/raid1/www/Hosts/bankrupt/TCREUR_Public/190910.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
Tuesday, September 10, 2019, Vol. 20, No. 181
Headlines
F R A N C E
AIGLE AZUR: Air France, Easyjet Among Bidders
AUTONORIA 2019: S&P Assigns Prelim. B- (sf) Rating to F-Dfrd Notes
CUBE HEALTHCARE: Moody's Assigns B3 CFR, Outlook Stable
G E R M A N Y
IHO VERWALTUNGS: Moody's Affirms Ba1 CFR, Alters Outlook to Neg.
G R E E C E
NAVIOS MARITIME: S&P Affirms 'B' Ratings, Outlook Stable
I R E L A N D
DARTRY PARK: Moody's Affirms B2 Rating on EUR11.5MM Cl. E Notes
HARVEST CLO XXII: Fitch Assigns Final B-sf Rating to Class F Debt
HARVEST CLO XXII: S&P Assigns B- (sf) Rating to Class F Notes
LIMERICK FOOTBALL: Crisis Deepens Following Examinership
N E T H E R L A N D S
EURO-GALAXY III: Fitch Assigns B-(EXP) Rating to Class F-RR Debt
TIKEHAU CLO V: S&P Assigns B(sf) Rating to EUR12.10MM Cl. F Notes
P O L A N D
URSUS SA: Accelerated Arrangement Proceedings Discontinued
ZAKLADY MIESNE: Court Appoints Administrator
S P A I N
BERING III: Moody's Reviews B2 CFR for Downgrade
S W I T Z E R L A N D
MATTERHORN TELECOM: Moody's Affirms B2 CFR, Outlook Stable
T U R K E Y
TURKISH AERONAUTICAL: TRY1.4-Bil. Bank Debt Restructured
U K R A I N E
DTEK ENERGY: Moody's Upgrades CFR to Caa2, Outlook Stable
U N I T E D K I N G D O M
ASTON MIDCO: S&P Assigns Preliminary 'B-' Rating, Outlook Stable
THOMAS COOK: Fitch Downgrades LT Issuer Default Rating to 'C'
WELLINGTON PUB: Fitch Affirms B+ Rating on Class A Notes
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F R A N C E
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AIGLE AZUR: Air France, Easyjet Among Bidders
---------------------------------------------
Patrick Vignal and Laurence Frost at Reuters report that junior
transport minister Jean-Baptiste Djebbari named Air France as a
bidder for bankrupt carrier Aigle Azur, which left 19,000
passengers stranded after abruptly halting operations.
The French unit confirmed it had bid for all or part of Aigle
Azur--without saying which--as rival Easyjet announced it had
expressed interest in some operations of the budget carrier, which
was placed under bankruptcy protection on Sept. 2, Reuters
relates.
Mr. Djebbari said the group "appears to want to make an offer" for
Aigle Azur, Reuters notes.
Higher fuel costs and stiffer low-cost competition have led to a
wave of bankruptcies among smaller European airlines in the past
three years, including Air Berlin, Germania, British-based Monarch,
Latvia's Primera Air and Swiss SkyWork, Reuters states.
Aigle Azur's difficulties were compounded by its over-expansion
from medium-haul services focused on Algeria into long-haul
destinations such as Brazil, Reuters discloses.
The French state, keen to drum up interest and save Aigle Azur's
1,200 jobs, had also flagged potential bids from Air Caraibes
parent Dubreuil Group and an investor group led by Lionel Guerin,
former head of Air France's Hop! unit, Reuters relays.
According to Reuters, French Finance Minister Bruno Le Maire said
on Sept. 6 that a "principal offer" for Aigle Azur was being
considered. The bankrupt carrier's works council was due to meet
Sept. 9 to consider the offers received, Reuters notes.
Aigle Azur was a French airline based and headquartered at Paris
Orly Airport.
AUTONORIA 2019: S&P Assigns Prelim. B- (sf) Rating to F-Dfrd Notes
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S&P Global Ratings has assigned its preliminary credit ratings to
Autonoria 2019 FCT's notes.
The collateral in Autonoria 2019 will comprise a portfolio of
vehicle loan receivables (new and used vehicles), mostly originated
between 2016 and 2019, to private individuals in France.
This is a revolving transaction for a maximum period of 12 months.
According to the transaction's terms and conditions, interest can
be deferred on any class of notes with the exception of the
most-senior one if the principal deficiency ledger (PDL) of the
relevant class is above certain thresholds. S&P said, "We
understand any deferred interest will accrue interest 13 months
after starting being deferred in accordance with the French legal
framework. All previously deferred interest will be due immediately
when the class becomes the most senior. Considering the
aforementioned factors, we have assigned preliminary ratings that
address ultimate payment of interest and principal on the class
B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, and F-Dfrd notes based on our
criteria on interest shortfall methodology. Our preliminary ratings
on the class A notes instead address the timely payment of interest
and ultimate payment of principal."
S&P's preliminary ratings reflect its analysis of the transaction's
payment structure, its exposure to counterparty and operational
risks, and the results of its cash flow analysis to assess whether
the rated notes would be repaid under stress test scenarios.
A liquidity reserve fund provides liquidity support only to class A
to D-Dfrd notes. Principal proceeds can also be used for curing
interest shortfalls for the class A to D-Dfrd notes and for classes
E-Dfrd and F-Dfrd notes when they become the most senior notes.
The transaction features a PDL mechanism. The PDL is divided into
seven subledgers from class A to class G PDL sub-ledgers. In
addition, the transaction features two fixed-to-floating interest
rate swap agreements, which in S&P's opinion will mitigate the risk
of potential interest rate mismatches between the fixed-rate assets
and floating-rate liabilities.
S&P's analysis indicates that Autonoria 2019's available credit
enhancement is sufficient to withstand losses that are commensurate
with the relevant preliminary rating levels.
S&P's preliminary ratings on this transaction are not constrained
by the application of its sovereign risk criteria for structured
finance transactions or its counterparty risk criteria. S&P's
operational risk criteria do not cap this transaction.
At closing, Autonoria 2019 will issue a EUR37.5 million class
G-Dfrd subordinated note, which will provide credit enhancement to
the class A, B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, and F-Dfrd notes
because it ranks below the notes to pay interest and principal.
This note does not form part of the rated capital structure.
The notes will amortize pro rata as soon as the revolving period
ends, unless one of the events below occur. From that moment, the
transaction will switch permanently to sequential amortization:
-- Class G PDL exceeds 0.50% of the portfolio's outstanding
principal.
-- The cumulative gross default, calculated as the percentage of
the total defaulted loans over the initial balance of the
portfolio, is greater than: 2.75% before the first 12 months; 3.85%
from months 13 to 18; 5.25% from months 19 to 24; 7% from months 25
to 36; and 8% after the third year.
-- The pool comprises auto loans with equal fixed installments
during the contract's life. S&P's recovery assumptions are low,
reflecting the unsecured nature of the loans.
Ratings List
Autonoria 2019 FCT
Class Prelim. rating Prelim. receivables balance (%)
A AAA (sf) 71.00
B-Dfrd AA- (sf) 9.00
C-Dfrd A (sf) 6.00
D-Dfrd BBB (sf) 3.50
E-Dfrd BB (sf) 3.50
F-Dfrd B- (sf) 2.00
G-Dfrd NR 5.00
NR--Not rated
CUBE HEALTHCARE: Moody's Assigns B3 CFR, Outlook Stable
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Moody's Investors Service assigned a first time B3 Corporate Family
Rating and a B3-PD Probability of Default Rating to Cube Healthcare
Europe Bidco, a private operator of nursing homes in France.
Concurrently, Moody's has assigned B3 ratings to the EUR412 million
term loan B and to the EUR120 million revolving credit facility
(RCF), all borrowed by Cube Healthcare Europe Bidco. The outlook on
all ratings is stable.
Proceeds from the loan along with an equity contribution will be
used to finance the acquisition of the Domidep Group by funds
managed by I Squared Capital, a financial sponsor focused on
infrastructure investments.
The rating action reflects the following interrelated drivers:
- Domidep's market positioning as fifth largest player in the
French private nursing home market which exhibits favourable
underlying fundamental trends and high barriers to entry
- Its lack of geographical diversification
- Its high opening leverage forecasted by Moody's to be around
7.0x by the end of 2019 (pro forma for full year impact of
acquisitions) with a limited reduction thereafter given its track
record of debt funded acquisitions
- Its good level of profitability versus peers and track record
of historical positive free cash flow
Because of the strong business profile, the ratings are strongly
positioned in the B3 category.
RATINGS RATIONALE
Domidep's ratings are supported by (1) the company's market
positioning as the fifth largest (by number of beds) private
operator of nursing homes in France, (2) the fact that it operates
in an attractive sector with underlying favourable
socio-demographic dynamics and high barriers to entry and (3) its
good level of profitability versus peers and track record of
historical positive free cash flow.
Conversely, the ratings are constrained by (1) the lack of
geographic diversification exposing the company to potential
regulatory changes in France, (2) modest organic revenue growth
prospects and high fixed cost base, which is mainly composed of
staff and rental costs and (3) the high starting leverage and risk
of future debt-funded acquisitions.
LIQUIDITY
Domidep's liquidity is adequate, supported by (1) EUR15 million of
cash on balance pro-forma for the transaction, (2) the new EUR120
million RCF which will be undrawn at closing, (3) limited cash
impact of the refinancing transaction itself, (4) expected positive
free cash flow and (5) long-dated maturities since the new Term
Loan and the new RCF will mature in seven and six and a half years
respectively after the closing of the refinancing transaction.
STRUCTURAL CONSIDERATIONS
The probability of default at B3-PD incorporates Moody's assumption
of a 50% recovery rate, reflecting Domidep's new proposed debt
structure, which is composed of first-lien senior secured bank
facilities with no maintenance covenant. The B3 instrument rating
assigned to the new proposed facilities is in line with the CFR
given it represents the majority of the debt in the capital
structure.
The instruments share the same security package and are guaranteed
by a group of companies representing at least 80% of the
consolidated group's EBITDA. The security package consists of
shares, bank accounts and intragroup receivables.
OUTLOOK
The stable outlook reflects Moody's expectation that the regulatory
and competitive environment will remain stable, that Domidep will
continue to grow, mainly through bolt-on acquisitions while
maintaining good level of profitability and gradually improving
leverage from the starting level. The stable outlook also reflects
Moody's expectation that the company will continue to generate
positive free cash flow and maintain adequate liquidity.
WHAT COULD CHANGE THE RATING UP/DOWN
Positive rating pressure could develop should the company maintain
stable margins, reduce its Moody's-adjusted debt/EBITDA ratio
sustainably below 6.5x and maintain its Moody's-adjusted
EBITA/interest ratio sustainably above 2.5x.
Negative rating pressure could develop should the company's
profitability or free cash flow generation weaken, its
Moody's-adjusted debt/EBITDA ratio increase from current level or
its liquidity position deteriorate.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
PROFILE
Domidep, headquartered near Lyon (France), is the fifth largest
private operator of nursing homes in France. The company's core
business is to operate its 97 nursing homes as of June 2019 (6,359
beds) spread across the French territory. Since 2019, Domidep has a
small presence in Belgium (109 beds). Pro-forma for the 2019
acquisitions it will operate 6,718 beds in total. On top of the
core nursing home business, the company is present in adjacent
activities such as post-acute care rehabilitation centers, senior
residencies or day care centers etc. which are operated by an
additional 10 facilities. In July 2019, I-Squared Capital announced
its intention to acquire Domidep Group along with management which
will retain a minority stake of less than 5%.
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G E R M A N Y
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IHO VERWALTUNGS: Moody's Affirms Ba1 CFR, Alters Outlook to Neg.
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Moody's Investors Service affirmed IHO Verwaltungs GmbH's corporate
family rating and senior secured instrument ratings at Ba1 and the
probability of default rating at Ba1-PD. The outlook has been
changed to negative from stable.
"The outlook change reflects the overall more negative sector
environment for European automotive parts suppliers, and the
related share price decline of IHO-V's two main investments." says
Matthias Heck, a Moody's Vice President - Senior Credit Officer,
and Lead Analyst for IHO-V. "The share price decline of Continental
AG and Schaeffler AG has increased IHO-V's market value-based net
leverage beyond our expectations for the Ba1 rating." added Mr.
Heck.
RATINGS RATIONALE
The negative outlook reflects Moody's expectation that IHO-V's
market value-based net leverage will temporarily be slightly above
30% and FFO interest cover might fall slightly below 2.5x in the
next 12-18 months. Moody's also notes that the lack of a clearly
articulated financial policy leaves uncertainty as to IHO-Vs plans
to address higher leverage within a reasonable timeframe, which is
contributing to the negative outlook. The negative outlook also
reflects the current margin pressure at both, Continental AG and
Schaeffler AG, which will temporarily reduce IHO-V's EBITA margins
(Moody's adjusted) below 10% in 2019 and 2020. Finally, the
negative outlook reflects that IHO-V's consolidated debt/EBITDA
(Moody's adjusted) will increase slightly above 2.5x in 2019.
Moody's has a negative outlook on Europe's automotive parts
suppliers' sector, anticipating a 3.8% decline in global light
vehicle sales in 2019 and another 0.9% decline in 2020. The
negative sector outlook also incorporates the expectation that
margins in the sector will decline by 100-150 basis points in 2019,
with no significant recovery in 2020.
As a result of a deteriorating automotive industry environment,
IHO-V's two main assets, Continental AG (Baa1 negative) and
Schaeffler AG (Baa3 stable) have lowered their guidance in the
third quarter of 2019 and expect declining operating profit margins
in 2019. Continental expects its company-adjusted EBIT margin to
reach 7.0% to 7.5%, after 9.3% in 2018, and Schaeffler AG expects
its company-adjusted EBIT margin at 7.0%-8.0%, after 9.7% in 2018.
On a consolidated basis, Moody's expects IHO-V's EBITA margin
(Moody's adjusted) to decline towards around 8% in 2019 (9.3% in
2018) and improve slightly towards 9-0-9.5% in 2020. This will,
however, be still below the 10%, which Moody's expects on a
sustainable basis for IHO-V's Ba1 rating.
The negative outlook also reflects the structural subordination of
IHO-V's debt versus the debt sitting at the levels of Schaeffler
and Continental. As a result, IHO-V's revenues depend on dividend
upstreams from both companies, which are suffering from the more
challenging sector environment and margin pressure. The latter
could also have a negative impact on IHO-V's dividend collection
from both investments and thus negatively impact the FFO to
interest cover in 2020.
The share prices of Schaeffler AG and Continental AG have
substantially declined since the beginning of 2019. Schaeffler AG's
share price of EUR6.22 (September 02, 2019) compares to EUR7.458 at
the end of December 2018, a decline of 17%. Continental's share
price of EUR109.78 (September 02, 2019) declined by 9% versus year
end 2018 (EUR120.75). Based on current share prices, IHO-V's recent
refinancing transaction and debt repayment, the distribution of
dividends and expected operating cost, Moody's currently expects
IHO-V's market value-based net leverage to be at around 33% at
year-end 2019, which at least temporarily exceeds Moody's
expectation for the Ba1 rating. Absent any other sources of
revenues, the developments of IHO-V's market value-based net
leverage strongly relies on the share price performances and
dividend payments of both companies, which are under pressure,
given the overall negative automotive industry environment.
RATIONALE FOR THE RATINGS AFFIRMATION
The rating affirmation reflects as positives (1) the company's good
liquidity profile, with no major debt maturities before 2024, (2)
the company's substantial size and overall strong credit metrics on
a consolidated basis and (3) the ownership of sizable stakes in
high quality assets in Schaeffler AG (SAG, Baa3 stable) and
Continental AG (Baa1 negative), both being investment grade-rated
and listed.
The Ba1 corporate family rating (CFR) for IHO Verwaltungs GmbH
(IHO-V) is primarily constrained by (1) a fairly high concentration
risk with IHO-V being solely dependent on dividends received from
only two assets largely active in the cyclical automotive industry,
and (2) a lack of clearly defined financial policies aimed at
preserving a conservative capital structure offsetting the fairly
high concentration risk.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's could downgrade IHO-V's ratings if its (1) net market
value-based leverage sustainably deteriorates above 30%; (2) FFO
interest cover deteriorates below 2.5x on a sustained basis; (3)
Moody's adjusted debt/EBITDA remains above 2.5x sustainably and
Moody's adjusted EBITA margin fails to recover to above 10% (9.3%
in 2018), both based on INA-Holding Schaeffler GmbH & Co. KG
statements that fully consolidate Schaeffler AG and Continental AG;
or (4) liquidity deteriorates.
An upgrade of IHO-V's ratings is currently unlikely and would
require (1) a clearly formulated financial policy aimed to preserve
a conservative capital structure, (2) a market value-based net
leverage of 20% or less, and (3) FFO interest cover above 3.0x. An
upgrade would also require (4) Moody's adjusted debt/EBITDA to be
sustained below 2.0x (2.6x for 2018) and Moody's adjusted EBITA
margin to be improved to around 12%, both based on INA-Holding
Schaeffler GmbH & Co. KG's financial statements that fully
consolidate Schaeffler AG and Continental AG. An upgrade would also
require (5) improved reporting at IHO-V level.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Automotive Supplier Industry published in June 2016.
COMPANY PROFILE
Headquartered in Herzogenaurach, Germany, IHO Verwaltungs GmbH
(IHO-V) is a holding company owning 75% of share capital (and 100%
of voting rights) at Schaeffler AG and 36% of share capital in
Continental AG. Both assets are leading automotive suppliers in
Europe. IHO-V is ultimately owned through a holding structure by
two members of the Schaeffler family
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G R E E C E
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NAVIOS MARITIME: S&P Affirms 'B' Ratings, Outlook Stable
--------------------------------------------------------
S&P Global Ratings affirmed its 'B' ratings on Navios Maritime
Holdings Inc. and its senior secured debt.
S&P affirmed its long-term issuer credit rating on Marshall
Islands-registered shipping and logistics company Navios Maritime
Holdings Inc. (Navios Holdings) because, in its view,
dry-bulk-shipping charter rates will continue to recover during the
typically stronger second half of the year, as well as in 2020,
after temporarily weakening in first-half 2019. This recovery will
allow Navios Holdings to maintain credit measures in line with a
'B' rating. Dry-bulk charter rates came under pressure at the
beginning of this year due to a combination of factors including
disruptions in iron ore trades following the collapse of Vale
S.A.'s tailings dam in Brazil in late-January 2019, bad weather
conditions in Australia limiting the country's iron ore exports,
and subdued demand for major dry-bulk commodities from China, the
world's largest importer. The negative trend reversed, however, in
mid-second-quarter 2019, with the rate for large Capesize dry-bulk
vessels recovering to an average of about $21,000 per day (/day)
between July and August 2019, compared with $15,000/day between
January and June 2019, according to Clarkson Research.
S&P said, "Taking into consideration the year-to-date charter rate
conditions and our view that dry-bulk fleet growth will likely
moderately exceed dry-bulk trade growth, we now expect time charter
(T/C) rates for Capesize vessels will reach an average of about
$17,500/day, compared with about $19,000/day in 2018, according to
Clarkson Research. We forecast moderately higher rates of about
$18,500/day in 2020. Our forecast assumes that China's imports of
dry-bulk commodities will stabilize and the global fleet expansion
will expand at a low-single-digit rate thanks to the all-time low
order book (it currently accounts for 11% of global fleet) and a
boost from the International Maritime Organization 2020 sulfur cap
taking effect from January 2020.
"We believe the rebound in dry-bulk charter rates will support
Navios Holdings' cash flow generation, debt-servicing prospects,
and credit metrics, which we expect will remain commensurate with
the rating, including S&P Global Ratings-adjusted funds from
operations (FFO) to debt of at least 6%. According to our base
case, Navios Holdings will increase its reported EBITDA to about
$200 million in 2019 and $250 million-$270 million in 2020, from
about $182 million in 2018." This should stem from a recovery in
dry-bulk shipping rates, and high-single-digit-rate expansion of
Navios Logistics' (a subsidiary of Navios Holdings) terminal and
logistics operations, while the company realizes a minimum of close
to $40 million in EBITDA from a major take-or-pay logistics
contract with Vale. Improved EBITDA, accompanied by the assumption
of no major new debt incurred and debt amortization continuing as
scheduled (reaching an adjusted debt of about $2.1 billion as of
Dec. 31, 2019), points toward S&P Global Ratings-adjusted FFO to
debt of 8%-9% in 2019 (up from 7%-8% in 2018) improving to 10%-11%
in 2020.
S&P said, "Furthermore, we forecast operating cash flows will
remain on a positive trajectory in 2019 and 2020. This will provide
flexibility for opportunistic investments in additional ships and
create a sufficient cushion for the company to retain adequate
liquidity, as reflected in Navios Holdings' liquidity
sources-to-uses coverage of 1.7x-1.8x in the 12 months from March
31, 2019.
"Overall, we consider that Navios Holdings' financial risk profile
is well positioned at the higher-end of our highly leveraged
category. The company's high adjusted debt reflects the underlying
industry's high capital intensity, the company's track record of
large expansionary investments, and a prolonged period of depressed
charter rates, which ended in 2017.
"We continue to factor in the shipping industry's high risk, which
stems from the industry's capital intensity, high fragmentation,
frequent imbalances between demand and supply, lack of meaningful
supply discipline, and volatility in charter rates and vessel
values." S&P views the following as positive for Navios Holdings'
business risk profile:
-- Navios Holdings' competitive position, which benefits from its
expanding and more predictable transportation and logistics
business in South America than traditional shipping, underpinned by
the attractive contract with Vale. The Vale contract, combined with
improved earnings from dry-bulk shipping, will drive recovery in
absolute profitability and reduce profitability volatility.
-- Its holdings in affiliates, which pay dividends under normal
operating conditions.
Its solid reputation as a quality operator of a relatively young
and cost-efficient vessel fleet.
S&P said, "We note that on Aug. 30, 2019, Navios Holdings sold its
ship management division to N Shipmanagement Acquisition Corp.
(NSAC), an entity affiliated with Ms. Angeliki Frangou, Navios
Holdings' chairman and chief executive officer. Despite the
transaction, we believe Navios Holdings will retain its competitive
cost base, and good cost efficiencies and control, as reflected in
below-industry-average daily vessel operating costs as agreed with
NSAC for the next five years. We also understand that the effect of
the disposal on Navios Holdings' forecast EBITDA is only marginally
negative because the lost revenue from commercial and technical
management services previously provided by Navios Holding will be
largely offset by lower ship operating expenses. Furthermore, we
currently consider the strategic and financial interests of Navios
Holdings and NSAC to be aligned because of overlaps in ownership
and management.
"The stable outlook reflects our expectation that Navios Holdings'
EBITDA generation will continue expanding this year and in 2020,
allowing the company to maintain credit measures in line with the
'B' rating and stabilize liquidity. This will be thanks to
gradually recovering dry-bulk charter rates, moderate earnings
growth at Navios Logistics, and the company's sustainable,
competitive, and predictable cost structure. It also reflects our
view that our assessment of the group's group credit profile (GCP)
will remain unchanged.
"We could consider an upgrade if Navios Holdings' adjusted FFO to
debt sustainably strengthens to above 12% and free operating cash
flow remains positive. Such an improvement in adjusted FFO to debt
would be possible if dry-bulk charter rates outperform our
aforementioned base-case forecast, while Navios Holdings gradually
reduces debt. However, we consider a material debt reduction as
unlikely in the next 12 months because opportunistic debt-funded
vessel acquisitions by Navios Holdings are possible."
An upgrade would be also contingent on the GCP improving to 'b+',
which would be possible if Navios Holdings' stand-alone credit
profile (SACP) strengthens to 'b+' and Navios Acquisition's credit
quality does not deteriorate in the meantime.
S&P could downgrade Navios Holdings if the ratio of adjusted FFO to
debt appears to decline sustainably below 6%, due, for example, to
an unexpected drop in dry-bulk charter rates markedly below its
base case.
Furthermore, an unlikely material deterioration of Navios
Acquisition's cash flow generation and liquidity, resulting in a
downward revision of its SACP to 'ccc', would put pressure on
Navios Holdings' creditworthiness.
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DARTRY PARK: Moody's Affirms B2 Rating on EUR11.5MM Cl. E Notes
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Moody's Investors Service upgraded the ratings on four Classes of
Notes and affirmed four of the following Notes issued by Dartry
Park CLO Designated Activity Company:
EUR238,000,000 Refinancing Class A-1A Senior Secured Floating Rate
Notes due 2029, Affirmed Aaa (sf); previously on Jul 28, 2017
Definitive Rating Assigned Aaa (sf)
EUR5,000,000 Refinancing Class A-1B Senior Secured Fixed Rate Notes
due 2029, Affirmed Aaa (sf); previously on Jul 28, 2017 Definitive
Rating Assigned Aaa (sf)
EUR30,000,000 Refinancing Class A-2A Senior Secured Floating Rate
Notes due 2029, Upgraded to Aa1 (sf); previously on Jul 28, 2017
Definitive Rating Assigned Aa2 (sf)
EUR12,000,000 Refinancing Class A-2B Senior Secured Fixed Rate
Notes due 2029, Upgraded to Aa1 (sf); previously on Jul 28, 2017
Definitive Rating Assigned Aa2 (sf)
EUR24,000,000 Refinancing Class B Senior Secured Deferrable
Floating Rate Notes due 2029, Upgraded to A1 (sf); previously on
Jul 28, 2017 Definitive Rating Assigned A2 (sf)
EUR21,500,000 Refinancing Class C Senior Secured Deferrable
Floating Rate Notes due 2029, Upgraded to Baa1 (sf); previously on
Jul 28, 2017 Definitive Rating Assigned Baa2 (sf)
EUR24,500,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2029, Affirmed Ba2 (sf); previously on Jul 28, 2017 Affirmed
Ba2 (sf)
EUR11,500,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2029, Affirmed B2 (sf); previously on Jul 28, 2017 Affirmed B2
(sf)
Dartry Park CLO Designated Activity Company, issued in March 2015
is a collateralised loan obligation (CLO) backed broadly by
syndicated first lien senior secured corporate loans. The
transaction was refinanced in July 2017. The portfolio is managed
by Blackstone/GSO Debt Funds Management Europe Limited. The
transaction's reinvestment period has ended in April 2019.
RATINGS RATIONALE
The upgrades of the Notes are primarily a result of the transaction
having reached the end of the reinvestment period in April 2019.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to affect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortization profile than it
had assumed at the last rating action in 2017 when the transaction
was refinanced.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analysed the underlying collateral pool as having a
performing par and principal proceeds balance of EUR 394.0 million,
defaulted par of EUR 1.7 million, a weighted average default
probability of 22.1% (consistent with a WARF of 2911 over a WAL of
4.94 years), a weighted average recovery rate upon default of
45.81% for a Aaa liability target rating, a diversity score of 50,
a weighted average spread of 3.54% and a weighted average coupon of
3.48%.
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
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.
Counterparty Exposure:
The rating action took into consideration the Notes' exposure to
relevant counterparties, such as account bank and swap providers,
using the methodology "Moody's Approach to Assessing Counterparty
Risks in Structured Finance" published in January 2019. Moody's
concluded the ratings of the Notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
Notes, in light of uncertainty about credit conditions in the
general economy. CLO Notes' performance may also be impacted either
positively or negatively by: (1) the manager's investment strategy
and behavior; and (2) divergence in the legal interpretation of
documentation by different transactional parties because of
embedded ambiguities.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the Notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the Notes
beginning with the Notes having the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the Notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
HARVEST CLO XXII: Fitch Assigns Final B-sf Rating to Class F Debt
-----------------------------------------------------------------
Fitch Ratings has assigned Harvest CLO XXII DAC final ratings.
Harvest CLO XXII DAC is a securitisation of mainly senior secured
loans (at least 90%) with a component of senior unsecured,
mezzanine, and second-lien loans. A total note issuance of
EUR477.88 million has been used to fund a portfolio with a target
par of EUR450 million. The portfolio is managed by Investcorp
Credit Management EU Limited. The CLO envisages a 4.5-year
reinvestment period and an 8.5-year weighted average life (WAL).
Harvest CLO XXII DAC
Class A; LT AAAsf New Rating; previously at AAA(EXP)sf
Class B; LT AAsf New Rating; previously at AA(EXP)sf
Class C; LT Asf New Rating; previously at A(EXP)sf
Class D; LT BBB-sf New Rating; previously at BBB-(EXP)sf
Class E; LT BB-sf New Rating; previously at BB-(EXP)sf
Class F; LT B-sf New Rating; previously at B-(EXP)sf
Sub Notes; LT NRsf New Rating; previously at NR(EXP)sf
Class Z; LT NRsf New Rating; previously at NR(EXP)sf
KEY RATING DRIVERS
'B' Portfolio Credit Quality
Fitch places the average credit quality of obligors in the 'B'
range. The Fitch-weighted average rating factor (WARF) of the
identified portfolio is 31.9.
High Recovery Expectations
At least 90% of the portfolio comprises senior secured obligations.
Fitch views the recovery prospects for these assets as more
favourable than for second-lien, unsecured and mezzanine assets.
The Fitch-weighted average recovery rate (WARR) of the identified
portfolio is 65.2%.
Diversified Asset Portfolio
The transaction has four matrices corresponding to two top 10
obligors at 15% and 23%, and two maximum fixed rate assets limits
at 0% and 10%. The manager can interpolate within and between the
matrices. The transaction also has other portfolio concentration
limits to ensure that the portfolio will not be exposed to
excessive concentration. These include the maximum exposure to the
three largest (Fitch-defined) industries in the portfolio at 40%.
Portfolio Management
The transaction features a 4.5-year reinvestment period and
includes reinvestment criteria similar to other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash Flow Analysis
Fitch used a customised proprietary cash flow model to replicate
the principal and interest waterfalls and the various structural
features of the transaction, and to assess their effectiveness,
including the structural protection provided by excess spread
diverted through the par value and interest coverage tests.
RATING SENSITIVITIES
A 125% default multiplier applied to the portfolio's mean default
rate, and with this increase added to all rating default levels,
would lead to a downgrade of up to two notches for the rated notes.
A 25% reduction in recovery rates would lead to a downgrade of up
to four notches for the rated notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognised Statistical Rating Organisations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, Fitch's assessment of the asset pool information relied
upon for the agency's rating analysis according to its applicable
rating methodologies indicates that it is adequately reliable.
HARVEST CLO XXII: S&P Assigns B- (sf) Rating to Class F Notes
-------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Harvest CLO XXII
DAC's class A to F European cash flow collateralized loan
obligation (CLO) notes. The issuer also issued unrated class Z and
subordinated notes.
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds. It is managed by Investcorp Credit
Management EU Ltd.
The ratings assigned to Harvest XXII's notes reflect S&P's
assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will permanently switch to semiannual payment.
The portfolio's reinvestment period ends approximately four and a
half years after closing, and the portfolio's maximum average
maturity date is eight and a half years after closing.
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average 'B' rating
(with an S&P Global Ratings' weighted-average rating factor of
2,613). We consider that the portfolio on the effective date will
be well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow
collateralized debt obligations.
"In our cash flow analysis, we used the EUR450 million target par
amount, the covenanted weighted-average spread (3.65%), the
covenanted weighted-average coupon (5.00%), the covenanted
weighted-average recovery rates for all rating levels, and EUR45
million interest rate hedge cap for seven years with a 2% strike
rate. As the portfolio is being ramped, we have relied on
indicative spreads and recovery rates of the portfolio.
"We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category."
The issuer is expected to purchase more than 50% of the effective
date portfolio from Investcorp European Loan Company DAC (IELC) via
participations. The assets from IELC that are not settled by the
effective date will be carried at the S&P recovery value until such
participations are fully settled with the issuer. The transaction
documents require that the issuer and IELC use commercially
reasonable efforts to elevate the participations by transferring to
the issuer the legal and beneficial interests in such assets as
soon as reasonably practicable. No further originator
participations may take place following the effective date.
The Bank of New York Mellon, London Branch is the bank account
provider and custodian. The documented downgrade remedies are in
line with our current counterparty criteria.
S&P said, "Under our structured finance ratings above the sovereign
criteria, the transaction's exposure to country risk is
sufficiently mitigated at the assigned rating levels.
"We consider that the issuer is bankruptcy remote, in accordance
with our European legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for each class
of notes."
Ratings List
Harvest CLO XXII DAC
Class Rating Amount (mil. EUR)
A AAA (sf) 272.25
B AA (sf) 54.50
C A (sf) 31.00
D BBB (sf) 26.25
E BB- (sf) 24.00
F B- (sf) 9.50
Z NR 16.00
Sub notes NR 44.38
NR--Not rated
LIMERICK FOOTBALL: Crisis Deepens Following Examinership
--------------------------------------------------------
Paul O'Hehir at Irish Mirror reports that Limerick FC has been
plunged further into crisis after going into examinership.
The High Court heard on Sept. 6 that Munster Football Club Limited,
the trading company behind the First Division club, has debts of
approximately EUR490,000, Irish Mirror relates.
According to Irish Mirror, an independent expert said the company
has a reasonable chance of surviving as a going concern if
necessary steps were taken now to safeguard its future.
An examiner will be appointed for a 100-day period and one of their
tasks will be to see if investors can be found to come on board,
Irish Mirror discloses.
The High Court was told of four expressions of interest in the
club, Irish Mirror relays. One of these was described as a
"formal" expression of interest, Irish Mirror states.
Earlier last week, the Football Association of Ireland launched a
second investigation into a Limerick FC match for "unusual betting
patterns", Irish Mirror recounts.
In a statement on Sept. 6, the FAI countered a claim in court that
it owed Limerick FC money, Irish Mirror notes.
=====================
N E T H E R L A N D S
=====================
EURO-GALAXY III: Fitch Assigns B-(EXP) Rating to Class F-RR Debt
----------------------------------------------------------------
Fitch Ratings has assigned Euro-Galaxy III CLO B.V. refinancing
notes expected ratings. The assignment of final ratings is
contingent on the receipt of final documents conforming to
information already reviewed.
Euro-Galaxy III CLO B.V. is an arbitrage cash flow collateralised
loan obligation (CLO) that originally closed in 2014. Net proceeds
from the issuance of new refinancing notes will be used to
refinance therated existing notes. The collateral portfolio
comprises mostly European leveraged loans and bonds and is managed
by Pinebridge Investments Europe Limited. The transaction features
a remaining 1.25-year reinvestment period (scheduled to end in
January 2021) during which Credit Industriel et Commercial will
act as junior collateral manager.
Euro-Galaxy III CLO B.V.
Class A-R-RR; LT AAA(EXP)sf; Expected Rating
Class A-RR; LT AAA(EXP)sf; Expected Rating
Class B-1-RR; LT AA(EXP)sf; Expected Rating
Class B-2-RR; LT AA(EXP)sf; Expected Rating
Class C-RR; LT A(EXP)sf; Expected Rating
Class D-RR; LT BBB(EXP)sf; Expected Rating
Class E-RR; LT BB(EXP)sf; Expected Rating
Class F-RR; LT B-(EXP)sf; Expected Rating
KEY RATING DRIVERS
'B' Portfolio Credit Quality
Fitch places the average credit quality of obligors in the 'B'
range. The Fitch-weighted average rating factor (WARF) of the
identified portfolio is 32.8.
High Recovery Expectations
At least 90% of the portfolio comprises senior secured obligations.
Recovery prospects for these assets are typically more favourable
than for second-lien, unsecured and mezzanine assets. The
Fitch-weighted average recovery rating (WARR) of the identified
portfolio is 67.6%.
Diversified Asset Portfolio
The transaction includes limits on maximum industry exposure based
on Fitch's industry definitions. The maximum exposure to the three
largest (Fitch-defined) industries in the portfolio is covenanted
at 40%. These covenants ensure that the asset portfolio will not be
exposed to excessive concentration.
Portfolio Management
The transaction features a reimaging 1.25-year reinvestment period
and includes reinvestment criteria similar to other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash Flow Analysis
Fitch used a customised proprietary cash flow model to replicate
the principal and interest waterfalls and the various structural
features of the transaction, and to assess their effectiveness,
including the structural protection provided by excess spread
diverted through the par value and interest coverage tests.
Limited Interest Rate Risk
Up to 7.5% of the portfolio can be invested in unhedged fixed-rate
assets, while fixed-rate liabilities represent 2.5% of the target
par. Fitch modelled both 0% and 7.5% fixed-rate buckets and found
that the rated notes can withstand the interest rate mismatch
associated with each scenario.
RATING SENSITIVITIES
A 125% default multiplier applied to the portfolio's mean default
rate, and with this increase added to all rating default levels,
would lead to a downgrade of up to two notches for the rated notes.
A 25% reduction in recovery rates would lead to a downgrade of up
to four notches for the rated notes.
TIKEHAU CLO V: S&P Assigns B(sf) Rating to EUR12.10MM Cl. F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned credit ratings to Tikehau CLO V B.V.'s
class X, A, B-1, B-2, C-1, C-2, D-1, D-2, E, and F notes. At
closing, Tikehau CLO V also issued an unrated subordinated class of
notes.
The ratings assigned to Tikehau CLO V's notes reflect S&P's
assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which meets our bankruptcy
remote requirements outlined in our legal criteria.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will permanently switch to semiannual payment. The
portfolio's reinvestment period will end approximately four and
half years after closing.
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality. We consider that the portfolio is
well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow
collateralized debt obligations.
"In our cash flow analysis, we used the EUR440 million target par
amount, the covenanted weighted-average spread (3.70%), the
covenanted weighted-average coupon (5.00%; where applicable), the
target minimum weighted-average recovery rates at the 'AAA' rating
(as indicated by the manager), and the actual recovery rates at all
other rating levels.
"We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"The documented downgrade remedies are in line with our current
counterparty criteria.
"The transaction's legal structure, which meets our bankruptcy
remote requirements outlined in our legal.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for each class
of notes."
Ratings List
Tikehau CLO V B.V.
Class Rating Amount (mil. EUR) Spread/coupon (%)
X AAA (sf) 2.20 3M EUR + 0.50
A AAA (sf) 272.80 3M EUR + 1.10
B-1 AA (sf) 36.80 3M EUR + 1.80
B-2 AA (sf) 5.00 2.30
C-1 A (sf) 19.30 3M EUR + 2.45
C-2 A (sf) 7.10 3M EUR + 2.95*
D-1 BBB (sf) 24.80 3M EUR + 3.90
D-2 BBB (sf) 6.00 3M EUR + 4.40*
E BB (sf) 25.30 3M EUR + 5.82
F B (sf) 12.10 3M EUR + 8.42
Sub notes NR 39.80 Excess
* The class C-2 and D-2 notes will not have a EURIBOR floor until
the end of the non-call period, with spreads of 2.95% and 4.40%,
respectively. Following the non-call period, the EURIBOR is floored
at 0% with the same spread as the class C-1 and D-1 notes,
respectively.
NR--Not rated
3M EUR: 3-month EURIBOR
===========
P O L A N D
===========
URSUS SA: Accelerated Arrangement Proceedings Discontinued
----------------------------------------------------------
Reuters reports that Ursus SA said on Sept. 5 it received a court
decision discontinuing the company's accelerated arrangement
proceedings.
According to Reuters, the company said that the court has named
delay or not settling current obligations, high turnover in
composition of the management board and too slow costs
restructuring as reasons to discontinue the proceedings.
Ursus SA is a Polish producer of agricultural machinery located in
Lublin.
ZAKLADY MIESNE: Court Appoints Administrator
--------------------------------------------
Reuters reports that Zaklady Miesne Henryk Kania SA said on Sept. 7
that the court has resolved to revoke the company's management
board and appoint an administrator under the company's accelerated
arrangement proceedings.
According to Reuters, the company said that as a result of the
decision, which is valid and effective as of the date of its
announcement, the company's management board has lost powers to
take liabilities and manage its assets.
The administrator has taken over the management of the company's
arrangement assets as of Sept. 6, Reuters discloses.
Zaklady Miesne Henryk Kania SA (formerly IZNS Ilawa SA) is a
Poland-based company engaged in food processing.
=========
S P A I N
=========
BERING III: Moody's Reviews B2 CFR for Downgrade
------------------------------------------------
Moody's Investors Service placed on review for downgrade the B2
corporate family rating and a B2-PD probability of default rating
of Bering III S.a r.l., the parent company of Spanish fishing
company Grupo Iberica de Congelados S.A. Concurrently, Moody's has
also placed on review for downgrade the B2 rating on the EUR310
million senior secured 1st lien term loan B facilities due 2024 and
to the EUR75 million Revolving Credit Facility due 2024 (together
the senior secured facility) raised by Bering III. The outlook has
been changed to rating under review from stable.
The rating action follows the downgrade, on August 30, of the
Government of Argentina's foreign-currency and local-currency
long-term issuer and senior unsecured ratings to Caa2 from B2 and
of Argentina's long-term foreign-currency bond ceiling to Caa1 from
B1.
"Around 55% of Iberconsa's fleet and 69% of its fishing activity is
based in Argentina. We have placed Iberconsa's ratings on review
for downgrade to assess the impact on its credit profile of the
increased risk of operating in Argentina, as reflected by the
downgrade of the foreign currency country ceiling to Caa1," says
Paolo Leschiutta, a Moody's Senior Vice President and lead analyst
for Iberconsa.
The rating action reflects the large exposure of the company to
assets and operating facilities located in Argentina. Although
Moody's would not expect any major direct consequences on the
company's financial profile as a result of the government's
downgrade, Moody's cannot exclude that the Argentinian government
might impose more restrictive rules or changes in regulations that
might have a negative impact on Iberconsa's profit and cash
generation.
RATINGS RATIONALE
The decision to place all ratings of Iberconsa on review for
downgrade reflects the company's reliance on its operations in
Argentina. Although the impact of recent events in Argentina on the
company's future profitability and cash flow generation remain
uncertain, the rating review takes into account the country ceiling
of Caa1 in Argentina, two notches below the current B2 rating of
Iberconsa.
The review will focus on:
- The risk that the government might consider introducing adverse
regulatory changes that might increase competition or result in
higher export taxes for Iberconsa;
- The potential that the company's operations might be disrupted
as a consequence of difficulties in making payments in local or
hard currencies because of the capital controls imposed in
Argentina;
- The potential negative impact of the high inflationary
environment in Argentina and the possible impact on the company's
profitability;
- The broader consequences on the company's liquidity profile.
Given Iberconsa's material exposure to Argentina, where the
substantial majority of its catch is caught and/or processed, the
review will consider the extent to which its ratings should either
be linked more closely to Argentina's rating or to some extent
constrained by its now lower country ceiling.
Moody's understands that the company sources approximately 69% of
its catches from Argentina which are processed or shipped from
Argentinian facilities. Furthermore Argentinian shrimps represent
more than 50% of group profit and require a higher level of inland
processing. Although Moody's believes the current regulatory regime
is favourable to the company, allowing for high margins and
supporting positive free cash flow generation, the rating agency
cannot exclude that more adverse rules or taxes might be put in
place by the government which might result in lower cash generation
for the company.
The rating agency also acknowledges that the company has a track
record of maintaining good operations during prior crises in
Argentina and in managing volatility in export taxes. Furthermore
Moody's recognises that the company generates less than 1% of its
revenues in Argentina and a significant portion of its cash in
Spain, which mitigate to a certain extent potential adverse rules.
Moody's also recognizes that the company has no local debt and
mainly sell its products into hard currencies which protects it to
an extent, from the risk of moratorium on its financial liabilities
or difficulties in sourcing hard currencies. However, the recently
implemented capital controls may restrict the company's ability to
manage its cash.
The B2 rating of Bering III continues to be supported by
Iberconsa's (1) well established fishing operations in the southern
hemisphere; (2) the regulatory barriers provided by the current
licenses and quotas systems; (3) the strong growth fundamentals in
fishing consumption globally; and (4) positive free cash flow
generation and high operating margins that allow for some
volatility in performance.
The ratings are constrained by Iberconsa modest size, narrow
geographic diversification both in terms of procurement and sales
distribution, and potential volatility in its operating performance
as the company remains exposed to a number of factors beyond
management's control like availability of fish, potential
regulatory changes, weather conditions, market prices of fish
products, oil price movements and foreign currency volatility.
Iberconsa's geographic diversification is also limited with
significant reliance on emerging markets for its procurement
activity which increases operational risks and constrains the
rating.
WHAT COULD CHANGE THE RATING UP/DOWN
The ratings are currently under review for downgrade. Prior to the
ratings review process, Moody's said that the company's business
profile including its modest size and exposure to a number of
external factors limits upside potential on the rating. However,
positive rating pressure could materialise in case of (1) long
track record of stable operating margins and proven ability to
weather potential market price volatility; (2) sustained operating
margin, measured as Moody's adjusted EBIT margin, above 15%; (3) a
Moody's adjusted debt to EBITDA reducing below 4.0x on a
sustainable basis.
Prior to the rating review process, Moody's said that the rating
could be downgraded if (1) operating margin declines below 10% for
more than one year; (2) deterioration in free cash flow generation
and/or large acquisitions had to lead to a sustainable increase in
financial leverage so that the company's Moody's adjusted debt to
EBITDA does not remain below 5.5x; (3) more aggressive financial
policy that leads to a permanent deterioration in credit metrics;
and (4) weakening in the company's liquidity profile.
LIST OF AFFECTED RATINGS
Issuer: Bering III S.a r.l.
On Review for Downgrade:
LT Corporate Family Rating, Placed on Review for Downgrade,
currently B2
Probability of Default Rating, Placed on Review for Downgrade,
currently B2-PD
Senior Secured Bank Credit Facility, Placed on Review for
Downgrade, currently B2
Outlook Actions:
Outlook, Changed To Rating Under Review From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Protein and
Agriculture published in May 2019.
COMPANY PROFILE
Bering III, headquartered in Luxemburg, is the parent company of
Grupo Iberica de Congelados S.A., incorporated in Spain, which main
activity is to catch, process and distribute frozen hakes, shrimps
and squid. The company fishes in Argentina, Namibia and South
Africa, freezes its catches directly on its vessels or in some
production facilities in Argentina or South Africa and distributes
its product mainly across Europe, particularly in Spain, Italy and
Portugal and across Asia, mainly in China and Japan. In 2018 the
company reported revenues and EBITDA of EUR344 million and EUR70
million, respectively.
=====================
S W I T Z E R L A N D
=====================
MATTERHORN TELECOM: Moody's Affirms B2 CFR, Outlook Stable
----------------------------------------------------------
Moody's Investors Service affirmed Matterhorn Telecom Holding SA's
B2 corporate family rating and B2-PD probability of default rating.
Concurrently Moody's has also affirmed the B2 instrument ratings on
the CHF450 million senior secured notes due May 2022 issued by
Matterhorn Telecom SA, a direct subsidiary of Matterhorn Telecom
Holding SA. Moody's has also assigned a B2 instrument rating to the
new senior secured facilities due September 2026 amounting to
CHF1,150 million to be split between a term loan B facility and
senior secured notes and to the new CHF75 million revolving credit
facility (RCF) due 2024 to be issued by Matterhorn Telecom SA. The
outlook is stable.
Salt will use the proceeds from the new term loan B facility and
new senior secured notes, the c.CHF0.8 billion proceeds from the
sale of a 90% equity interest in the company owning Salt's passive
mobile infrastructure in Switzerland (TowerCo) to Cellnex Telecom
SA (Cellnex), and cash on balance sheet to (1) repay the EUR367
million senior notes due May 2023 (CHF287 million equivalent
outstanding as of June 30, 2019), (2) refinance the EUR1,000
million senior secured notes due May 2022 (CHF1,109 million
equivalent outstanding as of June 30, 2019), (3) refinance the
EUR525 million senior secured floating rate notes due February 2023
(CHF83 million equivalent outstanding as of June 30, 2019), (4)
partly repay CHF111 million of the CHF450 million senior secured
notes due May 2022 (CHF411 million outstanding as of June 30,
2019), (5) pay breakage costs and transaction expenses, and (6)
distribute a CHF350 million dividend to NJJ Capital SAS (NJJ). The
rating on the debt instruments that will be repaid as part of this
refinancing exercise will be withdrawn upon repayment.
"The rating affirmation reflects our view that the financial impact
of the combined tower sale, refinancing and dividend
recapitalization is marginally credit negative, as adjusted
leverage (based on IFRS16) will remain broadly unchanged after the
deals, while financial flexibility will diminish. However, this is
broadly offset by the progress that the company has made in recent
years in stabilizing key performance indicators (KPIs), and
improving its performance, network quality and product offering,"
says Sebastien Cieniewski, Moody's lead analyst for Salt.
RATINGS RATIONALE
The rating action to affirm Salt's B2 CFR reflects (1) the
relatively neutral impact of the refinancing and TowerCo disposals
transactions on the company's Moody's adjusted gross leverage
(inclusive of Indefeasible Rights of Use (IRUs) commitments) which
will remain at 5.3x as of December 31, 2018 (based on IFRS16
accounting including the impact of the operating lease contract
with Cellnex), (2) the improving underlying operating performance
of the company supported by continued subscribers net adds and a
stabilization of the average revenue per user (ARPU) following a
period of steady decline, and (3) the good traction of Salt's fiber
product launched in 2018 which provides the company diversification
to its mobile-oriented business model.
However these factors are mitigated by (1) Salt's
shareholder-friendly financial policy, as approximately 40% of the
proceeds from the sale of the TowerCo will be used for dividend
payments, (2) the weaker free cash flow (FCF) generation projected
by Moody's at around CHF100 million per annum over the next three
years compared to an average of around CHF200 million during the
period 2016-2018 negatively impacted by payments to Cellnex, the
loss of wholesale revenues with UPC and Coop, increasing capital
expenditures related to fiber connections and the rollout of 5G,
and higher taxes, and (3) the pressure on EBITDA over the
short-term from the loss of revenue following the termination of
the wholesale agreements and increased spend on commercial
activities and operations to support the launch of the fiber
offering, among others.
The rating also takes into account the following environmental,
social and governance (ESG) considerations. From a corporate
governance perspective, Moody's notes that Salt has distributed
significant dividends to NJJ since the takeover in 2015 with a
cumulative amount of c.CHF1.1 billion including the contemplated
distribution of CHF350 million as part of the transaction. Moody's
flags the risk of further distributions subject to restricted
payments limitations.
Salt benefits from an adequate liquidity position supported by a
cash balance of CHF155 million as of June 30, 2019 (pro forma for
the transactions and adjusted for CHF95 million spectrum auction
costs paid in July 2019) and the CHF75 million RCF fully undrawn at
the closing of the transaction. The RCF is subject to a springing
financial covenant with a 40% headroom based on structuring EBITDA
tested only when the facility is drawn by more than CHF35 million.
As part of the rating action Moody's has loosened the
upwards/downwards adjusted leverage triggers for Salt by 0.25x.
This reflects the material progress made by Salt over the last four
years in improving its business profile as demonstrated by enhanced
KPIs and in diversifying its revenue base through the launch of a
fiber product which has shown good commercial traction since its
launch in 2018.
STRUCTURAL CONSIDERATIONS
Salt's B2-PD PDR reflects its assumption of a 50% family recovery
rate typically used in structures including a mix of bank debt and
bonds. Pro forma for the transaction, the company's debt structure
will include the RCF, the term loan B facility, and the senior
secured notes. These facilities will rank pari passu and will share
the same guarantee and security package, the latter comprising
share pledges, bank accounts and intercompany receivables. The B2
instrument rating on the RCF, the term loan B facility, and the
senior secured notes, at the same level as the CFR, thus reflects
the absence of any liabilities ranking ahead or behind.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the company
will continue to experience positive underlying operating
performance as growth in net adds and a stabilization of average
revenue per user (ARPU) following a long period of decline will
result in an improvement in adjusted leverage to below 5.25x over
the next 18-24 months while generating positive free cash flow. The
stable outlook also reflects Moody's expectation that Salt will
remain committed to maintaining its net leverage within its public
target of between 3.5x to 4.0x (as reported by the company before
IFRS16).
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the B2 CFR could develop if the company's
operating performance significantly improves, including sustained
revenue growth supported by subscriber net adds and improving ARPU,
such that its (1) adjusted debt/EBITDA decreases to below 4.25x on
a sustained basis, and (2) retained cash flow/adjusted debt
increases well above 15%. Upward pressure on the rating would
require a track record of deleveraging, with indications of a more
conservative financial strategy to be implemented by the
shareholders.
Downward pressure could be exerted on the rating if the company's
operating performance deteriorates, with a sustained decline
leading to pressure on margins, such that its adjusted debt/EBITDA
is maintained at above 5.25x and its retained cash flow/adjusted
debt falls below 10% on a sustained basis. In addition, downward
pressure would be exerted on the rating if concerns about the
group's liquidity arise.
LIST OF AFFECTED RATINGS
Assignments:
Issuer: Matterhorn Telecom SA
Senior Secured Bank Credit Facility, Assigned B2
BACKED Senior Secured Regular Bond/Debenture, Assigned B2
Affirmations:
Issuer: Matterhorn Telecom Holding SA
Probability of Default Rating, Affirmed B2-PD
Corporate Family Rating, Affirmed B2
Issuer: Matterhorn Telecom SA
BACKED Senior Secured Regular Bond/Debenture, Affirmed B2
Outlook Actions:
Issuer: Matterhorn Telecom Holding SA
Outlook, Remains Stable
Issuer: Matterhorn Telecom SA
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was
Telecommunications Service Providers published in January 2017.
COMPANY PROFILE
Salt is the third-largest mobile network operator in Switzerland,
with a subscriber market share of around 16.4% and about 1.8
million mobile customers as of June 2019. In the last twelve months
(LTM) period to June 30, 2019, the company reported total revenue
and company-adjusted EBITDA of CHF1,034 million and CHF453 million,
respectively (excluding IFRS15 and 16). The company is owned by
NJJ, Xavier Niel's private holding company, which holds various
stakes in a broad range of companies in Europe, including eircom
Holdings (Ireland) Limited (B1 stable) and Monaco Telecom.
===========
T U R K E Y
===========
TURKISH AERONAUTICAL: TRY1.4-Bil. Bank Debt Restructured
--------------------------------------------------------
Ali Kucukgocmen at Reuters reports that the Turkish Aeronautical
Association (THK) said on Sept. 6 that its bank debt amounting to
TRY1.4 billion (US$245.36 million) is being restructured upon
instructions from President Tayyip Erdogan.
According to Reuters, THK Chairman Bertan Nogaylaroglu said on the
association's website that its debt owed to state lender Vakifbank
was restructured on Sept. 6 and the rest of the TRY1.4 billion debt
would be restructured within a week.
THK's tax and social security debt will also be restructured as
soon as possible, Reuters notes.
=============
U K R A I N E
=============
DTEK ENERGY: Moody's Upgrades CFR to Caa2, Outlook Stable
---------------------------------------------------------
Moody's Investors Service upgraded the corporate family rating of
DTEK Energy B.V. to Caa2 from Ca. The outlook on the rating is
stable. Concurrently, Moody's has upgraded DTEK Energy's
probability of default to Caa2-PD from Ca-PD.
The rating action follows the change in outlook to positive in
Februray 2017, and reflects the improvement of DTEK Energy's credit
profile and increases in Ukraine's foreign-currency bond country
ceiling since 2015.
A corporate family rating is an opinion of the DTEK group's ability
to honour its financial obligations and is assigned to DTEK as if
it had a single class of debt and a single consolidated legal
structure.
RATINGS RATIONALE
The upgrade of DTEK Energy's CFR reflects significant progress in
restructuring the group's debt, reductions in net debt and
improvements in funds from operations (FFO). Although 10% of the
company's debt remains in default following a series of
restructurings between 2015 and 2018, the company has made
sufficient provision for restructuring the remaining loans on
equivalent terms when legal impediments, outside of the company's
control, are resolved.
The rating reflects DTEK Energy's strong market position in
electricity generation in Ukraine. The company's ratio of FFO to
net debt improved to 28% in 2018, compared to approximately zero in
2015, and Moody's expects it to stablilise at a similar level in
2019.
The rating is constrained by (1) the mismatch between DTEK Energy's
revenues, which are largely denominated in Ukrainian hryvnia, and
its borrowings, which are mostly denominated in US dollars; (2)
risks associated with the National Anti-Corruption Bureau of
Ukraine's (NABU) investigation into the "Rotterdam+" formula
formerly used to set wholesale electricity prices in the Ukraine,
which has named certain DTEK employees; (3) uncertainty about the
profitability of coal-fired generation in the Ukraine following
fundamental changes to the operation of the market in July 2019,
and the potential integration with the EU Emissions Trading Scheme;
and (4) the weak rule of law, pervasive corruption and risk of
disorderly political transition in the country and reflected in the
rating of the Government of Ukraine (Caa1 stable).
RATING OUTLOOK
The outlook on the rating is stable, reflecting Moody's expectation
that DTEK Energy will achieve further reductions in debt and
broadly stable FFO. The outlook also reflects the stable outlook on
the Government of Ukraine.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the rating could arise from an improvement of
the macroeconomic environment in Ukraine, establishment of a track
record of profitable operation in the new electricity market, and a
favourable resolution of the NABU investigation.
The rating could be downgraded if macroeconomic conditions were to
deteriorate, particularly if there was a significant devaluation of
the Ukrainian hryvna, if the profitability of coal-fired generation
in Ukraine was impaired, if the NABU investigation resulted in a
material financial impact, or if liquidity weakened significantly.
The principal methodology used in these ratings was Unregulated
Utilities and Unregulated Power Companies published in May 2017.
DTEK Energy is Ukraine's largest private power generator as well as
coal mining and processing company. As of December 31, 2018, the
group operated eight thermal power generation plants as well as one
heat and power plant with total installed capacity 13,550 megawatts
(MW), five coal processing plants, 16 coal mines and two
coal-related machinery manufacturers. DTEK Energy accounts for
around 23% of Ukraine's total generated electricity and operates in
the Donetsk, Lugansk, Vinnitsa, Ivano-Frankovsk, Lvov, Zaporozhe
and Dnipropetrovsk regions. DTEK Energy accounts for more than 70%
of coal mining in Ukraine.
DTEK Energy is fully owned by a larger energy holding company, DTEK
B.V., which also operates in the electricity distribution and
supply, renewable energy, gas production and commodity trading
businesses within Ukraine. DTEK B.V. is fully owned by the
financial and industrial group System Capital Management, whose
100% shareholder is Rinat Akhmetov.
===========================
U N I T E D K I N G D O M
===========================
ASTON MIDCO: S&P Assigns Preliminary 'B-' Rating, Outlook Stable
----------------------------------------------------------------
S&P Global Ratings assigned 'B-' preliminary ratings to Aston Midco
(Advanced), the proposed GBP75 million first-lien senior secured
revolving credit facility, and the GBP510 million multicurrency
first-lien senior secured term loans.
S&P is also placing its 'B' issuer credit rating on Air Newco 5
Sarl, Advanced's current holding company, on CreditWatch negative,
indicating that it expects to lower the rating to 'B-' when the
leveraged buyout closes.
Following the deal between private equity firm BC Partners and
Vista Partners, each will have a 50% stake in Advanced. As part of
BC Partner's acquisition, Advanced plans to issue:
-- A multicurrency GBP510 million first-lien senior secured term
loan that has cross-currency hedges;
-- A GBP269 million multicurrency second-lien senior secured term
loan that has cross-currency hedges; and
-- A combination of preferred equity certificates and common
equity.
The proceeds will be used to fund the buyout and refinance all
outstanding debt issued by Advanced's current holding company, Air
Newco 5.
S&P said, "The preliminary rating on the new holding company, Aston
Midco, indicates that we expect Advanced's reported debt after the
transaction to increase by about GBP200 million to GBP780 million.
The company's forecast S&P Global Ratings-adjusted debt to EBITDA
would therefore increase to about 8.0x-8.5x in FY2020 (we previous
forecast it to be 6.5x) and its free operating cash flow (FOCF) to
debt would be forecast at 2%-4%, compared with 5%-6% previously.
"The final ratings will depend on our receipt and satisfactory
review of all final transaction documentation. Accordingly, the
preliminary ratings should not be construed as evidence of final
ratings. If S&P Global Ratings does not receive final documentation
within a reasonable time frame, or if final documentation departs
from materials reviewed, we reserve the right to withdraw or revise
our ratings. Potential changes include, but are not limited to, use
of loan proceeds, maturity, size and conditions of the loans,
financial and other covenants, and ranking.
"Our rating on Advanced is also constrained because being owned by
financial sponsors and having a proven appetite for acquisitions
could make it less likely to reduce debt in the medium term. We see
an ongoing risk that Advanced could undertake debt-funded
shareholder remuneration or acquisitions.
"Given that all interest is unhedged and variable to U.S. dollars
and sterling LIBOR, we see elevated interest rate risk. Under the
proposed highly leveraged capital structure, significant interest
rate hikes could eat into cash flow generation. We estimate that
the 1%-2% hike in interest rates in our forecast could lead to
break-even reported FOCF. We expect S&P Global Ratings-adjusted
EBITDA cash interest coverage of about 1.5x-1.6x (pro forma full
year interest expense) in FY2020 and FY2021, compared with the
2.0x-2.5x we previously expected.
"Our rating on Advanced is supported by our expectation of ongoing
positive cash generation, despite the annual interest bill being by
GBP25 million-GBP30 million higher following the secondary LBO.
This is due to limited working capital from better accounts
receivable management and limited capital expenditure (capex) at
about 4%-5% of revenues (including capitalized development costs).
"We expect Advanced to report FOCF of about GBP10 million-GBP15
million in FY2020, pro forma the full year interest expense of the
proposed debt structure. This is less than the GBP35 million-GBP40
million we previously forecast. As a result, our adjusted FOCF to
debt is likely to be about 2% in FY2020 (pro forma full year
interest expense of the proposed capital structure), compared with
our previous expectation of 5%-6%.
"Our view of Advanced's business risk profile is constrained by the
company's small scale and limited geographic diversity compared
with other established software peers. In FY2019, its revenues (pro
forma the acquisition) were about GBP260 million and all were
generated in the U.K. The company offer software to mid-market
companies, a highly competitive and fragmented market in which it
does not benefit from a clear dominant position. The industry has
only limited barriers to entry, especially in the education, legal,
and managed services segments. Advanced competes with both large
stablished players like Capita and smaller IT and software
companies."
These weaknesses are partly offset by Advanced's solid positions in
the niche segments of health care solutions and back-office
enterprise resource planning (ERP) solutions in the U.K., and its
position as the No. 4 software provider in the U.K.'s financial
management software market. In addition, Advanced benefits from
relatively high customer loyalty. It has a client retention rate of
about 90% and a significant proportion of recurring revenues
(67%-68%), which gives the company relatively good revenue
visibility. S&P anticipates that its past acquisitions will help it
unlock cross-selling and upselling capabilities, while maintaining
low customer churn. This could help it slowly increase the share of
recurring revenues to about 70% in FY2020.
S&P said, "Advanced's operating efficiency has also improved since
it successfully executed its cost transformation program over the
past three years. We therefore expect EBITDA margins (before
exceptional costs, but after capitalized development costs) to
increase to about 36% in FY2021 from about 30% in FY2018. Our
adjusted EBITDA figure still reflects the negative impact of
exceptional costs related to acquisition financing and related
integration costs, but we expect restructuring costs from the
cost-cutting program to subside as it comes to an end.
"The stable outlook reflects our expectation that Advanced will
grow revenues organically at 2%-4% and maintain EBITDA margins at
about 35%. These factors should enable the company to reduce its
adjusted leverage to 7.5x-8.0x in FY2021 from 8x-8.5x in FY2020 and
generate reported FOCF of about GBP10 million-GBP15 million and
EBITDA cash interest coverage of about 1.5x.
"We could lower the rating if Advanced were to experience high and
prolonged customer churn, leading to negative free cash flow and
EBITDA cash interest coverage falling closer to 1x, which would
make the proposed capital structure unsustainable."
This could happen if competition intensified and there were severe
macroeconomic headwinds.
S&P said, "We see an upgrade as unlikely over the next 12 months
due to our expectation that a significant reduction in debt will be
limited by Advanced's appetite for acquisitions and private equity
ownership. We could raise the rating over the longer term if
Advanced reduces adjusted debt to EBITDA less than 7x, increases
FOCF to debt above 5%, and increases EBITDA interest coverage above
2x on a sustainable basis.
"We could also affirm the 'B' rating on Air Newco 5 if the proposed
leveraged buyout doesn't successfully close."
THOMAS COOK: Fitch Downgrades LT Issuer Default Rating to 'C'
-------------------------------------------------------------
Fitch Ratings has downgraded Thomas Cook Group Plc's Long-Term
Issuer Default Rating to 'C' from 'CC'.
The downgrade follows the announcement by TCG of the proposed key
commercial terms of the recapitalisation plan with Fosun Tourism
Group (Fosun), core lending banks and a majority of senior
bondholders. As expected, absent of other alternative plans which
could have avoided a default of the group's financial obligations,
the proposed plan entails a comprehensive debt write-down for
senior unsecured noteholders.
KEY RATING DRIVERS
Debt-for-Equity Swap Underway: The key commercial terms outlined in
the explanatory statement published on August 30, 2019 include the
conversion of the existing EUR750 million and EUR400 million bonds
due 2022 and 2023, along with the 2017 revolving credit facility
(RCF), into equity. With such conversion and the planned
contribution of GBP450 million of new money, noteholders and RCF
creditors will be entitled to around 75% of the equity of the group
airline and up to 25% of the new equity in the group tour operator
provided that creditors inject their expected share of money to
receive shares. Fitch views such a swap as equivalent to a
distressed debt exchange (DDE).
Subject to Creditor Approval: TCG is seeking approval by September
20, 2019 from bondholders and lenders of the RCF to amend the
consent thresholds to modify material provisions, including the
releases of relevant principal debt and/or subsidiary guarantees.
This is an important step in successfully concluding the
recapitalisation plan, which the group aims to close by early
October.
Downgrade to 'RD' in Prospect: If the recapitalisation plan is
approved, upon completion, Fitch will downgrade the IDR to 'RD'
(Restricted Default). Subsequently, Fitch will re-assess TCG's IDR
and assign a rating consistent with the agency's forward-looking
assessment of the group's credit profile following the DDE.
Recapitalisation Equivalent to DDE: In light of the progress on the
recapitalisation plan, TCG is allowing the terms of its GBP300
million secured bridge financing announced in May 2019 to expire.
Therefore, it has at present no viable alternatives to operate
during the winter season, when liquidity is at its seasonal low,
other than concluding the restructuring. As a result, Fitch
believes that the recapitalisation plan, in addition to entailing a
comprehensive debt write-down, is also conducted to avoid
insolvency and resolve TCG's unfunded liquidity position, in line
with the definition of a DDE according to Fitch's criteria.
New Money to Support Business Growth: In addition to the new money
expected to be provided by existing creditors, the remaining equity
stake will be assigned to Fosun in return for an additional GBP450
million of new money. If approved this plan should allow TCG to
show an improved balance sheet with sufficient financial
flexibility to fund its ample intra-year seasonal working capital
as well as invest in growth strategies such as upgrading its IT/web
systems and further develop its own-brand hotel concepts.
DERIVATION SUMMARY
The 'C' IDR reflects a default or default-like process for TCG has
begun. Fitch believes the default-like process will likely conclude
in a DDE as represented by the proposed debt-to-equity conversion.
KEY ASSUMPTIONS
Fitch's Key Assumptions within its Rating Case for the Issuer:
Revenue of GBP8.7 billion in financial year to September 2019
FY19 EBITDA of GBP250 million, which is lower than previously
forecasted on the back of weaker-than-expected segment
performances
Once the proposed debt restructuring completes Fitch will establish
new assumptions in support of its long-term forecasts for the new
capital structure. This will happen once Fitch has discussed TCG's
revised business plan with management and completed its
assessment.
RECOVERY ASSUMPTIONS
- Its recovery analysis assumes that TCG would be treated as a
going concern in a restructuring after assuming a 10%
administrative claim.
- TCG's going-concern EBITDA is based on expected FY19 EBITDA of
GBP250 million. Fitch continues to assume a distressed enterprise
value (EV)/EBITDA multiple of 3.0x.
- Its waterfall analysis generated a ranked recovery in the 'RR5'
band for senior unsecured instruments, indicating a 'C' instrument
rating. The waterfall analysis output percentage on current
assumptions was 23%.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- An upgrade is not currently envisaged under the existing
capital structure. A new capital structure leading to a sustainable
debt service capability and improved liquidity, which will also
enable the tour operator and airline businesses to strengthen their
operating profile, may be positive for the ratings
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Implementation of DDE, which will lead to a downgrade to 'RD'
- Application to bankruptcy or liquidation proceedings, which
will lead to a downgrade to 'D'
LIQUIDITY AND DEBT STRUCTURE
Unfunded Liquidity Position: Fitch believes TCG will not have
enough liquidity to fund its working capital cycle for the coming
winter season with the current funds available. According to
unaudited figures as of July 31, 2019, TCG has only GBP484 million
of cash and cash-equivalent on balance sheet, compared with GBP1
billion in 2018. This leads to negative Fitch-defined readily
available cash after deducting GBP1 billion of cash for working
capital purposes due to the highly seasonal nature of the
business.
Fitch expects the group to have no access to the commercial paper
market in its current financial position and to have fully drawn
the RCF at FYE19, leaving no extra cash available to pay suppliers,
typically after the summer season.
WELLINGTON PUB: Fitch Affirms B+ Rating on Class A Notes
--------------------------------------------------------
Fitch Ratings has affirmed Wellington Pub Company plc's class A
notes at 'B+' and class B notes at 'B-'. The Outlooks are Stable.
Wellington is a securitisation of rental income from 731
free-of-tie pubs, mainly located in residential areas across the
UK, with a strong presence in the South East and London.
KEY RATING DRIVERS
Wellington's untied leased business model hinders its ability to
adapt to the dynamic and increasingly competitive UK eating- and
drinking-out market. Declining and low projected free cash flow
(FCF) debt service coverage ratio (DSCR) metrics, weak structural
features and deficiencies in the transaction's structure also
constrain the ratings. Fitch's projected FCF DSCRs at 1.3x and 1.1x
for the class A and B notes are higher than pub sector peers.
However, Fitch views this as appropriate given the structural and
business model weaknesses.
Structural Decline but Strong Culture - KRD: Industry Profile –
Midrange
The UK pub sector has a long history, but trading performance has
shown significant weakness in the past. The sector has been in
structural decline for the past three decades due to demographic
shifts, pricing pressure, greater health awareness and the growing
presence of competing offerings. Exposure to discretionary spending
is high and revenue is therefore linked to the broader economy.
Competition is stiff, including off-trade alternatives, and
barriers to entry are low. Despite the on-going contraction, Fitch
views the sector as sustainable in the long term, supported by a
strong UK pub culture.
Sub KRDs: Operating Environment - Weaker, Barriers to Entry -
Midrange, Sustainability - Midrange.
Free-of-Tie Model, Under-Invested Estate - KRD: Company Profile –
Weaker
The free-of-tie model implies limited operational management but
reduces visibility of tenants' profitability and increases
uncertainty over projected cash flows. Lease renewals remain a
major risk as a large portion of the portfolio is due for renewal
over the next three years. Positively, the number of pubs on long
leaseholds has been stable for the last few years and the
proportion of leases with inflation-linked rents have increased.
Repossessions and rent arrears have stabilised, although levels are
still high and may affect revenue sustainability. Wellington's
acquisitions are insufficient to compensate the revenue loss from
the disposal of weaker pubs. Multiple alternative operators are
available.
The company's and tenants' low capex adversely impacts property
values and pub profitability. Around 60% of the portfolio is
suffering from deferred maintenance and around 10% requires
significant capex (more than GBP20,000 per pub).
Sub-KRDs: Financial Performance - Weaker; Company Operations -
Weaker, Transparency - Weaker; Dependence on Operator - Stronger;
Asset Quality - Weaker
Structural Issues Drive Weaker Assessment - KRD: Debt Structure -
Weaker (class A, B)
The class A and B notes are fully amortising, secured and
fixed-rate, and the class B notes' debt service is structured to
decrease over time. The class B notes rank junior to the class A
notes. The security package features first-ranking fixed and
floating charges over the issuer's assets.
Structural features are weak because of the non-orphan SPV
structure, limited contractual provisions, and an inadequate
liquidity reserve, which only covers about four months of the class
A notes' debt service. Financial covenants providing bondholders
with more control through the appointment of an administrative
receiver well ahead of a payment default are missing.
The subordinated class B notes could deplete the liquidity reserve
as it is not tranched among the class A and B notes. The restricted
payment condition covenant is set at 1.25x, but in practice a
lock-up has never been triggered, despite the DSCR having been
below 1.25x, as a surplus cash account is included in the DSCR cash
release income cover test. Overall, the weak structural features,
combined with the lack of issuer/borrower structure compared with
traditional WBS structures, limit the debt structure assessment for
both classes of notes to weaker.
Sub-KRDs: Debt Profile - class A: Stronger, class B: Midrange,
Security Package - class A: Stronger, class B: Midrange; Structural
Features - class A: Weaker, class B: Weaker
Financial Profile
Fitch's rating case (FRC) projected metrics (minimum of both the
average and median FCF DSCRs) stand at 1.3x for the class A notes
and 1.1x for the class B notes with a declining coverage profile.
PEER GROUP
Wellington is the only Fitch-rated free-of-tie pub transaction.
Fitch views tied leased/tenanted pub WBS transactions such as Punch
B and Unique as peers, albeit with different business models and
revenue streams. Compared with Punch B and Unique, Wellington's
financial performance is weak, and the pubs are significantly less
profitable as measured by EBITDA per pub. Fitch perceives asset
quality to be weaker than that of Punch B and Unique, with similar
transparency issues. Wellington's FCF DSCRs are better than peers,
but the ratings take into account the company's weaker business
model and debt structure.
RATING SENSITIVITIES
Developments that may, individually or collectively, lead to
negative rating action:
- Further FCF deterioration beyond FRC assumptions as a result of
an increase in arrears, pub vacancies and/or foreclosure rates and
slower-than-expected deleveraging, leading to projected FCF DSCR
metrics below 1.2x and 1x for the class A and B notes,
respectively.
Developments that may, individually or collectively, lead to
positive rating action:
- Projected FCF DSCR metrics above 1.5x and 1.2x for the class A
and B notes, respectively
If Wellington's and/or its affiliates' combined portion of holdings
in the transaction's senior notes exceeds 75% (currently 60%),
Fitch will withdraw the ratings as the majority noteholder will be
able to amend the terms of the notes at its own discretion.
CREDIT UPDATE
Performance Update
Total revenues grew by 1.3% and EBITDA by 2.0% during the 12 months
to June 2019. Excluding the profits on property disposals, the
adjusted EBITDA declined by 7.3% to GBP20.1 million. Increased opex
and a decline of 1.3% in the number of properties drove the
adjusted EBITDA decline. Opex was mainly affected by a further
increase in planning and development costs of properties marked for
an alternative use as quite a large proportion of leases has
expired recently.
Strategy of Selling Bottom End Pubs
The company has continued to follow a strategy of selling bottom
end and /or problem properties and those that have a higher
alternative use value. Wellington disposed of 10 properties in the
12 months to June 2019. The disposal proceeds helped cover
increased planning and development costs. In addition, Wellington
actively looks into alternative uses for the closed/unviable pubs.
Tenants Impacted by Industry Cost Pressures
Pub tenants are exposed to discretionary spending, stiff
competition including from the off-trade, as well as other factors
such as minimum wages, taxes and utility costs. The UK's decision
to leave the EU also increases uncertainty. All these factors put
pressure on tenants' ability to pay rent. Fitch will continue to
monitor the cost pressure that Wellington's tenants face, as this
could have a significant impact on profitability.
Exposure to "No-deal" Brexit
The securitisation is not directly exposed to a potential
short-term disruption in supply of products in a "no-deal" Brexit
scenario as it is free-of-tie. However, the transaction remains
exposed to discretionary spending and general economic development.
If Brexit has a dampening effect on the UK economy, this could lead
to lower consumer confidence and discretionary spending. The
patronage levels in pubs may decline as a result and publicans'
ability to pay rent worsen.
Reported Metrics
Reported metrics have declined, with adjusted EBITDA DSCR for the
quarter ending June 2019 at around 1.1x, suggesting a tightened
ongoing limited margin of safety.
Fitch Cases
The FRC envisages gradually declining FCF due to limited rental
uplift, in addition to increasing opex and capex.
The Fitch stress case further stresses rental uplift, which results
in FCF declining by around 3% per year. Under this scenario, the
minimum FCF DSCR for the class A notes remains at 1x, while for the
class B notes the metric falls below 1x, which suggests a reliance
on the GBP6 million cash reserve to pay the debt service.
*********
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.
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