/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/191105.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, November 5, 2019, Vol. 20, No. 221 Headlines G E R M A N Y SENVION SA: Moody's Withdraws Ca CFR on Sale of Onshore Service I R E L A N D INVESCO EURO III: Fitch Assigns B-(EXP) Rating on Class F Debt INVESCO EURO III: S&P Assigns Prelim B-(sf) Rating on Cl. F Notes USIL EUROPEAN 36: Fitch Assigns Bsf Rating on 2 Tranches N E T H E R L A N D S E-MAC NL 2014-1: Fitch Affirms CCC Rating on Class D Debt P O L A N D URSUS SA: Court Suspends Consideration of Getin Bankruptcy Motion ZAKLADY: Administrator Wants Accelerated Arrangement Dropped R U S S I A EXPERT BANK: Bank of Russia Appoints Provisional Administration RAM BANK: Assets Insufficient to Fulfill Liabilities S P A I N BBVA RMBS 2: Fitch Corrects Oct. 30 Ratings Release T U R K E Y BURSA MUNICIPALITY: Fitch Affirms BB- LongTerm IDR, Outlook Neg. MERSIN ULUSLARARASI: Fitch Rates New USD Sr. Unsec. Debt 'BB-(EXP)' MERSIN ULUSLARARASI: S&P Assigns Prelim 'BB-' ICR, Outlook Stable TURKEY: Fitch Affirms BB- LongTerm IDR & Alters Outlook to Stable U N I T E D K I N G D O M LONDON CAPITAL: Administrators Turn to Third Party to Explore Suit MARSTON'S ISSUER: S&P Affirms 'BB-(sf)' Rating on Class B Notes MOTHERCARE PLC: Intends to Appoint Administrators - - - - - ============= G E R M A N Y ============= SENVION SA: Moody's Withdraws Ca CFR on Sale of Onshore Service --------------------------------------------------------------- Moody's Investors Service withdrawn all outstanding ratings of Senvion S.A. and its subsidiary Senvion Holding GmbH. RATINGS RATIONALE The rating action follows the recent announcement by Senvion regarding the agreement for the sale of the European onshore service business and its blade facility in Portugal. In that announcement Senvion also says that for other parts of Senvion the wind-down process has begun while some wind turbine continuation projects are being finalized. This indicates that the self-administrated insolvency process of Senvion Holding GmbH is progressing, Moody's continues to expect a meaningful loss to the current noteholders. Taking into account that no financial information on the group has been released since the beginning of 2019, Moody's has decided to withdraw the rating for Senvion Holding GmbH. Moody's has decided to withdraw the rating because it believes it has insufficient or otherwise inadequate information to support the maintenance of the rating. In addition, Moody's has decided to withdraw the rating for Senvion S.A. because of bankruptcy/liquidation. LIST OF AFFECTED RATINGS Issuer: Senvion Holding GmbH Withdrawal: BACKED Senior Secured Regular Bond/Debenture, Withdrawn , previously rated C Outlook Action: Outlook, Changed To Rating Withdrawn From Negative Issuer: Senvion S.A. Withdrawal: LT Corporate Family Rating, Withdrawn , previously rated Ca Probability of Default Rating, Withdrawn , previously rated Ca-PD /LD Outlook Action: Outlook, Changed To Rating Withdrawn From Negative ============= I R E L A N D ============= INVESCO EURO III: Fitch Assigns B-(EXP) Rating on Class F Debt -------------------------------------------------------------- Fitch Ratings assigned Invesco Euro CLO III DAC expected ratings as detailed. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. RATING ACTIONS Invesco Euro CLO III DAC Class A; LT AAA(EXP)sf; Expected Rating Class B-1; LT AA(EXP)sf; Expected Rating Class B-2; LT AA(EXP)sf; Expected Rating Class C; LT A(EXP)sf; Expected Rating Class D; LT BBB-(EXP)sf; Expected Rating Class E; LT BB-(EXP)sf; Expected Rating Class F; LT B-(EXP)sf; Expected Rating Sub.; LT NR(EXP)sf; Expected Rating TRANSACTION SUMMARY Invesco Euro CLO III DAC is a securitisation of mainly senior secured obligations with a component of senior unsecured, mezzanine and second-lien loans. A total expected note issuance of EUR409.1 million will be used to fund a portfolio with a target par of EUR400 million. The portfolio will be managed by Invesco European RR L.P. The CLO envisages a further 4.5-year reinvestment period and an 8.5-year weighted average life (WAL). KEY RATING DRIVERS 'B+'/'B' Portfolio Credit Quality Fitch expects the average credit quality of obligors to be in the 'B+'/'B' category. The weighted average rating factor (WARF) of the identified portfolio is 31.1. High Recovery Expectations At least 92.5% of the portfolio will comprise senior secured obligations. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rating (WARR) of the identified portfolio is 66.6%. Limited Interest Rate Exposure Up to 5% of the portfolio can be invested in fixed-rate assets, while fixed-rate liabilities represent 1.88% of the target par. Fitch modelled both 0% and 5% fixed-rate buckets and found that the rated notes can withstand the interest rate mismatch associated with each scenario. Diversified Asset Portfolio The covenanted maximum exposure to the top 10 obligors for assigning the expected ratings is 21% of the portfolio balance. The transaction also includes limits on maximum industry exposure based on Fitch's industry definitions. The maximum exposure to the three largest (Fitch-defined) industries in the portfolio is covenanted at 40%. Portfolio Management The transaction features a 4.5-year reinvestment period and includes similar reinvestment criteria to other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. RATING SENSITIVITIES A 25% default multiplier applied to the portfolio's mean default rate, and with this increase added to all rating default levels, would lead to a downgrade of up to two notches for the rated notes. A 25% reduction in recovery rates would lead to a downgrade of up to four notches for the rated notes. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action DATA ADEQUACY The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. INVESCO EURO III: S&P Assigns Prelim B-(sf) Rating on Cl. F Notes ----------------------------------------------------------------- S&P Global Ratings assigned its preliminary credit ratings to Invesco Euro CLO III DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the issuer will also issue unrated subordinated notes. Under the transaction documents, the rated notes will pay quarterly interest unless there is a frequency switch event. Following this, the notes will switch to semi-annual payment. The portfolio's reinvestment period will end approximately four and a half years after closing, and the portfolio's maximum average maturity date will be eight and a half years after closing. 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 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. Portfolio Benchmarks Current S&P weighted-average rating factor 2,537.74 Default rate dispersion 580.55 Weighted-average life (years) 5.56 Obligor diversity measure 87.09 Industry diversity measure 15.72 Regional diversity measure 1.39 Transaction Key Metrics Current Total par amount (mil. EUR) 400 Defaulted assets (mil. EUR) 0 Number of performing obligors 114 Portfolio weighted-average rating derived from our CDO evaluator 'B' 'CCC' category rated assets (%) 0 Covenanted 'AAA' weighted-average recovery (%) 37.09 Covenanted weighted-average spread (%) 3.70 Covenanted weighted-average coupon (%) 4.50 S&P said, "Our preliminary ratings reflect our assessment of the preliminary collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio will be well-diversified on the effective date, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow collateralized debt obligations. "In our cash flow analysis, we used the EUR400 million par amount, the covenanted weighted-average spread of 3.70%, the covenanted weighted-average coupon of 4.50%, and the covenanted weighted-average recovery rates for all rating levels. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "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. "At closing, we consider that the transaction's legal structure will be bankruptcy remote, in line with our legal criteria. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B to F notes could withstand stresses commensurate with higher rating levels than those we have assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our assigned ratings on the notes. In our view the portfolio is granular in nature, and well-diversified across obligors, industries, and asset characteristics when compared to other CLO transactions we have rated recently. As such, we have not applied any additional scenario and sensitivity analysis when assigning ratings on any classes of notes in this transaction. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our preliminary ratings are commensurate with the available credit enhancement for the class A, B-1, B-2, C, D, E, and F notes." Invesco Euro CLO III is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by sub-investment grade borrowers. Invesco European RR L.P. will manage the transaction. Ratings List Invesco Euro CLO III DAC Class Preliminary rating Preliminary amount (mil. EUR) A AAA (sf) 244.000 B-1 AA (sf) 38.500 B-2 AA (sf) 7.500 C A (sf) 26.000 D BBB (sf) 24.000 E BB- (sf) 20.800 F B- (sf) 12.000 Subordinated NR 36.275 NR--Not rated. USIL EUROPEAN 36: Fitch Assigns Bsf Rating on 2 Tranches -------------------------------------------------------- Fitch Ratings assigned Usil (European Loan Conduit No. 36) DAC's notes the following final ratings: RATING ACTIONS Usil (European Loan Conduit No. 36) DAC Class A1; LT AAAsf New Rating; previously at AAA(EXP)sf Class A2; LT AA+sf New Rating; previously at AA+(EXP)sf Class B; LT AA-sf New Rating; previously at AA-(EXP)sf Class C; LT A-sf New Rating; previously at A-(EXP)sf Class D; LT BBBsf New Rating; previously at BBB(EXP)sf Class E; LTB Bsf New Rating; previously at BB(EXP)sf Class F; LT Bsf New Rating; previously at B(EXP)sf Class RFN; LT AAAsf New Rating; previously at AAA(EXP)sf Class X; LT NRsf New Rating; previously at NR(EXP)sf TRANSACTION SUMMARY The transaction finances 95% of a EUR679.1 million commercial mortgage loan advanced by Morgan Stanley Bank, N.A. (MS or the originator) and Morgan Stanley Principal Funding, Inc. to entities related to Blackstone Real Estate Partners, as well as a EUR44.8 million capital expenditure loan. The originator is retaining a 5% interest in the loans. The RFN class will be issued to finance the 95% of the liquidity reserve. KEY RATING DRIVERS KEY RATING DRIVERS Mixed Quality, Capex Required: The portfolio comprises well located secondary-quality properties. Many of the assets are old, albeit functional for mostly local SME tenant demand. Capex of about EUR25 million has been identified as essential to achieve rental value, and Fitch has accounted for this by assuming this portion of the capex line is drawn. The rest is value-enhancing and therefore considered credit neutral. High Leverage Refinancing: The senior loan-to-value (LTV) ratio is 71% (excluding portfolio premium). Based on Fitch's base-case estimate of collateral value and including drawings on the capex line for essential works, the CMBS LTV is around 95%, which is consistent with the class F notes' rating of 'Bsf'. With the mezzanine loan the total LTV is 82%. Including the capex line, the overall refinancing leaves relatively little equity invested versus at acquisition in 2017. Limited Adverse Selection Scope: The portfolio is fairly homogeneous, limiting scope for adverse selection despite pro-rata principal allocation. Should the aggregate allocated loan amount of disposed properties exceed 10% of the original loan balance, release pricing rises to 110% from 105%. Senior notes are insulated from the weakest cohort by a switch to sequential pay after 75% of the loan has been repaid. No Impact from Mezzanine: The mezzanine lender holds an option to purchase the senior loan, which is exercisable within 15 business days of notification of a material senior loan event of default). Fitch rates the class F notes at the senior loan breakeven (rather than a notch lower as in some CMBS 2.0 deals) as the option cannot be exercised for six months following the senior purchase election date and at any time during or after an actual enforcement action. RATING SENSITIVITIES KEY PROPERTY ASSUMPTIONS 'Bsf' weighted average (WA) cap rate: 6.6% 'Bsf' WA structural vacancy: 22.8% 'Bsf' WA rental value decline: 3.9% 'BBsf' WA cap rate: 7.1% 'BBsf' WA structural vacancy: 25.9% 'BBsf' WA rental value decline: 5.4% 'BBBsf' WA cap rate: 7.8% 'BBBsf' WA structural vacancy: 29% 'BBBsf' WA rental value decline: 7% 'Asf' WA cap rate: 8.4% 'Asf' WA structural vacancy: 32.1% 'Asf' WA rental value decline: 8.8% 'AAsf' WA cap rate: 9.2% 'AAsf' WA structural vacancy: 35.5% 'AAsf' WA rental value decline: 10.5% 'AAAsf' WA cap rate: 9.9% 'AAAsf' WA structural vacancy: 43.4% 'AAAsf' WA rental value decline: 12.3% RATING SENSITIVITIES The change in model output that would apply if the capitalisation rate assumption for each property is increased by a relative amount is as follows: Current ratings: class A1/A2/B/C/D/E/F: 'AAAsf'/'AA+sf'/'AA-sf'/'A-sf'/'BBBsf'/'BBsf'/'Bsf' Increase capitalisation rates by 10%: class A1/A2/B/C/D/E/F: 'AA+sf'/'AAsf'/'Asf'/'BBBsf'/'BB+sf'/'B+sf'/'CCCsf' Increase capitalisation rates by 20%: class A1/A2/B/C/D/E/F: 'AA+sf'/'AA-sf'/'BBB+sf'/'BBB-sf'/'BB-sf'/'Bsf'/'CCCsf' The change in model output that would apply if the RVD and vacancy assumption for each property is increased by a relative amount is as follows: Increase RVD and vacancy by 10%: class A1/A2/B/C/D/E/F D: 'AA+sf'/'AAsf'/'Asf'/'BBB+sf'/'BB+sf'/'BB-sf'/'Bsf' Increase RVD and vacancy by 20%: class A1/A2/B/C/D/E/F: 'AA+sf'/'AA-sf'/'A-sf'/'BBBsf'/'BBsf'/'B+sf'/'CCCsf' The change in model output that would apply if the capitalisation rate, RVD and vacancy assumptions for each property is increased by a relative amount is as follows: Increase in all factors by 10%: class A1/A2/B/C/D/E/F D: 'AA+sf'/'AA-sf'/'A-sf'/'BBB-sf'/'BBsf'/'B+sf'/'CCCsf' Increase in all factors by 20%: class A1/A2/B/C/D/E/F: 'AAsf'/'A-sf'/'BBB-sf'/'BBsf'/'Bsf'/'CCCsf'/'CCCsf' This does not apply to the class RFN rating as it is not sensitive to these variables. ===================== N E T H E R L A N D S ===================== E-MAC NL 2014-1: Fitch Affirms CCC Rating on Class D Debt --------------------------------------------------------- Fitch Ratings affirmed 14 tranches of three Dutch E-MAC RMBS transactions. RATING ACTIONS E-MAC NL 2004-1 B.V. Class A XS0188806870; LT Bsf Affirmed; previously at Bsf Class B XS0188807506; LT Bsf Affirmed; previously at Bsf Class C XS0188807928; LT Bsf Affirmed; previously at Bsf Class D XS0188808819; LT CCCsf Affirmed; previously at CCCsf E-MAC NL 2006-II B.V. Class A XS0255992413; LT Bsf Affirmed; previously at Bsf Class B XS0255993577; LT Bsf Affirmed; previously at Bsf Class C XS0255995358; LT Bsf Affirmed; previously at Bsf Class D XS0255996166; LT CCCsf Affirmed; previously at CCCsf Class E XS0256040162; LT CCCsf Affirmed; previously at CCCsf E-MAC NL 2005-III B.V. Class A XS0236785431; LT Bsf Affirmed; previously at Bsf Class B XS0236785860; LT Bsf Affirmed; previously at Bsf Class C XS0236786082; LT Bsf Affirmed; previously at Bsf Class D XS0236786595; LT CCCsf Affirmed; previously at CCCsf Class E XS0236787056; LT CCCsf Affirmed; previously at CCCsf TRANSACTION SUMMARY The E-MAC transactions are true-sale securitisations of Dutch residential mortgage loans originated by GMAC-RFC Nederland B.V. The successor company CMIS Nederland B.V. is servicer. KEY RATING DRIVERS Pro-Rata Structures As of the July 2019 payment date, the three transactions were amortising pro-rata. E-MAC NL 2005-III was paying sequentially during one collection period in 2018, but reverted to pro-rata in April 2018, reducing the credit enhancement build-up for the senior notes as per the amortisation mechanism in the documentation. Asset Maturity Risks In all three transactions Fitch identified assets with maturity dates exceeding those of the notes. These assets range from 0.2% to 0.7% of the current pool. According to the Mortgage Loans Criteria in the documentation, no loan with maturity later than two years prior to legal maturity of the notes should be present in the pool. Amortisation will only switch to sequential in case of (i) drawings on the reserve fund, (ii) drawings on the liquidity facility, (iii) uncleared balances on the principal deficiency ledgers, or (iv) loans delinquent for more than two months are greater than 1.5% of outstanding portfolio balance. Therefore, in a benign environment it is possible for the transactions to amortise pro-rata until note maturity. This could result in losses for all collateralised tranches in an amount equal to the balance of loans that mature after the notes. Fitch notes that the pools have shown a history of prepayments and the assets affected by maturity mismatches are small as a proportion of the current pool. Additionally, all of these borrowers have at least one loan part that matures prior to note maturity. Should the borrower decide to refinance that loan part they will have to refinance all their outstanding loan parts. Fitch also notes a number of loans (representing 0.4%, 2% and 1.3% of the current pool balance for 2004-1, 2005-III and 2006-II, respectively) maturing within the two years up until notes' legal final. The majority are interest-only loans. Such loans may not have time to work out before the notes' final maturity date in case of default. Given the elevated risk to note default, if asset performance remains stable, and the magnitude of loans maturing within the two years up until notes' legal final maturity, Fitch is of the opinion that a rating of 'Bsf' remains appropriate for the class A to C notes. Fitch considers that the class D notes may even suffer losses in case of sequential amortisation and therefore bear a higher default risk. Improving Performance Late-stage arrears (borrowers who have been delinquent for over three months) have continued to decrease during the previous 12 months. As of July 2019, figures ranged from 0.2% (2006-II) to 0.6% (2005-III), down from 0.3% (2006-II) and 0.8% (2005-III) 12 months ago. Similarly, the rate at which losses are building has slowed down. Excess Spread Notes Repayment Unlikely The excess spread notes in 2005-III and 2006-II have been affirmed at 'CCCsf'. Principal redemption of these notes ranks subordinate to the payment of extension margins on the collateralised notes in the revenue waterfall. As the extension margin amounts have been accruing and remain unpaid, the principal repayment of these notes via excess spread is at this stage very unlikely. Repayment of the class E notes is therefore considered limited to the release of the reserve funds in scenarios where their amount had previously been augmented due to performance deterioration, as stipulated by transaction documents. RATING SENSITIVITIES Should the assets maturing after notes' maturity prepay, it would address the risk of the notes incurring losses at maturity. This may lead to positive rating action. Adverse macroeconomic factors may affect asset performance. An increase in foreclosures and losses beyond Fitch's stresses may erode credit enhancement leading to negative rating action. =========== P O L A N D =========== URSUS SA: Court Suspends Consideration of Getin Bankruptcy Motion ----------------------------------------------------------------- Reuters reports that Ursus SA on Oct. 31 said that the court has suspended consideration of motion for the company's bankruptcy filed by Getin Noble Bank until the completion of Ursus accelerated arrangement proceedings. Ursus SA is a Polish producer of agricultural machinery located in Lublin. ZAKLADY: Administrator Wants Accelerated Arrangement Dropped ------------------------------------------------------------ Reuters reports that Zaklady Miesne Henryk Kania SA said on Oct. 31 its court-appointed administrator has filed a letter with the district court in Katowice informing of his withdrawal from preparing a restructuring plan and list of claims for the company. According to Reuters, the court-appointed administrator says concluding and executing an accelerated arrangement under restructuring proceedings seems impossible due to difficulties in taking over management over the company and taking possession of the company's documentation by the police and the state treasury administration. The administrator says he sees the said difficulties as grounds to drop the accelerated arrangement proceedings by the court, Reuters relates. Zaklady Miesne Henryk Kania SA (formerly IZNS Ilawa SA) is a Poland-based company engaged in food processing. =========== R U S S I A =========== EXPERT BANK: Bank of Russia Appoints Provisional Administration --------------------------------------------------------------- The Bank of Russia, by virtue of its Order No. OD-2519, dated November 1, 2019, revoked the banking license of Omsk-based Joint-stock company Expert Bank (JSC Expert Bank) (Reg. No. 2949; hereinafter, Expert Bank). The credit institution ranked 209th by assets in the Russian banking system. The Bank of Russia took this decision in accordance with Clauses 6 and 6.1, Part 1, Article 20 of the Federal Law "On Banks and Banking Activities" based on the facts that Expert Bank: -- Committed multiple violations of the anti-money laundering and counter-terrorist financing laws and Bank of Russia regulations. The credit institution repeatedly submitted incomplete and incorrect information to the authorized body, including on operations subject to mandatory control; -- Carried out dubious transactions involving foreign cash sale and money withdrawal abroad, as well as securities transactions having signs of cash flow substitution when retail companies transferred non-cash compensation for sale transactions to replace cash revenues; -- Violated federal banking laws and Bank of Russia regulations, due to which the regulator repeatedly applied supervisory measures against it over the last 12 months, which include restrictions on retail deposit-taking. The Bank of Russia's interactions with the credit institution aimed at improving its anti-money laundering processes failed to result in appropriate corrections of Expert Bank's operations. The bank's internal control procedure was recognized inefficient. Moreover, a number of facts constituted evidence for the credit institution's deliberate involvement in the conduct of dubious transactions, with its executives having no intention to take effective action towards stopping such operations. The Bank of Russia has sent the information on the bank's dubious transactions to the law enforcement bodies. The Bank of Russia appointed a provisional administration to Expert Bank for the period until the appointment of a receiver or a liquidator. In accordance with federal laws, the powers of the credit institution's executive bodies were suspended. Information for depositors: Expert Bank is a participant in the deposit insurance system; therefore depositors6 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 to be 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. RAM BANK: Assets Insufficient to Fulfill Liabilities ---------------------------------------------------- The provisional administration to manage Limited Liability Company RAM Bank (hereinafter, the Bank) appointed by virtue of Bank of Russia Order No. OD-1744, dated July 26, 2019, following the revocation of the Bank's banking license, established in the course of its inspection of the Bank that the Bank's officials conducted operations to divert funds through financing entities of dubious solvency or knowingly unable to fulfil their obligations, which caused damage amounting to at least RUR2.2 billion. According to the assessment by the provisional administration, the value of the Bank's assets is insufficient to fulfil its obligations to creditors. On October 16, 2019, the Arbitration Court of the City of Moscow recognized the Bank as insolvent (bankrupt). The State Corporation Deposit Insurance Agency was appointed as receiver. The Bank of Russia submitted the information on the financial transactions suspected of being criminal offences that had been conducted by the Bank's officials 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. ========= S P A I N ========= BBVA RMBS 2: Fitch Corrects Oct. 30 Ratings Release --------------------------------------------------- Fitch Ratings replaced a ratings release on four Spanish RMBS transactions published on October 30, 2019 to correct the name of the obligor for the bonds. The amended ratings release is as follows: Fitch Ratings has upgraded eight and affirmed 13 tranches of four Spanish RMBS transactions. All Outlooks are Stable. RATING ACTIONS BBVA RMBS 1, FTA Class A2 ES0314147010; LT A+sf Affirmed Class A3 ES0314147028; LT A+sf Affirmed Class B ES0314147036; LT BBB+sf Upgrade Class C ES0314147044; LT Bsf Affirmed BBVA RMBS 2, FTA Class A2 ES0314148018; LT A+sf Affirmed Class A3 ES0314148026; LT A+sf Affirmed Class A4 ES0314148034; LT A+sf Affirmed Class B ES0314148042; LT A-sf Upgrade Class C ES0314148059; LT B+sf Upgrade FTA, Santander Hipotecario 3 Class A1 ES0338093000; LT Bsf Upgrade Class A2 ES0338093018; LT Bsf Upgrade Class A3 ES0338093026; LT Bsf Upgrade Class B ES0338093034; LT CCsf Affirmed Class C ES0338093042; LT Csf Affirmed Class D ES0338093059; LT Csf Affirmed Class E ES0338093067; LT Csf Affirmed Class F (RF) ES0338093075; LT Csf Affirmed BBVA RMBS 3, FTA Class A1 ES0314149008; LT B+sf Upgrade Class A2 ES0314149016; LT B+sf Upgrade Class B ES0314149032; LT CCsf Affirmed Class C ES0314149040; LT Csf Affirmed TRANSACTION SUMMARY The transactions comprise Spanish mortgages serviced by Banco Bilbao Vizcaya Argentaria S.A. (A-/Negative/F2) for BBVA RMBS 1-3 and Banco Santander S.A. (A-/Stable/F2) for Santander Hipotecario 3 (Santander 3). KEY RATING DRIVERS Rising Credit Enhancement (CE) in Short-Term Fitch expects CE ratios to continue increasing for all transactions in the short term due to the prevailing sequential amortisation of the notes. However, for BBVA 1 and 2, CE ratios could decrease if the pro-rata amortisation mechanism is activated with the application of a reverse sequential amortisation of the notes until targets for outstanding notes as a share of the total notes' balance are met (double the initial percentage for non-senior tranches). For example, BBVA 1 class A notes' CE could fall to around 18.9% from 24.2% at present. The switch to pro-rata is subject to satisfactory performance triggers, such as the reserve funds being at their respective target amounts (currently at 62.8% and 55.7% for BBVA 1 and BBVA 2 respectively). Payment Interruption Risk Caps Ratings The 'A+sf' rating on BBVA 1 and BBVA 2 class A notes reflects the exposure of these transactions to payment interruption risk, as Fitch assesses the available cash reserves as insufficient to cover stressed senior fees, net swap payments and stressed senior note interest amounts in the event of a servicer disruption. High Seasoning; Stable Asset Performance The rating actions reflect Fitch's expectation of stable credit trends given the significant seasoning of the securitised portfolios of around 14 years, a prevailing low interest rate environment and a benign Spanish macroeconomic outlook. Three-month plus arrears (excluding defaults) as a percentage of the current pool balances remain below 1% across the transactions as of the latest reporting date. Cumulative gross defaults for these transactions are high but show signs of continuous flattening, ranging between 6.2% for BBVA RMBS 1 and 13.9% for BBVA RMBS 3 relative to the initial portfolio balances as of the latest reporting periods. Defaults are defined as loans in arrears for more than 12 and 18 months for BBVA RMBS and Santander 3, respectively. These high levels of cumulative defaults are above the average 6% for other Spanish RMBS rated by Fitch as of September 2019, and are partly explained by the high original loan-to-value ratios of these portfolios. The large volume of defaults has resulted in negative CE ratios in some junior tranches, of which Santander 3 class E notes are the most affected. It has also led to interest payments of junior tranches in BBVA RMBS 3 and Santander 3 being deferred to a subordinate position in the waterfall of payments. RATING SENSITIVITIES A worsening of the Spanish macroeconomic environment, especially employment conditions, or an abrupt shift of interest rates could jeopardise the underlying borrowers' affordability. This could have negative rating implications, especially for junior tranches that are less protected by structural CE. For BBVA RMBS 1 and BBVA RMBS 2, as long as payment interruption risk is not fully mitigated, the maximum achievable rating of these transactions will remain capped at 'A+sf' in accordance with Fitch's Structured Finance and Covered Bonds Counterparty Rating Criteria. =========== T U R K E Y =========== BURSA MUNICIPALITY: Fitch Affirms BB- LongTerm IDR, Outlook Neg. ---------------------------------------------------------------- Fitch Ratings affirmed Metropolitan Municipality Bursa's Long-Term Issuer Default Ratings at 'BB- ' and removed them from Rating Watch Negative. The affirmation reflects its expectations that Bursa's operating balance will improve in Fitch rating case, which would support the city's net debt payback and debt coverage ratios. Bursa is one of the important industrial hubs of Turkey located in the industrialised Marmara region in the north west of Turkey with wealth levels above the nation's average. The city's GDP per capita in 2017 was USD11,980, 13% above the Turkey's average. It has one of the highest industrial contributions to the nation's GDP after Istanbul and Izmir. The city is also the fourth-largest city contributor to Turkey's GDP, according to Turkish Statistics Office. KEY RATING DRIVERS Revenue Robustness Assessed as Weaker The 'Weaker 'assessment results from the expected adverse effects of a negative operating environment on Bursa's tax revenue growth prospects, which Fitch expects to remain subdued. The city benefits from a well-diversified and buoyant tax revenue base, which generates robust tax revenue, but the stability of performance may be threatened by a worsening of the current Turkish economic environment. The majority of Bursa's operating revenue stems from nationally collected and allocated tax revenues attributable to the city's local performance. This constituted almost 57% (2017: 60.1%) of its operating revenue in 2018. The next largest revenue item is current transfers received, comprising tax revenue allocated by the central government according to population and area criterion, at 20.3%. Operating revenue growth is stable, underpinned by the city's sound GDP per capita being 158% higher than Turkey's median. However, this could be hampered by the sluggish recovery of the operating environment. Revenue Adjustability Assessed as Weaker The 'Weaker' assessment reflects the unitary administrative structure of the Turkish government, which is the rate-setting authority, thereby significantly limiting Turkish local and regional governments' (LRGs) fiscal autonomy and flexibility. LRGs have very limited rate-setting power over local taxes, resulting in low own tax revenue generation, which for Bursa amounted to 1.3% of its operating revenue at end-2018. Similar to other Turkish LRGs, Bursa has higher discretionary power on non-tax revenues such as charges, rental income and fees levied on public services. In 2018, 21.3% of operating revenue was generated by non-tax revenue. Expenditure Sustainability Assessed as Midrange The 'Midrange' assessment reflects Bursa's fairly robust control of operating spending. Until two years ago, growth of the city's operating expenditure had outpaced that of operating revenue. Since 2017, its operating margins have averaged 36.7% (5Y average: 39%), higher than the international average of close to 33%. Capex is the main driver of total spending (41.9% at end-2018) as a result of the law, followed by purchase of goods and services (36.6%) and staff costs (9.2%). Unlike their international peers Turkish metropolitan municipalities are not in charge of resource-absorbing spending such as healthcare and education. Expenditure Adjustability Revised to Midrange from Weaker The revision reflects the improved ability of Bursa to reduce spending in response to shrinking revenue, relative to national peers, following increased cost discipline and cuts to planned capex. Fitch expects cost control to further improve in its rating case in view of the city's strong commitment to cost discipline. Bursa has also cut capex for 2019, which is in line with the city's plans to reduce expenditure, following large capex realisations in pre-election years. Fitch expects capex to mainly focus on mandatory items, and to average about 30% in 2019-2023. The rigidity of the city's expenditure structure is low in international comparison, with staff costs and capex at 9.2% and at about 41.9% of total expenditure, respectively, thereby leaving scope for cutbacks if needed. Liabilities and Liquidity Robustness Assessed as Weaker The 'Weaker' assessment reflects the structural features of national debt and liquidity regulation, which lead to material risk exposures for Turkish LRGs' budgets in general. Bursa, in comparison with other national peers, is significantly exposed to unhedged FX risk, as 41.5% of its total debt consisted of unhedged foreign debt (euro loans) at end-2018. It is a material risk across Fitch-rated Turkish metropolitan municipalities, making a significant dent in their budgets in times of currency volatility. At end-2018, the Turkish lira was 33.8% weaker yoy against the euro, resulting in a passive increase in Bursa's debt stock, by TRY345.7 million or 15.1%. Nevertheless, Fitch expects the share of foreign-currency debt to decline gradually to below 40% over 2019-2023. as Bursa ceased borrowing in foreign currency since 2013. Debt consists solely of bank loans, with a majority at fixed rates. Together with the amortising nature of the city's debt profile, its debt stock has a moderately lengthy weighted average maturity of seven years. More than 15% of its debt matures within one year, thereby increasing refinancing pressure, which Fitch expects to be mitigated by predictable and stable cash flows and committed credit lines. Bursa has good access to national and international financial markets. Contingent liabilities are largely limited to the financial debt of its waste water and water distribution affiliate, BUSKI, which is self- financing. Liabilities and Liquidity Flexibility Assessed as Weaker The liquidity of Bursa is solely restricted to its own cash reserves. Year-end cash coverage of debt servicing costs has been weak and declined to below 1x on average in 2018, due to significant front-loading of capex. In addition there are no emergency bail-out mechanisms or Treasury facilities in place to overcome any financial squeeze. Nevertheless, the city has good access to financial markets, albeit with creditors assessed at a maximum 'BB' category. Debt Sustainability Assessment: 'aa' Fitch assesses Bursa's standalone credit profile (SCP) at 'bb', which reflects a combination of a 'Weaker' profile assessment of the city's risk profile and 'aa' debt sustainability. The SCP also factors in a comparison of Bursa with its peers. Fitch did not identify any asymmetric risk or extraordinary support from the central government that could affect the IDR beyond its SCP assessment. The 'aa' assessment of debt sustainability is derived from a combination of a robust debt payback ratio (net adjusted debt/operating balance), which is in line with an 'aaa' assessment, a fiscal debt burden (net adjusted debt-to-operating revenue) corresponding to an 'a' assessment, and a robust actual debt service coverage ratio (ADSCR: operating balance-to-debt service, including short-term debt maturities) assessed at 'a'. As with other Turkish (LRGs Bursa is classified by Fitch as a type B LRG, under which the city covers debt service from its cash flow on an annual basis. Under Fitch's rating case the debt payback ratio that is the primary metric of debt sustainability assessment for type B LRGs will remain below five years for Bursa in 2019-2023. For the secondary metrics Fitch's rating case projects that the fiscal debt burden will increase to 141.6% in 2023 from 136.9% in 2018 while actual DSCR will remain below 2x on average in 2019-2023. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: - Operating revenue to grow CAGR 11.5% yoy for 2019-2023, 2.5pp lower than national nominal GDP growth on average - Operating expenses to grow CAGR 12.5% yoy for 2019-2023, 1.5pp higher than national inflation on average - Capex to remain on average 34% of total expenditure for 2019-2023 - Cost of debt to rise on average 8% yoy for 2019-2023 - For 2021-2023 EUR/TRY year-end forecasts Fitch conservatively assumes a 15% yoy depreciation in line with the historical average RATING SENSITIVITIES A downgrade of the sovereign or sharp deterioration of the debt payback ratio beyond five years, coupled with a sharp increase in fiscal burden leading to reassessment of debt sustainability could result in a downgrade. According to the Fitch's rating case an upgrade is possible if the sovereign is upgraded provided that the city maintains its debt sustainability ratio sustainably below five years. MERSIN ULUSLARARASI: Fitch Rates New USD Sr. Unsec. Debt 'BB-(EXP)' ------------------------------------------------------------------- Fitch Ratings assigned Mersin Uluslararasi Liman Isletmeciligi A.S.'s prospective issue of US dollar-denominated senior unsecured debt an expected rating of 'BB-(EXP)'. The Outlook is Negative. The assignment of a final rating is contingent on the receipt of final documents conforming to information already reviewed. RATING RATIONALE MIP's competitive market position in its catchment area and the strong connectivity to the hinterland mitigate the volatility of its domestic and export market, in Fitch's view. MIP's weak, single bullet debt structure weighs on the rating, although in its view, the refinancing risk associated with the bullet bond is mitigated by relatively moderate leverage for the rating. The rating is capped by Turkey's Country Ceiling at 'BB-'.The Negative Outlook reflects that on the Turkish sovereign rating. KEY RATING DRIVERS Exposure to Volatile Markets - Revenue Risk (Volume): Midrange MIP is the largest export-import port in Turkey, as well as a major player in terms of containerised throughput.. The volume mix is diversified yet volatile and balanced between imports and exports. The port benefits from a strong and well-connected hinterland. The regional market share reduced to 80% in 2016 from 89% in 2014. In 2018 and 2019 the trend continued albeit at a slower pace, with the latest data reporting a market share at around 75% as of August 2019. Volume benefited from the completion in late 2016 of deepening and expansion works to accept larger ships. Unregulated US Dollar Tariffs - Revenue Risk (Price): Midrange MIP's concession gives almost full pricing flexibility. The concession prescribes only against 'excessive and discriminatory pricing', for which there is no history of enforcement. The typical contract length with MIP's customers is short at two years average and includes volume-related incentives. The depreciation of the local currency prevents large tariff hikes, as it mechanically increases the cost of US dollar-denominated tariffs for 51% of revenues paid in local currency (60% in 2017). The majority of operational expenses are lira-denominated. Fitch's rating case (FRC) assumes modest US dollar-denominated tariff increases after 2022. Extensive Investment Plan - Infrastructure Development and Renewal: Midrange There are no regulatory requirements to increase capacity at the port, which is currently at 2.6 million twenty-foot equivalent units (TEUs). Further expansion to 3.6 million TEUs by 2024 is currently planned. However, volume growth, the permits approval process and the political and economic context could influence the timing of the further expansion. Fitch has not included material additional volume growth from this investment in the rating case. Refinance Risk, Unsecured Debt - Debt Structure: Weaker MIP is planning to issue a US dollar-denominated bullet bond to refinance the existing USD450 million outstanding debt maturing in August 2020, and to roll forward the undrawn USD50 million liquidity facilities. No material covenants protect debt holders apart from defining a lock-up and additional indebtedness covenant as net debt/EBITDA higher than 3.0x. The senior debt does not benefit from a security package. MIP is also planning to negotiate a capex facility to fund the expansion in 2020 and 2021. Financial Profile Under the FRC, projected gross debt to EBITDA averages around 3.3x between 2020 and 2024. The annuity debt service coverage ratio (DSCR), assuming a 19-year synthetic amortisation, suggests sufficient cash flow generation in the concession to fully repay the outstanding debt. The average annuity DSCR is 2.3x in the FRC. The presence of a sponsor group with local and international banking relationships is likely to support the company if refinancing is hampered by temporary disruption to the capital markets. The further protection of a large cash balance has been eroded by the upstream shareholder loan agreed in 2018. PEER GROUP Mersin's main peers are Global Liman Isletmeleri A.S. (GLI; B+/Rating Watch Negative) and Global Ports Investments PLC (GPI; BB+/Stable). GLI's structural exposure to volatile tourism and to significant M&A risks weigh on its credit profile. GPI is slightly smaller than Mersin in terms of TEUs but similar to Mersin, plays a dominant role in its home market. Its less balanced cargo import and export mix, but its strong deleveraging path supports the 'BB+' rating. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Negative Rating Action: - Projected five-year average gross debt/EBITDA above 5.0x; - Negative rating action on Turkey's IDR leading to a revision of the Country Ceiling, which will continue to cap MIP's rating; - Failure to refinance its single bullet maturity well in advance of its maturity. Positive rating action is unlikely as Turkey's Country Ceiling is 'BB-' TRANSACTION SUMMARY MIP is currently exploring the possibility to issue a US dollar-denominated bond to refinance the existing USD450 million bond, maturing in August 2020. The remaining proceeds, as well as available cash on the balance sheet, will be used to fund transaction costs, expansionary capex and to potentially increase the existing shareholder loan at the same terms of the existing upstream loan. CREDIT UPDATE Performance Update Continuing the trend that started in 2017, MIP grew strongly in container volumes in 2018, and slightly outperformed Fitch's base case. However, the higher volumes materialised mainly in lower yield business segments, with a higher proportion of laden exports and empty import volumes, and actual revenues and EBITDA to December 2018 were broadly aligned with expectations. 1H19 showed strong container volume performance with 16% growth, mainly driven by a growing share of exports and transit volumes to neighbouring countries. However, there is no clear evidence that this upward trend is structural. The cash balance has largely dropped yoy due to the cash upstream to the shareholders according to the upstream loan facility agreement signed with MIP's shareholders on October 25, 2018. MIP has lent USD270 million loan in total to shareholders pro rata of their shares, interest free and with seven years maturity, and is now looking to increase this amount by potentially upstreaming part of the new issuance proceeds, as well as available cash on the balance sheet. Fitch views the ability to upstream cash as credit negative in the context of large bullet maturities, partially offset by the relatively low projected gross debt to EBITDA under Fitch's cases and MIP's right to issue a repayment notice to the shareholders if cash is needed. FINANCIAL ANALYSIS The FRC assumes some volume growth in 2019 supported by the strong 1Q performance, despite Fitch's expectation of negative GDP growth for Turkey over the same period. However, its conservative approach compared with MIP's budget reflects its expectation of a further compression of the market share over the projected period. Fitch forecasts EBITDA to grow at a CAGR of just below 2.0% from 2018 until 2023, despite modest increases in US dollar-denominated tariffs assumed under the FRC. Fitch forecasts total capex of USD393 million over the next six years including both maintenance and expansionary capex. East Med Hub (EMH) II, which will increase capacity up to 3.6 million TEUs by 2024, is currently planned in 2020-2024, but Fitch has not included material additional volume growth from this investment. Its forecast includes the upcoming US dollar-denominated bond issuance, the proceeds of which, together with cash available on the balance sheet, are expected to refinance the existing bond and to fund shareholder distribution. Fitch expects a further drawdown of the capex facility in 2020 and 2021 to fund EMH II. Fitch assumes a stressed interest rate for the US dollar-denominated bond under both the FRC and the Fitch base case. Average projected FRC gross debt to EBITDA stands at around 3.3x between 2020 and 2024. The average annuity DSCR after 2025 is 2.3x in the FRC. Asset Description Located in the Cukurova region on Turkey's eastern Mediterranean coast, MIP is Turkey's largest port by import/export container throughput and a major player in terms of container throughput. It has a deep water harbour with 21 berths and is equipped to handle a range of dry bulk, liquid bulk, containers and roll on-roll off cargos. MERSIN ULUSLARARASI: S&P Assigns Prelim 'BB-' ICR, Outlook Stable ----------------------------------------------------------------- S&P Global Ratings assigned its preliminary 'BB-' long-term issuer and issue ratings to Turkey-based port operator Mersin Uluslararasi Liman Isletmeciligi A.S. (Mersin International Port; MIP) and its proposed U.S. dollar-denominated notes. MIP is proposing a new senior unsecured notes issuance to refinance its existing $450 million notes due in August 2020. S&P said, "The proposed notes will smooth the maturity profile and strengthen liquidity, and we believe the planned capital structure and funding arrangement would mean MIP passes our stress test in the event of a sovereign default, which allows us to rate it above the long-term foreign currency sovereign rating on Turkey. "However, we are capping the rating at the level of our transfer and convertibility (T&C) assessment. "The stable outlook reflects our stable outlook on Turkey and our expectation that the company will maintain solid operating and financial performance, with S&P Global Ratings-adjusted debt to EBITDA of 2.0x-3.0x, coupled with adjusted funds from operations (FFO) to debt of more than 30% on a three-year weighted-average basis. "The preliminary ratings primarily reflect our view that MIP is mainly exposed to Turkey, which we view as having a high-risk corporate environment. This is because the company has all of its operations in Turkey. Therefore, we cap its foreign currency rating at the level of the Turkish T&C assessment at 'BB-'. We rate MIP one notch above the 'B+' long-term foreign currency sovereign rating on Turkey, owing to our analysis of the company under our sovereign default stress test. The test includes both economic stress and potential currency devaluation, and we have fine-tuned our assumptions on the company's revenue and applied more stringent conditions on financing costs. This translates into a 10% haircut on available cash on balance, combined with a 30% stress on the terminal's EBITDA. We believe MIP will pass our stress test following the issuance and the envisaged financing package because it meets our liquidity requirement--namely a ratio of sources to uses of 1x." MIP's enjoys the leading market position as the largest import and export gateways in Turkey in 2018 and first-half 2019, as well as a role as a transit hub between neighboring countries in the Middle East. The port benefits from its strategic location, at the intersection of key maritime trade routes, the extent of and connectivity to its hinterland and the industrialized cities of central and southeastern Turkey. The company is diversified in terms of cargo, with close to 80% of its revenue derived from container handling, which is a more profitable service but typically more volatile and subject to macroeconomic developments, and we do not expect this contribution to change in the future. With that said, MIP is an origin and destination container port with low exposure to more volatile transshipment activities (less than 5% of revenue). This partially explains the company's ability to deliver resilient and above-industry-average EBITDA margins over the past 10 years (60%-70%). Another factor supporting earnings resilience is that close to 50% of the company's revenue is collected in U.S. dollars, while the remainder is converted to hard currency on a weekly basis. S&P said, "This somewhat reduces the company's exposure to Turkish lira (TRY) fluctuations and contributes to its earnings resilience. Despite macroeconomic pressures in Turkey and a slowdown in economies around the globe, we expect MIP to continue improving its operating efficiencies to offset any potential negative effect. We expect the company to increase capacity utilization to about 80% in 2021, up from 70% in 2018--before the planned East Med Hub 2 (EMH2) expansion becomes operational by 2022. This expansion will gradually increase the port's capacity to 3.6 million twenty-foot equivalent units (TEUs) in 2024, up from the current 2.6 million TEUs. "We note, however, that the company has a high customer concentration, with the largest 10 customers representing nearly 50% of the terminal's revenue. The loss of a client could have a negative effect on its EBITDA, at least temporarily, until this is replaced. MIP also mostly trades with the world's largest shipping lines and it is exposed to the increasing bargaining power and cost focus of shipping-line alliances, and the ongoing consolidation in the transport infrastructure sector. "After the proposed issuance, we forecast our adjusted credit metrics will continue to deteriorate, mainly due to additional leverage to finance material capital expenditure (capex) and dividends. Over the past few years, the company has delivered significant free operating cash flow (FOCF) of $140 million-$160 million, enabling it to reinforce its liquidity position. The latter has mostly been upstreamed to shareholders as dividends, including a $270 million upstream loan in 2018. As a result, adjusted credit metrics such as FFO to debt and debt to EBITDA deteriorated to 46% and 1.8x, respectively, in 2018, from 72% and 1.1x in 2017. We expect debt to EBITDA of 1.5x-2.0x and FFO to debt of 35%-50% in 2019 and 2020. In 2021, when the bulk of the planned capex and dividends kick in, these metrics will face further pressure, with our adjusted debt to EBITDA about 3.0x and FFO to debt about 30%. Nevertheless, we note MIP's supportive financial policy and its commitment to the maintenance of its liquidity and financial covenant to manage this spending, which is discretionary by nature." The final ratings are subject to the successful closing of the proposed senior unsecured issuance to refinance its outstanding $450 million note due to expire in 2020. The confirmation of the final ratings will depend on our receipt and satisfactory review of all final transaction documentation. Accordingly, the preliminary ratings should not be construed as evidence of final ratings. If S&P Global Ratings does not receive final documentation within a reasonable timeframe, or if final documentation departs from the materials reviewed and/or the assumptions considered, S&P reserves the right to withdraw or revise its ratings. Potential changes include, but are not limited to, use of loan proceeds, maturity, size and conditions of the credit facilities, financial and other covenants, security, and ranking. S&P said, "The stable outlook on MIP primarily reflects our stable outlook on Turkey. It also reflects our expectation that the company will maintain solid operating and financial performance, as well as a supportive financial policy. In light of significant capex and dividends planned, we expect our adjusted debt-to-EBITDA ratio will be 2.0x-3.0x, coupled with adjusted FFO to debt of more than 30% on a three-year weighted-average basis." A negative rating action on Turkey could trigger the same action on MIP. We could also downgrade MIP if S&P revised down its T&C assessment on Turkey. The ratings could also be lowered if liquidity deteriorates in light of heavy cash distributions and/or capital investments over the next 12 months, which would likely put downward pressure on the company's liquidity profile and its ability to pass our sovereign stress test. All else being equal, S&P could raise the rating on MIP if it raised the T&C assessment of Turkey, which currently stands at 'BB-'. Because MIP's business is highly exposed to the country risk where it operates, the ratings are capped at the T&C on Turkey. Mersin Uluslarararası Liman İsletmeciligi A.S. and its subsidiaries have the right to operate the Port of Mersin, located in the south of Turkey, in the east of the Mediterranean Sea, until the end of concession in 2043. As the largest multiport in Turkey, the company handled 1.7 million TEUs and 7.4 million metric tons of cargo in 2018 and has a capacity to handle 2.6 million TEUs and 10 million metric tons per year. Revenue and EBITDA stood at $302 million and $210 million in 2018. TURKEY: Fitch Affirms BB- LongTerm IDR & Alters Outlook to Stable ----------------------------------------------------------------- Fitch Ratings revised the Outlook on Turkey's Long-Term Foreign-Currency Issuer Default Rating to Stable from Negative, and affirmed the IDR at 'BB-'. KEY RATING DRIVERS The revision of the Outlook reflects the following key rating drivers and their relative weights: MEDIUM Turkey has continued to make progress in rebalancing and stabilising its economy, leading to an easing in downside risks since its previous review in July. The current account balance has improved, FX reserves have edged up, economic growth has continued, inflation has fallen and the lira has held up despite large cuts in interest rates, buoyed by more supportive global financing conditions and the recent US announcement on removal of Syria-related sanctions. Turkey's current account balance strengthened to a surplus of USD5.1 billion in the 12 months to August, from a deficit of USD57.9 billion in May 2018, and its external financing requirement has continued to ease somewhat. The rollover rate for the non-bank private sector was a robust 97% on a rolling 12-month basis to mid-August, while banks' demand for FX has reduced in line with a fall in FX lending (of 6% in the year to mid-October) and some drawdown in their sizeable foreign currency liquidity. Nevertheless, Turkey's gross external financing requirement remains large and a source of vulnerability - Fitch forecasts it at close to USD170 billion (including short-term debt) for 2020. The majority of the current account adjustment has come from import compression (although exports have also grown) and Fitch expects some widening of the current account balance as domestic demand recovers, with deficits of 0.3% of GDP in 2019, 0.9% in 2020 and 1.8% in 2021 - but still well below the 2018 deficit of 3.5%. The exchange rate has been relatively stable in the face of 10pp of policy interest rate cuts by the Central Bank of Turkey since July, depreciating 0.5% against the US dollar and trading within the range of 5.48-5.92. Exchange rate effects have been the main driver of a fall in inflation, to 9.3% in September from 16.7% in July. Gross foreign exchange reserves are up USD8.1 billion in the year to September and by USD3.9 billion since July, to USD101.1 billion. Turkey's 'BB-' IDRs also reflect the following key rating drivers:- Turkey's rating is supported by its large and diversified economy with a vibrant private sector, GNI per capita that compares favourably with 'BB' medians and moderate levels of government and household debt. Set against these factors are Turkey's weak external finances, high inflation and a track record of overshooting inflation targets and of economic volatility. Political and geopolitical risks also weigh on Turkey's ratings, with the capacity to disrupt economic adjustment, and raising concerns about government effectiveness and policy predictability in an environment where checks and balances have been eroded. Turkey's track record of high and volatile inflation, weak monetary policy credibility and limited central bank independence heighten the risk of renewed macroeconomic instability. Following July's dismissal of the central bank governor for failing to following government instruction on interest rates, there has been an overhaul of senior officials at the central bank, and the main policy rate has been cut to 14% from 24%. This comes against a backdrop of President Erdogan regularly expressing unorthodox views on the relationship between interest rates and inflation. Fitch forecasts that inflation will remain relatively high at 12% at end-2020 and 10% at end-2021, compared with the central bank forecast of 5.4% (and well in excess of the current 'BB' median of 3.4%). Market inflation expectations have remained sticky at 9.8% in two years' time, although are partly adaptive. Combined with Turkey's large external financing requirement and susceptibility to shocks, this may make it challenging to substantially reduce the main policy rate without risking renewed currency depreciation that could increase stresses on corporate and bank balance sheets. Fitch has maintained its GDP growth forecast of 3.1% for 2020 as rising disposable incomes support consumption, and 3.6% in 2021 as lower financing costs and some recovery in confidence also feeds through to investment growth. This is below its assessment of Turkey's trend rate of growth of 4.3%, and similar to the peer group median (average 3.3% in 2020-2021). Its 2019 GDP forecast has been revised up 0.8pp since its last review to -0.3% on the back of stronger 2Q outturns. The return to mild growth so far this year has been driven by net trade and supported by fiscal easing (as well as state bank credit stimulus) which will provide less support from 4Q19. Geopolitical risks continue to weigh on Turkey's rating. Last week the US president announced the removal of sanctions relating to Turkey's military offensive in north-east Syria. This came after the agreement struck between Turkey and Russia on the removal of the Kurdish YPG from a 30km buffer zone that the two countries will jointly patrol. In its view, the US position also makes it more likely that the implementation of US sanctions triggered by delivery of S400 missile components from Russia will be on the lighter side of those set out in the legislation, and potentially subject to a lengthy delay. Nevertheless, this week the US House of Representatives passed a new bipartisan bill threatening new sanctions on Turkey, and US policy in these areas has the potential to change quickly. Fitch does not expect Turkey's operation in Syria to have a significant impact on credit fundamentals in the absence of a more far-reaching conflict. Fitch forecasts an increase in the general government budget deficit to 3.3% of GDP in 2019, from 2.4% last year, reflecting weak economic activity and counter-cyclical fiscal measures, particularly in 1Q. The deficit is contained by an estimated 0.5% of GDP improvement in the local government balance, and by the transfer of half of the central bank's contingency reserve, also equivalent to 0.5% of GDP. Fitch then expects a broadly flat general government balance, with deficits of 3.3% in 2020 and 3.1% in 2021, marginally above the government targets. Fitch considers that the government views its central government deficit target of less than 3% of GDP as an important policy anchor and would likely adopt new, one-off measures to limit budget shortfalls that arise for example from GDP growth undershooting the 5% target. Fitch forecasts general government debt will increase to 32.5% of GDP at end-2021 from 30.1% at end-2018, but still well below the 'BB' median of 46.7%. There has also been a steady increase in contingent liabilities, albeit from a low base. Fitch does not anticipate a marked acceleration of structural reforms under the New Economy Programme (NEP), despite the conducive electoral cycle (with no national elections now due until 2023). The NEP retains a number of structural measures that have been welcomed by the private sector such as enhancing the insolvency process, reforming the pension system, and cutting corporation tax. However, the ambitious 5% GDP growth target and some ongoing measures to stimulate state bank lending could signal a prioritisation of short-term growth over more difficult structural reforms with a longer planning horizon. Fitch views the macroeconomic forecasts underpinning the NEP as highly optimistic. Turkey has never previously sustained a combination of strong GDP growth, low inflation and current account close to balance. Banking sector metrics remain under pressure from the challenging operating conditions. The announced classification of TRY46 billion of loans as NPLs is reported to take the NPL ratio to 6.3% by year-end, from 5.0% in September and 3.9% at end-2018. Fitch expects a further increase partly reflecting the still-high Stage 2 loans (estimated at around 12%). Loan growth has been muted, despite some pick-up since July to near 5% (FX-adjusted). Credit growth has been largely driven by state banks, resulting in erosion of their capital and profitability buffers. However, sector capital adequacy (18.4% total capital ratio in September) remains comfortably above minimum regulatory requirements and has been supported by additional Tier 1, Tier 2, issuance and foreign currency deleveraging. Pre-impairment profit continues to provide a buffer to absorb credit losses, and banks' funding costs which have already started to decline should further benefit from the lower policy interest rate. SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Turkey a score equivalent to a rating of 'BBB-' on the Long-Term Foreign-Currency IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows: - Macroeconomic policy and performance: -1 notch, to reflect weak macroeconomic policy credibility and coherence and downside risks to macroeconomic stability. - External finances: -1 notch, to reflect a very high gross external financing requirement and low international liquidity ratio. - Structural features: -1 notch, to reflect an erosion of checks and balances and institutional quality, downside risks in the banking sector and the risk of developments in foreign relations that could impact economic stability. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within its criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The main factors that may, individually, or collectively, result in positive rating action are: - A sustained decline in inflation, a rebuilding of monetary policy credibility and a track record of greater macroeconomic stability. - A reduction in external vulnerabilities, for example evident in a sustained current account close to balance, a stronger external liquidity position and reduced dollarisation. - An improvement in governance standards or reduction in political risk. The main factors that may, individually, or collectively, result in negative rating action are: - Disruption to the path of economic stabilisation and rebalancing that is consistent with lower inflation and external vulnerabilities. - Heightened stresses in the corporate or banking sectors potentially stemming from a sudden stop to capital inflows or a more severe recession. - A marked worsening in the government debt/GDP ratio or broader public balance sheet. - A serious deterioration in the domestic political or security situation or international relations. KEY ASSUMPTIONS Fitch forecasts Brent Crude to average USD65/b in 2019 and USD62.5/b in 2020 and USD60.0/b in 2021. =========================== U N I T E D K I N G D O M =========================== LONDON CAPITAL: Administrators Turn to Third Party to Explore Suit ------------------------------------------------------------------ Tabby Kinder at The Financial Times reports that the administrators to collapsed investment business London Capital & Finance have been forced to turn to a third party to explore a potential lawsuit against the group's auditors because of a conflict of interest. LCF went into administration in January after the Financial Conduct Authority froze its bank accounts and said its marketing of unregulated mini-bonds was misleading, the FT recounts. The firm went bust owing GBP237 million to 11,500 investors, prompting an investigation by the Serious Fraud Office, the FT discloses. According to the FT, people with knowledge of the matter said administrators at Smith & Williamson are exploring legal action against a number of parties in order to recoup money for LCF's creditors. However, the administrators are conflicted on pursuing any potential legal claims against PwC and EY, LCF's auditors, because of an "existing professional relationship" with the accounting firms, the FT relays, citing a letter to lawyers representing creditors and seen by the FT. PwC audited LCF and also audits Smith & Williamson's accounts, while EY, LCF's former auditor, advises Smith & Williamson on its internal financial controls, the FT states. FRP Advisory, a restructuring firm, was appointed as a second administrator to LCF following a court hearing on Wednesday, Oct. 30, the FT relates. It will consider potential legal claims against the two Big Four firms, the FT discloses. EY was LCF's auditor when it went into administration in January, the FT notes. The appointment of FRP could lead to scrutiny on the conflict checks conducted by Smith & Williamson prior to taking on the role, the FT states. Global Security Trustees, the secured creditor to LCF, has asked Smith & Williamson to confirm what fees will be paid to FRP, the FT relates. According to the FT, Finbarr O'Connell, one of the joint administrators to LCF, said FRP's appointment would result in no extra costs for creditors. Smith & Williamson expects bondholders will recover just 25% of their investments in LCF, the FT states. MARSTON'S ISSUER: S&P Affirms 'BB-(sf)' Rating on Class B Notes --------------------------------------------------------------- S&P Global Ratings said it affirmed its 'BB+(sf)' rating on Marston's Issuer PLC's class A1, A2, A3, and A4 notes; and its 'BB-(sf)' rating on Marston's class B notes. Marston's Issuer is a corporate securitization backed by operating cash flows generated by the borrower, Marston's Pubs Ltd., which is the primary source of repayment for an underlying issuer-borrower secured loan. Marston's Pubs operates an estate of tenanted and managed public houses (pubs). The original transaction closed in August 2005, and was tapped in November 2007. The transaction features two classes of notes (A and B), the proceeds of which the issuer on-lent to Marston's Pubs, via issuer-borrower loans. The operating cash flows generated by Marston's Pubs are available to repay its borrowings from the issuer who, in turn, uses those proceeds to service the notes. The transaction will likely qualify for the appointment of an administrative receiver under the U.K. insolvency regime. An obligor default would allow the noteholders to gain substantial control over the charged assets prior to an administrator's appointment, without necessarily accelerating the secured debt, both at the issuer and at the borrower level. S&P said, "Following our review of Marston's Pubs' performance, we have affirmed our ratings on Marston's Issuer's class A notes and class B notes. Market conditions in the U.K. pub sector remain challenging, characterized by persistent cost inflation and weakening demand trends. Although we expect a modest decline in profitability, our fair business risk remains unchanged." Marston's Issuer PLC Ratings Class Rating A1 BB+ (sf) A2 BB+ (sf) A3 BB+ (sf) A4 BB+ (sf) B BB- (sf) MOTHERCARE PLC: Intends to Appoint Administrators ------------------------------------------------- BBC News reports that baby goods retailer Mothercare has said it plans to call in administrators to the troubled firm's UK business, putting 2,500 jobs at risk. According to BBC, Mothercare said its 79 UK stores were "not capable of returning to a level of structural profitability and returns that are sustainable for the group". It said its stores would continue to trade as normal for the time being, BBC relates. Analysts, as cited by BBC, said Mothercare had been slow to adapt to competition from rivals and the switch to online retailing. Mothercare has already gone through a company voluntary arrangement (CVA), which allowed it to shut 55 shops, BBC notes. The planned administration also affects Mothercare Business Services Limited (MBS), which provides certain services to Mothercare UK, BBC states. "These notices of intent to appoint administrators in respect of Mothercare UK and MBS are a necessary step in the restructuring and refinancing of the Group," BBC quotes Mothercare as saying. "Plans are well advanced and being finalized for execution imminently. A further announcement will be made in due course." Only 500 of the jobs at risk are full-time posts, including head office roles, with 2,000 part-time, BBC discloses. Mothercare has been looking for a buyer for the UK stores, but with no success so far, BBC relays. The company also operates in more than 40 overseas territories, which are not subject to administration, BBC discloses. Mothercare said that in the financial year to March 2019, its international business generated profits of GBP28.3 million, whereas the UK retail operations lost GBP36.3 million, BBC notes. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2019. All rights reserved. ISSN 1529-2754. 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