/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190717.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, July 17, 2019, Vol. 20, No. 142 Headlines F R A N C E ESTABLISSEMENTS MAUREL: Egan-Jones Withdraws B+ Sr. Unsec. Ratings RALLYE SA: Shares Drop Ff. Complex Finance Deal w/ Banks Disclosure G R E E C E NAT'L BANK OF GREECE: Fitch Assigns CCC-(EXP) Rating to 2029 Notes I R E L A N D BLACKROCK EUROPEAN II: Moody's Rates EUR25MM Class E Notes Ba2(sf) SYON SECURITIES 2019: Fitch Assigns B(EXP) Rating to Class D Debt I T A L Y ALITALIA SPA: Atlantia to Join Group Aiming to Revive Airline MONTE DEI PASCHI: Fitch Affirms B LongTerm IDR, Outlook Stable L U X E M B O U R G ABLV BANK: January 10, 2020 Claims Submission Deadline Set M A L T A FIMBANK PLC: Fitch Downgrades LT IDR to BB-, Outlook Stable N E T H E R L A N D S GREENKO DUTCH: Moody's Ups Sr. Unsec. Notes to Ba1, Outlook Stable TRIVIUM PACKAGING: Moody's Assigns B3 CFR, Outlook Stable R U S S I A OTKRITIE: Central Bank Sets Aside Extra Funds for Recapitalization S P A I N ADVEO GROUP: Files for Opening of Liquidation Phase INSTITUT UNIV DE CIENCIA: Files for Insolvency Proceedings MADRID RMBS I: Fitch Raises Class C Debt Rating to B+sf U N I T E D K I N G D O M ARCADIA GROUP: Vornado Challenges Two of Seven Planned CVAs ASPIN GROUP: Enters Administration Year After Sandton Takeover VICTORIA PLC: Fitch Publishes BB- LT IDR, Outlook Stable - - - - - =========== F R A N C E =========== ESTABLISSEMENTS MAUREL: Egan-Jones Withdraws B+ Sr. Unsec. Ratings ------------------------------------------------------------------ Egan-Jones Ratings Company, on July 8, 2019, withdrew its 'B+' foreign currency and local currency senior unsecured ratings on debt issued by Etablissements Maurel et Prom. Etablissements Maurel & Prom S.A. was founded in 1813 and is headquartered in Paris, France. As of February 9, 2017, the company operates as a subsidiary of PT Pertamina Internasional Eksplorasi dan Produksi. RALLYE SA: Shares Drop Ff. Complex Finance Deal w/ Banks Disclosure ------------------------------------------------------------------- Harriet Agnew and Robert Smith at The Financial Times report that shares in Rallye, the parent company of French retailer Casino, fell almost 5% on Monday, July 15, 2019, following the disclosure of a series of complex financing arrangements in the empire built by controlling shareholder Jean-Charles Naouri. Casino's three parent companies, which also include Foncière Euris and Finatis, late on July 12 said that they had entered into a number of structured finance agreements with banks, the FT relates. The most significant involved Rallye, which had pledged almost 9% of Casino stock as collateral in EUR231 million worth of structured finance agreements in the form of prepaid forward and equity swaps, the FT states. Casino has been a target of short sellers because it has had to service the debts of the complex layer of holding companies assembled by Mr. Naouri, the FT notes. Last week, a French commercial court ruled that derivatives contracts lay beyond the reach of the safeguard, which would allow counterparties to Casino's holding companies to call in collateral if they choose, the FT recounts. The court ruled in favor of Societe Generale which had sought to call in collateral on a EUR25 million derivatives contract, the FT discloses. Following the court ruling, France's top financial regulator, the Financial Markets Regulator (AMF), asked Casino's holding companies to clarify any other structured finance agreements they have as these are also likely to lie outside the safeguard procedure, the FT relays, citing a person familiar with the matter. The disclosure of these structured finance agreements reignited criticism of a lack of transparency, the FT states. In a statement on July 12, Rallye acknowledged that the SocGen ruling raised the risk that other financial institutions could seek to call in collateral, the FT relates. According to the FT, the company said on July 12 that none of the financial institutions involved in the derivatives contracts had sought to call in their collateral. About Rallye SA France-based Rallye S.A., together with its subsidiaries, engages in the food, non-food e-commerce, and sporting goods retailing activities in France and internationally. It operates hypermarkets, supermarkets, and discount stores. The company conducts its retailing activities in France primarily under the Casino, Monoprix, Franprix-Leader Price, and Vindemia banners; food retail activities in Latin America primarily under the Exito, Disco, Devoto, and Libertad banners, as well as GPA food banner; and e-commerce comprising Cdiscount and the Cnova N.V. holding company businesses. The Company was placed under creditors' protection by a Paris court on May 23, 2019. At the time of its collapse, the Company was said to be saddled with a EUR2.9 billion debt. =========== G R E E C E =========== NAT'L BANK OF GREECE: Fitch Assigns CCC-(EXP) Rating to 2029 Notes ------------------------------------------------------------------ Fitch Ratings has assigned National Bank of Greece, S.A.'s (NBG) subordinated notes due 2029 an expected rating of 'CCC-(EXP)'/'RR6'. The assignment of the final rating is contingent on the receipt of final documents conforming to the information already received. KEY RATING DRIVERS The 'CCC-'/'RR6' long-term rating on NBG's subordinated Tier 2 notes is notched down twice from the bank's Viability Rating (VR) of 'ccc+'. The 'RR6' Recovery Rating reflects poor recovery prospects. Fitch applies zero notches for additional non-performance risk relative to the VR as the notes' loss-absorption is triggered only at the point of non-viability, and two notches for loss severity. The latter reflects its view that the layer of subordinated debt is thin relative to the size of the bank's potential problem (reflected in the very high volume of unreserved non-performing exposures (NPEs)). RATING SENSITIVITIES NBG's subordinated debt rating is sensitive to changes in the bank's VR. It may also be upgraded if unreserved NPEs become less significant relative to the layer of subordinated debt, either through an increase in the amount of equity or through a significant reduction of unreserved NPEs. ============= I R E L A N D ============= BLACKROCK EUROPEAN II: Moody's Rates EUR25MM Class E Notes Ba2(sf) ------------------------------------------------------------------ Moody's Investors Service announced that it has assigned the following definitive ratings to refinancing notes issued by BlackRock European CLO II Designated Activity Company: EUR244,000,000 Class A Senior Secured Floating Rate Notes due 2030, Assigned Aaa (sf) EUR48,000,000 Class B Senior Secured Floating Rate Notes due 2030, Assigned Aa2 (sf) EUR23,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2030, Assigned A2 (sf) EUR20,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2030, Assigned Baa2 (sf) EUR25,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2030, Assigned Ba2 (sf) At the same time, Moody's affirmed the rating of the outstanding notes which have not been refinanced: EUR12,000,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed B2 (sf); previously on Dec 15, 2016 Definitive Rating Assigned B2 (sf) RATINGS RATIONALE The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in its methodology. The Issuer issued 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 and Class E Notes due 2030, previously issued on December 15, 2016. On the refinancing date, the Issuer has used the proceeds from the issuance of the refinancing notes to redeem in full the Original Notes. On the Original Closing Date, the Issuer also issued EUR 12.00 million of Class F Notes and EUR 43.80 million of subordinated notes, which will remain outstanding. The terms and conditions of the Class F Notes and the subordinated notes have been amended in accordance with the refinancing notes' conditions. As part of this refinancing, the Issuer will decrease the spreads paid on the affected classes of notes and will extend the weighted average life covenant by 1.25 years. In addition, the Issuer will amend the base matrix and modifiers that Moody' 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 already fully ramped as of the refinancing date. BlackRock Investment Management (UK) Limited 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 remaining one and a half year 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. 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 400,000,000 Diversity Score: 50 Weighted Average Rating Factor (WARF): 2964 Weighted Average Spread (WAS): 3.70% Weighted Average Coupon (WAC): 5.25% Weighted Average Recovery Rate (WARR): 43.5% Weighted Average Life (WAL): 6.75 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 to A3 cannot exceed 10% and obligors cannot be domiciled in countries with LCC below A3. SYON SECURITIES 2019: Fitch Assigns B(EXP) Rating to Class D Debt ----------------------------------------------------------------- Fitch Ratings has assigned Syon Securities 2019 DAC's notes expected ratings as follows: Class A: 'A-(EXP)sf'; Outlook Stable Class B: 'BBB-(EXP)sf'; Outlook Stable Class C: 'BB-(EXP)sf'; Outlook Stable Class D: 'B(EXP)sf'; Outlook Stable Class Z: 'NR(EXP)sf' Unprotected tranche: 'NR(EXP)sf' The assignment of final ratings is contingent on the final documents conforming to information already received. This transaction is a synthetic securitisation of owner-occupied (OO) residential mortgage loans originated by Bank of Scotland plc (BoS) under the Halifax brand and secured over properties located in England, Wales and Scotland, and which were advanced between October 2018 and June 2019. The transaction is designed for risk transfer purposes and includes loans selected with loan-to-value (LTV) higher than 90% and a high proportion of first time buyers (FTB; 78.6%). KEY RATING DRIVERS High LTV Lending The pool consists of loans originated with an LTV above 90%. As a result the weighted average (WA) current LTV of the pool is higher than usual for Fitch-rated RMBS at 94%. Fitch's WA sustainable LTV (sLTV) for this pool is also high at 135.3%, resulting in a higher foreclosure frequency (FF) and lower recovery rate for this pool than other transactions with lower LTVs. High Concentration of FTBs FTBs make up 78.6% of borrowers in the pool, a high concentration compared with other RMBS transactions'. Fitch views FTBs as being more likely to suffer foreclosure than other borrowers and, due to the high prevalence of this category in the pool, deems the concentration analytically significant. In a variation to its criteria, Fitch has applied an upward adjustment of 1.3x to FF for each loan where the borrower is an FTB. Self-Employed Borrowers BoS does not capture the employment type in their systems, as noted in a previous transaction from the same originator (Permanent Master Trust, Elland RMBS 2018). Fitch has assumed that 30% of the borrowers are self-employed, in line with the approach adopted on previous BoS transactions. Fitch believes self-employed borrowers have a greater probability of default than full-time employees due to higher income volatility. Counterparty Exposure The transaction is exposed to BoS as account bank provider, holding all funds to redeem the notes, and as counterparty to the financial guarantee. On default of BoS, the transaction would end due to the termination of the guarantee with the potential loss of redemption funds. As a result Fitch has capped the rating of the notes at that of BoS. Moreover, compliance with the transaction's eligibility criteria and loss determination prior to the notes' maturity in January 2029 relies on BOS's servicing standards as no independent agent is involved in this process. VARIATIONS FROM CRITERIA Fitch's EMEA RMBS rating criteria state that a cashflow model will not be run for assigning ratings to synthetic transactions. In this case Fitch has run a cashflow model to assess the impact of varying interest rates stresses and the pro-rata distribution of principal to the notes. Further, the adjustment applied to borrowers who are FTBs as described above represent a variation from Fitch's published criteria. ========= I T A L Y ========= ALITALIA SPA: Atlantia to Join Group Aiming to Revive Airline ------------------------------------------------------------- Rachel Sanderson at The Financial Times reports that the Benetton's toll road operator Atlantia is to join a public-private group aiming to revive Italy's long lossmaking airline Alitalia. According to the FT, in a statement, the board of directors of Italian state rail group of Ferrovie dello Stato Italiane said it "had identified Atlantia as the partner to work alongside Delta Air Lines and the Ministry of Economy and Finance on the Alitalia operation". Atlantia intends to inject about EUR300 million to acquire a stake of about 30% in a new holding company led by Ferrovie and the Italian finance ministry that would control Alitalia, the FT relays, citing a person familiar with the deliberations. The plan also would be the third direct injection by Atlantia into Alitalia, the FT notes. About Alitalia With headquarters in Fiumicino, Rome, Italy, Alitalia is the flag carrier of Italy. Its main hub is Leonardo da Vinci-Fiumicino Airport, Rome. On May 2, 2017, the airline went into administration. As previously reported by the Troubled Company Reporter - Europe, state-appointed administrators have been running Alitalia since 2017, after former shareholder Etihad Airways pulled the plug on funding and workers rejected a EUR2 billion recapitalization plan tied to 1,600 job cuts from a workforce of 12,500, Bloomberg News cited. MONTE DEI PASCHI: Fitch Affirms B LongTerm IDR, Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed Banca Monte dei Paschi di Siena SpA's Long-Term Issuer Default Rating at 'B' and Viability Rating at 'b'. The Outlook on the Long-Term IDR is Stable. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT The ratings reflect MPS's progress in reducing impaired loans and capital encumbrance by unreserved impaired loans mostly through the disposals of non-performing loans, which Fitch expects to continue. The ratings also reflect its view that funding and liquidity are still heavily reliant on state-guaranteed and central bank funding with reasonably short maturities, and that the bank's market access remains uncertain and vulnerable to changes in market sentiment. Fitch believes MPS's ability to generate value from core banking is still limited and that it will take time for the bank to regain competitiveness and restore its profitability to more acceptable and sustainable levels. MPS's gross (Stage 3) impaired loans ratio was reduced to about 18% at end-2018 from 22% at end-2017 (the latter calculated excluding EUR24.1 billion of securitised doubtful loans formally deconsolidated in 1H18), following the sale of several portfolios of impaired loans and tight control over new impaired loans formation. Fitch estimates that the ratio could fall to about 15% by end-2019 if the bank completes all its disposals initiated at end-1Q19. At this level, MPS's gross impaired loans ratio would still be higher than the domestic industry average (about 10% at end-1Q19) and weak by international standards, but it would be closer to that of higher-rated domestic peers. Management is considering additional opportunities to accelerate balance sheet de-risking. Even if these do not materialise, Fitch expects asset quality to improve gradually on tightened underwriting standards, stronger risk control and continuous disposals. Despite the improvement MPS's capitalisation is still not commensurate with risks, in its view. At end-2018 unreserved impaired loans accounted for just below 100% of Fitch Core Capital (FCC) although Fitch recognises that capital encumbrance should improve to more acceptable levels as planned impaired loan disposals continue. MPS's capitalisation is also exposed to sovereign spread risk from the bank's large holding of Italian government bonds, which at end-1Q19 accounted for about 2.6x FCC. Contingent risk also stems from sizable unreserved legal claims. MPS's CET1 ratio of 13.3% and FCC ratio of 11.6% at end-1Q19 were acceptable. The bank has moderate buffers (about 3.7pp) over its total Supervisory Review and Evaluation Process (SREP) capital requirement but modest headroom (about 1.2pp) over its overall SREP capital requirement. The latter is tighter than at most domestic banks and limits the bank's ability to absorb potential losses and/or increase business volumes materially. In its view operating profitability remains weak due to limited revenue generation from core businesses, high restructuring costs and the need to improve coverage on impaired loans ahead of their disposal. Fitch expects MPS's profitability to gradually benefit from normalising loan impairment charges, cost-cutting initiatives and commercial activities aimed at growing business volumes. However, Fitch