/raid1/www/Hosts/bankrupt/TCREUR_Public/200619.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 19, 2020, Vol. 21, No. 123
Headlines
A U S T R I A
LEVEL EUROPE: To File for Insolvency Due to Coronavirus Crisis
F R A N C E
ALBEA BEAUTY: S&P Affirms 'B' ICR on Sale of Dispensing Segment
I R E L A N D
BBAM EUROPEAN I: S&P Assigns Prelim. B- Rating on Class F Notes
CVC CORDATUS XVII: S&P Assigns BB- Rating on Class E Notes
HALCYON LOAN 2017-1: Moody's Cuts Rating on Class F Notes to 'B3'
OCP EURO 2020-4: Fitch Rates Class F Notes 'B-(EXP)sf'
OCP EURO 2020-4: S&P Assign Prelim. B- Rating on Cl. F Notes
L U X E M B O U R G
GALILEO GLOBAL: Moody's Rates EUR80MM Second Lien Loan 'Caa1'
N O R W A Y
PGS ASA: S&P Lowers ICR to 'CCC', Outlook Negative
R U S S I A
CARCADE LLC: Fitch Hikes LT IDRs to BB+, Outlook Stable
EVRAZ PLC: Moody's Alters Outlook on Ba1 CFR to Stable
SOVCOMBANK LEASING: Fitch Hikes LT IDRs to BB+, Outlook Neg.
S P A I N
CODERE SA: S&P Lowers ICR to 'CCC-' on Heightened Default Risk
S W I T Z E R L A N D
GARETT MOTION: Moody's Confirms B1 CFR, Outlook Negative
KONGSBERG AUTOMOTIVE: S&P Stays 'B-' ICR on Watch Negative
U N I T E D K I N G D O M
BLACKHOUSE GRILL: Falls Into Administration, Seeks Buyer
CBC: Financial Difficulties Prompt Administration
CROYDON PARK: Enters Administration Due to Covid-19 Impact
ENQUEST PLC: Moody's Cuts CFR to Caa1 & PDR to Caa1-PD
FINSBURY SQUARE 2020-2: Fitch Gives B-(EXP) Rating on Class X Notes
JAGUAR LAND: Moody's Confirms B1 CFR, Outlook Negative
SUITE HOSPITALITY: Enters Administration After Rescue Talks Fail
X X X X X X X X
[*] BOOK REVIEW: Mentor X
[*] Record Number of Distressed Debt Funds Seek to Raise Cash
- - - - -
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A U S T R I A
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LEVEL EUROPE: To File for Insolvency Due to Coronavirus Crisis
--------------------------------------------------------------
Sarah Young and Kirsti Knolle at Reuters report that Austrian
short-haul budget carrier Level Europe plans to file for
insolvency, it said on June 18, becoming the latest airline
casualty of the coronavirus crisis despite the financial might of
parent IAG.
The small airline, previously known as ANISEC, began operating in
2018. It has six Airbus short-haul jets and is part of IAG-owned
Vueling Group.
According to Reuters, Level Europe blamed the COVID-19 pandemic for
its move to cease trading, joining a growing list of airline
failures after planes across the world were grounded for months
during coronavirus lockdowns.
Level Europe said in its statement an administrator will be
appointed once insolvency proceedings have been filed, Reuters
relates.
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F R A N C E
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ALBEA BEAUTY: S&P Affirms 'B' ICR on Sale of Dispensing Segment
---------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer rating on
France-based Albea Beauty Holdings and Hercule Debtco S.a.r.l. S&P
also affirmed the 'B' issue rating on Albea's senior secured term
loan (U.S. dollar and euro tranches). S&P removed the ratings from
Watch Developing, where it placed them on Feb. 4, 2020.
S&P said, "Additionally, we are withdrawing the 'CCC+' issue rating
and the '6' recovery rating on Hercule Debtco's $150 million
pay-if-you-can (PIYC) notes as they have been repaid.
"We anticipate that Albea will generate S&P Global Ratings-adjusted
EBITDA margins of about 10.0%-10.5% in 2020-2021. The disposal of
the dispensing business will lead to a reduction in Albea's overall
EBITDA margins to 10.0%-10.5%. In 2019, the dispensing segment
generated EBITDA margins of 18% (compared to 12% for Albea). This
reduction in the group's profitability has led us to revise down
our business risk assessment to weak (from fair previously). That
said, we believe that this divestment will allow Albea to focus on
its core businesses (tubes and cosmetic rigid packaging [CRP]) as
well as on the development of its beauty solutions division.
"We expect leverage to remain 7.0x-8.0x during 2020-2021. The
disposal of the dispensing segment will not have a material impact
on Albea's leverage ratio as the reduction in EBITDA is compensated
by debt repayments. We anticipate S&P Global Ratings-adjusted debt
to EBITDA at 7.4x in 2020 and 7.9x in 2021 (compared to 8.1x at
year-end 2019). The disposal will lead to a reduction in S&P Global
Ratings-adjusted EBITDA from $183 million in 2019 to about $120
million in 2021 and the company is applying $538 million (out of
$907 million disposal proceeds) to debt repayments."
Albea will repay the $150 million pay-if-you-can (PIYC) notes due
2024; $266 million of the $887 million equivalent term-loan B
(reducing the size of the facility to about $621 million); and all
drawings under its $105 million revolving credit facility (RCF).
Together with the sale of the dispensing business, Albea is also
selling its metal parts manufacturer Covit (Spain and U.S.) and its
Brazilian operations.
In 2020, S&P expects a strong reduction in demand for CRP.
COVID-19 has weakened sales of CRP because most CRP products
(make-up and fragrances) are sold in retail stores. Make-up
accounted for 26% of Albea's revenues in 2019 and fragrances for
18%.
This will only partly be offset by stronger demand for skin care
(22% of sales), oral care (15%), and personal care (13%) packaging
products as well as a rise in demand for hydroalcoholic gel
packaging.
Overall, S&P thereby expect like-for-like revenues to decline by 8%
this year.
S&P expects negative FOCF in 2020. In 2020, Albea's cash flow
generation will be undermined by the pandemic's negative impact on
sales and by high capital expenditure (capex; $75 million). Most of
the capex relates to growth projects ($50 million) chiefly for the
conversion towards aluminum barrier laminate (ABL) from plastic
barrier laminate (PBL).
S&P believes that, once market conditions stabilize, Albea will
focus on long-term cash generation. In 2019 it generated FOCF of
$47 million. However, FOCF has been volatile over the last five
years.
S&P said, "We acknowledge a high degree of uncertainty relating to
the coronavirus pandemic. Some governments estimate the pandemic
will peak mid-2020 and we use this assumption in assessing the
economic and credit implications on Albea. We believe the measures
adopted to contain COVID-19 have pushed the global economy into
recession. As the situation evolves, we will update our assumptions
and estimates accordingly.
"The negative outlook indicates a one-in-three likelihood that we
could lower our rating on Albea if its FOCF is weaker than expected
(for example, due to more severe or prolonged effects from the
pandemic).
S&P would consider lowering its rating on Albea if:
-- The company generated negative FOCFs on a sustained basis;
-- Leverage increased above 7.5x on a sustained basis; or,
-- The economic impact of the COVID-19 pandemic was more
protracted than S&P assumes in its base case.
S&P could revise the outlook to stable if Albea generated stronger
FOCF on a sustained basis.
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I R E L A N D
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BBAM EUROPEAN I: S&P Assigns Prelim. B- Rating on Class F Notes
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to BBAM
European CLO I's class A, B-1, B-2, C, D, E, and F notes. At
closing, the issuer will also issue unrated subordinated notes.
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans or bonds. The
portfolio's reinvestment period will end approximately three years
after closing, and the portfolio's maximum average maturity date
will be seven years after closing. Under the transaction documents,
the rated notes pay quarterly interest unless there is a frequency
switch event. Following this, the notes will permanently switch to
semiannual payment.
As of the closing date, the issuer will own close to 100% of the
target effective date portfolio. S&P said, "We consider that the
portfolio on the effective date will be well-diversified, primarily
comprising broadly syndicated speculative-grade senior secured term
loans and senior secured bonds. Therefore, we have conducted our
credit and cash flow analysis by applying our criteria for
corporate cash flow collateralized debt obligations."
Portfolio Benchmarks
Current
S&P Global Ratings weighted-average rating factor 2,791
Default rate dispersion 473
Weighted-average life (years) 5.42
Obligor diversity measure 77.0
Industry diversity measure 16.8
Regional diversity measure 1.3
Transaction Key Metrics
Current
Total par amount (mil. EUR) 250
Defaulted assets (mil. EUR) 0
Number of performing obligors 86
Portfolio weighted-average rating derived
from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 2.8
'AAA' weighted-average recovery (%) 35.19
Weighted-average spread net of floors (%) 3.56
S&P said, "In our cash flow analysis, we have modeled the target
par amount of EUR250 million, a 'AAA' weighted-average recovery
rate of 35.00%, a weighted-average spread of 3.50%, and a
weighted-average coupon of 4.00%. Our cash flow analysis considers
scenarios where the underlying pool comprises 100% of floating-rate
assets, and where the fixed-rate bucket is fully utilized (10%).
"In light of the rapidly shifting credit dynamics within CLO
portfolios due to continuing rating actions (downgrades,
CreditWatch placements, and outlook changes) on speculative-grade
corporate loan issuers, and in line with paragraph 15 of our global
corporate CLO criteria, we have considered a minimum break-even
default rate (BDR) and scenario default rate (SDR) cushion of 1.5%.
Our application of a 1.5% cushion was informed by the amount of
assets rated 'B-' and below, and by the proportion of ratings that
are on CreditWatch negative or have a negative outlook.
"Following our credit and cash flow analysis, and the application
of our minimum BDR-SDR cushion, all class of notes (except class A)
could withstand higher rating levels than those we have assigned.
However, as the CLO is still in its reinvestment phase, during
which the transaction's credit risk profile could deteriorate, we
have capped our assigned ratings on the notes."
The Bank of New York Mellon (London Branch) will be the bank
account provider and custodian. Its documented downgrade remedies
are in line with our counterparty criteria.
The issuer can purchase up to 20% of non-euro assets, subject to
entering into asset-specific swaps. J.P. Morgan AG will act as swap
counterparty. Its downgrade provisions are in line with S&P's
counterparty criteria for liabilities rated up to 'AAA'.
The issuer is bankruptcy remote, in accordance with our legal
criteria.
The CLO will be managed by BlueBay Asset Management LLP. Under
S&P's "Global Framework For Assessing Operational Risk In
Structured Finance Transactions," published on Oct. 9, 2014, it
expects the maximum potential rating on the liabilities to be
'AAA'.
Following S&P's analysis of the credit, cash flow, counterparty,
and legal risks, it believes its ratings are commensurate with the
available credit enhancement for each class of notes.
Scenario Analysis
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
to E notes to five of the 10 hypothetical scenarios we looked at in
our recent publication.
"S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak. Some
government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, S&P will update its assumptions and estimates
accordingly.
Ratings List
Class Prelim Prelim Sub (%) Interest rate*
rating amount
(mil. EUR)
A AAA (sf) 140.00 44.0 Three/six-month EURIBOR
plus 1.60%
B-1 AA (sf) 15.00 33.0 Three/six-month EURIBOR
plus 2.20%
B-2 AA (sf) 12.50 33.0 2.65%
C A (sf) 20.00 25.0 Three/six-month EURIBOR
plus 2.80%
D BBB (sf) 15.00 19.0 Three/six-month EURIBOR
plus 4.10%
E BB (sf) 11.00 14.6 Three/six-month EURIBOR
plus 6.84%
F B- (sf) 5.50 12.4 Three/six-month EURIBOR
plus 7.20%
Sub NR 31.50 N/A N/A
* The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR -- Euro Interbank Offered Rate.
NR -- Not rated.
N/A -- Not applicable.
CVC CORDATUS XVII: S&P Assigns BB- Rating on Class E Notes
----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to CVC Cordatus Loan
Fund XVII DAC's class A, B, C, D, and E notes. The issuer also
issued unrated subordinated notes.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The portfolio's reinvestment period ends approximately three years
after closing, and the portfolio's maximum average maturity date is
approximately 8.5 years after closing.
The ratings assigned to the notes reflect S&P's assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
Current
S&P Global Ratings weighted-average rating factor 2,772.65
Default rate dispersion 657.06
Weighted-average life (years) 5.18
Obligor diversity measure 74.72
Industry diversity measure 16.52
Regional diversity measure 1.25
Transaction Key Metrics
Current
Total par amount (mil. EUR) 280
Defaulted assets (mil. EUR) 0
Number of performing obligors 90
Portfolio weighted-average rating derived
from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 4.76
Covenanted 'AAA' weighted-average recovery (%) 36.25
Covenanted weighted-average spread (%) 3.75
Reference weighted-average coupon (%) 4.75
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. We consider that the portfolio primarily comprise broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, we conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow
collateralized debt obligations.
