/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/180227.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, February 27, 2018, Vol. 19, No. 041 Headlines C R O A T I A TESLA STEDNA: HNB Proposes Opening of Bankruptcy Proceedings F R A N C E VALLOUREC: S&P Affirms 'B/B' Issuer Credit Ratings, Outlook Neg. D E N M A R K OSTJYDSK BANK: Capital Woes Prompt Bankruptcy Filing G E O R G I A GEORGIA CAPITAL: Moody's Assigns B2 CFR, Outlook Stable G R E E C E GREECE: Moody's Ups Issuer Rating to B3, Outlook Still Positive L A T V I A ABLV BANK: May Face Liquidation After Liquidity Deteriorates L U X E M B O U R G SAPHILUX SARL: S&P Assigns Preliminary 'B' ICR, Outlook Stable N E T H E R L A N D S GMAC INT'L: Fitch Withdraws BB+/B Issuer Default Ratings R U S S I A BANK OTKRITIE: Recapitalization Credit Positive, Moody's Says DME AIRPORT: Fitch Rates Add'l. US$300MM Notes Due 2023 'BB+' FERROGLOBE PLC: Fitch Raises Long-Term IDR to B, Outlook Stable U N I T E D K I N G D O M DEBUSSY DTC: S&P Cuts Class A Euro CMBS Notes Rating to 'BB-(sf)' NEW LOOK: Finance Director to Visit Property Owners This Week POUNDWORLD: Lines Up Restructuring Advisers Amid Financial Woes STONEPEAK SPEAR: S&P Assigns 'B' ICR on Completed Leverage Buyout ********* ============= C R O A T I A ============= TESLA STEDNA: HNB Proposes Opening of Bankruptcy Proceedings ------------------------------------------------------------ SeeNews reports that Croatia's central bank, HNB, said it has proposed to the commercial court in Zagreb to open bankruptcy proceedings against commercial bank Tesla Stedna Banka. According to SeeNews, the central bank said in a statement on Feb. 21 the decision to file the proposal was made after HNB established that Tesla Stedna Banka is on the brink of collapse and that it is unreasonable to expect that any measure, whether private or institutional, will prevent its collapse within a reasonable time frame. HNB has also found that rescuing the bank is not in the public's best interest, SeeNews relates. The central bank, as cited by SeeNews, said that Tesla Stedna Banka has negative working capital and its assets are worth less than its debt. Tesla Stedna Banka makes up just 0.0004% of the total assets of Croatia's banking system and is the smallest credit institution in the country, SeeNews discloses. =========== F R A N C E =========== VALLOUREC: S&P Affirms 'B/B' Issuer Credit Ratings, Outlook Neg. ---------------------------------------------------------------- S&P Global Ratings affirmed its 'B' long-term and 'B' short-term issuer credit ratings on France-based seamless steel tube producer Vallourec. The outlook is negative. S&P said, "At the same time, we affirmed our 'B' issue rating on Vallourec's senior unsecured debt. The recovery rating remains unchanged at '3', reflecting our expectation of 50% recovery for debt holders in the event of default. "The affirmation reflects that we still expect Vallourec's EBITDA to continue improving in 2018-2019, amid a more favorable market environment and given the anticipated benefits from the company's cost-saving initiatives and competitive-enhancement measures. We also take into consideration the company's strong liquidity position, supported by the recent refinancing and increased headroom on the gearing covenant." S&P said, "On Feb. 21, 2018, Vallourec published its results for 2017, reporting a breakeven EBITDA (before our adjustments), demonstrating the ongoing improvement in the company's financial performance after a few years of negative EBITDA. In the second half of 2017, the company's positive EBITDA of EUR21 million points to encouraging results. The slightly better-than-we expected results were supported by the recovery in oil prices and the benefits from Vallourec's ongoing restructuring program. We note that the results continue to reflect the company's still excessively high fixed-cost base--although the company has already achieved significant cost savings over the past few years--and insufficient volume and pricing recovery. In 2017 Vallourec saw a volume increase of 25% compared with 2016 (after adjusting from the acquisition of Tianda and consolidation of VSB). Looking into 2018, we expect a modest increase, supported by an increase of pipe per rig in the U.S., while other regions, notably Brazil, will remain stable. "That said, we understand that the current supportive market environment, with oil prices of about $70 per barrel (/bbl) and higher oil production rates, will likely take more time to translate into better results for Vallourec. This is due to the nature of the contracts, by which in some regions the lead time between tenders and project delivery can be up to 12 months. As a result, we lowered our reported EBITDA expectations for 2018, assuming now EUR150 million-EUR200 million, versus EUR200 million-EUR300 million previously. We continue to factor into our base case a material improvement in the company's results in 2019 to about EUR400 million EBITDA as the new contracts kick in and the company moves its restructuring program forward. "We continue to see the U.S. shale gas and oil industry in Brazil set the tune for Vallourec's profitability. About 40% of the company's revenues come from these countries. According to the U.S. Energy Information Administration, total U.S. crude oil production averaged 9.3 million barrels per day (mb/d) for 2017 (versus 8.9 mb/d for 2016); it will likely rise to 10.6 mb/d in 2018 and 11.2 mb/d in 2019, supported by oil prices above $50/bbl. That said, we assume that with a $3 natural gas price, the gas rigs in the U.S. will remain flat in 2018 after being flat in 2017, while producers become more efficient using the current equipment to pump more gas." The negative outlook reflects the risks related to the market environment and the uncertain magnitude and timing for improvement in Vallourec's EBITDA and cash flow generation. S&P expects Vallourec's performance to remain weak for the rating in 2018 with a reported EBITDA of EUR150 million-EUR200 million, followed by a marked improvement in 2019. S&P would lower the rating by one notch if it saw Vallourec's EBITDA falling short of EUR150 million in 2018 with no signs of a material improvement in 2019. This could be the case if S&P saw: -- A revision to the growth in the oil production in the U.S. and/or a decline in the U.S. shale oil rigs. S&P believes that a drop of crude oil toward $55/bbl or lower could trigger some changes in the macro assumptions. -- Low margins on the newly signed contracts. -- Deterioration of the liquidity. -- Delays in the implementation of the cost-cutting program. S&P said, "We see an outlook revision to stable as remote in the next few quarters given the poor visibility on future profits and cash flow, and due to the volatility of the market environment. "This could, however, occur if we see signs of stronger profitability and, as a result, anticipate a significant reduction in leverage in 2018-2019, with EBITDA of about EUR200 million in 2018, increasing to at least EUR400 million thereafter." These improvements would support over time an adjusted debt-to-EBITDA ratio of at least 5x. In addition, a higher rating would hinge on liquidity remaining in our strong category. ============= D E N M A R K ============= OSTJYDSK BANK: Capital Woes Prompt Bankruptcy Filing ---------------------------------------------------- Christian Wienberg at Bloomberg News reports that Ostjydsk Bank said in a statement it has filed for bankruptcy protection after failing to meet regulators' requirements for more capital. The statement said the bank has entered into an agreement with Sparekassen Vendsyssel to sell its assets for DKK50 million, Bloomberg relates. Sparekassen Vendsyssel will take over all clients and employees, Bloomberg discloses. All deposits at Ostjydsk Bank are guaranteed, Bloomberg notes. According to Bloomberg, Ostjydsk Bank's shareholders won't be covered but subordinated capital will be "partly" covered. The parties entered into agreement after Ostjydsk spent two months working on raising capital after FSA required the bank to take more writedowns, Bloomberg discloses. Ostjydsk Bank is based in Denmark. ============= G E O R G I A ============= GEORGIA CAPITAL: Moody's Assigns B2 CFR, Outlook Stable ------------------------------------------------------- Moody's Investors Service has assigned a B2 Corporate Family rating and a B2-PD Probability of Default rating to JSC Georgia Capital. Concurrently the agency has assigned a B2 instrument rating to the proposed USD300 million of senior unsecured notes to be issued by the same entity. The outlook on all ratings is stable. The assignment of the rating is subject to the successful demerger of BGEO group in line with the structure as outlined in the offering memorandum of the notes. The rating assigned assumes the successful execution of the demerger of BGEO Group Plc into Georgia Capital and Bank of Georgia (subject to a shareholders vote in April 2018) and the listing of Georgia Capital and Bank of Georgia on the London Stock Exchange in the summer of 2018. The current Corporate family rating assumes that Georgia Capital will be demerged and will become an independent holding company with the only link with Bank of Georgia being a 19.9% equity stake in the bank. RATINGS RATIONALE JSC Georgia Capital's B2 Corporate Family rating is mainly supported by the company's (i) clearly defined investment strategy focused on the Georgian economy, (ii) good track record of raising capital (both debt and equity), which gives it a competitive edge in acquiring Georgian assets with little if any bidding competition from both local and international investors, (iii) a portfolio of defensive and not too levered investments with a stable dividend stream, (iv) a relatively good business diversification across its investment portfolio especially in light of the small size of the portfolio (less than $1 billion pro-forma of the demerger and listing) although there is value concentration on the top 2/3 assets in the portfolio and (v) a relatively moderate market value leverage of around 30% to 40% and a management commitment to maintain market value leverage below 35% at any point-in-time during the market cycle. JSC Georgia Capital's rating is mainly constrained by (i) the investment portfolio's relatively small size, (ii) the strong geographical concentration of the portfolio on the Georgian economy, which is small and rated Ba2, (iii) the absence of track record of operating as an independent, listed and rated investment holding company notwithstanding that the former parent company and the bank have been rated entities in the past, (iv) a relatively high portfolio concentration with the top 2 / 3 assets accounting for respectively around 70% / 90% of the overall value of the portfolio of investments, (v) the increasing leverage from a low base at some of the portfolio companies linked to material organic investment which have resulted in substantial negative free cash flow generation, and (vi) the relatively limited exit options and lack of tangible liquidity of the portfolio related to the scarcity of capital in Georgia, which makes it difficult to divest / exit investments very easily, if needed. The stable outlook assigned to the rating reflects Moody's expectation that Georgia Capital will sustain a market value leverage of around 35% at all times during the market cycle and an interest cover of around 2.0x. WHAT COULD CHANGE THE RATING UP / DOWN Positive pressure on the rating would arise if JSC Georgia Capital would demonstrate a prolonged track record of successfully managing a portfolio of investments with a good balance between defensive / growth investments as well as between listed / private assets whilst generating value. Moody's would expect the issuer to maintain a market value leverage of below 35% at all times during the market cycle and an interest cover sustainably well in excess of 2.0x to consider a higher rating. The maintenance of a strong liquidity position over time would also be a requirement for a higher rating. Negative pressure would arise of the rating if JSC Georgia Capital's investment strategy would shift leading to a more cyclical portfolio or more levered investments. An increase in market value leverage to sustainably above 40% and interest cover sustainably below 2.0x would exert negative pressure on the current rating. Lastly a deterioration of the group's liquidity position or deterioration in macroeconomic conditions in Georgia in light of the concentration of the group's portfolio on the Georgian economy would also exert negative pressure on the current rating. The principal methodology used in these ratings was Investment Holding Companies and Conglomerates published in December 2015. =========== G R E E C E =========== GREECE: Moody's Ups Issuer Rating to B3, Outlook Still Positive --------------------------------------------------------------- Moody's Investors Service has upgraded Greece's issuer rating to B3 from Caa2. Greece's senior unsecured bond and program ratings were also upgraded to B3/(P)B3 from Caa2/(P)Caa2. The outlook remains positive. The Commercial Paper and other short-term programme ratings were affirmed at Not Prime/(P)Not Prime. The key drivers for rating action are: 1. Greece has achieved material fiscal and institutional improvements under its current adjustment programme, which Moody's believes will be sustained in the coming years. Those improvements in turn should help support the recovery of the economy as well as the banking sector; 2. Moody's believes that Greece will successfully conclude its third support programme and return to self-sufficiency and market-based funding. Its "clean" exit will be supported in the near term by a substantial cash buffer and over the medium to long term by the strong commitment of Greece's euro area creditors to providing further debt relief; 3. The risk of another default or restructuring on the debt owed to private investors has therefore materially declined, and the uncertainty around that judgment has also diminished materially. While Greece was at a similar juncture in mid-2014, Moody's believes that the risk of reversal and derailment of the fiscal and economic progress achieved is now materially lower. The outlook on the ratings remains positive. Moody's could further upgrade the rating if the reforms implemented over the course of the programme yielded results that are more positive than expected, leading to sustained economic growth and a more rapid decline in the public debt ratio in the context of a stable political environment. The long-term country ceilings for foreign-currency and local- currency bonds have been raised to Ba2 from B3, to reflect the reduced risk of Greece exiting the euro area. The long-term ceilings for foreign-currency and local-currency deposits have been raised to B3 from Caa2. The deposit ceilings remain aligned with the government bond rating to reflect the ongoing capital controls. The short-term foreign-currency bond and bank deposit ceilings remain unchanged at Not Prime (NP). RATINGS RATIONALE RATIONALE FOR UPGRADE OF THE RATING TO B3 First driver: Material fiscal and institutional improvements under the current adjustment programme, which will likely be sustained in the coming years Greece's performance under its current third adjustment programme has exceeded expectations and has been far stronger than under its two earlier programmes. In particular, the Greek government has managed to put its public finances on a more sustainable footing, with primary surpluses in excess of 2% of GDP and close to balance in overall terms in 2016 and 2017. A significant part of the improvement is due to structural measures which will provide lasting fiscal benefits, including reforms to the income and value added tax systems, pension and health care spending reforms, restructuring of public enterprises as well as measures to contain the public wage bill. Overall, the European Commission estimates that the cumulative benefit of structural fiscal measures will amount to around 4.5% of GDP by the end of 2018. In addition, the Greek government has legislated a contingent fiscal package of automatic tax increases and spending cuts that would be activated if needed to achieve the primary surplus target (of 3.5% of GDP) for the years 2019-2022. Those measures support the view that the budget targets are likely to be met even if economic growth turns out to be more moderate than currently expected. Such a budgetary performance should reduce the public debt ratio by around seven percentage points of GDP within the next two years, to just above 174% of GDP in 2019, from a peak of above 181% in 2017. Significant progress has also been achieved with regards to the other objectives of the programme: Greece's profound institutional weaknesses in public and tax administration as well as the judicial system, all of which contributed to the crisis, are being addressed, as evidenced e.g. by the establishment of independent tax revenue and privatisation entities and the replacement of political appointees at the top levels of the public administration. These institutional and governance changes should over time result in visible improvements to Greece's currently low institutional strength scores. The banking sector's key weaknesses -- including very high levels of non-performing exposures (NPEs) - are being tackled in a more forceful manner than over the past eight years. The legal and technical requirements for conducting electronic auctions -- a key measure for banks to realize collateral and accelerate the clean-up of their balance sheets -- are now in place and the banks themselves have committed to individual NPE reduction targets. Moody's also notes positively that the system's reliance on emergency liquidity from the Bank of Greece and the Eurosystem has been on a declining trend over the past year and customer deposits have been returning to the system. The banks were also able to issue covered bonds in recent months, diversifying their funding away from central bank financing. Of the EUR25 billion set aside in the programme for bank recapitalisation, only EUR5.4 billion was needed. Economic prospects have also become more positive. The economy has started to grow, although at a still very moderate pace. Moody's notes that the pace of the recovery is similar to that in the other euro area periphery countries at a similar point of their exit from external support. Exports of goods and more recently also revenues from tourism have been rising strongly, reflecting the global and euro area recovery under way. Consumer spending has been more moderate but should benefit from the improving labour market situation as well as from the successful conclusion of the program and the ongoing stabilization of the banking sector. Investment is already benefitting from a concerted effort by the EU and official lenders such as the European Investment Bank (EIB). While Moody's is not revising its real GDP growth forecasts of 2% and 2.2% for 2018 and 2019 respectively, the agency is more confident than before that these forecasts will be realised, given that a successful conclusion of the programme should lift consumer and business confidence, and support private capital inflows. Second driver: Successful conclusion of adjustment programme now highly likely. Greece's return to market funding will be supported by large cash buffer and creditor commitment to debt relief so as to keep borrowing needs at manageable levels Moody's now considers it highly likely that Greece will successfully complete its third support programme in August. That view is supported by the positive conclusions that the Eurogroup reached at its meeting on 19 February, even though it delayed the formal conclusion of the third review until after the completion of two final prior actions (out of 110 in total). Greece's "clean" exit from the programme -- without further support being required or conditions attached -- and its return to self- sufficiency and market-based funding will be supported in the near term by a substantial cash buffer, using some of the remaining funds available under the program's EUR86 billion envelope. Moody's expects a cash buffer of at least EUR18 billion (around 10% of 2018 GDP) to be built up initially, so as to support investor confidence and ease Greece's return into the capital markets. This compares to debt maturities of EUR17.3 billion between September 2018 and December 2020. Such a buffer would be larger than those targeted by other program countries at their point of exit. The government's funding needs will be very manageable in the coming years. Moody's estimates that gross borrowing needs will decline from around 14% of GDP this year to below 12% in 2019 and further to below 8% by 2020, in line with the latest European Commission estimates. This reflects the back-loaded repayments to the EFSF (European Financial Stability Facility) and European Stability Mechanism (ESM) (Greece's largest creditors) as well as successful liability management exercises last year that have reduced an earlier repayment "hump" in 2019. Also, the Greek government's budgetary performance has been very strong since 2016; Moody's expects a broadly balanced overall budget this year and a small overall surplus next year. In Moody's view, the large cash buffer provides similar assurance as would a precautionary or other official-sector credit line. Over the medium to long term, the strong commitment of Greece's euro area creditors to provide further debt relief will ensure manageable borrowing needs and the support the sustainability of Greece's debt load. A first set of debt relief measures has already been implemented by the ESM over the course of 2017, resulting in an estimated reduction in Greece's debt load by 25 percentage points of GDP by 2060. Moody's expects euro area creditors to spell out the details of medium-term debt relief in the coming months as they committed to do upon successful conclusion of Greece's support programme. They are likely to include a mechanism to link debt relief to GDP growth outcomes, indicating a more flexible stance of the euro area than in the past. Third driver: Risk of another default or restructuring on private sector debt materially lower than previously In Moody's view, the risk of another default or restructuring on the debt owed to private sector, which is the risk captured in the rating, has materially declined, and the uncertainty around that judgment has also diminished materially. While Greece was at a similar juncture in mid-2014, Moody's believes that the risk of reversal and derailment of the fiscal and economic progress achieved is now materially lower. The political situation and outlook are more stable. While elections will have to be held by September 2019 at the latest, the painful and politically challenging structural fiscal, economic and institutional reforms have been legislated. The current Greek government has established a stronger and more consistent track record than any of its predecessors. Greece's euro area creditors have become significantly more supportive of Greece as a result. Moody's notes that reviews have been concluded faster and in a significantly more constructive atmosphere than expected at the onset and also compared to the prior two programs. The risk of reversal will also be limited by the likely linkage between debt relief and Greece remaining on track with its commitments to its official sector creditors. Such a link would provide a clear incentive for the Greek authorities not to reverse the key structural reforms that have been implemented over the past several years, even given inevitable domestic political pressures in the run up to the 2019 elections. Moody's still believes further debt relief will be required, given the very elevated public debt levels that even under the EC's most optimistic scenario would still stand at 126% of GDP by 2030. While Greece's official euro area creditors will not consider a reduction in the principal of outstanding debt, a series of other measures including a further extension of maturities will likely be implemented to limit Greece's gross financing needs to manageable levels (below 15% of GDP in the medium term and below 20% thereafter). RATIONALE FOR POSITIVE OUTLOOK The positive outlook reflects the potential for even more positive outcomes should the good track record of implementing reforms be maintained beyond the end of the adjustment programme, resulting in stronger-than-expected and sustained economic growth and a more rapid reduction in the public debt ratio than currently foreseen. That said, the two-notch upgrade already incorporates a forward-looking view of a continued economic recovery, ongoing prudent fiscal policy and a gradual decline in the very elevated public debt burden over the coming two to three years. It also incorporates Moody's expectation that further debt relief will be granted by the euro area. WHAT COULD CHANGE THE RATING UP/DOWN The rating could be upgraded further if the reform efforts were sustained beyond the end of the programme and yield, or look likely to yield, more positive results than currently expected in the form of stronger economic growth and a more rapid decline in the public debt ratio. Faster-than-expected improvements in the banking sector's health could also be a trigger for a positive rating action. The rating could come under downward pressure if -- against expectations -- the Greek government decided to deviate from its commitments and reversed reforms that had been previously agreed and legislated, or if tensions with official creditors re-emerged for any other reason. This would put the euro area's continued support and commitment for further debt relief in jeopardy. The positive conclusions that the Eurogroup announced following its meeting on February 19 signal a high likelihood that Greece will successfully complete the third review under its adjustment programme. GDP per capita (PPP basis, US$): 26,829 (2016 Actual) (also known as Per Capita Income) Real GDP growth (% change): -0.2% (2016 Actual) (also known as GDP Growth) Inflation Rate (CPI, % change Dec/Dec): 0% (2016 Actual) Gen. Gov. Financial Balance/GDP: 0.5% (2016 Actual) (also known as Fiscal Balance) Current Account Balance/GDP: -1.1% (2016 Actual) (also known as External Balance) External debt/GDP: [not available] Level of economic development: Low level of economic resilience Default history: At least one default event (on bonds and/or loans) has been recorded since 1983. On February 20, 2018, a rating committee was called to discuss the rating of the Greece, Government of. The main points raised during the discussion were: The issuer's governance and/or management, have materially increased. The issuer has become less susceptible to event risks. Other views raised included: The issuer's economic fundamentals, including its economic strength, have materially increased. The issuer's fiscal or financial strength, including its debt profile, has materially increased. The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable. LIST OF AFFECTED RATINGS Issuer: Greece, Government of Upgrades: -- Long-term Issuer Rating, upgraded to B3 from Caa2 -- Senior Unsecured Regular Bond/Debenture, upgraded to B3 from Caa2 -- Senior Unsecured Medium-Term Note Program, upgraded to (P)B3 from (P)Caa2 -- Senior Unsecured Shelf, upgraded to (P)B3 from (P)Caa2 Raised: -- Country Ceiling Bank Deposit Rating, raised to B3 from Caa2 -- Country Ceiling Bond Rating, raised to Ba2 from B3 Affirmations: -- Commercial Paper, affirmed NP -- Other Short Term, affirmed (P)NP Outlook Actions: -- Outlook remains Positive =========== L A T V I A =========== ABLV BANK: May Face Liquidation After Liquidity Deteriorates ------------------------------------------------------------ Xinhua reports that Latvia's troubled ABLV Bank, which U.S. authorities accused of involvement in money laundering schemes and bribery, is likely to be liquidated as the European Central Bank has determined that the bank is failing or likely to fail, the Baltic country's financial regulator said on Feb. 24. The ECB explained that since ABLV Ban's liquidity has significantly deteriorated the bank is unlikely to be able to pay its debts or other liabilities, Xinhua relates. "As a consequence, the winding up of the banks will take place under the law of Latvia and Luxembourg, respectively," Xinhua quotes the ECB as saying. Speaking at a news conference in Riga on Feb. 25, Latvian Finance Minister Dana Reizniece-Ozola said that the winding up of ABLV was only one of the options, Xinhua notes. The ECB, which is ABLV Bank's direct supervisor, does not say the Latvian bank has to be shut down but just points to its inability to meet its liabilities, Xinhua relays. The minister, as cited by Xinhua, said the ECB has yet to take further decisions. According to Xinhua, Ms. Reizniece-Ozola said that ABLV Bank ran into trouble because of reputation issues, not liquidity problems. The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has proposed sanctioning ABLV for its money laundering schemes by banning the bank from opening or maintaining correspondent accounts in the U.S. or altogether blocking the bank from the U.S. financial system, Xinhua discloses. When the news of the U.S. report broke, clients rushed to withdraw their money from ABLV Bank, Xinhua recounts. To curb the outflow of funds and in compliance with the ECB's instructions, the Latvian banking regulator suspended ABLV Bank's client payments in all currencies on Feb. 18, Xinhua relays. By that time, clients had withdrawn around EUR600 million (US$738 million U.S. dollars) from the bank, Xinhua states. ABLV is the third largest bank in Latvia by assets. =================== L U X E M B O U R G =================== SAPHILUX SARL: S&P Assigns Preliminary 'B' ICR, Outlook Stable -------------------------------------------------------------- S&P Global Ratings said that it has assigned its preliminary 'B' long-term issuer credit rating to Luxembourg-based Saphilux S.a.r.l., parent company of trust and corporate services provider SGG Group. The outlook is stable. S&P said, "At the same time, we assigned our preliminary 'B' and '4' issue and recovery ratings to Saphilux's proposed EUR484 million senior secured first-lien term loan, EUR50 million first- lien RCF, and EUR30 million first-lien acquisition facility. The preliminary '4' recovery rating reflects our expectation of average recovery prospects (rounded estimate: 45%) in the event of a payment default. "The final ratings will depend on our receipt and satisfactory review of all final transaction documentation. Accordingly, the preliminary ratings should not be construed as evidence of final ratings. If S&P Global Ratings does not receive final documentation within a reasonable time frame or if final documentation departs from materials reviewed, it reserves the right to withdraw or revise the ratings. Potential changes include, but are not limited to, the use of loan proceeds, maturity, size and conditions of the loans, financial and other covenants, security, and ranking." On Dec. 20, 2017, SGG Group, backed by its private-equity sponsor Astorg Partners, announced that it had entered into a binding agreement to acquire Jersey-based trust and corporate services provider, First Names Group (FNG) on a cash-plus-debt basis, from AnaCap Financial Partners. The acquisition will be funded via Saphilux, which proposes to issue a EUR484 million first-lien term loan, alongside an EUR85 million second-lien term loan, a EUR50 million first-lien RCF, and EUR30 million acquisition facility. Saphilux intends to use the proceeds to pay the purchase price and refinance the group's capital structure. This is to be supplemented by a new EUR65 million shareholder instrument, which we expect to treat as debt. The transaction is expected to close by June 30, 2018, subject to regulatory approvals. S&P said, "We view the group's business risk profile as fair, owing to the critical nature of its services, for which clients are more sensitive to service quality than price. Therefore, providers like SGG, with a good track record of delivery should benefit from a fairly stable, recurring revenue base and relatively strong margins. Furthermore, the business' referral- based nature and low capital intensity result in relatively low reinvestment needs. Offsetting these strengths are the highly competitive, fragmented nature of the trust and corporate services market, in which we regard SGG as having a similar service offering as its direct competitors. Further constraints are the group's small size and comparatively narrow service offering, as well as the regulatory and reputation risks that trust and corporate service providers generally face. We also see some risks associated with integrating FNG. "Our assessment of the financial risk profile reflects the group's high post-transaction leverage, with the S&P Global Ratings-adjusted debt-to-EBITDA ratio at about 11x (about 8x excluding shareholder instruments, considering that they contain some equity-like features). We anticipate relatively slow deleveraging throughout our forecast horizon, due to the high debt burden. That said, given the group's relatively low fixed- charge requirements and our assessment of moderate seasonality, we expect the group will generate free operating cash flow (FOCF) of over EUR20 million and funds from operations (FFO) to cash interest greater than 2.5x, which support the rating. "Saphilux's ownership by financial sponsors and its very high leverage cause us to assess its financial policy at FS-6. We expect its leverage will remain elevated over the next two years. In 2018, we forecast adjusted debt at about EUR850 million, comprising about EUR569 million in first- and second-lien term loans, the EUR30 million acquisition facility (which we assume will generate incremental EBITDA from the acquired businesses), about EUR220 million of shareholder instruments, which we expect to treat as debt, and about EUR50 million relating to noncancellable operating lease commitments and post-retirement obligations. "The stable outlook reflects our view that Saphilux will continue to report sound operating performance, with adjusted EBITDA margins at about 30%, while generating positive FOCF of more than EUR20 million per year. "We could lower the ratings if, contrary to our current expectations, we observed weaker operating performance, such that the group posted negative FOCF with little prospects for a rapid recovery. "We could also lower the ratings if the group were to adopt a more aggressive financial policy than we currently envisage, including large debt-financed acquisitions or shareholder distributions, such that cash FFO interest coverage declined toward 2.0x for a prolonged period. "We see limited upside potential for the rating, given the size of Saphilux's adjusted debt. Nevertheless, we could consider raising the rating if we observed material outperformance compared with our base case. In particular, this would be demonstrated by the adjusted debt-to-EBITDA ratio falling below 5.0x and a strong commitment from the financial sponsor to maintain leverage metrics at that level." ===================== N E T H E R L A N D S ===================== GMAC INT'L: Fitch Withdraws BB+/B Issuer Default Ratings -------------------------------------------------------- Fitch Ratings has withdrawn the ratings for GMAC International Finance B.V., including the Long-term Issuer Default Rating (IDR) of 'BB+', Short-term IDR of 'B', and Short-term debt rating of 'B'. KEY RATING DRIVERS IDRS AND SENIOR DEBT Fitch has withdrawn these ratings because the entity no longer exists and there is no longer any debt outstanding for this issuer. The actions are related to an internal re-organization of Ally Financial Inc., under which the aforementioned subsidiary was dissolved in August 2015. The ratings assigned to Ally Financial Inc. and GMAC Capital Trust I are unaffected by the rating actions taken for GMAC International B.V. RATING SENSITIVITIES IDRS AND SENIOR DEBT Rating sensitivities are no longer relevant for this subsidiary given rating withdrawals. Fitch has withdrawn the following ratings: GMAC International Finance B.V. -- Long-term IDR 'BB+'; -- Short-term IDR 'B'; -- Short-term debt 'B'. Existing ratings on Ally Financial Inc. and affiliated entities are as follows: Ally Financial Inc. -- Long-term IDR 'BB+'; -- Senior unsecured debt 'BB+'; -- Viability rating 'bb+'; -- Subordinated debt 'BB'; -- Short-term IDR 'B'; -- Short-term debt 'B'; -- Support rating '5'; -- Support Floor 'NF'. GMAC Capital Trust I -- Trust preferred securities, series 2 'B+/RR3'. The Rating Outlook is Positive. =========== R U S S I A =========== BANK OTKRITIE: Recapitalization Credit Positive, Moody's Says ------------------------------------------------------------- The recapitalization of three failed Russian banks by the Central Bank of Russia (CBR) is a positive for the lenders, but they still face challenges to their long-term viability, says Moody's Investors Service. The report is entitled "Banks -- Russia - Recapitalization of three banks is credit positive but deeper challenges remain." Over the four months to December 2017, the CBR rescued Bank Otkritie Financial Corporation PJSC (BOFC, B2 review for upgrade, caa3), B&N Bank, and Promsvyazbank (B2 developing, ca) and announced plans to recapitalize them within months. The CBR estimates that the total recapitalization cost will exceed RUB1 trillion, an amount equivalent to over 20% of the three banks' combined assets prior to their bailouts. Of this, BOFC, the largest of the three banks, has already received RUB456 billion. Promsvyazbank and B&N Bank will be recapitalized by the end of Q1 2018. The support from the CBR will allow the banks to meet minimum capital requirements and give them sufficient capital buffers to absorb expected losses and support potential lending growth. "Winning back depositors will be critical for these lenders," said Lev Dorf, an Assistant Vice President at Moody's. "BOFC experienced a massive run on deposits prior to its bailout and B&N Bank's and Promsvyazbank's deposit bases also shrank after the CBR placed them under provisional administration." B&N Bank and Promsvyazbank lost significant portion of their customer funds after the CBR placed them under provisional administration. Consequently, their reliance on funding from the central bank increased to about 30% of their total liabilities as of January 1, 2018. On the lending side, it is also critical for BOFC and B&N Bank to reestablish their business models. The CBR plans to merge the two banks in the next 12 months and then sell the combined entity. The combined bank will lose a significant portion of business linked to the former owners of BOFC and B&N Bank and other related parties. Promsvyazbank has been picked by the government to become the primary financial institution for the defense sector. However, this brings a major risk in that the bank could become the target of US sanctions due to its new role as a special purpose bank for defense enterprises. "Some non-related third party customers may continue to move to other banks due to concern that the banks' past troubles and uncertain future could result in inferior service," said Dorf. DME AIRPORT: Fitch Rates Add'l. US$300MM Notes Due 2023 'BB+' ------------------------------------------------------------- Fitch Ratings has assigned DME Airport Designated Activity Company's USD300 million loan participation notes due 2023 a 'BB+' final rating. The agency has also affirmed both DME Ltd's (DME) Long-Term Issuer Default Rating (IDR) at 'BB+' and existing USD300 million loan participation notes due 2018 and USD350 million loan participation notes due 2021 at 'BB+'. The Outlook is Stable. DME benefits from growing, moderately volatile, largely origin & destination (O&D) and leisure-dominated traffic from the large Moscow catchment area. De-regulated tariffs provide pricing flexibility within a competitive airport market. The investment programme is ambitious but modular. Fitch revised leverage forecasts remain low. However, the weak debt structure subject to refinance and FX risk coupled with corporate governance and some political, legal and regulatory uncertainty negatively affect the ratings. The Stable Outlook reflects Fitch opinion that the recovery in traffic following the end of the recession in Russia is underway. This is despite termination of VIM-Avia's flights and evolving competition from other Moscow's airports. KEY RATING DRIVERS Large catchment area with strong traffic growth: Revenue Risk (Volume) - Midrange DME benefits from a large catchment area that generates growing O&D leisure traffic. S7, the main airline operating at DME accounted for more than 30% passengers in 2017. DME experienced a peak-to-trough decline of 12.9% during 2008-09 and 13.9% during 2014-16. DME competes with two other airports in Moscow, namely Sheremetyevo airport, which hosts Russia's national flag carrier Aeroflot, and Vnukovo airport. Competition and limited track record of liberalised tariff: Revenue Risk (Price) - Midrange DME's revenue structure is well-diversified as the airport provides a comprehensive range of services. In early 2016, the regulation of aviation services under a dual-till regime was lifted and DME can now set tariffs freely. However, the track record of operations in the liberalised regime is limited and competition among Moscow airports is evolving. Fitch believe the Russian national regulator Federal Antimonopoly Service could re- introduce a regulated tariff if it regards any future price increases as excessive. Ambitious but modular investment programme: Infrastructure Renewal - Midrange DME's runway capacity is sufficient for current operations and growth. However, substantial investment is underway for the expansion of the terminal capacity and related equipment. The expansion programme is ambitious but modular. Most future outlays after 2018 can be scaled down or postponed. DME uses cash flows from operations and the proceeds from debt issuance to fund capex. Limited protection and refinancing risk: Debt Structure - Weaker The notes are structured effectively as corporate unsecured debt. The notes are fixed-rate with bullet maturities and bear foreign- exchange risk. Reasonable leverage, a history of accessing capital markets and established banking relationships mitigate refinancing risk. Natural hedge through a portion of revenue being in US dollars or euros lowers the foreign-exchange risk. Covenants offer some but not comprehensive protection to noteholders. There are no liquidity reserve provisions but DME has historically maintained prudent levels of cash. Financial Profile The projected five-year average Fitch's adjusted net debt/EBITDAR is 2.6x with a maximum of 3.1x at the end of 2018 as the airport undergoes substantial expansion. PEER GROUP DME compares favourably in terms of leverage with 'BBB' category rated airports such as Brussels Airport Company S.A./N.V. (BBB/Positive), Manchester Airport Group Funding PLC (BBB+/Stable) or Copenhagen Airports A/S (BBB+/Stable). However, DME has an inherent volatility associated with emerging markets as well as FX exposure and refinancing risk. GMR Hyderabad International Airport Limited (BB+/Stable) is also a close peer albeit with higher leverage. However, DME has higher perceived traffic risk given recent traffic declines. DME's peers operate in a more stable regulatory, legal and political environment. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to positive rating action include: - A projected five-year average Fitch's adjusted net debt/EBITDAR below 2x under the rating case. - Improvement in the business risk profile due to, among other factors, completion of Terminal 2, a longer track record of operating within a liberalised tariff environment, an improvement in corporate governance, and reduction in political, legal and regulatory uncertainty. Future developments that may, individually or collectively, lead to negative rating action include: - A projected five-year average Fitch's adjusted net debt/EBITDAR above 4x under the rating case, due to, among other factors, high shareholder returns or falling operating cash flows. - Increased refinancing risk, driven by bullet repayment structure, and as expressed in an inability to refinance debt, elevated foreign exchange risk and/or worsened liquidity position. TRANSACTION SUMMARY The proceeds from the issuance of the USD300 million loan participation notes due 2023 will be used to redeem the outstanding USD221.5 million of the USD300 million loan participation notes due in November 2018 with the remainder used for capital expenditure and general corporate purposes. The notes effectively rank pari passu and are structurally identical to the existing notes. In addition, the new notes are callable. CREDIT UPDATE Traffic Recovery Underway Following the end of recession in Russia in 2016 DME's traffic is recovering. In 2017, DME's traffic increased 7.6% to 30.7 million. In particular, international traffic grew strongly by 15%. The ban on flights to Turkey was lifted at end-August 2016 while the ban on flights to Egypt (except regular flights to Cairo) is still in place. Fitch perceive any removal of flight restrictions, together with a strengthening of the Russian economy and currency, as positive for traffic development. VIM-Avia's Bankruptcy VIM-Avia was the third largest airline operating at DME carrying 1.7 million pax in 2017 and representing 5.5% of the overall traffic. The company experienced severe financial difficulties, which resulted in a suspension of its licence in October 2017. Fitch expects the impact of the airline's bankruptcy to be marginally negative. The airline mainly operated chartered flights that can be quickly taken over by other airlines operating out of DME. Fitch understands that majority of the airline's routes has been already replaced. Financial Performance In the first nine months of 2017, revenue reached RUB31.1 billion, an increase of 7.9% yoy. However, EBITDA declined yoy by 1.9% to RUB11.2 billion in the same period. The increase in staff costs partially due to ongoing expansion, the increase in costs of jet fuel purchased as traffic picked up and impairment provisions for VIM-Avia diluted margins. The trailing 12 months EBITDA as of 30 September 2017 was RUB14.2 billion and is in line with Fitch expectations. The covenanted consolidated net debt/EBITDA stood at 1.6x and 2.2x at end-2016 and at the end of September 2017, respectively. Expanding Capacity Construction of Terminal 2 to accommodate international flights and increase the airport's terminal capacity started in 2015. Fitch understand that phase 1, together with a new multi-story car parking facility, will be completed before the soccer World Cup in Russia in 2018. Fitch Cases Fitch's rating case assumes passenger volumes to grow on average by 4.7% between 2017-21, continuing on a recovery path. The addition of new terminal capacity in 2018 and development of other commercial offerings (e.g. multi-story car parking facility) will lift commercial revenues by over 10% in 2018 and 2019. However, Fitch assumed that margins will remain under pressure. Together with other various assumptions, the forecast results in a projected five-year average Fitch's adjusted net debt/EBITDAR of 2.6x and a maximum of 3.1x and projected five- year average net debt/EBITDA of 2.3x and a maximum of 2.8x. Asset Description DME operates Domodedovo Airport, one of the three main airports in Moscow. DME Airport Designated Activity Company, formerly DME Airport Limited, an Irish SPV, is the issuer of the notes, with the proceeds on-lent to the borrower, Hacienda Investments Ltd (Cyprus).The loans are guaranteed by the holding company DME and a majority of DME operational subsidiaries on a joint and several basis. The group owns the terminal buildings and leases the runways and other airfield assets from the Russian government. FERROGLOBE PLC: Fitch Raises Long-Term IDR to B, Outlook Stable --------------------------------------------------------------- Fitch Ratings has upgraded Ferroglobe plc's Long-Term Issuer Default Rating (IDR) to 'B' from 'B-'. The Outlook on the IDR is Stable. Simultaneously, Fitch has affirmed the senior unsecured rating of the USD350 million notes due 2022 jointly issued by Ferroglobe and Globe Specialty Metals, Inc. (GSM), Ferroglobe's US subsidiary, at 'B+'. The notes have an 'RR3' Recovery Rating. Both IDR and senior unsecured rating have been removed from Rating Watch Positive (RWP). The IDR upgrade follows a strengthening of Ferroglobe's financial profile, driven primarily by a rebound in selling prices for silicon, and manganese- and silicon-based alloys from multi-year lows seen in 2016. Fitch expect the company's funds from operations (FFO) adjusted gross leverage to have declined to 4.1x at end-2017 and to remain slightly above 3x in 2018-2021, while its FFO fixed charge cover is set to increase to 3.6x from severely distressed levels at end-2016. Fitch views current silicon and silicon alloys prices as sustainable over the medium term in the absence of macroeconomic shocks, while it expects a contraction in manganese alloy prices. The RWP has been removed due to cancellation of the Spanish hydro-electric asset sale after it failed to obtain approval from the local authorities. In Fitch view, Ferroglobe may consider selling these assets in the future. The unsecured bond rating has remained at 'B+' due to a higher-than-expected amount of secured debt senior to the bond, including an increase in the amount of the available secured revolving credit facility (RCF) and the presence of finance leases, which were previously expected to be repaid. KEY RATING DRIVERS Price Recovery Improves Performance: Fitch expect Ferroglobe's EBITDA to have nearly tripled to USD185 million in 2017. This is mainly driven by Ferroglobe's higher average realised prices in 2017, eg, 60% increase for manganese alloys and 12% for silicon- based alloys, while silicon prices remained virtually flat year- on-year. Fitch view current silicon and silicon alloys prices as sustainable, although Fitch expect a contraction in manganese alloy prices in the medium term. In Fitch view, Ferroglobe's financial performance remains highly susceptible to market prices for the company's products with limited headroom in the event of a sharp decline in prices from current levels. Fitch projects Ferroglobe's EBITDA margin to have reached 11% in 2017, up from 4% in 2016, and its funds from operations (FFO) to have totalled USD131 million following a negative figure in 2016. Ferroglobe's 2017 FFO adjusted gross leverage is expected to approach Fitch's positive guidance of 4x by end-2017 and to drop below 4x by end-March 2018 as the 4Q17 rise in global silicon prices fully feeds through into the company's results given the price lag in some of its contracts. Higher EBITDA from silicon production is the main driver behind Ferroglobe's expected stronger performance, while manganese alloys, which have substantially improved 2017 results, will contribute less to earnings in the future, according to Fitch forecast. Glencore Transaction Rating-Neutral: Ferroglobe announced acquisition of two manganese alloys plants in France and Norway from Glencore. Following the deal completion expected in 1Q18, its capacity in silicon-manganese and ferromanganese alloys will rank the third-largest globally (ex-China). Fitch conservatively assumes the new assets will generate annual EBITDA of around USD40 million; however, the plants' earnings could be significantly higher if manganese alloy prices remain at current levels. Even though the deal moderately enhances Ferroglobe's operating profile, it does not affect its ratings at present. Silicon Production Increases: Fitch forecast a double-digit yoy rise in Ferroglobe's silicon output in 2018. It is driven by higher silicon prices, higher global demand and favourable preliminary resolution of a US silicon trade case. In December 2017, European and US silicon prices were up 10%-15% on the 3Q17 average, and the positive trend continued in January 2018. Stronger prices should allow Ferroglobe to increase production at higher-cost locations. In addition, preliminary determinations by US Department of Commerce on silicon anti-dumping investigations, which demand cash deposits on silicon imports from Australia, Brazil, Kazakhstan and Norway, if affirmed in 2018, may lead to stronger US silicon prices and higher production at Ferroglobe's US facilities. Dividend Payments to Resume: Ferroglobe paid dividends of USD77 million in 2015-2016, despite substantial net and operating losses in this period. NASDAQ-listed Ferroglobe remains majority- owned by Spain's Grupo Villar Mir (Grupo VM), a privately held Spanish conglomerate. Ferroglobe and its sister company Obrascon Huarte Lain SA (OHL, B+/Negative), in which Grupo VM has a 52% stake, are the main sources of dividends for Grupo VM. Although the bond documentation contains covenants on dividends, Fitch believe that the company is allowed to pay out large amounts as long as it is not in default. Fitch expect Ferroglobe to resume paying dividends in 2018. Under Fitch's assumptions, the company has some headroom to pay dividends while maintaining reasonable leverage. Leading Western Silicon Producer: Fitch assess Ferroglobe's operational profile as commensurate with the 'BB' rating category, given the company's large production scale in specialty alloys on one hand but high cost position on the other. The company's 26 plants have a gross capacity of nearly 1.2 million tons (mt) of silicon, silicon-based and manganese-based alloys (excluding Glencore assets) and are located mainly in the US and Europe. In 2016, Europe and North America accounted for 84% of the company's USD1.6 billion total sales, with silicon accounting for around half of the total. Ferroglobe is the largest silicon producer in the world. Ferroglobe's customer base is well-diversified across the steel, aluminium and chemical sectors. Self-sufficiency in key raw materials (the company has the resources to be 45% self- sufficient, excluding electricity) supports its competitive position. DERIVATION SUMMARY Ferroglobe, a leading western producer of silicon metal, silicon- based and manganese-based alloys, greatly depends on volatile market prices for its products, as seen in 2016 when its cash flows deteriorated sharply due to depressed prices. Its current financial profile and scale of operations are comparable with that of PAO Koks (B/Stable). In contrast to its peers, most of Ferroglobe's assets are in western Europe and the US, ie countries with a stable operating environment. United Company RUSAL Plc (BB-/Stable) and Evraz Group SA (BB/Positive) surpass Ferroglobe in both operational and financial metrics. No country ceiling, parent/subsidiary or operating environment aspects impact the ratings. KEY ASSUMPTIONS Fitch's Key Assumptions within Fitch Rating Case for the Issuer: - Average 2018-2021 realised prices for silicon metal, silicon- based alloys and manganese-based alloys of USD2,575/t, USD1,675/t and USD1,065/t, respectively; - Low double-digit growth in silicon sales volumes in 2018 and flat thereafter; - Slight decrease in sales volumes of ferroalloys after 2017; - Prices of main raw materials mostly in line with management's expectations; - Capex and dividends averaging USD168 million per annum in 2018-2021; and - Increased usage of receivables securitisation in 2018-2021. Fitch's key assumptions for bespoke recovery analysis include: - The recovery analysis assumes that Ferroglobe's distressed enterprise value is maximised if the company is liquidated rather than remaining a going concern. Fitch have assumed a 10% administrative claim. - Fitch included the fully drawn amount under the new secured USD250 million committed RCF to be agreed and secured finance leases as effectively senior to Ferroglobe's USD350 million unsecured bond. Unsecured loans provided by the government to Ferroglobe's subsidiaries are treated as pari passu with the bond. Liability under Ferroglobe PLC's cross-currency swap related to the bond is considered effectively subordinated to the bond because the swap is not guaranteed by operating companies. - The waterfall results in a 66% recovery corresponding to a 'RR3' Recovery Rating for the USD350 million unsecured bond. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Strengthened liquidity position. - Sustained FFO margin of at least 10%. - Sustained FFO adjusted gross leverage below 3x through the cycle. Developments That May, Individually or Collectively, Lead to Negative Rating Action - Weakness in the product prices leading to sustained EBIT margin below 6%. - Sustained FFO adjusted gross leverage above 4x through the cycle, potentially driven by subdued prices, acquisitions or large dividend payments. - Deterioration in liquidity. LIQUIDITY Satisfactory Liquidity: Ferroglobe had short-term debt of USD196 million at end-September 2017, USD120 million of which was the liability under the company's factoring programme that expires in 2020. Short-term debt excluding factoring was covered by cash and equivalents of USD190 million. The company also had an undrawn committed secured RCF balance of USD174 million, but this facility is short-term as it expires in August 2018. Ferroglobe is currently in the process of agreeing a new long-term USD250 million RCF. The bond placed in early 2017 significantly improved Ferroglobe's liquidity and extended average debt tenor to roughly five years, reducing refinancing needs. FerroAtlantica S.A., Ferroglobe's major opco based in Spain, joined the group of bond guarantors in 2017 after the planned sale of Ferroglobe's Spanish hydro- electric assets was cancelled. The bond is guaranteed by opcos representing around 84% of the group's assets at 30 September 2017 and roughly 92% of the group's revenue in 9M17 (excluding two JVs with Dow Corning Inc.). Fitch assumes that the percentage of revenue generated by bond guarantors broadly corresponds to their share in total group EBITDA. Solar Project Partially Cancelled: In December 2016, Ferroglobe's subsidiary FerroAtlantica, S.A. borrowed nearly EUR72 million from the Spanish government to fund two solar grade silicon development projects in Spain. The company has decided to cancel one of these projects and will repay USD34 million of funds borrowed from the government in 2018, while the remainder repayable between 2019 and 2026. =========================== U N I T E D K I N G D O M =========================== DEBUSSY DTC: S&P Cuts Class A Euro CMBS Notes Rating to 'BB-(sf)' ----------------------------------------------------------------- S&P Global Ratings lowered to 'BB- (sf)' from 'BBB (sf)' and removed from CreditWatch negative its credit rating on Debussy DTC PLC's class A notes. The downgrade reflects S&P's view that the creditworthiness of the single loan backing the notes has deteriorated and our lowered recovery expectations. On Dec. 15 2017, S&P placed its rating on the class A notes on CreditWatch negative following Toys "R" Us UK's announcement that it was in the process of seeking creditor approval to reposition its real estate portfolio, through a company voluntary arrangement (CVA). Debussy is a secured European commercial mortgage-backed securities (CMBS) transaction that closed in 2013, with notes totaling GBP263.2 million, including GBP78.9 million of unrated class B and C notes. The transaction has a legal final maturity date of July 2025. LOAN OVERVIEW The single loan is secured by a portfolio of 30 retail stores and one distribution warehouse in the U.K. Toys "R" Us UK owns the properties and lets them to Toys "R" Us Ltd. on 30-year leases. The loan matures in July 2020. As of Feb. 20, 2018, loan events of default that include an interest coverage ratio (ICR) breach have occurred under the loan agreement. Most of the assets are stand-alone detached stores built for Toys "R" Us. They range in size from 24,785 square feet (sq. ft.) to 49,771 sq. ft., and the average store size is 40,130 sq. ft. Most of the stores were developed in the 1980s and early 1990s. A number of the stores are located in retail parks, including some parks that are dominant within their catchment area. Under the CVA, the directors of Toys "R" Us UK have carried out an assessment of its store portfolio and identified stores that are not profitable or too large, or both. Depending on the store, Toys "R"Us UK's plans include rent reductions, lease terminations, or space downsizes. LOAN AND COLLATERAL SUMMARY (As Of January 2018) -- Securitized loan balance: GBP263.2 million -- 2017 Estimated rental value: GBP19.6 million -- Market value: GBP359.4 million (as of April 2017) -- Vacant possession value: GBP196.4 million (as of April 2017) S&P's KEY ASSUMPTIONS -- S&P NCF: GBP18.2 million -- S&P Value: GBP212.0 million -- S&P LTV ratio (before recovery rate adjustments): 124% -- S&P's analysis assumed principal losses on this loan in its 'B' case rating stress scenario. OTHER ANALYTICAL CONSIDERATIONS S&P said, "Our ratings analysis includes an analysis of the transaction's payment structure and cash flow mechanics. We assess whether the cash flow from the securitized assets would be sufficient, at the applicable rating levels, to make timely payments of interest and ultimate repayment of principal by the legal maturity date (July 2025), after taking into account available credit enhancement and allowing for transaction expenses and external liquidity support." The transaction maintains a GBP19.3 million reserve account to fund senior note interest. RATING RATIONALE S&P said, "We do not consider the available credit enhancement for the class A notes to be sufficient to absorb the amount of losses that the underlying properties would suffer at the currently assigned rating level. We have therefore lowered to 'BB- (sf)' from 'BBB (sf)' and removed from CreditWatch negative our rating on the class A notes." RATINGS LIST Debussy DTC PLC GBP263.159 mil commercial mortgage-backed fixed-rate notes Rating Class Identifier To From A XS0948871784 BB- (sf) BBB (sf)/Watch Neg NEW LOOK: Finance Director to Visit Property Owners This Week ------------------------------------------------------------- Oliver Shah at The Sunday Times reports that landlords to New Look are bracing themselves for store closures and rent reductions after the struggling fashion retailer said its finance director would visit property owners this week. New Look is understood to have written to big landlords on Feb. 23 to say that Richard Collyer would be seeking meetings in the coming days, The Sunday Times relates. According to The Sunday Times, the chain is known to have been considering a company voluntary arrangement (CVA), a form of insolvency that allows retailers to restructure their property portfolios. New Look is owned by the investment company Brait, whose biggest shareholder is the troubled South African tycoon Christo Wiese. It has almost 600 stores in Britain, about 60 of which are thought to be under threat, The Sunday Times states. POUNDWORLD: Lines Up Restructuring Advisers Amid Financial Woes --------------------------------------------------------------- John Collingridge at The Sunday Times reports that Poundworld is lining up restructuring advisers as the private-equity-owned discount retailer struggles amid "brutal" trading. According to The Sunday Times, the chain of more than 350 stores, owned by American buyout titan TPG Capital, is understood to have invited company doctors from firms including Deloitte and Alvarez & Marsal to pitch for the turnaround role. Poundworld is the latest high street chain to suffer amid high inflation and stagnating consumer confidence, The Sunday Times relays. It posted losses of GBP17.1 million in the year to the end of last March, The Sunday Times discloses. Figures were inflated by almost GBP6 million of provisions for leases on loss-making stores, The Sunday Times notes. According to The Sunday Times, an industry source said the chain is under pressure to cut costs and is likely to explore a company voluntary arrangement (CVA). Poundland is a high street discount chain. STONEPEAK SPEAR: S&P Assigns 'B' ICR on Completed Leverage Buyout ----------------------------------------------------------------- S&P Global Ratings assigned its 'B' long-term issuer credit rating to U.K.-based fiber infrastructure services provider, Stonepeak Spear Newco (UK) Ltd. and its financing subsidiary euNetworks Holdings Ltd. (together, euNetworks). The outlook is stable. S&P said, "At the same time, we assigned our 'B' issue rating to the EUR300 million senior secured term loan B, borrowed by Stonepeak Spear UK Newco and subsequently pushed down to euNetworks Holdings Ltd. The recovery rating on the loan is '3', indicating our expectation of meaningful recovery (50%-70%; rounded estimate: 55%) in the event of a payment default." These ratings are in line with the preliminary ratings S&P assigned on Nov. 30, 2017. The rating action follows the completed leveraged buyout of a majority of euNetworks by Stonepeak Infrastructure Partners. The EUR300 million of term loan and equity capital provided by the financial sponsor funded the transaction. These proceeds were applied to the group's acquisition price, the repayment of net debt, and transaction-related fees. S&P said, "Our analysis factors in as a rating constraint euNetworks' reported negative free operating cash flow (FOCF), following the group's significant upfront investment to deploy its fiber network and coverage. The negative FOCF is partly offset by temporarily high debt to EBITDA in 2017, adjusting for the leveraged buyout, that should decline subsequently on continued EBITDA growth. The rating also incorporates our view of euNetworks' good, albeit niche, positioning in the fast-growing datacenter connectivity segment, its small size, and its largely fixed-cost base, offset somewhat by the group's competitive network and longstanding relationship with its demanding and quality-oriented customers." A London-based, pan-European provider of low-latency and high- bandwidth infrastructure services, euNetworks focuses on providing high bandwidth solutions to clients in the financial services, communications, content, and media spaces, through its network of about 1,900 kilometers (km) of metro-fiber, and almost 19,000 km of long-haul fiber. The group derives approximately 80% of its revenues from high-margin focus products, including wavelengths, dark fiber, and to a lesser extent, Ethernet. Colocation and internet services generate most of the remaining 20%. S&P's view of euNetworks' business is supported by the group's strategic focus and leading position in the fast-growing European datacenter connectivity market, working with data-hungry large enterprises, carriers, and content/cloud providers. The group has a competitive network of both metro- and long-haul fiber routes that connect more than 300 datacenters in Europe, of which 92 are among the identified 102 main European datacenters. While the capillarity of its network, as measured by total km covered, is not as broad as other competitors, euNetworks' routes leverage strategic locations and are characterized by a higher number of fibers per duct that support large data and bandwidth transport capacity. Consequently, the group generates higher average revenues per route than peers, and grows at above-market rates. Operations are fairly diversified by customer (the top-15 customers generate less than 30% of annual revenues) and by region as the group expands in Europe. euNetworks' business model provides recurring revenues and a large contractual revenue backlog, thanks to multiyear contracts. This model translates into healthy profit margins, which are improving as revenues grow and further cover the fixed-cost base. Lastly, the group does not engage in speculative network developments. Rather, it focuses on growth from new customer contracts, although there is a gap between its upfront investment and its income profile, given that it focuses its business model on monthly recurring revenues. These strengths are partly offset by euNetworks being a niche player, with single-digit overall market share. Moreover, it faces competition from larger and better capitalized companies that could upgrade and diversify their existing networks over time. S&P said, "We also see as a risk the possibility that current customers move their networks in-house. The group's small size is a rating constraint. It generated about EUR125 million of revenues and almost EUR60 million of S&P Global Ratings-adjusted EBITDA in 2016. Loss of a key customer could materially change the group's revenue and profitability patterns, but we have not seen this happen to date. Furthermore, in line with the rest of the industry, euNetworks faces pressure on prices of data transport, although we understand this only happens at contract renewal and is usually offset by volume growth due to higher data traffic. Lastly, we believe the group's contract length is, on average, shorter than that of some of its rated peers offering similar solutions, partly as a result of its euTrade ultra low- latency business, which carries shorter contract lengths. Although we acknowledge that its contract renewal rate is high, euNetworks' revenue prospects could decline if it faced heightened competition." S&P said, "Our view of euNetworks' financial risk is primarily constrained by its reported negative FOCF. Network deployment requires large upfront investments that are not matched by a similar revenue and cash generation profile, given that the group receives monthly recurring payments from customers. As a consequence, in our base case, we expect breakeven reported FOCF only by 2019, which prevents the group from deleveraging through voluntary debt amortization before that date. Moreover, we assess euNetworks' capital structure as highly leveraged due to adjusted leverage (debt to EBITDA) calculated at above 5.0x in 2017, adjusting for the leveraged buyout, and then decreasing to about 4.9x in 2018. An additional rating constraint is the group's majority ownership by private-equity firm Stonepeak Infrastructure Partners, which we consider a financial sponsor. Still, we view positively that a meaningful portion of the group's acquisition price has been financed with new equity from the sponsor. We also understand that the focus of both the sponsor and management is on network deployment and deleveraging. "The stable outlook on euNetworks reflects our view that increasing bandwidth demand for datacenter connectivity from large and data-hungry companies will support solid revenue growth of 10%-15% and a sound adjusted EBITDA margin approaching 50% over the next 12 months. These positives, however, are offset by our expectation of reported negative FOCF and adjusted leverage at about 5.0x. "We are likely to raise our rating on euNetworks if EBITDA growth results in higher absorption of capex, resulting in stronger credit metrics and a reduction in adjusted leverage. This would occur if FOCF to debt improves to about 3%, and if adjusted leverage approaches 4.5x on a sustainable basis. "We could consider lowering our rating if the pace of euNetworks' revenue and EBITDA growth slowed or if liquidity markedly deteriorated. These events could occur amid increased competition that would accentuate pressure on prices, with volume growth not materializing or the group facing a loss of a major customer." ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than US$3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/booksto order any title today. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2018. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *