/raid1/www/Hosts/bankrupt/TCREUR_Public/180102.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, January 2, 2018, Vol. 19, No. 001
Headlines
F R A N C E
ELIS SA: Fitch Assigns 'BB+' IDR, Outlook Stable
G E R M A N Y
APOLLO 5: Moody's Lowers CFR to Caa2, Outlook Stable
NIKI LUFTFAHRT: IAG to Buy Airline for EUR36.5 Million
I R E L A N D
ADAGIO VI CLO: S&P Assigns B-(sf) Rating to Class F Notes
AQUEDUCT EUROPEAN 2-2017: S&P Gives B- Rating to Class F Notes
CARLYLE EURO 2017-3: S&P Assigns B-(sf) Rating to Class E Notes
EIR: French Telecoms Billionaire to Acquire 64.5% Stake
FINANCIERE IKKS: Fitch Puts CCC IDR on Watch Neg. on Default Risk
I T A L Y
MOBY SPA: Moody's Lowers CFR to B2, Outlook Negative
K A Z A K H S T A N
GRAIN INSURANCE: S&P Alters Outlook to Stable & Affirms 'B' ICR
N E T H E R L A N D S
MARFRIG HOLDINGS: Moody's Affirms 'B2' Sr. Unsecured Ratings
N O R W A Y
TERRA SECURITIES: 8 Municipalities Seek to Recoup NOK934MM Claims
P O L A N D
TAURON POLSKA: Fitch Assigns BB+ Rating to Hybrid Bonds
P O R T U G A L
BANCO BPI: Fitch Raises Viability Rating to 'bb+'
BANCO COMERCIAL: Fitch Alters Outlook to Pos. & Affirms BB- IDR
CAIXA ECONOMICA MONTEPIO: Fitch Hikes IDR to B+, Outlook Stable
CAIXA GERAL: Fitch Alters Outlook to Pos. & Affirms BB- IDR
R U S S I A
AUTOBANN LLC: Moody's Affirms B1 CFR, Outlook Stable
DELOPORTS LLC: S&P Places 'BB-' CCR on CreditWatch Negative
HERMITAGE CAPITAL: Head Gets 9-Year Prison Sentence
NORTHERN CREDIT: Put on Provisional Administration
RUSSNEFT PJSC: Fitch Assigns 'B' Long-Term IDR, Outlook Stable
S P A I N
CAR RENTALS: Moody's Withdraws B1 Corporate Family Rating
RURAL HIPOTECARIO I: Moody's Lowers Class C Notes Rating to Ba2
U N I T E D K I N G D O M
BCS PRIME: S&P Assigns 'B+/B' Issuer Credit Ratings
EXPRO UK: Moody's Lowers PDR to D-PD Following Chapter 11 Filing
SANTANDER UK 2017-1: Moody's Assigns Ba2 Rating to Tranche F Debt
U Z B E K I S T A N
TURKISTON BANK: S&P Alters Outlook to Neg, Affirms 'B-/B' Ratings
*********
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F R A N C E
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ELIS SA: Fitch Assigns 'BB+' IDR, Outlook Stable
------------------------------------------------
Fitch Ratings has assigned Elis S.A. a Long-Term Issuer Default
Rating (IDR) of 'BB+' with a Stable Outlook.
The 'BB+' IDR reflects a stronger business profile following the
transformational acquisition of Berendsen, which improves the
group's scale, market position and diversification and will allow
for future cost and capex savings. Profitability is strong
relative to rated peers, but post transaction leverage will
remain high and deleveraging will be contingent on management's
ability to generate cost savings from the acquisition as well as
other areas of the business. The high leverage reduces the
headroom at the current rating, and the lack of meaningful
deleveraging possibly resulting from further debt-funded M&A
could put the ratings under pressure. This is despite Fitch
confidence in Elis's deleveraging capacity resulting from solid
free cash flow (FCF) generation.
KEY RATING DRIVERS
Stronger Business Profile: The acquisition of Berendsen by Elis,
which completed in September 2017, positions the group quite
strongly among its European business service peers, as a leader
in rental services of flat linen, work clothes, hygiene, and
well-being equipment in most of the markets in which it operates.
The combined group's business profile will benefit from a
strengthened market position, scale and both segment and
geographic diversification outside of its core French market.
Overall, Fitch views the group's business profile as commensurate
with an investment grade profile.
Resilient Income Base: Elis's rating reflects the high proportion
of contracted earnings and low churn rate. In their contractual
arrangements with the group, customers typically pay for a
minimum volume of services covering the initial investments. Elis
builds sustainable relationships with its customers, as
illustrated by multi-year contracts (the average length of its
customer relationship is eight years). Service providers benefit
from the ongoing trend for outsourcing and workwear rental and
laundry services, in particular given increasingly stringent
regulatory and safety requirements. The new group's scale should
also lead to improved quality, reliability and pricing, which are
key differentiators given the associated reputation risk.
Stronger Diversification: Prior to the Berendsen acquisition,
Elis was highly oriented towards the French market, which
generated 57% of sales and about 75% of EBITDA. These numbers
will now fall to about 32% and 35%, respectively. This reduces
the group's exposure to the risk of individual economies slowing
down. It also opens up the potential for Elis to grow in other
markets that are not overly concentrated, providing good
opportunities for organic growth and bolt-on acquisitions.
The acquisition will also reduce Elis's exposure to the more
cyclical hospitality segment, which also brings an element of
seasonality, boosting its presence in workwear across different
segments, and healthcare.
Limited Leverage Headroom: Elis's rating is constrained by its
aggressive financial structure with FFO adjusted gross leverage
at about 5.6x in 2018. However, the rating assumes that it will
deleverage to below 5.0x thereafter. This level is considered
high for the current rating, compared with rated peers. As a
result, Elis's financial flexibility is very limited and should
there be no evidence of a steady deleveraging path within two
years, the ratings could come under pressure. Balancing this
Fitch expect that the group will be cash generative, which
coupled with improving profitability, should lead to sustained
deleveraging capacity. Management has stated that net debt/EBITDA
(as calculated by Elis) will be around 3.0x by FY18.
Moderate Integration Risks: Given the scale of the acquisition of
Berendsen, and the different operating environments in the UK and
Europe, Fitch believe that there could be some risks with the
potential cost savings, especially from the UK where Berendsen
was underperforming. However, Fitch expect that Elis should
deliver on the EUR40 million per year guided by management. It
has a good track record of integrating acquisitions, albeit of
much smaller scale, and improving market positions in different
regions. These mainly relate to central costs and corporate
overheads, while the enlarged group should also see some economy
of scale benefits. Fitch have also included some smaller cost
savings following the acquisitions of Lavebras and Indusal
earlier in 2017.
Good FCF Generating Ability: Fitch expect the group will be able
to generate strong and improving FCF as a result of improving
profitability, coupled with lower capex. Fitch forecast that
industrial capex will be somewhat higher in 2018 and 2019 driven
by the acquisition but that it will settle at about 6.5% of sales
(excluding purchase of linen) from 2020. After considering some
further outflows for annual bolt on acquisitions, Fitch expect
that the group will continue to generate cash, which should allow
for some level of gross debt reduction in the medium term.
DERIVATION SUMMARY
Elis is one of the leading providers of flat linen globally.
Following its acquisition of Berendsen in 2017, the group
solidified its market position in Europe, while it also has
growing operations in Latin America. Similar to business services
peer Elior (BB/Stable), Fitch consider that the group has many
characteristics that are commensurate with an investment grade
profile. However, the business profiles of both entities are not
as strong as Compass Group plc (A-/Stable) and Sodexo S.A
(BBB+/Stable), which provide contract catering services globally,
and also have stronger financial profiles.
Fitch view Elior and Elis's financial profiles as comparable,
with slightly higher leverage for Elis but also higher
profitability and significantly higher FFO fixed charge coverage.
Fitch view diversification as the main differentiating
characteristic between Elis and Elior. Elior has a larger
concentration in France. This factor has improved considerably
after completing the Berendsen acquisition.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer:
- Organic growth of roughly 2% per year complemented with some
small size bolt-on acquisitions
- EBITDA margins (after reclassification of linen investments
as operating costs) improving to over 21% by 2019
- Slight annual working capital outflows
- Slightly higher capex (excluding linen investments) in 2018
and 2019 following the Berendsen acquisition before
stabilising from 2020
- Small annual increases in dividends in line with increased
amount of shares and driven by improved profitability
- Some annual outflows (EUR70 million) considered for bolt-on
acquisitions
- Some early debt repayments such that the year-end cash balance
remains stable
RATING SENSITIVITIES+
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Successful integration of Berendsen and realisation of
synergies leading to improved operating performance and
resulting in FFO adjusted gross leverage falling to below 4.0x
or FFO adjusted net leverage below 3.5x on a sustained basis,
coupled with:
- FFO fixed charge coverage remaining above 4.0x on a sustained
basis
- FCF margin above 5% on a sustained basis
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Lack of visibility related to FFO adjusted gross leverage
falling to 5.0x or FFO adjusted net leverage falling to 4.5x
over the rating horizon, possibly as a result of lower than
expected cost savings following the acquisition or weak
organic growth
- Weak FCF margin below 2% as a result of operational weakness,
other unexpected cash outflows or sustainably increased
dividends
LIQUIDITY
Good Liquidity: The EUR1.92 billion bridge facility raised for
the Berendsen acquisition has already been refinanced for EUR875
million, and can be extended at Elis's discretion until June
2019. Elis intends to refinance the remaining outstanding amount
through additional banking facilities and/or capital market
issuance during 2018. Following completion of the bridge loan
refinancing, there will be no material maturity until 2022, when
the EUR800 million unsecured notes and senior credit facilities
become due.
Fitch expects that the group will maintain a year-end cash
balance of around EUR250 million per year, while the group's
liquidity is backed up by two undrawn revolving credit facilities
totalling EUR900 million (EUR400 million is used as a back-up for
commercial paper).
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G E R M A N Y
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APOLLO 5: Moody's Lowers CFR to Caa2, Outlook Stable
----------------------------------------------------
Moody's Investors Service has downgraded the Corporate Family
Rating (CFR) of Apollo 5 GmbH ("Aenova", parent company of Aenova
Holding GmbH) to Caa2 from Caa1, and its Probability of Default
rating to Caa2-PD from Caa1-PD. Concurrently, Moody's has
downgraded the ratings of the EUR500 million equivalent first
lien term loan due 2020 to Caa1 from B3, the rating of the EUR50
million revolving credit facility due 2020 to Caa1 from B3, and
affirmed the rating of the EUR139 million second lien term loan
due 2021 to Caa3, all borrowed by Aenova Holding GmbH and its
subsidiaries. The outlook on all ratings remains stable.
This action reflects the continued deterioration in the company's
credit metrics due to ongoing restructuring costs, weaker than
anticipated operating performance, high cost of debt and
significant capital expenditure. Persistent negative free cash
flow generation has worsened a potentially unsustainable capital
structure and led to weak liquidity, leaving the company reliant
on asset disposals and sponsor support to meet ongoing financial
obligations.
RATINGS RATIONALE
Apollo 5 GmbH's Caa2 CFR reflects its high financial leverage
(Moody's forward view adjusted Debt/EBITDA of 11-12x) and weak
liquidity. Negative free cash flow is due to high interest
expense, capex, and costs associated with ongoing restructurings.
The rating also incorporates Moody's concerns with broader
challenges in the contract development and manufacturing ("CDMO")
industry relating to pricing pressure and overcapacity in certain
technology platforms such as solids, which represent c. 54% of
Aenova's revenues.
Mitigating these negatives are the recent and expected further
equity injection by the sponsor totaling in aggregate around
EUR22.5 million, which together with factoring facilities and
planned asset disposals -- if achieved -- should result in
sufficient liquidity into 2019 when cash flow should begin to
turn positive (assuming the turnaround plan is flawlessly
executed). Additional positives are the company's relatively
large scale in Europe, strong production potential and broad
product offerings which are important differentiating factors in
the CDMO industry. Moody's expects that the demand for contract
manufacturing services will grow over the long-term.
Aenova's liquidity profile is weak but sufficient for its near-
term requirements. It is supported by (1) c. EUR20 million
expected cash on balance sheet by end of FY2017; (2) up to EUR20
million potentially available under its factoring facilities; and
(3) lack of debt amortization until mid-2020. Moody's however
expect that Aenova's free cash flow generation will continue to
be negative or weak in the next 12-18 months owing to high
interest costs and the company's significant capital expenditure
programme. The revolving credit facility, fully drawn, is subject
to a springing net leverage covenant which is unlikely to be
breached in the near future.
Rating Outlook
The stable outlook reflects Moody's expectation for moderate
declines in operating performance over the next 12-18 months with
a similar level of free cash flow in FY2018, as well as
sufficient available liquidity to meet its near term requirements
including asset disposals and equity injections if necessary.
Factors that Could Lead to an Upgrade
Moody's could upgrade the ratings if the company successfully
executes its turnaround plan, reverses operating performance
decline, and begins to generate positive free cash flow.
Factors that Could Lead to a Downgrade
Moody's could downgrade the ratings if earnings or liquidity
deteriorate more than anticipated, if the probability of default
increases or Moody's estimates of recovery decrease.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
NIKI LUFTFAHRT: IAG to Buy Airline for EUR36.5 Million
------------------------------------------------------
Hannah Boland at The Telegraph reports that British Airways owner
IAG is buying Niki from collapsed Air Berlin in a deal worth
EUR36.5 million (GBP32.5 million), swooping on the Austrian
airline weeks after Lufthansa was forced to back away.
IAG said it is planning to integrate the business into its
Vueling carrier and to employ around 740 of Niki's 1,000 former
employees, The Telegraph relates.
According to The Telegraph, it is paying EUR20 million for the
carrier and is pumping a further EUR16.5 million into Niki to
provide it with liquidity.
It emerged on Dec. 28 that IAG was the only remaining bidder for
Niki, after reportedly having offered the highest amount for the
business, The Telegraph notes.
Niki founder and former racing driver Niki Lauda, and tour
operators Thomas Cook and Tui were previously eyeing up the
carrier, in the wake of Lufthansa's decision to put Niki back on
the market, but eventually lost out to IAG, The Telegraph
discloses.
As reported by the Troubled Company Reporter-Europe on Dec. 15,
2017, the management of NIKI Luftfahrt GmbH on Dec. 13 filed with
the local court of Berlin-Charlottenburg a petition for the
opening of insolvency proceedings over the assets of NIKI.
About Air Berlin
In operation since 1978, Air Berlin PLC & Co. Luftverkehrs KG is
a global airline carrier that is headquartered in Germany and is
the second largest airline in the country.
In 2016, Air Berlin operated 139 aircraft with flights to
destinations in Germany, Europe, and outside Europe, including
the United States, and provided passenger service to 28.9 million
passengers. Within the first seven months of 2017, the Debtor
carried approximately 13.8 million passengers. It employs
approximately 8,481 employees. Air Berlin is a member of the
Oneworld alliance, participating with other member airlines in
issuing tickets, code-share flights, mileage programs, and other
similar services.
Air Berlin has racked up losses of about EUR2 billion over the
past six years, and has net debt of EUR1.2 billion.
On Aug. 15, 2017, Air Berlin applied to the Local District Court
of Berlin-Charlottenburg, Insolvency Court for commencement of an
insolvency proceeding. On the same day, the German Court opened
preliminary insolvency proceedings permitting the Debtor to
proceed as a debtor-in-possession, appointed a preliminary
custodian to oversee the Debtor during the preliminary insolvency
proceedings, and prohibited any new, and stayed any pending,
enforcement actions against the Debtor's movable assets.
To seek recognition of the German proceedings, representatives of
Air Berlin filed a Chapter 15 petition (Bankr. S.D.N.Y. Case No.
17-12282) on Aug. 18, 2017. The Hon. Michael E. Wiles is the
case judge. Thomas Winkelmann and Frank Kebekus, as foreign
representatives, signed the petition. Madlyn Gleich Primoff,
Esq., at Freshfields Bruckhaus Deringer US LLP, is serving as
counsel in the U.S. case.
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I R E L A N D
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ADAGIO VI CLO: S&P Assigns B-(sf) Rating to Class F Notes
---------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Adagio VI CLO
DAC's class A, B1, B2, C, D, E, and F notes. At the same time,
Adagio VI CLO issued unrated subordinated notes. The ratings
assigned to Adagio VI CLO's notes reflect S&P's assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term
loans and bonds that are governed by collateral quality
tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect
the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy
remote.
S&P said, "We consider that the transaction's documented
counterparty replacement and remedy mechanisms adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"Following the application of our structured finance ratings
above the sovereign criteria, we consider the transaction's
exposure to country risk to be limited at the assigned rating
levels, as the exposure to individual sovereigns does not exceed
the diversification thresholds outlined in our criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for each class
of notes."
Adagio VI CLO is a European cash flow corporate loan
collateralized loan obligation (CLO) securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by European borrowers. AXA Investment
Managers, Inc.is the collateral manager.
RATINGS LIST
Ratings Assigned
Adagio VI CLO DAC
EUR360.80 Million Fixed- and Floating-Rate Notes (Including
EUR37.00 Million Subordinated Notes)
Class Rating Amount
(mil. EUR)
A AAA (sf) 205.00
B1 AA (sf) 32.00
B2 AA (sf) 10.00
C A (sf) 29.50
D BBB (sf) 19.00
E BB (sf) 17.30
F B- (sf) 11.00
Sub. notes NR 37.00
NR--Not rated.
Sub.--Subordinated.
AQUEDUCT EUROPEAN 2-2017: S&P Gives B- Rating to Class F Notes
--------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Aqueduct
European CLO 2-2017 DAC (Aqueduct 2-2017)'s class A, B-1, B-2, C,
D, E, and F notes.
The ratings assigned to Aqueduct 2-2017's notes reflect S&P's
assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term
loans and bonds that are governed by collateral quality
tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect
the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy
remote.
-- The transaction's counterparty risks.
S&P said, "We consider that the transaction's documented
counterparty replacement and remedy mechanisms adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"Following the application of our structured finance ratings
above the sovereign criteria, we consider the transaction's
exposure to country risk to be limited at the assigned rating
levels, as the exposure to individual sovereigns does not exceed
the diversification thresholds outlined in our criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for each class
of notes."
Aqueduct 2-2017 is a broadly syndicated collateralized loan
obligation (CLO) transaction managed by HPS Investment Partners
CLO (UK), LLP, which is a wholly owned subsidiary of HPS
Investment Partners LLC.
RATINGS LIST
Ratings Assigned
Aqueduct European CLO 2-2017 DAC
EUR410.92 Million Floating- And Fixed-Rate Notes (Including
EUR39.92 Million Unrated Notes)
Class Rating Amount
(mil. EUR)
A AAA (sf) 234.00
B-1 AA (sf) 37.80
B-2 AA (sf) 20.00
C A (sf) 21.20
D BBB (sf) 22.00
E BB (sf) 24.00
F B- (sf) 12.00
M-1 NR 18.72
M-2 NR 21.10
M-3 NR 0.10
NR--Not rated.
CARLYLE EURO 2017-3: S&P Assigns B-(sf) Rating to Class E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Carlyle Euro
CLO 2017-3 DAC's class A-1, A-2A, A-2B, B-1, B-2, C, D, and E
notes. At closing, the issuer also issued unrated subordinated
notes.
The ratings assigned to Carlyle Euro CLO 2017-3's notes reflect
S&P's assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term
loans and bonds that are governed by collateral quality
tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect
the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy
remote.
S&P said, "We consider that the transaction's documented
counterparty replacement and remedy mechanisms adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"Following the application of our structured finance ratings
above the sovereign criteria, we consider the transaction's
exposure to country risk to be limited at the assigned rating
levels, as the exposure to individual sovereigns does not exceed
the diversification thresholds outlined in our criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for each class
of notes."
Carlyle Euro CLO 2017-3 is a European cash flow corporate loan
collateralized loan obligation (CLO) securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by European borrowers. CELF Advisors LLP
is the collateral manager.
RATINGS LIST
Ratings Assigned
Carlyle Euro CLO 2017-3 DAC
EUR413.8 Million Senior Secured Floating- And Fixed-Rate Notes
(Including EUR43.7 Million Subordinated Notes)
Class Rating Amount
(mil. EUR)
A-1 AAA (sf) 234.0
A-2A AA (sf) 29.5
A-2B AA (sf) 15.0
B-1 A (sf) 26.5
B-2 A (sf) 10.0
C BBB (sf) 20.5
D BB (sf) 23.5
E B- (sf) 11.1
Sub. NR 43.7
NR--Not rated.
Sub.--Subordinated.
EIR: French Telecoms Billionaire to Acquire 64.5% Stake
-------------------------------------------------------
Joe Brennan at The Irish Times reports that some 45 senior staff
in Eir are set to share EUR100 million in exchange for their
shares as two companies controlled by French telecoms billionaire
Xavier Niel take a majority stake in the phone group.
The windfall was revealed by sources on Dec. 20 as Mr. Niel's
investment vehicle NJJ and Paris-listed telecoms company Iliad,
in which the entrepreneur owns a 52% stake, confirmed that they
plan to acquire 64.5% of Eir in a deal worth EUR3.5 billion,
subject to regulatory approvals, The Irish Times relates.
It also revealed the terms of the deal on Dec. 20, including that
Eir's chief executive Richard Moat plans to leave the company
which he has led for the past three years, The Irish Times
discloses.
According to The Irish Times, the value of the transaction is
being put at EUR3.5 billion, including Eir's EUR2.1 billion of
net debt. This places an equity value on the business of EUR1.4
billion, The Irish Times states.
The former State-owned company racked up EUR4.1 billion of debt
through a series of changes in control before it filed for
examinership in 2012, resulting in EUR1.8 billion of its
borrowings being written off, The Irish Times recounts. The
borrowings accumulated before the restructuring were largely to
finance returns to investors rather than invest in the business,
The Irish Times notes.
Oliver Rosenfeld, a partner at NJJ and Iliad board member, said
that the French companies planned to make money from Eir "through
dividends and not refinancing", The Irish Times relays.
FINANCIERE IKKS: Fitch Puts CCC IDR on Watch Neg. on Default Risk
-----------------------------------------------------------------
Fitch Ratings has placed on Rating Watch Negative (RWN) the Long-
Term Issuer Default Rating (IDR) of Financiere IKKS S.A.S. of
'CCC'. Fitch has also placed on RWN the super senior revolving
credit facility (RCF) of 'B-'/ 'RR2'/90% issued by IKKS Group
S.A.S and the senior secured notes of 'CCC'/'RR4'/50% issued by
HoldIKKS S.A.S.
The RWN reflects an increased risk of a payment default on the
senior secured notes in 2018, with the company exhibiting limited
headroom to pay approximately EUR11 million in cash in mid-
January 2018, and its unclear liquidity situation afterwards
given its weaker cash-flow generation and fully exhausted
committed debt funding.
Fitch will resolve its RWN once it has a clearer view of the
sources of funds available for the mid-January coupon payment,
and of IKKS's liquidity over the next 12 months, together with an
expectation of operational stabilisation. Although currently not
factored in, a weak liquidity profile could be eased by an equity
injection from the sponsor, and/or renegotiation of the RCF on
favourable terms.
KEY RATING DRIVERS
Coupon Payment at Risk: Fitch sees an increased risk of coupon
non-payment on the senior secured notes in 2018, given limited
committed funding under the RCF and a large portion of
uncommitted debt facilities. Evidence of easing liquidity
pressures coming from strong Christmas sales and/or near-term
additional external liquidity sources could support a removal of
the RWN in 1H18.
Risk of Covenant Breach: High reliance on external funding in
combination with weak trading is likely to lead to a covenant
breach under the RCF as of end- December 2017. A waiver or
renegotiation of an already relaxed covenant only a year ago may
be less easy to achieve with the RCF lenders this time. The terms
on which the lenders, the sponsor and the company will engage in
the next covenant negotiation remain unclear. Fitch also note the
need for a covenant reset for 2018, and possibly also for 2019,
in order to minimise the risk of repeat covenant breaches in the
next 12-24 months.
Unclear Prospects for Operational Turnaround: Fitch expect no
improvement in sales and EBITDA at fiscal year-end 2017 over 2016
based on uneven performance in the first three quarters of the
year and no clear positive customer feedback on the new
fall/winter collection for 2017/18. Fitch anticipate, however,
some trading consolidation with the contribution of the new chief
designer, whose impact on the success of the next collection will
become visible in 2018. Fitch also base Fitch Fitch case
projections on the expectation of remedial action by the
management to halt the negative operating trend.
Operating Profitability to Remain Low: EBITDA margin is expected
to remain at historically low levels of 11%-12%, held back by a
higher share of older collections after the addition of the
Outlet business in early 2017 and slow reconnection with the
customer base after the rather unsuccessful collections launched
in FY16-17.
Negative Free Cash Flow: Weak funds from operations (FFO) in
combination with a scaled back level of capex estimated at EUR15
million in 2017, will result in persistently negative free cash
flows (FCF), requiring a continuous reliance on external funding.
Trade working capital outflow of EUR21 million (including the
adjustment for factoring of EUR3 million) projected for FY17,
which is impacted by inventory left-overs from 2016 and the
addition of the Outlet business will materially affect the FCF
profile. From 2018, Fitch anticipate the volatility in trade
working capital subside after it adjusts to the new enlarged
distribution platform.
Unsustainable Leverage: Since the collapse in EBITDA in 2016 the
debt structure with an FFO adjusted leverage of 9-10x has become
unsustainable, implying a 'CCC' type of financial risk. In the
absence of a marked operating turnaround or a reduction of the
debt amounts, Fitch see no room for a medium-term improvement
back to the performing levels of under 7.0x on FFO adjusted
level.
Debt Instruments on RWN: Concurrently with the placement of the
IDR on RWN, Fitch have placed IKKS' super senior RCF and senior
secured notes on RWN, indicating expectations of potentially
reduced recoveries in the event of default resulting from more
permanent brand erosion, and a possibility of a downgrade at the
time of the resolution of the Rating Watch.
DERIVATION SUMMARY
Similarly to other European clothing retailers of the same credit
quality such as New Look Retail Group Retail Group Ltd (CCC) or
Novartex S.A.S. (CCC), IKKS has been struggling operationally,
which is reflected in declining sales, EBITDA and FFO margins,
and excessive financial leverage at about 9.0x adjusted FFO. The
reasons for operating underperformance for all three companies
ultimately lie in the structural changes in non-food retail, with
uncompetitive offerings eroding the customer base, even in the
more conservative, and therefore traditionally more stable,
premium clothing segment. The rating of 'CCC' for all three
issuers also incorporates uncertainties over a near-term, trading
restoration and marked improvement in internal cash-flow
generation. High execution risks in the evolving business models
lead to sustainably excessive leverage levels and heightened
liquidity risks.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- no sales growth in FY17, thereafter low single digit growth
rates;
- EBITDA margins at 11%-12% (creation costs of EUR 5-6 million
are included);
- capex scaled back to EUR 15million a year (creation costs of
EUR5-6 million are excluded);
- trade working-capital outflow of EUR 21 million in FY17,
neutral thereafter.
Recovery Analysis:
After having been placed on RWN, the instrument recovery ratings
remain unchanged from Fitch previous rating action in April 2017.
The recovery analysis is based on the going-concern approach
given IKKS's asset-light business model. As a starting point
Fitch use Fitch estimate for a post-distress EBITDA of EUR43
million (including creation costs of around EUR 5.5million) with
a 0% discount, serving as a cash-flow proxy post distress, at
which level IKKS would operate around break-even on the FCF
level. By making reference to Fitch's rated non-food retailers
such as Novartex S.A.S. (CCC) and New Look Retail Group Ltd.
(CCC) as well as other non-public peers in Fitch's sector
coverage, Fitch apply a distressed EV/EBITDA multiple of 5.0x,
which reflects the still intact brand equity, the quality of the
store network, as well as its multiple store formats and
distribution channels.
After deducting the customary administrative charges of 10%,
Fitch estimate the lenders of the super senior RCF would recover
in a hypothetical distress situation up to 90% of the claims,
capped by the French jurisdiction in accordance with Fitch's
country-specific treatment of recovery ratings. This would lead
to an RCF instrument rating of 'B-'/RR2/90%, with a two-notch
uplift from the IDR.
After considering super senior creditors claims, Fitch estimate
that holders of the senior secured notes, which rank second on
enforcement, are estimated to recover up to 50% of the claims,
leading to an instrument rating of 'CCC'/ 'RR4'/50%.
Fitch will reassess the recovery ratings at the time of
resolution of the RWN.
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to a
Removal of RWN:
- evidence of sufficient cash to make a timely coupon payment
of EUR11 million on 15 January 2018 with expectation of a
stabilising operating performance and liquidity remaining
tight, but sufficient to accommodate contractual debt service
in the medium term;
- waiver or reset of the financial maintenance covenant under
the RCF eliminating the risk of a breach in the next 12-24
months.
Developments that May, Individually or Collectively, Lead to
Negative Rating Action:
- Lack of evidence that IKKS is able to pay its coupon of
EUR11 million on 15 January 2018 on time, no signs of
operating
stabilisation and further liquidity erosion undermining the
company's ability to service its debt obligations in the next
12-24 months
- Risk of a financial covenant breach under the RCF remaining in
the next 12-24 months.
LIQUIDITY
Poor Internal Liquidity, Reliance on Debt: Based on Fitch
expectations of flat sales for 2017 compared with 2016,
particularly assuming Christmas sales will not deviate much from
the prior year, Fitch project IKKS will generate EUR15 million in
negative FCF, which would have to be fully funded by debt. Fitch
also forecast the RCF will remain fully drawn over the next four
years in order to close internal funding gaps. In the absence of
further committed bank loans, IKKS will be operating under a very
tight liquidity scenario with access to uncommitted funding,
which can be easily cancelled and is therefore considered as less
reliable.
Fitch further include the utilisation of receivables factoring of
EUR3 million in FY17, followed by a further increase of EUR2
million thereafter. This is reflected in accordance with Fitch's
treatment of receivables factoring.
=========
I T A L Y
=========
MOBY SPA: Moody's Lowers CFR to B2, Outlook Negative
----------------------------------------------------
Moody's Investors Service has downgraded ferry operator Moby
S.p.A.'s corporate family rating (CFR) to B2 from B1 and its
probability of default rating (PDR) to B2-PD from B1-PD. The
outlook remains negative. Concurrently Moody's has downgraded the
rating assigned to the EUR300 million worth of senior secured
notes to B1 from Ba3.
"The downgrade reflects Moby's continued operational weakness
which has translated into a higher leverage than Moody's had
previously anticipated and a reduced free cash flow" says
Guillaume Leglise, a Moody's Assistant Vice President and lead
analyst for Moby. 'The negative outlook also incorporates Moody's
expectation of a weakening liquidity profile with reduced
covenant cushion in Moody's view and fairly large upcoming debt
repayments which will weigh on the company's financial
flexibility over the next 12 to 18 months", adds Mr Leglise.
RATINGS RATIONALE
- CFR DOWNGRADE TO B2 -
Moby's operating results in the first 9 months of its current
financial year ending December 31, 2017 fell short of Moody's
expectations. The rating agency expects trading conditions to
remain challenging due to intense competitive environment, and as
such, Moody's expects Moby's leverage (measured as Moody's-
adjusted gross debt/EBITDA) to remain above 5.5x for the next 12
months. The weak performance recorded this year reflected higher
operating expenses related to the launch of several new
initiatives during 2017 (e.g. Baltic cruises, new Corsica and
Malta routes) as well as higher fuel costs. Moby reported an
EBITDA of EUR114.8 million in the first 9 months of 2017, down by
11% compared to the same period last year.
Despite positive growth in volumes and increased revenues, Moby's
earnings were impacted by increased fuel price, resulting from
higher consumption due to the launch of new routes in 2017, but
also because of an inefficient hedging at the level of its
subsidiary Tirrenia-CIN. Tirrenia-CIN's government subvention
includes a pricing adjustment mechanism whereby the maximum fares
applicable to customers can be modified on the basis of the price
of the bunker, with a time lag. However, in Moody's opinion, this
mechanism cannot be fully activated currently because of the
intense competition in the Italian ferry passenger market, which
constrains price increases.
This reduction in earnings translated into a higher leverage,
which stood at around 6.2x in the 12 months to September 30,
2017, above Moody's parameters defined to maintain a B1 rating.
While the company expects its new initiatives to be break even in
2018-19 (compared to around EUR16 million negative impact on
EBITDA year-to-date), Moody's estimates that profits on these
start-up ventures will take time to materialize and will not
materially support Moby's overall profitability in the next 12 to
18 months.
Moody's-adjusted leverage metric includes EUR180 million of
deferred payments due by the company in connection with the
acquisition of Tirrenia's assets from the government in July
2012. However, the first instalment of EUR55 million which was
due in April 2016 has been suspended by Moby pending the outcome
of the ongoing European Commission (EC) investigation into
Tirrenia-CIN's subventions received since 2012. The timing and
outcome of the EC investigation remains uncertain, and Moody's
cautions that the proceedings could be drawn out. The rating
agency will assess the outcome of this investigation in due
course. As a reminder, should the Tirrenia-CIN's subventions be
reduced by less than EUR55 million (vs. EUR72.7 million under the
current agreement), the EUR180 million of deferred payments would
be cancelled.
More positively, Moby's B2 CFR incorporates Moby's (i) well
established market positioning notably through its large ferry
fleet, (ii) some revenue visibility underpinned by government
contracts, and (iii) the positive market fundamentals with a
recovery of the Italian economy and positive trend tourism
environment which together support demand for passenger and
freight maritime services in Italy and ultimately help mitigating
Moby's deteriorating operating performance.
Moby has an adequate liquidity profile, supported by a large
amount of cash on balance sheet (c. EUR157 million as at end-
September 2017) and an undrawn EUR60 million revolving credit
facility (RCF). However, Moody's expects the company's liquidity
profile to deteriorate going forward owing to large debt
repayments to be made in the next 18 months. Under its amortizing
bank loan, Moby will make mandatory repayments of EUR40 million
and EUR50 million in Q1-2018 and Q1-2019, respectively.
In addition, Moby's free cash flow generation has deteriorated in
2017, owing to lower earnings, adverse working capital movements
and higher capex spending, notably to finance some vessel's
acquisition and refurbishments. Absent any working capital
reversal, Moody's expects the company's free cash flow generation
(excluding the acquisition of the Dimonios vessel for EUR42.2
million which was subsequently sold) to be slightly negative to
neutral in 2017. Moody's expects no material recovery in profits
in 2018 and as such Moby's free cash flow growth will remain
constrained, albeit modestly positive in the next 18 months
thanks to lower expansion capex.
Furthermore, Moby's covenant headroom has consistently reduced
and, absent any major asset disposals, Moody's estimations
suggest that the company will likely breach its net leverage
financial maintenance covenant for the next testing period as of
December 31, 2017. Moody's notes that a covenant breach would
constitute an event of default according to the company's
facility agreement. However, in such a scenario, bondholders'
enforcement rights would not be triggered unless bank lenders
accelerate their debt. Moody's expects Moby will take all
necessary steps in the near term to remedy this situation and to
regain sufficient leeway under the net leverage covenant to
accommodate a prolonged period of weaker trading.
NEGATIVE OUTLOOK
The negative outlook reflects Moody's expectation that Moby's
profitability will only gradually and modestly recover owing in
particular to sustained competitive pressure. As such,
deleveraging prospects and free cash flow growth appear limited
in the next 12 to 18 months. This will contribute to a weakened
liquidity profile.
A stabilization of the outlook will be contingent on the company
regaining financial flexibility including ample headroom under
applicable financial maintenance covenants.
STRUCTURAL CONSIDERATIONS
The downgrade of the rating assigned to the EUR300 million senior
secured notes to B1 from Ba3 reflects the one-notch downgrade of
the CFR. However, the notes are rated one notch above the CFR.
This uplift reflects the significant amount of obligations which
are junior to the senior notes and bank facilities in the capital
structure, notably the EUR180 million deferred payments due by
Tirrenia-CIN. These deferred payments are unsecured obligations
and are subordinated to the issuer's notes and credit facilities
instruments with respect to the collateral enforcement proceeds.
The notes rank pari passu with the issuer's EUR200 million worth
of secured term loan due 2021 and the EUR60 million RCF due 2021.
The notes are secured on a first-priority basis by most of the
group's assets (including mortgages over Moby and Tirrenia-CIN's
vessels) and benefit from a guarantor package including upstream
guarantees from Moby and Tirrenia-CIN, representing more than 90%
of the group's EBITDA.
The PDR of B2-PD reflects the use of a 50% family recovery
assumption, consistent with a capital structure including a mix
of bond and bank debt.
WHAT COULD CHANGE THE RATINGS DOWN/UP
An upgrade is unlikely at this stage in light of action. Over
time, upward pressure on the rating could develop if Moby
restores its profitability and improves materially its free cash
flow generation. Quantitatively, a Moody's-adjusted debt/EBITDA
ratio trending sustainably below 5.5x and a positive free cash
flow generation could trigger an upgrade. Also, a rating upgrade
would require an adequate liquidity profile with ample covenant
headroom.
Conversely, Moody's could downgrade the ratings if Moby's free
cash flow generation deteriorates as a result of a further drop
in operating performance or higher-than-expected capital
expenditures. Quantitatively, a Moody's-adjusted debt/EBITDA
sustainably above 6.5x could trigger a downgrade. In addition,
the ratings could be downgraded if Moby's liquidity were to
deteriorate further; for instance if the company cannot maintain
continuous access to its revolving credit facility.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Shipping
Industry published in December 2017.
Domiciled in Milan, Italy, Moby S.p.A. is a maritime
transportation operators focusing primarily on passengers and
freight transportation services in the Tyrrhenian Sea, mainly
between continental Italy and Sardinia. Through Moby and its main
subsidiary Tirrenia-CIN, the company operates a fleet of 64
ships, of which 47 are ferries and 17 tugboats. In the 12 months
to September 30, 2017, the company recorded revenues of EUR567
million and pro forma EBITDA of EUR104 million.
===================
K A Z A K H S T A N
===================
GRAIN INSURANCE: S&P Alters Outlook to Stable & Affirms 'B' ICR
---------------------------------------------------------------
S&P Global Ratings said that it had revised its outlook on
Kazakhstan-based Grain Insurance Co. JSC to stable from
developing. At the same time, S&P affirmed its 'B' long-term
issuer credit and insurer financial strength ratings, as well as
its 'kzBB+' national scale rating on the company.
S&P said, "The outlook revision stems from our opinion that the
potential for both upside and downside dynamics of our ratings on
the company is limited over the next year.
"Risks that we were concerned about in March 2017, when we
assigned Grain Insurance a developing outlook, did not
materialize. Grain insurance maintained its capital base, which
exceeds that for the 'AAA' level under our risk-based capital
model, and we do not anticipate that it will change materially in
the next 12-18 months.
"We have not seen any negative spillover effects from other
businesses of Grain Insurance's controlling shareholder, Nurlan
Tleubaev, on Grain Insurance. In particular, Grain Insurance's
deposit in ailing JSC Delta Bank was fully repaid. We expect
volumes of agricultural insurance coming from related companies
to be maintained. Reduction of the company's gross premium
written (GPW) by about 45% in 2017 resulted from discontinuance
of credit insurance that it wrote previously in cooperation with
the affiliated Delta Bank. We always treated this line as
opportunistic and noncore for Grain Insurance, and consequently
we do not see this as a significant deterioration of Grain
Insurance's business position, owing to its continued
specialization in its core niche -- agricultural insurance.
"We do not expect further reduction of Grain Insurance's business
size, given its importance for the development of the
agricultural sector, which the government has stated as one of
its main priorities for the next decade. Grain Insurance has a
dominant position in crop insurance in Kazakhstan, covering
around 81% of the market by GPW in the first 10 months of 2017,
with the second-largest player, Kazakhinstrakh, covering 18%.
"We however see limited upside potential for the rating over the
next year, which we previously linked to Grain Insurance's
development of its enterprise risk management framework. Although
we acknowledge certain procedural improvements, we still consider
that the company's operating results may be subject to material
volatility because of its business concentration in the
agricultural sector, some occasional insurance of large property
risks, and the absence of established reinsurance coverage. We
note that the company's net combined (loss and expense) ratio
adjusted for recovery of reserves related to discontinued loan
insurance business increased to 91% as of Aug. 31, 2017, from the
five-year (2012-2016) average of 69%, driven by just one large
property claim. We also anticipate some positive track record
with regard to corporate governance procedures, because of the
new shareholding structure.
"While absent any large losses, we anticipate that net profits in
2017-2018 will be around Kazakhstani tenge (KZT)350 million
(about US$1.05 million)-KZT400 million per year, resulting in
return on equity of about 8%-10% and return on revenues of around
25%-30% in our base-case scenario.
"We note that Grain Insurance's capital and earnings is limited
by the small capital base in absolute terms of around US$14
million as of Nov. 1, 2017. This makes the company susceptible to
large losses, in our view.
"The stable outlook on Grain Insurance indicates our expectation
that the company's business risk and financial risk profiles will
remain balanced during the next 12 months, meaning that Grain
Insurance will remain the main insurer of agricultural risks in
Kazakhstan. We anticipate that its capital adequacy will remain
supported by a sufficient capital cushion and zero dividend
policy.
"We could take a positive rating action if we witnessed notable
tightening and further enhancement of risk management procedures
linked to catastrophe and accumulation risks, accompanied by the
insurer's ability to keep its business position intact and
protect the financial risk profile from unexpected high losses,
while maintaining capitalization. It will also depend on the
demonstration of improved corporate governance procedures, which
could allow the company in future to withstand consequences of
the ongoing financial difficulties of its largest shareholder.
"A negative rating action is remote at this stage, thanks to
Grain Insurance's capital position. At the same time, a negative
rating action might follow if we observed deterioration in the
company's capitalization as a result of unexpectedly high losses
or material dividends. Furthermore, while remote, we continue to
monitor the probability that the financial or business risk
profile might weaken as a result of financial difficulties
experienced by Grain Insurance's largest shareholder."
=====================
N E T H E R L A N D S
=====================
MARFRIG HOLDINGS: Moody's Affirms 'B2' Sr. Unsecured Ratings
------------------------------------------------------------
Moody's Investors Service affirmed Marfrig Global Foods S.A.'s B2
ratings, including its corporate family ratings (CFR) and the
senior unsecured ratings of Marfrig Holdings (Europe) B.V. At the
same time, Moody's changed the company's outlook to stable from
positive.
The following ratings have been affirmed:
Issuer: Marfrig Global Foods S.A.
- Corporate Family Rating: B2 (global scale);
Issuer: Marfrig Holdings (Europe) B.V. and guaranteed by Marfrig:
- USD215 million 8.375% senior unsecured guaranteed notes due
2018: B2 (foreign currency);
- USD660 million 6.875% senior unsecured guaranteed notes due
2019: B2 (foreign currency);
- USD27 million 11.250% senior unsecured guaranteed notes due
2021: B2 (foreign currency);
- USD1000 million 8.000% senior unsecured guaranteed notes due
2023: B2 (foreign currency);
The outlook of all ratings is Stable
RATINGS RATIONALE
The change in outlook to stable from positive reflects Marfrig's
high leverage and Moody's perception that the deleveraging
process will take longer than initially anticipated. The
deterioration in credit metrics during 2017 resulted mostly from
a decline in cash generation due to (i) lower volumes in the
1H17, including disruptions influenced by the Weak Flesh trigged
in the second week of March, despite Marfrig not being involved,
the investigation adversely affected animal protein companies in
Brazil due to temporary bans and negative impact in consumer
confidence and (ii) a less favorable exchange rate for the
translation of its exports. Moreover, the higher working capital
needs following its decision to ramp-up capacity to 300,000 heads
per month with the activation of 5 additional plants for
slaughtering implied additional pressure to cash flow generation
during the year.
Although Moody's anticipates a recovery in operations during
2018, mainly as a consequence of the increase in volumes and
higher meat prices, Moody's don't expect Marfrig's metrics to
recover as fast. Accordingly, Moody's estimate Debt/EBITDA will
remain above 6x over the following 12 months. Moody's had changed
the company's outlook to positive on January 2017, following the
conversion of BRL2.1 in convertible debentures into equity. Back
then, Moody's expected that with debt reduction and a stronger
EBITDA adjusted gross leverage would approach 5.0x by end of
2017.
Marfrig's B2 ratings are supported by its diversified portfolio
of animal proteins, as well as a diverse geographic footprint and
distribution capabilities. The company's diversity in terms of
raw material sourcing reduces risks related to weather and animal
diseases, while its product portfolio and food service business
help to mitigate some of the volatility inherent in commodity
cycles and supply-demand conditions for each specific protein. In
addition, the company has maintained a clear focus on organic
growth, presents a good liquidity profile, and has been working
to deleverage via higher EBITDA generation and disposal of
assets.
It the last 4 years Marfrig has (i) maintained a consistent
strategy of organic growth, (ii) shown a remarkable improvement
in liquidity profile, (iii) increased participation of the more
stable US poultry business in sales, and redemption of debentures
held mainly by BNDESPAR, which implies BRL300 million less in
interest to be serviced in 2018 as compared to 2017.
On the other hand, the ratings are constrained by a high gross
leverage, low interest coverage and a considerable exposure to
the commodity related business, which is highly volatile. Going
into 2018 a positive cattle cycle will provide enough animals for
slaughter to mitigate cost pressures from higher slaughtering
demand. Exports and domestic meat sales present a positive trend
in terms of volumes and pricing, and FX should be more stable,
allowing the company to ramp-up EBITDA generation.
Marfrig's adjusted leverage, measured by gross debt to EBITDA
remains high, at 7.5x. Going forward, Moody's estimate that
gradual improvements in operating performance will translate into
overall better metrics, considering (i) a continued strong EBITDA
generation from Keystone Foods, both in the US and Asia
operations, especially given the advance of sales in Asia and
international low feed costs, and (ii) EBITDA margin recovery for
the beef segment (Brazil, Uruguay and Chile operations), with
increased capacity for slaughter and an improved consumer
scenario in Brazil and increase in export volumes. Liability
management and the conversion of BRL 2.1 billion in debentures in
2017, will yield an improvement in interest coverage by 2018. A
possible IPO of Keystone Foods could lead to faster deleveraging
depending on the use of proceeds by Marfrig.
As of September 30, 2017, Marfrig's total cash balance of BRL 4.5
billion was sufficient to cover reported short term debt by 2.6x.
Additionally, the company currently holds, through its subsidiary
Keystone, approximately USD300 million (BRL 990 million) in
revolving credit facilities available.
The stable outlook reflects Moody's view that Marfrig will be
able to gradually reduce gross leverage while sustaining a good
liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE
The ratings could be upgraded if Marfrig maintains a consistent
and predictable execution of its financial policy with the
ability to improve operating margins from current levels,
maintain a good liquidity profile and reduce its indebtedness. In
addition, it would require CFO/Net Debt approaching 15% and a
Total Debt/EBITDA below 4.5x.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Marfrig's ratings could be downgraded in case of a deterioration
in its liquidity position or if a consistent and predictable
financial policy execution is not observed going forward.
Quantitatively, downward pressure on Marfrig's B2 rating or
outlook is likely if Total Debt/EBITDA does not approach 6.0x
over the next 12 to 18 months, EBITA to gross interest expense
falls below 1.0x or if Retained Cash Flow to Net Debt is below
10%. All credit metrics are according to Moodys standard
adjustments and definitions.
Marfrig, headquartered in Sao Paulo, Brazil, is one of the
largest protein players globally, with consolidated revenues of
BRL 18.6 billion (approximately USD5.6 billion) in the last
twelve months period ended in September 30, 2017. The company has
significant scale and is diversified in terms of sales, raw
materials and product portfolio, with operations in Brazil, US,
Uruguay, Chile and Asia-Pacific and presence in the beef, poultry
and food service segments. The company has two main business
segments - Keystone and Beef, each representing approximately 47%
and 53%, respectively, of Marfrig's total revenues. Approximately
77% of Marfrig's sales and EBITDA are tied to foreign currencies,
with food service, which produces less volatile cash flows than
the in-natura exports business, representing 56% of total EBITDA.
Keystone Foods, headquartered in the US, is a food service
supplier with operations in the US and Asia, with Mc Donald's
accounting for 55% of its revenues. Beef divison is the second
largest beef producer in Brazil and one of top 5 players
worldwide.
The principal methodology used in these ratings was Global
Protein and Agriculture Industry published in June 2017.
===========
N O R W A Y
===========
TERRA SECURITIES: 8 Municipalities Seek to Recoup NOK934MM Claims
-----------------------------------------------------------------
Jonas Bergman at Bloomberg News, citing NTB, reports that eight
Norwegian municipalities had sought to recoup NOK934 million from
the bankruptcy estate of Terra Securities stemming from failed
investments in bonds in 2007.
According to Bloomberg, the municipalities are Vik, Bremanger,
Hattfjelldal, Haugesund, Hemnes, Kvinesdal, Narvik and Rana.
NTB said Citigroup was paid out NOK16 million of NOK128 million
it sought, Bloomberg relates.
===========
P O L A N D
===========
TAURON POLSKA: Fitch Assigns BB+ Rating to Hybrid Bonds
-------------------------------------------------------
Fitch Ratings has affirmed TAURON Polska Energia S.A.'s (Tauron)
Long-Term Foreign- and Local-Currency Issuer Default Ratings
(IDR) at 'BBB' with Stable Outlooks. Fitch has also assigned
Tauron's new PLN400 million (EUR95 million) hybrid bonds
programme a local-currency rating of 'BB+' and a national rating
of 'BBB+(pol)'.
The affirmation of the IDRs reflects dominant share of regulated
power distribution in Tauron's EBITDA and capex programme, its
plans to reduce capex following the expected commencement of
operations of new generation blocks in 2019, and reduced
financial pressure on credit metrics. The key constraint for the
rating is the dominance of coal in Tauron's fuel mix resulting in
exposure to carbon dioxide costs in the long term.
The new hybrid bonds will be subscribed by Polish state-owned
development bank Bank Gospodarstwa Krajowego (BGK, A-/Stable) and
will qualify for 50% equity credit. The hybrid bonds' ratings and
assignment of equity credit are based on Fitch's hybrids
methodology, "Non-Financial Corporates Hybrids Treatment and
Notching Criteria", April 27, 2017, available at
www.fitchratings.com.
KEY RATING DRIVERS
KEY RATING DRIVERS FOR TAURON
High Share of Regulated Business: The ratings reflect the high
share of regulated and fairly stable distribution business in
Tauron's EBITDA (72% in 2016). Fitch expect it to decrease to
about 65% in 2017-2021 due to improving results at the mining
division on the back of rising coal prices as well as the
commencement of operations of the new power blocks, under
construction by Tauron, in the course of 2019.
Capex to Decrease in 2020: Tauron has been constructing new power
blocks in Jaworzno (0.9GW, coal-fired) as well as in Stalowa Wola
(0.4GW, CCGT), which is a joint project with Polskie Gornictwo
Naftowe i Gazownictwo (PGNiG, BBB-/Stable). Both projects should
come on stream in 2019. With their conclusion, Tauron's capex
should decrease from about PLN4 billion in 2019 to about PLN3
billion in 2020, with a positive impact on free cash flows.
At the same time, Tauron's capex will become more focused on
distribution, which already in 2017 accounted for 51% and from
2020 should exceed 60% of Tauron's capex. High capex in the
distribution segment is positive for Tauron's credit profile as
it increases the regulatory asset base in this business segment
and helps stabilise results in times when another key segment,
power generation, will face increasing pressure, in particular
because of rising costs of carbon dioxide.
Reduced Financial Pressure: Tauron has undertaken several
measures to ease the pressure on debt covenants and leverage.
These include the suspension of dividends from 2016 to 2019, a
cost-savings programme of PLN1.3 billion in 2016-2018, and the
issuance of EUR190 million of hybrid bonds in December 2016.
These qualify for 50% equity credit under Fitch's criteria. In
addition, Tauron has entered into agreements with a blocking
minority of bondholders of the PLN1.75 billion bond programme,
effectively relaxing the net debt-to-EBITDA covenant from 3.0x to
3.5x.
Leverage Should Stay Within Guidelines: Fitch anticipate that
Fitch-calculated funds from operations (FFO) adjusted net
leverage will peak in 2019 at planned commencement of operations
of the new power blocks in Jaworzno and Stalowa Wola. Fitch
forecast FFO adjusted net leverage will average 3.3x in 2018-
2021, which is below Fitch negative rating guideline of 3.5x.
Tauron should still have some remedies available if needed to
reduce leverage. These include the involvement of an additional
partner to construct the power block in Jaworzno and inflows from
the planned capacity market in Poland, probable from 2021. The
enumerated remedies have not been included in Fitch rating case
as of now. The new hybrid has a minimal impact on forecast
leverage.
Rated on a Standalone Basis: Tauron is 30%-owned and effectively
controlled by the Polish state (A-/Stable). However, Fitch rates
it on a standalone basis because Fitch assess legal, operational
and strategic links with the state as moderate based on Fitch
parent and subsidiary rating linkage criteria. On 27 November
2017 Fitch published new proposed criteria as an Exposure Draft
"Government-Related Entities Rating Criteria". If the final
criteria are substantially similar to the Exposure Draft, Fitch
expect Tauron to continue being rated on a standalone basis
without any notching for links with the Polish state.
KEY RATING DRIVERS FOR NEW HYBRID
Ratings Reflect Deep Subordination: The notes are rated two
notches below Tauron's Local-currency Long-Term Issuer Default
Rating (IDR; BBB/Stable) given their deep subordination and,
consequently, the lower recovery prospects in a liquidation or
bankruptcy scenario relative to the senior obligations. The notes
are subordinated to all senior debt.
Support for the Capital Structure: Fitch expects Tauron's credit
metrics to improve once the large-scale capital projects that are
underway start contributing earnings and annual capex normalises
over the long term. If the group's financial profile has improved
by the first call date of the hybrids (seven years from the issue
date), management may decide to refinance the hybrid with senior
unsecured debt. If the group's leverage is close to the net
debt/EBITDA covenant of 3.5x, which is included in some long-term
funding agreements, management is expected to replace the hybrids
with a similar instrument.
Both scenarios are compatible with Fitch's interpretation of
permanence. The important aspect is that the hybrid capital will
support the capital structure in a stress case.
Second Hybrid Issue: The hybrids issued under the programme will
be the second hybrid issuance by Tauron which in December 2016
issued EUR190 million (PLN843 million) hybrid bonds (rated 'BB+')
due in 2034. This issue was subscribed by the European Investment
Bank (EIB). Fitch allocated 50% equity credit to the hybrids.
The PLN400m hybrid bonds to be issued under the programme will be
eligible for 50% equity credit for seven years after the issue
date, which is a comparatively short period. The planned hybrids
are small compared to Tauron's total debt and will marginally
improve its FFO adjusted net leverage by less than 0.1x. While
this is not critical for the company's IDR, the hybrids would be
excluded from Tauron's net debt in the covenant calculation,
which is supportive when considering permanence.
Equity Treatment Given Equity-Like Features: The securities
qualify for 50% equity credit as they meet Fitch's criteria with
regards to deep subordination, a remaining effective maturity of
at least five years, full discretion to defer coupons for at
least five years and limited events of default. These are key
equity-like characteristics, affording Tauron greater financial
flexibility. Equity credit is limited to 50% given the cumulative
interest coupon, a feature considered more debt-like in nature.
Effective Maturity Date: The notes are due 12 years from the
issue date, which is also the effective maturity date according
to Fitch's criteria. The coupon step-up of 70bp from the first
call date seven years from the issue date is within Fitch's
aggregate threshold rate of 100bp. There is also an additional
coupon step-up of 70bp if Tauron decides to defer coupon
payments, but this does not impact the effective maturity of the
hybrids. This is because coupon deferrals are likely to be
activated by Tauron only in a case of severe financial stress and
in such a situation the additional step-up is unlikely to impact
the company's decision to call the hybrids early.
The equity credit of 50% will change to 0% five years before the
effective maturity date, ie seven years from the issue date. The
issuer has the option to redeem the notes on the first call date
seven years from the issue date and on any coupon payment date
thereafter.
Cumulative Coupon Limits Equity Treatment: The interest coupon
deferrals are cumulative, which results in 50% equity treatment
and 50% debt treatment of the hybrid notes by Fitch. Despite the
50% equity treatment, Fitch treats coupon payments as 100%
interest. The company will be obliged to make a mandatory
settlement of deferred interest payments under certain
circumstances, including the payment of a dividend.
DERIVATION SUMMARY
Tauron's and Energa S.A.'s (BBB/Stable) business profiles benefit
from the large share of regulated distribution in EBITDA, which
provides good cash-flow visibility at times when another key
segment, conventional power generation, is under pressure. Two
other Polish utilities, PGE Polska Grupa Energetyczna S.A.
(BBB+/Stable), and ENEA S.A. (BBB/Stable) have a lower share of
regulated distribution than Tauron and Energa.
Of the four Fitch-rated Polish utilities, Tauron has the highest
forecast leverage for 2018-2019, which results in limited rating
headroom.
KEY ASSUMPTIONS
- Wholesale electricity prices at around PLN160 per MWh
- Average hard coal prices at PLN10 per GJ
- Carbon dioxide market price increasing to about EUR12 per
tonne by 2021
- First full-year of generation in Jaworzno coal-fired block
(0.9GW) and Stalowa Wola CCGT (50% of 0.4GW) in 2020 implying
no further delays
- Weighted-average cost of capital in the distribution segment
at 5.6% in 2017 increasing to 6.0% with a 5% qualitative
assessment factor (declining return on the distribution's
regulated asset base) from 2018
- Capex at PLN18 billion in 2017-2021
- Next dividend payment in 2020 with a 50% dividend payout
ratio.
RATING SENSITIVITIES
Rating upside for Tauron is limited due to the company's business
profile and projected increase in leverage due to capex. However,
developments that may, individually or collectively, lead to
positive rating action include:
- continued focus on the distribution business in capex and
overall strategy, together with FFO adjusted net leverage below
2.5x on a sustained basis, supported by management's more
conservative leverage target;
- a more diversified fuel generation mix and lower carbon
dioxide emissions per MWh, which together with continued
efficiency improvements, would result in a stronger business
profile.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- FFO adjusted net leverage above 3.5x and FFO fixed charge
cover below 5x on a sustained basis, for example, due to full
implementation of capex and weaker-than-expected operating cash
flows
- Acquisitions of stakes in coal mines or other form of support
for state-owned mining companies under financial pressure leading
to net leverage above 3.5x or substantially worsening Tauron's
business profile
LIQUIDITY
Adequate Liquidity: At end-September 2017 Tauron had PLN2.0
billion of readily available cash and PLN4.4 billion of committed
funding against short-term debt of PLN0.3 billion and Fitch-
expected negative free cash flow in the next 12 months of PLN1.0
billion.
Large amounts of Tauron's debt will mature over 2019 (PLN2.0
billion) and 2020 (PLN2.9 billion). The company has already
gathered funds necessary for refinancing these debt facilities.
However, due to capex-driven negative free cash flow in
particular by 2019, Fitch expect Tauron to take on some new debt
over 2018-2019. Fitch do not anticipate capex funding issues in
the medium term despite its exposure to coal.
FULL LIST OF RATING ACTIONS
TAURON Polska Energia S.A.
-- Long-Term Foreign- and Local-Currency IDRs affirmed at 'BBB';
Stable Outlook
-- Short-Term Foreign- and Local-Currency IDRs affirmed at 'F3'
-- EUR190 million hybrid bonds affirmed at 'BB+'
-- National Long-Term Rating affirmed at 'A+(pol)'; Stable
Outlook
-- National senior unsecured rating affirmed at 'A+(pol)'
-- Foreign-currency senior unsecured rating of EUR500 million
Eurobonds affirmed at 'BBB'
-- New ratings assigned to Tauron's PLN400 million (EUR95
million) hybrid bonds programme: local currency subordinated
rating of 'BB+', and national subordinated rating of
'BBB+(pol)'.
===============
P O R T U G A L
===============
BANCO BPI: Fitch Raises Viability Rating to 'bb+'
-------------------------------------------------
Fitch Ratings has affirmed Banco BPI S.A.'s Long-Term Issuer
Default Rating (IDR) at 'BBB-' with a Positive Outlook. At the
same time Fitch has upgraded the bank's Viability Rating (VR) to
'bb+' from 'bb'.
The rating actions are part of a periodic portfolio review of
Portuguese banks rated by Fitch and follow the upgrade of
Portugal's sovereign rating.
KEY RATING DRIVERS
IDRS, SENIOR DEBT AND SUPPORT RATING
The IDRs, senior debt ratings and Support Rating of Banco BPI
reflect a high probability of support from its ultimate parent,
CaixaBank, S.A. (BBB/Positive), in case of need. The Positive
Outlook mirrors that of CaixaBank. Fitch believes Portugal is a
strategically important market for CaixaBank as demonstrated by
its longstanding investment in Banco BPI and its involvement in
the design and implementation of the strategic objectives of its
subsidiary. The sale in November 2017 of some of Banco BPI's
insurance and corporate finance activities to its parent reflects
further integration.
Fitch believes CaixaBank's propensity to support Banco BPI is
linked to Portugal's operating environment, since this affects
the attractiveness of Banco BPI to the group and its impact on
CaixaBank's overall risk and returns profile.
VR
The upgrade of Banco BPI's VR reflects the strengthening of the
bank's regulatory capital ratios and the progress made in the
implementation of the bank's cost restructuring plan. The VR also
takes into account Banco BPI's stronger asset quality and funding
profile than most domestic peers but still modest earnings
generation. The VR also factors in the bank's adequate retail
franchise in a small economy such as Portugal.
The sale of some of Banco BPI's businesses to CaixaBank will
strengthen the subsidiary's capital ratios by about 130bp by
year-end. The bank estimates that its fully loaded common equity
Tier 1 and total capital ratios would be 12.8% and 14.6% at end-
September 2017 on a proforma basis, providing it with adequate
buffers above regulatory minimum.
Banco BPI's earnings have been highly variable and supported by
material contributions from Banco de Fomento de Angola (BFA), its
Angolan subsidiary, but which is now accounted at equity. In
2017, the bank has made progress in implementing its cost
reduction plan, and underlying core banking earnings increased in
9M17, supported by lower operating costs and an improved
operating environment in Portugal. Fitch expect the bank's
earnings generation capacity to further strengthen in 2018-2019,
due to improved operating efficiency as integration synergies are
achieved.
Banco BPI's asset quality metrics are materially stronger than
those of domestic peers and compare well with similarly-rated
international peers. At end-September 2017 the bank reported a
non-performing loan (NPL as per European Banking Authority's
definition) ratio of 6.8%. The bank's funding and liquidity
profile is adequate and stable, as reflected by a reasonable 117%
loans/deposits ratio at end-June 2017. Fitch believe the
ownership by CaixaBank is supportive of the bank's funding and
liquidity profile.
SUBORDINATED DEBT
Banco BPI's subordinated debt is notched down once from the
bank's IDR for loss severity.
SUBSIDIARY AND AFFILIATED COMPANY
The IDRs of Banco Portugues de Investimento S.A. (BPI) are
equalised with those of its parent, Banco BPI. As well as its
100% ownership by Banco BPI, BPI's integration with and role
within Banco BPI mean there is a high probability of the
subsidiary being supported. Fitch believe support from CaixaBank
would be allowed to flow through to BPI as reflected by the
recent intragroup transaction that saw CaixaBank acquire some of
BPI's businesses. Fitch does not assign a VR to this institution
as the agency does not view it as an independent entity.
RATING SENSITIVITIES
IDRS, SENIOR DEBT AND SUPPORT RATING
Banco BPI's Long-Term IDR and senior debt ratings could be
upgraded if the Long-Term IDR of CaixaBank is upgraded. The
ratings would likely be downgraded if CaixaBank's ability to
provide institutional support is reduced, reflected by a
downgrade of the parent's ratings, or if Fitch has reason to
believe that Banco BPI has become less strategically important to
CaixaBank.
VR
The VR could be upgraded if the bank improves its pre-impairment
operating profitability beyond Fitch expectations without
compromising its risk appetite and asset quality metrics.
Maintaining sound capital buffers over minimum requirements would
also be positive for the rating. The VR could be downgraded if
the bank's asset quality or core earnings metrics deteriorate
sharply, weakening solvency.
SUBORDINATED DEBT
Banco BPI's subordinated debt rating is ultimately sensitive to a
change in Caixabank's IDR.
SUBSIDIARY AND AFFILIATED COMPANIES
The ratings of BPI are sensitive to rating action on Banco BPI's
IDRs.
The rating actions are:
Banco BPI:
Long-Term IDR: affirmed at 'BBB-', Outlook Positive
Short-Term IDR: affirmed at 'F3'
Viability Rating: upgraded to 'bb+' from 'bb'
Support Rating: affirmed at '2'
Senior unsecured debt long-term rating: affirmed at 'BBB-'
Senior unsecured debt short-term rating: affirmed at 'F3'
Lower Tier 2 subordinated debt: affirmed at 'BB+'
Banco Portugues de Investimento:
Long-Term IDR: affirmed at 'BBB-', Outlook Stable
Short-Term IDR: affirmed at 'F3'
Support Rating: affirmed at '2'
BANCO COMERCIAL: Fitch Alters Outlook to Pos. & Affirms BB- IDR
---------------------------------------------------------------
Fitch Ratings has revised Banco Comercial Portugues, S.A.'s
(Millennium bcp) Outlook to Positive from Stable while affirming
the bank's Long-Term Issuer Default Rating (IDR) at 'BB-'.
The rating actions are part of a periodic portfolio review of
Portuguese banks rated by Fitch and follow the upgrade of
Portugal's sovereign rating.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
The Positive Outlook reflects Fitch's expectations that
Millennium bcp will continue to reduce its problem assets (non-
performing loans (NPLs) and foreclosed assets) in the next 18-24
months, which should gradually lower impairment charges and
result in a meaningful improvement of internal capital
generation. The implementation of the bank's problem asset
reduction plan is expected to benefit from an improved operating
environment in Portugal.
The ratings of Millenium bcp are driven by its weak, albeit
improving, asset quality that puts pressure on its operating
profitability and internal capital generation. The ratings also
factor in the bank's vulnerable capitalisation, as well as stable
funding profile.
Pre-impairment profitability has progressively improved in the
past four years but the bank's earnings generation is still
dented by large provisions for problem assets. Fitch expect
impairment charges to gradually decrease and this to translate
into higher operating profitability. The bank's operating
efficiency is better than domestic peers' and should benefit from
expected lower funding costs.
Millennium bcp's asset quality indicators remain weak, reflecting
the bank's sizeable stock of problem assets, although the bank
has made good progress in reducing it. At end-September 2017 the
bank's NPL ratio (as per European Banking Authority definition)
declined to 15.9% (from 19% a year earlier) but remains high by
international standards. Reserve coverage (42%) also improved but
remained low compared with international peers, resulting in a
high reliance on collaterals and guarantees. In addition, the
bank is exposed to risks arising from its holdings of foreclosed
assets and investments in corporate restructuring funds.
The bank's capital position has been strengthened in 2017 by a
EUR1.33 billion equity increase and risk-weighted asset (RWA)
reduction. At end-September 2017, the fully loaded common equity
Tier 1 (CET1) ratio stood at 11.7%. However, capitalisation
remains vulnerable to additional asset quality shocks as its
unreserved NPLs and foreclosed assets still represented a high
1.4x of its fully loaded CET1 at that date.
Millennium bcp's funding structure has generally been stable and
its liquidity position has benefited from the substantial loan
deleveraging carried out in the past four years. Customer
deposits remained the bank's main funding source at about 80% of
total funding at end-September 2017. Reliance on wholesale
funding is more limited and mostly in the form of senior and
covered bonds and ECB funding.
SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'No Floor' reflect Fitch's belief that senior creditors
of the bank cannot rely on receiving full extraordinary support
from the sovereign in the event that the bank become non-viable.
The EU's Bank Recovery and Resolution Directive (BRRD) and the
Single Resolution Mechanism (SRM) for eurozone banks provide a
framework for resolving banks that is likely to require senior
creditors to participate in losses, if necessary, instead of --
or ahead of -- a bank receiving sovereign support.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings on subordinated debt and other hybrid capital issued
by Millennium bcp are notched down from its VR in accordance with
Fitch's assessment of each instrument's respective non-
performance and relative loss severity risk profiles, which vary
considerably.
The rating on Millenium bcp's lower Tier 2 is notched down once
from the bank's VR for loss severity.
Millenium bcp's preference shares are rated 'CCC' because Fitch
believes that economic losses are likely to be moderate before
coupon payment resumes. Fitch estimate this will occur at the
next coupon date after the approval of 2017 accounts. The
preference shares' 'CCC' rating has been placed on Rating Watch
Negative (RWN) to reflect the publication of the Exposure Draft:
Bank Rating Criteria (see "Fitch Publishes Bank Rating Criteria
Exposure Draft" dated 12 December 2017). As outlined in the
Exposure Draft, Fitch plans to introduce + and - modifiers at the
'CCC'/'ccc' level for Long-Term Issuer Default Ratings (IDRs),
long-term international debt and deposit ratings, Derivative
Counterparty Ratings (DCR) and VRs.
RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT
Higher earnings could lead to the upgrade of Millenium bcp's
ratings in the next 18-24 months. Sustained reductions in problem
assets resulting in lower impairment needs would strengthen
internal capital generation. The improved economic environment in
Portugal should decrease NPL inflows, increase recoveries and
cures and facilitate the sale distressed debt portfolios. This
would lower the vulnerability of the bank's capital to asset
quality shocks.
Downward rating pressure would arise from a failure to improve
asset quality metrics, weakening profitability or unexpected
deterioration in the operating environment in Portugal.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the bank's SR and upward revision of the SRF would
be contingent on a positive change in the sovereign's propensity
to support the bank. While not impossible, this is highly
unlikely, in Fitch's view.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings on subordinated debt and other hybrid capital issued
by Millennium bcp are primarily sensitive to a change in the
bank's VR. The rating of the subordinated notes is also sensitive
to a widening of notching if Fitch's view of the probability of
non-performance on the bank's subordinated debt relative to the
probability of the group failing, as measured by its VR,
increases or if Fitch's view of recovery prospects changes
adversely.
The RWN on the rating of the preference shares reflects that upon
publication of the final criteria (provided it is in line with
the Exposure Draft) the rating is likely to be downgraded to
'CCC-'. The rating of the preference shares is also sensitive to
Fitch changing its assessment of the probability of the notes
returning to performing status.
The rating actions are:
Millenium bcp
Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive
from Stable
Short-Term IDR affirmed at 'B'
Viability Rating: affirmed at 'bb-'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Senior unsecured debt long-term rating affirmed at 'BB-'
Senior unsecured debt short-term rating affirmed at 'B'
Subordinated notes affirmed at 'B+'
Preference shares: 'CCC' placed on RWN
CAIXA ECONOMICA MONTEPIO: Fitch Hikes IDR to B+, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has upgraded Caixa Economica Montepio Geral, caixa
economica bancaria, S.A.'s (CEMG) Long-Term Issuer Default Rating
(IDR) to 'B+' from 'B' and Viability Rating (VR) to 'b+' from
'b'. The Outlook on the Long-Term IDR is Stable.
The rating action is part of a periodic portfolio review of
Portuguese banks rated by Fitch and follows the upgrade of
Portugal's sovereign rating.
KEY RATING DRIVERS
IDR, VR AND SENIOR DEBT
The upgrade reflects the remedial actions taken by CEMG to
restore its capital ratios and to accelerate the implementation
of its strategic plan. However, the ratings still reflect low
capital buffers in light of the bank's poor asset quality
metrics, weak operating profitability and stable, albeit price-
sensitive, funding.
In June 2017, CEMG completed a capital increase of EUR250
million. The bank has also undertaken substantial deleveraging
and reduced risk-weighted assets by around 17% since end-
September 2015. In addition, the bank was converted into a public
liability company in September 2017. This will enable CEMG to
benefit from a change in the treatment of some deferred tax
assets (DTA), which, in turn, will reduce the regulatory capital
deduction due to these assets.
The bank calculates that the benefits from changes in DTA
treatment have a 131bp impact on its fully loaded common equity
Tier 1 (CET1) ratio of 11.4% at end-September 2017 (the latter
was 8.2% a year earlier). However, unreserved problem assets
(including non-performing loans (NPLs) and foreclosed assets)
still represented around 1.9x the fully loaded CET1 at end-June
2017, indicating that the bank's solvency is highly vulnerable to
additional asset quality shocks.
Asset quality remains weak. CEMG's NPL ratio (as per European
Banking Authority's definition and excluding exposures to central
banks and credit institutions) stood at a high 19.4% at end-June
2017. Including foreclosed assets and investments in properties
the problem asset ratio is higher at 26%, which compares
unfavourably with peers'. The stock of problem assets is
gradually declining, due to lower NPL inflows and larger
recoveries amid an improved economic environment in Portugal. The
bank recently securitised a EUR581 million NPL portfolio,
reflecting the management team's focus on accelerating problem
asset reduction. However, in Fitch view the NPL reserve coverage
remains low (about 40% at end-June 2017) and further loan
impairment charges are required before asset quality sees further
material improvements.
CEMG's core profitability is weak and highly variable through the
business and interest rate cycles. In 9M17 both net interest
income and net fees and commissions increased significantly.
This, combined with lower loan impairment charges and
restructuring costs, resulted in the bank reporting EUR20 million
net income in 9M17. Cost efficiency has improved, due to a sharp
decline in operating costs. Improving its profitability will be
key to strengthening its internal capital generation.
CEMG's funding and liquidity profile is sensitive to changes in
creditor sentiment despite having been fairly stable during the
last financial crisis. However, its deposit base remains more
price-sensitive than peers'. The loans/deposits ratio was
acceptable at 128% at end-June 2017.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating (SR) of '5' and Support Rating Floor (SRF) of
'No Floor' for CEMG reflect Fitch's belief that senior creditors
of the bank cannot rely on receiving full extraordinary support
from the sovereign in the event that the bank becomes non-viable.
The EU's Bank Recovery and Resolution Directive (BRRD) and the
Single Resolution Mechanism (SRM) for eurozone banks provide a
framework for resolving banks that is likely to require senior
creditors to participate in losses, if necessary, instead of - or
ahead of - a bank receiving sovereign support.
RATING SENSITIVITIES
IDR, VR AND SENIOR DEBT
Rating upside is limited in the short-term given a still large,
although declining, stock of problem assets and the bank's weak
operating profitability. In the longer term, an upgrade would be
contingent on the bank improving substantially profitability
metrics and asset quality, materially reducing capital
encumbrance from problem assets.
The ratings could be downgraded if the improving trend of CEMG's
asset quality stalls, weakening the bank's low capital buffers or
if the bank fails to sustain its recent profitability
improvements.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support it. While not impossible, this is highly unlikely, in
Fitch's view.
The rating actions are:
CEMG:
Long-Term IDR: upgraded to 'B+' from 'B'; Outlook Stable
Short-Term IDR: affirmed at 'B'
Viability Rating: upgraded to 'b+' from 'b'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Senior unsecured debt long-term rating upgraded to 'B+'/'RR4'
from 'B'/'RR4'
Senior unsecured debt short-term rating affirmed at 'B'
CAIXA GERAL: Fitch Alters Outlook to Pos. & Affirms BB- IDR
-----------------------------------------------------------
Fitch Ratings has revised the Outlook on Caixa Geral de
Depositos, S.A.'s (CGD) Long-Term Issuer Default Rating (IDR) to
Positive from Stable and affirmed the IDR at 'BB-'. At the same
time, Fitch has affirmed the bank's Viability Rating (VR) at
'bb-'.
The rating actions are part of a periodic portfolio review of
Portuguese banks rated by Fitch and follow the upgrade of
Portugal's sovereign rating.
KEY RATING DRIVERS
IDR, VR AND SENIOR DEBT
The Positive Outlook on CGD's Long-Term IDR reflects Fitch's
expectations that CGD's management team will execute its
restructuring plan, leading to material improvements in
profitability in the next 18-24 months. The better operating
environment in Portugal should also support further reductions in
the bank's large stock of problem assets and facilitate the
achievement of the strategic objectives outlined in the group's
restructuring plan.
CGD's ratings reflect the bank's still weak asset quality and
core profitability. The ratings also take into account CGD's
strengthened capitalisation and acceptable funding profile.
CGD's asset quality remains weak by international comparison,
having suffered from the recession in Portugal during 2011-2014.
The bank reported a high non-performing loan (NPL, as per the
European Banking Authority's definition and excluding exposures
to central banks and credit institutions) ratio of 15.4% and
reserve coverage of 48% at end-June 2017. CGD's asset quality
metrics have improved, mainly due to lower new NPL inflows, large
write-offs in 2016 and increased sales of NPLs in 1H17. The bank
is also exposed to risks arising from its holdings of foreclosed
assets and investments in corporate restructuring funds. Fitch
expect asset quality to improve further over the rating horizon
from NPL cures and active sales.
CGD has restored moderate capital buffers through its EUR2.5
billion capital increase fully subscribed by the Portuguese state
and EUR0.5 billion issue of additional Tier 1 (AT1) instruments
in the market early this year. CGD's fully loaded common equity
Tier 1 (CET1) ratio stood at 12.7% at end-September 2017.
However, capital encumbrance from unreserved problem assets
remains high, making CGD vulnerable to delays in problem asset
reductions.
CGD's ratings also factor in the bank's weak core profitability.
The bank aims to improve efficiency by enhancing revenues and
cutting domestic operating costs by 20% by 2020. International
activities will be downsized and some non-core operations sold.
In Fitch view, successfully executing this plan will be pivotal
for the bank to improve its internal capital generation from its
leading domestic franchise.
CGD's funding profile is based on a large retail customer deposit
base that has been stable. The bank reported a net stable funding
ratio of 137% at end-June 2017. The bank's liquidity position is
acceptable but still sensitive to confidence shocks in Portugal.
SUPPORT RATING AND SUPPORT RATING FLOOR
CGD's '4' Support Rating (SR) and 'B' Support Rating Floor (SRF)
reflect Fitch's opinion that there remains a limited probability
of extraordinary support being provided to CGD by the Portuguese
state, under the provisions and limitation of the Bank Recovery
and Resolution Directive and the Single Resolution Mechanism,
without the bail-in of senior creditors. This potential support
is based on full and willing state ownership and CGD's market
leading position in the Portuguese market.
SUBORDINATED AND HYBRID INSTRUMENTS
Subordinated debt and other hybrid instruments issued by CGD are
notched down from its VR, in accordance with Fitch's assessment
of each instrument's respective non-performance and relative loss
severity risk profiles, which vary considerably.
CGD's lower Tier 2 is notched down once from the bank's VR for
loss severity.
Fitch has upgraded CGD's preference shares to 'B-' because coupon
payment has resumed after the European Commission lifted the
interdiction on 10 March 2017. The rating on CGD's preference
shares is three notches below CGD's VR. The notching reflects
higher expected loss severity relative to senior unsecured
creditors and higher non-performance risk.
CGD's AT1 notes are rated three notches below CGD's VR. The notes
have fully discretionary interest payments and are subject to
partial or full write-down if CGD's consolidated or
unconsolidated CET1 ratio falls below 5.125%. The write-down
could be reversed under certain conditions and at the bank's
discretion. The notching reflects higher expected loss severity
relative to senior unsecured creditors and higher non-performance
risk.
Non-performance risk of the AT1 notes reflects the full
discretionary coupon payment. CGD estimated its distributable
reserves at EUR1.7 billion at end-September 2017. Fitch expects
the non-payment of interest on this instrument will occur before
it breaches the notes' 5.125% CET1 trigger level, when CGD's
capital ratio approaches its CET1 Supervisory Review and
Evaluation Process requirement set at 8.25% for 2017. At end-
September 2017, CGD's phased-in CET1 ratio was 13% on a
consolidated basis, which provides the bank with a buffer from
the equity conversion trigger level.
The principal write-down can be reinstated and written up at full
discretion of the issuer if positive net income (unconsolidated
or consolidated) is recorded.
SUBSIDIARY
The ratings of CGD's subsidiary Caixa Banco de Investimento
(Caixa - BI) are equalised with those of its parent, driven by
the full ownership, the integration of Caixa - BI with its parent
and the offering of core investment banking products. Fitch does
not assign a VR to the institution as Fitch do not view it as an
independent entity that can be analysed meaningfully in its own
right.
The Positive Outlook on Caixa - BI's Long-Term IDR mirrors that
on CGD's Long-Term IDR.
RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT
Further execution of the restructuring plan combined with
sustained profitability improvements could lead to an upgrade of
CGD's ratings in the next 18-24 months. Fitch expects a gradual
reduction of problem assets, which combined with improved
operating profitability, would reinforce the bank's internal
capital generation and reduce the vulnerability of capital to
unexpected asset quality shocks. Downward rating pressure would
arise from the failure to improve asset quality metrics and turn
the bank's operating efficiency around.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support it. While not impossible, this is highly unlikely, in
Fitch's view.
SUBORDINATED AND HYBRID INSTRUMENTS
The ratings of subordinated debt and other hybrid instruments are
primarily sensitive to a change in CGD's VR. Subordinated and
other hybrid instruments' ratings are also sensitive to a change
in Fitch's assessment of the probability of their non-performance
relative to the risk captured in CGD's VR. This may reflect a
change in the group's capital management or an unexpected shift
in regulatory buffer requirements, for example.
Under Fitch's criteria, a one-notch upgrade of the AT1 instrument
would be conditional upon a two-notch upgrade of CGD's VR.
SUBSIDIARY
The ratings of Caixa-BI are sensitive to rating actions on CGD's
IDRs.
The rating actions are:
CGD:
Long-Term IDR: affirmed at 'BB-', Outlook revised to Positive
from Stable
Short-Term IDR: affirmed at 'B'
Viability Rating: affirmed at 'bb-'
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B'
Senior unsecured debt long-term rating affirmed at 'BB-'
Senior unsecured debt short-term rating affirmed at 'B'
Senior unsecured certificate of deposit short-term rating
affirmed at 'B'
Commercial paper programme affirmed at 'B'
Lower Tier 2 subordinated debt long-term rating affirmed at 'B+'
Additional Tier 1 notes- long-term rating affirmed at 'B-'
Preference shares long-term rating upgraded to 'B-' from 'CCC'
===========
R U S S I A
===========
AUTOBANN LLC: Moody's Affirms B1 CFR, Outlook Stable
----------------------------------------------------
Moody's Investors Service has affirmed the B1 corporate family
rating (CFR) and B1-PD probability of default rating (PDR) of the
Russian road construction company Autobann (LLC SOYUZDORSTROY).
Concurrently, Moody's has affirmed the B1 rating assigned to the
two senior unsecured outstanding rouble-denominated bonds of
Autobann. The outlook on all ratings remains stable.
RATINGS RATIONALE
Since 2016, Autobann's business model has changed materially,
with the company's increasing exposure to public--private
partnership (PPP) projects, which involve significant private
investments with long-term payback periods. At the moment, the
company has three PPP projects in its portfolio, including the
Central Ring Road (Startup facility 3) concession, which is by
far the largest project in its backlog.
As a result, while Autobann has historically relied on short-term
working capital financing with year-end adjusted net debt/EBITDA
normally staying at or below 1.0x, the recent shift to longer-
term debt has brought a structural change in its leverage
pattern.
Nevertheless, Moody's expects that Autobann will continue to
preserve a healthy credit profile, which will remain defined by
its conservative financial policy, with the continuation of its
reported recourse net debt/EBITDA target of below 2.0x. Overall,
Autobann's adjusted recourse leverage (which excluded
concessions-related debt) has settled in the range of 2.0x-2.5x,
which remains in line with the B1 rating.
While its adjusted recourse debt/EBITDA may finally rise towards
3.0x this year, Moody's expects that the company will quickly
deleverage back to below 2.5x in 2018 as the increase will be
primarily driven by a technical carry-forward of contract
receipts from Q4 2017 to Q1 2018.
In addition, with a 75% equity interest, Autobann now
consolidates the large-scale Central Ring Road concession, which
should drive its adjusted consolidated leverage (including non-
recourse concession-related debt) towards 5.0x starting 2018.
However, Moody's notes that the concession-related debt will have
no direct recourse to the company and will be fully backed by
cash flows from the State Company Avtodor. The participation of
prominent financial institutions will further reduce financial
risks for Autobann. The remaining 25% stake is held by the
Eurasian Development Bank (Baa1 stable), which injects
significant part of the equity and subordinated debt and,
together with Sberbank (Ba1 stable) and Gazprombank (Ba2 stable),
provides debt funding.
Autobann targets to reduce its stake in the concession to 25% and
deconsolidate the project in 2018-19, with a number of agreements
with prospective investors already in place. When completed, this
will push its consolidated leverage back down to historical, pre-
concession level.
Although Autobann does not plan majority participation in other
concession projects, Moody's cannot fully rule out such
possibility, subject to attractive opportunities in the actively
developing Russian concession market. Therefore, the consolidated
leverage may stay elevated beyond 2018-19. At the same time,
given a fairly comfortable risk profile of such projects, Moody's
generally tends to tolerate higher leverage level for companies
involved in concessions.
Autobann's CFR of B1 remains constrained by its (1) small scale
relative to its global peers; (2) reliance on the Russian road
construction market, which is vulnerable to economic conditions
in the country despite some recent recovery in budget spending on
the back of stabilising domestic economic conditions; (3) high
project and customer concentration with exposure to large-scale
complex construction projects; (4) in-year liquidity volatility,
with costs incurred throughout the year, but contract receipts
mostly clustered towards the end of each year; and (5) corporate
governance risks associated with the company's single shareholder
structure.
More positively, the rating reflects Autobann's (1) low risk
business model, whereby most projects relate to construction of
important federal and regional roads and are performed under
contracts with state bodies; (2) leading position and reputation
as a reliable contractor with strong in-house expertise, which
differentiates it from many of its competitors in the market,
which is characterised by high barriers to entry; (3) good
visibility on future revenue and cash flows owing to its healthy
order backlog and solid bidding opportunities; and (4)
conservative approach to project assessment and track record of
successful project completions, which reduce execution risks
related to large complex projects. Moody's also positively
acknowledges Autobann's track record of sound operating
performance through the cycle with strong revenue growth and
stable profitability.
Autobann's liquidity profile remains healthy, as supported by
meaningful backup credit facilities provided by banks against
state-funded contracts.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that Autobann's
business model will remain resilient to economic cycles and that
it will maintain healthy construction volumes and stable
profitability. The outlook assumes that the company's adjusted
recourse debt/EBITDA will remain below 3.0x, while adjusted
consolidated debt/EBITDA will not exceed 5.5x on a sustainable
basis.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Given Autobann's current scale and limited diversification, an
upgrade in the medium term is unlikely. In a longer term a
continuing track record of a strong financial and operational
performance, conservative financial policies , good visibility
with regard to cash flow generation, alongside with prudent
liquidity management, might have a positive effect on the rating.
Autobann's rating could come under downward pressure should the
company face material deterioration in its business or financial
profile, illustrated by visible erosion of profitability as well
as adjusted recourse debt/EBITDA increasing substantially above
3.0x and adjusted consolidated debt/EBITDA exceeding 5.5x, all on
sustained basis. A material deterioration of the company's
liquidity profile could also exert downward pressure on the
rating.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Construction
Industry published in March 2017.
DELOPORTS LLC: S&P Places 'BB-' CCR on CreditWatch Negative
-----------------------------------------------------------
S&P Global Ratings said that it had placed its 'BB-' corporate
credit rating on Russia-based container and grain terminal
operator DeloPorts LLC on CreditWatch with negative implications.
S&P said, "The CreditWatch placement reflects the possibility
that we could lower our rating on DeloPorts by one or more
notches if the recently announced plan by Management Company Delo
(MC Delo), DeloPorts' parent, to acquire a 30.75% stake in Global
Ports Investments PLC (GPI) involves a significant share of debt,
leading to increased debt at MC Delo or DeloPorts itself.
"In order to resolve the CreditWatch, we will aim to estimate the
post-transaction credit quality of the MC Delo group and may cap
the rating on DeloPorts at the level of the group credit profile
if we do not consider DeloPorts insulated from the group.
At the moment, the price of the stake, the ratio of debt and
equity to be used in the transaction, and other financing terms
are not known to us." Among other things, in order to resolve the
CreditWatch we will consider the following:
-- The credit quality of the MC Delo group and its leverage in
particular. S&P believes that DeloPorts, as the group's major
cash generating asset, may ultimately be responsible for the
repayment of any financial obligations incurred as a result
of the acquisition, even if such obligations are incurred at
another group level.
-- DeloPorts' stand-alone credit quality, including leverage,
financial, and dividend policies. Should DeloPorts incur any
financial obligations directly, upstreaming the proceeds to
the parent company, its credit quality may weaken due to
higher leverage. S&P said, "At the same time, if debt is
incurred at MC Delo, DeloPorts may have to deliver increased
dividend to repay debt at the parent company, leading us to
revise our base-case forecast. S&Pe may also reassess our
view on DeloPorts' financial policy to more aggressive,
depending on the magnitude of the effect of the transaction
on the group's credit quality. We will also assess the effect
of the transaction on the company's business."
-- Liquidity at both the MC Delo and DeloPorts levels. Liquidity
at all levels of the group may weaken depending on the
potential financing terms incurred as a result of the
transaction, including the maturity profile and covenants.
-- Any changes to DeloPorts' business plan. The company is
currently in a high capital spending stage, and S&P will
assess whether any changes to development plans are made to
free up cash flows for debt repayment or possible increased
dividends.
-- Future strategy over the GPI stake or any of the group's
other expansion plans. S&P said, "As part of our analysis, we
will aim to clarify MC Delo's strategy as regards the GPI
stake, including a possible further stake increase. We would
also assess the group's strategy regarding investing in other
assets or areas, and its criteria for such investments. We
expect to obtain this information in the coming months, as
the transaction is currently expected to close in April 2018.
We will resolve the CreditWatch when we know the final
structure of the deal."
S&P said, "The CreditWatch placement reflects the possibility
that we could lower our ratings on DeloPorts by one or more
notches if the acquisition of a 30.75% stake in GPI by MC Delo
results in meaningfully higher leverage at either the DeloPorts
or MC Delo level, or if liquidity at any group level materially
weakens. We aim to assess the effect of the transaction on the
rating and resolve the CreditWatch around April 2018, when we
expect the deal to close and all the parameters of the deal to be
available to us.
"We could our affirm the ratings on DeloPorts and assign a stable
outlook if, as a result of the transaction, the group's leverage
does not increase or if MC Delo ultimately does not acquire the
GPI stake. In both cases, to resolve the CreditWatch, we would
need to understand that the group's further expansion strategy
does not involve increasing leverage."
HERMITAGE CAPITAL: Head Gets 9-Year Prison Sentence
---------------------------------------------------
RadioFreeEurope reports that a court in Moscow has sentenced
Hermitage Capital head William Browder to nine years in prison in
absentia after finding him guilty of deliberate bankruptcy and
tax evasion.
Mr. Browder, who has led a global push for sanctions against
Russian officials implicated in the death of imprisoned Russian
whistle-blower Sergei Magnitsky, also was fined RUR200,000 (about
US$3,500) and banned from conducting business activities in
Russia for three years, RadioFreeEurope discloses.
Mr. Browder's co-defendant, Ivan Cherkasov, received an eight-
year prison term in absentia, RadioFreeEurope states.
According to RadioFreeEurope, in a separate civil lawsuit, the
Tver district court also ordered authorities to seize RUR4.3
billion (about US$75 million) in assets from Messrs. Browder and
Cherkasov as compensation for losses that prosecutors say were
sustained by the Russian state.
Lawyers for Messrs. Browder and Cherkasov said they will appeal
the court's rulings, RadioFreeEurope notes.
NORTHERN CREDIT: Put on Provisional Administration
--------------------------------------------------
The Bank of Russia, by its Order No. OD-3754, dated December 29,
2017, revoked the banking license of Vologda-based credit
institution joint-stock company commercial bank Northern Credit
or JSC CB Northern Credit from December 29, 2017, according to
the press service of the Central Bank of Russia.
According to the financial statements, as of December 1, 2017,
the credit institution ranked 244th by assets in the Russian
banking system.
The Bank of Russia's inspection of JSC CB Northern Credit
revealed that the bank had no primary documents confirming its
rights of property for a large securities portfolio bought in
late December 2017. The due assessment of the risk assumed under
the said deal revealed a complete decapitalisation of the credit
institution.
The securities purchase agreement was signed by an acting head of
the credit institution and bears signs of a dubious transaction.
Thereby, the unfair practice of the management of JSC CB Northern
Credit aimed at a large-scale asset diversion triggered collapse
of the financial institution. The Bank of Russia will submit the
information about these facts bearing signs of a criminal offence
to law enforcement agencies.
Due to the liquidity strain in the last ten days of December 2017
the bank failed to timely honour its liabilities to creditors and
depositors.
Besides, Bank JSC CB Northern Credit failed to comply with laws
on countering the legalisation (laundering) of criminally
obtained incomes and the financing of terrorism, including the
notification of the authorised body about operations subject to
obligatory control.
The Bank of Russia repeatedly applied supervisory measures to JSC
CB Northern Credit, including two impositions of restrictions on
household deposit taking.
Under these circumstances, the Bank of Russia performed its duty
on the revocation of the banking licence from JSC CB Northern
Credit in accordance with Article 20 of the Federal Law 'On Banks
and Banking Activities'.
The Bank of Russia took this decision because of the credit
institution's failure to comply with federal banking laws and
Bank of Russia regulations, repeated violations within one year
of Bank of Russia requirements stipulated by Articles 6 and 7
(excluding Clause 3 of Article 7) of the Federal Law "On
Countering the Legalisation (Laundering) of Criminally Obtained
Incomes and the Financing of Terrorism", equity capital adequacy
ratios below 2 per cent, decrease in bank equity capital below
the minimum value of the authorised capital established by the
Bank of Russia as of the date of the state registration of the
credit institution, due to repeated application within a year of
measures envisaged by the Federal Law "On the Central Bank of the
Russian Federation (Bank of Russia)".
The Bank of Russia, by its Order No. OD-3755, dated December 29,
2017, appointed a provisional administration to JSC CB Northern
Credit 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.
JSC CB Northern Credit is a member of the deposit insurance
system. The revocation of the banking licence 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 depositor.
RUSSNEFT PJSC: Fitch Assigns 'B' Long-Term IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has assigned PJSC Russneft a Long-Term Issuer
Default Rating (IDR) of 'B' with a Stable Outlook.
Russneft is a medium-scale independent Russian oil producer with
an upstream output of around 140,000 barrels per day (mbpd),
excluding non-consolidated assets in Azerbaijan. The rating is
mainly constrained by high leverage as the company has an
operating profile in the 'BB' category. Russneft has the capacity
to deleverage over the next 2-4 years, which could result in an
upgrade.
Russneft's 'B' rating takes into account: (i) the company's
moderately diversified onshore production and reserves in line
with the 'BB' category; (ii) healthy proved reserve life of 23
years; (iii) low volatility of earnings, typical for Russian oil
producers, as well as oil price hedges; (iv) manageable execution
risks embedded into its strategy; (v) manageable liquidity risks
and a comfortable debt maturity profile; and (vi) production
growth capacity.
KEY RATING DRIVERS
Expected Production Growth: Russneft benefits from tax incentives
enacted by the government to stimulate production from depleted
and hard-to-recover reserves, where production costs are higher.
Russneft's strategy is to ramp up production at such fields, eg,
Tagrinskoye and Sredne-Shapshinskoye in western Siberia, through
the application of enhanced oil recovery techniques, such as
horizontal drilling and multi-stage fracking. This should improve
Russneft's per-barrel earnings.
This strategy has already started to yield results as Russneft
managed to reverse the decline in production observed prior to
mid-2016. Fitch assumes Russneft's production will increase to
around 165mbpd by 2020. Russneft's current and expected oil
production and reserves are commensurate with the 'BB' rating
category.
Russia's OPEC+ Commitment: Russia's commitment to reduce oil
production from the levels reached in October 2016 should only
have a moderate impact on Russneft's financial profile. Fitch
base rating case anticipates that the company's production will
remain broadly stable in 2018, assuming the OPEC deal remains in
place until end-2018, but will ramp up in 2019-20. Under an
alternative scenario where the production limitations remain in
place, Russneft's production remains broadly unchanged but
operating cash flows improve as Russneft's approach is to limit
production at less profitable fields.
High Leverage Constrains Rating: Russneft's leverage has fallen
significantly following the shareholder-driven recapitalisation
in 2015 but remains high compared with that of other companies
Fitch rates in the 'B' and 'BB' categories. Fitch expect
Russneft's funds from operations (FFO) adjusted net leverage,
including prepayments from Glencore and excluding preferred
shares, to increase to slightly above 5x in 2017-18 from 4.3x in
2016, before gradually falling below 4x by 2020-21. Fitch-
calculated FFO adjusted net leverage, including prepayments and
Russneft's preferred stock, shows an even higher debt load with
the net leverage exceeding 7x in 2017-18 and gradually falling to
around 5x by 2020-21.
Russneft's high leverage is the main rating constraint. However,
Fitch expect Russneft's liquidity to remain manageable throughout
the rating horizon underpinned by the company's comfortable debt
maturity profile and strong relationships with VTB, Russneft's
main creditor. Another mitigating factor is the absence of
significant refinancing risks over the next few years. Fitch
hence view the company's current capital structure as sustainable
despite the high leverage.
Manageable Coverage: Russneft's FFO fixed charge coverage
significantly improved in 2016 as the company's cash interest
payment more than halved following the recapitalisation. Fitch
expect coverage to average around 3x in 2017-18, a level
commensurate with the 'B' rating category, and to improve to
around 4x by 2019. Lower interest charges should help Russneft to
pursue its production growth strategy.
Limited Headroom under Covenants: Fitch project Russneft's
headroom under financial covenants embedded in the company's loan
agreement with VTB to be limited in 2017-18. However, Fitch
expect the bank to take a pragmatic approach should the covenants
be breached and not to seek an early repayment. According to
Fitch projections, Russneft's net debt-to-EBITDA (calculated in
line with the definitions in the loan agreement) should be below
3.1x in 2017 and below 3.3x in 2018, ie, within the maximum
allowed level of 3.5x. The presence of covenants in the loan
agreement provides an incentive for Russneft to keep leverage in
check, which Fitch view as a positive factor given Russneft's
historically high leverage.
Long-Term Prepayments from Glencore: Glencore, Russneft's second-
largest shareholder (33% of the common stock), has been
supporting Russneft through favourable payment terms, which
include long-term prepayments for future oil supplies and other
liabilities for a total amount of around RUB25 billion (USD430
million at 30 June 2017). Fitch views the prepayment as
effectively a debt-like instrument. However, Fitch understand
from management that the prepayment is subordinated to the VTB
loan and its redemption is not expected over the rating horizon.
The prepayment balance has been broadly stable since end-2014.
Preferred Shares: Russneft's preferred shares previously owned by
the Gutseriev family and subsequently transferred to Rost Bank
(now part of B&N Bank, see below) are cumulative. Fitch do not
allocate any equity credit to the preferred shares and treat them
as a debt instrument. This is because a decision not to pay
preferred dividends could result in a dilution of Gutseriev
family's control over the company, hence incentivising the
company to pay a minimum USD16 million dividend per annum as per
the company's charter. The maximum possible amount of the
preferred dividend is set by the agreement with VTB at USD40
million.
Fitch believes that the dividend to be paid under the preferred
shares does not represent a significant burden for Russneft, and
hence Fitch put a greater emphasis on the leverage metrics, which
exclude the preferred shares when assessing the debt load of the
company.
Rising Capex, Negative Free Cash Flow: Russneft's capex increased
in 2016 to around RUB18 billion from RUB10 billion in 2015 as the
company significantly reduced its interest payments following the
recapitalisation, which in turn enhanced its investment capacity.
Fitch expects capex to remain above RUB20 billion in the medium
term as Russneft aims to increase output from more profitable
fields that benefit from tax incentives. Fitch hence expect the
company's capital intensity (measured as capex to FFO) to
increase to an average of 1.3x in 2017-19 from around 1x in 2016,
which is a relatively high level but is consistent with that of
other 'B' rated names.
Russneft's free cash flow (FCF) is likely to be moderately
negative at least in 2017-18, which will put some pressure on
leverage and liquidity.
Execution Risks Manageable: Russneft's capex programme is mostly
directed at drilling new wells. In 2016 Russneft increased
drilling meters 30% yoy, and the plan is to increase drilling by
a further 20% in 2017 and 17% in 2018. Fitch see execution risks
associated with Russneft's strategy, but they are manageable as
the company has experience with hard-to-recover reserves in the
region. These risks are factored into the 'B' rating.
Orenburg Upstream Assets Acquisition: Russneft's main shareholder
has been planning to bring into Russneft certain upstream assets
located in the Orenburg region that are currently operated by
ForteInvest, a related party. However, the timing and key
parameters of the deal remain uncertain. By 2020 the Orenburg
assets could bring up to 30mbpd to Russneft's production, up from
around 12mbpd currently, which would be positive for Russneft's
business profile.
The deal would probably be debt-funded and could put additional
pressure on Russneft's leverage. However, the deal would need to
be pre-approved by VTB, which makes less likely a material
deterioration of Russneft's leverage metrics as a result.
Nevertheless, the deal presents a risk to Russneft's deleveraging
capacity.
Low Earnings Volatility: The earnings of Russian oil producers
are less volatile than those of many international peers due to
Russia's taxation system, which is progressive in nature, and the
relative flexibility of the rouble exchange rate. In addition,
Fitch estimate that Russneft hedged around 40% of its FFO in
2018-20 at USD45/bbl. Lower earnings volatility is credit-
positive and somewhat offsets the risks associated with
Russneft's high capital intensity in 2018-19.
Transparency Improved Post IPO: Russneft's financial transparency
has improved following the IPO in November 2016 on the Moscow
Stock Exchange as the company has started to publish semi-annual
IFRS reports and investor updates. However, it still lags behind
other Russian Fitch-rated oil and gas producers, which publish
more regular operational updates and host quarterly conference
calls. Russneft's free float is 20%. Prior to the IPO, Russneft
simplified its capital structure and reduced debt by converting
loans from Glencore and from related parties into share capital,
including the preferred stock.
Concentrated Ownership: Russneft's shareholding structure is
concentrated, with Mikhail Gutseriev and his family controlling
47% of ordinary shares at end-2016. The risks related to
concentrated ownership are mitigated by the public status of the
company, the presence of Glencore (33%) in the shareholding
structure, and covenants embedded in the loan agreement with VTB.
B&N Bank Failure: B&N Bank is one of Russia's largest commercial
banks, which had been controlled by Mr. Gutseriev's family before
being effectively rescued and nationalised by the Central Bank of
Russia in September 2017. Russneft confirmed that 3.7% of its
ordinary shares and 100% of its preferred stock are owned by Rost
Bank, which is part of B&N Bank. Fitch base case is for the
failure of B&N Bank to have no material impact on Russneft and
the Gutseriev family to retain control over the company.
DERIVATION SUMMARY
Russneft's production (140mbpd in 2016) and proved reserves
(around 1.1 billion barrels) correspond to the 'BB' rating
category and are in line with those of Newfield Exploration
Company (BB+/Positive), DEA Deutsche Erdoel AG (BB/Rating Watch
Positive) and Murphy Oil Corporation (BB/Stable). Fitch expect
Russneft's FFO adjusted net leverage, excluding preferred stock,
to average 5.2x in 2017-18, which currently caps the rating at
'B'. This compares with expected net leverage at DEA of 2.8x in
2017-18 and at Kosmos Energy Ltd (B/Positive) of around 3.2x.
Russneft's high leverage is mitigated by manageable liquidity and
a comfortable debt maturity profile.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
- Crude oil price of USD52.5/bbl in 2018, USD55/bbl in 2019,
USD57.5/bbl thereafter;
- Exchange rate: USDRUB 58 over the medium term;
- Upstream production flat in 2017-18, rising 10% yoy in 2019
and 6% in 2020;
- Improving per-barrel profitability due to higher share of
production from greenfields with a favourable tax treatment;
- No dividends paid to ordinary shareholders.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
- FFO adjusted net leverage (excluding preferred stock and
including prepayment from Glencore) at or sustainably below 4x
(2018F: 5.3x).
- Successful implementation of the company's growth strategy,
measured as output sustainably rising above 150mbpd and/or
per-barrel EBITDA sustainably rising above USD8/bbl assuming
Brent price of USD52.5/bbl (2018F: USD8.0/bbl).
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action
- FFO adjusted net leverage (excluding preferred stock and
including prepayment from Glencore) above 6x for a sustained
period.
- Upstream production falling below 130mbpd.
- Deteriorating liquidity position.
- Unfavourable changes in taxation.
LIQUIDITY
Manageable Liquidity: Russneft's liquidity is manageable. The
company has no principal debt repayments until 2019, when its VTB
loan starts to amortise, and the overall debt maturity profile is
comfortable. Its fixed charge coverage ratio averages 3x in the
next three years, typical of companies rated in the 'B' category.
At the same time, Russneft is likely to raise additional debt to
finance expected negative FCF at least in the next two years on
the back of its ambitious growth targets, and it has no committed
credit lines. Fitch understand from management that VTB has
agreed in principle to provide a USD150 million loan to the
company, which should cover Russneft's one-year liquidity needs.
Capex Flexibility: In case of necessity Russneft should be able
to reduce capex, as was the case in 2015. This could have
negative consequences for Russneft's future production profile
but provides some financial flexibility, which Fitch expect from
companies rated in the mid-'B' rating category.
=========
S P A I N
=========
CAR RENTALS: Moody's Withdraws B1 Corporate Family Rating
---------------------------------------------------------
Moody's Investors Service has withdrawn the ratings of Car
Rentals Parentco, S.L.U., including its B1 corporate family
rating (CFR) and B2-PD probability of default rating (PDR).
Concurrently Moody's has withdrawn the instrument ratings of the
company's debt issued by Car Rentals Subsidiary, S.L.U.
RATINGS RATIONALE
Moody's has withdrawn the ratings and outlook of Car Rentals
Parentco, S.L.U. and Car Rentals Subsidiary, S.L.U. following the
announcement by Europcar Groupe S.A. (B1, Stable) that it has
completed the acquisition of Goldcar on December 19, 2017. The
acquisition resulted in the full repayment of all Goldcar's
outstanding debt.
The acquisition, which was announced on June 19, 2017, received
European Union regulatory approval on December 5, 2017.
Goldcar is a leading leisure car rental operator in Spain and
Portugal, with a growing office network in Italy, France, Greece
and Croatia. It is market leader in leisure car rentals in Spain
and Portugal, and a close second behind Europcar in the Spanish
car rental market as a whole (including business rental). The
company has a network of 86 rental offices (as at December 31,
2016) mainly targeting key Southern European airports,
supplemented with city and train stations offices. Founded in
1985 and headquartered in Spain, Goldcar operates a business
strategy based on low rental price and high ancillary revenue
generated through services such as insurance. In FY2016, the
company reported revenue and EBITDA of EUR255.1 million and
EUR129.2 million, respectively, and employed on average 964 full-
time employees.
RURAL HIPOTECARIO I: Moody's Lowers Class C Notes Rating to Ba2
---------------------------------------------------------------
Moody's Investors Service has downgraded the rating of two notes
in RURAL HIPOTECARIO GLOBAL I, FTA. At the same time, 2 notes'
ratings have been affirmed. The rating action reflects the
deterioration in the levels of credit enhancement for the
affected notes. Moody's affirmed the ratings of the notes that
had sufficient credit enhancement to maintain current rating on
the affected notes.
-- EUR1008.1M Class A Notes, Affirmed Aa2 (sf) ; previously on
Feb 24, 2017 Affirmed Aa2 (sf)
-- EUR36.3M Class B Notes, Downgraded to Baa1 (sf) ; previously
on Feb 24, 2017 Upgraded to Aa2 (sf)
-- EUR8M Class C Notes, Downgraded to Ba2 (sf) ; previously on
Feb 24, 2017 Upgraded to Baa2 (sf)
-- EUR12.8M Class D Notes, Affirmed Caa2 (sf) ; previously on
May 14, 2016 Affirmed Caa2 (sf)
RATINGS RATIONALE
The rating action is prompted by the decrease of the Reserve Fund
from EUR12.8mln to the EUR6.4mln floor in April 2017 resulting
from the decrease of the 90 days plus arrears below 1.0%. The
decrease of the Reserve Fund led to the deterioration in the
level of available credit enhancement. For instance, the credit
enhancement for the Class B and C notes respectively decreased
from 13.71% and 10.44% in January 2017 to 10.41% and 8.10% in
April 2017.
In addition, the Class D notes started to amortize pro-rata with
the more senior notes in October 2017 resulting from the decrease
of the 90 days plus arrears below 0.75%. The reduction of the
outstanding amount of the Class D notes negatively impacted the
level of available credit enhancement for the Class B and C
notes.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
September 2017.
The analysis undertaken by Moody's at the initial assignment of
these ratings for RMBS securities may focus on aspects that
become less relevant or typically remain unchanged during the
surveillance stage.
Factors that would lead to an upgrade or downgrade of the
ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) performance of the underlying collateral that
is better than Moody's expected (2) deleveraging of the capital
structure (3) improvements in the credit quality of the
transaction counterparties and (4) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in sovereign risk (2) performance
of the underlying collateral that is worse than Moody's expected
(3) deterioration in the notes' available credit enhancement and
(4) deterioration in the credit quality of the transaction
counterparties.
===========================
U N I T E D K I N G D O M
===========================
BCS PRIME: S&P Assigns 'B+/B' Issuer Credit Ratings
---------------------------------------------------
S&P Global Ratings assigned its 'B+/B' long- and short-term
issuer credit ratings to U.K.-based BCS Prime Brokerage Ltd. (BCS
UK). The outlook is stable.
The ratings on BCS UK reflect its core status for its parent, FG
BCS Ltd. (the group), which owns 100% of BCS UK. The group's
focus is on becoming a leading execution platform, providing
international investors access to Russian markets and Russian
investors access to global markets. Headquartered in London, BCS
UK implements the group's strategic vision, providing prime
brokerage services for institutional clients and professional
investors who trade financial instruments in Russia and globally.
BCS UK maintains close strategic and operational integration with
the group.
S&P said, "Our assessment of BCS UK's stand-alone credit profile
(SACP) is 'b+'. This is based on the 'bb' anchor, reflecting the
company's geographic mix and the industry risk related to
securities firms in the U.K., where the company is incorporated.
The exposure mix, measured as a percentage of balance sheet
exposures, is 36% in Cyprus, 15% in Russia, 23% in U.K., and the
remaining 26% is spread across developed economies in Europe. The
anchor for securities firms is two notches lower than for a bank
with a similar geographic mix because of securities firms' lack
of access to central bank funding, a tougher competitive
environment, and looser regulation.
"We consider the company's business position to be weak, although
emerging. BCS UK has a limited size, concentrated clientele, and
focus on prime brokerage services for institutional clients and
professional investors. Most of the company's operations target
the Russian market, which is relatively small and less liquid
than global securities markets. At the same time, the company
benefits from being a part of a larger and well-diversified
group, as it is able to provide its clients an infrastructure to
operate at the Moscow Stock Exchange. We regard BCS UK's
corporate governance as satisfactory, in line with the group's.
"Our assessment of BCS UK's capital, leverage, and earnings is
adequate. The company's risk-adjusted capital ratio (RAC) stood
at 14.1% on Sept. 30, 2017, after the parent made a substantial
capital injection earlier this year (additional $37 million Tier
1 capital). However, we believe that the RAC ratio will reduce to
8%-10% within the next 12-18 months, since the company will
expand its business activities and utilize its excess capital to
align its capitalization levels with the group's levels. We
consider earnings to be moderate. While the company is developing
rapidly, its track record of consistent earnings generation is
limited. Over the past three years, the company's net income was
marginally around zero. At the same time, we believe that the
company's profit-generating potential is relatively good, because
its revenues are commission based and have low sensitivity to
market movements.
"We believe that BCS UK's risk position is adequate, reflecting a
developed risk management framework and oversight, which should
enable the company to offset the risks associated with its
planned growth over the next 12-18 months. The company has no
proprietary trading operations and maintains fairly high
standards of risk management policies and procedures, with good
internal processes and comprehensive risk oversight. The
company's risk appetite is clearly defined for each risk type and
remains relatively low.
BCS UK's funding and liquidity are adequate. We believe that the
company benefits from the group's ongoing support, which partly
offsets relatively high funding and liquidity risks that are
usually associated with prime brokerage business. The company's
assets and liabilities are short term, which is characteristic
for a prime brokerage business model. The gross stable funding
ratio stood at 67.75% on Sept. 30, 2017, and we expect it to
remain below 90% in the next 12-18 months. At the same time, the
company is not fully utilizing the available limits (we expect
the utilization ratio to be maintained at 25%-30%), and it
performs regular stress tests in accordance with the U.K.
regulator's requirements. The liquidity coverage metric is also
relatively low, at 87% as of Sept. 30, 2017.
"The stable outlook on BCS UK mirrors that on its parent FG BCS.
We also incorporate our expectation that BCS UK will maintain its
high level of operational integration with FG BCS and will remain
core to the group's strategy of developing its international
investment banking platform in the next 12-18 months.
"Any negative or positive rating action on BCS UK would reflect a
similar action on FG BCS. However, we could lower the ratings on
BCS UK if we observe a deterioration in the company's importance
for the group. This, however, is not our base case.
"A positive rating action is currently remote. We would not rate
the company higher than the group even if BCS UK's SACP were to
improve."
EXPRO UK: Moody's Lowers PDR to D-PD Following Chapter 11 Filing
----------------------------------------------------------------
Moody's Investors Service downgraded Expro UK Holdings 3 Limited
(Expro) Probability of Default Rating (PDR) to D-PD from Ca-PD.
This follows the company's announcement that it voluntarily filed
for reorganization under Chapter 11 of the United States
Bankruptcy code on Dec. 18, 2017. The outlook remains negative.
Shortly following this rating action, Moody's will withdraw all
ratings for the company, consistent with Moody's practice for
companies operating under the purview of the bankruptcy courts
where information flow typically becomes much more limited.
RATINGS RATIONALE
Moody's downgraded the PDR to D-PD to recognize the default of
the company as per Moody's definition under its outstanding debt.
Moody's notes that the company has obtained from its main
creditors an in principle debt restructuring agreement which
would see approximately $1.4 billion of its outstanding debt
swapped into equity and $200 million of equity commitment from
its new shareholders to support its operations once the
restructuring is implemented.
LIST OF AFFECTED RATINGS
Expro UK Holdings 3 Limited
- Probability of Default Rating (PDR) Downgraded to D-PD from
Ca-PD and will be withdrawn
- Caa2 Corporate Family Rating - WR Withdrawn
Expro FinServices S.a r.l.
- BACKED Senior Secured Bank Credit Facilities from C to WR
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Oilfield Services Industry Rating Methodology published in May
2017.
Headquartered in the United Kingdom, Expro is a global provider
of well flow management services to the oil and gas industry with
a specific focus on offshore, deep-water and other technically
challenging environments.
Expro provides a range of well flow management products and
services across three areas of (1) Well Test and Appraisal
Services, approximately 42% of FYE March 2017 revenues; (2)
Subsea, Completion and Intervention Services, approximately 47%
of 2017 revenues and (3) Production Services, approximately 11%
of 2017 revenues. Expro's well flow management capabilities span
the full lifecycle of oil and gas fields from exploration through
to abandonment.
Expro generated revenue and reported EBITDA of $680 million and
$167million in FYE March 2017.
SANTANDER UK 2017-1: Moody's Assigns Ba2 Rating to Tranche F Debt
-----------------------------------------------------------------
Moody's Investors Service has assigned the following definitive
ratings to the tranches of the credit protection deed (CPD)
between Santander UK plc and Red 1 Finance CLO 2017-1 DAC
(Issuer, Red 1 CLO):
-- GBP696.748M Tranche A, Assigned Aaa (sf)
-- GBP68.758M Tranche B, Assigned Aa2 (sf)
-- GBP41.255M Tranche C, Assigned A2 (sf)
-- GBP22.919M Tranche D, Assigned Baa1 (sf)
-- GBP25.210M Tranche E, Assigned Baa3 (sf)
-- GBP22.920M Tranche F, Assigned Ba2 (sf)
Moody's has not assigned ratings to the Tranche G of the CPD.
The ratings address the expected loss posed to the Issuer as
provider of credit protection with respect to credit events for
the reference portfolio under the Credit Protection Deed. The
ratings do not address potential losses resulting from an early
termination of the transaction, nor any market risk associated
with the transaction. Other non-credit risk have not been
addressed, but may have a significant effect on yield to
investors. Moody's does not assign ratings to the notes of the
transaction, which do exhibit different credit risk
characteristics than the tranches.
Red 1 CLO is a synthetic securitisation of 25 UK commercial real
estate loans granted or entered into by Santander UK group
("Santander") entities. The loans were granted as part of
Santander's regular commercial real estate lending business.
Santander UK plc entered into a credit protection deed (CPD) with
the Issuer that protects Santander against 95% of the credit
losses stemming from the pool of loans (or "Reference
Obligations").
RATINGS RATIONALE
The rating actions are based on (i) Moody's assessment of the
real estate quality and characteristics of the collateral, (ii)
analysis of the loan terms, (iii) sensitivities of the loss
exposure of the junior tranches to defaults of the largest
exposures in the pool and (iv) the legal and structural features
of the transaction.
The key parameters in Moody's analysis are the default
probability of the securitised loan (both during the term and at
maturity) as well as Moody's value assessment of the collateral.
Moody's derives from these parameters a loss expectation for the
securitized loan. Moody's default risk assumptions are low for
21.2% of the reference obligations, low/medium for 40.7% of the
loans, medium for 23.4% of the loans, and medium/high for 14.6%
of the loans in the reference pool. Moody's loan to value ratios
(LTV) range from 44% to 122%. Moody's property grades range from
1.0 to 4.5.
In Moody's view the key strengths of the transaction include a
moderate average Moody's LTV of 70.6%, a property grade of 2.2
reflecting a good quality asset base securing the loans, and a
sequential paydown allocation to the tranches of the credit
protection deed. Key challenges of the transaction include loan
level concentrations, some potential additional risk exposure
from restructurings and a limited exposure to developments.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was Moody's
Approach to Rating EMEA CMBS Transactions published in November
2016.
Moody's Parameter Sensitivity
Moody's Parameter Sensitivities provide a quantitative/model-
indicated calculation of the number of rating notches that a
Moody's-rated structured finance security may vary if certain
input parameters used in the initial rating process differed. The
analysis assumes that the deal has not aged and is not intended
to measure how the rating of the security might migrate over
time, but rather how the initial rating of the security might
have differed if key rating input parameters were varied.
Parameter Sensitivities for the typical EMEA Large Multi-
Borrower securitisation are calculated by stressing key variable
inputs in Moody's primary rating model. Moody's principal
portfolio model inputs are Moody's loan default probability
(Moody's DP) and Moody's modelling value (Moody's Model Value).
In the Parameter Sensitivity analysis, Moody's assumed the
following stressed scenarios: Moody's Model Value decreased by --
20% and --40% and Moody's DP increased by 50% and 100%. The
parameter sensitivity outcome ranges from 1 to 7 notches for
Tranche A, 1 to 11 notches for Tranche B, 2 to 11 notches for
Tranche C, 2 to 11 notches for Tranche D, 1 to 10 notches for
Tranche E, and 1 to 9 notches for Tranche F.
Factors that would lead to an upgrade or downgrade of the
ratings:
Main factors or circumstances that could lead to an upgrade of
the ratings are generally (i) an increase in the property values
backing the underlying loans, (ii) repayment of loans with an
assumed high refinancing risk, (iii) a decrease in default risk
assessment.
Main factors or circumstances that could lead to a downgrade of
the ratings are generally (i) a decline in the property values
backing the underlying loans or (ii) an increase in default risk
assessment.
===================
U Z B E K I S T A N
===================
TURKISTON BANK: S&P Alters Outlook to Neg, Affirms 'B-/B' Ratings
-----------------------------------------------------------------
S&P Global Ratings revised its outlook on Uzbekistan-based
Turkiston Bank to negative from stable. S&P affirmed its 'B-/B'
long- and short-term issuer credit ratings on the bank.
S&P said, "The outlook revision stems from our doubts about
whether Turkiston Bank can increase its authorized capital to at
least UZS100 billion ($12.3 million as of Dec. 26, 2017) by Jan.
1, 2019, in accordance with the new banking regulation. The
bank's authorized capital was only UZS32 billion as of Dec. 1,
2017. Since, in our view, Turkiston Bank's internal capital
generation is highly unlikely to be sufficient to bring its
capital to the target level, the bank relies on its shareholders'
ability to inject new capital.
"However, we consider the shareholders' capacity to inject new
capital to be uncertain. Furthermore, the regulator's potential
reaction in case of noncompliance with the new capital
requirement is unclear.
"We understand that Turkiston Bank's shareholders are committed
to injecting about UZS7.5 billion of capital before the end of
this year, in addition to UZS4.9 billion injected earlier in
2017, and UZS42.5 billion in 2018. We currently do not have
sufficient information to assess the main shareholders' capacity
to provide additional capital.
"The negative outlook reflects our concerns that, over the next
12 months, Turkiston Bank may not meet the new capital
requirement, resulting in negative regulatory actions, which are
currently unclear.
"We could lower the ratings over the next 12 months if Turkiston
Bank's shareholders appear unwilling or unable to provide
sufficient capital support to enable the bank to satisfy the
minimum capital requirement, leading to regulatory action that
restricts the bank's activities (including suspension of its
banking license as the worst-case scenario).
"We could consider revising the outlook to stable if, in our
view, Turkiston Bank is able to comply with the new regulatory
capital requirement, provided its creditworthiness does not
deteriorate and its business position remains stable; or if the
regulator is willing to relax the new capital requirement and the
bank is therefore able to continue complying with its regulatory
requirements."
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
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Each Tuesday edition of the TCR contains a list of companies with
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Each Friday's edition of the TCR includes a review about a book
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*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
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Editors.
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