/raid1/www/Hosts/bankrupt/TCREUR_Public/200324.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, March 24, 2020, Vol. 21, No. 60
Headlines
A R M E N I A
ACBA-CREDIT AGRICOLE: Fitch Corrects March 18 Ratings Release
B E L A R U S
EXPORT-IMPORT INSURANCE: Fitch Affirms IFS Rating at B
F R A N C E
CASSINI SAS: S&P Cuts Rating to B- on COVID-19 Impact, Outlook Neg.
SOLOCAL GROUP: Fitch Cuts LT IDR to C & Sr. Sec. Rating to CC
I R E L A N D
CBL INSURANCE: Appointment of Joint Liquidators Takes Effect
HARVEST CLO XXIII: S&P Assigns B- (sf) Rating to Class F Notes
K A Z A K H S T A N
GRAIN INSURANCE: S&P Lowers ICR to 'D' on Missed Payments
L A T V I A
AIR BALTIC CORP: S&P Cuts Issuer Rating to B+, On CreditWatch Neg.
M A L T A
GLOBAL FUNDS: Mazars Malta Set to Be Appointed as Liquidators
N O R W A Y
HURTIGRUTEN GROUP: S&P Cuts ICR to CCC+ as COVID-19 Weakens Demand
NORWEGIAN AIR: Secures US$270MM Funding Under Certain Conditions
P O L A N D
ELEKTROBUDOWA: To File Bankruptcy Motion After Debt Talks Fail
R O M A N I A
S-KARP: Goes Into Bankruptcy After Sale Plan Fails
U N I T E D K I N G D O M
LAURA ASHLEY: Announces Permanent Closure of 70 Stores
MORTIMER BTL 2020-1: Fitch Gives 'BBsf' Rating on Class E Notes
SAGA PLC: Moody's Cuts CFR to Ba2, On Review for Downgrade
SAGA PLC: S&P Lowers ICR to 'B', On CreditWatch Negative
VUE INTERNATIONAL: S&P Alters Outlook to Neg. & Affirms 'B-' Rating
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A R M E N I A
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ACBA-CREDIT AGRICOLE: Fitch Corrects March 18 Ratings Release
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Fitch Ratings replaced a ratings release published on March 18,
2020 to correct the name of the obligor for the bonds.
Fitch Ratings has affirmed ACBA-Credit Agricole Bank CJSC's (ACBA)
and Ardshinbank CJSC's Long-Term Foreign-Currency Issuer Default
Ratings at 'B+' with Stable Outlooks.
KEY RATING DRIVERS
IDRS, VRS, SUPPORT RATINGS, SUPPORT RATING FLOORS
The banks' IDRs and senior debt ratings are driven by their
intrinsic strength, as captured by their 'b+' Viability Ratings.
The VRs are constrained by the risks of a potentially cyclical
broader operating environment, and their exposure to a highly
concentrated, heavily dollarized and developing economy. The VRs
also capture the banks' currently stable financial profiles,
supported by rapid economic growth in the past few years, and their
reasonable market shares of 13% and 8% of total sector assets at
Ardshin and ACBA, respectively, while the latter also has a strong
50% market share in agricultural lending.
The banks' Support Rating Floors of 'No Floor' and Support Ratings
of '5' reflect Fitch's view that the Armenian authorities have
limited financial flexibility to provide extraordinary support to
banks, if necessary, given the banking sector's large
foreign-currency liabilities relative to the country's
international reserves. Fitch does not factor potential support
from the private shareholder into Ardshin's ratings, as it cannot
be reliably assessed.
Fitch also believes that extraordinary support from ACBA's
5%-shareholder, Credit Agricole (CA, A+/Stable), cannot be relied
upon and therefore is not factored into the bank's ratings.
ACBA
Asset quality metrics have been improving in recent years, helped
by sizeable write-offs, loan expansion and supportive macro trends.
Impaired loans (defined as Stage 3 and purchased or originated
credit-impaired loans under IFRS 9) made up a moderate 3.5% of
gross loans at end-2019 with reasonable coverage by total loan loss
allowance at 72%. Impaired loans net of total LLA were a modest 5%
of ACBA's Fitch Core Capital at end-2019. Stage 2 loans were
limited at 1.3% of total gross loans (6% of FCC). In Fitch's view,
ACBA's significant exposure to unsecured retail loans (25% of total
loans) and loans extended to the agricultural sector (a further 28%
of total loans), may be particularly sensitive to the stability of
the broader economy. FX loans (30% of loans) may be another area of
elevated credit risk if the local currency weakens.
ACBA's net interest margin (7% in 2019) is undermined by weak
operating efficiency, as evidenced by its high cost-to-income ratio
of over 60%, which is partially explained by the bank's modest
size. It results in only moderate pre-impairment profitability at
4% of average loans, translating into a ROAE of 10%-11% in recent
years. Fitch expects the bottom-line performance to be stable in
2020-2021, but this will be highly sensitive to trends in asset
quality, particularly in light of portfolio seasoning after rapid
loan growth (11% in 2018 and a further 33% in 2019).
ACBA's FCC equaled a high 15% of regulatory risk-weighted assets at
end-2019, although this should be viewed in light of a generally
high-risk operating environment. Capital ratios moderated somewhat
compared with previous years due to fast growth and sizeable
dividend payments. Fitch expects that ACBA will target keeping
capital adequacy around current levels, given the increased
regulatory requirements and the bank's intention to hold at least
1pp headroom over the required minimums with buffers (12.5% in
2020, 13% since 2021).
ACBA's reliance on wholesale funding remains high, albeit
decreasing, as captured by a loan-to-deposit ratio of 126% at
end-2019, down from 180% at end-2015. Wholesale funding mainly
consists of longer-term external funding raised from international
financial institutions and government institutions and used to
finance the agricultural, micro- and SME segments. Contractual
repayments of these in 2020 equals a moderate 12% of total
liabilities. ACBA's cushion of liquid assets equaled 23% of total
liabilities at end-2019.
ARDSHIN
Impaired loans comprised 6% of gross loans at end-2019 (up from
4.7% at end-2018) and were 50% covered with total LLA. Net of LLA,
impaired loans equaled a moderate 19% of the bank's FCC. Further
risks stem from Stage 2 loans, which made up 5.1% of the bank's
gross loans (33% of FCC) at end-2019.
Typically for this region, single borrower concentrations are high
(the 25 largest groups of Stage 1 borrowers comprised 35% of the
gross loan book, or 2.3x of FCC), while some of the largest Stage 1
exposures are relatively risky, in Fitch's view, due to a
combination of related business risks and weak financial
performance of respective borrowers. These exposures comprised an
additional 5% of gross loans or 35% of FCC. Fitch believes these
exposures might trigger impairment losses in the medium term.
Asset quality is also weakened by a large portfolio of non-core
assets (mostly repossessed collateral, another 13% of FCC), as the
disposal of these may result in additional impairment.
Pre-impairment operating profit equaled 4.8% of Ardshin's average
loans in 2019, which Fitch views as moderate in light of the asset
quality risks. Moderate loan impairment charges for 2019 (2% of
average loans) translated into a reasonable ROAE of 14%, but future
performance is highly sensitive to asset quality trends.
Ardshin's FCC was reasonable at 15.5% at end-2019. Fitch views the
relatively high regulatory minimums coupled with the phase-in of
additional capital buffers as credit positive, as the bank will be
forced to hold more capital than in previous years.
The share of wholesale funding is high, as expressed by a 121%
loans/deposits ratio at end-2019. Non-deposit funding made up 37%
of total liabilities at end-2019. Contractual repayments of
wholesale funding in 2020 equal 13% of total liabilities, while
liquid assets equal 16%, which Fitch views as only moderate
coverage and evidence of some opportunism in liquidity management.
Positively, the placement of a USD300 million Eurobond (around 23%
of end-2019 liabilities), in January 2020 (maturity January 2025),
should provide significantly more flexibility.
SENIOR UNSECURED DEBT
Senior unsecured debt ratings are in line with the banks' IDRs,
assuming average recovery prospects in case of default.
RATING SENSITIVITIES
IDRS, VRS, SUPPORT RATINGS, SUPPORT RATING FLOORS
Fitch may take negative rating actions on Armenian banks if the
performance of the local economy deteriorates significantly with
the spread of COVID-19, and this lead or is expected to lead to
material negative pressure on banks' asset quality and financial
metrics.
Upside potential for the ratings would be limited even without
COVID-19 related risks, given the highly cyclical operating
environment and its vulnerability to external shocks. However, in
more benign operating conditions an extended track record of stable
asset quality metrics and performance, and stronger capital ratios,
could be credit-positive.
SENIOR UNSECURED DEBT
Changes to the banks' Long-Term IDRs would impact the senior
unsecured debt ratings.
ESG CONSIDERATIONS
Both banks' highest ESG credit relevance score is '3'. This means
that ESG issues are credit-neutral or have only a minimal credit
impact on these two banks, either due to their nature or to the way
in which the issues are being managed by these banks.
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B E L A R U S
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EXPORT-IMPORT INSURANCE: Fitch Affirms IFS Rating at B
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Fitch Ratings has affirmed Export-Import Insurance Company of the
Republic of Belarus's (Eximgarant) Insurer Financial Strength
Rating at 'B'. The Outlook is Stable.
KEY RATING DRIVERS
The rating of Eximgarant reflects its systemic role as the local
export credit agency and its 100% state ownership. On a standalone
basis, the presence of guarantees for insurance liabilities under
compulsory lines and export insurance, robust profit generation and
adequate capital position are offset by a meaningful exposure to
domestic financial risks and the low quality of the insurer's
investment portfolio.
Fitch sees a number of immediate effects stemming from the
coronavirus pandemic, which are relevant for Eximgarant's credit
profile but not yet material enough for negative rating actions.
These effects include a significant portfolio of domestic credit
default risks insured by Eximgarant, a contraction of green-card
motor insurance due to a drop in cross-border traffic and notable
depreciation of the national currency against the US dollar and
euro. It is likely that there also will be some delayed effects,
including contraction of business volumes, which is hard to predict
at present.
Eximgarant is considerably exposed to domestic financial risk
insurance, which accounted for 40% of its non-export portfolio per
gross premiums written in 2019. These risks include various kinds
of guarantee insurance for loans issued by Belarusian banks and for
corporate bonds, with the domestic credit risk exposure-to-equity
ratio reaching 273% at end-2019. Eximgarant also has significant
concentrations per debtor in its portfolio, but in most cases these
debtors are sovereign-related and systemically important domestic
enterprises, suggesting that their default risk is likely to have
strong correlation with the sovereign risk.
Green-card motor insurance accounted for only 12% of Eximgarant's
gross written premiums in 2019, but was the key contributor to the
insurer's underwriting profit before subrogation income. Fitch
believes that should the coronavirus-related drop of the
cross-border traffic in Belarus be sustained, it might lead to a
contraction of Eximgarant's underwriting profit in 2020.
Eximgarant's foreign currency (FC)-denominated net technical
reserves of BYN93 million were backed by FC-denominated liquid
investment assets of BYN117 million at end-2019. Fitch believes
that Eximgarant might be exposed to FX losses if the local currency
depreciation turns out to be protracted and if the insurer faces a
number of large FC-denominated large claims on net retention in the
coming year. Should the claim experience be favorable in 2020,
Eximgarant is likely to record FX gains on its investment in case
the local currency depreciation is prolonged.
Fitch also believes that exposure to recent volatility in financial
markets is limited, as Eximgarant's investment assets are largely
in held-to-maturity government bonds and deposits with local
state-owned banks. Mortality risk is also immaterial for the
insurer due to the non-life nature of its portfolio.
The Belarusian state has established strong support for Eximgarant
through its legal framework to develop a functioning export
insurance system. The framework provides government guarantees on
export insurance risks and explicitly includes Eximgarant's
potential capital needs in case of major export risks-related
underwriting losses in Belarus's budgetary system.
In its 2019 regulatory accounts Eximgarant reported stronger net
income of BYN12 million, compared with BYN9 million in 2018. This
was due to an increase in the underwriting result to BYN20 million
in 2019 from BYN2 million in 2018 and despite FX losses of BYN3
million in 2019. The local GAAP-based combined ratio improved to
64% in 2019 from 92% in 2018, with subrogation income being a key
contributor. Recoveries are not expected to be collected in 2020.
Eximgarant's risk-adjusted capital position, as measured by Fitch's
Prism Factor-based Model, remained supportive of a 'B' category
rating in 2018 (2019 IFRS-based figures not yet available), in line
with 2017 results based on IFRS accounts. The insurer maintains a
very strong regulatory solvency position with a Solvency I-like
statutory ratio of 42x at end-2019.
Eximgarant's reported shareholders' funds based on IFRS accounts
equalled BYN244 million at end-2018, compared with BYN455 million
based on regulatory reporting. This reflects the different
accounting treatments of government bonds. Eximgarant amortised the
value of these securities and reported the loss from the initial
recognition of the bonds at a fair value of BYN212 million at
end-2018, as required by IFRS.
Fitch views Eximgarant's investment portfolio as weak. The
insurer's sovereign investment concentration risk is high, with
sovereign-related investments at 110% of equity at end-2018 based
on IFRS. Eximgarant maintains an adequate liquidity position. Bank
deposits are sufficient to cover net insurance liabilities.
RATING SENSITIVITIES
Fitch is developing updated assumptions to support a review of the
insurance companies it rates, focused on the significant
uncertainties created by the onset of the global COVID-19 pandemic.
Assumptions will be put in place for interest rates; declines in
the market values of stocks, bonds, derivatives and other capital
market instruments typically owned/traded by insurance companies;
market liquidity; COVID-19 infection and mortality rates; and the
magnitude of COVID-19-related claim/benefit exposures. Fitch plans
to conduct pro-forma analysis for individual companies to reflect
these assumptions, and compare the pro-forma results to current
rating sensitivities. Fitch expects to place ratings on Rating
Watch Negative or downgrade ratings if sensitivities are notably
breached. Eximgarant will be part of this review.
A change in Belarus's Local-Currency Long-Term Issuer Default
Rating is likely to lead to a corresponding change in Eximgarant's
IFS Rating. This is primarily because the IDR drives its assessment
of the insurer's asset risk, given the asset concentration in
sovereign and sovereign-related instruments.
Significant change in the insurer's relationship with the
government would also likely have a direct impact on Eximgarant's
ratings.
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.
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F R A N C E
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CASSINI SAS: S&P Cuts Rating to B- on COVID-19 Impact, Outlook Neg.
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S&P Global Ratings lowered to 'B-' from 'B' its ratings on
Comexposium Group and its debt.
The coronavirus pandemic will likely result in a material
deterioration of Comexposium's operations, earnings, and credit
metrics in 2020.
In order to contain the rapid spread of COVID-19, the French
government prohibited events with large audiences and implemented
travel bans. These contingency measures will materially weigh on
Comexposium's revenues and EBITDA in 2020. S&P said, "In
particular, we estimate that the group's EBITDA could contract by
at least EUR22 million in the next few months due to cancelled or
postponed shows. We therefore expect that Comexposium's S&P Global
Ratings-adjusted financial leverage, could rise to between 6.5x and
7.0x, surpassing our previous expectation of between 5.0x and 5.5x,
pro forma including 12 months EBITDA of Europa, which had no
headroom for our 'B' rating. Our current estimate would translate
into a leverage ratio of close to 8x on a two-year average basis
(to account for biennial events), compared with our earlier trigger
of 7x on a two-year basis between 2019 and 2020."
Despite the uncertainty surrounding how hard Comexposium's
operations will be hit and the timeline for recovery once the virus
is contained, S&P believes that the trade show industry will
recover over the longer term.
There is an increased risk that the group's credit metrics could
stay elevated through the year. This is particularly important
since 2020 is supposed to see biannual events, and the group's
liquidity position could deteriorate if there are
fewer-than-anticipated bookings of new shows in the second half of
the year. That said, the trade shows industry has historically
bounced back after negative incidents, and we assume this will hold
true over the longer term.
The impact of coronavirus on Comexposium's operations could delay
its deleveraging efforts.
Comexposium's headroom was already very limited at the previous
rating, which had been on a negative outlook since February 2020
following the group's acquisition of Europa Group. Additionally,
the impact of cancelled and postponed events, from ban measures
imposed by public authorities, will translate into lower EBITDA and
higher leverage this year. S&P said, "Furthermore, we believe risks
are contingent on whether the French government decides to extend
its restrictive measures. While Comexposium has decided to maintain
one major event in Paris, "Foire de Paris" in May, which
contributes about 5% of its revenues, the company might have to
refund all the pre-booking fees if the event is cancelled. At the
same time, we understand that the group would not have to pay the
venue for the show. In China, the group remains less exposed than
other trade show operators, but has still one major event scheduled
for May in Shanghai (the SIAL China). While the situation in China
appears to be improving, we cannot exclude the risk of a
postponement or cancellation. We believe that the combined
cancelation of the two May events would debilitate earnings,
translating into weaker credit metrics."
Comexposium's major events fall into fourth quarter.
Comexposium has secured one quarter of its yearly reported EBITDA
2020, and events in the fourth quarter are set to represent more
than half of the fiscal year's EBITDA, including contribution from
Europa. The company has already taken significant actions to
contain the EBITDA erosion in the second quarter by postponing the
majority of the events and securing attendees and venues at later
dates. S&P said, "However, we cannot rule out that exhibitors'
numbers may be less than typical because of fear of infection.
While there continues to be high uncertainty about the coronavirus
outbreak's peak, epidemiologic models indicate that the virus will
likely peak around June 2020. As a result, we assume the global
outbreak will subside during the second quarter this year. However,
it is too early to determine the ultimate magnitude and duration of
the impact on Comexposium. We will update our assumptions as the
situation evolves."
Comexposium has sufficient liquidity to withstand temporary shocks
from cancellations and postponements.
S&P said, "We think the group's liquidity sources will likely
tighten over the next 12 months assuming an EBITDA decline in 2020.
Comexposium's current cash balance is about EUR75 million and EUR61
million is available under its revolving credit facility (RCF).
Once the company finalizes the acquisition of Europa toward the end
of March, the RCF will be reloaded to EUR90 million and be fully
available (maturing in January 2025). We think these sources will
be sufficient to cover the group's working capital needs and
maintenance capex through fiscal 2020. The group's debt consists of
one senior secured term loan B of EUR597 million (maturing in
January 2026), including the EUR85 million of add-on to the term
loan B related to the acquisition of Europa and the EUR29 million
RCF repayment, hence there are no large debt maturities or
refinancing risks in the near-term. There is a springing covenant
in the capital structure. It applies to the RCF and is tested when
it is drawn more than by 40%. The testing threshold is set at a
maximum senior secured leverage to EBITDA ratio of 8.6x. We
estimate that currently the group has sufficient headroom over the
next 12 months but could face potential reduction in headroom if
shows in the second half of 2020 were affected by the COVID-19
outbreak.
"The negative outlook reflects our expectation that Comexposium's
credit metrics will remain weak in 2020 amid increased uncertainty
around the strain from the coronavirus pandemic on the group's 2020
performance, liquidity, and ability to reduce leverage in 2021.
"We could lower the rating over the next 6 to 12 months if the
economic impact of COVID-19 is more significant than we currently
expect, and leads to further cancellation and delays of shows in
2020. This would result in lower EBITDA and cash flow generation,
turn free operating cash flow (FOCF) negative, and constrain
liquidity, such that the group's capital structure becomes
unsustainable in the medium term.
"We could revise the outlook to stable if Comexposium performed
soundly and was able to carry out as planned the shows currently
scheduled over the rest of 2020." A stable outlook would also hinge
on trading of the shows to be on track with the company's budget
and our forecasts, such that its adjusted debt to EBITDA fell below
7x on a two-year basis. Furthermore, a stable outlook would require
liquidity to remain adequate with sufficient sources to cover
working capital needs, ample covenant headroom, and positive
material FOCF generation.
SOLOCAL GROUP: Fitch Cuts LT IDR to C & Sr. Sec. Rating to CC
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Fitch Ratings has downgraded French digital and print advertising
company Solocal Group's Long-Term Issuer Default Rating to 'C' from
'CCC+' and senior secured notes maturing on March 2022 to
'CC'/'RR3' from 'B-'/'RR3'.
The downgrade reflects a material increase in the risk of default
by Solocal as it has entered into a grace period following its
failure to pay its bond coupon due on 15 March 2020. Fitch expects
the company to enter into talks with bondholders to negotiate a
waiver or a standstill agreement on the payments due for the rest
of 2020.
Fitch believes that the minimal liquidity headroom available to the
company could be worsened by lower digital order intakes and by
deterioration of working capital due to the coronavirus crisis.
KEY RATING DRIVERS
Coupon Payment Missed: Solocal failed to pay the quarterly coupon
on its senior secured bond loan due on March 15 and has entered the
contractual 30-day grace period. Moreover, Fitch expects a
moratorium on tax payments is likely to be filed with the public
authorities. Fitch understands from management that the decision to
suspend the coupon payment is to preserve liquidity and ongoing
operations ahead of anticipated material impact of the coronavirus
crisis on 1H20 trading. It expects management to hold talks with
bondholders to achieve a mutually-agreed interest waiver under the
"conciliation" procedure opened at the Court of Nanterre.
Increased Liquidity Stress: Solocal faced limited liquidity for the
whole of 2019. Its cash position has been mainly challenged by over
EUR200 million payments due under a redundancy plan, of which EUR56
million are due in 2020, by adverse working capital movements and
missed disposal proceeds. Drawdown capacity under its various
facilities is currently very limited.
Heightened Risk of Default: Fitch has run a coronavirus stress
scenario factoring in a 50% decline in order intakes for 1H20 and a
25% decline for 2H20 versus the same periods last year, and a
temporary cash relief of around EUR20 million from the suspended
payments under interest and taxes. The result is very limited cash
headroom for 2020, considering its requirement to meet payments
under the redundancy plan. In the absence of concessions from
financial creditors and tax authorities, the business could easily
become unfunded.
Potential Restructuring: The poor liquidity faced by Solocal and
the requirement to make redundancy payments is likely to limit
scope for interest increases on its senior secured debt, already
high at 9% over a 1% Euribor floor. Moreover, refinancing risk of
the notes maturing in 2022 will materially increase, potentially up
to a point where debt investors are unlikely to commit funds
regardless of prevailing market conditions. This will leave the
burden of refinancing to current bondholders and pave the way for a
restructuring of Solocal's financial liabilities.
Recovery Prospects: Fitch believes that Solocal will be
restructured rather than liquidated under distress, in particular
considering the immaterial nature of the company's asset base,
fairly low leverage and cash generation of restructured operations.
It deems the risk of liquidation as low, in view of efforts that
could be put in place by European governments to preserve
employment during the coronavirus crisis. The change in its
recovery prospects to 55% (59% previously) reflects the increase in
the amount of Solocal's super senior revolving credit facility
(RCF) granted at end-2019.
DERIVATION SUMMARY
Solocal is witnessing a transitioning business model, which is
lagging its peers in making its shift to a digital platform from
directories. Its operating profile has been challenged by ongoing
internal restructuring of the workforce, changes in the management
team and weak liquidity for 2019. Leverage, however, is fairly low.
Funding its redundancy costs has required gross debt increase via
drawdowns under the RCF. These additional amounts increase
refinancing risk, reducing the options available for the company to
manage its financial liabilities should operating results slow.
Solocal's most directly comparable peer is Yell, part of the Hibu
group, which has a similar position in the UK. Some comparison can
be made between Solocal and software service companies, such as
TeamSystem Holding S.p.A. (B/Stable), which although highly
leveraged is protected by higher barriers to entry, more
cash-generative businesses enjoying digital momentum, and lower
risks from the capital structure. Solocal is also comparable to
media businesses facing similar secular declines, such as PRISA -
Promotora de Informaciones, S.A. (B/Stable), which is better
diversified, geographically and by business, with lower exposure to
advertising and stronger liquidity.
Other issuers rated 'C' are going through similar financial
distress, and have either missed or announced deferrals of interest
or coupon payments.
KEY ASSUMPTIONS
Key recovery assumptions
Fitch adopts a going-concern approach to reflect the higher
probability of a surviving cash-generative business with
going-concern enterprise value as the basis for financial
stakeholder recovery in the event of default.
Fitch expects Solocal to potentially attractive to trade buyers in
light of the almost completed funding of the redundancy plan and
the consequent cash generation potential. It has assumed a 10%
administrative claim.
Fitch estimates an ongoing-concern EBITDA of about EUR120 million,
in line with its previous assumption. This is not impacted by the
coronavirus crisis, as its stress case indicates this level of
profitability is achievable if operations return to normal in 2021.
Its recovery EV/EBITDA multiple assumption remains at 2.5x and it
factors in the entire drawdown of both the RCF and the available
amounts under working capital facilities. The outcome of its
analysis is a Recovery Rating of 'RR3'/55%.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Payment of the missed coupon on senior secured debt ahead of
the expiry of grace period
- Availability of new sources of liquidity sufficient to fund
business requirements over 2020
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Evidence of a selective payment default on senior secured debt
or uncured expiry of grace period
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.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch capitalized operating leases at 8x according to its Criteria
for Rating Non-Financial Corporates.
Fitch adjusted EBITDA for the application of IFRS 16 to determine
operating lease expense. Subsequently, Fitch capitalized Solocal's
operating leases at 8x, according to its Criteria for Rating
Non-Financial Corporates.
Sources of Information
Solocal's press releases, audited annual, quarterly and half-year
financials, documentation of executed senior notes and credit
facilities and conference calls with management.
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I R E L A N D
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CBL INSURANCE: Appointment of Joint Liquidators Takes Effect
------------------------------------------------------------
On February 20, 2020, the Central Bank of Ireland ("Central Bank")
presented a petition for the winding up of CBL Insurance Europe Dac
(Under Administration) ("CBLIE" or "the Company") to the High
Court.
The matter was heard by the High Court on March 12, 2020, where an
Order for the winding-up of CBLIE, and the appointment of Kieran
Wallace and Cormac O'Connor of KPMG Dublin as Joint Liquidators,
was made. This appointment takes immediate effect.
By way of background, CBLIE has been in Administration since
February 26, 2018, when the Central Bank made an application to the
High Court due to concerns about the Company.
The Central Bank took these actions in the interest of protecting
policyholders.
Impacted policyholders are advised to make contact with the Joint
Liquidators of CBLIE for ongoing updates with regard to the
Liquidation and the status of any remaining policies held. Further
information for impacted policyholders can be found here:
http://cblinsuranceeurope.com/.
HARVEST CLO XXIII: S&P Assigns B- (sf) Rating to Class F Notes
--------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Harvest CLO XXIII
DAC's class A to F European cash flow CLO notes. The issuer has
also issued unrated class Z and subordinated notes.
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds managed by Investcorp Credit Management
EU Ltd.
The ratings assigned to Harvest XXIII's notes reflect S&P's
assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P considers
bankruptcy remote.
-- The transaction's counterparty risks, which S&P considers in
line with its counterparty rating framework.
-- Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will permanently switch to semiannual payment.
-- The portfolio's reinvestment period will end approximately four
and a half years after closing, and the portfolio's maximum average
maturity date will be eight and a half years after closing.
S&P said, "Our ratings reflect our assessment of the preliminary
collateral portfolio's credit quality, which has a weighted-average
'B' rating (with an S&P Global Ratings' weighted-average rating
factor of 2,632.5). We consider that the portfolio on the effective
date will be well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, we have conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
CDOs.
"In our cash flow analysis, we used the EUR450 million target par
amount, the covenanted weighted-average spread (3.60%), the
covenanted weighted-average coupon (5.50%), and the covenanted
weighted-average recovery rates for all rating levels. As the
portfolio is being ramped, we have relied on indicative spreads and
recovery rates of the portfolio.
"We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1 to F notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO is in its reinvestment phase, during
which the transaction's credit risk profile could deteriorate, we
have capped our assigned ratings on the notes. In our view the
portfolio is granular in nature, and well-diversified across
obligors, industries, and assets.
"We expect the issuer to purchase more than 50% of the effective
date portfolio from Investcorp European Loan Company DAC (IELC) via
participations. The assets from IELC that are not settled by the
effective date will be carried at the S&P recovery value until they
are fully settled with the issuer. The transaction documents
require that the issuer and IELC use commercially reasonable
efforts to elevate the participations by transferring to the issuer
the legal and beneficial interests as soon as reasonably
practicable. No further originator participations may take place
following the effective date."
HSBC Bank PLC is the bank account provider and custodian. S&P
considers that the documented downgrade remedies are in line with
our current counterparty criteria.
Under S&P's structured finance sovereign risk criteria, the
transaction's exposure to country risk is sufficiently mitigated at
the assigned preliminary rating levels.
S&P considers that the issuer is bankruptcy remote, in accordance
with its legal criteria.
Following S&P's analysis of the credit, cash flow, counterparty,
operational, and legal risks, it believes its ratings are
commensurate with the available credit enhancement for each class
of notes.
Ratings List
Class Rating Amount Sub(%) Interest rate*
(mil. EUR)
A AAA (sf) 276.75 38.50 Three/six-month EURIBOR
plus 0.95%
B-1 AA (sf) 28.10 27.26 Three/six-month EURIBOR
plus 1.55%
B-2 AA (sf) 22.50 27.26 2.00%
C A (sf) 30.40 20.50 Three/six-month EURIBOR
plus 2.05%
D BBB (sf) 25.90 14.74 Three/six-month EURIBOR
plus 3.00%
E BB- (sf) 23.60 9.50 Three/six-month EURIBOR
plus 5.33%
F B- (sf) 11.25 7.00 Three/six-month EURIBOR
plus 8.31%
Z NR 28.00 N/A N/A
Sub notes NR 42.50 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
===================
K A Z A K H S T A N
===================
GRAIN INSURANCE: S&P Lowers ICR to 'D' on Missed Payments
---------------------------------------------------------
On March 20, 2020, S&P Global Ratings lowered the issuer credit and
insurer financial strength ratings on Kazakhstan-based Grain
Insurance Co. JSC to 'D' (default) from 'B'. S&P also lowered the
Kazakhstan national scale rating on Grain Insurance to 'D' from
'kzBBB-'.
Rationale
S&P said, "We lowered the ratings on Grain Insurance to 'D' because
the company has missed several payments to its counterparties, as
per the company's information. In addition, on March 13, 2020, the
company's license was suspended for six months. Under the relevant
laws of Kazakhstan, the company is obliged to make payments on
obligatory motor third-party liability claims that are not being
disputed within 15 business days. Consistent with our financial
strength rating definitions, we consider the missed payments by
Grain Insurance as a default."
S&P understands from Grain Insurance that it is experiencing
liquidity problems because it cannot currently access its bank
accounts, which is preventing it from making payments on
outstanding obligations. The bank current accounts and bank
deposits are the only assets in Grain Insurance's investment
portfolio.
As recently as Feb. 1, 2020, Grain Insurance reported regulatory
capital and liquidity ratios with buffers above the required
minimums--including a capital adequacy ratio of 3.13x and a
liquidity ratio of 8.21x, both compared to a minimum of 1.00x.
However, on March 13, 2020, the Kazakh insurance regulator (the
Agency for the regulation and development of the financial market
of the Republic of Kazakhstan) suspended Grain Insurance's license
for six months because the company was in breach of its regulatory
capital and liquidity ratios. S&P understands from Grain Insurance
that the deterioration of the regulatory ratios is largely due to
the company's inability to access the funds held in its bank
accounts. Based on the information provided by the company, it is
now trying to restore access to its bank accounts. The company is
now prohibited from selling any new insurance contracts or
extending the terms of existing insurance contracts until the end
of the license suspension period.
S&P could raise its ratings on Grain Insurance from 'D' once it has
more clarity on its potential resolution strategy, and its ability
to service its outstanding obligations.
Due to the current situation, S&P understands that Grain
Insurance's policyholder obligations will likely be transferred to
another local insurer. The regulator has placed its own
representatives within Grain Insurance to monitor this process.
===========
L A T V I A
===========
AIR BALTIC CORP: S&P Cuts Issuer Rating to B+, On CreditWatch Neg.
------------------------------------------------------------------
S&P Global Ratings lowered its ratings on eight European airlines
by one notch and placed all of the ratings on CreditWatch with
negative implications:
-- easyJet PLC
-- Ryanair Holdings PLC
-- Deutsche Lufthansa AG
-- International Consolidated Airlines Group, S.A.
-- British Airways PLC
-- Air Baltic Corp. AS
-- Turk Hava Yollari A.O. (Turkish Airlines)
-- SAS AB
S&P said, "We are assigning our 'B' long-term issuer credit rating
to Transportes Aereos Portugueses, SGPS, S.A. and its core
operating subsidiary Transportes Aereos Portugueses, S.A. We are
also assigning our 'B' issue rating and '4' recovery rating to the
EUR375 million senior unsecured notes due 2024, with recovery
prospects of 45% issued by Transportes Aereos Portugueses S.A. The
preliminary ratings, which we assigned on Nov 18, 2019 and
maintained until today were two notches higher at 'BB-'."
Travel restrictions across most European countries have driven many
airlines to temporarily suspend flight schedules to an
unprecedented extent. President Donald Trump announced travel
restrictions preventing anyone who has been in the Schengen Area
(which includes 26 European states) or the U.K. and Ireland in the
prior 14-day period from entering the U.S. These decisions will
continue to be partly informed by the actions of governments and
global, national and local health authorities' advice on travel to
highly affected areas.
There is significant uncertainty regarding the severity and
longevity of the coronavirus outbreak and related travel
restrictions, and as such S&P's financial forecasts are susceptible
to possible revisions in the near term. That said S&P's 2020
base-case assumptions for the industry, which S&P expects to
constantly evolve, currently include:
-- Overall passenger revenue declines of up to 30%, as air traffic
demand will be extremely low for at least the next couple of
months.
-- Average ticket price declines by a low-to-mid-single digit
percent due to expected overcapacity on long- and short-haul
routes, competitive pressures, and lower average oil prices. S&P
believes that airlines will allow lower yields to fill seats.
Capacity (available seat miles or kilometers) declines equal to
about half of the decline in passenger numbers, because it is
difficult for airlines to reduce flying as much as lower traffic
while still maintaining a viable flight schedule.
-- Fuel costs linked to S&P Global Ratings' revised oil price
assumptions in cases where an airline does not hedge fuel, but
adjusted to account for hedging (which in this case means less
savings from the lower fuel prices) where applicable and severe
capacity adjustments.
-- Flat to somewhat higher nonfuel costs per passenger.
-- Deferral in capital expenditure (capex) for new aircraft and
suspension of dividends and share buybacks.
S&P said, "We expect that lower revenues and cash flows will result
in significantly weaker credit metrics in 2020 relative to our
previous (pre-coronavirus) expectations. We believe that EBITDA
generation in 2020 could decline as much as 50%-70% for many
operators, depending on the flexibility of their cost bases. The
highest costs for airlines are typically fuel (about 25%-35% of
operating costs) and staff costs (which are somewhat flexible,
particularly since airlines have announced exceptional redundancies
in recent days).
"Timing of a recovery is highly uncertain, but we currently assume
that the first quarter of the calendar year will be affected only
by a much-weaker March, with the second quarter being the most
challenging for operators (with heavy operating losses). We assume
that the third quarter will see a slow recovery in traffic (over
the crucial summer period), and that the fourth quarter of the year
will approach normal market conditions. This recovery could be
delayed though, further pressuring credit metrics. We anticipate
negative free operating cash flow, even after the likely deferrals
in aircraft delivery. Aggravating this is working capital
requirements, which could escalate because of reduced bookings and
refunds to customers as traffic comes to a near-standstill. As
such, we expect airlines' immediate focus to be on protecting their
liquidity positions in the short term, which might include seeking
certain types of government support."
easyJet PLC Ratings Lowered One Notch; Issuer Rating 'BBB'; On
CreditWatch Negative
Primary analyst: Frank Siu
S&P said, "The downgrade reflects our view that easyJet's credit
metrics will be considerably weaker than we previously expected in
fiscal year (FY) 2020 (to Sept. 30, 2020). This is notwithstanding
the important steps that easyJet is taking to offset the steep
decline in demand for air travel, through both operational
efficiency initiatives, and material reductions to capacity.
easyJet has implemented a wide range of cost reduction measures,
including budget cuts to administrative areas and cancellations of
all discretionary spending, suspension of recruitment, promotion
and pay freezes across the network, postponement of noncritical
project and capex, unpaid leave for staff and halting nonmandatory
training, further cost reductions with third-party suppliers, and
aircraft reallocations for summer 2020.
"We now expect that easyJet's adjusted funds from operations (FFO)
to debt could significantly decline toward 30% as of FY2020,
compared with almost 180% in FY2019 (and our previous forecast for
FY2020 of 85%-100%), assuming passenger traffic begins to recover
later this year. We anticipate that easyJet's free operating cash
flow will be materially negative in FY2020 unless it will be able
to reduce capex considerably.
"We understand that easyJet's financial policy is to prioritize
retaining its robust liquidity position. We now view the group's
liquidity as strong (down from previously exceptional), indicating
that we expect liquidity sources to cover uses by around 1.5x in
the 2020 calendar year, and by around 2.0x in the following 12
months. The airline currently has about GBP1.6 billion of cash and
$500 million (equivalent to about GBP390 million) of undrawn and
committed credit facility, which expires in 2021. easyJet has no
material financial debt maturities in FY2020 and FY2021 other than
its finance lease repayments, which we estimate to be about GBP250
million-GBP300 million per year. We also acknowledge that easyJet
should have flexibility to defer its planned capex program (related
to new aircraft) and could suspend shareholder remuneration as
necessary. easyJet has no maintenance financial covenants on its
outstanding debt, and has unencumbered aircraft worth over GBP4
billion, as well as a large and valuable slot portfolio.
"We placed the ratings on CreditWatch with negative implications,
indicating that we could lower the ratings further. We expect to
resolve the placement as we have more certainty regarding the
severity and longevity of the coronavirus outbreak, and its impact
on air traffic demand and easyJet's financial position and
liquidity. While we currently don't see liquidity as a near-term
risk for the group, we would lower the rating by at least one notch
if management's proactive actions to significantly cut operating
costs, reduce capital investments, and, if necessary, raise
additional funds, were insufficient to preserve an at least
adequate liquidity position. We would also likely lower the ratings
if we expect adjusted FFO to debt to average below 45% over the
FY2020-2021 period. This could occur if COVID-19 cannot be
contained, resulting in prolonged air traffic restrictions in
Europe, and if passenger reluctance to fly drags on longer than
expected. We could also lower the rating if the industry
fundamentals significantly and sustainably weakened, hampering
easyJet's competitive position and profitability."
Ryanair Holdings PLC Ratings Lowered One Notch; Issuer Rating
'BBB'; On CreditWatch Negative
Primary analyst: Izabela Listowska
S&P said, "Our downgrade reflects that while Ryanair is taking
several steps to offset the severe air travel demand drop in recent
weeks through cost-saving and operational efficiency initiatives,
as well as capacity reductions, we expect these to be more than
offset by sharply deteriorating traffic levels. Based on the
airline's hedged fuel position--90% of its fuel requirement in
FY2020 ending March 31 is hedged at $709 per metric ton and in
FY2021 at $606 per metric ton--we do not expect it to benefit
considerably in the near term from the most recent significant drop
in oil prices. We now expect S&P Global Ratings-adjusted FFO to
debt will decline to 40%-50% in FY2021 compared with the 180%-190%
we forecast in FY2020 and our previous FY2021 base case of
110%-120%, assuming passenger traffic begins to recover later this
year.
"We now assess Ryanair's liquidity as strong (previously
exceptional) because of our expectation of lower levels of cash
generation over the next 24 months. We expect sources to exceed
uses by about 1.9x in the 2020 calendar year and by at least 1.3x
in the following 12 months. We anticipate that Ryanair's free
operating cash flows will likely be negative --even if it
negotiated aircraft delivery deferrals in FY2021--because working
capital requirements could be material due to fewer bookings and
more refunds to customers.
"That said, we view Ryanair as one of the financially strongest
airlines in the industry, with EUR4.1 billion in cash on hand,
industry leading unit costs, and a 90%-owned fleet, of which over
70% of its aircraft are currently unencumbered. We also acknowledge
Ryanair's flexibility to defer planned capex for new aircraft and
suspend shareholder remuneration (which it did for FY2021).
Furthermore, Ryanair has no maintenance financial covenants in its
outstanding debt.
"We placed the ratings on CreditWatch with negative implications,
indicating that we could lower them further. We expect to resolve
as we have more certainty regarding the severity and longevity of
the coronavirus outbreak and its impact on air traffic demand and
Ryanair's financial position and liquidity. While we currently
don't see liquidity as a near-term risk, we would lower the rating
by at least one notch if management's proactive actions to cut
operating costs, reduce capital investments, and raise additional
funds, if necessary, are insufficient to preserve an at least
adequate liquidity position. A downgrade would also likely follow
if we expect adjusted FFO to debt to average below 45% over the
FY2021-2022 period. This could occur if the coronavirus pandemic
cannot be contained, resulting in prolonged air traffic
restrictions by governments and if the general passenger reluctance
to travel by air drags on longer than expected or takes longer to
recover. We could also lower the rating if industry fundamentals
significantly and sustainably weaken, impairing Ryanair's
competitive position and profitability."
British Airways PLC Ratings Lowered One Notch; Issuer Rating
'BBB-'; On CreditWatch Negative
Primary analyst: Frank Siu
S&P said, "Our downgrade follows the unprecedented government
travel restrictions imposed across Europe and the global airline
industry in recent weeks. President Trump's announced temporary
travel restrictions (see above) will be a significant disruptor to
BA's transatlantic network, which contributes to a large portion of
its earnings. We expect that BA and its parent IAG will experience
considerably weaker credit metrics in FY2020 (to Dec. 31, 2020),
notwithstanding the drastic mitigating measures the company will
implement in capacity cuts, as well as widespread operational
efficiency initiatives.
"We now expect S&P Global Ratings-adjusted FFO to debt could
significantly decline toward 10%-15% in FY2020, compared with about
70% in FY2019 (and our previous FY2020 forecast of above 45%),
assuming passenger traffic begins to recover later this year. We
anticipate that BA's free operating cash flows will be
significantly negative in FY2020 even if it reduces capex to
maintenance levels.
"Nevertheless, BA's financial policy prioritizes retaining its
robust liquidity position. We still view liquidity as strong,
indicating liquidity sources will exceed uses by around 2.0x in
FY2020, despite our expectations of reduced operating cash flows.
BA has about GBP2.5 billion of cash on balance sheet and large
committed aircraft financing facilities that could cover its
maintenance capex in FY2020. We also acknowledge BA's flexibility
to defer planned capex for new aircraft (which we expect the
company to implement successfully) and suspend shareholder
remuneration as necessary. BA has no material financial debt
maturities in FY2020 and FY2021 other than its finance lease
repayments, which we estimate to be an average of GBP635 million
for FY2020 and FY2021. Furthermore, BA has no maintenance financial
covenants on its debt outstanding.
"As the largest airline owned by IAG, we consider BA integral to
the group's overall strategy. Although there is no firm commitment
from IAG, we believe that IAG is likely to support BA under any
foreseeable circumstances and remains a "core" subsidiary of the
group. As such, we equalize our issuer credit rating on BA with
that on IAG, which is one notch above BA's 'bb+' stand-alone credit
profile (SACP; which we have also lowered by one notch as part of
this review).
"We expect to resolve the CreditWatch when we have more certainty
regarding the severity and longevity of the coronavirus, and its
impact on air traffic demand and IAG's financial position and
liquidity. We would likely lower the ratings if we expect adjusted
FFO to debt to average below 30% over the FY2020-FY2021 period.
While we currently don't see liquidity as a near-term risk, we
would lower the rating by at least one notch if management
proactive actions to cut operating costs and capital investments,
and to raise additional funds were insufficient to preserve an at
least adequate liquidity position. This could occur if COVID-19
cannot be contained (or at least neutralized) resulting in air
movement restrictions by governments, potential prolonged closing
of airports, and general passenger reluctance to air travel
dragging on longer than expected."
Deutsche Lufthansa AG Ratings Lowered One Notch; Issuer Rating
'BBB-'; On CreditWatch Negative
Primary analyst: Aliaksandra Vashkevich
S&P said, "Our downgrade reflects that while Lufthansa is taking
several drastic steps to offset the severe air travel demand drop
in recent weeks through cost-saving and operational efficiency
initiatives, as well as capacity reductions (including reducing
flight capacity further by up to 80%-90% from the original
schedule), we expect these to be more than offset by sharply
deteriorating traffic levels. Based on the airline's hedged fuel
position (about 70% of fuel requirement in FY2020 to Dec. 31), we
do not expect Lufthansa to considerably benefit from the recent
significant drop in oil prices in the near term. That said, we
anticipate a more sizable positive contribution to EBITDA from a
lower fuel bill in FY2021 compared with FY2020. We also believe
that Lufthansa's maintenance, repair, and overhaul (MRO) operations
(which accounted for about 20% of the group's total EBITDA in
FY2019) will positively contribute to Lufthansa's earnings, having
no direct exposure to passenger volumes. We now expect S&P Global
Ratings-adjusted FFO to debt could decline toward 20% in FY2020,
compared with 30%-35% expected in our previous FY2020 forecast,
assuming passenger traffic begins to recover later this year.
"We are revising our liquidity assessment to adequate (from strong)
based on the company's expected reduced cash flow generation. We
anticipate that Lufthansa's free operating cash flows will likely
be negative even if we do not foresee any investments in new planes
this year. This is because its working capital requirements could
be material over the next few months due to fewer bookings and
refunds to customers. Considering several funding arrangements
completed so far this year, we expect liquidity sources to exceed
uses by 1.4x-1.5x in FY2020. Lufthansa has raised funds of about
EUR600 million in recent weeks and currently has liquidity of about
EUR4.3 billion. In addition, unused credit lines maturing beyond 12
months total about EUR800 million. Lufthansa is raising additional
funds via aircraft financing. The airline owns 86% of its fleet, of
which about 90% is unencumbered and corresponds to a book value of
about EUR10 billion. Lufthansa has no maintenance financial
covenants in its debt outstanding.
"We placed the ratings on CreditWatch with negative implications,
indicating that we could lower them further. We expect to resolve
as we have more certainty regarding the severity and longevity of
the coronavirus outbreak and its impact on air traffic demand and
Lufthansa's financial position and liquidity. We would lower the
rating by at least one notch if management's widespread actions to
cut operating costs and capital investments, and to raise
additional funds as necessary are insufficient to preserve at least
an adequate liquidity position. A downgrade would also likely
follow if we expect adjusted FFO to debt to average below 25% over
the 2020-2021 period. This could occur if COVID-19 cannot be
contained, resulting in prolonged air traffic restrictions by
governments, and if general passenger reluctance to travel by air
drags on longer than expected."
International Consolidated Airlines Group S.A. (IAG) Ratings
Lowered One Notch; Issuer Rating 'BBB-'; On CreditWatch Negative
Primary analyst: Izabela Listowska
S&P said, "Our downgrade reflects that while IAG is executing
measures to mitigate the collapse in air travel demand in recent
weeks, such as cost saving and operational efficiency initiatives
and drastic capacity reductions, as well as benefit from a
moderately lower fuel bill based on its current hedged position
(90% of the FY2020 fuel requirement is locked in) and the latest
drop in jet fuel prices, we expect this will all be more than
offset by sharply deteriorating traffic levels. We now expect that
S&P Global Ratings-adjusted FFO to debt could decline toward 20% in
FY2020 (to Dec. 31, 2020), compared with 50%-60% expected in our
previous FY2020 forecast and 65% achieved in FY2019, assuming
passenger traffic begins to recover later this year.
"We continue to assess the group's liquidity as strong despite
expected reduced cash flow generation. We anticipate that IAG's
free operating cash flows will be negative this year even
considering a substantial capex cut for new planes. This is because
of the expected working capital outflows due to fewer bookings and
refunds to customers. That said, considering several funding
arrangements completed so far this year, we expect liquidity
sources to exceed uses by around 1.6x in FY2020. IAG had available
cash, cash equivalents and interest-bearing deposits of EUR7.35
billion as of March 12, 2020. In addition, undrawn general and
committed aircraft backed financing facilities maturing beyond 12
months amounted to EUR1.9 billion, resulting in total liquidity of
EUR9.3 billion. The group has no maintenance financial covenants in
its outstanding debt.
"We expect to resolve the CreditWatch when we have more certainty
regarding the severity and longevity of the coronavirus, and its
impact on air traffic demand and IAG's financial position and
liquidity. We would likely lower the ratings if we expect adjusted
FFO to debt to average below 30% over the FY2020-FY2021 period.
While we currently don't see liquidity as a near-term risk, we
would lower the rating by at least one notch if management
proactive actions to cut operating costs and capital investments,
and to raise additional funds were insufficient to preserve an at
least adequate liquidity position. This could occur if COVID-19
cannot be contained (or at least neutralized) resulting in air
movement restrictions by governments, potential prolonged closing
of airports, and general passenger reluctance to air travel
dragging on longer than expected."
Air Baltic Corporation AS Ratings Lowered One Notch; Issuer Rating
'B+'; On CreditWatch Negative
Primary analyst: Aliaksandra Vashkevich
The downgrade reflects the expected impact of the Latvian
government's recent COVID-19-related travel restrictions, including
the cancellation of international passenger transport through
airports and ports (as well as bus and rail transport), as of March
17, 2020, until at least April 14, 2020. As a result,
government-owned Air Baltic has temporarily suspended all
international connections during this period, including services
from Estonia and Lithuania.
S&P said, "We now forecast that Air Baltic's adjusted FFO to debt
for FY2020 (to Dec. 31) will be below the 6% level expected in
FY2019. The reduction in debt leverage we expected previously
hinges on gradual EBITDA improvements, driven by further fleet
modernization and solid passenger growth, which will be now
delayed.
"We understand that the Latvian airline will take wide-ranging
measures to partially offset the impact from the collapse in
traffic through deferrals of launches of all new routes (until at
least the beginning of July 2020) and temporary reduction of
capacity and workforce costs until June, while also seeking labor
cost savings, such as not extending probation time, unpaid leave,
and redundancies.
"We have revised Air Baltic's liquidity assessment to less than
adequate (from adequate), which now include several months of
negative operating cash flow generation. We forecast liquidity
sources to uses will be less than 1.2x in FY2020. At the start of
FY2020 we estimate that the Latvian airline had about EUR124
million of cash on hand compared with debt maturities of EUR25
million-EUR30 million over the full year, consisting of only
finance leases (on a pre-IFRS 16 basis) and net capex needs of
about EUR60 million.
"We expect to resolve the CreditWatch placement as we learn more
about the impact of the coronavirus outbreak on Air Baltic's
financial position and liquidity. We would further lower our
ratings if the group's liquidity deteriorates such that the ratio
of liquidity sources to uses reflects a material deficit over the
next 12 months."
SAS AB Ratings Lowered One Notch; Issuer Rating 'B'; On CreditWatch
Negative
Primary analyst: Aliaksandra Vashkevich
S&P said, "Our downgrade reflects our view that, because of the
collapse in demand for air travel because of COVID-19, SAS' EBITDA
will drop to the extent, resulting in credit measures commensurate
with a 'B' rating, with S&P Global Ratings-adjusted debt to EBITDA
averaging at 6.0x-7.0x, as compared with 4.7x in FY2019. This
follows the company's announcement that it temporarily suspended
most of its flights amid country border closures in its main
markets until conditions for commercial aviation improve and demand
for air travel resumes, at least partly. SAS has limited capacity
to significantly lower its cost base in the short term, which makes
its earnings particularly vulnerable to demand shifts in its core
Scandinavian market. The company is looking to temporary lay off
90% of its total workforce, but we believe these measures may not
be sufficient to avoid liquidity erosion."
That said, the most recent government support providing a financial
guarantee of SEK3 billon for the airline results in the ratio of
liquidity sources to uses staying above 1.2x over the next 12
months starting from Jan. 31, 2020. As of that date, the
Scandinavian airline had about 6.6 billion Swedish krona (SEK) of
cash on hand, which combined with SEK3 billion financial guarantee
supporting new bank funding compares well against next 12 months'
debt maturities of SEK600 million (excluding IFRS 16 debt) and
estimated capex needs (mainly in the form of prepayments) of about
SEK3 billion.
The rating is also on CreditWatch with negative implications given
substantial uncertainty regarding the severity and longevity of the
current coronavirus outbreak, potentially resulting in prolonged
air traffic restrictions by governments and general passenger
reluctance to travel. S&P said, "We expect to resolve the
CreditWatch as we learn more about the impact of the coronavirus on
SAS' financial position and liquidity. As a part of our CreditWatch
resolution, we may also reconsider our current GRE status of SAS
and the likelihood of government support."
Turk Hava Yollari A.O. (Turkish Airlines) Ratings Lowered One
Notch; Issuer Rating 'B'; On CreditWatch Negative
Primary analyst: Frank Siu
S&P said, "We have lowered our ratings on Turkish Airlines to
reflect the collapse in demand for air travel as a result of the
outbreak of COVID-19. While Turkish Airlines is taking many
measures to help mitigate the adverse impact of materially reduced
passenger numbers, we believe this will still lead to significantly
weaker credit metrics in 2020 than we had previously forecast."
The coronavirus has led to a severe decline in air traffic in
recent weeks, with many European airlines already being forced to
cut capacity by up to 90%. S&P said, "While Turkish Airlines is
taking steps to offset declining demand through redeploying its
aircraft to more resilient routes, cutting capacity, and focusing
on cost-saving initiatives, in our revised forecasts we now expect
S&P Global Ratings-adjusted FFO to debt to decline toward 5% in
2020, compared with about 15% in 2019. We also anticipate that
Turkish Airlines' free operating cash flows will be significantly
negative in 2020 unless it is willing and able to substantially
reduce its capital expenditure."
S&P said, "We view liquidity as adequate and assess that sources
will cover uses by about 1.2x over the 12-month period starting
Jan. 1, 2020. The airline has about $2.5 billion of cash and about
$460 million undrawn portion of the committed revolving credit
facilities, which could cover about $1.7 billion of short-term debt
maturities and about $1 billion of finance lease repayments.
However, the airline exhibits very high capital spending on new
aircraft and the new Istanbul airport. Nevertheless, the group has
the flexibility to reduce capital spending to maintain sufficient
liquidity in 2020.
"We placed our ratings on the company on CreditWatch with negative
implications, indicating that we could lower ratings further. We
expect to resolve this as soon as we have more clarity regarding
the severity and longevity of the coronavirus, and its impact on
air traffic demand and Turkish Airlines' financial and liquidity
positions. We would likely lower the ratings if we expected
adjusted FFO to debt to average below 6% over the FY2020-2021
period, or liquidity weakened over the next 12 months." This could
occur if Turkish Airlines does not sufficiently reduce capex to
retain liquidity, and COVID-19 cannot be contained and general
passenger reluctance to air travel drags on longer than expected.
Transportes Aereos Portugueses, SGPS, S.A. Ratings Assigned; Issuer
Rating 'B'; On CreditWatch Negative
Primary analyst: Aliaksandra Vashkevich
S&P said, "We are assigning our 'B' long-term issuer credit rating
to Transportes Aereos Portugueses, SGPS, S.A. and its core
operating subsidiary, Transportes Aereos Portugueses S.A. The
ratings include two notches of uplift due to our view of a
moderately high likelihood of extraordinary support from the
Portuguese government in case of financial distress. We are also
assigning our 'B' issue rating and '4' recovery rating to the
EUR375 million senior unsecured notes due 2024.
"Our SACP on TAP of 'ccc+' reflects the risk of a liquidity
shortfall in the near term absent support from the Portuguese
government. The global spread of COVID-19 has significantly reduced
demand for air travel in recent weeks, and while TAP is pursuing
counterbalancing measures, including cost-saving initiatives and
heavy capacity reductions, we expect them to be more than offset by
sharply deteriorating traffic levels and drag on the airline's cash
flow generation. We anticipate that TAP's free operating cash flows
will be negative this year even considering a substantial cut of
capex for new planes." This is aggravated by a significant
deterioration in EBITDA and working capital outflow due to fewer
bookings and refunds to customers.
TAP had available cash of about EUR267 million as of Dec. 31, 2019
(pro forma the EUR159 million February 2020 loan amortization
payment), which compared to debt/finance lease amortization of
about EUR60 million and EUR300 million-EUR350 million in rent
obligations under its operating leases, could trigger a liquidity
shortfall in times when TAP's operating cash flow generation is
constrained. This situation makes TAP dependent on the government
to provide timely and sufficient financial support. S&P said, "We
understand that TAP will comply with its net leverage maintenance
covenant on it senior secured bond tested in July 2020 based on
2019 financial results. That said, we believe that without
corrective actions, the company might breach this covenant tested
further at the beginning of 2021 taking into account the weak
EBITDA generation in first-half 2020."
The Portuguese government has extended extraordinary financial
support to TAP Group in the past, most notably in 1994, 1995, 1996,
and 1997, totalling nearly EUR900 million. These injections were
approved by the EU Competition Authorities and accounted for as
capital in 1997. However, any further financial support will be
strictly scrutinized under the EU competition framework and be
potentially subject to European Commission rulings. That said, the
Portuguese government could at any point extend a market-based loan
to TAP Group at an interest rate on par with the prevailing market
rate. Such a loan would not, in S&P's understanding, be classified
as EU state aid.
S&P said, "We acknowledge TAP's important role in the Portuguese
economy and understand that the government views the airline as a
strategic asset that is important to economic development and
tourism. TAP serves as one of the largest employers in the country
and is the largest exporter of domestic services. Furthermore, the
airline provides reasonable air connectivity to major trade
partners' cities (apart from Spain), given the peripheral
geographic location of Portugal in Europe, which would otherwise be
less efficiently accessible by alternative modes of transport.
"We expect to resolve the CreditWatch within the next three months
after assessing how TAP is addressing the deteriorating liquidity.
We will likely lower the rating if we conclude that TAP's liquidity
position would deteriorate further absent timely and sufficient
government support."
Ratings List
Air Baltic Corp AS
Downgraded; CreditWatch/Outlook Action
To From
Air Baltic Corp AS
Issuer Credit Rating B+/Watch Neg/-- BB-/Stable/--
Air Baltic Corp AS
Senior Unsecured B+/Watch Neg BB-
British Airways PLC
Downgraded; CreditWatch/Outlook Action
To From
British Airways PLC
Issuer Credit Rating BBB-/Watch Neg/-- BBB/Stable/--
British Airways PLC
Equipment Trust Certs A-/Watch Neg A
Equipment Trust Certs BBB+/Watch Neg A-
Equipment Trust Certs AA-/Watch Neg AA
Ratings Affirmed
British Airways PLC
Equipment Trust Certs A
Deutsche Lufthansa AG
Downgraded; CreditWatch/Outlook Action
To From
Deutsche Lufthansa AG
Issuer Credit Rating BBB-/Watch Neg/A-3 BBB/Stable/A-2
Deutsche Lufthansa AG
Senior Unsecured BBB-/Watch Neg BBB
Junior Subordinated BB/Watch Neg BB+
International Consolidated Airlines Group, S.A.
Downgraded; CreditWatch/Outlook Action
To From
International Consolidated Airlines Group, S.A.
Issuer Credit Rating BBB-/Watch Neg/-- BBB/Stable/--
International Consolidated Airlines Group, S.A.
Senior Unsecured BBB-/Watch Neg BBB
Ryanair Holdings PLC
Downgraded; CreditWatch/Outlook Action
To From
Ryanair Holdings PLC
Ryanair DAC
Issuer Credit Rating BBB/Watch Neg/-- BBB+/Stable/--
Ryanair DAC
Senior Unsecured BBB/Watch Neg BBB+
SAS AB
Downgraded; CreditWatch/Outlook Action
To From
SAS AB
Issuer Credit Rating B/Watch Neg/-- B+/Stable/--
Transportes Aereos Portugueses, SGPS, S.A.
New Rating; CreditWatch/Outlook Action
Transportes Aereos Portugueses, SGPS, S.A.
Transportes Aereos Portugueses, S.A.Transportes Aereos
Portugueses, S.A.
Issuer Credit Rating B/Watch Neg/--
Transportes Aereos Portugueses, S.A.Transportes Aereos
Portugueses, S.A.
Senior Unsecured B/Watch Neg
Recovery Rating 4(45%)
Turk Hava Yollari A.O.
Downgraded; CreditWatch/Outlook Action
To From
Turk Hava Yollari A.O.
Issuer Credit Rating B/Watch Neg/-- B+/Stable/--
Turk Hava Yollari A.O.
Equipment Trust Certs BB/Watch Neg BB+
easyJet PLC
Downgraded; CreditWatch/Outlook Action
To From
easyJet PLC
easyJet Airline Company Ltd.
Issuer Credit Rating BBB/Watch Neg/-- BBB+/Stable/--
easyJet PLC
Senior Unsecured BBB/Watch Neg BBB+
=========
M A L T A
=========
GLOBAL FUNDS: Mazars Malta Set to Be Appointed as Liquidators
-------------------------------------------------------------
The Malta Independent reports that Mazars Malta are set to be
appointed liquidators of Global Funds Sicav plc after shareholders
voted for the dissolution and voluntary winding up of the company
at an Extraordinary General Meeting held on March 11, 2020.
===========
N O R W A Y
===========
HURTIGRUTEN GROUP: S&P Cuts ICR to CCC+ as COVID-19 Weakens Demand
------------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Norway-based cruise ship operator Hurtigruten Group to 'CCC+' from
'B-'. S&P also lowered its issue ratings on the senior revolving
credit facility (RCF), term loan facility, and senior secured
notes.
The recent Covid-19 outbreak and its rapid migration into Europe
and the United States will severely harm Hurtigruten's results for
2020, and could have longer-lasting effects.
Public authorities in countries such as the U.S., Italy, and Spain
have strongly advised their citizens to avoid taking cruises in
light of the rapid growth of confirmed cases of COVID-19 in
Asia-Pacific, Europe, and North America. As a result, operators
such as U.S.-based Viking Cruises have canceled all cruises through
April.
S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak. S&P said,
"Some government authorities estimate the pandemic will peak
between June and August, and we are using this assumption in
assessing the economic and credit implications. We believe measures
to contain COVID-19 have pushed the global economy into recession
and could cause a surge of defaults among nonfinancial corporate
borrowers. As the situation evolves, we will update our assumptions
and estimates accordingly."
These developments will significantly harm the global cruise
industry in 2020, since reduced demand and high cancelations will
lead to subdued earnings and cash flow generation for the year. S&P
thinks the effects of the outbreak could remain visible in 2021
because weakened consumer confidence and the long-booking windows
for the cruise industry--cruises tend to be booked 12 or even 18
months in advance--could also lead to lower booking levels for next
year.
To ensure passenger safety, Hurtigruten is currently offering full
refunds for last-minute booking cancelations on all cruises taking
place in 2020, mostly in the form of vouchers for future trips in
late 2020 and 2021. This should help soften the blow of COVID-19 on
2020 cash flows and on customer loyalty. However, despite the
potential for relatively quick earnings recovery, the current
vouchering system will likely result in continued subdued cash flow
generation over 2021.
Hurtigruten recently refinanced its export credit agency (ECA)
facilities, pushing debt amortization requirements forward and
providing additional liquidity to fund capital expenditure (capex)
commitments.
In January 2020, the group issued EUR300 million of senior secured
notes to refinance its outstanding ECA facilities. The transaction
allowed the group to raise an additional EUR41 million of funds to
partly prefund some of its capex commitments for 2020 and 2021,
mainly related to ship refurbishments and the conversion of some of
its fleet into liquefied natural gas-powered engines.
Although the recent refinancing transaction improved the group's
liquidity profile over the short-to-medium term, the key for
Hurtigruten's liquidity position over the next 12-24 months will be
the extent to which the group can postpone future capex
commitments. The group recently announced that it could defer
Norwegian krone (NOK) 1.2 billion of the NOK2.2 billion capital
investments planned between April 2020 and June 2021 by 12 months.
Although the deferral could temporarily alleviate the stress on
2020 cash flows, it could also lead to prolonged periods of subdued
cash flows and tightened liquidity through 2021.
Prolonged earnings and cash flow deterioration could lead to a
tightened liquidity position due to the springing net leverage
covenant under the current RCF agreement.
The group's EUR85 million RCF due February 2024 has a springing net
leverage of 7.7x, which becomes effective when drawings under the
facility exceed EUR34 million (40% of the total balance). S&P
revised base case envisions a significant spike in leverage in
FY2020, which it thinks will lead to leverage levels well above the
covenant level.
S&P said, "Although we assume in our base case that the group could
postpone capex to preserve cash flows and therefore reduce the need
for RCF drawings, the COVID-19 pandemic could ultimately lead
Hurtigruten to rely on material RCF drawings to preserve liquidity.
This could happen if, for example, operating activity remains
subdued well into the third quarter of the year, when the group
historically generates more than 50% of its EBITDA, or if customers
request significant cash refunds for 2020 journeys. In such a
scenario, the group would likely need to negotiate with existing
RCF lenders to avoid a covenant breach.
"In our base case, we assume drastically subdued activity in the
group's operations until September 2020 and a slow pickup in
activity through the rest of the year. This translates into a
revenue decline of up to 10% and a reported EBITDA contraction of
30%-40% in 2020, despite the increased capacity from the two new
ocean vessels. In our view, the group will be able to partly offset
the slow-down in activity through a reduction in capacity and
operating expenses, and deferred capex. However, the travel
industry could remain subdued for longer than currently expected
and we will update our expectations and forecasts as we receive
more information.
"We could lower the rating if industry conditions further
deteriorate, such that we envision a default scenario over the next
12 months. This could be the case if cash outflows further pressure
the company's liquidity position, especially related to intra-year
working capital requirements or capex commitments being due. Such a
scenario could cause liquidity bottlenecks and potential covenant
breaches over the near term.
"Although unlikely in the short term, we could revise the outlook
to stable if the COVID-19 pandemic passes with a limited
longer-term effect on Hurtigruten's credit metrics.
"An outlook revision to stable would also likely depend on our
expectation of a lifting of restrictions on global travel in the
short term and a rapid uptick in net booking inflows, allowing the
company to return to sustainable levels of profitability and
earnings."
NORWEGIAN AIR: Secures US$270MM Funding Under Certain Conditions
----------------------------------------------------------------
Mikael Holter and Siddharth Philip at Bloomberg News report that
Norwegian Air Shuttle ASA secured government funding worth up to
US$270 million under certain conditions, keeping it alive for now
while the coronavirus still threatens to knock out the struggling
discount carrier.
Norway offered NOK6 billion (US$537 million) in loan guarantees for
the airline industry, with half available to Norwegian Air
contingent on efforts from its current creditors, Bloomberg relays,
citing a proposal agreed by a majority of parties in parliament and
presented on March 19.
"We're going to work hard with these terms to secure these 3
billion," Bloomberg quotes Norwegian Chief Executive Officer Jacob
Schram as saying at a press conference. "We'll do everything in
our power to achieve that."
The package is most likely too small and the conditions may make it
impossible for the company to access, DNB Markets analyst Ole
Martin Westgaard wrote in a note to clients, saying the bankruptcy
risk facing the carrier has significantly increased, Bloomberg
notes.
Norwegian Air was already saddled with debt when the coronavirus
hit, and restrictions on international travel devastated its
business ferrying people around Europe and across the Atlantic on
low-cost flights, Bloomberg discloses. Mr. Schram pleaded for
government aid last week after SAS, its chief rival in Scandinavia,
got about $300 million in state guarantees from Sweden and Denmark,
Bloomberg recounts.
On March 16, Norwegian Air temporarily laid off 90% of its staff
and grounded almost all its flights, Bloomberg relays. The
company's stock has fallen 70% since the start of the year,
according to Bloomberg.
"Norwegian has had financial challenges also before the corona
crisis," Norway's Industry and Trade Ministry, as cited by
Bloomberg, said in a statement. "Through this set-up we're clear
that both shareholders and creditors must contribute to a better
financial situation for the company if the government is to offer
guarantees."
Norway will contribute 90% of the sum, on condition that commercial
institutions commit to the rest, Bloomberg states.
Norwegian, Bloomberg says, will only get NOK300 million initially,
with NOK1.2 billion coming available if current creditors waive
interest and amortization payments for three months. The industry
ministry said to gain access to the second half of the 3
billion-kroner package, Norwegian Air will have to improved its
finances, Bloomberg notes.
According to Bloomberg, Norwegian Air said it hired financial and
legal advisers to evaluate the package and help the company develop
a "sustainable financial platform."
CEO Schram declined to comment specifically on the terms March 19,
and said he hadn't yet spoken to any of the involved stakeholders,
Bloomberg notes.
Asked by reporters whether the guarantees would be enough to save
the airline even if they were granted in full, he said the
government seemed prepared to talk about further measures if the
coronavirus crisis continues past June, Bloomberg relates.
===========
P O L A N D
===========
ELEKTROBUDOWA: To File Bankruptcy Motion After Debt Talks Fail
--------------------------------------------------------------
Konrad Krasuski at Bloomberg News reports that Polish
electro-energy equipment assembly company Elektrobudowa said it
plans to file a bankruptcy motion after being unable to reach
agreement with creditors and the failure of a rescue share-sale
plan.
The company had PLN42 million of outstanding loans to ING Bank
Slaski, Bank Handlowy, MBank, PKO and BNP Paribas Bank Polska as of
the end of September, Bloomberg relays, citing its latest filing,
notes Bloomberg News.
=============
R O M A N I A
=============
S-KARP: Goes Into Bankruptcy After Sale Plan Fails
--------------------------------------------------
Romania Insider reports that ROCA, a Romanian investment and
management platform that invests in distressed companies, announced
that its first project, shoemaker S-Karp, went bankrupt.
According to Romania Insider, ROCA CEO Rudi Vizental said the
company has invested EUR2 million in the project.
When it entered the S-Karp shareholding, ROCA relied on the Made in
Romania concept, namely quality footwear products at a competitive
price, but increasing wages, increasing the price for utilities,
lower productivity than in China or in other countries in Asia led
to the company's insolvency, Romania Insider relays, citing the
ROCA CEO.
According to Romania Insider, the fund planned to sell the factory
to another local shoe producer, Clujana, which is controlled by the
local public administration in Cluj county, but the transaction
didn't go through.
===========================
U N I T E D K I N G D O M
===========================
LAURA ASHLEY: Announces Permanent Closure of 70 Stores
------------------------------------------------------
The Scotsman reports that Laura Ashley has announced the permanent
closure of 70 stores, with 721 employees set to lose their jobs.
It comes after the fashion and furnishings retailer announced its
intention to hire administrators last week, blaming the impact of
coronavirus for tipping it over the edge, The Scotsman relates.
Laura Ashley is one of the first to announce permanent closures
after the virus exacerbated a recent downturn in profitability, The
Scotsman notes.
It said it will continue to trade from its remaining 77 UK stores,
which will remain open while online operations also continue to
trade, The Scotsman relays.
The firm has several outlets in Scotland, including two in both
Edinburgh and Glasgow and stores in Aberdeen, Inverness and
Stirling, The Scotsman discloses.
Laura Ashley added that it expects to enter administration later on
March 30 after appointing advisers from PwC to oversee the process,
according to The Scotsman.
Last week, the company, as cited by The Scotsman, said it would
enter insolvency after rescue talks were thwarted by the
coronavirus outbreak, which has heavily impacted high street
firms.
It said its administrators will now be working to support employees
who are set to be impacted by the raft of closures, The Scotsman
relays.
According to The Scotsman, the administrators will also initially
focus on talking with interested parties in a bid to secure a buyer
for the historic firm.
MORTIMER BTL 2020-1: Fitch Gives 'BBsf' Rating on Class E Notes
---------------------------------------------------------------
Fitch Ratings has assigned Mortimer BTL 2020-1 plc's notes final
ratings as detailed below.
Mortimer BTL 2020-1 PLC
Class A XS2128020778; LT AAAsf New Rating
Class B XS2128023285; LT AA-sf New Rating
Class C XS2128026890; LT Asf New Rating
Class D XS2128027195; LT BBB-sf New Rating
Class E XS2128027278; LT BBsf New Rating
Class X XS2128027351; LT Bsf New Rating
Class Z XS2128027435; LT NRsf New Rating
The class C, E, and X notes have been assigned ratings one notch
higher than their respective expected ratings. This is driven by
the notes' tighter than anticipated margins and the lower than
expected asset swap rate payable by the issuer, which increase the
availability of excess spread in the structure.
TRANSACTION SUMMARY
This transaction is a securitization of buy-to-let (BTL) mortgages
originated in England, Wales and Scotland by LendInvest BTL
Limited, which entered the BTL mortgage market in December 2017.
LendInvest is the named servicer for the pool with servicing
activity delegated to Pepper (UK) Limited.
KEY RATING DRIVERS
Prime Underwriting, Limited History
LendInvest operates a tier one lending policy in line with prime
BTL lenders. All loans require a full valuation and LendInvest
applies loan-to-value and interest cover ratio tests. For tier one
products, LendInvest excludes borrowers with adverse credit while
some adverse credit is permitted for tier two lending. Tier one
loans represent 98.1% of the collateral in this pool. LendInvest
has a limited history of operations, having only advanced BTL
mortgages since December 2017.
Geographical Diversification
The pool displays greater geographical diversity than typical BTL
pools, which often have a concentration in the London region. In
this pool, no region has a concentration equal or larger than 2.5x
its population and as a result Fitch has not made any further
adjustment. Furthermore, London attracts a higher sustainable price
discount in Fitch's assumptions than other regions. As a result,
the collateral portfolio has a lower weighted average sustainable
LTV ratio than comparable pools of recently originated BTL
mortgages.
Fixed Hedging Schedule
The issuer entered into a swap at closing to mitigate interest-rate
risk arising from the fixed-rate mortgage loans prior to their
reversion date. The swap is based on a defined schedule assuming no
defaults or prepayments, rather than the balance of fixed-rate
loans in the pool. If loans prepay or default, the issuer will be
over-hedged. The excess hedging is beneficial to the issuer in a
rising interest-rate scenario and detrimental when interest rates
are falling.
Unrated Seller
LendInvest is not rated by Fitch and has an uncertain ability to
make substantial repurchases from the pool in the event of a
material breach in representations and warranties. Fitch views the
materially clean re-underwriting and agreed-upon procedures reports
as mitigating factors that make a significant breach of R&Ws a
sufficiently remote risk.
Limited Upgrade Potential for Junior Notes
Only the class A and B notes are protected from payment
interruption risk. Missing protection for the rated junior notes C
to X limits upside up to 'A+sf'. Moreover, for the class C, D, E,
and X notes, which allow for interest deferrals, Fitch tests for
the investment-grade rating categories where the projected deferral
period is short and ends well ahead of the legal final maturity of
the notes.
RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity
on defaulted receivables producing losses greater than Fitch's base
case expectations may result in negative rating action on the
notes. Fitch's analysis revealed that a 30% increase in the
weighted average foreclosure frequency (WAFF), along with a 30%
decrease in the weighted average recovery rate, would imply a
downgrade of the class A notes to 'A+sf' from 'AAAsf'.
Fitch understands forbearance on tenant evictions or rent
suspension allowances may be envisioned as part of the government
measures related to the coronavirus outbreak. The liquidity reserve
can cover contractual senior costs and current interest payments on
the class A and B notes for nine months, assuming no collections
are received from the underlying portfolio.
An increase in the WAFF by 15% would result in no rating impact
assuming high prepayment rates only occur after the first three
years of cash-flow projections. Considering the same scenario, an
increase in the WAFF by 30% would result in a one-notch downgrade
for the class A only to 'AA+sf'.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of LendInvest's
origination files and found the information contained in the
reviewed files to be adequately consistent with the originator's
policies and practices and the other information provided to the
agency about the asset portfolio.
Overall, Fitch's assessment of the asset pool information relied
upon for the agency's rating analysis according to its applicable
rating methodologies indicates that it is adequately reliable.
SAGA PLC: Moody's Cuts CFR to Ba2, On Review for Downgrade
----------------------------------------------------------
Moody's Investors Service downgraded Saga Plc's corporate family
and backed senior unsecured debt ratings to Ba2 from Ba1, and the
probability of default rating to Ba2-PD from Ba1-PD. The outlook on
Saga Plc has been changed to ratings under review from negative.
The downgrade reflects Moody's expectation that the temporary
suspension of Saga's cruise operations, along with lower tour and
cruise bookings and rising cancellations related to the
coronavirus, will place pressure on the group's profitability and
liquidity, while limiting the group's ability to improve its
leverage metrics over the next year. While the six week suspension
of Saga's cruise operations will have a significant impact on
profitability, Moody's currently expects the group to be able to
maintain sufficient liquidity and meet its debt covenant
thresholds.
The rating has been placed on review for further downgrade to
reflect the risk of a more prolonged suspension and disruption of
the group's cruise and tour operations, which would put the group
at risk of breaching covenants on its bank term loan and revolving
credit facility.
RATINGS RATIONALE
The ratings were downgraded from Ba1 to Ba2 to reflect Moody's view
that the expected significant decline in Saga's profitability this
year will impede the group's ability to offset declining
profitability on its insurance business or to reduce its debt to
EBITDA leverage, thereby crystallizing the negative outlook that
was in place for Saga. The outlook for Saga was changed to negative
in April 2019 to reflect elevated execution risk associated with
the group's strategy to grow its insurance broking and travel
businesses to offset deterioration in revenue and earnings, and the
risk that Saga's leverage would remain above Moody's expectation
for the previous Ba1 rating level for a prolonged period.
The review for downgrade will focus on Saga's ability to preserve
its earnings and liquidity during this period of significant
disruption and to maintain compliance with the covenants on its
term loan and revolving credit facilities, including maintaining
debt to EBITDA leverage below 3.5x. While Moody's baseline scenario
is that the group will not breach its term loan covenants, there
remains significant uncertainty about the expected spread of the
coronavirus and the length of time that Saga's cruise and travel
operations will be disrupted. In addition, there is a strong
likelihood that additional steps taken by the UK Government to
shield older citizens from the coronavirus will further materially
increase the disruption to Saga's cruise and travel operations.
On March 13, Saga announced the suspension of its cruise operations
until May 1, 2020 in response to travel advice from the UK
Government which advised people aged 70 and over and those with
pre-existing health conditions against cruise ship travel. It is
expected that the government will announce additional restrictive
guidance impacting Saga's main customer base within the next few
days.
However, in the event that the group does breach its debt
covenants, Moody's believes it probable that Saga's lenders would
waive the covenants or otherwise exercise forbearance, given the
sound profitability of Saga's underlying business outside of the
significant disruption related to the coronavirus. However, if
during the review period it becomes increasingly likely that Saga
will breach one or more debt covenants and is not able to secure
forbearance from lenders in advance of a potential breach, Moody's
could downgrade Saga's ratings by more than one additional notch.
WHAT COULD CHANGE THE RATING UP / DOWN
Moody's says the rating would likely be downgraded if the
disruption to the group's cruise and tour operations extends
materially beyond the currently envisaged six weeks and the group
is unable to agree forbearance measures with its lenders in advance
of a possible breach of covenants.
Given the review for downgrade, there is limited likelihood of an
upgrade to Saga's ratings at this stage.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Insurance
Brokers and Service Companies published in June 2018.
SAGA PLC: S&P Lowers ICR to 'B', On CreditWatch Negative
--------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on Saga PLC to
'B' from 'BB'.
S&P said, "We are also placing the ratings on CreditWatch with
negative implications, to indicate that the rating could be lowered
further if the group fails to address its covenant issues.
"Our ratings on Saga PLC have been lowered because we expect the
measures being taken to curb the spread of COVID-19 to have a
strongly negative effect on its travel business."
In parallel to running a significant and profitable insurance
business, Saga organizes holidays and runs cruises for its target
demographic: U.K. citizens who are over 50. Given that this group
is particularly susceptible to complications from the COVID-19
disease, Saga has considerable exposure to the current outbreak.
Based on recent developments, S&P has adjusted our base-case
scenario and now expect its financial risk profile to significantly
weaken.
On March 16, the U.K. government advised citizens aged 70 or over
to avoid cruises. This, combined with the steps to quarantine
visitors being taken by a number of governments in response to the
outbreak, caused the Saga group to announce the suspension of all
its cruises, until May 1, 2020. Although the situation is evolving
quickly, we see a reasonably high likelihood that the suspension
could continue beyond that date. About 80% of the group's annual
capacity had been booked before the outbreak and the company's
recent data on forward bookings suggests robust demand for next
year. Nevertheless, even if sailing resumes in May, S&P believes
there is a heightened risk that demand will be significantly
reduced for the rest of the year.
S&P said, "We expect the disruption in Saga's travel business to
result in a sharp and materially weaker performance in financial
year 2021. We forecast a recovery in Saga's performance in FY2022,
although not back to prior-year levels as we expect weaker
confidence. This will weigh on EBITDA in the travel business line.
We forecast that it will be negative in FY2021 before rebounding to
moderately positive levels in FY2022. This lowers our assessment of
the group's financial risk profile, which is a primary factor
behind this downgrade."
S&P views favorably the diversification provided by the group's
distinct business lines.
Even though the group's travel business is currently facing
challenging times, the diversification benefit provided by its
insurance services and underwriting activities supports our rating
on the group. The insurance segment generated about GBP193 million
of underlying profit before tax, compared with GBP21 million for
travel and GBP3 million for emerging businesses in FY2019. Further,
the group's cash generation benefits from the low capital-intensity
of those activities.
S&P said, "Despite our expectation of lower reserve releases in
future, which will result in weaker EBITDA than in FY2019, we see
the group's insurance activities as being relatively uncorrelated
with its travel business, and therefore expect the impact on these
activities of the COVID-19 pandemic to be modest. We forecast that
robust trading in the broking and underwriting businesses should
mitigate some of the pressure from the travel segment on the
group's financial metrics in the next two years."
S&P anticipates that the group could breach the financial covenants
in its debt documentation in the near term--if this is not
resolved, it would likely result in a further downgrade.
S&P said, "In our view, the disruption to the group's travel
business in FY2021 will result in materially weaker headroom or a
potential breach under the group's 3.5x net leverage covenant in
its term loan and revolving credit facility. We have therefore
placed the ratings on CreditWatch with negative implications, as a
covenant breach could cause us to lower our ratings further, if not
resolved.
"We aim to resolve the CreditWatch placement in the next 90 days,
based on whether the group successfully takes action to mitigate
its tight covenant headroom, such as negotiating relief with its
lenders. If the group resolves its covenant issues, we would view
the outlook on the rating as stable. The resolution of the
CreditWatch also depends on our estimation of the group's ongoing
liquidity position as a buffer should there be further disruptions
to the group's travel segment. If the group breaches its covenants,
we would likely lower the rating further."
VUE INTERNATIONAL: S&P Alters Outlook to Neg. & Affirms 'B-' Rating
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S&P Global Ratings revised its outlook on U.K.-based Vue
International Bidco plc to negative from stable. S&P affirmed its
'B-' long-term ratings on Vue and its debt.
The negative outlook reflects that Vue's liquidity could
deteriorate in 2020 because of the COVID-19 pandemic and cinema
closures.
As of March 19, 2020, Vue has temporarily closed all of its cinemas
in the U.K., Ireland, and continental Europe and is only continuing
to operate one site in Taiwan. S&P said, "We cannot predict the
severity and length of the pandemic, but we expect cinemas in
Europe will remain closed for the next few months at least. It also
remains to be seen how quickly consumer willingness to attend
public places recovers after the pandemic is over. For the period
of closures, we expect Vue will reduce its operations and costs as
much as possible and will cover cash burn with the liquidity
resources it has available."
As of Feb. 29, 2020 (the end of Vue's first quarter [Q1 FY2020] in
the financial year ending Nov. 30, 2020) it had adequate liquidity
with GBP156 million unrestricted cash on balance and a fully
undrawn GBP65 million-equivalent multicurrency revolving credit
facility (RCF) maturing in 2025. S&P expects this should be
sufficient to cover the group's minimum operating cash expenditure
coming up in the next three-to-six months, including debt interest,
and assuming the group cuts costs.
There is one maintenance covenant in the capital structure that
applies when the group draws 35% under the RCF. S&P does not expect
the covenant to be tested in the next three months, but note that
by Q3 FY2020 the group could have less than 15% headroom, which S&P
considers to be a less than adequate level, due to loss of earnings
and mounting leverage.
S&P expects that, while cinemas are closed over the coming months,
Vue will reduce costs as much as it can.
Similar to other cinema operators, Vue has large fixed costs,
mainly rent for its cinemas and interest on its debt. At the same
time, some of the cost components are flexible, including the film
rent that it pays to studios, cost of retail concessions, and
staff--a significant proportion of which relates to staff on
temporary contracts. S&P also understands that in Italy and Poland,
Vue will be able to mitigate the majority of rent costs during the
closure. A number of countries in continental Europe, including
Germany, the Netherlands, and Poland, are planning to provide
subsidies that could cover a portion of Vue's payroll costs. S&P
also thinks Vue will reduce or postpone part of its capital
expenditure. This should allow the group to reduce its cash burn
over the coming months.
Positively, in 2019 Vue refinanced its capital structure, which
allowed it to extend debt maturities and reduce cash interest
costs. The group only pays cash interest on a EUR634 million (about
GBP540 million) first-lien senior secured term loan due in 2026.
The other instruments in the capital structure that S&P treats as
debt-like include about GBP897 million in PIK shareholder loans and
GBP165 million second-lien secured PIK notes due in 2027 provided
by one of its main shareholders, OMERS.
Vue's capital structure is highly leveraged and could become
unsustainable if the pandemic lasts longer than S&P expects.
S&P said, "At the end of FY2019, Vue's S&P Global Ratings-adjusted
debt to EBITDA was 9.5x (6.2x excluding the GBP897 million
unsecured and subordinated shareholder loans and including the
GBP165 million senior secured second-lien PIK notes that we treat
as debt). We estimate that in FY2020 the group's adjusted leverage
will significantly increase beyond the FY2019 level, and it remains
to be seen how quickly it will be able to reduce leverage in
FY2021.
"In our view, the uncertainty around the timing and financing of
Vue's acquisition of CineStar and its implications for Vue's credit
quality has increased."
Vue has recently obtained conditional clearance from the German
authorities for its pending acquisition of CineStar that it had
announced in October 2018. To satisfy the conditions, Vue has to
dispose of several cinema sites in Germany by Aug. 28, 2020. In
June 2019, Vue arranged financing for the deal in the form of a
EUR114 million delay-draw term loan that is available for drawing
until March 31, 2020. S&P said, "Due to the current market
volatility, we understand Vue is unlikely to complete the disposals
and satisfy the conditions of the transaction by March 31. If so,
the financing it had pre-arranged will expire and Vue could return
to the markets up until the end of August 2020. We will reassess
the implications of the acquisition on Vue's credit quality over
the coming months as we get more clarity on the progress of the
transaction and the details of the new financing."
The negative outlook reflects the high uncertainty around the
duration of Vue's cinema closures, the cost-cutting measures that
the group will implement to offset them, and the effect the
pandemic will have on the group's cash flows and liquidity position
in FY2020.
S&P said, "We could lower the rating in the next six to 12 months
if Vue depletes its existing liquidity sources and its covenant
headroom reduces due to substantial negative free cash flow, such
that liquidity weakens. If the COVID-19 pandemic lasts longer and
has a more severe effect on the group's operations, we could lower
the rating if we perceive that the capital structure has become
unsustainable.
"We could revise the outlook to stable if Vue maintains adequate
liquidity and FFO cash interest coverage above 2.0x and if
admissions recover strongly in the second half of calendar 2020,
after cinemas reopen as the pandemic subsides, such that the group
looks set to recover reported EBITDA and free operating cash flow
(FOCF) broadly to FY2019 levels."
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S U B S C R I P T I O N I N F O R M A T I O N
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