/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200212.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 Wednesday, February 12, 2020, Vol. 21, No. 31 Headlines G R E E C E CRETA FARMS: Reaches Restructuring Agreement with Creditors FOLLI FOLLIE: Bondholders Threaten to Abandon Restructuring Deal I C E L A N D HOUSING FINANCING: S&P Withdraws 'BB+/B' Issuer Credit Ratings I R E L A N D CIMPRESS PLC: Moody's Alters Outlook on Ba3 CFR to Stable INVESCO IV DAC : Fitch Gives 'B-(EXP)sf' Rating on Class F Notes I T A L Y AIR ITALY: Investors Opt to Put Carrier Into Liquidation ISLAND REFINANCING: Moody's Withdraws 'C' Rating on Class X Notes L U X E M B O U R G INTELSAT SA: May Not Need Debt Restructuring After FCC Decision S P A I N A.I. CANDELARIA: S&P Affirms 'BB-' Rating on $700MM Sr. Sec. Notes T U R K E Y TEMSA ULASIM: Haci Omer Sabanci May Acquire Minority Stake U N I T E D K I N G D O M BRITISH TELECOMMUNICATIONS: S&P Rates EUR500MM Securities 'BB+' DECO 11-UK: Fitch Lowers Rating on 6 Tranches to 'Dsf' FLYBE: Deal Not Roadmap for State Support for Airlines, Fitch Says GUNSYND PLC: Investee May Require Deep Discounted Rights Issue KENSINGTON MORTGAGE 2007-1: Fitch Hikes Class B2 Debt to BBsf MONTE DEI PASCHI: Impaired Loan Disposal Could Be Credit Positive RMAC SECURITIES 2007-NS1: Fitch Hikes Rating on 2 Tranches to BB+ TALKTALK TELECOM: Fitch Rates Proposed GBP500MM Notes BB-(EXP) - - - - - =========== G R E E C E =========== CRETA FARMS: Reaches Restructuring Agreement with Creditors ----------------------------------------------------------- ANA-MPA reports that Creta Farms ABEE on Feb. 6 announced it has reached an agreement with its creditors and the candidate strategic investor, Impala Hellas SA (a subsidiary of Bella Bulgaria SA) for the restructuring of the company. According to ANA-MPA, the agreement needs approval from related Greek authorities. Creta Farms is the biggest producer of pork meat in Greece, with a number of 20 worldwide patents. FOLLI FOLLIE: Bondholders Threaten to Abandon Restructuring Deal ---------------------------------------------------------------- Sotiris Nikas, Paul Tugwell and Irene Garcia Perez at Bloomberg News report that creditors to Greek fashion chain Folli Follie are threatening to step away from a deal to restructure the company's debt as its founder and former chairman Dimitris Koutsolioutsos tries to regain control. A group of bondholders are warning they will abandon the agreement that was reached in November to rearrange about EUR300 million (US$329 million) of Folli Follie's debt in a move that could tip the company into bankruptcy, Bloomberg relays, citing people familiar with the matter, who asked not to be identified given the sensitivity of the issue. Bloomberg notes that the move comes as Mr. Koutsolioutsos, who presided over the company's downfall, is seeking to oust some of the board members at an extraordinary general assembly on Feb. 20, according to company statements. Mr. Koutsolioutsos resigned in 2018 after hedge fund Quintessential Capital Management raised the alarm that Folli Follie's financial statements weren't accurate and an Alvarez & Marsal investigation found that group revenues in key Asian markets were about 90% lower than originally reported, Bloomberg recounts. He remained the largest shareholder and is being sued as one of those responsible for the discrepancies in the 2017 financial statements, Bloomberg states. Under the debt agreement, creditors will own most of Folli Follie's real estate assets, Bloomberg discloses. They will also hold 49% of Folli Follie's business relating to jewelry, fashion, cosmetics, outlets and department stores, according to Bloomberg. As part of the deal, EUR60 million of five-year debt will be reinstated, paying 7% interest in cash and debt, Bloomberg states. ============= I C E L A N D ============= HOUSING FINANCING: S&P Withdraws 'BB+/B' Issuer Credit Ratings -------------------------------------------------------------- S&P Global Ratings withdrew its 'BB+/B' long and short-term issuer credit ratings on Iceland-based Housing Financing Fund (HFF). The outlook was negative at the time of withdrawal. S&P's ratings on HFF at the time of the withdrawal reflected the entity's run-off operations in Iceland's competitive mortgage market, its concentrated balance sheet, and worsening profitability, which the restructuring of the fund outlined by the government could exacerbate. Although details are still limited, the new fund's setup could have negative implications for the institution's financial profile, specifically its capitalization. At the time of the withdrawal, the ratings continued to incorporate extraordinary government support. The spinoff of the social loans portfolio (about 20% of total assets) to a new government agency does not currently alter S&P's view of HFF's public-policy role and its link to the government. Moreover, the sovereign guarantee on the debt outstanding remains ultimate, but not timely, in its view. ============= I R E L A N D ============= CIMPRESS PLC: Moody's Alters Outlook on Ba3 CFR to Stable --------------------------------------------------------- Moody's Investors Service revised Cimpress plc's outlook to stable from negative, affirmed all of its existing credit ratings including the Ba3 Corporate Family Rating, and upgraded its Speculative Grade Liquidity rating to SGL-1 from SGL-2 reflecting very good liquidity. Concurrently, Moody's assigned a Ba2 rating to the company's senior secured credit facilities and a B2 rating to the add-on senior unsecured notes, both currently being marketed. Moody's also affirmed the Ba2 rating on the senior secured credit facility at Cimpress USA Incorporated. Assignments: Issuer: Cimpress plc Senior Secured Revolving Credit Facility, Assigned Ba2 (LGD3) Senior Secured Term Loan, Assigned Ba2 (LGD3) Senior Unsecured Regular Bond/Debenture, Assigned B2 (LGD5) Issuer: Cimpress USA Incorporated Senior Secured Term Loan, Assigned Ba2 (LGD3) Affirmations: Issuer: Cimpress plc Probability of Default Rating, Affirmed Ba3-PD Corporate Family Rating, Affirmed Ba3 Senior Secured Bank Credit Facility, Affirmed Ba2 (LGD3) Senior Unsecured Regular Bond/Debenture, Affirmed B2 (LGD5) Issuer: Cimpress USA Incorporated Senior Secured Bank Credit Facility, Affirmed Ba2 (LGD3) Upgrade: Issuer: Cimpress plc Speculative Grade Liquidity Rating, upgraded to SGL-1 from SGL-2 Outlook Actions: Issuer: Cimpress plc Outlook, Changed To Stable From Negative Issuer: Cimpress