/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200605.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, June 5, 2020, Vol. 21, No. 113 Headlines B E L A R U S [*] Fitch Affirms LT IDRs on 3 Belarusian Foreign-Owned Banks at B I R E L A N D DOLYA HOLDCO 17: Moody's Rates GBP500MM Vendor Financing Notes 'B1' I T A L Y CREDITO VALTELLINESE: Egan-Jones Cuts FC Sr. Unsecured Rating to B PIAGGIO AEROSPACE: Gets Expressions of Interest From 19 Bidders N E T H E R L A N D S DRYDEN 69: Moody's Confirms EUR10.3MM Class F Notes at 'B2' R U S S I A DENIZBANK MOSCOW: Fitch Affirms, Then Withdraws B+ LongTerm IDRs S P A I N MASMOVIL IBERCOM: Fitch Affirms BB- LongTerm IDR, Outlook Stable T U R K E Y TAM FAKTORING: Fitch Assigns 'B' LongTerm IDR, Outlook Negative U K R A I N E MHP SE: Fitch Affirms B+ LongTerm IDRs & Sr. Unsecured Rating U N I T E D K I N G D O M ATHENA CIVIL: Goes Into Administration LIBERTY GLOBAL: Egan-Jones Lowers Senior Unsecured Ratings to B- NEW LOOK: In Rent Talks with Landlords, Explores Options RESTAURANT GROUP: To Permanently Close 120 Restaurants SQUARE METRE: Enters Administration, Owes GBP9.1MM to Creditors [*] UNITED KINGDOM: Number of Administrations Up in May 2020 X X X X X X X X [*] BOOK REVIEW: Mentor X - - - - - ============= B E L A R U S ============= [*] Fitch Affirms LT IDRs on 3 Belarusian Foreign-Owned Banks at B ------------------------------------------------------------------ Fitch Ratings has affirmed the Long-Term Issuer Default Ratings of BPS-Sberbank, Belgazprombank and Bank BelVEB OJSC at 'B'. The Outlooks are Stable. KEY RATING DRIVERS LONG-TERM IDRs AND SUPPORT RATINGS The affirmation of the IDRs reflects Fitch's view of potential support the banks could receive, if required, from their respective parents, which are some of Russia's largest state-owned financial institutions. BPS is 98.4%-owned by Sberbank of Russia (SBR; BBB/Stable), BGPB is jointly owned by Gazprom PJSC (BBB/Stable) and Gazprombank (Joint-stock Company) (GPB; BBB-/Stable), each with a 49.82% stake, and BVEB is 97.5%-owned by VEB.RF (BBB/Stable). The 'B' Long-Term IDRs of BPS, BGPB and BVEB are aligned with and capped by Belarus's 'B' Country Ceiling. The Country Ceiling captures the transfer and convertibility risks in Belarus and limits the extent to which support from the banks' higher-rated Russian parents can be factored into the subsidiaries' ratings. The propensity of the respective parents to provide support to their subsidiaries, if needed, remains high, in Fitch's view, due to the strategic importance of the Belarusian market and the close political and economic ties between the two countries. Majority ownership, significant parent-subsidiary integration (including board representation and operational links), a track record of support provided to date (including assistance with business origination), the small cost of potential support compared with the parents' resources, and high reputational risks from a subsidiary default also positively impact its assessment of parental support. These banks rely on local funding sources, and unsubordinated borrowings from parent banks made up a low 4% of liabilities at end-2019 at BPS, 5% at BGPB (while deposits from Gazprom-related companies were sizeable at 18%) and a higher 14% at BVEB, used to finance projects being of significance for Russia and Belarus. There are no plans for new equity injections for any of the three banks this year while they have some buffers above the minimum regulatory capital requirements. Fitch expects capital and liquidity support from their respective parents to be made available to all of them, if required. VIABILITY RATINGS The banks' VRs capture their 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 5.0% 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 the financial profiles of banks' exporting borrowers, and exchange-rate pressures (as lending is highly dollarised: at end-2019, FC-loans made up to 49% of loans at BPS, 64% at BGPB and 75% at BVEB) to result in deterioration of the banks' asset quality, earnings and capitalisation. Fitch has affirmed all three banks VRs (at 'b' for BPS and BGPB and 'b-' for BVEB) as Fitch assesses they have moderate headroom to absorb some financial deterioration at their current levels. This is due to low capital encumbrance from unreserved problem loans, capacity to cover moderate increases in credit losses through profits and stable funding profiles. BVEB's 'b-' VR captures the bank's track record of modest financial performance and a tighter core capitalisation than at peers. At end-2019, BPS's impaired loans (Stage 3 and purchased or originated credit-impaired (POCI) loans under IFRS 9) stood at a high 15.5% of gross loans, while stressed Stage 2 loans were equal to a moderate 6.3%. BGPB's impaired loans were 4.7% of gross loans and Stage 2 loans were a higher 16.7% of gross loans; at BVEB these parameters were 5.8% and 10.5%, respectively. Specific loan loss allowances provided coverage of impaired loans by a comfortable 76% at BPS, a moderate 58% at BGPB and a relatively weak 44% at BVEB, reflecting management recovery expectations from loan collateral. In its view, collateral foreclosures could be challenging in the currently stressful environment and the banks may need to recognise additional losses on the problem exposures. More generally, high risks stem from the banks' bulky FC loans (including those classified as Stage 1 loan exposures) to financially vulnerable and higher 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. Direct exposure to Belarus's sovereign bonds made up 13% of assets (0.8x Fitch Core Capital (FCC)) at BPS, 10% (0.7x FCC) at BGPB and 6% (0.5x FCC) at BVEB. At end-2019, FCC/Basel I risk-weighted assets ratios were a reasonable 16.1% at BPS and 14.9% at BGPB and a more moderate 12.8% at BVEB. Fitch assesses the banks' capitalisation in the context of their levels of existing under-provisioned impaired and stressed loans, while credit risks have also heightened. Impaired loans, net of specific LLAs, were low at all three banks: 19% of FCC at BPS and BVEB and 9% at BGPB; net Stage 2 loans made up a moderate 29% of FCC at BPS and a larger 79% at BGPB and 58% at BVEB. 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 RWA, due to a weakening Belarusian rouble (it has depreciated by 13% since the beginning of the year). In March-April 2020 none of the three banks have applied regulatory forbearance measures to manage RWAs in local accounts (available to all Belarusian banks from April to the end of 2020) while their regulatory capital ratios held up well. BPS's regulatory core Tier 1 ratio stood at 11.4% at end-April (end-1Q20: 11%; end-2019: 10.8%), BGPB's CET1 ratio stood at 11.6% (end-1Q20: 11%; end-2019: 12.2%) and 10.2% at BVEB (end-1Q20: 9.8%; end-2019: 10.3%). At the same time, the management of BGPB and BVEB indicated their intention to use some of the regulatory forbearance measures from June 2020, to soften potential further pressures on solvency ratios and keep some buffers above the regulatory thresholds. Pre-impairment performance remained reasonable in 2019 at BPS, BGPB and improved at BVEB, driven by a large one-off linked to the recovery of previously written-off loans, albeit the banks' loan margins have been pressured by competition and moderation of lending growth. Pre-impairment profits were around 3% of average gross loans at BPS and BVEB (adjusted for one-off) and 4% at BGPB, providing moderate loss absorption capacity. Operating performance (operating profit/RWA ratios ranged between 2.7% and 3.1%) has been underpinned by lower risk costs: in 2019 loan impairment charges were -34bp of average loans at BPS, 15bp at BGPB and 31bp at BVEB, the lowest levels since at least 2015. Liquidity risks mostly result from potentially constrained access to foreign exchange in the domestic market and a high dollarisation of liabilities. FC liabilities made up 58% of total liabilities at end-2019 at BPS, 71% at BGPB and 84% at BVEB, largely resulting from customer accounts. Despite moderate market volatility in March 2020, causing higher sector deposits rates and some deposit outflows, pressures on the banks' liquidity positions have been avoided, including through the access to Ministry of Finance deposit auctions and accumulated liquidity buffers. Near-term wholesale refinancing requirements to third parties are small at BPS and higher at BGPB and BVEB, while the availability of undrawn committed liquidity lines from the parent institutions underpins liquidity profiles at all three banks. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: The IDRs and SRs could be downgraded if Belarus's sovereign ratings were downgraded and the Country Ceiling was revised down. Downgrades of VRs could result from capital erosion due to a marked deterioration in asset quality without sufficient and timely support being made available by the parents. Factors that could, individually or collectively, lead to positive rating action/upgrade: An upgrade of the IDRs is unlikely in the near term given the Stable Outlook on Belarus's sovereign rating. The potential for positive rating action on the VRs is also limited in the near-term due vulnerabilities in the banks' credit profiles, exacerbated by the implications of the pandemic. Improved prospects for Belarus's operating environment indicated by a recovering economy and stabilized exchange rate would decrease pressures on the banks' standalone profiles. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). BPS-Sberbank - LT IDR B; Affirmed - ST IDR B; Affirmed - Viability b; Affirmed - Support 4; Affirmed Belgazprombank - LT IDR B; Affirmed - ST IDR B; Affirmed - Viability b; Affirmed - Support 4; Affirmed Bank BelVEB OJSC - LT IDR B; Affirmed - ST IDR B; Affirmed - Viability b-; Affirmed - Support 4; Affirmed ============= I R E L A N D ============= DOLYA HOLDCO 17: Moody's Rates GBP500MM Vendor Financing Notes 'B1' ------------------------------------------------------------------- Moody's Investors Service has assigned a B1 rating to Dolya Holdco 17 Designated Activity Company's proposed GBP500 million Vendor Financing Notes due 2028. The outlook on the rating is negative. All other ratings of the Virgin Media Inc. group remain unchanged. The B1 rating for the new VFNs is in line with the B1 rating of the existing Receivables Financing Notes due 2023 and 2024 issued by Virgin Media Designated Activity Company II and Virgin Media Designated Activity Company, respectively. The B1 rating on all VFNs is one notch lower than VMED's Ba3 Corporate Family Rating and senior secured debt ratings at Virgin Media Investment Holdings Ltd, Virgin Media Bristol LLC, Virgin Media SFA Finance Limited, and Virgin Media Secured Finance PLC, and a notch higher than the group's B2 rated senior unsecured debt issued by Virgin Media Finance PLC. Similar to Virgin Media Designated Activity Company and Virgin Media Designated Activity Company II, Dolya Holdco 17 Designated Activity Company (to be renamed Virgin Media Vendor Financing Notes III Designated Activity Company) is a Republic of Ireland-domiciled orphan special purpose vehicle created solely for the purpose of issuing the VFNs. The proceeds from the new VFNs due 2028 will be used to refinance the existing GBP400 million RFNs due 2023 issued by Virgin Media Designated Activity Company II and to term out part of the 360-day uncommitted bank lines used for the vendor financing program. RATINGS RATIONALE While the VFNs are issued out of a newly established independent SPV that is not owned or consolidated by VMED, majority of the proceeds from the VFNs are indirectly on-lent from the SPV to VMED via the vendor financing program administered by ING Bank N.V. (ING, rated Aa3 stable). This vendor financing is reported as debt in VMED's consolidated audited financial statements. Under the vendor financing program, VMED and the supplier agree the price for the goods/services. VMED sometimes receives a discount from the supplier for early payment. The purchase order and the invoice are issued at an agreed price and payment terms. VMED then grosses up the invoice based on LIBOR + and uploads it to the ING Vendor Financing Platform with a new payment term of up to 360 days from the invoice date. VMED makes an English law Irrevocable Payment Undertaking with respect to the Vendor Financing Receivable. The ING VF Platform then pays the supplier and subsequently becomes the owner of the Receivable. The Receivable is thereafter sold by the ING VF Platform to the VFN issuer. Ultimately, the VFN issuer is paid by VMED the grossed-up value specified in the IPU at maturity of the Receivable. To the extent there are insufficient trade payables available for the VFN Issuer to fund, notes proceeds are on-lent from the SPV to VMED group via unsecured credit facilities (the VM Facilities). While the transaction operates through a rather complex structure, VMED is ultimately responsible for the payment of coupon and principal on the VFNs via the IPU arrangement and/ or the unsecured loan under the VM Facilities. The creditworthiness of the supplier is irrelevant for the bondholders under this mechanism as the supplier sells the receivable to the ING VF Platform and reduces its payment days. ING's credit risk in contrast is to a certain degree relevant because of its role as the sole intermediary in this transaction but Moody's takes comfort from the protection that the transaction agreements provide as well as ING's strong rating. Despite several protection mechanisms built in to the transaction agreements, there are certain structural risks such as commingling, that could potentially lead to some delay or loss to bond holders in a insolvency situation at VMED. While Moody's recognizes these risks, it does not consider them material enough to affect the B1 rating on the VFNs. The VFNs have security over both the Receivables and the VM Facilities. Both of these represent unsecured claims into VMED and are supported by the key VMED entities (Virgin Media Investment Holdings Ltd, Virgin Media Senior Investments Limited, Virgin Media Limited and Virgin Mobile Telecoms Limited), which represent more than 70% of VMED's total assets as of March 31, 2020 and more than 85% of VMED's revenue the last twelve months period to March 31, 2020. Both the Receivables and the VM Facilities are in particular supported by Virgin Media Senior Investments Ltd, which sits in a structurally senior position to the guarantors of the existing unsecured bonds. The B1 ratings on the VFNs therefore reflect the fact that the unsecured claims related to the VFNs are contractually junior to the existing Ba3 rated VMED's Credit Facilities and Senior Secured Notes, which benefit from fixed asset security, and structurally senior to the existing B2 rated Senior Unsecured Notes. RATING OUTLOOK The negative outlook reflects Moody's expectation that VMED will experience continued pressure on revenues over the next 18 months with limited de-leveraging from a high level. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING While positive pressure on the rating in unlikely in the short-term, the outlook could be stabilized if (1) operating performance improves, (2) leverage decreases towards 5.0x through among others, the use of excess cash for debt prepayment or by way of an equity injection from the parent. Over time the rating could be upgraded if VMED's (1) growth returns to healthy levels on a sustained basis; (2) Moody's-adjusted gross debt/EBITDA falls below 4.0x on a sustained basis; and (3) cash flow generation improves, such that it achieves a Moody's-adjusted CFO/debt above 20% on a sustained basis. Downward rating pressure on the ratings will arise if (1) VMED does not take effective measures to reduce leverage towards 5.0x in the short-term; (2) there is a sustained loss of momentum in VMED's revenue-generating unit (RGU) and ARPU growth, resulting in weak operating performance in and beyond 2019; and/or (3) VMED's Moody's-adjusted CFO/debt sustainably deteriorates to below 15%. PRINCIPAL METHODOLOGY The principal methodology used in this rating was Pay TV published in December 2018. COMPANY PROFILE VMED is a cable communications company, offering broadband internet, television, mobile telephony and fixed line telephony services to residential and commercial customers in the UK and in Ireland. In 2019, VMED generated GBP5.2 billion in revenue and GBP2.2 billion in Operating Cash Flow (as defined by VMED). ========= I T A L Y ========= CREDITO VALTELLINESE: Egan-Jones Cuts FC Sr. Unsecured Rating to B ------------------------------------------------------------------ Egan-Jones Ratings Company, on May 29, 2020, upgraded the foreign currency senior unsecured rating on debt issued by Credito Valtellinese to B from BB-. EJR also downgraded the rating on commercial paper issued by the Company to C from B. Headquartered in Sondrio, Italy, Credito Valtellinese S.p.A. operates as a commercial bank. PIAGGIO AEROSPACE: Gets Expressions of Interest From 19 Bidders --------------------------------------------------------------- Stephen Jewkes at Reuters reports that Italy's Piaggio Aerospace, which filed for protection from creditors late in 2018, said on June 3 the company has drawn expressions of interest from 19 international bidders. "Bids came in a bit from all over the world but especially from North America, Europe and the Far East," Reuters quotes the company's special administrator Vincenzo Nicastro as saying in a statement. According to Reuters, Mr. Nicastro said the vast majority of bidders were interested in taking over the company as a whole, adding the aim was to find a new owner for the group before the end of the year. ===================== N E T H E R L A N D S ===================== DRYDEN 69: Moody's Confirms EUR10.3MM Class F Notes at 'B2' ----------------------------------------------------------- Moody's Investors Service has confirmed the ratings on the following notes issued by Dryden 69 Euro CLO 2018 B.V.: EUR 26,500,000 Class D Mezzanine Secured Deferrable Floating Rate Notes due 2032, Confirmed at Baa3 (sf); previously on Apr 20, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade EUR 22,600,000 Class E Mezzanine Secured Deferrable Floating Rate Notes due 2032, Confirmed at Ba2 (sf); previously on Apr 20, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade EUR 10,300,000 Class F Mezzanine Secured Deferrable Floating Rate Notes due 2032, Confirmed at B2 (sf); previously on Apr 20, 2020 B2 (sf) Placed Under Review for Possible Downgrade Moody's has also affirmed the ratings on the following notes: EUR 2,000,000 (current outstanding balance of EUR 1,250,000) Class X Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Jun 10, 2019 Definitive Rating Assigned Aaa (sf) EUR 226,100,000 Class A-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Jun 10, 2019 Definitive Rating Assigned Aaa (sf) EUR 11,900,000 Class A-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aaa (sf); previously on Jun 10, 2019 Definitive Rating Assigned Aaa (sf) EUR 8,000,000 Class A-3 Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Jun 10, 2019 Definitive Rating Assigned Aaa (sf) EUR 22,900,000 Class B-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aa2 (sf); previously on Jun 10, 2019 Definitive Rating Assigned Aa2 (sf) EUR 13,100,000 Class B-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aa2 (sf); previously on Jun 10, 2019 Definitive Rating Assigned Aa2 (sf) EUR 6,000,000 Class C-1 Mezzanine Secured Deferrable Floating Rate Notes due 2032, Affirmed A2 (sf); previously on Jun 10, 2019 Definitive Rating Assigned A2 (sf) EUR 20,000,000 Class C-2 Mezzanine Secured Deferrable Fixed Rate Notes due 2032, Affirmed A2 (sf); previously on Jun 10, 2019 Definitive Rating Assigned A2 (sf) Dryden 69 Euro CLO 2018 B.V., issued in June 2019, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by PGIM Limited. The transaction's reinvestment period will end in December 2023. RATINGS RATIONALE Its action concludes the rating review on the Classes D, E and F notes initiated on April 20, 2020 as a result of the deterioration of the credit quality and/or the reduction of the par amount of the portfolio following from the coronavirus outbreak. Stemming from the coronavirus outbreak, the credit quality has deteriorated as reflected in the increase in Weighted Average Rating Factor and of the proportion of securities from issuers with ratings of Caa1 or lower. Securities with default probability ratings of Caa1 or lower currently make up approximately 6.8% of the underlying portfolio. In addition the over-collateralisation levels have weakened across the capital structure. According to the trustee report dated April 2020 the Class A/B, Class C, and Class D OC ratios are reported at 141.6%[1], 129.7%[1] and 119.4%[1] compared to Oct 2019 levels of 142.9%[2], 130.9%[2], and 120.5%[2], respectively. Moody's notes that none of the OC tests are currently in breach and the transaction remains in compliance with the following collateral quality tests: Diversity Score, Weighted Average Recovery Rate, Weighted Average Spread and Weighted Average Life. Despite the increase in the WARF and the par erosion, Moody's concluded that the expected losses on all the rated notes remain consistent with their current ratings following the analysis of the CLO's latest portfolio and taking into account the recent trading activities as well as the full set of structural features of the transaction. Consequently, Moody's has confirmed the ratings on the Class D, E and F notes and affirmed the ratings on the Class A-1, A-2, A-3, B-1, B-2, C-1 and C-2 notes. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's analysed the underlying collateral pool as having a performing par and principal proceeds balance of EUR 399.4 million, a weighted average default probability of 29.7% (consistent with a WARF of 3512 over a weighted average life of 6.2 years), a weighted average recovery rate upon default of 44.0% for a Aaa liability target rating, a diversity score of 50 and a weighted average spread of 3.86%. The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Its analysis has considered the effect of the coronavirus outbreak on the global economy as well as the effects that the announced government measures, put in place to contain the virus, will have on the performance of corporate assets. The contraction in economic activity in the second quarter will be severe and the overall recovery in the second half of the year will be gradual. However, there are significant downside risks to its forecasts in the event that the pandemic is not contained and lockdowns have to be reinstated. As a result, the degree of uncertainty around its forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in March 2019. Counterparty Exposure: Its rating action took into consideration the notes' exposure to relevant counterparties, such as account bank and swap providers, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in November 2019. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the note, in light of uncertainty about credit conditions in the general economy. In particular, the length and severity of the economic and credit shock precipitated by the global coronavirus pandemic will have a significant impact on the performance of the securities. CLO notes' performance may also be impacted either positively or negatively by: (1) the manager's investment strategy and behaviour; (2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities; and (3) the additional expected loss associated with hedging agreements in this transaction which may also impact the ratings negatively. Additional uncertainty about performance is due to the following: - Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. - Other collateral quality metrics: Because the deal can reinvest, the manager can erode the collateral quality metrics' buffers against the covenant levels. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =========== R U S S I A =========== DENIZBANK MOSCOW: Fitch Affirms, Then Withdraws B+ LongTerm IDRs ---------------------------------------------------------------- Fitch Ratings has affirmed Joint-Stock Company Denizbank Moscow Long-Term Issuer Default Ratings at 'B+' with Negative Outlook. Fitch has simultaneously withdrawn the ratings for commercial reasons and will no longer provide rating and analytical coverage of Deniz Moscow. The ratings were withdrawn for commercial purposes. KEY RATING DRIVERS Deniz Moscow's IDRs are driven by potential support from Denizbank A.S. Fitch equalises Deniz Moscow's Long-Term IDRs with Denizbank's 'B+' Long-Term Foreign-Currency IDR as the source of support for the bank would most likely be in the form of foreign currency. Its view of parental support for Denizbank Moscow reflects its strategic importance to and close integration with Denizbank, including the sharing of risk-assessment systems, customers, branding and management resources. RATING SENSITIVITIES Not applicable 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. Joint-Stock Company Denizbank Moscow - LT IDR B+; Affirmed - LT IDR WD; Withdrawn - ST IDR B; Affirmed - ST IDR WD; Withdrawn - LC LT IDR B+; Affirmed - LC LT IDR WD; Withdrawn - LC ST IDR B; Affirmed - LC ST IDR WD; Withdrawn - Support 4; Affirmed - Support WD; Withdrawn ========= S P A I N ========= MASMOVIL IBERCOM: Fitch Affirms BB- LongTerm IDR, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Masmovil Ibercom, S.A.'s Long-Term Issuer Default Rating at 'BB-' with a Stable Outlook. Fitch has also affirmed the group's EUR1,450 million senior secured term loan B issued by MasMovil Holdphone S.A.U. at 'BB' with a Recovery Rating of 'RR2'. MM's management is considering the terms of a voluntary offer to take the company private by the Lorca Telecom Bidco S.A.U. consortium, which consists of funds managed by Providence, Cinven and KKR. Details have yet to be announced regarding the capital structure of the take-private offer, while in Fitch's view the required regulatory approvals are likely to take the consortium some months to obtain. Fitch will monitor public announcements both by the company and the consortium in coming months, in particular in relation to how the bid is expected to be funded. A structure that leads to a material revision to financial policy and higher leverage is likely to put pressure on the ratings. MM's ratings take into account the company's established challenger position as Spain's fourth-largest mobile network operator by subscribers and its extensive fibre to the premises footprint, which is second only to Telefonica SA (BBB/Stable). The company has a strong growth profile, both in key performance indicators and financial metrics. MM consistently acquires the majority of net customer additions in fixed broadband and postpaid mobile accesses; in 2019 it reported growth in service revenue and adjusted EBITDA (company defined) of 24% and 42%, respectively. Its share of residential mobile and fixed broadband subscribers was 18% and 10%, respectively, at end-2019. Funds from operations net leverage was 4.0x at end-2019 compared with an upgrade threshold of 3.8x and downgrade threshold of 4.3x. Fitch expects leverage to fall to about 3.0x by 2021, based on MM's existing capital structure, demonstrating the strong underlying cash flow of the business. Threshold levels nonetheless provide guidance to how the rating may react if an eventual buyer were to put in place a more highly leveraged financial structure than tolerated within the existing rating sensitivities. KEY RATING DRIVERS Solid Operating Profile: MM has constructed the country's second-largest fibre to the home network in a country with Europe's most advanced levels of fibre build. It has done this by combining traditional build capex with a series of partnership agreements encompassing shared ownership (or network swaps), hybrid indefeasible rights of use (long-term fibre leases)/bitstream access and creating joint ventures with infrastructure funds. It has taken a similar approach in mobile, combining owned capex with a series of national roaming agreements, and achieved market-leading scale and network quality in both fixed and mobile. Key operating performance indicators and financial results have been strong and consistent with growth targets. In other circumstances, the business profile and cash flow visibility provide scope for a higher rating, subject to capital structure. Orange Network Agreement: In October 2019, MM announced a significant expansion of its network sharing arrangements with Orange S.A. (BBB+/Stable). The agreement covers all envisaged future 5G mobile needs, with its national roaming agreement extended to 2028 (with the option to extend to 2033). The expansion of its FTTH agreement effectively converts bitstream access covering 5.2 million business units to a hybrid fibre co-investment/bitstream access model, including the option to acquire the business units under an indefeasible right of use in 2030. The agreement increases MM's owned fibre network to 14.2 million homes passed by 2020 and the company expects to achieve opex savings of EUR30 million by 2020 and full run-rate savings of EUR40 million from 2021. Incremental capex of EUR180 million will be spread over four years. Lyca Acquisition: MM announced the acquisition of Lycamobile Espana in March 2020. The virtual mobile network operator (MVNO) has 1.5 million subscribers and posted revenue of EUR132 million, EBITDA of EUR45 million in 2019 and a margin of 34%. MM is paying EUR372 million for the high-margin MVNO and expects to generate synergies of EUR30 million. Fitch views the transaction as a sound investment and one that immediately increases its mobile base to 9.6 million subscribers from eight million, based on 1Q20 mobile subscribers, pro-forma for the deal. Synergies will mainly come from moving Lyca's customers on to the MM network and in Fitch's view are deliverable. 2021 Leverage, Free Cash Flow Profile: The company expects the Lyca deal to add 0.2x to 2020 net debt/EBITDA leverage pro forma for synergies (full synergies will take two years after the transactions closes). Along with various capex projects Fitch now expects FFO net leverage to peak in 2020 at 4.2x, but to reduce rapidly given the Lyca synergies and efficiencies from the various partnership agreements. Fitch forecasts FFO net leverage of 3.0x by 2021, comfortably inside the upgrade threshold of 3.8x. Capex related to various network expansion projects will remain high through to 2021, with the business expected to turn FCF positive in 2022. Delivery of positive FCF is an important upgrade metric. Established Market Challenger: Fitch views MM as an established challenger operator in the Spanish telecoms market, which has built scale through a series of acquisitions and consistent organic growth. MM is in a good position to offer fixed and mobile convergent services through a flexible network strategy. At end-2019, the company had eight million mobile subscribers and an 18% share of the residential mobile market. Fitch estimates that MM's share of mobile service revenue was 10% at end-2019. In fixed broadband, its 1.5 million users represent a 10% share, a figure that is growing as MM consistently acquires the majority of market net additions. Competitive but Rational Market: The Spanish telecoms market is competitive but rational. MM is the challenger to the three leading companies, Telefonica, Orange and Vodafone Group Plc (BBB/Stable), all of which have similar subscriber market shares. MM's tariff structures do not materially undercut the competition. Fitch views MM's commercial strategy as being more similar to that of Poland's PLAY (P4 Sp. z o.o.) rather than the disruptive behaviour seen previously in France and, more recently, Italy. In this respect, Fitch views Spain's competitive environment as more similar to the UK's in terms of intensity. Network Strategy: MM takes a hybrid approach to network and service coverage, combining a significant amount of its own network build and access to other mobile networks, with regulated wholesale and commercial agreements, and network-sharing in fixed. Its mobile network covers 98.5% of the population (fully upgraded to 4G) while mobile national roaming agreements with two of the other three mobile network operators provide full coverage. Its fixed operations provide ultra-high-speed broadband access to 23.4 million homes (of which 13.4 million at end-2019 were on its owned network compared with 6.1 million at end-2018). The company aims to expand its network to gain access to all of the country's 28 million premises with FTTP by 2024. These plans have been significantly upgraded in the past year. Fitch views the regulatory environment around fibre investment as positive with regulated access to Telefonica's network and ducts at attractive rates, along with the promotion of co-investment and network sharing. MM has taken advantage of these dynamics with a hybrid strategy, which aims to provide access in different regions via the most efficient cost structure available. It has gained significant subscriber momentum in broadband taking almost all the market net additions in 2018, based on data from the Spanish telecoms regulator. DERIVATION SUMMARY In operational terms, MM is comparable, albeit at an earlier stage in its business life cycle, to a peer group that includes Swiss operator Sunrise Communications Holdings S.A. (BBB-/Stable), and Fitch-rated European cable operators, which are largely grouped around the 'BB-'/'B+' level. MM has similar revenue scale to most in the peer group but slightly lower EBITDA margins and higher investment needs given the investment in connecting fibre subscribers. It has far higher growth potential than most in the peer group for whom markets are largely saturated. Fitch expects MM's challenger business model in a market that continues to offer growth in penetration and subscribers to lead to strong FCF generation and good deleveraging capacity. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer - Revenue growth of 7.5% in 2020 and 12% in 2021 - Adjusted EBITDA margin (pre-IFRS 16) to improve to 28.8% in 2020 and 34.9% in 2021 driven by acquisition synergy and cost savings from new wholesale agreements - Negative working capital of EUR174-EUR183 million in 2020-2022 reflecting the payment installments to fibre co-investments with other operators - Capex/sales ratio to remain high at 34% and 22% in 2020 and 2021, respectively, before decreasing to the mid-teens when fibre network investment has been largely completed RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - FFO net leverage below 3.8x on a consistent basis - CFO less capex as of gross debt consistently at or above 7.5% - Sustained improvement in competitive position in the convergent Spanish telecoms market as measured by subscriber market share of fixed -line retail customers and revenue market share in mobile - Positive post-dividend FCF, together with positive revenue and EBITDA growth. Factors that could, individually or collectively, lead to negative rating action/downgrade: - FFO net leverage above 4.3x on a consistent basis - CFO less capex as of gross debt consistently at or below 4% - Sustained deterioration in competitive position in the form of significant underperformance in its targeted subscriber market share of fixed-line retail customers and revenue market share in mobile. - Sustained neutral or negative FCF margin 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 Satisfactory Liquidity: At end-March 2020, MM had a cash balance of EUR195 million. Its external liquidity is provided by a EUR100 million revolving credit facility and a EUR150 million capex facility, of which the RCF is fully drawn and EUR95 million of the latter is drawn. Considering MM plans to raise an incremental bank debt to finance the Lyca acquisition and general corporate activities, Fitch believes the need to remain RCF drawn will be temporary. Fitch also expects the company to be cash generative from 2021. MM's Term Loan B is long dated and only due in 2026. 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). =========== T U R K E Y =========== TAM FAKTORING: Fitch Assigns 'B' LongTerm IDR, Outlook Negative --------------------------------------------------------------- Fitch Ratings has published Tam Faktoring A.S.'s Foreign and Local Currency Long-Term Issuer Default Rating of 'B' and National Long Term Rating of 'BBB(tur)'. The Outlook on the Foreign and Local Currency Long-Term IDR is Negative. The Outlook on National Long-Term Rating is Stable. KEY RATING DRIVERS Tam Faktoring's ratings reflect the company's small franchise, and a business model focused on higher-risk micro and small businesses operating in a challenging Turkish operating environment. The ratings also reflect the company's record of limited credit losses for the business model, low market risk, liquid balance sheet and a largely secured funding profile that is underpinned by the availability of medium-term committed credit lines. The Negative Outlook on the Long-Term IDR captures the impact of a challenging operating environment that will be prolonged by the fallout from COIVD-19 depressing new business volumes, in turn adversely affecting Tam Faktoring's profitability and asset quality. The National Rating reflects Tam Faktoring's creditworthiness relative to domestic peers. The Stable Outlook on the rating reflects Fitch's expectation that Tam Faktoring's relative credit strength remains resilient in the currently challenging operating environment. Tam Faktoring is an independent Turkish factoring company accounting for about 2.5% of sector assets at end-2019. The company has demonstrated its ability to turn into a profitable business within four years after its inception in 2012. This was supported by development of a bespoke IT-based scorecard and monitoring tools, which automatically collect and analyse large amount of data on borrowers and receivables originators. Tam Faktoring focuses on higher-risk underbanked businesses with short credit history and of small scale, making them vulnerable to macroeconomic volatility and exposing Tam Faktoring to elevated credit risks. The business model assumes high operating costs due to small ticket sizes and the labour- intensive nature of sales that highlights the importance of scale in the business. Tam Faktoring has demonstrated limited credit losses relative to sector averages. Non-performing exposures (90+ days overdue under IFRS) averaged about 4% of its portfolio since end-2016. This is because Tam Faktoring avoids foreign-currency (FC) business and single-name concentrations both with regard to customers and originators of receivables, and also due to the company's IT-based automated scorecard and monitoring tools. Tam Faktoring's growth has exceeded sector averages since 2016, but the short-term nature of factoring receivables and Fitch's estimation of impaired asset generation imply that seasoning of the portfolio and high growth are unlikely to translate into larger credit losses. The rapid growth was driven by the start-up nature of the company. Growth has moderated in 2020 and has not exceeded internal capital generation since 2018. Tam Faktoring's margins compare well with the sector averages and domestic and international peers. Commission income is strong for a monoline business model at about 27% of total income in 2019. This should partly balance the adverse impact of falling interest rates in Turkey on Tam Faktoring's profitability. Reliance on own sales channels and small ticket sizes requires Tam Faktoring to maintain sufficient scale of business to recover high operating costs and impairment charges. Likely shrinkage of the receivable's portfolio will worsen the cost/income ratio, but Fitch expects the company to remain profitable in 2020 despite rising impairment charges and intensifying competition. Pre-tax return on average assets was sound at 4.9% in 2019. The company has demonstrated some resilience to economic shocks during the 2018 economic crisis in Turkey when factoring sector assets declined 22% and its impaired receivables ratio reached 6.3%, versus Tam Faktoring's 3% and 3.9%, respectively. Its debt/tangible equity ratio was 7.2x at end-2019, which was considerably above the sector average of 3.4x. Fitch believes that increasing risks driven by the fallout from the pandemic are partly balanced by low market risk, full retention of profits and the ability to de-leverage from lower business volumes. Fitch expects leverage to improve in 2020 due to a likely shrinkage of the receivable's portfolio, but would view that as a temporary rather than a structural strength. High share of secured funding (95% of total non-equity funding at end-2019) and fully encumbered receivables portfolio in favour of banks and other factoring companies constrains Tam Faktoring's funding position. This is partly balanced by availability of committed credit lines from EBRD (unutilised amount at about 11% of total borrowings at end-2019), a highly liquid balance sheet, where 90% of assets mature in about 120 days and negligible maturity or currency mismatches between assets and liabilities. Tam Faktoring's increasing diversification of funding sources toward unsecured sources such as domestic bonds is positive for the company's funding profile, which is currently a constraint. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - Deteriorating operating environment that impacts its forward-looking assessment of asset quality and earnings, which in turn would lead to a lower tolerance for leverage. - Sharp increase in impaired receivables or deterioration of profitability to below-sector averages that would increase solvency risk. - Deterioration of the above factors relative to domestic peers would also lead to downgrade of the National Rating. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Sustained strengthening of the franchise/business scale with maintenance of current financial performance indicators underpinned by a stable operating environment. - Upgrade of the National Rating would require larger scale, stronger capitalisation and improved funding profile relative to domestic peers. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). Tam Faktoring A.S. - LT IDR B; Publish - ST IDR B; Publish - LC LT IDR B; Publish - LC ST IDR B; Publish - Natl LT BBB(tur); Publish ============= U K R A I N E ============= MHP SE: Fitch Affirms B+ LongTerm IDRs & Sr. Unsecured Rating ------------------------------------------------------------- Fitch Ratings has affirmed Ukraine's MHP SE's Long-Term Foreign- and Local-Currency Issuer Default Ratings and senior unsecured rating at 'B+'. The rating Outlook is Stable. MHP SE's Long-Term Local-Currency IDR of 'B+' continues to benefit from a one-notch uplift from Ukraine's Long-Term LC IDR, reflecting an increasing share of profits outside the country, as well as MHP's strong business profile with reasonable scale and vertical integration, both translating into high operating profitability. The Foreign-Currency IDR at 'B+', one notch above Ukraine's Country Ceiling of 'B', is supported by a strong hard-currency debt service ratio. The affirmation reflects its revision of projected 2020 revenues and EBITDA due to low poultry prices, which will persist during most of the year, after a material decline in 2H19, with only a gradual recovery from 2021. Tighter profitability also supports its expectations of tight debt incurrence covenant headroom in 2021, although liquidity remains solid. The agency also considers a recently approved related-party loan, which consists of a USD80 million revolving credit facility to the main shareholder WTI Trading, which is temporary in nature, but out of line with MHP's historical governance practices. KEY RATING DRIVERS Lower Profitability Expectations: Fitch expects MHP's EBITDA margin to be within 20%-23% over the next four years, recovering from 19.3% in 2019, but below its previous estimates of 23%-26%. The weak profitability in 2019 is a combination of low poultry prices, cost increases, including from Ukrainian hryvnia appreciation, and margin dilution due to the consolidation of Perutnina Ptuj D.D. In 2020, profitability is likely to be supported by local-currency devaluation. For 2021-2023, Fitch expects a moderate margin recovery on poultry and commodity price growth, along with an increase in export sales in line with the company's strategy. Expansion Paused: Due to weak poultry prices and increased uncertainty amid the COVID-19 outbreak, MHP has postponed the second part of the expansionary of its Vinnytsia poultry complex for 12 to 24 months, subject to recovery in poultry prices and stabilisation of the outbreak. This should allow it to defer nearly USD200 million of capex. In 2019, MHP completed Line 1 of the project, launched in 2018, and added 130,000 tons of poultry meat, increasing the overall capacity to 730,000 tons while the second line of the project was initially meant to increase it further to 840,000 tons by 2022. Continued Diversification: MHP has reduced its share of revenue from Ukraine to 30% currently from 41% in 2018, due to 28% export growth and the acquisition of Slovenia-based PPJ in 2019. Fitch expects export sales growth to decelerate in 2020-2022, due to lower poultry prices and the deferral of the expansion in Vinnytsia, with incremental volumes to be sold mainly through exports. Nevertheless, Fitch assumes further expansion in PPJ, where MHP targets output growth of more than 10% in 2020. MHP is also considering a greenfield project in Saudi Arabia, which, if launched, would further reduce MHP's dependence on Ukraine. Strong Business Profile, Governance Issues: The ratings benefit from MHP's strong market position as the dominant poultry and processed meat producer in Ukraine, with larger scale, better access to bank financing and greater vertical integration than that of local competitors and other rated peers globally. Nonetheless, Fitch assesses the recent USD80 million loan granted to a related-party as a signal of potentially weakening governance practices, in a business which has historically exhibited high governance standards in Ukraine. If such practice persists, this may put downward pressure on ratings. Modest Positive Free Cash Flow: Fitch assumes the current decision to postpone part of capex is to protect FCF in 2020 and that MHP has only temporarily deviated from its ambition to grow its export capability. Therefore from 2021, Fitch assumes that, in addition to the remaining capex for the Phase 2 project, MHP would also invest in PPJ's business and other expansionary opportunities. This may lead to negative FCF, which may diminish its liquidity buffer, in years marked by high capex. FX Mismatch: FX mismatch continues to weigh on MHP's credit profile, with debt of USD1.5 billion at end-2019 mainly denominated in US dollars and euros, while domestic operations still accounted for a large portion of revenue. Fitch expects a mild reduction in FX risks over the medium term as poultry exports should continue to grow, particularly once the planned extension of production capacity resumes and is completed by around 2023-2024. MHP's FC IDR benefits from a strong hard-currency debt service coverage, which Fitch calculates would improve to around 3x in 2020-2021 (1.3x in 2019), helped by low debt maturities over the next four years. Tight Headroom under Covenants: Fitch expects MHP to continue to have tight headroom under its Eurobond debt incurrence covenant of 3x net debt-to-EBITDA in 2020 (2019: 3.01x). Fitch expects this will have a limited impact on the company's operations in 2020, due to sufficient liquidity buffer following a bond placement in 2019, and also due to permitted debt incurrence of up to USD75 million for general needs, including USD10 million for working capital needs and USD25 million (under the Eurobond due 2020) for new capital lease contracts. Temporary Spike in Leverage: Fitch calculates funds from operations gross leverage to increase to 4.6x, close to Fitch's negative sensitivity of 4.5x at end-2020 (2019: 3.6x). However, Fitch projects leverage will reduce to below 4.0x from 2021, rebuilding its rating headroom, supported by FFO growth and modest dividend distributions of USD30 million assumed both in 2020 and 2021. Strong Parent-Subsidiary Links: The Long-Term IDRs of PJSC Myronivsky Hliboproduct, MHP SE's 99.9% owned subsidiary, are equalised with those of MHP, due to strong strategic and legal ties between the two companies. Myronivsky Hliboproduct is a marketing and sales company for goods produced by the group in Ukraine. The strong legal links with the rest of the group are ensured by the presence of cross-default/cross-acceleration provisions in Myronivsky Hliboproduct's major loan agreements and suretyships from operating companies generating a substantial portion of the group's EBITDA. DERIVATION SUMMARY MHP has a strong business and financial profile that is comparable with the 'BB' rating category, but the operating environment in Ukraine constrains its Long-Term LC IDR. MHP's business is smaller and it has a weaker ranking on a global scale than international meat processors Tyson Foods, Inc. (BBB/Negative), Smithfield Foods, Inc. (BBB/Stable), BRF S.A. (BB/Stable) and Pilgrim's Pride Corporation (BB/Stable) in global poultry production. This is balanced by higher profitability than most peers' and lower leverage than that of lower-rated international companies in the meat processing sector. In EMEA region, MHP's vertically integrated business model is similar to Agri Business Holding Miratorg LLC's (B/Stable), but the ratings of the latter are constrained by higher leverage and even weaker corporate governance practices. KEY ASSUMPTIONS - Revenue to contract to USD1.8 billion in 2020 followed by gradual recovery toward USD2 billion by 2023 - EBITDA margin at 19.5% in 2020, trending towards 23% by 2023 - Chicken meat production volume to fall 5% in 2020 due to a weakened economic environment in many markets, with low-single digit growth in 2021-2023, driven by recovery in demand and resumption of its expansion project - Average hryvnia/US dollar exchange rate at 26.65 in 2020, 30.35 in 2021, and 31.09 in 2022 - No government grants - Capex at 6% of revenue in 2020, increasing to 9%-11% of sales in 2021-2022 - Cash held offshore equals to 75% of total cash - Dividends of USD30 million a year in 2020-2021, increasing toward USD100 million in 2022-2023 - No material acquisitions or investments in new expansionary projects KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that MHP would be considered a going concern in bankruptcy and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim. MHP's going-concern EBITDA is based on 2019 EBITDA discounted by 40% to reflect vulnerability to FX risks and the volatility of poultry, grain and sunflower seeds prices, as well as costs of certain raw materials. The going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which it bases the valuation of MHP. An enterprise value (EV)/EBITDA multiple of 4x is used to calculate a post-reorganisation valuation and reflects a mid-cycle multiple. The multiple is same as that for Kernel Holding S.A., a Ukrainian agricultural commodity trader and processor, and is unchanged relative to its previous review. Fitch does not consider MHP's pre-export financing (PXF) facility as fully drawn in its analysis. Contrary to a revolving credit facility, PXF has several drawdown restrictions, and the availability window is limited to only part of the year. Senior unsecured Eurobonds and unsecured bank loan creditors are structurally subordinated to secured PXF lenders. The principal waterfall results in above-average recovery expectations for senior unsecured Eurobonds. However, the Recovery Rating is capped at 'RR4' due to the Ukrainian jurisdiction where the majority of assets and operations are located. Therefore, the senior unsecured Eurobonds are rated 'B+'/'RR4'/50% based on the current assumptions. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: For Long-Term LC IDR: - Improved operating environment in Ukraine, for example, as reflected in a higher sovereign Long-Term LC IDR - Reduction in MHP's dependence on the local economy as measured by some decrease in the share of domestic sales in revenue without impairing profitability materially - In both cases, an upgrade would be subject to maintaining adequate liquidity and FFO gross leverage sustainably below 3.5x (2019: 3.6x). For Long-Term FC IDR: - Upgrade of MHP's LC IDR in conjunction with a hard-currency debt service ratio above 1.5x over the next two years, as calculated in accordance with Fitch's methodology "Rating Non-Financial Corporates Above the Country Ceiling" Factors that could, individually or collectively, lead to negative rating action/downgrade: For Long-Term LC IDR: - Further deterioration of the corporate governance practices, including continued loans to related parties. - FFO gross leverage above 4.5x and FFO fixed-charge cover below 2.5x (2019: 2.7x) on a sustained basis - Negative FCF margin on a sustained basis - Liquidity ratio below 1.2x on a sustained basis - Downgrade of Ukraine's LC IDR to 'B-' or below if not mitigated by Fitch's application of more than one notch rating uplift for MHP. The latter would be justified by an increased share of profits generated outside of Ukraine together with MHP's business and financial profiles remaining strong. For Long-Term FC IDR: - Hard-currency debt service ratio below 1x over following 12 months - Downgrade of Long-Term LC IDR 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 Satisfactory Liquidity: As of end-2019, MHP held USD316 million of readily available cash on balance sheet, after Fitch's adjustment of USD25 million for working capital purposes. This is more than sufficient to repay short-term financial debt of USD25 million and finance operations during the year. In addition, MHP has a comfortable maturity schedule, with the next major maturity represented by the USD500 million Eurobond due in October 2024. 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). MHP SE - LT IDR B+; Affirmed - LC LT IDR B+; Affirmed - Senior unsecured; LT B+; Affirmed MHP Lux S.A. - Senior unsecured; LT B+; Affirmed PJSC Myronivsky Hliboproduct - LT IDR B+; Affirmed - LC LT IDR B+; Affirmed - Natl LT AAA(ukr); Affirmed =========================== U N I T E D K I N G D O M =========================== ATHENA CIVIL: Goes Into Administration -------------------------------------- Aaron Morby at Construction Enquirer reports that Leeds-based Athena Civil Engineering has been placed into administration. It was placed into administration by RSM Restructuring on June 2, although other smaller related companies Athena Haulage, Athena Plant and holding company Athena (UK) remain solvent, Construction Enquirer relates. Under managing director Jonathan Hotham and commercial director James Marshall, the firm grew rapidly reaching GBP38 million revenue last year, generating a profit of GBP490,000, Construction Enquirer discloses. LIBERTY GLOBAL: Egan-Jones Lowers Senior Unsecured Ratings to B- ---------------------------------------------------------------- Egan-Jones Ratings Company, on May 29, 2020, downgraded the foreign currency and local currency senior unsecured ratings on debt issued by Liberty Global plc to B- from CCC. EJR also downgraded the rating on commercial paper issued by the Company to B from C. Headquartered in London, United Kingdom, Liberty Global is one of the world's leading converged video, broadband and communication companies, with operations in six European countries under the consumer brands Virgin Media, Telenet and UPC. NEW LOOK: In Rent Talks with Landlords, Explores Options -------------------------------------------------------- Coast FM, citing Sky News, reports that New Look has appointed the property agents CBRE and CWM to negotiate a switch to turnover-based rents at the bulk of its 500 stores across the UK and Ireland. New Look had already joined the massed ranks of retailers which refused to pay its quarterly rent bill in March, announcing that it was requesting a three-month rent holiday, Coast FM relates. The stakes in New Look's latest round of rent talks are high for the company and its shareholders, which include the South African group Brait and the hedge funds Alcentra, Avenue Capital and CQS, Coast FM states. According to Coast FM, property industry sources say that if the turnover rent discussions prove inconclusive or attract only lukewarm support from landlords, New Look is likely to consider alternatives, including an insolvency process, in the coming months. The retailer employs 12,000 people, and insiders emphasized on June 3 that even if it does fall into administration, a viable restructured business would emerge, Coast FM discloses. A New Look spokesperson, as cited by Coast FM, said: "As we look towards beginning to safely reopen stores, we can confirm we are in discussions with landlords regarding rental arrangements which fairly reflect the retail operating environment." New Look's latest negotiations with landlords come 15 months after it secured creditor approval to close 100 loss-making shops through a company voluntary arrangement (CVA), Coast FM notes. Deloitte, which supervised last year's CVA, is also understood to be involved alongside the property agents on the latest restructuring, Coast FM relays. Prior to the outbreak of COVID-19, the company, as cited by Coast FM, said it had been making good progress with its turnaround plan, with sharply reduced losses in the third quarter of its financial year. New Look is a British global fashion retailer with a chain of high street shops. RESTAURANT GROUP: To Permanently Close 120 Restaurants ------------------------------------------------------ Business Sale reports that the Restaurant Group, which owns chains including Frankie & Benny's, Garfunkel's and Wagamama, will permanently close 120 restaurants, as COVID-19 has prompted the company to accelerate its restructuring plan. According to Business Sale, the closures will primarily impact Frankie & Benny's, with some Garfunkel's restaurants also set to close. In an email to site managers this week, The Restaurant Group (TRG), as cited by Business Sale, said: "Many sites are no longer viable to trade and will remain closed permanently. The COVID-19 crisis has significantly impacted our ability to trade profitably, so we have taken the tough decision to close these restaurants now." It is thought that the closures will affect around 3,000 jobs among the company's 22,000 staff, who are currently furloughed through the government's Coronavirus Job Retention Scheme, Business Sale states. The group operates around 600 outlets, including a number of pubs and airport concessions, which have been closed since the government announced coronavirus restrictions in March, Business Sale discloses. In March, TRG issued a profit warning and announced that 61 of its 80 outlets of Tex-Mex restaurant chain Chiquito would not reopen, Business Sale recounts. The group also announced the permanent closure of London's 11 Food and Fuel pubs, Business Sale notes. This led to around 1,500 jobs being lost, according to Business Sale. TRG initially announced restructuring plans in September 2019, saying it would close around 88 Frankie & Benny's, Garfunkel's and Chiquito restaurants over six years, Business Sale relays. In February, this was brought forward to 2021, but it has now been prompted to expedite the process again and the outlets will not reopen once the COVID-19 lockdown ends, Business Sale says. SQUARE METRE: Enters Administration, Owes GBP9.1MM to Creditors --------------------------------------------------------------- Megan Kelly at Construction News reports that London-based Square Metre, a GBP30 million-turnover fit-out specialist, has fallen into administration. The company, which was revealed by Construction News on June 2 as one of 35 companies to collapse in May, has appointed Steven John Parker -- steve.parker@opusllp.com -- and Trevor John Binyon -- trevor.binyon@opusllp.com -- of Opus Restructuring LLP as joint administrators, Construction News relates. The firm employed 40 staff and reported revenue growth of almost GBP10 million within a year, from GBP21.1 million in 2017 to GBP30.8 million in its most recent accounts to December 31, 2018, Construction News discloses. According to Construction News, the specialist owed GBP9.1 million to creditors within the same accounting year. Of this, GBP4.4 million was owed to trade creditors, Construction News notes. [*] UNITED KINGDOM: Number of Administrations Up in May 2020 ------------------------------------------------------------ Megan Kelly at Construction News reports that a total of 35 construction companies fell into administration in May. According to Construction News, this compares to just nine companies collapsing in April as many firms were shutting down sites and companies received a cashflow boost help them through the coronavirus crisis. May's total administrations is one of the highest so far this year and includes seven Irish-registered companies, which carry out work in the UK, Construction News states. The total is lower than the number recorded in February, when the industry was hit by 36 administrations, Construction News relays, citing data provided by Creditsafe. DRS Bond Management MD Chris Davies told Construction News that the spike in May insolvencies is "in line with expectations as money starts to run dry through supply chains". Mr. Davies said he expects a similar increase in the level of administrations in June, Construction News notes. On June 1, the Construction Leadership Council launched a recovery plan for the industry in a bid to save jobs and companies, Construction News discloses. =============== X X X X X X X X =============== [*] BOOK REVIEW: Mentor X ------------------------- The Life-Changing Power of Extraordinary Mentors Author: Stephanie Wickouski Publisher: Beard Books Hard cover: 156 pages ISBN: 978-1-58798-700-7 List Price: $24.75 Order this Book: https://is.gd/EIPwnq Long-time bankruptcy lawyer Stephanie Wickouski at Bryan Cave impressively tackles a soft problem of modern professionals in an era of hard data and scientific intervention in her third published book entitled Mentor X. In an age where employee productivity is measured by artificial intelligence and resumes are prescreened by computers, Stephanie Wickouski adds spirit and humanity to the professional journey. The title is disarmingly deceptive and book browsers could be excused for assuming this work is just another in a long line of homogeneous efforts on mentorship. Don't be fooled; Mentor X is practical, articulate and lively. Most refreshingly, the book acknowledges the most important element of human development: our intuition. Mrs. Wickouski starts by describing what a mentor is and distinguishes that role from a teacher, coach, role model, buddy or boss. Younger professionals may be skeptical of the need for a mentor, but Mrs. Wickouski deftly disabuses that notion by relating how a mentor may do nothing less than change the course of a protege's life. Newbies to this genre need little convincing afterwards. One of the book's worthiest contributions is a definition of mentor that will surprise most readers. Mentors are not teachers, the latter of which impart practical knowledge. Instead, according to Mrs. Wickouski, her mentors "showed me secrets that I could learn nowhere else. They showed me how doors are opened. They showed me how to be an agent of change and advance innovative and controversial ideas." What ambitious professional doesn't want more of that in their life? The practicality of the book continues as Mrs. Wickouski outlines the qualities to look for in a mentor and classifies the various types of mentors, including bold mentors, charismatic mentors, cold and distant mentors, dissolute mentors, personally bonded mentors, younger mentors, and unexpected mentors. Mentor X includes charts and workbooks which aid the reader in getting the most out of a mentor relationship. In a later chapter, Mrs. Wickouski provides an enormously helpful suggestion about adopting a mentor: keep an open mind. Often, mentors will come in packages that differ from our expectations. They may be outside of our profession, younger, less educated, etc . . . but the world works in mysterious ways and Mrs. Wickouski encourages readers to think about mentors broadly. In this modern era of heightened workplace ethics, Mrs. Wickouski articulates the dark side of mentors. She warns about "dementors" and "tormentors" -- false mentors providing dubious and sometimes self-destructive advice, and those who abuse a mentor relationship to further self-interested, malign ends, respectively. She describes other mentor dysfunctions, namely boundary-crossing, rivalry, corruption, and a few others. When a mentor manifests such behaviors, Mrs. Wickouski counsels it's time to end the relationship. Mrs. Wickouski tells readers how to discern when the mentor relationship is changing and when it is effectively over. Those changes can be precipitated by romantic boundaries crossed, emergence of rivalrous sentiment, or encouragement of unethical behavior or corruption. Mrs. Wickouski aptly notes that once insidious energies emerge, the mentorship is effectively over. At this point, certain readers may say to themselves, "Okay, I've got it. Now I can move on." Or, "My workplace has a formal mentorship program. I don't need this book anymore." Or even, "Can't modern technology handle my mentor needs, a Tinder of mentorship, so to speak?" Mrs. Wickouski refutes that notion. She analyzes how many mentoring programs miss the mark. In one of the best passages in the book, Mrs. Wickouski writes, "Assigning or brokering mentors negates the most critical components of a true mentor–protege relationship: the individual process of self-awareness which leads a person to recognize another individual who will give the advice singularly needed. That very process is undermined by having a mentor assigned or by going to a mentoring party." She does not just criticize; she offers a solution with three valuable tips for choosing the right mentor and five qualities to ascertain a true mentor in the unlimited sea of possibilities. Next, Mrs. Wickouski distinguishes between good advice and bad advice. She punctuates that discussion with many relevant and relatable examples that are easy to read and colorfully enjoyable. This section includes interviews with proteges who have had successful mentorships. The punchline: in the best mentorships, the parties harmoniously share personal beliefs and values. Also important, the protege draws inspiration and motivation from the mentor. The book winds down as usefully as it started: Mrs. Wickouski interviews proteges, asking them what they would have done differently with their mentors if they could turn back the clock. A common thread seems to be that the proteges would have gone deeper with their mentors -- they would have asked more questions, spent more time, delved into their mentors' thinking in greater depth. The book wraps up lightly by sharing useful and practical suggestions for maintenance of the mentor relationship. She answers questions such as, "Do I invite my mentor to my wedding?" and "Who pays for lunch?" Mentor X is an enjoyable read and a useful book for any professional in any industry at, frankly, any point in time. Advanced individuals will learn much from the other side, i.e., how to be more effective mentors. Mrs. Wickouski does a wonderful job of encouraging use of that all knowing aspect of human existence which never fails us: proper use of our intuition. About The Author Stephanie Wickouski is widely regarded as an innovator and strategic advisor. A nationally recognized lawyer, she has been named as one of the 12 Outstanding Restructuring Lawyers in the US by Turnarounds & Workouts and as one of US News' Best Lawyers in America. She is the author of two other books: Indenture Trustee Bankruptcy Powers & Duties, an essential guide to the legal role of the bond trustee, and Bankruptcy Crimes, an authoritative resource on bankruptcy fraud. She also writes the Corporate Restructuring blog. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2020. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *