/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/171017.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 Tuesday, October 17, 2017, Vol. 18, No. 206 Headlines D E N M A R K FALCK-SCHMIDT DEFENSE: Economic Turmoil Prompts Bankruptcy G E R M A N Y AIR BERLIN: IAG Sees Competition Issues with Lufthansa Deal AIR BERLIN: Austria's BWB Sees Lufthansa Monopoly in Vienna I R E L A N D BAIN CAPITAL 2017-1: S&P Assigns B- (sf) Rating to Class F Notes I T A L Y ALITALIA SPA: Lufthansa Offers EUR500MM for Planes, Slots, Crew L A T V I A RIGAS KUGU: Creditors File Insolvency Petition to Court N E T H E R L A N D S AI AVOCADO: S&P Downgrades CCR to B-, Outlook Stable JUBILEE CLO 2015-XV: S&P Affirms B- (sf) Rating on Class F Notes P O R T U G A L GAMMA ATLANTES NO. 2: S&P Raises Class C Notes Rating to BB (sf) LUSITANO MORTGAGES NO. 3: S&P Raises Rating on Cl. B Notes to BB- R U S S I A BANK OTKRITIE: S&P Retains 'B+' CCR on Watch Developing U N I T E D K I N G D O M BREWBOT: Enters Into Company Voluntary Arrangement MONARCH AIRLINES: IAG Eyes London Gatwick Slots ********* ============= D E N M A R K ============= FALCK-SCHMIDT DEFENSE: Economic Turmoil Prompts Bankruptcy ---------------------------------------------------------- FOCUS News Agency, citing Fyens Stiftstidende, reports that Falck-Schmidt Defense Systems was declared bankrupt on Oct. 10 in Odense and Kolding after long-term economic turmoil. For a long time, the defense industry has whispered in the hooks about Falck-Schmidt's bad economy, FOCUS News Agency relays. The final game came as the company did not have cash to pay employees salary, FOCUS News Agency states. Falck-Schmidt had been given the prospect that they would supply a number of components to the PMVs after Denmark in December 2015 chose Piranha V from General Dynamics as new armored truck, FOCUS News Agency discloses. However, the concrete firm contracts for this work have not materialized, and it can be a contributing factor to the company's bankruptcy, according to FOCUS News Agency. Falck-Schmidt Defense Systems is one of Denmark's largest defense companies. ============= G E R M A N Y ============= AIR BERLIN: IAG Sees Competition Issues with Lufthansa Deal ----------------------------------------------------------- Victoria Bryan and Alistair Smout at Reuters report that British Airways parent IAG sees significant competition issues with a deal for Lufthansa to buy large parts of Air Berlin. "We did make a bid for Air Berlin, but our view was that Lufthansa was always going to get it," Reuters quotes IAG CEO Willie Walsh as saying on the sidelines of the CAPA global summit in London. "We will watch carefully because we think there are significant competition issues," Mr. Walsh, as cited by Reuters, said, also saying it was unclear to him what was happening with easyJet, which is also in talks for Air Berlin assets, but has not yet agreed a deal. About Air Berlin In operation since 1978, Air Berlin PLC & Co. Luftverkehrs KG is a global airline carrier that is headquartered in Germany and is the second largest airline in the country. In 2016, Air Berlin operated 139 aircraft with flights to destinations in Germany, Europe, and outside Europe, including the United States, and provided passenger service to 28.9 million passengers. Within the first seven months of 2017, the Debtor carried approximately 13.8 million passengers. It employs approximately 8,481 employees. Air Berlin is a member of the Oneworld alliance, participating with other member airlines in issuing tickets, code-share flights, mileage programs, and other similar services. Air Berlin has racked up losses of about EUR2 billion over the past six years, and has net debt of EUR1.2 billion. On Aug. 15, 2017, Air Berlin applied to the Local District Court of Berlin-Charlottenburg, Insolvency Court for commencement of an insolvency proceeding. On the same day, the German Court opened preliminary insolvency proceedings permitting the Debtor to proceed as a debtor-in-possession, appointed a preliminary custodian to oversee the Debtor during the preliminary insolvency proceedings, and prohibited any new, and stayed any pending, enforcement actions against the Debtor's movable assets. To seek recognition of the German proceedings, representatives of Air Berlin filed a Chapter 15 petition (Bankr. S.D.N.Y. Case No. 17-12282) on Aug. 18, 2017. The Hon. Michael E. Wiles is the case judge. Thomas Winkelmann and Frank Kebekus, as foreign representatives, signed the petition. Madlyn Gleich Primoff, Esq., at Freshfields Bruckhaus Deringer US LLP, is serving as counsel in the U.S. case. AIR BERLIN: Austria's BWB Sees Lufthansa Monopoly in Vienna ----------------------------------------------------------- Kirsti Knolle at Reuters reports that Austria's competition authority BWB sees Lufthansa gain anti-competitive dominance on many routes in Vienna after the agreed takeover of Air Berlin's Niki unit and plans to voice its concerns in Brussels. The German airline signed a EUR210 million (US$249 million) deal to buy large parts of insolvent Air Berlin on Oct. 12, which includes the takeover of the Austrian leisure airline, Reuters relates. "We see an anti-competitive Lufthansa monopoly in Vienna on many routes after the takeover of Fly Niki," Reuters quotes the competition authority's spokeswoman as saying. "We will voice our concern about the takeover at the European Commission." About Air Berlin In operation since 1978, Air Berlin PLC & Co. Luftverkehrs KG is a global airline carrier that is headquartered in Germany and is the second largest airline in the country. In 2016, Air Berlin operated 139 aircraft with flights to destinations in Germany, Europe, and outside Europe, including the United States, and provided passenger service to 28.9 million passengers. Within the first seven months of 2017, the Debtor carried approximately 13.8 million passengers. It employs approximately 8,481 employees. Air Berlin is a member of the Oneworld alliance, participating with other member airlines in issuing tickets, code-share flights, mileage programs, and other similar services. Air Berlin has racked up losses of about EUR2 billion over the past six years, and has net debt of EUR1.2 billion. On Aug. 15, 2017, Air Berlin applied to the Local District Court of Berlin-Charlottenburg, Insolvency Court for commencement of an insolvency proceeding. On the same day, the German Court opened preliminary insolvency proceedings permitting the Debtor to proceed as a debtor-in-possession, appointed a preliminary custodian to oversee the Debtor during the preliminary insolvency proceedings, and prohibited any new, and stayed any pending, enforcement actions against the Debtor's movable assets. To seek recognition of the German proceedings, representatives of Air Berlin filed a Chapter 15 petition (Bankr. S.D.N.Y. Case No. 17-12282) on Aug. 18, 2017. The Hon. Michael E. Wiles is the case judge. Thomas Winkelmann and Frank Kebekus, as foreign representatives, signed the petition. Madlyn Gleich Primoff, Esq., at Freshfields Bruckhaus Deringer US LLP, is serving as counsel in the U.S. case. ============= I R E L A N D ============= BAIN CAPITAL 2017-1: S&P Assigns B- (sf) Rating to Class F Notes ----------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Bain Capital Euro CLO 2017-1 DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the issuer also issued unrated subordinated notes. The ratings assigned to the 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. Counterparty risk. S&P said, "We consider that the transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013). "Following the application of our structured finance ratings above the sovereign criteria, we consider 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 our criteria (see "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published on Aug. 8, 2016). "The transaction's legal structure is bankruptcy remote, in line with our legal criteria (see "Structured Finance: Asset Isolation And Special-Purpose Entity Methodology," published on March 29, 2017). "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our ratings are commensurate with the available credit enhancement for each class of notes." Bain Capital Euro CLO 2017-1 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 speculative grade borrowers. Bain Capital Credit, Ltd. is the collateral manager. RATINGS LIST Bain Capital Euro CLO 2017-1 DAC EUR362.50 Million Secured Floating- And Fixed-Rate Notes (Including EUR37.00 Million Subordinated Notes) Class Rating Amount (mil. EUR) A AAA (sf) 206.50 B-1 AA (sf) 31.50 B-2 AA (sf) 15.00 C A (sf) 22.00 D BBB (sf) 17.50 E BB (sf) 22.50 F B- (sf) 10.50 Subordinated NR 37.00 NR--Not rated. ========= I T A L Y ========= ALITALIA SPA: Lufthansa Offers EUR500MM for Planes, Slots, Crew --------------------------------------------------------------- Valentina Za at Reuters reports that the newspaper Corriere della Sera said on Oct. 16 German airline Lufthansa has offered EUR500 million (US$590 million) to acquire the planes, airport runway slots and air crew of Italy's ailing national carrier Alitalia. According to Reuters, citing three anonymous sources, the paper said Lufthansa has also proposed halving Alitalia's workforce of 12,000 employees and reducing its short- and medium-range flights. The paper said the offer was likely to be rejected by the state commissioners who are managing the carrier while it is being sold, Reuters relates. Italy's government extended from Oct. 16 to April 30, 2018, a deadline for suitors to submit binding bids for Alitalia, Reuters discloses. Rome, Reuters says, wants to sell the whole of Alitalia in one package and avoid a split of its aviation and ground service activities. About Alitalia Alitalia - Societa Aerea Italiana S.p.A., is the flag carrier of Italy. Alitalia operates 123 aircraft with approximately 4,200 flights weekly to 94 destinations, including 26 destinations in Italy and 68 destinations outside of Italy. It has a strong global presence, flying within Europe as well as to cities across North America, South America, Africa, Asia and the Middle East. During 2016, the Debtor provided passenger service to approximately 22.6 million passengers. Its air freight business also is substantial, having carried over 74,000 tons in 2016. Alitalia is a member of the SkyTeam alliance, participating with other member airlines in issuing tickets, code-share flights, mileage programs and other similar services. Alitalia previously navigated its way through a successful restructuring. After filing for bankruptcy protection in 2008, Alitalia found additional investors, acquired rival airline Air One, and re-emerged as Italy's leading airline in early 2009. Alitalia was the subject of a bail-out in 2014 by means of a significant capital injection from Etihad Airways, with goals of achieving profitability during 2017. After labor unions representing Alitalia workers rejected a plan that called for job reductions and pay cuts in April 2017, and the refusal of Etihad Airways to invest additional capital, Alitalia filed for extraordinary administration proceedings on May 2, 2017. On June 12, 2017, Alitalia filed a Chapter 15 bankruptcy petition in Manhattan, New York, in the U.S. (Bankr. S.D.N.Y. Case No. 17-11618) to seek recognition of the Italian insolvency proceedings and protect its assets from legal action or creditor collection efforts in the U.S. The Hon. Sean H. Lane is the case judge in the U.S. case. Dr. Luigi Gubitosi, Prof. Enrico Laghi, and Prof. Stefano Paleari are the foreign representatives authorized to sign the Chapter 15 petition. Madlyn Gleich Primoff, Esq., Freshfields Bruckhaus Deringer US LLP, is the U.S. counsel to the Foreign Representatives. =========== L A T V I A =========== RIGAS KUGU: Creditors File Insolvency Petition to Court ------------------------------------------------------- The Board of Directors of AS Rigas kugu buvetava declared that on October 4, 2017 its creditors SIA Balteksserviss un SIA Vilmars noma submitted an application to the court to commence insolvency proceedings against AS Rigas kugu buvetava for non-fulfillment of its debt commitments in a timely manner. The Board disclosed that it has reached an agreement with SIA Balteksserviss un SIA Vilmars noma for fulfillment of debt commitments of AS Rigas kugu buvetava, approving the corresponding payment schedule, and whereas SIA Balteksserviss un SIA Vilmars noma disclaims its application submitted with the court regarding to the initiation of insolvency proceedings until the day of legal hearing. AS Rigas kugu buvetava engages in the building and repair of ships, yachts, catamarans, roll trailers, and technological equipment in Latvia and internationally. ===================== N E T H E R L A N D S ===================== AI AVOCADO: S&P Downgrades CCR to B-, Outlook Stable ---------------------------------------------------- S&P Global Ratings lowered its long-term corporate credit rating on Dutch enterprise resource management (ERM) software vendor AI Avocado Holding B.V. (Unit4) to 'B-' from 'B'. The outlook is stable. S&P said, "At the same time, we lowered to 'B-' from 'B' our issue ratings on Unit4's senior secured debt, consisting of EUR670 million of term loans, a $30 million incremental facility, and a EUR72 million revolving credit facility (RCF). The recovery rating on all the senior secured facilities is '3', indicating our expectation of meaningful (50%-70%; rounded estimate 50%) recovery in the event of a payment default. "We are downgrading Unit4 because the still-incomplete business transformation combined with the company's ongoing shift from licenses to a software-as-a-service (SaaS) model has resulted in more pronounced pressure on EBITDA and free operating cash flow (FOCF) than we expected, and, in our opinion, will further delay sufficient improvements in credit metrics necessary to maintain the previous rating. Unit4's topline, which increased 2% in the first eight months of 2017, and EBITDA growth are currently held back by more customers opting for SaaS subscriptions at the expense of license and maintenance revenues, as well as by a secular decline in demand for professional services. Furthermore, the company is only gradually realizing cost savings from earlier efficiency measures, and year-to-date restructuring and exceptional expenses for the first eight months remained high at last year's level of about EUR26 million. Accordingly, reported EBITDA margins after non-recurring items as of August were up 2 percentage points year on year (corresponding to 20% year-on-year EBITDA growth), but still low at about 12%, and reported FOCF for the last 12 months was still at about negative EUR10 million. In our updated base case, despite our anticipation of further cost- reduction efforts, we now expect Unit4's S&P Global Ratings- adjusted EBITDA margins will remain below 20% in 2017 and 2018, and that the company will only generate marginally positive FOCF in 2017 and less than EUR30 million in 2018. As a result, Unit4's adjusted debt to adjusted EBITDA will remain persistently above 13x in our forecast for these periods (above 7x excluding the shareholder loan). "Our assessment of Unit4's business risk reflects our view of the company's relatively weak competitive position compared with considerably larger and better-capitalized enterprise software heavyweights, such as SAP, Oracle, and Microsoft. These companies enjoy a firmly established position in the wider enterprise applications market, with higher market shares, strong brand perception, broader product portfolios, and greater geographic diversity of operations. According to the International Data Corporation, Unit4's market share in the global ERM market was about 1% in 2016, compared with about 15% for market leader SAP, 9% for Oracle, and about 2% for U.S. competitor Infor. In addition, we think that Unit4 is exposed to relatively intense competition in the fragmented market for ERM software for upper- mid-market customers, also due to the emergence of competitors with business models built purely on SaaS. In addition, we regard Unit4's adjusted EBITDA margins of 15% in 2016 and less than 20% in our forecast for 2017-2018 as below average relative to the wider enterprise software market, although we still expect improvements in the medium term as the SaaS transition advances and reaches an inflection point. "Our view of Unit4's business risk profile is supported by the company's progress with gradually increasing its share of recurring revenues, which is principally driven by the move to SaaS. Revenues in Unit4's maintenance and SaaS divisions, which we consider as recurring, accounted for about 64% of total revenues in the first eight months of 2017, up from about 62% in the same period in 2016. Furthermore, we believe Unit4 benefits from a certain level of switching costs (if customers were to opt for alternative providers), as its ERM solutions cover a range of functionalities that are important to the everyday operations of its clients. This is reflected in average annual churn rates. In addition, we think Unit4's product portfolio is broader than those of smaller enterprise software vendors who specialize in a single product niche, such as HR or accounting. Other strengths are that UNIT4 enjoys better geographic diversity of revenues and somewhat greater scale than many smaller software peers. "We factor into our assessment of Unit4's financial risk profile the company's ownership and control by financial sponsor Advent International. We also take into account Unit4's very high S&P Global Ratings-adjusted debt burden, primarily consisting of about EUR700 million in senior term loans, about EUR425 million of shareholder loans, and modest operating lease and earn-out obligations. Moreover, we think material deleveraging in the near term will be limited, primarily because the shareholder loan accrues interest and because we expect significant restructuring and business-transformation costs to decline only slowly, combined with near-term EBITDA pressure from the SaaS transition. These factors will also limit FOCF to less than 4% of adjusted debt in the next two years, in our view. In addition, we expect the company will continue to pursue additional small to midsize acquisitions, which may lead to incremental debt increases. "In our adjustments, we deconsolidate the operations of Unit4's cloud-based enterprise resource planning software start-up FinancialForce, because it is funded independently, with the exception of a limited amount of cash that may be provided to FinancialForce by Unit4 under certain conditions following the amendment of the senior facilities agreement in June 2016. In calculating our adjusted EBITDA, we include restructuring and exceptional expenses, deduct capitalized development costs, and add back our adjustment for operating lease expense. We also expanded and retroactively adjusted the set of obligations that qualify as operating leases for our operating lease adjustment to include the company's property leases. This change lifted our 2016 adjusted EBITDA margins by about 2 percentage points but also increased adjusted debt by about EUR45 million. "The stable outlook reflects our expectation that Unit4 will execute its transition to SaaS and the reorganization of its business without significant operating setbacks, enabling it to return to modest positive FOCF of at least EUR10 million in the next 12 months, maintain EBITDA cash interest cover of at least 1.5x, and avoid a material deterioration of its liquidity position. "Rating upside is unlikely in the next 12 months. However, we could raise the rating if adjusted to EBITDA margins improved to to at least 22%, reported FOCF sustainably exceeded EUR30 million, adjusted debt-to-EBITDA, excluding the shareholder loan, decreased below 7.5x, and EBITDA to cash interest were above 2.5x. We think this could be achieved with better-than-expected operating performance, including a faster realization of the benefits from the SaaS transition, or successful and sustainable reductions of operating and nonrecurring costs. "Although also unlikely in the next 12 months, we could lower the rating if Unit4's FOCF remains negative for an extended period of time, or if its liquidity deteriorated materially. This could be the result of operating performance deterioration from intense competition, higher customer churn, or loss of market share, or from difficulties with completing its business transformation." JUBILEE CLO 2015-XV: S&P Affirms B- (sf) Rating on Class F Notes ---------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to the class A-R, B-R, C-R, and D-R notes from Jubilee CLO 2015-XV B.V., a collateralized loan obligation (CLO) managed by Alcentra Ltd. At the same time, S&P has withdrawn its ratings on the class A, B, C, and D notes, and has affirmed its ratings on the class E and F notes. The replacement notes were issued via a supplemental trust deed. The replacement notes were issued at a lower spread over Euro Interbank Offered Rate (EURIBOR) than the original notes they replace. The cash flow analysis demonstrates, in S&P's view, that the replacement notes have adequate credit enhancement available to support the ratings assigned. As part of the refinance, the maximum weighted-average life test was also lengthened by 15 months, which S&P has incorporated in our analysis. S&P said, "The transaction has experienced overall stable performance since our previous review (see "Ratings Affirmed In Jubilee CLO 2015-XV Cash Flow CLO Following Performance Review," published on March 2, 2017). The transaction's reinvestment period ends in July 2019, and all coverage ratios are well above the minimum triggers. "On refinancing, the proceeds from the issuance of the replacement notes redeemed the original notes, upon which we withdrew the ratings on the original notes and assigned ratings to the replacement notes. Our final rating analysis incorporated the final pricing achieved on the replacement notes and our analysis of any changes to the transaction's supporting documentation. At the same time, we have affirmed our ratings on the class E and F notes as the available credit for these classes of notes remains commensurate with the currently assigned ratings." CAPITAL STRUCTURE Current date after refinancing Class Amount Interest (mil. EUR) rate (%) A-R 252.75 3ME +0.84 B-R 60.25 3ME +1.35 C-R 26.00 3ME +1.75 D-R 23.50 3ME +3.00 E 27.00 3ME +4.95 F 15.25 3ME +5.98 Current date before refinancing Class Amount Interest (mil. EUR) rate (%) A 252.75 3ME +1.30 B 60.25 3ME +2.00 C 26.00 3ME +2.90 D 23.50 3ME +3.65 E 27.00 3ME +4.95 F 15.25 3ME +5.98 3ME--Three-month EURIBOR. RATINGS LIST Jubilee CLO 2015-XV B.V. EUR450.75 Million Senior Secured And Deferrable Floating-rate Notes (Including EUR46.0 Million Subordinated Notes) Ratings Assigned Replacement Rating class A-R AAA (sf) B-R AA (sf) C-R A (sf) D-R BBB (sf) Ratings Affirmed E BB (sf) F B- (sf) Ratings Withdrawn Class To From A NR AAA (sf) B NR AA (sf) C NR A (sf) D NR BBB (sf) NR--Not rated =============== P O R T U G A L =============== GAMMA ATLANTES NO. 2: S&P Raises Class C Notes Rating to BB (sf) ---------------------------------------------------------------- S&P Global Ratings raised and removed from CreditWatch positive its credit ratings on GAMMA Sociedade de Titularizacao de Creditos, S.A.'s Atlantes Mortgage No. 2 class A, B, and C notes. S&P said, "On July 19, 2017, we placed on CreditWatch positive our ratings on the class A, B, and C notes in this transaction due to the incorrect application of property type adjustments in our previous reviews (see "Ratings On 32 Portuguese RMBS Tranches Placed On CreditWatch Positive Following Revised Collateral Assessment"). "The rating actions follow our credit and cash flow analysis of the most recent transaction information that we have received as part of our surveillance review cycle. Our analysis reflects the application of our European residential loans criteria, our current counterparty criteria, and our structured finance ratings above the sovereign (RAS) criteria (see "Methodology And Assumptions: Assessing Pools Of European Residential Loans," published on Aug. 4 2017, "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013, and "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published on Aug. 8, 2016). "The portfolio's performance has remained stable since our previous review and is on average slightly weaker than our Portuguese residential mortgage-backed securities (RMBS) index (see "Portuguese RMBS Index Report Q2 2017," published on Sept. 12, 2017). As of the most recent investor report, total delinquencies were at 0.92%, down from 1.76% at our previous review. Prepayment levels remain low and the transaction is unlikely to pay down significantly in the near term, in our opinion. "We have observed an increase in the weighted-average foreclosure frequency (WAFF) and a decrease in the weighted-average loss severity (WALS) for each rating level compared with our previous reviews." Rating level WAFF (%) WALS (%) AAA 29.75 17.07 AA 22.73 13.77 A 18.85 8.29 BBB 14.07 5.75 BB 9.33 4.19 B 7.88 2.93 S&P said, "The decreases in the WALS figures are primarily due to our error in previously treating certain underlying properties securing the mortgages as commercial properties instead of residential properties. Our European residential loans criteria consider that nonresidential loans are more likely to default than residential loans and therefore apply adjustments to the foreclosure frequency and loss severity for nonresidential properties. Considering the properties as residential in our analysis results in us no longer applying these adjustments. The increase in the WAFF is mainly due to adjustments that we have applied to the foreclosure frequency of broker-originated loans in the portfolio. We apply this adjustment to reflect the worse performance of such loans, even if the role of the brokers was just to introduce the borrower. "The swap counterparty in Atlantes Mortgages No. 2, The Royal Bank of Scotland PLC (BBB+/Negative/A-2) did not take remedial actions in line with the swap agreement when previously becoming an ineligible counterparty. In our cash flow analysis, we have therefore not given any benefit to the swap at rating levels above the issuer credit rating (ICR) on the swap counterparty. Consequently, we have delinked our rating on the class A notes from the swap provider. "Due to an error, in our previous review we incorrectly applied commingling stress as a loss in our cash flow model instead of applying it as a liquidity stress. Borrowers currently pay collections into a collection bank account held with the servicer Banco Santander Totta S.A. If Banco Santander Totta were to become insolvent, mortgage collection amounts in the collection account are protected by the Portuguese securitization law and should not become part of its bankruptcy estate. In our current review, we have applied a liquidity stress in our cash flow analysis. Our updated analysis has not had an effect on our ratings in this transaction. "Following the application of our European residential loans and RAS criteria, we have determined that our assigned rating on each class of notes in this transaction should be the lower of (i) the rating as capped by our RAS criteria and (ii) the rating that the class of notes can attain under our European residential loans criteria. "Under our RAS criteria, we applied a hypothetical sovereign default stress test to determine whether a tranche has sufficient credit and structural support to withstand a sovereign default and so repay timely interest and principal by legal final maturity. In this transaction, our unsolicited foreign currency long-term sovereign rating on the Republic of Portugal (BBB-/Stable/A-3) constrains our ratings on the class A and B notes. "The class A and B notes have sufficient available credit enhancement to withstand our stresses at higher rating levels under our European residential loans criteria than those currently assigned. However, our RAS criteria constrain our rating on the class A notes at 'A (sf)', four notches above our long-term rating on Portugal, and our rating on the class B notes at 'BBB- (sf)', our long-term rating on Portugal. We have therefore raised to 'A (sf)' from 'BBB+ (sf)' and removed from CreditWatch positive our rating on the class A notes and raised to 'BBB- (sf)' from 'BB+ (sf)' and removed from CreditWatch positive our rating on the class B notes. "Our analysis indicates that the class C notes have sufficient available credit enhancement to support a higher rating that that currently assigned. Therefore, we have raised to 'BB (sf)' from 'B- (sf)' and removed from CreditWatch positive our rating on the class C notes. Atlantes Mortgages No. 2 is a Portuguese RMBS transaction, which closed in March 2008 and securitizes a pool of first-ranking mortgage loans. Banif Banco Internacional do Funchal (now Banco Santander Totta) originated the pool, which comprises loans backed by properties located in Portugal. RATINGS LIST Class Rating To From GAMMA Sociedade de Titularizacao de Creditos, S.A. EUR391.125 Million Floating-Rate Notes (Atlantes Mortgage No. 2) Ratings Raised And Removed From CreditWatch Positive A A (sf) BBB+ (sf)/Watch Pos B BBB- (sf) BB+ (sf)/Watch Pos C BB (sf) B- (sf)/Watch Pos LUSITANO MORTGAGES NO. 3: S&P Raises Rating on Cl. B Notes to BB- ----------------------------------------------------------------- S&P Global Ratings took various credit rating actions in Lusitano Mortgages No. 2 PLC (Lusitano 2), Lusitano Mortgages No. 3 PLC (Lusitano 3), and Lusitano Mortgages No. 4 PLC (Lusitano 4). Specifically, S&P has: -- Raised and removed from CreditWatch positive its ratings on Lusitano 2's class A, B, C, and D notes, Lusitano 3's class B notes, and Lusitano 4's class A, B, and C notes; and -- Affirmed and removed from CreditWatch positive its ratings on Lusitano 2's class E notes, Lusitano 3's class A, C, and D notes, and Lusitano 4's class D notes. S&P said, "On July 19, 2017, we placed on CreditWatch positive our ratings on all classes of notes in these transactions after identifying that in our prior reviews, we had incorrectly classified the properties as commercial, rather than residential, and applied certain adjustments to our foreclosure frequency and loss severity assumptions for non-residential properties (see"Ratings On 32 Portuguese RMBS Tranches Placed On CreditWatch Positive Following Revised Collateral Assessment"). "The rating actions follow our credit and cash flow analysis of the most recent transaction information that we have received. Our analysis reflects the application of our European residential loans criteria and our structured finance ratings above the sovereign (RAS) criteria (see "Methodology And Assumptions: Assessing Pools Of European Residential Loans," published on Aug. 4 2017, and "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published on Aug. 8, 2016). "Since our previous full reviews, available credit enhancement has increased for all classes of notes in all three transactions (see "Related Research"). Part of this credit enhancement is through a non-amortizing reserve of 4.1% in Lusitano 2, and amortizing reserves of 1.8% in Lusitano 3 and 1.7% in Lusitano 4. Both of these transactions are currently amortizing pro rata, and we have considered this in our cash flow analysis." "As of the most recent payment dates, the pool factor (the outstanding collateral balance as a proportion of the original collateral balance) was 20.6%, 26.5%, and 31.1% in Lusitano 2, Lusitano 3, and Lusitano 4, respectively. Total delinquencies (3.72% in August 2017 for Lusitano 2, 2.37% in July 2017 for Lusitano 3, and 1.88% in September 2017 for Lusitano 4) remain stable and are below our Portuguese residential mortgage-backed securities (RMBS) index (see "Portuguese RMBS Index Report Q2 2017," published on Sept. 12, 2017). "We have observed a decrease in both the weighted-average foreclosure frequency (WAFF) and the weighted-average loss severity (WALS) for each rating level in all three transactions compared with our previous reviews." Rating level WAFF (%) WALS (%) Lusitano 2 AAA 27.25 2.56 AA 20.63 2.00 A 17.08 2.00 BBB 12.53 2.00 BB 8.36 2.00 B 7.12 2.00 Lusitano 3 AAA 21.41 8.46 AA 15.99 5.95 A 13.06 2.53 BBB 9.57 2.00 BB 6.16 2.00 B 5.14 2.00 Lusitano 4 AAA 20.93 12.50 AA 15.58 9.34 A 12.74 4.48 BBB 9.28 2.45 BB 5.93 2.00 B 4.95 2.00 S&P said, "The decrease in the WAFF and in the WALS is mainly due to our error in previously treating certain underlying properties securing the mortgages as commercial properties instead of residential properties. Seasoning credit and lower arrears also lowered our WAFF figures. Our European residential loans criteria consider that nonresidential loans are more likely to default than residential loans and therefore apply adjustments to the foreclosure frequency and loss severity for nonresidential properties. By classifying the properties as residential in our analysis, we no longer apply these adjustments." The Lusitano 2 transaction comprises loans that benefit from a government subsidy with regards to mortgage interest payments. In order to account for the risk of a sovereign default, which would affect the performance of the transaction, we have incorporated cash flow stresses on such subsidies at rating levels above the sovereign rating on the Republic of Portugal. S&P said, "For rating levels up to four notches above the rating on the sovereign, we assume that 75% of subsidized interest is lost in the first 18 months of our recessionary period. For rating levels greater than four notches above the rating on the sovereign, we assume that 100% of subsidized interest is lost in the first 18 months of our recessionary period." S&P said, "Under our European residential loans criteria, Lusitano 2's class A, B, C notes have sufficient available credit enhancement to withstand our stresses at the 'AAA', 'AA+', and 'BBB' rating levels, respectively. However, our RAS criteria constrain our ratings on these classes of notes at 'AA- (sf)', 'A (sf)', and 'BBB- (sf)'. We have therefore raised and removed from CreditWatch positive our ratings on Lusitano 2's class A, B, and C notes. "The class D notes in Lusitano 2 have sufficient available credit enhancement to withstand our stresses at the 'BB' rating level under our European residential loans criteria. We have therefore raised to 'BB (sf)' from 'B (sf)' and removed from CreditWatch positive our rating on the class D notes. "Under our European residential loans criteria, Lusitano 3's class A notes have sufficient available credit enhancement to withstand our stresses at a 'AA+' rating level. However, our RAS criteria constrain our rating on the class A notes at 'A- (sf)', which is three notches above our 'BBB-' rating on the sovereign. We have therefore affirmed our 'A- (sf)' rating on the class A notes and removed it from CreditWatch positive. "Lusitano 3's class B and C notes have sufficient available credit enhancement to withstand our stresses at the 'BB-' and 'B' rating levels, respectively, under our European residential loans criteria. We have therefore raised to 'BB- (sf)' from 'B+ (sf)' and removed from CreditWatch positive our rating on the class B notes, and affirmed and removed from CreditWatch positive our 'B (sf)' rating on the class C notes. "Under our European residential loans criteria, the class A and B notes in Lusitano 4 have sufficient available credit enhancement to withstand our stresses at the 'AAA' and 'A+' rating levels, respectively. However, our RAS criteria constrain our rating on the class A notes at 'A (sf)', which is four notches above our 'BBB-' rating on the sovereign, and at 'BBB- (sf)' (the long-term sovereign rating on Portugal) our rating on the class B notes. We have therefore raised and removed from CreditWatch positive our ratings on the class A and B notes in this transaction. "The class C notes have sufficient available credit enhancement to withstand our stresses at the 'BB-' rating level under our European residential loans criteria. We have therefore raised to 'BB- (sf)' from 'B (sf)' and removed from CreditWatch positive our rating on the class C notes. "In our analysis, the most junior classes of notes in the three transactions (the class E notes in Lusitano 2, and the class D notes in Lusitano 3 and Lusitano 4) are unable to withstand the stresses that we apply at the 'B' rating level under our cash flow analysis. However, the delinquencies for these transactions remain below our Portuguese RMBS index and credit enhancement continues to increase. In addition, unemployment in Portugal is decreasing and we expect GDP to continue growing in the coming years. Taking these factors into account, we have affirmed and removed from CreditWatch positive our 'B- (sf)' ratings on the most junior classes of notes in these three transactions. In our view, these notes are reliant upon favorable business, financial, or economic conditions to redeem. "For all three transactions, prepayment levels remain low and the transactions are unlikely to pay down significantly in the near term, in our opinion." Lusitano 2, Lusitano 3, and Lusitano 4 are Portuguese RMBS transactions, which closed in November 2003, November 2004, and September 2005 respectively, and securitize first-ranking mortgage loans. Banco Esp°rito Santo S.A. originated the pools, which comprise loans granted to prime borrowers for the acquisition of residential properties located in Portugal. RATINGS LIST Class Rating To From Lusitano Mortgages No. 2 PLC EUR1.00 Billion Mortgage-Backed Floating-Rate Notes Ratings Raised And Removed From CreditWatch Positive A AA- (sf) A- (sf)/Watch Pos B A (sf) BB+ (sf)/Watch Pos C BBB- (sf) B+ (sf)/Watch Pos D BB (sf) B (sf)/Watch Pos Rating Affirmed And Removed From CreditWatch Positive E B- (sf) B- (sf)/Watch Pos Lusitano Mortgages No. 3 PLC EUR1.207 Billion Mortgage-Backed Floating-Rate Notes Rating Raised And Removed From CreditWatch Positive B BB- (sf) B+ (sf)/Watch Pos Ratings Affirmed And Removed From CreditWatch Positive A A- (sf) A- (sf)/Watch Pos C B (sf) B (sf)/Watch Pos D B- (sf) B- (sf)/Watch Pos Lusitano Mortgages No. 4 PLC EUR1.21 Billion Mortgage-Backed Floating-Rate Notes Ratings Raised And Removed From CreditWatch Positive A A (sf) A- (sf)/Watch Pos B BBB- (sf) BB (sf)/Watch Pos C BB- (sf) B (sf)/Watch Pos Rating Affirmed And Removed From CreditWatch Positive D B- (sf) B- (sf)/Watch Pos =========== R U S S I A =========== BANK OTKRITIE: S&P Retains 'B+' CCR on Watch Developing ------------------------------------------------------- S&P Global Ratings said that it had maintained its developing CreditWatch on the 'B+' long-term counterparty credit rating on Russia-based Bank Otkritie Financial Co. (BOFC). The 'B+' issue rating on the senior unsecured debt also remains on CreditWatch developing. S&P said, "At the same time, we affirmed the 'B' short-term rating and removed it from CreditWatch developing, where we placed it on Aug. 31, 2017. Placing the short-term rating on CreditWatch developing was an error; we should have placed it on CreditWatch negative at that time. The error did not affect our ratings on BOFC. "We kept our 'B+' long-term rating on BOFC on CreditWatch developing to reflect our view that a number of important details regarding the bank's financial rehabilitation, such as the amount of required capital support and possibility to merge with other financial institutions, still need clarification. We think these details will become clear in the next three to six months and that they could either positively or negatively affect the ratings. At the same time, we do not expect any of these details to affect our short-term rating on BOFC, and, therefore, we removed it from CreditWatch and affirmed it." On Sept. 15, 2017, Russia's central bank (CBR) announced that it had approved its participation in BOFC's financial rehabilitation. The approved plan and requirements of the Russian Bankruptcy Law imply that BOFC's existing equity and the major part of the bank's subordinated debt will be used to absorb losses resulting from new provisions to cover the bank's problem assets. At the moment, the temporary administrator is continuing its review of BOFC's asset quality, which will likely be finalized in the next two months. Requirements for additional capital will also stem from losses, the still negative equity of Trust Bank, and capital support to Rosgosstrakh. The new equity will then be issued in favor of the CBR; we expect it to happen in the first quarter of 2018. Although the exact figure of total capital support is uncertain, S&P expects that the CBR will receive a nearly 100% stake in BOFC's equity. S&P said, "Therefore, we now view BOFC as a government-related entity (GRE). In our opinion, there is a strong link between the government and the bank, given the CBR's impending receipt of the majority stake in the bank's equity. We also think the CBR currently fully controls BOFC's strategy and operating activity. However, in our view, BOFC's role for the government remains limited. This is because the bank does not perform any public policy role, lend to any important GREs, or support priority industries in Russia's economy. Moreover, although BOFC is the fifth-largest banking group in Russia, it is still much smaller than other Russian government-related banks and they could undertake BOCF's activities, in our view. "We consequently believe that there is a moderate probability that BOFC would receive extraordinary government support in addition to short-term support expected in the first quarter of 2018. This results in one notch of uplift to the bank's stand- alone credit profile (SACP), which we assess at 'b'. We continue viewing BOFC as having moderate systemic importance for the Russian financial system, which reflects its sizable share in the retail deposit market (about 1.6% of the system as of Aug. 31, 2017) and broad geographic coverage. "BOCF canceled its obligations to some of its managerial personnel as of Sept. 15, 2017. We note that the cancellation was made according to the requirements introduced in the Russian Bankruptcy Law before the CBR appointed the temporary administrator to BOFC. We view this cancellation as a form of statutory bail-in, as we consider obligations to managerial personnel as hybrid instruments having loss-absorbing capacity. Had any claims before other groups of senior creditors been cancelled, this would probably have prompted us to revise our ratings on BOFC to 'SD' (selective default) or 'D' (default). "We note that as a result of new significant provisions created in September, the bank's capital adequacy declined below the minimum capital regulatory requirements, and we expect that the bank will demonstrate deeply negative equity in the last quarter of 2017. Although we view BOFC's capital regulatory assessment as "subject to regulatory forbearance" we are keeping our capital and earnings assessment at moderate, given the expected short- term government capital support, which we anticipate will materialize in the first quarter of 2018. "We also note that BOCF's actual asset quality proved materially weaker than that reflected in its recent financial statements. According to our estimates, the amount of additional provisions to be created by the year-end may represent 25%-30% of the bank's loan portfolio. However, we are maintaining our assessment of the bank's risk position at moderate rather than weak as we would assess it otherwise, because we incorporate the short-term extraordinary support from the CBR to cover credit losses, as well as our expectations that the lion's share of impaired assets will be sufficiently provisioned. In our view, however, the clean-up of such a large bank can take several years, especially taking into account that two other banking entities must be integrated into the group. Furthermore, the managerial team is still being put together and the strategy is still in the works. Moreover, we note a material insurance risk, which BOFC is now directly exposed to. We do not exclude that new losses generated by Rosgosstrakh may require additional capital support from the CBR in the next couple of years." In August 2017, the CBR provided material liquidity support to BOFC to overcome outflows of customer funds and preserve liquidity buffers. As of Aug. 31, 2017, funding provided by the CBR had reached about 45% of the bank's total liabilities. S&P said, "We expect that funding from the CBR will gradually decrease, but may remain a significant funding source (at around 20%-25% of liabilities) for the bank in the next six months. At the same time, the bank's liquidity cushion (cash and equivalents) increased as of Sept. 1, 2017 (to 10.7% of total liabilities versus 6.1% on Aug. 1, 2017). We therefore continue to assess BOCF's liquidity as adequate, incorporating short-term support provided by the CBR. "In our view, the CBR's appointment of the temporary administrator enabled BOFC stabilize its business and keep the remaining customer base. Nevertheless, we still assess its business position as moderate, reflecting several uncertainties regarding strategy, the composition of its managerial team, possibility to integrate with new financial institutions, and growth prospects. "The 'b' SACP factors short-term government support to BOCF's capital and earnings, risk position, and liquidity. If no government support were forthcoming in the near term, we might revise our assessment of the bank's SACP to the 'ccc' category. "We have identified and corrected the error by which we placed our 'B' short-term counterparty credit rating on BOFC on CreditWatch developing in our previous review. Although in that review we acknowledged the possibility of lowering the short-term rating if we were to lower the long-term ratings on BOCF below 'B-', raising the short-term rating would require that the long- term rating be raised by four notches, and above the 'BB+' sovereign rating on Russia. Such a scenario was highly unlikely at that time. Therefore, in our previous review, we should have placed the short-term rating on BOCF on CreditWatch negative rather than CreditWatch developing. However, this error had no impact on the ratings. "We expect to resolve the CreditWatch placement within the next 90 days. "We could raise the long-term rating on BOFC if we saw material progress in reduction of bad assets and improvement of Rosgosstrakh's SACP, which may prompt us to revise upward our view of the bank's risk position. "We could lower the ratings if we saw that the capital provided by the CBR is not sufficient to cover risks stemming from BOFC's and Trust Bank's bad assets and the insurance risk from Rosgosstrakh. Mergers with other failed financial institutions may also lead to negative rating action if we believe such mergers would lead to the accumulate =========================== U N I T E D K I N G D O M =========================== BREWBOT: Enters Into Company Voluntary Arrangement -------------------------------------------------- John Mulgrew at Belfast Telegraph reports that Brewbot, a Belfast beer-making technology firm, has entered into an agreement to pay creditors after an attempt by the taxman to wind the business up. Brewbot agreed a Company Voluntary Arrangement (CVA) after HM Revenue & Customs made a petition to close the business, Belfast Telegraph relates. According to Belfast Telegraph, a Belfast court heard on Oct. 12 that the business had entered into the CVA and the move to wind up the company had been dismissed. MONARCH AIRLINES: IAG Eyes London Gatwick Slots ----------------------------------------------- Alistair Smout and Victoria Bryan at Reuters report that British Airways owner IAG is interested in the London Gatwick slots of failed airline Monarch after it collapsed, IAG CEO Willie Walsh said on Oct. 13, adding that the reduction of capacity was good for the industry. Monarch went bust on Oct. 2, falling victim to intense competition in the sector and following Alitalia and Air Berlin into administration in what has been a tough year for Europe's smaller players, Reuters recounts. "With Monarch, I think everybody's interested in slots at Gatwick, and that would be principally our interest as well . . . If we can get more slots at Gatwick, we'll certainly be looking for more," Reuters quotes Mr. Walsh as saying on the sidelines of the CAPA centre for aviation global summit. Monarch's collapse could reduce capacity in Europe's highly competitive airline sector, Reuters notes. Mr. Walsh, as cited by Reuters, said that while Monarch's flights from Gatwick would likely be replaced, slots at smaller airports such as Birmingham might stay vacant. Mr. Walsh said with Ryanair cancelling flights over a pilot rostering fiasco, and the issues at Air Berlin and Alitalia, the rest of the sector could benefit, Reuters relays. According to Reuters, Mr. Walsh said "What the whole combination does is it clearly means there will be less growth, less capacity going into the market, particularly through this winter, so from an industry point of view that's probably to be viewed as a positive." Monarch Airlines, also known as and trading as Monarch, was a British airline based at Luton Airport, operating scheduled flights to destinations in the Mediterranean, Canary Islands, Cyprus, Egypt, Greece and Turkey. ********* 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. 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 * * *