/raid1/www/Hosts/bankrupt/TCREUR_Public/200207.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
Friday, February 7, 2020, Vol. 21, No. 28
Headlines
B E L G I U M
SARENS BESTUUR: Fitch Assigns 'B' LT IDR, Outlook Stable
SARENS BESTUUR: S&P Affirms 'B' LongTerm ICR, Outlook Stable
F R A N C E
CMA CGM: Moody's Alters Outlook on B2 CFR to Negative
G E R M A N Y
TELE COLUMBUS: S&P Assigns 'B-' LongTerm ICR, Outlook Negative
I R E L A N D
CARLYLE GLOBAL 2015-1: Fitch Assigns B-(EXP) Rating on Cl. E Debt
MAN GLG VI: S&P Assigns Prelim B-(sf) Rating on Class S-2 Notes
SOUND POINT III: Fitch Gives 'B-(EXP)' Rating on Class F Notes
L U X E M B O U R G
ITHACALUX SARL: S&P Alters Outlook to Stable & Affirms 'B-' ICR
N E T H E R L A N D S
ALPHA AB BIDCO: Moody's Cuts EUR830MM Term Loan B to B3
ALPHA AB: S&P Affirms 'B' ICR on Steep Deleveraging Prospects
PHM NETHERLANDS: Moody's Affirms B3 CFR, Outlook Stable
R O M A N I A
CFR MARFA: Romanian Court Opens Pre-Insolvency Procedure
R U S S I A
CB NECKLACE-BANK: Put on Provisional Administration
S P A I N
[*] Fitch Takes Action on 19 Tranches From 6 Spanish RMBS Deals
S W I T Z E R L A N D
KONGSBERG AUTOMOTIVE: Moody's Cuts CFR to B1, Outlook Stable
U K R A I N E
MHP SE: S&P Affirms 'B' Issuer Credit Ratings, Outlook Stable
U N I T E D K I N G D O M
AA BOND: S&P Affirms B+ Rating on GBP569MM Class B2 Notes
BURY FC: Winding-Up Petition Over Unpaid Tax Bill Dismissed
EUROSAIL-UK 07-3: Fitch Affirms Bsf Rating on Class D1a Debt
HUT GROUP: S&P Assigns 'B-' ICR on Fundraising Completion
MICRO FOCUS: Fitch Lowers LongTerm IDRs to 'BB-', Outlook Stable
NORD GOLD: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
TOUGH MUDDER: Enters Administration, Seeks Buyer for Business
X X X X X X X X
[*] BOOK REVIEW: Hospitals, Health and People
- - - - -
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B E L G I U M
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SARENS BESTUUR: Fitch Assigns 'B' LT IDR, Outlook Stable
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Fitch Ratings has assigned Sarens Bestuur N.V. a Long-Term Issuer
Default Rating of 'B' with a Stable Outlook. The agency also
assigned a 'B+'/'RR3' rating to the proposed senior subordinated
notes to be issued by Sarens Finance Company N.V.
The ratings reflect Sarens' high leverage, a capital-intensive
asset base that requires continuous capex and modest earnings
visibility. These are mitigated by the group's sound
diversification, leading market positions, solid record of contract
execution and a favourable fleet quality.
Fitch forecasts funds from operations adjusted leverage to fall
below 6x on the back of substantially positive free cash flow
generation in 2020 and 2021. Rating pressure could come from lower
than expected FFO and FCF, resulting in FFO adjusted leverage
remaining above 6x.
KEY RATING DRIVERS
Leverage Expected to Improve: Fitch expects leverage to improve to
a level consistent with a 'B' rating by end-2020. Fitch expects
Sarens to focus on deleveraging in the next few years as determined
by the amended and restated global lease and revolving credit
facilities agreement (GFA), with tightening covenants and a cap on
net capex. Fitch forecasts lower leverage metrics to be mostly
driven by markedly positive FCF generation over 2020 and 2021,
partly used to reduce gross debt.
Further debt reduction will need to be weighed against spending
required to maintain and upgrade the fleet. Higher gross debt to
fund capex increased FFO adjusted leverage to more than 7x in 2018
and 2017 from slightly below 6x in 2015.
Positive FCF on Lower Capex: Fitch expects Sarens' FCF profile to
turn positive in 2020 and 2021, due to much lower capex. Net capex
is capped at EUR50 million until senior and total net leverage are
below 3.0x and 4.5x for four consecutive quarters, respectively.
Positive FCF will be further sustained by greater FFO generation
compared with 2018, driven by more lifting capacity, with a broadly
stable average utilisation rate. The FCF margin has historically
been weak for a 'B' rating as operating cash flows were largely
absorbed by significant capex requirements for the Tengiz oil field
(TCO) and Hinkley Point-C projects, and the expansion of internal
transportation capabilities.
Adequate Business Profile: Fitch views Sarens' leading market
positions and recognized knowledge in its core services fields, as
a positive credit factor. It has a solid position in the heavy
lifting and complex logistics global projects where competition is
less intense and barriers to entry are higher than rental equipment
services. The company benefits from a solid record of project
execution. Sarens is also one of the few market players able to
contract globally. The group is significantly larger than its local
or regional competitors, but the rating remains constrained by its
small size relative to peers in its broader Business Services
universe.
Cyclical End-markets, Sound Diversification: The range of services
is limited to logistics solutions for heavy components, but used by
customers from various industries. Revenue tends to be concentrated
around cyclical and volatile sectors, notably the energy industry,
which accounts for two-thirds of Sarens' turnover. Sound
end-markets, customer and geographical diversification for the
rating mitigate the implied downside risks on activity level.
The diversity of the fleet combined with a mix of logistic projects
and crane rental operations are broadening accessible contracts and
the customer base. Geographical diversification, due to 90 depots
spread across the world, is further boosted by the flexibility to
move resources to more attractive markets.
Mix of Income Risks: Fitch believes that the proportion of
contracted earnings and the average length of contracts are modest
and place the rating in the 'B' category. Projects account for
slightly less than 50% of total sales, while rental services
account for the rest. Rental activities are short-term by nature
with customers renting for a few hours or days. Project-related
operations offer greater revenue visibility but can face delay or
change in scope.
A large global project can account for a significant portion of
sales in a given year, leading to contract replacement risk. This
is mitigated by a solid record of contract execution, favorable
asset quality, a diverse mix of services and an ability to sell
unused assets.
Wide Ranging Capacity: The fleet is diversified with cranes of
various type and size as well as onshore and offshore transport
equipment. Sarens also operates some of the largest cranes in the
world, which provides a competitive edge. Fitch also believes that
the fleet is in good physical condition. The group benefits from
internal maintenance and repair capability and has a strong safety
record. Furthermore, the average remaining useful life remains
significant. However, the average age of the fleet has recently
increased as Sarens has focused on developing its transportation
capability and maximum lifting capacity.
Above-Average Recoveries for Senior Subordinated Lenders: Fitch
expects above-average recoveries for Sarens' proposed senior
subordinated notes, driven by the value of a fleet of heavy lifting
and logistic equipment for which secondary markets exist. Fitch
views Sarens as an asset-heavy business that is likely to be
liquidated following a hypothetical default situation. The
liquidation value estimate reflects Fitch's discounted values of
account receivables, inventory and of the current market value of
the equipment. The advance rate for cash and cash equivalent is set
at 0%.
Fitch deducts 10% of administrative claims from the liquidation
value, and assumes full drawing of the EUR118 million revolving
credit facility (RCF) and EUR336 million Facility A. Its waterfall
analysis generated a ranked recovery in the RR3 band (51%-70%),
indicating a one-notch uplift to the instrument rating from the
IDR.
DERIVATION SUMMARY
Fitch rates Sarens applying its Business Services Navigator
framework. Like most Fitch-rated mid-sized business services
companies, Sarens benefits from leading market positions in covered
services. The group is the second-largest global heavy lifting and
complex transport operator with significant European and
international footprints. Nonetheless, Sarens remains a small
player in the overall business services sector.
The company benefits from greater geographical and end-market
diversifications than Algeco Investments 2 S.a.r.l. (B/Negative)
and Precision Drilling Corporation (B+/Stable). However, its
exposure to sectors with moderate to high cyclicality risk is
greater than Irel Bidco S.a.r.l (B+/Stable) and Polygon AB
(B+/Stable).
Despite robust FFO generation, the FCF margin is currently well
below its expectations for the rating and significantly weaker than
Precision Drilling or Irel. Sarens' leverage metrics are broadly in
line with Irel and Polygon but weaker than Precision Drilling. No
Country Ceiling, parent/subsidiary or operating environment aspects
affect the ratings.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- High single digit revenue growth in 2019, mid-single digit
decline in 2021 and growth of 1% to 2% in 2020 and 2022;
- EBITDA ranging from EUR140 million to EUR155 million over
2019-2022;
- Working capital (WC) outflows in 2019 and 2020 mostly related
to the TCO project. Neutral to positive WC movements thereafter;
- Net capex limited to EUR50 million until 2021, between EUR110
million to EUR120 million thereafter;
- Positive FCF generation partially used to reduce gross debt;
- No dividends;
- No acquisitions.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Higher proportion of contracted income and longer average
length of contracts;
- FFO adjusted leverage below 5x;
- Neutral to positive FCF generation;
- FFO interest coverage above 4x.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Failure to reduce FFO adjusted leverage to less than 6x;
- Negative FCF, weakening liquidity position and increasing gross
debt level;
- FFO interest coverage below 3x;
- Deteriorating covenant headroom;
- Structural deterioration of fleet fundamentals.
LIQUIDITY AND DEBT STRUCTURE
Moderate Liquidity: Sarens' current liquidity position is
constrained by somewhat limited availability under the RCF and low
cash and cash equivalent in hand. However, it forecasts liquidity
will improve on the back of positive FCF generation over 2020 and
2021. Liquidity will be further boosted by the upsizing of the
senior subordinated notes as part of the refinancing transaction.
Financial covenant headroom is also expected to remain limited in
the short term.
Secured Debt Structure: The debt structure mainly consists of
senior secured debt benefiting from a pledge on movable assets. The
main credit lines are under the EUR476 million GFA with the main
facility, Facility A, having total commitments of EUR336 million.
The facility A is revolving until January 2022, with options to
extend to 2024, and has a maturity of up to January 2029. The
amount drawn under Facility A was slightly above EUR300 million as
at end-September 2019. The GFA also provides access to a EUR118
million RCF available until January 2022, with an option to extend
to 2024, and EUR92 million drawn as at end-September 2019.
Fitch expects Sarens to redeem the outstanding EUR250 million
senior subordinated notes with new senior subordinated notes for
EUR300 million. The notes are secured on the share capital of the
issuer (Sarens Finance Company N.V.) and not on the tangible assets
of the group. The notes benefit from guarantees on a senior
subordinated basis by Sarens and some of its subsidiaries.
Criteria Variation
Lease Costs Capitalised: Fitch adjusts the application of the lease
rating criteria, according to its Exposure Draft: Lease Rating
Criteria, published on 30 January, to reflect the structure of
Sarens' operations and financing. This variation from criteria has
no impact on the ratings. Fitch rates Sarens under its Business
Services Navigator framework for which all lease costs are treated
as operating expenses and exclude corresponding liabilities from
the debt amount. However, Fitch treats Sarens' core operations in a
similar way to transport services. Financing assets with lease
agreements is also a key feature of Sarens' business model and is
actively managed by the group. As such, Fitch follows the lease
treatment for the transport sector and its credit metrics for
Sarens incorporate reported lease liabilities.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3, meaning that ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Sarens has an ESG Relevance Score of 4 for Governance Structure, as
Fitch sees the limited number of independent directors as a
constraining factor for board independence and effectiveness. An
ownership divided among several branches of the Sarens' family
could also ultimately make the definition of a strategy and
succession planning challenging and less transparent. This has a
negative impact on the credit profile, and is relevant to the
rating in conjunction with other factors.
SARENS BESTUUR: S&P Affirms 'B' LongTerm ICR, Outlook Stable
------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit rating
on Sarens Bestuur N.V. (Sarens) and assigned a 'B+' issue rating to
the proposed bond with a recovery rating of '2' (85%).
Sarens has launched a bond refinancing transaction, which is
neutral for leverage.
Sarens intends to issue a EUR300 million new senior unsecured bond
due 2027 to refinance its existing EUR250 million bond due 2022.
About EUR44 million from the bond issuance will be used to repay
drawings under its RCF, with the remainder for transaction fees and
expenses. As a result, the proposed refinancing is neutral for
leverage and will improve Sarens' debt maturity profile.
S&P expects continuous deleveraging in 2019-2020 through increasing
EBITDA spurred by the ramp up of the TCO project.
S&P said, "Sarens' operating performance in 2019 was stronger than
we expected, which supports our forecast of swift deleveraging to
below 5x adjusted debt to EBITDA in 2019. We forecast revenue will
increase by more than 7.5% to about EUR640 million and adjusted
EBITDA by about EUR40 million to EUR155 million-EUR165 million in
2019. The rise in EBITDA stems primarily from the ramp up of the
TCO project, with reductions in subcontracting and correspondingly
higher margins; improved performance in Eastern Europe, North
America, and Asia; various cost-control initiatives; and the wind
down of the loss-making Oceania business. For 2020, we expect
EBITDA will remain at least stable due to the continuous
contribution from TCO. We note that Sarens is taking various
measures to expand regional rental activity (such as through new
depots) and increase crane utilization, which will contribute to
earnings resilience. We expect Sarens will focus on deleveraging in
the next few years, as depicted in its global lease facilities with
tightening covenants and a net capex cap."
Despite higher earnings, FOCF remained negative in 2019 due to high
working capital outflows, but S&P expects it to turn positive from
2020.
Despite healthy operating performance and markedly lower capex,
FOCF generation remained negative in 2019. This is because of
exceptionally high working capital outflows of above EUR75 million
in the first nine months of 2019, mainly due to negative one-off
effects related to TCO investments in 2018 (about EUR67 million
were accounted for as suppliers payables in 2018 and paid in 2019).
In addition, there was EUR43 million of work in progress related to
TCO as of year-end 2018, which will be consumed and lead to a
gradual reduction in short-term liabilities over the next
two-and-a-half years. S&P expects FOCF to turn positive from 2020,
supported by much lower normalized working capital outflows and
continuously low net capex, which is capped at EUR50 million by the
global facilities agreement (GFA) renewed in early 2019. That said,
Sarens still needs to build a track record of sustainable positive
FOCF generation and use of FOCF to repay debt amortizations, which
would support continuous deleveraging to 4.5x-4.9x adjusted debt to
EBITDA in 2020.
S&P sees liquidity improving to adequate in the 12 months post
refinancing, although headroom under the covenants will remain
tight in its base case.
The main reasons for improving liquidity are much lower working
capital requirements following the exceptionally high outflows
related to TCO project in 2019 and higher availability under the
RCF, since Sarens will use EUR44 million from the bond issuance to
repay RCF drawings. In addition, Sarens also intends to extend the
RCF maturity to 2024 following the refinancing transaction. In
S&P's base case, it expect headroom under the total net leverage
covenant to remain limited (less than 15%) for the next 12 months
due to tightening test level.
Sarens' leading market position, extensive fleet, and good
diversification in geographies and end markets support its business
risk profile.
Sarens' is the second-largest global player by revenue and fleet
lifting capacity (behind Mammoet; unrated) in the global niche
market for large crane equipment and heavy lifting solutions, which
are provided to a diverse range of industries and geographies. The
group owns one of the world's most extensive fleets of large cranes
and complex transportation equipment (book value of above EUR1
billion) and benefits from a strong reputation in the market. S&P
believes there are high barriers to entry for potential competitors
in crane rentals due to the high capital investment required to
build up an extensive crane fleet and specific know-how for
providing heavy, project-specific, lifting solutions.
Constraints on business risk include the cyclicality and volatility
of its end markets and uncertainty regarding new contract wins and
project processing.