USA Incorporated Outlook, Changed To Stable From Negative The revision of the outlook to stable from negative reflects the combination of Cimpress' commitment to a financial policy with moderate leverage and the company's good progress so far in executing its previously announced strategy of improving profitability and cash flow through targeted reductions in marketing spend. By reducing less efficient marketing spend and forgoing less profitable top-line growth, Cimpress has achieved meaningful profitability improvement, as demonstrated by the LTM 12/2019 EBITDA margin rising to 15% from 9.5% a year ago, before the initiative was implemented. Despite organic revenue growth rates notably lower than in the prior years, Cimpress' free cash flow to debt improved to 17.2% from 8.6% for the same period a year ago, and Debt/EBITDA declined to 3.7x as of LTM 12/2019 from 5.1x for the same period last year. All metrics are calculated using Moody's standard adjustments and expense the company's capitalized software development costs. Importantly, in its Q2 2020 quarterly report, Cimpress has clearly articulated that it is committed to maintaining run-rate leverage (covenant definition, before Moody's adjustments) at a level no greater than 3.5x. The company's management further stated that for internal investments, share repurchases and small tuck-in acquisitions, it will not intentionally take leverage above 3.5x, and it does not seek to engage in large M&A transactions in the next one or two years. If and when the company returns to pursuing large M&A, it will not intentionally take leverage above 4x (covenant definition) unless it sees a clear path to delevering post M&A. Based on the covenant definition, the company's leverage was 2.99x as of LTM 12/2019. RATINGS RATIONALE Cimpress' Ba3 CFR reflects the company's strong profitability margins, robust cash flows owing to its entrenched position and well-known brands albeit in an increasingly competitive online custom print market, moderate leverage and sizeable asset base. Good liquidity, in spite of the company's meaningful discretionary spend, continues to provide key ratings support, nonetheless, and should be more than adequate to support management's turnaround efforts. These credit strengths are counterbalanced by increasingly competitive industry dynamics that will continue to weigh on revenue growth and the longer term risk of digital substitution. Although Moody's expects Cimpress' to follow a financial policy that supports moderate leverage, the company has recently ramped up share repurchase activity ($579 million in share repurchases as of LTM 12/2019, the highest amount in its history as a rated company since 2014). Moody's expects Cimpress to remain an active share repurchaser in the next 12-18 months given the Board of Directors' November 2019 authorization to buy back up to 5.5 million shares, which will remain in effect until May 2021. Moody's expects the company to execute share repurchase and M&A activity within the parameters of its leverage targets. Cimpress' liquidity is very good (SGL-1), supported by strong internally generated cash flows, a favorable debt maturity ladder with no funded debt coming due until 2025 proforma for the proposed refinancing, and a large committed revolving credit facility. Moody's expects about $270 million of free cash flow in the next 12 months and ample cushion relative to the maintenance covenants in the credit facility. Cimpress currently maintains a $1.087 billion revolving credit facility that, at nearly 40% of sales, is much larger than is required to fund operations and is sized to support Cimpress' turn-around and growth strategy. The company's proposed refinancing transaction will further improve its liquidity by extending term loan and revolver maturities by two years to 2025 and providing additional availability under its revolver. The stable outlook incorporates Moody's expectation that Cimpress will continue generate strong free cash flows, grow organic revenues, adhere to its self-imposed leverage target of 3.5x (covenant definition) and sustain, if not improve, profitability margins. The ratings could be downgraded should margins and earnings deteriorate, liquidity weaken or financial policies become more aggressive, as evidenced by debt-to-EBITDA rising above 4x (Moody's adjusted). Ratings could be upgraded if debt-to-EBITDA is sustained comfortably below 3.0x (Moody's adjusted) with more conservative financial policies supportive of leverage remaining at such levels. In addition, an upgrade will be based on the company's ability to improve and sustain its organic revenue growth rates in the high-single digit percent range and maintain very good liquidity. The principal methodology used in these ratings was Media Industry published in June 2017. Headquartered in Dundalk, Ireland, Cimpress plc is a provider of customized marketing products and services to small businesses and consumers worldwide, largely comprised of printed and other physical products. Revenue for the twelve months ended December 31, 2019 was approximately $2.8 billion. INVESCO IV DAC : Fitch Gives 'B-(EXP)sf' Rating on Class F Notes ---------------------------------------------------------------- Fitch Ratings assigned Invesco Euro CLO IV DAC expected ratings, as follows: Invesco Euro CLO IV DAC - Class A; LT AAA(EXP)sf Expected Rating - Class B-1; LT AA(EXP)sf Expected Rating - Class B-2; LT AA(EXP)sf Expected Rating - Class C; LT A(EXP)sf Expected Rating - Class D; LT BBB-(EXP)sf Expected Rating - Class E; LT BB-(EXP)sf Expected Rating - Class F; LT B-(EXP)sf Expected Rating - Sub. Notes; LT NR(EXP)sf Expected Rating - Class X; LT AAA(EXP)sf Expected Rating TRANSACTION SUMMARY Invesco Euro CLO IV Designated Activity Company is a cash flow collateralised loan obligation (CLO). Net proceeds from the notes will be used to purchase a EUR400 million portfolio of mainly European leveraged loans and bonds. The transaction will have a 4.5-year reinvestment period and a weighted average life of 8.5 years. The portfolio of assets will be actively managed by Invesco European RR L.P. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. KEY RATING DRIVERS 'B' Portfolio Credit Quality Fitch assesses the average credit quality of obligors at the 'B' category. The Fitch-calculated weighted average rating factor (WARF) of the underlying portfolio is 32.1, i.e. below the indicative covenant of 33 for expected ratings. High Recovery Expectations At least 90% of the portfolio comprises senior secured obligations. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate (WARR) of the identified portfolio is 66.3%, i.e. above the indicative covenant of 63.50% for expected ratings. Diversified Asset Portfolio The covenanted maximum exposure to the top 10 obligors for assigning the expected ratings is 20% of the portfolio balance. The transaction includes two Fitch test matrices corresponding to the two top 10 obligors' concentration limits of 23% and 16%, respectively. The manager can interpolate within and between two matrices. The transaction also includes limits on maximum industry exposure based on Fitch's industry definitions. The maximum exposure to the three-largest Fitch-defined industries in the portfolio is covenanted at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive obligor concentration. Portfolio Management The transaction will feature a 4.5-year reinvestment period and includes reinvestment criteria similar to other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls, and the various structural features of the transaction, as well as 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 class E notes and a downgrade of up to two notches for the other rated notes. ========= I T A L Y ========= AIR ITALY: Investors Opt to Put Carrier Into Liquidation -------------------------------------------------------- Francesca Landini at Reuters reports that Air Italy's investors Alisarda and Qatar Airways said on Feb. 11 they had agreed to put the struggling Italian carrier into liquidation due to persistent and structural market problems. According to Reuters, the carrier said that flights would continue until Feb. 25 while flights booked for later dates would be reimbursed or re-booked onto other carriers. ISLAND REFINANCING: Moody's Withdraws 'C' Rating on Class X Notes ----------------------------------------------------------------- Moody's Investors Service withdrew the ratings of three classes of Notes issued by Island Refinancing S.r.l.: EUR60M Class C Notes, Withdrawn (sf); previously on Apr 7, 2017 Affirmed B3 (sf) EUR32M Class D Notes, Withdrawn (sf); previously on Apr 7, 2017 Affirmed Ca (sf) EUR46M Class X Notes, Withdrawn (sf); previously on Apr 7, 2017 Affirmed C (sf) Moody's does not rate the class E and class F Notes. RATINGS RATIONALE Moody's has withdrawn the rating for its own business reasons. =================== L U X E M B O U R G =================== INTELSAT SA: May Not Need Debt Restructuring After FCC Decision --------------------------------------------------------------- Soma Biswas at Dow Jones reports that Intelsat SA's bonds rose following the Federal Communications Commission's decision on Feb. 6 to pay billions of dollars to a group of satellite companies for wireless spectrum they use. For Intelsat, the FCC's decision means the company may be able to squeak by without a debt restructuring or bankruptcy filing in the next few years, Dow Jones relays, citing an Intelsat bondholder and a high-yield debt analyst. According to Dow Jones,Jason Abercrombie, high-yield analyst at Newfleet Asset Management, said Intelsat is likely to receive 45% of the total US$9.7 billion in incentive payments to vacate its portion of the C-Band section of the electromagnetic spectrum it uses. Mr. Abercrombie, as cited by Dow Jones, said that's because Intelsat occupies roughly 45% of the C-Band. FCC Chairman Ajit Pai on Feb. 6 unveiled a proposal to pay US$3 billion to US$5 billion to satellite companies for reasonable relocation costs and another US$9.7 billion in accelerated incentive payments to incumbent operators in the C-Band section of the electromagnetic spectrum, including Intelsat, Dow Jones recounts. Mr. Abercrombie said the incentive payments to clear spectrum would allow Intelsat to pay down some US$4 billion of its US$14 billion in debt, which is likely enough of a reduction to allow the company to refinance the rest of its debt, Dow Jones relates. Intelsat spends about US$1 billion annually on interest payments, and that bill could go down by a third if the company is able to pay down about US$4 billion in debt, Dow Jones discloses. Mr. Abercrombie said that would allow Intelsat to start generating cash, Dow Jones notes. Headquartered in Luxembourg, Intelsat SA is a communications satellite services provider. ========= S P A I N ========= A.I. CANDELARIA: S&P Affirms 'BB-' Rating on $700MM Sr. Sec. Notes ------------------------------------------------------------------ S&P Global Ratings affirmed its 'BB-' ratings on A.I. Candelaria Spain's $700 million senior secured notes. A.I. Candelaria Luxembourg announced it has completed the sale of its shares in A.I. Candelaria Spain to I Squared Capital (ISQ, not rated) and Grupo Romero (GRIO, not rated) in equal stakes (50% each). S&P said, "Upon the announcement that A.I. Candelaria Luxembourg sold all of its shares in A.I. Candelaria Spain to ISQ and GRIO, we affirmed our 'BB-' issue ratings on the 2028 notes. To acquire the shares of A.I. Candelaria Spain, ISQ established an acquisition vehicle in Luxembourg (ISQ Booster Acquisitions) and GRIO in the U.K (Elystan Capital Holding Limited). We view this transaction as neutral from a credit standpoint for our ratings on A.I. Candelaria Spain, because we concluded that none of the new sponsors would direct the company's strategy and the dispensing of its cash flows." This is because each of the new shareholders would have equal stakes in the company and an equal number of directors appointed to the company's board. According to the shareholder's agreement, all newly proposed actions must require the approval of both ISQ and GRIO. Additionally, A.I. Candelaria Spain continues to be governed by financial covenants included in the 2028 bond that include a debt service coverage ratio above 1.25x and leverage ratio below 5.0x. =========== T U R K E Y =========== TEMSA ULASIM: Haci Omer Sabanci May Acquire Minority Stake ---------------------------------------------------------- Ercan Ersoy at Bloomberg News reports that Turkey's Haci Omer Sabanci Holding AS is considering reinvesting in Temsa after the bus-maker ran into financial trouble, according to people with knowledge of the matter. The Istanbul-based industrial group may pursue the acquisition of a minority stake in the company, whose full name is Temsa Ulasim Araclari Sanayi ve Ticaret AS, the people, as cited by Bloomberg, said, asking not to be identified because the matter is private. Sabanci and other shareholders sold Temsa to True Value Capital Partners SAfor an enterprise value of TRY825 million (US$138 million) in May, Bloomberg recounts. The company is seeking to restructure all of its debt that's due this year after securing bankruptcy protection in December, according to its website, Bloomberg notes. Some lenders recalled loans and started foreclosure proceedings, forcing the company to halt production at the end of 2019, Bloomberg relays. According to Bloomberg, the people said Temsa raised new loans from at least two Turkish banks shortly before it was bought by True Value Capital. They said part of those funds were used to repay earlier loans and the rest were used for dividend payments, Bloomberg notes. Sabanci said in a statement Temsa's financial difficulties are between its new owners and the lenders, Bloomberg relays. =========================== U N I T E D K I N G D O M =========================== BRITISH TELECOMMUNICATIONS: S&P Rates EUR500MM Securities 'BB+' --------------------------------------------------------------- S&P Global Ratings assigned its 'BB+' issue rating to the EUR500 million junior subordinated hybrid securities to be issued by British Telecommunications PLC (BBB/Stable/A-2), wholly owned subsidiary of BT Group PLC (BT; BBB/Stable/A-2). The rating reflects its notching for subordination and the risk of loss absorption or cash conservation. S&P assesses the securities as having intermediate equity content until the first interest reset date. BT views the securities' issuance as a strategic and prudent balance sheet strengthening tool to support its long-term issuer credit rating and senior creditors. S&P understands that BT intends to maintain or replace these securities as a long-term form of capital on its balance sheet. S&P categorizea the proposed securities as having intermediate equity content, because they are subordinated in liquidation to all BT's senior debt obligations, cannot be called for at least 5.25 years, and are not subject to features that could discourage or materially delay deferral. S&P derives its 'BB+' rating on the security by notching down from its 'BBB' rating on BT. The two-notch difference reflects its deducting: -- One notch for subordination, because our long-term issuer credit rating on BT is 'BBB-' or above; and -- An additional notch for the risk of loss absorption or cash conservation, because of coupon deferability. In this case, coupon deferral is discretionary and not limited in time. S&P said, "The notching indicates that we consider the issuer relatively unlikely to defer the coupon. Should our view change, we may increase the number of notches we deduct to derive the issue rating. "In addition, given our view of the intermediate equity content of the proposed securities, we allocate 50% of the related payments on the security as a fixed charge and 50% as equivalent to a common dividend. The 50% treatment of principal and accrued interest also applies to our adjustment of debt." FEATURES OF THE HYBRID INSTRUMENT S&P said, "We understand that the proposed security and coupons are intended to constitute the issuer's direct, unsecured, and deeply subordinated obligations, ranking senior only to its common shares. "We understand that the first interest reset date will be at least 5.5 years from the issue date. BT can redeem the security for cash up to 90 days before the first interest reset date, and on every coupon payment date thereafter. BT intends to replace the hybrid, but is not obliged to do so. In our view, this statement of intent currently mitigates the issuer's ability to call or repurchase the security." The securities mature in 60.5 years after the issue date, but can be called at any time for a tax, rating methodology, or accounting event as defined in the instrument's documentation. Coupon deferral does not constitute an event of default and there are no cross defaults with the senior debt instruments. In addition, the hybrid's terms allow BT to choose to defer interest payment on the proposed securities--it has no obligation to pay accrued interest on an interest payment date. That said, if BT declares or pays an equity dividend or interest on equally ranking securities, or if it redeems or repurchases shares or equally ranking securities, it is required to settle any outstanding deferred interest payment and the interest accrued thereafter in cash. S&P said, "We understand that the interest to be paid on the proposed securities will increase by 25 basis points (bps) five years after the first reset date, and by a further 75 bps 20 years after its first reset date. We consider the cumulative increase in interest of 100 bps to be material under our criteria, providing BT with an incentive to redeem the instrument. Given that BT has not committed to replacing the instrument after the second increase, we are unlikely to recognize the instrument as having intermediate equity content once its economic maturity falls below 20 years, which would occur after its first reset date. "Until its first reset date, we expect to classify the instrument as having intermediate equity content. We could revise our assessment if we think that the issuer is likely to call the instrument because it is about to lose the intermediate equity content." DECO 11-UK: Fitch Lowers Rating on 6 Tranches to 'Dsf' ------------------------------------------------------ Fitch Ratings downgraded DECO 11- UK Conduit 3 plc, as follows: DECO 11 - UK Conduit 3 plc - Class A1-A XS0279810468; LT Downgraded to Dsf - Class A1-B XS0279812597; LT Downgraded to Dsf - Class A2 XS0279814452; LT Downgraded to Dsf - Class B XS0279815426; LT Downgraded to Dsf - Class C XS0279816580; LT Downgraded to Dsf - Class D XS0279817398; LT Downgraded to Dsf TRANSACTION SUMMARY The transaction was originally the securitisation of 17 commercial mortgages originated by Deutsche Bank AG (BBB/Evolving) secured on 56 UK properties. On the legal final maturity date (January 27) the issuer failed to repay the notes, which constituted a note event of default, with three loans still outstanding, the GBP216.4 million Mapeley Gamma, GBP37.1 million Wildmoor Northpoint Ltd and GBP7.4 million CPI Retail Active Management loans. All three loans were in special servicing with Solutus Advisors (SA). While in special servicing, the borrowing vehicles have been acquired by an affiliate of SA with whom a global discounted payoff (DPO) of GBP120 million has just been executed. As a result, on 4 February, in return for releasing its security rights and claims against the borrowing vehicles, the special servicer is understood to have received the DPO lump sum net of costs (including amounts owed to SA). These amounts are expected to be applied to the loan and the proceeds paid to noteholders shortly. KEY RATING DRIVERS As the issuer defaulted on its obligations, Fitch has downgraded all the notes to 'Dsf'. RATING SENSITIVITIES Not applicable. The ratings will be withdrawn within 11 months. 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 a minimal credit impact on the DECO 11- UK Conduit 3 plc either due to their nature or the way in which they are being managed by the DECO 11- UK Conduit 3 plc FLYBE: Deal Not Roadmap for State Support for Airlines, Fitch Says ------------------------------------------------------------------ The recent rescue deal between the UK government and Flybe's shareholders is unlikely to set an industry-wide precedent of state involvement in shoring up airlines on the brink of collapse, Fitch Ratings says. Recent defaults of European airlines mostly resulted in asset sales and liquidations, with several cases when companies were acquired to avoid default. Air Berlin, Transaero, Monarch, Flybmi, Primera Air and Thomas Cook are among ceased operations. This is unlike US airlines, which tend to use bankruptcy procedures to streamline their businesses and remain operational. Some European airlines, especially state-owned air carriers in central and eastern Europe, receive state support, but this is primarily provided to support them during financial restructuring or the administration process. Air Berlin and Alitalia also received state loans during the bankruptcy procedure. Alitalia is still in administration. Fitch saiD: "We believe the UK government's participation in the Flybe deal was driven by the company's role in providing regional connectivity in the UK, its importance for smaller regional airports and local economic development. Flybe accounts for almost half of the UK regional air market based on seats (excluding London) followed by easyJet with over a third, according to estimates by CAPA - Centre for Aviation. The airline provides more than half the seat capacity in five of the UK regional airports it serves, including Belfast and Southampton." Flybe has been loss-making and highly leveraged for several years. The company was implementing operational restructuring when it was rescued in 2019 through the acquisition by Connect Airways, a consortium of Virgin Atlantic (30%), Stobart Group (30%) and Cyrus Capital (40%). This year's rescue deal with the government, the details of which have not yet been fully disclosed, is likely to provide a short-term relief to the company. As announced by Stobart Group, the government agreed to review air passenger duty (APD) and regional connectivity and Flybe's shareholders will provide further financial funding (including up to a GBP9 million commitment from Stobart). Some news reports also indicate a potential deferral of the company's APD payments and a state loan. However, there are also reports that rival airlines may challenge the government's participation in the deal. The APD deferral and liquidity injections, if implemented, will provide a short-term liquidity boost to Flybe. The reduction of APD may incentivise air travel and underpin the company's load factor (which was relatively low at 75.6% in the financial year to end-March (FY18), even given its regional focus). APD accounts for more than 15% of Flybe's average fare, but can reach up to 50% of some fares. However, more fundamental restructuring is needed, in Fitch's view, to put Flybe on a sustainable path to recovery. The likely tougher operating environment in 2020 will continue to threaten financially weaker airlines. Flybe's geographic concentration (the UK accounted for 84% of revenue in FY18) and currency-risk exposure (because fuel costs and a high portion of its debt are US dollar-denominated) would add to downside risks. Therefore, Fitch believes a more competitive cost position and operational restructuring (including fleet and route optimisation, improved customer proposition and fare segmentation) would be required for longer-term stabilisation. The focus on costs is also important because of the still-fragmented and highly competitive airline market, Flybe's direct competition with cars and rail, and its relatively low load factor, which may limit the scope of its revenue initiatives. However, on some routes with direct rail competition, rail trips are more expensive and time consuming. GUNSYND PLC: Investee May Require Deep Discounted Rights Issue -------------------------------------------------------------- Adriano Marchese at Dow Jones reports that Gunsynd PLC said on Feb. 7 that a company in which it has a legacy minority stake will require a deep discounted rights issue, or place itself into administration. According to Dow Jones, the natural resources-focused investment company said it was notified by Brazil Tungsten Holdings Ltd. -- in which it has a 6.18% shareholding -- that it has very constrained working capital and to continue its operations in Brazil it will have to consider a discounted rights issue or place itself into administration. Gunsynd would have to either partake in any share placing to avoid "very significant" dilution, or conversely have its interest in the company reduce to zero in the case of administration, Dow Jones discloses. The company said BTHL has a current written down value on Gunsynd's balance sheet of GBP400,000 (US$518,399) which represents around 17% of Gunsynd's net asset value for the year ended July 31, 2019, Dow Jones relates. Gunsynd PLC, formerly Evocutis plc, is an investing company. The Company operates in investment activities segment. The Company's principal activity is that of investing by focusing on acquiring companies and/or projects within the natural resources sector. KENSINGTON MORTGAGE 2007-1: Fitch Hikes Class B2 Debt to BBsf ------------------------------------------------------------- Fitch Ratings upgraded six tranches of Kensington Mortgage Securities plc - Series 2007-1's (KMS07) notes and affirmed the others. RATING ACTIONS Kensington Mortgage Securities plc. - Series 2007-1 Class A3a XS0292638920; LT AAAsf Affirmed; previously at AAAsf Class A3b XS0292650974; LT AAAsf Affirmed; previously at AAAsf Class A3c XS0292652756; LT AAAsf Affirmed; previously at AAAsf Class M1a XS0292639225; LT AA-sf Upgrade; previously at A+sf Class M1b XS0292651196; LT AA-sf Upgrade; previously at A+sf Class M2b XS0292639654; LT A+sf Upgrade; previously at BBB+sf Class B1a XS0292639902; LT A-sf Upgrade; previously at BB+sf Class B1b XS0292651436; LT A-sf Upgrade; previously at BB+sf Class B2 XS0292640157; LT BBsf Upgrade; previously at Bsf TRANSACTION SUMMARY KMS07 is a securitisation of non-conforming residential mortgages on properties located in England, Wales and Scotland. It was originated by Money Partners Limited (MPL), Money Partners Loans Limited (MPLL) and Kensington Mortgage Company Limited (KMC). KEY RATING DRIVERS New UK RMBS Rating Criteria The rating actions reflect the application of the new UK RMBS Rating Criteria dated 4 October 2019. The notes' ratings have been removed from Under Criteria Observation. The portfolio is composed of both owner-occupied and buy-to-let (BTL) loans. Fitch analysed the two sub-pools under the new criteria using its non-conforming and BTL assumptions, respectively. The upgrades of the class M1a, M1b, M2b, B1a, B1b and B2 notes result mainly from the reduction of the weighted-average foreclosure frequency (WAFF) after applying the performance adjustment factor and switching the BTL sub-pool to BTL assumptions from the non-conforming assumptions used previously under the old criteria. Increasing Credit Enhancement (CE) The transaction's cash reserve is non-amortising due to an irreversible trigger breach. As a result, CE for all notes continues to increase, even though the notes are currently amortising on a pro-rata basis. Fitch's analysis showed the CE available to protect against expected losses was sufficient to withstand the relevant rating stresses, leading to the affirmations and upgrades. Interest-only (IO) Concentration The transactions are exposed to concentration of IO loans maturing within a three-year period during the lifetime of the transaction. For the owner-occupied sub-pool the IO concentration WAFF is lower than the standard portfolio WAFF. As a result, the IO concentrations do not constrain the notes' ratings. Increasing Arrears As of November 2019, three month-plus arrears stood at 12.61% up from 11.36%, in February 2019. Repossessions have also only increased at a moderate rate over the last 12 months. RATING SENSITIVITIES Ratings are sensitive to the owner-occupied-IO loan maturity profile and in particular the ability of borrowers to redeem such loans on a timely basis. MONTE DEI PASCHI: Impaired Loan Disposal Could Be Credit Positive ----------------------------------------------------------------- Banca Monte dei Paschi di Siena's (MPS; B/Stable) potential disposal of a large portion of its impaired loans could be credit positive for the Italian bank, depending on the capital impact, Fitch Ratings says. If the transfer price is close to the book value of the loans, avoiding significant capital erosion, completion of the disposal could lead to an upgrade. Italy's Ministry of Finance (MEF), MPS's largest shareholder with a 68% stake, is in advanced talks with the European Commission to transfer about EUR10 billion of impaired loans, reportedly to AMCO, the state-owned credit management company. The Commission could approve the plan this month, according to press reports. The disposal would reduce MPS's gross Stage 3 loans ratio to below 5% from 12.4% at end-2019, well below the Italian industry average of about 8% and within the European Banking Authority's 5% threshold above which banks must submit an impaired loans reduction strategy. Fitch would raise its assessment of MPS's asset quality (currently 'b') as a sub-5% ratio corresponds to an asset-quality score of at least 'bb'. Lower capital encumbrance by unreserved impaired loans could also lead to a higher score for capitalisation and leverage (currently 'b'), provided MPS maintained adequate capital buffers. MPS accessed the institutional funding markets in 2019 and January 2020, completing several covered, senior preferred and subordinated bond issuances. The bank also reimbursed EUR4 billion of the government-guaranteed bonds that it issued in 2017 and pre-funded the remaining EUR4 billion of these, which are due to expire in March 2020. Fitch considers these steps as evidence of normalisation of MPS's funding, which could contribute to a rating upgrade. MPS's pre-tax income turned modestly positive in 2019 thanks to lower operating and restructuring costs, but the bank's ability to generate revenue remains weak and a large write-down of deferred tax assets resulted in a net loss of about EUR1 billion (but no impact on regulatory capital ratios). AMCO (BBB-/Rating Watch Positive) is set to receive the transferred impaired loans. Media reports say that the transaction could take the form of a demerger given the state's involvement in both MPS and AMCO, and that it could include about EUR5 billion of legal claims against MPS, most of which is unreserved. The Commission, however, would only authorise a transaction that complied with European state-aid rules given the Italian state's ownership interests in both entities. Once freed from most of its impaired loans and legal claims, MPS could play a role in domestic consolidation, given its still important domestic commercial franchise. Parties interested in a merger may include second-tier domestic banks seeking to achieve economies of scale and international private equity funds. However, Fitch believes foreign banks are less likely to want to enter the Italian market. As part of MPS's precautionary recapitalisation in 2017, the MEF agreed with the Commission to divest its stake in MPS by end-2021. The MEF's divestment plan should be presented in the next few months. RMAC SECURITIES 2007-NS1: Fitch Hikes Rating on 2 Tranches to BB+ ----------------------------------------------------------------- Fitch Ratings took the following rating actions on RMAC Securities No.1 Plc Series 2006-NS3, 2006-NS4 and 2007-NS1: RMAC Securities No.1 Plc (Series 2006-NS3) - Class A2a XS0268014353; LT AAAsf Affirmed - Class M1a XS0268021721; LT AAsf Affirmed - Class M1c XS0268024071; LT AAsf Affirmed - Class M2c XS0268027769; LT A+sf Upgrade RMAC Securities No.1 Plc (Series 2006-NS4) - Class A3a XS0277409446; LT AAAsf Affirmed - Class M1a XS0277411004; LT AA-sf Affirmed - Class M1c XS0277437223; LT AA-sf Affirmed - Class M2a XS0277457841; LT A+sf Upgrade - Class M2c XS0277445671; LT A+sf Upgrade - Class B1a XS0277450838; LT BB+sf Upgrade - Class B1c XS0277453691; LT BB+sf Upgrade RMAC Securities No.1 Plc (Series 2007-NS1) - Class A2a XS0307493162; LT AAAsf Upgrade - Class A2b XS0307489566; LT AAAsf Upgrade - Class A2c XS0307505601; LT AAAsf Upgrade - Class M1a XS0307496264; LT A+sf Upgrade - Class M1c XS0307506674; LT A+sf Upgrade - Class M2c XS0307511591; LT Asf Upgrade - Class B1a XS0307500479; LT BB+sf Upgrade - Class B1c XS0307512219; LT BB+sf Upgrade TRANSACTION SUMMARY The RMAC series are securitisations of buy-to-let and non-conforming residential mortgages originated by GMAC-RFC (now called Paratus AMC). KEY RATING DRIVERS Under Criteria Observation Resolution The rating actions take into account the new UK RMBS Rating Criteria dated 4 October 2019. The notes' ratings have been removed from Under Criteria Observation. The portfolios of RMAC 2006-NS3, RMAC 2006-NS4 and RMAC 2007-NS1 contain a majority of owner-occupied non-confirming loans and a small portion of buy-to-let (BTL) loans (less than 5%). Therefore, Fitch applied its non-conforming assumptions only and did not consider the BTL sub-pools in line with its UK RMBS Rating Criteria. The rating actions mainly result from the reduction of the non-conforming sub-pool's weighted-average foreclosure frequency. Building Credit Enhancement (CE) The notes issued across the transactions are currently paying on a pro rata basis, but the reserve funds are non-amortising due to breaches of performance trigger. This has led to a gradual increase in CE that drove the upgrades of the notes. Absence of Basis Hedge The portfolios include 55.3% (RMAC 2006-NS3), 60.7% (RMAC 2006-NS4) and 57.1% (RMAC 2007-NS1) unhedged loans linked to the Bank of England Base Rate (BBR); Fitch has applied the BBR stresses as described in its criteria. The analysis showed that the structures are able to withstand tighter revenue streams resulting from the absence of basis risk hedging mechanisms. Interest-only maturities The three transactions include high percentages of owner-occupied interest-only (IO) loans, which is typical for pre-crisis non-conforming deals. Fitch reviewed the maturity schedule of these loans relative to the note legal final maturity dates to assess the extent to which the ratings may be affected by delayed repayment of owner-occupied IO loans. Fitch found that postponing the maturity dates of these loans by two years has no impact on the current ratings. Tail risk, Excessive Counterparty Exposure The upgrades of the mezzanine and junior classes of the three transactions have been limited by Barclays Bank's Long-Term Issuer Default Rating (A+/Stable/F1). Fitch believes that the lack of a mandatory switch to a sequential amortisation of the notes in the late stages of the transactions could lead to an excessive dependence on the reserve fund held with the account bank. The reserve fund could be the only source of CE in scenarios where the collateral performance deteriorates but remains within the conditions for pro-rata payments. RATING SENSITIVITIES Adverse changes in the frequency of foreclosure and resulting losses on the sale of the underlying properties that lead to an erosion in the CE beyond those incorporated in Fitch's stresses may lead to downgrades for the remaining transactions. Equally, further improvements in asset performance and build-up in CE may lead to an upgrade. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is typically a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the transactions, either due to their nature or the way in which they are being managed by the transaction. RMAC Securities No.1 Plc Series 2006-NS3, 2006-NS3 and 2007-NS1 have an ESG Relevance Score of 4 for Human Rights, Community Relations, and Access & Affordability due to exposure to accessibility to affordable housing which, in combination with other factors, impacts the rating. RMAC Securities No.1 Plc Series 2006-NS3, 2006-NS3 and 2007-NS1 have an ESG Relevance Score of 4 for Customer Welfare - Fair Messaging, Privacy & Data Security due to exposure to compliance risks including fair lending practices, mis-selling, repossession/foreclosure practices, consumer data protection (data security) which, in combination with other factors, impacts the rating. TALKTALK TELECOM: Fitch Rates Proposed GBP500MM Notes BB-(EXP) -------------------------------------------------------------- Fitch Ratings assigned TalkTalk Telecom Group PLC (BB-/Stable) proposed GBP500 million notes an expected rating of 'BB-(EXP)'. The final rating is contingent upon receipt of final documents conforming materially to the preliminary documentation reviewed. The notes represent a senior unsecured obligation of the issuer with a tenor of five years. TalkTalk intends to use the proceeds of the transaction to fully redeem the existing GBP400 million notes that were due to mature in 2022 and pay down GBP87 million of other debt. Combined with the proceeds from the sale of FibreNation, TalkTalk's other debt is expected to reduce to GBP105 million from GBP380 million. Following the completion of the transaction and sale of FibreNation, Fitch expects TalkTalk's pro-forma funds from operations adjusted net leverage to reduce to 3.6x by FY20 (financial year ending March) from 4.4x in FY19. KEY RATING DRIVERS FibreNation Sale: TalkTalk announced in January its intention to sell FibreNation and its shareholding in Bolt Pro Tem Limited to CityFibre for an aggregate cash consideration of GBP200 million. The transaction is conditional on shareholder approval and is expected to close in March 2020. In addition, TalkTalk will enter into a long-term wholesale agreement with CityFibre for rental of fibre to the premise lines. The agreement will gradually reduce the company's dependence on Openreach for access to the local loop. Fitch believes there is a high probability that transaction will complete and has adjusted its base case forecasts to include the proceeds from the sale. Proceeds Used to Reduce Debt: Fitch expects TalkTalk to use the majority of the proceeds from the sale of its fibre assets to reduce debt. Fitch consequently expects TalkTalk's FFO adjusted net leverage to decrease to about 3.6x in FY20 and FY21 (financial year ending March) from 4.4x in FY19 and below the downgrade thresholds of the rating. The company's short-term free cash flow (FCF) excluding asset sales, will be constrained by higher working capital requirements, cash tax increases and exceptional restructuring costs. Building Capital Structure Discretion: Fitch's base case forecasts envisages that TalkTalk's organic deleveraging capacity will grow to around 0.2x FFO adjusted net leverage per year from FY22. This assumes the company's dividend payments remain stable. The deleveraging capacity will increase the company's financial flexibility and ability to manage unforeseen operational pressures. Fitch views retaining this capacity as important for the company's credit profile, due to risks relating to changes in the competitive and regulatory environment that could impact gross margins, cost to grow, churn and pricing. These risks have driven a more cautious approach to its medium- to long-term forecasts for the company in its base case scenario. Sizeable Position, Low Margins: TalkTalk has around 4.2 million broadband subscribers in the UK and a market share that Fitch estimates to be about 16%. The company has a value-for-money product proposition that appeals to a cross-section of the UK telecoms market. TalkTalk also operates national telecoms infrastructure with local access that is largely achieved through the purchase of regulated wholesale products, largely from incumbent BT Group Plc. The company's current scale drives a business model with fairly low operating and pre-dividend FCF margins (7%-8% and negative 3%, respectively, over the next two years). This leaves little room for manoeuvre and exposes the financials to competitive risks in the sector Slowing Growth, Competitive Market: Fitch estimates that growth in total UK broadband market lines by December 2019 will have slowed to around 1% from an average of 2%-3% over the preceding four years. The slowdown makes growing TalkTalk's subscriber base harder as it increasingly depends on the churn of other operators and sustaining its existing customer base. Many of TalkTalk's competitors operate sizeable convergent telecoms platforms, targeting multiple market segments with investments in exclusive content and stronger operating margins. Gradually Improving Key Performance Indicators: TalkTalk's 1H19 results indicate that company has sustained improvements in a number of operational areas such as churn, fibre subscriber net additions, growth in higher-margin elements of the corporate segment and reductions in operating expenses. The sustainability of these improvements over the next two to three years is key for stability of revenue and lower cost structure. Cost Structure Realignment: TalkTalk's current cost structure is too heavy given its scale, investment requirements and costs to grow and retain market share. The company has successfully repositioned its strategy to focus primarily on fixed broadband and is upgrading its network. This should allow it to simplify operations and reduce costs. TalkTalk has reduced its headcount and relocated the bulk of its London-based operations. The company estimates that this will release GBP25 million to GBP30 million in annualised opex and capex savings. TalkTalk will need to maintain improvements in other aspects of its cost structure to enhance the sustainability of its business model. Long-Term Business Model Unknowns: The continued growth of fibre-based broadband lines creates some uncertainties about TalkTalk's future product mix and cost structure. Fibre-based local access lines, while benefiting from higher average revenue per user (ARPU), also have higher regulated wholesale costs. The growth of fibre could imply TalkTalk's business model may change to incorporate a greater mix of variable costs with lower operating margins. The company should be able to offset lower margins through reduced network capex at the FCF level. Visibility of the eventual outcome for TalkTalk is currently low but improving. DERIVATION SUMMARY TalkTalk's rating reflects a sizeable broadband customer base and the company's positioning in the value-for-money segment within a competitive market structure. TalkTalk's operating margins are below the telecoms sector average. This largely reflects an unbundled local exchange network architecture and dependence on regulated wholesale products for 'last-mile' connectivity. The company is less exposed to trends in cord 'cutting' or 'shaving' where consumers trade down or cancel pay-TV subscriptions in favour of alternative internet or wireless-based services. However, TalkTalk's business model faces some uncertainties in its long-term cost structure as a result of increasing fibre-based products, evolving regulation and a continued need to improve its cost to serve. Peers such as BT Group Plc (BBB/Stable) and Virgin Media Inc. (BB-/Stable) benefit from various combinations of full local loop network access ownership, and/or greater revenue diversification as a result of scaled positions in multiple products segments, such as mobile and pay-TV, and higher operating margins. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Revenue decline of 4% in FY20, growth of about 1% in FY21 and around 2% FY22-FY23; - EBITDA margin about 16.5% in FY20 gradually increasing to just under 18% by FY23; - Capex-to-sales ratio of around 7.5% FY20-FY23; - Increase in working capital of GBP80 million in FY20 and GBP40 million in FY21; - Gross proceeds of GBP200 million from the sale of FibreNation largely used to reduce gross leverage; - Stable dividends of GBP28 million per year; and - A blended operating lease multiple of 5.3x. RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action - Strong operational performance leading to high-single digit pre-dividend FCF margin - Comfortable liquidity headroom and FFO fixed charge cover above 3.0x - FFO adjusted net leverage sustainably below 3.3x Developments that May, Individually or Collectively, Lead to Negative Rating Action - A material deterioration in key performance indicators or an increase in competitive intensity in the UK broadband market - A contraction in pre-dividend FCF margin to low single digits - Shrinking liquidity headroom or FFO fixed charge cover being sustained below 2.5x - FFO adjusted net leverage sustained above 3.8x. LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: As of end FY19, the company had access to total committed revolving credit facilities of GBP640 million (undrawn GBP292 million). The group's debtor securitisation of GBP75 million is partly drawn (GBP61 million drawn) and Fitch expects the company to roll this over when it comes due in FY20. Fitch's base case forecasts envisage that TalkTalk will be FCF negative in FY20, with FCF turning positive from FY21. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. ********* 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. 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