/raid1/www/Hosts/bankrupt/TCREUR_Public/171115.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, November 15, 2017, Vol. 18, No. 227
Headlines
F R A N C E
CGG SA: Shareholders Approve Financial Restructuring Plan
I R E L A N D
ION TRADING: Moody's Affirms B2 CFR, Outlook Stable
JAMES HARDIE: S&P Affirms 'BB' CCR Amid XI Holdings Acquisition
ST. PAUL'S VIII: Fitch Assigns B-(EXP) Rating to Cl. F Notes
L U X E M B O U R G
BELRON SA: S&P Assigns 'BB' Corp Credit Rating, Outlook Stable
N E T H E R L A N D S
E-MAC DE 2007-I: S&P Lowers Rating on Class Notes to BB(sf)
HALCYON CLO 2006-II: Moody's Raises Class E Notes Rating From B1
IHS NETHERLANDS: Moody's Lowers Corporate Family Rating to B2
MESDAG DELTA: Fitch Affirms CC Ratings on 2 Tranches
NOSTRUM OIL: S&P Affirms B CCR & Revises Outlook to Developing
TIKEHAU CLO: Moody's Assigns (P)B2 Rating to Class F-R Notes
P O L A N D
VISTAL GDYNIA: Unit Inks Asset Sale Agreement with Port of Gdynia
R U S S I A
BANK SOYUZ: S&P Affirms 'B' Issuer Credit Rating, Outlook Stable
MEZHTOPENERGOBANK PAO: Liabilities Exceed Assets, Probe Shows
PAYMENT CLEARING: In Provisional Administration, License Revoked
PIK GROUP: S&P Affirms 'B' CCR, Outlook Revised to Stable
S P A I N
IM EVO 1: Moody's Assigns Ba2(sf) Rating to EUR25.5MM Notes
U K R A I N E
UKRAINE: S&P Affirms B-/B Sovereign Credit Ratings
U N I T E D K I N G D O M
ALLIANCE AUTOMOTIVE: Moody's Withdraws B1 Corporate Family Rating
BOPARAN HOLDINGS: Moody's Lowers CFR to B3, Outlook Negative
BURNTISLAND FABRICATORS: Ministers in Talks to Rescue Business
CATALYST HEALTHCARE: S&P Affirms 'BB+' Debt Ratings, Outlook Neg
EUROSAIL 2006-3NC: S&P Affirms B-(sf) Ratings on 3 Note Classes
EXTERION MEDIA: Moody's Lowers Corporate Family Rating to B3
INFINIS LIMITED: Moody's Withdraws B1 LT Corporate Family Rating
SOUTHERN PACIFIC 05-2: S&P Affirms B-(sf) Rating on Cl. E1c Notes
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F R A N C E
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CGG SA: Shareholders Approve Financial Restructuring Plan
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CGG on Nov. 13 disclosed that the general meeting of shareholders
has approved all the resolutions required to implement the
financial restructuring plan.
Jean-Georges Malcor, CEO of CGG, said: "We thank the shareholders
for their decisive support for the future of the company. This
favorable vote is a new key step forward in the implementation of
our financial restructuring. This financial restructuring will
allow us to have a financial structure tailored to the difficult
market conditions that we are currently facing. CGG has now been
repositioned on high value added geosciences activities, and all
our teams are entirely focused on delivering the best services to
our clients."
The next step in the CGG group's financial restructuring will be
the sanctioning of the safeguard plan by the Paris Commercial
Court. For this purpose, a court hearing will be held on
November 20, 2017 in order to examine the draft safeguard plan
and the claim filed against it by certain holders of convertible
bonds.
Trading on the Company shares (FR0013181864), the 2019
Convertible Bonds (FR0011357664) and the 2020 Convertible Bonds
(FR0012739548), which has been suspended from November 13, at
9:00 a.m., will resume as from November 14, 2017, at 9:00 a.m.
About CGG Holding
Paris, France-based CGG Holding (U.S.) Inc. --
http://www.cgg.com/
-- provides geological, geophysical and reservoir capabilities
to its broad base of customers primarily from the global oil and
gas industry. Founded in 1931 as "Compagnie Generale de
Geophysique", CGG focuses on seismic surveys and other techniques
to help energy companies locate oil and natural-gas reserves.
The company also makes geophysical equipment under the Sercel
brand name.
The Group has more than 50 locations worldwide, more than 30
separate data processing centers, and a workforce of more than
5,700, of whom more than 600 are solely devoted to research and
development. CGG is listed on the Euronext Paris SA (ISIN:
0013181864) and the New York Stock Exchange (in the form of
American Depositary Shares, NYSE: CGG).
After a deal was reached key constituencies on a restructuring
that will eliminate $1.95 billion in debt, on June 14, 2017 (i)
CGG SA, the group parent company, opened a "sauvegarde"
proceeding, the French equivalent of a Chapter 11 bankruptcy
filing, (ii) 14 subsidiaries of CGG S.A. filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code
(Bankr. S.D.N.Y. Lead Case No. 17-11637) in New York, and (iii)
CGG S.A filed a petition under Chapter 15 of the U.S. Bankruptcy
Code (Bankr. S.D.N.Y. Case No. Case No. 17-11636) in New York,
seeking recognition in the U.S. of the Sauvegarde as a foreign
main proceeding.
Chapter 11 debtors CGG Canada Services Ltd. and Sercel Canada
Ltd. also commenced proceedings under the Companies' Creditors
Arrangement Act in the Court of Queen's Bench of Alberta,
Judicial District of Calgary in Calgary, Alberta, Canada, to seek
recognition of the Chapter 11 cases in Canada.
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I R E L A N D
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ION TRADING: Moody's Affirms B2 CFR, Outlook Stable
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Moody's Investors Service has affirmed the B2 corporate family
rating (CFR) and the B2-PD probability of default rating (PDR) of
ION Trading Technologies Limited (ION Trading, or the company),
the Ireland-based global provider of trading software and
services to banks and other financial institutions. The rating
action was prompted by the company's announcement that it was
seeking to raise new term debt of EUR1,255 million to repay
existing drawn facilities and distribute EUR310 million to its
shareholders. The outlook on all ratings remains stable.
The affirmation reflects ION Trading's:
-- Strong cash conversion resulting in free cash flow (FCF) to
debt remaining well above 5%
-- Capacity to reduce leverage through debt repayments in line
with historic track record
-- EBITDA resilience owing to cost savings, amid current lack
of revenue growth
Concurrently, Moody's has assigned a (P)B2 rating to the new
senior secured first lien EUR1,255 million equivalent term loan
maturing in 2024 and a (P)B2 rating to the new senior secured
first lien EUR15 million revolving credit facility (RCF) maturing
in 2022, which will be jointly borrowed by ION Trading
Technologies S.a r.l. and ION Trading Finance Limited. All other
ratings remain unchanged.
RATINGS RATIONALE
"ION Trading's credit quality remains supported by its relatively
strong cash conversion, despite some volatility in working
capital. Moody's expect that it will be used to partially prepay
debt and help adjusted leverage return below 5.5x (after the
capitalisation of software development costs) in the next 12 to
18 months" says Frederic Duranson, a Moody's Analyst and lead
analyst for ION Trading. "Although Moody's expect that future
degearing will be driven by debt reductions, Moody's highlight
that ION Trading has a track record of reducing its cost base,
thereby enabling earnings growth or stabilisation" Mr Duranson
adds.
Overall, ION Trading's B2 CFR continues to reflect (1) continuous
resilient operating performance and cash flow generation; (2)
good revenue visibility as a result of long-term contracts and
high customer retention rates of at least 98%, with limited
volume risk; (3) positive market dynamics supported by increased
outsourcing trends, regulatory changes and complexity of
products; and (4) the company's leading market position and high
EBITDA margin of around 60% within a fragmented industry segment.
The ratings are nevertheless constrained by: (1) the relatively
high leverage, increased by 1.4x to 5.7x at the end of September
2017, pro-forma for the proposed refinancing and based on Moody's
adjusted gross debt to EBITDA after the capitalisation of
software development costs; (2) dependence on a relatively narrow
range of software and services, primarily for fixed income
electronic trading activities; (3) high customer concentration,
with approximately 40% of revenues generated by top 10 clients;
and (4) a relatively aggressive financial policy, illustrated by
the group's track record of returning cash to shareholders.
Following deleveraging through debt prepayments in 2015, the
proposed transaction is the second debt addition in the period
2016-17 and brings the net new debt tally to just under EUR450
million since December 2015 (taking into account repayments made
since then), representing 2 times the last twelve months company
adjusted EBITDA of EUR216 million. As a result, ION Trading's
additional debt or leverage capacity is very limited at the
current rating level.
However, the group's credit quality remains supported by its high
free cash flow conversion in excess of 25% of revenues. Given its
track record of debt prepayments, Moody's expects that the group
will use at least some of its cash generation to reduce debt,
against the backdrop of declining revenues but stable EBITDA. In
2017, Moody's anticipates that revenues will be approximately 6%
lower than 2016 and recede by 3% if revenue declines due to one-
off effects are stripped off. In this context, ION Trading has
continued to successfully reduce its costs base such that Moody's
forecasts that 2017 EBITDA will be broadly in line with 2016 and
grow by around 3% in 2018.
ION Trading's liquidity is good, supported by EUR77 million of
cash on balance sheet at the end of September 2017 and expected
full availability under its new EUR15 million RCF. The group's
liquidity is further enhanced by free cash flow generation of
EUR88 million (before special dividends) in the last twelve
months to September 2017, resulting from its moderate capex
requirements and advance billing model, although there is some
working capital volatility owing to seasonality and consulting
activities consuming working capital. The RCF will be subject to
a springing net first lien leverage covenant if the facility is
drawn by EUR10 million or more.
The (P)B2 ratings on the new facilities are in line with the
existing facilities' ratings and CFR, reflecting the fact that
they are the only financial instruments in the capital structure.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that ION Trading
will return to organic revenue and EBITDA growth whilst degearing
through voluntary debt prepayments, resulting in Moody's adjusted
leverage decreasing sustainably below 5.5x (after the
capitalisation of software development costs). The stable outlook
does not factor in any further shareholder distributions or debt-
funded acquisitions.
WHAT COULD CHANGE THE RATING UP/DOWN
Positive pressure could develop on ION Trading's ratings if it
(1) reduces adjusted leverage below 4.0x (after the
capitalisation of software development costs) on a sustainable
basis, while preserving its strong margins, (2) sustainably
raises FCF/debt to above 10%, and (3) returns to a more
conservative financial policy.
Negative ratings pressure could arise if (1) adjusted leverage
remains above 5.5x (after the capitalisation of software
development costs) by the end of 2018, (2) EBITDA declines, (3)
FCF/debt falls substantially below 5% for a prolonged period of
time, (4) liquidity profile deteriorates, or (5) ION Trading
pursues further debt-funded shareholder returns or acquisitions
without prior gross deleveraging.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Software
Industry published in December 2015.
ION Trading is a global provider of trading software and
services, chiefly for the fixed-income, currencies and
commodities markets. It sells its solutions primarily to banks,
hedge funds, brokers and other financial institutions. For the
last twelve months to September 2017, the group had revenues of
EUR365 million and company adjusted EBITDA of EUR216 million
(after capitalisation of software development costs). IONTT is
owned by ION Investment Group (unrated), a privately-owned global
provider of software and services for the fixed-income,
currencies and commodities market, as well as treasury software,
commodity and oil risk management and logistics. The Carlyle
Group has a stake in ION Investment Group.
JAMES HARDIE: S&P Affirms 'BB' CCR Amid XI Holdings Acquisition
---------------------------------------------------------------
James Hardie International Group Ltd. (JHX) announced that it has
entered into a definitive agreement to acquire German-based XI
(DL) Holdings GmbH and its subsidiaries (including, but not
limited to, Fermacell GmbH) from Xella International S.A. in an
all-cash transaction valued at EUR473 million (approximately
US$549 million).
JHX will finance the acquisition with committed bridge financing
and plans to replace that with long-term debt following the
closing, which is estimated to be in the fourth quarter of 2018
(ending March 2018).
S&P expects JHX's pro forma leverage for the transaction --
before anticipated synergies -- to be 3.8x (noting S&P's
treatment of JHX's asbestos liability as debt) from 2.7x as of
June 30, 2017.
S&P Global Ratings affirmed its 'BB' corporate credit rating on
James Hardie. S&P also revised the outlook to stable from
positive.
S&P said, "At the same time, we affirmed our 'BB' issue-level
rating on subsidiary James Hardie International Finance
Designated Activity Co. $400 million notes due in 2023. The '3'
recovery rating is unchanged and continues to indicate our
expectation for meaningful (50%-70%; rounded estimate: 65%)
recovery in the event of a payment default.
"Our affirmation of the 'BB' corporate credit rating on JHX and
our outlook revision to stable from positive reflect that the
proposed transaction will raise JHX's adjusted leverage --
including $593 million of asbestos liabilities as of Sept. 30,
2017, which we treat as debt -- to about 3.8x from the previous
2.7x as of June 30, 2017. The company expects higher capital
spending to build out new facilities and ramp up capacity. We
expect leverage to reduce to the low-3x area over the next 12-18
months, which is strong for the rating. This is supported by
JHX's ability to generate cash flow, its shift from shareholder
returns, and that we expect continued growth in new home
construction and repair and remodeling spending, particularly in
North America.
"Given the effect of the Fermacell acquisition, the stable
outlook reflects our expectation that adjusted debt to EBITDA
will remain below 4x over the next 12 months as gradually
improving new home construction and repair and remodeling
spending, particularly in North America, support demand for the
company's building products. Following close of the acquisition,
we expect the company to delverage to the low-3x area over 12-18
months.
"We view a downgrade as unlikely over the next 12 months given
our favorable outlook for home construction and remodeling
spending. However, we could take such an action if the company
has an EBITDA shortfall due to additional costs or integration
issues from the Fermacell acquisition causing EBITDA to decline
and leverage to be sustained above 4x. In addition, this could
occur if dividend or share repurchase activity is more aggressive
than we anticipate.
"An upgrade is also unlikely over the next 12 months as we expect
discretionary cash flow and capital will be used for the
Fermacell acquisition. We do not forecast adjusted net debt to
EBITDA to be sustained below the 3x threshold that we view to be
the maximum supporting a higher rating."
ST. PAUL'S VIII: Fitch Assigns B-(EXP) Rating to Cl. F Notes
------------------------------------------------------------
Fitch Ratings has assigned St. Paul's CLO VIII DAC expected
ratings:
Class A: 'AAA(EXP)sf'; Outlook Stable
Class B-1: 'AA(EXP)sf'; Outlook Stable
Class B-2: 'AA(EXP)sf'; Outlook Stable
Class C: 'A(EXP)sf'; Outlook Stable
Class D: 'BBB(EXP)sf'; Outlook Stable
Class E: 'BB(EXP)sf'; Outlook Stable
Class F: 'B-(EXP)sf'; Outlook Stable
Subordinated notes: not rated
The assignment of the final ratings is contingent on the receipt
of final documents conforming to information already reviewed.
St. Paul's CLO VIII DAC is a cash flow collateralised loan
obligation (CLO). Net proceeds from the issuance of the notes
will be used to purchase a EUR400 million portfolio of mostly
European leveraged loans and bonds. The portfolio is actively
managed by Intermediate Capital Managers Limited. The CLO
envisages a four-year reinvestment period and an 8.5-year
weighted average life.
KEY RATING DRIVERS
'B' Portfolio Credit Quality
Fitch places the average credit quality of obligors in the 'B'
range. The Fitch weighted average rating factor (WARF) of the
current portfolio is 32.7, below the covenanted maximum for
assigning the expected ratings of 34.
High Recovery Expectations
The portfolio will comprise a minimum of 90% senior secured
obligations. The weighted average recovery rate of the current
portfolio is 66.7%, above the covenanted minimum for assigning
expected ratings of 63.3%, corresponding to the matrix WARF of 34
and weighted average spread of 3.65%.
Limited Interest Rate Risk
Fixed-rate liabilities represent 5% of the target par amount,
while unhedged fixed-rate assets cannot exceed 10% of the
portfolio depending on the matrix selected by the manager. The
maximum fixed rate asset covenant for assigning expected ratings
is 10%.
Diversified Asset Portfolio
The transaction contains a covenant that limits the top 10
obligors in the portfolio to 20% of the portfolio balance. This
ensures that the asset portfolio will not be exposed to excessive
obligor concentration.
Unhedged Non-Euro Assets Exposure
The transaction is allowed to invest up to 2.5% of the portfolio
in non-euro-denominated primary market assets without entering
into an asset swap on settlement, subject to principal haircuts.
Unhedged assets may only be purchased if after the applicable
haircuts the aggregate balance of the assets is above the
reinvestment target par balance. Additionally, no credit in the
overcollateralisation tests is given to assets left unhedged for
more than 180 days after settlement.
VARIATIONS FROM CRITERIA
The "Fitch Rating" definition was amended so that assets that are
not expected to be rated by Fitch but are rated privately by the
other rating agency rating the liabilities, can be assumed to be
of 'B-' credit quality for up to 10% of the collateral principal
amount. This is a variation from Fitch's criteria, which requires
all assets unrated by Fitch and without public ratings to be
treated as 'CCC'. The change was motivated by Fitch's policy
change of no longer providing credit opinions for EMEA companies
over a certain size. Instead Fitch expects to provide private
ratings that would remove the need for the manager to treat
assets under this leg of the "Fitch Rating" definition.
The amendment has only a small impact on the ratings. Fitch has
modelled the transaction at the pricing point with 10% of the 'B-
' assets with a 'CCC' rating instead, which resulted in a two-
notch downgrade at the 'BBB' rating level and one-notch downgrade
at other rating levels.
RATING SENSITIVITIES
A 125% default multiplier applied to the portfolio's mean default
rate, and with this increase added to all rating default levels,
would lead to a downgrade of up to two notches for the rated
notes. A 25% reduction in recovery rates would lead to a
downgrade of up to four notches for the rated notes.
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L U X E M B O U R G
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BELRON SA: S&P Assigns 'BB' Corp Credit Rating, Outlook Stable
--------------------------------------------------------------
S&P Global Ratings said it has assigned its 'BB' long-term
corporate credit rating to Luxembourg-based vehicle glass repair
and replacement services company Belron S.A. and its finance
subsidiary Belron Finance Ltd. The outlook is stable.
S&P said, "At the same time, we assigned our 'BB' rating to the
group's senior secured EUR280 million revolving credit facility
(RCF) maturing in 2023, and its $1.025 billion and EUR425 million
(EUR1.3 billion equivalent) term loans maturing in 2024. The
recovery rating on these facilities is '3', indicating our view
of meaningful recovery prospects of 55% in the event of a
default.
"The final ratings are in line with the preliminary ratings that
we assigned on Oct. 11, 2017, following the successful closing of
the acquisition in line with our assumptions."
Belron is the global leader in the vehicle glass repair and
replacement (VGRR) market, reporting sales of EUR3.3 billion in
2016. The company operates in 34 countries across Europe and
North America under seven different brands, including Carglass in
Continental Europe, Safelite in the U.S., and Autoglass in the
U.K.
S&P said, "Our ratings reflect our satisfactory business risk
assessment, backed by Belron's leading position in the VGRR
market, where it has global market shares of more than 30% and no
competitors with a comparable geographical presence and size.
This position is fostered by Belron's brand recognition, which is
somewhat higher than the company's direct competitors in all
major markets worldwide. Furthermore, we consider that Belron's
business model is highly stable and predictable because it has
long-term relationships with most large insurers globally. These
insurers provide about two-thirds of the company's revenue
stream. Belron also sees relatively stable demand for its core
business, which is nondiscretionary in nature. In our view, it is
unlikely to see negative market conditions--such as mild weather
during winter and summer--simultaneously, globally, and on a
sustained basis.
"On the other hand, the global VGRR market currently represents
96% of Belron's revenues and is showing signs of some structural
decline, which limits the company's growth prospects, in our
view. In addition, the weighting of Belron's customer base toward
insurers increases price-sensitivity relative to peers in some
markets, resulting in lower profitability versus players in the
roadside assistance industry, for instance, although it also
provides a good level of predictability. We consider Belron's
profitability as a restraining factor in our assessment of the
company's business risk. Although we consider that the company's
underlying business is relatively stable in nature, high
variability in EBITDA or margins going forward could result in a
downward revision of Belron's business risk profile assessment,
given the group's below-average profitability.
"We assess financial risk as aggressive, based on Belron's
relatively high leverage, even though we anticipate that cash
flow generation will remain solid. When calculating EBITDA, we
deduct all exceptional costs undertaken to address any
operational needs and competitive challenges, and add back
material adjustments related to operating leases. We forecast
that underlying free operating cash flow (FOCF) generation will
be limited in 2017, improving gradually thereafter to about
EUR150 million on an adjusted basis.
"We anticipate stable EBITDA margins over the forecast period,
supported by increasing business volumes through online channels
over call centers, despite decreasing gross margins. Combined
with increasing cash generation, we expect this to support a
gradual deleveraging of the group, unless there are additional
shareholder distributions.
In S&P's base-case scenario, it assumes:
-- Global VGRR market to decline by 1%-2% because of
structurally declining demand volumes, despite some price
inflation and increasing volumes in calibration services.
-- Despite this, S&P forecasts Belron's top line to grow by 2%-
3%, supported by the company's continued marketing efforts
and increasing weight of ancillary services, as well as
regular small bolt-on acquisitions.
-- Capital expenditure (capex) of about EUR150 million-EUR200
Million over S&P's forecast period, dedicated to expanding
and maintaining the company's IT capabilities, vehicle fleet,
and repair shops.
-- During syndication, Belron acquired Maisoning, allowing the
group to diversify its service offering into home repair.
Thereafter, S&P expects acquisition spending to be at about
EUR20 million-EUR30 million per year with similar types of
bolt-ons; S&P does not anticipate any material mergers or
acquisitions.
Based on these common operating assumptions, S&P arrives at the
following credit measures:
-- Adjusted debt to EBITDA of 4.5x at the close of the
transaction, slightly improving over the forecast period
toward 4.0x in 2019.
-- S&P forecasts adjusted funds from operations (FFO) to debt of
about 13% at the close of the transaction. S&P expects this
ratio to be at around 17% in 2018 and continue to improve
gradually thereafter.
-- Adjusted FOCF to debt of 5%-10% going forward, which further
supports the aggressive financial risk profile.
S&P said, "The stable outlook reflects our view that Belron will
continue to grow at a healthy rate of 2%-3% over the next 12
months. It also incorporates our view that 2017 will be a
transition year in which the exceptional costs related to the
refinancing transaction will weigh on credit metrics. Thereafter,
we expect Belron to maintain stable EBITDA margins and material
positive FOCF.
"We could take a negative rating action if Belron or its parent
reported declining revenues and subdued EBITDA margins on a
continued basis, or attempted material debt-funded acquisitions
or shareholder distributions. The ratings could also come under
pressure if we saw difficult conditions in Belron's main markets,
such as increased competition or higher than usual costs relating
to operational restructuring that could bring Belron's FFO-to-
debt ratio below 16%. Similarly, underperformance from other
D'Ieteren subsidiaries that resulted in the parent's FFO-to-debt
ratio falling below 20% could lead to a downgrade. We could lower
the ratings on Belron if D'Ieteren was to change its financial
policy, weakening credit metrics as a result of material debt-
funded acquisitions or shareholder distributions.
"Although we consider it unlikely in the near term, we could
raise our ratings if we anticipated that Belron's EBITDA margins
were likely to improve by significantly more than we currently
expect, while also generating material FOCF with no material
debt-funded acquisitions or shareholder distributions following
the transaction. In particular, we could raise our ratings on
Belron if its credit metrics improved so that FFO to debt
exceeded 20% on a sustained basis, supported by similar trends at
Belron's parent, D'Ieteren, which we would expect to maintain FFO
to debt of above 30%."
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N E T H E R L A N D S
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E-MAC DE 2007-I: S&P Lowers Rating on Class Notes to BB(sf)
-----------------------------------------------------------
S&P Global Ratings took various rating actions in E-MAC DE 2005-I
B.V., E-MAC DE 2006-I B.V., E-MAC DE 2006-II B.V., and E-MAC DE
2007-I B.V. Specifically, S&P has:
-- Raised its rating on E-MAC DE 2005-I's class B notes;
-- Raised and removed from CreditWatch positive our rating on E-
MAC 2006-I's class A notes;
-- Lowered its rating on E-MAC DE 2007-I's class B notes; and
-- Affirmed its ratings on E-MAC DE 2005-I's class A, C, D, and
E
notes, E-MAC DE 2006-I's class B, C, D, and E notes, E-MAC DE
2006-II's class A2, B, C, D, and E notes, and E-MAC DE
2007-I's class A1, A2, C, D, and E notes.
S&P said, "On Jan. 16, 2017, we placed our rating on E-MAC DE
2006-I's class A notes on CreditWatch positive following the Dec.
15, 2016 upgrade of Deutsche Bank AG, the swap counterparty in
this transaction.
"The rating actions follow our cash flow analysis of the most
recent transaction information we have received and the
application of our European residential loans criteria and our
current counterparty criteria.
"Upon publishing our updated criteria for European residential
loans, we placed those ratings that could potentially be affected
under criteria observation. Following our review of these
transactions, our ratings that could potentially be affected by
the criteria are no longer under criteria observation.
"In our opinion, the current outlook for the German residential
mortgage and real estate market is benign (see "Outlook
Assumptions For The German Residential Mortgage Market,"
published on June 23, 2017). The generally favorable economic
conditions support our view that the performance of German
residential mortgage-backed securities (RMBS) collateral pools
will remain stable in 2017. Given our outlook on the German
economy, we consider the base-case expected losses of 0.4% at the
'B' rating level for an archetypal pool of German mortgage loans,
and the other assumptions in our European residential loans
criteria, to be appropriate.
"Since our previous full review of these transactions, available
credit enhancement has decreased for the subordinated classes of
notes (see "Ratings Raised On E-MAC DE 2005-I's German RMBS Class
B And C Notes; Affirmed In E-MAC DE 2006-I, 2006-II, And 2007-I,"
published on Aug. 31, 2016). At the same time, credit enhancement
levels have increased for the senior classes of notes due to
sequential repayment of the notes. Additionally, since mid-2015,
prepayments have increased significantly. The observed
prepayments are high because borrowers tend to negotiate the
terms of their mortgage loans with other lenders at the end of
the fixed period, which typically allows prepayments without
penalty 10 years after loan origination. However, we don't expect
this trend to continue and have factored this in our analysis."
The collateral pools' poor performance in all four transactions
has resulted in the reserve funds being fully depleted. Further,
in all four transactions, the principal deficiency ledgers (PDLs)
for the subordinated notes have been credited, leading to
interest shortfalls for the class E notes in E-MAC DE 2006-II,
and class D and E notes in E-MAC DE 2006-I and E-MAC DE 2007-I.
S&P said, "In our opinion, delinquencies of more than 150 days
have remained at very high levels in all four transactions and
have increased in relative terms due to significant portfolio
redemption. As of August 2017, delinquencies of 150+ days were
14.30% in E-MAC DE 2005-I, 19.00% in E-MAC DE 2006-I, 15.40% in
E-MAC DE 2006-II, and 9.50% in E-MAC DE 2007-I of the current
outstanding balances."
Servicing in these transactions is provided by Adaxio AMC GmbH
(previously GMAC-RFC Servicing), which refers decisions on
payment plans or foreclosure to the mortgage payment transactions
provider, CMIS Investments B.V.
S&P said, "The observed loss severities on the foreclosed
properties in these transactions are higher compared to loss
severities as calculated under our European residential loans
criteria. Therefore, we have concerns about the reliability of
original valuations given this difference. That said, our
criteria do not include adjustments when we have concerns about
the reliability of original valuations for the calculation of
loss severities as it's an originator-specific risk. Therefore,
to account for this originator-specific risk in our analysis, we
have applied a valuation haircut (discount) of 20%.
"After applying our European residential loans criteria to these
transactions, our credit analysis results show an increase in the
weighted-average foreclosure frequency (WAFF) for each rating
level compared with those at our previous review. The increase in
the WAFF is primarily due to the application of new adjustment
factors for high original-loan-to-value ratios in these pools.
The increase in the weighted-average loss severity (WALS) is
mainly due to the application of our updated market value decline
assumptions and an additional 20% valuation haircut."
Rating level WAFF (%) WALS (%)
E-MAC DE 2005-I
AAA 99.42 44.50
AA 95.30 40.31
A 90.39 32.07
BBB 81.21 27.28
BB 54.28 23.77
B 45.17 20.45
E-MAC DE 2006-I
AAA 99.37 44.62
AA 94.28 40.40
A 88.27 32.17
BBB 77.70 27.41
BB 54.25 23.93
B 46.21 20.65
E-MAC DE 2006-II
AAA 94.78 44.52
AA 87.38 40.33
A 80.21 32.23
BBB 67.67 27.56
BB 47.96 24.14
B 40.89 20.86
E-MAC DE 2007-I
AAA 93.22 44.83
AA 86.38 40.76
A 79.57 32.88
BBB 68.29 28.40
BB 50.52 25.15
B 42.43 22.05
S&P said, "Although the senior classes of notes in all four
transactions pass our cash flow stresses at higher ratings than
those currently assigned, under our current counterparty
criteria, our ratings on the class A notes in E-MAC DE 2005-I are
capped at 'A+', in E-MAC DE 2006-II and E-MAC DE 2007-I at 'A',
and at 'A' for the class A notes in E-MAC DE 2006-I. We have
therefore affirmed our ratings on E-MAC DE 2005-I, E-MAC 2006-II,
and E-MAC 2007-I's class A notes, and raised to 'A (sf)' from 'A-
(sf)' and removed from CreditWatch positive our rating on E-MAC
2006-I's class A notes.
"We have raised to 'BBB+ (sf)' from 'BBB (sf)' our rating on E-
MAC DE 2005-I's class B notes because we consider the current
level of available credit enhancement to be commensurate with a
higher rating than that currently assigned. Our analysis also
indicates that the available credit enhancement for E-MAC DE
2005-I's class C notes, and E-MAC DE 2006-I's and E-MAC 2006-II's
class B notes is commensurate with the currently assigned
ratings. We have therefore affirmed our ratings on these classes
of notes. We also considered our view of the tail-end risk, given
the transactions' small pool factor (the outstanding collateral
balance as a proportion of the original collateral balance), and
collateral pools' poor performance and sensitivity to recoveries.
"We have lowered to 'BB (sf)' from 'BB+ (sf)' our rating on E-MAC
DE 2007-I's class B notes because we consider that the current
level of available credit enhancement is not commensurate with
the currently assigned rating.
"E-MAC DE 2005's class D and E notes, E-MAC DE 2006-I and E-MAC
DE 2007-I's class C notes, and E-MAC DE 2006-II's class C and D
notes do not pass our 'B' stressed rating level scenario in our
analysis under our European residential loans criteria. In our
view, given the increase in PDLs, the likelihood of default is
higher for these notes. We have therefore affirmed our ratings on
these classes of notes.
"At the same time, we have affirmed our 'D (sf)' ratings on E-MAC
DE 2006-I and E-MAC 2007-I's class D and E notes, and E-MAC DE
2006-II's class E notes as interest is not being paid on these
classes of notes.
"We also consider credit stability in our analysis (see
"Methodology: Credit Stability Criteria," published on May 3,
2010). To reflect moderate stress conditions, we adjusted our
WAFF assumptions by assuming additional arrears of 16% for one-
and three-year horizons. This did not result in our rating
deteriorating below the maximum projected deterioration that we
would associate with each relevant rating level as outlined in
our credit stability criteria."
All four transactions are true sale German RMBS transactions,
originated and serviced by Adaxio AMC (previously GMAC-RFC
Servicing).
RATINGS LIST
Class Rating
To From
E-MAC DE 2005-I B.V.
EUR301.5 Million Mortgage-Backed Floating-Rate Notes
Rating Raised
B BBB+ (sf) BBB (sf)
Ratings Affirmed
A A+ (sf)
C B (sf)
D CCC+ (sf)
E CCC (sf)
E-MAC DE 2006-I B.V.
EUR502.5 Million Mortgage-Backed Floating-Rate Notes
Rating Raised And Removed From CreditWatch Positive
A A (sf) A- (sf)/Watch Pos
Ratings Affirmed
B B+ (sf)
C CCC (sf)
D D (sf)
E D (sf)
E-MAC DE 2006-II B.V.
EUR703.5 Million Mortgage-Backed Floating-Rate Notes
Ratings Affirmed
A2 A (sf)
B BB+ (sf)
C CCC+ (sf)
D CCC (sf)
E D (sf)
E-MAC DE 2007-I B.V.
EUR569.9 Million Mortgage-Backed Floating-Rate Notes
Rating Lowered
B BB (sf) BB+ (sf)
Ratings Affirmed
A1 A (sf)
A2 A (sf)
C CCC (sf)
D D (sf)
E D (sf)
HALCYON CLO 2006-II: Moody's Raises Class E Notes Rating From B1
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the
following notes issued by Halcyon Structured Asset Management
European CLO 2006-II B.V.:
-- EUR21,800,000 Class D Senior Secured Deferrable Floating
Rate Notes due 2023, Upgraded to Aa1 (sf); previously on May
10, 2017 Upgraded to Baa2 (sf)
-- EUR2,500,000 (Current outstanding balance of EUR12.1M)
Class E Senior Secured Deferrable Floating Rate Notes due
2023, Upgraded to Baa3 (sf); previously on May 10, 2017
Affirmed B1 (sf)
Moody's has also affirmed the ratings on the following notes:
-- EUR34,300,000 (Current outstanding balance of EUR7.7M)
Class B Senior Secured Floating Rate Notes due 2023, Affirmed
Aaa (sf); previously on May 10, 2017 Upgraded to Aaa (sf)
-- EUR27,100,000 Class C Senior Secured Deferrable Floating
Rate Notes due 2023, Affirmed Aaa (sf); previously on May 10,
2017 Upgraded to Aaa (sf)
Halcyon Structured Asset Management European CLO 2006-II B.V.,
issued in January 2007, is a collateralised loan obligation (CLO)
backed by a portfolio of mostly high-yield senior secured
European and US loans. The portfolio is managed by Halcyon Loan
Investors L.P. The transaction's reinvestment period ended in
January 2013.
RATINGS RATIONALE
The rating actions on the notes are primarily a result of the
improvement in the credit quality of the underlying collateral
and the substantial deleveraging of the senior notes following
amortisation of the underlying portfolio since the last rating
action in May 2017.
On the last interest payment date on July 2017, the Class A-1R
Notes were fully redeemed and the Class B Notes were paid down by
EUR26.6M or 77.4% of their original balance. As a result of this
deleveraging, the OC ratios have increased for Classes B, C, D
and E Notes. According to the October 2017 trustee report, the OC
ratios of Classes B, C, D and E are 1028.3%, 228.6%, 140.6% and
115.9%compared to 284.6%, 164.9%, 123.2% and 108.1% respectively
in March 2017.
The credit quality has improved as reflected in the improvement
in the average credit rating of the portfolio (measured by the
weighted average rating factor, or WARF) and an decrease in the
proportion of securities from issuers with ratings of Caa1 or
lower. According to the trustee report dated October 2017, the
WARF was 3734, compared with 3991 in March 2017. Securities with
ratings of Caa1 or lower currently make up approximately 20.5% of
the underlying portfolio, versus 23.0% in March 2017.
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
performing par and principal proceeds balance of EUR74.7 million
and GBP4.7 million, defaulted par of EUR7.5 million, a weighted
average default probability of 24.1% over 4.1 years weighted
average life (consistent with a WARF of 3461), a weighted average
recovery rate upon default of 44.6% for a Aaa liability target
rating, a diversity score of 10 and a weighted average spread of
4.1% and weighted average coupon of 0.05%.
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on
future defaults is based primarily on the seniority of the assets
in the collateral pool. Moody's generally applies recovery rates
for CLO securities as published in "Moody's Approach to Rating SF
CDOs". In some cases, alternative recovery assumptions may be
considered based on the specifics of the analysis of the CLO
transaction. In each case, historical and market performance and
a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Collateralized Loan Obligations"
published in August 2017.
Factors that would lead to an upgrade or downgrade of the
ratings:
In addition to the base-case analysis, Moody's conducted
sensitivity analyses on the key parameters for the rated notes,
for which it assumed lower weighted average recovery rate for the
portfolio. Moody's ran a model in which it reduced the weighted
average recovery rate by 5%; the model generated outputs were
unchanged for Classes B, C and D and were within one notch of the
base-case results for Class E.
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
note, in light of uncertainty about credit conditions in the
general economy. CLO notes' performance may also be impacted
either positively or negatively by 1) the manager's investment
strategy and behaviour and 2) divergence in the legal
interpretation of CDO documentation by different transactional
parties because of embedded ambiguities.
Additional uncertainty about performance is due to the following:
* 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.
* Around 12.7% 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.
* 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.
* 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.
* Foreign currency exposure: The deal has a exposure to non-EUR
denominated assets. Volatility in foreign exchange rates will
have a direct impact on interest and principal proceeds available
to the transaction, which can affect the expected loss of rated
tranches.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
IHS NETHERLANDS: Moody's Lowers Corporate Family Rating to B2
-------------------------------------------------------------
Moody's Investors Service has downgraded IHS Netherlands Holdco
B.V.'s (IHS) corporate family rating (CFR) to B2 from B1. At the
same time IHS probability of default rating was downgraded to B2-
PD from B1-PD. The company's $800 million 9.5 % senior unsecured
guaranteed notes due 2021 were downgraded to B1 from Ba3. The
outlook on the ratings is stable.
The downgrades follow Moody's downgrade of Nigeria's sovereign
rating to B2 from B1.
"Moody's has downgraded IHS by one notch to B2 to reflect its
reliance on Nigeria for a significant share of its earnings and
as such is not immune to the country's continued constrained
economic environment, especially the government's slow response
to addressing these economic pressures," says Douglas Rowlings,
Vice President-Senior Analyst and local market analyst for IHS
Netherlands Holdco B.V. at Moody's.
"However, IHS's rating on its $800 million senior unsecured notes
will continue to benefit from a one notch uplift above the
Nigeria's sovereign rating at B1, to reflect the structural
enhancement provided by the drawdown on a $900 million
subordinated shareholder loan," added Mr. Rowlings.
RATINGS RATIONALE
IHS' ratings are constrained by a high concentration of its
EBITDA generation in Nigeria -- a country with a foreign currency
bond ceiling of B1 -- with 100% of IHS's EBITDA generated and
received in Nigerian naira. The rating change also considers the
volatility in the naira-US dollar exchange rate, with around 80%
of IHS' revenue contractually agreed in US dollars, and with
tower equipment and diesel paid in naira, but typically indexed
to US dollar pricing from suppliers. Some Nigerian corporates
continue to face constraints in accessing requisite supply of US
dollars for conversion from Naira in Nigeria.
The rating downgrade further reflects IHS' linkage to Nigeria and
therefore its limited ability to withstand stress at the
sovereign or macroeconomic level.
Moody's also notes that IHS has proven itself as a savvy tower
operator in Nigeria, a country, which suffers continual power
disruptions, as well as security challenges. This, in addition to
its integral and symbiotic relationship with mobile network
operators (its end customers) supports a corporate family rating
in line with the government of Nigeria. Moody's also takes into
account that IHS is part of a broader tower group which is owned
by IHS Holding Limited (unrated and based in Mauritius) thereby
providing additional layers of strength to its credit profile.
The parent is committed to extending financial support to IHS, if
needed, in addition to best-practice operational know-how which
is shared from its experience gained through operating over
23,000 towers spanning five African countries.
IHS B2 rating also accommodates the limited scale of its revenue,
which was $200 million for the for the first half to June 30,
2017 and high debt/EBITDA at June 30, 2017 of 6.1x (3.6x
excluding the intercompany shareholder loan).
RATIONALE FOR THE STABLE OUTLOOK
The outlook on the ratings is stable. Moody's expect that IHS
will grow and delever in accordance with its business model, and
that the Nigerian regulatory, political and economic environment
will remain supportive.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's could downgrade IHS further if (1) Debt/EBITDA exceeds
6.5x by the end of 2017, which includes drawdown on the $900
million intercompany shareholder loan facility which Moody's
treat as debt, and/or a weakening in IHS' liquidity profile ; (2)
there is any shift in IHS Holding Limited's willingness and
capacity to extend financial support; (3) Adverse contractual,
regulatory, economic and/or political developments emerge that
materially impact IHS' ability to operate profitably and
sustainably; or (4) there is any indication that the company is
considering equitizing its intercompany shareholder loan, which
could constitute a default under Moody's definition. Similarly,
the introduction of special taxes, levies or other punitive
measures in respect of profits or cashflow by the government of
Nigeria could put downward pressure on the ratings and/or
outlook.
Upward pressure is limited by the concentration of IHS' cash flow
generation to Nigeria.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was
Communications Infrastructure Industry published in September
2017.
Headquartered in the Netherlands, with management located in
Lagos, IHS is a leading Nigerian tower company that provides
services primarily to the local Nigerian mobile operating
entities of MTN Group Limited (Ba1 stable), 9Mobile (not rated)
and Bharti Airtel Ltd. (Baa3 negative).
MESDAG DELTA: Fitch Affirms CC Ratings on 2 Tranches
----------------------------------------------------
Fitch Ratings has affirmed Mesdag (Delta) B.V.'s floating rate
notes due 2020 and revised the Outlooks:
EUR345.6 million class A (XS0307565928) affirmed at 'BBsf';
Outlook revised to Negative from Stable
EUR44.0 million class B (XS0307574599) affirmed at 'BB-sf';
Outlook revised to Negative from Stable
EUR50.0 million class C (XS0307576701) affirmed at 'B-sf';
Outlook revised to Negative from Stable
EUR60.1 million class D (XS0307578749) affirmed at 'CCsf';
Recovery Estimate revised to 60% from 30%
EUR46.0 million class E (XS0307580307) affirmed at 'CCsf; RE 0%
The transaction is the securitisation of a single commercial
mortgage-backed loan originated by NIBC Bank N.V. and closed in
2007. The loan was a 10-year refinancing facility backed by 77
commercial assets, predominantly retail, office and industrial.
In November 2017, 55 properties remained.
KEY RATING DRIVERS
The affirmations reflect the overall stable asset performance
over the last six months and the expectation of full redemption
of the class A, B and C notes. The revision of the Outlooks to
Negative reflect the absence of property sales since the last
rating action, with just over two years remaining until bond
maturity in which to liquidate a very large secondary portfolio
(comprising 55 assets). Fitch understands that the special
servicer has received unsolicited bids on various properties, but
has declined to transact owing to a dispute as to whether
principal allocation should be sequential or pro rata.
In December 2016, the issuer amended the transaction documents to
clarify the intended switch to sequential principal payments from
pro rata in case of a loan default. This feature is standard in
EMEA CMBS, recognising that only by applying recoveries
sequentially can intended subordination be effective. However,
this interpretation has been challenged by junior noteholders
seeking to enhance their return. Following a court decision in
favour of the issuer's interpretation, junior noteholders have
lodged an appeal, which is scheduled to be heard in mid-December.
The risk of delays to the schedule also drives the Negative
Outlooks.
RATING SENSITIVITIES
A prolonged litigation may result in downgrades of the class A, B
and C notes on the basis that full redemption prior to bond
maturity would become less likely (or dependent on large
discounts). Should the appeal be successful and pro rata payments
be reinstated, multi-category downgrades to the non-distressed
tranches would ensue to reflect the lack of subordination.
Fitch estimates 'Bsf' recoveries of EUR490 million.
NOSTRUM OIL: S&P Affirms B CCR & Revises Outlook to Developing
--------------------------------------------------------------
S&P Global Ratings revised its outlook on Netherlands-registered
hydrocarbons exploration and production company Nostrum Oil and
Gas PLC (operating in Kazakhstan) to negative from stable. At the
same time, S&P affirmed its 'B' long-term corporate credit rating
on the company and long-term issue ratings on the company's
senior unsecured notes, issued by Nostrum's subsidiary Zhaikmunai
LLP and Nostrum Oil & Gas Finance B.V., a financing subsidiary of
Nostrum Oil and Gas PLC. These instruments are guaranteed by all
the group's entities.
S&P said, "The outlook revision reflects our concerns regarding
potential budget overruns or further delays in completing
Nostrum's major investment project. The company has ambitious
plans to increase production to 100,000 barrels of oil equivalent
per day (boepd) in 2020 from about 40,000 today. To do this,
Nostrum has been constructing a new gas treatment facility, GTU3,
and by the end of the third quarter of this year had invested
$459 million (86% of the project budget). The original completion
date was set for second-half 2017, which should have improved the
year's cash flow generation and credit metrics, facilitating
deleveraging.
"We understand, however, that the company has experienced some
technical problems with the late delivery of special valves, so
has not been able to complete hydro-testing of the connections
before winter. It has moved the launch date to April 2018, with
commercial production from the second half of next year.
"Because of this and some underperformance in the drilling
segment, we have revised our base case to reflect our expectation
of lower production volumes in 2017 and 2018 and the resultant
delay in improved credit metrics until end-2018. We also note
that investment budget overruns or further completion delays
might challenge the company's deleveraging schedule and pressure
its financial risk profile given projected negative free
operating cash flow (FOCF) generation. We also see a risk that
negative FOCF, prior to GTU3 commencing, might squeeze liquidity.
We also foresee a relatively weak funds from operations (FFO)
interest cover ratio, at slightly below 3x without GTU3's
contribution."
In S&P's base case, it assumes:
-- An average Brent oil price of $50 per barrel (/bbl) for the
remainder of 2017 and 2018, and $55/bbl afterward.
-- Annual production of about 40,000 boepd in 2017 (no material
change compared to 2016). We expect gas will continue to
account for approximately 50% of Nostrum's total production.
-- About 15% revenue growth in 2017 on the back of higher actual
prices and additional 20%-30% growth in 2018, assuming the
GTU3 facility starts commercial production in the second half
of 2018.
-- Generally strong EBITDA margins of about 50%-55% in 2017-
2018, thanks to low operating costs.
-- No dividends in 2017-2018 as the company focuses on
completing the GTU3 project; $50 million per year afterward,
in line with historical payouts at the company).
-- Capital expenditure (capex) of about $200 million per year,
and no additional borrowings, for completion of GTU3.
Based on these assumptions, S&P arrives at the following credit
measures for 2017-2018:
-- Negative FOCF generation of about $20 million-$30 million per
quarter in Q4 2017, Q1 2018, and Q2 2018; turning marginally
positive in Q3 2018 and Q4 2018 after GTU3 ramp-up;
-- FFO to debt of 10%-15%; and
-- Debt to EBITDA of about 5x.
S&P's said, "Our assessment of Nostrum's business risk profile as
weak reflects the company's fairly concentrated asset base and
its dependence on one pipeline for dry gas -- the company uses
another pipeline for crude oil and stabilized condensate, and it
could also use trucks as an alternative for oil transportation.
We also take into account that its operations are relatively
small-scale by international standards and are exposed to the
risks inherent in the oil industry and operating in Kazakhstan,
where we assess country risk as high.
"These factors are mitigated by good profitability -- we continue
to assume an S&P Global Ratings-adjusted EBITDA margin of about
50%-55% in the next two years -- and a favorable cost structure
based on a modern asset base, low cash lifting costs, and a
supportive tax regime. In our view, Nostrum's relatively low
break-even costs and our current expectation that its production
profile will improve materially from mid-2018, are important
advantages compared with peers. We reflect this in our positive
comparable rating analysis score.
"The negative outlook on the company reflects our view that if
GTU3 is delayed further or there are budget overruns, Nostrum's
liquidity might come under pressure and it could face
difficulties improving its credit measures in 2018, such as
achieving FFO to debt of above 12% and debt to EBITDA below
5.0x."
S&P might lower the ratings if:
-- Nostrum experiences further delays in completing the GTU3
plant or there are project cost overruns that cause it to
raise debt not aimed at refinancing;
-- The company's cash position deteriorates below $50 million,
resulting in squeezed liquidity (and also potentially
indicating higher-than-expected costs to complete the GTU3);
-- There are operating or macroeconomic issues or heightened
investments or dividend payments, resulting in sustainably
weakened credit metrics, notably FFO to debt remaining below
12% or debt to EBITDA exceeding 5x; or
-- Nostrum fails to refinance the remaining part of the 2019
maturities in the next 12 months.
S&P might revise the outlook back to stable if GTU3 completes and
commences in a timely fashion, which would lead credit metrics to
improve with FFO to debt comfortably above 12% and debt to EBITDA
below 5.0x, with no liquidity squeezes.
TIKEHAU CLO: Moody's Assigns (P)B2 Rating to Class F-R Notes
------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to six
classes of notes ("Refinancing Notes") to be issued by Tikehau
CLO B.V.:
-- EUR161,000,000 Class A-1R Senior Secured Floating Rate Notes
due 2028, Assigned (P)Aaa (sf)
-- EUR39,000,000 Class B-R Senior Secured Floating Rate Notes
due 2028, Assigned (P)Aa2 (sf)
-- EUR28,000,000 Class C-R Senior Secured Deferrable Floating
Rate Notes due 2028, Assigned (P)A2 (sf)
-- EUR16,000,000 Class D-R Senior Secured Deferrable Floating
Rate Notes due 2028, Assigned (P)Baa2 (sf)
-- EUR21,200,000 Class E-R Senior Secured Deferrable Floating
Rate Notes due 2028, Assigned (P)Ba2 (sf)
-- EUR7,800,000 Class F-R Senior Secured Deferrable Floating
Rate Notes due 2028, Assigned (P)B2 (sf)
Moody's issues provisional ratings in advance of the final sale
of financial instruments, but these ratings only represent
Moody's preliminary credit opinions. Upon a conclusive review of
a transaction and associated documentation, Moody's will
endeavour to assign definitive ratings. A definitive rating (if
any) may differ from a provisional rating.
RATINGS RATIONALE
Moody's provisional ratings of the Refinancing Notes address the
expected loss posed to noteholders. The provisional ratings
reflect the risks due to defaults on the underlying portfolio of
assets, the transaction's legal structure, and the
characteristics of the underlying assets.
The Issuer will issue the Refinancing Notes in connection with
the refinancing of the following classes of Original Notes: Class
A-1 Notes, Class B Notes, Class C Notes, Class D Notes, Class E
and Class F Notes due August 4, 2028 (the "Original Notes"),
previously issued on July 15, 2015 (the "Original Closing Date").
On the refinancing date, the Issuer will use the proceeds from
the issuance of the Refinancing Notes to redeem in full its
respective Original Notes. On the Original Closing Date, the
Issuer also issued the Class A-2 Notes as well as one class of
subordinated notes, which will remain outstanding.
As part of this refinancing, the Issuer will extend the weighted
average life by 18 months and amend the OC trigger level of some
tranches. In addition, it will amend the base matrix that Moody's
will take into account for the assignment of the definitive
rating.
Tikehau is a managed cash flow CLO. The issued notes are
collateralized primarily by broadly syndicated first lien senior
secured corporate loans. At least 90% of the portfolio must
consist of senior secured loans and eligible investments, and up
to 10% of the portfolio may consist of second lien loans and
unsecured loans. The underlying portfolio is 100% ramped as of
the refinancing date.
Tikehau Capital Europe Limited (the "Manager") manages the CLO.
It directs the selection, acquisition, and disposition of
collateral on behalf of the Issuer and may engage in trading
activity, including discretionary trading, during the
transaction's reinvestment period. After the reinvestment period,
which ends in August 2019, the Manager may reinvest unscheduled
principal payments and proceeds from sales of credit risk
obligations and credit improved obligations, subject to certain
restrictions.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Collateralized Loan Obligations"
published in August 2017.
Factors that would lead to an upgrade or downgrade of the
ratings:
The performance of the notes is subject to uncertainty. The
performance of the notes is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the notes.
Loss and Cash Flow Analysis:
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in August 2017.
The cash flow model evaluates all default scenarios that are then
weighted considering the probabilities of the binomial
distribution assumed for the portfolio default rate. In each
default scenario, the corresponding loss for each class of notes
is calculated given the incoming cash flows from the assets and
the outgoing payments to third parties and noteholders.
Therefore, the expected loss or EL for each tranche is the sum
product of (i) the probability of occurrence of each default
scenario and (ii) the loss derived from the cash flow model in
each default scenario for each tranche. As such, Moody's
encompasses the assessment of stressed scenarios.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
For modeling purposes, Moody's used the following base-case
assumptions:
Target Par Amount: EUR340,000,000
Defaulted par: EUR0
Diversity Score: 40
Weighted Average Rating Factor (WARF): 2760
Weighted Average Spread (WAS): 3.80%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 40.00%
Weighted Average Life (WAL): 7.13 years
As part of its analysis, Moody's has addressed the potential
exposure to obligors domiciled in countries with local currency
government bond ratings of A1 or below. According to the
portfolio constraints, the total exposure to countries with a
local currency country risk bond ceiling ("LCC") below Aa3 shall
not exceed 10%, the total exposure to countries with a LCC below
A3 shall not exceed 5% and the total exposure to countries with
LLC below Baa3 shall not be greater than 0%.
Stress Scenarios:
Together with the set of modeling assumptions above, Moody's
conducted an additional sensitivity analysis, which was a
component in determining the provisional ratings assigned to the
rated notes. This sensitivity analysis includes increased default
probability relative to the base case.
Below is a summary of the impact of an increase in default
probability (expressed in terms of WARF level) on the notes
(shown in terms of the number of notch difference versus the
current model output, whereby a negative difference corresponds
to higher expected losses), assuming that all other factors are
held equal.
Percentage Change in WARF -- increase of 15% (from 2760 to 3174)
Rating Impact in Rating Notches:
Refinancing Class A-1 Senior Secured Floating Rate Notes: 0
Refinancing Class B Senior Secured Floating Rate Notes: -1
Refinancing Class C Senior Secured Deferrable Floating Rate
Notes: -2
Refinancing Class D Senior Secured Deferrable Floating Rate
Notes: -2
Refinancing Class E Senior Secured Deferrable Floating Rate
Notes: -1
Refinancing Class F Senior Secured Deferrable Floating Rate
Notes: 0
Percentage Change in WARF -- increase of 30% (from 2760 to 3588)
Refinancing Class A-1 Senior Secured Floating Rate Notes: -1
Refinancing Class B Senior Secured Floating Rate Notes: -3
Refinancing Class C Senior Secured Deferrable Floating Rate
Notes: -4
Refinancing Class D Senior Secured Deferrable Floating Rate
Notes: -3
Refinancing Class E Senior Secured Deferrable Floating Rate
Notes: -2
Refinancing Class F Senior Secured Deferrable Floating Rate
Notes: -1
===========
P O L A N D
===========
VISTAL GDYNIA: Unit Inks Asset Sale Agreement with Port of Gdynia
-----------------------------------------------------------------
Reuters reports that Vistal Gdynia SA said its unit signed a
preliminary agreement with Port of Gdynia to sell its property
for PLN39.5 million.
As reported by the Troubled Company Reporter-Europe on Oct. 6,
2017, Reuters related that Vistal Gdynia filed for bankruptcy.
According to Reuters, the company said it is in talks with
business partners to solve the difficult situation of its group.
Vistal Gdynia SA is based in Poland.
===========
R U S S I A
===========
BANK SOYUZ: S&P Affirms 'B' Issuer Credit Rating, Outlook Stable
----------------------------------------------------------------
S&P Global Ratings said that it had affirmed its 'B' long-term
and 'B' short-term issuer credit ratings on Russia-based Bank
SOYUZ. The outlook is stable.
S&P said, "The affirmation reflects our view of the bank's
improved capital position, which its majority shareholder,
Ingosstrakh, supported through injections of Russian ruble (RUB)
4.3 billion over 2015-2016. Furthermore, we expect Bank SOYUZ's
risk-adjusted capital (RAC) ratio to stabilize around 7.6%-7.8%
in the next 12 months on our forecast of modest growth of the
bank's activity in Russia's challenging operating environment. We
expect the bank's loan portfolio to show flat growth in 2017 and
around 3% in 2018, driven primarily by the retail segment. We
also expect the bank's operating performance will stabilize in
2018. We note that Bank SOYUZ had a history of volatile and
modest earnings over the past five-years. In our view, the bank's
strategy has the potential to create more stable and predictable
earnings over the medium term thanks to a higher focus on good-
quality borrowers. Overall, we expect almost zero net income in
2017 and a slight improvement in 2018.
"In our view, Bank SOYUZ's loan book is concentrated with the top
20 loans comprising around 33% of the loan book. We do not expect
further significant asset quality deterioration in 2017-2018
because the bank's operating environment is stabilizing against
what we saw in 2015. The share of nonperforming loans reduced to
7.8% as of June 30, 2017, but still is slightly higher than the
peer average. We expect credit losses to reach 2.0% in 2017-2018
following a peak of 7.2% in 2015.
"We consider that Bank SOYUZ has adequate liquidity. In our view,
the funding base is rather stable, although concentrated. The
stable funding ratio stood at 154% at year-end 2016, and we
positively view that, in 2017, the bank managed to fully repay
the RUB9.4 billion loan provided in 2008 by the Deposit Insurance
Agency without causing a material drop in its liquidity buffer.
"We assess Bank SOYUZ as a moderately strategic subsidiary of
Ingosstrakh. Therefore, we include one notch of uplift into our
long-term rating on the bank to reflect our expectation of
parental support in case of need.
"The stable outlook on Bank SOYUZ reflects our view that the
bank's franchise and financial profile will remain broadly stable
in the next 12 months.
"We could take a negative rating action within the next 12 months
if the bank is unable to strengthen its earnings generation
capacity, if the link between the bank and Ingosstrakh weakened,
or if we saw high volatility of the bank's deposit base placing
pressure on its liquidity profile."
A positive rating action is unlikely in the next 12 months,
because it would require a material strengthening of the bank's
franchise.
MEZHTOPENERGOBANK PAO: Liabilities Exceed Assets, Probe Shows
-------------------------------------------------------------
The provisional administration of PJSC Mezhtopenergobank
appointed by Bank of Russia Order No. OD-2034, dated July 20,
2017, due to the revocation of its banking license, revealed
operations which bear signs of transactions aimed at diverting
assets through lending to certain borrowers with dubious
creditworthiness and not engaged in real business activity, as
well as through the assignment of receivables on the outstanding
corporate and individual loans, according to the press service of
the Central Bank of Russia.
Besides, the provisional administration revealed operations
conducted despite the signs of bankruptcy and aimed at the
deliberate and wrongful satisfaction of property claims of
certain customers at the expense of the bank's property and to
the detriment of other creditors.
The provisional administration estimates the value of PJSC
Mezhtopenergobank assets to be no more than RUR20.2 billion,
whereas its liabilities to creditors amount to RUR30.5 billion,
including RUR24.9 billion to individuals.
On September 20, 2017, the Arbitration Court of the city of
Moscow recognised the bank as insolvent (bankrupt). The State
Corporation Deposit Insurance Agency was appointed as a receiver.
The Bank of Russia submitted the information on financial
transactions bearing the evidence of the criminal offence
conducted by the officials of PJSC Mezhtopenergobank to the
Prosecutor General's Office of the Russian Federation, the
Ministry of Internal Affairs of the Russian Federation and the
Investigative Committee of the Russian Federation for
consideration and procedural decision making.
Mezhtopenergobank PAO 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.
PAYMENT CLEARING: In Provisional Administration, License Revoked
----------------------------------------------------------------
The Bank of Russia, by its Order No. OD-3207, dated November 14,
2017, revoked the banking license of Moscow-based credit
institution Payment Clearing House JSC from November 14, 2017,
according to the press service of the Central Bank of Russia.
According to the financial statements, as of November 1, 2017,
the credit institution ranked 548th by assets in the Russian
banking system. JSC PCH is not a member of the deposit insurance
system.
JSC PCH failed to comply with the requirements of laws and Bank
of Russia regulations on countering the legalization (laundering)
of criminally obtained incomes and the financing of terrorism
with regard to identifying operations subject to mandatory
control, as well as submitting reliable information to the
authorized body. Moreover, throughout 2016, the credit
institutions' business activity was largely focused on dubious
transit operations. The Bank of Russia repeatedly imposed
supervisory measures against JSC PCH, including those of
restrictive nature.
The management and owners of the credit institution did not take
proper actions to bring its activities back to normal. Under the
circumstances, the Bank of Russia took the decision to withdraw
JSC PCH from the banking services market.
The Bank of Russia took this decision in connection with the
credit institution's failure to comply with federal banking laws
and Bank of Russia regulations, repeated violations, within a
year, of requirements stipulated by Articles 6 and 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", as well as Bank of Russia regulations
issued in accordance with the said law, and in connection with
the applications of measures, within a year, stipulated by the
Federal Law "On the Central Bank of the Russian Federation (Bank
of Russia)".
By its Order No. OD-3208, dated November 14, 2017, the Bank of
Russia appointed a provisional administration to manage JSC PCH
for the period until the appointment of a receiver pursuant to
the Federal Law "On 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.
PIK GROUP: S&P Affirms 'B' CCR, Outlook Revised to Stable
---------------------------------------------------------
S&P Global Ratings revised its outlook on Russia-based
residential developer JSC PIK Group (PIK) to stable from
negative. At the same time, S&P affirmed the 'B' corporate credit
rating on the group.
The outlook revision reflects PIK's strong pre-sales and cash
flow collections in the first nine months of 2017 as well as its
adequate liquidity position. PIK's cash collections for this
period increased by 113% to Russian ruble (RUB) 145 billion
(US$2.5 billion) from RUB68 billion in the first nine months of
2016, while volumes sold over January-September of this year
increased to 1.2 million square meters from 630,000 square meters
for the same period a year earlier. S&P said, "In addition, we
believe that PIK's liquidity remains adequate since the company
accumulated RUB32 billion by the end of June 2017 and increased
it further in the following months, covering its short-term debt
obligations of RUB7.4 billion and put options on bonds for the
following 12 months. We also understand that PIK is in the
process of repaying part of its gross debt with available cash
balances and operating cash flow in the fourth quarter of 2017.
Therefore, we expect debt to EBITDA of 4x by end-2017."
S&P said, "We understand that PIK bought back global depository
receipts (GDRs) representing 7.6% of its capital for RUB15
billion equivalent on the London Stock Exchange in March 2017.
The buyback was part of a delisting process aimed to increase
liquidity of its free float and consolidate all stock trading on
the Moscow Stock Exchange. Consequently, PIK sold these GDRs to
the Russian state-owned bank and simultaneously entered into a
three-year derivative transaction in relation to the final sale
price of these shares. We understand the group will use this
deal's cash proceeds for debt repayment, which we believe will
facilitate deleveraging already by end-2017."
PIK's profitability in 2017 has felt the weight of the
revaluation up to market value of Morton's projects and
recognition of most earnings on those projects when the group
completed the acquisition at end-2016. Consequently, the group's
cost base in 2017 is artificially inflated, with our forecast of
an EBITDA margin at around 10%. S&P expects the group's
profitability in 2018-2019 to reflect its underlying
profitability better, with an EBITDA margin improving to about
14%-16%.
S&P said, "We expect gradual deleveraging over our forecast
horizon, to about 2x in 2018 and 1x in 2019, from 4x in 2017, on
the back of continued growth in buildings completion, recognized
revenues, and better profitability. We expect PIK's building
completion and delivery to reach 1.7 million-1.9 million square
meters by 2018.
"The inherent volatility of cash flows, arising from a long
operating cycle, weighs on PIK's financial risk profile, in our
view. We take into account the multiyear volatility of working
capital, which is specific to developers and homebuilders, due to
the capital-intensive business and length of projects.
"Additionally, we see the company's appetite for land acquisition
and sizable dividends as a significant risk to its leverage. We
understand that PIK adopted a new dividend policy targeting at
least 30% of operating cash flow. We therefore continue to assess
the company's financial policy as negative."
The group's ownership has undergone significant changes in 2017.
Mr. Sergey Gordeyev increased his share to 74.6% from 29.8%,
having bought shares from two other large individual shareholders
and from minority holders through a mandatory buy-out.
PIK's activity continues to be geographically concentrated on the
greater Moscow area, including Moscow city and Moscow region,
exposing the company to risks of local regulation changes and
supply and demand imbalances. S&P said, "We believe that the
Moscow market is now oversupplied, leading to intensified
competition and pressure on prices. At the same time, we note a
gradual decline in mortgage interest rates driven by lower
inflation. Alongside several years of price stagnation, we
believe this supports affordability of residential real estate.
The Moscow metropolitan area continues to remain one of the most
attractive residential markets in Russia, with strong population
growth due to people moving to the city from all over the
country."
The Moscow city government announced in 2017 a multi-year program
of demolition and replacement of five-story apartment blocks
built from pre-fabricated panels in the 1950s-1960s and deemed
unsuitable for capital repairs. S&P said, "We see risks of
increasing supply due to this program, but we think that this is
likely to affect the market only in the medium to long term, when
the program drives an increase in the speed and volumes built on
top of those needed for replacement become available on the
commercial market."
S&P said, "The stable outlook reflects our view that PIK's
liquidity position is supported by large cash balances and our
expectation of sound operating cash flow. The stable outlook also
incorporates our expectation of EBITDA margins of around 14%-16%
in 2018-2019 that are more reflective of underlying profitability
than the 10% expected in 2017 and masked by effects of
revaluation of acquired Morton assets.
"We could lower the rating if the level of operating cash flow or
profitability is lower than our base-case projections, resulting
in debt to EBITDA higher than 4x or a five-year weighted-average
EBITDA interest coverage lower than 3x. This could occur in the
event of a higher-than-expected cost base or lower demand for new
apartments and lower presales, combined with still-large cash
outflows for new developments."
Negative rating pressure might materialize if PIK's debt maturity
profile shortens or if liquidity were to materially deteriorate.
PIK's liquidity position depends on the group's ability to
continue maintaining large cash balances, passing put options on
its bonds, and extending its bank lines.
S&P could raise the rating if PIK's credit protection metrics
improve and the combined entity's profitability is comparable
with the profitability PIK showed in 2015-2016. An upgrade would
hinge on strengthened credit metrics, with gross debt to EBITTDA
below 3x and EBITDA interest coverage higher than 6x. Rating
upside would also depend on PIK's ability to maintain an adequate
capital structure and the generation of substantial positive
operating cash flow.
=========
S P A I N
=========
IM EVO 1: Moody's Assigns Ba2(sf) Rating to EUR25.5MM Notes
-----------------------------------------------------------
Moody's Investors Service has assigned the following definitive
ratings to notes issued by IM EVO Finance 1, Fondo de
Titulizacion:
-- EUR273.7M Series A 2017-1 Notes Due 2050, Definitive Rating
Assigned A2 (sf)
-- EUR25.5M Series B 2017-1 Notes Due 2050, Definitive Rating
Assigned Ba2 (sf)
Moody's has not assigned a rating to the EUR37.4M Series C 2017-1
Notes Due 2050, which will also be issued at closing of the
transaction. Moody's has also not rated the EUR11.9M Line of
Credit or the EUR750,000 subordinated loan.
RATINGS RATIONALE
The transaction is an ongoing revolving cash securitisation of
point of sale consumer loans extended to individual borrowers
located in the Spain. It is structured as a programme in which
additional notes can be issued or existing notes can be upsized
over time, subject to a maximum notes issuance amount of EUR500
million.
The loans were originated by Evo Finance E.F.C., S.A.U. (the "Evo
Finance"). Evo Finance is not rated. This is the second public
securitisation by Evo Finance, which is also acting as servicer
in the transaction.
The provisional portfolio used to assign the definitive ratings
is as of October 10, 2017, and equal to an amount of EUR372.0
million. After issuance of the notes, a final portfolio will be
selected from this pool, with a size equal to EUR341.75mn. The
pool consists of 242,287 consumer loans with a weighted average
seasoning of 9.9 months. The loans are originated at point of
sale ("POS Loans"), granted to predominantly finance medical
procedures (69.0%) as well as purchases of appliances and
furniture (23%), and other typical consumer products. The
servicer is Evo Finance (NR).The majority of POS Loans do not pay
interest under the contract, but are sold at a discount to
generate yield for the pool, which as of closing has a weighted
average interest rate of 8.6%.
The issued notes are due in 2050. This reflects the expectations
that the transaction will revolve on a continuous basis, however
with a requirement that the reinvestment period be renewed
subject to certain conditions, every two years. These
requirements for renewal of the revolving period include
confirmation that a revolving period termination event has not
occurred, and that Moody's has confirmed that renewal of the
revolving period would not prejudice the note ratings. The key
early amortization events include (i) confirmation that the
servicer has not been replaced; (ii) that the cumulative default
rate of the assets has not reached 6% on an annualized basis;
(iii) that the performing pool is at least 101% of the A to C
notes and 106% of the A to B notes; (iv) that the reserve fund
remains fully funded; and (v) that the notes have not missed a
payment.
The structure includes the flexibility to issue additional notes
throughout the life of the deal. The structure envisages that all
notes will be issued in euros and pay monthly fixed interest on
the same payment date. In order to either upsize a series or
issue new series, the following key conditions will need to be
met: (i) the sum of the notes will be less than the maximum of
EUR500m; (ii) an early amortization event has not occurred; (iii)
the reserve fund is fully funded: (iv) that the rating of the
existing series A and B notes will not be affected by the note
increase or new issuance: (v) that the notes will obtain a rating
of at least A2 (sf) and Ba2 (sf) for the series A and B notes
respectively.
The notes will be repaid either out of principal proceeds during
the amortization period or through a refinancing by another
liability of the fund. This refinancing can be funded by the
issuance of (i) further series of notes or by upsizing pre-
existing notes; (ii) through the line of credit provided by Evo
Finance; (iii) by repurchase of assets from the issuer by Evo
Finance as the seller.
In addition to the series A, B and C notes, the assets will be
funded by a line of credit. It acts as a form of additional
financing that funds the surplus amount of assets that are not
financed by the bonds. As such, its amount can vary depending on
the amount of assets, however if it funds collateral less than 1%
of the sum of the A, B and C notes, the deal will enter early
amortization. The line of credit is fully subordinated during the
amortization period, but during the revolving period interest
payments are due pari passu with the series A notes. The Line of
Credit has a maximum amount of EUR200mn, although this may be
reduced to EUR100mn if it would not lead to an amortization event
nor negatively impact the ratings of the notes. As of closing, it
is 11.9mn, which funds both the initial reserve fund of
EUR6.732mn and additional assets of EUR5.150mn. The amount of
assets funded by the notes is above the minimum required under
the documents, which require the line of credit to fund 3.7mn of
assets, equivalent to 1% of the initial A, B and C notes.
The transaction benefits from credit strengths such as the
granularity of the portfolio and the stable historical
performance of POS loans over the 2008-2017 during a stressed
economic period in Spain. However, Moody's notes that the
transaction features some credit weaknesses. The concentration of
service providers in the pool increases the risk of a
deterioration in repayment performance in the event that a
service provider enters into insolvency, and the transactions
reliance on Evo Finance, which is unrated. The transaction is
reliant on Evo Finance both due to its undertaking as seller to
repurchase any assets affected by commercial disputes with the
service providers, and in its role as servicer in helping to
negotiate and resolve such disputes.
COLLATERAL PERFORMANCE ASSUMPTIONS
Moody's determined the portfolio lifetime mean default rate of
6.0%, expected recoveries of 10% and Aa2 portfolio credit
enhancement ("PCE") of 23%. The mean default rate and recoveries
capture Moody's expectations of performance considering the
current economic outlook, while the PCE captures the loss Moody's
expect the portfolio to suffer in the event of a severe recession
scenario. Mean loss and PCE are parameters used by Moody's to
calibrate its lognormal portfolio loss distribution curve and to
associate a probability with each potential future loss scenario
in its ABSROM cash flow model to rate consumer loans ABS.
The portfolio expected mean defaults level of 6.0% is slightly
worse than the EMEA consumer loans average and is based on
Moody's assessment of the lifetime expectation for the pool
taking into account (i) obligor defaults, and (ii) possible
deterioration of portfolio composition during the revolving
period.
The expected recoveries of 10% is slightly worse than the EMEA
consumer loans average and is based on Moody's assessment of the
lifetime expectation for the pool taking into account (i)
historic performance of the defaulted loans, (ii) possible
deterioration of portfolio composition during the revolving
period and (iii) benchmark transactions.
The PCE of 23% is worse than EMEA consumer loan peers on average
and is based on Moody's assessment of the pool, taking into
account (i) the concentration amongst service providers; (ii) the
volatility seen in the historical data; (iii) the relative
ranking to the originators peers in the EMEA auto ABS market. The
PCE of 23% results in an implied coefficient of variation ("CoV")
of 44.3%.
METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Consumer Loan-Backed ABS" published in
September 2015.
Provisional Ratings were assigned on November 6, 2017.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE
RATINGS:
Factors that may cause an upgrade of the ratings of the class A
and B notes include an upgrade to the Local Currency Ceiling,
significantly better than expected performance of the pool
together with an increase in credit enhancement of notes.
Factors that may cause a downgrade of the ratings of the notes
include a worsening in the overall performance of the pool, or
replacement of Evo Finance as servicer, which would lead to deal
amortization. Evo Finance's experience in servicing the point of
sale consumer loans, which can involve negotiating with service
providers means that if it were replaced as a servicer it could
negatively impact pool recoveries.
The ratings address the expected loss posed to investors by the
legal final maturity of the notes. In Moody's opinion, the
structure allows for timely payment of interest and ultimate
payment of principal by legal final maturity. Moody's ratings
address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed but may have a
significant effect on yield to investors.
LOSS AND CASH FLOW ANALYSIS:
Moody's used its cash flow model ABSROM as part of its
quantitative analysis of the transaction. ABSROM enables users to
model various features of a standard European ABS transaction -
including the specifics of the loss distribution of the assets,
their portfolio amortisation profile, yield as well as the
specific priority of payments, swaps and reserve funds on the
liability side of the ABS structure. The model is used to
represent the cash flows and determine the loss for each tranche.
The cash flow model evaluates all loss scenarios that are then
weighted considering the probabilities of the lognormal
distribution assumed for the portfolio loss rate. In each loss
scenario, the corresponding loss for each class of notes is
calculated given the incoming cash flows from the assets and the
outgoing payments to third parties and noteholders. Therefore,
the expected loss or EL for each tranche is the sum product of
(i) the probability of occurrence of each loss scenario; and (ii)
the loss derived from the cash flow model in each loss scenario
for each tranche.
STRESS SCENARIOS:
In rating consumer loan ABS, default rate and recovery rate are
two key inputs that determine the transaction cash flows in the
cash flow model. Parameter sensitivities for this transaction
have been tested in the following manner: Moody's tested six
scenarios derived from a combination of mean default rate: 6.0%
(base case), 6.5% (base case + 0.5%), 7.0% (base case + 1.0%) and
recovery rate: 10.0% (base case), 5% (base case - 5%), 0% ( base
case - 10%). At the time the rating was assigned, the model
output indicated that the senior notes would have achieved Baa2
even if the mean default rate was as high as 7% with a recovery
rate as low as 0% (all other factors unchanged).
=============
U K R A I N E
=============
UKRAINE: S&P Affirms B-/B Sovereign Credit Ratings
--------------------------------------------------
S&P Global Ratings, on Nov. 10, 2017, affirmed its 'B-/B' long-
and short-term foreign and local currency sovereign credit
ratings on Ukraine. The outlook on the long-term foreign and
local currency ratings is stable.
At the same time, S&P affirmed the 'uaBBB-' Ukraine national
scale rating.
OUTLOOK
S&P said, "The stable outlook reflects our expectation that the
Ukrainian government will maintain access to its official
creditor support over the next 12 months by pursuing the required
fiscal, financial, and economic reforms; specifically, that the
Rada (parliament) will be able to pass key reforms broadly as set
out
by donors, thereby enabling the next disbursements under the
International Monetary Fund (IMF) and EU aid programs."
Downside risk to the ratings could build if Ukraine fails to
effectively implement further reforms required by the IMF for
additional tranche disbursements, if sizable contingent
liabilities crystalize on the general government balance sheet,
if the central bank's independence is called into question, or if
S&P conclude that a further debt exchange is likely.
S&P could consider a positive rating action if economic growth
significantly outperforms its expectations, alongside
improvements in fiscal and external imbalances, and there is no
further deterioration in the situation in the east of the
country.
RATIONALE
S&P said, "Our ratings on Ukraine reflect the country's weak
economy measured by per capita income and it's challenging
institutional and political environment that remains heavily
influenced by the lingering conflict in the east of Ukraine.
Moreover, our ratings remain constrained by Ukraine's large
external refinancing risks, which necessitate continued
compliance with Ukraine's IMF program. Public finances remain
strained by costs associated with the clean-up of Ukraine's
banking sector and only gradual progress in reducing the large
pension fund deficit. Lastly, our ratings remain constrained by
high consumer price inflation that remains well outside the
National Bank of Ukraine's (NBU's) target."
Institutional and Economic Profile: Gradual reform progress comes
alongside better-than-expected growth
The economic impact of the Donbas blockade was less severe than
anticipated.
Important reforms are under way, including those affecting
pensions, privatization, and the anticorruption court.
That said, progress has been insufficient for the IMF to conclude
its fourth review and allow Ukraine to draw a second tranche from
the IMF program this year.
An escalation in tensions between Ukrainian and separatist forces
areas in the occupied Donbas region led to a trade blockade in
the first quarter of 2017.Exports, mostly of coal and metals,
from the occupied territory were prohibited, raising concerns
about the potential impact on Ukraine's economy. However, data so
far suggests that the economy has been able to weather the shock
and will likely grow by about 2.2% this year. Investments are
recovering very strongly from a low base, thus supporting
Ukraine's strengthening economy. Exports are also recovering,
following the Deep and Comprehensive Free Trade Agreement that
Ukraine concluded with the EU in January 2016. Lastly,
consumption contributes positively due to a gradually
strengthening labor market and real wage increases that have been
bolstered by the doubling of the minimum wage at the beginning of
the year. S&P said, "Going forward, we expect the negative shock
of the Donbas trade blockade to fade out and real GDP growth to
accelerate, averaging 3% over 2018-2020. Pent-up investment
demand and healthy
demand for Ukrainian exports, especially metals and agricultural
products, will continue boosting growth, in our view."
Continued reform efforts and compliance with the conditions
attached to the Extended Fund Facility (EFF), the IMF's
assistance program to Ukraine, will be crucial to keep Ukraine's
recovery on track and support access to international capital
markets. To that end, Ukrainian authorities are making progress
on some reforms, but have moved only very gradually. This will
likely delay the disbursement of the next IMF tranche, the fourth
under this program, until at least the first quarter of 2018. In
S&P's view, the reforms necessary to ensure the next disbursement
are politically challenging, and therefore require more time. The
window of opportunity for implementing some of the more
difficult reforms is gradually closing; Ukraine will hold
presidential elections in the first quarter of 2019 and
parliamentary elections are expected to occur in the third
quarter of 2019.
In order to unlock the next US$1 billion tranche of the IMF EFF,
Ukraine will have to implement four crucial reforms which will,
in and of themselves, also benefit the country's future growth:
Pension reform: Although a long-overdue reform of Ukraine's heavy
loss-making pension system was introduced in October 2017, the
measure that was adopted failed to increase the statutory
retirement age. Moreover, while the required years of service,
currently 15, will be increased in two steps to 25 years and then
to 35 years, the new system will also see subsidies to Ukrainians
who retire at 60 without having worked for the minimum number of
years.
Privatization law: The IMF requires Ukraine to adopt a law which
will outline the privatization process of its approximately 3,000
state-owned enterprises (SOEs). The Ukrainian authorities have
already divided these SOEs into three categories: those to be
restructured and sold, those to be sold via the Prozorro online
platform, and those to be sent into liquidation. Now, this
process will need to be enshrined into law.
Anti-corruption court: As part of the IMF EFF, the IMF wants
Ukraine to establish an independent anti-corruption court that
will process the cases brought forward by the National Anti-
Corruption Bureau of Ukraine. Although progress in this area has
been slow so far, President Poroshenko has recently signaled
willingness to move forward with the reform, not least because of
increasing public pressure.
Implementation of a planned energy tariff increase: Ukraine's
government has failed to implement a planned energy tariff
increase that would have been necessary under the automatic
tariff adjustment mechanism that was introduced as part of
earlier IMF-mandated reforms. This will be difficult to implement
now, at the start of Ukraine's winter season.
S&P said, "Under our baseline scenario, we expect Ukrainian
authorities to make sufficient progress on the respective reforms
to unlock the fourth tranche under the IMF EFF. However, we do
not expect that this will happen until the beginning of next
year. So far, the Ukrainian authorities have only drawn about
half of the US$17.5 billion available under the EFF program."
Land reform, that is, the liberalization of agricultural land
sales, will likely be a prerequisite for one of the next IMF
reviews. This reform, coupled with functioning anti-corruption
courts and a well-thought-out privatization process, could unlock
potential for further foreign direct investment (FDI) inflows. In
addition, continued investment in Ukraine's aging capital stock,
household consumption on the back of disposable income growth,
and exports benefiting from strong demand in Ukraine's main
trading partners will drive the economy over S&P's forecast
horizon.
Flexibility and Performance Profile: The fiscal deficit remains
in check and a eurobond placement has reduced external
refinancing risks
Better than expected growth will lead to a lower-than-budgeted
headline deficit.
A successful eurobond placement in September has somewhat reduced
large external financing needs, especially in 2019 and 2020.
A high level of nonperforming loans (NPLs) continues to hamper
Ukraine's banking sector and inhibit credit growth.
Although Ukraine's headline fiscal deficit continues to improve,
general government debt has suffered from adverse currency
movements. Bank recapitalization costs also weigh on Ukraine's
government debt ratio. S&P said, "That said, stronger-than-
expected economic growth and solid growth of tax receipts will
lead to a lower general government deficit of 2.6% of GDP in
2017, down from 3.3% in our last report, according to our
forecast. Going forward, we expect the deficit to decline
further, to about 2.3% by 2020. Crucially, the recently passed
pension reform could gradually reduce Ukraine's large pension
fund deficit. In its latest report, the IMF estimated that this
amounted to 6%
of GDP in 2017. Under the recently adopted pensions reform, the
statutory retirement age remains at 60 years. However, the
minimum years of service required to retire at 60 without a
penalty will be increased from the current 15 years. As of Jan.
1, 2018, the number of years will increase to 25, followed by a
further increase to 35 years. The change is intended to increase
the effective retirement age. Although we do not expect this
reform to eliminate the pension fund deficit, it will gradually
reduce it over the coming years, although more reforms may be
needed, given Ukraine's adverse demographic profile."
PrivatBank (CCC+/Stable/C), Ukraine's largest lender, was
nationalized in December 2016 and has undergone two rounds of
recapitalization. In addition, the hryvnia has significantly
depreciated against all major currencies over the past three
years. This drove up Ukraine's debt ratio because a high
proportion of Ukraine's debt is denominated in foreign
currencies. S&P said, "As a result, we expect general government
debt to peak at 88% of GDP this year. Going forward, we forecast
a gradual decline of Ukraine's large debt to GDP ratio due to
strong nominal GDP growth, a more stable hryvnia and declining
general government deficits. Our forecast does not include any
potential further recapitalization costs or privatization income,
either of which could affect Ukraine's debt ratio."
Contingent liabilities for Ukraine have reduced over the course
of the year, but remain large. Two legal rulings that could
affect Ukraine's liabilities are still pending:
A verdict in the case on gas transfer contracts between Naftogaz
and Gazpromis still pending (the Stockholm court has already
ruled in favor of Naftogaz in a second case on the take-or-pay
contract between the two companies).
In the case regarding a US$3 billion (3% of GDP) eurobond held by
Russia, no progress has been made but we understand that even if
the ruling was unfavorable for Ukraine, the government would
still be able to service its restructured and newly-issued bonds
because a court-ordered freeze on these payments is not legally
possible.
One of Ukraine's key rating weaknesses remains its external
profile. S&P said, "Over our 2017-2020 forecast horizon, we
expect the country to post current account deficits averaging
3.3% of GDP. Large investment needs and recovering household
consumption will continue to drive up Ukraine's import. We expect
exports to remain strong, not least due to healthy demand from
Ukraine's trading partners and the positive impact of the Deep
and Comprehensive Free Trade Agreement with the EU." However,
Ukraine's exports remain heavily dependent on world metal prices
and demand. Moreover, they depend on Ukraine's agricultural
season and output.
In response to the trade blockade with the Donbas, Ukraine's
metal producers have had to start importing more coal from
abroad, especially the U.S. and South Africa. The country's large
trade deficit amounted to 7.5% of GDP in 2016, somewhat mitigated
by large current transfer inflows amounting to 3.2% of GDP,
chiefly from international aid programs. The inflows also reflect
remittances from a large Ukrainian diaspora working in
neighboring countries. A reported 1 million Ukrainians, 2.3% of
its population, work in Poland, for instance.
Ukraine's current account deficit is still financed by a mix of
debt-creating and non-debt-creating inflows. Over the past two
years, net FDI inflows averaged 3.4% of GDP. However, these large
FDI inflows were somewhat inflated by debt-to-equity swaps. Going
forward, S&P expects net FDI inflows to recover from a lower base
of 2.4% of GDP this year, contingent on progress being made with
regard to privatizations and land reform and in the fight against
corruption. In addition, Ukraine remains critically dependent on
continued disbursements under the IMF EFF.
Absent this policy anchor, Ukraine could see a marked
deterioration in external financing as the country's gross
external financing needs remain substantial at an estimated 142%
of current account receipts (CARs) and usable reserves in 2017. A
successful eurobond placement in September 2017 has somewhat
reduced the large refinancing needs that will peak in 2019-2020.
This US$3 billion, 15-year bond, priced at a yield of 7.375%,
consisted of US$1.3 billion for general budget purposes and
US$1.7 billion to buy back 64% and 23% of the outstanding 2019
and 2020 notes, respectively. Ukraine's narrow net external debt
remains significant at around 144% of CARs in 2017. Moreover,
external financing needs in 2019 and 2020 still amount to about
US$6 billion including repayments to the IMF, of a U.S.-
guaranteed bond, SOE debt, interest payments, and the remaining
parts of the eurobonds. S&P expects the Ukrainian authorities to
continue to manage asset liabilities, including the domestic
portion of debt, to smoothen the repayment profile.
Moderate contingent liabilities still stem from Ukraine's
financial sector, which we classify in group '10' ('1' being the
lowest risk, and '10' the highest) under our Banking Industry
Country Risk Assessment (BICRA) methodology. The sector remains
marred by a high level of NPLs (58% of total loans systemwide).
However, this ratio has been significantly distorted by high NPLs
at state-owned banks. NPLs account for 60% of total loans at
state-owned banks (excluding PrivatBank), and 90% of loans at
PrivatBank. For domestic private banks, NPLs account for roughly
26% of total loans. The nationalization of PrivatBank helped
Ukraine to avoid a financial sector crisis. The sector is
gradually stabilizing and capitalization levels and liquidity are
improving. That said, high NPLs constrain bank lending and weaken
the transmission mechanism of monetary policy.
The NBU has lacked a new governor since Governor Gontareva
resigned in April this year. The NBU will be headed by Acting
Governor Smoliy until a successor is named. In the meantime, the
NBU has been gradually liberalizing the remaining capital
controls, although some remain in place. At the same time,
inflation continues to overshoot the NBU's 8% plus/minus 2
percentage point target in 2017, partly because of high food
prices, especially for meat. The NBU therefore decided to hike
its key policy rate to 13.5% at the end of October. Going
forward, S&P expects inflation will gradually move to within the
NBU's target band.
S&P said, "In our view, the NBU has effectively tempered the high
inflation levels of 2015. At the same time, it is building
credibility in its move toward an inflation-targeting regime.
High nominal interest rates and the banking sector's high NPL
ratio prohibit stronger credit growth and indicate a still-weak
mechanism for monetary transmission.
"In accordance with our relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable (see 'Related Criteria And Research')." At
the onset of the committee, the chair confirmed that the
information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was
sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee agreed that the fiscal assessment: flexibility and
performance had improved. All other key rating factors were
unchanged.
The chair ensured every voting member was given the opportunity
to articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision.
The views and the decision of the rating committee are summarized
in the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
RATINGS LIST
Rating Rating
To From
Ukraine
Sovereign Credit Rating
Foreign and Local Currency B-/Stable/B B-/Stable/B
Ukraine National Scale uaBBB-/--/-- uaBBB-/--/--
Transfer & Convertibility Assessment B- B-
Senior Unsecured
Foreign Currency D D
Foreign Currency B- B-
===========================
U N I T E D K I N G D O M
===========================
ALLIANCE AUTOMOTIVE: Moody's Withdraws B1 Corporate Family Rating
-----------------------------------------------------------------
Moody's Investors Service withdrew Alliance Automotive Holding
Limited's (AAG) B1 corporate family rating and the B1-PD
probability of default rating. At the time of withdrawal, there
was no instrument rating outstanding. Prior to the withdrawal,
the rating outlook was stable.
RATINGS RATIONALE
Moody's has withdrawn the ratings of AAG for reorganization
reasons following the acquisition of the company by Genuine Parts
(unrated) which completed on November 2, 2017.
Domiciled in the UK, AAG is a leading player in the sale and
distribution of automotive parts and services to the Independent
Aftermarket (IAM) distribution channel, with reported pro-forma
net sales of EUR1.9 billion in 2016.
BOPARAN HOLDINGS: Moody's Lowers CFR to B3, Outlook Negative
------------------------------------------------------------
Moody's Investors Service downgraded UK-based food manufacturer
Boparan Holdings Limited's corporate family rating (CFR) to B3
from B2 and probability of default rating (PDR) to B3-PD from B2-
PD. Concurrently, Moody's downgraded the ratings on the senior
unsecured notes issued by Boparan Finance plc to B3 from B2. The
outlook on all ratings remain negative.
"The downgrade of Boparan's ratings to B3 with a negative outlook
is driven by the lower EBITDA in the last fiscal year 2016-17 as
well as limited prospects of a material recovery in the next 12
months, which would result in a sustained high financial
leverage, thin margins and weak to slightly negative free cash
flow generation. There could also be refinancing risk with
respect to the GBP250 million senior notes due in July 2019 if
operating performance and credit metrics do not improve", says
Eric Kang, a Moody's analyst.
RATINGS RATIONALE
The B3 CFR with a negative outlook reflects Moody's expectation
that Boparan's credit metrics will remain weak for a sustained
period of time due to limited prospects of a material recovery in
operating performance in the next 12 months. Moody's also
cautions that the company's liquidity could continue to weaken in
the next 12 months due to the rating agency's expectation of weak
to slightly negative free cash flow generation after pension
contributions, as well as refinancing risk in 2019 if
profitability and credit metrics do not improve. The GBP60
million revolving credit facility, currently undrawn, matures in
January 2019 while GBP250 million of senior notes are due in July
2019.
Moody's expects EBITDA improvement in the next 12 months to be
constrained by delays in recovering high input costs due to the
price sensitive food retail market in the UK, competitive
pressures, and further increases in the national living wage.
Additional measures to strengthen quality control following the
recent hygiene failings allegations will also further pressure
already thin margins. The EBIT margin was 2.4% in fiscal 2017
ended July 29, 2017 on a Moody's-adjusted basis including
restructuring costs of GBP23 million. However, Moody's expects
the UK poultry operations to be less affected by higher input
prices because approximately 70% of UK poultry sales benefit from
contractual pass-through arrangements for key poultry feedstock
including currency impact, albeit with a time-lag of
approximately three months.
The reduction in EBITDA byGBP20 million in fiscal 2017 to GBP161
million (as reported by the company) as higher input prices
pressure margins across all segments led to an increase in the
Moody's-adjusted debt/EBITDA to 8.2x as of July 2017 (including
restructuring costs and pension deficit liabilities of GBP326
million) from 6.8x as of July 2016. Moody's expects the company's
leverage to remain around 7.5x-8.0x in fiscal 2018 due to the
aforementioned downward pressures on profitability.
While the company is undertaking a number of measures to improve
profitability and cash flow generation including price increases,
efficiency savings and better working capital management, Moody's
cautions that these initiatives are subject to a high degree of
execution risks, and notes that other unforeseen operational and
accounting issues have been more frequent in recent years. For
instance, in addition to the recent hygiene failings allegations,
the company experienced an accounting misstatement at its Five
Star Fish subsidiary and unplanned disruption following closure
of site A in fiscal 2017.
The company generated negative free cash flow after pension
contributions of around GBP70 million in fiscal 2016-17 due to
the lower EBITDA, the GBP32 million increase in working capital
needs primarily driven by higher inventory in the Protein
segment, the GBP20 million one-off dividend payment, and high
capex of GBP92 million related to the residual investment on both
the company's largest poultry processing plant in Scunthorpe, UK
and added value site at Derby, UK. Moody's expects capex to
reduce significantly in fiscal 2018 but free cash flow generation
will likely remain weak to slightly negative due to the rating
agency's expectation of weak profitability.
Sustained negative free cash flow generation after pension
contributions weakens the company's liquidity in addition to the
significant debt maturities in 2019. The GBP60 million revolving
credit facility, currently undrawn, will need to be renewed by
January 2019 while GBP250 million of senior notes mature in July
2019. Cash balances were GBP66 million as of July 2017. Moody's
expects the company to maintain ample headroom under its single
minimum EBITDA covenant of GBP100 million only applicable to its
RCF and tested when drawn above 25%.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the risk that the company's
liquidity could continue to weaken in the next 12 months due to
execution risks surrounding free cash flow generation after
pension contributions which could remain weak to slightly
negative, as well as refinancing risk in 2019 if profitability
and credit metrics do not improve. The outlook could be
stabilised if operating performance does not deteriorate further
in the next 12 months, liquidity improves and refinancing risk is
addressed in a timely manner.
FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE
While unlikely in the near-term given action, the ratings could
be upgraded in the event of sustained improvement in operating
performance, leading to (1) the Moody's-adjusted EBIT margin
increasing to around 3.5%, (2) the Moody's-adjusted debt/EBITDA
reducing towards 6.5x, and (3) an improved liquidity profile
including positive free cash flow generation after pension
contributions.
Conversely, the ratings could be downgraded in the event of
continued deterioration in operating performance and/or liquidity
including negative free cash flow after pension contributions.
Moody's will also consider downgrading the ratings if the
company's does not address its 2019 maturities in a timely
manner.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Packaged Goods published in January 2017.
COMPANY PROFILE
Boparan Holdings Limited (Boparan or the group) is the parent
holding company of 2 Sisters Food Group, one of UK's largest food
manufacturers with operations in poultry, red meat, sandwiches,
chilled ready meals, chilled pizzas, branded frozen pizzas, and
branded biscuits among other things. It reported revenues of
GBP3.3 billion in fiscal 2017.
BURNTISLAND FABRICATORS: Ministers in Talks to Rescue Business
--------------------------------------------------------------
Hilary Duncanson at Press Association reports that ministers have
said they will "leave no stone unturned" in attempts to find a
positive outcome for engineering firm Burnstisland Fabricators
(BiFab), a major employer feared to be on the brink of
administration.
Unions have raised fears over 600 potential job losses at BiFab,
which is understood to have filed a notice of intention to
appoint administrators, Press Association relates.
Unions have warned the closure of those yards, with the loss of
skilled, well-paid jobs, is "not an option", Press Association
notes.
Talks on the company's future involving various interested
parties were believed to have been held over the weekend, with
further emergency meetings expected to take place on Nov. 13,
Press Association discloses.
According to Press Association, Paul Wheelhouse, Holyrood's
energy minister, told BBC Radio Scotland: "We're clearly very
much aware that this is a distressing time for the workforce and
I want to give them reassurance that we're working extremely hard
with the management of the company and key stakeholders to make
sure that we deliver a positive outcome here.
"We know that the company has a great track record working in oil
and gas, and has been moving into renewable energy projects
recently, and they have an excellent workforce. But they have
encountered difficulties in the current contract they have."
Mr. Wheelhouse, as cited by Press Association, said the notice of
intention to appoint administrators gives the company a period of
time to work closely with their clients and other interested
parties to deliver a solution.
He said contract staff would be at work as usual on Nov. 13 but
added: "Clearly, the clock is ticking, we have to work closely
with the company and with their stakeholders to try and deliver a
solution here."
Mr. Wheelhouse told the Good Morning Scotland program that
ministers are looking at all options to help support the
management team at BiFab, Press Association relays.
CATALYST HEALTHCARE: S&P Affirms 'BB+' Debt Ratings, Outlook Neg
----------------------------------------------------------------
S&P Global Ratings revised to negative from stable its outlook on
the GBP175 million senior secured European Investment Bank (EIB)
loan due Sept. 30, 2037, and GBP218.05 million variable-rate
bonds due Sept. 30, 2040, issued by Catalyst Healthcare
(Manchester) Financing PLC. At the same time, S&P affirmed its
'BB+' long-term issue ratings on this debt.
The recovery rating on the senior secured debt is unchanged at
'2'. S&P's recovery expectations are in the lower half of the
70%-90% range, although there has been limited experience
regarding default or loss in this sector to date.
Central Manchester University Hospitals NHS Foundation Trust (the
Trust) has started to declare, but not apply, significant
unavailability deductions on Catalyst Healthcare (Manchester)
Ltd. (ProjectCo) relating to defects on most of the fire doors
installed throughout the hospital. The fire door defects were
identified in 2016 and have not yet been fully remedied, although
remedial works are ongoing. The latest data available to S&P
shows that deductions declared for June and July 2017 amounted to
GBP821,000 and GBP848,000, respectively.
The outlook revision reflects the material impact on the
creditworthiness of ProjectCo of this level of deductions if the
Trust continues to declare, and ultimately apply them, and
ProjectCo cannot pass the costs through to the construction
contractor, Lend Lease Construction (EMEA) Ltd. (Lend Lease).
ProjectCo disputes that the Trust has any entitlement to levy
deductions in relation to the fire door defects. In any event,
ProjectCo is confident that it will be able to fully recover any
deductions that are made from Lend Lease or other members of its
supply chain.
S&P said, "We understand that the Trust's decision to declare,
but not apply, the deductions allows it to preserve its rights to
apply deductions under the project agreement while negotiations
between itself and ProjectCo are ongoing. As a result, the actual
cash unitary charge received by ProjectCo has not yet been
affected by the fire door defects, leading us to affirm our
rating at this time.
"Based on experience at this project and at other rated hospital
projects, we consider it unlikely that ProjectCo will be
completely unaffected financially following such negotiations.
This is partly because responsibility for fire safety defects is
often difficult to ascertain and the negotiating parties have an
incentive to avoid prolonged legal disputes. Consequently, we
have updated our base-case scenario to assume that ProjectCo
bears a part of the cost of remediation or the cost of deductions
without passing them through to Lend Lease. This assumption is
supported by our view that the Trust will reach a resolution with
the relevant parties in a reasonable time frame and will not
impose an elevated level of deductions for a prolonged period.
Our forecast minimum annual debt service coverage ratio (ADSCR)
under our revised base case stands at 1.22x and continues to
support a preliminary stand-alone credit profile of 'bbb-'.
"The project continues to be resilient to our revised downside
scenario, which now includes a significant level of financial
impact on ProjectCo resulting from the fire door defects. This
scenario captures the possibility that ProjectCo may not be able
to pass elevated levels of deductions through to Lend Lease or
that ProjectCo may need to step in and subcontract the
remediation of the fire doors directly with other contractors. We
expect ProjectCo to have sufficient liquidity on hand in the form
of reserves to cover any associated cash requirements.
"The negative outlook reflects our view that the fire door
defects could cause us to downgrade the debt issued by Catalyst
Healthcare (Manchester) Financing PLC within the next 12 months
if the parties do not reach an agreement.
"We could lower the ratings by one or more notches if the minimum
ratio under our base case were to fall below 1.2x as a result of
the Trust applying financial deductions to the unitary payment at
a higher level than assumed in our base case, without ProjectCo
being able to pass these deductions through to the respective
subcontractor in a timely manner. We could also lower the rating
if the Trust continues to declare, but not apply, deductions
without a resolution in sight. This could result from the failure
to reach a legally binding agreement ?to continue deferring and
eventually reducing or waiving deductions associated with the
fire door defects.
"We could raise the ratings by one or more notches following a
prolonged period of operational stability. For us to raise the
ratings, we would expect the project to have remediated all
outstanding fire door defects without any remaining potential
financial impact. We would also expect the minimum DSCR under our
base case to improve toward 1.30x on a sustainable basis."
EUROSAIL 2006-3NC: S&P Affirms B-(sf) Ratings on 3 Note Classes
---------------------------------------------------------------
S&P Global Ratings raised its credit ratings on Eurosail 2006-3NC
PLC's class A3a, A3c, B1a, C1a, and C1c notes. At the same time,
S&P has affirmed its ratings on the class D1a, D1c, and E1c
notes.
S&P said, "The rating actions follow our credit and cash flow
analysis of the transaction using information from the investor
report and loan-level data as of September 2017. Our analysis
reflects the application of our European residential loans
criteria and our current counterparty criteria.
"On Oct. 17, 2017, we raised our long- and short-term issuer
credit ratings (ICRs) on Barclays Bank PLC, the bank account
provider, guaranteed investment contract (GIC) provider, and swap
counterparty (see "Prospective Barclays Ring-Fenced Entity
Assigned Preliminary 'A/A-1' Ratings, Barclays Bank PLC Raised To
'A/A-1'")."
In the December 2012 investor report, the servicer (Acenden Ltd.)
updated how it reports arrears to include amounts outstanding,
delinquencies, and other amounts owed. The servicer's definition
of other amounts owed include (among other items), arrears of
fees, charges, costs, ground rent, and insurance.
The collateral backing the transaction comprises U.K. non-
conforming mortgages originated by Southern Pacific Mortgages
Ltd., and Southern Pacific Personal Loans Ltd.
The notes in the transaction are denominated in multiple
currencies. The transaction is therefore exposed to cross
currency risk. The cross currency swap with Barclays Bank
mitigates this risk.
S&P said, "Our analysis indicates that the available credit
enhancement for all classes of notes has increased since our
previous review due to the transaction's deleveraging (see
"Various Rating Actions Taken In U.K. Nonconforming RMBS
Transaction Eurosail 2006-3NC Following Review," published on
Nov. 15, 2016). The reserve fund has been at its required
documented level since the 2011 interest payment date, with no
subsequent draws. Annualized excess spread is 2.7%.
"Total arrears have decreased to 30.3% from 33.9% over the same
period. We have taken this into account and have projected a
further 0.8% increase in arrears. As a result, we have decreased
our weighted-average foreclosure frequency (WAFF) assumptions
since our previous review.
"We have refined our analysis of these other amounts owed by
using the available reported loan-level data. The new approach
primarily results in a decrease in the weighted-average loss
severity (WALS) in these transactions."
Eurosail-UK 2006-3NC benefits from a weighted-average seasoning
of more than 10 years and original and current weighted-average
loan-to-value ratios of 73.2% and 54.5%, respectively. However,
79.6% of the borrowers are self-certified, and 10.4% of the
pool's mortgages are second lien mortgages.
WAFF AND WALS ASSUMPTIONS
Rating WAFF WALS
level (%) (%)
AAA 42.75 37.51
AA 38.06 30.59
A 32.28 19.69
BBB 28.03 14.29
BB 23.22 11.26
B 20.74 9.10
The transaction's liquidity trigger prevents the issuer from
using the liquidity facility for notes other than the class A
notes, if the level of amounts outstanding for more than 90 days
(including repossessions) exceeds 15% of the transaction's
original balance. In the most recent investor report, this level
was 10.21%.
Barclays Bank (A/Negative/A-1) breached the 'A-1' downgrade
trigger specified in the transaction documents, following our
lowering of its long- and short-term ICRs in June 2015 (see "S&P
Takes Various Rating Actions On Certain U.K. And German Banks
Following Government Support And ALAC Review," published on June
9, 2015). S&P said, "Because no remedy actions were taken
following our June 2015 downgrade, our current counterparty
criteria cap the maximum potential rating on the notes in this
transaction at our 'A' long-term ICR on Barclays Bank."
S&P said, "We consider the available credit enhancement for the
class A3a, A3c, B1a, C1a, and C1c notes to be commensurate with
higher ratings than those currently assigned. We have therefore
raised to 'A (sf)' from 'A- (sf)' our ratings on the class A3a,
A3c, and B1a notes, and to 'BBB+ (sf)' from 'BBB (sf)' our
ratings on the class C1a and C1c notes. The upgrades of the class
C1a and C1c notes also reflect the proximity of the default rate
to the liquidity facility draw trigger.
"Based on the results of our credit and cash flow analysis, we
have affirmed our 'B- (sf)' ratings on the class D1a, D1c, and
E1c notes as we do not expect them to experience interest
shortfalls in the next 18 months. We estimate the likelihood of
default to be lower than one-in-two."
RATINGS LIST
Class Rating
To From
Eurosail 2006-3NC PLC EUR227.85 Million, GBP269.913 Million,
$205 Million Mortgage-Backed Floating-Rate Notes, An
Overissuance Mortgage-Backed Floating-Rate Notes And Mortgage-
Backed Deferrable-Interest Notes
Ratings Raised
A3a A (sf) A- (sf)
A3c A (sf) A- (sf)
B1a A (sf) A- (sf)
C1a BBB+ (sf) BBB (sf)
C1c BBB+ (sf) BBB (sf)
Ratings Affirmed
D1a B- (sf)
D1c B- (sf)
E1c B- (sf)
EXTERION MEDIA: Moody's Lowers Corporate Family Rating to B3
------------------------------------------------------------
Moody's Investors Service has downgraded Exterion Media's (rated
at Doubleplay I Ltd) corporate family rating (CFR) to B3 from B1,
its probability of default rating (PDR) to Caa1-PD from B2-PD and
the rating on the senior secured bank credit facilities issued by
Exterion Media Holdings Limited to B3 from B1. Concurrently,
Moody's has placed all ratings on review for further downgrade.
Moody's expects to conclude the review within a maximum timeframe
of three months.
"The ratings downgrade reflects the weaker-than-expected
performance of Exterion Media in the first nine months of 2017
due to the compounded effect of delays in digitalization of some
of its inventory, a weak performance in France where costs are
mostly fixed and high competition from other OOH advertisers in
the UK. The ratings are on review for further downgrade as the
decline in EBITDA raises material uncertainty over the company's
ability to meet its net leverage covenant in the next 12 months,
raising concerns around the availability of the company's
revolving credit facility," says Christian Azzi, a Moody's AVP --
Analyst and lead analyst for Exterion Media.
RATINGS RATIONALE
In the nine months ending September 2017, Exterion Media
generated revenue of GBP263 million and reported EBITDA of GBP20
million -- respectively 3% and 34% below the figures reported in
the same period of 2016. While part of the decline in EBITDA had
been expected -- as a result of the terms of the new London
Underground contract -- all five of the company's markets (The
Netherlands, Ireland, Spain, France and the UK) reported numbers
below expectations mainly due to a poor demand for the type of
asset (e.g. billboards in France) or delays in installing or
digitalizing transport faces.
In addition to a decline in revenue, the company's Moody's
adjusted EBITDA margins have contracted to 11.2% from 13% as a
result of a change in revenue mix that has been weighted towards
the lower margin transport segment and a decline in revenue in
some segments with high fixed costs (billboards mostly).
Owing to this larger than expected reduction in EBITDA, Moody's
expects Exterion Media's adjusted leverage to reach around 4.6x
by the end of 2017. In addition, interest coverage ratios will
weaken to around 1.2x, and free cash flow generation is expected
to be low to neutral for the year.
Under the current senior facilities agreement, the company has to
comply with a financial net leverage covenant of 4.25x in
September 2017 and 4x in December 2017 and March 2018. Given the
step-down in the covenant level (to 3.75x in June 2018, 3.5x in
December 2018 and finally 2.5x in December 2019) Moody's believes
that Exterion Media will continue to operate with a limited
headroom under its current covenant, even if the company manages
to stabilise profitability in 2018.
As a result, Moody's views Exterion Media liquidity profile as
weak. At the end of September 2017, the company had GBP12 million
of cash and GBP12 million of availability under its revolving
credit facility. However, unrestricted access to the revolving
credit facility will rely on the company complying with its
financial maintenance covenant.
Exterion Media's B3 CFR reflects the company's (1) limited scale
and high contract concentration which make it vulnerable to
declines in demand; (2) weak performance in 2017 which will lead
to declining EBITDA margins and an increase in Moody's adjusted
leverage to 4.6x at year end compared to 3.9x in 2016; (3)
exposure to the cyclical advertising industry and
underperformance compared to the wider UK out-of-home (OOH)
advertising sector; (3) high concentration in the UK and in
London in particular through the London Underground contract; (4)
weak liquidity profile as continued long-term access to the
revolving credit facility is uncertain in light of the very thin
covenant headroom.
The B3 CFR also reflects (1) Exterion Media's good position in
its key markets, specifically the UK transport OOH advertising
segment; (2) the long-standing relationships and long-term
contracts the company maintains with site owners, landlords and
supply partners and which is evidenced by the high contact
renewal rates achieved; (3) potential for the company's
performance to improve as the London Underground inventory is
updated and Crossrail stations open -- although the timing of
these remains uncertain and out of the company's control.
The ratings are on review for further downgrade. The review
process will focus on (1) Exterion Media's updated strategy and
business plan for 2018; (2) the management of its liquidity
position in light of the limited covenant headroom and scheduled
covenants step-downs; (3) the likelihood of a restructuring of
the debt that would amount to a distressed exchange under Moody's
definition.
WHAT COULD CHANGE THE RATING UP/DOWN
Prior to the downgrade to B3 and the review process, Moody's had
indicated that Exterion Media's ratings could be downgraded if:
(1) the company's leverage remained materially above 4.0x on a
sustainable basis or (2) should the company's cash flow
generation ability reduce as a result of negative performance
such that FCF/Debt decreased to below 5%.
Prior to the downgrade to B3 and the review process, Moody's had
indicated that Exterion Media's ratings could be upgraded if: (1)
the company's leverage decreased to below 3.0x on a sustainable
basis and (2) FCF/Debt remained above 10%.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Media
Industry published in June 2017.
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: Doubleplay I Ltd
-- LT Corporate Family Rating, Downgraded to B3 from B1; Placed
Under Review for further Downgrade
-- Probability of Default Rating, Downgraded to Caa1-PD from B2-
PD; Placed Under Review for further Downgrade
Issuer: Exterion Media Holdings Limited
-- BACKED Senior Secured Bank Credit Facility, Downgraded to B3
from B1; Placed Under Review for further Downgrade
Outlook Actions:
Issuer: Doubleplay I Ltd
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Exterion Media Holdings Limited
-- Outlook, Changed To Rating Under Review From Stable
Headquartered in the UK, Exterion Media is an out-of-home (OOH)
advertising company operating in five countries in Western
Europe. The company operates a portfolio of over 425,000 faces
consisting of billboards and displays on buses, the London
Underground, national railways, transit shelters and shopping
malls. In the year ending December 2016 the company reported
revenue of GBP381 million and EBITDAR (excluding restructuring
costs and exceptional items) of GBP52.7 million.
INFINIS LIMITED: Moody's Withdraws B1 LT Corporate Family Rating
----------------------------------------------------------------
Moody's Investors Service has withdrawn all the ratings of
Infinis Limited, including the company's B1 long term corporate
family rating (CFR) and the Ba3-PD probability of default rating
(PDR).
RATINGS RATIONALE
Moody's has withdrawn the ratings because it believes it has
insufficient or otherwise inadequate information to support the
maintenance of the ratings.
Infinis is the leading generator of electricity from landfill gas
in the UK. As at June 30, 2017, Infinis had 121 operating sites
and power generation installed capacity of 288MW. The company is
owned by 3i Infrastructure plc.
SOUTHERN PACIFIC 05-2: S&P Affirms B-(sf) Rating on Cl. E1c Notes
----------------------------------------------------------------
S&P Global Ratings raised its credit ratings on Southern Pacific
Securities 05-2 PLC's class C1a, C1c, and D1a notes. At the same
time, S&P has affirmed its rating on the class E1c notes.
S&P said, "The rating actions follow our credit and cash flow
analysis of the most recent information that we have received for
this transaction (as of September 2017) and the application of
our relevant criteria."
In the December 2012 investor report, the servicer (Acenden Ltd.)
updated how it reports arrears to include amounts outstanding,
delinquencies, and other amounts owed. The servicer's definition
of other amounts owed include (among other items), arrears of
fees, charges, costs, ground rent, and insurance.
Delinquencies include principal and interest arrears on the
mortgages, based on the borrowers' monthly installments. Amounts
outstanding are principal and interest arrears, after payments
from borrowers are first allocated to other amounts owed.
In this transaction, the servicer first allocates any arrears
payments to other amounts owed, then to interest amounts, and
subsequently to principal. From a borrower's perspective, the
servicer first allocates any arrears payments to interest and
principal amounts, and secondly to other amounts owed. This
difference in the servicer's allocation of payments for the
transaction and the borrower results in amounts outstanding being
greater than delinquencies.
S&P has refined its analysis of these other amounts owed by using
the available reported loan-level data. The new approach results
in a minor increase in the weighted-average foreclosure frequency
(WAFF) and a decrease in the weighted-average loss severity
(WALS).
The transaction documentation references the level of amounts
outstanding to arrive at the 90+ days arrears. The transaction
pays principal sequentially because the 90+ days arrears trigger
of 22.5% remains breached (the current level is 46.7%).
S&P said, "The transaction's total delinquencies are higher than
our U.K. nonconforming residential mortgage-backed securities
(RMBS) index. While arrears in this transaction are reducing,
they are doing so slowly, in our view. The transaction has a low
pool factor (the outstanding collateral balance as a proportion
of the original collateral balance), which may expose the
transaction to tail-end risk. We have therefore projected arrears
of 2.0% in our credit analysis. Overall, we have lowered our WAFF
assumptions since our previous review, due to greater seasoning
and, lower overall modelled arrears (see "Rating Lowered On
Southern Pacific Securities 05-2's Class D1a U.K. RMBS Notes;
Ratings On All Other Classes Affirmed," published on Nov. 14,
2016)."
Rating WAFF WALS
level (%) (%)
AAA 50.21 38.09
AA 44.74 30.76
A 39.10 18.73
BBB 33.71 12.35
BB 27.44 8.57
B 24.46 6.13
S&P said, "Our current counterparty criteria cap the maximum
achievable ratings in this transaction at our long-term 'A'
issuer credit rating on Barclays Bank PLC as the guaranteed
investment contract (GIC) account provider (see "Counterparty
Risk Framework Methodology And Assumptions," published on June
25, 2013, and "
Prospective Barclays Ring-Fenced Entity Assigned Preliminary
'A/A-1' Ratings, Barclays Bank PLC Raised To 'A/A-1'," published
on Oct. 17, 2017). We have therefore raised to 'A (sf)' from 'A-
(sf)' our ratings on the class C1a and C1c notes.
"The combination of lower credit coverage and transaction
deleveraging has resulted in improved cash flow results.
Consequently, following the decrease in our WAFF and WALS
assumptions and the results of our cash flow analysis, we have
raised to 'BBB (sf)' from 'BB (sf)' our rating on the class D1a
notes.
"We consider the available credit enhancement for the class E1c
notes to be commensurate with the currently assigned rating.
Available credit enhancement for the class E1c notes is 6.1% and
continues to increase as the notes are paid sequentially. The
collateral performance has been stable, as delinquencies have
been trending down since Q3 2014 and excess spread remains
robust. Furthermore, we do not expect this class of notes to
experience interest shortfalls in the next 12 to 18 months as the
reserve fund is at its required amount and the liquidity facility
would also be available to cover potential interest shortfalls.
We have therefore affirmed our 'B- (sf)' rating on the class E1c
notes."
Southern Pacific Securities 05-2 is a securitization of
nonconforming U.K. residential mortgages originated by Southern
Pacific Mortgages Ltd. and Southern Pacific Personal Loans Ltd.
RATINGS LIST
Class Rating
To From
Southern Pacific Securities 05-2 PLC
EUR145.8 Million, GBP310.75 Million, And $205 Million Mortgage-
Backed Floating-Rate Notes
Ratings Raised
C1a A (sf) A- (sf)
C1c A (sf) A- (sf)
D1a BBB (sf) BB (sf)
Rating Affirmed
E1c B- (sf)
*********
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*********
S U B S C R I P T I O N I N F O R M A T I O N
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Editors.
Copyright 2017. All rights reserved. ISSN 1529-2754.
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