/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190917.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 17, 2019, Vol. 20, No. 186 Headlines F R A N C E E-CARAT 10: S&P Assigns Prelim. CCC+ Rating on Class G Debt G E R M A N Y SENVION GMBH: In Exclusive Sale Talks with Siemens Gamesa I R E L A N D AVOCA CLO XVII: S&P Gives Prelim. B- Rating on EUR54MM Class F Debt L U X E M B O U R G UNIGEL LUXEMBOURG: Fitch Rates New Unsec. Notes Due 2026 'B+' P O L A N D ZAKLADY MIESNE: Administrator Wants Rescue Plan Deadline Extended P O R T U G A L PELICAN MORTGAGES 4: Fitch Affirms Bsf Rating on Class E Notes R U S S I A BANK ZENIT: Bank of Russia Launches Restructuring GREENCOMBANK JSC: On Provisional Administration, License Revoked SIBIRSKY SPAS: Put on Provisional Administration, License Revoked TRUDOVOE STRAKHOVANIE: Put on Provisional Administration U K R A I N E UKRAINIAN RAILWAY: Fitch Hikes LT Issuer Default Ratings to B U N I T E D K I N G D O M FLEET TOPCO: S&P Assigns Preliminary 'B+' LT ICR, Outlook Stable THOMAS COOK: Secures Extra Week to Finalize GBP1.1BB Rescue Deal TRAVIS PERKINS: S&P Alters Outlook to Negative & Affirms BB+ ICR VIVION INVESTMENTS: S&P Assigns 'BB' Long-Term ICR, Outlook Stable [*] UK: Plans to Prioritize Debt Repayments in Corp. Insolvencies - - - - - =========== F R A N C E =========== E-CARAT 10: S&P Assigns Prelim. CCC+ Rating on Class G Debt ----------------------------------------------------------- S&P Global Ratings has assigned its preliminary credit ratings to E-CARAT 10 FCT's class A through G-Dfrd notes. The collateral in E-CARAT 10 will comprise German auto loan receivables for cars and light commercial vehicles that Opel Bank GmbH originated and granted to private and commercial customers for the purchase of new (63.3%) and used vehicles (36.7%). The portfolio includes 6% of loans for light commercial vehicles. This transaction will be Opel Bank's 10th German public ABS securitization. The transaction is revolving for a maximum period of 12 months. At closing, E-CARAT 10 will issue a class H-Dfrd subordinated note, which will provide credit enhancement to the class A through G-Dfrd notes because it ranks below the notes for the payment of interest and principal. This note does not form part of the rated capital structure. 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 of the relevant class is above a certain threshold. S&P understands any deferred interest will accrue interest 13 months after the class started deferring in accordance with the French legal framework. All previously deferred interest will be due immediately when the class becomes the most senior. S&P said, "Considering the abovementioned 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, F-Dfrd, and G-Dfrd notes based on our interest shortfall methodology. Our preliminary rating on the class A notes instead addresses the timely payment of interest and ultimate payment of principal. "Our preliminary ratings reflect our analysis of the transaction's payment structure, its exposure to counterparty and operational risks, and the results of our cash flow analysis to assess whether the rated notes would be repaid under stress test scenarios. "We have assigned a preliminary 'BB-' rating to the class E-Dfrd notes, although according to the credit and cash flow stresses applied at this rating level, there is a principal shortfall of about EUR100,000. However, the shortfall occurs only under one scenario, and we consider it to be a minimal size. "We have assigned a preliminary 'B-' rating to the class F-Dfrd notes, as it is not able to withstand the credit and cash flow stresses we apply at our 'B' rating level. According to our "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," we nevertheless consider payment of principal and interest on the notes not to be dependent upon favorable business, financial, or economic conditions, and we therefore expect this class to be repaid in full under current conditions. This class of notes can rely on 2% credit enhancement and is rated based on ultimate payment of both interest and principal. Also the class G-Dfrd notes are not able to withstand our stresses at the 'B' level. We assigned a preliminary 'CCC+' rating to this class because we believe it is more vulnerable than the class F-Dfrd notes as it ranks junior to it. We believe it is dependent upon favorable business, financial, or economic conditions to be repaid, according to our criteria for assigning 'CCC+', 'CCC', 'CCC-', And 'CC' ratings. We also believe that a 'CCC' or 'CCC-' rating is not appropriate for this class because it can rely on 1% credit enhancement. "We have therefore assigned preliminary 'AAA (sf)', 'AA (sf)', 'A (sf)', 'BBB (sf)', 'BB- (sf)', 'B- (sf)', and 'CCC+ (sf)' ratings to the class A, B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, F-Dfrd, and G-Dfrd notes, respectively." Ratings List E-CARAT 10 FCT Class Prelim. rating Prelim. amount (mil. EUR) A AAA (sf) TBD B-Dfrd AA (sf) TBD C-Dfrd A (sf) TBD D-Dfrd BBB (sf) TBD E-Dfrd BB- (sf) TBD F-Dfrd B- (sf) TBD G-Dfrd CCC+ (sf) TBD H-Dfrd NR TBD NR--Not rated. TBD--To be determined. Dfrd--Deferrable. ============= G E R M A N Y ============= SENVION GMBH: In Exclusive Sale Talks with Siemens Gamesa --------------------------------------------------------- Ludwig Burger at Reuters reports that insolvent German wind turbine manufacturer Senvion on Sept. 16 agreed on exclusive talks with Siemens Gamesa over the sale of a substantial part of its business. Senvion, which is in self-administration after becoming insolvent in April, said it planned to hammer out a final deal on certain services and onshore assets in Europe in negotiations with the German-Spanish wind energy company by the end of the month, Reuters relates. According to Reuters, the company said the agreement on exclusive talks is consistent with insolvency plans adopted by the creditors' assembly on Sept. 11 and was also approved unanimously by Senvion's creditors' committee. ============= I R E L A N D ============= AVOCA CLO XVII: S&P Gives Prelim. B- Rating on EUR54MM Class F Debt ------------------------------------------------------------------- S&P Global Ratings assigned its preliminary credit ratings to Avoca CLO XVII DAC's class X, A, B-1, B-2, C, D, E, and F notes. At closing, the issuer will also issue unrated subordinated notes. Avoca XVII is a European cash flow CLO, securitizing a portfolio of primarily senior secured leveraged loans and bonds. The transaction will be managed by KKR Credit Advisors (Ireland). The preliminary ratings assigned to the 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 and portfolio profile 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 we expect to be bankruptcy remote. 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 years after closing. S&P said, "Our preliminary ratings reflect our assessment of the preliminary collateral portfolio's credit quality, which has a weighted-average 'B' rating. We consider that the portfolio at closing 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 CDOs. "In our cash flow analysis, we used the EUR500 million target par amount, the covenanted weighted-average spread (3.45%), the reference weighted-average coupon (5.0%), and the target minimum weighted-average recovery rate as indicated by the collateral manager. 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. "We expect that the transaction's documented counterparty replacement and remedy mechanisms will adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned preliminary ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "We expect that the issuer will be bankruptcy remote at closing, in accordance with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our preliminary ratings are commensurate with the available credit enhancement for each class of notes." Ratings List Avoca CLO XVII DAC Class Prelim. rating Prelim. amount (mil. EUR) X AAA (sf) 1.75 A AAA (sf) 341.00 B-1 AA (sf) 37.75 B-2 AA (sf) 20.00 C A (sf) 38.50 D BBB (sf) 35.53 E BB- (sf) 27.50 F B- (sf) 13.75 Sub notes NR 54.95 NR--Not rated. Sub--Subordinated. =================== L U X E M B O U R G =================== UNIGEL LUXEMBOURG: Fitch Rates New Unsec. Notes Due 2026 'B+' ------------------------------------------------------------- Fitch Ratings has assigned 'B+'/'RR4' ratings to Unigel Luxembourg S.A's new proposed senior unsecured notes of up to USD500 million due 2026. The new issuance will be unconditionally and irrevocably guaranteed by Unigel and its operating subsidiaries Acrilonitrila do Nordeste S.A, Companhia Brasileira de Estireno, Proquigel Quimica S.A. and Plastiglas de Mexico S.A. de C.V. The notes will be unsecured and proceeds will be used to prepay the company's secured debt and for general corporate purposes. Once the transaction is concluded and secured debt prepaid, Unigel's debt should mostly represent an unsecured profile. Fitch currently rates Unigel's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) 'B+'/Outlook Stable. A full list of ratings follows at the end of this release. Unigel's ratings reflect its small business-scale relative to larger and more diversified global petrochemical peers and its position as a price-taker. The ratings also factor in the cyclical nature of the industry, which is partially offset by a degree of vertical integration within both the acrylics and styrenics businesses. The ratings also reflect how a good part of Unigel's sales are through long-term contracts with price formulas based on raw materials. In addition, the ratings reflect Unigel's operational flexibility, established market position in Brazil, diversified portfolio of customers and key end markets. Fitch's base scenario forecasts net debt/EBITDA ratios moving to around 2.7x-3.1x during 2019-2021, considering additional capex during the period of around BRL200 million for a new sulfuric acid plant and a more challenging scenario of petrochemical spreads during the second half of 2019 and 2020. This compares positively with the average of 5.4x during the 2015-2017 period and 3.1x during 2018. Fitch had previously incorporated the expected improvements in Unigel's capital structure and financial flexibility over the last year, supported by non-core asset sales, debt restructuring and bond issuance, into its 'B+' rating. Further improvements could occur if the company is able to complete this new round of refinancing, move to an unsecured debt profile and reduce refinancing risk in the medium term, as well as achieve a sustained improvement in operating cash flow generation. KEY RATING DRIVERS Intermediate Player in Cyclical Industry: The inherently cyclical nature of the commodity chemicals sector means Unigel is subject to feedstock and end-product price volatility, driven by prevailing market conditions and demand/supply drivers. Unigel is a chemicals producer with a small business scale operating in the midstream of the petrochemical industry value chain, placing the company in a weaker position against much larger single-supplier providers and large manufacturing groups. Unigel's long-term contract sales and price formula based on raw-materials are mitigant factors that help to offset major deterioration in its products spreads. Operational Flexibility: Unigel's credit profile benefits from a diversified product range under the acrylics and styrenics segments and end-markets. Varying degrees of integration are present along the production value chain for its key products, providing greater flexibility in sales, fewer constraints from raw material supply, and bolstering its operating margins. The company's small business scale also provides some ability to switch product lines relatively swiftly to take advantage of favorable price movements. Over the last four years, Unigel's EBITDA margin averaged 12.5%, which is comparable with small- to medium-size petrochemical peers. As of the LTM ended on June 30, 2019, Unigel's EBITDA split was 58%-42%, styrenics and acrylics, respectively. The company reported a 13.7% EBITDA margin. Competition from Imports: Unigel benefits from good market share positions in Brazil and Mexico. The two countries are where the company's active industrial sites are distributed: six in Brazil and two in Mexico. During 2018, Mexico and other overseas businesses represented 11% of consolidated revenues. Unigel is the single producer of acrylics in Brazil and exhibits a good business position in the styrenics segment. Most competitors have a larger scale of business, but the company's main competitive threats are from lower priced imports, as it operates in a niche sector of the market. The company has benefited from local imports tariffs (10%-14%), and any change to this framework could pose a risk. The company's global capacity share ranges from 1%-2% for its main products and between 37% and 40% in Brazil. Improving CFFO/FCF Pressured by Capex: During 2018, Unigel completed a series of initiatives regarding improvements in working capital management, taxes and interest payments that helped to improve its operating cash flow generation. For 2019 and 2020, Fitch expects Unigel to generate CFFO in the range of BRL130 million-BRL160 million, which positively compares to around BRL65 million during 2016 and 2018. The company's new capex plan for an acid sulfuric plant estimated to cost around BRL200 million (USD50 million-USD60 million) should pressure FCF in the next two years, leading to negative FCF during 2020 by around BRL80 million. Dividends are expected to be in line with covenants, around 25% payouts. Manageable Leverage: Fitch forecasts Unigel's net debt/EBITDA to move toward 2.8x by YE 2019, and to 3.1x in 2020, reflecting the capex peak, and decline to 2.7x by 2021. This expected low to moderate leverage for the company's rating level is offset by the cyclical nature of the industry, the size of the company and a track record of limited financial flexibility. Over the last few years, Unigel faced financial stress and was able to access secured debt only at very high interest rates. During November 2017, the company completed a debt-refinancing plan associated with an asset sale (BRL585 million) that significantly improved its capital structure. In May 2018, Unigel issued its secured USD200 million bond due in 2024 in the international market, aiding Unigel's capital structure adjustment strategy. DERIVATION SUMMARY Despite Unigel's good market share in Latin America, the company is a price-taker and is relatively small relative to the global chemical industry, with historical EBITDA generation of approximately USD111 million. Product diversification and some business integration help to reduce profit margin volatility, although cash generation is still affected by commodity price movements and any change in the supply/demand dynamics of its end-products. Compared with other Latin America petrochemical peers, Unigel is smaller and has a weaker financial profile when compared with Cydsa S.A. (BB+/Stable), Braskem S.A. (BBB-/Stable) and Orbia Advance Corporation, S.A.B de C.V.. (BBB/Stable). In terms of leverage ratios, Unigel is well positioned when compared with other Latin American peers in the 'B' category. Within Fitch's rated universe, the last three years median average of net debt/EBITDA for the 'B' category was 4.6x, while Unigel presented 3.1x. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer -- Double-digit decline in volumes in the acrylics segment during 2019, mostly on MMA, and relatively stable in others segments and in 2020; -- Deterioration of petrochemical spreads in 2019 and 2020, partially mitigated by the company's flexibility to switch production; -- Average EBITDA margins around 12.5%-13.5%, from 2019-2020; -- Maintenance Capex of around BRL120 million and new investment in sulfuric acid of USD60 million; -- Dividend payouts at 25% of net profits; Recovery Ratings Assumptions The recovery analysis assumes that Unigel would be considered a going concern in bankruptcy and that the company would be reorganized rather than liquidated. Fitch has assumed a 10% administrative claim. Going-Concern Approach The going-concern EBITDA is 25% below 2018 EBITDA to reflect volatility in the petrochemical industry's volume and prices. The enterprise valuation/EBITDA multiple applied is 5x, reflecting Unigel's strong market share in its operating regions and a mid-cycle multiple. Fitch applies a waterfall analysis to the post-default enterprise value based on the relative claims of the debt in the capital structure. The agency's debt waterfall assumptions take into account the company's total debt at June 30, 2019. These assumptions result in a recovery rate for the unsecured bonds within the 'RR3' range, but due to the soft cap of Brazil at 'RR4', Unigel's senior unsecured notes due 2026 are rated at 'B+'/'RR4'. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - The company's ability to improve its EBITDA generation, maintaining stable margins above 14% on a sustainable basis; - Net Debt/EBITDA below 2.5x on a sustainable basis; - Track record of robust liquidity, with no refinancing risks, and improved financial flexibility. Developments That May, Individually or Collectively, Lead to Negative Rating Action - Change in imports tariffs in Brazil that could allow increased competition; - Operating EBITDA margin consistently below 10% on a sustained basis; - Maintenance of poor liquidity, leading to recurring refinancing risks; - Net Debt/EBITDA moving above 4.0x on sustainable basis. LIQUIDITY Improved Liquidity: The successful bond issuance during 2018 was key in improving Unigel's weak liquidity position and reducing the company's refinancing risk. As of June 30 2019 Unigel reported total financial debt of BRL1.6 billion, of which BRL209 million was short-term debt, and a readily available cash position of BRL294 million. Short-term debt coverage, as measured by cash/short-term debt was 1.4x in the same period, which positively compares to an average of only 0.1x during 2015-2017. Fitch expects Unigel to maintain a solid cash position versus short-term debt to avoid exposure to refinancing risks. Around 90% of Unigel's debt is secured by fixed assets and the remainder is covered by receivables or letters of guarantee as collateral. FULL LIST OF RATING ACTIONS Fitch has assigned the following rating: Unigel Luxembourg S.A -- USD500 million Senior Unsecured Notes due 2026 'B+'/'RR4' Fitch currently rates: Unigel Participacoes S.A. -- Long-Term Foreign and Local Currency IDRs 'B+'; -- National Scale Long-Term Rating 'A-(bra)'; Unigel Luxembourg S.A -- USD200 million Senior Secured Notes due 2024 'B+'/'RR4' =========== P O L A N D =========== ZAKLADY MIESNE: Administrator Wants Rescue Plan Deadline Extended ----------------------------------------------------------------- Reuters reports that Zaklady Miesne Henryk Kania SA said on Sept. 13 that the administrator appointed for the company under its accelerated arrangement proceedings has filed to court motion to extend the deadline for drawing up a restructuring plan and inventory of receivables. According to Reuters, the motion was filed due to the fact that the company's documents have been secured by the central police investigation bureau and the national tax administration. Zaklady Miesne Henryk Kania SA (formerly IZNS Ilawa SA) is a Poland-based company engaged in food processing. =============== P O R T U G A L =============== PELICAN MORTGAGES 4: Fitch Affirms Bsf Rating on Class E Notes -------------------------------------------------------------- Fitch Ratings has upgraded Sagres, STC S.A. / Pelican Mortgages No. 4's (Pelican 4) class C notes and affirmed Sagres, STC S.A. / Pelican Mortgages No. 5 (Pelican 5), as follows: Pelican 4 Class A (XS0365137990) affirmed at 'A+sf'; Outlook Stable Class B (XS0365138295) affirmed at 'A+sf'; Outlook Stable Class C (XS0365138964) upgraded to 'BBB+sf' from 'BBBsf'; Outlook Stable Class D (XS0365139004) affirmed at 'B+sf'; Outlook Stable Class E (XS0365139939) affirmed at 'Bsf'; Outlook Stable Pelican 5 Class A (XS0419743033) affirmed at 'A+'; Outlook Stable Class B (XS0419743389) affirmed at 'A-'; Outlook Stable Class C (XS0419743462) affirmed at 'BBB'; Outlook Stable The transactions represent cash flow securitisations of Portuguese residential mortgage loans originated by CAIXA ECONOMICA MONTEPIO GERAL, Caixa economica bancaria, S.A. (Montepio; B+/Stable/B). The rating actions follow the review of the transactions. KEY RATING DRIVERS Stable Performance; Sufficient Credit Enhancement The rating actions reflect stable asset performance for both transactions, supported by high seasoning, portfolio deleveraging and sufficient credit enhancement (CE). Ratings Capped at 'A+sf' The rating of the senior notes of Pelican 4 and Pelican 5 is capped at 'A+sf'; Fitch has tested whether payment interruption risk is mitigated and determined that the amortising cash reserve fund is adequate up to the 'Asf' rating category. The cash reserve is equal to 3.1% of the aggregate outstanding notes balance (EUR16.7 million for Pelican 4 and EUR16.5 million for Pelican 5) and can also be drawn to cover asset losses. RATING SENSITIVITIES Drawings on the cash reserve accounts will reduce the available payment interruption mitigants and may lead to downgrades of the notes. Deterioration in asset performance beyond Fitch's standard assumptions could trigger negative rating action. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. =========== R U S S I A =========== BANK ZENIT: Bank of Russia Launches Restructuring ------------------------------------------------- Pursuant to Part 5 of Article 23 of Federal Law No. 395-1, dated 2 December 1990, "On Banks and Banking Activities", the Western Market Access Centre of the Bank of Russia's Department for Market Access and Activity Termination of Financial Institutions on Sept. 13 announced the launch of a restructuring of PJSC Bank ZENIT (Registration No. 3255 assigned by the Bank of Russia) through its merger with PJSC Devon-Credit Bank (Registration No. 1972 assigned by the Bank of Russia) and PJSC Bank for Social Development and Construction Lipetskcombank (Registration No. 1242 assigned by the Bank of Russia). GREENCOMBANK JSC: On Provisional Administration, License Revoked ---------------------------------------------------------------- The Bank of Russia, by virtue of its Order No. OD-2098, dated September 12, 2019, revoked the banking license of Irkutsk-based Joint-Stock Company Greencombank or JSC Greencombank (Registration No. 1184; hereinafter, Greencombank). The credit institution ranked 410th by assets in the Russian banking system. The Bank of Russia took this decision in accordance with Clause 6, Part 1 and Clause 3, Part 2, Article 20 of the Federal Law 'On Banks and Banking Activities', based on the facts that Greencombank: -- allowed a decrease in its equity capital below its authorized capital, which resulted in the emergence of grounds for insolvency (bankruptcy) prevention measures; -- failed to timely comply with the Bank of Russia's instruction on aligning its authorized and equity capital; and -- violated federal banking laws and Bank of Russia regulations, making the regulator repeatedly apply supervisory measures over the last 12 months. As a result of legal proceedings, Greencombank was found liable to repay before maturity a subordinated bank deposit attracted earlier. This brought the bank's equity capital below its authorized capital. A considerable share (more than 55%) of Greencombank's assets was comprised of non-core assets, including low-liquid real property unused in core activity. Furthermore, recorded on the bank's balance sheet was a low-quality loan portfolio -- more than 90% of outstanding corporate and retail loans were recognized as bad debt. The management and owners failed to take effective measures to stabilize the credit