Sarens is exposed to several particularly volatile end markets such
as oil and gas, mining, wind, and petrochemicals, which are subject
to price fluctuations and/or political uncertainty. This had
resulted in revenue contraction and an absolute EBITDA decline in
the past when demand had suddenly fallen. Despite positive market
dynamics and a healthy bidding pipeline, there is uncertainty
around new contract wins and to what extent earnings from other
smaller projects and rental activities could compensate for the TCO
project, which will end in about two years. In addition, project
execution can be affected by unforeseen external factors, as
reflected in the delayed start of oil and gas projects in the
Middle East during 2019.
S&P said, "The stable outlook reflects our view that Sarens will
maintain adjusted EBITDA of EUR150 million-EUR165 million, with
adjusted debt to EBITDA staying below 5x and FOCF turning positive
in 2020, supported by markedly lower capex. We also expect the
refinancing to go through as planned and liquidity to remain
adequate.
"We could lower the rating if Sarens' operating performance were to
substantially weaken. This could be due to issues in executing the
TCO project, or a persisting and significant decline in key end
markets. More specifically, we could lower the rating if FOCF were
to remain negative in 2020, if liquidity were to weaken, or if
covenant breaches occurred.
"We could raise the rating if Sarens outperformed our base case and
deleveraged to comfortably below 5x adjusted debt to EBITDA on a
sustained basis, accompanied by supportive near- to medium-term
macroeconomic and industry conditions. An upgrade would also hinge
on continuously positive FOCF generation, and the group sustaining
at least adequate liquidity and headroom under financial
covenants."
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F R A N C E
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CMA CGM: Moody's Alters Outlook on B2 CFR to Negative
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Moody's Investors Service changed the outlook on CMA CGM S.A.'s
ratings to negative from stable. Concurrently, Moody's affirmed the
B2 corporate family rating, the B2-PD probability of default rating
and the Caa1 instrument ratings on the company's outstanding senior
unsecured bonds.
RATINGS RATIONALE
The rating affirmation reflects CMA CGM's solid business profile as
one of largest provider of global container shipping services, a
robust profitability in its core shipping divisions, the recent and
planned measures to strengthen the company's liquidity profile and
the expectation that the company will continue to proactively
address upcoming debt maturities. At the same time, the B2 rating
continues to factor in a supportive shareholder base, as reflected
in only limited dividend pay-outs over the last years.
RATING OUTLOOK
The negative outlook reflects the challenges linked to the
preservation of CMA CGM's operating performance in the company's
container shipping segment but also in its recently acquired
logistics operations of CEVA Logistics AG (B3 Stable), with both
industries highly sensitive to changing global macroeconomic
conditions. Consequently, a weakening of operating performance with
negative free cash flow generation or the inability to adequately
and timely address the upcoming maturities of credit facilities and
bonds could prompt a negative rating action.
Moody's expects that the divestment of terminals to Terminal Link
to a value of around $1.0 billion will be finalized by spring 2020,
which should add some cushion to the company's liquidity profile.
The outlook also incorporates the risk of further support needed by
CEVA.
Depending on how the company refinances debt coming due, Moody's
expects a gross debt/EBITDA of around 5.5x -- 5.0x and interest
coverage, measured as (FFO+interest expense)/interest expense of
around 2.5x for the next 12-18 months.
WHAT COULD CHANGE THE RATINGS UP/DOWN
A stabilisation of the outlook would first and foremost require a
successful management of upcoming maturities within the next 3 to 6
months, ensuring that the group has sufficient flexibility to
navigate potential adverse market conditions for the container
shipping industry.
Positive ratings pressure could build if CMA CGM's leverage,
measured as debt/EBITDA, would be sustainably below 5.0x through
the cycle and its coverage measured as funds from operations plus
interest expense over interest expense would be comfortably above
3.0x on a sustained basis.
Negative rating pressure could arise if CMA CGM's leverage
increases above 5.5x for a prolonged period of time or (FFO +
interest expense)/interest expense declines below 2x, as well as a
weakening liquidity profile.
ESG CONSIDERATION
In terms of environmental, governance and social factors, CMA CGM's
rating reflects the elevated environmental risk facing the shipping
sector, such as carbon regulation and pollution. More precisely,
the IMO2020 regulation which came into force January 1, 2020 could
potentially increase bunker costs for shipping companies should the
recent success in passing them through to shippers reverse. Moody's
notes as positive that CMA already has agreements in place with
contracted customers to include a new Bunker Adjustment Factor
based on the new low sulfur fuel, as well as an extraordinary
surcharge for spot trades (contracts with a tenure of less than
three months).
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Shipping
Industry published in December 2017.
Affirmations:
Issuer: CMA CGM S.A.
Probability of Default Rating, Affirmed B2-PD
Corporate Family Rating, Affirmed B2
Senior Unsecured Regular Bond/Debenture, Affirmed Caa1
Outlook Actions:
Issuer: CMA CGM S.A.
Outlook, Changed To Negative From Stable
COMPANY PROFILE
CMA CGM is the fourth-largest provider of global container shipping
services. The company operates primarily in the international
containerized maritime transportation of goods, but its activities
also include container terminal operations, intermodal, inland
transport and logistics. For the twelve months ending in September
2019m CMA CGM recorded revenues of $31 billion pro forma for the
acquisition of CEVA.
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G E R M A N Y
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TELE COLUMBUS: S&P Assigns 'B-' LongTerm ICR, Outlook Negative
--------------------------------------------------------------
S&P Global Ratings assigned its 'B-' long-term issuer credit and
issue ratings to Tele Columbus AG (TC) and its EUR707 million
senior secured term loan.
The negative outlook reflects TC's tight liquidity, S&P's
expectation of low or only break-even FOCF, and difficulty in
increasing its revenue.
S&P said, "We think lower exceptional costs and capital expenditure
(capex) will support better EBITDA and FOCF in 2020, but credit
metric improvements will remain modest. Following the complex,
multi-year integration of Primacom and Pepcom, which were acquired
in 2015, TC experienced network and customer service issues and
higher broadband churn, particularly during 2018. However, the
company managed to improve its customer satisfaction metrics in
2019 and returned to modest broadband subscriber growth. We
therefore believe that downside risks to revenue have receded
somewhat and nonrecurring costs will continue to decrease in
full-year 2019 and 2020, supported by tight cost management. We
think this will allow our adjusted EBITDA margin to improve to
48%-50% in 2020, compared with 42.6% in 2018. TC's FOCF will also
benefit from gradually lower capex in the coming years, since the
company is re-focusing on network upgrade projects more closely
tied to revenue opportunities. We expect FOCF after lease payments
to break-even or reach slightly positive territory in 2020, after
negative EUR56 million in 2018 and our estimate of negative EUR11
million-EUR12 million for 2019.
"However, weak FOCF and the upcoming renewal of the RCF leave TC's
liquidity exposed to operating setbacks. Without a stronger pickup
in topline and EBITDA growth, we project TC's cash flow generation
will remain subdued in 2020, while setbacks in executing its
business transformation could cause FOCF to remain negative.
Considering this, alongside the looming renewal of its RCF maturing
in January 2021, we believe liquidity could remain under pressure.
At third-quarter 2019, the company had only EUR9 million of cash,
with EUR8 million drawn under the EUR50 million RCF. Furthermore,
we assess headroom under the RCF's springing maintenance covenant,
which applies if more than 35% is drawn, as tight. Net covenant
leverage stood at 6.24x as of third-quarter 2019, versus the
covenant level of 6.5x. We project headroom will remain below 10%
in 2020.
"Given the structural decline in cable TV (CATV), we think TC will
need faster broadband growth to maintain a sustainable long-term
position in the German market. We expect a continued structural
decline in the German CATV market, which we forecast will drive an
annual decline in TC's TV revenue of 0%-1% in the next few years,
from an estimated 0.4% decrease in full-year 2019. We believe TC
will need to accelerate growth in the broadband segment to offset
its shrinking TV business (about 49% of revenue in the first nine
months of 2019) to secure profitability, deleverage, and maintain a
sustainable capital structure. In our view, this could require
stronger subscriber gains than our expected growth of internet
revenue-generating units (RGUs) of about 1.5% in full-year 2019 and
3%-4% in 2020 and 2021. Increasing its market share in broadband
could become more difficult over time, given that Deutsche Telekom
(DT) is upgrading its digital subscriber line networks to higher
speeds, and we expect DT and Vodafone will increasingly capitalize
on their ability to offer fixed-and-mobile convergence offerings.
That said, TC is able to offer internet speeds of 400 megabits per
second in about 90% of its internet-ready footprint of about 2.4
million homes and 1 gigabit per second for about 20%. We think this
means the company enjoys a speed advantage over comparable
offerings in most of its footprint today.
"We continue to acknowledge TC's customer loyalty in the CATV
segment due to its long-term contracts with housing associations
with a typical term of eight-to-10 years."
In particular, out of TC's TV RGUs served through housing
associations, 67% of are covered by so-called "bulk" contracts.
This means that during the contract period, these customers are not
subject to churn since monthly CATV fees are billed to all tenants
alongside other common charges, with no possibility to opt-out.
Furthermore, after the Vodafone-Unitymedia merger, S&P thinks
housing associations may value competition in their CATV tenders,
potentially providing TC with new opportunities. Albeit more medium
term, S&P believes TC's decision to open its network to Telefonica
could also support its revenue and cash flow generation, with the
first full-year revenue expected in 2021.
S&P said, "The negative outlook reflects our view that the looming
renewal of TC's RCF, with limited covenant headroom, and weak
near-term FOCF generation reduce the company's ability to absorb
unexpected operating setbacks. The outlook also reflects TC's
challenges in increasing its revenue, which raises questions about
its competitive position in Germany in the long term.
"We could lower the rating if TC experienced ongoing cash burn and
mounting liquidity pressure, including even tighter covenant
headroom than we currently project. This could result from a
failure to renew the RCF or secure other funding, or unexpected
subscriber and revenue losses and declining EBITDA.
"We could revise the outlook to stable if TC successfully renews
the RCF, or issues at least EUR50 million of comparable long-term
funding, and returns to EBITDA growth and at least break-even FOCF
in first-half 2020."
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CARLYLE GLOBAL 2015-1: Fitch Assigns B-(EXP) Rating on Cl. E Debt
-----------------------------------------------------------------
Fitch Ratings assigned Carlyle Global Market Strategies Euro CLO
2015-1 DAC expected ratings.
The assignment of the final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
RATING ACTIONS
Carlyle Global Market Strategies Euro CLO 2015-1 DAC
Class A-1-R; LT AAA(EXP)sf; Expected Rating
Class A-2A-R; LT AA(EXP)sf; Expected Rating
Class A-2B-R; LT AA(EXP)sf; Expected Rating
Class B; LT A(EXP)sf; Expected Rating
Class C; LT BBB-(EXP)sf; Expected Rating
Class D; LT BB-(EXP)sf; Expected Rating
Class E; LT B-(EXP)sf; Expected Rating
Sub. Notes; LT NR(EXP)sf; Expected Rating
Class X; LT AAA(EXP)sf; Expected Rating
TRANSACTION SUMMARY
Carlyle Global Market Strategies Euro CLO 2015-1 DAC is a
securitisation of mainly senior secured obligations with a
component of senior unsecured, mezzanine, second-lien loans and
high-yield bonds. The issuer is expected to issue the rated notes
and redeem all existing notes, except the subordinated notes. The
portfolio with a target par of EUR450 million will be actively
managed by CELF Advisors LLP. The collateralised loan obligation
(CLO) has a 4.5-year reinvestment period and an 8.5-year weighted
average life (WAL).
KEY RATING DRIVERS
'B'/'B-' Portfolio Credit Quality: Fitch assesses the average
credit quality of obligors to be in the 'B'/'B-' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 34.0 while the indicative covenanted maximum Fitch
WARF is 34.5.
High Recovery Expectations: At least 95% of the portfolio will
comprise senior secured obligations. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The Fitch weighted average recovery
rate (WARR) of the identified portfolio is 66.5%, while the
indicative covenanted minimum Fitch WARR is 64.25%.
Diversified Asset Portfolio: The transaction will include several
Fitch test matrices corresponding to the top 10 obligors'
concentration limits and fixed-rate asset limits. The manager can
interpolate within and between two matrices. The indicative top 10
obligors and maximum fixed rate limit for assigning the expected
rating is 20% and 12.5%, respectively. The transaction also
includes various concentration limits, including the maximum
exposure to the three largest (Fitch-defined) industries in the
portfolio at 40%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.
Portfolio Management: The transaction has a 4.5-year reinvestment
period and includes reinvestment criteria similar to those of other
European transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par value and interest coverage
tests.
RATING SENSITIVITIES
A 125% default multiplier applied to the portfolio's mean default
rate, and with this increase added to all rating default levels,
would lead to a downgrade of up to two notches for the rated notes.
A 25% reduction in recovery rates would lead to a downgrade of up
to five notches for the rated notes.
MAN GLG VI: S&P Assigns Prelim B-(sf) Rating on Class S-2 Notes
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to MAN
GLG Euro CLO VI DAC's class A, B-1, B-2, C, D, E, and F notes. At
closing, the issuer will also issue unrated subordinated class S-1
and S-2 notes.
MAN GLG EURO CLO VI 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. GLG
Partners LP will manage the transaction.
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 semiannual payment.
The portfolio's two-year reinvestment period is shorter than the
typical European CLO, and the portfolio's maximum average maturity
date will be six and a half years after closing. The senior and
subordinated manager fees are 20 and 30 basis points, respectively,
of the collateral balance, compared with the typical 15 and 35
basis points S&P observes generally.
The recharacterization of trading gains as interest proceeds is
subject to the following conditions:
-- The aggregate collateral balance remains above 100.25% of the
reinvestment target par balance, which is a higher threshold than
it has observed in recent European CLOs and provides greater
protection to the rated noteholders;
-- The class F par value ratio is no less than the effective date
class F par value ratio;
-- The class A notes have not been downgraded; and
-- The aggregate amount of trading gains classified as interest
proceeds does not exceed 1% of the target par balance.
The unrated class S-1 notes include a redemption feature where an
amount equal to 50% of remaining interest proceeds that would
otherwise been distributed to the class S-2 noteholders are used to
redeem the class S-1 notes on a pro rata basis. These payments are
made junior in the waterfall following the cure of the class F par
coverage test (in accordance with the note payment sequence
starting from the class A noteholders) and the reinvestment
overcollateralization test. As the interest payable on the class
S-1 notes is senior to the reinvestment overcollateralization test,
S&P has taken this into account in our cash flow analysis.
In addition, S&P notes that the definition of reinvestment target
par balance, which typically refers to the initial target par
amount after accounting for any additional issuance and reduction
from principal payments made on the notes, excludes any reduction
of the class S-1 notes due to such redemption. The transaction
documentation requires the collateral manager to meet certain par
maintenance conditions during the reinvestment period unless the
collateral balance is greater than or equal to the reinvestment
target par balance after reinvestment. The exclusion of the class
S-1 notes therefore limits the erosion of the collateral balance
through trading following the paydown of the class S-1 notes.
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.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with ita counterparty rating framework
Portfolio Benchmarks
Current
S&P weighted-average rating factor 2,679.75
Default rate dispersion 473.75
Weighted-average life (years) 5.41
Obligor diversity measure 114.37
Industry diversity measure 23.56
Regional diversity measure 1.17
Transaction Key Metrics
Current
Total par amount (mil. EUR) 350
Defaulted assets (mil. EUR) 0
Number of performing obligors 130
Portfolio weighted-average rating
derived from our CDO evaluator 'B'
'CCC' category rated assets (%) 0
Covenanted 'AAA' weighted-average recovery (%) 36.84
Covenanted weighted-average spread (%) 3.75
Covenanted weighted-average coupon (%) 4.00
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 EUR350 million par amount,
the covenanted weighted-average spread of 3.75%, the covenanted
weighted-average coupon of 4.00%, 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. Our cash flow
analysis also considers scenarios where the underlying pool
comprises 100% of floating-rate assets (i.e., the fixed-rate bucket
is 0%) and where the fixed-rate bucket is fully utilized (in this
case 10%).
"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-1 to F notes could withstand
stresses commensurate with higher ratings 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."
Ratings List
Class Prelim. Prelim. amount Credit Interest rate*
Rating (mil. EUR) Enhancement (%)
A AAA (sf) 217.000 38.00 Three/six-month EURIBOR
plus 0.90%
B-1 AA (sf) 33.235 27.00 Three/six-month EURIBOR
plus 1.80%
B-2 AA (sf) 5.265 27.00 2.05%
C A (sf) 20.125 21.25 Three/six-month EURIBOR
plus 2.40%
D BBB (sf) 23.625 14.50 Three/six-month EURIBOR
plus 3.65%
E BB- (sf) 17.710 9.44 Three/six-month EURIBOR
plus 5.39%
F B- (sf) 8.540 7.00 Three/six-month EURIBOR
plus 8.63%
S-1 NR 9.320 4.34 Three/six-month EURIBOR
plus 8.50%
S-2 NR 17.960 N/A N/A
* The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
SOUND POINT III: Fitch Gives 'B-(EXP)' Rating on Class F Notes
--------------------------------------------------------------
Fitch Ratings has assigned Sound Point Euro CLO III Funding DAC
expected ratings:
Sound Point Euro CLO III Funding 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
- Subordinate; LT NR(EXP)sf Expected Rating
- Class X; LT AAA(EXP)sf Expected Rating
- Class Z; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Sound Point Euro CLO III Funding DAC is a securitisation of mainly
senior secured obligations with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
will be used to fund a portfolio with a target par of EUR400
million. The portfolio will be actively managed by Sound Point CLO
C-MOA LLC. The collateralised loan obligation (CLO) has a 4.5-year
reinvestment period and an 8.5-year weighted average life (WAL).
KEY RATING DRIVERS
'B' Portfolio Credit Quality: Fitch assesses the average credit
quality of obligors to be in the 'B' category. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 32.62
while the indicative covenanted maximum Fitch WARF is 33.5.
High Recovery Expectations: At least 90% of the portfolio will
comprise senior secured obligations. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The Fitch weighted average recovery
rate (WARR) of the identified portfolio is 68.2%, while the
indicative covenanted minimum Fitch WARR is 63.4%.
Diversified Asset Portfolio: The transaction will include several
Fitch test matrices corresponding to the top 10 obligors'
concentration limits and fixed-rate asset limits. The manager can
interpolate within and between two matrices. The transaction also
includes various concentration limits, including the maximum
exposure to the three largest (Fitch-defined) industries in the
portfolio at 40%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.
Portfolio Management: The transaction has a 4.5-year reinvestment
period and includes reinvestment criteria similar to those of other
European transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par value and interest coverage
tests.
RATING SENSITIVITIES
A 125% default multiplier applied to the portfolio's mean default
rate, and with this increase added to all rating default levels,
would lead to a downgrade of up to two notches for the rated notes.
A 25% reduction in recovery rates would lead to a downgrade of up
to four notches for the rated notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognised Statistical Rating Organisations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, Fitch's assessment of the asset pool information relied
upon for the agency's rating analysis according to its applicable
rating methodologies indicates that it is adequately reliable.
===================
L U X E M B O U R G
===================
ITHACALUX SARL: S&P Alters Outlook to Stable & Affirms 'B-' ICR
---------------------------------------------------------------
S&P Global Ratings affirmed its 'B-' issuer credit rating on
Ithacalux S.a.r.l. (d/b/a Informatica) and revised the outlook to
stable from positive.
S&P said, "We are also assigning our 'B-' issue-level rating and
'3' recovery rating to the first-lien facility and our 'CCC+'
issue-level rating and '5' recovery rating to the second-lien term
loan. We are not taking action the company's existing debt ratings,
as we expect repayment at the close of this transaction.
"S&P Global Ratings-adjusted leverage as of Dec. 31, 2019, is
estimated to be about 8.4x, significantly higher than we previously
expected and will likely remain around this level over the next
year. Informatica has failed to deleverage to the low-7x area over
the last 12 months, as we previously expected, because of
weaker-than-expected operating performance, and we estimate 2019
leverage to be around 8.4x as of Dec. 31, 2019. Over the next 12
months, we believe leverage will likely remain in this range or
slightly better, as we expect benefits from a modest increase in
EBITDA levels and required debt amortization to be offset by an
additional $80 million of incremental debt added to the balance
sheet, which will further weaken credit metrics by roughly 0.25x.
"The stable outlook on Informatica reflects our expectation that
the company will maintain leverage in the low- to mid-8x area over
the next year on good demand for its software offerings, which we
think will translate to continued growth in net new bookings, low-
to mid-single-digit percent organic revenue growth, and relatively
stable EBITDA margins. It also reflects our expectation that the
company will return to generating positive FOCF, estimated to be
around $70 million in fiscal 2020, as it further progresses to a
subscription model.
"We could lower our rating on the company if weaker-than-expected
operating performance increases the company's S&P Global
Ratings-adjusted debt to EBITDA toward the 10x area and or if we
believe prospects to generate meaningful FOCF are limited. Either
could cause us to view the company's capital structure as
unsustainable.
"We could raise our ratings on the company if we believe it can
sustain its debt to EBITDA below 8x and or restore its FOCF to debt
ratio above 5%. This is likely to occur if the company can sustain
its stronger-than-expected operating performance, and it does not
engage in any additional leveraging transactions."
=====================
N E T H E R L A N D S
=====================
ALPHA AB BIDCO: Moody's Cuts EUR830MM Term Loan B to B3
-------------------------------------------------------
Moody's Investors Service has affirmed Alpha AB Bidco B.V.'s
(Ammega or the company) corporate family rating of B3 and the
probability of default rating of B3-PD. At the same time, Moody's
downgraded the existing EUR830 million guaranteed senior secured
1st lien term loan B, which will include an expected add-on of
EUR100 million incremental term loan B, and the EUR150 million
existing guaranteed senior secured 1st lien revolving credit
facility to B3 from B2. The downgrade of the senior secured ratings
to B3 reflects the change in the mix of debt as well as the weak
security package and guarantor coverage. The rating outlook is
stable.
The rating action follows the announcement that Ammega will issue
an expected add-on of EUR100 million to its existing guaranteed
senior secured 1st lien term loan B facility, with the proceeds
used to repay EUR100 million of RCF drawings. At the same time the
company acquired a US lightweight belting fabricator and
distributor, Midwest Industrial Rubber, Inc. (MIR). The acquisition
was completed on the 22 of January 2020 and was 100% equity
funded.
The affirmation reflects Ammega's enhanced business profile
following the acquisition of MIR and Moody's expectation that the
company will be able to delever towards 7.0x in the next 12-18
months through its ongoing cost saving initiatives. However, due to
the highly leveraged capital structure, the company remains weakly
positioned in the rating category and any deviation from the
business plan could increase the negative pressure on the ratings.
RATINGS RATIONALE
Moody's-adjusted debt/EBITDA was around 8.6x as of September 2019
(pro-forma for the full-year contribution of acquisitions completed
as of September 2019 but before any cost saving synergies) compared
to the leverage of 7.4x in 2018. The increase was largely due to
the weaker than expected operating performance with earnings
weakening in the last 12 months to September 2019. The challenging
economic environment affected Ammega's sales and at the same time
the company maintained a parallel cost structure (of Ammeraal
Beltech and Megadyne) in order to minimize risks during the
integration. However Moody's anticipates leverage to decrease to
8.0x at the end of 2019 and towards 7.0x in the next 18 months, on
a pro-forma basis for the acquisitions completed since October 2019
(including MIR) and the EUR100 million add-on. The deleveraging
trajectory will largely be supported by the ongoing implementation
of cost-saving initiatives, which are expected to generate EUR28
million of synergies over the next 24 months. The magnitude and
pace of deleveraging will however be dependent on the successful
execution on these initiatives.
The company continued playing an active role in the consolidation
of the market. Since the merger in June 2018, Ammega completed 10
bolt-on acquisitions. The largest one was completed in January 2020
with the acquisition of Midwest Industrial Rubber, Inc. (MIR), a US
lightweight belting fabricator and distributor. These acquisitions
will strengthen the group's geographical footprint and end-market
diversification, but also increase its vertical integration. At the
same time the rapid growth strategy increases execution and
integration risks and will require management's increased time and
attention. The acquisitions were also partially funded through RCF
drawings, reflecting the company's aggressive external growth
strategy which could slow the pace of deleveraging.
The B3 CFR rating continues to be supported by the company's (1)
strong market positions in the relatively fragmented markets of
lightweight conveyor and transmission belts; (2) broad end-market
and geographical diversification; (3) integrated business model,
with a large proportion of recurring replacement revenue and (4)
entrenched relationships with a diverse and sticky customer base.
The rating also continues to be constrained by Ammega's (1)
exposure to some end-market cyclicality which are facing headwinds
from the current market environment; (2) pricing pressure from the
intense competition in fragmented markets; and (3) exposure to
foreign-currency risks, given its strong international presence.
LIQUIDITY
Ammega's liquidity profile remains adequate. Following the
completion of the transaction, Moody's expects the company to have
EUR77 million of cash on balance sheet and EUR150 million undrawn
RCF. Free cash flow generation is expected to be slightly negative
or breakeven in 2019 due to the weaker operating performance, high
costs of debt and restructuring charges. However the cost saving
initiatives from the merger should help the company to improve its
cash flow generation in the next 18 months. The company has no
significant debt maturity until 2025. There is a springing covenant
test on the senior secured net leverage of 9.88x when RCF is drawn
by more than 40% with ample headroom.
ESG CONSIDERATIONS
Governance considerations factored into the rating include the
company's aggressive financial strategy, characterized by the
highly levered capital structure and rapid external growth
strategy, resulting in an ongoing releveraging risk . The company
needs to ensure that it has adequate governance structures and
internal processes in place to manage the enlarged scale and
increased complexity of operations. The rapid growth strategy also
requires the company to remain focused on its key initiatives and
deliver them in a timely manner. Moody's expects execution and
integration risks to be partially mitigated by the enhanced
management team. Moody's notes positively the willingness of
Ammega's shareholders, Partners Group, to invest new equity to
finance external growth as reflected with the acquisition of MIR.
STRUCTURAL CONSIDERATIONS
The senior secured EUR930 million term loan B (including the EUR100
million add-on) and EUR150 million RCF, both maturing in 2025, rank
pari passu and share the same security interest, including mainly
share pledges and intercompany receivables. They are guaranteed by
certain subsidiaries of the group, accounting for around 65% of the
consolidated EBITDA as per original transaction. The B3 instruments
are rated in line with the CFR and account for the large majority
of debt. They rank senior to the $186 million senior secured
second-lien facility (unrated) due in 2026, which is secured by the
same collateral and shares the same guarantors as the senior
secured credit facilities on a subordinated basis.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that the merger
synergies and cost efficiencies will lead to a reduction of
Moody's-adjusted debt/EBITDA towards 7.0x over 12-18 months, albeit
with execution risk.
FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE
Positive rating pressure could materialize if Moody's adjusted
gross debt/EBITDA trends towards 6.0x on a sustained basis and
Moody's adjusted EBITDA margin improves towards 20%.
Downward rating pressure could develop if Moody's adjusted gross
debt/EBITDA does not trend back towards 7.0x in the next 12-18
months or if the company continues to generate negative FCF on a
sustained basis leading to a deterioration in liquidity.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Manufacturing Companies published in June 2017.
COMPANY PROFILE
Headquartered in the Netherlands, Ammega is a global producer of
lightweight belting products such as synthetic and modular conveyor
belts, as well as industrial power transmission belts. It serves a
variety of end markets, including industries such as food,
logistics, industrials, packaging and elevators. The company is
owned by Partners Group and reported revenue of approximately
EUR750 million in 2018
ALPHA AB: S&P Affirms 'B' ICR on Steep Deleveraging Prospects
-------------------------------------------------------------
S&P Global Ratings affirmed its long-term issuer credit and issue
ratings on Alpha AB Bidco B.V. (Alpha) and its TLB at 'B'.
S&P said, "We consider the company's ability to improve adjusted
debt to EBITDA to about 6.5x in 2020, and successfully benefit from
its larger scale and lower costs, instrumental for maintaining the
ratings. Alpha's speed of deleveraging was slower than we
previously expected, resulting in forecast S&P Global
Ratings-adjusted debt to EBITDA approaching 9.0x in 2019 from 6.5x
previously. That said, we recognize that the company's increased
adjusted debt of about EUR1.2 billion in 2019 is the result of
about EUR100 million of RCF drawings to fund several acquisitions.
Moreover, in 2019 the company experienced some market headwinds
that resulted in lower EBITDA contributions than we expected.
However, we think that the company's acquisitions and recent MIR
equity deal will provide improved profitability and FOCF generation
in 2020. We therefore expect debt to EBITDA approaching 6.5x and
FOCF well in excess of EUR30 million by year-end 2020, supported by
profit margins of about 21%."
The equity acquisition of MIR strengthens the group's position in
the U.S. and has the potential to support profitability. The
fully equity-funded acquisition of MIR shows a strong commitment
from the majority owner Partners Group to support Alpha's growth
ambitions. S&P expects MIR will boost the company's 2020 EBITDA by
about 10%-20% from our EUR140 million base-case expectation for
2019 (our adjusted EBITDA includes restructuring costs, while cost
saving initiatives and synergies are not annualized). Moreover, MIR
improves Alpha's geographical reach by increasing its exposure to
the U.S. This should help margins since the bulk of sales are
directly to customers rather than relying on distributors. S&P also
views positively the group's marginally increased exposure to
noncyclical end markets, since MIR's largest end market is food.
Alpha's operating performance was worse than expected in 2019, but
should improve in 2020 on the back of accretive acquisitions and
the realization of cost savings, translating to EBITDA margins of
about 20%. Alpha's sales were hampered by softer market conditions
in 2019, especially due to a decrease in demand from the power
transmission end market. Moreover, higher-than-expected costs
following the merger of Ammeraal Beltech and Megadyne had a
negative effect on profit margins. S&P said, "However, we believe
that Alpha will continue to benefit from increasing population and
other mega trends, such as the rising focus on food safety,
elevated demand for processed food, e-commerce growth, and an
expanding need for automation and productivity. The belts the
company makes are consumable and about 70% of sales are recurring
replacements, which we expect will spur sales in 2020 and beyond.
We also understand that the implementation of cost-saving
initiatives is well underway. The network overlap between Ammeraal,
Megadyne, and MIR, offers good potential for cost synergies. We
expect this to result in EBITDA margin improving to about 21% in
2020, up from our forecast of about 18% in 2019."
Deleveraging will speed up in 2020 on the back of sustainably
positive FOCF. S&P said, "For 2020, we see the company's debt to
EBITDA reaching about 6.5x thanks to improved EBITDA margins linked
to internal cost rightsizing, synergies (of EUR25 million-EUR30
million), and cash flow generation, which we see in excess of EUR35
million. The group's financial risks are partly mitigated by the
relatively low capital-intensity of its business, with replacement
capital expenditure (capex) estimated at only about 2.5% of sales
and moderate working capital needs, although we forecast a build-up
of inventory in 2020 to support MIR sales. Therefore, we expect the
company to generate positive FOCF well in excess of EUR30 million
in 2020 before improving to at least EUR70 million per year
thereafter, despite its relatively high cash-paying interest and
tax burden. We also take into account the group's relatively strong
funds from operations (FFO) cash interest coverage, which we
forecast will remain well above 2.5x over 2020-2021."
The EUR100 million TLB add-on will be used to repay RCF drawings.
Although the level of debt in absolute terms won't change, S&P
believes this action will preserve the company's liquidity, which
it assesses as adequate.