believes that the ability of MPS to achieve its profitability targets remains highly correlated with economic and interest rate cycles. State-guaranteed notes and central bank facilities accounted for about a quarter of MPS's total funding at end-1Q19. In Fitch's view, these instruments underpin the bank's funding and liquidity and indirectly provide stability to the bank's deposit base, which has grown by over 30% since end-2016. However, deposit inflows were mostly from corporate clients, which Fitch views as more opportunistic and confidence-sensitive than retail. Most of the state-guaranteed notes and central bank facilities will expire in the next 18 months. However, the former is mostly held by the bank, while the latter may be refinanced through the third round of Targeted Longer-Term Refinancing Operations (TLTRO-III) by the European Central Bank. Net of these, the refinancing requirement is a more manageable EUR3.2 billion. In 2019 MPS has issued EUR1 billion of covered bonds and EUR500 million of senior unsecured preferred notes, but Fitch believes that MPS's ability to access debt markets remains vulnerable to the risk of reduced investor appetite or challenging market conditions. Additional liquidity may be sourced through repos, as the bank has over EUR22 billion of eligible collateral. The Stable Outlook on MPS's ratings is based on its expectations that the bank continues to implement its restructuring and that the operating environment does not deteriorate sharply. MPS's senior unsecured debt is rated in line with the bank's IDRs. Fitch assigns a Recovery Rating of 'RR4' to the debt rating to reflect average recovery prospects for senior bondholders in case of a non-viability event. This is given current buffers of equally ranking senior liabilities (including state-guaranteed notes) and more junior debt available to absorb potential losses as well as the bank's diminishing risks. SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF) The SR and SRF reflect Fitch's view that although external support is possible it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) for eurozone banks provide a framework for the resolution of banks that requires senior creditors to participate in losses, if necessary, instead of or ahead of a bank receiving sovereign support. DEPOSIT RATING MPS's Long-Term Deposit Rating is in line with the bank's Long-Term IDR. Fitch does not grant any Deposit Rating uplift because in its opinion, current debt buffers might not sustainable over time given significant reliance on senior state-guaranteed debt with reasonably short maturities, the bank's weak standalone credit profile and uncertain access to the unsecured debt market at times of heightened market volatility. SENIOR STATE-GUARANTEED DEBT The notes' long-term rating is based on the Republic of Italy's (BBB/Negative) direct, unconditional and irrevocable guarantees for the issues, which cover payments of the notes' principal and interest. Italy's guarantees were issued by the Ministry of Economy and Finance under Law Decree n. 237 dated December 23, 2016, which was subsequently converted into Law 15/2017. The rating reflects Fitch's expectation that Italy will honour the guarantees provided to the noteholders in a full and timely manner. The state guarantees rank pari passu with Italy's other unsecured and unguaranteed senior obligations. SUBORDINATED DEBT The notes are rated two notches below MPS's 'b' VR to reflect poor recovery prospects for the notes in case of a non-viability event. Fitch believes that should the bank fail MPS is at risk of being placed into outright resolution and that an intermediate solution prior to resolution (such as a debt restructuring with distressed debt exchange or a second precautionary recapitalisation similar to the one received in August 2017) is less likely. Its view is supported by the thin layers of junior non-equity capital currently present at the bank (MPS has not yet rebuilt its subordinated debt buffers) relative to the risks faced, specifically the still high non-performing loan levels. The prospects of poor recoveries for subordinated bondholders in a resolution are reflected in the 'RR6' Recovery Rating on the notes. Fitch does not notch down the notes for non-performance risk as no coupon flexibility is included in their terms. =================== L U X E M B O U R G =================== ABLV BANK: January 10, 2020 Claims Submission Deadline Set ---------------------------------------------------------- On July 2, 2019, the District Court of Luxembourg, sixth commercial division, pronounced the dissolution and ordered the liquidation of the limited liability company ABLV Bank Luxembourg, S.A., established and having its registered office at L-2449 Luxembourg, 26A, boulevard Royal, entered in the Luxembourg Trade and Companies Register under no. B162048, pursuant to Article 129(1) point 1 of the amended law of December 18, 2015, on resolution, reorganization and liquidation measures concerning credit institutions and certain investment firms and on deposit insurance and investor compensation schemes. The same judgment appointed Nadine Walch, Vice-President of the Luxembourg District Court, as judge supervising the liquidation, and Alain Rukavina, attorney-at-law, domiciled in Luxembourg, and Deloitte Tax & Consulting Sarl, established in Luxembourg, entered in the Luxembourg Trade and Companies Register under no. B165178, represented by Eric Collard, domiciled in Luxembourg, as judicial liquidators. Creditors are ordered to declare their claims to the clerk's office of the Luxembourg Commercial Court before 5:00 p.m. (CET) on January 10, 2020, under penalty of forfeiture. No application may be made by the party or by a third party to set aside the judgment pronouncing the dissolution and ordering the liquidation of the company. It is provisionally enforceable, with immediate effect, before registration and without security, notwithstanding any appeal. The CSSF or the public prosecutor and the institution may lodge an appeal by way of a declaration to the clerk's office of the Luxembourg District Court. An appeal must be filed within fifteen days of the notification of the judgment by the clerk's office of the Luxembourg District Court. Further information, in particular regarding the formalities relating to declaration of claims, can be obtained online at: www.ablvbankluxembourginjudicialliquidation.lu ========= M A L T A ========= FIMBANK PLC: Fitch Downgrades LT IDR to BB-, Outlook Stable ----------------------------------------------------------- Fitch Ratings downgraded Malta-based Fimbank Plc's (FIM) Long-Term Issuer Default Rating to 'BB-' from 'BB'. The Outlook is Stable. FIM's Long-Term IDR has been downgraded to the level of the bank's Viability Rating (VR), which has been affirmed at 'bb-', and reflects its view that support, in case of need, from Kuwait-based Burgan Bank K.P.S.C. (A+/Stable/bb) cannot be relied upon following its reduced ownership stake to 8.5% at end-4M19 from 19.7% at end-2017. Support from other shareholders, although possible, cannot be reliably assessed by Fitch. FIM's IDRs are now driven by the bank's standalone credit profile, as reflected by its VR, following the downgrade of its Support Rating. The VR reflects FIM's weak asset quality metrics, modest, albeit improving, profitability and niche franchise. However, the VR also reflects management's trade finance expertise, adequate capital buffers and reasonable liquidity. KEY RATING DRIVERS FIM's IDRS AND VR FIM's 'bb-' VR reflects the bank's specialist trade finance focus and expertise, with business generated in and reliant on a number of emerging markets. The bank's company profile is underpinned by an established trade finance franchise and improving business model. The rating also recognises FIM's experienced management, reasonable strategy and strengthened capitalisation. The latter provides a buffer against FIM's deteriorated asset quality, which is a rating weakness. Asset quality deteriorated in 2018, despite expectations for this to improve. Fitch calculates FIM's non-performing assets (NPA) ratio (including on-and off-balance sheet credit exposures) to have increased to 8.7% at end-2018 from 5.1% at end-2017. NPAs increased to USD108 million at end-2018 from USD61 million at end-2017 and were primarily due to a couple of large-ticket impairments in commodity trade financing. In addition, FIM's restructured loans amounted to 3.3% of gross loans at end-2018, which increases risks, although this was a lower 2% relative to total credit exposure. Fitch believes that the risk of further large impairment losses is moderate given management's efforts to clean up the books since 2015, but these cannot be ruled out given FIM's volatile target customer segments. The recovery of existing NPAs is likely to be slow, and they will continue to weigh on its assessment of FIM's asset quality. Loan loss allowances covered 64% of total NPAs at end-2018, which is relatively low compared with Fitch-rated trade finance bank peers. FIM's operating profit/risk-weighted assets ratio remained flat at 1% in 2018, in contrast to expectations for it to trend upwards. This was primarily due to increased loan impairment charges. FIM's net income increase by about 30% to USD10 million in 2018, in absolute terms, but remains low relative to average equity, although the latter is inflated by the significant capital increase in 2018. Improving top and bottom lines were mainly due to a large provision reversal at a subsidiary (London Forfaiting Company) amid ongoing recovery efforts, higher volumes and improved margins. Progress with improving the bank's overall revenue generation appears to be ongoing but slow. Fitch does not expect profitability to materially improve over the rating horizon as loan impairment charges are likely to stay elevated, given continued asset quality issues and low reserve coverage. FIM's capital ratios improved in 2018 following a USD105million rights issue. The bank's Fitch Core Capital (FCC)/risk-weighted assets (RWA) ratio improved significantly to 17.2% at end-2018 from 13.2% at end-2017. With this increase, Fitch believes that FIM is adequately capitalised, with its metrics more in line with higher-rated trade finance peers. However, FIM's concentrated credit exposures and its small size expose the bank to event risk. Pre-impairment operating profit provides an additional moderate buffer to absorb unexpected credit losses. FIM is primarily funded by customer deposits (65% of non-equity funding at end-2018), of which a large part is sourced in other EU countries via third-party internet platforms. Fitch believes these deposits, which are mostly from retail depositors, cannot be considered core funding given they are price-sensitive and potentially less stable (87% of customer deposits were non-domestic at end-2018). This is mitigated by the generally short-term nature of FIM's balance sheet, reflecting its trade finance focus. The loans/deposit ratio remained broadly flat at manageable levels (70% at end-2018). FIM's liquidity coverage ratio was 151% at end-2018. SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF) The downgrade of FIM's SR to '5' from '3' primarily reflects Burgan Bank's reduced ownership of FIM. Although support from Burgan or FIM's other shareholders, including the ultimate shareholder Kuwait Projects Company (KIPCO, unrated), is possible, it cannot be relied upon, in its view. In case of Burgan, this is due to its small shareholding in the bank, limited synergies with FIM, and potential capital and regulatory constraints in providing support. In case of KIPCO, support cannot be reliably assessed. The '5' SR and 'No Floor' SRF also reflect Fitch's view that support from the Maltese authorities cannot be relied upon, given that Malta has adopted resolution legislation that requires senior creditors to participate in losses and also because of FIM's limited systemic importance. RATING SENSITIVITIES IDRS AND VR FIM's VR, and therefore IDRs, could be downgraded if there was a further marked weakening in asset quality or core profitability that put pressure on capital ratios and the bank's business model. Upside to FIM's VR could come from a strong and sustained improvement in core profitability and an evidence of asset quality improvement. SR AND SRF FIM's SR is sensitive to changes in Fitch's view on the propensity and ability of the bank's shareholders to provide timely support to the bank. The SR could be upgraded if Fitch believed that support from its owners became more likely for example, if Burgan acquired a majority share in the bank or if FIM evolved into a more strategic part of the group. Upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support FIM, which is highly unlikely in its view. The rating actions are as follows: Long-Term IDR downgraded to 'BB-' from 'BB'; Outlook Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'bb-' Support Rating downgraded to '5' from '3' Support Rating Floor: assigned at 'No Floor' ===================== N E T H E R L A N D S ===================== GREENKO DUTCH: Moody's Ups Sr. Unsec. Notes to Ba1, Outlook Stable ------------------------------------------------------------------ Moody's Investors Service has upgraded the senior unsecured ratings assigned to Greenko Dutch B.V.'s backed senior unsecured USD notes to Ba1 from Ba2. GDBV's notes are unconditionally and irrevocably guaranteed by its holding company, Greenko Energy Holdings. At the same time, Moody's has assigned a Ba1 rating to the proposed backed senior unsecured USD notes of Greenko Solar (Mauritius) Limited. The proposed notes are also unconditionally and irrevocably guaranteed by Greenko Solar's holding company, GEH. The outlook for the bond ratings of both Greenko Solar (Mauritius) Limited and Greenko Dutch B.V. is stable. RATINGS RATIONALE GEH's obligations under the guarantees will rank at least pari passu with all of its other present and future unsubordinated and unsecured obligations. As such, the ratings for the notes, issued and to be issued by GDBV and Greenko Solar respectively, are in line with GEH's credit profile, which is consistent in turn with a Ba1 level. "The upgrade of GDBV's ratings reflects GEH's proven execution track record and operating scale; both factors of which have been established by the holding company over time," says Ray Tay, a Moody's Senior Vice President. GEH has grown its operational renewable energy portfolio to 4 GW as of March 31, 2019, from 1.9 GW as of March 31, 2017. The GEH portfolio is also diverse, with operating assets across wind, solar, hydro and biomass technologies in 14 states in India. This diversification helps mitigate the risk of its exposure to seasonal variations in the availability of renewable resources and strengthens GEH's expertise in an economy moving towards decarbonisation. While GEH has announced plans for the construction of two integrated renewable power storage projects with a total capacity of 2.4 GW, Moody's expects the execution risk to be manageable, because of GEH's current operating scale and track record in successfully commissioning projects within scheduled timeframes. In addition, Moody's says that GEH's shareholders will likely actively manage material execution risk, should such risk arise. The credit quality of GEH incorporates two notches of uplift from shareholders, given the very strong credit quality of and strategic oversight by the majority shareholder, GIC Private Limited, a sovereign wealth fund of the Government of Singapore (Aaa stable). GIC currently owns 64.9% of GEH and has demonstrated its commitment to the company by infusing substantial amounts of equity at the holding company level to help grow GEH, while maintaining financial discipline and enhancing governance and risk management. GEH's shareholders have injected more than $1.4 billion over the past four years and further committed to inject an additional $824 million into the company— including the latest equity injection announced on July 11, 2019 — to help finance the development and construction of its renewable energy portfolio. "We expect that GIC will provide support to the Greenko group in case of need, in recognition of the unique importance of such an investment," adds Tay. "The control exercised by the majority shareholder, with a strong credit profile, enhances the credit quality of GEH, and this situation flows through to the note issuers via GEH's guarantees." However, the ratings are constrained by: (1) GEH's high financial leverage; and (2) the weak credit quality of the offtakers. A material deterioration in GEH's credit profile would impact the rating of the USD notes. The issuers of the notes are incentivized to ensure sufficient hedging is in place, partly because GEH is liable for any shortfall amounts due to the guarantees, which are denominated in USD. To mitigate currency risks — arising from the absence of USD-based revenues to service the proposed USD notes — Greenko Solar will be undertaking a hedging program to manage USD/INR exchange rate movements by implementing hedges for 100% of the interest and principal. GDBV already has a hedging program in place for the existing notes. GDBV implemented a hedging program to manage USD/INR exchange rate movements by implementing call-spread hedges for the principal, and 100% of the interest. The upper strike rates for the call-spread hedges is INR82 and INR87 per USD, for the 5-year and 7-year bonds, respectively. GDBV has the ability to widen the call-spread upper strike rate if required. Its view of GEH's credit quality does not factor in any notching for structural subordination because GEH is owned or controlled by stronger entities and benefit from its shareholders' expected support in a distress scenario. The stable ratings outlook reflects Moody's expectation regarding GEH's credit quality, underpinned by stable cash flows from long-term power purchase agreements and continued support from shareholders. The stable outlook also recognizes GEH's ability to manage ongoing execution risks. Upward momentum in the notes' ratings is unlikely over the next 12-18 months, based on GEH's business profile and financial strategy, and the credit quality of the offtakers. Nonetheless, Moody's could upgrade the ratings over time, if the credit quality of GEH improves such that the ratio of its funds from operations (FFO) to debt and FFO interest coverage are above 12% and 2.1x, respectively, on a sustained basis. The ratings could come under downward pressure if: (1) GEH's credit profile deteriorates on a sustained basis, potentially due to weaker operational performance or a delay in the commissioning of new projects; (2) the offtakers' credit quality weakens materially, which could manifest via a substantial increase in receivables; and/or, (3) support from GEH's shareholders weakens, as reflected by a meaningful decrease in GIC ownership or an increase in debt leverage without new equity capital. The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017. Greenko Energy Holdings, a Mauritius-based company focused on renewable energy generation in India, is a major energy company with renewable energy capacity totaling 4 gigawatt (GW) as at March 31, 2019, including 2,199 MW of wind, 380 MW of hydro, 1,358 MW of solar, and 78 MW of biomass capacity. Holders of the USD notes, issued by Greenko Dutch B.V. and to be issued by Greenko Solar (Mauritius) Limited, benefit from an unconditional and irrevocable guarantee from Greenko Energy Holdings and a share pledge over the respective issuer; thereby establishing a linkage between the credit profiles of the issuers, their respective restricted groups and Greenko Energy Holdings. Greenko Solar (Mauritius) Limited is a special purpose vehicle which will use the proceeds from the USD notes to subscribe to senior secured INR debt to be issued by each of the other Restricted Subsidiaries in the new restricted group (NRG2019), which are wholly-owned/majority-owned by Greenko Energy Holdings. Greenko Solar is also part of NRG2019. The proceeds from the INR debt to be issued by NRG2019 will be mainly used to refinance the existing project-level debt of the restricted subsidiaries in NRG2019, including project finance debt and shareholder loans associated with the operating projects that the parent transfers to NRG2019. NRG2019 will also use the proceeds to repay debt in relation to Greenko Power Projects (Mauritius) Limited, a non-NRG2019 entity. Greenko Dutch B.V. is the issuer for the USD350 million senior notes due 2022 and the USD650 million senior notes due 2024. Proceeds from the USD notes were used to subscribe to INR non-convertible debentures issued by each of the other Restricted Subsidiaries in the GDBV restricted group, which are wholly-owned/majority-owned by Greenko Energy Holdings. TRIVIUM PACKAGING: Moody's Assigns B3 CFR, Outlook Stable --------------------------------------------------------- Moody's Investors Service assigned a first time B3 corporate family rating and a B3-PD probability of default rating to the newly incorporated metal packaging manufacturer Trivium Packaging B.V. Trivium is the result of the business combination of the Food and Specialty division of ARD Securities Finance SARL (B2 stable) with the metal packaging manufacturer Exal Corporateion. Concurrently, Moody's has assigned a first-time B2 instrument rating to the $2,150 million equivalent fixed and floating charge senior secured notes due 2026 and a first-time Caa2 rating to the senior unsecured notes due 2027, both to be issued by Trivium sPackaging Finance B.V. The outlook on all ratings is stable. Proceeds from the notes, together with $935 million of shareholders equity, will be used to finance the acquisition of F&S, refinance the existing debt at Exal and pay for the transaction costs as well as to provide a $48 million cash balance. At completion, the capital structure will also include a $250 million committed asset based lending (ABL) facility, expected to be undrawn at close. The transaction, which is subject to regulatory approvals, is expected to complete in Q4 2019. The rating action takes into account the following factors: -- The high opening Moody's-adjusted leverage with no meaningful deleveraging expected in the next 12 to 18 months -- Execution risk related to the separation of F&S from Ardagh and the business combination with Exal while pursuing a growth strategy -- Trivium's leading positions in certain sub segments of the non-beverage can metal packaging industry with a broad and well invested geographic footprint -- Long term customer relationships and pass through clauses in the majority of contracts which partly mitigates a degree of client concentration and raw material price inflation The list of the newly assigned ratings can be found at the end of this press release. RATINGS RATIONALE Moody's views Trivium as solidly positioned in the B3 category, reflecting the size of the company (approximately $2.7 billion of revenue and $450 million of EBITDA as of March 2019) in the relatively consolidated and stable $55 billion industry for non beverage can metal packaging with strong market shares, being number one or two in substantially all sub segments of this industry in most geographies where it operates. Trivium also benefits from a broad geographic and well invested footprint with 57 plants in 21 countries, some of them conveniently located on-site or near the site of the customers' filling locations, and a development centre in France. The B3 rating is primarily constrained by high Moody's-adjusted opening leverage of around 7.2x, based on last twelve months ending March 2019, and pro forma for this transaction, and the rating agency's view that the deleveraging remains contingent on the ability of the management to execute both on the business combination and the growth strategy in a low growth and competitive trading environment. Moody's expects that deleveraging from the current level will be gradual, coming from the company's ability to grow EBITDA by focusing on certain niche segments (pet food, seafood, nutrition and aluminum aerosol containers in North America and South America) and by generating operating efficiencies from the combination of F&S and Exal. However, the integration of the two companies and the expected synergies could take time to materialise. There is also a degree of customer overlap with some contracts having change of control clauses, although its rating factors in a gradual growth in earnings. More positively, Moody's notes that the two entities are complementary from a geographic and product standpoint. Trivium, as a supplier of infinitely-recyclable metal packaging solutions, serves a broad range of end use markets including food (49% of the combined revenue), personal care, which includes aerosols containers (19%), seafood (14%), nutrition (10%) and other such as pet food and homecare. While most of these end markets are viewed as resilient, they are expected to grow by less than 1% in the future. In addition, Trivium is mainly present in mature regions such as Europe and North America, with the faster growing but more volatile Latin American markets representing only 6% of the combined revenue. Most of Trivium's products is highly commoditised, and compete with other types of packaging made from plastic, carton and composites which can be subject to pricing pressure from raw material prices and seasonality, particularly for food cans. Pricing power is also limited due to the relatively concentrated customer base, which has exhibited consolidation trends historically. Trivium's ten largest customers accounted for approximately 39% of total revenues in 2018. This is partly mitigated by the length of the average relationship being 15 years with high retention rates and by the fact that approximately 60% of 2018 revenue were under multiyear supply agreements of varying terms between two and ten years, with the remaining revenues generally under one-year agreements. Trivium remains exposed to fluctuations in raw material (aluminum and steel primarily) and input prices as well as currency fluctuations. Moody's understands that majority of Trivium's revenues are backed by contracts with pass-through provisions. LIQUIDITY PROFILE Moody's views Trivium's liquidity as adequate, and is expected to be supported by $48 million of cash on balance sheet at close and an undrawn 5 year $250 million ABL facility. These sources are considered sufficient to cover seasonal fluctuations in working capital, and increasing capital expenditures in 2020 in pursuit of projects in faster growing areas such as nutrition and aluminium aerosol, while there is no mandatory debt amortisation until 2026. Moody's expects positive but very limited free cash flow generation in the rating horizon. The ABL facility includes a minimum fixed coverage ratio of 1.0x which will be tested on a quarterly basis when its availability is less than 10% of the lesser of the sum of total commitments and the global borrowing base as of such date. Moody's expects Trivium to comply with its covenant. STRUCTURAL CONSIDERATIONS The B3 CFR has been assigned to Trivium Packaging B.V., the top entity of the restricted group. The B3-PD rating is aligned with the CFR based on a 50% recovery rate, as is typical for transactions including both bonds and bank debt. The B2 instrument rating assigned to the senior secured notes is one notch above the CFR reflecting the presence of subordinated debt in the capital structure. Accordingly, the senior unsecured notes have been rated Caa2. The notes, both secured and unsecured, will be guaranteed by the material subsidiaries representing at least 60% of total assets, total revenues and adjusted EBITDA. The senior secured notes will be secured by a first priority line on all non ABL collateral mainly consisting of stocks and assets and by a second priority lien on the ABL collateral. RATIONALE FOR A STABLE OUTLOOK The stable outlook reflects Moody's view that Trivium will gradually improve its key credit metrics, while the integration and the growth strategy are executed. The outlook also incorporates Moody's assumption that the company will maintain a stable customer base and not engage in material debt-funded acquisitions or dividend recapitalisation. WHAT COULD CHANGE THE RATING UP/DOWN Positive pressure on the rating could arise from sustained revenue growth and operational improvements so that Moody's adjusted debt/EBITDA falls below 6.5x, combined with positive free cash flow, both on a sustained basis. Negative pressure on the rating could arise if operating performance deteriorates, Moody's adjusted leverage further increases, free cash flow becomes negative, or due to weakening liquidity. Assignments: Issuer: Trivium Packaging B.V. Corporate Family Rating, Assigned B3 Probability of Default Rating, Assigned B3-PD Issuer: Trivium Packaging Finance B.V. Backed Senior Secured Regular Bond/Debenture, Assigned B2 Backed Senior Unsecured Regular Bond/Debenture, Assigned Caa2 Outlook Actions: Issuer: Trivium Packaging B.V. Outlook, Assigned Stable Issuer: Trivium Packaging Finance B.V. Outlook, Assigned Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Packaging Manufacturers: Metal, Glass, and Plastic Containers published in May 2018. CORPORATE PROFILE Trivium is a leading supplier of infinitely-recyclable metal packaging solutions. Its products mainly include metal packaging in the form of cans and aerosol containers, and serve a broad range of end use markets including food, personal care and homecare. In 2018, Trivium had 57 facilities, located in 21 countries and had approximately 7,800 employees. For the last twelve months ending March 31, 2019, the company generated pro forma revenue of $2.7 billion and pro forma EBITDA of $454 million (or $433 million on a Moody's adjusted basis). Trivium is a JV between the metal packaging manufacturer Exal, owned by Ontario Teachers' Pension Plan and the Food & Specialty division of Ardagh. At completion of this transaction, OTTP will own 57% of the JV and Ardagh will own the remaining 43%, while it will also receive a cash payment of $2.5 billion. =========== R U S S I A =========== OTKRITIE: Central Bank Sets Aside Extra Funds for Recapitalization ------------------------------------------------------------------ Max Seddon at The Financial Times reports that Russia's central bank said it would spend an extra RUR217 billion (US$3.45 billion) on recapitalizing three failed top-10 lenders, taking the total bill for bailing them out to nearly RUR3 trillion. The central bank told the FT the moves were intended to be the final step in closing the "Moscow banking circle" of private banks that rapidly grew their assets in recent years before collapsing within months of each other. According to the FT, the new funds are aimed at covering losses from a scheme whereby the former owners of Otkritie, Russia's largest privately held bank before it went under a year ago, used the bank's subsidiaries to buy their own holding companies' debt. The central bank will place RUR174.2 billion in deposits at Otkritie, as well as Trust and Rost, subsidiaries that are being merged to create a "bad bank" for failed debts, the FT discloses. The extra funds will be used to clean up off bad assets held by Otkritie's pension funds and other subsidiaries before moving them to Trust's balance sheet, the FT states. The central bank also wants Otkritie's former owners, most of whom have relocated to London, to surrender other assets to help cover the cost, the FT notes. ========= S P A I N ========= ADVEO GROUP: Files for Opening of Liquidation Phase --------------------------------------------------- Reuters reports that Adveo Group Internacional said on July 15 Adveo Group International SA and Adveo Global Services SL Had filed for opening the liquidation phase of both companies. Adveo Group International SA is based in Madrid, Spain. INSTITUT UNIV DE CIENCIA: Files for Insolvency Proceedings ---------------------------------------------------------- Reuters reports that Inkemia IUCT Group SA said on July 15 its unit Institut Univ. de Ciencia i Tecnologia SA had filed for insolvency proceedings. According to Reuters, it was not possible to reach an agreement with creditors within the time limits of the pre-insolvency procedure. IUCT - Institut Univ. de Ciencia i Tecnologia SA is a high-tech company for industrial technological innovation aimed at developing, implementing and promoting new technologies in the chemical, pharmaceutical, and environmental fields. IUCT is a reference company for sustainable chemistry in Spain as it is the Spanish Chapter of the Green Chemistry Institute of the American Chemical Society (ACS). Also IUCT is founding Father of the bio-based Industry Consortium (BBI). MADRID RMBS I: Fitch Raises Class C Debt Rating to B+sf ------------------------------------------------------- Fitch Ratings has upgraded eight tranches and affirmed nine tranches of three Spanish Madrid RMBS transactions. The Outlooks are Stable. The transactions comprise residential mortgages serviced by Bankia, S.A. (BBB/F3/Stable). KEY RATING DRIVERS Improving Credit Enhancement (CE) CE ratios for the rated notes within the three transactions are expected to continue increasing over the short-to medium-term due to the prevailing sequential amortisation mechanism of the notes, the reserve fund build-up trajectory of Madrid RMBS I and II, and the principal deficiency ledger reduction of Madrid RMBS III. Current and projected CE ratios are sufficient to mitigate the credit and cash flow stresses under the relevant rating scenarios, and consistent with the upgrades and affirmations of the notes. High Seasoning; Stable Asset Performance The rating actions reflect Fitch's expectation of stable credit trends given the significant seasoning of the securitised portfolios of more than 13 years, a prevailing low interest rate environment and a benign Spanish macroeconomic outlook. Three-month plus arrears (excluding defaults) as a percentage of the current pool balance remain below 0.5% across the three transactions as of the latest reporting date. High but Stable Cumulative Defaults Gross cumulative defaults range between 19.5% and 22.7% of the initial portfolio balances, well above the 6% average for other Spanish RMBS rated by Fitch. However, these ratios have remained fairly stable over the last few years and are linked to a default definition of more than six months in arrears, which differs from the more common definition of 12 or 18 months in arrears used by most Spanish RMBS transactions. Portfolio's Higher-Risk Attributes Over 40% of the outstanding portfolio balances were originated via brokers or third-party channels, which are higher-risk than branch-originated loans, and are therefore subject to a foreclosure frequency (FF) adjustment of 150%, in line with Fitch's European RMBS Rating Criteria. Moreover, around 65% of the loans that feature increasing instalment amortisation mechanisms are also subject to a FF adjustment of 150%, and the securitised portfolios are exposed to geographical concentration in the Region of Madrid. In line with Fitch's criteria, higher rating multiples are applied to the base FF assumption to the portion of the portfolio that exceeds 2.5x the population within the region. Excessive Interest Deferral Madrid RMBS III class B notes' interest payments are deferred since May 2014 when the performance-based trigger linked to cumulative defaults was breached as defined by the transaction documentation. Fitch expects this deferral will last for a long period of time and curable only when the senior class A notes are fully redeemed. As a result its rating is not compatible with an investment-grade category in accordance with its Global Structured Finance Rating Criteria. RATING SENSITIVITIES A worsening of the Spanish macroeconomic environment, especially employment conditions, or an abrupt shift of interest rates could jeopardise the underlying borrowers' affordability. This could have negative rating implications, especially for junior tranches that are less protected by structural CE. Senior note ratings could be upgraded to the 'AAsf' rating category if the payment interruption risk against a potential servicer disruption event is fully mitigated. The transactions do not have dedicated liquidity arrangements to mitigate this risk, and the general cash reserve funds are judged as insufficient. Madrid RMBS I, FTA Class A2 (ES0359091016) affirmed at 'A-sf'; Outlook Stable Class B (ES0359091024) upgraded to 'BBBsf' from 'BBB-sf'; Outlook Stable Class C (ES0359091032) upgraded to 'B+sf from 'Bsf'; Outlook Stable Class D (ES0359091040) affirmed at 'CCCsf'; Recovery Estimate (RE) revised to 100% from 90% Class E (ES0359091057) affirmed at 'CCsf'; RE revised to 80% from 0% Madrid RMBS II, FTA Class A2 (ES0359092014) affirmed at 'A-sf'; Outlook Stable Class A3 (ES0359092022) affirmed at 'A-sf'; Outlook Stable Class B (ES0359092030) upgraded to 'BBBsf' from 'BBB-sf'; Outlook Stable Class C (ES0359092048) upgraded to 'BB-sf' from 'B+sf'; Outlook Stable Class D (ES0359092055) upgraded to 'B-sf' from 'CCCsf'; Outlook Stable Class E (ES0359092063) affirmed at 'CCsf'; RE revised to 90% from 50% Madrid RMBS III, FTA Class A2 (ES0359093012) upgraded to 'A-sf' from 'BBBsf'; Outlook Stable Class A3 (ES0359093020) upgraded to 'A-sf' from 'BBBsf'; Outlook Stable Class B (ES0359093038) affirmed at 'BB+sf'; Outlook Stable Class C (ES0359093046) upgraded to 'Bsf' from 'B-sf'; Outlook Stable Class D (ES0359093053) affirmed at 'CCsf'; RE revised to 80% from 40% Class E (ES0359093061) affirmed at 'Csf'; RE maintained at 0% =========================== U N I T E D K I N G D O M =========================== ARCADIA GROUP: Vornado Challenges Two of Seven Planned CVAs ----------------------------------------------------------- Samantha Machado and Muvija M at Reuters report that Philip Green's fashion empire Arcadia Group said on July 16 it received applications from legal entities of U.S.-based property group Vornado challenging two of its seven planned Company Voluntary Agreements (CVAs). According to Reuters, Arcadia said the challenges to the CVAs, which were approved in June by the majority of creditors, were "without merit" and it would defend itself against them. Arcadia's other landlords include British Land, Intu Properties, Aviva and Land Securities, Reuters discloses. Arcadia's restructuring will close stores, cut rents and make changes to the funding of the group's pension schemes, but it will enable it to keep operating under the Green family's ownership, Reuters states. About Arcadia Group Arcadia Group Ltd. is the UK's largest privately owned fashion retailer with seven major high street brands: Burton, Dorothy Perkins, Evans, Miss Selfridge, Topshop, Topman and Wallis, along with its out-of-town fashion destination Outfit. In June 2019, Arcadia's creditors approved a Company Voluntary Arrangement (CVA). The company's landlords agreed to rent cuts, 23 store closures and 520 job losses. ASPIN GROUP: Enters Administration Year After Sandton Takeover -------------------------------------------------------------- Business Sale reports that rail contracting company Aspin Group Limited has been forced into administration just over a year after venture capitalists took over the business. The specialist engineering firm called in professional restructuring advisors Quantuma LLP on July 11, 2019, to handle the administration process, with partners Sean Bucknall -- sean.bucknall@quantuma.com -- Brian Burke -- brian.burke@quantuma.com -- and Andrew Hosking -- andrew.hosking@quantuma.com -- appointed as joint administrators, Business Sale relates. Following the collapse of Carillion in January 2018, the company took on an GBP800,000 hit prior to being taken over by Sandton Capital Partners, Business Sale discloses. Ian Sale was brought in as the new finance director from the Defence Infrastructure Organisation but resigned from his position just a day before the company entered administration, according to Business Sale. The most recent accounts filed at Companies House reveal a turnover of GBP39.8 million and a pre-tax loss of GBP10 million in the 18 months to January 31, 2018, Business Sale discloses. VICTORIA PLC: Fitch Publishes BB- LT IDR, Outlook Stable -------------------------------------------------------- Fitch Ratings published Victoria plc's 'BB-' Long-Term Issuer Default Rating with Stable Outlook. Fitch has also assigned the proposed EUR330 million senior secured notes due 2024 an expected instrument rating of 'BB(EXP)'/'RR2'. Final ratings are subject to the completion of the bond issuance in line with terms already reviewed. Victoria's 'BB-' IDR reflects a business profile that is in line with its expectations for a 'BB' category rating. In its view, Victoria's established market position, competitive offering at the higher end of the European flooring market, diversified customer base of independent retailers and high profitability through the cycle compensate for its relatively small scale and moderate product and geographical diversification in comparison with building products peers in the Fitch-rated portfolio. The financial structure is weaker for the rating with expected funds from operations (FFO) adjusted net leverage at around 4.7x (around 3.7x on a net debt/EBITDA basis) in the year to March 30, 2019 (FY19) following the acquisition of Spanish ceramic tile maker Saloni. Margin improvements due to the cost-savings programmes as well as synergies from acquisitions have resulted in healthy free cash flow generation and suggest a capacity to deleverage. Fitch forecasts leverage to improve to below 4.0x by FY20. Additionally, the financial profile is supported by Victoria's stated financial policy, that leverage will be maintained within a range of 2.0x-3.0x net debt/EBITDA. KEY RATING DRIVERS Increasingly Challenging Market Conditions: The market conditions have been challenging for Victoria in FY19, particularly soft flooring. This is largely due to UK consumer uncertainties over Brexit delivering modest growth in the UK for 1H19 and tighter mortgage lending in Australia, which resulted in like-for-like declines on the top line for Australia. Despite this Victoria has managed to preserve margins and expects to gain market share over the rating horizon. Fitch views the challenges in the soft-flooring market to be short term and forecast the company will continue its like-for-like single-digit growth over FY20-23. Funding Structure with Deleveraging Potential: Victoria is aiming to implement a new capital structure incorporating a Term Loan A of GBP143 million, senior secured notes of EUR330 million and a revolving credit facility (RCF) of GBP60 million. This structure offers Victoria increased capital diversification and flexibility and will also provide some natural FX hedging for Victoria given its cost base exposure to the UK, Europe and Australia. Further capital structure strength is provided through Victoria's deleveraging commitment given the amortising loan profile and covenants of the term loan facility. Acquisition-Driven Growth in Fragmented Market: Victoria has delivered significant growth in revenues and profitability since 2013, mainly via acquisitions. The group plans to continue doing so over the forecast period, driven by opportunities presented from the fragmented nature of its core markets. The acquisitive strategy entails moderate execution risks, in its view. However, Fitch views the management team as experienced and disciplined, with a track record of successful integrations and reasonable acquisition valuation multiples. Fitch also believes that if there was an economic downturn, Victoria could stop making acquisitions without compromising its overall deleveraging capacity. Higher Margin Ceramic Tiles: Over FY17-19, Victoria acquired a number of ceramic tile companies in Italy and Spain, which increased the scale of the business and broadened the range of products and geographies. The higher margin nature of the ceramic tiles businesses will also boost the group's profitability as they are contributing over 60% of EBITDA in FY19. Fitch has yet to see the performance of the newly acquired tiles businesses through an economic downturn but Fitch believes ceramics to be more cyclical, introducing potential future volatility. Better Resilience Through Last Cycle: Victoria has demonstrated relatively better revenue and profit resilience during the last financial crisis and economic downturn than some of its building products peers in Fitch's leveraged finance portfolio. Fitch believes that the resilience results from the company's focus on the improvement and repair segment of the market (as opposed to new build), its strategy to target customers that are relatively less price sensitive in the mid/high-end of the market (as opposed to mass market) and its wide customer base, which involves many independent flooring retailers with no particular distributor concentration. Upper Market Target: Fitch believes that consumers in the mid-high end of the market are less price-sensitive than those in the mass market. As a result, Fitch believes that unlike its mass-market competitors, Victoria can maintain its prices and retain customers under more difficult market conditions. In a challenging UK consumer spending environment, Fitch notes that Victoria had like-for-like revenue growth of 3.3% yoy (YTD August 2018) in its UK division, which contrasts with Balta, one of its direct competitors in the UK market, which suffered deeply negative like-for-like sales evolution over the same period. Large Europe and UK Exposure: Victoria lacks the geographical diversification of some of its higher-rated peers. Nearly 80% of EBITDA is generated in Europe (28% in the UK), pro forma for the most recent acquisitions. Fitch sees potential downside risk for consumer spending in the UK as Brexit looms together with uncertain trends in certain European countries like Spain (making up 24% of EBITDA pro forma for the acquisitions), although Victoria's position at the higher end of the market mitigates this risk. Additionally, FX headwinds resulting from Brexit uncertainty (and potentially weaker sterling) may have an adverse impact, albeit mild, on Victoria's profitability as UK operations partly rely on euro-denominated raw material imports. Variable Cost Base, Lower Capex Intensity: Over the past few years, the company has sought to establish a more variable cost base and has undertaken various initiatives to rationalise its cost structure and logistics as well as selectively outsource manufacturing in specific areas. Margins could be adversely impacted by a drop in volumes in a recession as consumers may delay their floor renewal decisions or look for cheaper alternatives. However, Fitch believes that these changes put Victoria in a better position to withstand the next downturn. As a result, Victoria has relatively lower capex intensity than most of its peers, stronger FCF generation and Fitch expects the FCF margin to be around 6.0%-6.5% over the rating horizon. Moderate Leverage, Clear Financial Policy: Fitch forecasts FFO adjusted net leverage to be slightly below 4.0x over FY20-23 following the recent acquisitions and the prospective issuance of the new bond and loan facilities. Fitch has assumed leverage metrics will remain stable over the rating horizon as management plans to make further partly debt-funded acquisitions. However, the enhanced scale and diversification resulting from the acquisitions should help the company tolerate moderately higher leverage. The 'BB-' rating is supported by Victoria's stated financial policy that the leverage will be maintained within a range of 2.0x-3.0x net debt/EBITDA. DERIVATION SUMMARY Victoria is significantly smaller and less diversified than Mohawk Industries Inc. (BBB+/Stable), the world's leading flooring manufacturer. In its view, Victoria exhibits a business profile that is consistent with the 'BB' category. The group's profitability levels are particularly strong based on its Building Products Navigator, due to the focus on higher quality products offerings and the high-margin ceramic businesses the company has acquired. However, Fitch believes that the IDR is better placed at the 'BB-' level "through the cycle" given the company's decision to re-leverage the capital structure to finance its expansion into ceramic tiles. The company has a target net leverage of 2.0x EBITDA (absent acquisitions), but Fitch believes that leverage is likely to be maintained around 3.0x (4.0x on a FFO net basis) over its rating horizon given the company's M&A appetite. Leverage and coverage ratios and FFO margin are consistent with similarly-sized peer L'Isolante K-Flex (B+/Stable), which is more diversified geographically, but operates in a niche market. As a listed company, Victoria also benefits from more diverse sources of funding than private-equity owned, higher leveraged companies operating in the same segment, which tend to be rated in this sector in the single 'B' category. KEY ASSUMPTIONS - Revenue forecasted to grow by 10%-15% per year over FY20-22, largely driven by further acquisitions. - EBITDA margins are expected to remain above 17% over FY20-23, driven by favourable business mix effects from acquiring higher margin ceramic tiles businesses. - Capex over the forecast period is expected to be steady at 4.0%-4.5% of sales. - Change in net working capital is expected to be limited in line with historical levels. - Acquisitions forecast over the rating horizon are to be funded by the additional debt and equity. - The bridge loan is assumed to be refinanced in the bond market in July 2019 conservatively at 6.25% coupon. Key recovery rating assumptions: - The recovery analysis assumes a going concern scenario - A 10% administrative claim - The going concern approach estimate of GBP368 million reflects Fitch's view of the value of the company that can be realised in a reorganisation and distributed to creditors - Fitch estimates the total amount of debt for claims at GBP507 million - These assumptions result in a recovery rate for the prospective bond within the 'RR2' range to generate a one-notch uplift to the debt rating from the IDR. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Continued increase in scale and product/geographical diversification as well as successful integration of the latest acquisitions, leading to: - FFO adjusted net leverage below 2.5x - EBITDA margin increasing towards 19% Developments That May, Individually or Collectively, Lead to Negative Rating Action - Material drop in EBITDA margin towards 15% - Breach of stated financial policy leading to FFO adjusted net leverage above 4.0x for a sustained period - FCF margin reduced to lower single digit ********* 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. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *