/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200220.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 Thursday, February 20, 2020, Vol. 21, No. 37 Headlines F R A N C E RENAULT SA: Moody's Lowers Unsec. Note to (P)Ba1, Outlook Stable L U X E M B O U R G SK INVICTUS II: Fitch Affirms B+ IDRs & Alters Outlook to Negative N E T H E R L A N D S SPECIALTY CHEMICALS: Moody's Affirms B1 CFR; Alters Outlook to Pos SPECIALTY CHEMICALS: S&P Alters Outlook to Pos. & Affirms 'B+' ICR S P A I N RURAL HIPOTECARIO I: Moody's Upgrades EUR12.8MM Cl. D Notes to B2 U N I T E D K I N G D O M BEALES: Set to Close 11 Remaining Department Stores HOUSE OF FRASER: TPR Finds No Evidence of Wrongdoing After Probe LAUNDRAPP: Inc & Co Acquires Business Following Administration MONSOON ACCESSORIZE: To Close Freshney Place Branch Next Month NEWGATE FUNDING 2006-2: Fitch Affirms BB+sf Rating on Cl. E Debt SIRIUS MINERALS: Odey to Oppose Anglo American's Rescue Bid WHYTE CRANE: Enters Administration, 11 Jobs Affected - - - - - =========== F R A N C E =========== RENAULT SA: Moody's Lowers Unsec. Note to (P)Ba1, Outlook Stable ---------------------------------------------------------------- Moody's Investors Service downgraded Renault S.A.'s long-term ratings to Ba1 and its short-term ratings to non-prime. The outlook remains stable. The downgrade to Ba1 was triggered by Renault's substantially weakened operating performance reported for the year 2019 to a level no longer commensurate with the Baa3 rating category. Based on the company's 2020 guidance anticipating a further decline in the group's operating margin and the continuing weakness of the market environment, Moody's does not expect that Renault will be able to restore healthy operating margin levels in the medium term. RATINGS RATIONALE The operating profitability of Renault's automotive segment has eroded substantially over the last two years, following a period of successive margin improvements supported by ongoing cost-efficiency measures and strong revenue growth. Resulting from a combination of declining volumes, increasing R&D expenses and unfavourable raw material price developments, Renault's automotive operating income margin has deteriorated to 1.7% in 2019 from 3.3 % in 2018 (4.7% in 2017) and is significantly below its expectations for the Baa3 rating category. Moody's anticipates that Renault's automotive operating income margin will decline further to below 1.0% in 2020 and remain under pressure for an extended period. The cost to comply with CO2 regulation in the European Union (EU) and the ongoing electrification of Renault's fleet will have further dilutive effects on profitability. Moody's expects that the material required capital expenditures to weather these challenges will continue to absorb large amounts of cash leading to a substantially negative free cash flow (Moody's definition) of around EUR2 billion in 2020. In previous years, partly through rigid working capital management, Renault generated consistently positive free cash flows before turning to negative EUR0.5 billion in 2019. In addition to the weakness in Renault's operating performance, the at-equity contribution from its investments in Nissan Motor Co., Ltd (Nissan, A3 negative) has also declined sharply. Historically, Nissan's earnings contribution accounted for more than half of Renault's EBITA (as defined by Moody's) on average and has been a supportive factor for Renault's credit metrics. Moody's also considers the challenges related to Environmental, Social and Governance factors, including the megatrends in the automotive industry towards alternative fuel vehicles and autonomous driving. Moody's expects that Renault, as it is the case for its peers, will be required to make sizeable investments over the coming years to cope with these challenges, particularly in run-up to the upcoming stricter CO2 emissions regulation within the EU in 2020/21. While Moody's considers the company's plans to achieve compliance with the stricter emissions regulation as feasible, Moody's cautions that the powertrain mix of its vehicle sales is not entirely in Renault's control and to some degree dependent on consumer acceptance of its electrified model lineup. STABLE OUTLOOK The stable outlook anticipates that Renault will be able to restore its operating profitability as measured by the Moody's-adjusted EBITA margin (excluding Nissan contribution) to above 2% within the next 12-24 months and maintain its Moody's-adjusted Debt/EBITDA ratio below 4.0x. The stable outlook also anticipates a continuation of Renault's prudent financial policy, good liquidity profile and balanced debt maturity profile. The stable outlook further reflects Moody's expectation that Renault's business setup has the capacity to contend with the long-term cyclicality within the global light vehicle markets and its challenging landscape as a result of heavy investment requirements for (1) alternative propulsion technologies; (2) driverless vehicles; (3) connectivity as well as (4) regulations relating to vehicle safety, emissions and fuel economy. WHAT COULD CHANGE THE RATINGS DOWN Although an upgrade is not likely in the near term, Moody's would consider upgrading Renault's ratings in case of (1) Moody's-adjusted EBITA margin excluding the at-equity contribution of Nissan sustainably increasing towards the mid-single digits (in percent terms), (2) Moody's-adjusted Debt/EBITDA were to decrease below 3.0x, or (3) FCF generation were to become sustainably positive. Downward pressure on Renault's ratings could arise in case (1) of inability to restore Moody's-adjusted EBITA margin excluding the at-equity contribution of Nissan to above 2% , (2) Moody's-adjusted Debt/EBITDA were to consistently exceed 4.0x, or (3) FCF were to remain materially negative for a prolonged period. Further, a more aggressive financial policy or weakening of Renault's liquidity could also trigger a downgrade. LIQUIDITY Renault's liquidity profile is good. As of December 31, 2019, Renault's principal sources of liquidity consisted of (1) cash and cash equivalents on the balance sheet, amounting to EUR12.3 billion; (2) undrawn committed credit lines of EUR3.5 billion; (3) current financial assets of EUR1.2 billion; and (4) expected positive funds from operations over the next 12 months. These cash sources provide good coverage for liquidity requirements that could arise during the next 12 months. These requirements consist of short-term debt maturities of around EUR1.3 billion, capital expenditure of around EUR4.5 billion, working capital funding, day-to-day needs and expected dividend payments. LIST OF AFFECTED RATINGS: Issuer: Renault S.A. Downgrades: Other Short-Term, Downgraded to (P)NP from (P)P-3 Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba1 from (P)Baa3 Commercial Paper, Downgraded to NP from P-3 Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 from Baa3 Reinstatements: LT Corporate Family Rating, Reinstated to Ba1 Probability of Default Rating, Reinstated to Ba1-PD Withdrawal: LT Issuer Rating, Withdrawn , previously rated Baa3 Outlook Actions: Outlook, Remains Stable Moody's has decided to withdraw the ratings for its own business reasons. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Automobile Manufacturer Industry published in June 2017. CORPORATE PROFILE Headquartered in Boulogne-Billancourt, France, Renault S.A. is Europe's third-largest car manufacturer by unit sales. In addition to the Renault brand, the company manufactures cars under the Dacia, Renault Samsung Motors (South Korea), Alpine and Lada (Russia) brands. In 2019, the company sold close to 3.8 million vehicles and reported total revenue of EUR55.5 billion. Renault currently holds a 43.4% equity stake in Nissan Motor Co., Ltd. =================== L U X E M B O U R G =================== SK INVICTUS II: Fitch Affirms B+ IDRs & Alters Outlook to Negative ------------------------------------------------------------------ Fitch Ratings affirmed the IDRs of SK Invictus Intermediate II s.a.r.l. and its parent SK Invictus Intermediate s.a.r.l. at 'B+.' Fitch has also downgraded Intermediate II's first-lien senior secured revolving credit facility and first-lien senior secured term loan to 'BB'/'RR2' from 'BB+'/'RR1' and downgraded Intermediate II's second-lien secured term loan to 'B-'/'RR6' from 'B'/'RR5'. The Rating Outlook is Negative. The Negative Outlook reflects Perimeter's elevated leverage profile and near-term covenant risk stemming largely from an unusually slow third-quarter (Q3) 2019 U.S. wildfire season, as well as a weaker earnings year in oil additives due to general global economic uncertainty and customer production issues. The 'B+' rating considered the potential for weak fire seasons; however, these were anticipated later in the rating horizon when projected leverage metrics were lower and financial flexibility was higher. Fitch recognizes that the company benefited from a strong Q4 2019 into 2020 due to demand from the Australian fires, which is expected to result in above average quarterly results and improve the leverage profile and enhance financial flexibility. Fitch anticipates resolving the Outlook within 12 months. Over the first half of 2020, Fitch will monitor the company's ability to achieve earnings more consistent with its historical profile and convert its working capital into cash in order to begin repaying its outstanding revolver balance and significantly reduce its covenant risk. Following that, a return to a more normalized Q3 fire season and financial flexibility profile consistent with Fitch's previous expectations over the rating horizon would likely result in a stabilization of the Outlook. The ratings reflect the company's leading market positions and the expectation that 2020 will return to a normalized U.S. fire season resulting in substantial FCF generation that Fitch projects will initially be prioritized towards gross debt reduction. This is anticipated to enhance financial resiliency consistent with 'B+' rating tolerances during future weak fire seasons. Furthermore, management indicated that the customer production issues the company saw in 2019 within oil additives has subsided, and that demand should pick back up within additives as customers re-stock inventories. Any continued weakness in oil additives in 2020 should be offset by the strong Q1 performance within fire safety due to the Australian fires. Fitch believes the company will de-lever through a combination of near-term debt repayment and EBITDA growth to a gross leverage ratio of under 5.0x long-term, which is consistent with the current 'B+' rating. KEY RATING DRIVERS Weak 2019 U.S. Fire Season: 2019 represented a historically weak North American fire season in Q3. EBITDA totaled less than a third of the amounts generated in each of the prior two seasons, resulting in an elevated LTM leverage metric. However, the company's fire safety segment rebounded in Q4 2019 and into Q1 2020 due the recent fires in Australia and California. Fitch believes that 2018 represents a normal earnings year within fire safety, and projects the company will average that type of earnings profile throughout the forecast period, with additional upside potential stemming from diversification into new regions, USFS initiatives to increase tanker capacity and pre-treatment measures taken by utilities and homeowners. Customer De-stocking, Production Issue Pressured Oil Additives: Perimeter's position in the lubricant additives market has historically enabled it to post consistent EBITDA generation, with strong forecast FCF due in part to the segment's minimal capex requirements. However, this segment saw volumes pressured in 2019 due to a combination of customer de-stocking during a period of global economic uncertainty and production issues with one of its key customers. Management indicated that the customer production issues have been resolved, and that orders have started and expected to continue to improve in 2020 as customers re-stock inventories and the lubricant additives industry returns to a more normalized demand profile. While the rise of electric vehicles poses a long-term threat to demand, Fitch views this risk as outside of the ratings horizon. It is likely to take at least close to a decade for there to be any material turnover in global car parc. Furthermore, lubricant additives improve fuel efficiency, which further insulates the industry against the global trend toward electric vehicles. Near-Term Covenant Pressure: Recent weakness in both of the company's segments resulted in elevated leverage that puts it at a near-term risk of breach. With business fundamentals exhibiting recent strength and a return to historical levels and a higher level of inventory stemming from reduced demand, Fitch believes that the company will be able to effectively manage its working capital to generate cash and begin repaying the borrowing on its revolver within the first half of 2020, improving its leverage profile and significantly reducing its risk of breach given the revolver drawing threshold on its leverage covenant. Additionally, the company is expected to benefit from a stronger than average Q4 and Q1 in its fire safety segment as a result of the fires in Australia, which should also improve near-term earnings and cash flow. Substantial FCF Generation: Beginning in 2020 and thereafter, Fitch projects Perimeter Solutions will generate around $50 million on average of positive FCF due to the anticipation for a more normalized fire season and a return to historical demand levels within the oil additives segment. Even with considerable cash interest payments, the company benefits from high consolidated EBITDA margins and minimal capex requirements that have traditionally resulted in substantial FCF generation that is notably above the metrics of other 'B' peers. Perimeter's products are highly specialized and account for only a small portion of its customers' overall costs, which has enabled it to consistently pass on any increases in the price of its underlying raw materials helping support margin and cash flow resiliency. Heightened Leverage: Fitch projects Perimeter's gross leverage ratio will remain elevated through 2021 due to the substantial amount of debt the company took on when it was purchased by SK Capital from Israel Chemicals Ltd. and Fitch's expectations for slower than previously projected EBITDA growth following a weaker 2019 within both of its business segments. This highly levered position adds credit risk to an otherwise generally strong operating profile. Fitch believes Perimeter will effectively manage its liquidity in the near term and de-lever its balance sheet to a gross leverage ratio of under 5.0x long term through a combination of EBITDA growth and debt repayment. Failure to delever in line with Fitch's projections, continued volatility in the Fire Safety segment and/or leveraging acquisitions/dividend activity would likely put downward pressure on the company's IDR. DERIVATION SUMMARY Perimeter Solutions is relatively small and more highly levered when compared to chemical peers such as Kronos Worldwide (B+/Stable), Ingevity Corp. (BB/Stable) and SK Blue Holdings LP (B/Stable). Perimeter's main differentiating factors from its peer group are its highly specialized products and leading market positions within each of its segments that typically lead to higher EBITDA margins and strong FCF generation far above the average for most peers. As such, Perimeter is able to support a higher debt load than a peer such as Kronos, who sells more commoditized products and has less of a leadership position in its industry. SK Blue Holdings is projected to have a similar mid-cycle leverage profile to Perimeter, but has less growth opportunities in its end-markets and its margin expansion opportunities are more cost-linked. Perimeter's typically substantial FCF generation compares with Ingevity given leading positions within Perimeter's fire safety and Ingevity's Performance Chemicals segments, and Perimeter could see upward pressure on its IDR should it see gross leverage sustained below 4.5x. KEY ASSUMPTIONS - Fire Safety sees return to average fire season in 2020 with growth thereafter in the mid-single digits; - Oil Additives grow mid-single digits in 2020 on recouping of lost volumes from customer production issues and high single- digit growth thereafter through 2022 given continued customer re-stocking and a return to normalized earnings within the segment; - Capex between 2%-3% of sales annually; - Debt repayment and EBITDA growth leading to gross leverage around 5.0x by 2021. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action -Consolidated EBITDA sustained above $130 million and/or consolidated EBITDA margins sustained above 40%; -Total debt with equity credit/operating EBITDA sustained below 4.5x; or FFO-adjusted leverage sustained below 5.0x; -FCF margin sustained around current levels. Fitch would likely Stabilize the Outlook within 12 months as a result of the following: --Company is able to achieve earnings more consistent with its historical profile and convert its working capital into cash in order to begin repaying its outstanding revolver balance and significantly reduce its covenant risk over the first half of 2020; -- A return to a more normalized Q3 fire season that results in a more resilient financial profile. Developments That May, Individually or Collectively, Lead to Negative Rating Action -Limited progress in repaying its outstanding revolver balance and improving business results that significantly reduce its covenant risk; -Expectations of total debt/EBITDA above 5.0x at the end of 2020; -Operating pressure within the Fire Safety segment resulting in weakened EBITDA generation and FCF margin trending towards the mid-single digits; -Expectations of FFO Fixed-charge Coverage sustained at or below 2.0x. LIQUIDITY AND DEBT STRUCTURE Solid Liquidity: Beginning in 2020, Fitch projects a return toward more average fire seasons, resulting in considerable FCF that should provide Perimeter flexibility to de-lever and fund growth initiatives. The Australian fires provided the company with stronger than average earnings in Q4 2019 and into Q1 2020 which, combined with cash conversion on its working capital, should provide the company with the ability to pay down its outstanding revolver within the first half of 2020. Going forward, the company's $100 million revolver should stay mostly undrawn, with any drawdowns likely to be repaid relatively quickly. Fitch expects the company to keep around $20 million of cash on hand, which should provide a comfortable liquidity buffer. Recovery Assumptions: Fitch's recovery analysis considered the high barriers to entry, leading market positions and specialized product portfolio of Perimeter's two businesses as well as the considerable FCF generation ability of each. Fitch's $90 million going concern EBITDA assumption is made up of an assumed $25 million from the Oil Additives business and $65 million from the Fire Safety business. In Oil Additives, Fitch believes customer production issues like the one seen in 2019 could result in medium-term demand pressure. Nevertheless, the company is the market leader in a specialized product that only accounts for a small percentage of its customers' total costs. The ZDDP Perimeter provides has no readily available substitute and requires specialized equipment to safely transport. Fitch believes the generally stable demand profile of the lubricant additives industry would allow the segment to generate around $25 million in EBITDA out of a distressed period. In Fire Safety, Perimeter is the unquestioned leader, with substantial market share. The company's products are essentially the only products certified to be used by its customers, which are governmental agencies who require years of approval procedures before a new product can be used. Perimeter's products are also mission-critical, further limiting new entrants. Demand has benefitted from a structural shift toward greater use of fire retardants as well as longer fire seasons. However, should firefighting preferences or tactics change, or should fire activity dramatically decrease, the company would be vulnerable to declines in its earnings as exhibited in 2019. As such, Fitch believes a going concern EBITDA for this segment of around $65 million appropriately reflects emergence from a stressed scenario. Fitch has assigned a 7.0x recovery multiple, which is consistent with highly specialized and highly value-add specialty chemical producers such as Perimeter. The highly consolidated industries in which it operates, with high barriers to entry and the significant growth potential of the Fire Safety segment further support a higher multiple and the resulting enterprise value. Fitch reduced the multiple 1.0x versus the prior review given more variability in the earnings profile than previous expectations. With the revolver fully drawn, the first lien debt recovers at an 'RR2' rating while the second lien recovers at 'RR6'. 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 entity, either due to their nature or the way in which they are being managed by the entity. ===================== N E T H E R L A N D S ===================== SPECIALTY CHEMICALS: Moody's Affirms B1 CFR; Alters Outlook to Pos ------------------------------------------------------------------ Moody's Investors Service affirmed the B1 corporate family rating and the B1-PD probability of default rating of Specialty Chemicals International B.V., the parent company of Specialty Chemicals Holding I B.V. At the same time Moody's assigned a B1 rating to the proposed EUR475 million senior secured term loan B1 (TL B1) and the EUR100 million senior secured revolving credit facility issued by Specialty Chemicals Holding I B.V. At the same time Moody's has assigned a B1 rating to the $60 million senior secured term loan B2 issued by Polynt Composites USA, Inc. The outlook on Specialty Chemicals International B.V., Reichhold LLC2 and Specialty Chemicals Holding II B.V. was changed to positive from stable. Moody's expects to withdraw the rating for the existing EUR506 million equivalent TL once the refinancing has taken place. RATINGS RATIONALE Moody's changed the outlook to positive to reflect the EBITDA improvements in 2019 and the expectation that performance will at least be stable in 2020. In addition the rating action takes into consideration the new debt structure that retains the low gross leverage but also lowers the interest expense, which will improve FCF going forward. The company has had a good track record of deleveraging since the assignment of ratings and since closing of the merger of Polynt and Reichhold in May 2017. SCI BV has so far benefited from material merger-related synergies whose positive EBITDA effects will moderate to around EUR8 million in 2019. At the same time, the market structure for unsaturated polyester resins (UPRs) has become more consolidated with SCI BV capturing 39% of the capacity in the US and Europe in 2018 and the top 3 (5) companies accounting for 66% (80%) of the capacity. The concentrated market structure has also resulted in more price discipline supporting reported EBITDA margin expansion from 9.7% in 2017 to 11.8% in 2019 based on preliminary management reporting. This is despite softer volume and revenue development due to the weaker macroeconomic environment. 2019 volumes and revenues dropped by around 2.6%. At the end of 2019 SCI BV had a Moody's-adjusted gross debt/EBITDA leverage of around 2.7x which is below Moody's expectations for the company to maintain its ratings at the B1 level. The contemplated refinancing will not result in an increase of gross leverage as the special dividend is paid out of the existing cash balance, yet the initial distribution definition in the senior facilities agreement allows for distributions of up to EUR125 million. The company intends to repay its existing EUR506 million equivalent TL and make a proposed EUR125 million distribution to shareholders with proceeds from the issuance of EUR528 million equivalent $ and EUR term loan (B1 and B2) and a reduction of its cash balances of around EUR183 million to EUR120 million. SCI BV's cash balances at the end of December 2019 amounted to EUR303 million. Moody's does not view the reduction of the cash levels to around EUR120 million as a material deterioration of the company's liquidity profile as ample means of liquidity will be maintained, including access to a new EUR100 million undrawn RCF that the company will enter into. The RCF will be used for general corporate purposes, working capital requirements, capital expenditure and investments. The company is controlled by funds managed by InvestIndustrial and Black Diamond, which, as is often the case in private equity sponsored deals, have a higher tolerance for leverage and governance is comparatively less transparent. At the same time, from an environmental risk perspective, Moody's recognizes the benefits of low CO2 emission wind turbines for the generation of power. Although only contributing a fairly small share of revenues, SCI BV's unsaturated polyester resins (UPR), SCI BV's main product, is used in the production for wind turbine blades. As of December 31, 2018 SCI BV had provisions totalling EUR19.5 million, or less than 10% of EBITDA, for the ecological clean-up of various sites where it operates. This amount includes environmental remediation costs. STRUCTURAL CONSIDERATIONS Moody's has aligned the rating of the proposed new TLB and RCF with the B1 CFR. Debt instruments rank pari passu with all present and future senior secured indebtedness. All facilities will benefit from a guarantor coverage test of 80% consolidated EBITDA of the group. For the purpose of its debt recovery analysis under its loss-given default methodology the rating agency has assumed that the facilities are essentially unsecured given that there is no material asset pledge beyond shares, bank accounts located in the Netherlands and material long-term intercompany receivables. WHAT COULD CHANGE THE RATING UP / DOWN An upgrade requires the maintenance of Moody's-adjusted debt/EBITDA at 3.0x or below on a sustained basis and an adjusted RCF/debt ratio sustainably above 15%. Liquidity would also need to remain good and be supported by positive free cash flow. Although SCI BV already achieves these metric levels commensurate with a Ba3 Moody's has balanced this against the potential for further shareholder distributions that could result in a re-leveraging event. Should the company over the next 12-18 months set up a track record of continued strong operating performance that would allow for another shareholder distribution whilst keeping Moody's-adjusted gross leverage below 3.0x ratings could be upgraded. The ratings could be downgraded in case of a deterioration of end markets, translating into material operational and financial underperformance. Moody's-adjusted gross debt/EBITDA exceeding 4.5x on a sustained basis; Retained Cash Flow (RCF)/debt ratio below 10% on a sustained basis and any significant distribution to shareholders or corporate action, including debt funded M&A could also result in a downgrade of ratings. LIST OF AFFECTED RATINGS: Issuer: Polynt Composites USA, Inc. Assignments: BACKED Senior Secured Bank Credit Facility, Assigned B1 Outlook Actions: Outlook, Assigned Positive Issuer: Specialty Chemicals Holding I B.V. Assignments: BACKED Senior Secured Bank Credit Facility, Assigned B1 Outlook Actions: Outlook, Assigned Positive Issuer: Reichhold LLC2 Affirmations: BACKED Senior Secured Bank Credit Facility, Affirmed B2 Outlook Actions: Outlook, Changed To Positive From Stable Issuer: Specialty Chemicals Holding II B.V. Affirmations: BACKED Senior Secured Bank Credit Facility, Affirmed B2 Outlook Actions: Outlook, Changed To Positive From Stable Issuer: Specialty Chemicals International B.V. Affirmations: LT Corporate Family Rating, Affirmed B1 Probability of Default Rating, Affirmed B1-PD Outlook Actions: Outlook, Changed To Positive From Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Chemical Industry published in March 2019. COMPANY PROFILE Specialty Chemicals International B.V., headquartered in the Netherlands and parent company of Italy-based Polynt, is a large global supplier of composite resins, with competitive market shares in both the US and Europe in unsaturated polyester resins (UPRs), a chemical intermediate used as finishing protective covering and coating in the building and construction, transportation, marine and automotive industries. Revenue were around EUR2.0 billion in 2019. SCI BV reports operations in three geographic segments: Europe (45% of 2019 revenues), Americas (44%) and Asia (11%). Main shareholders are funds affiliated with Black Diamond Capital Management, L.L.C. and InvestIndustrial, two international private equity funds which own, directly and indirectly, a majority stake, split equally between the two private equity funds. SPECIALTY CHEMICALS: S&P Alters Outlook to Pos. & Affirms 'B+' ICR ------------------------------------------------------------------ S&P Global Ratings revised its outlook on Specialty Chemicals International B.V. (SCI) to positive, affirmed its 'B+' rating on SCI, and assigned its 'BB-' rating and recovery rating of '2' to the proposed TLB. Solid operating performance, stronger EBITDA, and slight debt reduction will improve leverage with increasing rating headroom. S&P said, "Although we expect SCI's volumes will have declined by about 3.5% in 2019, due to the global economic slowdown, closure of three plants in 2018-2019, and disposal of the distribution business in Canada, we forecast adjusted EBITDA (after one-off costs) will increase by more than EUR30 million to about EUR225 million in 2019 and remain at EUR220 million-EUR230 million in 2020. This stems from our assumption of favorable margins and greater-than-expected synergies from the integration of Polynt Group, which merged with the Reichhold group to form SCI. Integration efforts have resulted in an almost EUR45 million reduction of fixed costs from June 2017 to September 2019, with an additional EUR10 million to be realized by 2021. As a result, we expect leverage (FFO/debt) to improve to 22%-25% in 2019-2020, compared with the 12%-20% range commensurate with the current 'B+' rating." SCI's planned refinancing will lead to a slight reduction in gross debt and much lower interest costs. The proposed issuance of the EUR528 million-equivalent seven-year first-lien TLB is to refinance EUR506 million of outstanding senior secured term loans, pay off EUR15 million of other local debt, and repay EUR37 million of drawings on its revolving credit facility (RCF). SCI will also use cash to pay a EUR125 million dividend and refinancing transaction expenses, which it expects will reduce its cash balance by about EUR183 million to EUR120 million. SCI ended 2019 with a solid cash position, following a year of strong operating cash flow and above EUR40 million net proceeds from disposing of the distribution business in Canada in December. In addition, SCI will put in place a EUR100 million 6.5-year RCF to replace the current EUR60 million super senior RCF. Following the proposed transaction, SCI's gross debt, which S&P bases its leverage calculation on, will decrease by about EUR30 million and it expects annual interest costs to be EUR10 million-EUR15 million lower, assuming a reduction of the interest rate on the senior secured debt of about 350 basis points. S&P said, "We expect industry conditions to support improved margins. SCI's current high margin benefits from a stronger dollar in 2019, improving competitive dynamics from recent industry consolidation, and capacity rationalization, which is likely to continue in 2020. Consolidation in the composites industry has increased over the past few years, with three major global players owning 70%-80% of market share in Europe and the U.S. We expect that this, the reduction of capacity, and lack of capacity additions should support prices and margins in the future. In our view, margins might come down a bit from the peak in 2019, but stay high in 2020, given our expectation of continuously low oil prices. As a result, we expect SCI's adjusted EBITDA margin to strengthen to 11.0%-11.5%% in 2019 and remain at least at that level in 2020, compared with 9.0%-9.5% in 2018, as further synergies and declining restructuring costs more than compensate for potential cost inflation." SCI generates healthy free operating cash flow, thanks to low maintenance capital expenditure (capex) and working capital requirements. S&P said, "We expect SCI's reported free operating cash flow (FOCF) to strengthen beyond EUR70 million in 2019 on the back of higher EBITDA, lower-than-expected capex of about EUR50 million, and a working capital release of more than EUR20 million. We forecast FOCF will remain solid at over EUR60 million from 2020, although capex will increase over 2020-2021 to support expansion projects, especially in Poland and India, before returning to normal (less than 2.5% of revenue). We expect working capital requirements to remain well controlled and continue to support strong cash conversion." The owners' commitment to reducing leverage, resulting in adjusted FFO to debt staying above 20%, is key for a higher rating. SCI is owned by financial sponsors Investindustrial (45.5%) and Black Diamond Capital Management (45.5%). We understand that the group and its shareholders are committed to further reducing leverage following the proposed transaction. For example, the proposed senior secured facilities agreement limits dividend payments if the total secured net leverage ratio is higher than 1.25x, versus expected opening leverage of about 1.7x. S&P understands that neither shareholder intends to draw further dividends in the next few years and that future acquisitions will primarily be selective bolt-ons. SCI's position as the market leader in composites and resins supports its business risk profile. The group has an approximate 34% share of the niche unsaturated polyester resin (UPR) market in the U.S. and 31% in Europe by capacity. The group's global footprint, with 37 plants across all key regions, provides proximity to customers, resulting in low logistical costs and short lead times, helping differentiate SCI from competitors. Earnings volatility has reduced, thanks to SCI's vertically integrated business model and efficient raw material cost pass-through. It is the most integrated player in the UPR space. The realization of merger synergies also supports margins. The forecast adjusted EBITDA margin of 11.0%-11.5% is still below the 12%-20% average for the specialty chemicals sector, due to the competitive nature of the composites industry, which has a lot of smaller regional producers and low technological barriers to entry. That said, SCI's margin is comparable with that of the two other major global players in the composites industry, Ineos Composites and Resins and AOC Aliancys. However, SCI is exposed to cyclical end markets, especially construction (35% of group sales in 2018) and transportation (18%). The group also relies heavily on composites and resins for nearly 80% of its sales, despite a large number of customized formulas and a broad range of applications. S&P said, "The positive outlook indicates that we could raise the rating to 'BB-' if SCI continues to generate healthy EBITDA and solid FOCF in the next 12 months such that adjusted FFO to debt remains comfortably above 20% in 2020, combined with both private-equity sponsors' commitment to keeping adjusted leverage at this level. "We could raise the rating if SCI demonstrated a track record of at least maintaining its current adjusted EBITDA and profitability, while generating positive FOCF of at least EUR50 million." This could stem from supportive pricing dynamics in the industry and sustained focus on cost control. An upgrade would be contingent on FFO to debt remaining comfortably above 20% and a strong commitment from both private-equity sponsors to keeping adjusted leverage at this level. S&P could revise the outlook to stable if: -- A decline of core end markets or a loss of key customers led to a weaker-than-expected performance, resulting in adjusted FFO to debt falling below 20%; or -- In the event of a large debt-funded acquisition or further significant dividend payment that signaled a change in financial policy. ========= S P A I N ========= RURAL HIPOTECARIO I: Moody's Upgrades EUR12.8MM Cl. D Notes to B2 ----------------------------------------------------------------- Moody's Investors Service upgraded the rating of one note and downgraded the ratings of two notes in two Spanish RMBS transactions. The upgrade action on the Class D notes in RURAL HIPOTECARIO GLOBAL I, FTA, reflects increased levels of credit enhancement and better than expected collateral performance. The downgrade action on Classes A and B in RURAL HIPOTECARIO X, FTA reflects decreased levels of credit enhancement following the reduction of the reserve fund and continued pro rata payment of the affected notes, taking into account better than expected collateral performance. Moody's affirmed the ratings of the notes that had sufficient credit enhancement to maintain the current rating on the affected notes. Issuer: RURAL HIPOTECARIO GLOBAL I, FTA EUR1008.1 million Class A Notes, Affirmed Aa1 (sf); previously on Jul 16, 2018 Affirmed Aa1 (sf) EUR36.3 million Class B Notes, Affirmed Baa1 (sf); previously on Jul 16, 2018 Confirmed at Baa1 (sf) EUR8 million Class C Notes, Affirmed Ba2 (sf); previously on Jul 16, 2018 Confirmed at Ba2 (sf) EUR12.8 million Class D Notes, Upgraded to B2 (sf); previously on Jul 16, 2018 Confirmed at Caa2 (sf) Issuer: RURAL HIPOTECARIO X, FTA EUR1788.8 million Class A Notes, Downgraded to Aa3 (sf); previously on Jun 29, 2018 Affirmed Aa1 (sf) EUR37.6 million Class B Notes, Downgraded to Baa2 (sf); previously on Jun 29, 2018 Upgraded to Baa1 (sf) EUR53.6 million Class C Notes, Affirmed at B2 (sf); previously on Jun 29, 2018 Affirmed B2 (sf) Maximum achievable rating is Aa1 (sf) for structured finance transactions in Spain, driven by the corresponding local currency country ceiling of the country. RATINGS RATIONALE The upgrade action for RURAL HIPOTECARIO GLOBAL I, FTA is prompted by increased levels of credit enhancement and decreased key collateral assumptions, namely the portfolio Expected Loss (EL) assumptions due to better than expected collateral performance. The downgrade action for RURAL HIPOTECARIO X, FTA is prompted by decreased levels of credit enhancement following the reduction of the reserve fund in May 2019 and continued pro rata payment of the affected notes, taking into account better than expected collateral performance. Revision of Key Collateral Assumptions: As part of the rating action, Moody's reassessed its lifetime loss expectation for the portfolios reflecting the collateral performance to date. The performance of the RURAL HIPOTECARIO GLOBAL I, FTA transaction has continued to improve since the last rating action. Total delinquencies have decreased in the past year, with 90 days plus arrears currently standing at 0.57% of current pool balance compared to 0.78% in April 2018. Cumulative defaults currently stand at 2.33% of original pool balance, broadly stable since the last rating action. The performance of the RURAL HIPOTECARIO X, FTA transaction has continued to improve since the last rating action. Total delinquencies have decreased in the past year, with 90 days plus arrears currently standing at 0.83% of current pool balance. Cumulative defaults currently stand at 3.69% of original pool balance, marginally up from 3.62% one year ago. Moody's decreased the expected loss assumption to 1.52% as a percentage of original pool balance from 1.68% due to the improving performance for RURAL HIPOTECARIO GLOBAL I, FTA. The expected loss assumption for RURAL HIPOTECARIO X, FTA was changed to 3.0% from 3.30% as a percentage of original pool balance. Moody's has decreased the MILAN CE to 13.5% from 14.0% in RURAL HIPOTECARIO X, FTA. Moody's updated the MILAN CE due to the Minimum Expected Loss Multiple, a floor defined in Moody's methodology for rating EMEA RMBS transactions. Increase/Decrease in Available Credit Enhancement The non-amortizing reserve fund led to the increase in the credit enhancement available in RURAL HIPOTECARIO GLOBAL I, FTA. For instance, the credit enhancement for the Class D tranche in RURAL HIPOTECARIO GLOBAL I, FTA increased to 4.15% from 3.14% since the last rating action. In RURAL HIPOTECARIO X, FTA, triggers related to 90 days+ delinquencies were breached for a number of periods before the time of the last rating action in June 2018 on the affected notes, resulting in no amortization of the reserve fund nor mezzanine or junior notes. Some of these triggers have now cured which drove reserve fund amortization and cash being allocated to repay mezzanine and junior notes to reach target ratios (percentages of outstanding notes) contemplated in the transaction documentation, and continued pro-rata amortization of the notes. The amortization of the reserve fund led to a decrease of the reserve fund to 4.40% from 6.98% of the current balance of the notes in May 2019. For example, the credit enhancement for the Class A notes affected by the rating action in RURAL HIPOTECARIO X, FTA decreased to 14.10% from 18.78% and for Class B notes to 10.10% from 14.78% since the last rating action. The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in July 2019. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include (1) performance of the underlying collateral that is better than Moody's expected, (2) an increase in available credit enhancement, (3) improvements in the credit quality of the transaction counterparties and (4) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include (1) an increase in sovereign risk, (2) performance of the underlying collateral that is worse than Moody's expected, (3) deterioration in the notes' available credit enhancement and (4) deterioration in the credit quality of the transaction counterparties. =========================== U N I T E D K I N G D O M =========================== BEALES: Set to Close 11 Remaining Department Stores --------------------------------------------------- LaToya Harding at The Telegraph reports that the sun is to finally set on Beales' 11 remaining department stores, putting hundreds of jobs at risk. The 139-year-old business, one of Britain's oldest department stores, shut 12 of its 23 stores earlier this month after it fell into administration in January, failing to find a last-minute buyer to stay afloat, The Telegraph recounts. According to The Telegraph, the final 11 stores are now expected to only trade for around eight weeks while closing down sales take place. The company has also made a further 20 staff redundant at its head office in Bournemouth, The Telegraph notes. Administrators at KPMG said that they are in talks with "a number of interested parties" over a sale, but have started preparations to close the remaining stores after failing to receive any "deliverable offers", The Telegraph relates. HOUSE OF FRASER: TPR Finds No Evidence of Wrongdoing After Probe ---------------------------------------------------------------- Jack Gray at Pensions Age reports that the Pensions Regulator (TPR) found "no evidence" of wrongdoing in House of Fraser's insolvency, following its investigation. It noted that there was no indication that the timing of the insolvency was deliberately manipulated, or that it happened too soon or was mismanaged, Pensions Age relates. According to Pensions Age, the regulator also concluded that there were no acts or transactions prior to the retailers administration that warranted further investigation. It will therefore not conduct any further investigations or pursue the use of its financial support direction or contribution notice powers, Pensions Age notes. The retailer's pension scheme, which had two sections, had a combined membership of 10,256 and an estimated combined buyout deficit of GBP265.7 million, as of December 31, 2016, Pensions Age discloses. House of Fraser filed a Company Voluntary Arrangement (CVA) on June 6, 2018, after falling into insolvency, Pensions Age recounts. The pension scheme was not required to make any compromises under the CVA, Pensions Age states. However, the CVA eventually fell through after proposed shareholder investment did not materialize, Pensions Age relays. The firm was then purchased by Sport Direct owner, Mike Ashley, for GBP90 million in August 2018, under a "pre-pack" arrangement, Pensions Age relates. Its pension scheme then entered Pension Protection Fund assessment, Pensions Age discloses. TPR opened its investigation to establish whether there were any activities in respect of the pre-pack and the events and circumstances preceding it that would cause it to use its anti-avoidance powers, Pensions Age states. LAUNDRAPP: Inc & Co Acquires Business Following Administration -------------------------------------------------------------- Business Sale reports that Laundrapp, an on-demand laundry service which was touted as the "Uber of dry cleaning", has been acquired by Inc & Co Group after going into administration last week. The company went into administration on Feb. 14, with its investors, including Michael Spencer (who invested almost GBP2 million) and Hambro Perks (which invested around GBP1.5 million), losing their investments in the start-up, Business Sale relates. Investors poured over GBP15 million into Laundrapp over successive funding rounds, but cash flow difficulties saw the company forced into entering administration after investors declined to invest further capital, Business Sale discloses. According to Business Sale, Laundrapp appointed corporate restructuring firm FRP Advisory as administrator, with the company's assets subsequently sold off for reportedly under GBP1 million. FRP Advisory, as cited by Business Sale, said the business would continue trading following the sale, adding: "Laundrapp had suffered unsustainable cash flow pressures in recent months after the reserves of the business had been exhausted and further investment from existing shareholders was not forthcoming." Alastair Massey -- alastair.massey@frpadvisory.com -- joint administrator, said Laundrapp "had run into financial difficulty in recent months and without further investment would have been forced to cease trading", Business Sale notes. MONSOON ACCESSORIZE: To Close Freshney Place Branch Next Month -------------------------------------------------------------- Corey Bedford at GrimsbyLive reports that woman's fashion retailer Monsoon is understood to have told staff at its Freshney Place branch that it will be closing for the final time next month. The Monsoon unit at the shopping centre was originally put up for lease last year as commercial property specialists were tasked with finding a new occupier for its store, GrimsbyLive relates. This formed part of a major restructuring process by the company Monsoon Accessorize, which brought in Deloitte to prepare plans for a possible Company Voluntary Arrangement (CVA) last year, GrimsbyLive notes. This process will aim to reduce costs and restructure the business, including the decision to step away from the Freshney Place store, GrimsbyLive states. NEWGATE FUNDING 2006-2: Fitch Affirms BB+sf Rating on Cl. E Debt ---------------------------------------------------------------- Fitch Ratings upgraded 13 tranches of three 2006 Newgate Funding (NF) transactions and affirmed 15 tranches. RATING ACTIONS Newgate Funding Plc Series 2006-2 Class A3a XS0257991603; LT AAAsf Affirmed; previously at AAAsf Class A3b XS0257989458; LT AAAsf Affirmed; previously at AAAsf Class Ba XS0257993138; LT AA+sf Upgrade; previously at AA-sf Class Bb XS0257993302; LT AA+sf Upgrade; previously at AA-sf Class Ca XS0257994532; LT AA-sf Upgrade; previously at Asf Class Cb XS0257994888; LT AA-sf Upgrade; previously at Asf Class Da XS0257995265; LT BBB+sf Upgrade; previously at BB+sf Class Db XS0257996073; LT BBB+sf Upgrade; previously at BB+sf Class E XS0257996743; LT BB+sf Affirmed; previously at BB+sf Class M XS0257992676; LT AAAsf Affirmed; previously at AAAsf Newgate Funding Plc Series 2006-1 Class A4 XS0248865494; LT AAAsf Affirmed; previously at AAAsf Class Ba XS0248222142; LT AAsf Affirmed; previously at AAsf Class Bb XS0248866971; LT AAsf Affirmed; previously at AAsf Class Ca XS0248222225; LT A+sf Affirmed; previously at A+sf Class Cb XS0248867789; LT A+sf Affirmed; previously at A+sf Class D XS0248867946; LT BBB-sf Affirmed; previously at BBB-sf Class E XS0248222571; LT BB+sf Affirmed; previously at BB+sf Class Ma XS0248221920; LT AAAsf Affirmed; previously at AAAsf Class Mb XS0248866542; LT AAAsf Affirmed; previously at AAAsf Newgate Funding Plc Series 2006-3 Class A3a XS0272617282; LT AAAsf Affirmed; previously at AAAsf Class A3b XS0272626788; LT AAAsf Affirmed; previously at AAAsf Class Ba XS0272619817; LT AA+sf Upgrade; previously at A+sf Class Bb XS0272629295; LT AA+sf Upgrade; previously at A+sf Class Cb XS0272629881; LT A+sf Upgrade; previously at BBBsf Class Da XS0272621805; LT BBB+sf Upgrade; previously at BBsf Class Db XS0272630624; LT BBB+sf Upgrade; previously at BBsf Class E XS0272622795; LT BB+sf Upgrade; previously at B+sf Class Mb XS0272627836; LT AAAsf Upgrade; previously at AAsf TRANSACTION SUMMARY The Newgate Funding 2006 series are securitisations of UK non-conforming residential mortgages originated by Mortgages plc, a subsidiary of Bank of America Merrill Lynch. The three transactions have similar portfolio characteristics with a high proportion of self-certified borrowers, ranging between 59% and 75% of the outstanding portfolio, and interest-only loans representing roughly 80% of the respective pools. KEY RATING DRIVERS Under Criteria Observation Resolution The rating actions take into account Its new UK RMBS Rating Criteria dated October 4, 2019. The notes' ratings have been removed from Under Criteria Observation. The portfolios of Newgate Funding plc 2006-1, 2006-2 and 2006-3 contain a majority of owner-occupied non-confirming loans and a small portion of buy-to-let (BTL) loans. Fitch applied its non-conforming and BTL assumptions in line with its latest UK RMBS Rating Criteria. The rating actions mainly result from a reduction of the non-conforming sub-pool's weighted-average foreclosure frequency (WAFF). Growing Credit Enhancement Credit enhancement (CE) has increased across the series, despite switching to pro rata amortisation since 2017. This is due to cumulative loss trigger breaches that prevent the reserve funds from amortising further. CE has built up sufficiently to withstand higher stresses, also explaining the upgrades. Improved Asset Performance Performance since the last rating action in March 2019 has improved across the transactions. Three month-plus arrears have continued to fall over the past 12 months (to 13.86% from 13.9% for NF 2006-1, to 12.89% from 14.59% for NF 2006-2 and to 12.19% from 13.44% for NF 2006-3). Pro-Rata Amortisation The pro-rata amortisation of these transactions is mitigated by non-amortising reserve funds and a 10% switch-back trigger for the NF 2006-2 and NF 2006-3 transactions. The NF 2006-1 transaction has no switch-back triggers Unhedged Basis Risk There are no hedging agreements in place in any of the transactions to mitigate the basis risk arising from the Libor-linked notes and underlying mortgages linked to the Bank of England base rate. To address this mismatch Fitch reduced the interest rate on the assets by 50bp in rising and stable interest rate scenarios as part of its cash-flow modelling. Collection Rates Remain a Challenge Recent collection rates show that over quarter of borrowers in arrears for over one month are currently making no monthly payment. However, Fitch notes some improvement since the last rating review, as a result of the reduction in arrears. RATING SENSITIVITIES The existing pipeline of late-stage arrears may put a strain on excess spread when the pace of possessions eventually increases, although current loss severities (averaging 17.2%) observed to date are in line or better than those observed on comparable non-conforming transactions. Additionally, collection rates on borrowers in arrears could deteriorate if interest rates rise moderately. SIRIUS MINERALS: Odey to Oppose Anglo American's Rescue Bid ----------------------------------------------------------- Ed Clowes at The Telegraph reports that hedge fund Odey Asset Management has said it will would oppose mining titan Anglo American's rescue bid for Sirius Minerals, in a blow to the company's controversial takeover. Odey is run by hedge fund tycoon Crispin Odey, the outspoken Brexiteer accused of betting against Britain, The Telegraph discloses. According to The Telegraph, the London-based fund, which owns 1.29% of the company, called the deal a "mockery", saying its terms, which valued fertilizer miner Sirius at GBP405 million, did not represent fair value. The current offer from Anglo is values Sirius at 5.5p a share, The Telegraph notes. In an open letter to Sirius chief executive Chris Fraser and Anglo boss Mark Cutifani, Odey said it would only back a deal that valued the company's shares at 7p or above, The Telegraph relates. As reported by the Troubled Company Reporter-Europe on Jan. 9, 2020, the Telegraph related that Sirius, which is midway through building a giant mine in the North Yorks Moors, has suffered a slump in its share price after warning last September that multibillion dollar funding for the next stage had fallen through, leaving it with only enough cash to last another six months. WHYTE CRANE: Enters Administration, 11 Jobs Affected ---------------------------------------------------- Scott Reid at The Scotsman reports that Whyte Crane Hire, a Scottish crane hire business, has gone bust with the loss of about a dozen staff. Blair Nimmo and Alistair McAlinden of KPMG were appointed as joint administrators of the company earlier this week, The Scotsman relates. As a result of the administration appointment, all 11 employees have been made redundant, The Scotsman discloses. According to The Scotsman, Mr. Nimmo said: "Despite the extensive efforts of the Whyte family, Whyte Crane Hire was unable to continue trading in light of significant liabilities and cashflow difficulties, having been affected by the challenging market conditions in the Scottish construction and oil and gas sectors." Established in 2001, Whyte Crane Hire provided lifting services and mobile crane hire to customers across a range of business sectors, including oil and gas. It had been operating from two leased premises, in Aberdeen and Grangemouth. ********* 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. 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