S&P said, "The stable outlook on Alpha reflects our expectation
that the company will maintain its leading positions in its
targeted markets and achieve an adjusted EBITDA margin in excess of
20% from 2020 onward. We anticipate that Alpha will maintain solid
FOCF generation well in excess of EUR30 million in 2020, reducing
leverage to about 6.5x by year-end 2020.
"Negative rating pressure could emerge over the next 12 months if
the company's operating environment proves to be more challenging
than we currently expect, resulting in leverage metrics failing to
trend toward 6.5x or consistently negative FOCF.
"We could lower our ratings on Alpha if operating performance is
weaker than we expect. This could occur if the company increases
its rate of debt-funded acquisitions, market conditions were weaker
than we forecast, or higher stock levels and capex were to weaken
its FOCF generation. These factors would mean the company fails to
deleverage to about 6.5x by year-end 2020 and generate FOCF well in
excess of EUR30 million. We could also consider lowering our
ratings on Alpha if it does not maintain adequate liquidity or if
its FFO cash interest coverage did not remain comfortably above
2.5x over our forecast horizon.
"Although not foreseen at this stage, given the very limited
financial flexibility, we could consider raising our ratings on the
company if its EBITDA margin improves toward 25%, it materially and
sustainably strengthens FOCF to debt to more than 8%, and it
reduces its debt to EBITDA consistently below 5x. An upgrade would
also hinge on the private-equity sponsor's commitment to maintain a
more conservative financial policy."
PHM NETHERLANDS: Moody's Affirms B3 CFR, Outlook Stable
-------------------------------------------------------
Moody's Investors Service affirmed the B3 Corporate Family Rating
and B3-PD Probability of Default Rating of PHM Netherlands Midco
B.V., doing business as Loparex. Moody's also affirmed all
instrument ratings and assigned a B2 rating to the $207 million
EURO equivalent proposed first lien term loan, which together with
a $45 million HoldCo PIK loan will be used to reinance the equity
bridge that funded the purchase of Infiana Group Gmbh and to
combine both companies. The ratings outlook is stable.
Assignments:
Issuer: PHM Netherlands Midco B.V.
Senior Secured 1st Lien Bank Credit Facility, Assigned B2 (LGD3)
Affirmations:
Issuer: PHM Netherlands Midco B.V.
Probability of Default Rating, Affirmed B3-PD
Corporate Family Rating, Affirmed B3
Senior Secured Revolving Bank Credit Facility, Affirmed B2 (LGD3)
Senior Secured 1st Lien Multi Currency Revolving Credit Facility,
Affirmed B2 (LGD3)
Senior Secured 2nd Lien Bank Credit Facility, Affirmed Caa2 (LGD5)
Outlook Actions:
Issuer: PHM Netherlands Midco B.V.
Outlook, Remains Stable
RATINGS RATIONALE
The affirmation of B3 corporate family rating reflects the
strategic rationale for the Infiana acquisition and expected
synergies, offset by higher debt levels and the near-term
expectation to repay or replace HoldCo PIK loan with a more
permanent funding, integration and execution risks and increasing
exposure to cyclical end markets. Pro forma for the acquisition,
PHM Netherlands Midco B.V. had debt/EBITDA as adjusted by Moody's
of 7.9 times in the twelve months ended Nov. 2019, excluding
projected synergies and announced price increases, and
approximately 6.6x if synergies and announced price increases are
included. The acquisition allows Loparex to increase its scale (pro
forma sales of $689 million in the twelve months ended November
2019 vs approximately $457 million standalone), increase its
presence in Europe, lower its customer concentration, diversify end
markets and broaden its film-based release-liner offerings. The
company expects to generate roughly $15 million of cost synergies
and $10 million of sales synergies over the next two years. The
bulk of cost synergies are driven by headcount reductions and less
by procurement and sourcing savings, given that legacy Loparex
mainly produces paper-based release liners, while filmbased liners
are Infiana's specialty. Risks to projections and expected credit
metrics include continued customer inventory destocking and the
economic slowdown in some of the combined company's end markets,
such as construction, automotive and advertising. Pro forma for the
Infiana acquisition, about 65% of sales are to somewhat cyclical
end markets, such as building and construction (15%), tapes
manufacturers used in electrical, HVAC and construction
applications (19%), industrial, such as roofing, insulation,
automotive and electronics assembly (9%), and graphic arts
applications (mainly advertising) (21%).
The acquisition is credit positive because it allows the company to
increase consolidation in a fragmented market, with some larger and
integrated competitors such as Mondi Plc (Baa1 stable) and a
division of Mitsubishi. Loparex serves customers who are much
bigger in size and have more bargaining power, although the company
has long-term relationships with most of its customers. Pro forma
for the Infiana acquisition, the share of 3M Company (A1 stable),
Loparex's company's biggest customer, declines to 16% from
approximately 20%. Top 10 customers account for about 35 % of sales
of the combined company.
The company's small scale is somewhat offset by its geographic, end
market and operational diversity, as well as specialty nature of
some of its products. Pro forma for the acquisition, Loparex will
operate 4 manufacturing plants located in the United States, 2 in
Europe, one in China and one in India. The combined company
generates 56% of revenue in the North America, 29% in Europe, and
the reminder in India/Asia. The company benefits from its strong
market position in silicone release liner, and some exposure to
high growth sectors such as pharma (overall pro forma medical
segment is 13% of sales) and composites (4% of pro forma sales).
Additionally, certain end markets and applications have stringent
technical requirements and approval processes thereby raising
customer switching costs.
Moody's views Loparex's exposure to environmental risks as moderate
or manageable, which could be material to credit quality in the
medium to long term. Loparex manufactures many products which are
generally disposed of after use which could result in some
environmental damage. The company's release liners are currently
not recyclable because there is no technological solution to
separate the silicone or resin coating from the paper or film
substrate, but the company is focused on reducing the impact on
environment through waste reduction. Only a small portion of the
company's revenue (6% pro forma) is related to labels and therefore
has exposure consumer and regulatory concerns about single-use
plastic packaging. Moody's expects there will be an increasing
emphasis on recyclability and, potentially, manufacturing plastic
products from more biodegradable substrates over time and the
company will need to continue to focus on building quality products
and adapting to an evolving regulatory environment. The company
also has no large environmental liabilities or accruals. It does
not anticipate high social risks, such as product safety, for a
release liner manufacturer such as Loparex. Governance risks are
driven by private-equity ownership. Companies under private-equity
ownership typically have higher initial debt levels and more
aggressive financial policies. Infiana is the first acquisition
under the current ownership, and it would expect the company to
continue to look for opportunities to consolidate the industry over
time.
Moody's expects Loparex to have weak liquidity, reflecting the need
to repay or replace a $45 million HoldCo PIK loan. The loan pays
cash or accrues interest at borrower's option. The company has full
availability under the $50 million revolving facility due 2024. The
only financial covenant is a springing first lien net leverage
covenant set at 7.3 times and effective when the revolver is over
35% drawn. The company is expected to remain in compliance with
this covenant over the next 12 months. First lien term loan
amortization is 1.0% annually and the facility also has an excess
cash flow sweep. Most assets are encumbered by the secured debt
leaving comparatively little alternate liquidity.
The B2 rating on the first lien credit facilities, which include a
$50 million five-year revolving credit facility, a $370 million
seven year term loan and $207 million US equivalent Euro loan are
one notch above the B3 corporate family rating reflecting their
priority position in the capital structure, which also include an
upsized $140 million eight-year second lien term loan(Caa2). PHM
Netherlands Midco B.V., PHM Netherlands Bidco B.V. and U.S. Bidco
are co-borrower under the credit facilities The facilities are
guaranteed by PHM Netherlands Holdco 2 B.V. and its existing and
future wholly-owned United States and Dutch restricted subsidiaries
which make up approximately 85% of EBITDA and 90% of assets. The
company placed a $45 million HoldCo PIK loan to fund the Infiana
transaction. The PIK loan is structurally subordinated to the
secured term loan.
The stable outlook reflects expectations that completed pricing and
restructuring initiatives and projected synergies will support
earnings growth and allow the company to gradually improve credit
metrics through either earnings growth or debt pay down.
Moody's could upgrade the rating if the company expands its scale,
debt/EBITDA declines below 6 times on a sustained basis,
EBITDA/Interest improves to over 3 times and the company generates
meaningful and consistently positive free cash flow.
Moody's could downgrade the rating if debt/EBITDA remains above 7
times, EBITDA/Interest declines below 1.5 times and free cash flow
is consistently negative.
Dual headquartered in Apeldoorn, Netherlands and Cary, NC, PHM
Netherlands Midco B.V. is a manufacturer of silicone release
liners. Pro forma for the Infiana acquisition, revenues were
approximately $689 million in the twelve months ended Nov 2019. PHM
Netherlands Midco B.V. is a portfolio company of Pamplona Capital
Management.
The principal methodology used in these ratings was Packaging
Manufacturers: Metal, Glass, and Plastic Containers published in
May 2018.
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R O M A N I A
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CFR MARFA: Romanian Court Opens Pre-Insolvency Procedure
--------------------------------------------------------
Nicoleta Banila at SeeNews reports that the Bucharest municipal
court has opened a pre-insolvency procedure for state-owned rail
freight operator CFR Marfa, the court appointed administrator --
Casa de Insolventa Transilvania (CITR) -- said on Feb. 5.
According to SeeNews, CITR said in a press release the
pre-insolvency procedure, known as concordat, aims to help CFR
Marfa achieve a quick financial recovery while continuing its
operations and respecting its obligations to creditors.
CITR and CFR Marfa will come up with a recovery plan within 30
days, and will submit it to creditors who own at least 75% of the
company's debt among themselves, SeeNews discloses. The
implementation period of the measures in the restructuring plan is
24 months, SeeNews notes.
In December, the European Commission said it has opened an in-depth
investigation into Romanian state aid for CFR Marfa, saying debt
write-offs may have given the company an unfair advantage in breach
of EU state aid rules, SeeNews recounts.
The Commission's investigation will be looking at a number of state
support measures in favor of CFR Marfa, such as a debt-to-equity
swap amounting to RON1.67 billion (US$386 million /EUR350 million)
in 2013 and at the failure to collect, since at least 2010, the
social security debts and outstanding taxes of CFR Marfa, and of
its debts to CFR Infrastructura, SeeNews states.
===========
R U S S I A
===========
CB NECKLACE-BANK: Put on Provisional Administration
---------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-6, dated January
10,2020, revoked the banking license of Moscow-based Commercial
Bank Necklace-Bank, Ltd (Necklace-Bank, Ltd) (Reg. No. 1671;
hereinafter, Necklace-Bank). The credit institution ranked 251st
by assets in the Russian banking system.
The Bank of Russia took this decision in accordance with Clause 6,
Part 1 and Clauses 1 and 2, Part 2, Article 20 of the Federal Law
"On Banks and Banking Activities", based on the facts that
Necklace-Bank:
-- Fully lost its equity due to additional provisioning for a
range of assets.
-- Conducted operations that suggest the intention to siphon
off funds.
-- 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 asset replacement operations resulted in a portfolio of
potentially unrecoverable retail loans totalling over RUR1.3
billion that formed on the credit institution's balance sheet. The
said retail lending transactions had signs of attempts to siphon
off funds, prejudicing the interests of creditors and depositors.
The Bank of Russia sent an order to the credit institution to carry
out an adequate assessment of the risks accepted and to reflect its
actual financial standing in its reporting. As a result, the
credit institution's statements showed a full loss of its equity
(capital).
The Bank of Russia submitted the information on the bank's
operations having signs of criminal acts to the law enforcement
authorities.
The Bank of Russia also cancelled Necklace-Bank's professional
securities market participant license.
The Bank of Russia appointed a provisional administration to
Necklace-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: Necklace-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.
=========
S P A I N
=========
[*] Fitch Takes Action on 19 Tranches From 6 Spanish RMBS Deals
---------------------------------------------------------------
Fitch Ratings has upgraded eight tranches and affirmed 11 tranches
of six Spanish RMBS TDA CAM transactions. The Outlooks are Stable.
TDA CAM 6, FTA
- Class A3 ES0377993029; LT A+sf Affirmed; previously at A+sf
- Class B ES0377993037; LT Bsf Affirmed; previously at Bsf
TDA CAM 7, FTA
- Class A2 ES0377994019; LT A+sf Affirmed; previously at A+sf
- Class A3 ES0377994027; LT A+sf Affirmed; previously at A+sf
- Class B ES0377994035; LT B+sf Upgrade; previously at Bsf
TDA CAM 8, FTA
- Class A ES0377966009; LT A+sf Affirmed; previously at A+sf
- Class B ES0377966017; LT BB+sf Affirmed; previously at BB+sf
- Class C ES0377966025; LT BB+sf Upgrade; previously at CCCsf
- Class D ES0377966033; LT CCsf Affirmed; previously at CCsf
TDA CAM 4, FTA
- Class A ES0377991007; LT AAAsf Affirmed; previously at AAAsf
- Class B ES0377991015; LT A+sf Affirmed; previously at A+sf
TDA CAM 9, FTA
- Class A1 ES0377955002; LT A+sf Upgrade; previously at BBBsf
- Class A2 ES0377955010; LT A+sf Upgrade; previously at BBBsf
- Class A3 ES0377955028; LT A+sf Upgrade; previously at BBBsf
- Class B ES0377955036; LT BB+sf Upgrade; previously at BB-sf
- Class C ES0377955044; LT CCsf Affirmed; previously at CCsf
- Class D ES0377955051; LT CCsf Affirmed; previously at CCsf
TDA CAM 5, FTA
- Class A ES0377992005; LT AAAsf Upgrade; previously at AA+sf
- Class B ES0377992013; LT BBBsf Upgrade; previously at BBsf
TRANSACTION SUMMARY
The transactions comprise residential mortgages serviced by Banco
de Sabadell S.A. (BBB / F2).
KEY RATING DRIVERS
Credit Enhancement (CE) Trends
Fitch expects CE ratios for the notes to continue increasing in the
short term across the six transactions given the prevailing
sequential amortisation of the notes. However, the CE ratio for the
mezzanine and junior notes of TdA CAM 6 and 8 could reduce in the
medium term if the transactions comply with performance triggers
permitting the reserve fund reduction to its absolute floor. Fitch
views these CE trends as sufficient to withstand the rating
stresses commensurate with the rating actions.
Stable Asset Performance
The transactions continue to show sound asset performance, with
three-month plus arrears (excluding defaults) as a percentage of
pool current balances lower than 0.6% as of the latest reporting
dates. Fitch expects performance to remain stable over the short to
medium term due to the long seasoning of the mortgages of around
13-17 years, the prevailing low interest rate environment and the
Spanish macroeconomic outlook.
Cumulative gross defaults range between 3.3% and 15.9% of the
initial portfolio balances for TdA CAM 4 and 9, respectively, as of
the latest reporting dates, but show signs of continuous flattening
during the past two years. Defaults are defined as loans in arrears
for more than 12 months. These high levels of cumulative defaults
are above the average 6.1% for other Spanish RMBS rated by Fitch,
and are partly explained by the high proportion of borrowers with
high debt to income ratios.
Payment Interruption Risk Caps Rating
Fitch views TdA CAM 6, 7, 8 and 9 as being exposed to payment
interruption risk in the event of a servicer disruption, as the
available liquidity sources (reserve funds) are considered
insufficient to cover senior fees, net swap payments and senior
notes' interest during a minimum of three months needed to
implement alternative servicing arrangements. The notes' maximum
achievable ratings are commensurate with the 'Asf' category, in
line with Fitch's Structured Finance and Covered Bonds Counterparty
Rating Criteria.
Rating Cap Due to Counterparty Risks
TDA CAM 4 class B notes' rating is capped at the SPV account bank
provider's Deposit Rating (Societe Generale; A+) as the transaction
cash reserves held at this entity represent a material source of CE
for the notes. The rating cap reflects the excessive counterparty
dependency on the SPV account bank holding the cash reserves, as
the sudden loss of these funds would imply a downgrade of 10 or
more notches of these notes in accordance with Fitch's Structure
Finance and Covered Bonds Counterparty Rating Criteria.
Portfolio Risky Attributes
The securitised portfolios are exposed to geographical
concentration mainly in the regions of Valencia and Murcia. In line
with Fitch´s European RMBS rating criteria, higher rating
multiples are applied to the base foreclosure frequency (FF)
assumption to the portion of the portfolio that exceeds two and a
half times the population within these regions. Additionally, a
share of these portfolios ranging from 13% and 23% is linked to
second homes, which are considered riskier than owner occupied
loans, and are subject to a FF adjustment factor of 150%.
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.
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
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions.
There were no findings that affected the rating analysis. Fitch has
not reviewed the results of any third-party assessment of the asset
portfolio information or conducted a review of origination files as
part of its ongoing monitoring. Fitch did not undertake a review of
the information provided about the underlying asset pools ahead of
the transactions' initial closing. The subsequent performance of
the transactions over the years is consistent with the agency's
expectations given the operating environment and Fitch is therefore
satisfied that the asset pool information relied upon for its
initial rating analysis was adequately reliable. Overall, Fitch's
assessment of the information relied upon for the agency's rating
analysis according to its applicable rating methodologies indicates
that it is adequately reliable.
=====================
S W I T Z E R L A N D
=====================
KONGSBERG AUTOMOTIVE: Moody's Cuts CFR to B1, Outlook Stable
------------------------------------------------------------
Moody's Investors Service has downgraded the corporate family
rating to B1 from Ba3 and the probability of default rating to
B1-PD from Ba3-PD of Kongsberg Automotive ASA (Kongsberg).
Concurrently the rating agency has downgraded the ratings of the
EUR275 million senior secured notes issued by its financing
subsidiary Kongsberg Actuation Systems B.V. to B1 from Ba3. The
outlook on all ratings remains stable.
"The downgrade of Kongsberg's ratings reflects significant negative
Moody's free cash flow generation over the first nine months of
2019 leading to a weaker than expected but still adequate liquidity
buffer", says Dirk Steinicke, a Moody's Analyst, and Lead Analyst
for Kongsberg. "The current challenges in the global light and
heavy duty vehicles' markets will increase pressure on Kongsberg's
plan to meaningfully improve free cash flow generation mainly
driven by working capital optimizations in the next 12-18 months,"
added Mr. Steinicke.
RATINGS RATIONALE
RATIONALE FOR THE CHANGE IN OUTLOOK
The downgrade reflects the lower liquidity cushion resulting from
significant negative Moody's-adjusted FCF of EUR35 million as of
the twelve months ended September 2019, cash on hand decreased to
EUR25 million from EUR59 million at year-end 2018 combined and
EUR10 million drawing under the EUR50 million revolving credit
facility. Following the liquidity improvement actions announced by
the company, Moody's expects that Kongsberg will return to low
single digit Moody's adjusted FCF through 2020 supported by lower
capex and optimization of inventory following around EUR44 million
negative FCF during 2019.
The weak global light and heavy duty vehicles' market conditions
could result in challenges for Kongsberg to sustain its credit
metrics in line with Moody's expectation for Ba3 including
debt/EBITDA of below 3.5x (3.3x debt/EBITDA during the twelve month
ended September 2019). Therefore, Moody's expects that the recent
improvements in profitability and increase of business wins could
stall in 2020, which will make it harder for Kongsberg to generate
meaningful free cash flow. In the first nine months of 2019
Kongsberg managed to maintain its book-to-bill ratio above 1.0x,
while increasing profitability mainly due to lower restructuring
charges and good performance in specialty products (around 70% of
YTD company reported adjusted EBIT). However, a severer downturn
might not be compensated by Kongsberg's specialty product segment,
which is also exposed to the heavy duty vehicles business.
Kongsberg's B1 corporate family rating (CFR) is supported by its
(1) well-diversified end markets, with 55% sales generated from
Light Duty Vehicles (LDVs), 26% from Heavy Duty Vehicles (HDVs),
and Power Sports, Heavy Equipment, and Industrial and Other
accounting for 7%, 3% and 9%, respectively; (2) strong market
positions in very profitable specialty products, illustrated by its
reported EBITDA margin of about 19%, and limited competition
because of significant entry barriers arising from the niche market
size and the overall low share of total costs for final products;
(3) good customer diversification, with no customer accounting for
more than 10% and top 10 customers generating about 59% of total
sales (2018), and well-represented end markets among the top 10
customers; and (4) continued conservative financial policy, with no
intention to distribute dividends in the near to medium term, in
addition to the potential to tap equity markets, as illustrated by
a rights issue in 2008 to support the funding of an acquisition.
The rating is constrained by (1) a continued negative free cash
flow (FCF) generation over the past three years, with negative FCF
generation in the range of EUR25 million to EUR40 million,
resulting from significant restructuring efforts to optimize its
production footprint, as well as higher working capital in 2019,
(2) the company's relatively small size in the context of the
global automotive supplier industry, with revenue of approximately
EUR1.2 billion; (3) exposure to volatile raw material prices; (4)
minimal growth of 5.7% between 2011 and 2017, despite a very benign
industry environment for automotive suppliers over this period,
with typical annual organic growth in the range of 2%-3% above
global automotive production growth since 2011, driven by positive
global automotive vehicle development and increased content per
car.
OUTLOOK
The stable outlook is driven by Moody's expectation that Kongsberg
will be able to sustain leverage of approximately 3.5x debt/EBITDA,
EBITA margins of above 6% for the next 12-18 months on the back of
revenue growth in excess of the global light duty vehicles' markets
which Moody's expects to decline by 0.9% in 2020. Furthermore, the
rating agency expects that FCF will significantly improve to at
least break-even levels during 2020 resulting in improved
liquidity.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the ratings could develop if Kongsberg is able
to (1) reduce its leverage towards 3x debt/EBITDA, (2) continues to
generate a Moody's-adjusted EBITA margin (including restructuring
charges) of above 8% on a sustainable basis, (3) significantly
improve its free cash flow generation to more than 5% FCF/debt
sustainably, and (4) meaningfully improve its liquidity profile.
Downward pressure on the ratings could arise if (1) debt/EBITA
would move towards 4x, (2) EBITA margin reducing to below 5%, (3)
continued negative free cash generation, and (4) inability to
improve liquidity through 2020.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automotive
Supplier Methodology published in January 2020.
PROFILE
Kongsberg Automotive ASA (Kongsberg) is global automotive supplier
headquartered in Zurich, Switzerland and publicly listed in Norway.
Kongsberg is a manufacturer and supplier of Specialty Products,
Interior and Powertrain and Chassis (P&C) products for automotive
and heavy duty vehicle producers. Its main products include air
couplings, fluid transfer systems, light duty cables, interior
comfort systems, transmission control and vehicle dynamics. The
company employs around 11,400 people and operates 27 manufacturing
facilities and seven innovation centers in Europe, North America,
the Americas and Asia. In 2018, the group generated revenue of
EUR1.1 billion and company-adjusted EBITDA of EUR110 million.
=============
U K R A I N E
=============
MHP SE: S&P Affirms 'B' Issuer Credit Ratings, Outlook Stable
-------------------------------------------------------------
S&P Global Ratings affirmed its 'B' ratings and maintained its
stable outlook on MHP SE, the group's nonoperating holding
company.
Headwinds for operating performance will persist over the next 12
months, but the announced action plan should help preserve positive
FOCF and prevent further deterioration of adjusted leverage. MHP's
poultry segment margins continue to be squeezed by low chicken
prices and persistently high production costs, while low global
grain prices (particularly corn) weigh on the grain segment's
profitability. S&P said, "We now forecast S&P Global
Ratings-adjusted EBITDA of about $390 million-$400 million for
2019, compared with our previous forecasts of about $490 million,
which should result in adjusted debt to EBITDA of about 4.2x. We
expect adjusted debt to EBITDA to remain at about 4.0x in 2020,
because the group's revenue will likely suffer from the import ban
on Ukrainian poultry meat announced by the European Commission on
Jan. 23, 2020. However, the company is taking actions to preserve
its balance sheet and cash flow, by temporarily cutting production
capacity in Ukraine. It is also actively seeking to redirect
exports to other markets, until the ban is lifted. Importantly, we
understand that there are no penalties on the European contracts,
given MHP's inability to fulfil deliveries, which should support
overall EBITDA generation in 2020. We continue to forecast positive
FOCF for 2020 of about $100 million, and in 2019 this should rise
to close to $200 million.
"Redirecting exports to other unrestricted markets may take time,
but we continue to forecast revenue growth, supported by the
group's European operations and easing of restrictions in some
markets. The EU ban on imports from Ukraine follows the Ukrainian
authorities' announcement that avian influenza (AI) virus had been
detected in a domestic poultry farm. We understand that while the
outbreak is close to MHP's facilities, MHP is currently not
affected. We also understand that Ukrainian authorities are working
with their European counterparts to restore exports. The company
expects this to be resolved over the next two to three months.
Ukraine has gone through a similar case before, over December
2016-January 2017, when the last case of AI virus was registered in
the country. We think the company's revenue growth will weaken in
2020 because it will take time to redirect exports to other
markets." The EU market accounted for about 33% of its total
poultry export in the first nine months of 2019 (270,000 tonnes),
and about 10% of total revenue (about $1.5 billion). However,
exports to Saudi Arabia have been partially restored (announced in
January after a similar ban in September 2019), which should
support revenue growth this year. We also note that the group's
European operations (Perutnina Ptuj) are not affected by the AI
outbreak in other European countries (e.g. Germany, Poland, and
Romania). This could have a positive impact on chicken prices in
2020, thereby benefiting MHP's profitability in the region.
Global demand for poultry remains sound. S&P said, "We note that
the EU increased the tariff-free quota for poultry meat and
associated products allocated to Ukraine to 70,000 tonnes per year
from December 2019 (from 20,000 tonnes previously), which should
benefit MHP as the country's largest domestic producer, once the
ban is lifted. In August 2019, Japan also opened its market to
Ukraine, while the country's officials are also currently
negotiating with the Chinese authorities. We think that once the
current restrictions are resolved, MHP should continue to benefit
from growth trends, while pursuing geographical diversification, in
line with its strategy. We think that in the long run, prudent
further diversification of the asset base into key export markets
(such as in the case of Perutnina), could provide a natural hedge
to such exogenous trade risks, which could eventually lead to an
upgrade."
S&P said, "Given current developments and restrictions under the
debt documentation, we do not see the potential for another
debt-funded acquisition in 2020, which should support debt
protection metrics. We forecast company-reported net leverage at
year-end 2019 of about 3.0x and remaining at 2.7x-2.9x in 2020. The
company is subject to an incurrence-based net leverage covenant of
3.0x under the executed bond and secured bank facilities
documentation. We therefore see limited potential for another large
debt-funded acquisition in the near term, such as that of Perutnina
Ptuj in 2019. We have previously factored in such a possibility
through our financial policy assessment of the company, which is
targeting net leverage of less than 3.0x. We understand that the
appetite for external growth remains unchanged, and that management
is screening its markets ( Middle East and North Africa and Europe)
for potential opportunities. We think that the company will likely
look to engage in further debt-funded acquisitions, once trading
conditions normalize, and there is enough headroom under the
existing debt restriction. We view this as a constraint to a higher
rating in the near to medium term, given that acquisitions will
likely entail additional debt and investments needs."
Lack of near-term refinancing risks and sufficient cash balance
leaves room for adjusting to the tough operating environment. The
company has limited short-term debt in its capital structure
(approximately $28.2 million of bank debt as of Sept. 30, 2019),
following the refinancing in September 2019 when it issued $350
million of senior unsecured notes. The next key maturity is in May
2024, when its $500 million notes mature. S&P said, "We also note
that the group had about $300 million of cash on balance sheet at
year-end 2019. In our view, the lack of near-term refinancing risks
and current liquidity gives the management team time to focus on
navigating the group through the tough operating conditions in the
near to medium term."
S&P said, "The stable outlook reflects our assumption that import
restrictions in major end markets should be temporary, and that the
company's financial flexibility will prevent EBITDA and debt
leverage metrics from deteriorating further. We forecast stable S&P
Global Ratings' adjusted debt to EBITDA of 4.0x-4.5x and continued
positive FOCF over the next 12-18 months, thanks to reduced
investments at the Vynnitsia 2 poultry complex.
"We could lower our ratings on MHP if we observe continued
deterioration in the company's performance, such that adjusted debt
to EBITDA approaches 5.0x and FFO to debt falls below 12%, with
little prospects for rapid improvement. This could occur if
underlying growth faltered, including prolonged import restrictions
in key markets and low grain prices, such that the group's
financial flexibility is exhausted. Given the current reported net
leverage ratio and sufficient restrictions under the debt
documentation, we do not foresee downside pressure from potential
debt-funded acquisitions in the near term.
"Rating upside is contingent on the group's ability to deleverage
and maintain adjusted debt to EBITDA close to 3.0x. Under such a
scenario, an upgrade is also contingent on our assessment that the
group successfully passes our sovereign stress test, including a
transfer and convertibility scenario assessment, enabling us to
rate the company one notch above the sovereign long-term foreign
currency rating on Ukraine ('B')."
===========================
U N I T E D K I N G D O M
===========================
AA BOND: S&P Affirms B+ Rating on GBP569MM Class B2 Notes
---------------------------------------------------------
S&P Global Ratings assigned its 'BBB- (sf)' credit rating to AA
Bond Co. Ltd.'s class A8 notes.
The class A8 notes' expected maturity date (EMD) is in July 2027.
At closing, the issuer exchanged the class A8 notes against GBP325
million of outstanding class A5 notes, which have an EMD in January
2022, therefore extending the maturity of its debt. Overall, the
total debt leverage remained broadly stable, at about 8.4x based on
the reported EBITDA for the financial year ended in January 2019
(FY2019) as adjusted by us. As part of the refinancing, the cost of
senior debt exhibited a relative increase of about 9%, as the class
A5 notes that were replaced exhibited a low coupon of 2.875%.
Since S&P assigned preliminary ratings to this transaction, the
borrower has not made any notable structural changes.
AA Bond Co.'s financing structure blends a corporate securitization
of the operating business of the Automobile Association (AA) group
in the U.K. with a subordinated high-yield issuance. Debt repayment
is supported by the operating cash flows generated by the borrowing
group's three main lines of business: roadside assistance (81% of
reported EBITDA for FY2019), insurance brokering (15%), and driving
services (5%).
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.
RATING RATIONALE FOR THE CLASS A NOTES
AA Bond Co.'s primary sources of funds for principal and interest
payments on the class A notes are the loan interest and principal
payments from the borrower and amounts available from the liquidity
facility, which is shared with the borrower to service the senior
term loan (if the latter is drawn).
S&P's ratings on the class A notes address the timely payment of
interest and the ultimate payment of principal due on the class A
notes. They are based primarily on S&P's ongoing assessment of the
borrowing group's underlying business risk profile (BRP), the
integrity of the transaction's legal and tax structure, and the
robustness of operating cash flows supported by structural
enhancements.
DSCR analysis
S&P said, "Our cash flow analysis serves to both assess whether
cash flows will be sufficient to service debt through the
transaction's life and to project minimum debt service coverage
ratios (DSCRs) in base-case and downside scenarios. In our
analysis, we have excluded any projected cash flows from the
underwriting part of the AA's insurance business, which is not part
of the restricted borrowing group (only the insurance brokerage
part is).
"We typically view liquidity facilities and trapped cash (either
due to a breach of a financial covenant or following an expected
repayment date) as being required to be kept in the structure if:
the funds are held in accounts or may be accessed from liquidity
facilities; and we view it as dedicated to service the borrower's
debts, specifically that the funds are exclusively available to
service the issuer/borrower loans and any super senior or pari
passu debt, which may include bank loans.
"In this transaction, although the borrower and the issuer share
the liquidity facility, the borrower's ability to draw is limited
to liquidity shortfalls related to the senior term facility and
does not cover the issuer/borrower loans. Therefore, we do not give
credit to the liquidity facility in our base-case DSCR analysis. We
have given credit to any trapped cash in our DSCR calculations
because we have concluded that it is required to be kept in the
structure and is dedicated to debt service."
Base-case scenario
S&P said, "Our base-case EBITDA and operating cash flow projections
in the short term and the company's satisfactory BRP rely on our
corporate methodology. We gave credit to growth through the end of
FY2021. Beyond FY2021, our base-case projections are based on our
methodology and assumptions for corporate securitizations, from
which we then apply assumptions for capital expenditures (capex),
finance leases, pension liabilities, and taxes to arrive at our
projections for the cash flow available for debt service." For AA
Intermediate Co., S&P's assumptions were:
-- Maintenance capex (including net finance leases): GBP66 million
for FY2020 and GBP57 million for FY2021. Thereafter, S&P assumes
GBP35 million, in line with the transaction documents' minimum
requirements.
-- Development capex: GBP36 million for FY2020 and GBP31 million
for FY2021. Thereafter, because S&P assumes no growth it considered
no investment capex, in line with its corporate securitization
criteria.
-- Pension liabilities: S&P considered the plan agreed by the
company with the trustee in June 2017.
-- Tax: GBP11 million for FY2020 and GBP14 million for FY2021.
Thereafter, S&P considered a tax rate slightly above the statutory
corporate tax rate, in line with company's guidance.
The transaction structure includes a cash sweep mechanism for the
repayment of principal following an EMD on each class of notes.
Therefore, in line with our corporate securitization criteria, S&P
assumed a benchmark principal amortization profile where each class
A note is repaid over 15 years following its respective EMD based
on an annuity payment that it includes in its calculated DSCRs.
S&P established an anchor of 'bbb-' for the class A notes based
on:
-- S&P's assessment of AA Intermediate Co.'s satisfactory BRP,
which it associates with a business volatility score of 3;
-- The minimum DSCR achieved in S&P's base-case analysis, which
considers only operating-level cash flows, including any trapped
projected cash, after the class A3 notes' EMD, but does not give
credit to issuer-level structural features (such as the liquidity
facility).
Downside DSCR analysis
S&P said, "Our downside DSCR analysis tests whether the
issuer-level structural enhancements improve the transaction's
resilience under a stress scenario. AA Intermediate Co. falls
within the business and consumer services industry for which we
apply a 30% decline in EBITDA relative to the base-case at the
point where we believe the stress on debt service would be
greatest.
"Our downside DSCR analysis resulted in a strong resilience score
for the class A notes. The combination of a strong resilience score
and the 'bbb-' anchor derived in the base-case results in a
resilience-adjusted anchor of 'bbb+' for the class A notes."
The GBP165 million liquidity facility balance represents about 7.5%
of liquidity support, measured as a percentage of the current
outstanding senior debt, which is below the 10% level we typically
consider for significant liquidity support. Therefore, S&P has not
considered any further uplift adjustment to the resilience-adjusted
anchor for liquidity.
Modifiers analysis
The expected maturity date of the class A8 notes, which rank pari
passu with all other senior notes, falls in July 2027, in
seven-and-a-half years. S&P has lowered the resilience-adjusted
anchor by one notch to account for the long tenor of the expected
maturity date.
Comparable rating analysis
Due to its cash sweep amortization mechanism, the transaction
relies significantly on future excess cash. S&P said, "In our view,
the uncertainty related to this feature is increased by the
execution risks related to the company's investment plan and the
returns it will effectively generate. Furthermore, we note that
this new investment plan looks very similar to the one implemented
four years ago at the time of its flotation. This signals, in our
view, that the firm might need to invest periodically in order to
maintain its cash flow generation potential over the long term,
which could negatively impact future excess cash. To account for
this combination of factors, we applied a one-notch decrease to the
senior class A notes' resilience-adjusted anchor."
Counterparty risk
S&P's 'BBB- (sf)' rating on the class A notes is not currently
constrained by the ratings on any of the counterparties, including
the liquidity facility, derivatives, and bank account providers.
Eligible investments
Under the transaction documents, the counterparties are allowed to
invest cash in short-term investments with a minimum required
rating of 'BBB-'. Given the substantial reliance on excess cash
flow as part of S&P's analysis and the possibility that this could
be invested in short-term investments, full reliance can be placed
on excess cash flows only in rating scenarios up to 'BBB-'.
RATING RATIONALE FOR THE CLASS B2 NOTES
S&P's rating on the junior class B2 notes only addresses the
ultimate repayment of principal and interest on or before its legal
final maturity date in July 2043.
The class B2 notes are structured as soft-bullet notes with an EMD
in July 2022 and a legal final maturity date in July 2043. Interest
and principal is due and payable to the noteholders only to the
extent received from the borrower under the class B2 loan. Under
the terms and conditions of the class B2 loan, if the loan is not
repaid on its EMD, interest would no longer be due and would be
deferred. The deferred interest, and the interest accrued thereon,
becomes due and payable on the final maturity date of the class B2
notes in 2043. Our analysis focuses on the scenarios in which the
underlying loans are not repaid on their EMD and the corresponding
notes are not redeemed. Therefore, our fundamental assumption is
that the class B2 notes defer interest six months after their EMD
and do not receive payments until the class A notes are fully
repaid.
Moreover, under their terms and conditions, further issuances of
class A notes are permitted without consideration given to any
potential impact on the then current ratings on the outstanding
class B2 notes.
Both the extension risk, which S&P views as highly sensitive to the
future performance of the borrowing group given its deferability,
and the ability to issue more senior debt without consideration
given to the class B2 notes, may adversely affect the issuer's
ability to repay the class B2 notes. As a result, the uplift above
the borrowing group's creditworthiness reflected in our rating on
the class B2 notes is limited.
S&P's view of the borrowing group's standalone creditworthiness has
not changed. Therefore, it has affirmed its 'B+ (sf)' rating on the
class B2 notes.
Ratings List
Rating Assigned
Class Rating* Balance (mil. GBP)
A8 BBB- (sf) 325.0
Ratings Affirmed
Class Rating*
A2 BBB- (sf) 500.0
A3 BBB- (sf) 200.0
A5 BBB- (sf) 372.25
A6 BBB- (sf) 250.0
A7 BBB- (sf) 550.0
B2 B+ (sf) 569.76
*S&P's ratings on the class A notes address timely payment of
interest and ultimate payment of principal on the legal final
maturity date. S&P's rating on the class B2 notes addresses
ultimate payment of interest and ultimate payment of principal on
the legal final maturity date.
BURY FC: Winding-Up Petition Over Unpaid Tax Bill Dismissed
-----------------------------------------------------------
BBC News reports that expelled English Football League club Bury
have had a winding-up petition over an unpaid tax bill dismissed.
The Feb. 5 High Court appearance over money owed to HM Revenue &
Customs came just seven weeks after the club had a similar petition
dismissed, BBC notes.
According to BBC, the court was told that the latest petition,
lodged before Christmas, showed the club owed more than GBP50,000.
The petition was dismissed after a lawyer for HMRC said that all
but around GBP2,500 had been paid, BBC relates.
Bury lost their place in League One in August after a takeover bid
from C&N Sporting Risk collapsed, BBC recounts.
Despite not having a league to play in, Bury -- who were founded in
1885 -- still exist, BBC states.
The previous dismissal of a winding-up petition as well as the Feb.
5 latest decision only gives the financially-stricken club and its
fans a reprieve, according to BBC.
On July 18 last year, creditors approved a company voluntary
arrangement (CVA), which was proposed to help settle some of the
club's debts, BBC recounts.
The CVA temporarily froze those debts, but that arrangement expired
in January, allowing those owed money to issue fresh winding-up
petitions -- which HM Revenue & Customs have, BBC relays.
The Shakers appeared to be on the brink of liquidation after a
further prospective buyer ended their interest in October, but
during the previous petition the club argued they had continued to
automatically pay tax on wages that were not paid to staff, BBC
discloses.
EUROSAIL-UK 07-3: Fitch Affirms Bsf Rating on Class D1a Debt
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Fitch Ratings upgraded seven tranches of Eurosail-UK 07-03 BL Plc,
three tranches of Eurosail-UK 07-4 BL Plc and one tranche of
Mortgage Funding 2008-1 Plc, and affirmed all other tranches, as
follows:
RATING ACTIONS
Mortgage Funding 2008-1 Plc
Class A1 XS0350039912; LT AAAsf Affirmed; previously at AAAsf
Class A2 XS0995536934; LT A+sf Affirmed; previously at A+sf
Class A3 XS0995537155; LT A+sf Affirmed; previously at A+sf
Class B1 XS0995537312; LT BBB-sf Upgrade; previously at BB+sf
Eurosail-UK 07-3 BL Plc
Class A3a XS0308666493; LT AAAsf Upgrade; previously at AA-sf
Class A3c XS0308710143; LT AAAsf Upgrade; previously at AA-sf
Class B1a XS0308672384; LT AA+sf Upgrade; previously at A-sf
Class B1c XS0308716421; LT AA+sf Upgrade; previously at A-sf
Class C1a XS0308673192; LT A-sf Upgrade; previously at BB+sf
Class C1c XS0308718047; LT A-sf Upgrade; previously at BB+sf
Class D1a XS0308673945; LT Bsf Affirmed; previously at Bsf
Class E1c XS0308725844; LT CCCsf Upgrade; previously at CCsf
Eurosail-UK 07-4 BL Plc
Class A3 XS1150797600; LT AAAsf Affirmed; previously at AAAsf
Class A4 XS1150799481; LT AAAsf Affirmed; previously at AAAsf
Class A5 XS1150799721; LT AAAsf Upgrade; previously at AA+sf
Class B1a XS0311705759; LT AA-sf Upgrade; previously at A-sf
Class C1a XS0311708696; LT BB+sf Affirmed; previously at BB+sf
Class D1a XS0311713001; LT Bsf Upgrade; previously at CCCsf
Class E1c XS0311717416; LT CCsf Affirmed; previously at CCsf
TRANSACTION SUMMARY
The transactions comprise non-conforming UK mortgage loans
originated by Southern Pacific Mortgage Limited, Preferred
Mortgages Limited, Amber Homeloans and Alliance and Leicester
limited.
KEY RATING DRIVERS
New UK RMBS Rating Criteria
The rating actions take into account the updated UK RMBS Rating
Criteria assumptions that were published on October 4, 2019. The
notes' ratings have been removed from Under Criteria Observation.
The upgrades stem from the application of the new criteria
assumptions. In its analysis of the portfolio, Fitch applied the
buy-to-let (BTL) foreclosure frequency matrix to the BTL portion of
the portfolio.
Sufficient Credit Enhancement (CE)
The current CE was sufficient to withstand the rating stresses.
Fitch expects CE to continue building up in ES 07-3 and MF 08-1 as
the transactions amortise sequentially. CE for the senior notes in
the two transactions has increased since its last review in 2019 to
40.0% from 35.6% and to 73.2% from 66%, respectively. ES 07-4 is
amortising on pro-rata basis and CE is expected to remain
relatively stable in the short to medium term, given the current
asset performance.
Payment Interruption Risk
MF 08-1's mezzanine and junior notes do not benefit from a
dedicated liquidity reserve or reserve fund. The notes may be
exposed to a payment interruption event, where the issuer may
temporarily have insufficient funds to make payments on the notes.
Consequently, the class A2, A3 and B1 notes are capped at 'A+sf'.
ES 07-3 does not benefit from any dedicated liquidity facility to
cover for interest shortfalls. As the reserve fund can also be
drawn to cover for credit losses, it may not be available to cover
for payment interruption if it has previously depleted for poor
asset performance. Nevertheless, Fitch does not expect the reserve
fund to be drawn to cover for losses even in high investment grade
rating scenarios. As result, the reserve fund is sufficient to
provide coverage for payment interruption risk.
Stable Asset Performance
Loans that are three month or more in arrears have shown steady
improvement post-crisis. This measure has remained relatively
stable between September 2018 and December 2019.
RATING SENSITIVITIES
Negative developments affecting the general reserve funds for ES
07-3 and ES 07-4 may lead to negative rating action on the notes
rated higher than 'A+sf' and not benefiting from dedicated
liquidity reserves.
The pools report a small number of owner-occupied interest-only
loans that have failed to make their bullet payments at loan
maturity. The servicer has implemented alternative plans with these
borrowers, and the number of overdue loans has reduced since the
last rating action. An increase in the number of overdue
interest-only loans may result in negative rating action.
HUT GROUP: S&P Assigns 'B-' ICR on Fundraising Completion
---------------------------------------------------------
S&P Global Ratings assigned its 'B-' issuer and issue ratings to
The Hut Group Ltd. (THG) and the EUR600 million senior secured TLB
issued by its core subsidiary THG Operations Holding Ltd. (OpCo).
S&P said, "Our rating on U.K.-based online retailer THG reflects
its high growth potential, its strong position in the online
premium beauty and sports nutrition markets, a track record of
efficient global distribution, and an ample liquidity buffer,
sufficient to cover more than three years of operations. Our
assessment is constrained by THG's high leverage, its relatively
limited scale globally, and its high investment requirements. The
latter will likely result in negative free operating cash flow
(FOCF) generation and low profitability in the near term.
"The trading environment has deteriorated since our Nov. 21, 2019
report. The combination of surging pricing pressure on mid-range
beauty products, the uncertain post-Brexit negotiations timeframe,
and the recent coronavirus outbreak in China is contributing to a
more challenging scenario. All of these, in our opinion, pose risks
to earnings growth prospects. That said, the GBP66 million equity
investment the group raised in December 2019 indicates its
intention to maintain healthy balance sheet while advancing its
growth projects.”"
S&P believes 15%-25% revenue growth is sustainable over the next
three years.
Consumers' migration to online shopping, an expanding portfolio of
products, and a growing and loyal customer base have historically
helped THG to push its topline. S&P believes these factors will
keep fueling its trading momentum over the next few years. The
group has room for significant gains given that its core
markets--premium beauty and sports nutrition--are characterized by
stable growth rates (4%-6% compounded annual growth rate until
2021) and relatively low online penetration (10% and 24%,
respectively), which S&P expects will increase.
In line with its track record, THG should be able to maintain
robust growth in its beauty offering by periodically adding both
proprietary and third-party brands to its portfolio. S&P believes
that the group will capitalize on its existing relationships with
the majority of key beauty brands' manufacturers, by adding more
products from their catalogues to its platform as well as expanding
the scope of its digital partnerships. The rollout to new markets
and the development of locally targeted products will also fuel
growth in the sports nutrition business. The group's strong digital
customer acquisition strategy and rising base of returning
customers should further enhance topline growth.
S&P expects THG will hold its leading position in the global online
markets for premium beauty (No. 3) and sports nutrition products
(No. 1), supported by its infrastructure.
Given that an increasing portion of consumer demand is shifting
online, S&P believes THG can threaten brick-and-mortar competitors
such as Sephora and Optimum Nutrition. The group has a first-mover
advantage in the online market, having already developed an
end-to-end e-commerce platform called Ingenuity, and established
relationships with local end-suppliers, especially for last-mile
delivery. Over time, THG has achieved a strong track record in
directly running fulfillment and distribution operations across
nine countries, replicating its model in different parts of the
world. In addition, the recent acquisition of beauty lab and
manufacturer Acheson & Acheson will add to THG's existing sports
nutrition production facilities, increasing the degree of vertical
integration. This level of control results in higher quality
products and services, as well as shorter shipping times, which is
crucial for the online business. Traditional retailers, by
contrast, would have to either rely on third-parties' services, or
spend time and resources developing their own infrastructure.
The ample liquidity reserve could provide sufficient resources for
growing the business.
S&P believes THG will maintain adequate liquidity. Support will
come from its undrawn GBP150 million revolving credit facility
(RCF) and an equity injection committed over and above the GBP66
million already received. This would give the group sufficient
resources to cover negative FOCF, debt amortization, and working
capital movements including seasonal peaks, at the OpCo level over
the next three years. It would also provide funding for its bolt-on
acquisition plan, to be implemented over the medium term.
Its relatively small scale and limited product diversity could
reduce THG's ability to absorb unexpected shocks.
Despite its sustained growth, THG's revenue base is expected to
remain relatively modest, reaching GBP1.5 billion-GBP1.7 billion
over the medium term. Only two market segments generate about 80%
of THG's revenue and the group depends on relationships with key
brands. This limited scale and diversity compares unfavorably with
higher-rated, more diversified, and better-capitalized consumer
goods and retail companies such as L'Oreal, Estee Lauder, Dufry,
and El Corte Ingles. Consequently, S&P sees THG as being in a
weaker position to absorb external shocks such as a reduction in
consumer discretionary spending, the aggressive entrance of a new
competitor in the market, or the introduction of new regulations or
tariffs.
High investment requirements and expansion plans suppress cash
generation and profitability.
To sustain its global expansion and hold its first-mover advantage,
THG needs to constantly invest in its physical and digital
infrastructure. This requires high capital expenditure
(capex)--about GBP285 million over the next two years. While the
real-estate portion--about GBP140 million over 2019 and 2020--was
funded separately at the PropCo level, capital requirements for the
OpCo are still elevated. S&P expects GBP45 million-GBP65 million
per year to be spent on the development of the Ingenuity platform
alone, with additional outlays on maintenance operations. An
increase in headcount and payroll costs broadly in line with
revenue growth will support such expansion. These outflows would
contribute to negative FOCF in 2019 and 2020 of about GBP70 million
and GBP30 million--excluding the real-estate investments--while
constraining profitability. The group's bolt-on acquisition
strategy could also increase pressure on profits; over the past
three years it has spent more than GBP300 million on acquisitions.
The group's debt burden will remain elevated, as deleveraging will
come mostly from earning expansion.
THG accumulated substantial leverage, reaching about 8.1x on an
adjusted basis in 2018. At end-2019, following the refinancing
exercise, we estimate debt to EBITDA at the OpCo level declined to
about 6.1x, mostly because of earnings expansion. The amounts
borrowed by the PropCo to fund the capex program add one turn of
leverage leading to a total 7.1x for the combined group. A rapid
expansion of revenues and earnings would then support deleveraging
to 5.6x-5.8x in 2020 and about 5.0x in 2021. However, as only
minimal debt repayments are scheduled for the next three years, S&P
believes total debt will increase moderately. This could reduce the
group's financial flexibility because its ability to sustain its
capital structure would be strictly tied to its ability to sustain
the projected earnings growth.
S&P said, "The stable outlook reflects our view that, in the short
term, THG will keep expanding its market share and penetration in
the global beauty and sports nutrition markets. As a result, we
expect strong revenue growth of 16%-18% and some EBITDA margin
improvement. This would lead to moderate deleveraging, with
adjusted debt to EBITDA declining to about 5.6x-5.8x in 2020, for
the combined group. That said, we believe the group's ambitious
expansion plan will absorb material resources over the next 12
months, and will likely continue to weigh on cash generation.
Moreover, rising downside risks could stall earnings growth and
curtail deleveraging and cash generation prospects, increasing
pressure on the ratings.
"We could take a negative rating action in the next 12 months if
the group failed to deleverage to no more than 6.5x; if
consolidated FOCF stayed materially negative; if liquidity rapidly
deteriorated; or if the group pursued large debt-funded
acquisitions.
"If the group's medium-term growth or cash generation prospects
became substantially weaker than we currently forecast, we may
question its ability to sustain its capital structure over time,
leading us to consider a downgrade.
"We could also consider a downgrade if the group were to consider
buying back a portion of its outstanding loans at a discount to par
value, because we could consider such transaction as akin to a
distressed exchange and therefore tantamount to a default.
"We could raise the ratings on THG in the next 12-18 months if the
group successfully reduces leverage such that its adjusted debt to
EBITDA falls consistently below 6.0x. In such a scenario, we would
also expect reported FOCF generation to turn at least neutral while
the liquidity buffer remained sufficient to absorb any acquisitions
over and above our base-case scenario. An upgrade would be
predicated on a financial policy commitment supportive of a
sustainable improvement in credit metrics."
MICRO FOCUS: Fitch Lowers LongTerm IDRs to 'BB-', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Issuer Default Ratings
for Micro Focus International plc to 'BB-' from 'BB'. Fitch has
also downgraded the IDRs of MA FinanceCo LLC and Seattle Spinco,
Inc. to 'BB-' from 'BB', and has downgraded the senior secured debt
rating to 'BB'/'RR1' from 'BB+'/'RR1' for their respective first
lien credit facilities. The Rating Outlook remains Stable. Fitch's
actions affect approximately $5.3 billion of committed and
outstanding debt.
The rating actions reflect Fitch's view that the significant
challenges faced by Micro Focus following the transformative
acquisition of the Hewlett Packard Enterprise (HPE) carve-out in
2017 will result in operating metrics that exceed its negative
sensitivity thresholds over the ratings horizon. The company has
grappled with seemingly reoccurring struggles regarding integration
and go-to-market strategies, despite a strong track record in cost
reduction and synergy execution following past M&A. While initial
guidance following the transaction pointed to a pro forma combined
revenue decline of 2%-4%, in March 2018, management further guided
down expected revenue declines to 6%-9%, citing delays in new IT
systems implementations, unexpected attrition in sales personnel
and disruption in the acquired customer base due to deconsolidation
from HPE. Initial actions taken in response such as accelerated
cost reductions at the HPE unit, targeted R&D, increased salesforce
hiring and new executive management resulted in improved topline
trends with a decline of 4% in second-half 2018 and blended EBITDA
margins improved to 41%.
However, a trading update provided in September 2019, as well as
the recently released preliminary fiscal 2019 results indicate a
resumption of the accelerated revenue decline with full-year
revenue down 7.3% on a constant currency basis and management also
providing fiscal 2020 guidance to expect a further revenue decline
of 6%-8%. In addition, management detailed new investment
priorities expected to increase operating expenses by $70
million-$80 million in fiscal 2020. Fitch expects the increased
spend and operating deleverage to result in EBITDA margin
compression of approximately 450 bps to 36% in fiscal 2020 with the
company returning to gradual margin expansion thereafter.
Additionally, Fitch notes that the company has not sustainably
achieved its 2.7x net leverage target since the acquisition of the
HPE unit in 2017, in contrast to a historical track record of debt
pay down and deleveraging within a two-year timeframe following
prior acquisitions. While Micro Focus prepaid approximately $200
million of term debt following the 2019 disposition of the SUSE
segment, management has also continued to allocate capital to an
substantial share buyback program throughout fiscal 2019 despite
management's guidance that the company will continue to remain
above the leverage target over the near term, questioning the
future strength of the commitment to financial policies.
As a result of the ongoing revenue declines, margin compression and
financial policies, Fitch estimates total debt with equity
credit/operating EBITDA leverage of 3.5x for fiscal year-end 2019
increasing to 4.3x in 2020 and remaining above 4.0x for the
remainder of the ratings horizon, well in excess sustained of
negative sensitivity threshold of 3.5x. Although Fitch believes the
company will eventually return to a stronger margin profile and
credit profile, such improvement is not likely until fiscal 2023,
resulting in the current ratings view.
KEY RATING DRIVERS
Margin Expansion Delayed: The acquisition of a HPE (BBB+/Stable)
carve-out was expected to provide Micro Focus International Plc
with an attractive opportunity to expand margins at the
underperforming unit. Prior to the acquisition, the HPE unit
generated EBITDA margins lower than 25%, well below typical
software peers and below Micro Focus' 45%-50% historical EBITDA
margin range.
Despite a strong track record in cost reduction and synergy
execution, the company encountered significant integration
challenges in 2019, leading to reduced revenue and EBITDA
expectations and causing management to initiate a strategic review.
Recent preliminary results as well as management guidance has
resulted in a further reduction to Fitch's EBITDA margin forecasts
over the ratings horizon to 36%-39% in fiscal 2020-fiscal 2021 as
compared to 43%-45%, previously. Fitch believes that the rebuild of
internal IT systems and the actions resulting from the strategic
review including, increased product investment, positions the
company to achieve targeted neutral-to-positive revenue growth and
mid 40's EBITDA margins by 2023, well outside of the ratings
horizon.
Recurring Cash Flows: The acquisition of the HPE carve-out results
in a strong recurring revenue profile that provides reduced revenue
volatility and is supportive of the credit profile. Pro forma for
the SUSE disposal, Micro Focus generated approximately 69% of
revenue from recurring sources, consisting primarily of maintenance
contracts and subscription license sales. In addition, revenue
stability is supported by substantial switching costs, given the
mission critical nature and complexity of the legacy infrastructure
software systems addressed by the company's offerings.
Commitment to Net Leverage Target: Micro Focus has explicitly
committed to a net leverage target of 2.7x. However, due to ongoing
operating underperformance and integration challenges, Fitch notes
that the company has not sustainably achieved the target since the
acquisition of the HPE unit in 2017 in contrast to the a history of
debt pay down and deleveraging within two years following prior
acquisitions. While Micro Focus prepaid approximately $200 million
of term debt following the 2019 disposition of the SUSE segment,
management has also continued to allocate capital to a substantial
share buyback program despite guidance that the company will remain
above the target over the near-term, questioning the future
strength of the commitment.
Elusive Stabilization of Operating Performance: Micro Focus
experienced significant operating underperformance following the
acquisition of the HPE carve-out, due to the complex nature of
integrating both company's structures and processes. This has led
to ongoing sales execution and IT systems challenges.
While initial guidance following the transaction pointed to a pro
forma combined revenue decline of 2%-4%, in March 2018, management
further guided down expected revenue declines to 6%-9%, citing the
delays in new IT systems implementations, attrition in sales
personnel and disruption in the acquired customer base due to
deconsolidation from HPE. Initial actions taken in response such as
accelerated cost reductions at the HPE unit, targeted R&D,
increased salesforce hiring and new executive management resulted
in improved topline trends with a decline of 4% in second-half 2018
while blended EBITDA margins improved to 41%.
However, a trading update provided in September 2019, as well as
the recently released preliminary fiscal 2019 results indicate a
resumption of the accelerated revenue decline with full-year
revenue down 7.3% on a constant currency basis with management also
providing fiscal 2020 guidance to expect a further revenue decline
of 6%-8%. In addition, management detailed new investment
priorities expected to increase operating expenses by $70
million-$80 million in fiscal 2020. Fitch expects the increased
spend and operating deleverage to result in EBITDA margin
compression of approximately 450 bps in fiscal 2020 with the
company returning to gradual margin expansion thereafter. Fitch
believes the actions taken are necessary to allow the company to
refocus on accelerating growth and future margin expansion,
however, a potential stabilization in the operating profile will
likely be outside the ratings horizon.
Secular Revenue Pressure: The company's product portfolio primarily
addresses mature infrastructure software assets, which are often in
secular decline. Fitch believes approximately 80% of the combined
entity's product portfolio is faced with ongoing declines in demand
of approximately 5% per annum. Consequently, Micro Focus seeks to
continuously reduce costs in order to sustain margins and cash
flow. Fitch expects low-single digit constant currency revenue
declines on a normalized basis.
Acquisitive Strategy: Micro Focus has pursued a highly acquisitive
strategy in order to build revenue scale, frequently pursuing
transformational, debt-driven M&A opportunities. The company
historically demonstrated a track record of value creation from
M&A. The $2.4 billion acquisition of Attachmate Corporation in 2014
doubled the company's revenue, but was initially dilutive to
margins, reducing EBITDA margins to 37%. Management's cost
reduction efforts led to a 600 bps expansion in margins to 43% by
fiscal 2016.
In aggregate, Micro Focus acquired $324 million of EBITDA through
M&A and drove $166 million in follow-on operational improvements
post transaction. Given the recent challenges with the HPE unit
integration, near-term M&A opportunities are likely on pause. Fitch
believes management's acquisition integration track record provides
confidence that challenges with the acquired HPE unit will continue
to be addressed successfully.
DERIVATION SUMMARY
Micro Focus has experienced a deterioration in market positioning
within its product verticals. While the company has demonstrated a
strong track record of maximizing the value of enterprises' legacy
software investments, it has failed to benefit from secular growth
areas such as cybersecurity and big data. The company is of
significantly smaller scale than enterprise software peers such as
MSFT, IBM, ORCL and HPE, but closer in scale to competitors such as
CA, Inc. and BMC. Historically, Fitch believed the smaller scale
was offset by a historical margin profile above 45%, closely
aligned to top peers. However, the company's troubled integration
of the HPE carve-out and ongoing go-to-market struggles has
resulted in significant margin compression with Fitch now
forecasting EBITDA margins of 36%-39% over the ratings horizon with
pre-dividend FCF margins near 10%, below the 14% average for rated
enterprise software peers.
The primary determinant of the ratings differential is the
company's more aggressive financial policies with a stated net
leverage target of 2.7x, equating to a gross leverage of
approximately 3.2x as excess cash levels have historically been
applied to share repurchases. Despite the leverage target, Fitch
believes that the ongoing revenue declines, margin compression and
financial policies will result in gross leverage of 4.3x in 2020,
remaining above 4.0x for the remainder of the ratings horizon, well
in excess sustained of negative sensitivity threshold of 3.5x and
more in line with the lower 'BB' category. Fitch believes the
deterioration in the company's margin profile, FCF, and acquisition
integration track record is suggestive of a downgrade to 'BB-'
rating.
For issuers with IDRs rated 'BB-' through 'BB+', other than those
issuers in transitional territory to or from 'B+' and below, Fitch
applies average recovery assumptions that are based on historical
recovery data in the U.S. market. For high speculative-grade
issuers, Fitch allows for notching up to +2, capped at 'BBB-' for
secured debt, and down to -2 for unsecured debt when there is
material secured debt present. Fitch rates the company's senior
secured issue 'BB'/ 'RR1', or +1 notches above the 'BB-' IDR,
reflecting high reliance on secured debt and less staggered
maturity profile, mitigated by outstanding recovery prospects
resulting from the strength of the underlying assets.
Fitch applied its Parent-Subsidiary Linkage criteria and determined
that there was no impact on the rating. No country-ceiling or
operating environment aspects had an impact on the rating.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue: Decline of 7% in fiscal 2020, due to continuing
go-to-market challenges following acquisition of the HPE carve-out;
declines gradually moderating to down 2%-3% per annum due to
accelerated investment in product segments with attractive secular
growth characteristics;
- Margins: EBITDA margins contracting to 36% in fiscal 2020 due
to margin deleverage and increased investment in R&D and
salesforce, expanding 200-300 bps per annum thereafter due to
execution on cost reduction strategy;;
- M&A: $50 million-$100 million of bolt-on acquisitions per annum
in order to enhance product portfolio.
- Capex: Capital intensity of 2%-3% due to moderating investment
in internal software as re-platforming of the HPE carve-out nears
completion.
- Shareholder Returns: Dividends of $350 million-$450 million per
annum.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Total debt with equity credit/operating EBITDA sustained below
3.5x;
- Total adjusted debt/operating EBITDAR sustained below 4.0x;
- FFO adjusted leverage sustained below 4.0x;
- FCF margin sustained above 10%.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Total debt with equity credit/operating EBITDA sustained above
4.0x;
- Total adjusted debt/operating EBITDAR sustained above 4.5x;
- FFO adjusted leverage sustained above 4.5x;
- FCF margin sustained below 5%.
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: Fitch believes liquidity is sufficient for
the ratings category, comprised of over $350 million of readily
available cash and $500 million of availability under the undrawn
revolving credit facility. Liquidity is also supported by
post-dividend FCF, which Fitch forecasts will approach $500 million
in aggregate in fiscal 2020-2022. Fitch notes that the recent
business disruptions resulted in elevated working capital levels
that are likely to unwind throughout 2020, with Fitch forecasting a
positive benefit to near-term FCF. Liquidity requirements are
moderate given low capital intensity and debt amortization not
scheduled to resume until 2022.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
Micro Focus has an ESG Relevance Score of 4 for Management Strategy
due the continued struggles in go-to-market strategies and
integration of the transformative HPE carve-out acquisition that
has resulted in material deterioration of the operating profile.
NORD GOLD: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed UK-domiciled gold mining company Nord
Gold SE's Long-Term Issuer Default Rating at 'BB'. The Outlook is
Stable.
The affirmation reflects Fitch's expectation that Nord Gold's
performance will moderate in 2020-2022 after a very strong 2019,
following the ramp-up of the Gross mine, bolstered by a strong gold
price environment. It expects EBITDA generation to normalise over
the forecast horizon as gold prices move towards its mid-cycle
assumption. The Gross mine increased output to above 200 thousand
ounces (koz) in 2019 due to faster than expected capacity expansion
and ramp-up. It expects gold production to average around 1 million
oz in 2020-2022 as it takes a conservative view on production from
other mines.
Fitch's assessment of Nordgold's business profile includes stable
production over 2020-2022 and significant exposure to countries
with a weak operating environment.
KEY RATING DRIVERS
Gross Ramp-Up Cements Production: Nord Gold's production increased
by 12% yoy to 760 koz in 9M19, primarily driven by the ramp-up of
the Gross mine commissioned in September 2018. Fitch expects higher
production from Gross than it did previously as Nord Gold has
revised its gold production outlook for the mine to 230 koz-235 koz
from 190 koz. This is the result of faster than expected expansion
of the mining and processing operations to 14 million tonnes of ore
per year. Fitch expects Nord Gold's output to average around 1
million oz in 2020-2022 as it expects weaker performance from other
mines.
Capex Drives Leverage: Fitch expects Nordgold's total funds from
operations (FFO) gross leverage to hit 1.6x in 2019 from 2.3x in
2018 due to a combination of strong gold prices and a successful
ramp-up of Gross. It expect gross leverage to average 1.9x in
2020-2022 as a function of its mid-cycle price assumption for gold
and production slightly below 1 million oz, as free cash flow (FCF)
becomes neutral towards 2022.
Montagne d'Or Uncertain: The Montagne d'Or joint-venture (Nordgold
55.01% and Columbus 44.99%) has yet to receive mining and
environment authorisations from the French government. Fitch's
rating case excludes Montagne d'Or, as visibility on the permits
remains low, given the political context in France. The total
construction capital expenditure for the project is estimated at
USD361 million including tax credit. If there was a positive final
investment decision (FID), FFO gross leverage could increase but
would remain within the negative rating sensitivity of 2.5x.
Fitch expects Nordgold to adjust its dividends in order to remain
below its target leverage of net debt/EBITDA below 1.5x.
Capex Normalising Below 2018 Peak: Nordgold's capital intensity
(capex/revenue) peaked in 2018 at almost 44% with total capex of
around USD500 million. It expects capital intensity to have
declined to 27% in 2019 and to stay within the 25%-30% range over
2020-2022. This is due to capex of USD200 million-USD250 million as
well as nearly USD100 million annual investments in growth
projects. These include the Tokkinsky project in Russia, which
accounts for the largest share of expansionary capex, as well as a
number of smaller development projects at existing mines.
If there is a FID for Montagne d'Or, capital intensity would rebase
to 34%-35% over 2020-2022, still below the 2018 peak. In this case,
it assumes Nord Gold would moderate dividends to maintain its
comfortable financial profile.
Cash Costs Stabilise: Fitch estimates Nord Gold's cost position to
be in the third quartile of the global cash cost curve through the
cycle, based on CRU data. It expects Nordgold's all-in sustaining
costs (AISC) to have recovered back to USD950-USD1,000/Oz as the
low-cost Gross mine ramped up throughout 2019. This remains above
the USD900-USD920/Oz AISC delivered in 2016-2017, but materially
below the 2018 spike of USD1,051/oz due to higher stripping costs
at Bissa, Berezitovy and Taparko. In 2018-2021, Fitch expects
Nordgold to maintain flat average total cash costs of around
USD690/oz. This is due to the ramp-up of Gross production, which
will help the group control the overall cost per ounce.
Western Sahel Exposure in Focus: An attack on a convoy transporting
workers of Canadian gold producer Semafo Inc. highlights the risk
of operating in Burkina Faso and the Western Sahel region. Attacks
from Islamist rebel groups targeting gold mines and their workers
have intensified as the security situation in the region and
Burkina Faso in particular, has deteriorated. Due to the presence
of peacekeeping forces in the region, geographical diversification
and location of the Nord Gold mines Fitch does not expect material
and prolonged production disruptions, so this is unlikely to
endanger the current credit profile.
Country Risk Exposure: Nordgold has operations in Burkina Faso (40%
of total output in 2018), Russia (BBB/Stable, 30%), Guinea (21%)
and Kazakhstan (BBB/Stable, 9%). Following the launch of Gross in
September 2018, it expects the share of Nordgold's gold output from
Russia to reach 40% by end-2022. Fitch expects Nordgold's exposure
to Burkina Faso to decrease over the forecast horizon.
Less-developed economies can be less favourable for mining
companies, due to for example, poor roads and other infrastructure,
uncertainty in the application or enforceability of taxation,
mining and other laws, and less stable governmental finances. Fitch
views Nordgold's operational diversification as a mitigating factor
against the risk of disruption in one of the countries in which the
group operates.
Mid-Size Diversified Gold Miner: Nordgold is a mid-sized
Russian-owned gold miner with producing mines in Burkina Faso,
Russia, Guinea and Kazakhstan and exploration and development
projects in French Guiana (Montagne d'Or), Russia (Uryakh and
Tokkinsky) and Canada (Pistol Bay). Fitch expects its gold
production to average around 1 million oz from 2019, up from the
915,000 oz average during 2016-2018, largely due to the launch of
the Gross mine in 2H18. Its 2018 gold production totalled 907,000
oz.
Nordgold has large JORC reserves of 15.1 million oz, with a mine
life of about 15 years. In 2018, the company launched Gross, its
third greenfield mine commissioned since 2013.
DERIVATION SUMMARY
Nordgold is significantly smaller than Kinross Gold Corporation
(Kinross, BBB-/Stable) and PJSC Polyus (BB/Stable) by production
and revenue, Fitch views it as a third quartile producer with its
AISC currently above that of Kinross and AngloGold Ashanti
(BBB-/Stable). Kinross has a higher proportion of mines located in
countries with stronger operating environments but also has a
number of mines in Russia and West Africa, where most of Nordgold's
mines are located. Yamana Gold Inc. (BBB-/Stable) is similar to
Nordgold in scale, has a majority of assets located in emerging
economies but has a lower cost position and operates in countries
with stronger operating environments. In terms of leverage,
Nordgold compares well with Polyus, but lags Kinross and Yamana.
No Country Ceiling constraint was in effect for these ratings.
Nord Gold's rating captures a moderate impact from the operating
environment.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
2020 gold price of USD1,350/oz, Fitch gold price deck of
USD1,200/oz in 2020-2022 Total refined gold production around
1,000,000 oz on average in 2020-2022 Capex at USD400 million in
2019 and average USD335 million a year in 2020-2022 Dividend of
USD4 million in 2019 and USD42 million on average in 2020-2022
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Diversification to countries with stronger operating
environments
- Conservative financial profile, e.g. FFO adjusted gross leverage
sustained below 1.5x (2018: 2.3x)
- EBITDA margin above 40% (2018: 41%) and positive FCF on a
sustained basis
- One-year liquidity ratio sustained above 1.25x
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- EBITDA margin below 30% on a sustained basis
- FFO gross leverage above 2.5x on a sustained basis
- Deterioration of the security situation in Burkina Faso
impacting operations
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: As at June 30, 2019, Nord Gold had maturities
of USD320 million (including factoring arrangements) by June 2020.
The group reported cash in hand of USD126 million, in addition it
has USD15 million undrawn under a USD75 million committed revolving
credit facility (RCF) from a major international bank due in April
2021. Further sources of liquidity consist of uncommitted RCFs from
major Russian state-owned banks for a total USD115 million and
projected FCF of USD130 million in 2020. If there is a positive FID
for Montagne d'Or, Fitch expects FCF could turn negative from 2021
onwards. It assumes that Nord Gold will continue to have access to
financial markets.
On October 14, 2019 Nord Gold's Finco Celtic Resources Holdings DAC
issued USD400 million guaranteed notes. The issuance of the notes
has been used to repay all short-term indebtedness as well as
prepayment of USD100 million out of USD300 million of a long term
syndicated loan, which improves Nord Gold's liquidity profile. The
five-year tenor of the guaranteed notes improves Nord Gold's
maturity profile.
ESG CONSIDERATIONS
Nord Gold has an ESG Relevance Score for 'Exposure to Social
Impacts' of 4, due to the location of some of its mines in areas
with growing violence from Islamist rebel groups, which may
intensify and could have a negative impact on the credit profile,
and is relevant in conjunction with other factors.
TOUGH MUDDER: Enters Administration, Seeks Buyer for Business
-------------------------------------------------------------
Business Sale reports that endurance events company Tough Mudder
has gone into administration, appointing BM Advisory LLP, and is
looking to sell its business and assets, including the company's
wholly owned subsidiary Tough Mudder GmbH, as a going concern.
According to a statement released on the company's website, Michael
Solomons -- mike.solomons@bm-advisory.com -- and Andrew Pear --
andy.pear@bm-advisory.com -- of BM Advisory were appointed to act
as joint administrators for the business on January 24, 2020,
Business Sale relates.
The company will continue to trade as normal, with all scheduled UK
and Germany events this year set to go ahead, Business Sale says.
Events in the US and Canada, however, are subject to court
proceedings, Business Sale discloses.
Tickets for 2020 events remain valid, while any further tickets
purchased during the administration will be subject to the
company's refund policy, should that event be cancelled, Business
Sale notes.
BM Advisory will contact all known creditors in order to advise
them of the appointment and to provide the necessary documentation,
Business Sale states.
Tough Mudder Ltd's accounts for the year ending December 31, 2017,
show it generating turnover of GBP15.9 million and gross profit of
GBP5.1 million, Business Sale relays.
According to Business Sale, Gordon Brothers, working on behalf of
BM Advisory, describe the company as a "well-known endurance events
business" and say there is an opportunity to acquire Tough Mudder's
tangible assets and some of its intellectual property, including
customer list and websites.
A dedicated email, tm@bm-advisory.com, has been set up for those
looking to contact the administrators, Business Sale notes.
Tough Mudder offers a range of endurance challenges, including 5k
challenges and a 24-hour endurance course. It has held over 355
events with over 4 million participants.
===============
X X X X X X X X
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[*] BOOK REVIEW: Hospitals, Health and People
---------------------------------------------
Author: Albert W. Snoke, M.D.
Publisher: Beard Books
Softcover: 232 pages
List Price: $34.95
Order your personal copy today at
http://www.beardbooks.com/beardbooks/hospitals_health_and_people.html
Hospitals, Health and People is an interesting and very readable
account of the career of a hospital administrator and physician
from the 1930's through the 1980's, the formative years of today's
health care system. Although much has changed in hospital
administration and health care since the book was first published
in 1987, Dr. Snoke's discussion of the evolution of the modern
hospital provides a unique and very valuable perspective for
readers who wish to better understand the forces at work in our
current health care system.
The first half of Hospitals, Health and People is devoted to the
functional parts of the hospital system, as observed by Dr. Snoke
between the late 1930's through 1969, when he served first as
assistant director of the Strong Memorial Hospital in Rochester,
New York, and then as the director of the Grace-New Haven Hospital
in Connecticut. In these first chapters, Dr. Snoke examines the
evolution and institutionalization of a number of aspects of the
hospital system, including the financial and community
responsibilities of the hospital administrator, education and
training in hospital administration, the role of the governing
board of a hospital, the dynamics between the hospital
administrator and the medical staff, and the unique role of the
teaching hospital.
The importance of Hospitals, Health and People for today's readers
is due in large part to the author's pivotal role in creating the
modern-day hospital. Dr. Snoke and others in similar positions
played a large part in advocating or forcing change in our hospital
system, particularly in recognizing the importance of the nursing
profession and the contributions of non-physician professionals,
such as psychologists, hearing and speech specialists, and social
workers, to the overall care of the patient. Throughout the first
chapters, there are also many observations on the factors that are
contributing to today's cost of care. Malpractice is just one
example. According to Dr. Snoke, "malpractice premiums were
negligible in the 1950's and 1960's. In 1970, Yale-New Haven's
annual malpractice premiums had mounted to about $150,000." By the
time of the first publication of the book, the hospital's premiums
were costing about $10 million a year.
In the second half of Hospitals, Health and People, Dr. Snoke
addresses the national health care system as we've come to know it,
including insurance and cost containment; the role of the
government in health care; health care for the elderly; home health
care; and the changing role of ethics in health care. It is
particularly interesting to note the role that Senator Wilbur Mills
from Arkansas played in the allocation of costs of hospital-based
specialty components under Part B rather than Part A of the
Medicare bill. Dr. Snoke comments: "This was considered a great
victory by the hospital-based specialists. I was disappointed
because I knew it would cause confusion in working relationships
between hospitals and specialists and among patients covered by
Medicare. I was also concerned about potential cost increases. My
fears were realized. Not only have health costs increased in
certain areas more than anticipated, but confusion is rampant among
the elderly patients and their families, as well as in hospital
business offices and among physicians' secretaries." This aspect of
Medicare caused such confusion that Congress amended Medicare in
1967 to provide that the professional components of radiological
and pathological in-hospital services be reimbursed as if they were
hospital services under Part A rather than part of the co-payment
provisions of Part B.
At the start of his book, Dr. Snoke refers to a small statue,
Discharged Cured, which was given to him in the late 1940's by a
fellow physician, Dr. Jack Masur. Dr. Snoke explains the
significance the statue held for him throughout his professional
career by quoting from an article by Dr. Masur: "The whole question
of the responsibility of the physician, of the hospital, of the
health agency, brings vividly to mind a small statue which I saw a
great many years ago.it is a pathetic little figure of a man, coat
collar turned up and shoulders hunched against the chill winds,
clutching his belongings in a paper bag-shaking, tremulous,
discouraged. He's clearly unfit for work-no employer would dare to
take a chance on hiring him. You know that he will need much more
help before he can face the world with shoulders back and
confidence in himself. The statuette epitomizes the task of medical
rehabilitation: to bridge the gap between the sick and a job."
It is clear that Dr. Snoke devoted his life to exactly that
purpose. Although there is much to criticize in our current
healthcare system, the wellness concept that we expect and accept
today as part of our medical care was almost nonexistent when Dr.
Snoke began his career in the 1930's. Throughout his 50 years in
hospital administration, Dr. Snoke frequently had to focus on the
big picture and the bottom line. He never forgot the importance of
Discharged Cured, however, and his book provides us with a great
appreciation of how compassionate administrators such as Dr. Snoke
have contributed to the state of patient care today. Albert Waldo
Snoke was director of the Grace-New Haven Hospital in New Haven,
Connecticut from 1946 until 1969. In New Haven, Dr.
Snoke also taught hospital administration at Yale University and
oversaw the development of the Yale-New Haven Hospital, serving as
its executive director from 1965-1968. From 1969-1973, Dr. Snoke
worked in Illinois as coordinator of health services in the Office
of the Governor and later as acting executive director of the
Illinois Comprehensive State Health Planning Agency. Dr. Snoke died
in April 1988.
*********
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 2020. 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.
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