/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200515.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, May 15, 2020, Vol. 21, No. 98 Headlines A Z E R B A I J A N AZERBAIJAN INT'L BANK: Fitch Affirms 'B-' LT IDR, Outlook Stable EXPRESSBANK OPEN: Fitch Affirms B LongTerm IDR, Outlook Stable F R A N C E DELACHAUX GROUP: Moody's Alters Outlook on B2 CFR to Negative G E O R G I A GEORGIAN WATER: Fitch Alters Outlook on 'BB-' LT IDR to Negative I R E L A N D ADAGIO V: Fitch Cuts Class E Notes Rating to 'BB-sf' EUROMAX V: Fitch Hikes Class A2 Notes Rating to 'Bsf' I T A L Y UNIONE DI BANCHE: Fitch Cuts LT IDR to BB+ on Sovereign Downgrade L U X E M B O U R G CONSOLIDATED ENERGY: Moody's Cuts CFR to B1, Outlook Negative SB BALEIA: Fitch Affirms 'BB-' LT Rating, Alters Outlook to Neg. M A C E D O N I A NORTH MACEDONIA: S&P Affirms 'BB-/B' Sovereign Credit Ratings N E T H E R L A N D S AI AVOCADO: Moody's Cuts CFR to B3 & PDR to B3-PD, Outlook Stable S P A I N TELEPIZZA GROUP: S&P Lowers ICR to 'CCC+' on COVID-19 Uncertainty U N I T E D K I N G D O M AVANTI COMMS: BlackRock TCP Values $1.6MM Loan at 66% of Face AVANTI COMMS: BlackRock TCP Values $4.1-Mil. Loan at 66% of Face CARILLION PLC: GBP250MM Suit Mulled Against KPMG Over Audit GEORGE BOYDEN: Goes Into Administration, Weeklies Put Up for Sale PRAESIDIAD GROUP: Fitch Cuts LT IDR to CCC+ S WALKER: Loss of Two Major Customers Prompts Administration STYLES & WOOD: Owes GBP104 Million at Time of Administration SUPREMIA INT'L: Enters Administration Amid Coronavirus Pandemic TRAVELODGE: May Face Bankruptcy Unless Landlords Waive Rent [*] DBRS Puts Ratings on 14 European NPL Transactions Under Review X X X X X X X X [*] BOOK REVIEW: Mentor X - - - - - =================== A Z E R B A I J A N =================== AZERBAIJAN INT'L BANK: Fitch Affirms 'B-' LT IDR, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Open Joint-Stock Company International Bank of Azerbaijan's Long-Term Issuer Default Rating at 'B-' with Stable Outlook. KEY RATING DRIVERS IBA's ratings are based on its intrinsic credit strength, as measured by its Viability Rating of b-. The VR continues to capture the risks stemming from the cyclical and oil-dependent operating environment, which Fitch assesses at b+/Negative. These risks are additionally aggravated by the ongoing economic downturn caused by the COVID-19 pandemic and the sharp fall in oil prices. IBA's VR is additionally pressured by substantial market risk due to its unhedged short US dollar position, which exposes the bank's capitalisation to the risk of currency depreciation. Fitch believes that some aspects of IBA's credit profile are consistent with a higher rating (in particular, asset quality, franchise and funding and liquidity), but IBA's unhedged open currency position constrains the ratings at 'B-'. IBA reduced its open currency position to USD0.7 billion at end-4M20 from USD0.8 billion at end-2M20 but this is still almost equal to the bank's regulatory capital. The risks to IBA's capitalisation are mitigated by the bank's large capital buffers, with regulatory Tier 1 and total capital ratios both equal to a high 33% at end-1Q20. Fitch notes that currencies in other oil-producing countries in the region (Russia and Kazakhstan) depreciated by about 20% in 1Q20. IBA's capital buffer is sufficient to withstand a lowering of the exchange rate to 2.5 AZN/USD, which would represent a severe currency shock, and still maintain its regulatory capital ratios above the statutory minimums of 6% and 11% for Tier 1 and Total capital ratios, respectively. Fitch believes that IBA's asset quality is reasonable, supported by a high share of good-quality interbank placements and securities on its balance sheet. IBA's net loan book (25% of total assets) is the primary source of impairment risks, which are driven by the coronavirus outbreak and lower oil prices. Fitch expects IBA's impaired loans (Stage 3 loans under IFRS 9) to increase to double-digit levels from a moderate 7% at end-2019. The bank's focus on state-related corporate borrowers somewhat reduces loan quality risks, although unsecured retail is significant at 23% of gross loans. IBA's profitability is decent as reflected by a high ratio of operating profit to risk-weighted assets (7% in 2019). IBA's recurring pre-impairment profit equaled a high 14% of gross loans, although near-term pressure on pre-impairment performance will stem from weaker loan growth, lower transactional income and some margin compression. Fitch expects the net result in 2020 will additionally be dampened by elevated loan impairment charges. In addition, IBA's unhedged open currency position could result in a large one-off hit to profitability if the local currency depreciates. In Fitch's view, there is no immediate pressure on IBA's funding and liquidity profile from the current economic downturn. Wholesale funding sources are limited and comprise primarily the USD1 billion eurobond issued as part of the recent restructuring and mostly held by the State Oil Fund of Azerbaijan. The bank's reliance on sovereign-related customer deposits (51% of total liabilities) supports the stability of the funding base. Although moderate deposit outflows are possible, particularly if devaluation pressures intensify, Fitch expects the bank's liquidity buffers to remain strong. At end-1Q20, liquid assets exceeded IBA's total customer funding. The affirmation of the Support Rating at '5' and Support Rating Floor at 'No Floor' reflects Fitch's view that support from the shareholder, the Azerbaijan sovereign (BB+/Negative), cannot be relied upon following the bank's default in 2017, despite IBA's state ownership. IBA's senior unsecured debt is rated 'B-', in line with the bank's Long-Term IDR, reflecting Fitch's view of average recovery prospects, in case of default. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: IBA's VR and Long-Term IDR could be downgraded if a combination of large currency losses, increased loan impairment and asset inflation result in a considerable erosion of the bank's capital position. Factors that could, individually or collectively, lead to positive rating action/upgrade: Although its outlook on the Azerbaijani banking sector is currently negative, IBA's ratings could be upgraded by one notch if IBA achieves a material reduction of its open currency position relative to capital. In the longer-term, the upside potential for the ratings stems from a gradual stabilisation of the local operating environment. Positive rating action on IBA's Support Rating and Support Rating Floor is unlikely in the near term given the patchy record of state support in Azerbaijan. However, closure of the currency position, a demonstrated record of state support for the banking sector and greater clarity with regard to the linkage between the bank and the Azerbaijani state, could result in an upward revision of the Support Rating Floor. The senior debt rating is sensitive to changes in the bank's IDRs. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). Open Joint Stock Company International Bank of Azerbaijan - LT IDR B-; Affirmed - ST IDR B; Affirmed - Viability b-; Affirmed - Support 5; Affirmed - Support Floor NF; Affirmed - Senior unsecured; LT B-; Affirmed EXPRESSBANK OPEN: Fitch Affirms B LongTerm IDR, Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed Azerbaijan-based Expressbank Open Joint Stock Company's Long-Term Issuer Default Rating at 'B' with a Stable Outlook. KEY RATING DRIVERS The ratings of EB reflect its exposure to a cyclical and oil-dependent operating environment, which Fitch rates at 'b+'/Negative. These risks are additionally aggravated by the economic downturn caused by the COVID-19 pandemic and a sharp fall in oil prices in 1Q20. Fitch expects a sharp contraction of Azerbaijan's GDP by 4.8% in 2020 followed by a 2.5% recovery in 2021. This may result in material weakening of the bank sector's loan quality, particularly in retail, micro and SME lending. EB's exposure to these segments is high, which may expose the bank's asset quality and performance to significant deterioration in 2020. However, these risks are mitigated by the bank's high capital and liquidity buffers, providing EB with reasonable safety margin. The bank's asset quality metrics were reasonable at end-2019. Impaired loans (Stage 3 loans under IFRS 9) were a moderate 4% of gross loans. Related-party loans, which were classified as Stage 2 (40% of end-2018 loans), were repaid in 2019, with positive impact on the bank's asset quality and general company profile. Fitch expects that asset quality will be under pressure in 2020 given the bank's high exposure to unsecured consumer lending (42% of gross loans) and micro-lending (14%). Loans to companies operating in the most vulnerable sectors (trade, real estate and construction) added 14% of gross loans. In its view, EB may have to absorb additional impairment losses related to some of these exposures in 2020. Positively, the share of foreign-currency loans was a low 9% of gross loans at end-1Q20 (significantly below the sector average of 36%). EB's capacity to absorb losses through the income statement is only moderate. Pre-impairment profit equaled to 1% of gross loans in 2019, providing the bank with only a moderate safety margin. Pre-impairment performance is under pressure from high operational costs (90% of total revenues in 2017-2019) and may additionally suffer from lower transactional income and weaker growth in 2020. EB's overall profitability was strong in 2019, with an operating profit/risk-weighted assets ratio of 8%. However, adjusted for one-off provision reversals, the ratio would have dropped to 1%. EB's capitalisation is a rating strength. At end-2019 its Fitch Core Capital ratio was a high 45%. The regulatory Tier 1 and total capital ratios were 38% and 41% at end-1Q20, respectively, allowing the bank to additionally reserve a substantial 40% of its gross loans before breaching the regulatory minimums of 5% and 9%. Fitch expects the bank should maintain adequate capital buffers in a sharp short-lived economic contraction in 2Q20 if it is followed by a recovery in 2H20. EB is funded mainly by customer accounts (67% of liabilities at end-1Q20) with the majority of funds raised from individuals (54% of liabilities). Deposits dropped 10% in March and a further 5% April, due mainly to outflows from retail clients. However, liquidity risks are mitigated by a substantial buffer of highly liquid assets (cash and equivalents, short-term interbank placements and placements with the Central Bank of Azerbaijan, investments in securities) covering a high 50% of deposits at end-1Q20. The Support Rating Floor of 'No Floor' and Support Rating of '5' reflect the bank's limited scale of operations and market share (1% by total assets). Therefore, Fitch's views sovereign support for the bank as uncertain. This view is supported by the government allowing large state-owned Open Joint Stock Company International Bank of Azerbaijan (B-) to default in 2017. As a result, state support for less systemically important, privately-owned banks, such as EB, cannot be relied upon. The potential for support from the bank's private shareholders is not factored into its ratings. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - An upgrade of the ratings is in the near-term is unlikely given the negative outlook for the Azerbaijan banking sector. However, in the longer term, the ratings could be upgraded if the bank improves its franchise and strengthens its performance. The bank would also need to maintain solid capital and liquidity buffers for a rating upgrade. Factors that could, individually or collectively, lead to negative rating action/downgrade: - EB's ratings could be downgraded if the bank's capital position deteriorates significantly as a result of increased loan impairment charges or capital withdrawal by shareholders. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). Expressbank Open Joint Stock - LT IDR B; Affirmed - ST IDR B; Affirmed - Viability b; Affirmed - Support 5; Affirmed - Support Floor NF; Affirmed =========== F R A N C E =========== DELACHAUX GROUP: Moody's Alters Outlook on B2 CFR to Negative ------------------------------------------------------------- Moody's Investors Service has affirmed the B2 corporate family rating and the B2-PD probability of default rating of Delachaux Group SA. Concurrently, Moody's has affirmed the B2 rating on the outstanding EUR855 million equivalent multi-currency senior secured term loan B1 and B2 maturing 2026 and the EUR75 million senior secured revolving credit facility maturing 2025. The outlook was changed to negative from stable. RATINGS RATIONALE The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The manufacturing industry has been one of the sectors most significantly affected by the public health and safety restrictions taken by governments to contain the virus and the sensitivity of the sector to consumer demand and sentiment. More specifically, Delachaux is exposed to industrial activities as well as end markets such as aircraft, automotive and oil & gas, that have been severely affected by the outbreak. A prolonged decline in rail passenger traffic and freight volumes could also have a significant impact on its more resilient Rail Infrastructure segment. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The rating action reflects the significant operational challenges that Delachaux will face over the next few months due to the coronavirus outbreak and the uncertainties regarding the length and severity of the spread. Delachaux's credit metrics were already negatively affected in 2019 from the lower sales of fastening systems and drop in chromium metal prices. While this was partially offset by a positive performance in the Rail Signaling and EDMS segments, the organic growth was down by 4.8% (at constant foreign exchange rates and perimeter) from 2018. As a result, leverage increased to around 7.2x in 2019 against Moody's expectation of a leverage decline to below 6.5x, placing Delachaux weakly in the B2 rating category. The current market environment is expected to further strain the company's operating performance in the next quarters and as such Moody's expects leverage to remain above 7.0x during this period. At the same time the rating affirmation reflects the company's (i) dominant niche market position as a global leader in fastening systems and alumino thermic welding for rail infrastructure with a high proportion of resilient maintenance business; (ii) relatively flexible cost base further supported by cost saving initiatives and the use of temporary unemployment schemes, which should help limit the impact on its profitability to a certain degree; (iii) the solid margins and low capex requirements, which have supported positive free cash flow generation even during cyclical downturns; (iv) the favourable market fundamentals (ageing infrastructure in developed countries and urbanization in emerging markets pushing up demand for rail network expansion) which have supported previous recoveries to pre-crisis levels within 2 years; and (v) its relatively conservative financial policy. It is difficult to assess the full impact that the current pandemic will have on Delachaux's performance in 2020 and the speed of recovery given the high uncertainty of the length and severity of the spread. Therefore, Moody's assumptions could change depending on how the outbreak evolves. ESG CONSIDERATIONS Moody's considers the company's shareholder structure with two anchor shareholders -- Ande Investissements, which belongs to the Delachaux's family and La Caisse de depôt et placement du Quebec (CDPQ), one of Canada's largest pension investment fund - positive for the rating. This view is driven by their investment philosophies, with a more prudent and longer-term investment horizon and a more conservative financial policy. While leverage has increased above historical levels following the acquisition of Frauscher, the shareholders have a medium financial leverage target of 3.5x to 4.0x. Annual dividend is also limited depending on the leverage threshold. Moody's also views positively the fact that the company has a track record of deleveraging driven by EBITDA growth but also voluntary debt repayments. LIQUIDITY PROFILE Moody's considers Delachaux's liquidity profile to be adequate, although it is expected to weaken due to the disruption caused by the outbreak. The company has access to around EUR160 million of cash on balance sheet at the end of March 2020, including the fully drawn RCF of EUR75 million. The latter has one springing net leverage covenant tested when the RCF is drawn by more than 40%. The company also has access to non-recourse factoring lines. Moody's believes that these sources of liquidity, including its internal cash generation, will provide enough headroom to cover the working capital and capex needs during the disruption. The covenant headroom will tighten over the coming months, but Moody's does not expect any breach under its current assumptions. There is no near-term debt maturities with the RCF and the term loans expiring in 2025 and July 2026, respectively. STRUCTURAL CONSIDERATIONS Delachaux's capital structure consists of EUR855 million equivalent senior secured term loans and EUR75 million equivalent RCF, both ranking pari passu in terms of priority of claims, share the same security and guaranteed by entities accounting for at least 80% of consolidated EBITDA. In Moody's Loss Given Default analysis the senior secured facilities are rated in line with the corporate family rating at B2, as Moody's does not differentiate priority of claims in this capital structure. The B2-PD is at the same level as the CFR, reflecting the use of a standard recovery rate of 50%, which reflects a capital structure with first lien bank loans and the covenant lite nature of the loan documentation. RATING OUTLOOK The negative outlook reflects the significant operational challenges that Delachaux will face over the next few months due to the coronavirus outbreak and the uncertainties regarding the length and severity of the spread, which could lead to a slower recovery pace in comparison to previous downturns. While leverage metrics are expected to remain elevated in 2020, a significant weakening of FCF below break-even levels could result in additional negative rating pressure over the next quarters. The outlook could be stabilized if there is enough clarity regarding the stabilization of the coronavirus outbreak, the company's ability to delever to below 6.5x in the next 18 months and its ability to continue to generate positive FCF. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS An upgrade is not expected in the near term but could materialise over time if (i) Moody's-adjusted gross debt/EBITDA was to decline to below 5.5x on a sustainable basis; (ii) Moody's adjusted FCF/debt increases to the mid-single digit range; and (iii) EBITA margins increase to above 12% on a sustainable basis. Negative rating pressure could occur if (i) Moody's-adjusted gross debt/EBITDA stabilizes at a sustainable level above 6.5x; (ii) negative FCF would result in a material weakening of its liquidity profile; and (iii) EBITA margins were sustained at below 10%. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Manufacturing Methodology published in March 2020. COMPANY PROFILE Delachaux Group SA was initially founded in 1902 by the Delachaux family with operations primarily in rail infrastructure. In 2019 the company generated EUR965 million of revenues and EUR137 million of management-adjusted EBITDA. ============= G E O R G I A ============= GEORGIAN WATER: Fitch Alters Outlook on 'BB-' LT IDR to Negative ---------------------------------------------------------------- Fitch Ratings has revised the Outlook on Georgia- based Georgian Water and Power LLC's Long-Term Foreign and Local-Currency Issuer Default Ratings to Negative from Stable and affirmed the IDRs at 'BB-'. The revision of the Outlook to Negative reflects lower than expected EBITDA and higher than expected investments during the last two years as well as the expected impact of the coronavirus pandemic and related economic crisis on the company's operations, including a drop in water supply volumes to legal entities and some deterioration in collection rates. As a result, Fitch expects leverage to remain above its rating sensitivity during 2020, but to recover in 2021 on the back of the expected increase in water tariffs. The rating is supported by GWP's natural monopoly position, solid profitability, improving regulatory environment, reducing water losses, good receivables collection rates, asset ownership and low sector risk. This is offset by increased leverage resulting in reduced financial flexibility, with refinancing needed during 2020, FX risk, worn-out water infrastructure, and a group structure with related-party transactions, albeit decreasing and on market terms. KEY RATING DRIVERS Elevated Leverage: Fitch anticipates GWP's funds from operations net leverage adjusted for connection fees to remain elevated in 2019-2020, above its revised negative sensitivity of 3.5x, mainly due to lower EBITDA than it previously expected as the company decided not to proceed with Gardabani Sewage Treatment Plant LLC consolidation in 2019, lower than expected revenues from electricity sales, higher than expected investments, and depreciation of the Georgian lari. Fitch has revised upwards its leverage rating sensitivities for GWP, reflecting the better track record of regulatory framework, improved operational environment (compared with its original assessment) and updated peer comparison. COVID-19 Crisis Impact Manageable: 2020 results will be also affected by the coronavirus outbreak, pressuring operational performance and macroeconomic environment with a sharp contraction of Georgia's economy by about 4.8% expected in 2020. Fitch anticipates leverage to recover to the revised sensitivities in 2021 on the back of the expected increase in water services tariffs to households. Supportive Regulation: Since 2018 the regulatory framework for the water supply and sanitation business in Georgia has been based on the regulated asset-based principle, which is a key component for determining capex, although it is based on assets' book values rather than replacement values. The regulations have been consistently implemented so far. This ensures appropriate remuneration and enhances cash flow predictability, in its view. Tariff Increases Expected in 2021: The second three-year regulatory period is expected to start in 2021. Fitch expects water supply tariffs to households to increase slightly below 60% in 2021 and then to remain flat over 2021-2023, which is below management's expectations. Lower than expected tariff increase would pressure GWP's cash flows and likely result in a downgrade. FX Exposure Remains: GWP remains exposed to FX fluctuations, as around 40% of its debt at end-2019 was denominated in foreign currencies, mainly euros. Although the company benefits from cheaper debt financing, Fitch believes the significant exposure to FX fluctuations could put pressure on credit metrics in the event of significant adverse fluctuations in currency markets. Fitch believes implementation of an FX hedging policy is challenging, as the financial hedging products available in the local market are limited and expensive. GWP hedges a portion of its euro currency exposure with its parent company in Georgia, JSC Georgia Capital, and maintains a portion of cash in foreign currencies. In addition, the electricity sales are priced in US dollars although the payment is received in lari (about 13% of total revenue in 2019). FCF to Remain Negative: Fitch anticipates the company to generate healthy cash flows from operations over 2020-2023 of about GEL71 million on average, but its free cash flow to remain negative until 2022 on the back of high capex averaging GEL72 million and dividend payments of about GEL8 million annually on average over the same period. Free cash flow may turn neutral or slightly positive in anticipation of the planned IPO or other exit options considered by the shareholder in the medium term. GSTP's Merger Not Considered: Following the termination of the shareholder purchase agreement (the privatisation agreement) between Georgian Global Utilities Limited, GWP's sole shareholder and the government in April 2019, GWP expected to merge GSTP by end-2019 and to consolidate it for the full year 2019, which was part of its previous rating case assumptions. According to management, this merger has not occurred due to group structure changes at GGU level. This change contributed to weaker financials and the Negative Outlook. At end-2019, GWP's outstanding loans to sister companies stood at about GEL50 million (15% of total debt), including GEL31 million to GSTP. Part of Larger Group: GWP is fully owned by GGU, which also owns several water channels, GSTP and Saguramo Energy LLC. Fitch assesses GWP's and GGU's credit profiles similarly, as in 2019 GWP generated 96% of the group's EBITDA and held 89% of the group's debt. The group's structure and related party transactions remain a key rating driver and may evolve further. GGU is indirectly fully owned by Georgia Capital PLC, a Georgia-focused investment platform targeting opportunistic investments. The shareholder is looking to increase the value of GGU in the medium term and monetise it via a planned IPO or other exit options. ESG Scores: GWP has an ESG Relevance Score of 4 for Water and Wastewater due to heavily worn-out water infrastructure and high-water losses and for Group Structure due to related-party transactions, albeit decreasing and on market terms. DERIVATION SUMMARY GWP is a small water company in terms of its asset base and geographic diversity relative to the rated peer universe. It is also an outlier in terms of the asset quality as legacy underinvestment in Georgia's infrastructure has led to water losses of around 50%, which is extremely high compared with an average of 24% for rated peers in Russia or 20% for the rated peer in the Czech Republic. Rosvodokanal LLC (BB-/Stable) is rated at the same level as GWP, but has a higher debt capacity (negative sensitivity at 4.0x vs. GWP's 3.5x). This is because its stronger asset quality, larger size, greater geographical diversification and longer record of favorable regulation are only partially offset by GWP's asset ownership and developing regulation under the RAB principle. Rosvodokanal's financial profile is strong compared with peers, and the group has comfortable leverage headroom within its ratings. KEY ASSUMPTIONS Fitch's Key Assumptions Within its Rating Case for the Issuer - Georgian GDP in range between -4.8% to 4.3% and CPI of 4.5% in 2020 and of 3.2% over 2021-2023 - Stable population in Tbilisi over the forecast period - Water tariff to remain flat in 2020 at 2018 level and to increase by slightly below 60% for households in 2021 and to remain flat at this level during 2022-2023 - Water losses dropping from around 40% in 2019 to below 35% in 2023 - Blended electricity price increase at a low double digit % on average over 2020-2023 - Electricity sales volume to be slightly below 170 GWh on average over 2020-2023 - Inflation driven cost increase - Capital expenditure of GEL72 million on average over 2020-2023 - Average annual dividends of around GEL8 million over 2020-2023 RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - The Outlook is Negative, and an upgrade is therefore unlikely. - FFO net leverage (excluding connection fees) staying consistently below 3.5x may result in the revision of the Outlook to Stable. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A sustained increase in FFO net leverage (excluding connection fees) above 3.5x (i.e. on the back of reduction in profitability and cash generation, higher capex and/or distributions to shareholders). - Tariff increases for households in 2021 considerably below its current expectations. - A sustained reduction in profitability and cash flow generation through a failure to reduce water losses or deterioration in cash collection rates. - A material increase in the company's exposure to foreign-currency fluctuations. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Tight Liquidity Dependent on Refinancing: At end-2019, cash and cash equivalents stood at GEL22.4 million versus short-term debt of GEL24.5 million and a short-term derivative financial liability of GEL1.9 million. The company expects to refinance the expected maturities with intercompany loans received from GGU or new debt. The expected negative FCF in 2020 will add to funding requirements. SUMMARY OF FINANCIAL ADJUSTMENTS EBITDA: Derecognition of unclaimed advances received, net gain from revaluation of investment property, net loss from sale of network and inventories and net loss from sale of PPE and investment property and charge for provisions and legal claims related expenses were excluded from EBITDA calculations. FFO is adjusted by deducting revenue from technological connections in order to calculate FFO connection fee-adjusted leverage and coverage metrics. Fitch reclassified change in restricted cash from WC to investing activities in the cash flow statement. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. 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. GWP has an ESG Relevance Score of 4 for Water and Wastewater due to heavily worn-out water infrastructure and high-water losses and for Group Structure due to related-party transactions, albeit decreasing and on market terms. ============= I R E L A N D ============= ADAGIO V: Fitch Cuts Class E Notes Rating to 'BB-sf' ---------------------------------------------------- Fitch Ratings has taken multiple rating actions on Adagio V CLO DAC, including a downgrade of its class E notes to 'BB-' from 'BB'. Adagio V CLO DAC - Class A XS1879604368; LT AAAsf; Affirmed - Class B-1 XS1879604798; LT AAsf; Affirmed - Class B-2 XS1879605175; LT AAsf; Affirmed - Class C-1 XS1879605506; LT Asf; Affirmed - Class C-2 XS1887443114; LT Asf; Affirmed - Class D XS1879605928; LT BBB-sf; Affirmed - Class E XS1879607627; LT BB-sf; Downgrade - Class F XS1879606579; LT B-sf; Rating Watch Maintained - Class X XS1879604012; LT AAAsf; Affirmed TRANSACTION SUMMARY The transaction is a cash-flow CLO mostly comprising senior secured obligations. The transaction is still in its reinvestment period, which scheduled to end in January 2023, and is actively managed by the collateral manager, Axa Investment Managers Inc. KEY RATING DRIVERS Portfolio Performance Deteriorates The downgrade reflects deterioration in the portfolio as a result of negative rating migration of the underlying assets in light of the COVID-19 pandemic. The transaction is currently slightly below par value. The Fitch-weighted average rating factor test was breached in the last trustee report dated April 1, 2020 and would still be breached under Fitch's calculation based on ratings as of May 1, 2020. The WARF of the portfolio increased to 36.06 as of May 1, 2020, from a reported 34.67 as of April 1, 2020. The 'CCC' category or below assets (including unrated assets at 1.75%) represented 8.3% as of May 1, 2020, over the 7.5% limit. Assets with a Fitch-derived rating on Negative Outlook represent 26.2% of the portfolio balance. There are no defaulted assets. All other tests, including the overcollateralisation and interest coverage tests, were reported as passing. 'B'/'B-' Portfolio Credit Quality Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. High Recovery Expectations 99% of the portfolios comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-weighted average recovery rate of the current portfolio under Fitch's calculation is 63.36%. Portfolio Composition The portfolio is relatively well-diversified across obligors, countries and industries. The top-10 obligors exposure is 17% and no obligor represents more than 2.7% of the portfolio balance. The largest industry is business services at 19.5% of the portfolio balance, followed by chemicals at 13.75% and healthcare at 12%. These are above the portfolio profile test limits for the largest Fitch-defined industry at 17.5% and at 40% for the three-largest Fitch-defined industries. The exposure to the eight sectors that are considered high-risk due to pandemic is at 14.2%. The eight sectors are automobiles, aerospace and defence, gaming and leisure and entertainment, lodging and restaurants, oil & gas, metal & mining, retail and transportation (airlines). Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenario as outlined in Fitch's criteria. In addition, Fitch also tests the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The analysis for the portfolio with a coronavirus sensitivity analysis was only based on the stable interest-rate scenario including all default timing scenarios. The model-implied ratings for the class E and F notes are respectively two and one notches below the current ratings. Fitch has decided to deviate from the model-implied ratings on the class E and F notes as they were driven in both cases by the back-loaded default timing scenario, which Fitch considersed unlikely. Fitch has nevertheless decided to downgrade the class E notes by one notch to the lowest rating within the current rating category. This rating is in line with most Fitch-rated EMEA CLOs'. The Rating Watch Negative was maintained for both notes as they show shortfalls even with the updated ratings and under the COVID-19 baseline scenario. When conducting cash flow analysis, Fitch's model first projects the portfolio's scheduled amortisation proceeds and any prepayments for each reporting period of the transaction life assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortisation proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntarily terminated, when applicable). This adjustment avoids running out of performing collateral due to amortisation and ensures all of the defaults projected to occur in each rating stress are realised in a manner consistent with Fitch's published default timing curve. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch uses a standardised stress portfolio (Fitch's stress portfolio) that is customised to the specific portfolio limits for the transaction as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than the Fitch's stress portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, given the portfolio credit quality may still deteriorate, not only by natural credit migration, but also by reinvestments. After the end of the reinvestment period, upgrades may occur in case of a better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses on the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of the notes' CE following amortisation does not compensate for a greater loss expectation than initially assumed due to unexpected high levels of default and portfolio deterioration. As the disruptions to supply and demand due to the COVID-19 disruption become apparent for other vulnerable sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Baseline Scenario Impact Fitch carried out a sensitivity analysis on the current portfolio to envisage the coronavirus baseline scenario. The agency has downgraded the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario shows large shortfalls for the class E and F notes under their current respective ratings, which are on Rating Watch Negative. The class C-1, C-2 and D notes, which are on Negative Outlook, also fail this scenario but with smaller shortfalls. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. 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 Most of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied on for its rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The data used for the development of the rating included the following information from the following sources: Monthly report as of April 1, 2020 and note valuation report as of April 16, 2020 provided by BNY Mellon. Loan-by-loan data as of April 30, 2020 (rating and recovery information updated as of May 1, 2020) provided by Axa Investment Managers Inc. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. EUROMAX V: Fitch Hikes Class A2 Notes Rating to 'Bsf' ----------------------------------------------------- Fitch Ratings has upgraded Euromax V ABS PLC's class A2 notes and affirmed the others, as follows: Euromax V ABS PLC - Class A1 XS0274615656; LT BBsf; Affirmed - Class A2 XS0274616381; LT Bsf; Upgrade - Class A3 XS0274616977; LT CCsf; Affirmed - Class A4 XS0274617439; LT Csf; Affirmed - Class B1 XS0274617603; LT Csf; Affirmed - Class B2 XS0274617942; LT Csf; Affirmed TRANSACTION SUMMARY Euromax V is a securitisation of mainly European structured finance securities that closed in 2006. KEY RATING DRIVERS Credit Quality The average credit quality of the performing portfolio has been stable at 'BB'/'BB+'. With 77.8% of the performing portfolio, most issuers are rated in the 'BB' category or higher, while entities rated in the 'B' and 'CCC' categories represent only 11.8% and 10.4%, respectively. The portfolio concentration on defaulted assets increased by 9.4% during the past year as two issuers paid down their two performing RMBS assets. Consequently, the top 10 obligor concentration remains high while the largest issuer now comprises an additional 6.4% of the performing portfolio, the performing portfolio correlation increased by 10.3%, and the weighted average life reduced by 17.7 months. Correlation Impact Following the pay down by two issuers, comprising EUR11.3 million, the total portfolio now comprises only nine obligors with 11 assets, of which only the RMBS ones are performing. Among these performing assets, 42.6% are concentrated in the UK, Italian ones represent 32.7 %, and 24.7% are Dutch. Since one of the two issuers that paid down is Portuguese, the portfolio is no longer exposed to Portugal. Recovery on Defaulted Assets As most of the assets within the portfolio are subordinated tranches, the recovery expectation for the portfolio is near 0%. Amortisation Impact The default timing vectors modelled are based on the portfolio WAL of 9.9 years derived from an amortisation schedule assuming all assets as repaying in one bullet payment at their Fitch-adjusted maturity date. The portfolio has amortised by EUR14 million since May 2019 due to principal repayments from three UK and two Dutch RMBS assets, issued by CLAVIS 2006-1, E-MAC NL 2008-1, NEWGATE FUNDING PLC 2006-3, and RMAC SECURITIES 2006-NS3X. Along with these principal repayments, interest proceeds were applied for note redemption, so that the class A1 notes have been paid down by EUR14.4 million and their credit enhancement (excluding defaulted assets) increased by approximatively 30.7%. CDO Structure and Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, and to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. All the OC tests are failing and the class A4, B1 and B2 notes continue to defer interest, so credit enhancement continued to decrease for these notes. The senior notes are constrained by the fact that principal is used for interest payments on the class A2 and A3 notes, because in the priorities of payments, these interest payments rank before the principal payments on the class A1 and A2 notes. Interest on the class A3 notes was paid out of principal proceeds on the payment date in February 2020. RATING SENSITIVITIES This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modelling process uses the modification of these variables to reflect asset performance in up- and down environments. The results below should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance. Factors that could, individually or collectively, lead to positive rating action/upgrade: A 25% default multiplier applied to the portfolio's mean default rate, and with this subtracted from all rating default levels and a 25% increase of the recovery rate at all rating recovery levels, would not impact the rated notes. Upgrades could occur to the senior classes, in case of a continuing better than initially expected portfolio credit quality and deal performance, and continued amortization that leads to higher notes' credit enhancement and excess spread available to cover for losses on the remaining portfolio. Upgrades to the tranches rated at CCsf or below are currently not expected, because these notes show negative CE levels. Factors that could, individually or collectively, lead to negative rating action/downgrade: A 25% default multiplier applied to the portfolio's mean default rate, and with this added to all rating default levels and a 25% reduction of the recovery rate at all rating recovery levels, would not impact the rated notes. Downgrades may occur if the built up of the notes CE following amortisation does not compensate for a higher loss expectation than initially assumed due to unexpected high level of default and portfolio deterioration. Fitch has tested the resilience of the transaction towards a possible negative rating migration of the underlying assets and class A1 & A2 is resilient to such sensitivity analysis. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable Overall, Fitch's assessment of the asset pool information relied on for its rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ========= I T A L Y ========= UNIONE DI BANCHE: Fitch Cuts LT IDR to BB+ on Sovereign Downgrade ----------------------------------------------------------------- Fitch Ratings has downgraded UniCredit S.p.A.'s, Intesa Sanpaolo's and Mediobanca S.p.A.'s Long-Term Issuer Default Ratings to 'BBB-' from 'BBB'. The Outlooks are Stable. Fitch has also downgraded Unione di Banche Italiane S.p.A.'s Long-Term IDR to 'BB+' from 'BBB-' and maintained it on Rating Watch Positive to reflect IntesaSP's exchange offer for the bank. UniCredit's and IntesaSP's Short-Term IDRs have been downgraded to 'F3' from 'F2' and UBI's Short-term IDR has been downgraded to 'B'/RWP from 'F3'/RWP. The rating actions on the banks follow the downgrade of Italy's sovereign rating to 'BBB-'/Stable/'F3' from 'BBB'/Negative/'F2' due to the significant impact of the COVID-19 pandemic on Italy's economy and the sovereign's fiscal position. In its opinion, UniCredit's, IntesaSP's and Mediobanca's Long-Term IDRs should not be rated above Italy's sovereign rating. For IntesaSP and Mediobanca this is because their activities are predominantly domestic and their IDRs and Viability Ratings are therefore highly affected by the risk profile of the domestic economy and the Italian sovereign, which in turn are significantly affected by the economic effects of the coronavirus outbreak. While UniCredit's geographical diversification in more stable and highly rated economies such as Germany and Austria has proved key to supporting the group's consolidated risk profile, Fitch nonetheless considers that: i) the parent (and rated) bank's risk profile remains highly correlated with that of the Italian sovereign and with Italy's economy; and ii) the pandemic represents a challenge for the bank since it will have to manage tougher economic conditions not only in Italy but in its other core markets. UBI's lower Long-Term IDR and VR reflect the relative weakness of its credit profile compared with its higher-rated domestic peers, which mainly arises from a less-diversified business model, weaker profitability and smaller capital buffers. Under Fitch's forecasts, which are based on an extended lockdown to halt the spread of the coronavirus, Italy's GDP is expected to contract by 8% in 2020 before seeing a partial recovery of 3.7% in 2021. However, risks to this baseline forecast are tilted to the downside, as it assumes that the coronavirus can be contained in 2H20, leading to a relatively strong economic rebound in 2021. However, the strength of the recovery beyond 2021 is highly uncertain, given the underlying weaknesses of the economy and Italy's poor performance following the global financial crisis, when only around half of the lost output was regained by 2012. The Stable Outlook on Italy's sovereign rating partly reflects Fitch's view that the ECB's net asset purchases will facilitate Italy's substantial fiscal response to the coronavirus pandemic and ease refinancing risks by keeping borrowing costs at very low levels at least over the near term. Fitch considers banks' funding profiles and market access to be influenced by perceptions of Italian sovereign risk, but believe risks to the banks' liquidity profiles to be similarly supported by ECB funding programmes. The Stable Outlooks on the Long-Term IDRs of UniCredit, IntesaSP and Mediobanca reflect the relative strength of their capitalisation, and that under various possible downside scenarios to its baseline, Fitch expects the banks to maintain sufficient capital, irrespective of a likely reduction in profitability, to absorb higher credit quality risks. In accordance with Fitch's policies, the issuers appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome. KEY RATING DRIVERS INTESASP IDRS, VR, DERIVATIVE COUNTERPARTY RATING (DCR) AND SENIOR DEBT IntesaSP's ratings reflect the significant influence that the Italian economy and Italian sovereign risk have on its credit profile. In downgrading Intesa's ratings, Fitch has considered the following: i) higher execution challenges facing the bank in the weaker operating environment; ii) the likelihood of a weaker medium-term profitability; iii) potential pressure on capitalisation, primarily from higher impaired loan encumbrance; iv) the link between sovereign risk and the bank's funding profile and market access. Fitch expects IntesaSP's capitalisation to remain resilient through the crisis and this has a high influence on its ratings. Following the downgrade, IntesaSP's ratings continue to reflect its leading franchise in Italy and its diverse and stable business model, with established banking and wealth management operations, which have to date supported earnings generation through economic and interest-rate cycles. The ratings remain underpinned by IntesaSP's sound capitalisation although potentially under pressure, and strong funding and liquidity relative to its VR. Fitch believes that despite the benefits of its diverse business model and established ability to deliver resilient results, IntesaSP's risk profile is highly correlated with Italy's, given the group's wide exposure to the Italian economy and large holdings of Italian sovereign debt (around 80% of common equity Tier 1 capital at end-1Q20). Its predominantly domestic operations will likely make it more difficult for IntesaSP to achieve its strategic objectives in line with plans, given the prospects of a severe GDP contraction for Italy in 2020, followed by a partial recovery. Fitch expects operating profitability to suffer from lower business volumes and higher loan impairment charges (LICs) in 2020. Fitch considers IntesaSP's asset quality to be vulnerable to deterioration as a large part of Italian borrowers are likely to exit the lockdown period weaker and more indebted but it acknowledges in its assessment the bank's profit absorption capacity to restore its asset quality metrics over the medium term. Despite improvements, the bank's asset quality with an impaired loan ratio of 7.6% at end-1Q20 (9.7% at end-2018 as calculated by Fitch) remains weak by international standards and is a rating weakness. Capitalisation (14.5% fully-loaded CET1 ratio at end-1Q20, after deduction of accrued dividend for 1Q20) is a relative rating strength, but was still moderately exposed to unreserved impaired loans as the pandemic took hold (about one-fifth of equity at end-1Q20), increasing the bank's vulnerability to severe shocks. The Short-Term IDR and short-term senior debt ratings have been downgraded to 'F3', in line with its 'BBB-' Long-Term IDR under its criteria. Its assessment of funding and liquidity reflects its view that IntesaSP benefits from the strongest customer deposit franchise in Italy, but also that its funding profile and market access is influenced by perceptions of sovereign risk. Access to the central bank facilities made available in response to the crisis underpins IntesaSP's funding and liquidity. IntesaSP's DCR and senior debt ratings are at the same level as its IDRs. In Italy derivative counterparties have no preferential legal status over senior debt in liquidation and IntesaSP's senior debt does not meet the conditions to be notched up above the bank's IDR. SUBSIDIARY AND AFFILIATED COMPANY Banca IMI's ratings are based on institutional support from its parent and its IDRs are aligned with IntesaSP's, reflecting Fitch's view of its core function as the group's investment banking arm and extremely high operational and balance-sheet integration with its parent. IMI's DCR is at the same level as the Long-Term IDR because in Italy derivative counterparties have no preferential legal status over other senior debt in a liquidation. IMI will be merged into its parent during 2020. The ratings of the senior debt issued by IntesaSP's funding vehicles, Intesa Sanpaolo Bank Ireland, Intesa Sanpaolo Bank Luxembourg, S.A. and Intesa Funding LLC, are equalised with that of the parent because the debt is unconditionally and irrevocably guaranteed by IntesaSP and Fitch expects the parent to honour this guarantee. UNICREDIT IDRS, VR, DERIVATIVE COUNTERPARTY RATING AND SENIOR DEBT UniCredit's ratings reflect the significant influence that the Italian economy and sovereign risk have on the parent bank's overall risk profile, despite its diversification into more stable and higher-growth countries than Italy. In downgrading Unicredit's ratings, Fitch has considered the following: i) the weakened ability of the bank's franchise to generate profits given the expected economic contraction in its geographies; ii) the likelihood of lower medium-term profitability; iii) potential pressure on capitalisation, primarily from higher impaired loan encumbrance; iv) the link between Italy's sovereign risk and the bank's funding profile and market access. Fitch expects UniCredit's capitalisation to remain resilient through the crisis and this has a high influence on its ratings. UniCredit enters the downturn after improving its financial performance over the past three years, including a reduction in impaired loans, a gradual recovery in operating profitability, maintaining satisfactory capital buffers over regulatory minimum requirements and completing its TLAC/MREL (total loss-absorbing capacity/minimum required own funds and eligible liabilities) funding plan. The ratings are moderately supported by UniCredit's strong pan-European franchise, although the bank's overall risk profile is influenced by its large operations in Italy where the economic outlook is weaker than in many other European countries; by a still high, albeit declining, exposure to Italian sovereign debt (equivalent to around 95% of CET1 at end-1Q20); and by the expectation of concurrent GDP reductions in many other geographies where it is active. Fitch forecasts a 6.2% GDP contraction in Germany in 2020, followed by a partial recovery, while prospects for Austria appear even weaker. Fitch believes that the economic downturn will render it more challenging for the bank to maintain low impaired loans, although Fitch recognizes the bank's increased discipline in originating new loans, stronger control framework and track record in materially deleveraging its legacy impaired loans. At end-1Q20, the bank's gross impaired loan ratio of 5.5% (8.8% at end-2018) was among the lowest domestically but was still well above the EU average. Fitch considers that despite the benefits of revenue diversification, its balance-sheet clean-up and lower costs, weaker business volumes and rising LICs will put pressure on the bank's operating profitability in 2020. Capitalisation (13.44% CET1 ratio at end-1Q20, including suspended dividend for 2019) is a relative strength, but was still modestly exposed to unreserved impaired loans as the pandemic took hold (about 14% of equity at end-2019). The Short-Term IDR and short-term senior debt ratings have been downgraded to 'F3' in line with the bank's 'BBB-' Long-Term IDR under its criteria. UniCredit's funding profile benefits from its pan-European deposit franchise in retail and commercial banking, which provides it with a sound proportion of customer deposits, and from diversified access to institutional debt market by instrument and geography at parent and subsidiary bank levels. At the parent bank level in particular, Fitch believes UniCredit's funding profile and market access to be influenced by perceptions of Italian sovereign risk, but Fitch expects the facilities approved by the ECB in response to the crisis to help underpin Unicredit's overall funding and liquidity profile. Unicredit's DCR and senior debt ratings are at the same level as its IDRs. In Italy derivative counterparties have no preferential legal status over senior debt in liquidation and Unicredit's senior debt does not meet the conditions to be notched up above the bank's IDR. UniCredit's senior non-preferred notes are rated one notch below the bank's Long-Term IDR to reflect the risk of below average recoveries arising from the use of more senior debt to meet resolution buffer requirements and the combined buffer of additional Tier 1, Tier 2 and SNP debt being unlikely to exceed 10% of risk-weighted assets. For the same reason, senior preferred notes are rated in line with the Long-Term IDR. SUBSIDIARY AND AFFILIATED COMPANY The ratings of senior debt issued by UniCredit's funding vehicles, UniCredit Bank (Ireland) plc, and UniCredit International Bank Luxembourg SA, are equalised with that of the parent because the debt is unconditionally and irrevocably guaranteed by UniCredit, and Fitch expects the parent to honor this guarantee. MEDIOBANCA VR, IDRs, DERIVATIVE COUTERPARTY RATING AND SENIOR DEBT RATINGS Mediobanca's ratings reflect the significant influence that the Italian economy and Italian sovereign risk have on its credit profile. In downgrading Mediobanca's ratings, Fitch has considered the following: i) the likelihood of asset quality metrics deteriorating; ii) potential pressure on capitalisation; iii) the link between sovereign risk and the bank's funding profile and market access. Fitch expects Mediobanca's capitalisation to remain resilient through the crisis and this has a high influence on its ratings. Mediobanca's ratings reflect its sound capitalisation (13.9% transitional CET1 ratio at end-March 2020), and low leverage for its operating environment and profitability and asset quality better than domestic peers, which proved resilient through the economic cycle. Mediobanca's financial performance is underpinned by its specialised business model with strong competitive positions in selected businesses. Its assessment of asset quality (gross impaired loan ratio below 5% and coverage above 65% at end-March 2020) acknowledges that in previous cycles the bank consistently outperformed the domestic banking sector. However, Fitch considers Mediobanca's asset quality vulnerable to the downturn given the significance of its domestic consumer and corporate exposure, the latter featuring higher-than-average borrower concentration levels. Fitch expects the impact of lower business volumes, primarily from its consumer and investment banking activities and higher LICs, but also a weaker contribution from equity accounted Assicurazioni Generali, to result in profit weakness. Fitch has lowered its assessment of Mediobanca's funding and liquidity following Italy's downgrade, since Fitch considersed its relative attractiveness to institutional investors has reduced and the cost of issuing new debt has increased, with Italian bank risk being repriced to reflect Italy being one of the worst affected economies by the pandemic. Fitch considers Mediobanca's funding and liquidity to be stable and diversified but less so than the largest domestic banks, given a smaller and less established customer deposit base, despite the bank's success in strengthening it through the expansion of its retail and wealth management franchise. This is partly compensated by a slightly lower central bank funding utilisation than large domestic peers, manageable medium-term funding needs, and adequate buffers of unencumbered eligible assets. Its assessment of capitalisation, which shows encumbrance by unreserved impaired loans and sovereign risk consistently among the lowest among Italian banks, remains a relative rating strength. Mediobanca's Short-Term IDR and short-term senior debt ratings have been affirmed at 'F3'. This is in line with its rating correspondence table for banks with 'BBB-' Long-Term IDRs. Mediobanca's DCR and senior preferred debt ratings are at the same level as its IDRs. In Italy derivative counterparties have no preferential legal status over senior debt in liquidation and Mediobanca's senior debt does not meet the conditions to be notched up above the bank's IDR. Mediobanca's SNP debt is rated one notch below the Long-Term IDR to reflect the risk of below average recoveries arising from the use of more senior debt to meet resolution buffer requirements and the combined buffer of AT1, Tier 2 and SNP debt being unlikely to exceed 10% of risk-weighted assets. For the same reason, the rating of senior preferred debt is in line with the Long-Term IDR. SUBSIDIARY AND AFFILIATED COMPANIES The ratings of the senior preferred debt issued by Mediobanca International (Luxembourg) SA are equalised with the parent's IDRs, and have therefore also been downgraded, since the debt is unconditionally and irrevocably guaranteed by Mediobanca, and Fitch expects the parent to honour this guarantee. UBI VR, IDRs AND SENIOR DEBT RATINGS UBI's IDRs, deposit and debt ratings are currently based on its standalone strength, as reflected in its VR. The downgrade reflects UBI's comparatively weaker credit profile than those of its larger and higher rated domestic peers and leaves the bank more exposed to the consequences of Italy's downgrade and economic downturn. In downgrading UBI's ratings, Fitch has also considered the following: i) its less diverse business model compared with higher rated peers, whose ability to generate revenue is likely to come under pressure; ii) above average appetite for own sovereign risk; iii) the likelihood of asset quality metrics deteriorating; iv) the likelihood of a weaker medium-term profitability. Fitch believes that UBI's ability to generate revenue in its main business line will weaken in the deteriorated economic environment. Lower revenue and higher LICs will further damage the bank's already weak profitability. Fitch also believes that it will be difficult for management to achieve the targets outlined in the new strategic plan for 2020-2022, which included several initiative to increase fees from wealth management and corporate and investment banking, cut costs and increase automation. Deterioration in UBI's predominantly domestic loan book will lead to new impaired loans, while falling collateral values and slower court activity might harm impaired loan recoveries. Higher uncertainty in the financial markets might also lead to delays in the execution of planned impaired loan disposals. UBI enters the economic downturn with a gross impaired loans ratio of about 7.9% (end-2019), which is significantly lower than in the past but still high by international standards. Fitch views UBI's capitalisation as adequate owing to comfortable buffers over SREP requirements. However, capital remains more exposed than higher-rated peers to unreserved impaired loans and Italian sovereign bonds. Fitch views UBI's funding and liquidity as a relative rating strength thanks to its stable base of customer deposits and large liquidity buffers. However, Fitch believes that Italy's downgrade will have repercussions on UBI's debt market access, potentially leading to higher funding costs. UBI's IDRs, VR, senior, subordinated and deposit ratings remain on RWP because IntesaSP recently voted to proceed with the voluntary exchange offer on the entirety of UBI's ordinary shares. If the transaction is successful, UBI could benefit from institutional support from higher-rated IntesaSP as its majority shareholder, or see improvements in its standalone profile from being part of a stronger group. Fitch expects to resolve the RWP on UBI's ratings once the exchange offer is completed. Execution of the transaction is planned for end-July 2020. However, the resolution of the RWP could take longer if the transaction is delayed or if the potential benefits for UBI's standalone risk profile and VR are not sufficiently clear at that point. For additional information, see Rating Sensitivities. The Short-Term IDR and short-term senior debt ratings were downgraded to 'B'/RWP from 'F3'/RWP. UBI's SNP are rated one notch below the Long-Term IDR to reflect the risk of below average recoveries arising from the use of more senior debt to meet resolution buffer requirements and the combined buffer of AT1, Tier 2 and SNP debt being unlikely to exceed 10% of risk-weighted assets. For the same reason, senior preferred notes are in line with the IDRs. SUPPORT RATING AND SUPPORT RATING FLOOR (ALL BANKS) The Support Ratings and Support Rating Floors reflect Fitch's view that although external extraordinary sovereign support is possible it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for the resolution of banks that requires senior creditors to participate in losses, if necessary, instead of or ahead of a bank receiving sovereign support. DEPOSIT RATINGS (ALL BANKS) The banks' Long-Term Deposit Ratings have been downgraded by one notch but remain one notch above their respective Long-Term IDRs to reflect existing protection from more junior bank resolution debt and equity buffers. The one-notch uplift also reflects its expectation that the banks will maintain these buffers, given the need to comply with MREL. Fitch has assigned 'F3' Short-Term Deposit Ratings to IntesaSP and UniCredit, the baseline option for a 'BBB' Long-Term Deposit Rating because their funding and liquidity scores are not high enough to achieve the higher equivalent short-term rating option possible at a 'BBB' level. Fitch also assigned a 'F3' Short-Term Deposit Rating to UBI in line with its 'BBB-' Long-Term Deposit Rating. Mediobanca's Short-Term Deposit Ratings has been downgraded to 'F3', the baseline option for a 'BBB' Long-Term Deposit Rating, from the previous 'F2' because its funding and liquidity score is not high enough to achieve the higher equivalent Short-Term rating option possible at a 'BBB' level. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES (ALL BANKS) Subordinated debt and other hybrid capital securities issued by the banks are notched down from their VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss-severity risk profiles. Tier 2 subordinated debt is rated two notches below the VR for loss severity to reflect poor recovery prospects. No notching is applied for incremental non-performance risk because writedown of the notes will only occur once the point of non-viability is reached and there is no coupon flexibility before non-viability. UniCredit's and IntesaSP's Additional Tier 1 notes are rated four notches below the VR, comprising two notches for loss severity relative to senior unsecured creditors and two notches for incremental non-performance risk. RATING SENSITIVITIES INTESASP Factors that could, individually or collectively, lead to positive rating action/upgrade: For IntesaSP's IDRs, VR, DCR, deposit ratings, Tier 2 debt, AT1 debt and senior debt ratings issued by it, and by Intesa Sanpaolo Bank Ireland, Intesa Sanpaolo Bank Luxembourg, S.A. and Intesa Funding LLC, to be upgraded, Italy would need to be upgraded and pressures on risk appetite, asset quality and earnings that have arisen from the economic fallout from the coronavirus pandemic would need to ease. An upgrade of IntesaSP's ratings would lead to an upgrade of IMI's IDRs and debt ratings. Factors that could, individually or collectively, lead to negative rating action/downgrade: IntesaSP's ratings are likely to be downgraded if Italy's sovereign rating is downgraded. The ratings are also sensitive to the depth and duration of the economic crisis caused by the pandemic and its impact on IntesaSP's financial profile, and could be downgraded if IntesaSP's CET1 ratio falls below 13% without prospect of recovering in the short term. This weakening of capitalisation could be caused by a delay to the recovery of Italy's economy, which could result in a prolonged damage to the bank's asset quality, earnings and ultimately capital. As IMI's ratings are driven by expected support from IntesaSP, they would be downgraded if IntesaSP's equivalent ratings are downgraded or if IntesaSP's propensity to support IMI weakens. UNICREDIT Factors that could, individually or collectively, lead to positive rating action/upgrade: For UniCredit's IDRs, VR, DCR, deposit ratings, T2 debt, AT1 debt and senior debt ratings issued by the bank, and by its funding vehicles, UniCredit Bank (Ireland) plc, and UniCredit International Bank Luxembourg SA, to be upgraded, Italy would need to be upgraded and pressures on asset quality, earnings and capital that have arisen from the economic fallout from the coronavirus pandemic would need to ease. The senior preferred and SNP debt ratings could be upgraded by one notch if UniCredit is expected to meet its resolution buffer requirements with SNP and more junior debt instruments. Factors that could, individually or collectively, lead to negative rating action/downgrade: UniCredit's ratings are likely to be downgraded if Italy's sovereign rating is downgraded. The ratings are also sensitive to the depth and duration of the economic crisis caused by the pandemic and its impact on the bank's financial profile and could be downgraded if UniCredit's CET1 ratio falls below 13% without prospect of recovering in the short term. This weakening of capitalisation could be caused by a delay to the recovery of Italy's economy, which could result in a prolonged damage to the bank's asset quality, earnings and ultimately capital. MEDIOBANCA Factors that could, individually or collectively, lead to positive rating action/upgrade: For Mediobanca's IDRs, VR, DCR, deposit ratings, Tier 2 debt and senior debt ratings issued by it, and by Mediobanca International (Luxembourg) SA, to be upgraded, Italy would need to be upgraded and pressures on risk appetite, asset quality and profitability that have arisen from the economic fallout from the coronavirus pandemic would need to ease. The senior preferred and SNP debt ratings could be upgraded by one notch if Mediobanca is expected to meet its resolution buffer requirements with SNP and more junior instruments. Factors that could, individually or collectively, lead to negative rating action/downgrade: Mediobanca's largely domestic focus means its ratings are sensitive to a downgrade of Italy's sovereign rating. The ratings are also sensitive to the depth and duration of the economic crisis caused by the pandemic and its impact on the bank's financial profile and could be downgraded if Mediobanca's CET1 ratio falls below 13% without prospect of recovering in the short term. This weakening of capitalisation could be caused by a delay in the recovery of Italy's economy, which could result in a prolonged damage to the bank's asset quality, earnings and ultimately capital. UBI Factors that could, individually or collectively, lead to positive rating action/upgrade: UBI's IDRs could be upgraded in line with IntesaSP's and the bank's Support Rating to '2' if the acquisition proceeds and if it concludes that UBI will become sufficiently integrated so that its default would pose significant reputation risk to IntesaSP and damage IntesaSP's domestic franchise, given they both operate in the same country and serve the same target clientele. It is likely that regulators would favor parental support in the event an acquisition goes ahead. Equalisation with IntesaSP's IDRs is likely to be contingent on IntesaSP acquiring at least two-thirds of UBI Banca's share capital as this will give IntesaSP strong control over UBI, reduce impediments to integration and make extraordinary support more likely, in Fitch's view. UBI's IDRs could also be upgraded if the transaction benefits the standalone risk profile of the bank and results in its VR being upgraded either on acquisition by IntesaSP or on deeper integration or legal merger. Depending on the level of integration (which Fitch believes hinges on whether or not IntesaSP manages to acquire more than two-thirds of UBI's share capital), UBI's company profile could benefit from being part of a group with a stronger franchise, higher product diversification and larger scale, while its risk appetite and management and strategy could become more aligned with the higher-rated IntesaSP. UBI's financial profile has the capacity to improve following the acquisition, given Intesa's stated intention to sell a non-performing loan portfolio of around gross EUR4 billion by 2021. However, it acknowledges that executing this transaction might be more difficult given the deteriorated economic environment and greater market volatility. Cost synergies should also contribute to more sustainable profitability with ultimate benefits on UBI's ability to generate capital. UBI should also see funding benefit, given Intesa's established market access and dominant domestic deposit franchise. In the absence of a transaction with Intesa, an upgrade of UBI's rating would require evidence of the bank's ability to defend its asset quality and capitalisation, and restore its profitability alongside a recovery in the economy. The senior preferred and SNP debt ratings could be upgraded by one notch if UBI is, in the future, expected to meet its resolution buffer requirements with SNP and more junior instruments. Factors that could, individually or collectively, lead to negative rating action/downgrade: If the exchange offer from IntesaSP is unlikely to proceed, UBI's ratings would likely be removed from RWP and be primarily sensitive to the depth and duration of the economic crisis caused by the pandemic and its impact on the bank's financial profile. The ratings could be downgraded if an economic recovery in Italy is delayed, resulting in permanent damage to the bank's asset quality, earnings, capital or funding instability. SUPPORT RATING AND SUPPORT RATING FLOOR (ALL BANKS) An upgrade of the Support Ratings and upward revision of the Support Rating Floors of IntesaSP, UniCredit, Mediobanca and UBI would be contingent on a positive change in the sovereign's propensity to support the banks. In Fitch's view, this is highly unlikely, although not impossible. UBI's Support Rating could be upgraded if the exchange offer from Intesa proceeds, most likely to '2'. Fitch would then withdraw its Support Rating Floor as the most likely source of support would be institutional from Intesa. DEPOSIT RATINGS (ALL BANKS) The deposit ratings are primarily sensitive to changes in the banks' IDRs. The long-term deposit ratings of IntesaSP, UniCredit, Mediobanca and UBI are also sensitive to a reduction in the size of the senior and junior debt buffers, although Fitch views this unlikely in light of the banks' current and future MREL requirements. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES (ALL BANKS) The subordinated debt's and hybrid securities' ratings are primarily sensitive to changes in the banks' VRs, from which they are notched. The ratings are also sensitive to a change in the notes' notching, which could arise if Fitch changes its assessment of their non-performance relative to the risk captured in the VR. UniCredit's and IntesaSP's AT1 debt could also be downgraded if Fitch expects capital buffers over the point at which maximum distributable amount restrictions can be triggered to fall below 100bp. ESG CONSIDERATIONS Unless otherwise stated 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 entities, either due to their nature or to the way in which they are being managed by the entities. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Banca IMI's IDRs are driven by institutional support from Intesa Sanpaolo SpA. A change in Fitch's assessment of the ratings of Intesa Sanpaolo S.p.A. would result in a change in the ratings of the related entity. The ratings of the debt issued by Intesa Sanpaolo Bank Ireland, Intesa Sanpaolo Bank Luxembourg, S.A. and Intesa Funding LLC are driven by the ratings of the guarantor (Intesa Sanpaolo SpA). A change in Fitch's assessment of the ratings of Intesa Sanpaolo S.p.A. would result in a change in the ratings of the debt issued related entity. The ratings of the debt issued by Mediobanca International (Luxembourg) SA are driven by the ratings of the guarantor (Mediobanca SpA). A change in Fitch's assessment of the ratings of Mediobanca S.p.A. would result in a change in the ratings of the debt issued related entity The ratings of the debt issued by UniCredit Bank (Ireland) plc and UniCredit International Bank Luxembourg SA are driven by the ratings of the guarantor (UniCredit SpA). A change in Fitch's assessment of the ratings of UniCredit S.p.A. would result in a change in the ratings of the debt issued related entity ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). =================== L U X E M B O U R G =================== CONSOLIDATED ENERGY: Moody's Cuts CFR to B1, Outlook Negative ------------------------------------------------------------- Moody's Investors Service downgraded Consolidated Energy Finance, S.A.'s corporate family rating to B1 from Ba3. In addition, it downgraded the company's Senior Secured Bank Credit Facility rating to Ba3 from Ba2; both CEF and Methanol Holdings (Trinidad) Limited are co-obligors under this facility. The rating actions were based on holding company Consolidated Energy Limited's higher credit risk, derived from lower cash generation and weak credit metrics in 2019-21, driven primarily by lower commodities prices but also by lower than expected production volumes. The outlook on the ratings is negative. Ratings downgraded: Downgrades: Issuer: Consolidated Energy Finance, S.A. Corporate Family Rating, Downgraded to B1 from Ba3 BACKED Senior Secured Term Loan B, Downgraded to Ba3 from Ba2 BACKED Senior Secured Revolving Credit Facility, Downgraded to Ba3 from Ba2 Senior Unsecured Regular Bond/Debenture, Downgraded to B2 from B1 Outlook Actions: Issuer: Consolidated Energy Finance, S.A. Outlook, Changed To Negative From Stable RATINGS RATIONALE The ratings on CEF are based on the credit risk of CEL. The rating actions reflect Moody's view that CEL's credit metrics will remain weak given lower methanol prices in 2020-21 as compared to previous expectations. In addition, the company's production has been below capacity, which heightens operating risk and financial risk. Moody's believes that CEL's adjusted debt leverage will remain high in the next two to three years, although gradually declining as prices improve somewhat starting in 2021, driven by positive global economic growth; Moody's expects that 2020 will be a particularly weak year due to the coronavirus outbreak but industrial demand and oil prices should improve in 2021. The ratings also consider the fact that CEL's product portfolio is concentrated on methanol, which accounts for most of revenues and EBITDA (ammonia, fertilizer and melamine account for the rest). For this reason, the company is exposed to volatile commodity prices and the cyclical nature of pricing and demand for methanol and fertilizers. The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The methanol industry has been one of the sectors most significantly affected by the shock given its sensitivity to demand and oil prices. More specifically, the weaknesses in CEL's credit profile have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and CEL remains vulnerable to the outbreak continuing to spread and oil prices remaining weak. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Its action reflects the impact on CEL of the breadth and severity of the shock, the broad deterioration in credit quality it has triggered, and high-level lingering uncertainty. CEL benefits from meaningful methanol market shares, low cost structure, high EBITDA margins, and adequate liquidity. Its world scale methanol plant and AUM (anhydrous ammonia, urea ammonium nitrate, and melamine) complex in Trinidad benefits from natural gas purchased at prices referenced to market prices of methanol, thereby somewhat alleviating the negative impact on its profitability of volatile end product selling prices. CEL has adequate liquidity, supported by $191 million in consolidated cash and equivalents in December 2019, plus $225 million in available revolver, which matures in 2023. In order to protect its liquidity position, Moody's expects the company to adjust capital expenditures and operating expenses to a lower level of revenues in 2020 so that free cash flow (defined as cash from operations minus dividends minus capital expenditures) is not negative. In addition, the rating agency does not expect CEL to need to draw under the revolver in 2020 given the strong amount of cash on hands it had in late 2019. CEL's debt maturity profile is comfortable, although $569 million in debt matures between June and September 2022. The negative rating outlook reflects Moody's expectation that, in the next 12-18 months, the company may not be able to raise its operating cash flow materially enough to improve credit metrics significantly to a level more commensurate with its current ratings. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS CEF's ratings could be downgraded if CEL's liquidity risk increases either because cash on hands decline materially or because the company draws under its revolver credit facility. Volatility in CEL's gas supply could also lead to a rating downgrade. Although unlikely given the negative outlook on the company's ratings, CEF's ratings could be upgraded if CEL reduces its adjusted debt/EBITDA ratio to closer to 4 times and sustains adjusted interest coverage (EBITDA/Interest expense) above 4.0 times, in addition to maintaining adequate liquidity. To be considered for an upgrade, the company should maintain strong profitability and have a stable supply of natural gas, with no curtailments. The principal methodology used in these ratings was Chemical Industry published in March 2019. Consolidated Energy Finance, S.A. is a special purpose vehicle wholly-owned by its holding company Consolidated Energy Limited, which in turn is the second largest methanol producer in the world. In addition to its wholly owned subsidiaries, CEL owns minority stakes in methanol producer Oman Methanol Company and in ammonia producers Nitrogen 2000 Unlimited and Caribbean Nitrogen Company Limited. Through its wholly owned subsidiary Methanol Holdings (Trinidad) Limited, CEL is the largest methanol exporter to North America and a significant producer of fertilizer products (anhydrous ammonia, urea ammonium nitrate, and melamine). CEL reported revenues of $1,177 million in 2019. SB BALEIA: Fitch Affirms 'BB-' LT Rating, Alters Outlook to Neg. ---------------------------------------------------------------- Fitch Ratings has affirmed and has revised the Rating Outlook to Negative from Stable on the SBM Baleia Azul S.a.r.l. and MV24 Capital B.V. transactions. This revision follows that of the sovereign and Petrobras' IDR to Negative from Stable. The Rating Outlook revision to Negative for these issuers results from their exposure and direct linkage to Petrobras' credit quality and Brazil's Country Ceiling. The ratings of the transactions are ultimately capped by Fitch's view on the strength of the offtaker's payment obligation, which, in the case of SBM Baleia Azul, is equalized to Petrobras' IDR and, in the case of MV24, is deemed to be one notch above Petrobras' IDR and equalized with the Country Ceiling of Brazil as Petrobras acts as the controlling party of the joint venture. The global coronavirus outbreak and resulting containment measures have resulted in a highly uncertain macroeconomic outlook and dampened global demand for oil. Fitch has observed volatility in Brent crude pricing in the short term due to oversupply and lack of demand. Even under the current volatile price environment, Fitch expects the floating production storage and offloading unit fixed-price contracts backing these transactions to remain resilient to continued volatility. Pre-salt offshore oil production in Brazil continues to be Petrobras' most efficient form of production with relatively low break-even lifting costs. Additionally, FPSOs are built to suit the characteristics of the oil and field in question. FPSOs are seen as essential to long-term production and cash generation for an offtaker, and the cash generated by the FPSO typically far exceeds the costs to charter and operate the vessel. Therefore, Fitch sees FPSO day rates less correlated to the short-term changes in oil prices and more linked to the overall attractiveness of the oil field to the charter agreement offtaker. Given these dynamics, Fitch has seen Petrobras honor its obligations on charter contracts for FPSOs, even during low price environments such as those seen between 2014 and 2016. Fitch believes the marginal production costs of these FPSOs provide substantial economic value and support the continued existence of these contracts for the long term. SBM Baleia Azul, SII/ S.a.r.l. - Senior L8038*AA4; LT BB-; Affirmed FPSO Cernambi Sul MV24 - Senior Secured Notes 55388RAA4; LT BB; Affirmed TRANSACTION SUMMARY The senior secured notes issued by SBM Baleia Azul S.a.r.l. are backed by the flows related to the charter agreement signed with Petroleo Brasileiro S.A. for the use of the FPSO unit Cidade de Anchieta for a term of 18 years. SBM do Brasil Ltda., the Brazilian subsidiary of SBM Holding Inc. S.A., is the operator of the FPSO. SBM is the sponsor of the transaction. The FPSO Cidade de Anchieta began operating at the Baleia Azul oil field (now considered part of the New Jubarte field) in September 2012. Fitch's rating reflects the likelihood of timely payment of interest and principal until legal final maturity in September 2027. The senior secured notes issued by MV24 Capital B.V. are backed by the flows related to the charter agreement signed with Tupi B.V. for the use of the FPSO Cidade de Mangaratiba MV24 for a term of 20 years. Tupi B.V., the offtaker of the charter agreement, is a consortium between Petroleo Brasileiro S.A., as controlling party with 65% share, and BG Energy Holdings Ltd. (wholly owned subsidiary of Royal Dutch Shell plc) with 25% share, and Galp Energia (a JV between Galp and Sinopec) with 10% share of Tupi B.V. The vessel is operated by an entity of Modec do Brasil Ltda., the Brazilian subsidiary of Modec, Inc., through a services agreement. Modec is jointly and severally liable for Modec Brasil's obligations under the services agreement as an intervening party and has also provided a guarantee to Tupi BV for the performance of the obligations of Modec Brasil. Modec is one of four sponsors of the project. The sponsors of the transaction are a Japanese consortium comprising Modec, Inc., Mitsui & Co., Mitsui OSK Lines and Marubeni. The MV24 FPSO began operating at the Lula oil field in October 2014. Fitch's rating addresses the timely payment of interest and principal on a semiannual basis until legal final maturity in June 2034. KEY RATING DRIVERS Resilience to Coronavirus Disruption and Oil Price Declines: The global coronavirus outbreak and resulting containment measures have resulted in a highly uncertain macroeconomic outlook and dampened global demand for oil. Fitch has observed volatility in Brent crude pricing in the short term due to oversupply and lack of demand. However, Fitch believes the structures remain resilient to these disruptions as the break-even prices on pre-salt production remain low. In addition, these charter contracts have continued to be honored in low-price environments as recent as 2016, due to the fixed-price nature of the contracts and availability-based payment structure. Asset Supply and Demand Fundamentals: The FPSO market is consistently stable as all vessels are built to suit the characteristics of the oil and field in question and the lead time for construction is long. FPSOs are contracted based on long-term field production plans and have cash flow dynamics that are highly favorable to the offtaker once oil is produced. For Brazil in particular, FPSOs are essential to the country's development and production of deep water oil, which supports the strategic importance of these assets to Petrobras' operations. Additionally, charter rates are in line with those of other comparable FPSOs in the region. Linkage to Petrobras' Credit Quality: Fitch uses the offtaker's Issuer Default Rating as the starting point to determine the appropriate strength of the offtaker's payment obligation. On May 7, 2020, Fitch affirmed Petrobras' Long-Term IDR at 'BB-' and revised the Rating Outlook to Negative from Stable. Petrobras' ratings continue to reflect its close linkage with the sovereign rating of Brazil due to the government's control of the company and its strategic importance to Brazil as the near-monopoly supplier of liquid fuels. Strength of Offtaker's Payment Obligation: Fitch's view on the strength of the offtaker's payment obligation acts as the ultimate rating cap to the transaction. Given Fitch's qualitative assessment of asset/contract/operator characteristics and the offtaker's/industry's characteristics related to these transactions, the strength of such payment obligation is equalized to Petrobras' LT IDR for the SBM Baleia Azul transaction and, in the case of MV24 Capital B.V., is deemed to be one notch above Petrobras' IDR and equalized with the Country Ceiling of Brazil as Petrobras acts as controlling party of the JV. Credit Quality of the Operator/Sponsor: The transactions benefit from strong operating partners with global leadership positions in leasing FPSOs with overall strong operational performance of its respective fleet. Both operators/sponsors have credit qualities in line with investment-grade metrics. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Fitch does not anticipate developments with a high likelihood of triggering an upgrade. The main constraint to the transaction rating is currently the credit quality of the offtaker and the Country Ceiling of Brazil. The ratings could only be upgraded in case of an upgrade in the credit quality of the offtaker and an upgrade of the Country Ceiling of Brazil. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- This transaction's rating may be sensitive to movements in the credit quality of the charter agreement controlling party, as well as to significant deterioration of the credit quality of the FPSO's operator and/or sponsor of the transaction. -- In addition, this transaction's rating is sensitive to the operating performance of the FPSO as the offtaker will make charter payment adjustments depending on overall availability. -- Most transactions in which local assets transfer dollars offshore are capped by the sovereign Country Ceiling. Exceptions arise when the FC IDR of the obligor/offtaker is higher than the sovereign Country Ceiling. Given the sovereign's control over Petrobras as main shareholder, and the influence it exerts within the company, Petrobras' ratings are correlated to those of the sovereign. Therefore, this transaction's rating could be sensitive to a downgrade in Brazil's sovereign rating. -- The rating assigned to the MV24 transaction is capped at one notch above the Foreign-Currency IDR assigned to Petrobras, as controlling party of the JV offtaker to this transaction. The rating assigned to the SBM Baleia Azul transaction is capped at the FC IDR assigned to Petrobras as sole offtaker to this transaction. If Petrobras' FC IDRs are downgraded below 'BB-', the rating assigned to the respective senior notes would be downgraded accordingly. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. 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. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). ================= M A C E D O N I A ================= NORTH MACEDONIA: S&P Affirms 'BB-/B' Sovereign Credit Ratings ------------------------------------------------------------- S&P Global Ratings, on May 13, 2020, affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on the Republic of North Macedonia. The outlook is stable. As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on North Macedonia are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar. Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is a material deterioration in global economic and financial conditions as a result of the coronavirus pandemic that could have a direct impact on North Macedonia's growth, fiscal, and external metrics. The next scheduled publication on the sovereign ratings on North Macedonia will be on Sept. 4, 2020. Outlook The stable outlook balances the risks associated with the COVID-19 pandemic's possibly permanent effects on North Macedonia's economy and fiscal and external metrics, against potential upside from structural reform implementations as part of EU accession negotiations and stronger growth beyond 2020. Downside scenario S&P said, "We could lower the ratings on North Macedonia over the next 12 months if the economic and budgetary cost of the pandemic are materially higher than we currently project, and erode the available fiscal space, given the constraints of the exchange-rate regime. The ratings could also come under pressure if domestic financial-system stability weakens substantially in a hypothetical scenario of sustained deterioration in asset quality and persistent deposit conversion to foreign currency. We could also lower the ratings if major political tensions returned or reform momentum waned over the next 12 months, but this is not our base case." Upside scenario S&P could raise its ratings on North Macedonia if timely reform implementation, for instance as part of EU accession negotiations, strengthened its institutional arrangements and improved its economic prospects beyond 2020. Rationale Global economic and financial conditions have deteriorated substantially as a result of the COVID-19 pandemic, which has gathered pace over the past two months. S&P now expects world GDP to contract by 2.4% this year. Moreover, S&P now projects a 7.3% recession in 2020 in the eurozone, where most of North Macedonia's trade partners are. S&P said, "In our view, the pandemic will have a notable effect on North Macedonia, both directly (with pressures on the health sector and the economy as a result of measures to stop the spread of the virus) and indirectly (via the foreign trade channel). We have revised our growth forecasts down and now expect the economy to contract by 5.0% in 2020, followed by a partial recovery of 3.8% next year." S&P anticipates that the recession will be rather broad-based, with a sharp contraction in exports but also shrinking domestic consumption and investments. Although global tourism is being heavily affected, its significance for North Macedonia is relatively limited given that tourism receipts directly account for only about 5% of total nominal exports in U.S. dollar terms. More significantly, North Macedonia is part of global supply chains, particularly in the auto sector, in which activity will likely remain weak in the coming months. S&P notes that Germany alone is a destination for almost 50% of North Macedonia's exports; it forecasts the German economy will contract by 6% this year. North Macedonia has also historically relied on worker remittances--these comprise the bulk of the secondary income surplus, which averaged close to 17% of GDP over the last five years. The workers are mostly in Europe and S&P expects transfers to fall sharply, by 25% in 2020, as economic conditions in host countries worsen. Consequently, this will put further downward pressure on domestic demand. S&P said, "Our economic forecasts are subject to a high degree of uncertainty with risks tilted to the downside. A second wave of the virus, either in North Macedonia or in Europe, could worsen the outlook for recovery. At the same time, we have yet to see whether activity will be resumed in full once social distancing measures are relaxed. Some companies might have to be liquidated because of their weakened financial standing, combined with still-subdued demand from cautious consumers. We note that North Macedonia has already started to lift some restrictions but we expect this to be a gradual process." The government and the national bank have to date announced fiscal and monetary measures to support the economy through the pandemic. These include: -- A number of support measures to the affected sectors, including transport, hotels, and restaurants as well as a subsidy on social security contributions to maintain employment (0.3% of GDP); -- Direct support to protect jobs in companies where revenue dropped by over 30% as a result of the pandemic and measures to protect the vulnerable in the informal economy (1% of GDP); and -- Several monetary and credit measures, including a reduction in the key central bank interest rate, widening eligible collateral for monetary operations purposes, as well as some forbearance measures and targeted debt payment holidays. S&P forecasts that as a result of the aforementioned initiatives and the projected decline in economic activity, the general government deficit will widen to 7.0% of GDP this year from 2.1% last year. The main contributor to this widening will likely be the eroding revenue base, while the government plans to keep expenditures largely unchanged (with spending shifted from capital spending to healthcare outlays and support measures). Specifically, high frequency data suggests that while PIT has held up comparatively well so far, there has been a notable drop in VAT and excise collections. The authorities plan to fund the deficit mainly via borrowing from international financial institutions. In fact, a Rapid Financing Instrument credit line of EUR176 million has already been agreed with the IMF and disbursed, while negotiations continue with the EU, World Bank, and others for further support. The North Macedonian government also plans to issue a Eurobond in the coming months. S&P said, "Although we still view North Macedonia's fiscal leverage as moderate, we believe there will be some permanent erosion of fiscal space as a result of the pandemic and ensuing recession. We now project that net general government debt will rise to above 50% of GDP by the end of 2020 compared to 41% at the end of 2019. We also expect net general government debt to be on average 9% of GDP higher over the medium term compared to our previous projections. "Similar to our fiscal projections, we expect the current account deficit to widen this year to about 6.0% of GDP from 2.8% last year. This largely mirrors public-sector foreign borrowing to offset the impact of the pandemic. Although we forecast a pronounced decline in remittances of 25% in U.S. dollar terms, we anticipate that imports will decline in tandem, limiting the overall effect on the headline external balance. "North Macedonia's banking system remains stable but risks have increased, in our view. Asset quality will likely deteriorate and there were also some deposit withdrawals and conversions to foreign exchange throughout April. We understand that this is no longer happening and high frequency data suggests that central bank reserves grew in gross terms in April. "We expect the pegged denar-euro exchange rate arrangement to remain in place for the foreseeable future. The absence of large-scale portfolio flows into North Macedonia somewhat relieves immediate risks but these remain given the bleak outlook for remittances and FDI. Our baseline expectation is that there will be no large-scale resident conversion to foreign exchange and therefore the exchange rate will remain intact. "Beyond the current impact of the coronavirus pandemic, we note that there have been several important developments in North Macedonia. In March the country finally got the green light to formally start EU accession talks, following the resolution of its long-running name dispute with Greece in 2019. We believe that negotiations could bring upside potential in terms of structural reform implementation. We also observe notable improvements in political stability in recent years, with an orderly precedent of power transfer in 2017. Risks remain, however, as the country gears up for the general elections later this year. These were postponed from April due to the pandemic. The two main parties are polling closely, presenting risks of a hung parliament, although this is not our baseline scenario." In accordance with S&P's relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable. At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. Ratings List Ratings Affirmed North Macedonia Sovereign Credit Rating BB-/Stable/B Transfer & Convertibility Assessment BB Senior Unsecured BB- ===================== N E T H E R L A N D S ===================== AI AVOCADO: Moody's Cuts CFR to B3 & PDR to B3-PD, Outlook Stable ----------------------------------------------------------------- Moody's Investors Service has downgraded to B3 from B2 the corporate family rating of AI Avocado Holding B.V. The rating agency has also downgraded Unit4's probability of default rating to B3-PD from B2-PD, and has downgraded to B3 from B2 the ratings on the senior secured revolving credit facility and senior secured term loans issued by AI Avocado B.V. The outlook remains stable. "The downgrade of Unit4 reflects the company's underperformance in 2019 as well as Moody's expectation that Moody's adjusted gross leverage will remain elevated, and that free cash flow generation will remain limited over the next 12-18 months", said Fabrizio Marchesi, Vice President and Moody's lead analyst for the company. "The rating also reflects the negative impact that the coronavirus outbreak is expected to have on the company's financial performance mainly because a portion of its revenue is linked to the sale of new licenses and services" added Mr. Marchesi. Issuer: AI Avocado Holding B.V. Corporate Family Rating, Downgraded to B3 from B2 Probability of Default Rating, Downgraded to B3-PD from B2-PD Downgrades: Issuer: AI Avocado B.V. Senior Secured Bank Credit Facility, Downgraded to B3 (LGD4) from B2 (LGD4) Outlook Actions: Issuer: AI Avocado B.V. Outlook, Remains Stable Issuer: AI Avocado Holding B.V. Outlook, Remains Stable RATINGS RATIONALE Unit4 underperformed relative to Moody's expectations during the course of 2019, with revenue falling 2% year-on-year and company-adjusted EBITDA declining to EUR127 million, from EUR156 million in 2018. The fall in revenue was mainly due to higher churn in the Domestic division while EBITDA was mainly weaker than forecast because of management's decision to invest significantly in its cost structure to support future growth in the Global division. At the same time, the company continued to report significant non-recurring items in 2019, which limited Moody's adjusted free cash flow generation to around 2% FCF to debt. As a result, Moody's-adjusted (gross) leverage rose to 8.4x as at fiscal year-end 2019. Moody's expects the company's key credit metrics will remain weak in 2020, due to the company's ongoing investment in its cost structure as well as the full-year impact of recent asset disposals, followed by an improvement in credit metrics in 2021. Moody's also forecasts that there will be a negative impact from the coronavirus outbreak and deteriorating global economic conditions given a portion of Unit4's revenue base is linked to new license sales and associated customer service. More specifically, while recognizing that Unit4 is in a better position to deliver top-line growth following the disposal of certain business lines in 2019, any improvement is subject to material execution risk. The rating agency believes that non-recurring items will continue to negatively impact Unit4's FCF generation in 2020, albeit to a lesser extent compared to 2019. As a result, Moody's adjusted (gross) leverage is expected to remain elevated at above 8.0x in 2020, before declining towards 7.0x in 2021 on the back of revenue growth from increased up-take of historically strong subscription revenue. Moody's also expects FCF to remain weak and unlikely to increase beyond 2% of gross adjusted debt in the next 12-18 months. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Its action also reflects the impact of the breadth and severity of the shock, as well as the expected impact on the credit quality of the company. Overall, Unit4's B3 CFR positively incorporates (1) the company's good position in the midmarket segment of its core geographies, (2) high switching costs for some of its products and low customer churn, and (3) recurring maintenance and software subscription fees. Conversely, its CFR is constrained by (1) high competition and limited geographical diversification, (2) lack of historical revenue and EBITDA growth, (3) a weak track record of cash flow generation, and (4) the risk of re-leveraging from debt-funded acquisitions or refinancing. Funds advised and ultimately controlled by Advent International currently own more than 95% of the share capital of Unit4. Advent, as majority owner, controls the board. As is often the case in highly levered, private equity sponsored deals, owners can have a high tolerance for leverage and governance can be comparatively less transparent to listed and non-privately owned companies. Unit4's liquidity is adequate. As at December 31, 2019, the company held a significant EUR111 million of cash on balance sheet and had access to a EUR72 million revolving credit facility maturing in September 2022, only EUR2 million of which was utilized to cover guarantees. Unit4 only has one maintenance covenant, based on total net leverage of 5.5x going forward, against which Moody's expects the group to maintain around 10% covenant headroom. The group's term loans mature in September 2023, so there are no immediate upcoming maturities. The senior secured first-lien term loans and RCF are the only financial debt instruments in the capital structure; hence, they are rated in line with the CFR. The stable outlook reflects Moody's view that Unit4 will record organic revenue growth and improve Moody's adjusted EBITDA margins towards the high 20s in percentage terms, with Moody's adjusted gross debt/EBITDA declining towards 7x over the next 12 to 18 months. The outlook also reflects its assumption that the company will not undertake debt-funded acquisitions or pay dividends to shareholders and will maintain adequate liquidity. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING Positive rating pressure could develop on Unit4's ratings if Unit4 were to demonstrate: (1) a track record of consistent organic revenue growth; (2) a sustainable reduction in its Moody's-adjusted (gross) leverage to well below 6.0x; (3) an improvement in its Moody's-adjusted FCF/debt towards 5%, coupled with an adequate liquidity profile; and (4) a conservative financial policy with no debt-funded acquisitions or shareholder distributions. Negative rating pressure could develop if (1) the customer churn rate increases from current levels of around 6%; (2) its Moody's-adjusted (gross) leverage remains above 7.5x on a consistent basis or (3) concerns arise about the group's liquidity, including headroom under the financial maintenance covenant. AI Avocado Holding B.V. is the ultimate parent of Unit4, which is based in the Netherlands. Unit4 is an enterprise resource planning software and standalone financial management systems vendor catering for mid-market companies, with between 100 and 10,000 employees. Unit4's products are focused on applications such as finance, procurement, projects, payroll and HR. Unit4 operates in 24 countries. For the last twelve months to December 2019, Unit4 reported revenue of EUR485 million and EBITDA before non-recurring items of EUR127 million. The principal methodology used in these ratings was Software Industry published in August 2018. ========= S P A I N ========= TELEPIZZA GROUP: S&P Lowers ICR to 'CCC+' on COVID-19 Uncertainty ----------------------------------------------------------------- S&P Global Ratings lowered its rating on Telepizza Group Subsidiary, Foodco Bondco SAU and its senior secured notes to 'CCC+' from 'B'. Telepizza's operating prospects have been substantially weakened. S&P said, "We expect a severe impact on the group's earnings, even though Telepizza generates about 60% of its revenue in Spain from deliveries, which were still operational during the lockdown, and despite progressive easing of lockdown measures. During the lockdown, we assume deliveries have been more muted than in normal trading conditions, while the dining segment was completely shut down. In Latin America, which represents 23% of the group's revenue (as of year-end 2019), we expect the impact to be even more pronounced because of a lower proportion of deliveries and strict lockdowns through most of the second quarter. More importantly, we understand social distancing measures are likely to prevail for a prolonged period, depressing restaurant frequentation and customer density, translating in lower earnings and durably weakened profitability." The capital structure may become unsustainable. In the context of lower profitability, rent cancellations for the months of partial activities, as well as durable rent renegotiations are essential, in our view, to sustainably restore the group's operations and capital structure, as the group's cost base is no longer commensurate with its reduced growth prospects. Similarly, some flexibility in the execution of the expansion plan agreed with Yum!, the owner of Pizza Hut and partner in the Alliance, also seems necessary to ensure the group's financial standing. The agreement set an obligation for Telepizza, to transform all the Telepizza sites in Latin America and Chile to the Pizza Hut brand within five yearsand 10 years, respectively, and to open 1,300 stores over a period of 10 years. Overall, S&P expects sales to decline 20%-30% on a same-store basis for 2020, and a modest recovery in 2021. While the group has taken measures to contain rent and personnel expenses, S&P believes profitability will weaken rapidly, translating into leverage above 10x in 2020 (compared with 7.7x in 2019 excluding leveraged buyout [LBO] costs), and remaining at more than 8x in 2021. S&P said, "Performance was already below our expectations for our 'B' rating before COVID-19. Revenue increased in 2019, mainly because of the establishment of the Yum! Alliance. This translated into 15% revenue growth, considering that approximately 80% of stores are franchised. However, reported EBITDA (pre-IFRS 16 and excluding LBO costs) was just EUR43 million, compared with approximately EUR60 million in our base case." EBITDA was affected by an increase in the minimum wage in Spain, a rise in pork prices, and costs related to disruptions in Chile and the Pizza Hut partnership. This resulted in an S&P Global Ratings-adjusted leverage position of 7.7x (excluding LBO costs) and of 6.6x without accounting for the impact of IFRS 16, materially higher than our downside trigger of 5.5x. Liquidity could come under stress if Telepizza is not able to reduce fixed operating costs and capital expenditure. The company had a cash balance of EUR78 million as of March 31, 2020, including the drawn EUR45 million revolver. S&P said, "We assume negative funds from operations net of lease payments for 2020, intrayear working capital of EUR10 million-EUR15 million and capital spending in the range of EUR20 million-30 million, in the absence of flexibility given by Yum! While the company took several measures to reduce short-term cash burn, including rent deferrals, increased use of its reverse factoring facilities, and temporary lay-offs, its limited liquidity cushion leaves very little room for further earnings reduction. Similarly, we also consider that the viability of Telepizza's business depends partly on the health of its franchisee base and the extent to which it receives payments from franchisees; the continuity of some franchisees' operations could be at risk. Telepizza's cash flow revolver is subject to a springing covenant applicable when utilization exceeds 40% of the commitment. It requires the group to maintain a super senior secured net debt to EBITDA below 1.05x. We believe that Telepizza has sufficient headroom under the covenant." 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 about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession. We consider that the restrictions imposed by the Spanish and some Latin American governments on out-of-home activities leave Telepizza susceptible to further downside risks to earnings and cash flows, especially if the pandemic is not contained by mid-2020. As the situation evolves, we will update our assumptions and estimates accordingly." Environmental, social, and governance (ESG) credit factors for this credit rating change: -- Health and safety The negative outlook reflects the heightened uncertainty regarding the impact and duration of the coronavirus pandemic and ensuing recession on Telepizza's financial position. Prolonged social distancing mandates beyond our base-case expectation could affect the company's ability to recover operationally and could put pressure on covenants. S&P said, "We could lower our rating on Telepizza if we believe there is an increased risk of a default in the next 12 months. For example, this could occur if the company's performance does not rebound in line with our forecast, leading us to expect a liquidity shortfall. We could also lower the rating if we believe the likelihood of a below-par debt repurchase has materially increased. "We could take a positive rating action or revise the outlook to stable once we have more confidence regarding the duration and severity of COVID-19 on Telepizza's operating performance. A stable outlook will likely entail confidence that the quick-service restaurant sector would rebound by the end of 2020. At that time, we would assess the group's ability to raise profitability and earnings and maintain sufficient liquidity." =========================== U N I T E D K I N G D O M =========================== AVANTI COMMS: BlackRock TCP Values $1.6MM Loan at 66% of Face ------------------------------------------------------------- BlackRock TCP Capital Corp. has marked its $1,592,934 loan extended to privately held Avanti Communications Group, PLC to market at $1,044,328, or 66% of the outstanding amount, as of March 31, 2020, according to a disclosure contained in a Form 10-Q filing with the Securities and Exchange Commission for the quarterly period ended March 31, 2020. BlackRock extended to Avanti Communications a Sr New Money Initial Note, which is scheduled to mature October 1, 2022. The investment is non-income producing. Avanti Communications Group, PLC is in the Communications Equipment industry. AVANTI COMMS: BlackRock TCP Values $4.1-Mil. Loan at 66% of Face ---------------------------------------------------------------- BlackRock TCP Capital Corp. has marked its $4,064,721 loan extended to privately held Avanti Communications Group, PLC to market at $2,664,831, or 66% of the outstanding amount, as of March 31, 2020, according to a disclosure contained in a Form 10-Q filing with the Securities and Exchange Commission for the quarterly period ended March 31, 2020. BlackRock extended to Avanti Communications a Sr Second-Priority PIK Toggle Note, which is scheduled to mature October 1, 2022. The investment is non-income producing. Avanti Communications Group, PLC is in the Communications Equipment industry. CARILLION PLC: GBP250MM Suit Mulled Against KPMG Over Audit ----------------------------------------------------------- Tabby Kinder at The Financial Times reports that the UK agency tasked with unwinding Carillion is preparing to sue KPMG for GBP250 million over alleged negligence in its audits of the outsourcing group that collapsed in 2018. The significant claim will be the latest blow to the Big Four accounting firm, which is also under investigation by regulators for its work on Carillion, the FT notes. According to the FT, the official receiver, a civil servant employed by the Insolvency Service to liquidate Carillion, has claimed in legal documents that the outsourcer's board of directors believed the business was "profitable and sustainable" as a result of KPMG's clean audit opinions. It said the unqualified audits led the directors to pay out almost GBP250 million in dividends and advisory fees over two years, the FT relays. The claim was made public on May 12 as part of a court application brought by the official receiver in an attempt to access key KPMG audit documents, the FT recounts. KPMG has rejected the application for the documents, the FT states. A court filing by lawyers for the official receiver said KPMG's audit files would be core evidence in any future case, according to the FT. Carillion, which employed about 19,000 people in the UK and had major government contracts including for the construction of the HS2 rail line, issued a profit warning four months after KPMG signed off on its accounts in 2017, the FT recounts. It collapsed five months later, in January 2018, the FT notes. The outsourcing group owed more than GBP1.3 billion to its banks and had a pension deficit of about GBP800 million, while having just GBP29 million in cash, the FT discloses. The bankruptcy process is expected to cost the taxpayer about GBP148 million, including a GBP50 million payment to PwC, which has been appointed by the official receiver as the special manager to the liquidation, the FT says. GEORGE BOYDEN: Goes Into Administration, Weeklies Put Up for Sale ----------------------------------------------------------------- David Sharman at HoldtheFrongPage.co.uk reports that two sister weeklies have been put up for sale after the coronavirus crisis forced their owner to go into administration. According to HoldtheFrongPage.co.uk, George Boyden & Son Ltd, publisher of the 160-year-old Stratford Herald and free sister title Midweek, has made the move due to a combination of factors including a collapse in advertising and sales revenues during the pandemic. The company, based in Stratford-upon-Avon, Warwickshire, has also cited the continuing financial burden of its historic pension fund deficit as a reason for taking the step, HoldtheFrongPage.co.uk discloses. At least seven editorial jobs could be under threat as a result of the move unless the titles now find a buyer, HoldtheFrongPage.co.uk notes. The administration is being handled by joint administrators Nigel Price -- n.price@ewsllp.co.uk -- and Joe Sadler -- j.sadler@ewsllp.co.uk -- of Elwell Watchorn & Saxton, who launched a call for potential buyers, HoldtheFrongPage.co.uk states. The decision to go into administration was taken by the company's board on May 1, HoldtheFrongPage.co.uk relays. PRAESIDIAD GROUP: Fitch Cuts LT IDR to CCC+ -------------------------------------------- Fitch Ratings has downgraded Praesidiad Group Limited's Long-Term Issuer Default Rating to 'CCC+' from 'B-'. The downgrade reflects last year's weak profitability leading to higher leverage such that Praesidiad's financial risk is no longer commensurate with a 'B-' rating. While recent restructuring and more stringent cost control have improved performance, near-term uncertainty from the coronavirus crisis could further delay deleveraging, in turn putting further pressure on the rating. The rating takes into account Praesidiad's stable business profile with strong market positions in narrowly-defined niches with credit-worthy customers and a wide range of end-markets. Limiting factors are the small size of each subsidiary, although this is mitigated to some extent by Praesidiad's focus on improving sourcing between group companies and raising internal efficiencies. Fitch believes that Praesidiad has sufficient liquidity at present, with substantial cash on balance sheet, after having fully drawn its revolving credit facility. It has no near-term refinancing risk due to its debt structure with bullet-maturity in 2024. Post-pandemic, Fitch expects cash flow to improve and turn positive in 2021. KEY RATING DRIVERS Significant Revenue Drop: Praesidiad's revenues and EBITDA have recently been on a negative trajectory, and Fitch expects revenues to drop around 6% in 2020. An increasing share of revenues is from project-related investments by corporates and the public sector. A weaker economy in some sectors has led to large corporates cutting back on security-related spending. Revenues have also been affected by Praesidiad's high exposure to the US army, armed conflicts and other unpredictable events where some projects were delayed through 2019. Recent indications are that activity improved in 1Q20 but Fitch expects revenues to be affected in coming quarters. Managing Limited Liquidity: Praesidiad had highly negative free cash flow in 2017 and 2018, and its cash position dropped to a low EUR13 million in 2019 from EUR50 million at end-2017. It has recently drawn down its EUR80 million RCF as a precautionary measure but Fitch believes the drawdown would be used to meet seasonal swings and pandemic-induced cash drain in the near-term. Fitch expects this facility to remain available as Praesidiad's incurrence covenants are set at loose terms. The company has also taken other measures to improve liquidity such as postponing capex, further working capital management and temporary employment schemes to cover costs during the lockdown. Leverage above Negative Sensitivity: As expected, Praesidiad breached its negative sensitivities of funds from operations adjusted gross leverage above 8.5x, lower margins and negative FCF in 2019. In contrast to the gradual stabilisation in earnings and cash flow, Fitch had expected prior to the pandemic it now sees ratios deteriorating further, which will keep leverage high for the rating for the next three years. It also sees high execution risk in managing weak demand, in particular for the HESCO business. Combined with weak visibility on longer term orders, this limits EBITDA improvements in its rating case. Some Resilience to Lockdowns: Fitch expects parts of Praesidiad's businesses to show some resilience to the present lockdown and economic slowdown. Its Guardiar business is supported by a growing back-log. At 27% of group turnover and with strong margins, it contributes to some stability in EBITDA. Also the smaller and struggling HESCO business has gained new orders and with both businesses classified as critical infrastructure they have not been subject to lockdown measures. The larger Betafence business, with the majority of operations in Europe, has been affected by lockdowns that will weigh on 2Q performance. For most plants that have re-opened or are reopening, future demand is expected to be affected by slowdown in construction activity. Limited Visibility on Sales: The lack of earnings visibility in two of Praesidiad's three businesses adds significant volatility to underlying earnings and cash flow generation. Across the Betafence and HESCO businesses, demand visibility is low, with Betafence having a short-term order book (roughly one month of sales). HESCO also has weak visibility on projects given the event-driven nature of most orders. Guardiar has better visibility over future orders, with a pipeline of projects that the company is actively pursuing. It was subject to delays to delivery through most of 2019, but this has improved the backlog in early 2020. Weakening Profitability: Some of the revenue drop (down 12% in 2018 and another 15% in 2019) has been due to the cessation of some low-margin products (conventional fencing), and despite recent cost-cutting, earnings are still lower than Fitch's expectations. The EBITDA margin dropped to around 10% in 2019, down from 12%-15%. EBITDA reached EUR31 million in 2019, roughly half the expected level when Carlyle acquired Praesidiad in mid-2017. Fitch views 2019 and 2020 as a low-point, exacerbated by the pandemic, after which Fitch expects EBITDA to rise to about EUR40 million in 2021 and 2022. As a result, Fitch expects coverage ratios, leverage and cash flow to be weak for the rating category. DERIVATION SUMMARY Praesidiad is a niche player in narrowly-defined specialist sub-segments of the perimeter protection markets and high security protection. As a niche player it has few related peers, with the main competitor being subsidiaries in larger groups. Praesidiad can however be compared to similarly sized producer of mesh products and rockfall protection structures Officine Maccaferri and building products provider l'Isolante K-flex but Praesidiad is struggling to maintain revenue growth and has substantially higher leverage. Compared with K-flex, Praesidiad's margins are weaker and cash flow is currently strained. The larger installation provider Assemblin Financing AB (B/Stable) and building products retailer Quimper AB (B/Negative) are much larger but also with high leverage although not as high as Praesidiad's near-term leverage. In terms of EBITDAR and FFO margins, Praesidiad is fairly aligned with these two. KEY ASSUMPTIONS - Revenues to decrease by a further 6% due to ongoing lockdowns in 2Q for parts of EMENA operations. - EBITDA margin at similar levels to 2019 as decreased activity is compensated by access to temporary employment schemes, recent restructurings and other cost-saving measures. - Slight working capital inflow in 2020 after which Fitch expects working capital to increase slightly with improved growth. - Capex at EUR10 million in 2020 for maintenance as discretionary capex and some projects are put on hold. Thereafter capex at around 2% of sales. - No acquisitions planned. KEY RECOVERY ASSUMPTIONS Fitch applies a going-concern approach in its recovery analysis with a going-concern EBITDA of EUR31 million. This is 18% below that of last year, which Fitch views as a low point and therefore apply no discount to the EBITDA. It includes a 10% discount for administrative claims. Fitch assumes a distressed multiple of 5.5x and that the RCF is fully drawn. These assumptions result in a recovery rate for the senior secured debt within the 'RR5' range under the Fitch criteria and results in the debt rating being notched down once from the IDR. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Stabilising and increasing revenue - FCF margin positive on a sustained basis - FFO gross leverage trending towards 8.0x Factors that could, individually or collectively, lead to negative rating action/downgrade: - Further sales and earnings decline with loss of customers and/or pricing pressure reducing margins - Failure to reach positive FCF - FFO gross leverage above 10x on a sustained basis BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Limited Liquidity: Fitch expects Praesidiad's liquidity to be strained but sufficient for current operational requirements. Cash on balance sheet was EUR67 million at end-March 2020, with EUR62 million drawn on the EUR80 million RCF and an additional EUR9 million utilised for guarantees. For 2020, Fitch expects negative FCF, which will put further strain on liquidity. Fitch sees a recovery to neutral or positive FCF from 2021. Praesidiad's liquidity benefits from a long-term debt structure with no scheduled debt maturities until 2024, although market access may not be available based on Praesidiad's current weak cashflow leverage. SUMMARY OF FINANCIAL ADJUSTMENTS Debt and factoring adjusted to face values. ESG Considerations The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. Praesidiad Group Limited - LT IDR; CCC+; Downgrade - Senior secured; LT CCC; Downgrade S WALKER: Loss of Two Major Customers Prompts Administration ------------------------------------------------------------ Chris Tindall at MotorTransport reports that Redditch haulier S Walker Transport closed down with the loss of 39 jobs after it lost two major customers amid an ongoing struggle to recruit drivers, according to its administrator. The company appointed Leonard Curtis to assist with winding down its business on Feb. 25, almost 19 years after it first began trading, MotorTransport relates. S Walker Transport held an international O-license authorizing a total of 35 HGVs and 39 trailers out of two depots and undertook a range of haulage work, including moving recyclable. STYLES & WOOD: Owes GBP104 Million at Time of Administration ------------------------------------------------------------ Dan Whelan at North West Place reports that the Sale-based fit-out firm Styles & Wood collapsed into administration in February with debts exceeding GBP100 million, a fifth of which is owed to its suppliers, as a result of several "problem" contracts, according to an administrators report. Among the problem contracts was a project to fit out the India Buildings office scheme in Water Street, Liverpool, which incurred Styles & Wood a GBP12 million loss, North West Place notes. The documents published this weeks said two cash injections from Styles & Wood's shareholders in 2019, totalling GBP31 million, could not prevent its slide into administration, North West Place relays. The company's creditors include DLM&E, a Bolton-based building services company owed GBP1.1 million, and M&E solutions provider SES Engineering Services, which is owed GBP925,000, North West Place discloses. The company owes unsecured creditors a total of GBP54 million, North West Place states. Professional services firm EY, which is the administrator for Styles & Wood, said in the report that it anticipates creditors will receive remuneration of one pence in the pound. On top of this, the company, founded in 1981, also owes a further GBP50 million to its secured creditors HSBC and Tosca, a firm that provides financing for SMEs, according to North West Place. SUPREMIA INT'L: Enters Administration Amid Coronavirus Pandemic --------------------------------------------------------------- Storm Rannard at Insider Media reports that Supremia International, which was founded in 1981 and was acquired by a global group just two years ago, has gone into administration. According to Insider Media, the Elstree-headquartered sales promotion agency has faced challenges during the coronavirus pandemic and was further impacted by the insolvency of its parent Supremia NV, resignations of its appointed directors and guarantees provided to other group undertakings. Adam Harris, Patrick Lannagan and Michael Pallott of Mazars were appointed joint administrators of Supremia International Ltd on May 11, 2020, on the request of the company's shareholder, Insider Media relates. The administrators are working with management to assess the viability of continuing trade while the market the business for sale, including its subsidiaries in the US, Russia, Hong Kong and Singapore, Insider Media discloses. TRAVELODGE: May Face Bankruptcy Unless Landlords Waive Rent ----------------------------------------------------------- Alice Hancock and George Hammond at The Financial Times report that Travelodge, the budget hotel operator, has stepped up its battle with landlords, saying it will be forced to launch bankruptcy proceedings unless they agree to slash its rent bill. In a letter to landlords, seen by the FT, Travelodge said that unless it was able to waive up to GBP146 million in rent, it would have to pursue a company voluntary arrangement -- an administration process that would allow it to cut rents permanently and exit underperforming sites. According to the FT, negotiations between Travelodge, which is owned by the New York hedge funds Golden Tree Asset Management and Avenue Capital and the investment bank Goldman Sachs, and its landlords have grown increasingly acrimonious since government-enforced closures to curb coronavirus left thousands of hospitality and retail businesses with zero revenues. Landlords have previously rebuffed Travelodge's proposals, arguing that the company cannot expect them to fund it during the lockdown, the FT discloses. If landlords agreed to waive rents, they could lose their right to vote in a CVA process, which requires approval from more than 50% of unsecured creditors unconnected to the company, the FT notes. [*] DBRS Puts Ratings on 14 European NPL Transactions Under Review ------------------------------------------------------------------ DBRS Ratings Limited and DBRS Ratings GmbH have placed the ratings assigned to the following classes of securities issued in the context of 14 European nonperforming loan (NPL) transactions Under Review with Negative Implications: Popolare Bari NPLS 2016 S.r.l. -- Class A rated BBB (high) (sf) -- Class B rated B (high) (sf) Popolare Bari NPLS 2017 S.r.l. -- Class A rated BBB (low) (sf) -- Class B rated B (low) (sf) Siena NPL 2018 S.r.l. -- Class A rated BBB (sf) Maggese S.r.l. -- Class A rated BBB (low) (sf) Aragorn NPL 2018 S.r.l. -- Class A rated BBB (low) (sf) -- Class B rated CCC (sf) Leviticus SPV S.r.l. -- Class A rated BBB (sf) Brisca Securitization S.r.l. -- Class A rated BBB (high) (sf) -- Class B rated B (low) (sf) Juno 1 S.r.l. -- Class A rated BBB (low) (sf) Maior SPV S.r.l. --Class A rated BBB (low) 2Worlds S.r.l. -- Class A rated BBB (low) (sf) -- Class B rated B (low) (sf) Ibla S.r.l. -- Class A rated BBB (low) (sf) -- Class B rated CCC (sf) Belvedere SPV S.r.l -- Class A rated BBB (low) (sf) European Residential Loan Securitization 2018-1 DAC -- Class A rated A (sf) -- Class B rated BBB (sf) BCC NPLs 2018-2 S.r.l. -- Class A rated BBB (low) (sf) -- Class B rated CCC (sf) Concurrently, DBRS Morningstar also assigned a Negative trend to the ratings of the following classes of securities: 4Mori Sardegna S.r.l. -- Class A rated BBB (low) (sf) -- Class B rated B (sf) Juno 2 S.r.l. -- Class A rated BBB (low) (sf) BCC NPLs 2019 S.r.l. -- Class A rated BBB (sf) -- Class B rated CCC (sf) ISEO SPV S.r.l. -- Class A rated BBB (sf) Marathon SPV S.r.l. -- Class A rated BBB (sf) -- Class B rated B (high) (sf) Futura 2019 S.r.l. -- Class A rated BBB (sf) POP NPLs 2019 S.r.l. -- Class A rated BBB (sf) -- Class B rated CCC (sf) European Residential Loan Securitization 2019-NPL2 DAC -- Class A rated A (sf) -- Class B rated BBB (high) (sf) -- Class C rated BBB (low) (sf) ProSil Acquisition S.A. -- Class A rated BBB (low) (sf) Hefesto, STC, S.A. (Evora Finance) -- Class A rated BBB (sf) -- Class B rated B (low) (sf) Hefesto STC, S.A. (Project Guincho) -- Class A rated BBB (low) (sf) -- Class B rated CCC (sf) Ares Lusitani STC, S.A. (Gaia) -- Class A rated BBB (low) (sf) -- Class B rated CCC (sf) Fino 1 Securitization S.r.l. -- Class A rated BBB (high) (sf) -- Class B rated BB (high) (sf) -- Class C rated BB (sf) European Residential Loan Securitization 2019-NPL1 DAC -- Class A Notes rated A (sf) -- Class B Notes BBB (high) (sf) -- Class C Notes BB (sf) Grand Canal Securities 2 DAC -- Class A Notes rated A (sf) -- Class B Notes rated BBB (low) -- Class C Notes rated BB (low) (sf) -- Class D Notes B (low) (sf) KEY RATING DRIVERS AND CONSIDERATIONS In a commentary published on April 30, 2020, titled, "European NPL Transactions' Risk Exposure to Coronavirus (COVID-19) Effects" (https://www.dbrsmorningstar.com/research/360393/european-npl-transactions-risk-exposure-to-coronavirus-covid-19-effects), DBRS Morningstar discussed the overall risk exposure of the European NPL sector to the Coronavirus Disease (COVID-19) and provided a framework for identifying the NPL transactions that are most at risk and likely to be affected by the fallout of the pandemic on the economy. The primary conclusion is that in the short term all European NPL transactions are expected to be at minimum affected by shortfalls resulting from delayed cash collections and impact in terms of recovery values. However, DBRS Morningstar anticipates that each NPL transaction will be affected differently based on factors which are country-specific (i.e. local governments' coronavirus measures; macroeconomic downturn impact on the real estate market and external disruptions) and on transaction-specific factors which determine a different level of vulnerability to liquidity shocks, as further detailed below. Considering the above framework, the Under Review with Negative Implications status and Negative trend have been assigned based on the following drivers and considerations: -- Concerns about the liquidity pressure deriving from the disruption to short- and medium- to long-term recoveries and delays in the implementation of the servicer's strategy because of the measures local governments have undertaken in response to coronavirus. -- Potential decrease in sale prices and liquidation values of NPL collateral in the medium- to long-term because of the effects of the deteriorating macroeconomic conditions on the real estate market. -- Analytical review of the following factors specific to each European NPL transaction in order to determine its risk exposure to the medium- to long-term effects of the crisis, and specifically: (1) The concentration of receivables towards corporate and small and medium-sized enterprise (SME) borrowers. (2) Real estate collateral features and weight of commercial real estate assets (in particular retail and hospitality). (3) Evolution of the loan pool composition since issuance and whether any material change or a deterioration of its quality occurred. (4) Transaction performance to date, with a focus on the combined assessment of net present value profitability ratio and the gross cumulative collection ratio observed to date. (5) The expected level of cash flow generation envisaged under the updated business plan formulated by the special servicers and comparison with the initial forecasts. (6) Available forms of liquidity support to mitigate temporary shortfalls on the payment of senior costs and interest on senior notes. (7) Robustness of the subordination trigger mechanisms and deferral provisions envisaged in respect of the payment of mezzanine/junior interest and servicing fees. (8) Structure of the payments' order of priority and senior cost composition. (9) Special servicer exposure to operational risks and business disruptions. DBRS Morningstar will consider the reported performance of the European NPL transactions in order to assess the medium-long term effects of coronavirus. Additionally, DBRS Morningstar will consider the macroeconomic developments relative to the outbreak of the pandemic, including the duration and severity of the crisis on the local economies with exposure to NPL transactions. DBRS Morningstar typically endeavors to resolve the status of ratings Under Review with Negative Implications as soon as appropriate. If continued heightened market uncertainty and volatility persists, DBRS Morningstar may extend the Under Review status for a longer period of time. On April 16, 2020, the DBRS Sovereign group published its outlook on the impact on key economic indicators for the 2020-22 time frames. Notes: All figures are in Euros unless otherwise noted. =============== X X X X X X X X =============== [*] BOOK REVIEW: Mentor X ------------------------- The Life-Changing Power of Extraordinary Mentors Author: Stephanie Wickouski Publisher: Beard Books Hard cover: 156 pages ISBN: 978-1-58798-700-7 List Price: $24.75 Order this Book: https://is.gd/EIPwnq Long-time bankruptcy lawyer Stephanie Wickouski at Bryan Cave impressively tackles a soft problem of modern professionals in an era of hard data and scientific intervention in her third published book entitled Mentor X. In an age where employee productivity is measured by artificial intelligence and resumes are prescreened by computers, Stephanie Wickouski adds spirit and humanity to the professional journey. The title is disarmingly deceptive and book browsers could be excused for assuming this work is just another in a long line of homogeneous efforts on mentorship. Don't be fooled; Mentor X is practical, articulate and lively. Most refreshingly, the book acknowledges the most important element of human development: our intuition. Mrs. Wickouski starts by describing what a mentor is and distinguishes that role from a teacher, coach, role model, buddy or boss. Younger professionals may be skeptical of the need for a mentor, but Mrs. Wickouski deftly disabuses that notion by relating how a mentor may do nothing less than change the course of a protege's life. Newbies to this genre need little convincing afterwards. One of the book's worthiest contributions is a definition of mentor that will surprise most readers. Mentors are not teachers, the latter of which impart practical knowledge. Instead, according to Mrs. Wickouski, her mentors "showed me secrets that I could learn nowhere else. They showed me how doors are opened. They showed me how to be an agent of change and advance innovative and controversial ideas." What ambitious professional doesn't want more of that in their life? The practicality of the book continues as Mrs. Wickouski outlines the qualities to look for in a mentor and classifies the various types of mentors, including bold mentors, charismatic mentors, cold and distant mentors, dissolute mentors, personally bonded mentors, younger mentors, and unexpected mentors. Mentor X includes charts and workbooks which aid the reader in getting the most out of a mentor relationship. In a later chapter, Mrs. Wickouski provides an enormously helpful suggestion about adopting a mentor: keep an open mind. Often, mentors will come in packages that differ from our expectations. They may be outside of our profession, younger, less educated, etc . . . but the world works in mysterious ways and Mrs. Wickouski encourages readers to think about mentors broadly. In this modern era of heightened workplace ethics, Mrs. Wickouski articulates the dark side of mentors. She warns about "dementors" and "tormentors" -- false mentors providing dubious and sometimes self-destructive advice, and those who abuse a mentor relationship to further self-interested, malign ends, respectively. She describes other mentor dysfunctions, namely boundary-crossing, rivalry, corruption, and a few others. When a mentor manifests such behaviors, Mrs. Wickouski counsels it's time to end the relationship. Mrs. Wickouski tells readers how to discern when the mentor relationship is changing and when it is effectively over. Those changes can be precipitated by romantic boundaries crossed, emergence of rivalrous sentiment, or encouragement of unethical behavior or corruption. Mrs. Wickouski aptly notes that once insidious energies emerge, the mentorship is effectively over. At this point, certain readers may say to themselves, "Okay, I've got it. Now I can move on." Or, "My workplace has a formal mentorship program. I don't need this book anymore." Or even, "Can't modern technology handle my mentor needs, a Tinder of mentorship, so to speak?" Mrs. Wickouski refutes that notion. She analyzes how many mentoring programs miss the mark. In one of the best passages in the book, Mrs. Wickouski writes, "Assigning or brokering mentors negates the most critical components of a true mentor–protege relationship: the individual process of self-awareness which leads a person to recognize another individual who will give the advice singularly needed. That very process is undermined by having a mentor assigned or by going to a mentoring party." She does not just criticize; she offers a solution with three valuable tips for choosing the right mentor and five qualities to ascertain a true mentor in the unlimited sea of possibilities. Next, Mrs. Wickouski distinguishes between good advice and bad advice. She punctuates that discussion with many relevant and relatable examples that are easy to read and colorfully enjoyable. This section includes interviews with proteges who have had successful mentorships. The punchline: in the best mentorships, the parties harmoniously share personal beliefs and values. Also important, the protege draws inspiration and motivation from the mentor. The book winds down as usefully as it started: Mrs. Wickouski interviews proteges, asking them what they would have done differently with their mentors if they could turn back the clock. A common thread seems to be that the proteges would have gone deeper with their mentors -- they would have asked more questions, spent more time, delved into their mentors' thinking in greater depth. The book wraps up lightly by sharing useful and practical suggestions for maintenance of the mentor relationship. She answers questions such as, "Do I invite my mentor to my wedding?" and "Who pays for lunch?" Mentor X is an enjoyable read and a useful book for any professional in any industry at, frankly, any point in time. Advanced individuals will learn much from the other side, i.e., how to be more effective mentors. Mrs. Wickouski does a wonderful job of encouraging use of that all knowing aspect of human existence which never fails us: proper use of our intuition. About The Author Stephanie Wickouski is widely regarded as an innovator and strategic advisor. A nationally recognized lawyer, she has been named as one of the 12 Outstanding Restructuring Lawyers in the US by Turnarounds & Workouts and as one of US News' Best Lawyers in America. She is the author of two other books: Indenture Trustee Bankruptcy Powers & Duties, an essential guide to the legal role of the bond trustee, and Bankruptcy Crimes, an authoritative resource on bankruptcy fraud. She also writes the Corporate Restructuring blog. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2020. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *