
plan to acquire PCAS in line with this strategy, (3) long-term
customer relationship and strategic location close to its end
customers, (4) good 2016 EBITDA margin at c. 15% and defensible
position due to the regulated market and need for quality
providing barriers to entry, and (5) expectation of gradual
deleveraging from mid-2017 onwards, when the company should return
to positive free cash flow, following non-recurring peaking capex
requirements in 2016 and early 2017.
However, the rating is constrained by the company's (1) relatively
small size based on 2016 revenues of EUR 606 million and limited
international scale compared to much larger and diversified global
competitors, (2) sensitivity to raw material price volatility,
especially benzene, albeit tempered by the natural hedge provided
by its vertically integrated business model; (3) significant
exposure to GDP-linked and lower margins products of its
performance chemicals division, and (4) relatively high pro-forma
adjusted gross leverage for the rating category at 5.3x as of
December 2016, which should still remain at c. 5.0x at the end of
2017, before falling towards 4.5x in 2018.
Moody's expects that the acquisition of PCAS, if closed later this
year in line with current company's guidance, would be funded with
an appropriate mix of new equity and debt. Adjusted gross leverage
and other main credit metrics should remain broadly in line with
Moody's expectations for 2017 and 2018, i.e. at levels
commensurate with a B1 CFR, including an adjusted gross leverage
not exceeding 5x. The acquisition of PCAS would increase the size
of Novacap to c. EUR 800 million of 2016 pro-forma revenues and
improve its business profile, as it would add a profitable
business exposed to the stable pharmaceutical industry. The
integration of PCAS would increase the revenues and EBITDA of
Novacap's pharma division by c. 87% and 67% to EUR 412 million and
68 million respectively, on a 2016 pro-forma combination. The
acquisition of PCAS, if closed, would be the third main
acquisition of Novacap in the pharma chemical sector, following
its acquisition of Chinese pharma chemical company Puyuan in
February 2015 and of German Uetikon in July 2015. Pro-forma for
the contemplated acquisition of PCAS, the pharma division's pro-
forma EBITDA would account for c. 57% of the 2016 pro-forma EBITDA
of Novacap, versus 44% actual in 2016.
LIQUIDITY PROFILE
Moody's views the company's liquidity position as good, as it is
supported by c.EUR38 million of cash on balance sheet at the end
of March 2017 and a EUR90 million committed RCF maturing in 2022.
Such facility has been used for EUR 41.2m at the end of March
2017, due to peaking capex cash out of c. EUR52 million in the
previous twelve months including EUR17 million to build a new
bicarbonate plant in Singapore. Following the completion of such
large project in Q2 2017, capex requirements would normalize to c.
EUR35 p.a., a level which would enable the company to start
generating positive free cash flow again. The projected build-up
of cash would increase the liquidity headroom and excess cash
would be used to repay drawings under the RCF.
The company has a springing net leverage covenant which is tested
on its RCF when it is used for more than 35% of its size. In such
a scenario, the headroom is anticipated to be large, given the
covenant has been set at 7x and Moody's expects a net leverage
below 5x at all times over the 2017-2018 horizon.
STRUCTURAL CONSIDERATIONS
The existing senior secured term loan B and revolving credit
facility rank pari passu, benefit from upstream guarantees from
the Novacap's material subsidiaries and are secured by a pledge
over mainly the shares, bank accounts and intra-group receivables
of the parent and borrowers.
The B1 rating assigned to these facilities reflects the absence of
liabilities ranking ahead and the limited amount of liabilities
behind that mainly consist in EUR5 million of unsecured bilateral
debt and approximately EUR17 million of pension and operating
lease liabilities.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the company
will be able to maintain its leading market positions and
profitability levels. Also, the stable outlook is based on the
rating agency's assumption that the company will not embark on any
debt-funded acquisitions that would result in an increase in
leverage materially above Moody's defined down trigger.
WHAT COULD CHANGE THE RATINGS UP/DOWN
An upward revision of the rating would likely result from (1)
successful penetration of new geographies, leading to a more
diversified and stable revenue stream; (2) increased penetration
in higher margins and value-added products; (3) EBITDA margins
being sustainably at c. 15% or above; (4) Moody's-adjusted
leverage ratio below 4.0x on a sustained basis and (5) FCF/debt in
the high teens.
Downward pressure on the rating could occur if (1) stronger
competition results in a loss of market shares in Europe (loss of
volume, deterioration of pricing environment); (2) a spike in raw
material or energy costs drives profitability margins lower on a
sustained basis; (3) FCF remains negative in 2017 and beyond; and
(4) Moody's-adjusted debt/EBITDA ratio moves above 5.0x on
prolonged basis. Moody's could also downgrade Novacap's rating if
the company's liquidity weakens materially.
LIST OF AFFECTED RATINGS
Assignments:
Issuer: Novacap Group Holding
-- Corporate Family Rating, Assigned definitive B1
-- Probability of Default Rating, Assigned B1-PD
Issuer: Novacap Group Bidco
-- Senior Secured Term Loan B, Assigned definitive B1 (LGD 3)
-- Senior Secured RCF, Assigned definitive B1 (LGD 3)
Withdrawals:
Issuer: Novacap International SAS
-- Corporate Family Rating, Withdrawn, previously rated B1
-- Probability of Default Rating, Withdrawn, previously rated
B1-PD
Outlook Actions:
Issuer: Novacap Group Holding
-- Outlook, Remains Stable
Issuer: Novacap Group Bidco
-- Outlook, Remains Stable
Issuer: Novacap International SAS
-- Outlook, Changed To Rating Withdrawn From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Chemical Industry Rating Methodology published in December 2013.
Headquartered in Lyon, France, Novacap produces and distributes
chemicals such as salicylic acid, acetylsalicylic acid (aspirin),
para-aminophenol (used to produce paracetamol), paracetamol, soda
ash, sodium bicarbonate, phenol and oxygenated solvents,
hydrochloric acid. The company is organized around 3 business
divisions: Mineral Specialties (EUR134 million of 2016 net
revenues / 25.4% EBITDA margin), Pharmaceutical & Cosmetics
(EUR219.8 million of net revenues / 18.6% EBITDA margin) and
Performance Chemicals (EUR251.7 million of net revenues / 9.0%
EBITDA margin). At FYE December 2016 Novacap reported net revenues
of EUR605.7 million for a pro-forma adjusted EBITDA of EUR92.4
million.
Following the closing of the LBO in June 2016, the main
shareholders of Novacap are private equity sponsors Eurazeo (67%
stake) and former owner Ardian (18%), as well as Merieux
Developpment (9%), the investment arm of French pharmaceutical
company Institut Merieux (unrated).
NOVALIS SAS: Moody's Reviews Ba2 CFR with Direction Uncertain
-------------------------------------------------------------
Moody's Investors Service has placed under review with direction
uncertain the Ba2 corporate family rating (CFR) and Ba2-PD
probability of default rating (PDR) of Elis S.A. (Elis).
Concurrently, Moody's has placed under review with direction
uncertain the Ba2 instrument rating on the EUR800 million senior
unsecured notes due 2022 issued by Novalis S.A.S.
RATINGS RATIONALE
The action follows Elis' announcement on May 18, 2017, that it has
made a public proposal to acquire Berendsen plc (Berendsen or the
target) after the company's 2 previous private proposals were
rejected by the board of directors of the target. Berendsen, based
in the United Kingdom and listed on the London Stock Exchange,
splits its operations between 4 business lines: Workwear (31% of
group revenues), Facility (23%), Hospitality (17%), and Healthcare
(29%). The public proposal implies a total equity value for
Berendsen of approximately GBP2.05 billion or a total
consideration of approximately GBP2.5 billion including the
target's net debt of GBP428 million as of December 31, 2016. Elis
is currently proposing to fund the acquisition with new Elis
shares and cash raised from committed new debt financing
accounting for approximately 48% of the total cash consideration.
"The placing of the ratings under review with direction uncertain
reflects (1) the positive contribution of Berendsen to Elis'
business profile, (2) the potential revenue and cost synergies
that can be generated from the combination of the 2 businesses,
and (3) the relatively high equity contribution (52%) to the
acquisition funding mix leading to a relatively modest impact on
Elis' pro forma leverage", says Sebastien Cieniewski, Moody's lead
analyst for Elis. However, these positive factors are
counterbalanced by the uncertainty regarding the final
consideration which might be agreed, including a potential higher
level of debt funded consideration which in turn could have a
negative impact on Elis' pro forma leverage ratio.
While the acquisition of Berendsen will significantly increase
Elis' scale with pro forma revenues of EUR3.1 billion and reported
EBITDA (before synergies) of EUR960 million as of 2016, it will
also increase the company's geographical presence to 28 countries
on a pro forma basis compared with 14 countries prior to the
acquisition. The strong presence of Berendsen in the United
Kingdom, Scandinavia, and Germany will contribute to reducing the
reliance of Elis on the French market to 32% on a pro forma basis
as of 2016 from 57% on a stand-alone basis. This diversification
is credit positive in the context of the relative maturity of the
French market with a low growth potential.
Due to the relatively limited overlap in terms of geographical
presence, except for Germany, synergies are relatively modest.
Elis estimates that it can extract total recurring run-rate pre-
tax cost synergies of at least EUR40 million per annum by the end
of the third year after completion resulting mainly from savings
on operational costs, procurement, corporate overhead, and central
costs. However, the positive impact on EBITDA is expected to be
partly offset by one-off implementation costs estimated at EUR40
million before these are mostly phased out after the first two
years.
The positive contribution of Berendsen to Elis' business profile
is also supported by the relatively neutral impact of the
acquisition on the company's leverage based on the company's
latest cash and share proposal. Moody's projects that the
transaction, if concluded as proposed, will not constrain Elis'
ability to reduce pro forma leverage (based on Moody's adjustments
and projections for 2017 pro forma for the acquisition of
Berendsen and Lavebras) to or below 3.5x by the end of 2017 from
3.9x as of the end of 2016 (based on Moody's estimated pro forma
contribution from Indusal and acquisitions completed during 2016).
However, as previously noted, this depends upon the final amount
consideration which might be agreed, including the extent to which
it is debt funded. Additionally, in the event that Elis's
acquisition proposal is ultimately successful, Moody's would also
need to take into consideration any integration issues, including
execution risk, as well as any potential impact on the company's
strategy and/or financial policy although Moody's note that the
company indicated its intention to maintain net leverage (as
reported by the company) at around 3.0x over the medium- to long-
term.
WHAT COULD CHANGE THE RATING -- UP/DOWN
Prior to the transaction, Moody's indicated that positive pressure
on the Ba2 rating could develop if Elis's operating performance
continues to improve, allowing for the company's leverage,
measured by Moody's adjusted debt/EBITDA, to move towards 3x with
a retained cash flow (RCF)/ Net Debt ratio remaining above 20%.
Conversely, Moody's indicated that negative pressure could develop
if Elis's leverage moves above 3.75x for a sustained period of
time or if Moody's becomes concerned about the company's
liquidity.
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
Elis is a France-based multiservice provider of flat linen,
garment and washroom appliances, water fountains, coffee machines,
dust mats and pest control services. It has around 240,000
customers in the private and public sector and operates throughout
14 countries. For the financial year ended December 31, 2016 it
reported total revenues of EUR1.5 billion and adjusted EBITDA (as
reported by the company) of EUR468 million.
=============
I R E L A N D
=============
BLACK DIAMOND 2015-1: S&P Affirms 'B' Rating on Class F Notes
-------------------------------------------------------------
S&P Global Ratings affirmed its credit ratings on Black Diamond
CLO 2015-1 DAC's class A-1, A-2, B-1, B-2, C, D, E, and F notes
following review.
The affirmations follow S&P's analysis of the transaction's
performance and the application of its relevant criteria.
Upon publishing S&P's updated criteria for analyzing foreign
exchange risk in global structured finance transactions, it placed
those ratings that could potentially be affected under criteria
observation. Following S&P's review of this transaction, its
ratings that could potentially be affected by the criteria change
are no longer under criteria observation.
S&P subjected the capital structure to its cash flow analysis to
determine the break-even default rate (BDR) for each class of
notes at each rating level. The BDRs represent S&P's estimate of
the level of asset defaults that the notes can withstand and still
fully pay interest and principal to the noteholders.
S&P has estimated future defaults in the portfolio in each rating
scenario by applying its updated corporate collateralized debt
obligation (CDO) criteria.
S&P's analysis indicates that the available credit enhancement for
all of the rated classes of notes is still commensurate with the
currently assigned ratings. Therefore, S&P has affirmed its
ratings on the class A-1, A-2, B-1, B-2, C, D, E, and F notes.
Black Diamond CLO 2015-1 is a European cash flow corporate loan
collateralized debt obligation (CLO) securitization of a revolving
pool, comprising primarily euro- and dollar-denominated senior
secured loans granted to broadly syndicated corporate borrowers
RATINGS LIST
Class Rating
Black Diamond CLO 2015-1 DAC
EUR337.4 Million, $89.6 Million Senior Secured Fixed-And Floating-
Rate Deferrable Notes And Subordinated Notes
A-1 AAA (sf)
A-2 AAA (sf)
B-1 AA (sf)
B-2 AA (sf)
C A (sf)
D BBB (sf)
E BB (sf)
F B (sf)
DRYDEN XXVII-R EURO: S&P Assigns 'B-' Rating to Class F Notes
-------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Dryden XXVII-R
Euro CLO 2017 B.V.'s class A-1, A-2, B-1, B-2, C, D, E, and F
notes.
The ratings assigned to Dryden XXVII-R Euro CLO 2017's notes
reflect S&P's assessment of:
-- The diversified collateral pool, which consists primarily
of broadly syndicated speculative-grade senior secured term
loans and bonds that are governed by collateral quality
tests. The credit enhancement provided through the
subordination of cash flows, excess spread, and
overcollateralization.
-- The collateral manager's experienced team, which can affect
the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading. The
transaction's legal structure, which is bankruptcy remote.
S&P considers that the transaction's documented counterparty
replacement and remedy mechanisms adequately mitigate its exposure
to counterparty risk under S&P's current counterparty criteria.
Following the application of S&P's structured finance ratings
above the sovereign criteria, it considers the transaction's
exposure to country risk to be limited at the assigned rating
levels, as the exposure to individual sovereigns does not exceed
the diversification thresholds outlined in S&P's criteria.
The transaction's legal structure is bankruptcy remote, in line
with S&P's legal criteria.
Following S&P's analysis of the credit, cash flow, counterparty,
operational, and legal risks, S&P believes that its ratings are
commensurate with the available credit enhancement for each class
of notes.
Dryden XXVII-R Euro CLO 2017 is a European cash flow corporate
loan collateralized loan obligation (CLO) securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by European borrowers. PGIM Ltd. is the
collateral manager.
RATINGS LIST
Dryden XXVII-R Euro CLO 2017 B.V.
EUR478.8 Million Fixed- And Floating-Rate Notes (Including
EUR46.90 Million Subordinated Notes)
Class Rating Amount
(mil. EUR)
A-1 AAA (sf) 251.200
A-2 AAA (sf) 15.800
B-1 AA (sf) 36.800
B-2 AA (sf) 18.500
C A (sf) 39.000
D BBB (sf) 29.300
E BB (sf) 27.300
F B- (sf) 14.000
Sub. notes NR 46.900
NR--Not rated. Sub.--Subordinated.
IRISH BANK: Liquidation Consultant Bill Amounts to EUR215 Million
-----------------------------------------------------------------
Consultancy.uk on May 23 disclosed that the bill for consultants,
liquidators and lawyers involved in the winding-down of the Irish
Bank Resolution Corporation (IBRC) amounted to EUR215 million in
the 47 months leading to the end of 2016, according to a recent
progress update, with the Irish arm of multinational consultancy
KPMG receiving a total of EUR130 million for its role in the
proceedings.
On the basis of the recently published paper submitted by
administrators, in addition to the EUR130 million KPMG Ireland
received for its services, EUR85 million were spent on
consultation regarding legal and financial matters from fellow
"Big Four" professional service firms PwC and Deloitte. The
height of the festival that KPMG assumes as governor led to
questions in the Irish parliament in 2015.
IBRC's liquidation has been a complex and costly burden on the
Irish government's purse for some time -- beginning when The Anglo
Irish Bank was nationalized due to the global financial crisis in
2009, before merging with the Irish Nationwide Building Society in
2011, forming the IBRC as it is known today.
The bank later entered into special liquidation in February 2013,
when a now infamous all-night session at the Dail -- Ireland's
national parliament -- ended in the passing of a bill issuing the
IBRC an immediate winding-down order. On the same night, the
previous's board of governance was replaced by KPMG administrators
-- who in their last progress update in June 2014 reported the
fee for liquidation stood at EUR112 million -- a net figure of a
EUR7 million rebate the accountancy specialists had agreed with
the Ministry of Finance at that time. In recent figures released
to the Dail by Irish Finance Minister Michael Noonan, partners at
KPMG Ireland were stated as receiving up to EUR295 per hour
excluding VAT in connection to the work.
Big Four consultancies cash in on Irish bank liquidation bonanza
Along with a number of other professional service firms, the
accountancy specialists will continue as administrators in
preparation for a growing number of litigation cases, which the
same 2016 stated as a "key risk" to completion. The
nationalization and liquidations of IBRC had led to a total of 356
sets of legal proceedings being managed at that time, and while
this year sees just 143 cases remaining, they are expected to last
several years.
Continuing process
The declarations of state spending on IBRC's administration are
the latest in a long list of headlines featuring the bank since
2008. Notably, the bank caused uproar regarding public spending
when it was revealed the fire-sale of building and utilities
service company Sitserv had been undervalued by EUR9 million.
Sitserv owed IBRC EUR150 million at the time of the transaction,
and a release of IBRC's board meeting minutes from 15 March 2012
disclosed that the company was sold for EUR45 million with a EUR5
million pay-out to shareholders as part of the deal.
This figure amounted to a reported write-down of EUR119 million,
more than the previously reported figure of EUR110 million,
according to the minutes, which were released in 2015. Following
the controversy, a Commission of Inquiry was established to
investigate all post-nationalization transactions that resulted in
any losses over EUR10 million, including the sale of Siteserv
among other transactions. While the same governmental review last
year stated that there was "no stateable case" of negligence
against KPMG in particular, the matter is considered "ongoing"
About Irish Bank Resolution
Irish Bank Resolution Corp., the liquidation vehicle for what was
once one of Ireland's largest banks, filed a Chapter 15 petition
(Bankr. D. Del. Case No. 13-12159) on Aug. 26, 2013, to protect
U.S. assets of the former Anglo Irish Bank Corp. from being
seized by creditors. Irish Bank Resolution sought assistance
from the U.S. court in liquidating Anglo Irish Bank Corp. and
Irish Nationwide Building Society. The two banks failed and were
merged into IBRC in July 2011. IBRC is tasked with winding them
down and liquidating their assets. In February, when Irish
lawmakers adopted the Irish Bank Resolution Corp., IBRC was
placed into a special liquidation in the Irish High Court to
complete liquidation and distribution of the two banks' assets.
IBRC's principal asset as of June 2012 was a loan portfolio
valued at some EUR25 billion (US$33.5 billion). About 70 percent
of the loans were to Irish borrowers. Some 5 percent of the
portfolio was under U.S. law, according to a court filing. Total
liabilities in June 2012 were about EUR50 billion, according
to a court filing.
Most assets in the U.S. have been sold already. IBRC is involved
in lawsuits in the U.S.
IBRC was granted protection under Chapter 15 of the U.S.
Bankruptcy Code in December 2013.
Kieran Wallace and Eamonn Richardson of KPMG have been named the
special liquidators.
RMF EURO V: Moody's Hikes Rating on Cl. V Notes From Ba2(sf)
------------------------------------------------------------
Moody's Investors Service has taken various actions on the ratings
of the following classes of notes issued by RMF Euro CDO V plc:
-- EUR48,900,000 (current balance outstanding: EUR 14.4M)
Class II Senior Secured Floating Rate Notes due 2023,
Affirmed Aaa (sf); previously on Mar 31, 2016 Affirmed
Aaa (sf)
-- EUR20,800,000 Class III Deferrable Mezzanine Floating Rate
Notes due 2023, Affirmed Aaa (sf); previously on Mar 31, 2016
Affirmed Aaa (sf)
-- EUR33,000,000 Class IV Deferrable Mezzanine Floating Rate
Notes due 2023, Upgraded to Aa1 (sf); previously on Mar 31,
2016 Upgraded to A2 (sf)
-- EUR17,100,000 Class V Deferrable Mezzanine Floating Rate
Notes due 2023, Upgraded to Baa3 (sf); previously on Mar 31,
2016 Upgraded to Ba2 (sf)
RMF Euro CDO V plc, issued in April 2007, is a Collateralised Loan
Obligation ("CLO") backed by a portfolio of mostly high yield
European leveraged loans. The portfolio is managed by Man
Investments (CH) AG. The transaction's reinvestment period ended
in April 2013.
RATINGS RATIONALE
The rating actions on the notes are primarily a result of the
redemption of the Revolving Facility and the significant
deleveraging of the Class II notes following amortisation of the
underlying portfolio over the last two payment dates.
As a result of the deleveraging, over-collateralisation has
increased. As per the latest trustee report dated April 2017, the
Classes I/II, III, IV and V OC ratios are reported at 695.29%,
284.63%, 146.94% and 117.49%, respectively, compared to 207.33%,
165.42%, 125.26% and 111.26% in the April 2016 report.
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
(i) a EUR pool with performing par of EUR 60.87 million and
principal proceeds balance of EUR 16.78 million and (ii) a non-EUR
pool with performing par of USD 14.90 million and principal
proceeds balance of USD 8.95 million, a defaulted par of EUR 6.07
million and a weighted average default probability of 20.27%
(consistent with a WARF of 3039 with a weighted average life of
3.9 years), a weighted average recovery rate upon default of
45.80% for a Aaa liability target rating, a diversity score of 15
and a weighted average spread of 4.10%.
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. 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 analysing.
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 assumed lower weighted average recovery rate for the
portfolio. Moody's ran a model in which it reduced the weighted
average recovery rate by 5%; the model generated outputs were
within one notch of the base-case results for Class V and the same
as the base-case model results for Classes II, III and IV.
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
note, 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:
1) 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.
2) 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.
3) Foreign currency exposure: The deal has an 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.
4) Around 11% of the performing collateral pool consists of debt
obligations whose credit quality Moody's has assessed by using
credit estimates. As part of its base case, Moody's has stressed
large concentrations of single obligors bearing a credit estimate
as described in "Updated Approach to the Usage of Credit Estimates
in Rated Transactions," published in October 2009 and available at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_120461.
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.
ZOO ABS IV: Fitch Raises Rating on Class C Notes to 'BBsf'
----------------------------------------------------------
Fitch Ratings has upgraded Zoo ABS IV plc's class A-1A, A-1B, A-
1R, A-2, B, C, and P notes and affirmed the remaining notes, as
follows:
Class A-1A: upgraded to 'Asf' from 'BBBsf'; Outlook Positive
Class A-1B: upgraded to 'Asf' from 'BBBsf'; Outlook Positive
Class A-1R: upgraded to 'Asf' from 'BBBsf'; Outlook Positive
Class A-2: upgraded to 'Asf' from 'BBsf'; Outlook Stable
Class B: upgraded to 'BBBsf' from 'BBsf'; Outlook Stable
Class C: upgraded to 'BBsf' from 'Bsf'; Outlook Stable
Class D: affirmed at 'Bsf'; Outlook Stable
Class E: affirmed at 'Bsf'; Outlook Stable
Class P: upgraded to 'BBsf' from 'Bsf'; Outlook Stable
Zoo ABS IV plc is a cash securitisation of structured finance
assets. The portfolio is managed by P&G SGR SpA.
KEY RATING DRIVERS
Deleveraging Accelerated by Sales
The transaction has deleveraged significantly over the last 12
months, distributing EUR156.4 million to noteholders. The upgrade
of the class A-1A, A-1B, A-1R, A-2, B and C notes reflects the
resulting increase in credit enhancement.
A significant portion of these funds was realised in April 2017,
when the collateral manager sold various assets considered credit-
improved or credit-impaired with a total par value of EUR96.8
million and sales proceeds of EUR96.3 million. The remainder of
the note distributions was funded by scheduled and unscheduled
asset amortisations.
The Positive Outlook on the pari passu class A-1A, A-1B and A-1R
notes reflects Fitch's view that continued asset prepayments at
the current pace would put upward pressure on the notes' ratings.
Stable Quality; Rising Concentration
The portfolio's performance has remained stable over the last 12
months. The average credit quality of the portfolio is 'BBB-
'/'BB+'. There have been no reported defaults over the last 12
months. Fitch's expectation of the risk horizon of the portfolio
stands at 12.3 years, compared with 12.5 years one year ago.
Issuer concentration has increased markedly due to the pace of
deleveraging. The 10 largest issuers account for 54.7% of the
performing portfolio, up from 30.1% one year ago.
Combo Notes Linked to Components
The rating of the class P combination notes is linked to the
rating of the class C component. The upgrade of the class P notes
thus follows the upgrade of the class C notes.
RATING SENSITIVITIES
A 25% increase in the asset default probability would lead to a
downgrade of up to three notches for the rated notes. A 25%
reduction in expected recovery rates would not lead to a downgrade
of the rated notes.
=================
L I T H U A N I A
=================
BALTLITSTROJ OOO: Court Commences Bankruptcy Proceedings
--------------------------------------------------------
Panevezio statybos trestas AB on May 25 disclosed that the
decision on initiation of bankruptcy proceedings against
Baltlitstroj OOO, the subsidiary company of Panevezio statybos
trestas AB, adopted by the Arbitration Court of Kaliningrad
Oblast, Russian Federation, has entered into force. The
bankruptcy proceedings are currently in progress.
Baltlitstroj OOO is headquartered in Lithuania.
===================
L U X E M B O U R G
===================
ARCELORMITTAL: S&P Raises CCR to 'BB+' on Lower Leverage
--------------------------------------------------------
S&P Global Ratings raised its long-term corporate credit rating on
global integrated steel producer ArcelorMittal to 'BB+' from 'BB'.
At the same time, S&P affirmed its 'B' short-term corporate rating
on the company. The outlook is stable.
S&P also raised its issue-level rating on ArcelorMittal's
unsecured debt to 'BB+'. The recovery rating is unchanged at '3',
indicating meaningful recovery prospects (50%-70%; rounded
estimate: 65%) in the event of default.
The upgrade reflects S&P's view that ArcelorMittal's credit
profile is benefiting from its debt reduction and solid operating
performance since the beginning of 2016. The company's leverage
measures have improved, with funds from operations to debt
increasing to about 22% from 6% a year earlier. This follows the
$5.2 billion reduction in net debt and the recovery in steel and
iron ore prices over the past 12 months (albeit debt is up
$1 billion from Dec. 31, 2016, on seasonal working capital in an
increasing commodity prices environment). S&P believes the
strengthening of the balance sheet will continue, especially if
steel market conditions remain supportive. Moreover, when market
conditions turn less favorable, S&P believes the ratings should
still be supported by the company's reduced debt and lower cash
cost base. S&P now believes ArcelorMittal will be able to sustain
a significant, rather than aggressive, financial risk profile.
"We project that ArcelorMittal will have EBITDA of $7.5 billion-
$8.0 billion for full-year 2017, up from $6.3 billion on an
underlying basis in 2016. This increase reflects both stronger
average steel margins and growing shipments as well as the
benefits of ArcelorMittal's 2020 efficiency projects. Steel
pricing and profits in Europe and North America continue to be
underpinned by trade restrictions and import tariffs on Chinese,
Russian, and Brazilian exports in the U.S. and Europe.
Notwithstanding the relatively strong performance of the past 12
months, we continue to assess steel markets as highly volatile.
We note that steel shipments year-on-year were generally lower in
the first quarter of 2017, apart from flat products in the NAFTA
and Europe regions. Further, both iron ore and coking coal are
trading well below their recent highs, which could lead to weaker
steel margins later in 2017," S&P said.
ArcelorMittal is exposed to the cyclical and capital-intensive
nature of the steel sector, balanced by the company's large scale
and the diversity of its operations. This is supported by
ArcelorMittal's partial vertical integration into iron ore and, to
a lesser extent, coal. These factors lead to S&P's assessment of
the company's business risk as satisfactory.
The group's business risk profile is constrained by its only
average overall operating efficiency and profitability. In this
respect, the extent to which enduring benefits can be garnered
from the ongoing five-year 2020 plan is important. Recent
underlying EBITDA margins have strengthened to above 10%, though
some peers have reported margins of about 15%. ArcelorMittal's
reported steel-only EBITDA of $77 per tonne in the last 12 months
is in the average range for the sector. The recent boost from
higher seaborne iron ore prices to EBITDA from the group's mining
is likely to wane, as these prices are now closer to S&P's base-
case assumptions.
S&P's base-case scenario factors in:
-- Single-digit percent increases in steel shipments in 2017,
with average annual pricing broadly in line with that of
2016. S&P assumes some softening of demand and pricing in
2018;
-- Iron ore prices of $60/ton for the remainder of 2017 and
$50/ton in 2018 and 2019, with modest volume increases;
-- EBITDA of about $7.5 billion-$8.0 billion in 2017,
moderating in 2018 and 2019;
-- Capital expenditures of up to $3.0 billion per year; and
-- No dividend payments in 2017.
Based on these assumptions, S&P arrives at these credit metrics:
-- Funds from operations (FFO) to debt of about 25% in 2017
and 2018;
-- An adjusted debt-to-EBITDA ratio of about 3.0x in 2017 and
2018; and
-- Sustained positive cash flow generation after capital
investment.
The stable outlook reflects S&P's view that ArcelorMittal is
increasing its resilience to future industry downturns and
building rating headroom through continued debt reduction,
supplemented by operational improvements. The prevailing
supportive market conditions -- with higher steel prices and
margins, as well as decreasing Chinese exports and capacity -- are
facilitating this and provide some capacity for a moderate-sized,
strategically aligned acquisition.
S&P forecasts FFO to debt of about 25% in 2017 and 2018 under its
base-case forecast. S&P estimates industry conditions will
support reported EBITDA of $7.5 billion-$8.0 billion, about 25%
higher in 2017 than 2016 after a strong first quarter. S&P
projects positive cash generation of about $ 1.5 billion in 2017
after capital investment of $2.9 billion and working capital
outflows of $1.0 billion for the year.
An upgrade would likely reflect S&P's anticipation of a forecast
ratio of FFO to debt consistently and comfortably above 25%,
potentially averaging closer to 30% on a multi-year basis.
Combined with positive free operating cash generation and
improving EBITDA per tonne, this could position ArcelorMittal with
sufficient headroom to warrant a higher rating, even in weaker
industry conditions.
Alternatively, over time, the continuing realization of the 2020
cash requirement reduction plan could result in an upgrade if S&P
perceives sustainably stronger performance versus peers and
improved visibility of cash generation, with less sensitivity to
market conditions in China and elsewhere.
Although not anticipated in the near term, S&P could lower the
rating on ArcelorMittal if there is a sharp drop in demand for
steel in the group's core markets. In this case, ArcelorMittal's
adjusted FFO to debt would remain well below the 20% that S&P sees
as commensurate with the 'BB+' rating, and cash flow after
investment and dividends could be negative.
Unmitigated debt increases from material acquisition activity or
shareholder distributions could weigh on the ratings if market
conditions are supportive but resulting metrics are close to 20%
or below.
===================
M O N T E N E G R O
===================
MONTENEGRO AIRLINES: Tax Debt Restructuring Proposal Rejected
-------------------------------------------------------------
SeeNews reports that Montenegro's tax authority said it has
rejected the tax debt restructuring proposal of flag carrier
Montenegro Airlines as the company receives state aid.
According to SeeNews, the tax authority said in a statement on May
24 in this way, Montenegro Airlines tops the blacklist of tax
debtors to the country's treasury, with liabilities worth EUR15.4
million (US$17.3 million).
In a separate statement issued on May 24, Montenegro Airlines said
it is cooperating with the country's finance and transport
ministries on the elaboration of a long-term strategy for the
development of the company, SeeNews relates.
Montenegro Airlines denied media reports that it could be declared
insolvent as a result of the failed debt restructuring deal, and
explained that its operations are steady and all flights are
running according to schedule, SeeNews discloses.
Montenegro Airlines saw its net loss widen to EUR11.5 million in
2016 from EUR10.4 million in the previous year, as revenue went
down 3.4% to EUR65.4 million, SeeNews relays.
Montenegro Airlines operates scheduled and charter services
throughout Europe from its hub at Podgorica Airport with a second
base maintained at Tivat Airport.
=====================
N E T H E R L A N D S
=====================
CL INTERMEDIATE: S&P Lowers CCR to 'B-', Outlook Stable
-------------------------------------------------------
S&P Global Ratings lowered its long-term corporate credit rating
on Cunningham Lindsey U.S. Inc. and CL Intermediate Holdings I
B.V. to 'B-' from 'B'. The outlook is stable.
Concurrently, S&P lowered its debt ratings on the company's
$510 million first-lien senior secured term loan due December 2019
and its $100 million revolving credit facility due January 2019 to
'B-' from 'B'. The recovery rating on these facilities is
unchanged at '3', indicating S&P's expectation for meaningful
(50%) recovery in the event of a payment default. In addition, S
lowered its debt rating on the company's $110 million second-lien
term loan due June 2020 to 'CCC+' from 'B-'. The recovery rating
is unchanged at '5', indicating S&P's expectation for negligible
(15%) recovery in the event of payment default.
"The rating action reflects our expectation for tighter covenant
headroom than we originally anticipated in 2017," said S&P Global
Ratings credit analyst Francesca Mannarino. Persistent market
headwinds including lower catastrophe activity and unfavorable
foreign exchange continue to put pressure on operating
performance. As a result, S&P has moderately revised its operating
performance expectations lower for the year. Although S&P expects
performance improvement and leverage declines in 2017, our revised
projections result in minimal expected covenant cushion throughout
the year.
Cunningham Lindsey U.S. amended its revolving credit facility in
December 2016, extending the maturity to January 2019 and
providing additional covenant cushion relief. S&P originally
believed the covenant cushion would be healthy at 15% or greater.
However, due to fourth quarter 2016 and first quarter 2017 EBITDA
coming in below S&P's expectations, and its modestly lower
performance expectations for 2017, S&P now expects a tightened
covenant cushion of below 15% throughout 2017. As of year-end
2016, Cunningham Lindsey's cushion was 10% and was 5% as of first-
quarter 2017. Although S&P expects headroom to improve modestly,
S&P is revising its liquidity assessment to less than adequate,
reflecting continued covenant weakness.
S&P's assessment of Cunningham Lindsey's business risk profile is
weak (as per S&P Global Ratings criteria), reflecting its narrow
focus in the competitive, fragmented, and cyclical
property/casualty (P/C) insurance loss-adjusting and claim-
management industry. The company faces competition from other
claims-adjusting firms as well as insurer clients that adjust
claims in-house. Furthermore, S&P views Cunningham's profitability
as weak, with higher volatility relative to its insurance-service
peers stemming from headwinds related to the fluctuations in P/C
claims volumes, specifically the unpredictability of catastrophe
events, and foreign exchange. Offsetting these risks are the
company's good market position as one of the largest players in
its niche, its favorable geographic diversification as one of the
only global players in its industry, and modest client
concentrations. S&P forecasts some revenue and earnings growth to
occur in 2017 driven by new producer hires, client wins, and new
non-claim-dependent outsourced service capabilities.
S&P's assessment of the financial risk profile as highly levered
reflects Cunningham Lindsey's private equity ownership by CVC
Capital Partners. S&P also bases its assessment on the company's
weak credit-protection measures, with financial leverage of 10.5x
and EBITDA coverage of 1.4x as of the 12 months ended March 31,
2017. S&P's base-case expectation assumes leverage will improve to
under 8x and coverage to increase above 1.5x by year-end 2017 as
the company experiences more favorable underlying trends and there
is a roll-off of significant restructuring costs incurred in 2016
that were a drag on EBITDA. Unlike the company's covenant
calculations, S&P do not add back restructuring or new business
costs to EBITDA since S&P views this as a cost of doing business.
Liquidity
S&P is revising its assessment of Cunningham Lindsey's liquidity
to less than adequate, given S&P's expectation for covenant
cushion below 15% during 2017. Cunningham Lindsey also faces
covenant leverage step-downs during the year, with maximum
leverage declining from 6.5x as of year-end 2016 to 6x as of year-
end 2017 and 5.5x as of year-end 2018, putting additional pressure
on the cushion.
The company does satisfy S&P's main quantitative liquidity tests
for adequate liquidity; S&P expects sources will exceed uses of
cash by at least 1.2x in the next 12 months and that net sources
would be positive even with a 15% decline in EBITDA. Cash
generation and cash balances have declined due to earnings
compression and high levels of restructuring. But, due to the
firm's capital-lite and service-oriented nature, it also benefits
from limited capital expenditures and cash needs.
Principal liquidity sources
-- $29 million in balance-sheet cash as of March 31, 2017
-- Expected positive cash funds from operations
-- $10 million equity contribution from an entity majority
controlled by CVC
-- Capital Partners in December 2017
Principal liquidity uses
-- Required revolver pay down of $28 million ($62.5 million
maximum by December 2017 from current outstanding balance of
$89 million)
-- Mandatory amortization of term debt (about $5 million
annually)
-- Capital expenditures of $10 million-$20 million annually
The stable outlook on CL Intermediate Holdings I B.V. and
Cunningham Lindsey U.S. Inc. reflects S&P's view that operating
performance and credit-protection measures will gradually improve
over the next 12 months, despite continued volatility in the P/C
claims volume market. S&P expects the company to remain in
compliance with the covenants on its revolver over the next year,
although its cushion will be very limited. Under S&P's base-case
scenario, it expects leverage of less than 8x and EBITDA coverage
of more than 1.5x in the next year, as various new business and
cost-containment initiatives lead to earnings growth.
S&P could lower the rating in the next 12 months if the company
continues to face tough market conditions and underperforms
relative to S&P's expectations, leading to its assessment of an
unsustainable capital structure with leverage remaining above 10x
and EBITDA coverage below 1x. Additionally, a downgrade could
occur if the company's liquidity were to erode such that S&P
revises its assessment as weak, such that sources fail to cover
uses by 1.2x or if S&P believes a covenant breach is likely to
occur.
S&P could raise its ratings in the next 12 months if better-than-
expected earnings or debt reduction improves the company's
covenant cushion to at least 15% while its leverage improves to
7x-7.5x with sustained EBITDA coverage of 2x. This would occur
through sustained EBITDA growth in excess of 30%.
SMILE SECURITISATION: Fitch Withdraws 'D' Rating on Class E Notes
-----------------------------------------------------------------
Fitch Ratings has downgraded Smile Securitisation Company 2007
B.V.'s notes and withdrawn the rating, as follows:
Class E (XS0288455883): downgraded to 'Dsf' from 'CCsf' and
withdrawn
KEY RATING DRIVERS
The transaction was a cash flow securitisation of a static pool of
originally EUR4.91 billion of loans to SMEs, originated by ABN
AMRO Bank N.V. (A+/Stable/F1+) in the Netherlands.
The EUR7.2 million remaining principal outstanding on the class E
notes has been written off. Fitch has therefore downgraded the
notes to 'Dsf' and withdrawn the ratings in accordance with its
policies and procedures.
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 not conducted any checks on the consistency and
plausibility of the information it has received about the
performance of the asset pool and the transaction. 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.
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.
===========
N O R W A Y
===========
LYNGEN MIDCO: S&P Affirms 'B+' CCR & Revises Outlook to Positive
----------------------------------------------------------------
S&P Global Ratings said that it had revised its outlook on Norway-
based information technology (IT) company Lyngen Midco AS (EVRY)
and its subsidiary, Lyngen Bidco AS, to positive from stable. At
the same time, S&P affirmed the 'B+' corporate credit rating on
EVRY and Lyngen Bidco.
S&P also affirmed its 'B+' issue rating on EVRY's existing debt
due 2022 and on the revolving credit facility due 2021. The
recovery rating remains at '3', indicating S&P's expectation of
meaningful (50%-70%; rounded estimate: 55%) recovery for creditors
in the event of a payment default.
S&P revised the outlook to positive to reflect its view that the
announced IPO will reduce gross debt and our expectations of
profitability improvements from 2018, once ongoing cost-reduction
measure are completed, which S&P expects may lead to a gradual
reduction in adjusted debt to EBITDA over the next 12 months, down
to 4x or below in 2018 (from about 4.7x in 2017 following
significant restructuring charges and implementation costs related
to the IBM partnership agreement).
S&P expects that margins will improve significantly in 2018, once
internal restructuring efforts and the partnership agreement with
IBM are fully implemented, and assuming there will be only minor
additional cost-reduction charges. As a result, EVRY's S&P Global
Ratings-adjusted EBITDA margin could increase to about 18% in 2018
compared with about 14%-15% in 2016-2017. S&P expects that the
IBM contract will reduce EVRY's cost base by outsourcing
commoditized infrastructure services to IBM. The implementation
costs of the IBM agreement mainly relate to the transfer of EVRY's
customers from EVRY infrastructure to IBM infrastructure.
The initial agreement, which commenced in December 2015, related
to large enterprise customers, and in February 2017, EVRY signed
an extension agreement to run its small and midsize businesses on
IBM's platform. As such, S&P understands there will be
significant implementation costs in 2017 and S&P expects that
these costs will offset recent improvements in EBITDA. As a
result, EVRY's reported margin in 2017 will remain similar to
2016, at just below 10%. EVRY's margins will also be supported by
internal cost-cutting actions undertaken in 2015-2017, such as
downsizing its number of full-time employees by 15% between June
2015 and December 2016.
In addition, in the first quarter of 2017, EVRY's organic revenues
grew by about 6.6% year on year, and, given the high backlog, S&P
expects that the company will post revenue growth of about 2%-3%
over the coming years. This follows reported revenue declines in
2015 and 2016, owing primarily to the loss of a large non-
mainframe contract with DNB.
S&P's assessment of EVRY's business risk profile continues to be
constrained by S&P's view of high competition in the industry, the
company's limited geographic diversification, and ongoing cost-
reduction charges. EVRY operates in relatively fragmented markets
and competes with several local and regional players for the
midsize segment (companies with between 100 and 1,000 employees).
EVRY also competes with bigger international players in its large
enterprise segment, however, EVRY has managed to win several large
contracts in 2017, including Telenor and the City of Stockholm.
The company operates primarily in Norway and has a growing
presence in Sweden, where it ranks No. 4, with an 8% share of the
market. S&P considers EVRY's overall competitive position to be
weaker than that of larger international competitors, including
IBM Corp., Cap Gemini S.A., and Computer Sciences Corp., which
benefit from greater scale and diversification, or higher
profitability.
S&P believes that these weaknesses are partly offset by EVRY's
resilient business model, leading market positions in Norway, a
large degree of customer and product diversification, and growth
opportunities. With a 31% share of the country's overall IT
Services market, EVRY enjoys a strong position in Norway. The
company also holds 37% of the outsourcing market and an even
stronger position in the IT banking market. EVRY serves a number
of midsize companies operating in various industries, including
the public sector. EVRY also offers traditional outsourcing and
consulting IT services, as well as a broad range of financial
services to banks and financial institutions (a segment where
customers tend not to move frequently, given high switching
costs). EVRY's robust revenue visibility is supported by a
meaningful amount of recurrent revenues (67%), long-term
contracts, and low customer churn. The supportive environments in
Norway and Sweden are additional rating strengths, as both offer
strong economies where we expect IT spending to continue to grow.
S&P's assessment of EVRY's financial risk profile remains
constrained by the company's high level of debt and minimal free
operating cash flow (FOCF). At year-end 2016, S&P's adjusted
debt-to-EBITDA ratio for EVRY was 5.4x, higher than its previous
expectation at 4.7x. The deviation stems from higher-than-
expected costs related to restructuring and implementation of the
IBM agreement during 2016. In addition to continued high costs in
2017, S&P expects IBM-related cash outflows of about Norwegian
krone 700 million (about EUR75 million) in 2017, leading to tight
FOCF. S&P therefore expects just about break-even cash flow in
2017, before a pronounced cash-flow rebound in 2018. S&P also
expects that leverage could be reduced to below 4.0x in 2018
following significant improvements in EBITDA and debt reduction
after the IPO. S&P's leverage metrics for EVRY could improve even
further if the ownership by financial sponsors declines to less
than 40%, as that would lead S&P to apply its surplus cash
adjustment to debt, in accordance with S&P's methodology.
These weaknesses are somewhat mitigated by EVRY's EBITDA cash
interest coverage of about 4x in 2016, and S&P's expectation that
interest coverage ratios and FOCF generation could also benefit
from the announced refinancing of EVRY's existing debt with new
banking facilities, subject to the IPO, as S&P believes the
banking facilities would carry a lower interest rate than the
existing debt.
S&P's rating on EVRY also reflects its somewhat stronger credit
metrics and liquidity than 'B' rated peers with similar business
risk profiles and financial policy assessments.
The positive outlook reflects the possibility that S&P could
upgrade EVRY by one notch over the next 12 months if the company
follows through on its IPO plans and continues to grow its
revenues and EBITDA margin.
S&P could raise the ratings if adjusted debt to EBITDA declined
sustainably below 4x, which would stem from a financial policy
likely to promote this, coupled with growing revenues and EBITDA.
S&P could revise the outlook to stable if adjusted debt to EBITDA
remains between 4x and 5x, for instance if debt reduction post-IPO
was higher than anticipated or if EBITDA in 2018 did not improve
as S&P expect.
S&P could lower the rating if adjusted debt to EBITDA exceeds 5x,
which it thinks could happen in the absence of an IPO.
===============
P O R T U G A L
===============
PORTUGAL: EDP Exit Shows Fiscal Progress, Fitch Says
----------------------------------------------------
The recommendation by the European Commission (EC) to end the
Excessive Deficit Procedure (EDP) for Portugal underscores the
strengthening in the country's public finances following policy
adjustments and an economic recovery, Fitch Ratings says. Fitch
expects the underlying trend of deficit reduction to continue, but
high government debt and weak asset quality in the banking sector
still weigh on Portugal's sovereign credit profile.
The EC's recommendation reflects the fall in the general
government deficit to 2% in 2016 - the lowest figure in
decades -- from 4.4% in 2015. The main driver was lower capital
spending and contained current expenditure (including lower social
transfers and interest payments). One-off tax payments and the
acceleration in GDP growth in the second half of 2016 also
supported government revenue.
The recapitalisation of state-owned bank Caixa Geral de Depositos
(CGD), worth 1.1% of GDP, means that Fitch expects the deficit to
increase to 2.8% of GDP in 2017. Excluding this transfer, the
deficit would be 1.7% and Fitch forecasts it to fall to 1.4% in
2018, thanks to the impact of further macroeconomic improvements
and continued efforts to contain current expenditure.
Narrower deficits and a recovery in nominal GDP growth in line
with Fitch forecasts would see general government debt decline
over the medium term. However, potential sovereign exposure to
legacy problems in the banking sector presents a risk to Fitch
deficit projections. Asset quality in the banking sector remains
weak, with NPLs (measured as credit at risk) at 11.8% at end-2016
and the nature and outcome of initiatives to address this unclear.
Portugal has made some progress recently with the recapitalisation
of CGD and the planned sale of Novo Banco, but further costs to
the sovereign cannot be ruled out.
The short-term growth outlook is positive. Fitch expects GDP
growth to accelerate to 1.8% in 2017 from 1.4% in 2016. The
unemployment rate fell below 10% in February for the first time in
eight years. However, medium-term GDP growth potential remains
subdued, reflecting weak demographics and high private-sector
indebtedness that hinders investment. Low potential growth is a
constraint on faster debt reduction.
Political stability since the formation of the current government
in late-2015 has helped sustain efforts to exit the EDP.
Nevertheless, some drivers of the lower deficit may be difficult
to sustain. Capital expenditure could accelerate from a low level,
due to public demand for more spending and a ramp-up in EU funds
disbursements. Low interest costs on government debt have
reflected the unprecedented relaxation in eurozone monetary policy
in recent years, and further gains may be limited.
Fitch forecasts Portugal's general government debt will decline
from 130.4% of GDP at end-2016, but will remain well above the
'BB' category median (51% of GDP) and the eurozone average (90%)
over the medium term. High public debt reduces the country's
ability to respond to an economic or financial shock and is a key
weakness in the sovereign's credit profile.
Fitch affirmed Portugal's sovereign ratings at 'BB+' with Stable
Outlook on February 3.
===========
R U S S I A
===========
BANK OTKRITIE: S&P Lowers Counterparty Credit Rating to 'B+'
------------------------------------------------------------
S&P Global Ratings lowered its long-term counterparty credit
rating on Russia-based Bank Otkritie Financial Co. (BOFC) to 'B+'
from 'BB-'. S&P also affirmed the 'B' short-term counterparty
credit rating.
At the same time, S&P lowered its Russia-national scale rating on
the bank to 'ruA' from 'ruAA-'.
S&P has also lowered its rating on the $400 million 4.50% senior
unsecured notes issued by BOFC and its subsidiary OFCB Capital PLC
to 'B+' from 'BB-'.
The 'B+' and 'ruA' ratings on BOFC and S&P's 'B+' issue rating
remain on CreditWatch, where S&P originally placed them with
negative implications on Dec. 21, 2016.
The downgrade reflects S&P's view that BOFC is now more exposed to
risks related to Otkritie group's business activity and financial
standing. In March 2017, BOFC provided Russian ruble
(RUB)30 billion (about $532 million) of short-term funding to RGS
Group, receiving 15% of the shares of PJSC Rosgosstrakh (RGS;
B+/Watch Neg/--) as collateral. These funds enabled RGS to comply
with its minimum capital requirement. Consequently, S&P now
considers that BOFC's financial prospects and credit profile have
become more dependent on the wider group.
In S&P's view, there is a high probability that Otkritie Holding
will assume control of RGS Group's assets, including RGS, Russia's
largest insurer, and Rosgosstrakh Bank. Considering the funding
provided by BOFC to RGS and the likelihood that RGS will post
losses in 2017, S&P cannot exclude the possibility that BOFC may
provide additional funds to RGS, directly or indirectly, in the
future.
S&P therefore no longer considers BOFC to be an insulated
subsidiary of Otkritie Holding but core entity of the group. S&P
typically equalizes its rating on core entities with the group
credit profile (GCP), which S&P now assess at 'b'. However, S&P
incorporates one notch of uplift in our long-term rating on BOFC
to reflect the bank's moderate systemic importance for the Russian
financial system and S&P's view that there is a moderate
likelihood that the government would provide extraordinary support
to the bank in case of need.
S&P's ratings on BOFC incorporate S&P's view of the bank's stable
customer base, established franchise in Russia, and material
market share in lending and retail deposits. S&P also takes into
account the bank's moderate capitalization, as reflected in S&P's
risk-adjusted capital (RAC) ratio, which stood at 6.5% at year-end
2016. S&P also notes BOFC's higher share, slower recovery, and
weaker provisioning coverage of nonperforming assets as compared
with peers as well as its lack of collateral for some large loans
from development sector. In S&P's view, BOFC maintains an
adequate liquidity buffer supported by a sizable cash cushion and
large volume of relatively liquid unpledged securities. S&P also
notes the bank's declining dependence on interbank loans, low
reliance on other public debt, and its stable deposit base and
funding metrics, which are generally comparable with those of
peers.
The CreditWatch reflects risks of further deterioration of the GCP
if the acquisition of RGS Group's assets takes place. S&P's
ratings on RGS are on CreditWatch negative, due to RGS'
substantial losses in 2016. RGS posted a net loss of RUB33.2
billion (about $547.3 million) last year, which materially eroded
its capital position. S&P believes that the need to support RGS
may lead to the deterioration of the group's capitalization. At
the same time, there is still uncertainty about how RGS Group's
assets will be structured and whether the burden will be shared by
other investors.
S&P could lower the ratings on BOFC if S&P believes that Otkritie
Holding's capital position has sustainably weakened, based on
S&P's RAC ratio for the consolidated group falling below 3%; or if
S&P believes that the group's risk position has worsened to such
an extent that it presents a higher risk for the bank.
S&P would revise the outlook to stable and affirm the ratings if,
in its view, the acquisition of RGS Holding's assets does not
materially weaken the group's capital position, for example,
because of a capital injection at the holding company.
===========================
U N I T E D K I N G D O M
===========================
BRITAX GROUP: Moody's Alters Outlook to Stable & Affirms Caa1 CFR
-----------------------------------------------------------------
Moody's Investors Service has changed to stable from negative the
outlook on UK-based children's car seat maker Britax Group
Limited's Caa1 corporate family rating (CFR) and Caa1-PD
probability of default rating. Concurrently, Moody's has affirmed
these ratings, as well as the Caa1 rating assigned to the
EUR323million equivalent first lien term loan and the EUR40
million revolving credit facility issued by Britax US Holdings
Inc. (as the Lead Borrower). The outlook on Britax US Holdings
Inc. has also been changed to stable from negative.
"The change of outlook to stable from negative for Britax reflects
Moody's expectations that its operating performance and cash flows
are gradually recovering and that its financial leverage will
reduce in 2017 from a very high level currently", says Paolo
Leschiutta, a Moody's Vice President - Senior Credit Officer and
lead analyst for Britax. "Factors which support an improvement of
Britax EBITDA include new product launches in Europe, rising
demand in China, cost savings as well as a degree of stabilisation
in its US operations though the company has yet to demonstrate a
full turnaround in this important market," adds Mr. Leschiutta.
RATINGS RATIONALE
The outlook stabilization reflects the improvements in operating
performance achieved by Britax with EBITDA, excluding one-off
costs such as the relocation costs of its European production
facility, increasing to EUR32 million in 2016 up from EUR25
million recorded in 2015. This upward momentum was mainly
attributable to the good results in Europe as evidenced by the
highest EBITDA delivered in the last two years and to higher sales
in Asia (excluding China).
In addition, in its important US market, the reduction in the
retail stock level by US$7.6 million over the course of 2016
reflects increasing confidence by key customers of Britax in the
company's ability to manage more adequately its supply chain. This
supports Moody's view that Britax is starting to address the
competitive pressure it is facing in its key markets even if
challenging conditions in the US market continue to hamper the
company's revenues growth. In the 12 months to March 31, 2017
EBITDA was still eroding in the US and, overall, EBITDA is still
far from the EUR60 million historic level reached by Britax in
2012.
During 2017, Moody's expects Britax's performance will be
supported by (1) new product development and launches helped by
sustained capex investments; (2) cost savings expected from the
new facility opened Europe in 2016 that will serve most of the
company's European needs; (3) selective price increases; (4)
higher demand in China and (5) improvement in profitability
associated with the relocation of the Australian manufacturing
operations to China. In addition, the company's strategy to move
towards digital and e-commerce platform should also support
increasing sales to some extent.
Moody's expects that competitive pressure in the US will remain
high and trading conditions for Britax challenging in the next 12
to 18 months. The Caa1 CFR continues to reflect Britax's weak
credit metrics as illustrated by a Moody's-adjusted leverage ratio
(defined as gross debt to EBITDA) of 10.7x at year end 2016 and
free cash flow still slightly negative, positioning the company
weakly in its rating category. Looking ahead, Moody's anticipates
that leverage will still be high at year-end 2017 with Moody's-
adjusted debt/EBITDA ratio in the 9.0x to 10.0x range and Moody's-
adjusted EBIT/interest ratio expected to be only slightly above
1.0x. In addition, in Moody's view, Britax still has to
demonstrate improved execution capabilities translating into a
full turnaround in its key markets.
Britax's liquidity profile remains only adequate supported by (1)
EUR35 million cash on balance sheet at the end of March 2017; (2)
the expectation for modest free cash flow generation going forward
and no debt maturities until 2020. In addition, liquidity needs
are supported by a limited availability under the company EUR40
million covenanted revolving credit facility. Although the
facility is fully undrawn and not expected to be utilized,
Britax's ability to draw under this credit line is limited by the
springing leverage covenant, which is triggered at net leverage
above 6.0x (it was 9.5x at March 2017) if the facility is drawn by
more than 25% at a quarter-end testing date. The current rating
and outlook assume a timely refinancing of the company's revolving
credit facility which expires in 2018.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation for a further,
albeit gradual, operating performance improvement. This, together
with a modest positive free cash flow generation, should lead to
better credit metrics over the next 12 to 18 months.
WHAT COULD CHANGE THE RATING UP/DOWN
Britax's ratings could be downgraded if the company's liquidity
profile and credit metrics weaken from their current level or if
the company does not refinance its 2020 debt maturity in a timely
manner. Any change in the company's financial policies such as
dividend payments could also result in a downgrade.
Given the weak credit metrics a ratings upgrade is unlikely in the
near term. Ratings could be upgraded in case Britax's earnings
grow such that Moody's-adjusted debt to EBITDA ratio decreases
below 6.5x and free cash flow is positive, on a sustainable basis.
A ratings upgrade would also require adequate liquidity including
continued access to a revolving credit facility and financial
policies which would support leverage maintained at its improved
levels.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Durables Industry published in April 2017.
Britax Group Limited designs, assembles and markets a range of
premium children's car seats and wheeled goods. The company has
developed leading brands in each of its principal markets
including Europe (Britax, Britax Rîmer and Brio), the US (Britax
and B.O.B) and Australia (Safe-n-Sound and Steelcraft).
The company has a sales and distribution network in more than 40
countries and reported sales of EUR359 million for the financial
year ended December 31, 2016. Nordic Capital Fund VII acquired the
business in January 2011.
ELEMENT MATERIALS: Moody's Affirms B2 CFR, Outlook Stable
---------------------------------------------------------
Moody's Investors Service has affirmed Element Materials
Technology Limited's (Element or the company) B2 corporate family
rating (CFR) and B2-PD probability of default rating (PDR).
Concurrently Moody's has assigned a B1 instrument rating to the
new USD720 million First Lien Term Loan B Facility due 2024,
issued by Greenrock Finance, Inc. and Element Materials Technology
Group US Holdings Inc., a B1 instrument rating to the new USD100
million Revolving Credit Facility (RCF) due 2023 and USD50 million
Capex/Acquisition Facility due 2024 issued by Greenrock Finance,
Inc., Greenrock Midco Limited and Element Materials Technology
Group US Holdings Inc. and a B1 instrument rating to the new
GBP160 million First Lien Term Loan B due 2024 and EUR204.2
million First Lien Term Loan B due 2024 issued by Greenrock Midco
Limited. The outlook on the ratings is stable.
Element will use the proceeds from the issuance of the First Lien
Term Loan B (USD, GBP, and EUR tranches) alongside a new USD230
million Second Lien Facility due 2025 (not rated), USD20 million
of cash on balance and USD250 million of equity contribution from
the shareholders and management to fund the acquisition of Exova
Group plc (Exova) for a total consideration of GBP620.3 million,
refinance Element's current debt, provide USD40 million of cash
overfund, and pay transaction fees. While the offer has been
accepted by Exova's board and an irrevocable undertaking to vote
in favour of the offer has been signed by its largest shareholder,
the private equity group Clayton, Dubilier & Rice Fund VII, LP
(CD&R), which owns 54% of the company, the transaction remains
subject to approval from Exova shareholders and regulators. It is
anticipated that the transaction will close at the end of June
2017. At the completion of the transaction, Moody's will withdraw
the B2 rating on the existing USD225 million term loan B1
facility, raised by EMT Finance Inc., USD210 million term loan B2
facility, USD70 million capex/acquisition facility and USD30
million revolving facility raised by EMT 2 Holdings Limited and
EMT Finance Inc.
RATINGS RATIONALE
"The rating action reflects (1) the positive contribution from
Exova to Element's business profile improving the company's
segmental and geographical diversification while enhancing its
scale in existing sectors, (2) the good track record of the
company in integrating bolt-on acquisitions although the scale of
the Exova transaction will require significantly more time and
resources, and (3) the good pro forma liquidity position supported
by the cash overfund and availability under the RCF as well as the
projected positive free cash flow (FCF) generation", says
Sebastien Cieniewski, Moody's lead analyst for Element. However,
these positive factors are partly mitigated by (1) the significant
increase in Element's adjusted gross leverage to 7.0x pro forma
for the acquisition of Exova as of December 31, 2016 (pre-
synergies) compared with 5.3x prior to the transaction with de-
leveraging projected to around 6x over the next 18 months mainly
driven by the realization of acquisition synergies, (2) the
inherent execution risks related to the implementation of such
synergies, including higher synergies costs or delayed timeline,
and (3) the expectation that continued softness in the Oil & Gas
segment will constrain group revenue growth over the next 18
months below its longer-term trend.
Element's pro forma adjusted gross leverage is very high at 7.0x
as of December 31, 2016, which results in the B2 rating being
weakly positioned in its rating category. However, Moody's
projects that moderate underlying EBITDA growth (pre-synergies)
from 2018 as well as the realization of a significant portion of
the planned synergies should support de-leveraging towards 6.0x
within 18 months after the closing -- a level more commensurate
with a B2 rating. The relatively moderate projected underlying
EBITDA growth over the next 18 months is driven by the rating
agency's assumption that the Oil & Gas segment should continue
declining over the period -- although at a slower pace compared to
2016. In 2016 the pro forma Oil & Gas' revenues declined by 23% as
customers readjusted their capex spend downwards as a result of
the decline in oil prices from 2015.
While the group's financial profile will deteriorate over the
short- to medium-term, Moody's considers that the acquisition of
Exova will enhance the company's business profile. Element will
benefit from significantly increased scale in a highly fragmented
market with pro forma 2016 revenues increasing to USD735 million
from USD312 million prior to the acquisition. Additionally,
Element will benefit from a better geographical diversification
with its exposure to the American market reducing to 51% based on
pro forma 2016 revenues from 75% on a stand-alone basis. While the
acquisition of Exova will strengthen Element's position in sectors
where the company operates it will also provide exposure to new
end-markets, including Fire, Building Products & Calibration and
Health Sciences and Environmental testing reducing its reliance on
the Aerospace sector to c.40% of pro forma 2016 group revenues
from 66% before the acquisition.
Moody's considers that Element benefits from a good liquidity
position. Pro forma liquidity as of end of June 2017 will be
supported by the company's cash balance of USD40 million and the
USD100 million undrawn RCF. In addition, the company will benefit
from a USD50 million capex/acquisition facility which will be
undrawn at the closing of the transaction. Despite the integration
costs to be incurred during the integration process, Moody's
projects that Element will generate good FCF at above USD50
million per annum or 3-4% of adjusted gross debt due to limited
working capital while capital expenditures will be contained at
below 5% of group sales.
The First Lien Term Loan B Facility, the RCF, and the
Capex/Acquisition Facility (together the first lien facilities)
rank pari passu, benefit from first lien guarantees from the
company and its material subsidiaries, and are secured by a first
lien pledge over substantially all the assets and shares of the
borrowers and guarantors. The B1 instrument rating of the first
lien facilities, one notch above the CFR, reflects the presence of
the Second Lien Term Loan Facility ranking behind which benefits
from the same guarantee and security package but on a second-lien
basis. The B2-PD PDR is in line with the CFR reflecting a 50%
family recovery rate typical for debt structures including a mix
of first lien and second lien debt.
The stable outlook on the ratings reflects Moody's expectation
that Element will grow its revenues at above 3% over the medium-
term after a modest decline in 2017 driven in particular by the
strong fundamentals of the Aerospace segment mitigating the
cyclicality of the Oil & Gas and Transportation & Industrials
segments. The stable outlook also reflects the assumption that
revenue growth as well as the realization of acquisition synergies
should enable the group to de-leverage towards 6.0x within the
next 18 months.
WHAT COULD CHANGE THE RATINGS UP/DOWN
While an upgrade of the ratings is unlikely over the next 18
months, positive pressure could arise over time if (1) Element
delivers on the planned synergies, (2) the group maintains a solid
organic revenue growth at above 3%, (3) the adjusted leverage
ratio decreases towards 5.0x on a sustainable basis, and (4)
liquidity remains adequate. Negative ratings pressure could arise
if (1) Element experiences weakness in its core segments leading
to flat revenues over a prolonged period of time, (2) synergies
are significantly scaled back and/or restructuring charges revised
upwards, (3) leverage fails to move below 6.5x over the next 18
months, and (4) Element's liquidity position weakens or the
company embarks on additional significant debt-funded
acquisitions.
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
Headquartered in the United Kingdom, Element is an independent
global materials testing and product qualification testing
provider offering a full suite of laboratory-based services
operating mainly in the US and Europe. The company was acquired by
private equity firm Bridgepoint in March 2016. Exova is an
international provider of testing, advisory and certification
services. Exova's largest market by revenue is Europe but the
company has also an established presence in North America and a
growing presence in Asia, Africa, and Australia. Exova generated
revenues and adjusted EBITDA (as reported by the company) of
GBP328.6 million and GBP64.5 million, respectively, in fiscal year
ending December 31, 2016.
EQUITICORP INTERNATIONAL: May 30 Proof of Debt Deadline Set
-----------------------------------------------------------
Richard Heis, liquidator of Equiticorp International plc (In
Creditors' Voluntary Liquidation), intends to declare a second and
final dividend pursuant to the Insolvency Rules (England & Wales)
2016.
Creditors must send their full names and addresses (and those of
their Solicitors, if any), together with full particulars of their
debts or claims to the Liquidator at to 15 Canada Square, Canary
Wharf, London, E14 5GL by May 30, 2017 ("the last date for
proving"). If so required by notice from the Liquidator, either
personally or by their Solicitors, Creditors must come in and
prove their debts at such time and place as shall be specified in
such notice. If they default in providing such proof, they will
be excluded from the benefit of any distribution made before such
debts are proved.
The liquidator can be reached at:
Richard Heis
KPMG LLP
15 Canada Square
London E14 5GL
FOLKSAM INTERNATIONAL: Scheme of Arrangement Terminated
-------------------------------------------------------
Folksam International Insurance Company (UK) Limited's Scheme of
Arrangement, pursuant to section 895 of the Companies Act 2006
(the "Scheme"), was terminated on May 10, 2017 when the Scheme
Administrators (Dan Schwarzmann and Nigel Rackham of
PricewaterhouseCoopers LLP) gave notice to Folksam under clause
74.1.1 of the scheme that there was no further property or assets
of Folksam that could be cost effectively collected and
distributed in accordance with the provisions of the Scheme.
Under Folksam's Scheme, the Scheme Administrators declared and
paid dividends totalling 42% to Scheme Creditors in respect of
their Agreed Claims. In addition, a further dividend of 4% was
declared and paid to Scheme Creditors in respect of their Agreed
ILU (Institute of London Underwriters) Claims.
SEADRILL LTD: Debt Restructuring Talks Progressing
--------------------------------------------------
Jonathan Randles, writing for The Wall Street Journal Pro
Bankruptcy, reported that offshore drilling services company
Seadrill Ltd. has made "significant progress" with its banks on
the terms of a debt restructuring plan that will likely require
filing for bankruptcy in the U.S. or U.K.
According to the report, Seadrill said it is in advanced talks
with secured lenders and third-party investors on the terms of a
"comprehensive recapitalization." Absent an additional extension
from creditors, Seadrill faces a July 31 deadline for implementing
a restructuring plan, the report related.
A restructuring will likely involve converting Seadrill's bond
debt into equity, the report related. Any recovery for existing
shareholders would be minimal at best, the company said, the
report added.
Seadrill also said Chief Executive Per Wullf will be stepping
aside at the end of June and will be replaced by the company's
chief commercial officer, Anton Dibowitz, the report further
related.
About Seadrill
Seadrill Limited is a deepwater drilling contractor, which
provides drilling services to the oil and gas industry. It is
incorporated in Bermuda and managed from London.
Seadrill reported a net loss of US$155 million on US$3.17 billion
of total operating revenues for the year ended Dec. 31, 2016,
following a net loss of US$635 million on US$4.33 billion of total
operating revenues for the year ended in 2015.
Seadrill had US$18.78 billion in assets and US$11.60 billion in
liabilities as of Dec. 31, 2016.
* * *
The Company in its annual report on Form 20-F filed with the U.S.
Securities and Exchange Commission April 24, 2017, noted that it
has cross default clauses in existing financing agreements which
cause near term liquidity constraints in the event Seadrill
Limited is unable to implement a restructuring plan by July 31,
2017. The existence of the cross default clauses and uncertainty
of the restructuring raise substantial doubt about the Company's
ability to continue as a going concern.
There are cross default clauses with Seadrill in three Seadrill
Partners facilities. In order to address this risk of default,
Seadrill Partners has to the lenders:
* Removal of Seadrill as a guarantor under each of the three
facilities and separation of the facilities such that each
facility is secured only by Seadrill Partners' assets without
recourse to Seadrill or its assets; and
* Extending the maturity of each of the three facilities by 2.5
years.
The Company is targeting execution of these amendments on a
consensual basis. In the event a consensual agreement cannot be
reached, the Company said it is preparing various contingency
plans that may be needed to preserve value and continue operations
including seeking waivers of cross default with Seadrill and
potential schemes of arrangement and chapter 11 proceedings.
PARAGON OFFSHORE: UK Court Okays Deloitte as Administrators
-----------------------------------------------------------
Paragon Offshore plc on May 23, 2017, disclosed that the High
Court of Justice, Chancery Division, Companies Court of England
and Wales (the "English Court") considered the company's
application for administration in the United Kingdom and granted
an order, pursuant to paragraph 13 of Schedule B1 to the
Insolvency Act 1986, appointing two partners of Deloitte LLP as
administrators of the company on May 23, 2017.
As previously disclosed, the appointment of the Joint
Administrators is a necessary component of the consensual plan of
reorganization (the "Consensual Plan") under chapter 11 of the
United States Bankruptcy Code that the company announced on May 2,
2017. Under the Consensual Plan, Paragon's existing equity is
deemed worthless and the company's secured creditors and unsecured
bondholders will receive equity in a new reorganized parent
company. The next major milestone in Paragon's chapter 11 cases
is the confirmation hearing scheduled to begin on June 7, 2017 in
the U.S. Bankruptcy Court in Delaware. Assuming the Consensual
Plan is confirmed, Paragon is planning for its emergence from
chapter 11 in early July; however, this timing is subject to the
completion of certain conditions precedent to emergence including,
among other things, the reorganization of the corporate structure
of Paragon and its subsidiaries.
As previously disclosed, under administration, Paragon will
continue to conduct business in its normal course. Drilling
contracts will continue and vendors and employees will continue to
be paid. The Joint Administrators will assume all powers to
manage the affairs of the company; however, Paragon's existing
board has agreed to remain involved in an advisory capacity to the
Administrators until the company emerges from chapter 11, and the
existing executive management team will remain responsible for the
operational management of the Paragon group.
Additional Information
Details of the Consensual Plan can be found in the Current Report
on Form 8-K filed by the company with the U.S. Securities and
Exchange Commission (the "SEC") on May 3, 2017. Additional
information will be available on Paragon's website at
www.paragonoffshore.com or by calling Paragon's Restructuring
Hotline at 1-888-369-8935.
Further details in relation to the appointment of the Joint
Administrators (including copies of certain documents filed with
the English Court and a copy of the notice of appointment of Joint
Administrators) will be available on the U.K. Administration tab
of the company's chapter 11 website hosted by KCC at
www.kccllc.net/paragon.
Weil, Gotshal & Manges LLP is serving as legal counsel to Paragon
and Lazard is serving as financial advisor. Paul, Weiss, Rifkind,
Wharton & Garrison LLP is serving as legal counsel to the
Creditors' Committee and Ducera Partners LCC is serving as
financial advisor. Simpson Thacher & Bartlett LLP is serving as
legal counsel to the Revolver Agent and PJT Partners is serving as
financial advisor. Freshfields Bruckhaus Deringer LLP is serving
as legal counsel to the Term Loan Agent and FTI Consulting, Inc.
is serving as financial advisor.
About Paragon Offshore
Houston, Texas-based Paragon Offshore plc (OTC: PGNPQ) --
http://www.paragonoffshore.com/-- is a global provider of
offshore drilling rigs. Paragon is a public limited company
registered in England and Wales.
Paragon Offshore Plc, et al., filed Chapter 11 bankruptcy
petitions (Bankr. D. Del. Case Nos. 16-10385 to 16-10410) on Feb.
14, 2016, after reaching a deal with lenders on a reorganization
plan that would eliminate $1.1 billion in debt.
The petitions were signed by Randall D. Stilley as authorized
representative. Judge Christopher S. Sontchi is assigned to the
cases.
The Debtors reported total assets of $2.47 billion and total debt
of $2.96 billion as of Sept. 30, 2015.
The Debtors engaged Weil, Gotshal & Manges LLP as general counsel;
Richards, Layton & Finger, P.A. as local counsel; Lazard Freres &
Co. LLC as financial advisor; Alixpartners, LLP, as restructuring
advisor; PricewaterhouseCoopers LLP as auditor and tax advisor;
and Kurtzman Carson Consultants as claims and noticing agent.
No request has been made for the appointment of a trustee or an
examiner in the cases.
On Jan. 27, 2017, the Office of the U.S. Trustee appointed an
official committee of unsecured creditors. Paul, Weiss, Rifkind,
Wharton & Garrison LLP serves as main counsel to the Committee and
Young Conaway Stargatt & Taylor, LLP acts as co-counsel. The
committee retained Ducera Partners LLC as financial advisor.
Counsel to JPMorgan Chase Bank, N.A. (a) as administrative agent
under the Senior Secured Revolving Credit Agreement, dated as of
June 17, 2014, and (b) as collateral agent under the Guaranty and
Collateral Agreement, dated as of July 18, 2014, are Sandeep
Qusba, Esq., and Kathrine A. McLendon, Esq., at Simpson Thacher &
Bartlett LLP. PJT Partners serves as its financial advisor.
Delaware counsel to JPMorgan Chase Bank, N.A. are Landis Rath &
Cobb LLP’s Adam G. Landis, Esq.; Kerri K. Mumford, Esq.; and
Kimberly A. Brown, Esq.
Counsel to Cortland Capital Market Services L.L.C. as
administrative agent under the Senior Secured Term Loan Agreement,
dated as of July 18, 2014, are Arnold & Porter Kaye Scholer LLP's
Scott D. Talmadge, Esq.; Benjamin Mintz, Esq.; and Madlyn G.
Primoff, Esq.
Delaware counsel to Cortland Capital Market Services L.L.C. are
Potter Anderson & Corroon LLP's Jeremy W. Ryan, Esq.; Ryan M.
Murphy, Esq.; and D. Ryan Slaugh, Esq.
Counsel to Deutsche Bank Trust Company Americas as trustee under
the Senior Notes Indenture, dated as of July 18, 2014, for the
6.75% Senior Notes due 2022 and the 7.25% Senior Notes due 2024,
are Morgan, Lewis, & Bockius LLP's James O. Moore, Esq.; Glenn E.
Siegel, Esq.; and Joshua Dorchak, Esq.
Freshfields Bruckhaus Deringer LLP serves as legal counsel to the
Term Loan Agent and FTI Consulting, Inc. serves as its financial
advisor.
* * *
On April 19, 2016, the Bankruptcy Court approved the Company's
disclosure statement and certain amendments to the Original Plan.
Effective August 5, the Company entered into an amendment to the
plan support agreement with the lenders under its Revolving Credit
Agreement and lenders holding approximately 69% in principal
amount of its Senior Notes. The PSA Amendment supported certain
revisions to the Original Plan. On August 15, 2016, the Debtors
filed the amended Original Plan and a supplemental disclosure
statement with the Bankruptcy Court.
By oral ruling on October 28, 2016, and by written order dated
November 15, the Bankruptcy Court denied confirmation of the
Debtors' amended Original Plan. Consequently, on November 29, the
Noteholder Group terminated the PSA effective as of
December 2, 2016.
On January 18, 2017, the Company announced that it reached
agreement in principle with a steering committee of lenders under
the Revolving Credit Agreement and an ad hoc committee of lenders
under its Term Loan Agreement to support a new chapter 11 plan of
reorganization for the Debtors. On February 7, the Company filed
the New Plan and related disclosure statement with the Bankruptcy
Court. The New Plan provides for, among other things, the (i)
elimination of approximately $2.4 billion of the Company's
existing debt in exchange for a combination of cash, debt and new
equity to be issued under the New Plan; (ii) allocation to the
Revolver Lenders and lenders under its Term Loan Agreement of new
senior first lien debt in the original aggregate principal amount
of $85 million maturing in 2022; (iii) projected distribution to
the Secured Lenders of approximately $418 million in cash, subject
to adjustment on account of claims reserves and working capital
and other adjustments at the time of the Company's emergence from
the Bankruptcy cases, and an estimated 58% of the new equity of
the reorganized company; (iv) projected distribution to holders of
the Company's Senior Notes of approximately $47 million in cash,
subject to adjustment on account of claims reserves and working
capital and other adjustments at the time of the Company's
emergence from the Bankruptcy cases, and an estimated 42% of the
new equity of the reorganized company; and (v) commencement of an
administration of the Company in the United Kingdom to, among
other things, implement a sale of all or substantially all of the
assets of the Company to a new holding company to be formed, which
administration may be effected on or prior to effectiveness of the
New Plan.
On April 21, 2017, following further discussions with the Secured
Lenders, the Company filed an amendment to the New Plan and a
related disclosure statement with the Bankruptcy Court. This
amendment makes certain modifications to the New Plan, among other
changes, to: (i) no longer seek approval of the Noble Settlement
Agreement; (ii) provide for a combined class of general unsecured
creditors, including the Company's 6.75% senior unsecured notes
maturing July 2022 and 7.25% senior unsecured notes maturing
August 2024; and (iii) provide for the post-emergence wind-down of
certain of the Debtors' dormant subsidiaries and discontinued
businesses.
On May 2, 2017, as a result of a successful court-ordered
mediation process with representatives of the Secured Lenders and
the Bondholders, the Company filed additional amendments to the
New Plan and a related disclosure statement with the Bankruptcy
Court. The Consensual Plan resolves the objections previously
raised by the Bondholders to the New Plan.
Under the Consensual Plan, approximately $2.4 billion of
previously existing debt will be eliminated in exchange for a
combination of cash and to-be-issued new equity. If confirmed,
the Secured Lenders will receive their pro rata share of $410
million in cash and 50% of the new, to-be-issued common equity,
subject to dilution. The Bondholders will receive $105 million in
cash and an estimated 50% of the new, to-be-issued common equity,
subject to dilution. The Secured Lenders and Bondholders will
each appoint three members of a new board of directors to be
constituted upon emergence of the Company from bankruptcy and will
agree on a candidate for Chief Executive Officer who will serve as
the seventh member of the board of directors of the Company.
Certain other elements of the New Plan remain unchanged in the
Consensual Plan, including that: (i) the Secured Lenders shall be
allocated new senior secured first lien debt in the original
aggregate principal amount of $85 million maturing in 2022, (ii)
the Company shall commence an administration proceeding in the
United Kingdom, and (iii) the Company's current shareholders are
not expected to have any recovery under the Consensual Plan.
Both the U.S. Trustee and the Bankruptcy Court have declined to
appoint an equity committee in the Bankruptcy cases. The
Consensual Plan will be subject to usual and customary conditions
to plan confirmation, including obtaining the requisite vote of
creditors and approval of the Bankruptcy Court.
PARAGON OFFSHORE: Kahn & Soden of Deloitte Named as Administrators
------------------------------------------------------------------
The High Court of Justice, Chancery Division, Companies Court of
England and Wales, considered Paragon Offshore plc's application
for administration in the United Kingdom and granted an order,
pursuant to paragraph 13 of Schedule B1 to the Insolvency Act
1986, appointing two partners of Deloitte LLP as administrators of
the company on May 23, 2017:
Neville Barry Kahn (insolvency practitioner number 8690)
David Philip Soden (insolvency practitioner number 15790)
Deloitte LLP
Athene Place
66 Shoe Lane
London, EC4A 3BQ
Paragon says the appointment of the Joint Administrators is a
necessary component of the consensual plan of reorganization under
chapter 11 of the United States Bankruptcy Code that the company
announced on May 2, 2017. Under the Consensual Plan, Paragon’s
existing equity is deemed worthless and the company’s secured
creditors and unsecured bondholders will receive equity in a new
reorganized parent company.
The next major milestone in Paragon's chapter 11 cases is the
confirmation hearing scheduled to begin on June 7, 2017 in the
U.S. Bankruptcy Court in Delaware. Assuming the Consensual Plan is
confirmed, Paragon is planning for its emergence from chapter 11
in early July; however, this timing is subject to the completion
of certain conditions precedent to emergence including, among
other things, the reorganization of the corporate structure of
Paragon and its subsidaires.
Under administration, Paragon will continue to conduct business in
its normal course. Drilling contracts will continue and vendors
and employees will continue to be paid. The Joint Administrators
will assume all powers to manage the affairs of the company;
however, Paragon's existing board has agreed to remain involved in
an advisory capacity to the Administrators until the company
emerges from chapter 11, and the existing executive management
team will remain responsible for the operational management of the
Paragon group.
About Paragon Offshore
Houston, Texas-based Paragon Offshore plc (OTC: PGNPQ) --
http://www.paragonoffshore.com/-- is a global provider of offshore
drilling rigs. Paragon is a public limited company registered in
England and Wales.
Paragon Offshore Plc, et al., filed Chapter 11 bankruptcy
petitions (Bankr. D. Del. Case Nos. 16-10385 to 16-10410) on Feb.
14, 2016, after reaching a deal with lenders on a reorganization
plan that would eliminate $1.1 billion in debt.
The petitions were signed by Randall D. Stilley as authorized
representative. Judge Christopher S. Sontchi is assigned to the
cases.
The Debtors reported total assets of $2.47 billion and total debt
of $2.96 billion as of Sept. 30, 2015.
The Debtors engaged Weil, Gotshal & Manges LLP as general counsel;
Richards, Layton & Finger, P.A. as local counsel; Lazard Freres &
Co. LLC as financial advisor; Alixpartners, LLP, as restructuring
advisor; PricewaterhouseCoopers LLP as auditor and tax advisor;
and Kurtzman Carson Consultants as claims and noticing agent.
No request has been made for the appointment of a trustee or an
examiner in the cases.
On Jan. 27, 2017, the Office of the U.S. Trustee appointed an
official committee of unsecured creditors. Paul, Weiss, Rifkind,
Wharton & Garrison LLP serves as main counsel to the Committee and
Young Conaway Stargatt & Taylor, LLP acts as co-counsel. The
committee retained Ducera Partners LLC as financial advisor.
Counsel to JPMorgan Chase Bank, N.A. (a) as administrative agent
under the Senior Secured Revolving Credit Agreement, dated as of
June 17, 2014, and (b) as collateral agent under the Guaranty and
Collateral Agreement, dated as of July 18, 2014, are Sandeep
Qusba, Esq., and Kathrine A. McLendon, Esq., at Simpson Thacher &
Bartlett LLP. PJT Partners serves as its financial advisor.
Delaware counsel to JPMorgan Chase Bank, N.A. are Landis Rath &
Cobb LLP's Adam G. Landis, Esq.; Kerri K. Mumford, Esq.; and
Kimberly A. Brown, Esq.
Counsel to Cortland Capital Market Services L.L.C. as
administrative agent under the Senior Secured Term Loan Agreement,
dated as of July 18, 2014, are Arnold & Porter Kaye Scholer LLP's
Scott D. Talmadge, Esq.; Benjamin Mintz, Esq.; and Madlyn G.
Primoff, Esq.
Delaware counsel to Cortland Capital Market Services L.L.C. are
Potter Anderson & Corroon LLP's Jeremy W. Ryan, Esq.; Ryan M.
Murphy, Esq.; and D. Ryan Slaugh, Esq.
Counsel to Deutsche Bank Trust Company Americas as trustee under
the Senior Notes Indenture, dated as of July 18, 2014, for the
6.75% Senior Notes due 2022 and the 7.25% Senior Notes due 2024,
are Morgan, Lewis, & Bockius LLP's James O. Moore, Esq.; Glenn E.
Siegel, Esq.; and Joshua Dorchak, Esq.
Freshfields Bruckhaus Deringer LLP serves as legal counsel to the
Term Loan Agent and FTI Consulting, Inc. serves as its financial
advisor.
* * *
On April 19, 2016, the Bankruptcy Court approved the Company's
disclosure statement and certain amendments to the Original Plan.
Effective August 5, the Company entered into an amendment to the
plan support agreement with the lenders under its Revolving Credit
Agreement and lenders holding approximately 69% in principal
amount of its Senior Notes. The PSA Amendment supported certain
revisions to the Original Plan. On August 15, 2016, the Debtors
filed the amended Original Plan and a supplemental disclosure
statement with the Bankruptcy Court.
By oral ruling on October 28, 2016, and by written order dated
November 15, the Bankruptcy Court denied confirmation of the
Debtors' amended Original Plan. Consequently, on November 29, the
Noteholder Group terminated the PSA effective as of December 2,
2016.
On January 18, 2017, the Company announced that it reached
agreement in principle with a steering committee of lenders under
the Revolving Credit Agreement and an ad hoc committee of lenders
under its Term Loan Agreement to support a new chapter 11 plan of
reorganization for the Debtors. On February 7, the Company filed
the New Plan and related disclosure statement with the Bankruptcy
Court. The New Plan provides for, among other things, the (i)
elimination of approximately $2.4 billion of the Company's
existing debt in exchange for a combination of cash, debt and new
equity to be issued under the New Plan; (ii) allocation to the
Revolver Lenders and lenders under its Term Loan Agreement of new
senior first lien debt in the original aggregate principal amount
of $85 million maturing in 2022; (iii) projected distribution to
the Secured Lenders of approximately $418 million in cash, subject
to adjustment on account of claims reserves and working capital
and other adjustments at the time of the Company's emergence from
the Bankruptcy cases, and an estimated 58% of the new equity of
thereorganized company; (iv) projected distribution to holders of
the Company's Senior Notes of approximately $47 million in cash,
subject to adjustment on account of claims reserves and working
capital and other adjustments at the time of the Company's
emergence from the Bankruptcy cases, and an estimated 42% of the
new equity of the reorganized company; and (v) commencement of an
administration of the Company in the United Kingdom to, among
other things, implement a sale of all or substantially all of the
assets of the Company to a new holding company to be formed, which
administration may be effected on or prior to effectiveness of the
New Plan.
On April 21, 2017, following further discussions with the Secured
Lenders, the Company filed an amendment to the New Plan and a
related disclosure statement with the Bankruptcy Court. This
amendment makes certain modifications to the New Plan, among other
changes, to: (i) no longer seek approval of the Noble Settlement
Agreement; (ii) provide for a combined class of general unsecured
creditors, including the Company's 6.75% senior unsecured notes
maturing July 2022 and 7.25% senior unsecured notes maturing
August 2024; and (iii) provide for the post-emergence wind-down of
certain of the Debtors' dormant subsidiaries and discontinued
businesses.
On May 2, 2017, as a result of a successful court-ordered
mediation process with representatives of the Secured Lenders and
the Bondholders, the Company filed additional amendments to the
New Plan and a related disclosure statement with the Bankruptcy
Court. The Consensual Plan resolves the objections previously
raised by the Bondholders to the New Plan.
Under the Consensual Plan, approximately $2.4 billion of
previously existing debt will be eliminated in exchange for a
combination of cash and to-be-issued new equity. If confirmed, the
Secured Lenders will receive their pro rata share of $410 million
in cash and 50% of the new, to-be-issued common equity, subject to
dilution. The Bondholders will receive $105 million in cash and an
estimated 50% of the new, to-be-issued common equity, subject to
dilution. The Secured Lenders and Bondholders will each appoint
three members of a new board of directors to be constituted upon
emergence of the Company from bankruptcy and will agree on a
candidate for Chief Executive Officer who will serve as the
seventh member of the board of directors of the Company.
Certain other elements of the New Plan remain unchanged in the
Consensual Plan, including that: (i) the Secured Lenders shall be
allocated new senior secured first lien debt in the original
aggregate principal amount of $85 million maturing in 2022, (ii)
the Company shall commence an administration proceeding in the
United Kingdom, and (iii) the Company's current shareholders are
not expected to have any recovery under the Consensual Plan.
Both the U.S. Trustee and the Bankruptcy Court have declined to
appoint an equity committee in the Bankruptcy cases. The
Consensual Plan will be subject to usual and customary conditions
to plan confirmation, including obtaining the requisite vote of
creditors and approval of the Bankruptcy Court.
===============
X X X X X X X X
===============
* Payment Default Risk in Eastern Europe Expected to Worsen
-----------------------------------------------------------
The Atradius Payment Practices Barometer survey for Eastern
Europe, a report based on feedback from over 1,000 companies
across the Czech Republic, Hungary, Poland, Slovakia and Turkey,
which sell on credit terms to B2B customers domestically and
abroad, highlights that 86% of the survey respondents in the
region have experienced late payment of domestic B2B invoices over
the past year. For 58% of respondents late payment was
attributable to customers' liquidity issues (respondents in
Western Europe: 52%). In Hungary a greater number of respondents
(78%) experienced late payment due to their customer's liquidity
issues.
According to responses across the countries surveyed, 45% of the
average total value of domestic B2B invoices remained unpaid after
the due date. This is higher than the 42% average for Western
Europe. On average 10% of domestic B2B invoices became delinquent
(unpaid 90+ days after the due date), and 1% written off as
uncollectable. In Turkey, the average percentages for overdue and
delinquent debts were higher at 61% and 20%, respectively with 2%
uncollectable. This is also reflected in the country's DSO
figure, which averaged 73 days, notably higher than the 61 days
average DSO for Eastern Europe as a whole.
Sharing the view of their peers in Western Europe, more Eastern
European respondents expect an overall deterioration in the
payment behavior of their B2B customers over the coming 12 months.
In particular, more respondents (26%) anticipate deterioration
rather than improvement (16%) with 58% not expecting any change at
all. To protect their B2B receivables portfolio from the risk of
payment default, 53% of the respondents in Eastern Europe (60% in
Western Europe) intend to continue using their current mix of
credit management tools this year, even in the face of Brexit,
more protectionist measures from the US and a slowdown in China on
the horizon.
Andreas Tesch, Chief Market Officer of Atradius N.V. stated, "The
growth outlook in some regions and countries across the world
appears to be brighter than before, but risk is still a
significant factor. Political uncertainty in the Eurozone is
weighing on the region's medium-term growth outlook. In emerging
Asia, China's economy, while still enjoying high growth of 6.5%,
is slowing from 6.7% last year. In Eastern Europe, the structural
weaknesses and negative impact of sanctions on productivity and
investment continues to weigh on growth in Russia. The close
trade ties among world regions means that a deteriorating business
and economic climate in one or more markets could have negative
impacts in other markets also, with potentially negative
consequences for the global insolvency environment. Against this
backdrop, a strong focus on the management of trade credit risk is
essential to maintaining the financial viability of a business."
The complete report highlighting the findings of the May 2017
edition of the Atradius Payment Practices Barometer for Eastern
Europe can be found in the Publications section of the
atradius.com website.
About Atradius
Atradius provides trade credit insurance, surety and collections
services worldwide through a strategic presence in more than 50
countries. Atradius has access to credit information on 240
million companies worldwide. Its credit insurance, bonding and
collections products help protect companies throughout the world
from payment risks associated with selling products and services
on trade credit. Atradius forms part of Grupo Catalana Occidente
(GCO.MC), one of the leading insurers in Spain and worldwide in
credit insurance.
* BOOK REVIEW: Risk, Uncertainty and Profit
-------------------------------------------
Author: Frank H. Knight
Publisher: Beard Books
Softcover: 381 pages
List Price: $34.95
Review by Gail Owens Hoelscher
Order your personal copy today at
http://www.amazon.com/exec/obidos/ASIN/1587981262/internetbankrupt
The tenets Frank H. Knight sets out in this, his first book,
have become an integral part of modern economic theory. Still
readable today, it was included as a classic in the 1998 Forbes
reading list. The book grew out of Knight's 1917 Cornell
University doctoral thesis, which took second prize in an essay
contest that year sponsored by Hart, Schaffner and Marx. In it,
he examined the relationship between knowledge on the part of
entrepreneurs and changes in the economy. He, quite famously,
distinguished between two types of change, risk and uncertainty,
defining risk as randomness with knowable probabilities and
uncertainty as randomness with unknowable probabilities. Risk,
he said, arises from repeated changes for which probabilities
can be calculated and insured against, such as the risk of fire.
Uncertainty arises from unpredictable changes in an economy,
such as resources, preferences, and knowledge, changes that
cannot be insured against. Uncertainty, he said "is one of the
fundamental facts of life."
One of the larger issues of Knight's time was how the
entrepreneur, the central figure in a free enterprise system,
earns profits in the face of competition. It was thought that
competition would reduce profits to zero across a sector because
any profits would attract more entrepreneurs into the sector and
increase supply, which would drive prices down, resulting in
competitive equilibrium and zero profit.
Knight argued that uncertainty itself may allow some entrepreneurs
to earn profits despite this equilibrium. Entrepreneurs, he said,
are forced to guess at their expected total receipts. They cannot
foresee the number of products they will sell because of the
unpredictability of consumer preferences. Still, they must
purchase product inputs, so they base these purchases on the
number of products they guess they will sell. Finally, they have
to guess the price at which their products will sell. These
factors are all uncertain and impossible to know. Profits are
earned when uncertainty yields higher total receipts than
forecasted total receipts. Thus, Knight postulated, profits are
merely due to luck. Such entrepreneurs who "get lucky" will try to
reproduce their success, but will be unable to because their luck
will eventually turn.
At the time, some theorists were saying that when this luck runs
out, entrepreneurs will then rely on and substitute improved
decision making and management for their original
entrepreneurship, and the profits will return. Knight saw
entrepreneurs as poor managers, however, who will in time fail
against new and lucky entrepreneurs. He concluded that economic
change is a result of this constant interplay between new
entrepreneurial action and existing businesses hedging against
uncertainty by improving their internal organization.
Frank H. Knight has been called "among the most broad-ranging
and influential economists of the twentieth century" and "one of
the most eclectic economists and perhaps the deepest thinker and
scholar American economics has produced." He stands among the
giants of American economists that include Schumpeter and Viner.
His students included Nobel Laureates Milton Friedman, George
Stigler and James Buchanan, as well as Paul Samuelson. At the
University of Chicago, Knight specialized in the history of
economic thought. He revolutionized the economics department
there, becoming one the leaders of what has become known as the
Chicago School of Economics. Under his tutelage and guidance,
the University of Chicago became the bulwark against the more
interventionist and anti-market approaches followed elsewhere in
American economic thought. He died in 1972.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers'
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than US$3 per
share in public markets. At first glance, this list may look like
the definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
Each Friday's edition of the TCR includes a review about a book of
interest to troubled company professionals. All titles are
available at your local bookstore or through Amazon.com. Go to
http://www.bankrupt.com/booksto order any title today.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Valerie U. Pascual, Marites O. Claro, Rousel Elaine T. Fernandez,
Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and
Peter A. Chapman, Editors.
Copyright 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 Joseph Cardillo at
856-381-8268.
* * * End of Transmission * * *