/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/191022.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, October 22, 2019, Vol. 20, No. 211 Headlines B U L G A R I A BULGARIAN ENERGY: Fitch Affirms BB LT Issuer Default Ratings I R E L A N D ADAGIO CLO VIII: Moody's Assigns (P)B3 Rating on Class F Notes I T A L Y ALITALIA SPA: Italian Gov't Prepares EUR350MM Bridge Financing L U X E M B O U R G GALILEO GLOBAL: S&P Affirms 'B' LongTerm ICR Amid Refinancing M A C E D O N I A SKOPJE: S&P Affirms 'BB-' LT Issuer Credit Rating, Outlook Stable S P A I N TUBOS REUNIDOS: Subscribes Refinancing Contracts with Creditors U N I T E D K I N G D O M ALBA PLC 2007-1: S&P Raises Class E Notes Rating to BB+(sf) ARDONAGH MIDCO 3: Fitch Corrects Oct. 15 Press Release BELRON GROUP: S&P Affirms 'BB' ICR on Dividend Recapitalization CONSORT HEALTHCARE: S&P Lowers ICR to 'BB+', Outlook Negative MPORIUM GROUP: Requests Share Suspension Due to Financial Woes PIZZA EXPRESS: Carval Buys Heavily Discounted Corporate Bonds R DURTNELL: Westridge to Continue Work on Brighton Dome TAURUS UK 2019-3: S&P Assigns Final BB- Rating on Class E Notes THOMAS COOK: CDDC to Hold Credit-Default Swaps Auction on Oct. 30 TOWD POINT AUBURN 13: Fitch Assigns Bsf Rating on Class E Notes - - - - - =============== B U L G A R I A =============== BULGARIAN ENERGY: Fitch Affirms BB LT Issuer Default Ratings ------------------------------------------------------------ Fitch Ratings affirmed Bulgarian Energy Holding EAD's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BB' with a Stable Outlook. BEH's senior unsecured rating, including the rating of BEH's EUR550 million and EUR600 million (due 2025) bonds, has been downgraded to 'BB-' from 'BB'. The affirmation of the IDR follows the revision of BEH's standalone credit profile to 'b' from 'bb-' and an increase in the notching-up for strong links with the sole owner, the Bulgarian state (BBB/Positive), to three from one. The weaker SCP takes into account BEH's 100% subsidiary, Bulgartransgaz EAD, recent involvement in the construction of capex-intensive expansion of the gas transmission and transit infrastructure from the Bulgarian-Turkish to the Bulgarian-Serbian border. The project will be financed mostly from a debt-like facility (EUR1.1 billion) from the constructing consortium, which Fitch add to Fitch-adjusted debt. Fitch has increased the notching as the SCP is now more than four notches below the state's, based on Fitch's Government-Related Entities (GRE) rating criteria. It also reflects its view of the TurkStream extension project as an additional indication of BEH group's close links with the Bulgarian state, it being part of the updated National Energy Strategy and an important step to set up a gas hub in Bulgaria. The downgrade of the senior unsecured rating to 'BB-' reflects its expectation that the share of prior-ranking debt to EBITDA will exceed 2x (mostly because of the EUR1.1 billion debt-like facility added at Bulgartransgaz), increasing structural subordination of bondholders at BEH level. KEY RATING DRIVERS Strong Market Position: BEH is a leading Bulgarian utility focusing on electricity generation. In 2018 the group generated 28TWh of electricity, of which 57% is from nuclear (NPP Kozloduy), 30% from lignite (TPP Maritsa 2) and 13% from hydro power plants (NEK) having a low carbon exposure. Beyond generation the group is active in more stable electricity transmission (ESO) and gas transmission and transit (Bulgartransgaz), which currently contributes around 30% to the group's EBITDA, supporting its credit profile. BEH is present also in electricity (NEK) and gas supply (Bulgargaz), excavates lignite (Mini Maritsa) and runs a telecom business (Bulgartel). Constraints to SCP: Fitch assesses BEH's SCP at 'b', which is low for the group's strong market position and a diversified business mix. However, the SCP is constrained by its expectations of high capex (in particular in relation to the expansion of the gas transmission and transit infrastructure), leverage increase, a weak regulatory framework, negative outcome of legal cases and corporate governance limitations. TurkStream Extension: In September 2019, Bulgartransgaz signed an agreement with a consortium of companies led by Saudi energy services company, Arkad Engineering and Construction Co. (Arkad), to expand the gas transmission and transit infrastructure between the Bulgarian-Turkish and Bulgarian-Serbian border, which will also be an extension of the TurkStream pipeline. This project is of strategic importance for Bulgaria, contributing to diversification of gas supply routes to the country given that it will allow Bulgaria to import Russian gas from Turkey in addition to the route via Ukraine and allow its export to other countries. Bulgartransgaz will own the Bulgarian part of the pipeline and contribute its share of capex. However, EUR1.1 billion will be provided by the construction consortium and will be repaid by Bulgartransgaz over 10 years, which includes both principal and coupon payments. Fitch perceives this financing as debt-like and add it to Fitch-adjusted debt. Large Capex Plans: Fitch expects BEH's own capex to increase to around BGN0.8 billion per annum over 2019-2021 and BGN0.7 billion over 2022-2023 from BGN0.4 billion over 2014-2018. The reasons for the increase are on one hand cyclical with 77% of capex qualified as maintenance. However, there are also large expansionary projects included in the capex plan, which include Bulgartransgaz' share in the TurkStream extension project, but also the gas interconnector between Greece and Bulgaria (ICGB). High Leverage: Fitch forecasts that funds from operations (FFO) adjusted net leverage (2018: 4.0x) will increase to in-between 6x and 7x over 2019-2023, driven by high capex and debt-like financings. The main debt items are two senior unsecured Eurobonds issued by BEH of EUR550 million (maturing in 2021) and EUR600 million (maturing in 2025) as well as a state-provided financing to NEK of EUR602 million (maturing in 2023). From 2019 Fitch adds to debt also a state-guaranteed loan for the ICGB project (EUR110 million), the EUR1.1 billion financing from the Arkad-led consortium and a bank guarantee issued to cover EU gas claims (EUR77 million). Weaker Regulatory Framework: Fitch deems the Bulgarian regulatory framework to be less predictable and higher-risk than for BEH's peers in the EU. The regulatory framework has been evolving with notable success, e.g. reduction of the tariff deficit at NEK. However, the inability of TPP Maritsa 2 to fully reflect higher CO2 prices in 2018 in the regulated segment of the market created a deficit at the subsidiary and reduced the group's 2018 EBITDA by around BGN0.2 billion. The deficit has been eliminated in the current regulatory period (July 2019 to June 2020); nevertheless, recurrence of some form of tariff deficit will be negative for the group's credit profile. Fitch expects the Bulgarian energy market to become more liberalised over the next four years and more compliant with the EU's Third Energy Package. This should provide for elimination or at least smaller regulatory deficits and exert positive impact on the SCP of BEH over time. Negative Outcome of Legal Cases: In December 2018 BEH, together with Bulgartransgaz and Bulgargaz, were fined (EUR77 million) by the EU Commission in the proceedings related to blocking competitors' access to key gas infrastructure in Bulgaria in violation of the EU antitrust rules. In September 2018 NEK lost a trial against Worley Parsons Nuclear Services and was ordered to pay BGN61 million (EUR31 million). BEH has appealed on both cases, but Fitch conservatively assumes that both claims will be paid over the next four years. Corporate Governance Limitations: The group's corporate governance limitations include in particular a qualified audit opinion for BEH's 2009-2018 consolidated financial statements. Positively the group reports under IFRS, but its structure is quite complex and financial transparency, including on business segments, is weaker than EU peers'. Support from the State: Reflecting links with the Bulgarian state, Fitch applies a three-notch uplift to BEH's SCP of 'b', taking the group's IDR to 'BB'. Based on Fitch's GRE Rating Criteria, Fitch views the status, ownership and control links between BEH and the Bulgarian state as strong and support track record and expectations as moderate. The socio-political and financial implications of a BEH default for the Bulgarian state are also deemed as moderate. Consequently, the support score under its GRE Rating Criteria is 17.5, which with the six-notch distance between BEH's SCP and the sovereign rating could lead to either a two- or three-notch uplift being included in BEH's IDR. Fitch has chosen a three- rather than two-notch uplift as Fitch sees the expansion of the gas transmission and transit infrastructure between Turkey and Serbia as an additional indication of BEH's close links with the Bulgarian state. DERIVATION SUMMARY BEH has a leading position in the Bulgarian gas and electricity market through its ownership of most of Bulgaria's power generation assets (including a nuclear power plant, lignite-fired and hydro power plants), the country's largest mining company, the country's electricity transmission network, gas transmission and transit networks and through its position as the public supplier of both electricity and gas in Bulgaria. BEH's integrated business structure and strategic position in the domestic market makes the group comparable to some of central European peers such as CEZ, a.s. (A-/Stable) and PGE Polska Grupa Energetyczna SA (PGE, BBB+/Stable). However, BEH operates in a more volatile and less transparent regulatory environment than CEZ or PGE, has much higher leverage and its results are less predictable with some corporate governance issues. BEH's rating includes a three-notch uplift to reflect links with the sovereign, whereas this is not the case for CEZ or PGE. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer - Group EBITDA at around BGN0.8 billion in 2019-2021, rising to close to BGN1 billion in 2022-2023 - Total own capex at BGN3.8 billion over 2019-2023 - Capex contribution from the Arkad-led consortium at EUR1.1 billion in 2019 (on top of own capex), qualified as a debt-like liability - State-guaranteed loan from EIB for the ICGB project (EUR110 million) added to debt from 2019 - Settlement of EU and Worley Parsons claims (successful appeal process would be an upside) - Low dividends at 50% of net profit - Refinancing of Eurobonds and state-provided financing to NEK at BEH level (on maturity) RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Further tangible government support, such as additional state guarantees materially increasing the share of state-guaranteed debt or cash injections, which would more tightly link BEH's credit profile with Bulgaria's stronger credit profile - Stronger SCP due to FFO adjusted net leverage falling below 5x on a sustained basis, lower regulatory and political risk, higher earnings predictability and better corporate governance Developments That May, Individually or Collectively, Lead to Negative Rating Action - Weaker links with the Bulgarian state - Downgrade of the sovereign rating of Bulgaria as it would lower the "sovereign-less-three" cap for BEH's rating - Weaker SCP, e.g. due to FFO adjusted net leverage exceeding 7x on a sustained basis, escalation of regulatory and political risk or insufficient liquidity - Further material increase in prior-ranking debt, which would be negative for the senior unsecured rating of BEH LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: At end-2018 BEH had BGN1,343 million of Fitch-calculated unrestricted cash against short-term financial liabilities of BGN124 million and negative free cash flow (FCF) of BGN0.2 billion in 2019 (which Fitch expects to remain negative until 2022 due to large capex). Based on its forecast the group has sufficient liquidity until August 2021, when the EUR550 million bond matures. Adjustments to Debt: BEH's main debt items include two Eurobonds of EUR550 million (maturity in 2021) and of EUR600 million (maturity in 2025). However, Fitch adds several other debt-like items to Fitch-adjusted debt. This includes the state-provided financing to NEK in connection with the Belene arbitration of EUR602 million (maturity in 2023). From 2019 Fitch adds to Fitch-adjusted debt also the EUR1.1 billion amortising financing of Bulgartransgaz from the Arkad-led consortium as well as the EIB loan for the ICGB project of EUR110 million. Fitch also adds the bank guarantee provided in connection with the EU claims in the gas market of EUR77 million to Fitch-adjusted debt. Consequently, Fitch-adjusted debt at end-2019 reaches BGN6.1 billion. State-related Debt: As per Fitch rating case, the state-guaranteed debt together with state-provided financing to NEK will account for 20% to 25% of Fitch-adjusted debt until NEK financing's maturity in 2023. Fitch deems it as a considerable amount, showing close links between BEH and the sovereign owner. Large Prior-Ranking Debt: As per Fitch rating case, the state-provided financing for NEK and the Arkad-led consortium financing for Bulgartransgaz is added to Fitch-adjusted debt of BEH. Both are large facilities taken by BEH's subsidiaries instead of BEH itself. Consequently, BEH's ratio of prior-ranking debt (the debt of subsidiaries who do not guarantee BEH)-to-EBITDA rises to around 4x over 2019-2021 (2018: 2.3x). As the ratio is above the limit of 2x EBITDA Fitch notches down the senior unsecured rating of BEH once from the IDR to reflect increased structural subordination of BEH's bondholders. SUMMARY OF FINANCIAL ADJUSTMENTS Financial debt at end-2018 is increased by BGN1,177 million (EUR602 million) of the face value of the state-financing given to NEK to settle Belene obligations and by a bank guarantee of BGN151 million (EUR77 million) given to BEH, Bulgartransgaz and Bulgargaz in March 2019 to cover EU claims announced in December 2018. ============= I R E L A N D ============= ADAGIO CLO VIII: Moody's Assigns (P)B3 Rating on Class F Notes -------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following provisional ratings to Notes to be issued by Adagio CLO VIII Designated Activity Company: EUR217,000,000 Class A Senior Secured Floating Rate Notes due 2032, Assigned (P)Aaa (sf) EUR25,000,000 Class B-1 Senior Secured Floating Rate Notes due 2032, Assigned (P)Aa2 (sf) EUR10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032, Assigned (P)Aa2 (sf) EUR24,500,000 Class C Deferrable Mezzanine Floating Rate Notes due 2032, Assigned (P)A2 (sf) EUR22,750,000 Class D Deferrable Mezzanine Floating Rate Notes due 2032, Assigned (P)Baa3 (sf) EUR17,500,000 Class E Deferrable Junior Floating Rate Notes due 2032, Assigned (P)Ba2 (sf) EUR10,500,000 Class F Deferrable Junior Floating Rate Notes due 2032, Assigned (P)B3 (sf) RATINGS RATIONALE Moody's issues provisional ratings in advance of the final sale of financial instruments, but these ratings only represent Moody's preliminary credit opinions. Upon a conclusive review of a transaction and associated documentation, Moody's will endeavour to assign definitive ratings. A definitive rating (if any) may differ from a provisional rating. The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in its methodology. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured loans and senior secured bonds and up to 10% of the portfolio may consist of unsecured obligations, second-lien loans, mezzanine loans and high yield bonds. The portfolio is expected to be approximately 85% ramped up as of the closing date and to be comprised predominantly of corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the 5 month ramp-up period in compliance with the portfolio guidelines. AXA Investment Managers, Inc. will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's four and a half-year reinvestment period. Thereafter, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or credit improved obligations. In addition to the seven Classes of Notes rated by Moody's, the Issuer issued EUR 11,000,000 Class Z Notes due 2032 and EUR 35,200,000 Subordinated Notes due 2032, which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the Notes in order of seniority. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in March 2019. Factors that would lead to an upgrade or downgrade of the ratings: The rated Notes' performance is subject to uncertainty. The Notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. AXA's investment decisions and management of the transaction will also affect the Notes' performance. Moody's modeled the transaction using CDOEdge, a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in March 2019. Moody's used the following base-case modeling assumptions: Par amount: EUR 350,000,000 Diversity Score: 40 Weighted Average Rating Factor (WARF): 2,825 Weighted Average Spread (WAS): 3.80% Weighted Average Coupon (WAC): 4.25% Weighted Average Recovery Rate (WARR): 44.00% Weighted Average Life (WAL): 8.5 years Moody's has addressed the potential exposure to obligors domiciled in countries with local currency ceiling (LCC) of A1 or below. As per the portfolio constraints, exposures to countries with LCC of A1 or below cannot exceed 10%, with exposures to LCC of Baa1 to Baa3 further limited to 5% and with exposures of LCC below Baa3 not greater than 0%. ========= I T A L Y ========= ALITALIA SPA: Italian Gov't Prepares EUR350MM Bridge Financing -------------------------------------------------------------- Jerrold Colten and Chiara Albanese at Bloomberg News report that the Italian government is readying EUR350 million (US$390 million) in bridge financing for bankrupt airline Alitalia SpA, seeking to keep the carrier flying as it scrambles to find bidders for a last-ditch rescue. The financing, due to cover six months of operations, was finalized in a cabinet decree document seen by Bloomberg. According to Bloomberg, the companies leading the bid to bail out Alitalia on Oct. 15 reaffirmed their willingness to acquire the bankrupt airline but said more work is needed before they can make a binding offer. Ferrovie dello Stato Italiane SpA and the Benetton family's Atlantia SpA said more details were needed on governance, shareholders and management of the carrier, Bloomberg notes. Delta Air Lines Inc. has reaffirmed its intention to invest EUR100 million in Alitalia, though the Italian carrier's administrators are seeking a stronger commitment from the U.S. company, Bloomberg relays, citing newspaper Corriere della Sera. State-appointed administrators have been running Alitalia since 2017 after former shareholder Etihad Airways pulled the plug on funding and workers rejected a EUR2 billion recapitalization plan including 1,600 job cuts from a workforce of 12,500, Bloomberg discloses. Newspapers including la Repubblica reported on Oct. 18 Germany's Deutsche Lufthansa AG may be stepping up its bid for a role in the rescue, Bloomberg recounts. Repubblica said the German company could take on the financial burden of Alitalia's change in airline alliance and might reconsider its prior position of ruling out an equity stake in the Italian carrier, Bloomberg relays. Italy's economic development ministry, which is leading the efforts to rescue Alitalia, had previously set an Oct. 15 deadline for binding offers, Bloomberg notes. About Alitalia With headquarters in Fiumicino, Rome, Italy, Alitalia is the flag carrier of Italy. It's main hub is Leonardo da Vinci-Fiumicino Airport, Rome. The company has a workforce of 12,000+. It reported EUR2,915 million in revenues in 2017. Alitalia and its subsidiary, Alitalia Cityliner S.p.A., are in Extraordinary Administation (EA), by virtue of decrees of the Ministry of Economic Development on May 2 and May 17, 2017 respectively. The companies were subsequently declared insolvent on May 11 and May 26, 2017 respectively. Luigi Gubitosi, Prof. Enrico Laghi and Prof. Stefano Paleari were appointed as Extraordinary Commissioners of the Companies in Extraordinary Administration. The Italian government ruled out nationalizing Alitalia in 2017 and since then, the airline has been put up for sale. To this development, Delta Airlines, Easyjet and Italian railway company Ferrovie dello Stato Italiane have expressed interest in acquiring the airline in 2018. Since then, Easyjet has withdrawn its offer. =================== L U X E M B O U R G =================== GALILEO GLOBAL: S&P Affirms 'B' LongTerm ICR Amid Refinancing ------------------------------------------------------------- S&P Global Ratings affirmed its 'B' long-term rating on Galileo Global Education (GGE) and assigned its 'B' issue rating to its proposed senior secured instruments. The affirmation reflects the group's track record of generating sound profitability due to cost control and the successful integration of acquired universities without harming earnings, gradually increasing the geographic diversity of the group's operations and increasing GGE's scale. S&P thinks this has resulted in a strengthening of GGE's business profile. That said, increased quantum of financial debt following the proposed issuance of the new senior secured instruments, along with the highly leveraged capital structure, tempers further rating upside. GGE has gradually improved the operating efficiency of its business in recent years. This has resulted in increasing profitability and the expansion of reported EBITDA margins to about 21% in 2018 from 17.5% in 2017 and about 14% in 2016. GGE has expanded organically through an increase in enrollments due to effective marketing campaigns across geographies. It has also made acquisitions and priced tuition fees at rates above inflation. GGE has focused on cost management and on the integration of acquired universities without any drag on earnings. S&P thinks the group has managed to moderately improve its geographic diversification thanks to its latest acquisitions, including universities in Italy and Cyprus acquired from Laureate Education Inc. in 2018 and the announced acquisition of a 51% stake in a Norwegian school, Noroff, in October 2019. The scale of GGE's operations also improved in 2018 and over the course of FY2019. S&P expects that revenue will exceed EUR500 million in FY2020 from about EUR470 million expected in FY2019 and EUR435 million in calendar year 2018. This compares well with GGE's peer, Global University Systems Holding B.V., with revenue of about GBP430 million (pro forma acquisitions of Indian higher education providers). The acquisition of Noroff, albeit small (about EUR20 million of revenue in FY2020) will marginally increase GGE's online presence (with about 60% of its courses delivered online). It will also extend the group's existing portfolio of subjects, adding additional options such as Cyber Security. GGE can also explore some commercial synergies between Noroff and its existing portfolio, by introducing joint university programs at Noroff and existing universities in other geographies, for example. The group operates in the highly competitive and fragmented private for-profit higher educational industry. Its smaller, albeit increasing, scale versus larger peers such as Laureate (EUR3.3 billion revenue in 2018) and Nord Anglia (EUR1.2 billion revenue in 2018), remains a limiting factor for GGE's business risk profile. S&P said, "We also think GGE's operations are exposed to its main market, France, where the group generated about 50% of revenue in 2018. We view the French higher education market as very competitive, particularly in the business schools segment, where the group derives more than 25% of its revenue." For example, the Paris School of Business (PSB), owned by GGE, competes with larger private nonprofit institutions such as HEC Paris, ESCP, and ESSEC, as well as other private for-profit business schools such as INSEEC U. Although PSB has one of the highest accreditations and certification standards, the French "Grade de Master", it has fewer accreditations than other tier 1 competitors. Any decrease in new enrollments stemming from more intense competition in the business school segment could directly harm GGE's total EBITDA. Indeed, the group's top-three schools brands generated about 50% of the group's reported EBITDA in 2018, highlighting the group's earnings concentration. When completed, the announced refinancing will result in a EUR165 million debt increase. GGE will refinance the existing EUR535 million term loan B with a new EUR700 million term loan B, and the RCF will moderately increase to EUR100 million from the existing EUR87.5 million. GGE will use the new financial debt to refinance the existing debt instruments, fund the Noroff acquisition of EUR27 million, and pay EUR90 million of dividends to its financial sponsors. S&P said, "We continue to view GGE'S financial policy as aggressive, with two significant debt-funded dividend payments over the past two years totalling EUR180 million. We expect GGE will maintain its aggressive acquisition strategy in the coming years with EUR217 million of cash on the balance sheet (cash overfund of EUR45 million) posttransaction." The private higher education market remains very fragmented and consolidation is ongoing. For example, in May 2019, Global University Systems raised EUR230 million of additional debt to fund the acquisition of a number of higher education services businesses in India and build up liquidity for future transactions. S&P said, "In our view, the group's acquisitive strategy will limit its ability to significantly reduce leverage over the next couple of years. Post the refinancing, we expect debt to EBITDA will be 6.3x-6.8x in FY2020, from 5.5x-6.0x estimated in FY2019 and 6.4x reported in 2018. Our base case assumed a marginal reduction to 5.9x-6.4x in FY2021, mainly due to growth in the EBITDA base. Although S&P Global Ratings-adjusted leverage remains very high, we expect GGE will preserve its cash flow generation ability and continue generating moderate positive reported free operating cash flow (FOCF) of about EUR40 million in FY2020-FY2021, after about EUR56 million in 2018 and expected about EUR40 million in FY2019. "The stable outlook on GGE reflects our view that the group's EBITDA base will increase thanks to acquisitions, the sound contribution of its existing schools, and a continuing focus on cost control. We also expect GGE will generate sound reported FOCF of about EUR40 million in the same period. Post refinancing and dividend payments, we anticipate adjusted debt to EBITDA of 6.3x-6.8x by end-FY2020, declining to 5.9x-6.4x in FY2021. "Considering the private higher education market remains fragmented, we expect that GGE will continue to participate in sector consolidation. That said, we think a rating downside would most likely result from further material or transformative debt-financed acquisitions or debt-funded shareholder remuneration that increase the group's debt to EBITDA to above 7.0x. The ratings could also come under pressure from a weaker operating performance than our base case, including an inability to increase its student base. This could happen if GGE loses relevant accreditations, carries out ineffective marketing campaigns, or is unable to manage the integration of acquired schools, such that EBITDA growth does not materialize and FOCF becomes neutral or negative over the next 12 months. "We see rating upside as remote over the next 12 months, given GGE's highly leveraged capital structure and financial sponsor ownership currently constrain the rating. We could take a positive rating action if the group committed to a more conservative financial policy, with adjusted debt to EBITDA decreasing below 5.0x on a sustainable basis, together with sizable FOCF generation." ================= M A C E D O N I A ================= SKOPJE: S&P Affirms 'BB-' LT Issuer Credit Rating, Outlook Stable ----------------------------------------------------------------- S&P Global Ratings affirmed its 'BB-' long-term issuer credit rating on the Municipality of Skopje, the capital of the Republic of North Macedonia. The outlook is stable. Outlook S&P said, "The stable outlook reflects our view that Skopje will maintain a healthy operating performance with declining debt and adequate liquidity balances. Furthermore, in our base-case scenario, we assume stability in the management team and its policies and practices." Downside scenario S&P could lower its rating on Skopje within the next 12 months if S&P lowered its long-term rating on North Macedonia (BB-/Stable/B), or if Skopje's liquidity position became structurally weaker. Rating pressure could also arise from relaxed control over operating expenditure and increased investments, which in turn would weaken the city's budgetary performance and push deficits after capital accounts structurally to more than 5% of revenue. Upside scenario S&P could raise its rating on Skopje if, in the next 12 months, S&P raised its rating on North Macedonia and, at the same time, the city's performance markedly exceeded its base-case expectations. Additionally, any ratings upside would be contingent on the city's management strengthening its long-term planning and budgeting. Rationale The rating on Skopje is constrained by the volatile and unbalanced institutional framework under which the municipality operates in North Macedonia. The city's financial management policies have remained stable over the past two years following the local elections. The city reduced its debt in 2018, and S&P forecasts debt will remain below 20% of operating revenue. Ongoing operating expenditure controls are likely to result in positive operating balances. Uncertainties around future and medium-term investment project spending remain, however, which could weigh on the city's cash levels. Solid growth prospects from a low economic base and stability in the current city government pave the way for steady financial performance Following tensions at the central government level in 2017, and the subsequent delay in local elections, administrative power was smoothly transferred to a coalition led by the Social Democratic Union (SDSM). There was no turnover in technical personnel, and S&P sees consistency of financial management policies under the new mayor, which we consider an indication of political stability. The current administration has closer ties with the central government than the prior one, particularly as the mayor is also vice secretary of SDSM. The predictability of North Macedonia's institutional set-up is affected by the central government's fiscal policy. S&P notes that there are plans for further fiscal decentralization, to transfer more responsibility to North Macedonian municipalities for policing, health care, and tax collection. However, this has not progressed markedly in recent years, although it remains an agenda item for the current government. Skopje funds most services through earmarked transfers from the central government's budget. Like other local governments, it has very limited autonomy to divert funds to different uses. The city's financial management is a weakness for the rating. The municipality lacks tested medium-term financial planning for the core budget and its enterprises, and outcomes on annual budgets very often differ markedly from planned volumes. S&P said, "While we see initial steps toward more realistic planning of capital revenue in the 2019 budget, capex is still routinely overestimated. We understand that, to some extent, this reflects considerations outside of the Skopje administration's direct control, such as delays owing to lengthy public procurement procedures." Half-year 2019 figures still indicate low volumes of real estate sales executed. The margin of execution appears on better footing though, with 20% already achieved, versus 2018 full-year execution hardly reaching this level. Additionally, with the amended law on local government finances, a ceiling has been placed on total budget size, set at a maximum of the past three years' average budget volume and a 10% allowance for an increase. Regardless of this institutional measure, greater budgetary precision would enhance Skopje's planning capabilities. The city produces multiyear forecasts, but the achieved figures differ considerably from the forecasts. On the positive side, the city government has a relatively tight grip on operating expenditure and is closely reevaluating its investment program. Moreover, it arranges funding for capital projects in advance from multilateral financial institutions, both directly and via the state treasury. Skopje's accounts are audited by an independent government body reporting to parliament. Skopje has low income and wealth levels in an international comparison. S&P said, "We project national GDP per capita will average just US$6,700 over 2019-2021. The city is the center of the country's economy, hosting manufacturing facilities of export-oriented foreign companies, as well as headquarters of national companies. We expect the local economy to gradually expand in line with the national economy, achieving annual GDP growth of about 3% over 2019-2021. We believe that these steady economic developments are likely to buoy the city's budget performance." Financial performance is strong, but the infrastructure gap remains high Skopje's financial performance in 2018 exceeded S&P's base-case expectations, thanks to higher revenue and a slowdown in capex. A strong underlying economy and higher transfers from the central government drove the increase in tax revenue. At the same time, capex was contained through cancellation of some of the "Skopje 2014" projects to build monuments and renovate facades. Despite a further decline in the amount of land sales, the balance after capital accounts remained positive, leaving more room for deleveraging. S&P said, "We expect revenue growth to maintain its momentum, expanding in line with the economy. Half-year numbers indicate good execution of property taxes and non-tax items, with some underexecution on transfer service taxes. Strong pressures from salaries and subsidies to municipal companies will also absorb more funds, with both items already at an execution rate of 45% and above. We think this will moderately reduce the operating margin to 18% in 2021. In addition, we believe capex will return to higher levels because of the city's large infrastructure gap. The project pipeline is dense and involves investments in roads, schools, and public transportation. Half-year execution has surpassed 2018 levels already. Capital revenue is likely to remain volatile and to be lower than budgeted. Overall, this leads us to expect deficits after capital accounts under our forecast through 2021 at an average of 2.0%." Volatility of the real estate market further constrains the predictability of the municipality's budgetary performance, especially regarding construction taxes and land sales. Skopje derives about one-fourth of its revenue from real estate-related development, both directly and indirectly. S&P said, "Our view of Skopje's limitations regarding revenue and expenditure flexibility remains unchanged. A high proportion of revenue depends on central government decisions, such as setting the base or range for most local tax rates, as well as the distribution coefficients. In addition, despite a slowdown of capex in 2018, we believe scaling down capital spending may be challenging, given the city's infrastructure gap." The above mentioned deficits, coupled with a persistent reduction of the city's debt burden, are likely to lead to a reduction in Skopje's accumulated liquidity reserves. The central government has only in recent years allowed municipalities in North Macedonia to take on debt, and borrowing limits are gradually being relaxed. However, these limits are essentially not rigid for Skopje, whose stock of debt reduced to just 17% of operating revenue in 2018. S&P said, "In addition, we believe that the city will continue with its deleveraging plan, supported by high cash balances and strong operating performance. As a result, we forecast tax-supported debt will remain roughly stable at around 20% of consolidated operating revenue by year-end 2021." S&P sees Skopje's municipal company sector as a credit weakness. Several municipal companies have investment needs and large payables. Additional contingent liabilities may come from the municipality's plans to foster infrastructure development through public-private partnerships. Skopje's debt service coverage ratio is high, with cash holdings--adjusted for the deficit after capital accounts--substantially exceeding 200% of debt service falling due over the coming 12 months. S&P said, "Nonetheless, we believe this ratio is volatile and inflated by cash accumulated through 2015 asset sales and fees from land sales. With normalized asset sales and a pickup in infrastructure investment, we anticipate a gradual reversal of the municipality's strong liquidity position to adequate levels. We believe that the city will be able to manage the cash balance at a minimum of Macedonian denar 200 million (about US$3.9 million). Skopje holds its cash in an account at the state treasury. These positive factors are countered by the city's access to external liquidity, which we view as limited, owing to the relatively immature local banking system and capital markets for municipal debt." In accordance with S&P's relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable. At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. Ratings List Ratings Affirmed Skopje (Municipality of) Issuer Credit Rating BB-/Stable/-- ========= S P A I N ========= TUBOS REUNIDOS: Subscribes Refinancing Contracts with Creditors --------------------------------------------------------------- Thomas Gualtieri at Bloomberg News reports that Tubos Reunidos SA said in a regulatory filing on Oct. 17 it has subscribed refinancing contracts with all its creditors. According to Bloomberg, creditors who formalized contracts represent 100% of the company's financial debt. Tubos Reunidos is a Spain-based company primarily engaged in the steel industry. =========================== U N I T E D K I N G D O M =========================== ALBA PLC 2007-1: S&P Raises Class E Notes Rating to BB+(sf) ----------------------------------------------------------- S&P Global Ratings raised its credit ratings on eight classes and affirmed its ratings on eight classes from ALBA U.K. RMBS transactions (ALBA 2005 - 1 PLC, ALBA 2006 - 1 PLC, and ALBA 2007 - 1 PLC). S&P said, "The rating actions follow the implementation of our revised assumptions for assessing pools of residential loans. They also reflect our full analysis of the most recent transaction information that we have received and the transactions' current structural features. "Upon revising our assumptions for rating U.K. RMBS transactions, we placed our ratings on ALBA 2005 - 1's class B, C, D, and E notes, ALBA 2006 - 1's class B, C, D, and E notes, and ALBA 2007 – 1's class B, C, D, and E notes under criteria observation. Following our review of the transactions' performance, the application of our counterparty criteria, and our assumptions for rating U.K. RMBS transactions, our ratings on these notes are no longer under criteria observation. "Credit Suisse International provides the interest rate swap contract to all these transactions, which was not in line with our previous counterparty criteria. Under our revised criteria, our collateral assessment is weak, and considering the downgrade language in the swap documents and the current resolution counterparty rating (RCR) on Credit Suisse International, the maximum supported rating on the notes is 'AA- (sf)', which is the RCR. "HSBC Bank PLC provides the liquidity facility contract to ALBA 2007-1, which was not in line with our previous counterparty criteria. Under our revised criteria, considering the downgrade language in the documents and the counterparty rating (ICR) on HSBC Bank PLC, the maximum supported rating on the notes is 'AA- (sf)', which is the ICR. "After applying our updated U.K. RMBS criteria assumptions, the overall effect in our credit analysis results in a decrease in the weighted-average foreclosure frequency (WAFF) at higher rating levels. This is mainly due to the decrease in the loan-to-value (LTV) ratio we used for our foreclosure frequency analysis, which now reflects 80% of the original LTV ratio and 20% of the current LTV ratio, among other factors. The WAFF has increased at lower rating levels following our updated arrears analysis in which the arrears adjustment factor is now the same at all rating levels. Our weighted-average loss severity (WALS) assumptions have decreased at all rating levels due to the revised jumbo valuation thresholds and the introduction of a separate Greater London category." The overall effect from our credit analysis results is a decrease in the required credit coverage for all rating levels. S&P said, "Available credit enhancement in these transactions has increased since our previous reviews, due to the pro rata payment of all the classes, as well as reserve funds remaining the same since our previous reviews, albeit increasing at a slow pace. "Following the application of our revised criteria, we have determined that our assigned ratings on these transactions' classes of notes should be the lower of (i) the rating as capped by our counterparty criteria, or (ii) the rating that the class of notes can attain under our U.K. RMBS criteria. "Our credit and cash flow results indicate that the available credit enhancement for series 2005-1's class A3, series 2006-1's class A3a and A3b, and series 2007-1's class A3 notes are commensurate with 'AAA (sf)' ratings. Our results support a 'AA- (sf)' rating for the series 2005-1 class B notes. We have therefore affirmed our 'AAA (sf)' ratings on series 2005-1's class A3, series 2006-1's class A3a and A3b, and series 2007-1's class A3 notes. We have affirmed our 'AA- (sf)' rating on series 2007-1's class B notes. "Under our credit and cash flow analysis, series 2005-1's class B, C, D, and E; series 2006-1's class B, C, D, and E; and series 2007-1's class C, D, and E notes could withstand our stresses at higher rating levels than those assigned. However, the ratings were constrained by additional factors that we considered. First, we factored into our rating actions the sensitivity of all these classes to pro rata payments and their sensitivity to tail-end risks. In addition, we considered these classes' relative position in the capital structure and the lower credit enhancement for the subordinated classes compared with that of the senior notes. "We have therefore affirmed our 'AA+ (sf)' ratings on series 2005-1's and series 2006-1's class B notes, and our 'AA (sf)' rating on series 2006-1's class C notes. We have raised our ratings on series 2005-1 and series 2007-1's class C notes, series 2005-1 and series 2006-1's class D notes, series 2007-1's class D and E notes, and series 2005-1 and series 2006-1's class E notes." ALBA's series are securitizations of first-lien U.K. nonconforming residential mortgage loans. Ratings List ALBA PLC Ratings Raised Series Class Rating to Rating from 2005-1 C AA (sf) A+ (sf) 2005-1 D A (sf) BBB+ (sf) 2005-1 E BB (sf) B- (sf) 2006-1 D A- (sf) BBB (sf) 2006-1 E B (sf) B- (sf) 2007-1 C A+ (sf) A (sf) 2007-1 D BBB (sf) BBB- (sf) 2007-1 E BB+ (sf) BB (sf) Ratings Affirmed Series Class Rating to Rating from 2005-1 A3 AAA (sf) AAA (sf) 2005-1 B AA+ (sf) AA+ (sf) 2006-1 A3a AAA (sf) AAA (sf) 2006-1 A3b AAA (sf) AAA (sf) 2006-1 B AA+ (sf) AA+ (sf) 2006-1 C AA (sf) AA (sf) 2007-1 A3 AAA (sf) AAA (sf) 2007-1 B AA- (sf) AA- (sf) ARDONAGH MIDCO 3: Fitch Corrects Oct. 15 Press Release ------------------------------------------------------ Fitch Ratings replaced a ratings release on Ardonagh Midco 3 published on October 15, 2019 to correct the name of the obligor for the bonds. The amended ratings release is as follows: Fitch Ratings affirmed Ardonagh Midco 3 plc's Long-Term Issuer Default Rating at 'B' with a Negative Outlook. Fitch has chosen to maintain the Negative Outlook until its sees further progress towards generating positive Fitch-defined free cash flow as the company completes the first full year of integrating the Swinton acquisition. The opportunistic Swinton acquisition in 2018 led to a delay in deleveraging of the business from its previous forecasts by one year although it resulted in greater diversification of Ardonagh with a better market position and greater scale. Fitch expects the benefits of several years of restructuring will be realised by end-2019, with a normalised business profile delivered in 2020. As a result, Fitch observes a balance between the overall strengthened business profile, improving liquidity, and delayed deleveraging. KEY RATING DRIVERS Swinton Increases Scale: Ardonagh's opportunistic 2018 acquisition of Swinton has increased scale and expanded Ardonagh's personal insurance offerings. Swinton has been integrated into the Autonet and Carole Nash segment and the combined group has seen initial benefits from its expertise in pricing, technology and relationships with insurance partners. All Swinton retail outlets have been closed across the UK as part of the restructuring plan and 1H19 revenue and EBITDA margin are currently on track to meet its full year 2019 expectations. Fitch is awaiting proof of successful full-year integration results leading to FCF visibility. Positive FCF In 2021: In recent years Ardonagh has been acquiring high-margin businesses to expand their portfolio and boost profitability. EBITDA margin has increased by 5.6% in the last two years. Fitch expects further margin expansion as these businesses are successfully integrated. This, however, requires significant business transformation spending, which will adversely impact the company's FCF generation. Fitch expects Fitch-defined FCF to turn positive in 2021, when the transformational costs and enhanced transfer value (ETV) payments are over. Leverage Remains Elevated But Declining: Fitch expects funds from operations (FFO) adjusted gross leverage to remain above its downgrade trigger of 7.0x, at 7.3x at end-2019 before easing towards 6.9x by end-2020. Full-year audited results for 2019 showing gross leverage below 7.0x would provide reason to revise the Outlook to Stable. In addition, the FFO fixed charge coverage ratio remains below 2.0x due to increased debt issuance to fund both the Swinton acquisition and investments in the business. Fitch expects Ardonagh to be able to demonstrate a 12-month period with successfully integrated acquisitions and to deliver on its targeted operational improvements, before changing the Outlook to Stable in 2020. Competitive UK Insurance Market: While Brexit-related challenges are increasing, Fitch still forecasts growth in both the life and non-life sectors in the short term. Fitch has confidence that regulatory continuity will remain through the medium term. Fitch forecasts a decline in the insurance division of the broker market for household/motor generic products. Fitch believes competitive pressures in the market could lead to further demand from insurers to eliminate intermediaries for mass products. Bolt-on Acquisitions Accretive: Since late 2018, Ardonagh has acquired three businesses from its shareholders in exchange for equity (the Nevada 3 transaction). These businesses include Minton House Group, which offers staff absence insurance, The Health Insurance Group, which offers UK private medical insurance to SMEs and individuals, and Professional Fee Protection Limited, which is a small UK niche tax investigation fee protection MGA. These acquisitions (as well as Swinton) have been accretive and speak to the skilled management team and its drive for opportunistic, focused M&A. Continued Shareholder and Regulatory Support: Shareholders have invested at least GBP825 million in Ardonagh. This active involvement continued with the sale of the remaining stake in The Broker Network for GBP30 million to entities affiliated with its shareholders and the acquisition of three bolt-on Nevada 3 acquisitions by Ardonagh. Continued shareholder support is a positive factor for the group. In addition, the ETV redress payments will be distributed over the next 18 to 24 months, addressing the remaining expected regulatory payments. DERIVATION SUMMARY Ardonagh has less scale in the UK than the large international insurance brokers. However, Ardonagh has greater scale and a more diverse product offering than other independent brokers Siaci Saint Honore (B/Stable) and April SA (B(EXP)/Stable). While its expertise in niche, high-margin product lines and its leading position among UK insurance brokers underpin a sustainable business model, Ardonagh's higher financial risk, lower financial flexibility, and the need for continued progress toward integrating acquisitions constrain the rating. KEY ASSUMPTIONS Revenue to grow 25% in 2019 due to Swinton acquisition, 4% per annum thereafter EBITDA margin gradually increasing to 27.6% in 2022 from 25.4% in 2019 Cash taxes at about 1% of EBITDA per annum Working capital outflow at about 3.5% of revenue in 2019 and 2.5% per annum thereafter Capex at GBP20 million in 2019 and GBP15 million per annum thereafter Exceptional costs include regulatory fees (ETV redress payments), transaction costs, and restructuring No common dividends KEY RECOVERY RATING ASSUMPTIONS As Ardonagh has continued to make progress on its transformation plan and integrate the Swinton acquisition, Fitch believes it can achieve a going-concern EBITDA of GBP145 million based on its current asset base. A drop in EBITDA to the going-concern level could be the result of meaningful loss in market share or regulatory change in the insurance industry. Fitch applies a distressed enterprise value (EV)/EBITDA multiple of 5.5x, representing a discount from publicly traded companies as well as recent transaction multiples in the sector. After subtracting 10% of distressed EV for administrative claims, Fitch subtracts the group's GBP120 million revolving credit facility (RCF; assumed fully drawn in recovery) and apply proceeds available to the principal waterfall to yield a recovery of 52% on the group's outstanding GBP1,143 million senior secured notes. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - FFO adjusted gross leverage sustainably below 5.5x - FFO fixed charge coverage above 2.5x - EBITDA margins greater or equal to 27% - Positive FCF and organic growth supporting the capital structure that allows for refinancing at lower cost of debt Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO adjusted leverage sustainably above 7.0x - FFO fixed charge coverage below 2.0x and declining liquidity - EBITDA margins below 22% - Weak organic growth and sustained integration costs LIQUIDITY AND DEBT STRUCTURE The group has satisfactory liquidity with an undrawn GBP120 million RCF combined and GBP40 million of Fitch-forecasted available cash at end-2019. Given that debt maturities are in 2023, Fitch does not expect Ardonagh to have any liquidity issues. Furthermore, a letter of credit for GBP50 million is in place to address ETV payments in the next two years. BELRON GROUP: S&P Affirms 'BB' ICR on Dividend Recapitalization --------------------------------------------------------------- S&P Global Ratings affirmed its 'BB' long-term issuer credit ratings on Belron Group S.A. and its financing subsidiaries, and assigning a 'BB' rating to a new financing subsidiary, Belron Finance 2019 LLC. S&P affirmed its 'BB' issue rating on the existing senior secured facilities, with a '3' recovery rating, and assigned its 'BB' issue rating and '3' recovery rating to the proposed facilities. S&P said, "We expect a consistent financial policy and ongoing shareholder returns to offset continued earnings growth and strong cash flow generation, resulting in relatively stable credit metrics over the medium term. On the back of strong revenue growth, cost savings and synergies, Belron will raise an additional EUR850 million-equivalent first-lien secured term loans to distribute in dividends to shareholders and return reported leverage in line with the group's financial policy of maximum reported net leverage target of below 4.25x. We forecast the group's S&P Global Ratings-adjusted leverage to be around 4.5x at the end of 2019, followed by a gradual deleveraging to just below 4x at the end of 2020, in light of strong forecast operations and a sustained improvement in EBITDA margins. However, we believe that any future material improvements in credit metrics will be temporary due to the group's financial policy and expectations of further dividend recaps. "Although the global vehicle glass repair and replacement (VGRR) market shows continued signs of structural decline, Belron continues to deliver strong operating performance. We expect revenues to grow by around 8%-9% in 2019. We believe that the price growth related to windscreens' increasing complexity, paired with the increased Advanced Driver Assistance Systems (ADAS) calibration fees and the incremental sales from Value Added Products (VAPS) will more than offset the structural decline in VGRR volumes and provide significant opportunities for the company to consolidate its competitive position over the coming years. "We forecast Belron's adjusted EBITDA margins to increase to around 17% in 2019 from 12% in 2018, following a reduction in one-off adjustments, sound revenue growth, and efficiency initiatives. We believe that the implementation of tight cost control and efficiency initiatives will provide significant margin growth over the next few years. Furthermore, strong sales growth and additional initiatives represented by the increased focus on the higher-margin ADAS and VAPS segments, coupled with a non-cash change in the management incentive scheme, will further boost EBITDA margins. "The stable outlook reflects our view that Belron will continue to grow at healthy high-single-digit rates over the next 12 months on the back of a strong performance in 2019, mainly driven by strong sales growth in the U.S., coupled with margin increases in North America and the rest of the world. Furthermore, we expect that Belron will maintain credit metrics commensurate with the ratings, despite the significant increase in debt due to the dividend recapitalization. "We could take a negative rating action if Belron's operating performance comes under pressure as a result of difficult conditions in its main markets, combined with a lack of growth in new divisions, resulting in earnings growth materially below our current expectations. "We could also take a negative rating action if Belron or the wider D'Ieteren group undertook material debt-funded acquisitions or shareholder distributions that resulted in sustainably weaker credit metrics than we expect. The ratings could come under pressure if Belron's adjusted leverage rose to above 4.5x or if D'Ieteren's adjusted leverage weakened to above 4.0x. "Although we consider it unlikely in the near term, we could raise our ratings if we anticipated that Belron's earnings and cash flows were likely to improve significantly more than we expect, supporting material deleveraging. A positive rating action would also be contingent on a commitment from the group and its shareholders to maintain a financial policy supportive of these improved credit metrics, with no material debt-funded acquisitions or shareholder distributions. "In particular, we could raise our ratings on Belron if its credit metrics improved such that adjusted leverage fell sustainably below 4.0x. At the same time, we would expect D'Ieteren to exhibit leverage of below 3x before considering a higher rating on Belron." CONSORT HEALTHCARE: S&P Lowers ICR to 'BB+', Outlook Negative ------------------------------------------------------------- S&P Global Ratings lowered its rating on the senior secured debt issued by Consort Healthcare (Birmingham) Funding PLC to 'BB+' from 'BBB-'. ProjectCo used the proceeds of the senior debt issuance to finance the construction and refurbishment of an acute inpatient facility and a mental health facility at the existing Queen Elizabeth Hospital in Birmingham. Balfour Beatty Construction Ltd. and Haden Young Ltd. (both part of the Balfour Beatty group) completed construction and refurbishment of the two facilities in 2008 and 2012, respectively. ProjectCo operates under a 40-year project agreement expiring in 2046. It subcontracts hard facilities management services to Engie. The trusts retain soft facilities management services. -- The ProjectCo benefits from an availability-based payment mechanism, which supports cash flow stability. -- The comparatively large levels of cash trapped in the project partially mitigate credit risk. -- The ProjectCo could exceed service failure point termination thresholds under the project agreement, which increases the risk of the trusts taking adverse steps against the ProjectCo. -- Exceeding termination thresholds in the project agreement could also lead to an event of default under the financing documents, potentially giving the controlling creditors the right to accelerate the senior debt. -- Engie's performance in delivering major maintenance (lifecycle) works and variations continues to lag expectations. -- The parties are working toward a settlement agreement with regard to passive fire protection matters. If such settlement is not achieved, this could have an adverse financial impact on ProjectCo. The downgrade reflects S&P's view that the ProjectCo is exposed to an elevated level of operating risk, as demonstrated by the prospect of being awarded a significant level of service failure points. S&P generally views the ability of project companies and their subcontractors to meet performance indicators in the project agreement as a key requirement to mitigate risk to senior creditors. Failure to remain below termination thresholds in the project agreement could, ultimately, entitle the trusts to terminate the project agreement, irrespective of whether the ProjectCo has passed down most other risks to its subcontractors. At this project, Engie recently advised the ProjectCo that it had recorded a significant backlog of unresolved open work orders. S&P views it as likely that a large proportion of these work orders relate to relatively minor works that do not have a material impact on the operations of the hospital and overall level of service provided to the trusts. Irrespective of the significance of the individual work orders, however, their high number in aggregate might entitle the trusts to award service failure points under the project agreement that could exceed default threshold levels. Engie has prepared a remediation plan and has engaged with the ProjectCo to mitigate associated risks. S&P said, "In our view, the prospect of the ProjectCo being close to, or even potentially exceeding, the default levels in the financing documents or project agreement demonstrates a higher risk than that present at most other hospital projects that we rate. "The negative outlook reflects our view that the ProjectCo faces uncertainty following a potential breach of contractual thresholds in the project agreement. "We could lower the rating by one or more notches if the trusts attempt to terminate the project agreement, issue warning notices, or take other steps under the project agreement that demonstrate elevated risk of termination. "We could also lower the ratings if ProjectCo's cash balances (excluding the reserve accounts) were to fall below our estimate of the cost of remediating or compensating defects in the buildings. "We could revise the outlook to stable following a period of operational stability that demonstrates the subcontractor's ability to remain well within contractual thresholds, provided that there is no prospect of the ProjectCo breaching its agreements as a result of unresolved open work orders." MPORIUM GROUP: Requests Share Suspension Due to Financial Woes -------------------------------------------------------------- Carlo Martuscelli at Dow Jones Newswires reports that Mporium Group PLC on Oct. 21 said it has asked that trading in its shares be suspended and an upcoming general meeting be adjourned due to its uncertain financial position. According to Dow Jones, the company cited unexpected tax liabilities as the reason for the financial uncertainties. Should the U.K. revenue service require payment, Mporium estimates the liability in the region of GBP3.5 million (US$4.5 million), which it doesn't have the resources to meet, Dow Jones discloses. Mporium said that as it cannot be sure the company will be able to continue to operate, it is also canceling a planned fundraising that it needed to meet its short-term capital requirements, Dow Jones relates. Mporuim Group plc (formerly MoPowered Group plc) -- https://www.mporium.com -- is a technology company at the forefront of the transformation in digital marketing. Mporium's proprietary technology enables advertisers, to identify and monetise micro-moments -- those moments when there are significant changes in the levels of consumer intent. PIZZA EXPRESS: Carval Buys Heavily Discounted Corporate Bonds ------------------------------------------------------------- Oliver Gill at The Telegraph reports that a hedge fund that shared a multibillion-pound bounty after buying Lehman Brothers loans is among those circling debt-laden dining chain Pizza Express. CarVal, one of a handful of money managers that made big bets on the collapsed Wall Street investment bank, has bought into Pizza Express's heavily discounted corporate bonds, The Telegraph discloses. According to The Telegraph, sources said other investors include Cyrus Capital, the Wall Street fund that has invested in airlines alongside Sir Richard Branson, and distressed debt specialist HIG Bayside. Pizza Express is struggling to repay GBP1.1 billion of loans amid spiralling losses, The Telegraph states. Some GBP665 million of the debt mountain is formed of corporate bonds, which must be repaid starting in 2021, The Telegraph notes. R DURTNELL: Westridge to Continue Work on Brighton Dome ------------------------------------------------------- Jordan Marshall at Building reports that Brighton & Hove council has chosen local firm Westridge Construction to continue work on its GBP21 million restoration of Brighton Dome Corn Exchange and Studio Theatre. According to Building, the East Sussex firm has been chosen after R Durtnell & Sons went into administration in July. Westridge will carry out weatherproofing and drainage works to protect and conserve the historic Grade I and Grade II listed buildings, Building discloses. Kent-based Durtnell, which traces its roots back to 1591, has since been saved with Durtnell's creditors agreed to a debt repayment plan known as a company voluntary arrangement, Building notes. TAURUS UK 2019-3: S&P Assigns Final BB- Rating on Class E Notes --------------------------------------------------------------- S&P Global Ratings has assigned credit ratings to Taurus 2019-3 UK DAC's class A, B, C, D, and E notes. At closing, Taurus 2019-3 UK also issued unrated class X notes. The transaction is backed by one senior loan, which Bank of America Merrill Lynch International DAC (BofAML) originated in April 2019 to refinance a portfolio of student accommodation properties owned by Brookfield Asset Management Inc. (Brookfield or the sponsor). The senior loan backing this true sale transaction is GBP418.6 million and is secured by 21 purpose-built student accommodation (PBSA) properties totaling 8,053 beds located throughout the U.K. The securitized senior loan (GBP244.4 million) is 58.4% of the senior loan (GBP418.6 million). As part of EU and U.S. risk retention requirements, the issuer and the issuer lender (Bank of American Merrill Lynch International DAC) entered into a GBP12.2 million (representing 5% of the securitized senior loan) issuer loan agreement, which ranks pari passu to the notes of each class and the class X certificates. The issuer lender advanced the issuer loan to the issuer on the closing date. The proceeds of the issuer loan were applied by the issuer as partial consideration for the purchase of the securitized senior loan from the loan seller. In addition, RBC Europe Ltd. holds a GBP174.1 million interest in the senior loan that ranks pari passu with the securitized senior loan. The portfolio consists of PBSA properties spread out across England, Scotland, and Northern Ireland. The appraiser has valued the portfolio at GBP664.2 million, and the current loan-to-value (LTV) ratio is 63.0%. The two-year loan (with three one-year extension options) provides for amortization of 1% per annum in year 3 and years 4-5 if debt yield is less than 9.75% and 10.00%, respectively. There are cash trap mechanisms set at a 75.00% LTV ratio, or a minimum debt yield set at 7.0% (academic year [AY] 18/19), 8.0% (AY 19/20), 8.5% (AY 20/21), 8.7% (AY 21/22), and 8.9% (AY 22/23). S&P said, "Our ratings address the issuer's ability to meet timely interest payments and principal repayment no later than the legal final maturity in June 2029. Our ratings on the notes reflect our assessment of the underlying loan's credit, cash flow, and legal characteristics and an analysis of the transaction's counterparty and operational risks." Ratings List Taurus 2019-3 UK DAC Class Rating Amount (mil. GBP) A AAA (sf) 119.00 B AA- (sf) 39.50 C A- (sf) 30.50 D BBB- (sf) 26.00 E BB- (sf) 17.22 THOMAS COOK: CDDC to Hold Credit-Default Swaps Auction on Oct. 30 ----------------------------------------------------------------- Irene Garcia Perez at Bloomberg News reports that the Credit Derivatives Determinations Committee will hold an auction on Oct. 30 to settle Thomas Cook credit-default swaps after the company collapsed last month. According to Bloomberg, the CDDC panel said swaps under 2003 contract were triggered on Sept. 17 after the company filed for chapter 15 bankruptcy protection in the U.S. Swaps under the 2014 contract were triggered on Sept. 20 by a failure-to-pay event, Bloomberg relates. About Thomas Cook Group Thomas Cook Group Plc is the ultimate holding company of direct and indirect subsidiaries, which operate the Thomas Cook leisure travel business around the world. TCG was formed in 2007 following the merger between Thomas Cook AG and MyTravel Group plc. Headquartered in London, the Group's key markets are the UK, Germany and Northern Europe. The Group serves 22 million customers each year. The Group operates from 16 countries, with a combined fleet of over 100 aircraft through five entities holding air operator certificates in the UK, Germany, Denmark and Spain. The Group has 2,800 owned and franchised retail outlets (including 555 shops in the UK) and operates 199 own-brand hotels across the world. As of Dec. 31, 2018, the Group had 21,263 employees, including 9,000 in the U.S. The travel agent originally proposed a restructuring. It was scheduled to ask creditors Sept. 27, 2019, for approval of a scheme of arrangement that involves (a) substantially deleveraging the Group by converting GBP1.67 billion of RCF and Notes debt currently outstanding into new shares (15%) and a subordinated PIK note (at least GBP81 million) to be issued by the recapitalized Group in proportions still to be agreed; and (b) the transfer of at least a 75% interest in the Group Tour Operator and an interest of up to 25% in the Group Airline to Chinese investor Fosun Tourism Group. Representatives of the company filed a Chapter 15 petition in New York on Sept. 16, 2019, to seek U.S. recognition of the UK proceedings as foreign main proceeding. The Chapter 15 case is In re Thomas Cook Group Plc (Bankr. S.D.N.Y. Case No. 19-12984). Latham & Watkins, LLP is the counsel. But after last-ditch rescue talks failed, on Sept. 23, 2019, Thomas Cook UK Plc and associated UK entities announced that they have entered Compulsory Liquidation and are now under the control of the Official receiver. The UK business has ceased trading with immediate effect and all future flights and holidays are cancelled. All holidays and flights provided by Thomas Cook Airlines have been cancelled and are no longer operating. All Thomas Cook's retail shops have also closed. Separate from the parent company, Thomas Cook's Indian, Chinese, German and Nordic subsidiaries will continue to trade as normal. TOWD POINT AUBURN 13: Fitch Assigns Bsf Rating on Class E Notes --------------------------------------------------------------- Fitch Ratings assigned Towd Point Mortgage Funding 2019 - Auburn 13 PLC's notes final ratings. Towd Point Mortgage Funding - Auburn 13 Class A1 XS2053911264; LT AAAsf New Rating; previously AAA(EXP)sf Class A2 XS2062950584; LT AAAsf New Rating; previously AAA(EXP)sf Class B XS2053911421; LT AAsf New Rating; previously AA(EXP)sf Class C XS2053911934; LT Asf New Rating; previously A(EXP)sf Class D XS2053912239; LT BB+sf New Rating; previously BB+(EXP)sf Class E XS2053913393; LT Bsf New Rating; previously B(EXP)sf Class XA XS2053914011; LT NRsf New Rating; previously NR(EXP)sf Class Z XS2053913807; LT NRsf New Rating; previously NR(EXP)sf TRANSACTION SUMMARY This transaction is a securitisation of buy-to-let (BTL) and owner-occupied (OO) residential mortgage assets originated by Capital Home Loans (CHL) and secured against properties in the UK. The pool contains 94.9% BTL loans and 5.1% OO non-conforming loans, which are modelled as separate sub-pools. The assets have been securitised in previous Auburn transactions: 62.3% were residing in the Towd Point Mortgage Funding 2016 - Auburn 10 (Auburn 10) transaction and the remaining portion in the Auburn Warehouse Borrower 4 Limited. The sellers are Cerberus European Residential Holdings (CERH) GR 2 Sub B.V., and CHL. CHL is the legal title holder. KEY RATING DRIVERS Seasoned Loans The portfolio consists of 13-year seasoned loans originated by CHL, of which 94.8% (by current balance) are BTL loans. When setting the originator adjustment for the portfolio Fitch took into account factors including the historical performance of the Auburn 10 transaction and the short remaining term of the loans. This resulted in an originator adjustment of 1.0x. The OO loans (5.1% of the pool) contain a high proportion of self-certified, interest-only and restructured loan arrangements as well as 5.1% of the borrowers currently being in arrears by more than 0.1 monthly payments. Therefore Fitch applied its non-conforming assumptions to this sub-pool. Interest Deferrals Cap Junior Ratings The class A, B and C notes have individual dedicated liquidity reserves that mitigate the risk of interest deferrals. The class D and E notes do not benefit from liquidity support and are expected to be subject to interest deferrals until they become the most senior notes. The ratings of the class D and E notes are therefore constrained at 'BB+sf'. Low Margins, Favourable Affordability Of the loans, 99.3% track the Bank of England base rate (BBR), resulting in low weighted average (WA) margin at 1.5%. This results in a fairly high interest coverage ratio (ICR) of 129.7% for the BTL pool and a low debt-to-income ratio of 20.9% for the OO pool. This implies higher affordability for borrowers and therefore lower foreclosure frequency assumptions. Unhedged Basis Risk As the notes pay daily compounded SONIA the transaction is exposed to basis risk between BBR and SONIA. Fitch stressed the transaction cash flows for basis risk, in line with its criteria. Combined with the low asset margins, this resulted in limited excess spread in Fitch's cash flow analysis. RATING SENSITIVITIES Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base case expectations may result in negative rating action on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A1 and A2 notes to 'AA-'sf from 'AAA'sf. CRITERIA VARIATION Fitch has assigned a final rating of 'BB+sf' to the class D notes. This two-notch difference versus the model-implied rating represents a variation to the rating criteria, which envisage a limit of one notch. Fitch's cash flow modelling of the transaction, based on closing pool, indicates a model-implied rating of 'BB-sf' for the class D notes. Under the constraining scenario (low prepayments, back-loaded defaults and stable interest rates) the cash flow model indicates a constrained ability to immediately clear the accumulated interest shortfall for the Class D notes upon becoming the most senior class. The outcome of this scenario is unusually sensitive to the evolution of prepayments. By excluding the lowest rating of 18 cash flow model scenarios, the model-implied rating is increased by two notches to 'BB+sf'. ********* 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 * * *