/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190220.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Wednesday, February 20, 2019, Vol. 20, No. 37 Headlines C R O A T I A 3 MAJ: Decision to Launch Bankruptcy Proceedings Put Off G E R M A N Y HAPAG-LLOYD AG: Moody's Upgrades CFR to B1, Outlook Stable I T A L Y ALITALIA SPA: Delta Air, EasyJet Plan to Invest EUR400 Million FABRIC (BC) SPA: S&P Lowers Long-Term Issuer Credit Rating to B N E T H E R L A N D S NOSTRUM OIL: Moody's Cuts CFR & Sr. Unsec. Notes Rating to B3 T U R K E Y VOLKSWAGEN DOGUS: Fitch Affirms LT IDRs at BB+, Outlook Negative YAPI VE KREDI: S&P Affirms B+/B ICR, Outlook Stable U N I T E D K I N G D O M AVARA AVLON: Enters Administration Following Financial Woes DANIEL STEWART: Enters Administration After Backers Pull Plug FLYBMI: Airlines Mull Takeover of Derry Airport's London Route YORKSHIRE WATER: Moody's Puts (P)Ba1 Rating to GBP8BB MTN Programme ZINC HOTELS: Amir Dyan Among Buyers of Portfolio of U.K. Hotels - - - - - ============= C R O A T I A ============= 3 MAJ: Decision to Launch Bankruptcy Proceedings Put Off -------------------------------------------------------- SeeNews reports that the commercial court in Rijeka did not bring a decision on Feb. 6 whether to launch bankruptcy proceedings against the 3 Maj shipyard and scheduled a new hearing for Feb. 26, the troubled Croatian shipyard said in a statement. Last month, the Rijeka Commercial Court scheduled a hearing for Feb. 6 in order to establish whether the prerequisites for opening bankruptcy proceedings against 3 Maj are in place and appointed Zdravko Cupkovic as temporary bankruptcy manager, SeeNews recounts. According to SeeNews, Mr. Cupkovic said on Feb. 4 that the shipyard is not insolvent or over-indebted, but has been unable to service its debt due to the blocking of its bank account for 160 days, which was the single condition for the launch of bankruptcy proceedings that has been met. The 3 Maj shipyard is part of Croatia's indebted Uljanik shipbuilding group, which has been in financial trouble for some time due to the adverse effects of the global financial crisis on the shipbuilding sector in general which has led to a drop in orders for new vessels, SeeNews discloses. ============= G E R M A N Y ============= HAPAG-LLOYD AG: Moody's Upgrades CFR to B1, Outlook Stable ---------------------------------------------------------- Moody's Investors Service has upgraded the corporate family rating (CFR) of Hapag-Lloyd AG ("Hapag-Lloyd") to B1 from B2, its probability of default rating (PDR) to B1-PD from B2-PD and its senior unsecured bond ratings to B3 from Caa1. The outlook is stable. "Our rating action reflects Hapag-Lloyd's progress in integrating UASC following the merger while reducing leverage and generating positive free cash flow on the back of tight cost management and increased efficiencies," says Maria Maslovsky, a Moody's Vice President -- senior snalyst and lead analyst for Hapag-Lloyd. RATINGS RATIONALE Moody's upgrade of Hapag-Lloyd's ratings reflects the company's achievement of close to 90% of targeted $435 million of synergies from the UASC merger as of September 30, 2018 and the expected realization of full synergies in 2019 as originally outlined. These synergies helped to partially offset cost increases incurred by Hapag-Lloyd in the first half of 2018 on the back of sharp fuel cost increases in line with rising in oil prices. Additionally, Hapag-Lloyd has reduced leverage to 5.2x for the twelve months ending September 30, 2018 from 5.4x in 2017 and Moody's anticipates the company to continue its deleveraging path in line with its 2023 strategy. Furthermore, Hapag-Lloyd has been able to generate positive free cash flow starting in 2017 and Moody's expects it to remain cash generative going forward with proceeds at least partly applied to further debt reduction. The merger with UASC created a top five container liner with a capacity of 1.6 million twenty foot equivalent units (TEU). The combined entity benefits from a fleet that is on average younger and larger than the industry. Younger vessels require less maintenance, are more technologically sophisticated and, as a consequence, more efficient. This was particularly evident when Hapag-Lloyd was able to reduce operating costs per TEU to $926 from $938 for the first nine months of 2018 compared to the prior year period. This reduction was accomplished despite an increase in bunker fuel costs of 30.5% on the back of rising oil prices. Hapag-Lloyd's leverage increased to 5.4x in 2017 from 4.9x in 2016 following the acquisition of UASC and the assumption of approximately $4.0 billion of its debt. In the twelve months to September 30, 2018, the leverage declined to 5.2x and Moody's expects it to decline further to below 5.0x over the course of 2019. At the same time, Hapag-Lloyd's coverage has remained close to 3.5x and Moody's expects it to increase going forward. Hapag-Lloyd generated free cash flow of about EUR200 million after capex and dividends in 2017 and EUR140 million in the twelve months to September 30, 2018. The company does not plan to order new vessels for the next few years thanks to UASC's younger fleet and expects to pay dividends in the context of profit generation in a notoriously cyclical industry at about half of its after-tax earnings; therefore, Moody's expects Hapag-Lloyd to continue generating positive free cash flow. Hapag-Lloyd's liquidity is adequate with $694 million of cash and $470 million of revolving credit facility availability as of September 30, 2018. Its bullet bond maturities are not until 2022 and 2024, although the company has $5.1 billion of bank debt which is typically refinanced on a secured basis with $800 million maturing in 2019. The B3 rating of Hapag-Lloyd's senior unsecured notes is two notches lower than Hapag-Lloyd's CFR as it reflects not only their pari passu ranking with all other unsecured indebtedness issued by Hapag-Lloyd, but also their contractual subordination to secured debt existing within the group. RATIONALE FOR STABLE OUTLOOK The stable outlook reflects Moody's expectations of steady performance owing to the company's strong market position and experienced management team despite likely cost increases combined with a volatile freight rate environment. WHAT COULD CHANGE THE RATINGS UP/DOWN Positive rating pressure could arise if Hapag-Lloyd's debt-to-EBITDA is reduced below 4x on a sustainable basis, its (funds from operations (FFO) + interest expense)/interest expense increases above 4x on a sustainable basis and the company further strengthens its liquidity. Negative rating pressure could arise if Hapag-Lloyd's leverage increases above 5x debt/EBITDA for a prolonged period of time or its (FFO + interest expense)/interest expense declines below 3x. Deterioration in the business environment for container shipping or any pressure on the company's liquidity profile would also be a concern. The principal methodology used in these ratings was Shipping Industry published in December 2017. Hapag-Lloyd AG, headquartered in Hamburg, Germany, is the fifth largest container liner globally based on market share by volume. As of 30 September 2018, it operated a fleet comprising 222 ships, including 112 owned/leased and 110 chartered-in vessels. The company reported EUR11.1 billion in revenue in the nine months to September 2018. ========= I T A L Y ========= ALITALIA SPA: Delta Air, EasyJet Plan to Invest EUR400 Million -------------------------------------------------------------- Tommaso Ebhardt, John Follain, Sonia Sirletti and Ruth David at Bloomberg News report that Delta Air Lines Inc. and U.K. discounter EasyJet Plc may invest as much as EUR400 million (US$452 million) in the latest attempt to revamp struggling Italian airline Alitalia SpA. According to Bloomberg, people familiar with an initial draft of the plan said investors in a group led by rail operator Ferrovie dello Stato SpA are evaluating the financial needs of the "new Alitalia" that would emerge after the second bankruptcy process in a decade. The people said under consideration: a capital injection by investors totaling about EUR1 billion, Bloomberg relates. They said the plan will be discussed with Delta and EasyJet this week and could be finalized by the end of February, Bloomberg notes. The core of the proposal involves setting up a new company following the bankruptcy process that started in 2017, Bloomberg states. The people said the new Alitalia would retain assets from the previous carrier, but debt wouldn't be carried over, Bloomberg relays. The people, as cited by Bloomberg, said as part of the deal, Delta and EasyJet may get up to 40% in the new company, with the rest divided among companies controlled by the Italian government. FABRIC (BC) SPA: S&P Lowers Long-Term Issuer Credit Rating to B --------------------------------------------------------------- S&P Global Ratings is lowering to 'B' from 'B+' its long-term issuer credit rating on Fabric (BC) SpA (Fedrigoni). S&P is lowering to 'B' from 'B+' the issue rating on the senior secured notes due 2024. S&P said, "The downgrade reflects our view that Fedrigoni could adopt a more aggressive leverage policy than we previously factored into the rating, such that adjusted debt to EBITDA could increase above 5.0x on a sustained basis. Although Fedrigoni has not announced a specific transaction, and has not made any public indication that it plans to increase leverage, we think the company could have tolerance for higher adjusted leverage in the future than we previously expected." Fedrigoni manufactures premium paper and label products for niche segments. It has a well-invested asset base, high-quality products, established relationships with leading luxury brands, and a very efficient distribution network. Fedrigoni has a higher cost base than many of our larger European rated paper companies. This reflects its smaller asset base and lack of vertical integration into pulp and energy. Fedrigoni has thereby successfully carved itself niche positions in premium paper segments, including graphic paper, security paper, and paper for pressure-sensitive wine labels (PSLs) in Europe. S&P said, "We expect most of the company's revenue expansion in 2019 will reflect the first full-year contribution of Cordenons, the Italian high-end specialty paper producer that Fedrigoni acquired in July 2018. We expect organic revenue expansion will be modest and mainly relate to further international expansion in PSL and price increases. "We expect EBITDA margins will temporarily decline in 2019 as the company continues to implement cost-saving and restructuring measures. Costs related to these measures will more than outweigh any savings, despite the positive impact of a likely decline in pulp prices. We expect a recovery in EBITDA margins in 2020. "The stable outlook reflects our expectation that Fedrigoni will continue to capitalize on its solid client relationships and leading premium niche positions. In the next 12 months, we think adjusted leverage could exceed 5.0x, but remain comfortably in line with our expectations for a 'B' rating. We expect free operating cash flow (FOCF) will remain positive, albeit modest in the short term. "We could lower the rating if the group's financial policy became more aggressive, especially regarding shareholder remuneration, preventing any material deleveraging and resulting in negative cash flows and debt to EBITDA persistently above 7.0x. We could lower the rating if Fedrigoni experienced unexpected customer losses or margin pressures due to delays in the implementation of its cost rationalizations or unexpected cost increases--following adverse foreign-exchange movements or raw material price increases--that it cannot pass on to customers. "We view an upgrade as unlikely in the near term, given the financial sponsor ownership. Any upside would most likely stem from a material improvement of the company's business risk profile, such as a significant and sustained improvement in profitability or scale." Headquartered in Verona, Italy, Fedrigoni is a paper and label producer with a product range that includes commodity and specialty papers (51% of gross sales), converting (31%), and security products (18%). In each of these areas, Fedrigoni has carved itself strong niche positions, mainly by focusing on service and product quality at the premium end of the market. Fedrigoni has a strong reliance on Italy, where it generates 30% of revenues and where 11 of its 16 manufacturing plants are based. S&P's base case assumes: -- Italian GDP growth of 0.7% in 2019 and 0.9% in 2020, with limited productivity increases continuing to weigh on the economy. -- Eurozone GDP increases of 1.6% in both 2019 and 2020, supported by domestic demand and exports. -- Revenue expansion of 6.7% in 2019, driven by the full-year contribution of Cordenons (acquired July 2018), and modest organic expansion in the paper and converting segments. S&P expects revenues will increase modestly from 2020 onward. -- Adjusted EBITDA margins of 9.7% in 2019 (compared to estimated margins of 10.8% in 2018). S&P expects higher restructuring costs than previously anticipated and lower economies of scale in the security business in 2019. Internal initiatives and a likely reduction in pulp prices will only partly mitigate these cost increases. -- No dividend payments. -- Capital expenditure (capex) of approximately EUR30 million in 2019 and EUR25 million in 2020. Most of this capex will relate to maintenance capex. Based on these assumptions, S&P arrives at the following credit metrics: -- Adjusted debt to EBITDA in excess of 5.0x at year-end 2019 and year-end 2020. S&P does not net off from our leverage calculation the cash Fedrigoni holds on its balance sheet. -- Adjusted funds from operations (FFO) to debt of about 10%-12% in December 2019 and December 2020. -- S&P expects FOCF to debt will remain below 10% throughout 2019 and 2020. ===================== N E T H E R L A N D S ===================== NOSTRUM OIL: Moody's Cuts CFR & Sr. Unsec. Notes Rating to B3 ------------------------------------------------------------- Moody's Investors Service has downgraded Nostrum Oil & Gas Plc's (Nostrum) corporate family rating (CFR) to B3 from B2 and probability of default rating (PDR) to B3-PD from B2-PD. Concurrently, Moody's has downgraded to B3 from B2 the senior unsecured ratings assigned to the notes issued by Nostrum's wholly owned subsidiary Nostrum Oil & Gas Finance B.V. The outlook on the ratings is stable. "We have downgraded Nostrum's ratings based on our expectation that the company's financial metrics will weaken in 2019 under $60 per barrel (bbl) oil price scenario due to low hydrocarbons production, unless appraisal drilling in the Northern part of the Chinarevskoye field yields material positive results," says Denis Perevezentsev, a Vice President -- Senior Credit Officer at Moody's. RATINGS RATIONALE Moody's downgrade of Nostrum's rating to B3 reflects Moody's expectation that the company's average daily production in 2019 will remain at a low level of around 30 thousand barrels of oil equivalent (boe) per day (2018: 31.3 thousand boe per day), down from around 40 thousand boe per day in 2015-17. As a result, the company's Moody's-adjusted EBITDA will decline to $170 million - $190 million in 2019 under oil price scenario of $60/bbl from $269 million in the 12 months ended September 30, 2018. Consequently, Nostrum's leverage, as measured by Moody's-adjusted debt/EBITDA, will increase to 6.0x-6.5x by year-end 2019 compared with 4.2x as of 30 September 2018. Retained cash flow (RCF) to debt ratio will weaken to 7% - 9% by year-end 2019 from 15.1% as of September 30, 2018. Nostrum's rating remains constrained by (1) relatively modest scale of the company's operations by international standards, with average daily production of 31.3 thousand boe per day in 2018; (2) high operational concentration, with only Chinarevskoye field currently producing, and around two thirds of production coming from 14 gas condensate wells located in the field's North-Eastern part; (3) fairly sizeable capital spending, encompassing the completion of GTU 3 and the drilling programme, which will keep free cash flows negative in 2019; (4) weak operating performance in 2018-19 following the loss of two production wells in 2017 and halting of drilling activity in the most productive North-Eastern part of the Chinarevskoye field during 2019; (5) fairly high level of debt, which makes Nostrum's operating cash flows after interest sensitive to oil prices and sales volumes; and (6) low capacity utilisation of GTU 1-2 and GTU 3 on a combined basis following commencement of GTU 3 in 2019 due to insufficient feedstock. More positively, Nostrum's rating reflects (1) fairly high oil prices; (2) beneficial geographic positioning and access to infrastructure, which account for the company's low selling and transportation costs; and (3) good liquidity following the placement of new notes in 2017-18, with no debt maturities until 2022. This will allow the company to focus on ramping up production and deleveraging once GTU 3 is put into operation in 2019. Nostrum's production has been declining since 2017, when the company lost two production wells due to uncontrollable water influx. Since then, the company has not been able to fully offset natural output decline with new wells, leading to production decline in 2017-18. In November 2018, Nostrum announced that it would carry out a technical study of the North-Eastern part of the Chinarevskoye field, which accounts for over 90% of the company's production and 95% of the company's proved reserves, which will be completed in the second half of 2019. Furthermore, operations in the Western part of the Chinarevskoye field, which targeted 92 million bbl of probable reserves, are currently also under technical review following a wellbore collapse during the final stages of drilling. Therefore, drilling in the Western and North-Eastern parts of the Chinarevskoye field at least during 2019 is put on hold. The two production wells, which the company successfully put into operation in Q4 2018, will allow to offset the natural production decline at the Chinarevskoye field in 2019. To grow production the company needs to successfully drill additional wells during 2019. With drilling during 2019 focusing on the Northern area, the company will be conducting the 2019 drilling programme with only two rigs (instead of three rigs, as initially planned). With two rigs on site for 2019 the company will be able to drill fewer wells than it had initially envisaged (each rig is capable of drilling up to three wells in a full calendar year) targeting six appraisal wells in the Northern part of the Chinarevskoye field. As a result of the geological challenges, the company expects average production for 2019 at about 30 thousand boe per day, corresponding to sales volumes of approximately 28 thousand boe per day, substantially lower than the initial estimates. Geological challenges which the company encountered during 2017-18 may also lead to subsequent downward revision of its proved and probable reserves, which will negatively affect the company's business profile. RATIONALE FOR STABLE OUTLOOK The stable outlook on Nostrum's ratings balances the likely deterioration of financial metrics in 2019 due to geological and technical challenges, which the company is trying to overcome, with Moody's expectation that production, on average, is likely to stabilise at about 30 thousand boe per day in 2019, while the company has sufficient liquidity to fund its exploration and production drilling in 2019-20 as planned. WHAT COULD CHANGE THE RATING UP/DOWN Moody's would consider an upgrade of Nostrum's ratings, if (1) its RCF/debt ratio trends towards 20%; (2) the company's average daily production recovers to above 40 thousand boe per day; (3) the company refinances its 2022 Notes or demonstrates available committed liquidity sources sufficient to refinance the 2022 Notes. Moody's could downgrade the ratings in case of (1) deterioration of RCF/debt ratio to below 10% on a sustained basis; (2) evidence of continuing geological issues at the Chinarevskoye field, which can negatively affect the company's plans to recover daily production or deterioration of production to below 30 thousand boe per day on a sustained basis; (3) substantial reduction of proved and/or probable reserves; and (4) deterioration of the company's liquidity, including lack of committed liquidity sources sufficient to refinance the 2022 Notes by the first half of 2021. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017. Registered in England and Wales, Nostrum Oil & Gas Plc, via its indirectly owned subsidiary Zhaikmunai LLP, is engaged in exploration, development and production of oil and gas in Kazakhstan under the framework of production sharing agreement related to the Chinarevskoye field and three subsoil use contracts. Nostrum's principal shareholders as of January 1, 2019 were Mayfair Investments B.V. (25.7%), Nova Capital Management Ltd. (17.9%) and Aberforth Partners LLP (11.4%). In the 12 months ended 30 September 2018, Nostrum reported revenue of $413 million and its Moody's-adjusted EBITDA amounted to $269 million. Nostrum's production in 2018 was approximately 31.3 thousand boe per day and its proved reserves stood at 124 million boe as of January 1, 2018. =========== T U R K E Y =========== VOLKSWAGEN DOGUS: Fitch Affirms LT IDRs at BB+, Outlook Negative ---------------------------------------------------------------- Fitch Ratings has affirmed Volkswagen Dogus Finansman A.S.'s (VDF) and VDF Faktoring A.S.'s (VDFF) Long-Term Issuer Default Ratings (IDRs) at 'BB+'. The Outlooks are Negative. The agency has also affirmed the companies' Short-Term IDRs, Support Ratings and National Ratings. KEY RATING DRIVERS IDRS, SUPPORT RATINGS AND NATIONAL RATINGS VDF's and VDFF's IDRs are driven by support from their controlling shareholder - Volkswagen Financial Services AG (VWFS) and ultimately from VW AG (BBB+/Stable). Both companies are strategically important for VW and VWFS, given their important role in supporting the group's car sales in Turkey. At end-2018, VDF and VDFF relied significantly on group funding, sourcing 38% and 74% of their respective total funding from the VW group. VDF's and VDFF's Long-Term IDRs are capped by Turkey's Country Ceiling of 'BB+' i.e. three notches below VW's Long-Term IDR of 'BBB+'. The Country Ceiling captures transfer and convertibility risks and limits the extent to which support from VWFS or VW can be factored into VDF and VDFF's Long-Term Foreign-Currency IDRs. The companies finance almost exclusively VW group brands. VDF's penetration rate for VW's sales in Turkey was 44% in 2018 and it finances both retail customers (individuals and SMEs) and fleet management companies. The loans are amortising and granted at an average tenor of 30 months and at fixed rate. VDFF provides short-term (45 days in average) floor financing to local dealers of VW brands. Both VDF and VDFF are 51% owned by VW (via VWFS) and 49% by Dogus holding. Dogus is a large Turkish conglomerate and a sole importer of VW vehicles in Turkey. VW exercises operational control, but Dogus has significant involvement in running the companies, including three out of seven representatives on the respective supervisory boards. Dogus is renegotiating its debt with local banks. Fitch expects no contagion risk for VDF and VDFF and hence no negative implication for the ratings, as the companies are run independently without relying on Dogus for funding or business origination and are associated by market participants predominantly with the VW group. VDF operates with very high leverage - 26x debt/ tangible equity at end-2017, which Fitch understands increased further in 2018. The statutory accounts leverage, derived as equity-to-assets, was 3.9% at end-2018. Fitch expects VDF's capital adequacy to further deteriorate in 2019 due to net losses but to be underpinned by deleveraging. Fitch expects the statutory ratio to stay within the regulatory leverage limit of 3%, which it views as quite loose. In Fitch's view, quality of capital is compromised by material deferred tax assets and intangibles amounting to around half of equity. VDFF's debt to tangible equity ratio was also high 13x at end-2017 but improved in 2018, as did statutory leverage (equity to assets ratio 11.5% at end-2018 was comfortably above the regulatory requirement of 3%). This was driven by full retention of high profits for 2018. VDF's net interest margin (2.4% in 2017) narrowed in 2018 suppressed by a sharp increase in interest expenses. The abrupt lira devaluation in 2018 triggered a 70% fall in car sales in Turkey in 2H18. Currency weakness also caused a liquidity squeeze and a rise in lira funding costs. Hence weaker operating profit was not sufficient to cover elevated impairment costs. Fitch expects VDF to report losses in both 2018 and 2019. VDFF was able to improve its net interest margin from 1.7% in 2017. The company avoided any material credit losses in 2018 and this resulted in strong net returns. Fitch expects VDFF's pre-impairment performance to normalise in 2019 affected by opex growth and lower business volumes. The factoring book is lumpy so potential credit risk could erase the net return. VDF reported deteriorating asset quality in 2018. NPLs increased to a three-year high as NPL generation peaked in the second half of the year. Fitch expects it to remain elevated in 2019 and NPLs to reach 10% of total loan book by end-2019 (not accounting for any potential NPL write-off/sales). Fitch also expects the new loan origination to stay muted due to continuing contraction in car sales in 2019. VDFF demonstrates reasonable asset quality with very low reported NPLs. The company requires its borrowers to provide partial guarantee protection by local banks and covers the remainder with vehicles collateral. VDF and VDFF rely on bilateral borrowings, but have adequate diversification by fund providers within this segment. VDF also uses the securitisation market with around 10% of total funding. VDF and VDFF kept a sizable cash buffer at end-2018 (around 10% of total assets each), largely mandatory reserves. The companies' business model does not assume large unexpected cash outflows and does not require for a vast liquidity cushion. Additionally Fitch expects the companies would benefit parental support in case of liquidity stress. VDF's and VDFF's 'AAA(tur)' National Long-Term Rating reflects Fitch's view that due to Fitch's assessment of the available institutional support from VWFS and VW, the companies are among the strongest credits in Turkey. The Stable Outlook reflects Fitch's view that it does not expect changes to their creditworthiness relative to other Turkish issuers. RATING SENSITIVITIES IDRS, SUPPORT RATINGS AND NATIONAL RATINGS VDF and VDFF's Long-Term IDRs are likely to move together with Turkey's Country Ceiling, which is currently one notch above Turkey's sovereign IDR, which has a Negative Outlook. A weakening of support from VW, for example, as a result of dilution of ownership in the entities, a loss of operational control or diminishing of importance of the Turkish market would trigger a downgrade. A multi-notch downgrade of VW's and VWFS's IDRs or a diminishing of strategic importance of VW's global car financing arm (namely VWFS) for VW would result in downgrade of VDF and VDFF. A weakening of VDF's and VDFF's support-driven credit profiles relative to other domestic issuers could lead to a downgrade of the companies' National Long-Term Ratings. The rating actions are as follows: Volkswagen Dogus Finansman A.S. and VDF Faktoring A.S. Long-Term IDRs affirmed at 'BB+'; Outlook Negative Short-Term IDRs affirmed at 'B' National Long-Term Ratings affirmed at 'AAA(tur)'; Outlook Stable Support Ratings affirmed at '3' YAPI VE KREDI: S&P Affirms B+/B ICR, Outlook Stable --------------------------------------------------- S&P Global Ratings said that it affirmed its 'B+/B' long- and short-term issuer credit ratings on Turkey-based Yapi ve Kredi Bankasi (Yapi) as well as the 'trA+/trA-1' long- and short-term national scale ratings on the bank. The outlook remains stable. The rating affirmation follows Yapi's recent issuance of $650 million Additional Tier 1 (AT1) capital notes, enabling it to lessen the pressure on its solvency. The issuance, which received regulatory approval for inclusion in the bank's regulatory Tier 1 capital, is the second capital strengthening initiative taken by Yapi in the past eight months--the first being the completion of $1 billion rights issuance in June 2018. S&P classifies the notes as having intermediate equity content because they are perpetual--with a first call date five years from issuance--and provide loss-absorption capacity on a going concern basis via a coupon deferral at the bank's discretion. The notes do not incorporate a coupon step-up. S&P said, "We estimate that the issuance of about $650 million AT1 notes will improve our assessment of the bank's capital by about 50 basis points (bps). Incorporating the notes into our analysis, we now forecast Yapi's risk-adjusted capital ratio will reach about 6% over the next 12-18 months, compared to our previous projections of below 5%. This led us to revise upward our assessment of the bank's capitalization. Although we view positively Yapi's capital strengthening, it is not currently sufficient to change our view of the bank's creditworthiness since we consider this initiative will partly offset increasing economic risks in Turkey. "Similar to other domestic banks, we consider Yapi will suffer from strong depreciation of the Turkish lira, a material slowdown in economic activity, deteriorating asset quality, and higher cost of funding over the next 12-24 months. Specifically, we expect the bank's portion of problematic loans will materially exceed double digits by end-2019, with nonperforming loans reaching about 6.5%-7.0% of total loans (versus 5.5% at year-end 2018) and the cost of risk increasing to about 300 bps. As such, we project the bank's business activity will significantly slow and its earnings generation capacity will be under pressure amid higher credit losses and higher pressures on margins. This will ultimately hamper Yapi's efforts to build up capital organically. "We continue to view Yapi's funding profile as adequate based on its large deposit base, benefitting from the bank's wide retail franchise and name recognition. However, the bank's high reliance on short-term external borrowings--which accounted for 24% of its total liabilities at year-end 2018--renders its funding sources vulnerable to investors' sentiments toward Turkey. Such external borrowings are currently subject to increasing pricing and rollover risks, which stem from declining investor appetite for emerging markets, increased political risks in Turkey, and investors' growing concerns regarding the Turkish financial system's creditworthiness. In our base-case scenario, we think Yapi could withstand some degree of restrained access to certain types of external funding, thanks to its broad liquidity buffer. However, if this turned into a systemic crisis, marked by a prolonged period of restrained access to external funding, potentially coupled with a run on deposits by customers, this would threaten Yapi's business and financial risk profiles. "The stable outlook on Yapi balances the downside risks we see on the bank's financial profile over the next 12 months, including pressure on its liquidity and asset quality, with the benefit of potential support from its parent company, UniCredit. "We could lower the rating if we saw a much sharper deterioration in the bank's operating environment than we currently anticipate, leading to a material weakening of its liquidity, asset quality, and ultimately solvency. "We could also see downward pressure on the rating if we were to lower our sovereign rating on Turkey or if we considered that the strategic importance to the parent bank had declined. "Although currently unlikely, we could raise the rating if we were to take a similar action on the sovereign, combined with the bank significantly enhancing its operating performance and capitalization." =========================== U N I T E D K I N G D O M =========================== AVARA AVLON: Enters Administration Following Financial Woes ----------------------------------------------------------- Business Sale reports that Avara Avlon Pharma Services Limited, a pharmaceutical manufacturing company based in Bristol, has entered administration after experiencing a series of financial difficulties. The company called in administrators after a major contract came to an end, raising questions regarding its future, Business Sale relates. Accounting firm David Rubin & Partners were called in to oversee the administration process, with partners David Rubin -- david@drpartners.com -- and Asher Miller -- asher@drpartners.com -- appointed at the High Court of Justice as joint administrators, Business Sale discloses. According to Business Sale, Mr. Rubin commented on the administration: "Avlon has experienced financial difficulties in recent months as a result of a major contract with a customer coming to an end. The joint administrators are now managing the site, whilst they seek a buyer for the business and assets. "The main issues here are keeping the site operational and ensuring that all health, safety and environment obligations are complied with. We are working closely with the highly professional and experienced workforce to do everything we can to obtain the best outcome for all stakeholders. "We have already secured an agreement with the major customer that gives the business immediate short-term funding and means that we do not immediately have to consider mass redundancies." Presently, Avara Avlon Pharma Services employs roughly 270 members of staff at its 100-acre site in Avonmouth to manufacture a number of active pharmaceutical ingredients, Business Sale states. As well as in the UK, the company also has operational sites in Ireland, US, Canada and France, Business Sale notes. DANIEL STEWART: Enters Administration After Backers Pull Plug ------------------------------------------------------------- Tommy Stubbington at The Times reports that the troubled City broker Daniel Stewart has collapsed into administration after its Singaporean backers decided to pull the plug. According to The Times, the company made most of its more than 30 staff redundant earlier this month and its website has been replaced by a message saying it "will not be accepting any new client instructions for the foreseeable future". The company filed for administration on Feb. 7, The Times discloses. A source at the business said Epsilon Investments, the Singaporean family fund that had owned 90% of the broker, had decided not to support the business amid mounting losses, The Times relates. FLYBMI: Airlines Mull Takeover of Derry Airport's London Route -------------------------------------------------------------- Belfast Telegraph reports that a number of airlines are interested in taking over City of Derry Airport's London route following the collapse of flybmi. The airport's contract boss Clive Coleman has said they are currently in discussions with a number of interested parties in an attempt to find a quick solution, Belfast Telegraph relates. Flybmi announced on Feb. 16 that the company was going into administration with immediate effect, leaving some customers stranded and out of pocket, Belfast Telegraph recounts. It operated 14 flights to London and the airline's collapse leaves it with three destinations from the airport, although that figure should increase in the summer months, Belfast Telegraph discloses. The announcement came just days after Transport Secretary Chris Grayling promised to continue funding direct flights between Londonderry and London until May 2021, Belfast Telegraph notes. The loss of the service could put the future of the airport at stake, with City of Derry relying on heavy government subsidies in recent years, Belfast Telegraph states. YORKSHIRE WATER: Moody's Puts (P)Ba1 Rating to GBP8BB MTN Programme ------------------------------------------------------------------- Moody's Investors Service has assigned provisional backed senior secured (P)Baa1 and backed subordinate (P)Ba1 ratings to the GBP 8.0 billion MTN programme (the Programme) of Yorkshire Water Finance plc -- a new UK financing subsidiary of Yorkshire Water Services Limited (YWS, corporate family rating Baa2). Concurrently, the rating agency has assigned a negative outlook to Yorkshire Water Finance plc, in line with the outlook for YWS. The Programme, finalised on January 30, 2019, replaces the former MTN programme at YWS's Cayman Islands registered financing subsidiaries, Yorkshire Water Services Bradford Finance Ltd (Bradford) and Yorkshire Water Services Odsal Finance Ltd (Odsal), which carried the same ratings. At the same time as assigning ratings to the new Programme, Moody's has withdrawn the provisional backed senior secured (P)Baa1 and backed subordinate (P)Ba1 ratings assigned to the lapsed MTN programme previously held at Bradford and the provisional backed senior secured (P)Baa1 rating at Odsal. Following a restructuring of the group completed in August 2018, Yorkshire Water Finance plc was substituted as issuer of all bonds formerly held at Bradford and Odsal. The rating agency has affirmed the backed senior secured Baa1 and backed subordinate Ba1 ratings of all debt obligations assumed by Yorkshire Water Finance plc. Concurrently, Moody's has also affirmed the Baa2 corporate family rating (CFR) of Yorkshire Water Services Limited and the Baa1 senior secured ratings at Yorkshire Water Services Finance Limited, both with negative outlook. RATINGS RATIONALE RATIONALE FOR NEW RATING ASSIGNMENT TO YORKSHIRE WATER FINANCE PLC The assigned ratings reflect YWS's low business risk profile as a monopoly provider of essential water and sewerage services, its relatively stable and predictable cash flow generation under a well-established and transparent regulatory framework, and creditor protections incorporated within the company's financing structure. These strengths, however, are somewhat offset by the company's expensive, long-dated debt and derivatives portfolio and the likelihood of significantly lower baseline returns from the start of the next regulatory period April 2020. The provisional (P)Baa1 programme rating related to any future Class A bonds to be issued reflect the strength of the debt protection measures for this class of bonds and other pari passu indebtedness (together, the Class A Debt), and the senior position in the cash waterfall post any enforcement of security. The rating of the senior debt also, however, factors in the subordinated Class B bonds and other pari passu borrowing (together, the Class B Debt) which, while contractually subordinated, serves to reduce the operator's financial flexibility. Downgrade or default of the Class B Debt could have an impact on the viability of the company's funding model as a whole since the inability to raise additional Class B Debt in the future could undermine the capital structure and affect the credit quality of the senior debt. The provisional (P)Ba1 programme rating related to any future Class B bonds to be issued reflects the same default probability as factored into the rating of the Class A Debt but also Moody's expectation of a heightened loss severity for the Class B Debt following any default, given its subordinated position. RATIONALE FOR RATING WITHDRAWAL IN RELATION TO YORKSHIRE WATER SERVICES BRADFORD FINANCE LTD AND YORKSHIRE WATER SERVICES ODSAL FINANCE LTD Moody's withdrawal of the provisional backed senior secured (P)Baa1 and backed subordinate (P)Ba1 ratings reflects that the programme is no longer outstanding. Following the issuer substitution completed in August 2018, Bradford and Odsal were removed from the group's ring-fenced covenanted financing structure and are being liquidated. The MTN progamme at Bradford and Odsal was left to lapse. RATIONALE FOR RATING AFFIRMATIONS Affirmation of the existing ratings reflects Moody's view that the restructuring, issuer substitution and new MTN programme are credit neutral on the basis that they do not adversely impact the rights of the lenders, the credit enhancing features incorporated within Yorkshire Water's highly-covenanted financing structure, or the financial risk profile of the operating company. All features of the existing financing structure, which provide credit enhancement to the corporate family, remain in place and the new UK-registered issuer, Yorkshire Water Finance plc, has acceded to all relevant finance documents as an obligor. RATINGS OUTLOOK The negative outlook reflects (1) Yorkshire Water's exposure to the expected decline in allowed returns from 2020, as guided by the regulator in its final PR19 methodology published in December 2017, while Yorkshire Water's own cost of debt remains high; (2) the regulator's proposed financing cost sharing requirements, intended to reduce the earnings of companies benefitting from a highly leveraged capital structure; (3) Moody's revised and slightly more demanding financial ratio guidance for the sector, which has been recalibrated to reflect its perception of increased regulatory risk; and (4) the rating agency's expectation that due to the combination of the above factors Yorkshire Water Limited will find it challenging to meet the ratio guidance for its current ratings in the next regulatory period, absent measures to strengthen its balance sheets and/or significant outperformance. WHAT COULD CHANGE THE RATING UP/DOWN Given the negative outlook, there is currently limited upgrade potential. The outlook could be changed to stable if Moody's concludes that (1) financial metrics for the period from 2020-25 are likely to meet the existing guidance for the current rating, in particular, an adjusted interest coverage ratio (AICR) of at least 1.3x and leverage not exceeding 80% (net debt/RCV); and (2) the risk exposure of Yorkshire Water's capital structure remains manageable and does not impair the company's financial flexibility in comparison with industry peers, taking into account any additional measures management or shareholders may be willing to implement to mitigate the company's exposure and timing of the same. Any stabilisation of the rating will also take into consideration the continuing incentives for shareholders to provide additional support, given the impact of the low-yield environment on the debt fair value and derivative valuations. The rating could be downgraded if, taking into account such measures as management and shareholders may implement, it appears that Yorkshire Water will likely have insufficient financial flexibility to accommodate the expected reduction in allowed returns and more challenging efficiency targets at PR19. Furthermore, downward pressure could result from (1) an unexpected, severe deterioration in operating performance that results in the company remaining persistently in breach of its distribution lock-up triggers; (2) a material change in the regulatory framework for the UK water sector, leading to a significant increase in Yorkshire Water's business risk; or (3) unforeseen funding difficulties, or all. The principal methodology used in these ratings was Regulated Water Utilities published in June 2018. LIST OF AFFECTED RATINGS Issuer: Yorkshire Water Finance plc Assigments: Backed Subordinate Medium-Term Note Program, Assigned (P)Ba1 Backed Senior Secured Medium-Term Note Program, Assigned (P)Baa1 Affirmations: Issuer: Yorkshire Water Finance plc Backed Subordinate Regular Bond/Debenture , Affirmed Ba1 Backed Senior Secured Regular Bond/Debenture , Affirmed Baa1 Issuer: Yorkshire Water Services Finance Limited Backed Senior Secured Regular Bond/Debenture, Affirmed Baa1 Underlying Senior Secured Regular Bond/Debenture, Affirmed Baa1 Issuer: Yorkshire Water Services Limited Corporate Family Rating, Affirmed Baa2 Withdrawals: Issuer: Yorkshire Water Services Bradford Finance Ltd Backed Subordinate Medium-Term Note Program Withdrawn , previously rated (P)Ba1 Backed Subordinate Regular Bond/Debenture Withdrawn , previously rated (P)Ba1 Backed Senior Secured Medium-Term Note Program Withdrawn , previously rated (P)Baa1 Issuer: Yorkshire Water Services Odsal Finance Ltd Backed Senior Secured Medium-Term Note Program Withdrawn , previously rated (P)Baa1 Outlook Actions: Issuer: Yorkshire Water Finance plc Outlook, Assigned Negative Issuer: Yorkshire Water Services Bradford Finance Ltd Outlook, Changed To Rating Withdrawn From Negative Issuer: Yorkshire Water Services Finance Limited Outlook, Remains Negative Issuer: Yorkshire Water Services Limited Outlook, Remains Negative Issuer: Yorkshire Water Services Odsal Finance Ltd Outlook, Changed To Rating Withdrawn From Negative ZINC HOTELS: Amir Dyan Among Buyers of Portfolio of U.K. Hotels --------------------------------------------------------------- Jack Sidders at Bloomberg News reports that the family of Israeli property tycoon Amir Dayan is among buyers of a portfolio of U.K. hotels leased to Hilton Worldwide Holdings Inc., according to people with knowledge of the deal. The group of nine hotels, which entered a form of bankruptcy protection under U.K. insolvency laws starting in early 2018, was acquired by companies controlled by Vivion Investments Sarl for GBP246 million (US$315 million), Bloomberg relays, citing a filing by the administrators appointed to oversee the properties. Mr. Dayan's family is among the investors in Vivion, the people, as cited by Bloomberg, said, asking not to be identified because the information is private. The sale marks the start of a new saga for the Zinc Hotels portfolio that was once owned by Iranian-British businessman Vincent Tchenguiz, Bloomberg notes. According to Bloomberg, people familiar with the matter said in July 2017 his Consensus Business Group tried to sell the nine hotels scattered across England -- together with a more valuable property in London -- for about GBP600 million. The filing showed a deal couldn't be reached and creditors instead put the businesses into administration, or a form of bankruptcy protection, Bloomberg states. ********* 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 2019. 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. 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