"In our cash flow analysis, we used the EUR280 million par amount,
the covenanted weighted-average spread of 3.75%, the reference
weighted-average coupon of 4.75%, and the covenanted
weighted-average recovery rates for the 'AAA' rated note. We
applied various cash flow stress scenarios, using four different
default patterns, in conjunction with different interest rate
stress scenarios for each liability rating category.
"This transaction also has a EUR1.5 million liquidity facility
provided by The Bank of New York Mellon for a maximum of six years
with the drawn margin of 2.50%. For the purpose of our cash flows,
we have added this amount to the class A notes balance, since the
liquidity facility payment amounts rank senior to the interest
payments on the rated notes.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"We consider that the transaction's legal structure is bankruptcy
remote, in line with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B to E notes could withstand
stresses commensurate with higher rating levels than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on the notes.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class A,
B, C, D, and E notes.
"In light of the rapidly shifting credit dynamics within CLO
portfolios due to continuing rating actions (downgrades,
CreditWatch placements, and outlook changes) on speculative-grade
corporate loan issuers, we are making qualitative adjustments to
our analysis when rating CLO tranches to reflect the likelihood
that changes to the credit profile of the underlying assets may
affect a portfolio's credit quality in the near term. This is
consistent with paragraph 15 of our criteria for analyzing CLOs."
To do this, S&P reviews the likelihood of near-term changes to the
portfolio's credit profile by evaluating the transaction's specific
risk factors, including, but not limited to, the percentage of the
underlying portfolio that comes from obligors that:
-- Are rated in the 'CCC' range;
-- Are currently on CreditWatch with negative implications;
-- Are rated with negative a negative outlook; or
-- Sit within a static portfolio CLO transaction.
Based on S&P reviews of these factors, and considering the
portfolio concentration, we believe that the minimum cushion
between this CLO tranches' break-even default rates (BDRs) and
scenario default rates (SDRs) should be 1.0% (from a possible range
of 1.0%-5.0%).
As noted above, the purpose of this analysis is to take a
forward-looking approach for potential near-term changes to the
underlying portfolio's credit profile.
S&P said, "Taking the above into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our ratings are commensurate with the
available credit enhancement for all of the rated classes of
notes.
In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
to five of the 10 hypothetical scenarios we looked at in our recent
publication.
S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak. S&P said,
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, we will update our assumptions and estimates
accordingly."
CVC Cordatus Loan Fund XVII is a European cash flow CLO
securitization of a revolving pool, comprising euro-denominated
senior secured loans and bonds issued mainly by sub-investment
grade borrowers. CVC Credit Partners European CLO Management will
manage the transaction.
Ratings List
Class Rating Amount Sub (%) Interest rate*
(mil. EUR)
A AAA (sf) 163.45 41.63 Three/six-month EURIBOR
plus 1.95%
B AA (sf) 19.95 34.50 2.90%
C A (sf) 30.00 23.79 Three/six-month EURIBOR
plus 3.15%
D BBB- (sf) 16.00 18.07 Three/six-month EURIBOR
plus 5.34%
E BB- (sf) 14.00 13.07 Three/six-month EURIBOR
plus 7.08%
M-1 NR 45.10 N/A N/A
M-2 NR 1.00 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
HALCYON LOAN 2017-1: Moody's Cuts Rating on Class F Notes to 'B3'
-----------------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Halcyon Loan Advisors European Funding
2017-1 Designated Activity Company:
EUR 16,500,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2030, Downgraded to Baa3 (sf); previously on Apr 20, 2020
Baa2 (sf) Placed Under Review for Possible Downgrade
EUR 18,200,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2030, Downgraded to Ba3 (sf); previously on Apr 20, 2020
Ba2 (sf) Placed Under Review for Possible Downgrade
EUR 9,500,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2030, Downgraded to B3 (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 190,000,000 Class A Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Jul 14, 2017 Definitive
Rating Assigned Aaa (sf)
EUR 34,000,000 Class B-1 Senior Secured Floating Rate Notes due
2030, Affirmed Aa2 (sf); previously on Jul 14, 2017 Definitive
Rating Assigned Aa2 (sf)
EUR 10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2030,
Affirmed Aa2 (sf); previously on Jul 14, 2017 Definitive Rating
Assigned Aa2 (sf)
EUR 22,500,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed A2 (sf); previously on Jul 14, 2017
Definitive Rating Assigned A2 (sf)
Halcyon Loan Advisors European Funding 2017-1 Designated Activity
Company, issued in July 2017, is a collateralised loan obligation
backed by a portfolio of mostly high-yield senior secured European
loans. The portfolio is managed by Halcyon Loan Advisors (UK) LLP
(now Bardin Hill Loan Advisors (UK) LLP). The transactions
reinvestment period will end in July 2021.
RATINGS RATIONALE
Its action concludes the rating review on the Class D, E and F
notes announced 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 of the
portfolio has significantly 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. WARF
worsened by about 23.9% to 3712 from 2996 in January 2020 and is
now significantly above the reported covenant of 2996. Securities
with default probability ratings of Caa1 or lower have increased to
14.5% from 5.5% in January 2020 triggering the application of an
over-collateralisation haircut to the computation of the OC tests.
Consequently, the OC levels have weakened across the capital
structure. According to the trustee report dated May 2020 [1] the
Class A/B, Class C, Class D, Class E and Class F OC ratios are
reported at 134.7%, 122.9%, 115.5%, 108.3% and 104.9% compared to
January 2020 [2] at 139.1%, 126.9%, 119.2%, 111.8%, and 108.2%
respectively. While currently not in breach, the cushion on the
Class E and F OC tests is only about 1%.
Moody's also notes that the transaction reports negative cash
exposure of around EUR 21.2m which could further erode key credit
quality and OC metrics given that assets would need to be sold in
current market conditions to close out this position. Also,
reported WARF and proportion of securities with default probability
ratings of Caa1 or lower have worsened by 732 points and 2.6 times
respectively compared to March 2020 data based on which Classes D,
E and F notes were placed on review for possible downgrade.
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 325.1m ,
defaulted par of EUR 1.50m, a weighted average default probability
of 29.42 % (consistent with a WARF of 3765 over a weighted average
life of 5.2 years), a weighted average recovery rate upon default
of 44.57% for a Aaa liability target rating, a diversity score of
54 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, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2020. 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
notes, 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; and (2) divergence in the legal interpretation of
CDO documentation by different transactional parties because of
embedded ambiguities.
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.
- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries higher
than Moody's expectations would have a positive impact on the
notes' ratings.
- 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.
OCP EURO 2020-4: Fitch Rates Class F Notes 'B-(EXP)sf'
------------------------------------------------------
Fitch Ratings has assigned OCP 2020-4 Designated Activity Company
expected ratings.
OCP Euro CLO 2020-4 DAC
- Class A; LT AAA(EXP)sf Expected Rating
- Class B-1; LT AA(EXP)sf Expected Rating
- Class B-2; LT AA(EXP)sf Expected Rating
- Class C; LT A(EXP)sf Expected Rating
- Class D; LT BBB-(EXP)sf Expected Rating
- Class E; LT BB-(EXP)sf Expected Rating
- Class F; LT B-(EXP)sf Expected Rating
- Subordinated notes; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
OCP Euro CLO 2020-4 Designated Activity Company is a securitisation
of mainly senior secured obligations (at least 90%) with a
component of senior unsecured, mezzanine, second-lien loans and
high-yield bonds. Note proceeds will be used to fund a portfolio
with a target par of EUR250 million. The portfolio will be actively
managed by Onex Credit Partners, LLC. The collateralised loan
obligation has a three-year reinvestment period and a seven-year
weighted average life.
KEY RATING DRIVERS
'B' Portfolio Credit Quality: Fitch places the average credit
quality of obligors in the 'B' category. The Fitch weighted average
rating factor of the identified portfolio is 32.6, below the
maximum WARF covenant for assigning expected ratings of 36.
High Recovery Expectations: At least 90% of the portfolio will
comprise senior secured obligations. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The Fitch weighted average recovery
rate of the identified portfolio is 67.8%, above the minimum WARR
covenant for assigning expected ratings of 66.0%.
Diversified Asset Portfolio: The transaction will have several
Fitch test matrices corresponding to two top 10 obligors'
concentration limits. The manager can interpolate within and
between two matrices. The transaction also includes various
concentration limits, including the maximum exposure to the three
largest (Fitch-defined) industries in the portfolio at 40%. These
covenants ensure the asset portfolio will not be exposed to
excessive concentration.
Portfolio Management: The transaction has a three-year reinvestment
period and includes reinvestment criteria similar to those of other
European transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
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.
When conducting cash flow analysis, Fitch's cash flow model first
projects the portfolio scheduled amortisation proceeds and any
prepayments for each reporting period of the transaction's 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:
A 25% default multiplier applied to the portfolio's mean default
rate, and with this subtracted from all rating default levels, and
a 25% increase of the recovery rate at all rating recovery levels,
would lead to an upgrade of up to five notches for the rated notes,
except for the class A notes as their rating is at the highest
level on Fitch's scale and cannot be upgraded.
The transaction features a reinvestment period and the portfolio is
actively managed. 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, as the portfolio credit quality
may still deteriorate, not only through natural credit migration,
but also through 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:
A 125% default multiplier applied to the portfolio's mean default
rate, and with the increase added to all rating default levels, and
a 25% decrease of the recovery rate at all rating recovery levels,
would lead to a downgrade of up to four notches for the rated
notes.
Downgrades may occur if the buildup 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 COVID-19 disruption become apparent
for other vulnerable sectors, loan ratings in those sectors would
also come under pressure. Fitch will update the sensitivity
scenarios in line with the view of Fitch's Leveraged Finance team.
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 resilience of the
assigned ratings, with substantial cushion across rating
scenarios.
Fitch also considered the possibility that the stress portfolio,
determined by the transaction's covenants, would further
deteriorate due to the impact of coronavirus mitigation measures.
Fitch believes this circumstance is adequately addressed by the
inclusion of the downwards notching by a single subcategory of all
collateral obligations on Negative Outlook for the purposes of
determining compliance to Fitch WARF at the effective date.
Coronavirus Downside Sensitivity: Fitch has added a sensitivity
analysis that contemplates a more severe and prolonged economic
stress caused by a re-emergence of infections in the major
economies, before halting recovery begins in 2Q21. The downside
sensitivity incorporates the following stresses: applying a notch
downgrade to all Fitch-derived ratings in the 'B' rating category
and applying a 0.85 recovery rate multiplier to all other assets in
the portfolio. Under this downside scenario, the ratings would be
one to four notches below the current 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 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 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.
OCP EURO 2020-4: S&P Assign Prelim. B- Rating on Cl. F Notes
------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to the class
A to F European cash flow CLO notes issued by OCP Euro CLO 2020-4
DAC. At closing the issuer will issue unrated subordinated notes.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
-- Under the transaction documents, the rated notes will pay
quarterly interest unless a frequency switch event occurs.
Following this, the notes will permanently switch to semiannual
payments. The portfolio's reinvestment period will end
approximately three years after closing.
S&P said, "We understand that at closing, the portfolio will be
granular in nature, and well-diversified across obligors,
industries, and asset characteristics when compared to other CLO
transactions we have rated recently. Therefore, we have conducted
our credit and cash flow analysis by applying our criteria for
corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR250 million target par
amount, the covenanted weighted-average spread (3.40%), the
reference weighted-average coupon (4.00%), and the target minimum
weighted-average recovery rate as indicated by the collateral
manager. We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category. Our
credit and cash flow analysis indicates that the available credit
enhancement for the class B to F could withstand stresses
commensurate with higher ratings than those we have assigned.
However, as the CLO will be in its reinvestment phase starting from
closing, during which the transaction's credit risk profile could
deteriorate, we have capped our preliminary ratings assigned to the
notes.
"Under our structured finance ratings above the sovereign criteria,
we consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned preliminary rating levels.
"Until the end of the reinvestment period on July 22, 2023, the
collateral manager is allowed to substitute assets in the portfolio
for so long as our CDO Monitor test is maintained or improved in
relation to the initial ratings on the notes. This test looks at
the total amount of losses that the transaction can sustain as
established by the initial cash flows for each rating, and compares
that with the default potential of the current portfolio plus par
losses to date. As a result, until the end of the reinvestment
period, the collateral manager can, through trading, deteriorate
the transaction's current risk profile, as long as the initial
ratings are maintained.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria
"We expect the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for each
class of notes."
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds, and will be managed by Onex Credit
Partners LLC.
S&P said, "In light of the rapidly shifting credit dynamics within
CLO portfolios due to continuing rating actions (downgrades,
CreditWatch placements, and outlook changes) on speculative-grade
corporate loan issuers, we are making qualitative adjustments to
our analysis when rating CLO tranches to reflect the likelihood
that changes to the credit profile of the underlying assets may
affect a portfolio's credit quality in the near term. This is
consistent with paragraph 15 of our criteria for analyzing CLOs."
To do this, S&P reviews the likelihood of near-term changes to the
portfolio's credit profile by evaluating the transaction's specific
risk factors, including, but not limited to, the percentage of the
underlying portfolio that comes from obligors that:
-- Are rated in the 'CCC' range;
-- Are currently on CreditWatch with negative implications;
-- Are rated with a negative outlook; or
-- Sit within a static portfolio CLO transaction.
Based on S&P's review of these factors, and considering the
portfolio concentration, we believe that the minimum cushion
between this CLO's break-even default rates (BDRs) and scenario
default rates (SDRs) should be 1.0% (from a possible range of
1.0%-5.0%).
As noted, the purpose of this analysis is to take a forward-looking
approach for potential near-term changes to the underlying
portfolio's credit profile.
Taking the above factors into account and following our analysis of
the credit, cash flow, counterparty, operational, and legal risks,
S&P believes that its preliminary ratings are commensurate with the
available credit enhancement for all of the rated classes of
notes.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
to E notes to five of the 10 hypothetical scenarios we looked at in
our recent publication.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak. S&P said,
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, we will update our assumptions and estimates
accordingly."
Ratings List
Class Prelim Prelim Sub (%) Interest rate*
rating amount
(mil. EUR)
A AAA (sf) 145.00 42.00 Three/six-month EURIBOR
plus 1.75%
B-1 AA (sf) 13.00 31.80 Three/six-month EURIBOR
plus 2.20%
B-2 AA (sf) 12.50 31.80 2.65%
C A (sf) 20.50 23.60 Three/six-month EURIBOR
plus 2.80%
D BBB (sf) 14.00 18.00 Three/six-month EURIBOR
plus 4.20%
E BB- (sf) 10.50 13.80 Three/six-month EURIBOR
plus 6.58%
F B- (sf) 5.00 11.80 Three/six-month EURIBOR
plus 7.47%
Sub notes NR 31.00 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
===================
L U X E M B O U R G
===================
GALILEO GLOBAL: Moody's Rates EUR80MM Second Lien Loan 'Caa1'
-------------------------------------------------------------
Moody's Investors Service has assigned a Caa1 rating to Galileo
Global Education Finance S.a.r.l.'s EUR80 million guaranteed second
lien loan due in November 2027. Galileo is Europe's largest higher
education group.
All other ratings of Galileo remain unchanged.
RATINGS RATIONALE
The Caa1 rating assigned to Galileo's EUR80 million second lien
loan due in November 2027 is two notches below the company's B2
corporate family rating, reflecting its subordinated position in
the capital structure. The capital structure includes (1) the
EUR810 million senior secured term loan B due in November 2026,
including the new EUR90 million add-on, (2) the EUR100 million RCF
due in May 2026, ranking pari passu with the TLB, and (3) the EUR80
million senior secured second lien loan due in November 2027. The
TLB and RCF are rated B2, in line with the company's CFR.
Galileo's B2 CFR reflects: (1) its position as one of the largest
European private-pay higher education companies, with a significant
presence in France and Italy; (2) its solid liquidity and sustained
positive free cash flow generation; (3) history of a successful
organic and inorganic growth strategy; (4) strong revenue
visibility resulting from committed student enrollments and
supportive underlying growth drivers for the private-pay education
market; (5) relatively high barriers to entry because of tight
regulations, access to real estate and brand reputation, although
the higher education market is highly competitive and fragmented;
and (6) strong digital footprint, with a high proportion of online
students and blended learning.
The rating also reflects (1) Galileo's very high Moody's-adjusted
gross leverage of 6.8x in fiscal year ended June 2020 (fiscal 2020)
following the recent change of ownership; (2) uncertainty around
the timing and magnitude of the operational disruptions caused by
the coronavirus outbreak; (3) requirement to comply with a highly
regulated environment, and maintenance of quality standards and
academic credibility; (4) continued investment in capital spending
required to integrate acquired schools, increase capacity and
obtain accreditations; (5) strong M&A appetite in a highly
fragmented industry; and (6) history of debt-funded inorganic
growth.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the high leverage of the company and
the operational and financial downside risks related to the
operational disruptions caused by the coronavirus outbreak. A
stabilization of the outlook would require Moody's-adjusted gross
leverage to reduce below 6.0x while maintaining an adequate
liquidity profile at all times.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward pressure on the ratings could develop over time if the
company's Moody's adjusted debt-to-EBITDA declines and is sustained
well below 5.0x and free cash flow to debt improves above 5% while
maintaining an adequate liquidity profile at all times.
Downward pressure on the ratings could arise if earnings
deteriorate or further debt raises prevent a decrease in adjusted
debt-to-EBITDA to comfortably below 6.0x, or if FCF or the
company's liquidity profile weaken. A continuation of the
historical aggressive debt-funded acquisitive growth strategy and
recurring large shareholder distributions could also put negative
pressure on the ratings.
LIST OF AFFECTED RATINGS
Issuer: Galileo Global Education Finance S.a r.l.
Assignment:
Backed Senior Secured Bank Credit Facility, Assigned Caa1
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Business and
Consumer Service Industry published in October 2016.
COMPANY PROFILE
Galileo Global Education Finance S.a.r.l. is an international
schools group offering tertiary private education across more than
40 brands predominantly in France, Italy, Cyprus, Germany and
Mexico. Founded in 2011, the group teaches over 100,000 private-pay
students as of June 2020. An equity consortium formed by CPP
Investments (36%) Tethys Invest (35%), Montagu (16%) and Bpifrance
(10%) along with the senior management team (3%) agreed to buy
Galileo from Providence Private Equity in March 2020 for an
enterprise value of EUR2.3 billion. In the fiscal year ending June
2020, the group is expected to report EUR568 million of revenue and
EUR137.5 million of company adjusted EBITDA.
===========
N O R W A Y
===========
PGS ASA: S&P Lowers ICR to 'CCC', Outlook Negative
--------------------------------------------------
S&P Global Ratings lowered its rating on Norwegian oilfield
services company PGS ASA to 'CCC' from 'B-'.
S&P Global Ratings based its two-notch downgrade on the possibility
that PGS could pursue a distressed exchange offer over the coming
months, as its liquidity position has deteriorated materially in
the past few months. In S&P's view, PGS is unlikely to meet its
debt obligations in September without support from its shareholders
or core banks. The obligations are linked to its revolving credit
facility (RCF) and export credit facilities, and total about $160
million. Moreover, based on its current base-case scenario, S&P
projects a covenant breach in the last quarter of this year. In its
view, the actions that the company has communicated recently will
have a limited impact over the short term, as some of the benefits
will flow through only in early 2021 and beyond.
Results in the first quarter, when COVID-19 was starting to make an
impact, were weak, with EBITDA at $81 million. We have revised our
forecast for 2020 again, given the weaker-than-expected results in
the first quarter of the year and gloomy outlook for the rest of
the year. S&P said, "We now project segment EBITDA of $300
million-$350 million, down from the $400 million-$450 million we
projected in March. At this stage, we expect the results to recover
in 2021, but the pace of the recovery remain unclear."
S&P previously expected the company's new business model to allow
it to accommodate more easily the volatile nature of the seismic
market. In practice, scaling back operations comes at a cost and
adjusting vessel fleet to swift change in demand for seismic
services from the oil majors can see some delay. This has led us to
revise our business risk profile assessment to vulnerable from
weak.
Unsustainable capital structure may lead the company to take less
credit friendly actions in the short term, including a distressed
exchange offer. The weak profitability in 2020 will translate into
a slightly negative free operating cash flow (FOCF; excluding
working capital swings). At the same time, the company carries a
very high reported net debt level ($1.3 billion) and the associated
hefty interest rates on its instruments (6.5% weighted average) as
a burden. In S&P's view, even excluding the company's current
liquidity issues, PGS' capital structure will remain unsustainable.
The company, which completed an equity issue of about $100 million
earlier this year, will have to address its capital structure
again.
S&P said, "In our view, the short period until the company's RCF
facilities mature in September and the regular amortization
payments due on the ECA facilities, will make the discussions with
the banks much more complex, and may push the company to take less
credit-friendly actions, including a distressed exchange offer and
even reaching a standstill agreement. We define both actions as a
default."
The negative outlook indicates the possibility of a default in the
coming months, if PGS decided to pursue a distressed exchange offer
or does not reach an agreement with its lending banks.
S&P said, "Under our base-case scenario, the company is unlikely to
be able to address the $160 million debt due in September in full
and then meet its financial covenants in December. Its current cash
stands at about $265 million. Our projections factor in a reported
EBITDA of $300 million-$350 million (equivalent to an adjusted
EBITDA of $125 million-$175 million), and a slightly negative FOCF
in 2020.
"We would lower the rating, and ultimately rate the company at
selective default ('SD') or default ('D') following a capital
restructuring, including a distressed exchange offer. We view such
a scenario as inevitable within six months.
"We could upgrade the rating by one notch if the company managed to
improve its liquidity situation such that we don't anticipate a
credit or payment crisis in the next 12 months."
===========
R U S S I A
===========
CARCADE LLC: Fitch Hikes LT IDRs to BB+, Outlook Stable
-------------------------------------------------------
Fitch Ratings has upgraded Carcade LLC's Long-Term Issuer Default
Ratings to 'BB+' from 'B+' and removed them from Rating Watch
Positive. The Outlook is Stable.
KEY RATING DRIVERS
The rating actions, including the assignment of a Support Rating of
'3', reflect its assessment of the ability and propensity of
Carcade's new shareholder, JSC Gazprombank (GPB; BBB-/Stable/bb) to
provide support to the company. GPB acquired full control over
Carcade in April 2020 through two of its fully-consolidated
subsidiaries - Gazprombank Leasing JSC (not rated) and Novfintech
LLC (not rated), with a 68% and 32% stake in Carcade,
respectively.
In Fitch's view, GPB's ability to support is reinforced by its
systemic importance and state control through the bank's founder
and key shareholder Gazprom PJSC (BBB/Stable). The agency believes
there is a high probability of state support being available for
the bank, if needed. Carcade's small size relative to the parent
(less than 0.5% of the bank's consolidated assets at end-1Q20),
facilitates GPB's ability to support, and in its view means any
sovereign support (if required) to the bank would be allowed to
flow to Carcade if needed.
This view is based on: (i) GPB's full control; (ii) Carcade's
increasing strategic importance, as a potential foundation for
GPB's auto-leasing business; (iii) significant volume of funding
lines confirmed at RUB21 billion (90% of Carcade's assets at
end-1Q20); and (iv) the negative impact of Carcade's potential
default on GPB's reputation and operations. At the same time, the
currently limited operational integration between the leasing
company and the bank and different branding could constrain GPB's
propensity to support.
RATING SENSITIVITIES
Carcade's ratings are linked to GPB's, hence they will reflect any
negative or positive rating action on the parent bank.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Carcade's support-driven ratings could be upgraded as a result of
significantly higher integration of the company into GPB, or an
indication that Carcade has become more core to GPB's business
model and strategy.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A weakening in GPB's propensity to support Carcade. This could
be triggered, for example, by a reduction of its stake in the
company or a weakening commitment to integrate Carcade into GPB's
business strategy;
- A weakening in GPB's ability to provide support, as well as
extend state support to Carcade. These sensitivities are
highlighted in GPB's latest rating action commentary (see Fitch
Affirms 3 Russian State-Owned FIs' IDRs; Upgrades Sberbank's and
Gazprombank's VRs).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Carcade's IDRs and Support Rating are driven by JSC Gazprombank's
IDR.
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).
EVRAZ PLC: Moody's Alters Outlook on Ba1 CFR to Stable
------------------------------------------------------
Moody's Investors Service has changed to stable from positive the
outlook of EVRAZ plc. Concurrently, Moody's has affirmed Evraz's
Ba1 corporate family rating, Ba1-PD probability of default rating
and the Ba2 senior unsecured ratings of the notes issued by Evraz.
RATINGS RATIONALE
Its change of Evraz's outlook to stable and affirmation of its
ratings primarily reflect Moody's view that the company's leverage
will remain elevated in 2020. As of year-end 2019, Evraz's leverage
rose to 2.0x Moody's-adjusted total debt/EBITDA from 1.3x as of
year-end 2018. This increase was primarily driven by the company's
Moody's-adjusted EBITDA falling by 32% to $2.6 billion in 2019 from
$3.8 billion in 2018 because of lower vanadium and coking coal
prices, as well as due to higher expenses for raw materials, in
particular, iron ore. The company's EBITDA and, consequently,
leverage are sensitive to the volatile prices of steel, coking coal
and vanadium. Moody's expects that fragile market conditions will
put pressure on Evraz's EBITDA in 2020, which will decline below
$2.0 billion. As a result, Evraz's Moody's-adjusted total
debt/EBITDA and Moody's-adjusted net debt/EBITDA will grow slightly
above 3.0x and 2.0x, respectively, as of year-end 2020. Moody's
expects that Evraz's leverage will decline in 2021-22 towards or
slightly below 2.0x-2.5x, supported by recovery in demand and
prices for steel in its key regions of operation.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The steel sector
has been one of the sectors most significantly affected by the
shock given its sensitivity to demand and sentiment. More
specifically, the weaknesses in Evraz's credit profile, including
its exposure to the Americas and Asia and cyclical end-markets such
as the construction industry, which is the major consumer of
Evraz's steel products, have left it vulnerable to shifts in market
sentiment in these unprecedented operating conditions and Evraz
would remain vulnerable if the outbreak continues to spread.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety. Its action also reflects the impact on Evraz of the
breadth and severity of the shock, and the broad deterioration in
credit quality it has triggered.
The volatility in Evraz's EBITDA and leverage is somewhat mitigated
by the company's (1) continuing track record of deleveraging, with
about a $1.0 billion reduction in its total debt over 2016-19,
which Moody's expects to continue in 2020-22, although at a slower
pace; (2) balanced financial policy, which targets to maintain net
debt below $4.0 billion and net debt/EBITDA below 2.0x, while the
company intends not to increase its total and net debt on the
annual basis (which were $4.9 billion and $3.5 billion,
respectively, as of year-end 2019), retaining net debt/EBITDA below
2.0x through the cycle, compared with 1.2x as of year-end 2019; and
(3) strong liquidity and conservative liquidity management, as the
company aims to refinance its debt maturities at least one year in
advance.
Evraz's Ba1 rating factors in (1) its ability to generate positive
post-dividend free cash flow amid challenging market environment;
(2) Evraz's profile as a low-cost integrated steelmaker and miner,
including low cash costs of coking coal and iron ore production,
and a large low-cost producer of vanadium; (3) its high
self-sufficiency in iron ore and coking coal; (4) its product,
operational and geographical diversification; and (5) its strong
market position in long steel products in Russia (including
leadership in rail manufacturing), large diameter pipes and rails
in North America, and vanadium globally.
Evraz's rating also takes into account (1) contraction of demand
for steel in 2020 in all of Evraz' key regions of presence
including Russia and the US, with the construction sector in Russia
and OCTG sector in the US particularly hit; (2) the fact that the
company's public guidance indicates only a minimum dividend amount
and a leverage cap but lacks any target dividend payout ratio,
although Evraz intends to maintain non-negative post-dividend FCF,
tailoring its dividend payouts to the steel and coking coal market
pricing environment and its capital spending; and (3) elevated
capital spending in 2020-22.
The Ba2 ratings of Evraz's senior unsecured notes are one notch
below the company's corporate family rating. This differential
reflects Moody's view that the notes are structurally subordinated
to more senior obligations of the Evraz group, primarily to
unsecured borrowings at the level of the group's operating
companies, including its two core steelmaking plants Evraz NTMK and
Evraz ZSMK.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that deterioration
in Evraz' credit metrics will be temporary, and the company will be
able to restore its credit metrics over a 18-24-month period after
the coronavirus and its macroeconomic and market effects have
passed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade Evraz' ratings if the company (1) maintains
its Moody's-adjusted total debt/EBITDA below 2.0x on a sustainable
basis; (2) adheres to balanced financial and dividend policies and
generates sustainable positive post-dividend free cash flow; and
(3) continues to pursue conservative liquidity management and
maintains healthy liquidity.
Moody's could downgrade the ratings if the company's (1)
Moody's-adjusted total debt/EBITDA rises above 3.0x on a sustained
basis; or (2) liquidity and liquidity management deteriorate
materially.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Steel is among the 11 sectors with an elevated credit exposure to
environmental risk, based on Moody's environmental risk heat map.
The global steel sector continues to face pressure to reduce CO2
emissions and air pollution and will likely incur costs to further
reduce these emissions, which could weigh on its profitability.
Additionally, the move to lighter-weight materials could lead to
lower intensity of steel usage.
Evraz produces steel mostly via the blast furnace/basic oxygen
furnace route, which has a much higher carbon footprint than the
alternative electric arc furnace route. As a global mining and
steel company, Evraz recognises that continuous growth in its
production creates significant environmental obligations. In order
to manage business operations responsibly, the company has declared
a reduction in adverse environmental impacts as one of its priority
goals. In 2017, Evraz adopted the five-year environmental targets
in three areas, which have major environmental impacts in mining
and steel casting processes: water, waste, and greenhouse gas
emissions. As of year-end 2019, Evraz made substantial progress on
the water consumption target, which was down 9.3% compared with the
2018 level. Overall 105.2% of non-mining waste produced in 2019 was
recycled, which was less than the rate of 111.3% in 2018 due to a
reduction in accumulated waste volumes. Through consistently
implementing energy efficiency measures the company lowered the
greenhouse gas intensity per tonne of crude steel cast by 2.0% over
the same period. In 2019, Evraz invested around $28.8 million in
environmental projects.
Governance risks are an important consideration for all debt
issuers and are relevant to bondholders and banks because
governance weaknesses can lead to a deterioration in a company's
credit quality, while governance strengths can benefit a company's
credit profile. Similar to its domestic peers, Evraz has a
concentrated ownership structure. The company is jointly controlled
by Roman Abramovich (28.68%), Alexander Abramov (19.35%) and
Alexander Frolov (9.66%). The concentrated ownership structure
creates the risk of rapid changes in the company's strategy and
development plans, revisions to its financial policy and an
increase in shareholder payouts, which could weaken the company's
credit quality.
The corporate governance risks are mitigated by the fact that Evraz
is a listed company, which demonstrates a good level of public
information disclosure. The risk that the company might favour
shareholders' interests over debt providers' amid substantial
dividend distributions is mitigated by the company's commitment to
a conservative financial policy with total debt and leverage cap.
Corporate governance is exercised through the oversight of
independent members, which make up five out of nine seats on the
board of directors, as well as via the relevant board committees
chaired by independent directors.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Steel Industry
published in September 2017.
Evraz is one of the largest vertically integrated steel, mining and
vanadium companies in Russia. The company's main assets are its
steel plants and rolling mills (in Russia, North America, Europe
and Kazakhstan), and iron ore and coal mining facilities, as well
as trading assets. In 2019, Evraz generated revenue of $11.9
billion (2018: $12.8 billion) and Moody's-adjusted EBITDA of $2.6
billion (2018: $3.8 billion). The company is jointly controlled by
Roman Abramovich (28.68%), Alexander Abramov (19.35%) and Alexander
Frolov (9.66%).
SOVCOMBANK LEASING: Fitch Hikes LT IDRs to BB+, Outlook Neg.
------------------------------------------------------------
Fitch Ratings has upgraded Sovcombank Leasing LLC's Long-Term
Issuer Default Ratings to 'BB+' from 'BB'. The Outlook is
Negative.