institution's financial standing, which suggests that its business operations had no future. The Bank of Russia appointed a provisional administration to Greencombank for the period until the appointment of a receiver or a liquidator5. In accordance with federal laws, the powers of the credit institution's executive bodies were suspended. Information for depositors: Greencombank is a participant in the deposit insurance system; therefore, depositors will be compensated for their deposits in the amount of 100% of the balance of funds but no more than a total of RUR1.4 million per depositor (including interest accrued). Deposits are repaid by the State Corporation Deposit Insurance Agency (hereinafter, the Agency). Depositors may obtain detailed information regarding the repayment procedure 24/7 at the Agency's hotline (8 800 200-08-05) and on its website (https://www.asv.org.ru/) in the Deposit Insurance / Insurance Events section. SIBIRSKY SPAS: Put on Provisional Administration, License Revoked ----------------------------------------------------------------- Following the violations by Joint-stock Insurance Company Sibirsky Spas of the Bank of Russia-established insurance requirements, the Bank of Russia, by virtue of its Orders Nos. OD-522 and OD-523, dated March 14, 2019, revoked the Company's insurance licenses, appointed a provisional administration to manage the Company and suspended the powers of its executive bodies. The provisional administration established facts suggesting that the Company's owners and officials had performed actions aimed at siphoning off corporate assets. The provisional administration estimates the value of the Company's property (assets) to be insufficient to meet its liabilities to creditors and mandatory payments obligations. On August 27, 2019, the Arbitration Court of the Kemerovo Region recognized the Company as insolvent (bankrupt). The State Corporation Deposit Insurance Agency was appointed as receiver. Given a threat to the rights and lawful interest of policy holders, the insured and beneficiaries, the Bank of Russia submitted the information to the Prosecutor General's Office of the Russian Federation and the Investigative Committee of the Ministry of Internal Affairs of the Russian Federation for consideration and procedural decision-making. TRUDOVOE STRAKHOVANIE: Put on Provisional Administration -------------------------------------------------------- The Bank of Russia, by virtue of its Orders Nos. OD-520 and OD-521, dated March 14, 2019, revoked insurance licenses of Insurance Company Trudovoe Strakhovanie, Limited Liability Company (hereinafter, the Company) and appointed a provisional administration to manage the Company (hereinafter, the provisional administration). The Bank of Russia suspended the powers of the Company's executive bodies by its Order No. OD-613, dated March 21, 2019. The provisional administration encountered obstruction to its operations -- the Company's officials failed to provide the provisional administration with accounting and other documents, and valuables held by or entrusted to the Company, which may signal the attempt to conceal facts of asset withdrawal. On August 21, 2019, the Arbitration Court of the City of Moscow recognized the Company as insolvent (bankrupt). The State Corporation Deposit Insurance Agency was appointed as receiver. Given a threat to the rights and lawful interest of policy holders, the insured and beneficiaries, the Bank of Russia submitted the information to the Prosecutor General's Office of the Russian Federation and the Investigative Committee of the Ministry of Internal Affairs of the Russian Federation for consideration and procedural decision-making. ============= U K R A I N E ============= UKRAINIAN RAILWAY: Fitch Hikes LT Issuer Default Ratings to B ------------------------------------------------------------- Fitch Ratings has upgraded JSC Ukrainian Railway Long-Term Foreign- and Local-Currency Issuer Default Ratings to 'B' from 'B-'. The rating action follows the upgrade of Ukraine's ratings. KEY RATING DRIVERS Government-Related Entity Under Fitch's Government-Related Entity (GRE) Criteria, UR's score of 27.5 is unchanged and stems from a very strong assessment of the legal status, ownership and support due to state full ownership and control and moderate support track record and expectations by the Ukrainian state. The state provides guarantees on some of the company's external debt contracted from international financial institutions (IFIs) and used to treat UR's external debt as quasi-sovereign, as evidenced in 2016, when the company's Eurobonds were included in the perimeter of debt restructuring led by the national government. The score also reflects moderate socio-political and strong financial implications of default. Fitch believes that UR's potential default might lead to some service disruptions, but not of an irreparable nature, and not necessarily conducive for significant political and economic repercussions for the national government. At the same time Fitch considers a default of UR on external obligations as potentially harmful to Ukraine, as it could lead to exacerbation of reputational risk for the state. Both UR and the national treasury tap international capital markets for debt funding, as well as using loans and financial aid from the IFIs. Standalone Credit Profile UR's 'b' Standalone Credit Profile (SCP) factors its assessment of revenue defensibility as weaker, operating risk as midrange, and financial profile as weaker. SCP is supported by the company's position as the monopoly owner and operator of the rail infrastructure and by the expected decline in the debt burden and projected stabilisation of the company's financial profile under its rating case scenario. Revenue Defensibility: Weaker Fitch forecasts UR revenue to grow at a CAGR of 6.4% in 2019-2023 (2014-2018: CAGR 11%), above UAH100 billion mark in 2020 from UAH85 billion in 2018, underpinned primarily by rising freight volumes. Revenue growth is linked to projected economic recovery: according to Fitch's forecast Ukraine's real GDP will grow at about 3.2%-3.5% yoy in 2019-2021. Expected growth in freight turnover will be additionally supported by instituted tariff regulation changes, as since end-2018 UR employs automatically adjusted tariff using PPI-linked indexing for cargo railcars rental. Nonetheless, overall UR's revenue defensibility remains fragile and prone to volatility, associated with commodity markets risk, FX risk, limited geographical diversification, and marked exposure to Ukraine's economic and operating environment. Operating Risk: Midrange UR's costs are relatively predictable as two-thirds of them, at UAH53 billion at end-2018, are represented by wages and depreciation. Despite projected salary increases, highly influenced by national government policy goals aimed at improving disposable income, continued efficiency improvement measures and headcount reduction should in its view keep staff costs at a manageable and predictable level over the forecasted period of 2019-2023. Fitch expects UR to cope with rising energy (electricity and fuel) costs, passing the increases to customers, as the tariff system development accommodates. Fitch also expects UR will adhere to capex implementation plan with most of projected capex be self-funded. Financial Profile: Weaker UR's leverage was moderately with net debt/Fitch calculated EBITDA reducing to 2x in 2018 from 3x in 2014. In its rating case, Fitch projects net debt/Fitch calculated EBITDA to gradually improve to about 1x over the medium term. Fitch expects UR to restore its free cash flow (FCF) capacity with FCF margin rebounding to about 3%-5% of revenue over the medium term (2018: negative 2.6%). FCF margin's deterioration in 2018 was driven by material increase in capex to UAH15 billion (2017: UAH10.9 billion), underpinned by acquisition of new locomotive stock and capital modernization of the rolling stock along with upgrading of rail lines. Fitch's assessment of UR's liquidity profile is weaker. The company's liquidity cushion at end-2018 was 0.07, remaining below its guidance of 0.33, necessary for a neutral assessment. Nonetheless, with its recent Eurobond issue the company materially eased refinancing pressure on expected repayment of USD300 million in 2H19 and subsequent USD100 million in both 2020 and 2021 as per the re-profiled 2018 Eurobond scheduled maturity. UR's Fitch calculated total debt was UAH33.5 billion at end-2018 (2017: UAH34.2 billion), with 92% of the debt stock bearing FX-risk. DERIVATION SUMMARY The upgrade of UR's Long-Term IDRs follows the sovereign upgrade and ratings equalisation with Ukraine, which is unchanged since its last review. This is based on the company's SCP assessment of 'b' combined with Fitch's application of a top-down approach under its GRE Criteria and warrants UR's rating equalisation with the sovereign. DEBT RATINGS The ratings of senior debt instruments are aligned with UR's Long- and Short-Term IDRs, including the senior unsecured debt of its special financial vehicle (SPV) companies - Shortline Plc. and Rail Capital Markets Plc. The latter reflects Fitch's view that SPVs' debt constitutes direct, unconditional senior unsecured obligations of UR and ranks pari passu with all of its other present and future unsecured and unsubordinated obligations. RATING SENSITIVITIES Rating actions on UR's IDRs will likely mirror those on Ukraine's sovereign ratings. A significant dilution of the linkage with the sovereign, or weakening the financial profile leading to a downward re-assessment of SCP could result in a downgrade. The debt rating is likely to move in tandem with UR's anchor IDR. =========================== U N I T E D K I N G D O M =========================== FLEET TOPCO: S&P Assigns Preliminary 'B+' LT ICR, Outlook Stable ---------------------------------------------------------------- S&P Global Ratings assigned its preliminary 'B+' long-term issuer credit rating to Fleet Topco Ltd. and its preliminary 'B+' issue rating to the first-lien senior secured U.S. term loan facility issued by Fleet Bidco Ltd. and Fleet US Bidco Inc. S&P said, "Our preliminary rating on Fleet Topco Ltd. (Argus, or the group) reflects its market position as the second-largest price-reporting agency (PRA) globally, coupled with favorable operating dynamics, including a mostly subscription-based earnings profile with high retention rates, earnings visibility, and embedded products. Despite the relatively small scale of the group's operations and narrow product diversification compared with similarly rated peers, we view Argus' core pricing data products as mission critical for its customers. Argus' products are only a small fraction of overall customer costs, and we view there to be few alternatives due to global coverage being somewhat concentrated with the two largest global players, market leader Platts followed by Argus. "Additionally, the rating incorporates the group's financial leverage under the control of financial sponsor General Atlantic (GA), somewhat tempered by its financial policy, which we assess as less aggressive than other sponsor-owned leveraged peers. We forecast that Argus will maintain leverage sustainably below 5.0x, which is further supported by the group's chairman and CEO Mr. Adrian Binks, who has long maintained a core ownership position and who we understand has contributed to a financial policy with a leverage tolerance ceiling of around 5.0x. Under our base case, we forecast adjusted leverage will fall to around 5.0x in our first forecast year (fiscal year ending June 30, 2020) and will further reduce thereafter toward a company-stated medium-term target of 3.5x net leverage (equivalent to around 4.1x using current S&P Global Ratings adjustments)." Argus has about a 16% market share by its own accounts, behind the incumbent number one, Platt's (a division of S&P Global), which has about 52% market share. Argus is approximately twice the size of the next-largest competitor, and has exhibited one of the fastest growth rates in the industry. Key smaller competitors with which Argus competes include OPIS, a division of IHS Markit, and ICIS, a division of RELX PLC. The nature of the group's products result in a typically sticky customer base and reasonable earnings visibility. In fiscal year 2018, Argus had a 96% retention rate for existing customers. Some factors that contribute to customer churn include customer mergers and customers exiting the industry. Additionally, at the beginning of financial year 2019, over 43% of 2020 budgeted revenue had already been billed to customers as deferred revenue. This dynamic of billing customers upfront for future services creates a model whereby Argus typically experiences working capital inflows annually. As a global provider of price reporting products, the group already has a substantial customer base, which has historically proven to be stable. As such, organic growth tends to be driven by increased usage and the proliferation of products to existing customers, as well as new customer acquisitions. From 2016-2018, Argus lost no net customers from its current top 150 customer relationships. Of the group's top 25 customers, 95% have been customers for over 20 years. The top 20 customers account for about 28% of average annual value. From a growth perspective, Argus has largely focused on its existing core business of providing price assessment-related products. The group then builds on this through its conferences and events and analytics and consulting offerings. Some other data service providers, which S&P has included in its peer assessments, sometimes pursue expansion opportunities into new bolt-on business lines that can be cross-sold to an existing customer base. Argus' strategy to date has been to continue to expand its existing core operations, particularly through creating and monetizing further indices and benchmark products when opportunities arise, as well as moving into adjacent end commodity markets as they grow and mature, such as soft commodities (fertilizers etc.). Benchmark and indices products are large drivers of value for Argus. The ability to achieve and create benchmarks in part enhances network effects, thus creating the potential for long-term earnings power and monetization to Argus, and increases barriers to switching. The cost of PRA products are not a primary determinant of their usage, with the average cost often a very small fraction of an overall commodity physical trade or shipment. Our understanding is that the key to usage depends more on customer relationships, first mover advantage and proliferation of the product in a network, particularly in the case of participants using and referencing an index or benchmark, and participants' satisfaction with the methodology and quality of pricing assessments. S&P does see some risk that adverse changes in customer relationship management or methodology changes could weaken adoption of Argus' products. Argus is a capital-light business. In fiscal year 2018, depreciation was less than GBP3 million; however, capital expenditures (capex) were elevated to around GBP8 million due to some internal strategic projects. S&P said, "We have included up to around GBP4 million in capex in our base-case forecasts. We believe there is some potential risk that increased capex may be required going forward because the group may need to increase investment in further digitalization, automation, and the technological capabilities of its products. In this regard, we view the group's larger competitor as having greater capacity to ramp up spending and more heavily invest in new technologies given its much larger scale and balance sheet. That said, the business has inherent operating leverage whereby new price assessments and building new benchmarks/indices, for example, can typically be achieved at marginal additional cost. Lastly, we currently do not make any capitalized development cost adjustment given the immaterial size of the costs as well as the fact they predominately represent internal use investments. If these costs materially increase, we could reassess this treatment." S&P said, "We view the scale of the group as a limiting factor in our assessment of business strength. Although the group is the global number two provider in its chosen market, group EBITDA is comfortably under GBP100 million, and based on management accounts revenue in 2019 was just over GBP200 million. Additionally, we view product diversification and scope as narrow compared with similarly rated peers, although the group does have geographic diversity. The group's adjusted EBITDA margins, which we forecast to remain well above 30%, as well as high cash flow conversion, are key supports for our assessment of business strength. Our rating incorporates continued revenue growth above 10% such that scale of operations over the next 12-24 months is forecast to grow closer to GBP100 million in EBITDA. "We view the alignment of interest resulting from Mr. Binks ownership in Argus as a credit positive for the group. However, we also believe that Mr. Binks' long association and leadership of Argus may result in some key man risk to the group. Mr. Binks has led Argus and guided its growth strategy over a long period, and in our opinion has likely established long-term client and regulator relationships in the industry. Notwithstanding this, we believe mitigating factors include Mr. Binks' current ongoing commitment to continue leading the group for the near future, as well as a deeper pool of management talent established over the past 24 months, including the appointment of a chief operating officer and additional senior divisional leadership talent." Mr. Binks previously stepped down as CEO and assumed a chairperson role in July 2015; however he was reinstated as CEO in early 2017 after the buyout by GA. Argus has two shareholder instruments in its capital structure including preference shares (various classes) and loan notes (including pay-in-kind [PIK] notes and discretionary PIK notes). S&P said, "Argus currently treats both instruments as debt in its financial accounts; however, we have assessed both instruments as meeting our requirements for equity treatment under our non-common equity considerations. Key conditions we considered in our treatment of the instruments include no evidence of contractual payment requirements, a stapling requirement to transfer, the instruments are not held by a third party, the instruments are subordinated to senior credit facilities, they have no security or guarantees, and they cannot trigger an event of default or accelerate in the case of a default." The loan notes are 100% held by entities affiliated with GA, while the primary class of preference shares (B class) are held by Mr. Binks, with remaining classes held by other management. S&P could reassess its treatment of these instruments if any of the existing material terms were amended, as well as if they were transferred or sold to third parties. S&P said, "The stable outlook reflects our base-case forecast that Argus will deleverage to around 5.0x adjusted leverage in fiscal year 2020 from our estimate of 5.6x pro forma 2019 leverage at close, and will then continue a deleveraging path thereafter into fiscal year 2021. Our stable outlook also incorporates our view of a financial policy commitment commensurate with sustaining leverage below 5x. We factor in growing organic earnings and maintaining adjusted EBITDA margins well above 30%. Our outlook does not contemplate any material acquisitions, potential minority sale or exit, or material shareholder distributions and recapitalizations, which may prevent reducing leverage and could lead to a reassessment of financial policy. "We could lower the rating if in the next 12 months the group's adjusted leverage underperformed our base-case forecast of around 5.0x or lower adjusted leverage by fiscal year-end 2020. We could also downgrade Argus if we assessed that its financial policy had turned more aggressive such that its deleveraging path and commitment to maintain leverage below 5.0x failed to materialize. Additionally, we could downgrade it if organic earnings or free cash flow failed to reach our base-case forecasts or adjusted margins deteriorated to around 30%. Finally, we could downgrade the rating if adjusted free operating cash flow (FOCF) to debt fell toward 5%. "We view the likelihood of an upgrade in the next 12 months as remote, given that we already incorporate a financial policy consistent with deleveraging into the current rating. Notwithstanding this, we could consider an upgrade if the group deleveraged below 4x and committed to remaining below this level in conjunction with a materially improved business strength, evidenced by materially increased scale, market position, and significant free cash flows." THOMAS COOK: Secures Extra Week to Finalize GBP1.1BB Rescue Deal ---------------------------------------------------------------- Alan Tovey at The Telegraph reports that Thomas Cook has secured an extra week to hammer out a GBP1.1 billion rescue deal, as debt speculators pile pressure on the troubled holiday company. According to The Telegraph, a meeting had been scheduled for Wednesday, Sept. 18, to agree terms but is set to be pushed back until next week as Thomas Cook battles to survive. The rescue deal needs the support of 75% of creditors to go ahead, The Telegraph notes. Hedge funds are thought to control enough of Thomas Cook's bonds to block the rescue and are pushing for a default unless their demands are met, The Telegraph states. Concerns are growing the world's oldest tour operator could collapse, with hundreds of thousands of holidaymakers facing uncertainty unless it can strike a deal, The Telegraph discloses. TRAVIS PERKINS: S&P Alters Outlook to Negative & Affirms BB+ ICR ---------------------------------------------------------------- S&P Global Ratings affirmed its 'BB+' issuer credit rating on U.K.-based building materials distributor Travis Perkins PLC, based on the current scope of its business, because S&P forecasts that, in 2019-2020, the group will continue to show comfortable headroom at the current rating level, with funds from operations (FFO) to debt slightly below 30%. The outlook revision indicates that S&P could consider a downgrade in the next 12 months, after the two businesses have been divested. S&P Global Ratings will assess Travis Perkins' business risk profile after the carve outs. The group's strategy is to focus on its trade merchanting customers and light-side building materials within its Toolstation segment. This could significantly reduce the scale of the group and weaken its resilience over a cycle, compared with larger and more-diversified global building material distributors. The group has very high geographic concentration to the U.K.--a mature and competitive market which could be affected by increasing and protracted uncertainty related to Brexit. S&P said, "Our view of Travis Perkins' business currently reflects the group's solid market share and wide branch network. The group remains one of the leaders in each of its market segments in the U.K. and continues to develop its strong brands. Our assessment does not factor in the carve-out of the two businesses." Travis Perkins plans to dispose of its P&H business before the end of 2019. It also recently announced its intention to demerge Wickes by the end of the first half of 2020. The precise timing, effect, and how it will use the cash proceeds from its P&H business have yet to be determined. S&P said, "In our view, the demerger process could weaken the group's position and reduce its scale--it will have revenues of about GBP4 billion per year." In addition, Travis Perkins' remaining business will be less diverse. After demerging Wickes, the group will depend largely on business-to-business customers and, to a lesser extent, on retail clients. This could weaken its resilience through the cycle compared with other building material distributors. Many of the group's rated peers operate in multiple countries, across continents, or even globally. The group's general merchanting activities--which encompasses recognized brands such as Travis Perkins, CCF or Keyline--distributes housing heavy-side and light-side materials to general small independent builders and large professional contractors; demand from these end users is somewhat correlated. Demand for building materials varies according to both growth in GDP and cycles within construction markets (residential, commercial, and infrastructure). The main factors affecting demand are the number of housing transactions (both primary and secondary sales), infrastructure building cycles, and various seasonal effects affecting the building materials industry. Consumer confidence levels in the U.K. also affect demand--about 80% of spending on housing is made within three years of moving in. Toolstation, which focuses on light-side building materials, will remain within the group and expand further into the U.K. and Europe over the next two years. Although it has underperformed in recent years, the consumer division (Wickes and Tile Giant) could bring some resilience to the group and partially mitigate the effects of a downturn because of its exposure to renovation and home improvement. The carve-outs could also reduce the amount of adjusted debt--for example, by reducing the number of operating leases--or lead to a revision of the group's financial policy. S&P understands that management will review these elements in future, and adjust them to also take into account the latest developments on Brexit. S&P said, "Although our base case still assumes that the U.K. will not leave the EU without a deal, we see an elevated risk that Brexit would weigh on Travis Perkins over the medium term. Over the next year, we consider management well-prepared to mitigate any immediate disruptive consequences of a no-deal scenario. We still see good business continuity, with only minor operational vulnerabilities or risks of supply chain disruptions under a hard Brexit. "We recognize that the group has built up additional inventory to secure the provision of key materials to its customers. This led to an increase of about GBP80 million of working capital over the first half of 2019. In our view, additional seasonal working capital requirements remains a structural risk in the event of a hard Brexit. Travis Perkins has a track record of prudent inventory management and resilient free operating cash flow generation of above GBP200 million per year, which would temporarily alleviate pressure on cash levels in the event of further working capital outflows. Brexit could push the U.K. into a moderate recession, with GDP falling over two years. This would significantly affect the housing market. Another factor that could affect the group over the next two years is potential disruption from a significant increase in trade tariffs and import duties. Specifically, this could affect timber imports from Sweden and Finland and some products sourced from China. Foreign exchange volatility also affects the group's supply chain and operating results. Travis Perkins sources some products and materials in U.S. dollars, euros, and other major currencies, and its costs would increase if sterling depreciates. The group is also exposed to fluctuations in raw material costs and energy prices, and has only limited control over pricing for some of its products. S&P anticipates that the current management team and board of directors will maintain a balanced prudent approach between the group's progressive dividend policy, acquisitions, and capital expenditure (capex) or information technology (IT) plans, while bearing in mind the uncertainty regarding Brexit. The group has a track record of maintaining a conservative financial policy. S&P said, "Although we expect that it will continue to use any excess cash to strengthen its balance sheet and meet its medium-term public target of 2.5x net-debt-to-lease-adjusted-EBITDA (as calculated by the company), the use of proceeds from the P&H business once this target has been met has not been communicated. This ratio was 2.8x at the end of June 2019. We consider that this target factors in a degree of flexibility to adjust to the ongoing uncertainty in the U.K.'s political and economic climate, but we could reassess this following the effects of the two divestures." S&P said, "The negative outlook reflects our view that we could lower the rating on Travis Perkins over the next 12 months if the group follows through on its plans to dispose of its P&H business and demerge Wickes. We have yet to determine how these changes would affect the group, given the uncertainty and protracted risks related to Brexit. "We could lower the rating by one notch, depending on our view of the leverage, strategy, and financial policy of the group, as well as our assessment of its business following the divestures." Increasing uncertainty related to Brexit could weigh on the sector and potentially affect our base-case scenario for Travis Perkins, thus contributing to the pressure on the rating. S&P said, "We could revise the outlook to stable if the current divesture plans did not go ahead, and we were confident that Travis Perkins will maintain the FFO-to-debt ratio of 20%-30%, despite the uncertainty related to Brexit. "Equally, we could revise the outlook to stable if we were to reassess our view of Travis Perkins' business following the divestures. This would depend on the company maintaining a more conservative balance sheet and committing to maintaining adjusted FFO to debt of more than 30% on a sustainable basis. "A stable outlook would depend on less uncertainty regarding Brexit and recovering trading conditions in a stabilized U.K. macroenvironment. We would also need to see an improvement in margins following further cost optimization initiatives to mitigate cost inflation." VIVION INVESTMENTS: S&P Assigns 'BB' Long-Term ICR, Outlook Stable ------------------------------------------------------------------ S&P Global Ratings assigned its 'BB' long-term issuer credit rating to Vivion Investments Sarl (Vivion) and 'BB+' issue rating to its EUR700 million senior unsecured bond. S&P's recovery rating on this instrument is '2'. Vivion's pro forma portfolio (assuming closure of the currently signed acquisitions and disposals and the completed reorganization of the operational structure it its U.K. hotel portfolio) is composed of 56 hotel assets in the U.K. (63% of total gross asset value [GAV]) and 41 commercial assets, mainly offices, in Germany (37% of total GAV). The pro forma portfolio as of March 31, 2019, was EUR2.9 billion. Vivion was incorporated in October 2018, and since then it has rapidly grown through acquisitions. S&P expects Vivion to continue growing, especially in the German office market, although to a lesser extent than in the past, in line with the company's strategy. Vivion's hotel assets are well located in the U.K.'s capital cities and regional hubs, with some concentration in greater London, accounting for 40% of the total hotels GAV. S&P said, "Although we note that tourism is one of the largest industries in the U.K., we view the hotel segment as more dependent on economic developments and therefore less resilient than other real estate segments, such as residential or prime office assets. Besides, we are monitoring any potential impact on the industry and hotel valuations from the ongoing political uncertainty linked to Brexit." Vivion has completed the reorganization of the corporate structure and has disposed entirely its operating exposure to its hotel assets. Vivion is now a pure property owner company that benefits from very long leases in its hotel portfolio, with a weighted average unexpired lease term (WALT) of 16 years and a fixed rent that does not depend on the hotel operator's performance. S&P said, "This compares positively with other hotel property companies we rate, such as Covivio Hotels (BBB+/Stable/--), where a significant part of its revenue depends on its hotels turnover. We note, however, that hotel landlords usually do not benefit from the amount of tenant diversification comparable with commercial landlords. Vivion's portfolio is concentrated on four hotel brands: Holiday Inn (44% of hotel keys), Hilton (17%), Hallmark (28%), and Crowne Plaza (12%), with the three largest operators representing more than 50% of the hotels revenue. This concentration risk can be partially mitigated by the inflation-linked, triple-net lease structure of its long leases, the rolling guarantees obtained from the operators' parent entities (which we estimate are in place for more than 90% of its exposure), and the possibility to take control of the hotel's operations if the operator is not able to pay its rent." The company will benefit from the favorable trends in the German commercial market, especially in the office segment, which represents 82% of the total German GAV, with robust tenant demand and historically low vacancy rates. Vivion also benefits from index-linked long leases with a WALT of 6.6 years and good tenant diversity in its German portfolio. The portfolio is well spread across more than 150 commercial tenants. S&P said, "That said, we note that as of March 31, 2019, occupancy stands at 90.4%, which is below market levels. Vivion has managed to quickly increase occupancy in its German assets, and, thanks to the strengths of the market, we anticipate that the company will be able to bring occupancy levels to the 94%-95% market level in the coming quarters. The German assets are under Vivion's subsidiary, Golden Capital Partners SA, of which Vivion currently owns a 51.5% stake. We understand that in the short term, Vivion will inject a combination of common equity and shareholder loan into Golden Capital that will increase its stake to about 60%, a level at which Vivion sees its stake for the long term. The remaining 40% will be in the hands of long-term, stable institutional investors. In our analysis, we fully consolidate Golden Capital." S&P said, "Our rating takes into account the company's relatively short track record of operating under its brand, given its recent incorporation and its fast portfolio ramp-up, and therefore limited historical cash flow visibility. "Our assessment of Vivion's financial risk profile is supported by its moderate levels of indebtedness, with a debt-to-debt plus equity ratio expected to remain around 45% and EBITDA interest coverage of about 3x in the next 12-18 months. Vivion's capital structure includes shareholder loans, both at the Vivion Investment Sarl level and the Golden Capital level, including its minority interest. As of March, 31, 2019, the aggregate amount of shareholder loans is EUR812.8 million (coming from Vivion Holdings) and EUR239 million (coming from minority shareholders at Golden Capital). We treat these shareholder loans as equity, given the strong equity components included in its documentation. "Our rating assessment incorporate a one-notch downward adjustment, as we understand that the company's financial policy allows leverage to be increased to a maximum loan-to-value (LTV) ratio of 60%. As the company remains in a growth phase, we factor into our rating the possibility of temporary spikes in leverage, leading to our adjusted ratio of debt to debt plus equity above 50% in case of opportunistic acquisitions. "Our base-case assumptions for Vivion have not changed materially since we assigned the preliminary rating on July 22, 2019 (see "Commercial Property Company Vivion Investments Rated 'BB (Prelim)'; Outlook Stable; Proposed Notes Rated 'BB+ (Prelim)'). We incorporate in our final rating the EUR50 million increase in the unsecured notes' amount, compared with our preliminary rating assumption of EUR650 million, which brings the final amount of the unsecured notes to EUR700 million. We assume that the additional bond proceeds will be used to fund on going acquisitions. Incorporating the final terms of the issuance, we project Vivion's EBITDA interest coverage about 3x, debt to debt plus equity at about 45%, and debt to EBITDA at around 9x-10x in the next 12-18 months, assuming no large debt-financed acquisitions. "Our outlook on Vivion is stable because we think the company's existing portfolio should generate stable cash flows over the next 12 months, thanks to its fully occupied, triple-net leased hotel portfolio in the U.K. and the favorable market fundamentals in the office market in Germany's metropolitan areas. Our outlook also reflects our expectations that the company will continue to execute its announced strategy in the next 12-18 months to grow its exposure to commercial assets in Germany's metropolitan areas while gradually increasing occupancy levels. "We forecast that Vivion's debt-to-debt plus equity ratio will be around 45% and EBITDA interest coverage around 3x in the next 12 months, assuming no large debt-financed acquisitions." An upgrade would be contingent on Vivion's public commitment to shift to a more conservative financial policy consistent with a higher issuer credit rating. This would translate into maintaining consistently its debt to debt plus equity below 50% and its EBITDA interest coverage above 2.4x. An upgrade could also hinge on the sustained delivery of the current strategy and the maturity of the existing portfolio, which would build a track record under its newly established corporate structure. An upgrade would also require an increase in the scale, balance, and diversity of its property portfolio; an improvement in occupancy levels, including any new acquisitions; and enhancement of its tenant base. S&P said, "We could lower our rating on Vivion if the company were not able to maintain a debt-to-debt plus equity ratio below 60% and EBITDA interest coverage above 1.8x. This situation could materialize if the company were to deviate from its existing financial policy with more debt-funded acquisitions or declining values, especially in the hotel portfolio, as a result of a change in supply trends or political uncertainties stemming from Brexit, such as further weakening of the Pound Sterling in connection to currency exchange effects. "We would also view negatively occupancy levels' stagnation below market levels or if the overall scale of the portfolio declined significantly." In addition, a negative rating action could stem from a deterioration in liquidity, e.g., due to a large number of signed acquisitions, not fully backed by committed funding sources, or a deterioration in its cash flow base as a result of weaker market conditions leading to increased vacancy rates. [*] UK: Plans to Prioritize Debt Repayments in Corp. Insolvencies ----------------------------------------------------------------- The Times reports that the UK Treasury plans to prioritize debt repayments to the government in company insolvencies represents a "cash grab" that will have "serious consequences" for the economy, industry bodies have warned. In a joint letter to Sajid Javid, the chancellor, accountancy, investment and legal trade groups said that the proposed legislation would make it harder to rescue businesses, limit access to finance across the economy, increase the impact of insolvencies on other businesses and undermine government tax receipts, The Times relates. According to The Times, under legislation included in the draft finance bill, from April 6 next year certain tax debts owed by an insolvent company will be repaid to Revenue & Customs as a priority over debts owed to floating charge lenders and unsecured creditors, including a company's pension scheme and its suppliers. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2019. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *