/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/180529.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, May 29, 2018, Vol. 19, No. 105 Headlines C R O A T I A AGROKOR DD: Croatia Appoints Darko Horvat as New Economy Minister D E N M A R K TDC A/S: Fitch Corrects May 23 Ratings Release F R A N C E SOCIETE NATIONALE: Gov't Outlines Plans to Reduce Massive Debts G R E E C E ALPHA BANK: Moody's Raises Mortgage Covered Bond Rating to Ba2 EUROBANK ERGASIAS: Moody's Hikes Senior Debt Ratings to Caa2 NAVIOS ACQUISITION: S&P Lowers ICR to 'B-', Outlook Stable NAVIOS HOLDINGS: S&P Raises Long-Term ICR to 'B', Outlook Stable NAVIOS MIDSTREAM: S&P Affirms 'B' Long-Term ICR, Outlook Stable I R E L A N D AVOCA CLO XVIII: Moody's Assigns B2 Rating to Class F Notes HARVEST CLO XIX: Moody's Assigns B2 Rating to Class F Notes HARVEST CLO XIX: Fitch Assigns B-sf Final Rating to Class F Notes R U S S I A EVRAZ GROUP: Moody's Hikes CFR to Ba2, Outlook Stable IRKUT CORPORATION: Moody's Cuts CFR to B1, Outlook Stable KOKS PAO: Fitch Affirms Long-Term IDRs at 'B', Outlook Stable SUEK JSC: Moody's Hikes CFR to Ba2 & Alters Outlook to Stable SUEK JSC: Fitch Assigns First-Time 'BB' IDR, Outlook Stable UC RUSAL: Chief Executive, Seven Directors Quit After Sanctions S P A I N ALDESA AGRUPACION: Fitch Withdraws B(EXP) Rating on Senior Notes BBVA 6 FTPYME: Moody's Affirms Ca Rating on EUR32.3MM Cl. C Notes FONCAIXA FTGENCAT 3: Moody's Affirms C Rating on Class E Notes IM GROUP VII: Moody's Raises Rating on Class B Notes to Caa1 INVICTUS MEDIA: Fitch Affirms Long-Term IDR at 'BB-(EXP)' S W I T Z E R L A N D SUNRISE COMMUNICATIONS: Fitch Affirms BB+ LT IDR, Outlook Stable U N I T E D K I N G D O M CAPITA PLC: Raises GBP681MM Through Rights Issue to Cut Debt HOMEBASE: Westfarmers Sells Business to Hilco at Huge Loss ********* ============= C R O A T I A ============= AGROKOR DD: Croatia Appoints Darko Horvat as New Economy Minister ----------------------------------------------------------------- Igor Ilic at Reuters reports that Croatia's parliament on May 25 confirmed Darko Horvat as the new economy minister after his predecessor quit amid criticism of her handling of the crisis at food giant Agrokor, the country's biggest private firm. The opposition criticized the appointments, saying the HDZ-led ruling coalition of conservatives and liberals was making only cosmetic changes with little prospect of reform, Reuters notes. Some parties called for new elections over the government's handling of the crisis in debt-laden Agrokor, Reuters relays. Former economy minister and deputy prime minister Martina Dalic stepped down on May 14 under pressure from opposition groups who accused her of failing to prevent conflicts of interest during the restructuring of food producer and retailer Agrokor, the Balkans' biggest employer, Reuters recounts. Ms. Dalic denied any wrongdoing but said she did not want to be a burden on the government, Reuters notes. Weighed down by debt accrued during an ambitious expansion drive, Agrokor was put under state-run administration a year ago, Reuters relates. Creditors including banks, bondholders and suppliers, are working with the company's crisis management team on a settlement deal which must be reached before July 10, a legal deadline for avoiding Agrokor's bankruptcy, Reuters discloses. About Agrokor DD Founded in 1976 and based in Zagreb, Crotia, Agrokor DD is the biggest food producer and retailer in the Balkans, employing almost 60,000 people across the region with annual revenue of some HRK50 billion (US$7 billion). On April 10, 2017, the Zagreb Commercial Court allowed the initiation of the procedure for extraordinary administration over Agrokor and some of its affiliated or subsidiary companies. This comes on the heels of an April 7, 2017 proposal submitted by the management board of Agrokor Group for the administration proceedings for the Company pursuant to the Law of Extraordinary Administration for Companies with Systemic Importance for the Republic of Croatia. Mr. Ante Ramljak was simultaneously appointed extraordinary commissioner/trustee for Agrokor on April 10. In May 2017, Agrokor dd, in close cooperation with its advisors, established that as of March 31, 2017, it had total liabilities of HRK40.409 billion. The company racked up debts during a rapid expansion, notably in Croatia, Slovenia, Bosnia and Serbia, a Reuters report noted. On June 2, 2017, Moody's Investors Service downgraded Agrokor D.D.'s corporate family rating (CFR) to Ca from Caa2 and the probability of default rating (PDR) to D-PD from Ca-PD. The outlook on the company's ratings remains negative. Moody's also downgraded the senior unsecured rating assigned to the notes issued by Agrokor due in 2019 and 2020 to C from Caa2. The rating actions reflect Agrokor's decision not to pay the coupon scheduled on May 1, 2017 on its EUR300 million notes due May 2019 at the end of the 30-day grace period. It also factors in Moody's understanding that the company is not paying interest on any of the debt in place prior to Agrokor's decision in April 2017 to file for restructuring under Croatia's law for the Extraordinary Administration for Companies with Systemic Importance. On June 8, 2017, Agrokor's Agrarian Administration signed an agreement on a financial arrangement agreement worth EUR480 million, including EUR80 million of loans granted to Agrokor by domestic banks in April. In addition to this amount, additional buffers are also provided with additional EUR50 million of potential refinancing credit. The total loan arrangement amounts to EUR1,060 million, of which a new debt totaling EUR530 million and the remainder is intended to refinance old debt. ============= D E N M A R K ============= TDC A/S: Fitch Corrects May 23 Ratings Release ---------------------------------------------- Fitch Ratings replaced a ratings release published on May 23, 2018 to clarify that the senior unsecured debt rating, currently and prior to downgrade, is both final and not expected as previously stated. Fitch Ratings has downgraded TDC A/S's (TDC) senior unsecured debt to 'B+' from 'BB-, and removed it from Rating Watch Evolving. The downgrade follows an update on the expected capital structure of the company, including an increase in the amount of the revolving credit facility (RCF) at TDC to EUR500 million from EUR300 million and the removal of a EUR200 million capex facility. KEY RATING DRIVERS Lower Recoveries on Facilities Change: TDC announced a change in the expected combination of credit facilities, which increases the total amount of senior secured debt for claims in Fitch's recovery analysis to EUR4.4 billion (term loan B of EUR3.9 billion and EUR500 million of RCF) from EUR4.25 billion (term loan B of EUR3.9 billion, EUR300 million of RCF and 50% of EUR200 million capex facility). Previously, Fitch only included 50% of the capex facility in the secured debt amount while RCFs are treated as 100% drawn in its recovery analysis. The recovery rate for the senior unsecured debt is therefore reduced to 'RR4'/41% from 'RR3'/51%, which implies no notching relative to TDC's Long- Term Issuer Default Rating (IDR) of 'B+'. The recovery rate and the rating of EUR3.9 billion term loan B is not affected by this change and remains 'BB+(EXP)'/'RR1'. Subordination Risk: TDC has asked the holders of EUR500 million notes due 2022 and GBP425 million notes due 2023 to waive their change of control put option rights. If they waive their put option rights, Fitch expects these notes will become subordinated to the new senior secured debt. This would reduce the recovery prospects of the 2022 and 2023 bonds if TDC goes into financial distress. In its analysis, Fitch assumes that these bondholders will not exercise their put option as currently the bonds are trading at a significant premium to the put price. HoldCo/OpCo Debt Assessed Jointly: Following a change in ownership of TDC, the new owners plan to refinance the acquisition debt initially raised by its parent DKT Holdings ApS (DKT; B+(EXP)/Stable) and its intermediate holding companies (collectively known as HoldCo), as well as existing debt at TDC, the operating entity (OpCo). Fitch expects total OpCo debt to amount to EUR4.9 billion, including the EUR3.9 billion senior secured term loan B. Fitch intends to analyse any HoldCo debt together with debt at TDC as it sees both the OpCo and HoldCo tied together from a credit perspective. Fitch does not expect to see significant barriers to cash flow being up-streamed from the OpCo to the HoldCo. Any HoldCo debt would be structurally subordinated to both senior secured and unsecured debt at the OpCo. The abovementioned change in the credit facilities composition does not impact TDC's or DKT's Long-Term IDRs. Fitch recently downgraded TDC's Long-Term IDR to 'B+' and assigned DKT a Long-Term IDR of 'B+(EXP)'. DERIVATION SUMMARY TDC's ratings reflect the company's leading position within the Danish telecoms market. The company has strong in-market scale and share that spans both fixed and mobile segments. Ownership of both cable and copper-based local access network infrastructure reduces the company's operating risk profile relative to domestic European incumbent peers, which typically face infrastructure- based competition from cable network operators. TDC is rated lower than other peer incumbents such as Royal KPN N.V (BBB/Stable) due to notably higher leverage, which puts it more in line with cable operators with similarly high leverage such as VodafoneZiggo Group B.V. (B+/Stable), Unitymedia GmbH (B+/RWP), Telenet Group Holding N.V. (BB-/Stable) and Virgin Media Inc. (BB-/Stable). TDC's incumbent status, leading positions in both fixed and mobile markets, and unique infrastructure ownership justify higher leverage thresholds than cable peers. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer - Stabilisation of revenue in 2018 and a flat trend thereafter - Broadly stable EBITDA margin at around 40%-41% in 2018-2021 - Capex at around 17% of revenue in 2018-2021 (including spectrum) - Conservative dividend policy to support initial deleveraging - No M&A KEY RECOVERY RATING ASSUMPTIONS -The recovery analysis assumes that the company would be considered a going concern in bankruptcy and that it would be reorganised rather than liquidated - A 10% administrative claim - Fitch's going-concern EBITDA estimate of DKK6.6 billion reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which it bases the valuation of the company - Fitch's going-concern EBITDA estimate is 20% below LTM 2017 EBITDA, assuming likely operating challenges at the time of distress - An enterprise value (EV) multiple of 6x is used to calculate a post-reorganisation valuation and reflects a conservative mid- cycle multiple - Fitch estimates the total amount of debt for claims at EUR6.8 billion, which includes debt instruments at OpCo and HoldCo level as well as drawings on available credit facilities - Fitch incorporates EUR4.4 billion of prior-ranking debt (term loan B of EUR3.9 billion and EUR500 million of RCF) and EUR1 billion of remaining senior unsecured debt at OpCo. Fitch calculates the recovery prospects for the senior unsecured debt at 'RR4'/41%, which implies no instrument rating notching from TDC's Long-Term IDR of 'B+'. Senior unsecured notes at OpCo level have priority over instruments at HoldCo due to structural subordination. RATING SENSITIVITIES Developments that may, Individually or Collectively, Lead to Positive Rating Action - Expectation that funds from operations(FFO)-adjusted net leverage will fall below 5.7x on a sustained basis - Strong and stable free cash flow (FCF) generation, reflecting a stable competitive and regulatory environment Developments that may, Individually or Collectively, Lead to Negative Rating Action - FFO-adjusted net leverage above 6.5x on a sustained basis - Further declines in the Danish business putting FCF margins under pressure into mid- to low-single digits LIQUIDITY Comfortable Liquidity: Fitch expects the OpCo and HoldCo to have comfortable liquidity positions upon refinancing, which will be supported by EUR600 million of credit facilities. This comprises EUR500 million of RCF at OpCo, and a EUR100 million RCF at HoldCo. The company's liquidity profile is also supported by strong pre-dividend FCF generation. =========== F R A N C E =========== SOCIETE NATIONALE: Gov't Outlines Plans to Reduce Massive Debts --------------------------------------------------------------- David Keohane at The Financial Times reports that the French state has outlined its plans to reduce the massive debts of struggling state-rail company Societe Nationale des chemins de fer Francais (SNCF) as part of controversial efforts to overhaul the operator. Prime Minister Edouard Philippe told unions on May 25 that the government would take EUR35 billion off SNCF's balance sheet in two stages -- EUR25 billion in 2020 and EUR10 billion in 2022, the FT relates. SNCF had a net debt of EUR46.6 billion at the end of 2017, the FT discloses. According to the FT, people familiar with the matter said Mr. Philippe made the pledge to take over the debt, and to increase investment in the rail-sector, at meetings with unions on May 25. The move is part of a push to modernize SNCF, the operator of France's high-speed TGVs, as the company faces increased competition due to EU rules which are gradually opening up its home market, the FT states. =========== G R E E C E =========== ALPHA BANK: Moody's Raises Mortgage Covered Bond Rating to Ba2 -------------------------------------------------------------- Moody's Investors Service has taken the following rating actions on the ratings of the mortgage covered bonds across four Greek covered bond programmes: - Upgraded to Ba2 from Ba3, the mortgage covered bonds issued by Alpha Bank AE (counterparty risk (CR) assessment B3(cr)), under its Direct Issuance Global programme I - Upgraded to Ba2 from Ba3, the mortgage covered bonds issued by Alpha Bank AE, under its Direct Issuance Global programme II - Upgraded to Ba2 from B1, the mortgage covered bonds issued by Eurobank Ergasias S.A. (counterparty risk (CR) assessment B3(cr)), under its Mortgage Covered Bonds 2 programme - Affirmed the Ba2 ratings on the mortgage covered bonds issued by Eurobank Ergasias S.A., under its Mortgage Covered Bonds 1 programme A List of 'Affected Credit Ratings' can be found at https://bit.ly/2IEqMsV. RATINGS RATIONALE The rating actions on the covered bond ratings follow the rating actions on Alpha Bank AE and Eurobank Ergasias S.A. CR assessments. The ratings of Alpha Bank A.E. Direct Issuance Global Covered Bond Programme I, Alpha Bank A.E. Direct Issuance Global Covered Bond Programme II and Eurobank Ergasias S.A. - Mortgage Covered Bonds 2 programme are constrained by the timely payment indicator (TPI) of Very Improbable. The ratings of Eurobank Ergasias S.A. - Mortgage Covered Bonds 1 are constrained by the long-term country ceilings for foreign currency and local currency bonds of Ba2. A 'List of Affected Credit Ratings' is available at https://bit.ly/2IEqMsV. KEY RATING ASSUMPTIONS/FACTORS Moody's determines covered bond ratings using a two-step process: an expected loss analysis and a timely payment indicator (TPI) framework analysis. EXPECTED LOSS: Moody's uses its Covered Bond Model (COBOL) to determine a rating based on the expected loss on the bond. COBOL determines expected loss as (1) a function of the probability that the issuer will cease making payments under the covered bonds (a CB anchor event), and (2) the stressed losses on the cover pool assets following a CB anchor event. The cover pool losses are an estimate of the losses Moody's currently models following a CB anchor event. Moody's splits cover pool losses between market risk and collateral risk. Market risk measures losses stemming from refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks). Collateral risk measures losses resulting directly from the cover pool assets' credit quality. Moody's derives collateral risk from the collateral score. The CB anchor for the programmes is the CR assessment plus one notch. The CR assessment reflects an issuer's ability to avoid defaulting on certain senior bank operating obligations and contractual commitments, including covered bonds. Moody's may use a CB anchor of the CR assessment plus one notch in the European Union or otherwise where an operational resolution regime is particularly likely to ensure continuity of covered bond payments. TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI), which measures the likelihood of timely payments to covered bondholders following a CB anchor event. The TPI framework limits the covered bond rating to a certain number of notches above the CB anchor. FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS: The CB anchor is the main determinant of a covered bond programme's rating robustness. A change in the level of the CB anchor could lead to an upgrade or downgrade of the covered bonds. The TPI Leeway measures the number of notches by which Moody's might lower the CB anchor before the rating agency downgrades the covered bonds because of TPI framework constraints. A multiple-notch downgrade of the covered bonds might occur in certain limited circumstances, such as (1) a sovereign downgrade negatively affecting both the CB Anchor and the TPI; (2) a multiple-notch downgrade of the CB Anchor; or (3) a material reduction of the value of the cover pool. RATING METHODOLOGY The principal methodology used in these ratings was "Moody's Approach to Rating Covered Bonds" published in December 2016. EUROBANK ERGASIAS: Moody's Hikes Senior Debt Ratings to Caa2 ------------------------------------------------------------ Moody's Investors Service has upgraded the long-term deposit and senior unsecured debt ratings of Alpha Bank AE and Eurobank Ergasias S.A. to Caa2 from Caa3, as well as the banks' counterparty risk assessment (CRA) to B3(cr) from Caa1(cr) for Alpha Bank and to B3(cr) from Caa2(cr) for Eurobank. The rating action was triggered by the expansion of the two banks' Greek deposit bases and issuance of subordinated liabilities, which will indicate increased protection for their senior creditors. All other ratings of the two banks' were unaffected. Alpha Bank's ratings continue to have a positive outlook and Eurobank's ratings continue to have a stable outlook. RATINGS RATIONALE The rating action reflects Moody's expectation of reduced loss severity for junior depositors and senior unsecured creditors of the two banks, according to Moody's advanced loss given failure (LGF) analysis. ALPHA BANK AE The rating upgrade of Alpha Bank's deposit and senior unsecured debt ratings to Caa2 from Caa3 reflects the bank's expanding deposits in Greece combined with a reduction of its emergency liquidity assistance (ELA) in the last few quarters, which result in lower loss severity for junior depositors and senior debt creditors. The bank's long-term CRA was also upgraded to B3(cr) from Caa1(cr), receiving two notches of LGF uplift from the bank's baseline credit assessment (BCA) of caa2. Alpha Bank was able to grow its deposit base in Greece by around 4.3% during 2017, to around EUR30.3 billion compared to a non- consolidated balance sheet of EUR55.9 billion as of December 2017. A combination of increased total customer deposits domestically and the deleveraging of the bank's balance sheet has meant that total deposits accounted for around 54% of total non- consolidated assets in December 2017, up from around 48% in December 2016. The deposit increase and the bank's increasing access to the inter-bank repo market, has also helped in reducing further its ELA dependence to EUR7 billion in December 2017, from EUR13.2 billion the year before. Accordingly, and based on Moody's advanced LGF analysis, the bank's pool of senior unsecured creditors has expanded to a degree where the potential loss severity in the event of failure has declined, resulting in the rating upgrade. The bank's larger volume of junior deposits (corporate and institutional deposits not covered by the deposit guarantee, which are assumed to be around 26% of total deposits for all Greek banks) spreads the risk among a larger pool of senior creditors. The rating upgrade also takes into account Moody's expectation of further increase in the bank's customer deposits and access to the international unsecured capital markets, as the economy in Greece gradually recovers from its deep recession in the last few years and capital controls relax further. EUROBANK ERGASIAS S.A. The rating upgrade of Eurobank's deposit and senior unsecured debt ratings to Caa2 from Caa3 is driven by the bank's expanding deposits in Greece, and the bank's recently issued Tier 2 bond. Both of these factors taken together result in lower loss severity for junior depositors and senior debt creditors of the bank. The bank's long-term CRA was also upgraded to B3(cr) from Caa2(cr), receiving two notches of LGF uplift from the bank's BCA of caa2. Eurobank's total customer deposits in Greece increased by 5.6% during 2017 to around EUR25 billion, comprising around 49% of its non-consolidated balance sheet of EUR51 billion as of December 2017, from 41% in December 2016. The increase in deposits and the access to the inter-bank repo market has helped the bank reduce its ELA balance to EUR7.9 billion in December 2017 from EUR11.9 billion the year before. Accordingly the risk for a potential loss is spread around to a bigger pool of junior depositors and other senior creditors. In addition, the rating agency notes that it has also incorporated in its advanced LGF analysis Eurobank's EUR950 million Tier 2 bond issued in January 2018, which was fully subscribed by the government and replaced its state preference shares. These state preference shares, which were perpetual instruments recognised as CET1 capital until December 2017, were issued to the Greek government in 2009 as part of the state aid that all Greek banks received at the time. The intention by all Greek banks was to repay such state aid back to the government, including the contingent convertible (CoCo) capital instruments that some banks issued to the government- owned Hellenic Financial Stability Fund (HFSF) as part of their recapitalization in 2015. Since then, two Greek banks (National Bank of Greece and Alpha Bank) were able to repay such state aid back to the government. The issuance by Eurobank of a 10-year Tier 2 bond with a call option at five years, provides an additional buffer for bail-in to its senior creditors until at least January 2023. This extra buffer combined with the bank's bigger deposit pool result in a lower loss severity to senior creditors in case of failure, which drives the ratings upgrade. WHAT COULD MOVE THE RATINGS UP Over time, upward deposit and senior debt rating pressure could arise following sustainable improvement in the country's macroeconomic environment, combined with an improvement in the banks' asset quality, profitability and funding metrics, with more customer deposits. The return of more deposits to the banking system will also help the banks to fully repay their ELA in 2018-19. WHAT COULD CHANGE THE RATINGS DOWN The banks' deposit and senior debt ratings could be downgraded in case there is any political turmoil in the country for an extended period of time that substantially affects domestic consumption and economic activity, which have gradually been recovering from a very low base. In addition, the deposit ratings could be downgraded if the sovereign rating is downgraded or in case banks are unable to reduce significantly their high stock of NPEs by the end of 2019. RATINGS OUTLOOK The positive outlook assigned to Alpha Bank's deposit rating was affirmed, reflecting mainly its stronger tangible capital position (excluding any deferred tax credits) relative to its local peers, and Moody's view that the bank's credit profile is better positioned for a potential BCA upgrade once there are concrete results in reducing its nonperforming exposures (NPEs) and improving its profitability. Alpha Bank's stronger positioning is also reflected in the recent stress-test results announced by the ECB for the four systemically important Greek banks, where it stands out in the adverse scenario with its regulatory common equity Tier 1 (CET1) ratio declining to 9.7% by the end of 2020, from 18.3% in December 2017. The rating agency notes that for the other three Greek banks (Piraeus Bank, National Bank of Greece and Eurobank), the CET1 ratio declines to less than 7% in the adverse scenario. The stable outlook assigned to the Eurobank's Caa2 deposit rating was also affirmed, balancing its relatively weak tangible capital position due to its proportionally high deferred tax credits recognised as CET1 capital, and its stronger earnings performance than its local peers in recent quarters. Alpha Bank AE is headquartered in Athens, Greece, with total consolidated assets of EUR60.8 billion as at December 31, 2017. Eurobank Ergasias S.A. is headquartered in Athens, Greece, with total consolidated assets of EUR60 billion as at December 31, 2017. LIST OF AFFECTED RATINGS Issuer: Alpha Bank AE Upgrades: LT Bank Deposits, Upgraded to Caa2 from Caa3, Outlook remains Positive Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3 LT Counterparty Risk Assessment, Upgraded to B3(cr) from Caa1(cr) Outlook Actions: Outlook, Remains Positive Issuer: Alpha Credit Group plc Upgrades: BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook remains Positive BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3 Issuer: Alpha Group Jersey Limited Upgrades: BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3 Issuer: Emporiki Group Finance Plc Upgrades: BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook remains Positive Issuer: Eurobank Ergasias S.A. Upgrades: LT Bank Deposits, Upgraded to Caa2 from Caa3, Outlook remains Stable Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3 LT Counterparty Risk Assessment, Upgraded to B3(cr) from Caa2(cr) Outlook Actions: Outlook, Remains Stable Issuer: ERB Hellas (Cayman Islands) Limited Upgrades: BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3 Issuer: ERB Hellas PLC Upgrades: BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook remains Stable BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3 PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks published in April 2018. NAVIOS ACQUISITION: S&P Lowers ICR to 'B-', Outlook Stable ---------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit rating on Marshall Islands-registered oil and petroleum products shipping company Navios Maritime Acquisition Corp. (Navios Acquisition) and its finance vehicle Navios Acquisition Finance (US) Inc. to 'B-' from 'B'. The outlook on both entities is stable. S&P said, "We also lowered our issue rating on Navios Acquisition's senior secured debt to 'B-' from 'B'. The recovery rating remains '3', indicating our expectation of meaningful recovery prospects (50%-70%; rounded estimate: 65%). "The downgrade reflects that Navios Acquisition's 2017 results are weaker than we expected and our view that the company will generate lower-than-anticipated EBITDA also in 2018-2019, resulting in credit metrics that will remain below our guidelines for a 'B' rating. The currently subdued tanker rate conditions and weak prospects for a significant rebound in charter rates in 2018-2019 prompted us to revise downward our tanker rate assumptions. Given this environment and limited prospects for the company to rapidly reduce debt, we no longer believe that Navios Acquisition will be able to strengthen its credit measures such that S&P Global Ratings-adjusted funds from operations (FFO) to debt remains below 6% in 2018 and 2019, as was the case in 2017. Furthermore, given that the company's charter profile has shortened and profitability is lower and more volatile than we previously expected, we consider that the company's business risk profile has weakened. We have consequently revised our assessment of Navios Acquisition's stand-alone credit quality (SACP) to 'b-' from 'b'. "Crude tanker rates will likely remain under pressure because of OPEC oil production restrictions and a spike in vessel orders in 2017. We see a cyclical, but only moderate, upturn for oil- product tanker rates this year, as the new vessel delivery schedule for 2018 is historically low. Consequently, we expect supply growth for product tankers to noticeably slow, in particular for medium-range tankers. At the same time, demand should be enhanced by tightening oil product inventories, leading to a moderate uptick in charter rates. We believe it will take longer to see a meaningful rebound in crude tanker rates. OPEC recently extended its production restrictions until end-2018 (with a review in June 2018), and it is more than complying with its announced cuts in an effort to support oil prices. This will continue hampering oil supply. In addition, the unexpected spike in orders for larger crude tankers in 2017 driven by attractive vessel prices did not take into account the weak rate conditions and gloomy prospects for their improvement. We forecast, however, that as the oil stock overhang gets worked off and scrapping of very large cruder carriers increases, as suggested by year-to- date data, the shipments and rates of very large crude carriers (VLCCs) will start gradually increasing toward the end of this year and through 2020." Navios Acquisition, which is listed on the New York Stock Exchange, owns and operates a fleet of 35 modern crude oil- and product-tankers and has a 59% stake in a dividend-paying master limited partnership Navios Maritime Midstream Partners L.P. (Navios Midstream) formed in 2014, which owns and operates a fleet of six VLCCs. S&P said, "We assess the creditworthiness of Navios Acquisition and Navios Midstream on an integrated basis because of the entities' material business relationships. For example, Navios Acquisition has provided a de facto rate guarantee/rate-backstop for Navios Midstream's three VLCCs, which represent half of Navios Midstream's fleet. Navios Holdings also falls under the group credit profile (GCP), because we believe Navios Acquisition's financial and liquidity position are linked to that of its 47.7%-owner Navios Holdings. There are also overlaps in the group's management and the board of directors as well as common business ties and shared name affiliation, corporate history, and support functions." Navios Acquisition's relatively narrow business scope and diversity, with a focus on the tanker industry, and its concentrated, albeit good-quality, customer base constrain its business risk profile. The underlying industry's high risk--due to capital intensity, high fragmentation, frequent imbalances between demand and supply, lack of meaningful supply discipline, and volatility in charter rates and vessel values--also weighs on the rating. S&P said, "That said, we believe that oil shipping has more favorable characteristics in general than the dry-bulk and container shipping sectors. This is because the credit quality of the oil shipping sector's customer base is stronger and hence the counterparty risk lower. The dry-bulk and containership time charters are typically fragile, and we continue to observe more charter defaults on dry-bulk and container contracts than in the oil shipping segments." S&P said, "We consider the risks to be partly offset by Navios Acquisition's competitive position, which incorporates the company's conservative chartering policy, competitive breakeven operating rates, and no exposure to fluctuations in prices of bunker fuel through time-charter contracts. We also think that Navios Acquisition's competitive position benefits from its attractive fleet profile, composed of modern and high-quality tankers, and high fleet utilization rates. "Navios Acquisition's credit metrics did not improve to levels consistent with the higher end of our highly leveraged financial risk category because of lower-than-anticipated tanker rates and Navios Acquisition's weaker EBITDA performance, combined with lower free operating cash flow (FOCF) generation and slower deleveraging than we previously expected. Navios Acquisition had adjusted debt of $1.04 billion as of Dec. 31, 2017. Furthermore, we believe that ratios will continue falling short of the higher end of the highly leveraged category in 2018-2019, unless tanker rates rebound markedly from their current lows, which we do not expect at least in the next 12 months, given the absence of any clear supply-side relief and demand-side stimulus in oil and petroleum product shipping. Ability to generate positive FOCF is a credit strength and supports the 'B-' rating. "The stable outlook reflects our view that Navios Acquisition will preserve its rating-commensurate credit profile, which takes into account that--despite our forecast of weak tanker rates in 2018--the company will continue generating positive FOCF and maintain sufficient liquidity sources to cover uses within the next 12 months. This is supported by our expectation that Navios Acquisition will enjoy uninterrupted access to secured bank funding (necessary for refinancing of maturing loans) and recovering operating performance from 2019. "Rating pressure would arise if tanker rates perform significantly below our already discounted base-case forecast, in particular in case of VLCC rates resulting in negative FOCF generation, with limited prospects for an immediate recovery. Furthermore, we could downgrade Navios Acquisition if we consider it likely that its liquidity sources-to-uses ratio would fall below 1.0x." An upgrade could follow if Navios Acquisition's financial performance improves significantly. This would mean a rebound of adjusted FFO to debt to more than 6% on a sustainable basis, which could stem, for example, from VLCC rates recovering to above $35,000/day, all else remaining equal. S&P views this scenario as unlikely in 2018. Because S&P's rating on Navios Acquisition is linked to the GCP of the wider Navios group, an upgrade of Navios Acquisition would also depend on whether its 'b' GCP assessment remains unchanged. NAVIOS HOLDINGS: S&P Raises Long-Term ICR to 'B', Outlook Stable ---------------------------------------------------------------- S&P Global Ratings said that it had raised its long-term issuer credit rating on Marshall Islands-registered shipping and logistics company Navios Maritime Holdings Inc. (Navios Holdings) to 'B' from 'B-'. The outlook is stable. S&P said, "At the same time, we raised our issue rating on the company's senior secured debt to 'B' from 'B-'. The recovery rating on Navios Holdings' $650 million first-priority ship mortgage notes due in January 2022 remains unchanged at '3', reflecting our recovery expectations in the 50%-70% range (rounded estimate: 50%). The '4' recovery rating on the $305 million senior secured notes due in August 2022 remains unchanged and indicates our expectation of average (30%-50%) recovery in the event of a payment default (rounded estimate: 40%). "We withdrew our 'CCC' issue rating and '6' recovery rating on Navios Holdings' $350 million senior unsecured bonds due in February 2019." The upgrade reflects Navios Holdings' improved cash flow generation and financial performance from the recovery in dry- bulk shipping industry conditions. Furthermore, cash flow uncertainty in the group's terminal/logistics operations has reduced now that Navios Logistics, a subsidiary of Navios Holdings, started to realize earnings from a major logistics contract with Vale S.A., following an arbitration tribunal ruling in favor of Navios Logistics. Under the 20-year take-or-pay contract with Vale, Navios Logistics will generate a minimum of $39 million in EBITDA in 2018 for transshipment, storage, and handling of iron ore via its port terminal in Uruguay, which provides significant earnings visibility, also because the contract stipulates annual inflation adjustment to tariffs. Founded in 1954 as a subsidiary of U.S. Steel, Navios Holdings, which is listed on the New York Stock Exchange, controls a fleet of 72 dry bulk vessels (38 owned and 34 long-term chartered-in). Navios Holdings owns a 63.8% stake in Navios Logistics, one of the largest logistics companies in the Hidrovia region of South America, serving the storage and marine transportation needs of its customers through port terminal, river barge, and coastal cabotage operations. S&P said, "We believe that the recovery in dry bulk charter rates in 2017 to an average of $14,000 per day (/day) for Capesize ships and $10,700/day for Panamax ships (from around $7,300/day and $6,300/day, respectively, in 2016) will continue in 2018. In our base case for 2018, we incorporate that the average rate for Capesize vessels will reach $18,000/day and $13,000/day for Panamax vessels. These figures largely correspond with the industry average rates seen so far in 2018, because of supporting industry fundamentals, most importantly: -- Rising iron ore, coal, and grain ton-mile demand, in part, because China, the world's largest commodities importer, is bringing in additional volumes from more distant places than previously, such as Brazil and North America; and -- A close to all-time low order book for dry-bulk ships and slowing global fleet expansion. The rebound in dry-bulk charter rates will strengthen Navios Holdings' cash flow generation and trigger an improvement in the company's debt-servicing prospects. According to S&P's base case, Navios Holdings could almost double its reported EBITDA (excluding dividends from affiliates) to about $200 million in 2018 from about $105 million in 2017. This, accompanied by the assumption of no major new debt incurred and debt amortization continuing as scheduled (to reach an adjusted debt of about $2 billion as of Dec. 31, 2018), points toward S&P Global Ratings- adjusted funds from operations to debt improving significantly to about 8% in 2018 (and about 12% in 2019) from 4% in 2017. Furthermore, S&P forecasts a turnaround of free operating cash flows (FOCF) to a firmly positive range in 2018, in part thanks to low expansionary capital expenditures after Navios Logistics completed the expansion of a port terminal in Uruguay, after years of negative performance. This creates a sufficient cushion for the company to avert a potential liquidity shortfall, as reflected in Navios Holdings' liquidity sources-to-uses coverage of about 3.0x in the upcoming 12 months. The upward reassessment of S&P's business profile mainly reflects Navios Holdings' enlarged exposure to more stable (compared with traditional dry-bulk shipping) terminal/logistics operations underpinned by the attractive contract with Vale. The Vale contract, combined with improved earnings from dry-bulk shipping, will drive recovery in absolute profitability and diminished volatility of profitability. S&P said, "We continue to factor in the shipping industry's high risk, which stems from the industry's capital intensity, high fragmentation, frequent imbalances between demand and supply, lack of meaningful supply discipline, and volatility in charter rates and vessel values. We view as positive for the ratings: Navios Holdings' competitive position, which benefits from its expanding and more predictable-than-traditional-shipping transportation and logistics business in South America; Its holdings in affiliates, which pay dividends under normal operating conditions; and Its solid reputation as a quality operator of a relatively young and cost-efficient vessel fleet, underpinned by good cost efficiencies and control, as reflected in below-industry-average daily vessel operating costs. "We consider that Navios Holdings' financial risk profile is now better positioned within our highly leverage category than previously, because of improved debt service prospects. The company's high adjusted debt reflects the underlying industry's high capital intensity, the company's track record of large expansionary investments, and a prolonged period of depressed charter rates, which ended last year. "We analyze Navios Holdings and the Marshall Islands-registered oil- and oil product shipping company Navios Acquisition on an integrated basis because of their linked business relationships. Navios Holdings owns 47.7% of Navios Acquisition. Crude tanker owner and operator Navios Midstream, 59%-owned unconsolidated affiliate of Navios Acquisition, also falls under the group credit profile (GCP) because of the entities' material business interactions, as signified by Navios Acquisition's extension of a de facto rate guarantee for Navios Midstream. We note that the entities share the same name; have overlaps in the management and board of directors; and share the same history and common business ties, with Navios Holdings being the commercial and technical manager of Navios Acquisition's and Navios Midstream's tankers. "The stable outlook reflects our view that Navios Holdings' FOCF generation will be positive this year (and in 2019) and its liquidity will stabilize in the next 12 months, thanks to gradually recovering dry-bulk charter rates, EBITDA expansion of Navios Logistics, and the company's competitive and predictable cost structure. It also reflects our view that our assessment of the GCP will remain unchanged." S&P said, "An upgrade could follow if Navios Holdings' adjusted FFO to debt strengthens to above 12% and FOCF becomes positive, both on a sustainable basis. Such an improvement in adjusted FFO to debt would be possible if dry-bulk charter rates outperform our base-case forecast, while Navios Holdings gradually reduces debt. However, we consider a material debt reduction as unlikely in the next 12 months because opportunistic debt-funded vessel acquisitions by Navios Holdings are possible." An upgrade would be also contingent on the GCP improving to 'b+', which would be possible if Navios Holdings' stand-alone credit profile (SACP) strengthens to 'b+' and the credit quality of Navios Acquisition and Navios Midstream does not deteriorate in the meantime. S&P said, "We could downgrade Navios Holdings if the ratio of adjusted FFO to debt appeared to decline sustainably below 6%, due for example to an unexpected drop in dry-bulk charter rates markedly below our base case." Furthermore, an unlikely material deterioration of Navios Acquisition's cash flow generation and liquidity, resulting in a downward revision of its SACP to 'ccc', would put pressure on Navios Holdings' creditworthiness. NAVIOS MIDSTREAM: S&P Affirms 'B' Long-Term ICR, Outlook Stable --------------------------------------------------------------- S&P Global Ratings said that it had affirmed its 'B' long-term issuer credit rating on Marshall Islands-registered owner and operator of crude oil tankers Navios Maritime Midstream Partners L.P. (Navios Midstream). The outlook is stable. S&P said, "At the same time, we affirmed our 'B' issue rating on Navios Midstream's senior secured debt. The recovery rating remains at '3', reflecting our expectation of meaningful (50%- 70%; rounded estimate 65%) recovery for noteholders in the event of a default. "The affirmation reflects that Navios Midstream's 2017 and first- quarter 2018 financial performance was largely in line with our expectations, underpinned by the company's time-charter profile with an average remaining contract term of about 3.0 years (including the rate backstops from Navios Maritime Acquisition Corp. [Navios Acquisition]). Although Navios Midstream's financial position has weakened, as reflected in the contraction in S&P Global Ratings-defined EBITDA generation to $54 million in 2017 compared with $63 million in 2016, we believe the company will continue to post financial results over 2018-2019 in line with our requirements for the 'B' rating." The EBITDA contraction mainly stemmed from lower profit sharing, unscheduled vessel off-hire days, and the most recent tanker- employment deals. These included the placement of two vessels into very large crude carrier (VLCC) pools that typically operate on volatile (and currently low) spot rates, and the re-charter of one vessel at less attractive terms than previously. Owing to the subdued charter-rate conditions, we think Navios Midstream will employ its vessels due for renewal in 2019 at rates that are below the currently contracted and guaranteed rates. Consequently, S&P sees EBITDA declining to $47 million-$48 million in 2019 from the $56 million-$57 million we currently forecast in 2018. S&P said, "Furthermore, despite the company's ability to generate free operating cash flow (FOCF), buttressed by relatively low cash interest and maintenance capital expenditures, we think Navios Midstream has only limited scope for deleveraging because it will continue both its dividend distributions (most recently significantly reduced) and its periodic and partly debt-funded fleet rejuvenation or expansion (of which the timing and magnitude is currently uncertain). We factor into the rating our expectations that potential further additions to the fleet will be to some extent equity funded to limit financial leverage dilution. "Accordingly, Navios Midstream's credit measures will soften in our view, so that S&P Global Ratings-adjusted weighted average funds from operations (FFO) to debt will be about 20% in 2018- 2019, compared with about 21% in 2017. This incorporates potential weakness in 2019, when adjusted FFO to debt might temporarily fall to about 18%. We expect the ratio to rebound above 20% in 2020, thanks to more balanced supply and demand conditions and the resulting higher rates, as owners continue to scrap their older vessels and new vessel delivery slows. Our assessment of the financial risk profile incorporates Navios Midstream's relatively high adjusted debt of about $201 million as of Dec. 31, 2017, which reflects the underlying industry's high capital intensity, as well as the company's expansionary investments and dividend distributions." Navios Midstream's financial position is linked to that of its 59% owner and general partner Navios Acquisition and the wider Navios group, including Navios Maritime Holdings Inc. (Navios Holdings), both of which display lower credit quality. Navios Acquisition owns and operates a fleet of 35 crude oil carriers and oil product tankers. Navios Holdings controls a fleet of 71 dry-bulk vessels (38 owned and 33 chartered-in vessels) and provides transportation and logistics services in South America. S&P said, "We assess the creditworthiness of Navios Midstream and Navios Acquisition on an integrated basis because of the entities' material business relationships. For example, Navios Acquisition has provided a de facto rate guarantee/rate backstop for Navios Midstream's three VLCCs, which represent half of Navios Midstream's fleet. Navios Holdings also falls under the group credit profile (GCP) because we believe Navios Acquisition's financial and liquidity position is linked to that of its 47.7%-owner Navios Holdings. There are also overlaps in management and the board of directors across the Navios group of companies, as well as common business ties and shared name affiliation, corporate history, and support functions. "We maintain our view of Navios Midstream's stand-alone credit profile (SACP) at 'b+'. The key consideration in our assessment of Navios Midstream's weak business risk profile is the company's relatively narrow scope and diversity, with a predominant focus on crude oil shipping, a business model relying on six VLCCs to generate comparatively small absolute EBITDA, and a concentrated customer base." VLCC rates will remain under pressure, since it seems that the sector needs some time to rebalance. This is reflected in the low rates--notwithstanding crude oil tanker demand likely exceeding crude fleet growth in 2018. S&P notes that OPEC recently extended its production restrictions until the end of 2018 (with a review scheduled in June 2018) and it is more than complying with its announced cuts in an effort to support oil prices. This has had a knock-on effect on cargoes available for crude tankers and is the main reason that crude oil stocks have declined from their high in March 2017 to just above the five-year average in March 2018. The order book for large crude tankers remains firm and accounts for 15% of the global tanker fleet after an unexpected spike in orders in 2017. These orders were driven by attractive vessel prices, but did not take into account the weak rate conditions. S&P said, "However, as the oil stock overhang is worked off, along with accelerated VLCC scrapping as seen year to date, we assume that VLCC shipments and rates will start increasing toward the end of 2018. We also note that order book nondeliveries have averaged 30% since 2010. Taking this into account, we forecast lower rates for VLCC at $23,500 per day (/day) in 2018 (from around $27,000/day in 2017). We foresee a rebound in rates to $27,500/day in 2019, as robust scrapping will continue moderating fleet growth." The main support to Navios Midstream's competitive position comes from its time-charter profile. Navios Midstream has currently contracted out 100% of its available days for 2018 and 41% for 2019, including the backstop commitment provided by Navios Acquisition. Furthermore, the company's profitability benefits from its fixed and predictable cost base, which underpins comparatively low volatility of EBITDA margins and the return on capital. S&P said, "We also believe that, in general, oil-shipping has more favorable characteristics than dry-bulk and container shipping because the credit quality of oil-shipping customers is typically stronger; hence, the counterparty risk is lower. That said, the dry-bulk and containership time charters tend to be fragile, and we continue to observe more defaults on dry-bulk and container charter contracts than on oil-shipping contracts. "We adjust our 'bb-' anchor for Navios Midstream downward by one notch because, based on our comparable ratings analysis, given that the company is susceptible to low-probability, high-impact events because of its small absolute size and limited scope of operations. "The stable outlook reflects our expectation that Navios Midstream will maintain business and financial strength commensurate with the current rating over the next 12 months, despite weak tanker-rate conditions. In addition, we anticipate that the GCP, which reflects the weighted average creditworthiness of Navios Midstream, Navios Acquisition, and Navios Holdings together, will not affect Navios Midstream's SACP. "Assuming no change to Navios Midstream's business risk profile, we consider a ratio of adjusted FFO to debt higher than 12% to be commensurate with the current rating. This compares with an average of around 20% we forecast for 2018-2019 and points to ample headroom for financial underperformance against our base case. "We believe the potential for an upgrade is limited in the next 12 months, given our expectation that tanker-rate conditions will remain subdued. We may, however, upgrade Navios Midstream if the GCP strengthens to 'b+' from 'b' currently, which could happen, for example, if Navios Holdings' and Navios Acquisition's financial performance improved significantly and simultaneously. For Navios Holdings, this would imply securely positive FOCF, stable liquidity sources that amply cover uses, and adjusted FFO to debt sustainably above 12%. For Navios Acquisition, this would mean a rebound of adjusted FFO to debt to more than 6% stemming from a recovery in tanker rates. "We may downgrade Navios Midstream if its SACP weakened to 'b-' or lower, such as following a significant and unexpected deterioration of credit metrics, with adjusted FFO to debt falling below 12%, or erosion of the business risk profile to vulnerable accompanied by weaker ratios. This could happen if counterparties failed to deliver on their contracts and Navios Midstream amended charter agreements or re-employed vessels at open-market rates that are materially below the previous rates, resulting in significantly diminished EBITDA and profitability. "Further strain could come from a possible deterioration of Navios Acquisition's or Navios Holdings' credit measures or liquidity, leading us to revise down our assessment of the GCP." ============= I R E L A N D ============= AVOCA CLO XVIII: Moody's Assigns B2 Rating to Class F Notes ----------------------------------------------------------- Moody's Investors Service announced that it has assigned the following definitive ratings to notes issued by Avoca CLO XVIII Designated Activity Company: EUR 295,000,000 Class A Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aaa (sf) EUR 45,000,000 Class B-1 Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aa2 (sf) EUR 25,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2031, Definitive Rating Assigned Aa2 (sf) EUR 31,000,000 Class C Deferrable Mezzanine Floating Rate Notes due 2031, Definitive Rating Assigned A2 (sf) EUR 25,000,000 Class D Deferrable Mezzanine Floating Rate Notes due 2031, Definitive Rating Assigned Baa2 (sf) EUR 28,000,000 Class E Deferrable Junior Floating Rate Notes due 2031, Definitive Rating Assigned Ba2 (sf) EUR 14,500,000 Class F Deferrable Junior Floating Rate Notes due 2031, Definitive Rating Assigned B2 (sf) RATINGS RATIONALE Moody's definitive ratings of the rated notes address the expected loss posed to noteholders by the legal final maturity of the notes in 2031. The definitive ratings reflect the risks due to defaults on the underlying portfolio of loans given the characteristics and eligibility criteria of the constituent assets, the relevant portfolio tests and covenants as well as the transaction's capital and legal structure. Furthermore, Moody's is of the opinion that the collateral manager, KKR Credit Advisors (Ireland) Unlimited Company ("KKR"), has sufficient experience and operational capacity and is capable of managing this CLO. Avoca CLO XVIII is a managed cash flow CLO. At least 96% of the portfolio must consist of senior secured loans and senior secured floating rate notes and up to 4% of the portfolio may consist of unsecured loans, second-lien loans, mezzanine obligations and high yield bonds. The portfolio is expected to be approximately 60-70% ramped up as of the closing date and to be comprised predominantly of corporate loans to obligors domiciled in Western Europe. KKR will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's approximate 4.5 years reinvestment period. Thereafter, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations and are subject to certain restrictions. In addition to the seven classes of notes rated by Moody's, the Issuer issued EUR 45.65m of subordinated notes, which will not be rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in August 2017. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. KKR's investment decisions and management of the transaction will also affect the notes' performance. Loss and Cash Flow Analysis: Moody's modeled the transaction using CDOEdge, a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2017. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the binomial distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario and (ii) the loss derived from the cash flow model in each default scenario for each tranche. As such, Moody's encompasses the assessment of stressed scenarios. Moody's used the following base-case modeling assumptions: Par amount: EUR 500,000,000 Diversity Score: 40 Weighted Average Rating Factor (WARF): 2825 Weighted Average Spread (WAS): 3.40% Weighted Average Coupon: 4.50% Weighted Average Recovery Rate (WARR): 43.6% Weighted Average Life (WAL): 8.5 years Moody's has analysed the potential impact associated with sovereign related risk of peripheral European countries. As part of the base case, Moody's has addressed the potential exposure to obligors domiciled in countries with local currency country risk ceiling (LCC) of A1 or below. As per the portfolio constraints, exposures to countries with a LCC of A1 or below cannot exceed 10%, with exposures to countries with a LCC of below A3 further limited to 5%. Given the current composition of qualifying countries, Moody's has assumed a maximum 5% of the pool would be domiciled in countries with LCC of Baa1 to Baa3. The remainder of the pool will be domiciled in countries which currently have a LCC of Aa3 and above. Given this portfolio composition, the model was run with different target par amounts depending on the target rating of each class of notes as further described in the methodology. The portfolio haircuts are a function of the exposure size to peripheral countries and the target ratings of the rated notes and amount to 0.75% for the Class A notes, 0.50% for the Class B notes, 0.375% for the Class C notes and 0% for Classes D, E and F. Stress Scenarios: Together with the set of modeling assumptions above, Moody's conducted additional sensitivity analysis, which was an important component in determining the definitive ratings assigned to the rated notes. This sensitivity analysis includes increased default probability relative to the base case. Here is a summary of the impact of an increase in default probability (expressed in terms of WARF level) on each of the rated notes (shown in terms of the number of notch difference versus the current model output, whereby a negative difference corresponds to higher expected losses), holding all other factors equal: Percentage Change in WARF: WARF + 15% (to 3249 from 2825) Ratings Impact in Rating Notches: Class A Senior Secured Floating Rate Notes: 0 Class B-1 Senior Secured Floating Rate Notes: -2 Class B-2 Senior Secured Fixed Rate Notes: -2 Class C Deferrable Mezzanine Floating Rate Notes: -2 Class D Deferrable Mezzanine Floating Rate Notes: -2 Class E Deferrable Junior Floating Rate Notes: 0 Class F Deferrable Junior Floating Rate Notes: 0 Percentage Change in WARF: WARF +30% (to 3673 from 2825) Class A Senior Secured Floating Rate Notes: 0 Class B-1 Senior Secured Floating Rate Notes: -3 Class B-2 Senior Secured Fixed Rate Notes: -3 Class C Deferrable Mezzanine Floating Rate Notes: -4 Class D Deferrable Mezzanine Floating Rate Notes: -3 Class E Deferrable Junior Floating Rate Notes: -1 Class F Deferrable Junior Floating Rate Notes: -1 HARVEST CLO XIX: Moody's Assigns B2 Rating to Class F Notes ----------------------------------------------------------- Moody's Investors Service announced that it has assigned the following definitive ratings to notes issued by Harvest CLO XIX DAC: EUR 1,500,000 Class X Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aaa (sf) EUR 248,000,000 Class A Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aaa (sf) EUR 22,000,000 Class B-1 Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aa2 (sf) EUR 20,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2031, Definitive Rating Assigned Aa2 (sf) EUR 26,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned A2 (sf) EUR 22,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned Baa2 (sf) EUR 22,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned Ba2 (sf) EUR 12,000,000 Class F Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned B2 (sf) RATINGS RATIONALE Moody's definitive ratings of the rated notes address the expected loss posed to noteholders by the legal final maturity of the notes in 2031. The definitive ratings reflect the risks due to defaults on the underlying portfolio of loans given the characteristics and eligibility criteria of the constituent assets, the relevant portfolio tests and covenants as well as the transaction's capital and legal structure. Furthermore, Moody's is of the opinion that the collateral manager, Investcorp Credit Management EU Limited, has sufficient experience and operational capacity and is capable of managing this CLO. Harvest CLO XIX DAC is a managed cash flow CLO. At least 90.0% of the portfolio must consist of senior secured loans and senior secured bonds and up to 10.0% of the portfolio may consist of unsecured obligations, second-lien loans, mezzanine loans and high yield bonds. The portfolio is expected to be approximately 75% ramped up as of the closing date and to be comprised predominantly of corporate loans to obligors domiciled in Western Europe. Investcorp will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's 4.1-year reinvestment period. Thereafter, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk and credit improved obligations, and are subject to certain restrictions. In addition to the eight classes of notes rated by Moody's, the Issuer issued EUR 40M of subordinated notes, which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in August 2017. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. Investcorp's investment decisions and management of the transaction will also affect the notes' performance. Loss and Cash Flow Analysis: Moody's modeled the transaction using CDOEdge, a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2017. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the binomial distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario and (ii) the loss derived from the cash flow model in each default scenario for each tranche. As such, Moody's encompasses the assessment of stressed scenarios. Moody's used the following base-case modeling assumptions: Par amount: EUR 400,000,000 Diversity Score: 40 Weighted Average Rating Factor (WARF): 2670 Weighted Average Spread (WAS): 3.40% Weighted Average Recovery Rate (WARR): 42.0% Weighted Average Life (WAL): 8.5 years As part of its analysis, Moody's has addressed the potential exposure to obligors domiciled in countries with a local currency country risk ceiling of A1 or below. Given the portfolio constraints and the current sovereign ratings in Europe, such exposure may not exceed 10% of the total portfolio with exposures to countries with local currency country risk ceiling of Baa1 to Baa3 further limited to 5%. As a worst case scenario, a maximum 5% of the pool would be domiciled in countries with A3 and a maximum of 5% of the pool would be domiciled in countries with Baa3 local currency country ceiling each. The remainder of the pool will be domiciled in countries which currently have a local currency country ceiling of Aaa or Aa1 to Aa3. Given this portfolio composition, the model was run with different target par amounts depending on the target rating of each class as further described in the methodology. The portfolio haircuts are a function of the exposure size to peripheral countries and the target ratings of the rated notes and amount to 0.75% for the Class X Notes and Class A Notes, 0.50% for the Class B-1 Notes and Class B-2 Notes, 0.38% for the Class C Notes and 0% for classes D, E and F. Stress Scenarios: Together with the set of modeling assumptions above, Moody's conducted additional sensitivity analysis, which was an important component in determining the definitive ratings assigned to the rated notes. This sensitivity analysis includes increased default probability relative to the base case. Here is a summary of the impact of an increase in default probability (expressed in terms of WARF level) on each of the rated notes (shown in terms of the number of notch difference versus the current model output, whereby a negative difference corresponds to higher expected losses), holding all other factors equal. Change in WARF: WARF + 15% (to 3071 from 2670) Ratings Impact in Rating Notches: Class X Senior Secured Floating Rate Notes: 0 Class A Senior Secured Floating Rate Notes: 0 Class B-1 Senior Secured Floating Rate Notes: -2 Class B-2 Senior Secured Fixed Rate Notes: -2 Class C Senior Secured Deferrable Floating Rate Notes: -2 Class D Senior Secured Deferrable Floating Rate Notes: -2 Class E Senior Secured Deferrable Floating Rate Notes: -1 Class F Senior Secured Deferrable Floating Rate Notes: 0 Percentage Change in WARF: WARF +30% (to 3471 from 2670) Ratings Impact in Rating Notches: Class X Senior Secured Floating Rate Notes: 0 Class A Senior Secured Floating Rate Notes: -1 Class B-1 Senior Secured Floating Rate Notes: -3 Class B-2 Senior Secured Fixed Rate Notes: -3 Class C Senior Secured Deferrable Floating Rate Notes: -4 Class D Senior Secured Deferrable Floating Rate Notes: -3 Class E Senior Secured Deferrable Floating Rate Notes: -1 Class F Senior Secured Deferrable Floating Rate Notes: -2 HARVEST CLO XIX: Fitch Assigns B-sf Final Rating to Class F Notes ----------------------------------------------------------------- Fitch Ratings has assigned Harvest CLO XIX DAC notes final ratings, as follows: EUR1.5 million Class X: 'AAAsf'; Outlook Stable EUR248 million Class A: 'AAAsf'; Outlook Stable EUR22 million Class B-1: 'AAsf'; Outlook Stable EUR20 million Class B-2: 'AAsf'; Outlook Stable EUR26 million Class C: 'Asf'; Outlook Stable EUR22 million Class D: 'BBBsf'; Outlook Stable EUR22 million Class E: 'BBsf'; Outlook Stable EUR12 million Class F: 'B-sf'; Outlook Stable EUR40 million subordinated notes: not rated Harvest CLO XIX DAC is a cash flow collateralised loan obligation (CLO). Net proceeds from the issuance of the notes are being used to purchase a EUR400 million portfolio of mostly European leveraged loans and bonds. The portfolio is actively managed by Investcorp Credit Management EU Limited. The CLO envisages a 4.1- year reinvestment period and an 8.5-year weighted average life (WAL). KEY RATING DRIVERS 'B+'/'B' Portfolio Credit Quality Fitch places the average credit quality of the obligors in the 'B+/B' range. The Fitch weighted average rating factor (WARF) of the identified portfolio is at 31.4, below the indicative maximum covenant of 33. High Recovery At least 90% of the portfolio will consist of senior secured obligations. Fitch views the recovery prospect for these assets as more favorable than for second lien, unsecured and mezannine assets. The Fitch weighted average recovery rate (WARR) of the identified portfolio is at 67%, above the minimum covenant of 64%. Stress Portfolio For the analysis, Fitch created a stress portfolio based on the transaction's portfolio profile tests and collateral quality tests. These included a top 10 obligor at 20% limit, an 8.5-year WAL, a top industry limit of 17.5% with the top three industries at 40%, and a maximum 'CCC' bucket at 7.5%. Limited Interest Rate Exposure Up to 10% of the portfolio can be invested in fixed-rate assets, while fixed-rate liabilities represent 5% of the target par. Fitch modelled both 0% and 10% fixed-rate buckets and found that the notes can withstand the interest rate mismatch associated with each scenario. RATING SENSITIVITIES A 125% default multiplier applied to the portfolio's mean default rate, and with this increase added to all rating default levels, would lead to a downgrade of up to two notches for the rated notes. A 25% reduction in recovery rates would lead to a downgrade of up to two notches for the rated notes. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. =========== R U S S I A =========== EVRAZ GROUP: Moody's Hikes CFR to Ba2, Outlook Stable ----------------------------------------------------- Moody's Investors Service has upgraded Evraz Group S.A.'s (Evraz) corporate family rating (CFR) to Ba2 from Ba3, probability of default rating (PDR) to Ba2-PD from Ba3-PD and senior unsecured ratings assigned to the notes issued by Evraz to Ba3 from B1. The outlook on Evraz's ratings has been changed to stable from positive. "We have upgraded Evraz's ratings based on our expectation that the company will be able to sustain its reduced leverage, continue to balance debt reductions with dividend payouts, and maintain healthy liquidity and positive post-dividend free cash flow," says Artem Frolov, a Vice President - Senior Credit Officer at Moody's. RATINGS RATIONALE Moody's upgrade of Evraz's rating to Ba2 reflects Moody's expectation that Evraz will (1) continue to reduce its total debt and maintain its leverage below 2.5x Moody's-adjusted total debt/EBITDA, provided there is no major deterioration in the steel and coking coal markets; (2) tailor its dividend payouts to the steel and coking coal market pricing environment and continue to generate solid post-dividend free cash flow; and (3) retain healthy liquidity. As of December 31, 2017, Evraz's leverage declined to 2.1x from 4.0x at year-end 2016 and 4.6x at year-end 2015. The decline in leverage was driven primarily by the 72% increase in the company's Moody's-adjusted EBITDA in 2017 to $2.6 billion, due to higher steel and particularly coking coal prices, as well as continuing reduction in debt. Moody's expects Evraz's leverage to remain around 2.0x over the next 12-18 months, provided there is no major decline in steel and coking coal prices and the company pursues conservative financial policies despite the resumed dividend payouts. However, the company's EBITDA and, consequently, leverage remain sensitive to the volatile prices of steel and coking coal, as well as the RUB/USD exchange rate. If prices were to materially decline and/or rouble to strengthen (although this is not Moody's central scenario), Evraz's leverage could grow materially above 2.5x in 2019. This leverage would be still commensurate with Evraz's Ba2 rating but above the threshold of 2.5x which the rating agency has set for a potential upgrade to Ba1. Evraz's Ba2 rating also factors in (1) the company's profile as a low-cost integrated steelmaker, including low cash costs of coking coal and iron ore production; (2) its high self- sufficiency in iron ore and coking coal; (3) its product, operational and geographical diversification; (4) its strong market position in long steel products in Russia, including leadership in rail manufacturing; (5) the improved demand for long steel products in Russia, and oil country tubular goods (OCTG) and rails in North America; and (6) the company's long- term debt maturity profile and strong liquidity, including its sizeable cash cushion. At the same time, Evraz's rating takes into account (1) the lack of clearly articulated financial policies, which creates uncertainty over the company's long-term target leverage and debt amount; (2) the fact that the company's public guidance indicates only minimum dividend amount but lacks any target payout ratio, although Moody's expects future dividend payouts not to drive free cash flow to a negative territory; (3) the as-yet sluggish demand for steel in the Russian construction sector, which is the major consumer of Evraz's steel products, although Moody's expects this demand to improve over 2018-19; (4) the uncertainty with regards to the effect of the 25% steel import tariff, imposed by the US in March 2018, on Evraz's business in North America, although Moody's does not expect it to have any material effect on Evraz's consolidated financial performance; and (5) continued volatility in prices of steel and coking coal. The Ba3 rating of Evraz's senior unsecured notes is one notch below the company's CFR. This differential reflects Moody's view that the notes are structurally subordinated to more senior obligations of the Evraz group, primarily to unsecured borrowings at the level of the group's operating companies, including its two core steelmaking plants Evraz NTMK and Evraz ZSMK. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects the company's solid positioning within the current rating category, despite the volatility in steel and coking coal prices and the lack of clearly articulated financial and dividend policies. WHAT COULD CHANGE THE RATINGS UP/DOWN Moody's could upgrade Evraz's ratings if the company (1) maintains its Moody's-adjusted gross debt/EBITDA below 2.5x on a sustainable basis; (2) continues to reduce debt and generate positive post-dividend free cash flow; (3) adopts clearly articulated financial and dividend policies; and (4) continues to pursue conservative liquidity management and maintains healthy liquidity. Moody's could downgrade the ratings if the company's (1) Moody's- adjusted gross debt/EBITDA rises above 3.5x on a sustained basis; (2) post-dividend free cash flow becomes sustainably negative; or (3) liquidity and liquidity management deteriorate materially. However, a rating downgrade is unlikely over the next 12-18 months, given the company's leverage headroom and the current favourable market environment. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Steel Industry published in Semptember 2017. COMPANY PROFILE Evraz is one of the largest vertically integrated steel, mining and vanadium companies in Russia. The company's main assets are steel plants and rolling mills (in Russia, North America, Europe and Kazakhstan), iron ore and coal mining facilities, as well as trading assets. In 2017, Evraz generated revenue of $10.8 billion (2016: $7.7 billion) and Moody's-adjusted EBITDA of $2.6 billion (2016: $1.5 billion). EVRAZ plc currently holds 100% of the company's share capital and is jointly controlled by Roman Abramovich (30.52%), Alexander Abramov (20.92%), Alexander Frolov (10.45%), Gennady Kozovoy (5.80%), Alexander Vagin (5.74%) and Eugene Shvidler (3.03%). IRKUT CORPORATION: Moody's Cuts CFR to B1, Outlook Stable --------------------------------------------------------- Moody's Investors Service has downgraded to B1 from Ba3 the corporate family rating (CFR) and to B1-PD from Ba3-PD the probability of default rating (PDR) of IRKUT Corporation, JSC (Irkut), a government-related, leading military aircraft producer in Russia. The outlook has been changed to stable from negative. The downgrade is driven by the continued deterioration in Irkut's standalone credit profile, as measured by the company's baseline credit assessment (BCA), which amplifies the company's reliance on government support for its daily operations during this heavy investment phase in MC-21 project implementation. RATINGS RATIONALE Moody's downgrade of Irkut's rating to B1 from Ba3 was triggered by deterioration in Irkut's standalone creditworthiness (BCA) to caa1 from b3 under Moody's government-related issuer (GRI) methodology. Irkut's B1 rating continues to factor in sizeable uplift to its caa1 BCA, given Moody's assumption of the strong probability of state support in the event of financial distress. Irkut's standalone creditworthiness has materially weakened over the last few years due to a combination of sizeable debt-funded research and development costs for a new generation civil aircraft MC-21, and reduction in high-margin export military sales. Low-margin contracts for military aircrafts with Russia's Ministry of Defense have been insufficient to support funding of the MC-21 programme without a substantial increase in new debt and leverage. Thus, the company's Moody's adjusted debt/EBITDA, net of convertible shareholder loans, elevated to 11.9x in 2016 and then became negative in 2017, while adjusted EBIT/Interest expense worsened to negative 0.6x in 2017 from positive 0.5x in 2016, on the back of a negative profitability (which factors in research and development spending as per Moody's adjustments). Moody's expects Irkut's operating performance to remain weak over the next 12-18 months, coupled with the growing investments in the MC-21 project. Negative free cash flow generation in 2018-19 is likely to be debt funded, escalating leverage through 2019. The credit risk is partially mitigated by the strategic nature of the MC-21 project for the Russian government, which orchestrates funding support for the project via the state controlled banks and state-related entities on a regular basis. Irkut's operating performance and, concurrently, leverage may improve after 2019, when the company expects to (1) start and ramp up commercial production and sales of the MC-21 and (2) increase share of higher-margin export revenue within its military aircraft segment. Moody's positively acknowledge that two MC-21 aircrafts successfully completed the maiden flights proving that the programme is generally on track, with the MC-21's entry into service scheduled for 2019. However, in Moody's view, so far as tests continue, the associated execution and delay risks, both in the certification and production stages, remain high. At the same time, Irkut's BCA positively factors in (1) strong backlog of state orders, and (2) solid cash reserves and undrawn committed facilities from the state banks. The former provides some visibility into the company's revenue, while the latter eases liquidity pressure. As Irkut is controlled by the Russian government, the company is seen by Moody's as a government-related issuer (GRI), whose B1 ratings benefit from an uplift to the company's standalone credit quality (as measured by its caa1 base line credit assessment) driven by the strong probability of state support in the event of financial distress. In addition, Irkut is highly dependent on the Russian government for aircraft construction orders and funding, and also benefits from the government's ongoing support such as partial funding of research costs, partial reimbursement of interest expenses and regular equity injections and interest-free loans. RATIONALE FOR THE STABLE OUTLOOK The stable outlook on Irkut's rating reflects Moody's expectation that (1) the company's credit metrics will not weaken materially further over the next 12-18 months; and (2) liquidity will continue to be at least adequate. The stable outlook also assumes no negative change in Russia's sovereign rating and in Moody's assumption of strong government support. WHAT COULD CHANGE THE RATING UP/DOWN Upward pressure on Irkut's rating is unlikely over the next 12-18 months, as the company will need to start and ramp up commercial production and sales of its MC-21 to support the recovery of its financial profile, and given that no material improvements in its military aircraft segment are envisaged through 2019. Irkut's rating could be downgraded if (1) Russia's sovereign rating was downgraded; (2) the probability of the Russian government providing extraordinary support to Irkut diminished; (3) execution of the MC-21 project was materially delayed; (4) difficulties in obtaining external funding emerged; or (5) Irkut's financial profile deteriorated further or liquidity weakened, on a sustained basis. PRINCIPAL METHODOLOGY The methodologies used in these ratings were Aerospace and Defense Industry published in March 2018, and Government-Related Issuers published in August 2017. COMPANY PROFILE IRKUT Corporation, JSC (Irkut) is a leading military aircraft producer controlled by the Russian government and one of the largest companies in the Russian aviation industry. In 2017, Irkut generated revenue of approximately RUB84.5 billion. KOKS PAO: Fitch Affirms Long-Term IDRs at 'B', Outlook Stable ------------------------------------------------------------- Fitch Ratings has affirmed Russian pig iron company PAO Koks Group's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'B'. The Outlook is Stable. The affirmation of the IDRs reflect KOKS' more comfortable debt position having delevered from a peak of 5.4x funds from operations (FFO) adjusted gross leverage at end-2015 to 4.0x. This was largely due to significant market price recovery, as well as coal and pig iron production growth. Fitch expects the deleveraging trend to continue, albeit at a slower pace in coming years. In particular, Fitch conservatively assumes that post-2018 output increases in coal, iron ore concentrate and pig iron will be mitigated by price moderation, resulting in EBITDA of around RUB19 billion, marginally positive free cash flow (FCF), and leverage trending towards 3x, the positive guidance level, by end-2020. KEY RATING DRIVERS Deleveraging on Prices and Expansions: KOKS's FFO adjusted gross leverage was 4.0x in 2017, down from 4.4x in 2016 as sales increased to RUB85 billion and EBITDA increased to RUB17 billion. This was driven by a price rally across the coal and iron ore value chain as well as nearly 30% coal output growth. Fitch expects gross leverage to decline further in 2018 to 3.5x as prices stay elevated and coal operations continue to expand, coupled with RUB15 billion capex and Tula-Steel project funding. Beyond 2018, Fitch expects a 10% pig iron price correction and a mid-teens correction in coal and iron ore, offset by further coal and iron ore expansion contributing to sales around RUB80 billion-RUB85 billion and EBITDA plateauing around RUB19 billion. Coupled with no further Tula-Steel funding after 2018 from KOKS' balance sheet, and capex-to-sales staying around 12%, Fitch expects the group's FCF to return to positive at around 3% allowing for modest deleveraging towards around 3x in 2020. Coal Self-sufficiency Completion Ahead: In 2017, the group had self-sufficiency of 63% in coal (up from 43% in 2016), 65% in iron ore concentrate and 100% in coke. KOKS will continue to focus its organic growth strategy in achieving full self- sufficiency in coal (driven by Butovskaya and Tikhova mine expansion) and iron ore (driven by KMA Ruda expansion) by 2021. Earlier expected coal self-sufficiency by 2017 was delayed as part of the Butovskaya mine operations were suspended due to high methane emissions. However, the output gap between current and one year-ago plans for 2020 coal output differ by only 0.3 million tonnes. Tula-Steel Project Consolidation: Koks is participating in a steel project in Russia with two partners, DILON Cooperatief U.A. and OOO Stal, which control the Tula-Steel project through equity interests of 67% and 33%, respectively. All three parties are ultimately controlled by the Zubitskiy family. The group has no equity participation, legal ties or debt recourse to, nor does it consolidate the Tula-Steel project. However, the group has been the sole project investor (end-2017: RUB7.8 billion, end-2016: RUB6.8 billion) excluding Gazprombank's committed RUB30 billion project financing (end-2017: RUB20.7 billion drawn). Tula-Steel will produce specialty steel for the machinery and automotive sectors, sourcing hot pig iron from the Tulachermet plant. KOKS may consolidate Tula-Steel once the project's leverage moderates. Fitch currently does not consolidate the project due to lack of legal ties and moderate strategic importance to the group. Strong Pig Iron Position: The group is Russia's largest merchant coke producer and the world's largest exporter of merchant pig iron with a 16%-17% market share, with North America and Europe being the key destinations. The group specialises in commercial pig iron and focuses on increasing its presence in premium pig iron used in automotive, machinery and tools industries, requiring high-purity pig iron with low sulphur and phosphorous content. Material Related Party Transactions: KOKS's significant related party transactions include loan funding of the Tula-Steel project with the same ultimate beneficiaries as KOKS. KOKS' Tulachermet has also entered into the agreement together with its Tula-Steel partners DILON Cooperatief U.A. and OOO Stal to jointly and severally finance any Tula-Steel project funding shortfall, for an amount up to the outstanding debt under the loan facility. KOKS' pig iron and other exports totalling RUB40 billion, or 47% of the group's RUB85 billion revenues in 2017, were routed through a trader which the company's auditors qualify as a related party under common control. Given the arms-length basis of trading operations, with limited difference between realised and market-based pig iron dynamics, and taking into account the relatively small pig iron merchant market with limited number of traders, Fitch does not currently view this as a significant risk to the company's profile. DERIVATION SUMMARY KOKS ranks behind CIS metals and mining closest peers Evraz plc (BB-/Positive), JSC Holding Company Metalloinvest (BB/Stable) and METINVEST B.V. (B/Positive, capped by the sovereign) in terms of scale of operations, operational diversification and share of value-added products. KOKS's scale more comparable to Ukrainian pellet producer Ferrexpo (B/Positive) while its margins fall behind. KOKS' financial profile, including financial leverage, ranks slightly behind those of Evraz, Metalloinvest and METINVEST, while its margins are more commensurate with Evraz and METINVEST but not with higher-margin Metalloinvest and Ferrexpo. No country-ceiling, parent/subsidiary or operating environment aspects impacts the rating. KEY ASSUMPTIONS Fitch's Key Assumptions Within its Rating Case for the Issuer - Realised pig iron price up by mid-to-high single digit level in 2018 before a 10% correction from 2018 - Coal self-sufficiency at 70%-75% from 2019 and above 100% from 2021 as Butovskaya and Tikhova mines expand - Average USD/RUB rate of 58 in 2018 and 59 thereafter - Capex/sales of around 12% and no dividends during 2018-2020 - RUB7 billion-RUB8 billion loan to non-consolidated Tula-Steel in 2018 Fitch's Key Recovery Rating Assumptions: The recovery analysis assumes that KOKS would be considered a going concern in bankruptcy and that the company would be reorganised rather than liquidated. Fitch has assumed 10% administrative claim in the recovery analysis. KOKS recovery analysis assumes a post-reorganisation EBITDA at RUB13 billion, or 25% below its LTM EBITDA of RUB17 billion, to incorporate the potential price moderation and volatility across KOKS' product portfolio. A distressed EV/EBITDA multiple of 4.5x has been used to calculate post-reorganisation valuation and reflects a mid-cycle multiple. This is in line with other natural resources 'B' rating category issuers reflecting substantial market position in global merchant pig iron market and adequate growth prospects. Fitch's assumptions result in a 58% recovery corresponding hypothetically to a 'RR3' recovery for the senior unsecured loan participation notes which rank pari passu with other senior unsecured drawn and undrawn committed debt across the group, and subordinated to the secured drawn and undrawn committed debt. However, as KOKS operates within Russian jurisdiction, the Recovery Rating is capped at 'RR4/50%', and hence the 'B' senior unsecured rating is in line with KOKS' IDR. RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action - FFO adjusted leverage at or below 3x - Enhanced business profile through larger scale and/or product diversification Developments that May, Individually or Collectively, Lead to Negative Rating Action - Market deterioration or underperformance of new capacities driving FFO adjusted gross leverage above 4x - Increasing reliance on short term debt financing or tightening of liquidity with liquidity ratio falling below 1x - FFO fixed charge falling to below 2.0x LIQUIDITY Improved Liquidity after Eurobond Placement: KOKS' successful placement of USD500 million 7.5% loan participation notes in May 2017 diminished the liquidity risk that underpinned the Negative Outlook prior to June 2017. Moreover, it allowed KOKS to strengthen its negotiating position with banks for refinancing existing debt. End-2017 debt maturities due in 2018 are a manageable RUB11 billion during 2018, rising to RUB13 billion in 2019-2020, down to RUB6 billion in 2021, and peaking at RUB29 billion in 2022 as USD500 million LPNs mature. FULL LIST OF RATING ACTIONS PAO Koks - Long-Term Foreign-Currency IDR affirmed at 'B'; Outlook Stable - Long-Term Local-Currency IDR affirmed at 'B'; Outlook Stable - Short-Term IDR affirmed at 'B' Koks Finance DAC - Senior unsecured rating for Eurobond issue due in 2018 and 2022 affirmed at 'B'(RR4) SUEK JSC: Moody's Hikes CFR to Ba2 & Alters Outlook to Stable ------------------------------------------------------------- Moody's Investors Service has upgraded SUEK JSC's corporate family rating (CFR) to Ba2 from Ba3, probability of default rating (PDR) to Ba2-PD from Ba3-PD, and changed the outlook on these ratings to stable from positive. Concurrently, Moody's has upgraded senior unsecured ratings of the bonds issued by SUEK Finance, a Russia-domiciled wholly owned subsidiary of SUEK, to Ba2 from Ba3. The outlook of SUEK Finance has also been changed to stable from positive. "We have upgraded SUEK's ratings based on our expectation that the company will continue to deleverage, pursue balanced financial policies and maintain sufficient liquidity," says Artem Frolov, a Vice President - Senior Credit Officer at Moody's. RATINGS RATIONALE Moody's upgrade of SUEK's rating to Ba2 reflects Moody's expectation that SUEK will (1) reduce its leverage towards 2.0x Moody's-adjusted total debt/EBITDA over the next 12-18 months from 2.5x at year-end 2017; (2) pursue balanced financial policies, with positive free cash flow generation and moderate, if any, dividend payouts to the controlling shareholder; and (3) retain at least adequate liquidity. SUEK's leverage declined to 2.5x at the end of 2017 from 3.5x a year earlier, driven primarily by the increase in the company's Moody's-adjusted EBITDA by $585 million to around $1.7 billion on higher seaborne thermal coal prices. The improved EBITDA has offset the negative impact on SUEK's leverage from the rise in its Moody's-adjusted debt by $320 million to $4.1 billion. This rise in Moody's-adjusted debt resulted mainly from the increased number of railcars in operating lease, for which Moody's makes a standard adjustment to debt. The company's EBITDA and, consequently, leverage remain sensitive to the volatile prices of thermal coal, as well as rouble exchange rate to US dollar. However, Moody's expects that over the next 12-18 months average prices for thermal coal will remain sufficiently high for the company to maintain its leverage below the 2.5x threshold that the rating agency has set for SUEK's Ba2 rating. SUEK's Ba2 rating also factors in (1) the company's status as a global thermal coal producer; (2) the company's competitive operating costs on the back of the weak rouble and cost- efficiency measures; (3) its vast coal reserves and high operational diversification, with 26 operating sites; (4) the company's control over a considerable portion of its transportation infrastructure (including ports in Vanino, Murmansk and Maly, and a large railcar fleet), which improves stability and reduces costs of coal deliveries; (5) its high quality of coal products, and diversified domestic and international customer base; (6) its sustainable revenue from domestic sales, which is not linked to seaborne benchmark prices; and (7) the proximity of the company's mines to its power generation customers in Russia. At the same time, the rating takes into account (1) the high sensitivity of SUEK's earnings and leverage to the volatile thermal coal prices in seaborne markets and the rouble exchange rate; (2) the company's exposure to a single commodity, thermal coal; (3) its sizeable railway expenses, which mainly depend on the level of regulated cargo transportation tariffs in Russia; (4) the company's reliance on available credit facilities to maintain adequate liquidity; (5) SUEK's history of fairly aggressive liquidity management, as the company tends to address its large refinancing needs shortly before debt maturity dates, on the back of continued access to domestic and international debt financing; (6) the risks related to the company's concentrated ownership structure, although mitigated by good corporate governance; and (7) the uncertainty regarding the long- term development of carbon emission regulation, which could weaken global demand for thermal coal. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's expectation that the company will maintain its reduced leverage and continue to generate positive post-dividend free cash flow. WHAT COULD CHANGE THE RATINGS UP/DOWN Moody's could upgrade SUEK's ratings if the company were to (1) reduce its total debt and Moody's-adjusted total debt/EBITDA to around 1.5x; (2) generate positive post-dividend free cash flow; and (3) maintain healthy liquidity and build a track record of addressing its upcoming debt maturities in advance, all on a sustainable basis. Moody's could downgrade the ratings if (1) the company's Moody's- adjusted total debt/EBITDA were to exceed 2.5x on a sustained basis; (2) the company was unable to generate positive post- dividend free cash flow; or (3) its liquidity were to deteriorate materially. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Mining Industry published in April 2018. COMPANY PROFILE SUEK JSC is the holding company of Russia's largest producer of thermal coal and one of the world's top thermal coal producers. The company operates 18 opencast and 8 underground mines in eight geographical regions in Siberia and the Russian Far East. In 2017, the company generated revenues of $5.7 billion and Moody's- adjusted EBITDA of $1.7 billion. SUEK owns rail infrastructure, rail rolling stock, the Vanino Bulk Terminal (a coal terminal at Vanino in the Sea of Japan), the ice-free Murmansk Commercial Seaport in the northwest of Russia and a 49.9% stake in the Maly Port in the Russian Far East. The company's principal ultimate beneficiary is Andrey Melnichenko. SUEK JSC: Fitch Assigns First-Time 'BB' IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has assigned JSC SUEK a first-time Long-Term Issuer Default Rating (IDR) of 'BB' with Stable Outlook. SUEK is the largest Russian thermal coal producer and among the top-five global exporters of thermal coal, with annual production of over 100 million tonnes (mt) and mining assets located across several regions in Russia. Fitch views its business profile as commensurate with the low 'BBB' rating category, underpinned by a leading position in the domestic and global coal markets, competitive cash costs, ownership of transport and port infrastructure, and capex and dividend flexibility. The rating is constrained by high coal price volatility and a lack of commodity diversification. SUEK's funds from operations (FFO) adjusted gross leverage was 3.1x at end-2017. Fitch expects gross leverage to remain around 3x in 2018-2021 driven by its expectation of declining but still healthy thermal coal prices. SUEK's financial profile is commensurate with a 'BB' category rating. KEY RATING DRIVERS Large Thermal Coal Producer: SUEK is one of the top seaborne thermal coal exporters globally and is the largest supplier of brown coal in Russia. In 2017 the company exported half of its total 108mt of thermal coal production to the Asia-Pacific (APAC) and Atlantic markets. SUEK exports high quality hard coal processed through washing; export sales generate over 75% of its gross revenues. The company projects that its coal output will exceed 110mt over the next three years as new open-pit and underground mines in Kuzbass, Urgal and Primorye are developed. SUEK's coal reserve life is comfortable and exceeds 30 years. Lower-Margin Domestic Sales: Domestic revenues contribute around 20% of total revenues and mainly comprise sales of brown coal, which is lower priced than hard coal due to its lower calorific value. Domestic sales are stable, since volumes are mainly secured by long-term supply contracts with electric power plants and other utility companies, including the related Siberian Generating Company LLC (SGK). Domestic coal prices are linked to rouble inflation, and so are independent of export markets volatility, resulting in lower but more stable profitability for domestic sales. Transactions with SGK are carried out on an arms- length basis. Competitive Cost Position: SUEK has low cash production costs underpinned by a high share of open pit mined coal, both brown and hard, weak rouble and efficiency improvement measures implemented over the last years. The company benefits from vertical integration in the processing, washing and logistics infrastructure. SUEK owns major export ports Murmansk, Vanino and Maly and controls over half of open-top railcars needed for its operations. SUEK's mining assets are relatively remote from export sea ports compared with the global mining peers, but it is positioned on the first to second quartile of the global cost curve by total cash costs that stood at around USD50/t in 2017, according to CRU. Railcar Leases Increase Leverage: SUEK has significant rail transportation requirements. Availability of railcars is crucial for its operations, especially for export destinations. To address this issue and achieve greater control over railcar rates, SUEK is planning to increase both owned fleet and railcars under operating leases over the coming years. In its model, Fitch capitalises operating leases using the 6x multiple applicable for Russian issuers. SUEK's higher operating lease charge of USD180 million-USD190 million expected from 2018 adds around USD1.1 billion, or 25%-27% to its Fitch-calculated adjusted gross debt, compared with below 20% in 2015-2017. Leverage Stabilisation Expected: SUEK's leverage has decreased from previous peaks of 4.0x in 2014-2016 to 3.1x at end-2017 due to a coal price rebound, growth in higher-margin export sales and a continuing increase in the average grades of export coal due to washing. However, SUEK's EBITDA remains sensitive to export coal price volatility. The company can adjust to market downturns by cutting capex from the projected USD600 million per year to the maintenance level of around USD200 million-USD250 million per year. In addition, the company has previously not paid dividends due to relatively high leverage. At net debt/EBITDA leverage below 2.5x Fitch expects SUEK to commence dividend payments. However, it forecasts that SUEK will sustain neutral to marginally positive free cash flow (FCF). Overall, Fitch expects that FFO adjusted gross leverage will stabilise at around 3x over the next three years despite coal prices softening from 2017 highs. Fitch forecasts that in 2018- 2021 SUEK will moderately reduce its adjusted gross debt to USD4.2 billion from USD4.4 billion, despite high capital intensity and starting dividend payments. Solid Coal Fundamentals: Thermal coal remains a key energy source with above 35% share in the global power generation. Fitch and CRU expect that demand for thermal coal will be stable in the next 10 years. The projected decline in coal use in developed countries will be compensated by rising consumption in emerging markets, eg India and other APAC countries where it is necessary to add large baseload coal-fired power capacities. At the same time, increased penetration of competitive renewable sources and concerns over environmental issues put pressure on further coal consumption growth. From the supply side, social and environmental opposition to new mines result in fewer projects currently in the development phase, leading to a potential underinvestment in the industry, which should support prices in the mid-term. Nevertheless, Fitch conservatively assumeS that Newcastle 6000k will decline from the average of USD88/t this year towards USD75/t in 2021. Aggressive Liquidity Management: The placement of a new USD1,055 million pre-export finance (PXF) facility in March 2018 has resolved potential liquidity issues for 2018. However, debt consisting mostly of secured PXF is front-loaded with annual maturities of around USD900 million in 2019-2020, which raises the liquidity issue in these years. This is mitigated by large committed credit lines, diversified lender base comprising of European, Asian and Russian banks and successful liquidity management in prior periods. DERIVATION SUMMARY SUEK is Russia's top thermal coal producer operating 26 mines in several regions, and one of the largest exporters of seaborne thermal coal globally. SUEK is comparable with AO Holding Company Metalloinvest (BB/Stable) and PJSC ALROSA (BB+/Positive) in terms of scale, diversification and better-than-average mining cost position. However, SUEK lacks Metalloinvest's integration into steel production or ALROSA's global market leadership in raw diamonds. In comparison with a Russian gold producer PJSC Polyus (BB-/Positive), SUEK is larger in scale but its global cost curve position trails that of Polyus. SUEK's leverage profile is comparable with that of Polyus and Metalloinvest, but trails ALROSA's. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Thermal coal Newcastle 6000k in line with Fitch mid-cycle commodity price assumptions declining from 88USD/t in 2018 towards USD75/t in 2021; - Domestic coal price growth at slightly below rouble inflation rate; - Growth in coal production volumes to 110mt by 2020; - Capex in line with management guidance of around USD860 million in 2018 and USD600 million in 2019-2021 per year; - Dividend payments assumed from 2019 in the amount of USD300 million - USD550 million per year; - USD/RUB exchange rate of 58 in 2018; 59 in 2019 and thereafter. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - FFO adjusted gross leverage sustainably below 2.5x (end-2017: 3.1x) combined with an extended and smoother debt maturity profile. Developments That May, Individually or Collectively, Lead to Negative Rating Action - Subdued coal markets, aggressive dividends or M&A driving FFO adjusted gross leverage sustainably above 3.5x; - Negative FCF on a sustained basis; - EBITDAR margin sustainably below 20%; - Deteriorating liquidity position. LIQUIDITY Strong Liquidity Post-PXF: SUEK's liquidity position relies on substantial committed unused credit lines, mostly long-term, in the total amount of USD1.5 billion. In addition, its unrestricted cash amounted to USD323 million at December 31, 2017 and Fitch- projected FCF for 2018 is around USD500 million. These sources comfortably exceed the company's short-term debt of USD1 billion. SUEK's liquidity improved in March 2018 after it raised a new five-year PFX facility of USD1.1 billion with a two-year grace period, which covers all short-term debt maturities. UC RUSAL: Chief Executive, Seven Directors Quit After Sanctions --------------------------------------------------------------- Henry Foy and Alice Woodhouse at The Financial Times report that sanctions-hit Russian aluminium producer Rusal said its chief executive and seven directors had resigned, in an effort by the crisis-wracked company to distance itself from its oligarch owner Oleg Deripaska and win a reprieve from Washington. Mr. Deripaska and his entire aluminium-to-automobiles business empire was put under crippling US sanctions in April, cutting off him and his companies from dollar transactions and from doing business with US citizens, the FT discloses. The sanctions were aimed at punishing Moscow for what Washington called its "malign activity", including alleged interference in the 2016 US presidential election, the FT states. Rusal, the world's largest aluminium producer outside China, has seen its market value more than halve since then, and the company has scrambled to find ways to continue doing business as directors, customers and investors have cut ties, the FT relates. Purging the company of individuals linked with Mr. Deripaska to demonstrate that he no longer controls the company is part of a plan to have the sanctions eased, people close to the company told the FT, in a race against time before an October deadline. According to the FT, the Hong Kong-listed company said on May 24 that "in furtherance of such efforts" to avoid the sanctions, chief executive Alexandra Bouriko had resigned and seven directors would step down on June 28 and not seek re-election. All eight individuals were appointed by Mr. Deripaska or EN+, the aluminium producer's majority owner that the oligarch controls, the FT notes. Separately, the company warned the US sanctions regime meant it might have problems repaying debt, and that its production of metals and sales would be "severely impacted" unless it was granted sanctions relief, the FT relays. According to the FT, Rusal said in a statement that a "significant number of counterparties . . . communicated that they are likely to discontinue any existing contracts" after Oct. 23, the deadline set by Washington for US customers to wind down business with Rusal. The company added that "some financial institutions have limited processing of payments for or on behalf of the companies of the [group]", adding that Rusal "may not be able to maintain its operating performance at a certain level required to service and repay its indebtedness and that may result in current creditors accelerating repayment". ========= S P A I N ========= ALDESA AGRUPACION: Fitch Withdraws B(EXP) Rating on Senior Notes ---------------------------------------------------------------- Fitch Ratings has withdrawn the expected long-term instrument rating of 'B(EXP)' assigned to Aldesa Agrupacion Empresarial S.A.U.'s (Aldesa AE) proposed EUR300 million senior secured notes. Aldesa AE is a fully owned subsidiary of Grupo Aldesa S.A. (B/Stable). Fitch is withdrawing the expected rating assigned to the proposed senior secured notes, as Aldesa AE currently does not intend to proceed with the planned notes issuance. The expected rating was assigned on April 30, 2018. BBVA 6 FTPYME: Moody's Affirms Ca Rating on EUR32.3MM Cl. C Notes ----------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of two tranches and affirmed two tranches in two Spanish ABS-SME deals. Issuer: BBVA 6 FTPYME, FTA EUR50.3M (Current outstanding amount EUR 1.1M) Class B Notes, Upgraded to Aa1 (sf); previously on Apr 24, 2018 Ba1 (sf) Placed Under Review for Possible Upgrade EUR32.3M Class C Notes, Affirmed Ca (sf); previously on Mar 24, 2011 Confirmed at Ca (sf) Issuer: BBVA Leasing 1, FTA EUR82.5M (Current outstanding amount EUR 21.8M) Class B Notes, Upgraded to Baa2 (sf); previously on Apr 24, 2018 Ba1 (sf) Placed Under Review for Possible Upgrade EUR61.3M Class C Notes, Affirmed C (sf); previously on Dec 18, 2017 Affirmed C (sf) RATINGS RATIONALE Moody's upgrades conclude Moody's review, dated April 24, 2018, following the upgrade of the Government of Spain's sovereign rating to Baa1 from Baa2 and the raising of the country ceiling of Spain to Aa1 from Aa2. The ratings are also prompted by the increase in the credit enhancement available for the affected tranches due to portfolio amortization, which allows for ample coverage of the top obligor concentrations and mitigates strongly any concentration risk that could arise due to the low pool factor. Credit Enhancement levels for Class B notes in BBVA 6 FTPYME, FTA have increased to 52% from 36.7% over the last 6 months as a percentage of the notes. In the case of Class B notes in BBVA Leasing 1, Credit Enhancement levels have increased to 26.5% from 22.85% in the same period. The rating of the Class B notes in BBVA Leasing 1, FTA takes into account the very small shortfall due to lack of accrued interest on interest resulting from the notes not receiving interest for three years following interest deferral trigger breach. Revision of key collateral assumptions As part of the review, Moody's reassessed its default probabilities (DP) as well as recovery rate (RR) assumptions based on updated loan by loan data on the underlying pools and delinquency, default and recovery ratio update. Moody's maintained its DP on current balance and recovery rate assumptions as well as portfolio credit enhancement (PCE) due to observed pool performance in line with expectations on both BBVA 6 FTPYME, FTA and BBVA Leasing 1, FTA. Exposure to counterparties Moody's rating action took into consideration the notes' exposure to relevant counterparties, such as servicer, account banks or swap providers. Moody's considered how the liquidity available in the transactions and other mitigants support continuity of notes payments, in case of servicer default, using the CR Assessment as a reference point for servicers. Moody's also matches banks' exposure in structured finance transactions to the CR Assessment for commingling risk, with a recovery rate assumption of 45%. Moody's also assessed the default probability of the account bank providers by referencing the bank's deposit rating. Moody's assessed the exposure to the swap counterparties. Moody's considered the risks of additional losses on the notes if they were to become unhedged following a swap counterparty default by using CR Assessment as reference point for swap counterparties. Principal Methodologies: The principal methodology used in rating BBVA 6 FTPYME, FTA, Cl. B and Cl. C was "Moody's Global Approach to Rating SME Balance Sheet Securitizations" published in August 2017. The principal methodology used in rating BBVA Leasing 1, FTA, Cl. B and Cl. C was "Moody's Approach to Rating ABS Backed by Equipment Leases and Loans" published in December 2015. 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) reduction in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include: (1) performance of the underlying collateral that is worse than Moody's expected, (2) deterioration in the notes' available credit enhancement, (3) deterioration in the credit quality of the transaction counterparties, and (4) an increase in sovereign risk. FONCAIXA FTGENCAT 3: Moody's Affirms C Rating on Class E Notes -------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of five tranches, confirmed the ratings of two tranches and affirmed the ratings of seven tranches in three Spanish ABS-SME deals. Issuer: FONCAIXA FTGENCAT 3, FTA EUR449.3M (Current outstanding amount of EUR32.3M) Class A(G) Notes, Affirmed Aa1 (sf); previously on Apr 24, 2018 Upgraded to Aa1 (sf) EUR10.7M Class B Notes, Affirmed Aa1 (sf); previously on Apr 24, 2018 Upgraded to Aa1 (sf) EUR7.8M Class C Notes, Upgraded to Aa1 (sf); previously on Apr 24, 2018 A1 (sf) Placed Under Review for Possible Upgrade EUR6.5M Class D Notes, Confirmed at Ba1 (sf); previously on Apr 24, 2018 Ba1 (sf) Placed Under Review for Possible Upgrade EUR6.5M Class E Notes, Affirmed C (sf); previously on Feb 22, 2018 Affirmed C (sf) Issuer: FONCAIXA FTGENCAT 4, FTA EUR326M(Current outstanding amount of EUR59.9M) Class A(G) Notes, Affirmed Aa1 (sf); previously on Apr 24, 2018 Upgraded to Aa1 (sf) EUR9.6M (Current outstanding amount of EUR7.6M) Class B Notes, Upgraded to Aa1 (sf); previously on Apr 24, 2018 A1 (sf) Placed Under Review for Possible Upgrade EUR7.2M (Current outstanding amount of EUR5.7M) Class C Notes, Upgraded to Baa1 (sf); previously on Apr 24, 2018 Baa2 (sf) Placed Under Review for Possible Upgrade EUR6M (Current outstanding amount of EUR5.2M) Class D Notes, Confirmed at Ba3 (sf); previously on Apr 24, 2018 Ba3 (sf) Placed Under Review for Possible Upgrade EUR6M (Current outstanding amount of EUR5.0M) Class E Notes, Affirmed C (sf); previously on Dec 21, 2017 Affirmed C (sf) Issuer: FONCAIXA FTGENCAT 5, FTA EUR449.4M (Current outstanding amount of EUR187.1M) Class A(G) Notes, Affirmed Aa1 (sf); previously on Apr 24, 2018 Upgraded to Aa1 (sf) EUR21M Class B Notes, Upgraded to A1 (sf); previously on Apr 24, 2018 Baa1 (sf) Placed Under Review for Possible Upgrade EUR16.5M Class C Notes, Upgraded to Ba2 (sf); previously on Apr 24, 2018 Ba3 (sf) Placed Under Review for Possible Upgrade EUR26.5M Class D Notes, Affirmed C (sf); previously on Dec 21, 2017 Affirmed C (sf) The three transactions are ABS backed by small to medium-sized enterprise (ABS SME) loans located in Spain. Foncaixa FTGENCAT FTA 3, Foncaixa FTGENCAT FTA 4 and Foncaixa FTGENCAT FTA 5 were originated by CaixaBank, S.A. (Baa1/P-2). RATINGS RATIONALE Moody's rating action concludes the review of Notes placed on review for upgrade on April 24, 2018. These Notes were placed on review following the upgrade of the Government of Spain's sovereign rating to Baa1 from Baa2 and the raising of the country ceiling of Spain to Aa1 from Aa2. The rating actions are also prompted by the upgrade of CaixaBank, SA's Long Term deposit rating to Baa1 from Baa2. The LT Counterparty Risk Assessment was affirmed at Baa1(cr). In addition, credit enhancement (CE) levels for Class C Notes in Foncaixa FTGENCAT 3 FTA have increased to 22.68% from 18.36% over the past 12 months. For Classes B and C Notes in Foncaixa FTGENCAT 4 FTA, the CE levels have increased to 20.13% and 12.89% from 16.74% and 10.72% respectively in the same period. The CE increase for Class C Notes in Foncaixa FTGENCAT 5 FTA is to 10.18% from 7.77%, also over the past 12 months. Counterparty Exposure Moody's rating actions took into consideration the Notes' exposure to relevant counterparties, such as servicer, account banks or swap providers. Moody's considered how the liquidity available in the transactions and other mitigants support continuity of the Notes payments, in case of servicer default, using the CR Assessment as a reference point for servicers. Moody's also matches banks' exposure in structured finance transactions to the CR Assessment for commingling risk, with a recovery rate assumption of 45%. Moody's also assessed the default probability of the account bank providers by referencing the bank's deposit rating. Moody's assessed the exposure to the swap counterparties. Moody's considered the risks of additional losses on the Notes if they were to become unhedged following a swap counterparty default by using CR Assessment as reference point for swap counterparties. The principal methodology used in these ratings was 'Moody's Global Approach to Rating SME Balance Sheet Securitization' published in August 2017. 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 and (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. IM GROUP VII: Moody's Raises Rating on Class B Notes to Caa1 ------------------------------------------------------------ Moody's Investors Service upgraded the ratings of four tranches, confirmed the ratings of two tranches and affirmed the rating of one tranche in four Spanish ABS-SME deals. Issuer: EdT FTPYME PASTOR 3, FTA EUR15.4M (Current outstanding balance EUR 5.20 M) Class C Notes, Confirmed at B1 (sf); previously on Apr 24, 2018 B1 (sf) Placed Under Review for Possible Upgrade Issuer: GC FTPYME PASTOR 4, FTA EUR18.9M (Current outstanding balance EUR 18.75 M) Class D Notes, Confirmed at B2 (sf); previously on Apr 24, 2018 B2 (sf) Placed Under Review for Possible Upgrade EUR12.6M Class E Notes, Affirmed Ca (sf); previously on Apr 10, 2013 Downgraded to Ca (sf) Issuer: IM Grupo Banco Popular Empresas VII, FT EUR1825M Class A Notes, Upgraded to Aa2 (sf); previously on Apr 24, 2018 Upgraded to Aa3 (sf) EUR675M Class B Notes, Upgraded to Caa1 (sf); previously on Apr 24, 2018 Caa2 (sf) Placed Under Review for Possible Upgrade Issuer: IM GRUPO BANCO POPULAR LEASING 3, FT EUR 880M (Current outstanding balance EUR 539.91 M) Class A Notes, Upgraded to Aa1 (sf); previously on Apr 24, 2018 Upgraded to Aa3 (sf) EUR 220M Class B Notes, Upgraded to Caa1 (sf); previously on Apr 24, 2018 Caa2 (sf) Placed Under Review for Possible Upgrade The four transactions are ABS backed by small to medium-sized enterprise (ABS SME) loans located in Spain. EdT FTPYME PASTOR 3, FTA and GC FTPYME PASTOR 4, FTA were originated by Banco Pastor, S.A. but are now serviced by Banco Popular Espanol, S.A.. IM Grupo Banco Popular Empresas VII, FT and IM GRUPO BANCO POPULAR LEASING 3 were originated by Banco Popular Espanol, S.A. ("Banco Popular") and Banco Pastor S.A.U., both entities belonging to Grupo Banco Popular. RATINGS RATIONALE Moody's upgrades conclude Moody's review, dated April 24, 2018, following the upgrade of the Government of Spain's sovereign rating to Baa1 from Baa2 and the raising of the country ceiling of Spain to Aa1 from Aa2. The rating actions are also prompted by the upgrade of Banco Popular's deposit rating to A2/Prime-1 from Baa2/Prime-2 and the upgrade of the long-term Counterparty Risk Assessment (CR Assessment) to A3(cr) from Baa2(cr). Banco Popular acts as the issuer account bank in IM Grupo Banco Popular Empresas VII and IM Grupo Banco Popular Leasing 3. Exposure to counterparties Moody's rating action took into consideration the notes' exposure to relevant counterparties, such as servicer, account banks or swap providers. Moody's considered how the liquidity available in the transactions and other mitigants support continuity of notes payments, in case of servicer default, using the CR Assessment as a reference point for servicers. Moody's also matches banks' exposure in structured finance transactions to the CR Assessment for commingling risk, with a recovery rate assumption of 45%. Moody's also assessed the default probability of the account bank providers by referencing the bank's deposit rating. Moody's assessed the exposure to the swap counterparties. Moody's considered the risks of additional losses on the notes if they were to become unhedged following a swap counterparty default by using CR Assessment as reference point for swap counterparties. Principal Methodology: The principal methodology used in rating all deals except IM GRUPO BANCO POPULAR LEASING 3, FT was "Moody's Global Approach to Rating SME Balance Sheet Securitizations" published in August 2017. The principal methodology used in rating IM GRUPO BANCO POPULAR LEASING 3, FT was "Moody's Approach to Rating ABS Backed by Equipment Leases and Loans" published in December 2015. 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 and (3) improvements in the credit quality of the transaction counterparties and reduction 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 and an increase in sovereign risk. INVICTUS MEDIA: Fitch Affirms Long-Term IDR at 'BB-(EXP)' --------------------------------------------------------- Fitch Ratings has affirmed Invictus Media S.L.'s (Imagina) Long- Term Issuer Default Rating (IDR) at 'BB-(EXP)' with a Stable Outlook. Fitch has also affirmed the senior secured debt at 'BB- (EXP)'/'RR3' including the EUR300 million amortising term loan A (TLA), EUR380 million bullet term loan B (TLB) and EUR60 million revolving credit facility (RCF). Fitch has assigned an expected rating of 'B(EXP)/'RR6' to the new second lien tranche of EUR180 million, following the recent revision of the debt financing structure. All facilities are expected to be drawn at closing by Imagina and its direct subsidiary, Imagina Media Audiovisual, S.L. Proceeds from the issuance will be used to finance the acquisition of a majority stake in Imagina by Orient Hontai Capital Investment Co. Ltd including EUR52 million in transaction costs. The company will also refinance existing bank debt and use EUR50 million to improve liquidity. The final IDR and debt instrument ratings are contingent upon the completion of the proposed refinancing and the receipt of final loan documentation conforming materially to the information provided to Fitch in May 2018. Imagina's ratings reflect its mid-size business nature with material concentrations in its contract portfolio balanced by high earnings visibility and long-term or regularly renewed contracts. Fitch's projected financial risk profile with funds flow from operations (FFO) adjusted leverage averaging at 4.5x for 2018-2020 (about 4.0x on net basis) also support the 'BB- (EXP)' IDR. The Stable Outlook reflects Fitch's expectations of Imagina's steady operating performance supported by its contract portfolio and management's strong execution skills. KEY RATING DRIVERS Diversified Business Model: Imagina's vertically integrated business proposition around marketing of premium sports events overlaid with audiovisual services and content creation creates a diversified client and income base, which Fitch sees as credit positive, particularly when benchmarking the company against most of its direct peers with a mono-product focus. Given its business scale and size of EBITDA, Fitch sees Imagina as a smaller sector player that would be confined to the 'BB' rating category unless its sustainable EBITDA can be scaled up to above EUR500 million. However, when analysing the business profile in aggregate, Imagina's operations are supported by long-term or regularly renewed contracts for most of its EBITDA, making it a comparatively resilient business in the broader media sector. Cash Flows Embedded in Contracts: Earnings from the effective international agency agreement for La Liga's international rights with known contract economics, together with the operating contribution from the long-term contracts in the audiovisual and content divisions create an embedded cash flow base. Fitch estimates that this would permit Imagina to nearly fully cover its operating and debt service cash commitments until mid-2021. This defensive cash-flow profile partly mitigates Imagina's concentrated exposure to La Liga and the risks from non-extension or material adverse change in the terms of its agency agreement in three years' time. Concentrated Exposure to La Liga: A relevant proportion of Imagina's earnings depend on its international agency role with La Liga. This creates a significant risk for future cash flows for the next contract cycle, which begins in the 2021/2022 season. Fitch recognises Imagina's record of actively managing and broadening its relationship with La Liga, but from a credit perspective uncertainties remain with regard to the economics of the agency contract with La Liga, which could materially change Imagina's business risk in the longer term. Supportive Sports Content Demand Outlook: With a focus on most popular Spanish and European football leagues, Imagina benefits from the long-term rising global demand for premium sports content across various groups, including conventional TV operators and rapidly developing disruptive streaming service providers. A widely diversified content off-taker platform stimulated by strong consumer demand is supportive in optimising content monetisation strategies and mitigates the emergence of grossly imbalanced relationships between content providers and distributors. Leverage Commensurate with Rating: Fitch projects Imagina's leverage will remain well aligned with the 'BB-(EXP)' IDR. Following the buyout and recapitalisation in the short term, which Fitch expects to result in a starting FFO adjusted leverage of 5.5x (4.7x net) at year-end, it forecasts a dynamic EBITDA- driven organic de-leveraging to 3.8x gross (3.3x net) by end- 2020. This financial risk profile is also commensurate with Fitch's rated diversified media peers and provides sufficient headroom for the IDR. No Impact from Italian Rights: Fitch assumes the execution risk related to the acquisition of Serie A rights in Italy should have no impact on Imagina's IDR. This is based on the amount of recourse to the rated entity perimeter, which is capped under the draft financing documentation. Fitch therefore expects no further cash liability for Imagina arising in excess of this level. DERIVATION SUMMARY Fitch approaches Imagina's rating analysis in the context of the Ratings Navigator for diversified media companies and by benchmarking it against Fitch-rated selected rights management and content producing sector peers, none of which it considers to be a strong peer representation for the issuer given its vertically integrated business model. Based on the company's competitive position with EBITDA of about EUR200 million, a stronger regional rather than global sector relevance, high dependency on key accounts partly counter- balanced by medium-term earnings visibility, it would regard Imagina as a 'BB' business risk, placing it slightly better than Banijay Group SAS's (B+/Stable) unlevered credit quality. Compared with Pinewood Group Limited (BB/Stable), Imagina's operating profile is not as robust. Imagina's healthy cash-flow generation over the medium term allows for significant deleveraging (Fitch expects 2018-2020 average FFO adjusted leverage to be about 4.5x, 4.0x net), and compares well with peers at the 'B+'/'BB-' level. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Revenue growth in years 2017 to 2020 at a compound annual growth rate of around 12%, with the most significant contributor to revenue growth coming from the Sports rights business in particular Spanish football rights; - EBITDA margin is expected to remain flat at 11%-12% a year until 2020; - Core operational working capital as a percentage of sales to rise from about -6% in 2017 to -1% by 2020 as the sports rights business working capital cycle improves; - Fitch expects the company to continue acquiring small businesses in the media space that complement its asset portfolio, total outflow for M&A is assumed at EUR25 million a year with an assumed multiple to EBITDA of 5x; - Capital expenditure as a percentage of sales is forecast to remain at 2%-4% a year; - Dividends to shareholders are expected to be zero in all years. Recovery Assumptions Fitch followed the generic approach in its recovery analysis for issuers in the 'BB' range. Imagina faces increasing uncertainty of cash-flow generation from the sports rights businesses over the longer term due to contract renewal risk combined with a highly concentrated composition of EBITDA, where a loss of one or two football rights contracts could have a material lasting impact on the company's earnings and cash flows. Fitch's recovery assumptions reflect those underlying business risks leading to recovery expectations estimated at between 51% and 70% for the first ranking senior secured debt including TLA, TLB and RCF translating into the debt instrument rating of 'BB-'/'RR3'. The reduced size of the first lien debt in the capital structure has improved the recovery prospects but this was not sufficient to achieve a higher 'BB'/'RR2' instrument rating. Consequently, Fitch estimates zero recovery for the second lien of EUR180 million, leading to the second lien debt rating of 'B(EXP)'/RR6, two notches below the IDR. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Intact and growing portfolio of contracts leading to EBITDA expanding each year by EUR30 million-EUR50 million and EBITDA in excess of EUR300 million by end-2020; - Free cash flow growing towards EUR200 million by 2020 with free cash flow margins trending towards 10%; - FFO adjusted gross leverage sustainably below 4.0x and FFO adjusted net leverage sustainably below 3.5x. Developments That May, Individually or Collectively, Lead to Negative Rating Action - Loss of one or more contract for domestic rights or adverse change of La Liga's agency contracts leading to EBITDA remaining at about EUR200 million; - Free cash flow margin weakening towards zero; - No deleveraging after 2018 with FFO adjusted gross leverage remaining above 5.0x and FFO adjusted net leverage above 4.5x; - Further cash injections into MediaPro Italia s.r.l. in excess of the limit as defined in the senior facilities agreement; - Freely available cash reserves persistently declining towards EUR50 million. LIQUIDITY Ample Liquidity: Fitch projects freely available cash reserves to remain high sustainably in excess of EUR100 million during 2018- 2022 supported by healthy free cash flows. Such estimated residual cash balances would comfortably accommodate bolt-on acquisitions of EUR25 million a year, which it has factored in the rating case from 2018. Fitch projects the committed RCF of EUR60 million will remain undrawn over the rating horizon. In its liquidity analysis, Fitch have deducted EUR58 million as restricted cash comprising EUR50 million as minimum cash required for operations. Fitch has also made an adjustment of EUR8 million set aside for certain US sports rights payments and collections which are not available to debt service. FULL LIST OF RATING ACTIONS Invictus Media S.L. - Long-Term IDR: affirmed at 'BB-(EXP)'; Outlook Stable - Senior secured debt rating: affirmed at 'BB-(EXP)'/RR3 - Second lien debt rating assigned at 'B(EXP)'/RR6 ===================== S W I T Z E R L A N D ===================== SUNRISE COMMUNICATIONS: Fitch Affirms BB+ LT IDR, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Sunrise Communications Holdings S.A.'s (Sunrise) Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook. Fitch has also affirmed Sunrise's and Sunrise Communications AG's senior secured debt ratings at 'BBB-'. Sunrise's ratings are anchored around the company's number-two position in the Swiss mobile market. A strategy centred on network quality and convergence is leading to a strengthening in competitive position and a gradual increase in service revenue market share. The improvements have led to a 0.2x increase in the company's leverage threshold for its existing rating, providing greater headroom. Investments in spectrum and fibre combined with dividend increases are likely to leave limited capacity for organic deleveraging over the next three to four years. Fitch expects funds from operations (FFO) adjusted net leverage to remain broadly stable at 3.5x between 2018 and 2020. KEY RATING DRIVERS Stable Position, Low Share: Sunrise has a stable, number-two position in the Swiss mobile market. Over 70% of the company's total revenue (exc. hubbing) and a higher proportion of profits are driven by mobile services. Fitch estimates Sunrise has gradually increased its market share of mobile service revenue to around 23% from 21.5% over the past six years. The company is likely to sustain its competitive position in mobile given its key role in the Swiss telecoms market, focus on network quality and convergent product strategy. However, a relatively low market share of mobile service revenue impact cashflow scale that can leave little room for error on investment and operational fronts. Improving Gross Profit Reduces Risk: Sunrise stabilised a long- term decline in its gross profit in 2017. This was driven by a combination of factors including improvements in network quality, revenue growth across a number of business lines and segments including B2B, mobile services and fixed broadband and lower incremental impact from structurally declining legacy products. Fitch expects the factors that drove the stabilisation will continue over the next two to three years and lead to a reduction in operating risk. Fitch has reflected this by loosening the funds from operations (FFO) adjusted net leverage threshold for its rating by 0.2x, taking its upgrade and downgrade leverage metrics to 3.2x and 3.7x respectively. Fixed Line Growth, Medium-Term Risks: Sunrise has an 11% market share in fixed broadband and a 5% market share in TV. The company's revenue from the segments grew 14.5% in 2017, driven by an attractive TV and convergent product set. Recent wholesale deals with Swiss utility fibre companies should improve the economics for Sunrise over the next two to three years. However, the pace of market share growth is likely to remain tempered by low customer liquidity in the market. The launch of fixed line services by third mobile operator Salt with aggressive price plans could create pricing pressure and creates uncertainty for Sunrise. However, its impact is unlikely to be sizeable in the short-term. Tower Sale Adjustments: Fitch views Sunrise's service agreement following the sale of the company's tower assets as having similar qualities to a long-term lease obligation. As a result, Fitch has reclassified a proportion of the annual service cost paid for the use of the tower infrastructure as equivalent to being an operating lease expense. This also maintains the comparability of ratings between issuers in the sector. The reclassification has increased Sunrise's pro-forma annual lease rental expense in 2017 by CHF26 million to CHF117 million. The adjustment is based on its estimate of replicating the cost of the sold assets (see below). This cost has been amortised over nine years, taking into account Fitch's criteria for operating lease obligations in Switzerland, which are capitalised at a multiple of 9.0x. Organic Deleveraging Capacity Constrained: Sunrise is likely to be free cash flow (FCF)-negative over the next two years due to a combination of up-front investments in wholesale fibre, spectrum investments and increases in dividends. Following this period, the company's intended financial policy to grow dividends by 4% to 6% per year is likely to see dividend payments account for 80%-100% of pre-dividend FCF, depending on longer-term revenue growth, leaving limited organic deleveraging capacity. As result, Sunrise's FFO-adjusted net leverage should remain broadly stable at 3.5x over the next three years. This is comfortably within the new thresholds of the rating. DERIVATION SUMMARY The ratings of Sunrise reflect its predominantly mobile-centric operating profile that drives a majority of the company's profits and its challenger position in a market that is dominated by incumbent Swisscom. Sunrise has demonstrated stability in service revenue market share and some flexibility in dividend policy while improving leverage headroom within the rating support the company's strong 'BB+' rating. Higher-rated peers in the sector have stronger operating profiles as a result of greater mobile-only in-market scale and lower adjusted net leverage metrics such as Telefonica Deutschland Holdings AG (BBB/Positive) or have strong domestic positions in both mobile and fixed with the ownership of local loop infrastructure such as Royal KPN N.V. (BBB/Stable) or TDC A/S (BBB-/Stable). Operators such as VodafoneZiggo Group B.V (BB- /Negative) and Wind Tre S.p.A (B+/Stable) have stronger domestic positions but manage leverage at higher levels. KEY ASSUMPTIONS Fitch's Key Assumptions within Its Rating Case for the Issuer - Revenue growth of 0.5%-1% per year from 2018 to 2020 - EBITDA margin of 31% in 2018, gradually increasing to 32% by 2020 - Capex (excluding spectrum)-to-revenue of 17% in 2018, declining to around 14% thereafter - Dividend payments of CHF180 million in 2018 growing by around 6% p.a. in 2019 and 2020 RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Continued growth in mobile service revenue and improvement in fixed broadband market share - FFO-adjusted net leverage below 3.2x (2017: 3.2x) - FFO fixed charge cover above 3.7x on a sustained basis (2017: 4.5x) Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO-adjusted net leverage above 3.7x on a sustained basis - FFO fixed charge cover below 3.2x on a sustained basis - Loss of service revenue market share or expectations of sustained negative FCF (excluding spectrum payments) LIQUIDITY Sufficient liquidity: As of end-2017, Sunrise had CHF272 million of cash and cash equivalents (CHF281 million at end-1Q18) and an undrawn revolving credit facility of CHF200 million that matures in 2021. The company has no short-term debt maturities; its senior secured notes and term loan B are due only in 2022. FULL LIST OF RATING ACTIONS Sunrise Communications Holdings SA - Long-Term IDR: affirmed at 'BB+'; Outlook Stable - Senior secured notes: affirmed at 'BBB-' Sunrise Communications AG - Term loan B facility due 2022: affirmed at 'BBB-' =========================== U N I T E D K I N G D O M =========================== CAPITA PLC: Raises GBP681MM Through Rights Issue to Cut Debt ------------------------------------------------------------ Rhiannon Curry at The Telegraph reports that Capita has raised GBP681 million through a rights issue with almost all its investors backing the company's plan to pay down debt and plug its pension deficit. Capita announced plans to raise GBP701 million through the rights issue in April as part of an ambitious plan to turn the company around, The Telegraph relates. According to The Telegraph, the issue of one billion new shares at 70p pence each closed on May 24 with more than 97% of shareholders taking up the new shares. Under the terms of the issue, which had been priced at a heavy discount to Capita's trading price, shareholders who had two existing shares were entitled to subscribe for three new shares, The Telegraph states. The new shares were expected to begin trading on the London Stock Exchange on May 25, The Telegraph notes. The company's pre-tax losses had slipped to GBP513.1 million in 2017, from a loss of GBP89.8 million the year before, and it had racked up GBP1.2 billion of debt, The Telegraph discloses. Capita plc is a provider of technology-enabled business process management and outsourcing solutions. HOMEBASE: Westfarmers Sells Business to Hilco at Huge Loss ---------------------------------------------------------- Jamie Smyth and Alice Woodhouse at The Financial Time report that Wesfarmers has sold the troubled Homebase retail hardware chain to Hilco Capital, a distressed debt investor, for a nominal sum and is expected to book a further GBP200 million-GBP230 million loss on its disastrous foray into the UK. According to the FT, under the agreement, Hilco will buy all Homebase assets, including the brand, freehold property, inventory and up to GBP1 billion in property leases in a deal that marks the Australian conglomerate's retreat from its first major overseas expansion. Wesfarmers, the FT says, will participate in a value share mechanism with Hilco, which will entitle it to 20% of any equity generated from a sale of the business in the event of a successful turnround of Homebase. Rob Scott, Wesfarmers' managing director, said the UK's decision to leave the EU and the deteriorating macroeconomic climate fed into Wesfarmers' decision to quit Britain, the FT relates. "There is no doubt that the macro environment and outlook, particularly the retail market conditions and outlook, are more negative than when we first evaluated the opportunity," the report quoted Mr. Scott as saying. Homebase has 250 stores across the UK and Ireland, employing 11,000 people, the FT states. He downplayed reports of immediate widespread store closures and the possible use of a company voluntary arrangement, although he did not deny they were a possibility, the FT relays. Homebase had already drawn up a proposal for closing about 40 underperforming stores, the FT notes. ********* 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 * * *