/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190405.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, April 5, 2019, Vol. 20, No. 69 Headlines G R E E C E GREECE: Clears Hurdle for Debt Relief, Fulfills Reform Conditions I R E L A N D DILOSK RMBS NO. 3: S&P Assigns Prelim CCC Rating to X1-dfrd Notes I T A L Y SOCIETA ITALIANA: Invites Expression of Interest for CAI Stake L U X E M B O U R G CCP LUX: S&P Affirms 'B' ICR on Refinancing, Outlook Stable N E T H E R L A N D S ACCUNIA EUROPEAN I: Moody's Assigns (P)B2 Rating to Class F Notes X5 RETAIL: Moody's Hikes CFR to Ba1 & Alters Outlook to Stable R O M A N I A BANCA TRANSILVANIA: Fitch Affirms 'BB+' LT IDR, Outlook Stable R U S S I A LEADER-INVEST: S&P Affirms B Ratings, Alters Outlook to Positive S W I T Z E R L A N D GATEGROUP HOLDING: S&P Places B- ICR on Watch Positive on RRJ Deal U N I T E D K I N G D O M ASTON MARTIN: Moody's Assigns B2 CFR, Outlook Stable IHS MARKIT: Moody's Rates Proposed Senior Unsecured Notes 'Ba1' LONDON CAPITAL: FCA Ordered to Appoint Independent Reviewer LONDON CAPITAL: Technically Insolvent 2 Years Ago, Accounts Show MERIDIAN METAL: Funding Difficulties Prompt Administration SYNLAB BONCO: Fitch Rates EUR150MM Incremental Term Loan 'B+(EXP)' X X X X X X X X [*] BOOK REVIEW: THE SUCCESSFUL PRACTICE OF LAW - - - - - =========== G R E E C E =========== GREECE: Clears Hurdle for Debt Relief, Fulfills Reform Conditions ----------------------------------------------------------------- Viktoria Dendrinou at Bloomberg News reports that Greece cleared a key hurdle toward receiving around EUR1 billion (US$1.1 billion) in cash for debt relief, as the European Commission said the country has fulfilled all reform conditions required in its latest post-bailout audit. In a report reviewing Greece's record in completing the overhauls attached to further aid, the EU's executive arm paved the way for a final decision to be taken by euro-area finance ministers when they meet in Bucharest, Romania, later this week, Bloomberg relates. The report comes after a prolonged spat over Greece's household insolvency framework, which creditors worried could harm the country's payment culture and weigh on its troubled banks, Bloomberg states. Greek lenders have the highest ratio of soured loans in Europe, Bloomberg notes. Greece finally voted for the controversial framework in parliament last week addressing some of the creditors' concerns, Bloomberg discloses. According to Bloomberg, while the report said "some risks to financial stability and payment discipline remain," it suggested the new insolvency regime was sufficient for the euro area to take a decision to release the tranche. The Greek government has been waiting for the green light from the currency bloc before it can begin a procedure for the early repayment of some of its loans from the International Monetary Fund, Bloomberg says. Greece is also considering another bond sale in the coming weeks or months or a reopening of one of the latest notes it has issued, Bloomberg relays. ============= I R E L A N D ============= DILOSK RMBS NO. 3: S&P Assigns Prelim CCC Rating to X1-dfrd Notes ----------------------------------------------------------------- S&P Global Ratings assigned its preliminary credit ratings to Dilosk RMBS No.3 DAC's (Dilosk 3's) class A, B-dfrd, C-dfrd, D-dfrd, and X1-dfrd notes. At closing, Dilosk 3 will also issue unrated class X2, Z1, Z2 and R notes. S&P said, "Our preliminary ratings address the timely payment of interest and the ultimate payment of principal on the class A notes. Our preliminary ratings on the class B-dfrd, C-dfrd, D-dfrd, and X1-dfrd notes address the ultimate payment of interest and principal on these notes." Dilosk 3 is a securitization of a pool of first-ranking residential mortgage loans, secured on properties in Ireland originated by Dilosk DAC under the ICS Mortgages brand. Dilosk DAC will officially act as servicer for all of the loans in the transaction from the closing date, but effectively Link Asset Services Ltd. will be delegated the role. S&P said, "Based on the origination criteria and process used we consider the mortgages to be prime mortgages, and there are no arrears at the time of our assigning the preliminary ratings. The Central Bank of Ireland's mortgage measures restrict the buy-to-let mortgage advance to 70% on a loan level, ensuring the weighted-average original loan-to-value ratio at a portfolio level is lower than that for other comparable European buy-to-let transactions. "Given that this pool comprises only buy-to-let mortgages, we have applied an exception from the foreclosure timing assumption of 42 months in our Irish residential mortgage-backed securities criteria. Buy-to-let mortgages are typically not subject to the same Code of Conduct on Mortgage Arrears regulations as owner-occupied mortgages, and given that the underlying loan contracts permit the direct appointment of a receiver, we assume that the issuer regains any recoveries 24 months after a payment default in our analysis. "Our preliminary ratings reflect our assessment of the transaction's payment structure, cash flow mechanics, and the results of our cash flow analysis to assess whether the notes would be repaid under stress test scenarios. The transaction's structure relies on a combination of subordination, excess spread, a senior liquidity reserve fund, a general reserve fund, and a principal borrowing mechanism to cover credit losses and income shortfalls. Having taken these factors into account, we consider the credit enhancement available to the rated notes to be commensurate with the preliminary ratings that we have assigned." RATINGS LIST Dilosk RMBS No.3 DAC Class Prelim. Amount rating* A AAA (sf) TBD B-dfrd AA (sf) TBD C-dfrd AA- (sf) TBD D-dfrd A (sf) TBD Z1 NR TBD X1-dfrd CCC (sf) TBD X2-dfrd NR TBD Z2 NR TBD R NR TBD * S&P's preliminary ratings address timely receipt of interest and ultimate repayment of principal on the class A notes and the ultimate payment of interest and principal on the other rated notes. NR--Not rated. Dfrd--Deferrable. TBD--To be determined. ========= I T A L Y ========= SOCIETA ITALIANA: Invites Expression of Interest for CAI Stake -------------------------------------------------------------- Societa Italiana per Condotte d'Acqua S.p.a. in A.S. intends to ascertain the existence of subjects interested in the purchase of the stake held in the entire company stock of Condotte America Inc. ('CAI Stake'). For this reason, the liquidators of Societa Italiana per Condotte d'Acqua S.p.A. in A.S. invite all parties interested in the possible purchase of the CAI Stake to present an expression of interest according to the terms and methods stated in the call on the website of Societa Italiana per Condotte d'Acqua S.p.A. in A.S. www.condotte.com This announcement is an invitation to express interest and not an invitation to offer or an offer to the public ex art. 1336 of the Civil Code, of Lgs. Decree no. 58/98. =================== L U X E M B O U R G =================== CCP LUX: S&P Affirms 'B' ICR on Refinancing, Outlook Stable ----------------------------------------------------------- S&P Global Ratings affirms its ratings on CCP Lux Holding S.a.r.L (Axilone), including the 'B' long-term issuer credit rating and its 'B' issue and '3' recovery ratings on the company's term loan B. S&P will withdraw its 'CCC+' issue and '6' recovery ratings on the EUR80 million second-lien debt upon closing of the refinancing, since it will then have been repaid. S&P said, "The affirmation reflects that we view the proposed transaction as leverage-neutral as S&P Global Ratings-adjusted debt remains 6.6x. We expect a marginal reduction in interest costs as the second-lien debt will be replaced by lower-margin term loan B. "We continue to assess Axilone's financial risk profile as highly leveraged, reflecting our view that it will maintain leverage of above 6.0x in the near term. Axilone has been owned by private equity sponsor, CITIC Capital, since January 2018. "By year-end 2019, we expect S&P Global Ratings' adjusted leverage to improve to 6.2x from 6.6x at year-end 2018. This will mainly be driven by EBITDA growth due to the absence of one-off costs as well as higher sales volumes. Despite larger investments in 2019, we expect Axilone to generate positive free operating cash flow of about EUR6 million because of higher EBITDA from capacity expansions in 2018." Axilone's business risk profile is underpinned by its leading niche position as a premium player in the fragmented cosmetic packaging market, as well as its technical expertise, product innovation, strong EBITDA margins, longstanding relations with large luxury brands, and high customer retention rates. Axilone has strong niche positions in the U.S and Europe, particularly in the lipstick segment, where it primarily competes with Albea Beauty Holdings S.A. (B/Stable/--) and other diversified packaging groups. The group is also among the top three players in the more fragmented premium caps and closures segment. Customers include some of the world's leading luxury groups. Axilone's top three customers (Estee Lauder, LVMH, and L'Oreal) account for 54% of revenues. Each of these groups owns numerous brands, which are largely independent from each other. Demand for cosmetics is supported by rising revenue per capita in emerging markets (including China). It is also backed by the adoption of make-up at an earlier age in Europe and North America, the increased use of skincare products by men, and a rising demand for innovative packaging. Axilone is headquartered in France, close to some of the major luxury cosmetic groups. Customer retention rates are high because the products are tailor-made, and due to the company's focus on quality and customer service. The products are jointly developed and designed with clients, who fund and retain the ultimate ownership of the packaging molds. The company's strong EBITDA margin reflects its large manufacturing presence in China, lean organizational structure, and well-invested asset base. S&P said, "Our assessment also reflects the group's smaller size, narrow manufacturing footprint, significant customer concentration, and significant foreign exchange (FX) exposure (mainly U.S. dollar and renminbi). Although most of its framework agreements do not allow for the automatic pass-through of raw material price increases to customers, the company has historically managed to negotiate and pass on on a case-by-case basis. "The stable outlook reflects our expectation that Axilone will continue to capitalize on its solid client relationships and leading niche position in its main markets. "In the next 12 months, we expect S&P Global Ratings-adjusted leverage of 6.2x and funds from operations (FFO) to debt of 8.5%. We anticipate that Axilone will generate positive FOCF of about EUR6 million in 2019 due to higher EBITDA, despite higher expansionary capital investments in China and Europe. "We could downgrade Axilone if it experienced unexpected customer losses or margin pressures due to adverse FX movements or raw material price increases, which it could not pass on to customers. We could also lower the rating if the company's financial policy became more aggressive, especially with regards to shareholder remuneration as this would prevent any material deleveraging. We could also lower our rating if a material decline in EBITDA margins resulted in negative FOCF or liquidity coverage below 1.0x. We could also lower the rating if the debt to EBITDA ratio increased to above 7.0x. "We could raise our rating if Axilone showed steady earnings and EBITDA growth. A positive rating action would also need to be supported by Axilone retaining robust credit measures with leverage approaching 5.0x and FFO to debt of at least 12%, while maintaining positive operating cash flows. An upgrade would be contingent on the company's and owner's commitment to maintaining a conservative financial policy that would support such improved ratios." ===================== N E T H E R L A N D S ===================== ACCUNIA EUROPEAN I: Moody's Assigns (P)B2 Rating to Class F Notes ----------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following provisional ratings to refinancing notes to be issued by Accunia European CLO I B.V.: EUR 283,700,000 Class A Senior Secured Floating Rate Notes due 2029, Assigned (P)Aaa (sf) EUR 20,000,000 Class B-1 Senior Secured Floating Rate Notes due 2029, Assigned (P)Aa2 (sf) EUR 27,400,000 Class B-2 Senior Secured Fixed Rate Notes due 2029, Assigned (P)Aa2 (sf) EUR 27,100,000 Class C Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)A2 (sf) EUR 27,600,000 Class D Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)Baa3 (sf) EUR 24,900,000 Class E Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)Ba2 (sf) EUR 11,100,000 Class F Senior Secured Deferrable Floating Rate Notes due 2029, Assigned (P)B2 (sf) Moody's issues provisional ratings in advance of the final sale of financial instruments, but these ratings only represent Moody's preliminary credit opinions. Upon a conclusive review of a transaction and associated documentation, Moody's will endeavour to assign definitive ratings. A definitive rating (if any) may differ from a provisional rating. RATINGS RATIONALE The rationale for the rating is based on a consideration of the risks associated with the CLO's portfolio and structure as described in its methodology. The Issuer will issue the refinancing notes in connection with the refinancing of the following classes of notes: Class A Notes, Class B Notes, Class C Notes, Class D Notes, Class E Notes and Subordinated Notes due 2029, previously issued on 4th August. On the refinancing date, the Issuer will use the proceeds from the issuance of the refinancing notes to redeem in full the Original Notes. As part of this reset, the Issuer will increase the target par amount by EUR 410 million to EUR 457.59 million, has set the reinvestment period to around 2 years and the weighted average life to 6.5 years. In addition, the Issuer will amend the base matrix and modifiers that Moody's will take into account for the assignment of the definitive ratings. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of secured senior loans or senior secured bonds and up to 10% of the portfolio may consist of unsecured senior loans, second-lien loans, high yield bonds and mezzanine loans. The underlying portfolio is fully ramped up as of the closing date.The underlying portfolio is expected to be approximately 90% ramped as of the closing date. Accunia Fondsmæglerselskab A/S will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's 2 years reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations and credit improved obligations, and are subject to certain restrictions. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in March 2019. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Moody's modeled the transaction using CDOEdge, a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in March 2019. Moody's used the following base-case modeling assumptions: Target Par Amount: EUR 457,590,000,000 Diversity Score: 45 Weighted Average Rating Factor (WARF): 2900 Weighted Average Spread (WAS): 3.60% Weighted Average Coupon (WAC): 5.00% Weighted Average Recovery Rate (WARR): 43.50% Weighted Average Life (WAL): 6.5 years Moody's has addressed the potential exposure to obligors domiciled in countries with local currency ceiling (LCC) of A1 or below. As per the portfolio constraints and eligibility criteria, exposures to countries with LCC of A1 or below cannot exceed 10%, with exposures to LCC of Baa1 to Baa3 further limited to 5% and obligors cannot be domiciled in countries with LCC below Baa3 . Following the effective date, and given these portfolio constraints and the current sovereign ratings of eligible countries, the total exposure to countries with a LCC of A1 or below may not exceed 10% of the total portfolio. As a worst case scenario, a maximum 5% of the pool would be domiciled in countries with LCCs of Baa1 to Baa3 while an additional 5% would be domiciled in countries with LCCs of A1 to A3. The remainder of the pool will be domiciled in countries which currently have a LCC of Aa3 and above. Given this portfolio composition, the model was run with different target par amounts depending on the target rating of each class of notes as further described in the methodology. The portfolio haircuts are a function of the exposure size to countries with a LCC of A1 or below and the target ratings of the rated notes, and amount to 0.75% for the Class A Notes, 0.50% for the Classes B-1 and B-2 Notes, 0.375% for the Class C Notes and 0% for Classes D, E and F. X5 RETAIL: Moody's Hikes CFR to Ba1 & Alters Outlook to Stable -------------------------------------------------------------- Moody's Investors Service has upgraded to Ba1 from Ba2 the corporate family rating (CFR) and to Ba1-PD from Ba2-PD the probability of default rating (PDR) of X5 Retail Group N.V. (X5), Russia's largest food retailer. The outlook is stable changed from positive. "We have upgraded X5's ratings based on our expectation that the company will be able to sustain its strong operational and financial performance, pursue a prudent financial policy, adequately sizing capital spending and dividends, and maintain robust liquidity," says Mikhail Shipilov, an Assistant Vice President -- Analyst at Moody's. RATINGS RATIONALE Moody's upgrade of X5's ratings reflects the company's strong sales growth, leading market position and solid and sustainable profitability, despite growing competition in Russia's food retail market and fragile consumer environment. The company's robust operating performance and increase in scale somewhat compensate for the lack of improvement in its credit metrics. The rating action also reflects Moody's expectation that the company will maintain leverage sustainably within the threshold for its Ba1 rating, adhere to its prudent financial policy and retain healthy liquidity. The company increased its revenue by 18% in 2018 and 25% in 2017, and is likely to see low double-digit growth in percentage terms in 2019-20. Its scale, operational excellence and ample financial and managerial resources help X5 to maintain sizeable store roll outs, building up market share and ousting smaller competitors. At the same time, the company preserved continuous like-for-like sales growth over the last five years, a sheer differentiator from its domestic peers. X5's profitability is solid, with Moody's adjusted EBITDA margin at 12.1% in 2018 and 12.4% in 2017. While the margin may slip by 20-30 basis points over the next couple of years because of high competition for constrained consumer budgets in Russia, profitability will still remain attractive for this sector and relatively high, compared with that of its European peers. Moody's also expects X5 to maintain its healthy credit metrics, with Moody's adjusted debt/EBITDA remaining at around 3.2x-3.3x in 2019-20, the same as in 2016-18, and retained cash flow/net debt staying close to 20%. The company has a strong track record of adherence to its reasonably conservative financial policy, appropriately balancing capital spending and dividend payments against the 1.8x net debt/EBITDA target on a pre-IFRS 16 reported basis. However, deleveraging below this level is unlikely because of cash needs for ongoing expansion and growing shareholder distributions. X5's Ba1 rating also factors in its (1) leading market position as the largest Russian food retailer, with $25 billion of revenue generated in 2018; (2) track record of solid operating performance, with industry-leading revenue growth; (3) viable business model with a focus on the defensive economy-class grocery segment, operating efficiencies, and the quality of its offering; (4) development efforts in digital marketing, information and big data technologies, online sales and omnichannel capabilities; (5) resilience to economic cycles and ability to adapt to changes in consumer demand; (6) the still-attractive fundamentals of the Russian food retail market for large companies; and (7) the company's good liquidity, underpinned by its sizable unutilized credit lines and mostly discretionary nature of its capital spending. However, X5's credit quality is constrained by (1) the difficult consumer environment, with stagnating real disposable income and falling consumer confidence, (2) intensifying competition among Russia's top retailers for consumers as well as for new store locations; (3) a lack of geographical diversification, with the company's sole exposure to Russia's less-developed regulatory, political and legal framework; and (4) high expansion capital spending and sizeable dividends which will continue to weigh on its free cash flow. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's expectation that the company will sustain its robust operational and financial performance as well as leading market position. The outlook also assumes that X5's adjusted debt/EBITDA will remain below 3.5x on a sustainable basis. WHAT COULD CHANGE THE RATING UP/DOWN Moody's does not anticipate positive pressure on the rating to develop over the next two years. However, over time, upward pressure on the rating could build up if X5 was to (1) improve its credit profile such that its Moody's-adjusted gross debt/EBITDA falls below 2.5x and retained cash flow/net debt increases above 25%, both on a sustainable basis, (2) materially increase its market share and/or geographical footprint, (3) sustain solid operational performance, with no deterioration in profitability, (4) maintain strong liquidity, and (5) continue to pursue its prudent financial policy. Moody's could downgrade the rating if the company's (1) Moody's-adjusted gross debt/EBITDA was to rise above 3.5x and retained cash flow/net debt was to fall below 15%, both on a sustained basis, (2) operating performance or market position were to weaken materially, and (3) liquidity was to deteriorate. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail Industry published in May 2018. Domiciled in the Netherlands, X5 Retail Group N.V. is the largest multi-format retailer in Russia. The company operates a chain of food retail stores with a particular focus on proximity stores under the brand name Pyaterochka. It also operates Perekrestok supermarkets and Karusel hypermarkets. As of year-end 2018, the company had 14,431 stores (6.5 million square metres of net selling space) in around 2,900 cities and towns in seven Russian Federal Districts, employing 278,399 staff. In 2018, X5 generated around RUB1,533 billion of revenue and RUB186 billion of adjusted EBITDA. ============= R O M A N I A ============= BANCA TRANSILVANIA: Fitch Affirms 'BB+' LT IDR, Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed the Long-Term IDRs of Banca Comerciala Romana S.A. (BCR) and BRD-Groupe Societe Generale S.A. (BRD) at 'BBB+' and revised their Outlooks to Stable from Negative. Fitch has also affirmed the Viability Ratings (VRs) of BCR and Banca Transilvania S.A. (BT) at 'bb+', of UniCredit Bank S.A. (UCBRO) at 'bb', of Garanti Bank S.A. (GBR) at 'bb-', of ProCredit Bank S.A. (PCBRO) at 'b+', and the VR-driven IDRs of BT at 'BB+' and GBR at 'BB-'. Short-Term IDRs, other support-driven ratings are unaffected. The rating actions follow a modification of a bank tax ordinance by the Romanian government, which, in Fitch's view, indicates a moderating risk of government intervention in the banking sector. Fitch had changed the Outlooks on the IDRs of BCR and BRD to Negative in January 2019 on the expectation that it might cap the ratings of Romanian banks at one notch above the Romanian sovereign (BBB-/Stable), rather than the current two notches. This was because of what Fitch perceived as a greater risk of local authorities' intervention in the banking sector, in case of a sovereign default, which would negatively affect the banks' ability to service their obligations. Since then, a lower expected burden on the banking sector through a revised bank tax design indicates, in Fitch's opinion, a less aggressive stance of the government towards the sector, and a reasonable willingness of the authorities to respond to concerns raised by the National Bank of Romania and sector representatives. In the meantime, other laws passed through parliament in late December, which would have been detrimental to the sector's profitability, have been declared unconstitutional and have been voided. As a result, Fitch has moderated its views of prevailing country risks. The latest ordinance modifying the bank tax (passed on 29 March 2019) significantly reduces pressure on the profitability outlook for the banks compared to the initial December 2018 version. The tax rate has been lowered to 0.4% per annum for larger banks and to 0.2% for banks with less than a 1% market share (including PCBRO). The taxable base has also been reduced and at present essentially encompasses performing loans that are not guaranteed by the state. In Fitch's view, the risk to banks' solvency has reduced greatly due to a provision that relieves pre-bank-tax loss-making institutions from paying the tax, and otherwise limits the tax burden to the accounting profits. In the new ordinance, additional tax relief can be achieved if banks meet or progress towards government-imposed lending growth and margin targets. The lending growth target of 8% for 2019 appears achievable, at least in part, but may present risks to underwriting quality, as banks may be incentivised to lend to target rather than what they consider the prudent amount. Fitch has affirmed five banks' VRs at levels that reflect their varying degrees of resilience. As legislative risks have moderated, pressure on the banks from their operating environment has eased, in its view. The outlook for earnings in 2019 has also improved compared to that under the initial, more punitive bank tax format, and Fitch perceives less pressure on the banks' business models as a result. KEY RATING DRIVERS IDRS, VRS BCR's and BRD's Long-Term IDRs are based on potential support available from their respective parents, Erste Group Bank AG (Erste, A/Stable) and Societe Generale S.A. (SG; A/Stable). BCR and BRD could be rated within one notch of their respective parents' Long-Term IDRs because of their strategic importance, significant operational and management integration, a track record of support, and their manageable size relative to the parent banks. The extent to which the Long-Term IDRs can benefit from parental support is constrained at two notches above the sovereign IDR, because of Fitch's assessment of country risk and in particular of potential transfer and convertibility risks. The Stable Outlooks on their respective Long-Term IDRs consequently reflect the Outlook on the sovereign IDR. BT's and GBR's IDRs are driven by their respective VRs, and their Outlooks reflect the bank's stable standalone credit profiles. The affirmation of the six banks' VRs reflects Fitch's view that their standalone credit profiles are not meaningfully affected by the imposition of a tax on bank assets at the level established in the March 2019 ordinance. The higher VRs of BT and BCR primarily reflect their stronger profitability and capital ratios, less concentrated loan portfolios and deeper deposit franchises compared to UCBRO and, even more so, GBR. PCBRO's VR considers the bank's limited domestic franchise and weakness relating to the implementation of its new business model following the exit from higher-yielding small-ticket loans. This has resulted in weaker profitability over the past two years even without any impact of the bank tax. RATING SENSITIVITIES IDRS, VRS BCR's and BRD's IDRs are mainly sensitive to the sovereign Long-Term IDR. The IDRs are also sensitive to Fitch's assessment of country risks facing Romanian banks, which can affect their ability to use parental support to service their obligations. They are also sensitive to a multi-notch downgrade of their parents' IDRs or a significant decrease in strategic importance, neither of which are likely, in Fitch's view. BT's IDRs are sensitive to the same factors that drive the bank's VR. GBR's IDR is mainly sensitive to: changes in the VR; the rating of its direct owner, Turkiye Garanti Bankasi A.S. (BB-/Negative); and the strategic importance for the ultimate owner, Banco Bilbao Vizcaya Argentaria, S.A. (A-/Negative). Upside for Romanian banks' VRs above the 'bb' category is limited given Fitch's assessment that the operating environment in Romania remains fairly volatile and vulnerable to external shocks. The VRs of UCBRO and GBR could be upgraded if their financial metrics gradually converge with higher-rated peers and if the banks deepen their lending and deposit franchises. An upgrade of PCBRO's VR would require a strengthening of its market franchise and a record of profitable growth and improved operating efficiency, while maintaining adequate asset-quality and capital metrics. The VRs of all the banks could be downgraded if their risk appetite increases as a result of incentives to reach government-directed loan growth rates. The VRs could also be downgraded if the expected economic slowdown or idiosyncratic issues lead to a marked deterioration in asset-quality and capital metrics. The rating actions are as follows: Banca Comerciala Romana S.A. Long-Term Foreign-Currency IDR: affirmed at 'BBB+', Outlook revised to Stable from Negative Long-Term Local-Currency IDR: affirmed at 'BBB+', Outlook revised to Stable from Negative Viability Rating affirmed at 'bb+ BRD-Groupe Societe Generale S.A. Long-Term Foreign-Currency IDR: affirmed at 'BBB+', Outlook revised to Stable from Negative Banca Transilvania S.A. Long-Term Foreign-Currency IDR: affirmed at 'BB+', Outlook Stable Viability Rating: affirmed at 'bb+' UniCredit Bank S.A. Viability Rating: affirmed at 'bb' Garanti Bank S.A. Long-Term IDR affirmed at 'BB-'; Outlook Stable Viability Rating affirmed at 'bb-' ProCredit Bank S.A. Viability Rating affirmed at 'b+' =========== R U S S I A =========== LEADER-INVEST: S&P Affirms B Ratings, Alters Outlook to Positive ----------------------------------------------------------------- S&P Global Ratings revised its outlook on Leader-Invest (Leader) to positive from stable and affirmed its 'B/B' ratings on the company. S&P said, "The outlook revision to positive reflects our view that Etalon Group's acquisition of 51% of Leader, finalized in February 2019, should boost Leader's operating and financial performance as well as market position. We believe that Etalon's strong construction and development expertise, stemming from 30 years of experience in the Russian construction and development market, as well as solid risk management practices, should enhance Leader's capacity to deliver its projects in a timely manner, supporting EBITDA and revenue growth." S&P believes that, after the change of its controlling shareholder, Leader remains on track to build up its scale in 2019-2020. Leader's portfolio consists of 31 projects under construction or in design stage (at year-end 2018), located inside the Moscow ring road. It includes 28 small to midsize projects and three large projects (Lobachevskogo 120, Nagatino I-Land, and ZIL-South). Leader has completed eight projects over 2015-2018, and an additional four projects in the first quarter of 2019. Leader has historically demonstrated above-industry-average profitability, with S&P Global Ratings-adjusted EBITDA margins of around 30%, underpinned by a premium to the market average price and projects' location in developed residential areas where investment in infrastructure is lower. S&P said, "We understand that Leader's margins in 2018 were diluted by a number of one-off costs including higher marketing expenses, as well as by additional costs to improve the operational control and project surveillance systems, and to reshuffle the subcontractor base. We assume that after its integration into Etalon Group, part of such costs will be centralized, thus creating synergies for the Group and supporting Leader's stand-alone margins." S&P said, "Importantly, we believe that, as part of a larger Group, Leader will be better positioned to cope with new regulatory requirements and secure access to project finance facilities. These loans will be backed by homebuyers' cash in escrow accounts, and would have lower interest rates than normal loans, as we understand it. Positively, Leader has a track record of cooperation with Sberbank, which has extended a long-term secured facility to finance the Lobachevskogo 120 project, and we understand that this facility remains available to Leader after the controlling shareholder change. "At this stage, we do not expect any change to Leader's financial policy. We understand that Sistema and Etalon have signed a cooperation agreement that states principles of good governance, arm's length transactions between Sistema and Etalon Group, Sistema's intention to maintain Etalon as a public company, and maintenance of Etalon's financial policy. Sistema's representatives would not vote on any transactions between Sistema and Etalon. Leader's new board of five directors includes two directors from Etalon and two from Sistema. We also assume that, as Sistema is the largest minority shareholder, holding 25% in Etalon Group, it will maintain a supportive financial policy framework toward Leader. Leader will be an important part of the group, contributing around one-third of group EBITDA in 2019, by our estimate. "We also believe that acquisition of 51% in Leader is aligned with Etalon's expansion strategy, and Leader is unlikely to be sold in the near term. We expect that the combined land bank, including favorably located land plots received by Leader from Sistema, will support the group's performance. That said, there is no track record of Etalon's commitment to support Leader in a hypothetical case of financial distress. Furthermore, we believe that integration of Etalon and convergence of brands should be a relatively lengthy process. Consequently, at this stage we do not align our rating on Leader with our rating on the group, although we see a potential to equalize the two ratings in the next 12-18 months, if the integration process advances smoothly. "We note regulatory changes that will result in debt accumulation for all industry players, including Leader. In December 2018, the regulator announced that new construction projects and also existing projects with a lower degree of completion would be subject to use of escrow accounts starting from mid-2019. We understand that Leader intends to finance the existing projects with cash accumulated in 2018 (when the level of pre-sales was high), and the new projects will be financed with project finance facilities. Nevertheless, we understand that there is a lot of uncertainty around the new regulation, and we may revise our base case when we have more clarity about the final regulatory framework setup and its impact on Leader's metrics. "The positive outlook on Leader reflects our expectation that the successful integration into Etalon Group will support revenue growth in 2019-2020 and EBITDA margin recovery, due to the launch of new projects and operational risk management and efficiency improvements. We also expect that Leader will successfully meet new industry regulations and that it will maintain adequate liquidity and access to capital markets. "We could raise the rating in the next 12-18 months if Leader's integration into Etalon Group progresses successfully. This should include a track record of Etalon's commitment to maintain control over Leader and support Leader operationally, as well as a track record of joint treasury and liquidity management of the group with the consideration of Leader's needs. We would also expect increasing perception of Leader as part of Etalon Group. For an upgrade, Leader's stand-alone operating performance should remain successful, with no delays in the construction pipeline, and its leverage should remain commensurate with that of the group. "We could also upgrade Leader if its stand-alone performance significantly improves, for example, if Leader succeeds in increasing its revenue base to close to Russian ruble (RUB)20 billion in 2019-2020, while maintaining an EBITDA margin of close to 30% or above. In our view, this may contain leverage below 3.0x. An upgrade would also require Leader to maintain average debt maturity of more than two years and adequate liquidity, including sustainable access to project finance lines. "A negative rating action could result from a similar rating action on the group, which we currently do not expect. We could also revise the outlook to stable if we believed that the integration would not be finalized in the next 12-18 months, or that Etalon would not maintain its commitment to control Leader. Revision of the outlook would also result from Leader's material underperformance compared with the group. This could happen if Leader's margin does not improve, if construction delays occur (which we currently do not expect), or in case of a negative market environment resulting in stand-alone adjusted debt to EBITDA above 4.0x, coupled with delay in integration in Etalon group." ===================== S W I T Z E R L A N D ===================== GATEGROUP HOLDING: S&P Places B- ICR on Watch Positive on RRJ Deal ------------------------------------------------------------------ S&P Global Ratings placed its 'B-' issuer credit rating on gategroup Holding AG (gategroup) on CreditWatch with positive implications with potential rating upside of up to three notches. The CreditWatch placement follows the announcement on March 29, 2019, that RRJ Capital plans to acquire gategroup's entire ordinary share capital from HNA. S&P views the proposed change of ownership as credit positive given the current rating constraint of being owned by weaker parent, HNA. gategroup has not yet obtained waivers for the change-of-control clause that exists within the CHF350 million senior notes due February 2022. S&P said, "However, we believe that--given the positive credit implications of the change of ownership and already solid secondary market prices--the risk of the bondholders triggering a material accelerated redemption of the notes is low. Furthermore, we consider gategroup to have sufficient liquidity to meet a fairly sizable redemption if this were to happen. We also believe there would be a strong economic incentive for its new private equity owner RRJ Capital to provide additional liquidity support in the unlikely event that a majority of bondholders immediately redeemed the notes." S&P said, "Once this refinancing risk falls away--either when the change-of-control redemption ends, which we understand is 20 days post-acquisition (April 24) or as a result of gategroup mitigating the refinancing risk another way--we see potential rating upside of up to three notches. The notching would depend on our assessment of the acquisition financing, the group's post-acquisition capital structure and financial leverage, and our view of the group's financial policy. "Currently, gategroup's stand-alone credit profile is 'bb' and our current rating is constrained by its existing ownership under HNA. Following a series of aggressive debt-funded acquisitions, HNA has been relying on asset disposals for debt repayment. "Notwithstanding this, we note that HNA has not extracted any cash from gategroup since its takeover in 2016. After HNA's exit, RRJ Capital will become the single shareholder of gategroup." Temasek will remain invested in gategroup through a five-year mandatory exchangeable bond, and will become a shareholder upon conversion. gategroup is the global leading airline catering, retail-on-board, and hospitality products and services provider. It serves over 700 million passengers per year in over 60 countries and territories. The group's major brands include airline caterer Gate Gourmet, inflight caterer Servair (acquired in 2017), onboard retailer gateretail, and food packaging provider deSter. In 2018, gategroup generated CHF4.9 billion revenue and CHF370 million adjusted EBITDA, with an adjusted debt to EBITDA of about 3x. S&P said, "We aim to resolve our CreditWatch placement as soon as we have further clarity on gategroup's liquidity position and its post-acquisition capital structure, and we have assessed its strategy and financial policy under its new private equity ownership. We note the acquisition is expected to close in April, but, regardless, we will update the CreditWatch as soon as possible and within three months. "Post-acquisition, we could consider raising our rating on gategroup by up to three notches, provided that any near-term liquidity risk was mitigated, with the amount of upside to the rating dependent on our view of the broader groups capital structure, liquidity, and financial policies." =========================== U N I T E D K I N G D O M =========================== ASTON MARTIN: Moody's Assigns B2 CFR, Outlook Stable ---------------------------------------------------- Moody's Investors Service has affirmed the B2 instrument ratings on the existing bonds of Aston Martin Capital Holdings Limited. Concurrently, Moody's has also assigned a B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR) to Aston Martin Lagonda Global Holdings plc (Aston Martin Lagonda or AML) and withdrew the B2-PD PDR and B2 CFR assigned at Aston Martin Holdings (UK) Limited due to reorganisation. The outlook is stable. The rating actions follow the company's announcement to issue $190 million of additional notes to support the company's investment program and funding position. The new notes mirror the terms of the existing notes. RATINGS RATIONALE The affirmations and rating assignments reflect the company's continued progress in executing its strategy, resulting in good volume, revenue and EBITDA growth. For 2018, the company reported 26% of wholesale volume growth, 25% of revenue growth and 20% of company-defined EBITDA growth and Moody's expects the company to continue to visibly grow these metrics in 2019 and 2020. The ratings also continue to reflect the company's (1) strong brand name and pricing position in the luxury cars segment; (2) good geographic diversification; (3) degree of flexibility in its cost structure; (4) continued model renewals and launches expected in the next few years given its flexible production through a common architecture and (5) technical partnership with Daimler AG, which gives AML access to high-performance powertrain technologies and competitive e/e (electric/electronic) architecture. At the same time, the ratings also remain weakly positioned given high Moody's-adjusted debt/EBITDA, at 24.1x, and continued significantly negative free cash flow after capex and interest for 2018. Moody's also expects investment levels to remain high, although with decreasing intensity and directionally improving cash flow, but this is reliant on achieving continued substantial growth in 2019 and 2020 and hence subject to execution risk and the success of new launches such as the DBX in 2020 and Aston Martin Valkyrie. While the $190 million of new notes, announced on 1 April 2019 by AML, will bolster its liquidity profile in the context of high ongoing investment needs, it will also weigh on leverage. Nevertheless, Moody's currently expects both leverage and free cash flow to significantly improve by 2020, more in line with the B2 CFR. Additionally, AML's ratings are constrained by the company's (1) limited financial strength compared to some direct peers that belong to larger European car manufacturers; (2) efforts to service a broad range of GT, luxury and hypercar segments and price points despite its comparably small scale; (3) exposure to foreign exchange risk given its fixed cost base in the UK compared to a sizeable share of revenue generated from exports to Europe, the US and Asia though mitigated by hedging strategies and sourcing outside of the UK; and (4) operational risks related to the production of all models in two plants in the UK, which is also exposing AML to Brexit-related risk. Additionally, the instrument ratings reflect their position within the capital structure as the major portion of debt funding, subordinated to the revolving credit facility, but significant subsidiary guarantor coverage. LIQUIDITY PROFILE Pro-forma for the $190 million notes issuance in April 2019, the company carried GBP293 of cash and had remaining availability of GBP10 million under its committed GBP80 million revolving credit facility due January 2022. The company has GBP 29 million of short-term debt (aside from the revolver) and the next larger maturity would be the ca. GBP 735 million equivalent of notes in April 2022. Moody's expects the company to generate substantial negative free cash flow after interest, capex and taxes in 2019, albeit perhaps lower than in 2018, and further meaningfully reduced cash outflows in 2020. These needs should be covered by existing liquidity, incorporating the new notes, unless growth does not materialize or at a cost of higher than currently guided investment needs. OUTLOOK The stable outlook is based on Moody's expectation of a continued strong demand for Aston Martin's models resulting in continued strong growth so that Moody's-adjusted debt/EBITDA of below 6.0x will be achieved by 2020 alongside significant free cash flow improvements. Moody's notes that the rating and outlook do not incorporate the impact of a "no-deal Brexit", which could lead to negative implications for outlook or rating. WHAT COULD CHANGE THE RATING UP/DOWN An upgrade of the ratings is unlikely in the near term considering the execution of the Second Century Plan together with the requirement to meet reduced emission targets and invest in alternative fuel technologies requiring significant capex over the next couple of years limiting its ability to generate more meaningful free cash flows. However, Moody's-adjusted debt/EBITDA improving to below 5.0x on a sustained basis, Moody's-adjusted EBITA margin turning positive into the high single-digit percentage range on a sustainable basis and Moody's-adjusted FCF/debt in high single-digits could result in positive pressure. Negative pressure on the ratings could come from a failure to improve adjusted leverage to below 6.0x by 2020, profitability of below 7% adjusted EBITA margin by 2020, inability to substantially reduce the net cash outflows or evidence of execution issues in its growth strategy. A significant deterioration in Aston Martin's liquidity profile shown in very little to no headroom to cover cash needs over a period of at least 12 months would also pressure the ratings. The principal methodology used in these ratings was Automobile Manufacturer Industry published in June 2017. Assignments: Issuer: Aston Martin Lagonda Global Holdings plc Corporate Family Rating, Assigned B2 Probability of Default Rating, Assigned B2-PD Affirmations: Issuer: Aston Martin Capital Holdings Limited Senior Secured Regular Bond/Debenture, Affirmed B2 Withdrawals: Issuer: Aston Martin Holdings (UK) Limited Corporate Family Rating (Foreign Currency), Withdrawn , previously rated B2 Probability of Default Rating, Withdrawn , previously rated B2-PD Outlook Actions: Issuer: Aston Martin Capital Holdings Limited Outlook, Remains Stable Issuer: Aston Martin Lagonda Global Holdings plc Outlook, Assigned Stable Issuer: Aston Martin Holdings (UK) Limited Outlook, Changed To Rating Withdrawn From Stable Based in Gaydon, UK, Aston Martin Lagonda is a car manufacturer focused on the high luxury sports car segment. Aston Martin generated revenue of GBP1.1 billion in 2018 from the sale of 6,438 cars. AML is a UK-listed business with a market capitalization of ca. GBP2.4 billion as of 28 March 2019. As of December 2018, its major shareholders include the Adeem/Primewagon Controlling Shareholder Group, including a subsidiary of EFAD Group and companies controlled by Mr. Najeeb Al Humaidhi and Mr. Razam Al-Roumi, with 36.05% and the Investindustrial Controlling Shareholder Group, an Italian private equity firm, with 30.97%. Daimler AG has also a 4.18% stake. IHS MARKIT: Moody's Rates Proposed Senior Unsecured Notes 'Ba1' --------------------------------------------------------------- Moody's Investors Service assigned a Ba1 rating to IHS Markit Ltd.'s ("IHS Markit") proposed senior unsecured notes due 2024 and 2029. IHS Markit will use the net proceeds of the proposed notes to repay a portion of its outstanding bank term loans and revolver borrowings. RATINGS RATIONALE "After the note sale, IHS Markit will still have over $1 billion of bank debt it can repay with free cash flow over the course of 2019, fueling Moody's anticipation of substantial reduction in financial leverage," said Edmond DeForest, Moody's Senior Credit Officer. IHS Markit's Ba1 CFR reflects high financial leverage as measured by debt to EBITDA of around 4.4 times at FYE 2018 (November) that Moody's expects will decline toward 3.5 times over the next 12 to 18 months. IHS Markit has a strong business profile, good operating scale, diversified business lines that provide unique and critical information solutions to the automotive, energy and financial services industries and a high proportion of recurring revenues. However, the company is also acquisitive and has repurchased its shares with incremental debt proceeds, leading Moody's to consider financial policies aggressive. Moody's expects free cash flow to approach 20% of debt in fiscal year 2019 (ends November), driven by organic revenue growth of about 5%, solid EBITA margins expanding to around 25% and anticipated debt repayment. Moody's considers IHS Markit's liquidity profile very good from over $1 billion in anticipated annual free cash flow and more than $1 billion available under its $2 billion revolving facility that matures in June 2023 after the issuance of the proposed notes. All financial metrics cited reflect Moody's standard adjustments, unless otherwise noted. Moody's anticipates steady financial leverage reductions driven by a full year of profits from IPREO, which it acquired with debt proceeds for approximately $1.86 billion in August 2018, substantial debt repayment and some EBITDA growth, if there are no new debt-funded acquisitions. On the company's basis, pro forma adjusted net leverage was 3.2 times at FYE 2018. Moody's debt to EBITDA further adjusted by Moody's estimate of capitalized software costs at 90% of reported capital expenditures, or about $200 million, was over 5 times as of FYE 2018. The stable ratings outlook reflects Moody's expectation that debt to EBITDA will decline toward 3.5 times from a mix of debt repayment and earnings growth while organic revenue growth will be about 5%. The stable ratings outlook also reflects anticipation of further large, debt-funded acquisitions and share repurchase activity. Moody's could raise IHS Markit's ratings if IHS Markit maintains strong revenue and earnings growth, a track record of conservative financial policies and debt to EBITDA approaching 3 times. Conversely, the rating could be downgraded if there is sustained erosion in earnings, the company adopts more aggressive financial policies, IHS Markit sustains debt to EBITDA above 4 times, or free cash flow to debt remains below 13%. Moody's assigned the following ratings: Issuer: IHS Markit Ltd. Senior Unsecured Regular Bond/Debenture due 2024 and 2029, at Ba1 (LGD4) The principal methodology used in this rating was Business and Consumer Service Industry published in October 2016. IHS Markit Ltd. provides information, research, analytics and other services to enterprise and government customers in several industries. Moody's expects FY2019 revenue of about $4.5 billion. LONDON CAPITAL: FCA Ordered to Appoint Independent Reviewer ----------------------------------------------------------- Barney Thompson at The Financial Times reports that the UK Financial Conduct Authority has been ordered to appoint an independent reviewer to investigate the regulatory failings exposed by the collapse of London Capital & Finance. About 11,500 customers risk losing an estimated 80% of the GBP236 million they invested in the company, which went into administration at the end of January, the FT discloses. LCF collapsed after the FCA launched an investigation into its activities, sparked by concerns it was using misleading marketing to push unregulated mini-bonds on consumers, the FT relates. In some cases, LCF customers were wrongly led to believe they were putting their money into tax-free individual savings accounts, the FT states. The company also prominently advertised its FCA authorization, but its mini-bond products were not overseen by the regulator nor were they covered under the Financial Services Compensation Scheme, the FT notes. LCF is now also subject to a criminal investigation by the Serious Fraud Office, which arrested four people in connection with the scandal in March, according to the FT. These included Andy Thomson, the chief executive of LCF, and Simon Hume-Kendall, the chair of London Oil & Gas, which was LCF's biggest borrower, the FT discloses. All four were released without charge pending further inquiries, the FT says. The Treasury said on April 1 that John Glen, City minister, had decided to ask the FCA to undertake an investigation "into events at LCF and the circumstances surrounding them", the FT recounts. The FCA, as cited by the FT, said the review would look at two main areas: whether the existing regulatory system "adequately protects retail purchasers of mini-bonds from unacceptable levels of harm"; and, more specifically, its own supervision of LCF. LONDON CAPITAL: Technically Insolvent 2 Years Ago, Accounts Show ---------------------------------------------------------------- Jonathan Ford at The Financial Times reports that the accounts of savings company London Capital & Finance that collapsed this year owing almost GBP240 million to retail investors show that it was technically insolvent at least two years ago, according to accounting experts who examined the figures. LCF was put into administration after selling unregulated "mini-bonds" with elevated interest rates to 11,500 savers whose proceeds were lent on to a group of private and quoted businesses, the FT relates. LCF's last published accounts were for the year to April 30 2017, at a time when the company had raised GBP60 million from retail investors, the FT discloses. The balance sheet at that date showed net assets of only GBP298,000, indicating that LCF was extremely highly leveraged, with a loan to net asset ratio above 160:1, the FT states. Discounting the book values of its assets and liabilities using rates implied by comparable listed bonds, LCF concluded that while its assets were worth GBP62.3 million on a fair value basis, its liabilities to the mini-bondholders were no less than GBP72.5 million, the FT notes. That gave it negative net assets of almost GBP10 million rather than the positive GBP298,000 number published in the balance sheet, according to the FT. It indicated that LCF's fast-growing pile of investments was unlikely to generate enough money to pay off its debts, rendering it technically insolvent on a balance-sheet basis, the FT discloses. Yet despite the material disparity, LCF's auditor EY made no reference to it in its audit opinion, which gave the company a clean bill of health, the FT relays. According to the FT, the administrators said this week that investors in the bonds may recover only 20% of their cash. Four people were recently arrested as part of a criminal investigation into the affair, the FT recounts. The administrators of LCF, as cited by the FT, said in their report on its collapse this week that they were "in dialogue with the former auditors, as part of their investigations". MERIDIAN METAL: Funding Difficulties Prompt Administration ---------------------------------------------------------- Business Sale reports that Meridian Metal Trading Limited, a steel stockholding company located in Dudley, West Midlands, has collapsed into administration due to funding difficulties after a potential sale failed to transpire. The company has been forced to call in financial advisory firm Duff & Phelps to handle the administration process, with partners Allan Graham -- allan.graham@duffandphelps.com -- and Matthew Ingram -- matthew.ingram@duffandphelps.com -- appointed as joint administrators, Business Sale relates. "It is our intention to continue to trade the business until a buyer is found, a process that we do not think will take long as there are already a number of expressions of interest. As of Wednesday (April 3, 2019) there have been no redundancies and it is very much business as usual," Business Sale quotes Mr. Graham as saying. Meridian Metal Trading Limited, which was founded in 1987 in Grazebrook Industrial Park, operates service centers in Guildford and Sheffield, and sales offices in Bolton and Newport, South Wales. It produces and supplies galvanized, cold reduced, hot rolled, electro zinc and aluminized sheared blanks and slit coil sheets of both drawing and high strength grades. SYNLAB BONCO: Fitch Rates EUR150MM Incremental Term Loan 'B+(EXP)' ------------------------------------------------------------------ Fitch Ratings has assigned Synlab Bonco PLC's (Synlab) incremental term loan of EUR150 million an expected senior secured rating of 'B+(EXP)' with a Recovery Rating of 'RR3'. The loan will rank pari passu with the existing senior secured debt at Synlab Bondco PLC, which has been affirmed at 'B+'/'RR3'. The assignment of the final instrument rating is subject to transaction execution terms materially conforming to the draft terms. At the same time Fitch has affirmed Synlab Unsecured Bondco PLC's IDR at 'B' with a Stable Outlook and senior notes at 'CCC+'/'RR6'. The ratings are materially constrained by Synlab's aggressive leverage profile and financial policies, as evident by the current issue of incremental debt to finance M&A, albeit balanced by the defensive nature of the routine medical testing business model . Fitch's expectation of increasing earnings scale and improving cash conversion, counter-balancing Synlab's persistently high financial risk, are reflected in a Stable Outlook. KEY RATING DRIVERS Aggressive Financial Policies: The sponsors' decision to raise additional term loan signals the absence of commitment to deleverage and de-risk the business from already persistently high levels. Fitch, therefore, does not expect a strengthening of the capital structure until the bulk of Synlab's debt matures in July 2022. High leverage, particularly in the event of tighter financing conditions, could lead to high refinancing risks and, therefore in the absence of material deleveraging, a 'B-' rating. Leverage Headroom Fully Exhausted: High financial leverage continues to materially constrain Synlab's ratings. With funds from operations(FFO) adjusted gross leverage at 8.6x in 2018 leverage headroom is already fully exhausted. The addition of the new term loan of EUR150 million will further impede de-leveraging, translating into sustained elevated FFO adjusted gross leverage of around 8.0x over the next three years. In the absence of meaningful deleveraging the current rating is, therefore, dependent on steady underlying operational performance and disciplined execution and integration of continuous business additions. Steady Organic Performance: Compared with other Fitch-rated laboratory-testing companies, it views Synlab's operations as robust, benefitting from scale and diversification across products and geographies. In 2018, despite reimbursement pressures in individual national markets and rising costs Synlab demonstrated organic growth and stable margins, although profitability remained comparatively weak against prior years. In light of market challengess in the last two years and mounting complexity of the business due to acquisitions, Fitch does not see scope for margin expansion and project EBITDA margins at or below 18.5% over the next three years. Focus on Acquisition and Integration: Synlab's buy-and-build strategy highlights the need for a disciplined asset selection and rigorous integration process. While management has demonstrated robust execution skills, upward asset valuations in a consolidating laboratory-testing services market make it harder to realise synergies from acquisitions, which require greater attention toward integration and value extraction as opposed to mere business additions. An inability to implement its margin-accretive M&A-based strategy will put ratngs under pressure. Fitch's assumptions supporting the current IDR with a Stable Outlook are based on target acquisition multiples averaging between 8.5x-9.0x with an annual M&A spend of EUR200 million, contributing around EUR22 million to EBITDA each year. Strengthening Cash Flows: Against the backdrop of continuing M&A, Fitch sees Synlab's deleveraging capacity remaining intact based on underlying cash flow generation. Fitch projects steadily growing free cash flows (FCF) and margins as the business increases in scale on the back of organic and acquisitive growth. After a slightly positive FCF margin of 2% in 2018, Fitch projects FCF margins to strengthen toward 4%-5% in the medium term. This reflects the improvement of FCF quality to sustainably positive from previously volatile and underpins Fitch's view that a supportive operating profile will be capable of absorbing excessive financial risk. DERIVATION SUMMARY Following the merger of Synlab and Labco in 2015, the combined group is the largest laboratory-testing company in Europe, twice the size of its nearest competitor, Sonic Healthcare. Its operations consist of a network of 475 laboratories across 37 countries, providing good geographical diversification and limited exposure to single healthcare systems. The company's EBITDA margin at around 18% slightly lags behind European industry peers', due to exposure to the German market with structurally lower profitability. The laboratory-testing market in Europe has attracted significant private equity investment, leading to highly leveraged financial profiles. Synlab is highly geared for its rating - with FFO adjusted gross leverage pro-forma for the full annual impact of acquisitionsat 8.4x in 2018 - which is a key rating constraint. However, this high financial risk is mitigated by a defensive and stable business risk profile and Fitch's expectations that Synlab will be able to generate satisfactory FCF, in line with sector peers, once the current restructuring programme has been successfully implemented. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Low to mid-single digit organic growth in key markets - EBITDA margin gradually improving towards 18.5% due to cost savings and economies of scale achieved from the enlarged group - Around EUR200 million of bolt-on acquisitions per annum funded by debt drawdowns and internal cash flows - Capital intensity with capex/sales estimated at around 4%-4.5% - Satisfactory FCF generation of around 4%-5% on average over the four-year rating horizon - No dividends paid RECOVERY ASSUMPTIONS - Going concern approach over balance sheet liquidation given Synlab's asset-light operations - Pre-distress EBITDA of EUR352 million estimated based on 2018A EBITDA of EUR356 million plus estimated earnings contribution of EUR18 million from acquisitions to be completed by using the incremental term loan B of EUR150 million less estimated cost of financial lease service of EUR21 million, which Fitch expects will remain available to the company post-distress and which it has, therefore, excluded from the list of financial creditors - The resulted estimated pre-distress EBITDA of EUR352 million has been discounted by 20% (unchanged from last review) leading to a post-distress EBITDA of EUR282 million; at this EBITDA level Synlab's FCF would be neutral to marginally negative - Distressed EV/EBITDA multiple of 6.0x (unchanged from last review given the steady overall business profile) - 10% deductible to cover administrative charges Outcome: - Super senior revolving credit facility (RCF): 'BB'/'RR1'/100% - Senior secured debt: (including the new term loan B) 'B+'/'RR3'/55% - Senior note rating: 'CCC+'/'RR6'/0% RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO adjusted gross leverage above 8.0x or FFO fixed charge cover at less than 1.3x (2018: 1.6x) for a sustained period (both adjusted for acquisitions) - Reduction in FCF margin to only slightly positive levels or large debt-funded and margin-dilutive acquisition strategy, which could also prompt a negative rating action Developments That May, Individually or Collectively, Lead to Positive Rating Action - FFO adjusted gross leverage below 6.5x and FFO fixed charge cover above 2.0x - Inability to extract synergies, integrate acquisitions or other operational challenges leading to EBITDAR margin declining to below 22% - Improved FCF margin to the mid- to high single digits or more conservative financial policy reflected in lower debt-funded M&A spending LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: Organic liquidity is satisfactory given readily available cash of EUR90 million at end-2018, in line with prior years, after deducting EUR30 million deemed restricted required for operations. Fitch expects this level of internal cash generation will fund up to 50% of M&A over the next three years with the remainder of any acquisitions funded by the committed RCF of EUR250 million (drawn down by EUR100 million a year until maturity in June 2021). Synlab benefits from a diversified funding structure with access to public debt and loan markets with most of its debt becoming due only in July 2022. SUMMARY OF FINANCIAL ADJUSTMENTS - Operating leases capitalised at a multiple of 8x given Synlab's diversified asset footprint - Restricted cash of EUR30 million deducted from reported cash balance considered as minimum required cash to finance operations - Financial debt adjusted to face value - Non-recurring items of EUR43 million excluded from EBITDA and FFO for analysis of underlying operating performance =============== X X X X X X X X =============== [*] BOOK REVIEW: THE SUCCESSFUL PRACTICE OF LAW ----------------------------------------------- Author: John E. Tracy Publisher: Beard Books Soft cover: 470 pages List Price: $34.95 Order a copy today at https://is.gd/fSX7YQ Originally published in 1947, The Successful Practice of Law still ably serves as a point of reference for today's independent lawyer. Its contents are based on a series of non-credit lectures given at the University of Michigan Law School, where the author began teaching after 26 years of law practice. His wisdom and experience are manifest on every page, and will undoubtedly provide guidance for today's hard-pressed attorney. The Successful Practice of Law provides timeless fundamental guidelines for a successful practice. It is intended neither as a comprehensive reference work, nor as a digest of law. Rather, it is a down-to-earth guide designed to help lawyers solve everyday problems -- a ready-to-tap source of tested proven methods of building and maintaining a sound practice. Mr. Tracy talks at length about developing a client base. 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He also advises against deciding too quickly that a client has no case: "After you have been in practice for a few years you will be surprised to find how many seemingly desperate cases can be won." Mr. Tracy advises studying as the best use of downtime. He quotes Mr. Chauncey M. Depew: "The valedictorian of the college, the brilliant victors of the moot courts who failed to fulfill the promise of their youth have neglected to continue to study and have lost the enthusiasm to which they owed their triumphs on mimic battle fields." Mr. Tracy advises against playing golf with one's client every time he asks: "My advice would be to accept his invitation the first time, but not the second, possibly the third time but not the fourth." Other topics discussed by Mr. Tracy, with the same practical, sound advice, include fixing fees, drafting legal instruments, examining an abstract of title, keeping an office running smoothly, preparing a case for trial, and trying a jury case. But some of best counsel he offers is the following: You cannot afford to overlook the fact that you are in the practice of law for your lifetime; you owe a duty to your client to look after his interests as if they were your own and your professional future depends on your rendering honest, substantial services to your clients. Every sound lawyer will tell you that straightforward conduct is, in the end, the best policy. That kind of advice never ages. John E. Tracy was Professor Emeritus and Member of University of Michigan Law School Faculty from 1930 to 1969. Professor Tracy practiced law for more than a quarter century in Michigan, New York City, and Chicago before joining the Law School faculty in 1930. He retired in 1950. He was born in 1880. He died in December 1969. ********* 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. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. 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