/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190619.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, June 19, 2019, Vol. 20, No. 122 Headlines A U S T R I A NOVOMATIC GROUP: S&P Cuts ICRs to BB+/B on Declining Profitability B O S N I A A N D H E R Z E G O V I N A ALUMINIJ MOSTAR: Seeks Strategic Partner to Avert Bankruptcy F R A N C E LOXAM SAS: S&P Alters Outlook to Negative on Ramirent Acquisition VIVALTO SANTE: S&P Assigns 'B' LT ICR on Proposed Refinancing G E R M A N Y DEUTSCHE BANK: To Overhaul Trading Ops, Plans to Create Bad Bank NOVEM GROUP: Fitch Gives 'B+' LT IDR & Rates EUR400MM Notes 'BB-' K A Z A K H S T A N BANK RBK: S&P Affirms 'B-/B' Issuer Credit Ratings, Outlook Stable L U X E M B O U R G GALAPAGOS HOLDING: S&P Cuts ICR to CC on Planned Debt Restructuring N E T H E R L A N D S PRINCESS JULIANA AIRPORT: Moody's Cuts $142.6MM Sec. Notes to 'Ba3' UPC HOLDING: Fitch Maintains BB- LongTerm IDR on Watch Positive VIVAT SCHADEVERZEKERINGEN: Fitch Affirms BB Sub. Debt Rating R U S S I A ENEL RUSSIA: Moody's Puts Ba3 CFR on Review for Downgrade S P A I N AUTOVIA DE LOS VINEDOS: Moody's Withdraws B1 Rating BANCO SABADELL: Moody's Rates Junior Senior Unsecured Debt 'Ba3' U N I T E D K I N G D O M ARCADIA GROUP: U.S. Landlords Oppose Administration Process LF WOODFORD: UK Financial Watchdog Opens Probe Into Suspension MONSOON ACCESSORIZE: To Launch CVA, Landlords Seek Better Terms SHAYLOR GROUP: Cash Flow Pressures Prompt Administration - - - - - ============= A U S T R I A ============= NOVOMATIC GROUP: S&P Cuts ICRs to BB+/B on Declining Profitability ------------------------------------------------------------------ S&P Global Ratings downgraded Austrian gaming operator Novomatic Group to 'BB+/B' from 'BBB-/A-3' and lowered its issue ratings on its outstanding senior unsecured notes to 'BB+' from 'BBB-'. S&P said, "The downgrade reflects our view that the effects of the German Gaming Ordinance, along with a tough competitive environment in markets such as Italy and Australia, could cause Novomatic's EBITDA margin to further decline in 2019. Our previous expectation for improved ratios in 2019 seems less feasible now, and we do not think the group's cash flow measures could improve to a level that we consider commensurate with a 'BBB-' rating." Novomatic continues to face material challenges in Germany, its main end-market. The termination of online B2B relationships with German customers and the introduction of new gaming laws effective November 2018 changed the landscape significantly. While Novomatic felt the effects of the former in 2018, it will notice the fall-out from the latter in both of its trading segments this year. The German Gaming Ordinance required the introduction of a new generation of amusements-with-prizes (AWPs) from November 2018. Unlike its peers, Novomatic made a strategic decision to focus on manufacturing V2 machines only and not V1 machines (which will be valid only till February 2021). However, users were slow to accept the card unlocking feature in the V2 machines, which led Novomatic to lose some of its market share in the leased machines segment in Germany (previously it had a 50% share). Gross gaming revenue from its German operations declined by about 30%-40% in the initial weeks after the ordinance was introduced. Players' acceptance of Novomatic's V2 machines has since improved but S&P nonetheless forecasts an organic decline in gross gaming revenue from its German gaming operations of about 10%-20% in 2019. There is minimal scope to reduce costs because of the fixed costs of manufacturing and the need to keep staff in stores to help players get used to the new machines. To reduce its exposure to regulatory risks in Germany, Novomatic has tried to diversify its geographical presence. However, not all acquisitions have achieved the intended consequences. In January 2018, Novomatic completed the acquisition of about 52% shares in Ainsworth Game Technology Ltd. (Ainsworth) for EUR320 million. However, by end-2018 the value of the business was written down by EUR264 million after re-evaluating the long-term earnings prospects in light of a particularly weak performance in Australia. S&P previously anticipated Ainsworth would improve the group's margins, but we now forecast it will weigh on them. S&P said, "We also forecast the revenue portion of the group's higher margin gaming technology segment will gradually decline as the AWP market in Germany continues to shrink. This change in the mix will affect the group's overall margins. "We therefore see the group's overall margins for 2019 declining to 21.5%-22.0% compared to our previous expectation of them improving to 24%-25% this year. "We had anticipated financial-year 2018 to be a time of transition. The Ainsworth stake, accelerated capital expenditure (capex) for V2 machines, and one-off costs associated with AWP replacements in Germany resulted in S&P Global Ratings-adjusted FFO to debt of 25% and negative free operating cash flows (FOCF) to debt. We thought these ratios would improve to above 30% and 15%, respectively, in 2019, but we now forecast 26%-28% and 6%-9%. This means the group's credit metrics will not be commensurate with a 'BBB-' rating for about the next two years. "Despite margin strain and inherent regulatory challenges, we recognize Novomatic as one of the leading operators in the European gaming sector with S&P Global Ratings-adjusted EBITDA of about EUR610 million. It benefits from being vertically integrated, having operations in multiple European geographies, and a significant scale that supports investments in R&D to enable the development of new products. "The stable outlook reflects our view that management's intended use of excess cash flows to repay its debt will enable it to maintain S&P Global Ratings-adjusted debt to EBITDA below 4.0x and FFO to debt above 20% over the next two years, despite some challenging end-markets. "We could lower the ratings if S&P Global Ratings-adjusted FFO to debt falls materially below 20% or debt to EBITDA climbs above 4.0x in the next two years, or Novomatic is unable to generate material FOCF. This could stem from revenues or margins declining more than we currently anticipate because of regulatory changes in other key markets, a material hike in its gaming tax, a material debt-financed acquisition, or shareholder returns. Longer term risk could arise when the current exemption from, or active tolerance of, the German Interstate Treaty expires toward 2021. "We consider the potential for rating upside to be remote. The regulation-induced revenue decline in the gaming technology segment, limited contribution from online segments, and weak operating performance of the stand-alone Ainsworth business present material operating challenges in the next 12-24 months. However, we could raise the ratings if Novomatic were able to address these risks while improving EBITDA margins to around 25%-28%, thereby supporting a stronger assessment of the business. Alternatively, we could also raise the ratings if FFO to debt reaches 30% and FOCF to debt recovers to 15% over the next two years if Novomatic is able to materially reduce its debt through asset disposals or new equity infusion." =========================================== B O S N I A A N D H E R Z E G O V I N A =========================================== ALUMINIJ MOSTAR: Seeks Strategic Partner to Avert Bankruptcy ------------------------------------------------------------ Daria Sito-Sucic and Barbara Lewis at Reuters report that Bosnia's aluminium smelter Aluminij Mostar is seeking a strategic partner to avoid bankruptcy and a consortium led by London-listed miner and commodity trader Glencore has shown interest, its general manager said on June 17. Aluminij, based in Bosnia's southern town of Mostar and one of the Balkan country's biggest exporters, has been in trouble for years over heavy debt accumulated because of high alumina and electricity prices, Reuters relates. The company was brought to the brink of closure last year but the government of Bosnia's autonomous Bosniak-Croat Federation, which owns a 44% stake in the smelter, has helped it stay online, Reuters discloses. The government has cautioned however its future support would depend on the findings from an audit of the Aluminij's operation it had commissioned, Reuters notes. According to Reuters, Federation Industry Minister Nermin Dzindic said on June 17 the audit had shown that Aluminij could resume operating if it found a strategic partner which would help it re-organise, or otherwise face bankruptcy. Mr. Dzindic, as cited by Reuters, said that Aluminij's total debt amounted to BAM377 million (US$217.2 million), of which BAM280 million was to the state utility EPHZHB. Aluminij's General Manager Drazen Pandza said it was hard to find investors ready to take risks with regards to the company's debt and high electricity prices but talks were under the way with the consortium led by Glencore, the Aluminij's long-time trade partner, Reuters relays. Mr. Dzindic said that any strategic investor would seek favourable electricity prices but that the government could not subsidise the prices on open market, according to Reuters. He said the bankruptcy would not mean the closure of Aluminij but its re-organization, Reuters notes. Aluminij, in which small shareholders own a 44% stake and the Croatian government a 12% stake, employs about 1,000 people. Its closure would put at risk some 10,000 jobs, Reuters says. =========== F R A N C E =========== LOXAM SAS: S&P Alters Outlook to Negative on Ramirent Acquisition ----------------------------------------------------------------- S&P Global Ratings revised the outlook on Loxam SAS to negative from stable and affirmed its 'BB-' ratings on the company. The outlook revision follows Loxam SAS's offer on June 10, 2019, for Ramirent Pls' publicly traded shares, at a 65% premium compared with the closing price on June 7, 2019. This values Ramirent at EUR1.5 billion, which includes EUR1 billion worth of equity. The acquisition of Ramirent will be fully debt funded using a bridge loan of up to EUR1.5 billion, with a small cash contribution from cash on the balance sheet. S&P said, "We think that additional EBITDA contribution will partly offset higher debt balances. However, we still believe there is a risk that Loxam's credit metrics will deviate from our previous base case for a prolonged period, with adjusted debt to EBITDA exceeding 4.5x in 2019 and declining slightly in 2020. In addition, we think that significant one-off cash costs related to the acquisition and debt refinancing will hamper cash flow generation in 2019." An acquisition of this size carries some execution and integration risk, although we note that Loxam has successfully integrated its previous acquisitions. However, there is no headroom under the ratings for underperformance compared with our base case for the combined group, specifically in terms of potential higher-than-expected costs, since these could pressure profitability and further weaken the combined group's credit metrics. S&P said, "In addition, once the acquisition and bridge loan refinancing is complete, we will review the updated investment plan in terms of capital expenditure (capex) for the combined group. We will also review our assessment of the group's financial policy, considering this sizeable transaction and the company's continuing intention to expand via external debt-funded acquisitions." The acquisition of Ramirent will materially improve the scale of Loxam's operations, with the company becoming by far the biggest equipment rental company in Europe, with a solid footprint in the Nordics. We expect that the combined group will generate about EUR2.4 billion in sales and EUR0.8 billion in EBITDA in 2019. Ramirent on a stand-alone basis reported EUR711 million in revenue and about EUR200 million in EBITDA in 2018. S&P said, "We note that Ramirent has No. 1 market positions in the Nordic countries, which fits well with Loxam's strategy of achieving leading positions in the markets it operates. We note, however, that Ramirent reported a lower EBITDA margin of about 29% in 2018. This is likely to slightly dilute the combined group's margin of 33.8% reported by Loxam in 2018." S&P said, "Our assessment of Loxam's business risk profile is unchanged, and continues to reflects its better scale, diversification of operations, and profitability compared with peer Kapla Holding (Kiloutou), but also its smaller scale and lower EBITDA margin compared with peer Ashtead Group. "The negative outlook reflects our view that we may lower the rating on Loxam by one notch over the next 12 months if the company does not demonstrate continued earnings growth, the smooth integration of Ramirent, and gradual deleveraging to adjusted debt to EBITDA below 4.5x. This could occur if the group faced softening demand in its key geographic markets, higher integration costs, or because of increased capex investments. An acquisitive financial policy that continued to weigh on credit metrics, with the impact not fully offset by higher earnings, would also lead us to lower the ratings. "We could revise the outlook to stable if Loxam demonstrated steady deleveraging in the next 12 months though increasing earnings and stable debt balances. We see adjusted funds from operations (FFO) to debt above 15% and debt to EBITDA below 4.5x as commensurate with the current rating. We would also expect the company to continue to reduce its capex in light of slowing economic growth, and make no other significant acquisitions prior to restoring its credit metrics following the Ramirent acquisition." VIVALTO SANTE: S&P Assigns 'B' LT ICR on Proposed Refinancing ------------------------------------------------------------- S&P Global Ratings assigned its 'B' long-term issuer credit rating to France-based private hospital operator Vivalto Sante Investissement (Vivalto), and its 'B' issue and '3' recovery ratings to the proposed EUR300 million senior secured TLB. S&P said, "Our rating on Vivalto reflects its position as the third-largest clinic operator in France behind Ramsay Generale de Sante and ELSAN (together controlling nearly 50% of the private hospital market in terms of revenue and facilities). Given the highly fragmented nature of the French private hospital market, this translates into only an approximate 4% market share for Vivalto. "The Vivalto group is currently focused on three regional clusters (Brittany-Normandy, Rhone-Alpes, and Île de France) where we believe it is well positioned versus other private operators but remains exposed to significant competition from government-owned providers. This is somewhat mitigated by Vivalto's leadership in the ambulatory segment, with a 66% share of ambulatory surgery sessions in 2018, while the public sector predominantly focuses on emergency care and treatment of long-term pathologies. In this way, the state relies on private providers to take care of this segment of healthcare. "We view Vivalto's operating environment as stable, underpinned by a well-defined reimbursement regime and positive underlying industry trends, including an aging population (entailing a greater need for medicine, surgery, and obstetrics [MSO] procedures), and an increasing number of medical interventions per patient." Vivalto is an almost pure MSO player (with strong focus on orthopedics, digestive surgery, and medicine, which together contributed 50% of its revenue in 2018), and about 90% of its revenue comes directly from the national social security system, thereby limiting exposure to bad debt. The French government is therefore the main payer and sets the tariffs on more than 2,000 medical procedures every year on March 1. That said, S&P believes Vivalto's sole focus on the French health care market remains a negative credit factor. Promotion of outpatient care has led to declining volumes from the reduction of the average length of stay and of new treatment methods, including home-based care. At the same time, in an effort to contain health care expenditure, the French government has been reducing health care reimbursement tariffs over the past eight years. As S&P Global Ratings expects French GDP to grow by 1.4% in 2019 and by 1.5% in 2020, S&P expects France to keep up with incremental economic reforms in the medium term, including a focus on health care costs. In this context, S&P projects that Vivalto's tariffs will remain under pressure for the next two years, although the strain has started to ease. In March 2019, the French government announced that core tariffs would be set at +0.5% compared with -0.5% in March 2018 and -1.5% in March 2017. S&P believes this evolution will support organic revenue growth and stable profitability, with EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) margins of 14%-15%. Over the past few years, the company has been able to deliver organic growth and improve profitability, despite ongoing tariff cuts, delivered via cost savings and a focus on specialties and complex procedures, as well as restructuring loss-making companies. Furthermore the company focuses on regional leaderships, which enables close cooperation with local health care authorities and structuring of services to meet targets and demand. This leads to optimization of the tariff mix and utilization of facilities and supporting capital expenditure (capex). S&P said, "In addition, we believe Vivalto is well placed to continue to benefit from government subsidies that compensate health care providers for their efforts to enhance quality. In 2019, the overall quality subsidies will increase from EUR50 million to EUR300 million (accounting for +0.3% of tariff increase). This will benefit Vivalto, in our view, as 58% of its establishments have received quality financing in 2018, ahead of both leading players, Ramsay and ELSAN, and versus the national average of 20%. "We view positively the company's increasing size and its focus on acquiring facilities in France's most attractive areas. Moreover, substantial investments, in addition to refurbishment, extension, and renovation of its clinics, have resulted in reputable information technology platforms, which also helps attract new physicians--an important volume growth driver. "The company has a good track-record in retaining doctors, due to a unique ownership model, built around co-shareholding with doctors, which we view as an important competitive advantage." In fact, every new joiner has the opportunity to buy shares in the company and participates in the governance process through election of representatives. That said, the company's business risk profile is still constrained by its relatively small size of operations (with total sales of about EUR522 million in 2018) when compared with other rated peers such as Ramsay or ELSAN, which are projected to generate revenue of more than EUR2 billion in 2019. This limits benefits from economies of scale, especially on medical purchases where large volumes help secure important rebates. S&P assumes the S&P Global Ratings-adjusted EBITDAR margin will remain stable at 14%-15% over the next two years, despite relatively low growth prospects in the industry, assuming flat-to-slightly increasing volumes, but decreasing price/case mix and higher costs incorporating at least inflation. Although this compares unfavorably with the margins of closest peers Ramsay (which S&P projects will generate EBITDAR margin of about 17% in 2019) and ELSAN (19%-20%), this is somehow mitigated by Vivalto's majority of assets being freehold, leading to EBITDA at close to 11%, comparable with Ramsay and ELSAN. In fact, Vivalto will own 17 out of 27 of its clinics after the acquisition of the real estate of Port-Marly clinic, whereas Ramsay and ELSAN operate mostly under the leasehold model. S&P views Vivalto's freehold model positively compared with leasehold peers because health care services providers are price-takers and rent adds to their already-high fixed costs. Beyond smaller scale, lower adjusted margins can also be explained by the group's focus on only MSO (while Ramsay also has presence in higher-margin psychiatry) and ongoing acquisition of low-performing assets to build scale (it takes on average three to five years for Vivalto to ramp up and bring acquired facilities to good rates), while both Ramsay and ELSAN have had stable networks for a longer time. S&P said, "We consider Vivalto to have a highly leveraged capital structure, reflecting our estimate that S&P Global Ratings-adjusted debt to EBITDA will remain above 5x over the next two years. Our estimate of debt includes EUR300 million of proposed TLB, EUR70 million of other debt including mainly real estate debt and financial leases, approximately EUR50 million-EUR70 million for potential acquisitions, EUR18 million of pension liabilities, and about EUR120 million under operating leases. We consider the preferred shares and shareholder loanat the Vivalto Sante SA level as non-debt-like. "We project that adjusted EBITDAR will be EUR90 million-EUR100 million over the next 24 months, covering interest payments of EUR14 million-16 million and rent payments of EUR20 million-EUR25 million by more than 2.2x. As such, Vivalto will be able to service its fixed charges comfortably. "Due to our expectation of earning improvements including the contribution of recent acquisitions, we assume the company will be able to generate annual free operating cash flow (FOCF) (after capex, working capital requirements, and interest) of about EUR10 million–EUR20 million during 2020-2021. "We expect slightly negative FOCF in 2019 owing to strategic projects undertaken on three clinics and leading to temporary higher real estate capex, some restructuring costs, and higher working capital requirements related to recent acquisitions. "The stable outlook on Vivalto reflects our anticipation that the company's focus on delivering operating efficiency and contribution from maturing and previously underperforming assets should enable the group to deliver growth in earnings and cash flow generation while maintaining profitability at 14%-15%, despite funding pressures in France. "It further reflects our view that Vivalto should be able to maintain an adjusted fixed-charge coverage ratio close to 2.5x, enabling it to comfortably cover interest payments and rents and gradually deleverage. "We could consider lowering the rating if the group does not deliver on its business plan, such that its cash flow generation turns negative on a sustainable basis, hampered by substantial working capital outflows or higher than forecast capex, if it fails to maintain adequate headroom under its covenants, or liquidity weakens." This would broadly correspond to a fixed-charge coverage ratio falling below 2.2x. The most likely cause of such a deterioration would be if the group fails to achieve forecast growth and realize the operating efficiencies and productivity gains necessary to cover its fixed cost base, resulting in pressure on the group's profitability. S&P said, "We could also consider lowering the rating if Vivalto pursues predominantly debt-funded acquisition strategy that would lead to S&P Global Ratings-adjusted debt to EBITDA approaching 7.0x over the next 12 months. "We view an upgrade as remote in the next 12 months in the context of the current capital structure. However, ratings upside could follow materially reduced leverage such that adjusted debt to EBITDA dropped below 5x and the company committed to maintaining this level in the future. "An upgrade would also be contingent on Vivalto building a solid track record of profitable growth and consolidating its position in the industry, such that annual FOCF is significantly higher than we currently anticipate." ============= G E R M A N Y ============= DEUTSCHE BANK: To Overhaul Trading Ops, Plans to Create Bad Bank ---------------------------------------------------------------- Stephen Morris and Olaf Storbeck at The Financial Times report that Deutsche Bank is preparing a deep overhaul of its trading operations including the creation of a so-called bad bank to hold tens of billions of euros of assets as chief executive Christian Sewing shifts Germany's biggest lender away from investment banking. The plan would see the bad bank house or sell assets valued by the German lender in its accounts at up to EUR50 billion after adjusting for risk, the FT notes. Deutsche's equity and rates trading businesses outside continental Europe will be severely shrunk or closed entirely as part of the revamp, although the final decision is pending, the FT relays, citing four people briefed on the plan. Managers are also set to unveil a new focus on transaction banking and private wealth management, the FT states. The people, as cited by the FT, the proposed bad bank, which is known internally as the non-core asset unit, will comprise mainly of long-dated derivatives. Two of the people said the final scale of the non-core unit has not been decided and the number "continues to oscillate", but executives are discussing at least EUR30 billion of risk-weighted assets with an eventual size of EUR40 billion to EUR50 billion most likely, the FT notes. At the upper end, it would account for 14% of Deutsche's balance sheet, according to the FT. Deutsche Bank AG is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany. NOVEM GROUP: Fitch Gives 'B+' LT IDR & Rates EUR400MM Notes 'BB-' ----------------------------------------------------------------- Fitch Ratings has assigned German automotive supplier Novem Group GmbH a final Long-Term Issuer Default Rating of 'B+' with a Stable Outlook and a final instrument rating of 'BB-'/'RR3'/66% to the issued EUR400 million senior secured floating rate notes. The assignment of the final ratings follows a review of the final documentation being materially in line with the draft terms. KEY RATING DRIVERS High Opening Leverage: Fitch forecasts Novem's FFO adjusted gross leverage 4.1x at end-2020 (YE March), which is above its expectations for the rating and constrains its financial profile to the 'B' rating category. Fitch forecasts very limited de-leveraging from 2021 through 2022, due to non-amortising debt and stable underlying FFO. However, Fitch expects FFO adjusted gross leverage to decline towards 3.6x beyond 2022-2023, a level more commensurate with the rating. Strong cash generation ability provides Novem with significant de-leveraging potential, should it decide to allocate cash flows towards gross debt repayments. Leading Niche Market Position: Fitch views Novem's market position as strong and sustainable, based on its position as the largest global supplier within the niche decorative interior trim elements. Despite the company's comparatively small scale (revenue of around EUR700 million) compared with the Fitch-rated universe of automotive suppliers, Novem enjoys a market share of around 40% within global decorative interior trims and is significantly larger than the closest competitor, NBHX (unrated). Strong FCF Generation: Novem's operations are highly cash generative. Fitch projects strong positive free cash flow (FCF), steadily increasing to about EUR60 million in 2021 through 2023. Fitch expects the FCF margin to be mid-single digit over the rating horizon, which it deems solid for the rating and partly offsetting the high leverage. Strong cash generation is driven by the expectation of stable and profitable operations aided by moderate trade working capital requirements, limited shareholder distributions and normalised capex of around 4% of sales, following the completion of major investment projects in recent years. Less Volatile Premium Market: Novem focuses on the premium automotive market, which is smaller than the mass market segment, but has been more resilient to market downturns and has also shown a higher growth rate. Fitch expects this trend to continue, albeit at a lower rate, and drivers include sector trends such as electrification and customisation as well as a generally strong demand for and availability of premium cars in emerging markets. However, on-going sector trends are putting pressure on OEMs and have resulted in announcements of cost-cutting programmes. This could have an impact on auto suppliers, including Novem. Corporate Governance, Shareholder Distributions: Fitch understands that Novem's owner, Bregal, and management are committed to de-leveraging, while limiting shareholder remuneration. The rating reflects its expectations for sustainably strong levels of residual cash available for business needs and de-leveraging. Increased shareholder remuneration leading FCF to decline below 2% could be negative for the ratings. High Customer Concentration: Novem's customer concentration is high, with its top two customers accounting for about 65% of group revenue, resulting in pronounced reliance on the continuous commercial success of these customers. Also, the focus on the premium automotive market creates a naturally smaller client universe for Novem. However, the dispersion of customer exposure across multiple car platforms partly mitigates this. M&A Risk: Although Novem's historical growth has been achieved organically, Fitch understands that the company's acquisition approach is of a more opportunistic nature. Management expects continued organic growth, but Fitch believes that acquisitions could be an alternative way to secure future growth. Fitch's rating case includes healthy FCF, which could allow for bolt-on acquisitions of up to an aggregate amount around EUR200 million by 2023, if funded with internal cash flow. Larger debt-financed acquisitions would be treated as event risk. DERIVATION SUMMARY Novem is smaller than the majority of its portfolio of auto suppliers, including Faurecia SA (BB+/Stable), Stabilus SA and Superior Industries Inc. (b*/Stable/US credit opinion), but more profitable with typical industry EBITDA margins in a range of 8%-12%, compared with Novem's stronger profitability in the high teens. Novem's business profile shows weak 'BB' category attributes, with an emphasis on the company's defendable niche leadership position in interior trim elements, medium value-add products, and a good geographical diversification. Its focus on the premium car market and resulting higher customer concentration combined with a narrower product offering compares unfavourably with more diversified suppliers including Faurecia. Similar to most peers, Novem's exclusive automotive exposure is cyclical and moderately weaker compared with German peer Stabilus, which shows one of the least cyclical end-market exposures, supported by about 40% of revenues stemming from a wide array of non-automotive customers. Novem's financial profile is in line with a 'B' category rating. The company's FFO adjusted gross leverage of 4.1x at end-2020 compares well with Superior Industries (above 5.0x). However, Novem is more levered than Stabilus (below 3.0x). Although Novem's leverage metrics are moderately weak for the rating, its financial profile is adequately supported by the company's strong FCF generation, resulting from industry-leading profitability margins and comparatively lower capex requirements. KEY ASSUMPTIONS - Revenue growth at a CAGR of 4.0% 2019-2023 with a higher rate in 2022/23 reflecting the phasing of tooling sales and related series revenues- EBITDA margin to erode mildly by around 100bp over the four-year forecast period - Capex of about 3.5%-4.0% of revenues, which is meaningfully lower than previous years as several significant capital projects have been completed- Moderately negative working capital requirements of EUR16 million in 2020 dropping to around EUR10 million annually thereafter- No dividend payments or acquisitions are included in the forecast- Effective tax rate of 25% RECOVERY ANALYSIS Fitch's recovery analysis reflects a going concern approach as the company's solid market position in its niche is reflected by the company's strong margins. This implies a substantially higher value in maintaining Novem as a business post distress, than in an asset disposal scenario. A 35% discount to FY2019 EBITDA of EUR137 million (around the point of transaction closing) has been applied, representing the point of theoretical distress. Fitch used a 4.5x multiple, reflecting Novem's leading niche position and strong FCF. After deduction of 10% for administrative claims, its waterfall analysis generated a ranked recovery in the RR3 band, indicating a 'BB-' instrument rating. The waterfall analysis output percentage on current metrics and assumptions was 66%. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - FFO gross leverage sustainably below 3.0x; - FFO fixed charge coverage sustainably above 4.0x; - Increased scale with revenues approaching EUR1 billion and reduced customer concentration. Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO gross leverage above 4.0x sustainably; - FFO fixed charge coverage sustainably below 3.0x; - FCF margin sustained below 2%; LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: At fiscal year-end-2019, the company's liquidity profile was supported by around EUR60 million of cash on balance sheet (before Fitch's EUR35 million adjustment of restricted cash deemed not readily available for debt service) and full availability of its new EUR75 million super senior revolving credit facility. In the absence of debt maturities from 2020 through 2023, liquidity sources provide adequate headroom for working-capital needs and planned capex.The performed refinancing extends the company's maturity profile with the EUR400 million notes maturing in 2024. However, Novem will be exposed to bullet refinancing risk at that point. As a mitigant, Fitch believes that Novem's first-time bond issue, coupled with its leading niche business model, will allow the company to build a track record of capital-market viability. =================== K A Z A K H S T A N =================== BANK RBK: S&P Affirms 'B-/B' Issuer Credit Ratings, Outlook Stable ------------------------------------------------------------------ S&P Global Ratings affirmed its 'B-/B' long- and short-term issuer credit ratings on Kazakhstan-based Bank RBK JSC. The outlook remains stable. S&P also affirmed its 'kzBB' Kazakh national scale rating on the bank. S&P said, "The affirmations reflect our view that Bank RBK has completed its full-scale post-default reorganization last year, and since August 2018 has been growing its loan portfolio in line with its business strategy, while leveraging the management team's experience and beneficiary shareholder's broad business network. Consequently, and assuming the bank will continue its prudent funding and liquidity management, we have positively reassessed the bank's business position as moderate." The bank now focuses its corporate lending on clients in the oil and gas, metals, and mining sectors, as well as export companies. The bank also targets to provide cash settlement services to these selected customers, as well as to partners and counterparties of Kazakhmys (beneficiary owner's key asset)and import companies. Furthermore, Bank RBK is developing its retail lending line (38% of the total loan book as of April 1, 2019), which further diversifies its business. S&P understands that currently around 30% of retail loans are granted to workers of Kazakhmys, which it considers to have rather predictable credit risks for Bank RBK. In addition to the benefits of the bank's access to Kazakhmys' suppliers and contractors, as well as its employees, we consider Bank RBK's major beneficiary shareholder, Mr. Vladimir Kim, to be supportive to the bank. Mr. Kim, alongside the Kazakh government, provided significant post-default financial support to Bank RBK in 2017-2018. Apart from Mr. Kim's investments in Bank RBK, he holds 70% in LLP Kazakhmys Corporation, which is a leading international company for the extraction and processing of natural resources, and 33% in the mining company KAZ Minerals PLC, traded on the London Stock Exchange. S&P said, "Also positive for Bank RBK's business stability, in our view, is the bank's relatively prudent asset and liability management. In particular, we understand that available liquid assets of relatively good credit quality (mostly investments in Kazakh government bonds) will stay at their current comfortable levels, and the incoming deposits would fuel the expected lending growth over the next 12 months. As of April 1, 2019, liquid assets form around 41% of total assets and net of short-term wholesale funds cover almost 80% of total deposits. We expect these metrics to remain broadly unchanged over the next 18 months. Moreover, the overall funding base is relatively stable and well diversified compared with other local peers: as of April 1, 2019, 55% of liabilities come from customer accounts; 30% from bonds and subordinated loans of long maturity; and 7% from the long-term government development funds. "However, in our view, the bank's relatively high 30% lending growth--greater than market average--potentially adds to credit risks, which currently limits our risk position assessment to moderate. We have observed ongoing improvements in asset quality. However, based on the audited 2018 IFRS statement, the overall potential problem assets (Stage 3 and POCI loans) net of reserves for impairment form around 6.5% of the overall balance sheet and 49% of the total equity as of Dec. 31, 2018. This exposes our projected capital metrics to risks of additional volatility (as per our assumptions, including relatively rapid lending growth, our current capital and earnings assessment is going to remain in the moderate category). These figures do not include exposure to local debt collection company, to which Bank RBK is selling its bad loans via installments (the total amount sold in 2018 and to be sold in 2019 is KZT24 billion). We positively note that the overall level of collateralization of Stage 3 and POCI loans is high at 70% on a gross basis. "Furthermore, the ratings are constrained by the bank's untested ability to generate sustainable earnings. We understand that the bank restarted its operations in August 2018, and its 2018 profitability metrics are significantly distorted by a one-off capital gain from the recognition of subordinated debt at below market rate. While Bank RBK significantly reduced its administrative expenses last year, we believe that its profitability will largely depend on the bank's ability to maintain the good credit quality of its loan book, generate new sustainable business, and further contain costs. "The stable outlook reflects our expectations that Bank RBK will continue to build-up its franchise, maintain a prudent funding and liquidity policy, and carry out its business strategy, in the absence of significant asset quality deterioration in the next 12-18 months. "We could consider a negative rating action if we saw pronounced risk of default with signs of asset quality deteriorating far beyond market-average levels leading to weaker capitalization, or liquidity pressures due to funding outflows. "We could consider a positive rating action over the next 12-18 months if the bank continues to strengthen its asset quality to levels closer to and above the system average, with a longer track record of a sustainable business model and in the absence of significant credit losses. We could also consider a positive rating action if we observe a significant increase in the bank's loss absorption capacity." =================== L U X E M B O U R G =================== GALAPAGOS HOLDING: S&P Cuts ICR to CC on Planned Debt Restructuring ------------------------------------------------------------------- S&P Global Ratings lowered to 'CC' from 'CCC-' its issuer credit rating on Luxembourg-based heat exchanger manufacturing holding company Galapagos Holding S.A., to 'CCC' from 'CCC+' the issue ratings on its super senior facility, and to 'CC' from 'CCC-' the issue ratings on its senior secured notes. At the same time, S&P's affirmed its 'C' ratings on the senior unsecured notes. Galapagos Holding's announced exchange offer for its debt holders leads S&P to believe that a default event is now virtually certain. Under its proposed balance sheet restructuring transaction, Galapagos Holding is seeking: -- Equity injection of about EUR140 million to support deleveraging and funding of restructuring measures and transaction costs. -- Full repayment of its drawings under the EUR75 million super senior RCF agreement funded by the equity injection, reduction of volume to EUR65 million. -- Reduction of super senior guarantee facility to EUR260 million. -- Debt-exchange for the existing EUR333 million 5.375% senior secured notes with new 8.25% senior secured notes with maturity of six years and amended terms. Alternatively, replacement by new third-party debt. -- The EUR250 million senior unsecured notes 7% leaving the capital structure post restructuring, which might be reached by a debt-to-equity swap. All lenders of Galapagos Holding's super senior revolving credit facility (RCF) and super senior guarantee facility and 79% of the noteholders of its senior secured debt have shown their support for the planned transaction by signing a lock-up agreement. Discussions with the holders of the senior unsecured notes are still underway. S&P understands that a consent from the unsecured bondholders is not required to implement the new capital structure. The new capital structure would include only the super senior RCF and guarantee facility, as well as the senior notes. At this time, Galapagos Holding does not intend to pay the interest due on June 15, 2019, or on the expiry of any relevant grace period, on neither the senior secured notes nor the senior unsecured notes. For the existing senior secured notes, unpaid interest will be accrued and paid in full on completion of the planned transaction. Under the lock-up agreement, the consenting creditors have agreed not to take any enforcement action. S&P understands that the senior unsecured debt holders would not be entitled to take enforcement action until at least 179 days from an event of default (against Galapagos SA and its subsidiaries). S&P said, "We consider the exchange offer tantamount to a default because it implies investors are likely to receive less value than the promise of the original securities, and because the offer is distressed, rather than opportunistic. Furthermore, we expect that Galapagos Holding will miss the next interest payment for at least one tranche of debt as virtual certain. "The negative outlook reflects the high likelihood that Galapagos Holding's noteholders will receive less than originally promised. We would downgrade the holding company to 'SD' upon completion of any distressed exchange offer. Furthermore, we would lower the rating to 'SD' or 'D' (default) if Galapagos Holding fails to remain current on its payment obligations. "While improbable, we could raise the rating if we no longer viewed the completion of the distressed exchange as likely." ===================== N E T H E R L A N D S ===================== PRINCESS JULIANA AIRPORT: Moody's Cuts $142.6MM Sec. Notes to 'Ba3' ------------------------------------------------------------------- Moody's Investors Service downgraded to Ba3 from Ba2 the rating of the USD 142.6 million (approximate original issuance amount) Senior Secured Notes issued by Princess Juliana International Airport Operating Company N.V. due in 2027. Moody's also changed the rating outlook to stable from negative. The rating action follows the rating downgrade of the Government of Sint Maarten ("St. Maarten"; Baa3 stable). Downgrades: Issuer: Princess Juliana Intl Airport Op Company N.V. Senior Secured Regular Bond/Debenture, Downgraded to Ba3 from Ba2 Outlook Actions: Issuer: Princess Juliana Intl Airport Op Company N.V. Outlook, Changed To Stable From Negative RATINGS RATIONALE The rating downgrade to Ba3 from Ba2 reflects the rating downgrade of the Government of St. Maarten, the support provider, which provides rating uplift under its analytical framework for Government Related Issuers (GRI). PJIA's rating outlook change to stable from negative also follows from St. Maarten's rating the outlook change to stable from negative. Moody's estimates a Baseline Credit Assessment (BCA) of b3 representing the airport's stand-alone credit quality. Under the GRI framework, Moody's also incorporates its assessment of a "high" default dependence and a "strong" likelihood of potential extraordinary support from the Government of St. Maarten. Thus, the rating action on PJIA incorporates a weaker credit profile of St. Maarten. Its assigned Baseline Credit rating reflects PJIA's short-term challenges such as: (i) tight liquidity, (ii) breach of two covenants that require waivers from investors, (iii) debt service payments that will continue to be made in the coming quarters from IATA collections of Airport Departure Fees but from time to time may require support from St. Maarten and (iv) additional financing sources are taking longer than expected, delaying the start of the reconstruction of the terminal. PJIA's is expected to rely on support by the Government of St. Maarten as proven by the first "Emergency Financing" cash transfers of $5 million and an additional $15 million fully committed facility expected to be used to cover operating expenditures during reconstruction of the airport. Moody's acknowledges the airport's essential role for St. Maarten's economy and its key role as a local hub connecting passengers to eight nearby tourist destinations. The rating also reflects the airport's recent positive enplanement trends but that are yet to fully recover after Hurricane Irma in September 2017. Enplanements during 1Q19 more than doubled compared to those of 1Q18 and reached 66% of pre-hurricane enplanements in 1Q16, slightly exceeding expectations. Nevertheless, PJIA's expected debt service coverage ratio will be 0.6x in 2019, reflecting the weak operating performance (without considering extraordinary support from the Government of St. Maarten). As calculated per the indenture, the DSCR was 0.46x as of LTM 1Q19. The stable outlook reflects its expectation of a slow, gradual traffic recovery and very weak financial position in the near term that result in the need of cash financing from the Government of St. Maarten. The stable outlook is also in line with the stable outlook on the rating of St. Maarten. WHAT COULD CHANGE THE RATING UP/DOWN The rating could face upward pressure due to a sustained resumption of PJIA's commercial operations leading to better financial and liquidity positions, coupled with clarity around the timing and terms of the World Bank and European Investment Bank financing for the reconstruction. Sustained material declines in enplanements or debt service coverage consistently falling below 1.0 times on a projected basis, and/or a decline in liquidity levels would also exert downward pressure on the rating. A further downgrade of St. Maarten's rating would exert negative pressure on the rating. ABOUT PRINCESS JULIANA INTERNATIONAL AIRPORT Princess Juliana International Airport Operating Company N.V. ("PJIAE") is a private corporation with regulated rate setting ability. PJIAE operates the Princess Juliana International Airport, which is the major commercial airport on the island of Sint Maarten/Saint Martin and serves as a hub for connecting traffic to eight nearby Caribbean islands such as Anguilla, St. Barths, Tortola, Saba, St. Eustatius, Nevis, St. Kitts and Dominica. The sole owner of all capital stock in SXM is Princess Juliana International Airport Holding Company N.V. ("PJIAH"), which is 100% owned by the Government of St. Maarten (Baa3 stable). SXM is managed by a Managing Director under supervision of a Supervisory Board consisting of between three and seven members. UPC HOLDING: Fitch Maintains BB- LongTerm IDR on Watch Positive --------------------------------------------------------------- Fitch Ratings has maintained UPC Holding BV's Long-Term Issuer Default Rating of 'BB-', senior secured notes' rating of 'BB+' and senior notes' rating of 'B' on Rating Watch Positive. KEY RATING DRIVERS Rating Watch Positive: Fitch placed UPC on RWP on March 5, 2019 following the announcement of the sale of UPC's operations in Switzerland to Sunrise Communications Holdings S.A. (Sunrise; BB+/RWN). Fitch understands the transaction will involve the transfer and integration of UPC and its subsidiaries into Sunrise and will be accompanied by the transfer of UPC's existing senior and senior secured notes to the enlarged group. Fitch also understands that UPC's term loan AR will be repaid at or prior to the closing of the acquisition meaning UPC's senior secured term loan ratings have not been placed on RWP. As such, Fitch considers that there is potential rating upside for UPC's senior and senior secured notes given the stronger operating profile and more conservative financial leverage the enlarged group is expected to represent. Transaction Logic: Fitch believes there is strong industrial logic for the transaction. Switzerland is a highly evolved telecoms market. The acquisition will considerably boost Sunrise's operating scale and market position. It will represent a strong market number two in the provision of triple play services, with the combined business accounting for 31% of market subscribers in both broadband and TV (at 3Q18), while Sunrise is already a strong market number two in mobile. The acquisition adds a high capacity fixed/cable operations with coverage of approximately 70% of Swiss households. Its combined service offering will position it strongly in a crowded market where consumers have embraced convergence. Underlying Pressures in Switzerland: Aside from the positive impact of the proposed acquisition by Sunrise, Fitch believes these is underlying pressures in UPC's Swiss operations. Rebased revenues in Switzerland were down 3.7% in 2018; rebased operating cash flow (OCF; similar to EBITDA) was down by 10.4% as attrition in the company's video base and pricing pressure both affected performance. The premium nature of the Swiss market and intense competition have proven challenging to the incumbent pay-TV provider. A strengthened content offer is helping to address operational pressures in what is a high margin business. Nonetheless, Fitch is assuming further OCF erosion in 2019. Underlying Pressure Absent Disposals: LG has announced a series of disposals affecting the majority of UPC's portfolio of businesses. These include completed transactions involving its Austrian business and DTH assets in Central and Eastern Europe. The disposal of cable operations in the Czech Republic, Hungary and Romania to Vodafone and the Swiss disposal are still to be completed. Fitch's working assumption is that the disposals will receive regulatory approval and finalise, steps that underpin the RWP. However, Fitch has also considered how the business might perform if the remaining transactions fail to complete. Under such a scenario, the company's operating profile remains under pressure, in turn leading to weak free cash flow (FCF) and funds from operations net leverage that trends above a downgrade threshold of 5x. In the absence of shareholder support such a performance could be expected to pressure the rating. However, LG has applied caution over UPC's leverage in the past, and could be expected to do so again if this scenario were to materialise. RR Revision: Fitch has revised the Recovery Ratings on the senior secured debt of UPC Financing Partnership, UPCB Finance IV Limited and UPCB Finance VII Limited to 'RR1' from 'RR2'. This is to accurately reflect Fitch's Corporates Notching and Recovery Ratings Criteria applicable to 'BB' category ratings. The correction of the Recovery Ratings has no impact on the 'BB+' senior secured instrument ratings from which they are inferred. DERIVATION SUMMARY UPC's ratings are positioned solidly within the leveraged telecom peer group; its most obvious peers being other LG cable operations - Virgin Media Inc., Telenet Group Holding (both BB-/Stable) and Unitymedia GmbH (B+/RWP). VodafoneZiggo Group B.V (B+/Stable) of the Netherlands, a joint venture between LG and Vodafone is a further benchmark. Relative to the peer group, UPC is smaller, to some extent exposed to emerging market risk, its markets are more fragmented and the business delivering weaker FCF. Those factors are mitigated by business diversification, more cautious leverage than other LG cable operators and the effectiveness of its FX policy. Fitch has nevertheless set UPC's downgrade threshold marginally tighter than the peer group to reflect these constraints. KEY ASSUMPTIONS - Its rating case only assumes the full impact from disposals once they are completed; the disposals announced with Vodafone, M7 and Sunrise, businesses which are classified as discontinued operations by UPC, are not assumed to complete and these businesses are therefore included within its base case consolidation perimeter - Revenue decline of 13% on its base case consolidation basis in 2019 and further decline of 2% in 2020 reflecting the full year impact of the UPC Austria disposal and the disposal of DTH assets in CEE which completed in May 2019; Thereafter revenue is expected to stabilize - Operating cash flow margin to decline to 51% from 2019 onwards - Capex to revenue of around 28% in all years to 2022, which reflects the scale back of new builds in CEE - Fitch expects UPC to receive part of DTH disposal proceeds of EUR100 million from parent in 2019 - EUR100 million cash contribution from LG in 2020 to fund short-term liquidity RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - FFO-adjusted net leverage of 4.3x or below on a sustained basis. - Significant improvement in pre-dividend FCF. Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO-adjusted net leverage above 5.0x on a sustained basis. - Material deterioration of competitive position in key markets. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: At end-2018 UPC had a cash balance of EUR13 million. Fitch expects the business to generate slightly negative FCF from 2019-2022, but it has sufficient liquidity provided by the fully undrawn revolving credit facility of EUR990 million due 2021. The company also has well-spread and long-dated debt maturities come due during 2025-2029. VIVAT SCHADEVERZEKERINGEN: Fitch Affirms BB Sub. Debt Rating ------------------------------------------------------------ Fitch Ratings has placed VIVAT Schadeverzekeringen N.V.'s (VIVAT Schade) 'BBB+' Insurer Financial Strength Rating on Rating Watch Positive. Fitch has simultaneously revised the Outlooks on SRLEV N. V.'s IFS Rating and on VIVAT N.V. 's Issuer Default Rating to Stable from Evolving and affirmed all ratings. The rating actions follow the announcement of the conditional agreement reached between VIVAT's shareholder Anbang Insurance Group Co., Ltd. (Anbang), and Athora and NN Group N.V. (NN, IDR A/Stable) for the sale of VIVAT. Athora Holding Ltd., the parent company of Athora Life Re (IFS BBB+/Stable), is to acquire 100% of the shares in VIVAT from Anbang and thereafter VIVAT's non-life activities will be on-sold to NN. The transaction is conditional on advice of the works council, regulatory approval, and approval of the competition authorities. KEY RATING DRIVERS Fitch views that a successful sale could benefit VIVAT Schade based on the strong credit quality of NN, its expected 'Core' strategic status within the NN organisation and potential synergies with NN's existing businesses.The revision of SRLEV's and VIVAT N.V's. rating Outlooks to Stable reflects Fitch's expectation that the acquisition by Athora will be broadly neutral to the ratings, and will be driven by its credit assessment of the Athora group. RATING SENSITIVITIES The successful sale of VIVAT Schade to NN would lead to an upgrade of the former's rating. Following the sale, a change in Athora Life Re's rating would likely lead to a corresponding change of SRLEV N.V.'s and VIVAT N.V.'s ratings. VIVAT N.V. - LT IDR; BBB Affirmed; previously BBB - Senior unsecured; LT BBB- Affirmed; previously BBB- - Subordinated; LT BB Affirmed; previously BB - Junior subordinated; LT BB- Affirmed; previously BB- SRLEV N.V. - Ins Fin Str; BBB+ Affirmed; previously BBB+ VIVAT Schadeverzekeringen N.V. - Ins Fin Str; BBB+ Rating Watch On; previously BBB+ =========== R U S S I A =========== ENEL RUSSIA: Moody's Puts Ba3 CFR on Review for Downgrade --------------------------------------------------------- Moody's Investors Service has placed Enel Russia, PJSC's Ba3 Corporate Family Rating and Ba3-PD Probability of Default Rating on review for downgrade following its announcement to sell its largest generating asset Reftinskaya GRES to the electricity-generating arm of SUEK JSC (Ba2, stable) for RUB21 billion (around $323 million), plus a contingent component of RUB3.0 billion. The transaction is subject to the approval of the Russian Federal Antimonopoly Service and to the shareholders' approval which should be obtained on 22 July 2019. Moody's expects Enel Russia to exclude Reftinskaya GRES from its financials by end-2020 at the latest. The outlook has been changed from stable to ratings under review. RATINGS RATIONALE Enel Russia is at an active stage of investment into wind generation. The company will stop receiving payments under the conventional generation Capacity Delivery Payments (CDA) programme from January 2021, while cash inflows under the renewable wind CDA will become meaningful only from January 2022. Coupled with the material reduction in the EBITDA following the sale, this will result in a weakening of the company's 2021-22 leverage and coverage metrics beyond its current expectations. The materiality of the impact of the transaction on the company's credit metrics will also depend on the use of sale proceeds and other critical inputs, on which the agency expects to get more clarity from the company over the coming months. The 3.8GW Reftinskaya GRES facility, located in the Urals, is the biggest coal-fired power plant in Russia. The disposal is in line with the broader Enel group's strategy of moving away from fossil generation, and will improve the environmental impact of the future entity. However in terms of overall credit quality that may be outweighed by other factors since the sheer scale of the disposal (the plant accounts for around 40% of Enel Russia's generating capacity and more than half of its EBITDA, according to Moody's estimates) will leave Enel Russia as a much smaller entity with a weaker position in the generation market. Moody's aims to resolve the review in the next three months. The review will focus on (1) the post-transaction debt/capital structure, which will be determined by the extent to which the proceeds from sale will be applied to debt rebalancing; (2) the reassessment of the company's residual and evolving business profile; (3) the long-term operational and investment forecast, and (4) the liquidity management and financial policy. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017. COMPANY PROFILE Enel Russia, PJSC operates four thermal power plants: gas-fired 2.5 GW Konakovskaya GRES, 1.5GW Nevinnomysskaya GRES, 1.6 GW Sredneuralskaya GRES and a coal-fired 3.8GW Reftinskaya GRES. The company's total gross installed electrical capacity is 9.4GW and thermal capacity is 2.382 Gcal/h. Enel S.p.A's (Baa2 stable) share in the company's authorised capital is 56.43%, PFR Partners Fund I Limited's share is 19.03%, Prosperity Capital Management Limited's share is 7.68% and other minority shareholders' share is 16.86%. In 2018, the company reported consolidated revenues of RUB73.3 billion (around $1.17 billion) and Moody's adjusted EBITDA of RUB15.3 billion (around $243 million). ========= S P A I N ========= AUTOVIA DE LOS VINEDOS: Moody's Withdraws B1 Rating --------------------------------------------------- Moody's Investors Service has withdrawn the rating and outlook on Autovia de Los Vinedos, S.A. At the time of the withdrawal, the rating on the floating-rate senior secured EIB loan was B1. The outlook was stable. RATINGS RATIONALE Moody's has decided to withdraw the rating for its own business reasons. Auvisa is a special purpose company which in December 2003, entered into a 30-year concession agreement with Junta De Comunidades De Castilla La Mancha (Ba1, stable, Castilla-La Mancha) to build, operate and maintain a 74.5km shadow toll road being the Consuegra to Tomelloso section of the Autovia de los Vinedos motorway linking the cities of Toledo and Tomelloso in Central Spain. BANCO SABADELL: Moody's Rates Junior Senior Unsecured Debt 'Ba3' ---------------------------------------------------------------- Moody's Investors Service assigned a Ba3 rating to the long-term senior non-preferred medium term notes issued in May 2019 by Banco Sabadell, S.A. for an amount of EUR1 billion. The senior non-preferred notes, referred to as "junior senior" unsecured notes by Moody's, were issued under Banco Sabadell's EUR10 billion Euro Medium Term Note Programme. The notes are explicitly designated as senior non-preferred in the documentation. As such the notes rank junior to other senior unsecured obligations, including senior unsecured debt, and senior to subordinated debt in resolution and insolvency. RATINGS RATIONALE The Ba3 rating assigned to the junior senior unsecured debt securities reflects (1) Banco Sabadell's adjusted baseline credit assessment (BCA) of ba2; (2) Moody's Advanced Loss Given Failure (LGF) analysis, which indicates likely high loss severity for these instruments in the event of the bank's failure, leading to a position one notch below the bank's adjusted BCA; and (3) Moody's assumption of a low probability of government support for this new instrument, resulting in no uplift. Banco Sabadell is subject to the EU's Bank Recovery and Resolution Directive (BRRD), which Moody's considers to be an Operational Resolution Regime. Therefore, Moody's applies its Advanced LGF analysis to determine the loss-given-failure of the junior senior notes. For Banco Sabadell, Moody's assumes residual tangible common equity of 3% and losses post-failure of 8% of tangible banking assets, in keeping with Moody's standard assumptions. Taking into consideration the volume of junior senior debt that Moody's expects Banco Sabadell to issue in 2019, and the current subordination in the form of Tier 2, preference shares and residual equity, the LGF analysis indicates likely high loss-given-failure. As a result, the securities are positioned one notch below the adjusted BCA. The issuance of junior senior securities by Banco Sabadell has been made under Spain's Royal Decree-Law 11/2017, which modified the hierarchy of claims in an insolvency by introducing a new type of debt within the senior debt class that ranks junior to other senior debt instruments. To fall into the category of the non-preferred, or "junior senior," debt class, the securities must have an original maturity of one year or more, cannot have derivative features, and the related issuance documents must incorporate a contractual subordination clause. This law facilitates banks' compliance with the European Union's (EU) Minimum Requirement for own funds and Eligible Liabilities (MREL). Given that the very purpose of the junior senior notes is to provide additional loss absorption and improve the ability of authorities to conduct a smooth resolution of troubled banks, government support for these instruments is unlikely in Moody's view and the agency therefore attributes only a low probability to a scenario where the government would support this debt class. As a result there is no further uplift from government support. WHAT COULD CHANGE THE RATING UP/DOWN Moody's advanced LGF analysis indicates that there is currently little sensitivity of these notes' rating to further issuance of junior senior debt or more subordinated instruments such as Tier 2 and/or Additional Tier 1. Banco Sabadell's junior senior debt ratings could be also upgraded or downgraded together with any upgrade or downgrade of the bank's Adjusted BCA. =========================== U N I T E D K I N G D O M =========================== ARCADIA GROUP: U.S. Landlords Oppose Administration Process ----------------------------------------------------------- Jonathan Eley at The Financial Times reports that a group of American property companies has filed a legal challenge to Arcadia's decision to push its US subsidiary into administration, threatening an expensive distraction to Philip Green's plans to put his ailing empire on a firmer financial footing. According to the FT, in papers filed in a New York bankruptcy court, the landlords accuse Arcadia of "engaging in a convoluted scheme to deprive the . . . US landlords of their bargained-for contractual rights by manipulating and exploiting a private, little-used out-of-court process in the UK known as a company voluntary arrangement". Deloitte was appointed as administrators to Arcadia USA, a UK-registered company that operates Topshop stores in the US, on May 22, the FT relates. The administration is separate to the CVAs for the group's UK businesses but is part of the same restructuring plan, designed to reduce overheads and close unprofitable stores, the FT notes. The papers opposing the administration were filed in the US on June 4, two days before first creditors' vote on the CVA in the UK, and were accompanied by a letter requesting that Deloitte consider adjourning that vote, the FT states. The US landlords, led by Vornado, said that as a result their leases "will be eviscerated without any discovery and little due process", the FT relays. Others joining its ex parte motion include Simon Group, Caruso and Canadian real estate group Brookfield, the FT discloses. According to the FT, the landlords said that while they were "frozen out" of the CVA process, they are affected by it because of the interconnected nature of guarantees within Arcadia and because it may result in reduced recoveries for US creditors. It said Arcadia USA had failed to disclose the existence of multi-debtor proceedings in its paperwork or at the hearing to consider an interim approval of the liquidation sales at the US stores, the FT notes. Lawyers for Deloitte said in a letter to the presiding judge that they were "working towards a consensual resolution" of the dispute, the FT recounts. The final hearings in the case have been postponed until July 19, the FT discloses. Arcadia USA operates 11 Topshop stores in the US, including in Miami, Las Vegas, Los Angeles, Houston and Chicago as well as New York. LF WOODFORD: UK Financial Watchdog Opens Probe Into Suspension -------------------------------------------------------------- Kate Beioley at The Financial Times reports that the UK financial watchdog has opened an investigation into the events leading to the shock suspension of Neil Woodford's flagship fund, which trapped EUR3.7 billion of investors' money when it gated on June 3. Writing in response to a letter from Nicky Morgan MP, chair of the influential Treasury select committee, Andrew Bailey, chief executive of the Financial Conduct Authority, announced the investigation and said a "case [could] be made" to explore changes to European fund rules that enabled Mr. Woodford to deal with a 10 per cent cap on unlisted stocks, the FT relates. According to the FT, a spokesperson for Woodford Investment Management said: "We can confirm we have been contacted by the FCA, regarding its investigation relating to the events that led to the suspension of the LF Woodford Equity Income Fund, and will be co-operating fully with its investigation." Mr. Bailey also said on June 18 there were "good arguments for waiving fees during a suspension as a gesture of support to investors", on response to questions from Ms Morgan over the issue, the FT notes. However he said "decisions around fee structures are for the fund manager to take." Ms. Morgan, as cited by the FT, said on June 10: "Investors in the Woodford Fund have been locked out of accessing their cash. Yet it has been reported that Mr. Woodford is taking in nearly GBP100,000 in management fees a day." The regulator also raised the potential of reviewing European fund rules, known as UCITS, which enabled Mr. Woodford to tackle a 10 per cent cap on unlisted investments in his fund by listing three stakes on the Guernsey stock exchange, the FT notes. According to the FT, Mr. Bailey said the International Stock Exchange in Guernsey, TISE, had contacted the FCA on April 15 but said: "Unfortunately, TISE did not make contact with the areas of the FCA that processes and considers these sorts of requests." The letter sets out for the first time the longevity of the regulator's concerns over liquidity issues in Mr. Woodford's Equity Income fund (WEIF), revealing that the regulator had been in touch with Link, the corporate director of the fund, since February last year, the FT states. The FCA said it had held "monthly monitoring discussions with Link in relation to the deteriorating liquidity position within WEIF" between April 2018 and December 2018, the FT relays. It was also in contact with Link over two breaches by the fund of a 10% limit on unlisted securities in February and March last year, the FT notes. Link confirmed the FCA had opened an investigation into its own role in the fund's suspension, the FT relays. MONSOON ACCESSORIZE: To Launch CVA, Landlords Seek Better Terms --------------------------------------------------------------- Mark Kleinman at Sky News reports that the owner of Monsoon Accessorize is facing demands from landlords to alter the terms of a multimillion pound support package to be unveiled by the fashion retailer this week. Sky News has learnt that Peter Simon has been told by the owners of dozens of the company's stores that they want him to provide more than GBP30 million of rescue funding in the form of equity, rather than secured loans. A group of six landlords -- which has grown in the last fortnight from an original quartet including British Land and Hammerson -- have told Mr. Simon that they are less likely to back his proposals for a Company Voluntary Arrangement (CVA) unless he agrees to the change, Sky News relates. According to Sky News, sources said on June 14 that Monsoon Accessorize will launch its CVA today, June 19, with a creditor vote expected in July. Sky News revealed last month that the group of landlords, which have hired PJT Partners to advise them, are asking Mr. Simon to hand them an equity stake in his company in return for their support. One insider, as cited by Sky News, said on June 14 that the terms of the CVA were still under discussion but that the granting of a direct stake in the business to property-owners was "less, rather than more, likely". M&G Investments and Roubaix Group are also working together with the other landlords to seek better terms from Mr. Simon, Sky News discloses. Any equity stake in the company would be distributed among all landlords, not only the six which are negotiating collectively, Sky News states. SHAYLOR GROUP: Cash Flow Pressures Prompt Administration -------------------------------------------------------- Business Sale reports that Shaylor Group, a contractor based in Aldridge, West Midlands, has collapsed into administration due to cash flow pressures after failing to successfully refinance. The company, a family-run business that has worked on projects for companies like Ricoh Arena, Rolls-Royce, and Birmingham Airport, was forced to call in insolvency specialists FRP Advisory to handle the administration process, with partners Raj Mittal -- raj.mittal@frpadvisory.com -- and Tony Barrell -- tony.barrell@frpadvisory.com -- appointed as joint administrators, Business Sale relates. According to Business Sale, in a statement to the public, the administrators said the Group "had experienced severe cash flow pressures in recent weeks following several project delays. "After unsuccessful attempts to raise additional funding, the directors took the difficult decision to place the company into administration. The business ceased to trade on June 14, 2019." Established in 1968, and headquartered in Walsall with an office in London as well, Shaylor Group reported a turnover of GBP152.7 million in the year ending September 2018 -- an increase from the GBP144.3 million in the 12 months prior, Business Sale discloses. However, reports also revealed that pre-tax profits fell from GBP4.8 million to GBP2.4 million in the same period of time, Business Sale notes. In light of the insolvency, the administrators are engaging with the company's clients to discuss the transfer of sites, and how to support the employees through the administration period, Business Sale 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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