/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/180921.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 Friday, September 21, 2018, Vol. 19, No. 188 Headlines F R A N C E ELIOR GROUP: Fitch Affirms BB Long-Term IDR, Outlook Stable ELIS SA: S&P Affirms 'BB+' Issuer Credit Rating, Outlook Stable LOUVRE BIDCO: S&P Assigns 'BB-' Rating to Senior Secured Notes I R E L A N D HARVEST CLO XVI: Fitch Assigns 'B-(EXP)' Rating to Class F-R Debt I T A L Y ASTALDI SPA: Lenders Seek Investment Funds to Provide New Loan N E T H E R L A N D S E-MAC PROGRAM II: Moody's Affirms Caa2 Rating on Class B Notes STARFRUIT TOPCO: Fitch Affirms 'B+(EXP)' Long-Term IDR UPC HOLDING: Moody's Affirms Ba3 CFR, Outlook Remains Negative R U S S I A ASIAN-PACIFIC BANK: Central Bank to Buy New Shares for RUR9 Bil. ORIENT EXPRESS: Moody's Reviews for Downgrade B3 LT Dep. Ratings RUSSIAN UNIVERSAL: Fitch Affirms Then Withdraws B+ LT IDRs S W E D E N CORRAL PETROLEUM: Fitch Affirms B+ LT IDR, Outlook Stable T U R K E Y TURKEY: Banks Agree to Help Companies Struggling with Debt U N I T E D K I N G D O M HOUSE OF FRASER: Collapse Hits French Connection's Finances HOUSE OF FRASER: S&P Withdraws 'D' Ratings Following Default ORLA KIELY: Enters Liquidation, 20 Jobs Affected WELLINGTON PUB: Fitch Affirms B- Rating on Class B Notes X X X X X X X X * BOOK REVIEW: Risk, Uncertainty and Profit ********* =========== F R A N C E =========== ELIOR GROUP: Fitch Affirms BB Long-Term IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed France-based contract and concession caterer Elior Group S.A.'s (Elior) Long-Term Issuer Default Rating (IDR) at 'BB' with Stable Outlook. The rating affirmation reflects a resilient business model characterised by revenue visibility, due to a high contract retention rate and benefiting from a growing trend of outsourcing in many sectors. This should support organic growth over the coming years, although the French market is reaching maturity. Given the recent decline in margins and increase of leverage above the 'BB' IDR sensitivities, rating headroom is low. Should the new management team not be successful at improving profitability and decreasing leverage within the next 18 months, the rating could be downgraded. KEY RATING DRIVERS Resilient Business Model: The rating continues to be underpinned by a stable and resilient business model, supported by long-term growth prospects and the ongoing trend towards outsourcing. Revenue is stable with low contract renewal risk, supported by medium- to long-term contracts in concession catering and high retention rates of over 90% in the contract catering business. The large scale, strong brand name, and diverse customer base of Elior support organic growth across all of its geographic markets and most of its segments, but the group is not immune to economic downturns, as some of its revenue is linked to local economies, employment levels, or budgetary pressures, and can be impacted by weaker consumer confidence and reduced spending. Margin Deterioration but Recovery Expected: In the last 18 months (financial year to September 2017-1HFY18) Elior saw its margins decline and revised its profit guidance twice. Although part of this profitability decline is due to non-recurring factors such as delays in the ramp-up of new contracts, pressure on margins is mounting in the French market, where the group is still concentrated (44% of 2017 sales, 47% of EBITDA) and due to higher existing outsourcing in some customer sectors. Due to cost initiatives and more discipline on contract pricing by new management, Fitch expects margins to slightly recover (EBIT margin forecasted by Fitch to increase to 4.8% in FY21 from 4.4% in FY18 in its updated rating case), albeit lower than FY15- FY16's 5.5%. Slower-Than-Expected Deleveraging: As a result of the lower profitability and free cash flow (FCF) generation, Elior will maintain higher leverage than assumed in its previous rating case. In addition, the group's strategy continues to rely on expansion in the US to diversify away from the more mature French market. This will involve bolt-on acquisitions, which Fitch assumes will largely be debt-funded. At the same time, Fitch expects spending will proceed at a more measured pace than with previous management and in line with the internal leverage target (net debt/EBITDA) of 3x. New Management, Execution Risks: Since December 2017 the group has largely renewed its management team, who introduced a new three-year plan in June 2018, including a focus on profitable growth, targeted international expansion (in particular through bolt-on mid-size acquisitions in the US), cost cutting, procurement and digital enhancements. Execution risk to implement this turnaround strategy remains sizeable when the group is facing more pressure on the French market. However, Fitch sees benefits from the strategy and believe the risk to be manageable, which therefore should not weigh on the group's 'BB' IDR. Limited Geographic Diversification: The rating continues to be constrained by lower geographical diversification relative to peers'. While its share is declining, France alone continued to account for about 47% of group EBITDA in FY17 (vs. 61% in FY14). The group's strategy to diversify into the US is credit-positive in Fitch's view, as this market is highly fragmented and supported by growth in demand for outsourcing. DERIVATION SUMMARY Elior is one of the leading contract and concession caterers globally, behind Compass Group PLC (A-/Stable) and Sodexo SA (BBB+/Stable). This reflects Elior's smaller scale, lower level of geographical diversification and a weaker financial profile . Aramark (bb+*/stable) is a US contract catering business with larger scale and better financial profile. Elis SA (BB+/Stable), a leading provider of flat linen and ancillary hospitality services, despite its lower scale and higher leverage, benefits from higher profitability and FCF generation, and is expected to demonstrate fast deleveraging over the coming years. Additionally, diversification is one of the main differentiating characteristics between Elis and Elior. Elior has a larger concentration in France (47% of FY17 EBITDA) while for Elis the share of France has significantly declined after its Berendsen acquisition (Fitch estimates France would represent around 35% of FY18 EBITDA). KEY ASSUMPTIONS - Mid single-digit annual revenue growth, with organic growth between 2.7% and 3% - EBITDA margin of 7.6% in FY18 and towards 8% in FY21 - Annual capex within EUR300 million as per management guidance, higher in FY18 and FY19 on the back of higher concession catering allocation - Acquisitions of EUR320 million over FY19-FY21 - Annual dividend 40% of net result, 30% forecasted to be distributed in shares RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Additional business diversification, by segment and/or geography, leading to improved revenue and profitability - Further deleveraging resulting in FFO adjusted gross leverage trending towards 4.0x (FY18F: 5.7x) - FFO fixed charge coverage above 3.5x on a sustained basis (FY17: 3.9x) - FCF (post dividends) of at least 2% of sales on a sustained basis (FY17: -0.5%) Developments That May, Individually or Collectively, Lead to Negative Rating Action - Evidence that the implementation of operational turnaround by new management is unsuccessful, underlying and acquired businesses are performing below its expectations and/or increases in the cost base leading to weak revenue growth and lower FFO margin to around 5% (FY17: 5.4%) - FFO adjusted gross leverage not being reduced to below 5.0x on a sustained basis and/or evidence that management is no longer committed to such deleveraging - FCF margin staying neutral or only marginally positive - FFO fixed charge coverage below 3.0x on a sustained basis LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: At FYE17 Elior had unrestricted cash (as defined by Fitch) of EUR110 million, together with access to around EUR483 million of undrawn credit facilities. At H1FYE18) there were larger drawings under the credit facilities, leaving around EUR300 million undrawn. However the group has increased the ceiling on its euro revolving credit facility (RCF) to EUR450 million from EUR300 million. Additionally, Elior has also extended the maturity of most of its term loans and RCF up to May 2023 with no maturities until FYE21, when its securitisation programme matures. SUMMARY OF FINANCIAL STATEMENT ADJUSTMENTS Fitch has adjusted available cash at FYE17 to reflect restricted cash of EUR30 miillion needed for seasonal changes in working capital requirements. Fitch has adjusted FYE17 debt by applying a multiple of 8.0x of yearly operating lease expense (EUR586 million for FYE17). 8x is a standard multiple Fitch uses for French companies. Fitch has adjusted the FYE17 debt to include off balance sheet factoring (EUR218 million). ELIS SA: S&P Affirms 'BB+' Issuer Credit Rating, Outlook Stable --------------------------------------------------------------- S&P Global Ratings affirmed its 'BB+' long-term issuer credit rating on France-based textile and appliances rental company Elis S.A. The outlook is stable. At the same time, S&P affirmed its 'BB+' issue rating on Elis' senior unsecured debt. S&P said, "The affirmation follows our upward revision of Elis' management and governance assessment to satisfactory from fair. This is due to the company's continued solid execution of its strategy and successful integration of Berendsen plc, which it acquired in September 2017. Earlier this year, Elis doubled its forecast of related cost and capital expenditure (capex) synergies, to EUR80 million from EUR40 million previously. At the same time, Elis significantly reduced its capex expectations. The company recently confirmed that the cost savings are substantial and the operational progress on the integration of Berendsen is going well, allowing Elis to uphold its full year targets. "We also acknowledge Elis' increasingly diverse shareholding structure. In 2015, the company underwent an IPO; its prior controlling private equity owner Eurazeo has subsequently reduced its stake, now holding less than 10%. Recent acquisitions have been funded with a mix of debt and equity, supporting further deleveraging. This indicates that Elis has implemented more stringent risk management standards and a financial policy that underpins the current rating. "Our revision of the management and governance assessment has no effect on the issuer and debt-level ratings." LOUVRE BIDCO: S&P Assigns 'BB-' Rating to Senior Secured Notes -------------------------------------------------------------- S&P Global Ratings assigned a 'BB-' long-term issue rating to the new senior secured notes of Louvre BidCo, the nonoperating holding and consolidating company of France-based debt purchaser and servicer Promontoria MCS (BB-/Stable/--). The recovery rating on the new debt is '4', indicating S&P's expectation of meaningful recovery (30%-50%; rounded estimate: 40%) in the event of a payment default. S&P said, "This issuance does not affect our issuer credit rating or outlook on MCS, since we already considered it in July following MCS' announcement of its acquisition of DSO. As announced in July, we are now detailing our recovery analysis. "Our 'BB-' rating on Louvre BidCo's existing senior secured debt is unchanged. However, we are revising our recovery rating to '4' from '3'. This is because we use a more conservative enterprise value for the debt servicing business than in our initial assessment, now excluding any expected growth for this activity." ISSUE RATING -- RECOVERY ANALYSIS Key analytical factors: The new and existing senior secured notes have a 'BB-' issue rating, with a recovery rating of '4', based on our expectation of meaningful recovery prospects (rounded estimate of 40%). S&P said, "Our hypothetical default scenario assumes a default in 2022. In our view, a default on MCS' debt obligations would most likely occur as a result of internal operational issues or noncompliance with the laws and regulations governing receivables collection. In such a scenario, we assume MCS' debt portfolio will be liquidated and debt-servicing activities sold or restructured as a going concern, given MCS' long-term contracts and established relationships with customers. "We calculate an enterprise value based on a stressed realization value of MCS' debt receivables portfolio and assume that its debt-servicing activities will be acquired." Simulated default assumptions -- Year of default: 2022 -- Jurisdiction: France Simplified waterfall (estimates as of June 30, 2018): -- Net portfolio value on liquidation: EUR175 million -- Servicing business enterprise value at default: EUR42 million -- Bankruptcy costs: EUR11 million -- Priority claims: EUR44 million -- Collateral value available to senior secured creditors: EUR163 million -- Total senior secured debt at default: EUR400 million -- Recovery expectation on the senior secured note: 30%-50% (rounded estimate: 40%) *All debt amounts include six months of prepetition interest. ============= I R E L A N D ============= HARVEST CLO XVI: Fitch Assigns 'B-(EXP)' Rating to Class F-R Debt ----------------------------------------------------------------- Fitch Ratings has assigned Harvest CLO XVI Designated Activity Company expected ratings as follows: EUR3 million Class X: 'AAA(EXP)sf'; Outlook Stable EUR273 million Class A-R: 'AAA(EXP)sf'; Outlook Stable EUR22 million Class B-1-R: 'AA(EXP)sf'; Outlook Stable EUR20 million Class B-2-R: 'AA(EXP)sf'; Outlook Stable EUR31 million Class C-R: 'A (EXP)sf'; Outlook Stable EUR27 million Class D-R: 'BBB-(EXP)sf'; Outlook Stable EUR24 million Class E-R: 'BB-(EXP)sf'; Outlook Stable EUR12.5 million Class F-R: 'B-(EXP)sf'; Outlook Stable EUR45 million subordinated notes: 'NR(EXP)sf' The assignment of the final ratings is contingent on the receipt of final documents conforming to information already reviewed. The transaction is a cash flow collateralised loan obligation (CLO). Net proceeds from the refinancing notes will be used to redeem the old notes (excluding subordinated notes) with a new identified portfolio comprising the existing portfolio, as modified by sales and purchases conducted by the manager. The portfolio is primarily made up of European senior secured loans (at least 96%) with a component of senior unsecured, mezzanine, and second-lien loans. The subordinated notes were issued on the original issue date and are not being offered again. The portfolio is actively managed by Investcorp Credit Management EU Limited. The CLO envisages a 4.5- year reinvestment period and an 8.5-year weighted average life (WAL). KEY RATING DRIVERS 'B' Portfolio Credit Quality Fitch expects the average credit quality of obligors to be in the 'B' category. The weighted average rating factor (WARF) of the identified portfolio is 32, below the covenanted maximum of 34. High Recovery Expectations At least 96% of the portfolio comprises senior secured obligations. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured and mezzanine assets. The weighted average recovery rating (WARR) of the identified portfolio is 65%, above the covenanted minimum of 64.5%. Diversified Asset Portfolio The covenanted maximum exposure to the top 10 obligors for assigning the expected ratings is 20% of the portfolio balance. The transaction also includes various concentration limits, including the maximum exposure to the three largest (Fitch- defined) industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Adverse Selection and Portfolio Management The transaction features a 4.5-year reinvestment period and includes reinvestment criteria similar to other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Limited Interest-Rate Risk Up to 10% of the portfolio can be invested in fixed-rate assets, while fixed-rate liabilities represent 4.5% of the target par. This fixed-rate bucket covenant partially mitigates interest rate risk. Fitch modelled both 0% and 10.0% fixed-rate buckets and found that the rated notes can withstand the interest rate mismatch associated with each scenario. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, and to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. No Unhedged Non-Euro Exposure The transaction is permitted to invest up to 20% of the portfolio in non-euro assets, provided perfect swaps are entered into as of the settlement date for each of them. Different Waterfall Structure The transaction has a slightly different interest waterfall structure than the market standard waterfall. Deferred interest is paid after the coverage tests have been met. Fitch has tested the impact of this feature and found the impact on the notes to be negligible. RATING SENSITIVITIES A 25% default multiplier applied to the portfolio's mean default rate, and with this increase added to all rating default levels, would lead to a downgrade of up to two notches for the rated notes. A 25% reduction in recovery rates would lead to a downgrade of up to four notches for the rated notes. 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 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. ========= I T A L Y ========= ASTALDI SPA: Lenders Seek Investment Funds to Provide New Loan -------------------------------------------------------------- Antonio Vanuzzo and Luca Casiraghi at Bloomberg News report that Astaldi SpA's largest lenders are asking international investment funds to provide a new loan to the troubled Italian builder. According to Bloomberg, people familiar with the matter said representatives for the banks contacted several credit funds that specialize in providing rescue finance. The people said the lender group includes Banco BPM SpA, BNP Paribas SA, Intesa Sanpaolo SpA and UniCredit SpA, Bloomberg relates. The people, as cited by Bloomberg, said the banks are discussing how to support Astaldi after the sale of a key asset in Turkey was delayed amid political turmoil, and haven't decided whether to increase their own exposure. Banks have provided more than 60% of Astaldi's EUR2.5 billion (US$2.9 billion) of debt, Bloomberg discloses. They have additional exposure to the Rome-based builder, including through performance bonds that they guarantee in the case of insolvency, Bloomberg states. Astaldi has been trying to raise new capital for almost a year, Bloomberg notes. Central to the plans is its sale of its stake in a bridge over the Bosphorus, which it delayed as the value of Turkey's lira sank, according to Bloomberg. Another person familiar with the matter said separately, Astaldi is asking lawyers whether a Turkish government decree forcing contracts between local companies to be converted to liras applies to its concessions, Bloomberg relays. The company, Bloomberg says, is set to publish earnings for the first half of the year on Sept. 28, almost two months later than originally scheduled. ===================== N E T H E R L A N D S ===================== E-MAC PROGRAM II: Moody's Affirms Caa2 Rating on Class B Notes -------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of the Class A Notes in E-MAC Program B.V. / Compartment NL 2007-NHG II. Moody's affirmed the ratings of the Class B Notes. EUR600M Class A Notes, Upgraded to Baa1 (sf); previously on Mar 8, 2018 Downgraded to Ba1 (sf) EUR7.2M Class B Notes, Affirmed Caa2 (sf); previously on Mar 8, 2018 Confirmed at Caa2 (sf) RATINGS RATIONALE The upgrade action is prompted by the correction of an error in the modelling of the reserve fund for the Class A Notes. The error has now been corrected, and the action incorporates that change. Moody's affirmed the ratings of the Class B Notes. -- Correction of an input in the cash-flow model: The Class A notes represent 100% of the mortgage portfolio and are exposed to 29.4% insurance set-off risk in addition to the loss arising from underlying mortgages. In its analysis for the March 2018 rating action, the reserve fund was incorrectly modelled as not being available to repay Class A Notes' principal at maturity. The correction to this input has a positive impact on the Class A Notes given the additional funds available to cover potential insurance set-off losses. The Reserve Fund is not however fully funded and continues to be drawn to compensate for the negative excess spread in the transaction. Moody's affirmed the ratings of the Class B Notes that only benefit from excess spread which covers losses from the underlying mortgage portfolio. The Class B Notes have high exposure to potential insurance set-off losses. --- No Revision of Key Collateral Assumptions: As part of this rating action, Moody's reassessed its lifetime loss expectation for the portfolio reflecting the collateral performance to date. The performance of the transaction has continued to be stable since October 2017. 90 days plus delinquencies currently stand at 0.33% of current pool balance. Cumulative losses remained stable at currently 0.11% of original pool balance. As a result, Moody's maintained the expected loss assumption at 0.20% of original pool balance. Moody's has also assessed loan-by-loan information as a part of its transaction review and has maintained the MILAN CE assumption at 5.0%. -- Exposure to Counterparty Risk: The rating actions took into consideration the notes' exposure to relevant counterparties, such as servicer, account banks or swap providers. The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in September 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 and (2) deleveraging of the capital structure. 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. STARFRUIT TOPCO: Fitch Affirms 'B+(EXP)' Long-Term IDR ------------------------------------------------------ Fitch Ratings has affirmed Starfruit Topco Cooperatief U.A.'s expected Long-Term Issuer Default Rating (IDR) of 'B+(EXP)' with a Stable Outlook. Fitch also affirms the expected issue rating of Starfruit Finco BV for the senior secured debt of 'BB- (EXP)'/'RR3'/61% (previously 'BB-(EXP)'/'RR3'/66%) and the senior unsecured debt of 'B-(EXP)'/'RR6'/0% (no change). Fitch recognises the revision to the proposed capital structure wherein EUR385 million in USD-equivalent has been moved from the USD tranche of unsecured notes to the USD tranche of the term loan B. Although senior leverage for the transaction has increased, total leverage remains unchanged. The only result of the change in the capital structure is the senior secured term loan's recovery percentage, which has decreased to 61% from 66%. The assignment of final ratings is contingent upon the completion of the leveraged buyout of ANSC by The Carlyle Group and GIC with terms and conditions being in line with its current assumptions. The assignment of final ratings to the debt is contingent upon receipt of final documents conforming to the draft information already received. The IDR reflects the robust business model of ANSC but is constrained by its elevated financial risk. The company benefits from leading market positions with high geographic diversity and exposure to a broad range of end-markets. The market position is supported by high barriers to entry due to the specialised nature of the company's portfolio with a history of collaboration with OEMs, a valuable portfolio of proprietary and patented products and a sizable invested base. ANSC's exposure to commodity chemicals and potential resulting cash flow volatility are partly offset by a flexible pass-through cost structure. Its base case forecasts some moderate margin improvement on cost savings after the leveraged buyout, which leads to long-term positive free cash flows (FCF). However, ANSC's elevated financial risk with funds from operations (FFO) adjusted gross leverage above 8x at the close of the buyout provides limited headroom. The Stable Outlook reflects its expectation of slow deleveraging toward 7.0x by 2021 on the back of low single-digit revenue growth, gradually improving margins and reduced capex. KEY RATING DRIVERS Leading Market Position: ANSC's focus on technological leadership and recurring revenue helps reduce cash flow volatility. ANSC maintains a leading position in a majority of its markets, supported by strong customer relationships and advanced research and development. It is not only diversified internationally across EMEA, APAC, and the Americas, but the company also maintains exposure to a range of end-markets. However, while the business units predominantly produce specialty chemicals, each has a commodity chemical element. High Leverage despite Strong Profitability: The company has elevated financial risk with FFO adjusted gross leverage projected to remain close to 8.0x over the next three years. This is partly counterbalanced by positive free cash flow generation, underpinned by strong and stable EBITDA margins of around 20% under its rating case. Expected efficiencies from somewhat reduced capex and operating expenses should improve cash flows while being offset by increased expenses from operating as a standalone business from AkzoNobel NV, its former parent company. Fitch forecasts slow deleveraging towards 7.0x on a FFO gross adjusted basis by 2021. However, this level of leverage is elevated relative to chemicals peers'. High Barriers to Entry: High barriers to entry are reflected in the specialised nature of the products, technological know-how requirement, physical connection to clients, high switching costs, and protected patents, all of which result in lower competition and pricing pressure than in commodity chemicals and support margin stability. Speciality chemicals are typically less capital-intensive and benefit from innovations such as chemical islands that co-locate production facilities near clients. Regulatory Risk: Regulatory risk on the global specialty chemicals industry is especially high as governments are increasingly outlawing the more environmentally harmful manufacturing methods. Also included are the expensive and time- intensive requirements to remain in compliance with highly detailed regulations. Exposure to Cyclical End-markets: ANSC manufactures a wide range of specialty chemicals, yet certain business units (industrial and ethylene & sulfur) tend to have more cyclical end-market customers. On the other hand, it is the pulp & performance, surface chemical, and polymer business units that are expected to be less affected by a cyclical downturn. Total cyclical end- market exposure across the whole business is approximately 30%- 40% and composed of oil & gas, construction, and agrochemicals. Favourable Pass-Through Cost Structure: The company has a cost advantage due to long-term supplier contracts with customers that adjust for increases in raw material prices. Also built into the contracts are periodic price renegotiations, often in ANSC's favour due to the company's pricing power. Key input costs and feedstock include electricity, natural gas, natural gas derivatives, and natural fats. To further support this pass- through cost structure and control costs, ANSC has rolled out integrated electricity plants and hedges 75% of volume demand within a three-to-five year window. DERIVATION SUMMARY ANSC's business profile compares favourably against a peer universe including Solvay SA (BBB/Positive), Ineos Group Holdings SA (BB+/Stable) and Westlake Chemical (BBB/Stable). It is particularly well-placed across business and financial factors such as diversification/scale, product leadership, and profitability. However, it is constrained by a highly leveraged capital structure and by the resulting reduced financial flexibility. In addition, ANSC is exposed to cyclical end- markets. Nevertheless, the company has demonstrated the ability to manage this cyclical exposure through the previous market downturn in 2008 to 2009. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer - Revenue CAGR of 2.1% led by the industrial and surface chemicals business units - Adjusted EBITDA margins expanding to 21.5% by 2021 from 18.6% currently, driven by market share gain and cost savings - 25% tax rate - Capex of EUR300 million-EUR330 million per annum; no M&A - Annual operating lease expense of EUR70 million capitalised at 8x - No common dividends Fitch's Key Assumptions within its Recovery Analysis - Going concern approach - Distressed enterprise value-to-EBITDA multiple of 5.5x - Post-recovery EBITDA discounted 30% from LTM EBITDA - Administrative cost of 10% - EUR750 million revolving credit facility (RCF) fully drawn RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - FFO adjusted gross leverage below 5.5x on a sustained basis - FFO fixed charge cover sustainably above 2.5x - Expanded EBITDA margins sustained above 23%, and FCF margins above 5% through achieved synergies and cost savings Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO adjusted gross leverage above 8.0x on a sustained basis - FFO fixed charge cover sustainably below 2.0x - Weakening EBITDA & FCF margins, for example as a result of lost market share or regulatory changes LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: ANSC's liquidity is comfortable given its expectations of strong 2018 cash on balance sheet of EUR389 million and an undrawn EUR750 million RCF. Historically, ANSC has generated positive FCF, and Fitch expects this to grow between 2019 and 2021. While Fitch expects a nominal amount of amortisation of the USD term loan, there are no near-term maturities as all other debt facilities will be repaid by the term loan and senior unsecured notes issue. Fitch believes that ANSC's strong asset base will allow the company to access capital markets even under stressed conditions. UPC HOLDING: Moody's Affirms Ba3 CFR, Outlook Remains Negative -------------------------------------------------------------- Moody's Investors Service has affirmed UPC Holding B.V.'s Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating, B2 senior unsecured debt ratings as well as the Ba3 ratings on the senior secured debt issued by UPC's finance subsidiaries. The outlook on the ratings remains negative. "Although UPC has recently used around EUR900 million of disposal proceeds from Austria's sale towards debt reduction, its Moody's adjusted gross leverage still remains high at around 5.5x. As a result the Ba3 rating remains weakly positioned with a negative outlook," says Gunjan Dixit, a Moody's Vice President -- Senior Credit Officer, and lead analyst for UPC. "The business risk profile of UPC will weaken further with the announced disposal of businesses in the Czech Republic, Hungary and Romania. Although utilization of proceeds in 2019 towards debt reduction could improve credit metrics, more exposure to the increasingly competitive Swiss market could pose continued operational challenges, despite any near-term strategic M&A or partnership to accelerate fixed-mobile convergence in Switzerland," adds Ms. Dixit. RATINGS RATIONALE As of June 30, 2018, pro-forma for the debt repayments of around EUR900 million from UPC Austria's disposal, Moody's adjusted Gross Debt/ EBITDA ratio for UPC stood around 5.5x (treating Austria as discontinued and CEE businesses being sold as continued operations), still above the 5.25x threshold for downward pressure on the rating. Moody's adjusted cash flow from operations ("CFO")/ Debt ratio was 12.5% for the last twelve months ended June 30, 2018 (on a pro-forma basis). This ratio is also towards the weaker end of the Ba3 rating category. The company's free cash flow generation (defined as CFO less property and equipment additions) was also constrained due to elevated capex but could improve with asset disposals as accrued capex to sales in Switzerland and remaining CEE operations is expected to be around 18% for 2018 compared to group accrued capex of 26% in 2017. Including vendor financing related debt (which is excluded from the covenant leverage definition), UPC's reported total net leverage was high at 4.7x as of June 30, 2018. Pro-forma for the debt repayments from Austria's disposal in Q3 2018 and treating Austria operations as discontinued, the company's total net leverage would have been similar at around 4.6x as per Moody's estimates. Moody's recognizes that proceeds from the sale of the businesses in the Czech Republic, Hungary and Romania could be reinvested into UPC's business within 12-18 months, used for debt pre- payments in the absence of reinvestments, or up-streamed to Liberty under certain covenant carve-outs. After the asset disposals, Moody's would expect UPC to run with a tighter total reported net leverage. Failure to achieve de-leveraging towards the 4.0x total net leverage target (including vendor financing) in line with Liberty Global's stated ambition for its converged businesses (after asset disposals and any strategic M&A/ partnership to facilitate fixed-mobile convergence), could lead to negative pressure on UPC's ratings. With the disposal of businesses in the Czech Republic, Hungary and Romania, UPC's exposure to Switzerland will increase to around 68% of overall revenues and 73% of OCF (UPC's reported measure of EBITDA). However, the company's performance in Switzerland continues to be considerably weaker than Moody's expectations, driven by heightened competition. UPC's rebased revenue in Switzerland declined by -1.6% year-on-year (y-o-y) in H1 2018, while its OCF declined drastically by -11.0% y-o-y in H1 2018 affected by higher content costs associated with the MySports Platform that was launched in Q3 2017 as well as higher interconnection costs. For 2018/19, Moody's expects revenue growth in Switzerland to remain challenged due to intense competition pressurizing OCF which will also be negatively impacted by higher content/ marketing and interconnection costs. In Poland and Slovakia, UPC has achieved very little growth of less than 1% year-on-year in revenues and OCF in H1 2018. Moody's expects only subdued growth in these markets in 2018/19. Moody's regards UPC's liquidity provision as adequate for its near-term requirements. As of June 30, 2018, UPC reported EUR17.6 million of cash on hand, almost exclusively at subsidiary and intermediate holdco levels. This is complemented by EUR990 million of unused borrowing capacity under the company's credit facility, which is fully available for borrowing. UPC's near term repayment obligations (largely comprising of vendor financing) were limited to EUR444 million (as of June 30, 2018) that fall due within one year. The next maturity of long- term third party debt does not occur before 2025. Moody's expects the company to upstream cash to its parent company through shareholder loan repayments or loan advances from time to time, while maintaining sufficient flexibility for its operational needs over the next 12 to 18 months. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook on the ratings reflects (1) the weakening business risk profile of UPC following asset disposals and the increasing exposure to the operationally challenged Swiss market, coupled with (2) high leverage and weak cash flow based metrics. Stabilization of the outlook will be dependent upon the successful conclusion of the asset disposals and use of proceeds towards debt reduction as well as strengthening of the group's business risk profile. WHAT COULD CHANGE THE RATING UP/DOWN Prior to the sale of UPC Austria and the planned disposal of businesses in the Czech Republic, Hungary and Romania, Moody's said that downward ratings pressure could develop if (1) UPC failed to maintain its Moody's adjusted Gross Debt/ EBITDA ratio at below or around 5.25x on a sustained basis; and/ or (2) cash flow generation did not improve such that its Moody's adjusted CFO/ Debt ratio remains materially below 12% and its free cash flow (after capex including vendor financing repayments) remained negative on a sustained basis. Prior to the sale of UPC Austria and the planned disposal of businesses in the Czech Republic, Hungary and Romania, Moody's said that upward pressure on the rating could develop over time if (1) UPC's operating performance improved materially and its rebased revenue growth trends to (at least) around 5% on a sustained basis; (2) its adjusted Gross Debt/ EBITDA ratio (as calculated by Moody's) fell below 4.25x on a sustained basis; and (3) its cash flow generation improved such that it achieved a Moody's adjusted CFO/ Debt ratio above 17%. As the company's profile is in transition following these disposals, Moody's will assess the use of disposal proceeds towards debt reduction and strategic investments and could adjust the up/down rating triggers depending on the assessment of the evolution of the company's business risk and financial risk profiles. LIST OF AFFECTED RATINGS Outlook Actions: Issuer: UPC Financing Partnership Outlook, Remains Negative Issuer: UPC Holding B.V. Outlook, Remains Negative Issuer: UPCB Finance IV Limited Outlook, Remains Negative Issuer: UPCB Finance VII Limited Outlook, Remains Negative Affirmations: Issuer: UPC Financing Partnership Senior Secured Bank Credit Facility, Affirmed Ba3 (LGD3) Issuer: UPC Holding B.V. Probability of Default Rating, Affirmed Ba3-PD Corporate Family Rating, Affirmed Ba3 Senior Unsecured Regular Bond/Debenture, Affirmed B2 (LGD6) Issuer: UPCB Finance IV Limited Senior Secured Regular Bond/Debenture, Affirmed Ba3 (LGD3) Issuer: UPCB Finance VII Limited Senior Secured Regular Bond/Debenture, Affirmed Ba3 (LGD3) PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Pay Television - Cable and Direct-to-Home Satellite Operators published in January 2017. UPC, an indirect subsidiary of Liberty Global plc (Ba3 stable), is a European cable company that operates in Switzerland and in a number of Central and Eastern European countries (Poland, Hungary, the Czech Republic, Romania and Slovakia). For the last twelve months ended June 30, 2018, the company generated EUR1.7 billion in revenues and EUR900 million in reported OCF from continuing operations. =========== R U S S I A =========== ASIAN-PACIFIC BANK: Central Bank to Buy New Shares for RUR9 Bil. ---------------------------------------------------------------- Olga Tanas at Bloomberg News reports that the Russian central bank will spend RUR9 billion to purchase new shares in recapitalization aimed at preventing bankruptcy, giving it a stake of more than 99.9%. According to Bloomberg, Bank of Russia plans to sell the lender in the future. Asian-Pacific Bank paid back liquidity-support funds it got from central bank earlier, Bloomberg relates. Asian-Pacific Bank is one of the largest privately-owned banks in the Eastern part of the Russian Federation. ORIENT EXPRESS: Moody's Reviews for Downgrade B3 LT Dep. Ratings ---------------------------------------------------------------- Moody's Investors Service has placed on review for downgrade the B3 long-term foreign- and local-currency deposit ratings and long-term B2 counterparty risk ratings of Orient Express Bank (OEB). The bank's Baseline Credit Assessment (BCA) at b3, adjusted BCA at b3 and long-term Counterparty Risk Assessment (CRA) at B2(cr) have been also placed on review for downgrade. In addition, Moody's has affirmed OEB's Not Prime short-term deposit and counterparty risk ratings and Not Prime(cr) short-term CRA. RATINGS RATIONALE The rating action reflects Moody's concerns regarding the dispute and conflict between the two main shareholders of OEB, which became public recently. The conflict has resulted in the sudden change of the bank's senior management, including its CEO, earlier this month, and could disrupt a planned additional share issuance of about RUB5 billion. If not resolved soon, the shareholders' conflict may cause volatility of the customer deposits, in particular, corporate and large individual clients, owing to uncertainty with regards to the bank's corporate governance. On September 3, the supervisory board of OEB decided to terminate the authority of the bank's CEO and to appoint a provisional CEO. On September 7, the court of Amur region, where the bank's headquarter is registered, postponed the consideration of the claim by Evison Holdings Limited, the bank's controlling shareholder, to OEB. The claimant disputed the recent supervisory board's decisions, in particular, the changes in the senior management team. As of mid-2018, Evison Holdings Limited, ultimately owned by Barings Vostok private equity funds, held 51.6% of OEB's shares, while the second largest shareholder, Mr. Avetisyan, owned 32% of the bank's shares via Finvision Holdings Limited. Moody's ratings currently incorporate the expectation that the prospective RUB5 billion capital injection would bolster the bank's equity position and would better position OEB to address any downside risks, including those stemming from a potential decline in market value of its non-core property holding. As of June 30, 2018, this non-core property accounted for approximately 100% of OEB's tangible common equity, while the latter amounted to RUB8.2 billion or only 3.6% of tangible assets. WHAT COULD MOVE THE RATINGS DOWN / UP OEB's ratings might be downgraded if the bank's shareholders fail to conclude the capital injection by the end of 2018, as per the announced plan, or if the bank faces material volatility in customer deposits or losses exceeding Moody's central scenario expectations that are not sufficiently addressed by this capital injection. Moody's may confirm the ratings and BCA if the shareholders provide the planned capital support and Moody's observes sustainable improvements in the bank's solvency metrics. LIST OF AFFECTED RATINGS Issuer: Orient Express Bank Placed on review for downgrade: Long-term Bank Deposits (Local- and Foreign Currency), currently B3, outlook changed to Rating under Review from Stable Long-term Counterparty Risk Ratings (Local- and Foreign Currency), currently B2 Baseline Credit Assessment, currently b3 Adjusted Baseline Credit Assessment, currently b3 Long-term Counterparty Risk Assessment, currently B2(cr) Affirmations: Short-term Bank Deposits, affirmed NP Short-term Counterparty Risk Ratings, affirmed NP Short-term Counterparty Risk Assessment, affirmed NP(cr) Outlook Action: Outlook changed to Rating under Review from Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks published in August 2018. RUSSIAN UNIVERSAL: Fitch Affirms Then Withdraws B+ LT IDRs ---------------------------------------------------------- Fitch Ratings has affirmed Russian Universal Bank's (Rusuniversal) Long-Term Issuer Default Ratings (IDRs) at 'B+' with a Stable Outlook. Fitch has simultaneously withdrawn the ratings for commercial reasons and will no longer provide rating and analytical coverage of Rusuniversal. KEY RATING DRIVERS IDRs, VR Rusuniversal's IDRs are driven by its Viability Rating (VR). The VR is constrained by the bank's small size, highly concentrated relationship-based business model and tight regulation on banking services to defence industry enterprises that narrows the bank's core business. Positively, the ratings acknowledge Rusuniversal's strong financial metrics. The bank has historically focused on companies, mainly from the defence sector, with whom the bank's management and shareholders have long-standing relations. Both loans and deposits are extremely concentrated. The bank had only seven corporate loans (retail lending is negligible), while the top five depositors represented 75% of total customer accounts at end-1H18. Rusuniversal's financial metrics remain robust. Most of the bank's assets (around 80% at end-1H18) are either placed with the Central Bank of Russia or invested in investment-grade instruments. The bank's loan book is small (20% of total assets), while the only impaired (Stage 3) loan made up only 4% of assets and was totally provisioned. Rusuniversal has very high regulatory capitalisation (the total capital ratio was above 100% at end-7M18) and large liquidity buffers entirely covering customer accounts. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating of '5' reflects Fitch's view that support from the bank's shareholders, although possible, cannot be relied upon. The Support Rating and Support Rating Floor of 'No Floor' also reflect that support from the Russian authorities cannot be relied upon due to the bank's small size and lack of overall systemic importance. RATING SENSITIVITIES Not applicable. The rating actions are as follows: Long-Term Foreign- and Local-Currency IDRs: affirmed at 'B+'; Outlooks Stable; withdrawn Short-Term Foreign-Currency IDR: affirmed at 'B'; withdrawn Viability Rating: affirmed at 'b+'; withdrawn Support Rating: affirmed at '5'; withdrawn Support Rating Floor: affirmed at 'No Floor'; withdrawn =========== S W E D E N =========== CORRAL PETROLEUM: Fitch Affirms B+ LT IDR, Outlook Stable --------------------------------------------------------- Fitch Ratings has affirmed Swedish-based Corral Petroleum Holdings AB's (CPH) Long-Term Issuer Default Rating (IDR) at 'B+' and payment-in-kind toggle notes (PIK) issue rating of 'B' with a Recovery Rating of 'RR5'. The Outlook on the IDR is Stable. CPH is the holding company for Preem AB, a medium-sized, Sweden- based refining company that operates two refineries with a total capacity of 345 mpd (85% of EBITDA) and a retail network (15% of EBITDA). CPH accounts for 80% and 30% of Swedish and Nordic refining capacity, respectively. It has around 600 filling stations. CPH's ultimate shareholder is Mohammed Al-Amoudi, who acquired the company in 1994. The rating reflects the inherent volatility of the refining industry and is constrained by the company's limited business diversification. Positively, it factors in the sound quality of Preem's operating assets, especially the highly complex Lysekil refinery as well as Fitch's forecasts of comfortable liquidity and conservative leverage for the rating category. KEY RATING DRIVERS Good-Quality Assets: Key subsidiary Preem operates two refineries, the 220,000 barrel per day (bpd) Preemraff Lysekil plant and the 125,000 bpd Premraff Gothenburg site. The high complexity of the Lysekil refinery allows the company to benefit from higher yield of light and middle distillates and the ability to process lower-quality crude blends such as Urals. Use of renewable feedstock and large storage capacity, coupled with coastal location and access to a variety of crude oil blends, allow CPH to achieve gross margins at Gothenburg -- Preem's less complex refinery -- that are higher than the average for hydroskimming assets in north west Europe. Lower EBITDA Forecast: Preem reported solid 1H18 results, with EBITDA slightly higher yoy at SEK1.9 billion. Reported refining margins were weaker in 1H18, declining to USD4.3/bbl from USD5.2/bbl in 1H17. However, this was offset by higher throughput and sales volumes, and favourable FX effect as the dollar strengthened against the krona. Fitch forecasts a full-year EBITDA of SEK4.2 billion, based on its expectations of slightly higher margins in 2H18 and no major planned maintenance at Preem's refineries. The forecasted 2018 EBITDA is lower than the 2017 result of SEK5.1 billion as a result of lower margins overall. Conservative Forecasted Leverage: The refining industry environment has been favourable over the last three years and CPH's stronger funds from operations (FFO) generation has translated into lower FFO-adjusted net leverage of 2.0x at end- 2017, versus 5.4x at end-2015. While its base case forecasts FFO adjusted net leverage below its upgrade guidance of 3.5x over the next 4 years, free cash flow (FCF) generation is projected to be negative from 2020 on the back of higher capex. Fitch would expect a reduction in absolute debt levels before Fitch considers a rating upgrade given the volatility of industry and CPH's limited business diversification. Potential Early 2021 Notes Refinancing: CPH is considering an early refinancing of its EUR570 million 11.75%/13.25% and SEK500 million 12.25%/13.75% PIK notes due in May 2021. The indenture's early redemption provision allows CPH to prepay all or a portion of each series on or after May 2019 without a penalty. While its base case does not assume an early refinancing of the PIK notes at a lower interest rate, CPH's projected conservative financial profile should support the exercise. In 2017, cash interest absorbed 20% of EBITDA. A refinancing reducing the cost of debt would be credit-positive as it would improve CPH's cash conversion. It is likely that the PIK notes redemption will take place in conjunction with the refinancing of the credit facility at Preem, which matures in 2020. Owner Situation Credit-Neutral: CPH's ultimate owner, Sheikh Mohammed Al-Amoudi, has been detained by the Saudi authorities since November 2017, as part of the government's anti-corruption crackdown. Fitch understands from management that group companies are operating on a normal basis and remain unaffected. Moreover, this development is currently not impacting the group's board processes as the owner's brother, Hassan Hussain A Al-Amoudi, has a general power of attorney. Its base case assumes that this development will not negatively impact CPH and its subsidiaries. Fitch considers any subsequent actions against the owner, and their potential negative impact on the group, as an event risk and would reflect them in the rating as they occur. Higher Capital Intensity: Fitch forecasts average annual capital spending at 3.3% of sales over 2018-2021, which is higher than in 2014-2017 (2.1%). The primary focus of the projects will be on expanding the capacity of the operating assets to produce renewable fuels and on lowering the share of heavy fuel oil in refineries' product slate. Although FCF is expected to be negative from 2020 as a result, Fitch expects the planned investments to strengthen CPH's business profile by enhancing an already strong biofuels position in Sweden, while better positioning it for the introduction of the IMO 2020 regulation. Consolidated Rating Approach: Preem has a USD1.5 billion borrowing base and revolving credit facility (RCF), which contains a cross-default provision. CPH's subordinated PIK toggle notes contain a cross-payment default provision. Fitch has therefore applied the Long-Term IDR to the restricted group comprising CPH and its subsidiaries, the most important of which is Preem. Shareholder loans were excluded from the debt amount, due to their equity-like characteristics. High Recoveries: In an enforcement scenario all or most of the exposure at Preem level can be satisfied through collection of receivables and marketing of crude and inventories. Although the banks are over-collateralised and may enforce against the refinery and other assets, if necessary, Fitch judges that creditors at CPH level should be able to comfortably achieve 'RR5' recoveries, even in a distressed scenario. The PIK toggle notes make up a much higher proportion of permanent debt, effectively financing long-term assets, than in leveraged finance transactions rated in the 'B' category, where second lien or mezzanine debt normally only accounts for 15%-25% of long-term debt. These proportions result in better recoveries for CPH, as a large part of the proceeds from fixed assets should be available for distribution among the PIK toggle noteholders. DERIVATION SUMMARY CPH's closest peer is KMG International N.V. (KMGI; B+/Stable). KMGI's 'B+' rating incorporates a two-notch uplift from the standalone credit profile of 'B-' due to the presence of moderate legal, operational and strategic ties between the company and its parent, JSC National Company KazMunayGas (NC KMG, BBB-/Stable). Fitch forecasts CPH to have higher leverage than KMGI over the next four years, but Fitch views CPH's credit profile as stronger due to larger refining capacity and a more comfortable liquidity position. CPH operates two medium-sized refineries in Sweden with a total capacity of 345 mbpd, while KMGI has main assets comprising a 100 mbpd refinery in Romania, another 10 mbpd refinery, and a small petrochemical plant. CPH's retail network is made up of around 600 filling stations, while KMGI runs a trading business servicing NC KMG group and a retail chain of over 1,100 gas stations. CPH lags behind PKN ORLEN S.A. (BBB-/Stable), MOL Hungarian Oil and Gas Company Plc (BBB-/Stable) and Turkiye Petrol Rafinerileri A.S. (Tupras) (BB+/Negative) in refining capacity, and lacks integration with petrochemical and upstream assets. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer - Benchmark refining margins of USD4.5/bbl over 2019 - 2022 - Brent price of USD70/bbl in 2018, USD65/bbl in 2019, USD57.5/bbl thereafter - Capital expenditure of SEK2.2 billion in 2018, SEK2.5 billion in 2019, SEK2.6 billion in 2020 and SEK3 billion in 2021 - Cash interest paid on PIK notes; no dividends paid to shareholders RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Reduction in gross debt (revolving credit facility and PIK toggle notes) - Increased business diversification leading to less volatile cash flows - FFO-adjusted net leverage sustained below 3.5x - Faster-than-expected refining capacity reduction in Europe leading to improved outlook for margins Developments That May, Individually or Collectively, Lead to Negative Rating Action - Failure to maintain refining margins at the Gothenburg refinery above benchmark - Unfavourable changes in regulation for biofuels - FFO adjusted net leverage above 5.5x LIQUIDITY Sufficient Liquidity: As of June 30 2018, cash and cash equivalents of SEK1.3 billion covered short-term financial debt of SEK0.9 billion. Fitch projects positive FCF over 2018 and 2019, which further supports liquidity. As a pure refiner Preem is exposed to volatile oil prices, which may result in high inventory effects and significant working capital swings affecting the company's credit metrics. This volatility is offset by low leverage and sufficient headroom under Preem's USD1.5 billion RCF (USD592 million utilised at June 30, 2018). =========== T U R K E Y =========== TURKEY: Banks Agree to Help Companies Struggling with Debt ---------------------------------------------------------- Laura Pitel and Martin Arnold at The Financial Times report that Turkey's banks agreed on Sept. 19 to help companies struggling with debt as the country's finance minister prepared to set out a plan seen as critical to limiting the fallout from a currency crisis. The Banks Association of Turkey said the nation's lenders would strive to accommodate companies that needed a temporary reprieve on loan repayments because of "a temporary disruption of the balance between income and expenditure", the FT relates. The announcement marked a rare public acknowledgment of the difficulties facing the country's banks after a sharp slide in the lira in recent months, the FT notes. International investors have called for steps to deal with an expected rise in non-performing loans, the FT discloses. Such measures could include the creation of a "bad bank" that would entail troubled assets turned over to the state, easing the burden on lenders, the FT states. Turkey suffered a major sell-off in August after a row with Donald Trump compounded concern about the health of the economy, the FT relays. The plunging lira, which has lost 40% of its value against the dollar this year, has piled pressure on a corporate sector saddled with foreign currency debt and raised fears about spillover into the banking sector, according to the FT. Several European banks have significant exposure to Turkey, including Spain's BBVA, Italy's UniCredit and France's BNP Paribas, all of which have significant operations in the country, the FT says. Investors also say they would welcome steps to acknowledge the problem of a rise in bad debts and to support the banks, according to the FT. =========================== U N I T E D K I N G D O M =========================== HOUSE OF FRASER: Collapse Hits French Connection's Finances ----------------------------------------------------------- Ayesha Javed at The Telegraph reports that losses at fashion retailer French Connection more than doubled as the company faced difficult conditions on the high street. French Connection made a statutory loss before tax of GBP15.1 million in the six months to July 31, compared to a GBP5.9 million loss in the same period last year, The Telegraph discloses. According to The Telegraph, the increased loss was largely due to GBP9.6 million of adjustments, including impairments relating to bad debts associated with House of Fraser's administration and a contractual licensee debt. It also blamed "onerous leases" of GBP6.4 million for the decline in performance of stores and the losses associated with operating them, The Telegraph notes. "We see this downturn as a structural event supported by the level of closures and CVAs in both the retail and leisure markets, particularly on the high street," The Telegraph quotes the company as saying. The company spent GBP400,000 closing stores and restructuring, adding it "continues to review its store portfolio and exit non- profitable stores", The Telegraph relates. Revenues were down 2.4% to GBP58.1 million, as lackluster sales in its stores dragged down its performance, offsetting the growth in its wholesale business, The Telegraph states. HOUSE OF FRASER: S&P Withdraws 'D' Ratings Following Default ----------------------------------------------------------- S&P Global Ratings withdrew all of its ratings on House of Fraser (UK & Ireland) Ltd. and its senior secured notes. S&P said, "On Aug. 16, 2018, we lowered our long-term issuer and issue credit ratings on House of Fraser (UK & Ireland) Ltd. and its senior secured notes to 'D'. Its operating subsidiaries had entered administration on Aug. 10, 2018. "We have now withdrawn all of our ratings on the company and its associated debt instruments." ORLA KIELY: Enters Liquidation, 20 Jobs Affected ------------------------------------------------ Julia Bradshaw at The Telegraph reports that Irish homeware and fashion brand Orla Kiely, famous for its distinctive floral prints reminiscent of the 1970s, is going into liquidation, having closed its stores, shut down its website and made 40 staff redundant. The retailer's shops in London's Chelsea and Covent Garden and Kildare in Ireland have closed, with all 20 staff losing their jobs, The Telegraph discloses. A further 20 employees working out of the company's headquarters in London's Fitzrovia have also been made redundant, The Telegraph notes. According to The Telegraph, Orla Kiely, whose parent company Kiely Rowan is the entity that is going into liquidation, will continue to sell certain homewares and non-fashion accessories through third parties and licensing deals. WELLINGTON PUB: Fitch Affirms B- Rating on Class B Notes -------------------------------------------------------- Fitch Ratings has affirmed Wellington Pub Company plc's notes as follows: GBP96.9 million Class A fixed-rate notes due 2029: affirmed at 'B+'; Outlook Stable GBP21.4 million Class B fixed-rate notes due 2029: affirmed at 'B-'; Outlook Stable Wellington is a securitisation of rental income from 741 free-of- tie pubs, mainly located in residential areas across the UK, with a strong presence in the South East and London. KEY RATING DRIVERS The untied leased business model of Wellington hinders its ability to adapt to the dynamic and increasingly competitive UK eating- and drinking-out market. Declining and low projected free cash flow (FCF) debt service coverage ratio (DSCR) metrics, weak structural features and deficiencies in the transaction's structure also constrain the ratings. Fitch's projected FCF DSCRs at 1.4x and 1.1x for the class A and B notes are higher than pub sector peers', which the agency however views as appropriate given the structural and business model weaknesses. Structural Decline but Strong Culture - KRD: Industry Profile - Midrange The UK pub sector has a long history, but trading performance has shown significant weakness in the past. The sector has been in structural decline for the past three decades due to demographic shifts, pricing pressure, greater health awareness and the growing presence of competing offerings. Exposure to discretionary spending is high and revenue is therefore linked to the broader economy. Competition is stiff, including off-trade alternatives, and barriers to entry are low. Despite the on-going contraction, Fitch views the sector as sustainable in the long term, supported by a strong UK pub culture. Sub KRDs: Operating Environment - Weaker, Barriers to Entry - Midrange, Sustainability - Midrange. Free-of-Tie Model, Under-Invested Estate - KRD: Company Profile - Weaker The free-of-tie model implies limited operational management but reduces visibility on tenants' profitability and increases uncertainty over projected cash flows. Lease renewals remain a major area of concern as a significant portion of the portfolio is due for renewal over the next three years. Positively, the number of pubs on long leaseholds has been stable for the last few years and the proportion of leases with inflation-linked rents have increased. Repossessions and rent arrears stabilised and are declining, albeit the levels are still high and may affect revenue sustainability. Wellington's acquisitions are insufficient to compensate the revenue loss from the disposal of weaker pubs. Multiple alternative operators are available. The company's and tenants' low capex adversely impacts property values and pub profitability. Around 60% of the portfolio is suffering from deferred maintenance and around 10% requires significant capex (more than GBP20,000 per pub). Sub-KRDs: Financial Performance - Weaker; Company Operations - Weaker, Transparency - Weaker; Dependence on Operator - Stronger; Asset Quality - Weaker Structural Issues Drive Weaker Assessment - KRD: Debt Structure - Weaker (class A, B) The class A and B notes are fully amortising, secured and fixed- rate, and class B notes' debt service is structured to decrease over time. The class B notes rank junior to the class A notes. The security package features first-ranking fixed and floating charges over the issuer's assets. Structural features are weak because of the non-orphan SPV structure, limited contractual provisions, and an inadequate liquidity reserve, which only covers about four months of class A notes debt service. Financial covenants providing bondholders with more control through the appointment of an administrative receiver well ahead of a payment default are missing. The subordinated class B notes could deplete the liquidity reserve as it is not tranched among the class A and B notes. The restricted payment condition covenant is set at 1.25x, but in practice a lock-up has never been triggered despite the DSCR having been below 1.25x, since a surplus cash account is included in the DSCR cash release income cover test. Overall, the weak structural features, combined with the lack of issuer/borrower structure compared with a traditional WBS structures, limit the debt structure assessment for both classes of notes to weaker. Sub-KRDs: Debt Profile - class A: Stronger, class B: Midrange, Security Package - class A: Stronger, class B: Midrange; Structural Features - class A: Weaker, class B: Weaker Financial Profile Projected Fitch's rating case (FRC) metrics (minimum of both the average and median FCF DSCRs) remain unchanged at 1.4x for the class A notes and 1.1x for the class B notes with declining coverage profile. PEER GROUP Wellington is the only Fitch-rated free-of-tie pub transaction. Fitch views tied leased/tenanted pub WBS transactions such as Punch B and Unique as peers, albeit with different business models and revenue streams. Compared with Punch B and Unique, Wellington's financial performance is weak, and the pubs are significantly less profitable as measured by EBITDA per pub. Fitch perceives asset quality to be weaker than that of Punch B and Unique, with similar transparency issues. Wellington's FCF DSCRs are better than peers', but the ratings take into account the company's weaker business model and debt structure. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to negative rating action: - Further FCF deterioration beyond FRC assumptions as a result of an increase in arrears, pub vacancies and/or foreclosure rates and slower-than-expected deleveraging leading to projected FCF DSCR metrics below 1.2x and 1x for the class A and B notes, respectively. Future developments that may, individually or collectively, lead to positive rating action: - Projected FCF DSCR metrics above 1.5x and 1.2x for the class A and B notes, respectively If Wellington's and/or affiliates' combined portion of holdings in the transaction's senior notes exceeds 75% (currently 60%), Fitch will withdraw the ratings as the majority noteholder will be able to amend the terms of the notes at its own discretion. CREDIT UPDATE Performance Update Total revenues grew 1.1% and EBITDA declined 22.7% during the 12 months to June 2018. Excluding the losses on property disposals, the adjusted EBITDA declined 5.7% to GBP21.7 million, due to increased opex and a decline of 1.3% in the number of properties. Opex was mainly impacted by an increase in planning and development costs of properties marked for an alternative use. Strategy of Selling Bottom End Pubs The company continued to follow a strategy of selling bottom end and /or problem properties and those that have a higher alternative use value. Wellington disposed 10 properties in the 12 months to June 2018. In addition, Wellington actively looks into alternative uses for the closed/unviable pubs. Tenants Impacted by Industry Cost Pressures Pub tenants are exposed to discretionary spending, stiff competition including from the off-trade, as well as other factors such as minimum wages, taxes and utility costs. The UK's decision to leave the EU also increases uncertainty. All these factors put pressure on the ability of tenants to pay the rent. Fitch will continue to monitor the cost pressure that Wellington's tenants face, as this could have a significant impact on profitability. Fitch Cases The FRC envisages gradually declining FCF due to limited rental uplift, in addition to increasing opex and capex. The Fitch stress case further stresses rental uplift, which results in FCF declining around 4% per year. Under this scenario, the minimum FCF DSCR for the class A notes remains at 1x, while for the class B notes the metric falls below 1x, which suggests a reliance on the GBP6 million cash reserve to pay the debt service. =============== X X X X X X X X =============== * BOOK REVIEW: Risk, Uncertainty and Profit ------------------------------------------- Author: Frank H. Knight Publisher: Beard Books Softcover: 381 pages List Price: $34.95 Review by Gail Owens Hoelscher Order your personal copy today at http://www.amazon.com/exec/obidos/ASIN/1587981262/internetbankrup t The tenets Frank H. Knight sets out in this, his first book, have become an integral part of modern economic theory. Still readable today, it was included as a classic in the 1998 Forbes reading list. The book grew out of Knight's 1917 Cornell University doctoral thesis, which took second prize in an essay contest that year sponsored by Hart, Schaffner and Marx. In it, he examined the relationship between knowledge on the part of entrepreneurs and changes in the economy. He, quite famously, distinguished between two types of change, risk and uncertainty, defining risk as randomness with knowable probabilities and uncertainty as randomness with unknowable probabilities. Risk, he said, arises from repeated changes for which probabilities can be calculated and insured against, such as the risk of fire. Uncertainty arises from unpredictable changes in an economy, such as resources, preferences, and knowledge, changes that cannot be insured against. Uncertainty, he said "is one of the fundamental facts of life." One of the larger issues of Knight's time was how the entrepreneur, the central figure in a free enterprise system, earns profits in the face of competition. It was thought that competition would reduce profits to zero across a sector because any profits would attract more entrepreneurs into the sector and increase supply, which would drive prices down, resulting in competitive equilibrium and zero profit. Knight argued that uncertainty itself may allow some entrepreneurs to earn profits despite this equilibrium. Entrepreneurs, he said, are forced to guess at their expected total receipts. They cannot foresee the number of products they will sell because of the unpredictability of consumer preferences. Still, they must purchase product inputs, so they base these purchases on the number of products they guess they will sell. Finally, they have to guess the price at which their products will sell. These factors are all uncertain and impossible to know. Profits are earned when uncertainty yields higher total receipts than forecasted total receipts. Thus, Knight postulated, profits are merely due to luck. Such entrepreneurs who "get lucky" will try to reproduce their success, but will be unable to because their luck will eventually turn. At the time, some theorists were saying that when this luck runs out, entrepreneurs will then rely on and substitute improved decision making and management for their original entrepreneurship, and the profits will return. Knight saw entrepreneurs as poor managers, however, who will in time fail against new and lucky entrepreneurs. He concluded that economic change is a result of this constant interplay between new entrepreneurial action and existing businesses hedging against uncertainty by improving their internal organization. Frank H. Knight has been called "among the most broad-ranging and influential economists of the twentieth century" and "one of the most eclectic economists and perhaps the deepest thinker and scholar American economics has produced." He stands among the giants of American economists that include Schumpeter and Viner. His students included Nobel Laureates Milton Friedman, George Stigler and James Buchanan, as well as Paul Samuelson. At the University of Chicago, Knight specialized in the history of economic thought. He revolutionized the economics department there, becoming one the leaders of what has become known as the Chicago School of Economics. Under his tutelage and guidance, the University of Chicago became the bulwark against the more interventionist and anti-market approaches followed elsewhere in American economic thought. He died in 1972. ********* 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 * * *