/raid1/www/Hosts/bankrupt/TCREUR_Public/200529.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 29, 2020, Vol. 21, No. 108
Headlines
B E L A R U S
BELARUSBANK: Fitch Affirms B+ LongTerm IDRs
G E R M A N Y
CERAMTEC BONDCO: Fitch Alters Outlook on 'B' LT IDR to Negative
K+S AG: S&P Lowers LongTerm ICR to 'B' on Lower Earnings Forecast
I R E L A N D
CITYJET: Aer Lingus Cancels Wetlease Agreement Amid Examinership
MAXIMUM MEDIA: High Court Appoints Shane McCarthy as Examiner
PENTA CLO 2: Fitch Affirms Class F Debt at 'B-sf'
[*] Fitch Places 10 Tranches From 5 EU CLOs on Watch Negative
[*] Fitch Places 8 Tranches From 3 EU CLOs on Watch Negative
K A Z A K H S T A N
TAJIKISTAN: Moody's Affirms B3 Issuer & Sr. Unsec. Ratings
L U X E M B O U R G
ARDAGH GROUP: Fitch Rates US$600MM Sr. Unsec. Notes 'B(EXP)'
INEOS GROUP: Fitch Alters Outlook on BB+ LT IDR to Negative
N O R W A Y
NORWEGIAN AIR: Losses Widen to GBP270MM in First Quarter 2020
R U S S I A
MORGAN STANLEY: Bank of Russia Revokes Banking License
S P A I N
[*] Fitch Takes Action on 21 Tranches From 4 Spanish RMBS Series
S W I T Z E R L A N D
FIRMENICH INT'L: S&P Rates New Hybrid EUR750MM Notes 'BB+'
U N I T E D K I N G D O M
DLG ACQUISITIONS: Moody's Alters Outlook on B2 CFR to Negative
MARS BLACK: Enters Liquidation, Owes GBP3MM to Douglas & Stewart
MICRO FOCUS: Fitch Assigns BB Rating to New EUR400MM Term Loan B
X X X X X X X X
[*] BOOK REVIEW: Mentor X
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B E L A R U S
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BELARUSBANK: Fitch Affirms B+ LongTerm IDRs
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Fitch Ratings has affirmed the Long-Term Issuer Default Ratings of
Belarusbank, Belinvestbank, OJSC, and Development Bank of the
Republic of Belarus at 'B'. The Outlooks are Stable.
KEY RATING DRIVERS
IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS
The IDRs, SRs and the SRFs of the three banks are driven by support
from the Republic of Belarus (B/Stable) in case of need. The Stable
Outlooks on the banks' Long-Term IDRs mirror that on the
sovereign.
The affirmation of the 'B' Long-Term IDRs, '4' SRs and 'B' SRFs
reflects Fitch's view of a limited probability of extraordinary
support for BBK, BIB and DBRB being made available in a timely
manner by the sovereign in case of need. Fitch has equalised the
Long-Term IDRs and SRFs of the banks with the Long-Term IDRs of the
sovereign as it believes that the sovereign has a high propensity
to support these institutions. However, Fitch also views the
ability of the authorities to provide such support as limited,
especially if support has to be provided in foreign currency.
Fitch's view of the state's potentially high propensity to support
the rated banks primarily reflects the following factors:
- BBK's exceptional systemic importance, based on the bank's more
than 40% market share of the system's loans and customer deposits
at end-1Q20 and market shares that are by far the largest in
virtually all business segments of the local financial market.
BBK's policy role in implementing the state's economic and social
policy objectives as well as its 98.76% government ownership
through the State Property Committee of the Republic of Belarus
also support its view.
- DBRB's legally defined policy role in implementing the state's
economic and social policy objectives, further supported by the
bank's government ownership through a 96.2% stake owned by the
Council of Ministers of Belarus. The government has a subsidiary
liability on DBRB's bond obligations.
- BIB's majority (86.3%) state ownership through the State
Property Committee of the Republic of Belarus.
In all cases, Fitch notes the oversight of the banks' activities by
senior state officials, including supervision through supervisory
board representation. There has also been a track record of capital
support being made available to all banks to date, while BBK and
BIB also benefited from transfers of bad loans, partly to DBRB, a
few years ago.
However, Fitch believes that the authorities have a limited ability
to provide support to banks, as indicated by the sovereign's
Long-Term IDR of 'B', which in turns reflects Belarus's weak
external position and potentially significant contingent
liabilities associated with the wider public sector. The three
banks' domestic FC deposits (an aggregate USD4.9 billion at
end-2019), sizeable FC non-deposit liabilities (USD4.6 billion, of
which USD1.4 billion is short-term), and limited own FC highly
liquid assets (USD0.9 billion) could also make them difficult to
support by the government, especially in a deep stress scenario,
given limited sovereign FC reserve assets (USD7.9 billion at
end-April 2020).
In Fitch's view, the possibility of local-currency (LC) support for
BBK, BIB and DBRB could also be constrained by the sovereign's
limited financial flexibility, although the banks' more comfortable
LC liquidity buffers and the availability (except for DBRB) of the
National Bank of Belarus's (NBB) short-term repo funding to cover
any unexpected liquidity shortages reduce the need for such
support.
Fitch considers the prospects of a long-planned disposal of a 25%
equity stake in BIB to European Bank for Reconstruction and
Development have limited implications for the state authorities'
propensity to support BIB.
VIABILITY RATINGS
Fitch has not assigned a VR to DBRB due to the bank's special legal
status, a policy role of a development institution, and its close
association with the state authorities.
The 'b-' VRs of BBK and BIB capture the banks' exposure to the
relatively higher-risk Belarus operating environment, which Fitch
expects to deteriorate in 2020 as a result of the fallout from the
coronavirus pandemic. Fitch forecasts a sharp economic slowdown in
Belarus in 2020 (GDP contraction of 5% as compared with growth of
1.2% in 2019, before recovering to 3.2% in 2021) reflecting the
severe deterioration in external demand, the impact of containment
measures (albeit to a lesser extent than in other countries) and
limited space for counter-cyclical measures (currently announced at
around 1.2% of GDP).
Fitch expects the weaker domestic economic activity and external
markets' constraints, particularly affecting financial profiles of
banks' exporting borrowers, and exchange-rate pressures (as lending
is highly dollarised: at end-2019, FC-loans made up to 51% of loans
at BBK and 44% at BIB) to result in deterioration of the banks'
asset quality, earnings and capitalisation. While regulatory
forbearance allowed to Belarusian banks in 2020 should help manage
asset quality and solvency metrics in local accounts, reducing the
potential for regulatory limit breaches, significant risks to the
banks' credit profiles remain.
The banks enter the crisis with relatively high levels of problem
exposures, which is also explained by involvement in the
government-prioritised financing, mostly to public-sector borrowers
(material at BBK at around 83% of corporate loans at end-2019; BIB:
36%) and a pace of bad debts off-loading (slightly more advanced at
BIB). At end-2019, BBK's Stage 3 and purchased or originated
credit-impaired loans stood at a high 13.5% of gross loans, while
stressed Stage 2 loans were equal to a further 18.3%. BIB's Stage 3
and POCI loans were 9.8% of gross loans and Stage 2 loans were
15.4% of gross loans. BBK's loan loss allowances were a modest 8.5%
of gross loans and BIB's were 9.1%.
More generally, high risks stem from the banks' bulky FC loans
(including those classified as Stage 1 loan exposures at both
banks) to financially vulnerable and highly leveraged local
borrowers, while hard-currency revenue derived from export markets
has become more limited for Belarus-based companies. Fitch expects
asset quality metrics to deteriorate in 2020 with the banks
pursuing restructuring options with the borrowers most affected by
the crisis. However, regulatory forbearance for problem recognition
will limit increases in loan impairments and associated
provisioning charges in local accounts this year.
Loans more than 90 days overdue were low at 1.5% of loans at BBK
and 0.9% at BIB at end-2019. In Fitch's view, this was due to long
grace periods, loan restructuring and regular refinancing of
distressed or weak companies, enabling these borrowers to make
regular debt payments without deleveraging, and the government
subsidising loan interest payments for some of the public-sector
borrowers and projects or loan repayments under the state
guarantees.
Exposure to sovereign bonds and NBB FC-denominated notes made up 8%
of total assets or 0.7x Fitch Core Capital at BBK and 20% and 1.6x,
respectively, at BIB at end-2019.
At end-2019, FCC ratios were moderate at 13.5% at BBK and 14.3% at
BIB. Fitch assesses both banks' capitalisation in the context of
their levels of under-provisioned problem loans, while credit risks
have also heightened. Net of specific LLAs BBK's Stage 3 and POCI
loans equaled to a large 0.6x FCC and net Stage 2 loans made up
0.9x FCC. These parameters at BIB were a low 0.07x FCC and a larger
0.7x FCC, respectively.
In 2020 Fitch expects solvency ratios to be pressured by weaker
earnings, driven by limited new lending, higher funding costs and
growing provisioning needs, and a rise in risk-weighted assets, due
to a weakening Belarusian rouble (it has depreciated by 12% since
the beginning of the year). At the same time, regulatory
forbearance measures have helped the banks to limit these pressures
in local accounts in 2Q20. BBK's regulatory core tier 1 ratio had
recovered to 13.2% by end-April from 11.4% at end-1Q20 (end-2019:
13%) and BIB's CET1 ratio had stabilised at 10.5% at end-April
(end-1Q20: 10.3%; end-2019:9.9%).
Profitability has been reasonable in 2019 backed by lower funding
costs and continued lending growth and both banks' pre-impairment
profits reached a solid 6% of average gross loans. However, the
levels of collectable loan interest at both banks, should
extensively loan refinancing for the high-risk borrowers be ceased,
could be significantly lower. BBK's 2.7% operating profit/RWA ratio
was stronger than BIB's 1% primarily because of lower risk costs
(loan impairment charges/average loans ratio was 2.8% at BBK vs.
4.8% at BIB in 2019) while BIB has been focusing on cleaning up its
portfolio.
Liquidity risks mostly result from potentially constrained access
to foreign exchange, high dollarisation of liabilities and high
volumes of wholesale foreign funding, particularly at BBK (21% of
end-2019 liabilities). The LC liquidity position is more
comfortable with the systemic status of both banks and their
government ownership helping deposits' stability.
FC liabilities made up a high 60% of total liabilities at BBK and
54% at BIB at end-2019, largely resulting from customer accounts.
Despite moderate market volatility in March 2020, causing higher
sector deposits rates, both banks' deposits were sticky, without
pressuring their liquidity positions. Near-term wholesale
refinancing requirements were considerable for both institutions.
BBK's highly liquid FC assets covered a moderate 40% of
FC-wholesale repayments due within 12 months, but financing risks
are manageable, in its view, in light of the trade-finance
self-liquidating nature of half of these liabilities. Additional
moderate FC-liquidity could be sourced from repayments of sovereign
FC-securities maturing in 2020. BIB's short-term wholesale
obligations were comfortably (1.4x) covered by the available buffer
of highly liquid FC assets.
SENIOR UNSECURED DEBT
DBRB's senior unsecured debt rating is aligned with the bank's
Long-Term FC IDR. The Recovery Rating of 'RR4' 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:
The banks' IDRs could be downgraded in case of a sovereign
downgrade. They could also be downgraded, and hence notched off the
sovereign, if timely support was not provided, when needed.
BBK's and BIB's VRs could be downgraded in case of un-remedied
capital erosion at these banks caused by marked deterioration in
asset quality or a significant tightening of their FC liquidity.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
The potential for positive rating action on either the IDRs or VRs
is limited in the near term, given weaknesses in the economy and
external finances and in the banks' standalone profiles,
exacerbated by the implications of pandemic outbreak. Improved
prospects for Belarus' operating environment indicated by the
recovering economy and stabilised exchange rate would decrease
pressures on the banks' standalone profiles.
SENIOR UNSECURED DEBT
DBRB's senior unsecured issues' ratings would likely move in tandem
with the bank's Long-Term FC IDR.
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
BBK has an ESG relevance score of 4 for the governance structure,
which reflects significant state-directed lending. This has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
The highest level of ESG credit relevance for BIB 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.
Belarusbank
- LT IDR B; Affirmed
- ST IDR B; Affirmed
- Viability b-; Affirmed
- Support 4; Affirmed
- Support Floor B; Affirmed
Belinvestbank, OJSC
- LT IDR B; Affirmed
- ST IDR B; Affirmed
- Viability b-; Affirmed
- Support 4; Affirmed
- Support Floor B; Affirmed
JSC Development Bank of the Republic of Belarus
- LT IDR B; Affirmed
- ST IDR B; Affirmed
- LC LT IDR B; Affirmed
- Support 4; Affirmed
- Support Floor B; Affirmed
- Senior unsecured; LT B; Affirmed
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G E R M A N Y
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CERAMTEC BONDCO: Fitch Alters Outlook on 'B' LT IDR to Negative
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Fitch Ratings has revised Germany-based ceramic manufacturer
CeramTec BondCo GmbH's Outlook to Negative from Stable, while
affirming the Long-Term Issuer Default Rating at 'B'.
The Negative Outlook reflects the rising risk emerging from the
current coronavirus pandemic, which the company is entering with an
already high leverage level. Its committed strategy for M&A actions
creates risks of further debt drawdowns and greater execution
challenges. CeramTec's still high exposure in the industrial
segment, and the inherent cyclicality of some of the end-markets of
this division, further raise the risk of volatility of demand.
The ratings reflect the moderate size and diversification of
CeramTec's operations, which produces high-performance ceramics for
healthcare and industrial applications, combined with a highly
leveraged capital structure. These limitations are partly offset by
CeramTec's well-established market position in the resilient,
profitable and well-invested medical applications business. The
ratings also factor in strong cash generation and its expectation
of a balanced approach towards cash deployment, allowing
appropriate investments in future growth and leaving a comfortable
liquidity reserve to support daily operations.
KEY RATING DRIVERS
Mild Effect from COVID-19: CeramTec generates over half of its
revenue from various industrial customers, and these end-markets
are experiencing a significant decline in demand as a consequence
of COVID-19. While its medical division is likely not to be
materially affected by the pandemic, Fitch expects turnover from
the industrial segment to decline 15%-20% in 2020 before recovering
in 2021. Consequently, turnover is expected to decline around 10%
in 2020 before bouncing back to 2019 levels by 2022. Similarly
funds from operations are expected to be significantly down in 2020
but to return to pre-pandemic levels in 2022.
High Leverage: Its FFO gross leverage of 8.3x at end-2019 (FYE18:
8.6x) is high for the rating. Under current market challenges, and
the commitment to the M&A strategy the company is following, Fitch
believes deleveraging will restart only in 2022. In its rating
case, CeramTec is above its negative guidance for 2020-2021 with
FFO gross leverage of 8.5x. It has also fully drawn its revolving
credit facility of EUR75 million in 2020 as a precautionary measure
amid the pandemic.
Strong Underlying Cash Flows: Over the past four years, the company
has been generating on average an FFO margin of 20%, or above EUR85
million FFO. Fitch expects this to fall to 15% for 2020, due to
lower EBITDA margins in the pandemic, but to recover rapidly to
historical levels in 2021. Free cash flow margins have averaged
around 12% for the past four years, which Fitch expects to return
to post-2022 following stronger profitability as the revenue base
transitions to the medical segment.
Medical Technology as Rating Anchor: Revenue share of the medical
segment in 2018 was 36% and grew to 42% in 2019, at the expense of
the shrinking industrial segment. Its assumption of moderately
growing through-the-cycle EBITDA is supported by the inherent
visibility, stability and profitability of the medical technology
segment. Fitch therefore expects the adverse volume and price
dynamics that the company could experience in its industrial
segment will not result in a meaningful earnings loss for CeramTec,
distinguishing it from pure, diversified industrial manufacturers.
Some Small Acquisitions Possible: Fitch believes that additional
modest bolt-on acquisitions could be absorbed by CeramTec at the
current rating level, notwithstanding the effects of COVID-19 on
existing operations. Acquisitions will be to reinforce its market
presence in the industrial applications of high-performance
ceramics, where Fitch sees some scope for growth. Larger M&A
transactions pose an event risk, which would be assessed by Fitch
based on the acquisition economics and funding mix.
DERIVATION SUMMARY
Fitch views CeramTec as a diversified industrial group, albeit with
a focus on medical technology. This is because Fitch estimates that
the majority of the EBITDA-capex contribution, which it views as a
proxy for free cash flow, comes from the non-cyclical, highly
profitable and less capital-intensive medical division.
CeramTec benefits from the same strong, non-cyclical
cash-generative medical operations as medical technology peers such
as Synlab Unsecured BondCo PLC (B/Stable), while reporting stronger
EBITDA and FCF margins, which balances its high financial risk. On
a purely medical technology basis and with the current amount of
financial debt proportionately applied to its medical division,
CeramTec would likely be a convincing 'B' credit.
In the context of its industrial applications against Fitch's
universe of publicly and privately rated engineering and
manufacturing peers, CeramTec would instead be positioned as a weak
'B-' given the combination of its more volatile underlying
divisional earnings- and cash flow-profiles and highly leveraged
balance sheet. The sum-of-the-parts analytical approach due to the
dual nature of CeramTec's credit risk therefore supports a 'B' IDR,
with a stronger emphasis placed on the medical technology business,
with strong internal cash generation offsetting an aggressive
capital structure. However, Fitch believes a Negative Outlook is
justified by the increasing risk from current economic challenges,
the expansionary strategy the company is still committed to, and
the high leverage.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Revenue decline of 10% for 2020 and full recovery in 2021
- EBITDA margin 32% for 2020 (FYE19: 36%) and recovery towards
35% by 2022
- Positive-to-neutral working capital cash flows assuming revenue
follows expected trajectory
- Capex 7% of revenue for 2020-2021, moving towards 5% in 2023
- Non-recurring of EUR20 million for costs arising from slowdown
of production amid COVID-19
- M&A EUR30 million p.a. for 2020 and EUR50 million thereafter
- Full drawdown of RCF EUR75 million in 2020, to be repaid in
2022
- Shareholder loan repayment of EUR55 million in 1Q20
- No voluntary debt repayments
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Meaningful de-leveraging with FFO gross leverage falling below
7.0x;
FCF strengthening towards EUR150 million translating into FCF
margins sustainably in excess of 15%; and
Improved business profile, including greater scale and geographic
diversification.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
FFO gross leverage remaining sustainably in excess of 8.5x;
Stagnating or declining sales due to price erosion, flat volumes or
onerous launch of new products without a material operating
contribution;
Stagnant EBITDA margins at 33% due to inability to compensate for
price pressure and adverse volume dynamics; and
FCF of EUR50 million with FCF margins contracting to mid-single
digits.
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
Comfortable Liquidity: Fitch views CeramTec's liquidity profile as
comfortable. Fitch expects the company to generate operating cash
flows of in excess of EUR80 million-EUR85 million per year during
2020-2023, which will easily accommodate its capital investment
programme.
As of March 31, 2020, the company had available cash of about EUR80
million. With the onset of COVID--19, the company has fully drawn
down its RCF and ancillary lines amounting to EUR75 million as a
precautionary measure. Fitch assumes this will be repaid in two
years, following management guidance on possible M&A and continued
expansion plans despite the economic challenges posed by the
pandemic.
Fitch excludes from its liquidity analysis 2.5% of revenue, or
about EUR16 million, as a minimum required for operational needs,
which cannot be used for debt service.
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).
K+S AG: S&P Lowers LongTerm ICR to 'B' on Lower Earnings Forecast
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S&P Global Ratings lowered its long-term issuer credit and issue
ratings on German potash producer K+S Ag and its debt to 'B' from
'B+' and affirmed the 'B' short-term rating.
K+S' lower earnings forecast exacerbates the risk of negative free
operating cash flow (FOCF) in 2020. The downgrade reflects K+S'
revised 2020 EBITDA guidance, following weaker-than-expected potash
prices, due to delayed signing of benchmark contracts with China in
the first quarter of the year, and 50% lower de-icing salt sales
due to mild weather in North America in the first quarter of 2020
compared with first quarter of 2019. S&P said, "We now forecast
adjusted EBITDA of EUR500 million-EUR520 million in 2020 and EUR600
million-EUR650 million in 2021. In our higher EBITDA forecast, we
assume some recovery in potash prices in 2021 from current
depressed levels, now that benchmark contract prices with China are
signed at an albeit low level of $220 per ton (/ton). Under our
revised base-case scenario, the revised EBITDA translates into
leverage of 9.0x-9.2x in 2020, which is significantly higher than
our previous forecast of 7.7x-7.9x published on March 18, 2020. In
our view, this increases the risk of K+S generating negative FOCF
this year, considering its sizable and largely nondiscretionary
planned capital expenditure (capex) of about EUR550 million. We
note management's ongoing focus on working capital discipline, and
proceeds of about EUR44 million related to the disposal of
administrative buildings in Kassel."
Liquidity management is key for K+S. K+S is facing material
maturities in the next 12-18 months, with the need to refinance
EUR835 million in 2021, comprising EUR500 million senior unsecured
notes that mature on Dec. 6, 2021 and the EUR335 million of
promissory notes that mature during 2021. S&P understands that K+S
is in the process of applying for a state-guaranteed loan with
German development bank KfW, and that its recently signed factoring
facility should support working capital management. The company
also delivered about EUR100 million in net savings in 2019 thanks
to its Shaping 2030 program. Ultimately however, the key step
toward lower leverage is the sale of operating unit Americas (OU
Americas), which management anticipates will be signed by year-end
2020 at the latest. The proceeds from disposal and all other
measures to reduce the debt are estimated at significantly more
than EUR2 billion and could be realized in 2021. S&P said, “We do
not factor the potential sale in our base case because, in our
view, the process is subject to execution and timing risks. Once
contracted, we will evaluate the effect of the disposal on our
assessment of K+S' business and financial risk, noting important
rating upside stemming from balance-sheet deleveraging."
The negative outlook reflects the risk that S&P could lower the
rating if K+S' liquidity weakened.
This could be the case if the company made only limited progress in
refinancing upcoming maturities of EUR835 million due 2021, or if
its RCF became unavailable. Further downside pressure could arise
if the company's cash burn accelerated, for example, due to
unforeseen developments in the potash market, or in operating
costs.
Upside potential could emerge over time, notably if K+S reduces its
debt burden with the proceeds from the OU Americas disposal. An
upgrade would also hinge on K+S refinancing its maturities due 2021
and returning to positive FOCF generation on a sustainable basis.
S&P views adjusted debt to EBITDA of 6.0x-6.5x as commensurate with
a higher rating.
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I R E L A N D
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CITYJET: Aer Lingus Cancels Wetlease Agreement Amid Examinership
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RTE reports that Aer Lingus has cancelled its contract with Cityjet
which had been providing flights on Aer Lingus' behalf on a number
of routes, including between Dublin and London City Airports.
The move represents another blow for Cityjet as it attempts to
restructure its business for the future through an examinership
process, RTE notes.
"The impact of Covid-19 on the airline industry, including the
closure of London City Airport, and the uncertainty of its duration
has regrettably required Aer Lingus to terminate its wetlease
agreement with CityJet and cease operations for the foreseeable
future on the Dublin London City route," RTE quotes the airline as
saying in a statement.
Last month, Kieran Wallace of KPMG was appointed examiner to
Cityjet DAC by the High Court, RTE recounts.
The company, as cited by RTE, said a full review is now being
conducted of the business with a view to restructuring it in such a
way that it can be made sustainable for the future.
Last week, Cityjet signalled it was commencing a consultation
process with unions that could lead to up to 700 redundancies
across Europe, including 276 in Ireland and UK, RTE discloses.
MAXIMUM MEDIA: High Court Appoints Shane McCarthy as Examiner
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Ann O'Loughlin at Irish Examiner reports that an examiner has been
appointed by the High Court to come up with a survival plan for
Maximum Media Network, a digital media company behind Joe.ie.
According to Irish Examiner, the court heard there has been 14
"credible" expressions of interest in the firm.
Mr. Justice Michael Quinn earlier this month appointed Shane
McCarthy KPMG as interim examiner to Maximum Media Network (MMN),
which was incorporated as "Joe Dotie Ltd" but became MMN in
February 2013, Irish Examiner relates.
It employs 51 and ran into significant solvency/financial issues
which led to BPC Lending Ireland, owed more than EUR6 million,
seeking the appointment of an examiner, Irish Examiner discloses.
On May 27, 2020, after hearing submissions from BPC Lending, from
the landlord of its premises, the interim examiner, the company
itself and from Revenue, the judge was satisfied to appoint Mr.
McCarthy as examiner to come up with a scheme of arrangement for
the firm, Irish Examiner recounts.
The appointment was sought by Kelly Smith BL, for BPC Lending, of
Molesworth Street, Dublin 2, as a creditor of MMN, which has its
registered offices at Distillery Building, Fumbally Lane, Dublin 8,
Irish Examiner states.
The court heard the EUR6 million debt to BPC Lending represents
some two-thirds of the firm's entire debt, Irish Examiner relays.
According to Irish Examiner, the court heard one of the factors in
the downturn in the fortunes of MMN, which had only become
loss-making in 2018 and enjoyed some 42 million "hits" a year on
its platforms, was a controversy last year when it was revealed a
company employee used a "click farm" to artificially inflate
engagement numbers.
The case will be mentioned before the court again next month, Irish
Examiner notes.
PENTA CLO 2: Fitch Affirms Class F Debt at 'B-sf'
-------------------------------------------------
Fitch Ratings has affirmed Penta CLO 2 B.V.'s notes.
Penta CLO 2 B.V.
- Class A-R XS1645089431; LT AAAsf; Affirmed
- Class B-R XS1645089605; LT AAsf; Affirmed
- Class C-R XS1645090108; LT Asf; Affirmed
- Class D-R XS1645090520; LT BBBsf; Affirmed
- Class E XS1225775201; LT BBsf; Affirmed
- Class F XS1225775383; LT B-sf; Affirmed
TRANSACTION SUMMARY
Penta CLO 2 B.V. is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine and second-lien loans. The transaction has exited its
reinvestment period and is actively managed by the collateral
manager.
KEY RATING DRIVERS
Transaction Deleveraging
The affirmation reflects that the transaction has deleveraged since
it exited its reinvestment period in August 2019. The class A-R
notes have paid down, increasing credit enhancement to 44.51% from
41.57%. As of April 21, 2020, the portfolio had a weighted average
life of 4.51 years against a current WAL test of 4.41 years. In
addition, the transaction's performance has been satisfactory and
it is passing all the par value and coverage tests, collateral
quality test (other than WAL and weighted average rating factor
test) and portfolio profile tests (except CCC concentration, which
is failing by 130bp by Fitch's calculation).
Coronavirus Baseline Scenario Impact
Fitch carried out a sensitivity analysis on the current portfolio
to determine the coronavirus baseline scenario. The agency notched
down the ratings for all assets with corporate issuers on Negative
Outlook regardless of sector. This scenario shows the resilience of
the ratings of all the notes. This supports the affirmation.
Asset Credit Quality
'B'/'B-' Category Portfolio Credit Quality: Fitch assesses the
average credit quality of obligors to be in the 'B'/'B-' category.
The Fitch WARF of the current portfolio is 36.84.
Asset Security
High Recovery Expectations: Senior secured obligations comprise 90%
of the portfolio. Fitch views the recovery prospects for these
assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch's weighted average recovery rate of the
current portfolio is 63.1%.
Portfolio Composition
The portfolio is well diversified across obligors, countries and
industries. The top 10 obligor's exposure is 18.23% and no obligor
represents more than 2% of the portfolio balance. The largest
industry is business services at 18.48% of the portfolio balance,
followed by healthcare at 12.17% and computers and electronics at
10.77%.
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 scenario and the
front, mid- and back-loaded default timing scenario as outlined in
Fitch's criteria. In addition, Fitch tested the 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.
When conducting its cash flow analysis, Fitch's model first
projects the portfolio 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 Stressed 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 losses (at all rating levels) than Fitch's Stressed
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 initially expected
portfolio credit quality and deal performance, leading to higher
credit enhancement for the notes 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 credit
enhancement for the notes following amortisation does not
compensate for a higher loss expectation than initially assumed due
to an unexpectedly high level of default and portfolio
deterioration. As the disruptions to supply and demand due to the
coronavirus for other sectors become apparent, loan ratings in such
sectors would also come under pressure. In addition to the base
scenario, Fitch has defined a downside scenario for the current
coronavirus crisis, whereby all ratings in the 'B' category would
be downgraded by one notch and recoveries would be lowered by 15%.
For typical European CLOs, this scenario results in a category
rating change for all ratings.
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
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, Fitch's assessment of the asset pool information relied
upon for 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.
[*] Fitch Places 10 Tranches From 5 EU CLOs on Watch Negative
-------------------------------------------------------------
Fitch Ratings has placed 10 sub-investment grade tranches from five
European collateralised loan obligations on Rating Watch Negative.
The remaining tranches have been affirmed with a Stable Outlook.
BOSPHORUS CLO V DAC
- Class A-1 XS2073812336; LT AAAsf; Affirmed
- Class A-2 XS2082333274; LT AAAsf; Affirmed
- Class B-1 XS2073813060; LT AAsf; Affirmed
- Class B-2 XS2073813730; LT AAsf; Affirmed
- Class C XS2073814381; LT A+sf; Affirmed
- Class D XS2073814977; LT BBB-sf; Affirmed
- Class E XS2073816162; LT BB-sf; Rating Watch On
- Class F XS2073816329; LT B-sf; Rating Watch On
- Class X XS2073812252; LT AAAsf; Affirmed
CVC Cordatus Loan Fund IV DAC
- Class A-RR XS1951332631; LT AAAsf; Affirmed
- Class B1-RR XS1951332714; LT AAsf; Affirmed
- Class B2-RR XS1951333365; LT AAsf; Affirmed
- Class C-RR XS1951334330; LT Asf; Affirmed
- Class D-RR XS1951334926; LT BBB-sf; Affirmed
- Class E-RR XS1951335733; LT BB-sf; Rating Watch On
- Class F-RR XS1951335659; LT B-sf; Rating Watch On
Ares European CLO XII B.V.
- Class A XS2034050497; LT AAAsf; Affirmed
- Class B-1 XS2034051032; LT AAsf; Affirmed
- Class B-2 XS2034051461; LT AAsf; Affirmed
- Class C XS2034051974; LT Asf; Affirmed
- Class D XS2034052436; LT BBB-sf; Affirmed
- Class E XS2034052865; LT BB-sf; Rating Watch On
- Class F XS2034054135; LT B-sf; Rating Watch On
- Class X XS2034310313; LT AAAsf; Affirmed
Cairn CLO XI DAC
- Class A XS2076107718; LT AAAsf; Affirmed
- Class B XS2076108369; LT AAsf; Affirmed
- Class C XS2076108526; LT Asf; Affirmed
- Class D XS2076109250; LT BBB-sf; Affirmed
- Class E XS2076109920; LT BB-sf; Rating Watch On
- Class F XS2076109847; LT B-sf; Rating Watch On
Ares European CLO XI B.V.
- Class A-1 XS1958264803; LT AAAsf; Affirmed
- Class A-2 XS1958265446; LT AAAsf; Affirmed
- Class B-1 XS1958266337; LT AAsf; Affirmed
- Class B-2 XS1958266683; LT AAsf; Affirmed
- Class C XS1958267061; LT Asf; Affirmed
- Class D XS1958267574; LT BBB-sf; Affirmed
- Class E XS1958267905; LT BB-sf; Rating Watch On
- Class F XS1958269273; LT B-sf; Rating Watch On
- Class X XS1958264639; LT AAAsf; Affirmed
TRANSACTION SUMMARY
The five transactions are cash flow CLOs mostly comprising senior
secured obligations. All the transactions are within their
reinvestment period and are actively managed by their collateral
managers.
KEY RATING DRIVERS
Coronavirus Baseline Sensitivity Analysis
Fitch placed several tranches on RWN as a result of a sensitivity
analysis it ran in light of the coronavirus pandemic. The agency
notched down the ratings for all assets with corporate issuers with
a Negative Outlook regardless of the sectors. The model-implied
ratings for the affected tranches under the coronavirus sensitivity
test are below the current ratings. Fitch will resolve the RWN over
the coming months as it observes rating actions on the underlying
loans.
The affirmations of the investment-grade ratings reflect that the
respective tranches' ratings can withstand the coronavirus baseline
sensitivity analysis with cushion. This supports the Stable
Outlooks on these ratings.
Asset Credit Quality
'B' Category Portfolio Credit Quality: Fitch assesses the average
credit quality of obligors to be in the 'B' category. The Fitch
weighted average rating factor of the current portfolios range
between 34 and 36. After applying the coronavirus stress, the Fitch
WARF would increase to between 36.5 and 39.7.
Asset Security
High Recovery Expectations: At least 90% 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 recovery rate ranges between 64.6 and
65.0
Portfolio Composition
The portfolios are well diversified across obligors, countries and
industries. The top 10 obligors' range between 13.1% and 19.6%, and
no obligor represent more than 2.4% of the portfolio balance.
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 transactions were modelled using the current portfolio
and the current portfolio with a coronavirus sensitivity analysis
applied. Fitch analysis was based on the stable interest rate
scenario but include the front-, mid- and back-loaded default
timing scenarios as outlined in Fitch's criteria.
When conducting cash flow analysis, Fitch's model first projects
the portfolio 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 voluntary 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.
Portfolio Performance; Surveillance
All the transactions are in their reinvestment period and the
portfolios are actively managed by the collateral manager. By
Fitch's calculation, the Fitch WARF test has failed in four out of
the five transactions while the 'CCC' limit has failed in two out
of the five transactions. All other tests are still passing. None
of the transactions have defaulted assets currently, but one
transaction is slightly below target par. Exposure to assets with a
Fitch-derived rating of 'CCC+' and below range between 4.1% and
10.1% and would increase to between 10.5% and 19.7% after applying
the coronavirus stress.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a higher
loss expectation than initially assumed due to an unexpected high
level of defaults and portfolio deterioration. As the disruptions
to supply and demand due to the coronavirus for other vulnerable
sectors become apparent, loan ratings in such sectors would also
come under pressure. Fitch will resolve the RWN over the coming
months as its Leverage Finance team takes the anticipated actions
and change the ratings and/or recovery ratings.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
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
losses (at all rating levels) than the Fitch's Stressed 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 CE and excess
spread available to cover for losses on the remaining portfolio.
In addition to the base scenario, Fitch has defined a downside
scenario for the current crisis, where by all ratings in the 'B'
category would be downgraded by one notch and recoveries would be
lower by a haircut factor of 15%. For typical European CLOs this
scenario results in a category rating change for all ratings
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.
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.
[*] Fitch Places 8 Tranches From 3 EU CLOs on Watch Negative
------------------------------------------------------------
Fitch Ratings has placed seven tranches from three European
collateralised loan obligations on Rating Watch Negative and one
tranche on Negative Outlook. Fitch affirmed the remaining tranches
with a Stable Outlook.
BlueMountain Fuji EUR CLO IV DAC
- Class A-1 XS1945241294; LT AAAsf; Affirmed
- Class A-2 XS1945241708; LT AAAsf; Affirmed
- Class B-1 XS1945242185; LT AAsf; Affirmed
- Class B-2 XS1945242698; LT AAsf; Affirmed
- Class C XS1945243076; LT Asf; Affirmed
- Class D XS1945243829; LT BBB-sf; Affirmed
- Class E XS1945244637; LT BB-sf; Rating Watch On
- Class F XS1945244124; LT B-sf; Rating Watch On
- Class X XS1945240999; LT AAAsf; Affirmed
BNPP AM Euro CLO 2017 B.V.
- Class A-R XS2060920928; LT AAAsf; Affirmed
- Class B XS1646366663; LT AAsf; Affirmed
- Class C XS1646367711; LT Asf; Affirmed
- Class D XS1646368016; LT BBBsf; Affirmed
- Class E XS1646368289; LT BBsf; Rating Watch On
- Class F XS1646368362; LT B-sf; Rating Watch On
BNPP AM Euro CLO 2018 B.V.
- Class A XS1857677287; LT AAAsf; Affirmed
- Class B XS1857677790; LT AAsf; Affirmed
- Class C XS1857678681; LT Asf; Revision Outlook
- Class D XS1857678848; LT BBB-sf; Rating Watch On
- Class E XS1857679499; LT BB-sf; Rating Watch On
- Class F XS1857679655; LT B-sf; Rating Watch On
TRANSACTION SUMMARY
The three transactions are cash flow CLOs mostly comprising senior
secured obligations. All the transactions are within their
reinvestment period and are actively managed by their collateral
managers.
KEY RATING DRIVERS
Coronavirus Baseline Sensitivity Analysis
Fitch placed several tranches on Negative Outlook or RWN as a
result of a sensitivity analysis it ran in light of the coronavirus
pandemic. The agency notched down the ratings for all assets with
corporate issuers with a Negative Outlook regardless of the sector.
The model-implied ratings for the affected tranches under the
coronavirus sensitivity test are below the current ratings. Fitch
will resolve the Rating Watch status over the coming months as and
when it observes rating actions on the underlying loans.
The affirmations of the remaining tranches reflect the fact that
these tranches' ratings show resilience under the coronavirus
baseline sensitivity analysis. This supports the Stable Outlook on
these ratings.
Asset Credit Quality
'B' Category Portfolio Credit Quality: Fitch assesses the average
credit quality of the obligors to be in the 'B'/'B-' category. The
Fitch weighted average rating factor of the current portfolios is
between 34.9 and 35.8. The Fitch WARF would increase to between
37.3 and 39.8 after applying the coronavirus stress.
Asset Security
High Recovery Expectations: At least 90% 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.
Portfolio Composition
The portfolios are well diversified across obligors, countries and
industries. The top 10 obligors are between 13% and 15%, and no
obligor represents more than 2% of the portfolio balance.
Portfolio Performance; Surveillance
All the transactions are in their reinvestment period and the
portfolios are actively managed by the collateral manager. As of
the latest investor report available all the transactions were
above par and all portfolio profile tests, collateral quality tests
and coverage tests were passing except two transactions failing
their Moody's WARF tests. None of the transactions had any current
defaults. Exposure to assets with a Fitch-derived rating of 'CCC+'
and below (including non-rated assets) is between 6.5% and 8% and
would increase to between 13.4% and 19% after applying the
coronavirus stress.
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. The
transaction was modelled using the current portfolio based on both
the stable and rising interest rate scenario and the front, mid,
and back-loaded default timing scenario as outlined in Fitch's
criteria.
Fitch also tested the current portfolio with a coronavirus
sensitivity analysis to estimate the resilience of the notes'
ratings. The coronavirus sensitivity analysis was only based on the
stable interest rate scenario including all default timing
scenarios.
Fitch's cash flow analysis model first projects the portfolio
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, these 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 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:
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a higher
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 coronavirus for other vulnerable
sectors become apparent, loan ratings in those sectors would also
come under pressure.
Fitch will resolve the Rating Watch status over the coming months
as and when its Leveraged Finance team takes the anticipated
actions and change the ratings and/or recovery ratings.
Coronavirus Baseline Scenario Impact: Fitch carried out a
sensitivity analysis on the target portfolio to envisage the
coronavirus baseline scenario. The agency notched down the ratings
for all assets with corporate issuers on Negative Outlook
regardless of sector. This scenario shows the resilience of the
current ratings except those that have been placed on Rating Watch
Negative or Outlook Negative.
Fitch has defined a downside scenario for the current crisis in
addition to the base scenario, whereby all ratings in the 'B'
category would be downgraded by one notch and recoveries would be
lower by a haircut factor of 15%. For typical European CLOs this
scenario results in a category rating change for all ratings.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
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
losses (at all rating levels) than Fitch's Stressed Portfolio
assumed at closing, an upgrade of the notes during the reinvestment
period is unlikely, as the portfolio credit quality may still
deteriorate, not only through natural credit migration, but also
through reinvestments.
Upgrades may occur after the end of the reinvestment period in case
of a better-than-expected portfolio credit quality and deal
performance, leading to higher note credit enhancement and excess
spread available to cover for losses on the remaining portfolio.
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.
===================
K A Z A K H S T A N
===================
TAJIKISTAN: Moody's Affirms B3 Issuer & Sr. Unsec. Ratings
----------------------------------------------------------
Moody's Investors Service has affirmed the Government of
Tajikistan's long-term local and foreign currency issuer and the
foreign currency senior unsecured B3 ratings and maintained the
negative outlook.
The negative outlook reflects Moody's assessment that the
coronavirus shock increases Tajikistan's external liquidity risks
as remittances fall sharply and the government's spending needs
rise. While in the near term, significant financial support from
the international community will likely cover Tajikistan's external
financing needs, beyond 2020, the government will be challenged to
sustain its fiscal consolidation objective in order to preserve
macroeconomic stability. Very weak governance points to the policy
challenge for the government in responding to and mitigating the
impact of the shock.
The coronavirus outbreak and the deteriorating global economic
outlook, falling oil prices, and asset price volatility are
creating a severe and extensive credit shock across many sectors,
regions and markets. The combined credit effects of these
developments are unprecedented. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety. For
Tajikistan, the main channels of exposure are lower remittance
inflows and consequently wider fiscal and external funding gaps and
slower growth.
The affirmation of the B3 rating reflects progress made by
Tajikistan in stabilizing its external payments position over the
past year, alleviating some of the pressures on its foreign
exchange reserves that led to the initial change in the rating
outlook to negative in December 2018.
Tajikistan's long-term foreign currency bond ceiling remains
unchanged at B3. The foreign currency deposit ceiling remains at
Caa1, while the local currency bond and deposit ceilings remain at
B1. In addition, the short-term foreign currency bond and deposit
ceilings are unchanged at "Not Prime."
RATINGS RATIONALE
RATIONALE FOR MAINTAINING THE NEGATIVE OUTLOOK
CORONAVIRUS SHOCK RENEWS RISE IN EXTERNAL AND LIQUIDITY RISKS
The coronavirus shock has interrupted some signs of stabilization
in Tajikistan's external liquidity position and raises renewed
risks to the sovereign's credit profile. Lower oil prices leading
to substantially weaker economic growth in Russia (Baa3
stable)—the most important destination for Tajikistan's overseas
workers— are likely to weigh significantly on remittances in
Tajikistan, a major source of foreign currency and income. Combined
with higher spending for the government, Tajikistan's external
financing needs have increased markedly. Weak institutions and
governance point to risks to the government's capacity to manage
the shock in a way that preserves macroeconomic stability.
Moody's expects that the current account deficit will widen to
around $600 million in 2020 (6.8% of GDP) from less than $200
million in 2019 (2.3% of GDP) as a result of the coronavirus shock.
Imminent liquidity pressures appear contained as Tajikistan's
external financing gap is likely to be in large part covered by
financing from International Financial Institutions, including the
IMF's rapid credit facility line that was approved in early May.
Moody's does not currently expect Tajikistan to participate in any
debt relief initiative that would require the participation of
private sector creditors. A decision to do so could carry negative
implications for the country's rating.
Moody's estimates that some of the current account shortfall will
be met by a drawdown on Tajikistan's international reserves,
pushing the External Vulnerability Indicator, the ratio of external
debt payments due in the course of the year to foreign exchange
reserves (excluding gold) to over 500% in 2021 from around 300%
this year. The negative outlook captures the risks related to a
possible more significant and longer shock to foreign currency
receipts in the economy at a time when the government's spending
needs increase.
Beside the negative effect of lower remittances on household
incomes, disruptions to trade and cross-border travel, as well as
the imposition of containment measures weigh on domestic activity.
Slower economic growth, around 3% this year from an average of
almost 7% in the preceding five years, will weigh on government
revenue. Moreover, in response to the coronavirus outbreak, the
government will also increase spending to bolster public health
initiatives and help to contain the economic fallout on households
and businesses, contributing to substantially wider fiscal
deficits.
Financing of the wider fiscal shortfall, estimated by Moody's at
around 7% of GDP in 2020, mirrors the financing of the external
funding gap. Moody's baseline scenario projects Tajikistan's
government debt will be contained to less than 50% of GDP in 2020
from around 45% of GDP in 2019. While the associated borrowing
needs for the government are not particularly large compared to
other B3-rated sovereigns, Tajikistan has not previously
demonstrated strong access to funding at moderate costs in times of
urgent needs, pointing to some liquidity risks.
Moody's baseline projections assume traction on Tajikistan's
non-binding commitments to international development partners
regarding fiscal consolidation and the avoidance of
non-concessional borrowing until the debt position has stabilised.
However, given the government's limited track record of fiscal
discipline, the negative outlook also reflects the potential for a
deviation from the fiscal consolidation path, which could in turn
threaten Tajikistan's access to external sources of financing.
RATIONALE FOR THE B3 RATING AFFIRMATION
RECENT, PRE-SHOCK, PROGRESS TOWARDS EXTERNAL STABILIZATION
While Tajikistan's credit metrics at the onset of the coronavirus
shock are weak, signs of macroeconomic stabilization in the recent
years support the B3 rating.
In 2019, Tajikistan's current account deficit more than halved as
compared to 2018, reflecting a recovery in remittance inflows and
better export performance given improved bilateral relations with
Uzbekistan (B1 stable) and the completion of the second of six
planned turbines in the Rogun Hydropower Project. Relatedly,
foreign currency reserves climbed through much of 2019 and reached
a near-record high of almost $640 million in January 2020. Once the
global impact of the coronavirus epidemic eases, Tajikistan's
improved export potential should support foreign currency revenue.
Over the medium term, strengthened exports and revenue will be
essential to meet the repayments of debt related to the Rogun HPP
project.
In 2019, Tajikistan also recorded a third consecutive year of
narrower fiscal deficits, largely driven by expenditure restraint.
As a result, its government debt burden has consolidated to around
45% of GDP in 2019 from over 50% in 2017. Although susceptibility
to exchange rate depreciation remains given the ongoing reliance on
external funding, the largely concessional nature of much of
Tajikistan's foreign-currency government debt also continues to
support debt affordability. However, Tajikistan's fiscal strength
is undermined by material contingent liabilities related to
state-owned enterprises and banks.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental considerations are material to Tajikistan's credit
profile. The country lies within the collision zone between the
Indian Plate and the Eurasian Plate, making it especially
vulnerable to earthquakes. Furthermore, as the economy is heavily
dependent on agriculture, it is vulnerable to climate change risks,
the potential impacts of which are compounded by the economy's
small size and low incomes. Given the government's already high
debt burden, an earthquake or climate-change related shock that
caused widespread damage could materially impact Tajikistan's
rating.
Social considerations are material to Tajikistan's economic
strength given interrelated issues concerning poverty and low human
capital. Despite robust economic growth and significant progress on
poverty reduction over the past decade, Tajikistan continues to
have one of the lowest per capita incomes among rated sovereigns.
Limited economic and employment opportunities have also led to
significant emigration, although remittances from overseas Tajik
workers have generally been supportive of the external payments
position. Comparatively weak levels of human capital development
also constrain diversification of the economy. Moody's regards the
coronavirus outbreak as a social risk under its ESG framework,
given the potential implications for public health and safety. For
Tajikistan, the shock mainly translates into rising external
liquidity risks given a significant fall in remittances and higher
financing needs.
Governance considerations are material to Tajikistan's credit
profile, and are reflected in a "caa1" assessment of its
institutions and governance strength. Tajikistan scores poorly on
governance assessments as measured by the Worldwide Governance
Indicators, reflecting weak regulatory quality, rule of law and
control of corruption.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING UP
The negative outlook indicates that an upgrade is unlikely in the
near term.
Moody's would consider changing the outlook to stable upon evidence
that increasing non-debt creating inflows are contributing to a
durable build-up in foreign exchange reserves. Effective
implementation of reforms in the banking sector and SOEs, which
significantly reduce contingent liability risks to the government,
would also support a stable outlook at B3.
WHAT COULD CHANGE THE RATING DOWN
Moody's would likely downgrade the rating if risks to macroeconomic
stability increased materially through a more marked and longer
erosion of foreign exchange reserves than Moody's currently
expects. This could result from only partial coverage of the
country's external financing needs by concessional lines of
external financing, which in turn may depend on a sustained
commitment to policy reform and medium-term fiscal consolidation.
A materialisation of significant contingent liabilities posed by
banks or SOEs with large fiscal costs would weigh on fiscal
strength and likely prompt Moody's to downgrade the rating.
While not Moody's current expectation, indications that the
government was likely to participate in debt relief initiatives
which Moody's concluded were likely to entail losses for private
sector creditors would be negative for the rating.
GDP per capita (PPP basis, US$): 3,427 (2018 Actual) (also known as
Per Capita Income)
Real GDP growth (% change): 7.3% (2018 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 5.4% (2018 Actual)
Gen. Gov. Financial Balance/GDP: -2.8% (2018 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: -5% (2018 Actual) (also known as
External Balance)
External debt/GDP: 79.44% (2018 Actual, includes private and public
sector)
Economic resiliency: b2
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On May 20, 2020, a rating committee was called to discuss the
rating of the Tajikistan, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed. The
issuer's institutions and governance strength have not materially
changed. The issuer's fiscal or financial strength, including its
debt profile, has not materially changed. The issuer has become
increasingly susceptible to event risks.
The principal methodology used in these ratings was Sovereign
Ratings Methodology published in November 2019.
The weighting of all rating factors is described in the methodology
used in this credit rating action, if applicable.
===================
L U X E M B O U R G
===================
ARDAGH GROUP: Fitch Rates US$600MM Sr. Unsec. Notes 'B(EXP)'
------------------------------------------------------------
Fitch Ratings has assigned Ardagh Group S.A.'s (B+/Stable) USD600
million senior unsecured notes issue due 2027 an expected rating of
'B'/'RR5(EXP)'. The assignment of the final rating is contingent on
receipt of final documents conforming to information already
reviewed.
The senior unsecured bonds are rated one notch below Ardagh Group
S.A.'s 'B+' Long-Term Issuer Default Rating, reflecting Fitch's
expectations of below-average recovery. The newly issued notes
carry the same terms and conditions and rank pari-passu with the
existing senior unsecured notes.
The proceeds of the new issue will be used to refinance existing
senior unsecured debt maturing in 2025, extending the maturity
profile by a further two years for parts of the debt. The repayment
of the notes maturing 2025 will be subject to a tendering process,
which requires majority acceptance. If not achieved, the proceeds
will be used to prepay existing senior secured debt maturing in
2022.
KEY RATING DRIVERS
High Leverage, Predictable Cash Flow: Ardagh remains highly
leveraged despite the repayment of USD2.4 billion debt with
proceeds of its disposal of parts of its metal packaging business
to Trivium. Fitch expects pro-forma funds from operations adjusted
gross leverage to be around 7.5x for 2020, which is higher than
many rated peers. Fitch includes the USD1.13 billion and EUR1
billion toggle notes of ARD Finance S.A. in its consolidated debt
when calculating leverage and interest cover. Fitch expects some
deleveraging, with FFO adjusted gross leverage likely to fall to 6x
by 2022, mainly due to gradually improving EBITDA and FFO.
Complex Capital Structure: Fitch views Ardagh's financial policy as
aggressive compared with other global packaging companies', and
expects the group to continue to return a higher dividend to its
shareholders than its peers. Ardagh's debt and corporate structure
is more complex than most corporate issuers. Despite this, Ardagh
has demonstrated good access to debt markets with substantial
refinancing of both group and holding company debt during 2019,
tapping strong capital-market conditions to extend maturities and
lower the cost of debt. Ardagh's maturity profile is substantially
more evenly spread than most rated peers', reducing refinancing
risk.
Near-Term Coronavirus Implications: Fitch expects Ardagh to be
moderately affected by the coronavirus pandemic, primarily due to
weaker demand for glass bottles consumed at restaurants and bars,
which will be offset by potentially stronger household demand.
Current financial-market risk during the crisis is offset by
Ardagh's satisfactory liquidity at USD1.3billion of cash after a
USD700 million issue early April and with the majority of its
USD663 million asset-based revolving credit facility drawn (USD530
million was drawn end-March 2020).
Continued Organic Growth: Fitch expects Ardagh's revenues to grow
organically at 1%-2% per year, based on new contracts, with capex
driven by investment in plants to service new contracts. Further
acquisitions would likely generate higher growth. Demand for
packaging is underpinned by population growth, urbanisation and
higher living standards. Fitch sees some risk of replacement
between various types of packaging made from plastics, metal,
glass, carton and composites and all materials are subject to
pressure from rising raw material prices.
Resilient Beverage Sector: Following the Trivium disposal, Ardagh
will have more exposure to the beverage sector, which will
represent 85% of revenue. Fitch views the beverage market as highly
resilient to economic cycles as the consumption of beer, drinks,
carbonated soft-drinks or even wines and spirits shows limited
cyclicality. The beverage market in Europe and North America is
mature, albeit with little over-capacity, which is supportive.
Ardagh's smaller operations in Brazil (6% of sales) offer higher
growth as the market develops. There has been some transition in
the materials used in packaging, with metal cans replacing glass
for conventional beers, primarily in the U.S.
Strong Business Profile: Fitch views the packaging industry as
stable in terms of predictable margin and free cash flow. Fitch
believes that Ardagh's business risk could support an
investment-grade rating with significantly lower leverage. Fitch
views Ardagh's business risk as strong, supported by scale with
revenue of about USD6.7 billion for 2019, strong market positions
in the U.S. and EMEA, and strategically located packaging
facilities, typically located close to customers to reduce
transportation costs.
Historically Acquisitive: Ardagh has grown rapidly since 2007
through continued debt-funded acquisitions. Fitch has not factored
further acquisitions into its own forecasts. However, Fitch
believes that higher-than-expected cash build-up could be deployed
for further EBITDA-accretive acquisitions. Fitch expects Ardagh to
maintain high growth capex during 2020 and 2021, reflecting
investment in new contracts, which would also help improve the
business-risk profile.
DERIVATION SUMMARY
Ardagh is similar to its main packaging peers (Ball Corporation,
Berry and Crown) in diversification and strong market positions in
its geographic markets. However, it is smaller at close to half the
size in turnover but shares similar EBITDA and FFO margins with
these peers. Fitch believes that Ardagh's business profile is
similar to that of Amcor plc (BBB/Stable) and Stora Enso Oyj
(BBB-/Stable), with strong EBITDA margins and healthy FCF. Ardagh's
capital structure is substantially more leveraged than that of
peers, resulting in a much lower Long-Term IDR. Compared with
similarly rated packaging related companies Irel Bidco S.a.r.l
(B+/Stable) Ardagh is substantially larger but with weaker EBITDA
and FFO margins.
KEY ASSUMPTIONS
- Moderate sales growth (excluding Trivium assets) of 1% in
2020-2021, thereafter 2% with contribution from recent years'
growth capex;
- EBITDA margin to grow around 1% from 2020-2023, driven by cost
savings, better product mix of glass packaging and growth capex;
- Cash taxes of 10% of EBIT over the next three years;
- Common dividends of USD11 million paid to equity stakeholders
over the next three years;
- The dividend related to pay interest on the HoldCo PIK Toggle
notes assumed as interest;
- Working capital outflow at around USD40 million per year up to
2023; and
- Capex of around 7%-8% of sales per year including maintenance
capex of USD350 million and growth capex of USD260 million-USD280
million in 2020-2021.
RECOVERY ANALYSIS
As Ardagh's IDR is in the 'B' rating category, Fitch uses a bespoke
recovery analysis in line with its criteria. Ardagh's strong market
positions and strategically-located packaging facilities, in
Fitch's view, support a going-concern approach should the group be
in financial distress.
Fitch has applied an EBITDA discount of 15% to 2019 EBITDA
resulting in a post-restructuring EBITDA of USD890 million, which
the agency finds adequately represents Ardagh's recovery prospects.
Fitch applies a 5.5x distressed enterprise value (EV)/EBITDA
multiple, which is in line with similarly rated peers.
After deducting 10% for administrative claims, Ardagh's senior
secured notes are rated 'BB+'/'RR1'/91%-100%, its senior unsecured
notes 'B'/'RR5'/11%-30% and the senior secured notes issued by ARD
Finance S.A. 'B-'/'RR6'/0%.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action/Upgrade
- FCF margins increasing towards mid-single digits of sales on a
sustained basis;
- FFO fixed-charge cover sustainably greater than 3.0x; and
- Clear deleveraging commitment and disciplined financial policy
with FFO-adjusted gross leverage sustainably below 5.5x.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action/Downgrade
- EBITDA margin deteriorating to below 15%;
- Neutral FCF, thereby reducing financial flexibility;
- FFO fixed-charge cover less than 2.2x; and
- FFO adjusted gross leverage including payment-in-kind notes
greater than 7.5x 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
Fitch views Ardagh's liquidity as satisfactory, supported by USD614
million of cash and cash equivalents as of end-2019, with access to
a USD663 million global asset-based RCF (all undrawn). Fitch
restricts USD300 million cash to reflect intra-year working capital
swings. Ardagh's refinancing activity of recent years has extended
most of its maturities to 2026 and beyond, reducing repayment risk.
Lower interest rates on its debt helps support cash-flow
generation.
Fitch expects positive FCF over the next three years driven by (i)
modest EBITDA margin expansion, (ii) minimal working capital
outflows and (iii) lower interest expenses due to the recent
refinancing. Although counterbalanced by high capex in 2020-2021,
Fitch expects Ardagh to generate consistent FCF at around 3% of
sales by 2023.
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.
INEOS GROUP: Fitch Alters Outlook on BB+ LT IDR to Negative
-----------------------------------------------------------
Fitch Ratings has revised Ineos Group Holdings S.A.'s Outlook to
Negative from Stable and affirmed the chemicals group's Long-Term
Issuer Default Rating at 'BB+'.
The Negative Outlook reflects slow deleveraging prospects over the
medium-term following an increase in leverage in 2019 that is
exacerbated by the COVID-19 impact on IGH's major markets, Europe
and the US, in 2020. IGH entered 2020 with funds from operations
net leverage at 3.9x, up from end-2018's 2.1x due to a record-high
EUR2.1 billion dividends in 2019, including an EUR1,450 million
one-off distribution, following years of moderate leverage. Fitch
expects lower end-market demand and prices due to the economic
downturn to push leverage further up to above 4x in 2020 on the
assumption that EBITDA will contract 25%, before it moderates to
below 3.5x from 2022 as markets recover.
Fitch expects IGH to follow a prudent financial policy while its
credit profile remains under pressure. The company targets net
debt/EBITDA of 3x on a through-the-cycle basis.
IGH's rating continues to reflect the company's position as one of
the world's largest commodity chemical producers, with leading
market positions in Europe and in the US (albeit with exposure to
cyclical and commoditised chemicals), large-scale integrated
production facilities with feedstock flexibility and its forecast
of solid coverage metrics and on average neutral free cash flow
over 2020-2023.
KEY RATING DRIVERS
Coronavirus Hits Chemical Markets: Fitch forecasts the pandemic to
shrink global GDP by 4.6% in 2020, including 8.2% and 5.6% in EU
and the US, respectively. This puts pressure across IGH's wide and
diversified chemical portfolio, with particular weakness in
automotive, construction, fuel and transportation end-markets.
Fitch expects that increase in plastics demand for medical or
personal care will only partly compensate the wider economic
pressure, so that the resulting EBITDA decline will be nearly 25%
in 2020, not very dissimilar to IGH's petrochemical peers. Fitch
assumes the recovery in end-market demand for petrochemicals in
2021.
Capex, Cost and Tax Cuts: IGH's response so far has been to revise
2020 capex down by EUR300 million, apply for tax refunds and
deferrals leading to EUR100 million inflow, and tighten cost
control. Fitch believes these actions, together with working
capital release, will help deliver positive FCF, but FFO net
leverage would rise to above 4x as EBITDA declines in 2020. Fitch
expects most markets to recover in 2021 driving EBITDA back to 2019
levels, so that leverage would fall to 3.8x in 2021 and below 3.5x
from 2022 despite its assumption of FCF turning negative in 2021 on
capex rising above EUR1 billion and dividend payments being resumed
in the amount of EUR300 million. Fitch forecasts neutral FCF on
average over 2020-2023.
Rated on Standalone Basis: While IGH is the largest subsidiary of
Ineos Limited, accounting for almost half its EBITDA, Fitch rates
IGH on a standalone basis as IGH operates as a restricted group
with no guarantees or cross default provisions with Ineos Limited
or other entities within the wider group. Ineos Limited (including
IGH) has stronger credit metrics than IGH and follows a more
stringent internal leverage guideline of 2x net debt/EBITDA (3.0x
for IGH). Fitch expects IGH to focus on deleveraging before paying
any special dividends. IGH's debt documentation includes
limitations on additional indebtedness (eg fixed charge coverage of
at least 2x, consolidated senior secured leverage below 3.0x).
Related-Party Transactions at Arms' Length: IGH has operational
overlaps with the wider group including reported 2019 EUR1 billion
sales and EUR1.2 billion purchases from the group's companies, as
well as EUR0.8 billion receivables (net of payables) due to the
rest of the group. Fitch believes these related-party transactions
have economic rationale and that they do not impact the rating as
they are completed on an arm's length-basis.
Weak Oil Price Implications: Fitch assumes that European
naphtha-based operations will benefit from the rebased oil prices
from 2020 onwards as naphtha prices are highly correlated with oil
prices. Simultaneously, Fitch expects that intermediates businesses
may underperform, should inventory swings towards the start of
petrochemical chain exacerbate intermediate price volatility. US
operations will face lower margins as naphtha producers from
elsewhere are now more competitive following reduced naphtha price
spread over ethane with the fall in oil price, which could put
pressure on global price benchmarks.
Supply-Demand to Rebalance in Medium Term: Fitch believes that the
ongoing oversupply in light feedstock-based petrochemicals,
including polyethylene, should moderate as demand rises in the
medium-term while further investment incentives for newcomers and
incumbent players move up the value chain. Petrochemical product
demand tends to grow above, more rarely at GDP levels, and Fitch
expects this trend to continue across the product shelf, with
possible pressure in single-use plastics.
Notching for Instrument Ratings: Over 80% of the company's total
debt at end-2019 consisted of senior secured notes and loans
ranking pari passu among themselves and secured by first-ranking
liens including share pledges and mortgage. The noteholders benefit
from negative pledge and cross default clauses while the debt
contains no financial maintenance covenants. The secured debt is
rated one notch above the IDR to reflect the security package. In
contrast, subordinated debt is rated one notch below the IDR,
reflecting subordination issues and weaker security package.
Large Scale, Commodity Chemicals Manufacturer: IGH is one of the
world's largest commodity chemical manufacturers, with EUR14
billion turnover and 32 manufacturing sites in six countries
throughout the world. IGH's products are the key to creating a
variety of olefin derivatives and serve a broad and diverse range
of end- markets, including packaging, construction, automotive,
white goods and durables, agrochemicals and pharmaceuticals.
Cyclical Credit Profile: The inherently cyclical nature of the
commodity chemicals sector means IGH is subject to feedstock and
end-product price volatility, driven by prevailing market
conditions, demand/supply drivers - especially with new
lower-quartile cost capacity coming online globally - and
stocking/de-stocking patterns alongside the chemical value chain.
IGH manages volatility by capitalising on its critical mass as a
leading integrated petrochemical producer, with strong links to a
large customer and supplier base, and by leveraging feedstock
flexibility in its production sites. Earnings volatility is also
mitigated by the company's geographical and product
diversification.
Corporate Governance: Corporate governance limitations relate to a
lack of independent directors, a three-person private shareholding
structure and key-person risk at Ineos Limited as well as limited
transparency on IGH's strategy around related-party transactions
and dividends. These factors are incorporated into IGH's ratings
and are mitigated by the strong systemic governance in the
countries where the group operates, its record of no material
governance failures, manageable ordinary dividend distributions,
related-party transactions on an arm's length-basis, and solid
financial reporting.
DERIVATION SUMMARY
IGH's credit profile reflects the company's large scale, multiple
manufacturing facilities across North America and Europe, and
exposure to volatile and commoditised olefins and derivatives. This
makes it consistent with sector peers, such as Westlake Chemical
Corporation (BBB/Stable), Dow Chemical Company (BBB+/Negative),
Saudi Basic Industries Corporation (SABIC, A/Stable) and PAO SIBUR
Holding (BBB-/Stable).
IGH has stronger market-leading positions, is of larger scale and
has greater diversification and production flexibility than
Westlake and SIBUR, which are more regional petrochemical
companies. However, IGH is smaller and has weaker portfolio
diversification than Dow and SABIC, which contribute to three- and
five-notch rating differential, respectively. Also, IGH has an
overall weaker feedstock position due to its lower-margin European
O&P and intermediates business, which translates into EBITDA margin
in mid-to-high teens compared with the 25%-35% demonstrated by
lower-cost peers SABIC and SIBUR, but which are similar to Dow's
16%-18%. IGH also entered 2020 and the pandemic with higher
leverage (FFO net leverage) of 3.9x against all peers at or below
3x.
KEY ASSUMPTIONS
- Sales volumes to decline by high single-digit percentages
across the segments in 2020 on lower demand from capital goods
industries due to the pandemic before recovering fully over
2021-2022
- Sales prices to follow Fitch's oil price deck: Brent at
USD35/bbl in 2020, USD45/bbl in 2021, USD53/bbl in 2022 and
USD55/bbl in 2023
- EBITDA margin at 13% in 2020 with higher profitability from
lower-cost feedstock partly offset by inventory-holding losses;
recovering to 15% thereafter as projects finalised during 2019-2021
start to contribute to EBITDA
- Capex at EUR1 billion in 2020, EUR1.2 billion afterwards as
capex cut in 2020 is delayed to following years
- No dividends in 2020, and EUR300 million per annum from 2021
RATING SENSITIVITIES
Fitch has tightened its leverage guidelines due to the revision of
Fitch's approach for lease treatment following IFRS 16
application.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- The Outlook is Negative; therefore, positive rating action is
unlikely in the short term. However, FFO net leverage being
maintained at or under 3.2x would support a revision of the Outlook
to Stable.
- FFO net leverage being maintained at or under 1.7x through the
cycle and through the peak of capacity additions would support an
upgrade.
- Corporate governance improvements, in particular, better
transparency on decisions regarding dividends and related-party
loans, and independent directors on the board.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Aggressive capex or dividends leading to negative FCF and/or
FFO net leverage sustainably over 3.2x.
- Significant deterioration in business profile factors such as
cost advantage, scale, diversification or product leadership or
prolonged market pressure translating into EBITDA margin below
10%.
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
Comfortable Liquidity: As of March 30, 2020, IGH had around EUR1
billion of cash on balance sheet to cover EUR211 million of current
debt. Fitch expects cuts in capex and cash-flow protective measures
implemented around tax payment to result in EUR375 million of FCF
in 2020, which will support overall liquidity as the company does
not intend to pay dividends this year. IGH has access to a
securitisation facility of EUR800 million maturing end-2022, of
which EUR398 million was drawn at end-1Q20, and to an inventory
financing facility of EUR200 million, of which EUR154 million was
drawn at end-March, maturing in June 2021.
SUMMARY OF FINANCIAL ADJUSTMENTS
- EUR125.4 million of current leases liabilities and EUR864.4
million of non-current leases liabilities reclassified as other
liabilities
- EUR48.5 million of interest expenses associated to lease
liabilities reclassified as lease expense.
- EUR154.3 million of depreciation expense (D&A) related to
right-of-use assets deducted from D&A charge
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).
===========
N O R W A Y
===========
NORWEGIAN AIR: Losses Widen to GBP270MM in First Quarter 2020
-------------------------------------------------------------
Simon Foy at The Telegraph reports that Norwegian Air suffered
widening losses in the first quarter of 2020 as the pandemic
grounded most of its fleet and forced the airline to all but shut
down.
According to The Telegraph, the budget carrier, one of Gatwick
airport's largest customers, posted a pre-tax loss of NOK3.28
billion (GBP270 million) for the three months to March, compared to
a NOK1.98 billion loss for the same period last year. The figures
for the second quarter are likely to be far more bleak still, The
Telegraph notes.
It comes just days after the long-haul airline completed a rescue
deal in which creditors took control of the business, The Telegraph
states.
"The company is currently in hibernation mode and at the same time
is conducting significant restructuring of the organization,
including establishing a new strategy and updated business plans,"
The Telegraph quotes Norwegian as saying.
===========
R U S S I A
===========
MORGAN STANLEY: Bank of Russia Revokes Banking License
------------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-841, dated May
27, 2020, revoked the banking license of Moscow-based credit
institution Limited Liability Company Morgan Stanley Bank, or OOO
Morgan Stanley Bank (Registration No. 3456). The credit
institution ranked 279th by assets in the Russian banking system.
The license of OOO Morgan Stanley Bank was cancelled following the
request that the credit institution submitted to the Bank of Russia
after the decision of its sole participant on its voluntary
liquidation (in accordance with Article 61 of the Civil Code of the
Russian Federation).
Based on the reporting data provided to the Bank of Russia, the
credit institution has sufficient assets to satisfy creditors'
claims.
The Bank of Russia will appoint a liquidation commission to OOO
Morgan Stanley
Bank.
The bank is not a member of the deposit insurance system.
=========
S P A I N
=========
[*] Fitch Takes Action on 21 Tranches From 4 Spanish RMBS Series
----------------------------------------------------------------
Fitch Ratings has downgraded six tranches and affirmed 15 other
tranches of four Spanish non-conforming RMBS transactions from the
TdA series. The agency has also removed five tranches from Rating
Watch Negative, and maintained one tranche on RWN.
TDA 25, FTA
- Class A ES0377929007; LT Csf; Affirmed
- Class B ES0377929015; LT Csf; Affirmed
- Class C ES0377929023; LT Csf; Affirmed
- Class D ES0377929031; LT Csf; Affirmed
TDA 24, FTA
- Series A1 ES0377952009; LT BB+sf; Rating Watch Maintained
- Series A2 ES0377952017; LT CCCsf; Downgrade
- Series B ES0377952025; LT Csf; Downgrade
- Series C ES0377952033; LT Csf; Downgrade
- Series D ES0377952041; LT Csf; Affirmed
TDA 27, FTA
- Class A2 ES0377954013; LT CCCsf; Downgrade
- Class A3 ES0377954021; LT CCCsf; Affirmed
- Class B ES0377954039; LT Csf; Downgrade
- Class C ES0377954047; LT Csf; Affirmed
- Class D ES0377954054; LT Csf; Affirmed
- Class E ES0377954062; LT Csf; Affirmed
- Class F ES0377954070; LT Csf; Affirmed
TDA 28, FTA
- Class A ES0377930005; LT Csf; Downgrade
- Class B ES0377930013; LT Csf; Affirmed
- Class C ES0377930021; LT Csf; Affirmed
- Class D ES0377930039; LT Csf; Affirmed
- Class E ES0377930047; LT Csf; Affirmed
- Class F ES0377930054; LT Csf; Affirmed
TRANSACTION SUMMARY
The four transactions comprise Spanish residential mortgages
serviced by retail banks as follows:
- TdA 24 is serviced by Liberbank, S.A. (BB+/B/Negative), Union
de Creditos para la Financiacion Inmobiliaria EFC, SAU (Credifimo)
an entity that is owned by Caixabank, S.A. (BBB+/F2/Negative) and
Caixabank, S.A. with a share of around 65%, 28% and 7% of the
current non-defaulted portfolio balance, respectively.
- TdA 25 is serviced by Credifimo and Banco de Sabadell, S.A.
(BBB/F2/RWN) with a share of around 90% and 10%, respectively.
- TdA 27 is serviced by Banco Bilbao Vizcaya Argentaria, S.A.
(A-/F2/RWN), Bankia S.A. (BBB/F2/RWN), Kutxabank, S.A.
(BBB+/F2/Negative) and Credifimo with a share of 37%, 23%, 22% and
18%, respectively.
- TdA 28 is serviced by Banco Bilbao Vizcaya Argentaria, S.A. and
Credifimo with a share of 61% and 39%, respectively.
KEY RATING DRIVERS
TdA 24 and TdA 27: Negative Credit Enhancement
The downgrades and removal from RWN reflect Fitch's expectation of
negative CE ratios on the notes to continue, driven by the large
principal deficiency balance between assets and liabilities. In TdA
24, while the notes' balance was EUR96.9 million as of March 2020,
performing collateral was only EUR68.0 million. Fitch views the
transactions have substantial credit risk that implies default on
the notes is a real possibility.
The maintained RWN on TdA 24's class A1 notes reflects the
possibility of downgrade if the fully sequential paydown of the
notes is replaced by pro-rata between the class A1 and A2 notes.
Pro-rata amortisation would take place if the balance of late stage
arrears is greater than 3% (currently 0.3%). Considering the very
low balance of EUR1.2 million on the class A1 notes at present,
Fitch expects payment continuity and full repayment in the next one
or two quarterly interest payment dates. Fitch placed TdA 24's
class A1 and A2 notes on RWN last month in light of COVID-19
risks.
For TdA 27, Fitch believes the class A2 notes could be fully repaid
in the next two years if the strictly sequential amortisation of
the notes is maintained, as reflected in their 'CCCsf' rating. The
removal from RWN of the class A3, B and C notes reflects the
greater clarity with respect to the swap termination senior costs
that have been fully met, using cash collections from the portfolio
and drawing on liquidity facilities. This transaction has been
under liquidation since 2016 with no accelerated asset sale
implemented by the trustee.
Fitch placed TdA 27's senior note ratings on RWN as a consequence
of the swap termination and its effects on the rated notes.
TdA 25 and TdA 28: Default Appears Inevitable
The notes' ratings are deeply distressed because Fitch views
default on the notes as inevitable, as reflected by the downgrade
of TdA 28's class A notes to 'Csf'. The balance of performing
collateral represents only 38% and 53% of the securitisation notes'
balance as of the latest reporting dates for TdA 25 and TdA 28,
respectively.
Both transactions have been implementing accelerated liquidation of
the assets since 2Q19, inclusive of performing, defaulted and
real-estate-owned positions. The final liquidation date of both
SPVs will occur shortly, subject to completion of the competitive
bidding process on the assets that mandates at least five different
bids for consideration. As Fitch's sector-specific RMBS criteria do
not explicitly include assumptions for rating scenarios below
'Bsf', the rating analysis has followed a net asset value approach,
making projections for the portfolio's expected performance based
on the current circumstances in line with its Global Structured
Finance Rating Criteria. This analysis has taken into account the
senior swap termination payments and liquidity facility repayments
due by the SPVs.
COVID-19 Stresses
Fitch has made assumptions about the spread of coronavirus and the
economic impact of the related containment measures. As a base-case
(most likely) scenario, Fitch assumes a global recession in 1H20,
driven by sharp economic contractions in major economies with a
rapid spike in unemployment, followed by a recovery that begins in
3Q20 as the health crisis subsides. Fitch expects a generalised
weakening in borrowers' ability to keep up with mortgage payments
in Spain.
VARIATIONS FROM CRITERIA
TdA 24 and TdA 27: Recovery Rate Haircut
Fitch has applied a 25% haircut to the ResiGlobal model-estimated
recovery rates across all rating scenarios considering the
materially lower transaction recoveries on cumulative defaults
observed to date versus un-adjusted model expectations. This
constitutes a variation from its European RMBS Rating Criteria with
an unquantifiable model implied rating impact.
ESG CONSIDERATIONS
TDA 24, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved Credifimo, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
TDA 25, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved Credifimo, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
TDA 27, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved Credifimo, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
TDA 28, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved Credifimo, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
RATING SENSITIVITIES
TdA 24:
Developments that may, individually or collectively, lead to
positive rating action include:
- For the class A1 and A2 notes, a significant increase in
recoveries on defaults that compensate negative CE and future
credit losses, all else being equal.
Developments that may, individually or collectively, lead to
negative rating action include:
- For the class A1 notes, a switch to pro-rata amortisation with
the class A2 notes subject to late stage arrears increasing over 3%
of the non-defaulted portfolio balance (0.3% currently). If this
was to occur, a multi-category rating downgrade could take place as
the notes would become under-collateralised.
- For the class A2 notes, continued low recoveries on defaults
and negative excess spread that will lead to a further
deterioration in CE.
- The SPV becomes unable to meet the timely payment of interest
on the notes if cash collections from the assets are low and the
payable interest rate on the notes is greater than zero.
TdA 25, TdA 28:
Developments that may, individually or collectively, lead to
positive rating action include:
- Larger than expected sale proceeds on the securitised
portfolios that result in higher principal payments to the rated
tranches.
Developments that may, individually or collectively, lead to
negative rating action include:
- For the class A notes in both transactions, lower than expected
sale proceeds on the securitised portfolio that result in lower
principal payments to the rated notes.
- The SPVs become unable to meet the timely payment of interest
on the notes if large senior termination costs are still
outstanding, cash collections from the assets are low and the
payable interest rate on the notes is greater than zero.
TdA 27:
Developments that may, individually or collectively, lead to
positive rating action include:
- For the class A2 notes, a significant increase in recoveries on
defaults that compensate negative CE and future credit losses, all
else being equal.
Developments that may, individually or collectively, lead to
negative rating action include:
- For the class A2 notes, a switch to pro-rata amortisation with
the class A3 notes subject to late stage arrears increasing over 6%
of the non-defaulted portfolio balance (0.5% currently). If this
was to occur, a multi-category rating downgrade could take place as
the notes would become under-collateralised.
- For the class A3 notes continued low recoveries on defaults and
negative excess spread that will lead to further deterioration in
CE.
- The SPV becomes unable to meet the timely payment of interest
on the senior notes if large senior termination costs are still
outstanding, cash collections from the assets are low and the
payable interest rate on the notes is greater than zero.
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
pools and the transactions.
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 transactions' 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 information
relied upon for the agency's 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.
For TdA 24 and TdA 27, because the latest loan-by-loan portfolio
data received from the trustee did not include information about
property ID codes, Fitch derived property ID codes based on the
property appraisal amounts, appraisal dates and borrower ID
(postcodes for TdA 27) codes from the data fields reported.
For TdA 24, because the latest loan-by-loan portfolio data received
from the trustee did not include information about borrower income
or origination channel, Fitch assumed a class 5 debt-to-income
category for each borrower and that loans underwritten by Credifimo
were broker originated.
For TdA 27, because the latest loan-by-loan portfolio data received
from the trustee only included borrower employment data for nearly
50% of the positions, and multiple inconsistencies were identified,
Fitch assumed all borrower's employment category to be flagged as
"Other".
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
Environmental, Social and Governance (ESG) credit relevance is a
score of 3, meaning ESG issues are credit neutral or have only a
minimal credit impact on the transactions, either due to their
nature or the way in which they are being managed.
TDA 24, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
TDA 25, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
TDA 27, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
TDA 28, FTA has an ESG Relevance Score of 4 for Transaction &
Collateral Structure due to payment interruption risk, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors. In addition, it has an
ESG Relevance Score of 4 for Transaction Parties & Operational Risk
due to the very volatile and weak underwriting and servicing
standards of one of the lenders involved, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
=====================
S W I T Z E R L A N D
=====================
FIRMENICH INT'L: S&P Rates New Hybrid EUR750MM Notes 'BB+'
----------------------------------------------------------
S&P Global Ratings assigned its 'BB+' issue rating to the EUR750
million subordinated perpetual loan notes to be issued by Firmenich
International SA (BBB/Stable/--).
Firmenich is a Switzerland-based private company (family owned),
and one of the largest private producers and manufacturers of
flavor and fragrances. For the fiscal year ended Dec. 31, 2019,
Firmenich posted total revenue of about Swiss franc (CHF) 3.9
billion and a reported EBITDA of CHF835 million, with an EBITDA
margin of about 21.5%.
S&P said, "We understand the company intends to use the proceeds of
the proposed issuance to repay the bank debt raised for the
acquisition of Les Derives Resiniques et Terpeniques SAS (DRT). In
April 2020, the group issued EUR1.5 billion senior unsecured notes,
as well as CHF475 million Swiss franc bonds (including CHF50
million of tap issuance). Post-refinancing, we assume the company's
capital structure will comprise senior unsecured bonds of about
CHF2 billion (Swiss franc equivalent) and a hybrid instrument of
EUR750 million." In addition, Firmenich has short-term local bank
facilities of about CHF120 million to remain outstanding, rolled
over each year. The company has also signed a new committed
revolving credit facility of CHF750 million with a five-year
maturity period, expected to remain undrawn.
S&P arrives at the 'BB+' issue rating on the proposed instrument by
notching down two levels from its 'BBB' issuer credit rating on
Firmenich International SA. As per S&P's rating approach, it
deducts:
-- One notch for the deep subordination of the instrument while
the issuer credit rating on Firmenich International is investment
grade ('BBB-' or above); and
-- One notch for payment flexibility due to interest optional
deferability.
S&P said, "The notching also reflects our view that there is a low
likelihood that Firmenich will defer interest. Should our view
change, we may increase the notching of the issue rating.
"We consider that the proposed hybrid notes qualify for
intermediate equity content from issuance date (May 2020) until the
first reset date (August 2025), because it meets our criteria in
terms of subordination, permanence, and deferability.
"Considering the intermediate equity content of the hybrid notes,
in the calculation of company's adjusted credit metrics, we assume
half of the principal amount as financial debt, and half as equity.
With the same treatment, we allocate 50% of the related payments on
the security as interest charge, and the remaining part as
equivalent to common dividend.
"Key factors in our assessment of the security's subordination
Firmenich's proposed loan notes and interest payments are
unsecured, subordinated to senior debt, and ranking senior only to
the group's ordinary shares (A and B class).
"Key factors in our assessment of the security's deferability
Firmenich's option to defer payment on the proposed loan notes is
discretionary. The issuer may elect not to pay accrued interest on
an interest payment date because it has no obligation to do so.
Interest deferral does not constitute an event of default and there
are no cross defaults with the senior debt instruments. Firmenich
will have to settle in cash any outstanding deferred interest
payment if it declares or pays a dividend or interest on equally
ranking obligations, and if it redeems or repurchases shares or
equally ranking obligations. However, we note that, once Firmenich
has settled the deferred amount, the group can choose to defer on
the next interest payment date. The issuer retains the right to
defer interest over the life of the instrument, but it has
indicated its intention not to defer interest payments for more
than five years. The deferred interest is cash cumulative but not
compounding.
"Key factors in our assessment of the security's permanence
The proposed loan notes are perpetual with a first call date five
years after issuance. Early redemption or open-market purchase risk
is mitigated, in our view, by Firmenich's intention to replace it
with an equivalent instrument in terms of equity credit, as
expressed in its statement of intent and a clear financial policy.
"The interest to be paid on the loan notes will increase by 25
basis points (bps) on the first reset date in August 2025, and by a
further 275 bps on the second reset date in August 2045. We
consider the cumulative 300 bps to be a material step-up that
provides a clear incentive for the issuer to redeem the
instrument.
"Consequently, we will no longer recognize the instrument as having
intermediate equity content after its first reset date in August
2025 because the remaining period until its economic maturity will
be less than 20 years.
"We will classify the instrument's equity content as intermediate
until its first reset date, as long as we think that the loss of
the beneficial intermediate equity content treatment will not cause
Firmenich to call the instrument at that point."
===========================
U N I T E D K I N G D O M
===========================
DLG ACQUISITIONS: Moody's Alters Outlook on B2 CFR to Negative
--------------------------------------------------------------
Moody's Investors Service has changed the ratings outlook for DLG
Acquisitions Limited, the UK-based television content producer to
negative from stable. At the same time, the agency has affirmed the
company's B2 corporate family rating and B2-PD probability of
default rating. Moody's has also affirmed the B2 ratings on the
EUR405 million first lien term loan (due 2026), the GBP50 million
revolving credit facility (due 2025) and the Caa1 rating on the
GBP75 million second lien term loan (due 2027), all issued by DLG
Acquisitions Limited.
"The decision to change the ratings outlook of All3media to
negative reflects the material contraction in the company's revenue
and EBITDA expected in 2020 due to the coronavirus related
disruptions to its content production business, leading to a spike
in Moody's adjusted gross leverage to up to or over 10.0x." says
Gunjan Dixit, a Moody's Vice President -- Senior Credit Officer,
and lead analyst for All3Media.
While Moody's expects a recovery in credit metrics in 2021,
visibility currently remains somewhat limited. Nonetheless, it
takes comfort from the company's current adequate liquidity
position as well as its supportive shareholders," adds Ms. Dixit.
RATINGS RATIONALE
Moody's expects All3Media to report revenue and EBITDA growth of
around 11% and 13% respectively in 2019 through a combination of
strong organic growth and acquisition of good content businesses.
In 2020, the agency however foresees significant declines in
revenue and EBITDA of up to 20% and 40% respectively as
coronavirus-driven global lockdown measures have disrupted content
productions. While some productions have recently resumed in
countries such as New Zealand, the US and Germany, other regions
where All3media operates still remain impacted. Around 40% of
All3media's productions are forecasted to take place in the UK in
2021, where productions are yet to resume and Moody's currently
expects a gradual resumption from July 2020. All3media's cost base
has a significant variable component and the company has been
taking measures to control some of its fixed costs during the
closure period to support its profitability.
Driven by steady revenue and EBITDA growth, All3Media is likely to
have de-levered to a Moody's adjusted Gross Debt/ EBITDA of around
6.3x for the year ended December 2019 compared to 6.9x at the end
of 2018. Around 0.9x of the company's 2019 leverage relates to
about GBP80 million of acquisition related earn-out obligations
included in Moody's adjusted debt calculation for All3Media.
Moody's recognizes that the earn-out payments are being
consistently funded by All3Media's shareholders, although there is
no contractual obligation to do so, and GBP16 million of these
payments were made in Q1 2020 with a further GBP3.7m to be paid
later in the year. All of the GBP19.8m was funded by the
shareholders in Q1 2020. Around 0.4x of All3Media's 2019 leverage
will reflect the adverse impact from the implementation of IFRS16
compared to Moody's prior adjustment for operating leases.
The coronavirus disruptions in 2020 will lead to a decline in
EBITDA and cash generation and hence a spike in Moody's adjusted
leverage to up to or above 10.0x including the negative impact from
the adjustment to debt for earn-outs. While visibility on 2021 is
low, Moody's expects a good recovery subject to coronavirus-related
disruptions fading away, resulting in visible de-leveraging.
Following the acquisition of All3Media by DLG Acquisitions Limited
in 2014, All3Media has received considerable support from
shareholders - Discovery Inc. ("Discovery", Baa3 stable at the
Discovery Communications, LLC level) and Liberty Global plc
("Liberty Global", Ba3 stable) to build the business by
acquisition, both in terms of upfront costs and earn-outs. The
parent companies have provided such funds in the form of long-dated
shareholder loans (structured to receive 100% equity credit under
its hybrid methodology). In total, the shareholders have injected
nearly GBP167.8 million (including GBP19.7million in Q1 2020) of
additional capital into the company over the past five years to
help support the growth.
All3Media generated negative free cash flow and suffered from
adverse working capital movements during 2016-19 driven by a rise
in scripted investments in line with All3Media's growth strategy.
For scripted shows, the primary broadcaster usually only partially
funds the production in exchange for the domestic rights, with the
remainder being deficit funded by the distributor through an
advance recouped against future international sales, tax credits
and co-production agreements.
While the advance is an upfront cash outflow, on average, the
advances are substantially recouped in the first three years.
Moody's expects growth in annual advances to start to normalise
only from 2021 (as working capital movements in 2020 will remain
negatively affected due to the disruptions), easing net cash
outflows as new advances begin to get funded from receipts of
previous advances. The company will likely turn free cash flow
positive from 2021 onwards and will rely less on production
financing (included in Moody's adjusted debt calculation) going
forward.
Moody's considers All3Media's liquidity to be adequate for its
near-term operational needs. Liquidity provision is supported by on
balance sheet cash of GBP44.3 million (excluding GBP9.7 million
production cash) at the end of March 2020 and access to GBP50
million revolving credit facility, of which GBP18 million is drawn
as of March 2020. Moody's anticipates continued shareholder support
for funding acquisitions as it is an important element of
All3Media's liquidity. Following the earnout payment in Q1 2020,
the company does not anticipate any further material payments until
Q2 2021.
Given the presence of a second lien loan in this all bank loan
structure and a springing financial covenant, the agency has used a
50% family recovery rate in its Loss Given Default methodology.
Moody's has ranked the RCF and the first lien term loan first,
together with All3Media's trade payables and the second lien term
loan second together with the lease rejection claims. However, the
B2 rating of the first lien term loan nevertheless has been
affirmed, in line with the CFR level, as the uplift provided by the
second lien term loan is not sufficient given the relatively small
amount of the 2nd lien term loan as well as the current weak
positioning of the CFR at the B2 level. The Caa1 rating of the
second lien loan has also been affirmed.
ESG CONSIDERATIONS
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. All3Media's
business has been affected by the cancellation and postponement of
productions, both scripted and non-scripted, due to the coronavirus
outbreak and the social distancing measures and lockdowns imposed
in most of the countries where it operates.
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 All3Media of the
breadth and severity of the shock, and the broad deterioration in
credit quality it has triggered.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the pressures on company's revenues
and EBITDA in 2020 as well as the current limited visibility into
2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The B2 CFR is currently weakly positioned due to high leverage and
no upgrade in the near term is anticipated. However, positive
rating momentum may arise over time, should (1) the company deliver
on its business plan; especially with regard to the development of
the US business; (2) its Moody's-adjusted leverage fall sustainably
below 5.0x; (3) its RCF/Net Debt improves above 10% and (4)
liquidity improve such that All3Media is able to meet earn-out
obligations on a self-financing basis.
Negative rating momentum may develop if (1) Moody's adjusted
leverage remains well above 6.0x on a sustained basis; (2) free
cash flow remains materially negative beyond 2020; (3) All3Media
fails to deliver growth in its core markets; (4) the shareholders
rein in their strategic and financial support particularly for
funding future acquisition earn-out payments.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: DLG Acquisitions Limited
Corporate Family Rating, Affirmed B2
Probability of Default Rating, Affirmed B2-PD
Senior Secured Bank Credit Facility, First Lien, Affirmed B2
Senior Secured Bank Credit Facility, Second Lien, Affirmed Caa1
Outlook Actions:
Issuer: DLG Acquisitions Limited
Outlook, changed to Negative from Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
DLG Acquisitions Limited is a joint venture of Discovery Inc. and
Liberty Global plc. John Malone, the US cable communications
entrepreneur, is a key shareholder and board member of both
companies. DLG Acquisitions is a holding company, which owns
All3Media Holdings Limited, which it acquired in 2014. All3media
is, through its subsidiaries, an internationally active producer
and distributor of television programming. In 2019, Moody's expects
All3Media to generate revenues of around GBP750 million and a
Moody's adjusted EBITDA of GBP85 million.
MARS BLACK: Enters Liquidation, Owes GBP3MM to Douglas & Stewart
----------------------------------------------------------------
Scottish Construction Now reports that Mars Black Sheep Hotels
Limited, a company which currently owes Aberdeen-based construction
firm Douglas and Stewart Construction more than GBP3 million, has
been liquidated.
Donald McNaught -- donald.mcnaught@jcca.co.uk -- and Matt Henderson
-- matt.henderson@jcca.co.uk -- of Johnston Carmichael LLP were
appointed joint administrators of the company, with effect from
March 18, Scottish Construction Now relates.
The two hotels owned by the company, The Whispering Pine Lodge and
The Cluanie Inn, are both operated under management which will
continue under the administration, although both sites are
currently closed due to COVID-19 restrictions, Scottish
Construction Now discloses.
The Press & Journal reports that Mars Black Sheep Hotels had been
involved in a lengthy court wrangle with contractors Douglas and
Stewart Construction before it called in the administrators,
Scottish Construction Now notes.
MICRO FOCUS: Fitch Assigns BB Rating to New EUR400MM Term Loan B
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Fitch Ratings has assigned a rating of 'BB'/'RR1' to Micro Focus
International Plc's proposed EUR400 million term loan B and $400
million term loan B senior secured to be issued by the company's
subsidiary borrower, MA FinanceCo LLC. The 'BB-' Long-Term Issuer
Default Ratings for Micro Focus International Plc, MA FinanceCo LLC
and Seattle Spinco, Inc. are not affected by the transaction. The
Outlook remains Stable. The existing senior secured issues were
affirmed on Feb. 4, 2020 at 'BB'/'RR1'.
Fitch views the transaction as slightly deleveraging with sources
of funds used to partially refinance the existing $1.415 billion
term loan in addition to a $150 million prepayment using existing
cash balances. Fitch expects the new issuance will be pari passu
with the company's existing first lien senior secured debt and will
also be in line with other terms and conditions on the existing
debt as well.
KEY RATING DRIVERS
Coronavirus Impact: Micro Focus recently provided a trading update
stating management's expectation that the company would experience
an 11% decline in revenue on a constant currency basis for the
six-month period ending April 30, 2020. Management cited a slowdown
in customer buying behavior leading to the deferral of new license
and services revenues as well as delays in maintenance renewals and
estimated a 2% headwind to revenue in the period from the impacts
of the coronavirus.
While the revenue decline is worse than Fitch's prior expectations
for a decline in the mid- to high-single digits, the effects have
largely been offset by previously announced cost reduction efforts
and a rapid falloff in certain operating expense lines such as
travel and new employee onboarding. This lead to an EBITDA margin
of 38% in the period and absolute EBITDA generation closely in line
with its prior forecast.
Management also stated that the period ended with a cash balance of
over $800 million after the company drew $175 million on the $500
million revolving credit facility in order to preserve readily
accessible cash. In addition, effective working capital management
resulted in strong FCF in the period, which Fitch estimates totaled
over $250 million. Fitch believes Micro Focus' liquidity position
of over $1.1 billion is more than sufficient to weather the
economic slowdown from the coronavirus.
Margin Expansion Delayed: The acquisition of a Hewlett Packard
Enterprise Co. (HPE, BBB+/Stable) carve-out was expected to provide
Micro Focus International Plc with an attractive opportunity to
expand margins at the underperforming unit. Prior to the
acquisition, the HPE unit generated EBITDA margins lower than 25%,
well below typical software peers and below Micro Focus' 45%-50%
historical EBITDA margin range.
Despite a strong track record in cost reduction and synergy
execution, the company encountered significant integration
challenges in 2019, leading to reduced revenue and EBITDA
expectations and causing management to initiate a strategic review.
The recent trading update confirmed Fitch's reduced EBITDA margin
forecasts over the ratings horizon to 36%-39% in fiscal 2020-fiscal
2021 as compared to 43%-45% previously. The company is current
engaged in efforts to rebuild and merge internal IT systems and to
accelerate cost reduction efforts and target R&D investment toward
growth product categories. Fitch believes this positions Micro
Focus to eventually return to mid-40's EBITDA margins by 2023,
which is well outside of the ratings horizon.
Recurring Cash Flows: The acquisition of the HPE carve-out results
in a strong recurring revenue profile that provides reduced revenue
volatility and is supportive of the credit profile. Pro forma for
the SUSE disposal, Micro Focus generated approximately 69% of
revenue from recurring sources, consisting primarily of maintenance
contracts and subscription license sales. In addition, revenue
stability is supported by substantial switching costs, given the
mission critical nature and complexity of the legacy infrastructure
software systems addressed by the company's offerings.
Commitment to Net Leverage Target: Micro Focus has explicitly
committed to a net leverage target of 2.7x. However, due to ongoing
operating underperformance and integration challenges, the company
has not sustainably achieved the target since the acquisition of
the HPE unit in 2017. This contrasts with its history of debt pay
down and deleveraging within two years following prior
acquisitions. While Micro Focus prepaid approximately $200 million
of term debt following the disposition of the SUSE segment,
management continued a substantial share buyback program through
FY19 despite guidance that the company will remain above the target
over the near term, which brings the future strength of the
commitment into question. In an effort to preserve liquidity in the
current environment, Micro Focus has since discontinued the
dividend, restricted special dividends and eliminated share
repurchases while net leverage is greater than 3.0x as management
has prioritized a return to the leverage target. Fitch forecasts
leverage will slightly exceed its negative threshold of 4.0x in
FY20 before returning within its sensitivities thereafter.
Elusive Stabilization of Operating Performance: Micro Focus
experienced significant operating underperformance following the
acquisition of the HPE carve-out, due to the complex nature of
integrating both company's structures and processes. This has led
to ongoing sales execution and IT systems challenges.
While initial guidance following the transaction pointed to a pro
forma combined revenue decline of 2%-4%, in March 2018 management
further guided down expected revenue declines to 6%-9%, citing the
delays in new IT systems implementations, attrition in sales
personnel and disruption in the acquired customer base due to
deconsolidation from HPE. Initial actions taken in response such as
increased salesforce hiring and new executive management resulted
in improved topline trends with a decline of 4% in second-half 2018
while blended EBITDA margins improved to 41%.
However, FY19 results indicate a resumption of the accelerated
revenue decline as full-year revenue fell 7.3% on a constant
currency basis with management initially guiding to a similar
decline in FY20. Management responded with detailed new investment
priorities expected to result in an incremental $70 million-$80
million of operating expense in fiscal 2020. Fitch believes the
actions taken are necessary to allow the company to refocus on
accelerating growth and future margin expansion, but a potential
stabilization in the operating profile will likely be outside the
ratings horizon.
Secular Revenue Pressure: The company's product portfolio primarily
addresses mature infrastructure software assets, which are often in
secular decline. Fitch believes approximately 80% of the combined
entity's product portfolio is faced with ongoing declines in demand
of approximately 5% per annum. Consequently, Micro Focus seeks to
continuously reduce costs in order to sustain margins and cash
flow. Fitch expects low-single digit constant currency revenue
declines on a normalized basis.
Acquisitive Strategy: Micro Focus has pursued a highly acquisitive
strategy in order to build revenue scale, frequently pursuing
transformational, debt-driven M&A opportunities. The company
historically demonstrated a track record of value creation from
M&A. The $2.4 billion acquisition of Attachmate Corporation in 2014
doubled the company's revenue but was initially dilutive to
margins, reducing EBITDA margins to 37%. Management's cost
reduction efforts led to a 600-bps expansion in margins to 43% by
fiscal 2016.
In aggregate, Micro Focus acquired $324 million of EBITDA through
M&A and drove $166 million in follow-on operational improvements
post transaction. Given the recent challenges with the HPE unit
integration, near-term M&A opportunities are likely on pause. Fitch
believes management's acquisition integration track record provides
confidence that challenges with the acquired HPE unit will continue
to be addressed successfully.
DERIVATION SUMMARY
Micro Focus has experienced a deterioration in market positioning
within its product verticals. While the company has demonstrated a
strong track record of maximizing the value of enterprises' legacy
software investments, it has failed to benefit from secular growth
areas such as cybersecurity and big data. The company is of
significantly smaller scale than enterprise software peers such as
MSFT, IBM, ORCL and HPE but closer in scale to competitors such as
CA, Inc. and BMC. Historically, Fitch believed the smaller scale
was offset by a historical margin profile above 45%, closely
aligning it to top peers. However, the company's troubled
integration of the HPE carve-out and ongoing go-to-market struggles
have resulted in significant margin compression with Fitch now
forecasting EBITDA margins of 36%-39% over the ratings horizon with
pre-dividend FCF margins near 10%, below the 14% average for rated
enterprise software peers.
The primary determinant of the ratings differential is the
company's more aggressive financial policies with a stated net
leverage target of 2.7x, equating to a gross leverage of
approximately 3.2x as excess cash levels have historically been
applied to share repurchases. Despite the leverage target, Fitch
believes that the ongoing revenue declines exacerbated by the
coronavirus induced macro slowdown, margin compression and
financial policies will result in gross leverage of 4.1x in 2020,
slightly above its negative sensitivity threshold of 4.0x. Fitch
believes the deterioration in the company's leverage level, margin
profile, FCF, and acquisition integration track record is
suggestive of the lower 'BB' category.
For issuers with IDRs from 'BB-' through 'BB+', other than those
issuers in transitional territory to or from 'B+' and below, Fitch
applies average recovery assumptions that are based on historical
recovery data in the U.S. market. For high speculative-grade
issuers, Fitch allows for notching up to +2, capped at 'BBB-' for
secured debt, and down to -2 for unsecured debt when there is
material secured debt present. Fitch rates the company's senior
secured issue 'BB'/ 'RR1', or +1 notch above the 'BB-' IDR,
reflecting high reliance on secured debt and less staggered
maturity profile, mitigated by outstanding recovery prospects
resulting from the strength of the underlying assets.
Fitch applied its Parent-Subsidiary Linkage criteria and determined
that there was no impact on the rating. No country-ceiling or
operating environment aspects had an impact on the rating.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Revenue: Full-year decrease in-line with preliminary 1H20
results with declines gradually moderating to down 2%-3% per annum
due to accelerated investment in product segments with attractive
secular growth characteristics;
- Margins: EBITDA margins in-line with preliminary 1H20 results
in fiscal 2020 due to margin deleverage, increased investment in
R&D and salesforce, and offset by declines in other operating
expenses due to coronavirus lockdowns, expanding 200-300 bps per
annum thereafter due to execution on cost reduction strategy;
- M&A: $50 million-$100 million of bolt-on acquisitions per annum
in order to enhance product portfolio;
- Capex: Capital intensity of 2%-3% due to moderating investment
in internal software as re-platforming of the HPE carve-out nears
completion.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action/Upgrade
- Total debt with equity credit/operating EBITDA sustained below
3.5x;
- FCF margin sustained above 10%.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action/Downgrade
- Total debt with equity credit/operating EBITDA sustained above
4.0x;
- FCF margin sustained below 5%.
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
Sufficient Liquidity: Fitch believes liquidity is sufficient for
the ratings category, comprised of over $800 million of readily
available cash and $325 million of availability under the undrawn
revolving credit facility. Liquidity requirements are moderate
given low capital intensity and debt amortization not scheduled to
resume until 2022.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only minimal credit impact on Micro Focus, either
due to their nature or the way in which they are being managed by
Micro Focus.
Micro Focus has an ESG Relevance Score of 4 for Management Strategy
due the continued struggles in go-to-market strategies and
integration of the transformative HPE carve-out acquisition that
has resulted in material deterioration of the operating profile.
SOURCES OF INFORMATION
The principal sources of information used in the analysis are
described in the Applicable Criteria
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.
===============
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
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