/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/170811.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, August 11, 2017, Vol. 18, No. 159 Headlines B E L A R U S BELARUSIAN REPUBLICAN: Fitch Affirms B- IFS Rating, Outlook Pos. G E R M A N Y TRIONISTA TOPCO: S&P Places 'B+/B' CCR on CreditWatch Positive ZF FRIEDRICHSHAFEN: Moody's Affirms Ba1 CFR, Outlook Positive N E T H E R L A N D S GAS NATURAL: Moody's Affirms Ba1 Junior Subordinated Debt Rating PANGAEA ABS 2007-1: Fitch Raises Rating on Class C Notes to 'BB' ROYAL KPN: Fitch Affirms BB+ Sub. Capital Securities Rating WOOD STREET 1: Moody's Affirms Ba3 Rating on Class E Notes WP/AV CH HOLDINGS: S&P Assigns 'B' Long-Term CCR, Outlook Stable * NETHERLANDS: Number of Corporate Bankruptcies Down in July P O L A N D CYFROWY POLSAT: Moody's Revises Outlook to Pos., Affirms Ba2 CFR R U S S I A ANELIK RU: Bank of Russia Revokes Banking License BANK RESERV: Put On Provisional Administration, License Revoked KONTINENT FINANS: Put On Provisional Administration VSK INSURANCE: Fitch Affirms BB- IFS Rating, Outlook Stable U N I T E D K I N G D O M LEHMAN BROTHERS: UK Administrator Warns of Financial Crisis REDX PHARMA: Joint Administrators Mull Options for Business X X X X X X X X * BOOK REVIEW: The Money Wars ********* ============= B E L A R U S ============= BELARUSIAN REPUBLICAN: Fitch Affirms B- IFS Rating, Outlook Pos. ---------------------------------------------------------------- Fitch Ratings has revised the Outlooks on three state-owned Belarus insurers to Positive from Stable while affirming the Insurer Financial Strength (IFS) Ratings at 'B-'. The affected insurers are Belarusian Republican Unitary Insurance Company (Belgosstrakh), Belarusian National Reinsurance Organisation (Belarus Re), Export-Import Insurance Company of the Republic of Belarus (Eximgarant). KEY RATING DRIVERS The revision of the Outlook to Positive on the IFS Ratings follows a similar action on Belarus's sovereign Long-Term Local Currency Issuer Default Rating (IDR) on July 28, 2017, which was affirmed at 'B-'. The ratings continue to reflect the insurers' 100% state ownership and capital support from the state when needed. In addition, the ratings reflect the leading market positions of the insurers in their respective segments, their sustainable profit generation and the fairly low quality of their investment portfolios. The ratings of Belgosstrakh and of Eximgarant also benefit from state guarantees for insurance liabilities under compulsory lines. RATING SENSITIVITIES A change in Belarus's Long-Term Local Currency IDR is likely to lead to a corresponding change in the insurers' IFS Ratings. A significant change in the insurers' relationship with the government would also likely affect the insurers' ratings. ============= G E R M A N Y ============= TRIONISTA TOPCO: S&P Places 'B+/B' CCR on CreditWatch Positive -------------------------------------------------------------- S&P Global Ratings placed its 'B+/B' long- and short-term term corporate credit ratings on Germany-based energy service provider Trionista TopCo GmbH (ista), a subsidiary of ista Luxemburg GmbH Sarl, on CreditWatch with positive implications. S&P said, "At the same time, we placed our 'BB-' issue ratings on Trionista HoldCo's EUR1,114 million senior secured term loan B, EUR150 million revolving credit facility (RCF), and EUR350 million senior secured notes on CreditWatch positive. Our recovery rating on these instruments remains at '2', indicating our expectation of substantial recovery prospects (70%-90%; rounded estimate 70%) in the event of payment default. "We also placed on CreditWatch positive our 'B-' issue rating on ista's subordinated notes. The recovery rating remains at '6', indicating our expectation of negligible (0%-10%; rounded estimate 0) recovery. "The CreditWatch placement follows the proposed acquisition of ista Luxemburg by Hong Kong-based property developer Cheung Kong Property Holdings Ltd. (CKPH) and investment-holding company CK Infrastructure Holdings Ltd. (CKI), which is majority-owned by CK Hutchison Holdings Ltd., from CVC Capital Partners. CKPH and CKI proposed to acquire 65% and 35% stakes in ista Luxemburg, respectively, through a new joint venture. The transaction is subject to regulatory approvals, which we expect in the fourth quarter of 2017. "We assume that ista's credit profile may benefit from the acquisition by the two financially stronger entities. We would need to assess ista's strategic importance for CKPH and CKI to evaluate ista's credit quality following the transaction. "The documentation for ista's senior loans contains a change-of- control clause that will come into effect if the company is acquired by a new shareholder. We currently have no information on the company's post-acquisition capital structure. However, if the change-of-control clause is triggered, we assume that the new shareholders would manage the refinancing in a timely manner. "We expect to resolve the CreditWatch at the close of the transaction, which we understand is likely to occur in the fourth quarter of 2017. At that time, we would assess any changes to ista's capital structure and the impact from the two financially stronger parents." ZF FRIEDRICHSHAFEN: Moody's Affirms Ba1 CFR, Outlook Positive ------------------------------------------------------------- Moody's Investors Service has affirmed the ratings pertaining to German automotive supplier -- ZF Friedrichshafen AG (ZF). Specifically, Moody's has affirmed the Ba1 corporate family rating (CFR) and the Ba1-PD probability of default rating (PDR). Concurrently, Moody's has affirmed the Ba1 senior unsecured ratings relating to the notes issued by both ZF North America Capital, Inc. and TRW Automotive Inc. The outlook on the ratings remains positive. The following ratings are affected: Affirmations: Issuer: ZF Friedrichshafen AG -- Corporate Family Rating, Affirmed Ba1 -- Probability of Default Rating, Affirmed Ba1-PD Issuer: ZF North America Capital, Inc. -- Backed Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 Issuer: TRW Automotive Inc. -- Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 Outlook Actions: Issuer: ZF Friedrichshafen AG -- Outlook, Remains Positive Issuer: ZF North America Capital, Inc. -- Outlook, Remains Positive Issuer: TRW Automotive Inc. -- Outlook, Remains Positive RATINGS RATIONALE The affirmation of ZF's ratings reflects the progress the group has made over the last twelve months in growing both revenue and profitability and reducing debt. Following the publication of the group's H1-2017 financial results, the rating agency estimates that the company's key credit metrics are now modestly exceeding Moody's expectations for the current rating. On a last-twelve- months (LTM) basis, Moody's estimates leverage (debt / EBITDA, adjusted by Moody's) to be around 2.9x (vs. expectations of 3x), profitability (EBITA margin, adjusted by Moody's) to be around 7.5% (vs. expectations of 7%) and retained cash flow (RCF) / net debt of 30% (vs. expectations of 25%). Nevertheless, Moody's notes that an upgrade to Baa3 at the current time would render the ratings somewhat weakly positioned with minimal headroom. As a result the higher rating would have very limited capacity to absorb a deterioration in credit metrics e.g., resulting from a softening in global automotive production or a loosening of financial policy. However, if ZF is able to sustain and indeed improve current metrics over the next 6-9 months the rating agency believes an upgrade of its ratings is very likely. The Ba1 ratings reflect as positives the company's: (1) leading market position as one of the largest Tier 1 global automotive suppliers combined with its sizeable industry-facing operations; (2) ongoing integration with TRW which increases the group's scale, product offering, technology and both regional and customer diversification; (3) a clear focus on innovation and new product development; (4) positive strategic alignment to address the disruptive trends of automotive electrification and autonomous driving; (5) conservative financial policy as reflected in relatively limited dividend payments, which emphasizes debt reduction and cash flow generation; and (6) a good liquidity profile. The ratings also reflect as negatives the company's: (1) still elevated leverage with debt / EBITDA (as measured by Moody's) of 2.9x at the end of H1-2017, taking into account the fact that the automotive industry is at its or very close to its peak; (2) modest operating profitability with EBITA margins of 7.5% albeit in-line with the industry average; (3) continued high capital and R&D expenditure reflecting the group's focus on innovation; and (4) residual challenges to integrate TRW albeit which are expected to conclude by the end of 2017. RATIONALE FOR POSITIVE OUTLOOK The positive outlook incorporates Moody's expectations that ZF will continue its conservative financial policy, smoothly integrate TRW and will build on the solid performance that the combined group has shown since closure of the transaction in May 2015. Moody's expects a further gradual but steady strengthening of ZF's credit quality and could see the rating moving into investment grade territory over the next 6-9 months. WHAT COULD CHANGE THE RATING UP/DOWN Absent a deterioration in key credit metrics, Moody's would anticipate a ratings upgrade within the next 6-9 months. An upgrade would be conditional on ZF maintaining EBITA margins above 7%, debt / EBITDA below 3x, RCF / net debt above 25% and FCF above EUR500 million. Downward pressure would result from any execution issues relating to TRW or a weakening of key credit metrics. Specifically, EBITA margins falling below 6.0%, leverage sustainably above 3.5x debt / EBITDA or a weakening in FCF generation to below EUR500 million could trigger a negative rating action. The principal methodology used in these ratings was Global Automotive Supplier Industry published in June 2016. ZF Friedrichshafen AG (ZF), headquartered in Friedrichshafen, Germany, is a leading global automotive technology company specialised on driveline and chassis technology as well as active and passive safety technology. The company, which completed the acquisition of TRW Automotive in May 2015, generates the majority of its revenues within the passenger car and commercial vehicle industries, but also delivers to other markets including the construction and agricultural machinery sector. Following the acquisition of TRW, ZF is one of the largest automotive suppliers on a global scale with revenues of EUR35 billion (2016), having a similar size as Bosch, Denso and Magna. ===================== N E T H E R L A N D S ===================== GAS NATURAL: Moody's Affirms Ba1 Junior Subordinated Debt Rating ---------------------------------------------------------------- Moody's Investors Service has affirmed the Baa2/P-2 senior unsecured issuer ratings of Gas Natural SDG, S.A. and the ratings of its guaranteed subsidiaries. Concurrently, Moody's has affirmed the (P)Baa2/Baa2/Prime-2 ratings of Gas Natural Fenosa Finance B.V., as well as the Baa2 and (P)Baa2 ratings of Gas Natural Capital Markets, S.A.. The Ba1 junior subordinated (hybrid) rating of Gas Natural Fenosa Finance B.V. was also affirmed. The outlook remains stable. The affirmations follow GNF's announcement on 3 August that it will sell a 20% stake in its Spanish gas distribution subsidiary, GNDB, to Alliance Capital Partners, (ACP) and Canada Pension Plan Investment Board (CPPIB) for EUR1.5 billion. RATINGS RATIONALE The rating actions reflect Moody's expectation that (1) while a sale of a stake in GNF's low risk Spanish gas distribution assets and the introduction of new minority shareholders is modestly credit negative, this is likely to be mitigated by GNF's balanced financial policy. The company has announced that it will dedicate the bulk of the transaction proceeds to existing projects, which should generate additional cash flows to support its financial profile, while any surplus will be applied to new investments, debt reduction or returned to shareholders; and (2) the transaction will not materially change the risk profile of GNF, which will continue to generate around 60% of its EBITDA from network activities and around 50% of EBITDA from Spain, although these contributions could weaken modestly on a pro-rata basis (by around 2%) taking into account minority interests. GNF's ratings continue to reflect (1) a high proportion of EBITDA from lower risk contracted and regulated businesses across a well-diversified portfolio of assets, primarily in Spain and Latin America (LatAm); and (2) higher risk international gas procurement and supply and Spanish electricity generation activities, which remain subject to oversupply and a challenging commodity and power price environment. The ratings also take account of an improving, but still fragile, macroeconomic situation in Spain (Baa2, stable). Moody's expects GNF to update its 2016-20 strategic plan in 2018 which will include further efficiencies and a reduction in interest costs to counteract some of the negative pressures presented by the challenging operating environment. The sale price of EUR1.5 billion for 20% of GNF's gas distribution subsidiary, (GNDB), implies an enterprise value (EV) of EUR13.94 billion for 100% of a company that generated EBITDA of EUR889 million as at financial year end 2016. This yields an attractive EV/EBITDA multiple of 15.7x, in line with recent transactions for similarly low risk, well regulated network assets. EDP - Energias de Portugal, S.A. (EDP, Baa3 stable) agreed a sale of its Spanish distribution assets, Naturgas Energia Distribucion, S.A.U. (Naturgas), to a consortium of institutional investors in March 2017 at an 15.7x EV/EBITDA multiple and its gas distribution business in Portugal in April 2017 to REN - Redes Energeticas Nacionais, SGPS, S.A. (REN, Baa3 stable) at an 11x EV/EBITDA multiple. As part of the arrangement, GNF will put in place long term intercompany debt of EUR6 billion at GNDB, which will continue to be consolidated within the GNF group According to GNF's new partners, ACP and CPPIB, the acquisition is in line with their core infrastructure investment strategies. OUTOOK The outlook is stable reflecting Moody's expectations of financial ratios consistent with guidance for the Baa2 rating of Funds from Operations (FFO)/net debt of high teens to low twenties in percentage terms, and Retained Cash Flow (RCF)/net debt which, while it is expected to dip in 2017, should recover towards the low teens by 2020. WHAT COULD MOVE THE RATING UP/DOWN Positive ratings pressure is not currently anticipated but could develop if GNF maintains a stable business profile and strengthens its financial position, achieving sustainable credit metrics of FFO/net debt comfortably in the twenties in percentage terms and RCF/net debt in the upper teens. GNF currently has limited headroom against ratio guidance for the Baa2 rating and negative pressure could develop following any (1) deterioration in financial performance, or unanticipated growth activity through organic change or acquisitions, likely to cause credit metrics to fall persistently below guidance; or (2) an increase in business, regulatory or political risk within core markets or credit negative change in corporate structure, such as through an introduction of increasingly material minority interests, which would argue for a tightening of metric guidance. The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017. Gas Natural SDG, S.A. is one of the three major players in the Iberian power and gas markets. It ranks as the leading gas supply company and third in power generation. As of December 2016 it has 15.5 GW of installed capacity worldwide, with 7.8 million gas connections and 3.6 million electricity connections in LatAm and is the leading gas distributor in LatAm. The group is one of the main suppliers of natural gas in the Atlantic and Mediterranean, with a long-term gas procurement portfolio of approximately 30 bcm. In addition, it has three regasification and two liquefaction plants. LIST OF AFFECTED RATINGS Affirmations: Issuer: Gas Natural Capital Markets, S.A. -- Backed Senior Unsecured MTN Program, Affirmed (P)Baa2 -- Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 Issuer: Gas Natural Fenosa Finance B.V. -- Backed Junior Subordinated, Affirmed Ba1 -- Backed Commercial Paper, Affirmed P-2 -- Backed Senior Unsecured MTN Program, Affirmed (P)Baa2 -- Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 Issuer: Gas Natural SDG, S.A. -- LT Issuer Rating, Affirmed Baa2 -- ST Issuer Rating, Affirmed P-2 Outlook Actions: Issuer: Gas Natural SDG, S.A. -- Outlook, Remains Stable Issuer: Gas Natural Capital Markets, S.A. -- Outlook, Remains Stable Issuer: Gas Natural Fenosa Finance B.V. -- Outlook, Remains Stable PANGAEA ABS 2007-1: Fitch Raises Rating on Class C Notes to 'BB' ---------------------------------------------------------------- Fitch Ratings has upgraded Pangaea ABS 2007-1 B.V. as follows: Class A: upgraded to 'BBBsf' from 'BBsf'; Outlook Positive Class B: upgraded to 'BBBsf' from 'Bsf'; Outlook Stable Class C: upgraded to 'BBsf' from 'CCCsf' Outlook Stable Class D: affirmed at 'Csf' Class E: affirmed at 'Csf' Class F: affirmed at 'Csf' Class S1: affirmed at 'Csf' The transaction is a managed cash securitisation of structured finance assets, primarily mortgage-backed securities. The portfolio is actively managed by Investec Principal Finance. KEY RATING DRIVERS The upgrades reflect the increase in credit enhancement for the class A, B and C notes due to the amortisation of the class A notes and an improvement in the credit quality of the performing portfolio. The class A notes have paid down EUR31.6 million since Fitch last reviews leaving 10.2% of the initial balance. Credit enhancement for the class A notes has increased to 73.3% from 53.4% at last review, for the class B notes to 53.4% from 40.3% and for the class C notes to 31.0% from 24.3%. Credit quality in the performing portfolio has also improved, with the weighted average rating factor decreasing to 18.6 from 27.7. Total defaulted assets are EUR43.8 million, slightly up from EUR42.3 million last year. The transaction is becoming more concentrated as the portfolio amortises. The number of issuers in the performing portfolio has decreased to 30 from 43 and the number of assets to 32 from 46. This has been offset by increased credit enhancement and improved credit quality. All overcollateralisation tests have been breached since 2008, leading to a diversion of excess spread and deferral of interest on the class D, E and F notes. The class C overcollateralisation test ratio has been improving, increasing by 1.78% since Fitch last reviews. It is currently 0.74% under the trigger level of 110% according to the June 2017 investor report. If the test were to cure, interest would cease to be diverted from the class D notes. The reinvestment period ended in June 2013 and the transaction documents currently prevent the manager from reinvesting principal proceeds. The class S-1 combination notes' rating reflects the rating of the class D component class. RATING SENSITIVITIES Given the increased concentration in the transaction and the increased proportion of RMBS assets in the portfolio (61.2% of the performing portfolio), Fitch ran a sensitivity assuming that non-amortising RMBS assets paid in full at their legal final maturity date. This resulted in model best pass ratings four notches lower for the class A notes, one category lower for the class B notes and one notch lower for the class C notes. ROYAL KPN: Fitch Affirms BB+ Sub. Capital Securities Rating ----------------------------------------------------------- Fitch Ratings has affirmed Netherlands-based Royal KPN N.V.'s (KPN) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB'. The Outlook on the IDR is Stable. KPN's rating reflects its leading position in the Dutch telecoms market. Competitive dynamics in the mobile and business segments are likely to remain challenging over the medium-term, but the combination of cost savings and modest growth in the consumer segment are likely to offset declines and drive a sustainable stabilisation in EBITDA and free cash-flow growth. KPN has to date maintained financial flexibility through sizeable financial investments and using proceeds from asset sales to improve leverage as well as equity returns. The flexibility provides KPN with sufficient scope to manage operational risks and is a core element in its credit profile and rating. KEY RATING DRIVERS Rational Fixed Market Structure: KPN generates about 30% of its revenues and probably a higher proportion of profits from the consumer fixed-line segment. Fitch estimates that around 80% of the total Dutch market by revenues is generated broadly equally by KPN and VodafoneZiggo. This creates an effective duopoly in local fixed access and a structurally supportive environment. Given the maturity of the Dutch broadband market, Fitch expects the market structure to instil rationality in the consumer broadband and fixed-line segments. KPN's early commercial agreements to allow wholesale access to its fibre (VULA) also limit the risk from increasing competition from virtual operators. Sustainable Consumer Position: KPN's strategy to invest in broadband networks, value-added bundled products and service quality should enable the company to compete more effectively and sustainably in the consumer market. The strategy provides some points of differentiation in less price sensitive segments of the market and enables KPN to plough back savings from reduced churn into customer retention and product improvement. KPN's household penetration of fixed-mobile bundles has increased to 40% (1H17) from 33% (1H16), while mobile subscriber acquisition and retention costs have improved on per subscriber basis during 1H17. Business Sector Decline to Persist: Fitch expects KPN's revenue declines from the business segment to continue into the medium term, but expect the rate of annual decline (9% 2015, 7% 2016 and 6% 1H17) to continue improving. The declines are driven by a repricing of single-play mobile services, loss of traditional fixed-line voice revenues, migration to IP based products, and competition. Visibility on the point of inflection, when new services, multi-play growth and solutions offset the declines remains low. This is reflected in Fitch base-case forecasts discussed below. Mobile Market Pressure May Increase: The entry of Tele2 as a mobile network operator has so far had minimal impact on KPN as result of its segment focus and bundled strategy. This however may begin to change over the next 12 to 24 months as Tele2 seeks to increase scale and T-Mobile Netherlands looks to improve its financial performance. Fitch is not confident about the long-term viability of Tele2's business model in its current form and are concerned that this may lead to less rational behaviour as the operator seeks to cover fixed costs and potentially an exit in its pursuit of a solution. These factors will continue to pose medium-term operational risks for KPN. Stable EBITDA, Improving FCF: Fitch base-case forecasts for KPN indicate that the company will be able to improve its free cash flow (FCF) along with an expansion in pre-dividend FCF margin to around 12% within the next two to three years from 9% in 2016. The expansion reflects broadly stable EBITDA and improvements in cash interest costs and lower capex. Fitch base-case EBITDA forecasts reflect the company's ongoing cost improvement programme and potential operational risks that may preclude further growth. These include increases in content costs, pricing pressure, execution risks in cost reduction and delayed revenue inflection within the business market segment. Maintaining Financial Flexibility: KPN's funds from operations (FFO) adjusted net leverage of 3.0x is comfortably within the 'BBB' rating level and provides about 0.5x of headroom. The headroom is partly driven by approximately EUR70 million of annual dividends received from its holding in Telefonica Deutschland and minimal tax payments due to sizeable tax assets. KPN's investment in Telefonica Deutschland (TEFD) is financial in nature and Fitch expects KPN will continue to slowly reduce its stake. To date the company has used sale proceeds from asset disposals for both shareholder returns and to maintain its operational and financial flexibility. Fitch believes KPN will continue to take this approach in the future. DERIVATION SUMMARY KPN's rating reflects its leading position in the Dutch telecoms market. The company has strong in-market scale and share that spans both fixed and mobile segments enabling it to pursue an effective product bundling strategy. KPN's leverage metrics at the 'BBB' level compare favourably to other western European telecoms incumbents, but these are offset by greater operational risks relating to its domestic mobile market and business segment. KPN has to date effectively managed these risks through operational execution and maintaining financial flexibility. KPN's rating is anchored in the middle of its western European telecoms peer group. Telecoms operators with a similar domestic focus such as TDC A/S (BBB-/Stable), Telecom Italia S.p.A and BT Group Plc (BBB+/Stable) have a lower rating due to higher leverage and lower financial flexibility or a higher rating due to better competitive dynamics in the domestic market with similarly strong leverage metrics. Higher-rated peers such as Orange S.A. (BBB+/Stable), Deutsche Telekom AG (BBB+/Stable) and Telefonica SA (BBB/Stable) have similar strong domestic profiles but also benefit from greater geographic diversification and scale. KEY ASSUMPTIONS Fitch's key assumptions within Fitch ratings case for the issuer include: - revenue decline of -3% in 2017 improving to -1% by 2019; - broadly stable EBITDA around EUR2.4 billion , driven by a 2.5 percentage point improvement in EBITDA margin between 2016 and 2019; - a stable capex-to-sales ratio of 17.5% (excluding spectrum); - a dividend payout ratio between 60% - 70% of pre-dividend FCF (excluding any dividend proceeds from TEFD); - all TEFD dividends received are passed through to shareholders. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Revenue and EBITDA growth across all divisions combined with strengthened operating profile and competitive capability - Expectations of FFO adjusted net leverage sustainably below 3.0x - Reduced competitive risks in the mobile segment which Fitch currently see as unlikely in the short to mediumterm Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - A deterioration in KPN's domestic operations that result in declining EBITDA. - Expectations of FFO adjusted net leverage remaining above 3.5x on a sustained basis - Aggressive shareholder remuneration policy that is perceived by Fitch not be in line with company's operating risk profile LIQUIDITY Comfortable Liquidity: KPN has a strong liquidity position as a result of existing cash resources, free cash-flow generation and committed available credit facilities. At end-1H17 KPN had cash and cash equivalents amounting to EUR916 million and a revolving credit facility of EUR1.25 billion that is available until July 2022. Apart from the first call date of its euro-denominated hybrids in 2018, KPN has no bond maturities over the next 12 months. FULL LIST OF RATING ACTIONS Royal KPN N.V -- Long-Term IDR: affirmed at 'BBB', Outlook Stable; -- Senior unsecured debt: affirmed at 'BBB'; -- Subordinated capital securities: affirmed at 'BB+'; WOOD STREET 1: Moody's Affirms Ba3 Rating on Class E Notes ----------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by Wood Street CLO 1 B.V.: -- EUR27.75M Class D1 Senior Secured Deferrable Floating Rate Notes, Upgraded to Aa3 (sf); previously on Feb 13, 2017 Upgraded to Baa1 (sf) -- EUR1.5M Class D2 Senior Secured Deferrable Floating Rate Notes, Upgraded to Aa3 (sf); previously on Feb 13, 2017 Upgraded to Baa1 (sf) Moody's also affirmed the ratings on the following notes: -- EUR29.93M (Current outstanding balance of EUR28.1M) Class C Senior Secured Deferrable Floating Rate Notes, Affirmed Aaa (sf); previously on Feb 13, 2017 Affirmed Aaa (sf) -- EUR10.58M Class E Senior Secured Deferrable Floating Rate Notes, Affirmed Ba3 (sf); previously on Feb 13, 2017 Upgraded to Ba3 (sf) Wood Street CLO 1 B.V., issued in September 2005, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Alcentra Limited. The transaction's reinvestment period ended in November 2011. RATINGS RATIONALE The rating upgrades of the notes are primarily a result of the deleveraging of the senior notes following amortisation of the underlying portfolio since the last rating action in February 2017 and also the improvement in the credit quality of the portfolio. Moody's notes that following the May 2017 payment date the Class B Notes have fully redeemed and that the Class C Notes have partially redeemed by EUR1.83M. As a result of the deleveraging, the OC ratios of the notes have increased for Classes C and D. According to the June 2017 trustee report, the classes C and D OC ratios are 283.70% and 138.99% respectively compared to the levels at the last rating action in February 2017 216.55% and 136.27%. Moody's has incorporated in its analysis one lowly rated exposure totalling EUR4M that is reported to be repaying shortly. 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 a principal proceeds balance of EUR8.93M and performing par balance of EUR62.57 million, a weighted average default probability of 19.62% (consistent with a WARF of 3179 and a weighted average life of 3.28 years), a weighted average recovery rate upon default of 48.91% for a Aaa liability target rating and a diversity score of 8. 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 analyzing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in October 2016. Factors that would lead to an upgrade or downgrade of the ratings: In addition to the base-case analysis, Moody's conducted sensitivity analyses on the key parameters for the rated notes, for which it lowered the weighted average recovery rate by 5 percentage points; the model generated outputs that were unchanged for Class C and within two notches of the base case results for Classes D and E. This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, in light of uncertainty about credit conditions in the general economy. CLO notes' performance may also be impacted either positively or negatively by 1) the manager's investment strategy and behaviour and 2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. * Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. * Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over- collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analysed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. * Lack of portfolio granularity: The performance of the portfolio depends on the credit conditions of a few large obligors. Because of the deal's low diversity score and lack of granularity, Moody's substituted its typical Binomial Expansion Technique analysis by a simulated default distribution using Moody's CDOROMTM software. * Around 15.73% of the 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. * Long-dated assets: The presence of assets that mature beyond the CLO's legal maturity date exposes the deal to liquidation risk on those assets. Moody's assumes that, at transaction maturity, the liquidation value of such an asset will depend on the nature of the asset as well as the extent to which the asset's maturity lags that of the liabilities. Liquidation values higher than Moody's expectations would have a positive impact on the notes' ratings. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. WP/AV CH HOLDINGS: S&P Assigns 'B' Long-Term CCR, Outlook Stable ---------------------------------------------------------------- S&P Global Ratings said it has assigned its 'B' long-term corporate credit rating to WP/AV CH Holdings II B.V., a holding company of Swiss software company Avaloq. The outlook is stable. S&P said, "We also assigned our 'B' issue rating to Avaloq's Swiss franc (CHF) 350 million equivalent term loan B and CHF60 million revolving credit facility (RCF). The recovery rating on the debt is '3', indicating our expectation of meaningful recovery prospects (rounded estimate: 60%) in the event of a payment default. "The ratings are in line with the preliminary ratings we assigned on June 2, 2017 (see "Swiss Software Company Avaloq Assigned Preliminary 'B' Rating; Outlook Stable," published on RatingsDirect. Avaloq has recently issued a CHF350 million equivalent term loan B as part of the acquisition of a significant minority stake in the company by private equity firm Warburg Pincus. S&P said, "We consider Avaloq to be private-equity controlled as Warburg Pincus is currently the biggest shareholder. "Our rating on Avaloq reflects its high debt, narrow focus, modest profitability, some customer concentration, and potentially some revenue volatility. However, it also incorporates Avaloq's leading position in the Swiss software market, very high customer retention rates thanks to mission- critical products, good free operating cash flow (FOCF) generation, and strong liquidity. "Our assessment of Avaloq's business risk profile is constrained by its narrow focus on software for private banking, two nascent processing centers, and limited geographic diversity compared with many of its competitors, including Sungard. In our view, Avaloq has limited brand awareness in the rest of Europe and Asia-Pacific, which are highly fragmented and where Avaloq needs to compete with significantly larger and well-known industry players for banks; IT outsourcing budgets. The business risk profile is further constrained by Avaloq's relatively low margins for a software company. This is primarily because of historically negative margins for transaction processing as new processing centers have not yet reached critical scale (and to some extent due to previous investments in these centers), as well as the high operating leverage embedded in Avaloq's operating model, where recurring research and development costs are relatively significant and fixed in order for the company to maintain its technological competitive advantage. Additional constraints include relatively high customer concentration in comparison with peers, which is a result of Avaloq's relatively small customer base; some reliance on license sales, which could lead to some revenue and margin volatility over the year; and our anticipation of declining revenues in 2017-2019 due to the known loss of two large contracts. "These constraints are somewhat offset by Avaloq's solid position in the wealthy and attractive Swiss market, which also benefits from very low country risk and continued growth in wealth. Additionally, we view Avaloq's products as mission-critical software for banks to perform real-time operations. Banks therefore have very high switching costs, which creates extremely high customer stickiness. As a result, Avaloq has a track record of no customer voluntarily switching to a competitor and customer losses only due to acquisitions over a long period of time. Avaloq further benefits from a relatively large predictable recurring revenue stream of nearly 70% of revenues, and relatively favorable prospects for banks; IT outsourcing trends given increased competition and compliance costs -- all of which require banks to become more efficient and provide further room for growth from new customers. Finally, we think Avaloq's diversification in the high value-add of transaction processing to banks is a positive, given fairly limited competition in this space in Europe. "We understand that Avaloq has a joint venture with Raiffeisen (Arizon), which is recognized as an equity associate. We currently do not factor any meaningful short-term benefit or risk related to this asset. "Our assessment of Avaloq's financial risk profile is constrained by the recent recapitalization and the fact that ratios will weaken in 2018 and 2019 due to some of the group's contracts being terminated and the related revenue attrition in the next two years. The proposed recapitalization reflects pro forma S&P Global Ratings-adjusted debt to EBITDA of about 5.9x for 2016. We adjust the company's EBITDA for capitalized development costs. We also adjust the company's figures for unfunded pension liabilities (about CHF66 million added to debt in 2016) and operating leases (about CHF62 million added to debt and about CHF17 million added to EBITDA). We expect meaningful improvement in EBITDA in 2017, primarily thanks to lower capitalized development costs and removal of a lossmaking contract, driving adjusted debt to EBITDA to less than 5x in 2017. However, we anticipate that the known terminated customers contracts will lead to an increase in adjusted leverage to well above 5x by 2019. This is partly offset by relatively solid free cash flow generation, which we expect to remain at 5% of debt or more throughout 2019, and our forecast of solid EBITDA cash interest coverage of more than 4x. In S&P's base-case operating scenario for Avaloq, it assumes: -- Revenue growth of about 2% in 2017, reflecting lower software license sales due to a decline in the company's order book but more than offset by increased maintenance and new processing transactions. -- Revenue decline of about 15% in 2018, recovering to a decline of about 2% in 2019, mainly owing to the aforementioned contract terminations, only somewhat offset by new processing transactions. -- Adjusted EBITDA margin improving to about 21% in 2017 from about 14% in 2016, mainly due to the removal of a lossmaking contract and the end of the launch project for the German processing center, declining to about 18% by 2019 due to the revenue decline, partly offset by cost reduction. -- Capital expenditures (capex) of about CHF20 million, excluding capitalized development costs. Based on these assumptions, S&P arrives at the following credit measures: -- Adjusted debt to EBITDA temporarily below 5.0x at 4.3x in 2017, before increasing to nearly 6.0x in 2019; -- Adjusted funds from operations (FFO) to debt of about 18% in 2017, declining to about 10%-11% in 2019; and -- Adjusted FOCF to debt of about 12% in 2017, declining to about 6% in 2019. S&P said, "The stable outlook reflects our expectation that Avaloq will grow its customer base outside of Switzerland, maintain very high retention with the exception of the two known customer losses, improve its adjusted EBITDA margin toward 20% thanks to cost efficiencies, and maintain at least adequate liquidity. "We could raise the rating if Avaloq were to reduce adjusted debt to EBITDA to sustainably less than 5x, coupled with revenue and EBITDA growth. We forecast this to be the case in 2017 but we currently do not see this as sustainable over the medium term, given the expected revenue decline in 2018 following certain contract terminations. "We currently see near-term prospects of a downgrade as remote given the company's strong liquidity and our expectation of solid free cash flow generation. However, we could lower the rating if the financial policy was more aggressive than we expected, leading to leverage increasing sustainably to the middle of the 6x-7x range, coupled with operational issues (for example, big customer losses), leading to the company burning cash or having minimal cash balances." * NETHERLANDS: Number of Corporate Bankruptcies Down in July ------------------------------------------------------------ Statistics Netherlands reports that the number of corporate bankruptcies has fallen. According to Statistics Netherlands, there were 34 fewer bankruptcies in July than in June 2017. The decline follows an increase in May and June. Most bankruptcies in July were recorded in the trade sector, Statistics Netherlands notes. If the number of court session days is not taken into account, 251 businesses and institutions (excluding one-man businesses) were declared bankrupt in July 2017, Statistics Netherlands discloses. With a total of 50, the trade sector suffered most, Statistics Netherlands states. Trade is among the sectors with the highest number of businesses, Statistics Netherlands relays. In July, the number of bankruptcies was relatively highest in the sector renting and other business services, according to Statistics Netherlands. =========== P O L A N D =========== CYFROWY POLSAT: Moody's Revises Outlook to Pos., Affirms Ba2 CFR ---------------------------------------------------------------- Moody's Investors Service has changed to positive from stable the outlook on the ratings of Cyfrowy Polsat S.A. Concurrently, Moody's has affirmed the company's Ba2 corporate family rating (CFR) and its Ba2-PD probability of default rating (PDR). "The change in outlook to positive reflects Polsat's track record of solid free cash flow generation, its declining leverage as well as its conservative financial policies and net leverage target of 1.75x," says Alejandro Nunez, a Moody's Vice President -- Senior Analyst, and lead analyst for Polsat. RATINGS RATIONALE Polsat's Ba2 ratings reflect: (1) its strong market positions in TV broadcasting, pay-TV and mobile communications in Poland; (2) the synergy opportunities from its exposure to both content and mobile markets as evidenced by the strong uptake of its multiplay smartDOM offer; (3) its consistent deleveraging over the past two years which Moody's expects will continue during 2017-2018 in line with the company's net leverage target of 1.75x over the medium term; (4) the company's simplified corporate and capital structures following the acquisition of Midas and debt refinancing in 2016-2017; and (5) its good liquidity profile and reduced foreign exchange exposure. The rating also reflects: (1) Polsat's broadly stable operational performance despite strong GDP growth in Poland amidst market dynamics that are more challenging in the mobile telecoms segment than in the pay-TV market; (2) its unproven LTE development strategy based on frequency refarming; (3) its TV & mobile- centric model somewhat vulnerable to converged fixed-mobile competition; and (4) its low capex to sales ratio relative to peers. Polsat has demonstrated an adherence to its conservative financial policies over the past two years, not only by reducing its net leverage target to a range of 1.75x (from company- reported 2.5x net debt/EBITDA previously), but also through its implementation of a modest, gradual dividend payout. In June 2017, Polsat announced a dividend of PLN0.32 per share (totaling PLN204.7 million) for FY2017. Moody's views this dividend payout as prudent in the context of Polsat's cash flow generation and the flexibility it grants the company in progressing toward its medium-term leverage target. As was anticipated in early 2016, Polsat reduced its debt load by over 10% between Q1 2016 and April 2017, principally through the repayment of PLN371 million Midas term loans in April 2016, PLN375 million 16.0% Midas notes in May 2016 and PLN939 million 10% Litenite notes in April 2017 (including accrued interest and applicable call premia, totaling approximately PLN1.685 billion). As a result, the company reduced its Moody's-adjusted leverage by 0.85x over that period, from 4.15x in Q1 2016 to 3.30x as of April 2017. Polsat's debt structure is comprised exclusively of zloty- denominated term loans and PLN1.0 billion of Series A senior unsecured notes (unrated) due 2021. In order for the company to progress toward its stated net leverage target, Polsat may voluntarily prepay a portion of its outstanding debt over the next 18-24 months aside from the principal amortization of certain term loans. RATIONALE FOR POSITIVE OUTLOOK The change in outlook to positive from stable primarily reflects the improvement in Polsat's leverage and cash-flow credit protection metrics, largely as a result of the company's proactive debt reduction over the past year. While Moody's expects that Polsat's operating performance and profitability will remain broadly stable over the next two years, sustained healthy free cash flow generation will allow the company to continue reducing debt. The positive outlook reflects Moody's expectations that Polsat's gross leverage will continue to decline gradually toward 3.0x while its Retained Cash Flow (RCF) / Gross Debt will rise gradually toward 25% over the next 12 to 18 months (both ratios as adjusted by Moody's). The outlook also incorporates an expectation that Polsat will not implement during that time horizon any material credit-adverse changes to its current dividend and/or leverage policies. WHAT COULD CHANGE THE RATING UP / DOWN Positive rating pressure could develop on Polsat's ratings were it to achieve a Gross Debt / EBITDA ratio consistently below 3.0x and a Retained Cash Flow (RCF) / Gross Debt sustainably above 25% (both ratios as adjusted by Moody's). Negative pressure could be exerted on Polsat's ratings as a result of a material weakening of its operating performance and/or an increase in debt levels resulting in Gross Debt / EBITDA and/or RCF / Gross Debt (both as adjusted by Moody's) sustainably above 3.5x and below 20%, respectively. A material deterioration of Polsat's good liquidity would also exert downward pressure on its ratings. LIST OF AFFECTED RATINGS Affirmations: Issuer: Cyfrowy Polsat S.A. -- LT Corporate Family Rating, Affirmed Ba2 -- Probability of Default Rating, Affirmed Ba2-PD Outlook Actions: Issuer: Cyfrowy Polsat S.A. -- Outlook, Changed To Positive From Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017. Polsat is one of Poland's largest companies and one of the Central and Eastern European region's leading media and telecommunications companies. As the largest pay-TV provider in Poland and one of the leading satellite platforms in Europe, Polsat offers access to over 180 TV channels. Polsat is also present in Poland's TV broadcasting and television production markets, through its commercial TV broadcast subsidiary Telewizja Polsat, offering 24 popular TV channels including 17 channel in HD standard. Through its subsidiary Polkomtel's 2G/3G/LTE mobile telecommunications network, it offers retail mobile voice and broadband services. It also offers wholesale services to other telecommunications operators, including network interconnection, roaming, shared access to network assets and the lease of its network infrastructure. The Cyfrowy Polsat Group is listed on the Warsaw stock exchange and it is majority owned indirectly by Mr. Zygmunt Solorz. In FY2016, Polsat reported consolidated revenue of PLN9.7 billion and EBITDA of PLN3.6 billion with an EBITDA margin of 37.4%. =========== R U S S I A =========== ANELIK RU: Bank of Russia Revokes Banking License ------------------------------------------------- The Bank of Russia, by its Order No. OD-2244, dated August 9, 2017, revoked the banking license of Moscow-based credit institution Commercial Bank Anelik RU (limited liability company), or CB Anelik RU LLC (Registration No. 3443) from August 9, 2017, according to the press service of the Central Bank of Russia. According to the financial statements, as of July 1, 2017, the credit institution ranked 524th by assets in the Russian banking system. The Bank was a settlement centre of one of the payment systems; however, the Bank of Russia did not categorize it as an important credit institution in the payment services market. It was revealed that CB Anelik RU repeatedly violated law on countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism, including, but not limited to, the complete and reliable notification of the authorized body about operations subject to obligatory control. Starting from late 2016, the bank was involved in dubious transactions associated with overseas money transfers and cashing out, as well as transit operations. The management and owners of CB Anelik RU have failed to take appropriate measures to prevent the credit institution from becoming involved in dubious operations of its clients. Under the circumstances, the Bank of Russia took the decision to withdraw CB Anelik RU from the banking services market. The Bank of Russia took such an extreme measure -- revocation of the banking license -- because of the credit institution's failure to comply with federal banking laws and Bank of Russia regulations, repeated violations within a year of Bank of Russia requirements stipulated by Articles 6 and 7 (excluding Clause 3 of Article 7) of the Federal Law "On Countering the Legalisation (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism" as well as Bank of Russia regulations issued in accordance with the said law and application of the measures stipulated by the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)", taking into account. BANK RESERV: Put On Provisional Administration, License Revoked --------------------------------------------------------------- The Bank of Russia, by its Order No. OD-2240, dated August 9, 2017, revoked the banking license of Chelyabinsk-based credit institution THE BANK FOR SOCIAL DEVELOPMENT RESERV (STOCK COMPANY) or BANK RESERV (SC) (Registration No. 2364) from August 9, 2017, according to the press service of the Central Bank of Russia. According to the financial statements, as of July 1, 2017, the credit institution ranked 415th by assets in the Russian banking system. The operations of BANK RESERV (SC) bear elevated credit risks. The supervisory authority has repeatedly requested the bank to create additional provisions. In June and July this year, the Bank of Russia's supervisory efforts revealed in the credit institution operations aimed at replacement of high-quality liquid assets with dubious assets. Furthermore, the Bank of Russia revealed circumstances pointing to the bank's efforts to conceal the loss of considerable funds. The creation of additional loss provisions resulted in the considerable decline in the bank's capital and its operations show reasons for bankruptcy (insolvency) prevention measures. The Bank of Russia repeatedly applied supervisory measures to BANK RESERV (SC), including three impositions of restrictions on household deposit taking. The bank's management disassociated themselves from solving the problems, which points to a lack of prospects for bringing its activity back to normal. Under the circumstances, the Bank of Russia took the decision to withdraw BANK RESERV (SC) from the banking services market. The Bank of Russia takes this extreme measure -- revocation of the banking license -- because of the credit institution's failure to comply with federal banking laws and Bank of Russia regulations, due to repeated application within a year of measures envisaged by the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)", considering a real threat to the creditors' and depositors' interests. The Bank of Russia, by its Order No. OD-2241, dated August 9, 2017, appointed a provisional administration to BANK RESERV (SC) for the period until the appointment of a receiver pursuant to the Federal Law "On the Insolvency (Bankruptcy)" or a liquidator under Article 23.1 of the Federal Law "On Banks and Banking Activities". In accordance with federal laws, the powers of the credit institution's executive bodies have been suspended. BANK RESERV (SC) is a member of the deposit insurance system. The revocation of the banking license is an insured event as stipulated by Federal Law No. 177-FZ "On the Insurance of Household Deposits with Russian Banks" in respect of the bank's retail deposit obligations, as defined by law. The said Federal Law provides for the payment of indemnities to the bank's depositors, including individual entrepreneurs, in the amount of 100% of the balance of funds but no more than a total of RUR1.4 million per one depositor. KONTINENT FINANS: Put On Provisional Administration --------------------------------------------------- The Bank of Russia, by its Order No. OD-2242, dated August 9, 2017, revoked the banking license of Moscow-based credit institution non-bank credit institution Kontinent Finans (public joint-stock company) or NCI Kontinent Finans (PJSC) (Registration No. 149-K) from August 9, 2017, according to the press service of the Central Bank of Russia. According to the financial statements, as of July 1, 2017, the credit institution ranked 568th by assets in the Russian banking system. NCI Kontinent Finans (PJSC) is not a member of the deposit insurance system. Besides, the NCI failed to comply with law on countering the legalisation (laundering) of criminally obtained incomes and the financing of terrorism, including, but not limited to, the credible notification of the authorised body about operations subject to obligatory control. Furthermore, the credit institution carried out dubious cash out transactions to purchase and sale investment-grade coins of precious metals. The management and owners of NCI Kontinent Finans (PJSC) have failed to take appropriate measures to prevent the credit institution from becoming involved in dubious operations of its customers. Under the circumstances, the Bank of Russia took the decision to withdraw NCI Kontinent Finans (PJSC) from the banking services market. The Bank of Russia took this decision due the credit institution's failure to comply with federal banking laws and Bank of Russia regulations, repeated violations within one year of the requirements stipulated by Article 7 (except for Clause 3 of Article 7) of the Federal Law "On Countering the Legalisation (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism", and the requirements of Bank of Russia regulations issued in compliance with the indicated Federal Law, and taking into account repeated applications within one year of measures envisaged by the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)". The Bank of Russia, by its Order No. OD-2243, dated August 9, 2017, appointed a provisional administration to NCI Kontinent Finans (PJSC) for the period until the appointment of a receiver pursuant to the Federal Law "On the Insolvency (Bankruptcy)" or a liquidator under Article 23.1 of the Federal Law "On Banks and Banking Activities". In accordance with federal laws, the powers of the credit institution's executive bodies have been suspended. VSK INSURANCE: Fitch Affirms BB- IFS Rating, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed Russia-based VSK Insurance Joint Stock Company's (VSK) Insurer Financial Strength (IFS) Rating at 'BB-', Issuer Default Rating (IDR) at 'BB-' and senior unsecured debt at 'BB-'. The Outlooks are Stable. KEY RATING DRIVERS The ratings reflect VSK's strong operating profitability, supported by investment return and the adequate quality of the insurer's investment portfolio. The ratings are negatively impacted by the weak risk-adjusted capital position of VSK, its high exposure to a single line with a deteriorating loss ratio (motor third-party liability insurance; MTPL) and somewhat weak liquidity position. The alignment of the IFS Rating with the IDR reflects the soft cap "Average" recovery assumptions Fitch applies to Russia. The rating of the bond is aligned with VSK's IDR, as a baseline recovery assumption of 'average' is applied. Significant net profit generation over 2016 increased the company's available capital, which was partially offset by higher target capital as a result of an increase in net premiums. VSK's risk-adjusted capital position, as measured by Fitch's Prism factor-based model, remained in the 'weak' category based on 2016 results. In terms of regulatory requirements VSK's statutory solvency margin was 197% at end-2016, slightly higher than 193% at end-1H16. In 2016 VSK's profitability remained robust, with a return on equity at 29%, in line with the 32% reported in 2015. The net result for 2016 was underpinned by historically strong investment return and by a positive underwriting result. The company's combined ratio improved to 94.3% in 2016, from 100.9% in 2015. This was mainly driven by an improvement in the loss ratio (excluding subrogation income) to 58.4% in 2016 from 65.4% in 2015. This improvement in the loss ratio was due to the voluntary motor damage line and, to a lesser extent, the non- motor lines, which together accounted for 60% of net written premiums in 2016, and one-off releases of reserves following an actuarial review. Fitch, however, expects VSK's combined ratio to deteriorate in 2017 as the company continues its expansion in MTPL which is loss-making in Russia. VSK remains highly concentrated in the MTPL business. The MTPL line accounted for 40% of net written premiums in 2016 and the loss ratio (including claims handling expenses) was 80.2% in 2016 based on an internal actuarial assessment, albeit down from 82.6% in 2015. This was exacerbated by VSK's recent acquisition of VTB insurance's compulsory MTPL business, as the size of the portfolio being acquired represented around 3% of VSK's total existing business by reserves at end-2016. However, as the portfolio is in run-off, Fitch does not expect this acquisition to lead to a long-term shift in the business mix. VSK has recently made numerous acquisitions, including a number of insurance companies linked to its shareholders: IC VSK Lifeline in July 2017, IC Europlan in June 2017 and BIN Insurance in July 2016. These acquisitions were part of VSK's strategy to bring the group's insurance businesses under VSK's direct control. Due to the small size of the acquired companies relative to VSK's existing business, Fitch does not believe that the acquisitions have significantly affected the insurer's credit profile. VSK's liquidity position remains weak, but is gradually improving, with the provisional liquid assets-to-net technical reserves ratio at 87% at end-2016, versus 85% at end-2015. The average credit quality of VSK's investment portfolio is strong for the ratings. Fitch views the company's financial flexibility as adequate for the ratings. RATING SENSITIVITIES The ratings could be downgraded if the combined ratio deteriorates to above 105% on a sustained basis, or if VSK's capital strength, as assessed by Fitch, weakens significantly. A downgrade may also result from material deterioration in investment or liquidity risks. The ratings could be upgraded if VSK achieves a profitable diversification of the insurance portfolio, or if VSK's capital strengthens significantly. =========================== U N I T E D K I N G D O M =========================== LEHMAN BROTHERS: UK Administrator Warns of Financial Crisis ----------------------------------------------------------- Holly Williams at the Press Association reports that the UK administrator of collapsed investment bank Lehman Brothers has warned the risks of another financial crisis loom large and said regulators would still struggle to contain investor panic. A decade on from the start of the financial crisis, Tony Lomas -- the PwC partner in charge of the administration of the bank -- told the Press Association the complexity of financial products means "there is always a risk" of another meltdown. Despite the lessons learned over the past 10 years, Mr. Lomas, as cited by the Press Association, said regulators would still find it hard to stop a firm going bust once investor and market confidence was lost. Mr. Lomas said he hoped measures put in place in recent years and incoming ring-fencing rules to protect retail customer money would see another Lehman-style collapse picked up sooner and allow a more orderly wind-down, the Press Association relates. "Once the market has lost confidence in a financial institution, it rapidly deteriorates and I find it hard to see how you can restore that," the Press Association quotes Mr. Lomas as saying. "I find it hard to imagine that you can stop that rush of business out the door by various devices that have been introduced over the past six or seven years." According to the Press Association, the administrators repaid all of the GBP35 billion owed to creditors of the European arm of Lehman three years ago -- with a surplus of between GBP7.5 billion and GBP8 billion after fees, in what Mr. Lomas describes as a "stupendous outcome". Hedge funds, together with US parent Lehman Brothers Inc, are wrangling in the courts to claim their share of the UK surplus, the Press Association relays. Mr. Lomas hopes that if a settlement can be reached, it could finally resolve the UK administration process some time next spring, the Press Association notes. If it is left to play out in the courts, however, it could rumble on for another four or five years, the Press Association states. Mr. Lomas said it has been a "phenomenal journey", leading a team that at one time included 5,000 Lehman staff and 500 PwC employees, the Press Association relates. According to the Press Association, now, there are still around 30 ex-Lehman staff and 15 PwC employees working on the case. The costs of the UK administration so far have run to GBP2.7 billion, although this pales in comparison to the many billions of dollars paid in US bankruptcy proceedings, the Press Association discloses. The process is still some way off completing in the US and will land creditors with a hefty shortfall, with just 30 to 40 cents in the dollar expected to be returned, the Press Association states. About Lehman Brothers Lehman Brothers Holdings Inc. -- http://www.lehman.com/-- was the fourth largest investment bank in the United States. For more than 150 years, Lehman Brothers has been a leader in the global financial markets by serving the financial needs of corporations, governmental units, institutional clients and individuals worldwide. Lehman Brothers filed for Chapter 11 bankruptcy Sept. 15, 2008 (Bankr. S.D.N.Y. Case No. 08-13555). Lehman's bankruptcy petition disclosed US$639 billion in assets and US$613 billion in debts, effectively making the firm's bankruptcy filing the largest in U.S. history. Several other affiliates followed thereafter. Affiliates Merit LLC, LB Somerset LLC and LB Preferred Somerset LLC sought for bankruptcy protection in December 2009. The Debtors' bankruptcy cases were assigned to Judge James M. Peck. Judge Shelley Chapman took over the case after Judge Peck retired from the bench to join Morrison & Foerster. A team of Weil, Gotshal & Manges, LLP, lawyers led by the late Harvey R. Miller, Esq., serve as counsel to Lehman. Epiq Bankruptcy Solutions serves as claims and noticing agent. Dennis F. Dunne, Esq., Evan Fleck, Esq., and Dennis O'Donnell, Esq., at Milbank, Tweed, Hadley & McCloy LLP, in New York, served as counsel to the Official Committee of Unsecured Creditors. Houlihan Lokey Howard & Zukin Capital, Inc., served as the Committee's investment banker. On Sept. 19, 2008, the Honorable Gerard E. Lynch of the U.S. District Court for the Southern District of New York, entered an order commencing liquidation of Lehman Brothers, Inc., pursuant to the provisions of the Securities Investor Protection Act (Case No. 08-CIV-8119 (GEL)). James W. Giddens was appointed as trustee for the SIPA liquidation of the business of LBI. He is represented by Hughes Hubbard & Reed LLP. The Bankruptcy Court approved Barclays Bank Plc's purchase of Lehman Brothers' North American investment banking and capital markets operations and supporting infrastructure for US$1.75 billion. Nomura Holdings Inc., the largest brokerage house in Japan, purchased LBHI's operations in Europe for US$2 plus the retention of most of employees. Nomura also bought Lehman's operations in the Asia Pacific for US$225 million. Lehman emerged from bankruptcy protection on March 6, 2012, more than three years after it filed the largest bankruptcy in U.S. history. The Chapter 11 plan for the Lehman companies other than the broker was confirmed in December 2011. * * * In October 2016, the team winding down LBHI paid $3.8 billion to creditors, the 11th distribution since Lehman's collapse in 2008. This brought the total payout to more than $113.6 billion. Bondholders were projected to receive about 21 cents on the dollar when Lehman's bankruptcy plan went into effect in early 2012. The 11th distribution raised the bondholders' recovery to more than 40 cents on the dollar and recoveries for general unsecured creditors of Lehman's commodities to 79 cents on the dollar. Lehman's aggregate 12th distribution to unsecured creditors pursuant to its confirmed Chapter 11 plan will total approximately $3.0 billion. REDX PHARMA: Joint Administrators Mull Options for Business ----------------------------------------------------------- Alliance News reports that Redx Pharma PLC on Aug. 10 said its joint administrators have published their proposals, as they seek to bring the company out of administration. The company was put into administration after a loan from Liverpool City Council came due, and although Redx made an offer to pay an immediate GBP1.0 million partial repayment, with the balance payable within seven days, this was declined by the council, Alliance News recounts. Jason Baker and Miles Needham of FRP Advisory LLP were appointed as joint administrators, Alliance News discloses. The administrators looked to rescue the company, considering two options -- exploring raising additional funding to repay all creditors, and or realise some of the assets held by the company, and use the assets to rescue the company, or a potential combination of the two options, Alliance News relays. According to Alliance News, the administrator said after talking with major shareholders, it "became clear" the amount of funding it would need to return the company as a going concern would not "realistically be achievable" through a shareholder fundraise. Additionally, a significant shareholder expressed it would seek to vote down any fund raise that would dilute existing shareholders, Alliance News notes. Therefore, the administrators concluded that the "only realistic strategy" was to realise certain assets held by the company, according to Alliance News. Ultimately, it was agreed with Loxo Oncology Inc to sell the BTK inhibitor drug development program for USD40 million, and this deal was completed in July, Alliance News recounts. The administrators, as cited by Alliance News, said that, while Redx is now in a position to settle all creditor claims in full, they must first undertake certain statutory duties before exiting administration. Shares in Redx remain suspended, Alliance News notes. Redx Pharma is focused on the discovery and development of proprietary, small molecule therapeutics to address areas of high unmet medical need, in cancer, immunology and infection. =============== X X X X X X X X =============== * BOOK REVIEW: The Money Wars ----------------------------- Author: Roy C. Smith Publisher: Beard Books Softcover: 370 pages List Price: $34.95 Review by David Henderson Get your own personal today at http://www.amazon.com/exec/obidos/ASIN/1893122697/internetbankrup t Business is war by civilized means. It won't get you a tailhook landing on an n aircraft carrier docked in San Diego, but the spoils of war can be glorious to behold. Most executives do not approach business this way. They are content to nudge along their behemoths, cash their options, and pillage their workers. This author calls those managers "inertia ridden." He quotes Carl Icahn describing their companies as run by "gross and widespread incompetent management." In cycles though, the U.S. economy generates a few business warriors with the drive, or hubris, to treat the market as a battlefield. The 1980s saw the last great spectacle of business titans clashing. (The '90s, by contrast, was an era of the investment banks waging war on the gullible.) The Money Wars is the story of the last great buyout boom. Between 1982 and 1988, more than ten thousand transactions were completed within the U.S. alone, aggregating more than $1 trillion of capitalization. Roy Smith has written a breezy read, traversing the reader through an important piece of U.S. history, not just business history. Two thirds of the way through the book, after covering early twentieth century business history, the growth of financial engineering after WWII, the conglomerate era, the RJR-Nabisco story, and the financial machinations of KKR, we finally meet the star of the show, Michael Milken. The picture painted by the author leads the reader to observe that, every now and then, an individual comes along at the right time and place in history who knows exactly where he or she is in that history, and leaves a world-historical footprint as a result. Whatever one may think of Milken's ethics or his priorities, the reader will conclude that he is the greatest financial genius this country has produced since J.P. Morgan. No high-flying financial era has ever happened in this country without the frothy market attracting common criminals, or in some cases making criminals out of weak, but previously honest men (and it always seems to be men). Something there is about testosterone and money. With so many deals being done, insider trading was inevitable. Was Michael Milken guilty of insider trading? Probably, but in all likelihood, everybody who attended his lavish parties, called "Predators' Balls," shared the same information. Why did the Justice Department go after Milken and his firm, Drexel Burnham Lambert with such raw enthusiasm? That history has not yet been written, but Drexel had created a lot of envy and enemies on the Street. When a better history of the period is written, it will be a study in the confluence of forces that made Michael Milken's genius possible: the sclerotic management of irrational conglomerates, a ready market for the junk bonds Milken was selling, and a few malcontent capitalist like Carl Icahn and Ted Turner, who were ready and able to wage their own financial warfare. This book is a must read for any student of business who did not live through any of these fascination financial eras. Roy C. Smith is a professor of entrepreneurship, finance and international business at NYU, and teaches on the faculty there of the Stern School of Business. Prior to 1987, he was a partner at Goldman Sachs. He received a B.S. from the Naval Academy in 1960 and an M.B.A. from Harvard in 1966. ********* 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. 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