KEY RATING DRIVERS
The upgrade of SCBL reflects Fitch's changed view on the propensity
of PJSC Sovcombank (SCB; BB+/Negative/bb+) to provide support to
SCBL. Its ratings have been equalised with SCB's as Moody's now
views SCBL's strategic role to have strengthened. This follows (i)
an increase of ownership by SCB in SCBL to 100%; (ii) subsequent
rebranding of SCBL and change of company's headquarter to SCB's
offices: and (iii) significant steps taken to merge SCB's leasing
business under SCBL, with SCBL becoming the only operating leasing
entity in the group.
This is in addition to close supervision of SCBL by the bank's
management, significant volume of funding provided by SCB (29% of
SCBL's borrowings at end-1Q20), SCBL's record of strong performance
in auto leasing, and SCBL's small size relative to SCB's (less than
1% of assets), making potential support manageable for the
shareholder.
SCBL demonstrated moderate growth in 2019, and successfully reduced
concentration with top-10 lessees at 19% of its total lease book.
Solid performance (return on average equity at 42%), with full
profit retention has helped to improve leverage (debt/tangible
equity at 3.3x). Moody's expects the coronavirus crisis to hit
SCBL's profitability and asset quality, but the resilience of the
business model would partly mitigate the negative effect, in its
view.
RATING SENSITIVITIES
SCBL's ratings are linked to SCB's IDRs, and hence will reflect
corresponding action on the parent as per the latter's
sensitivities outlined in SCB's latest Rating Action Commentary.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A weakening of SCB's propensity to support SCBL triggered, for
example, by reduced strategic importance, lower integration,
reduced ownership and a prolonged period of weak performance.
- A downgrade of SCB's ratings will result in a corresponding
downgrade of SCBL's ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade of SCB's IDRs, although this is currently unlikely,
given the Negative Outlook on SCB's ratings
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
SCBL's IDRs and Support Rating are driven by SCB's.
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).
=========
S P A I N
=========
CODERE SA: S&P Lowers ICR to 'CCC-' on Heightened Default Risk
--------------------------------------------------------------
S&P Global Ratings lowered to 'CCC- from 'CCC' its long-term issuer
credit rating and issue ratings on Codere and its EUR500 million
and $300 million senior secured notes.
In S&P's view, there are increasing risks a default event is
triggered in the next six months.
On April 30, 2020, S&P downgraded Codere to 'CCC', reflecting the
effects of continued challenging market conditions due to the
COVID-19 pandemic and rising risks of a potential default. In S&P's
view, there is increasing risk of a potential default event
occurring, and it notes:
-- Continued weak operating performance and negative free
operating cash flow (FOCF) generation, relative to gross debt of
EUR760 million maturing in 2021, in light of the impact of COVID-19
in the near term;
-- A weakening liquidity position;
-- Covenant pressure; and
-- Bonds trading consistently and significantly below par, with
maturities in November 2021.
Regarding the group's 2021 term maturities, in the context of the
current financial position, performance, rating and bond price
levels, as well as certain refinancing or restructuring events have
the potential to cause or be treated by S&P Global Ratings as
default events. These could include but are not limited to broad
debt restructuring, purchase or exchange of debt below par, and
extension of maturities. However, S&P is not aware of any specific
plans at this stage, and would evaluate any financing initiatives
and any effect, if contemplated.
S&P said, "We expect Codere's credit metrics will materially
deteriorate in 2020, while the recovery for 2021 remains uncertain.
Codere put in place a contingency plan in March 2020, focused on
reducing fixed costs. During the months that stores were fully
closed, April and May, the company managed to reduce costs by about
55%. As governments started to ease lockdowns, Codere resumed part
of its operations during May (Uruguay) and June. Under our base
case, we expect most of Codere's gaming stores to reopen by July
2020. However, there is still uncertainty regarding restrictions to
be followed in stores, customer behavior toward visiting gaming
halls, as well as the risk of a potential second wave of the
COVID-19 pandemic. In our base case, we assume that there will not
be a second wave, that the bounce back of profitability and cash
flows will be slow in second-half 2020, and that Codere's customer
demand will fully recover by mid-to-end 2021. Potential additional
lockdowns or delays in the resumption of operations would lead us
to revise our base case. In line with the above scenario, we
anticipate EBITDA will decline to EUR60 million-EUR80 million in
2020, leading to adjusted leverage of 15.0x-20.0x and materially
negative FOCF. Although uncertainty is high, in our view and under
our current base-case modeling, Codere will be able to
progressively recover profitability during 2021, resulting in
EBITDA of EUR230 million-EUR250 million and positive FOCF
generation. We expect adjusted leverage of 5.0x-5.5x and FOCF to
debt of below 5% during 2021-2022. In our view, despite our base
case of anticipated improvement in the group's performance and
credit metrics in 2021, it will likely seek to address its 2021
maturities following what we forecast to be weak credit metrics and
negative FOCF in 2020. Against this backdrop and continued
macroeconomic uncertainty, we believe there is risk that the
maturities may not be refinanced at par.
"In our view, Codere's liquidity is now under pressure, however,
the group is in the advanced stages of securing additional top-up
facilities. Codere currently has about EUR80 million of cash on
balance sheet and EUR20 million-EUR25 million of monthly cash burn
(excluding interest payments) as long as stores are completely
closed. Although Codere's operations have partially resumed, we
expect the recovery of cash flow to be slow in the coming months.
We understand that the company is advancing in its process to
obtain further liquidity and about an additional EUR100 million
could be raised in the next few weeks. Absent this additional
funding, and if cash flows don't recover once stores reopen or
there is a second wave of the COVID-19 pandemic, we believe that
Codere's cash balance could be exhausted by August-September
2020."
Environmental, social, and governance (ESG) credit factors relevant
to this rating action:
-- Health and safety
S&P said, "The negative outlook reflects our view of the increasing
risk of a default event occurring in the next six months. We are
not aware of any company-specific plans at this stage, but in the
context of its current financial position and performance, as well
as the maturity of the term debt falling in 2021, we believe risks
are increasing.
“We could lower ratings if the company announced or pursued a
debt restructuring or distressed exchange. Additionally we could
lower the ratings if Codere triggered a default event. This could
come through a conventional default--for example nonpayment of
interest, a liquidity crisis, or covenant breach.
"We could raise the rating if we no longer believe there is a high
probability of a default occurring, which includes the potential
for a distressed exchange, or any other form of debt restructuring.
This would also require Codere to demonstrate adequate liquidity
and address potential covenant breaches. We believe the restarting
of the majority of Codere's operations and its demonstration of
sustainable FOCF generation would further support consideration for
an upgrade."
=====================
S W I T Z E R L A N D
=====================
GARETT MOTION: Moody's Confirms B1 CFR, Outlook Negative
--------------------------------------------------------
Moody's Investors Service has confirmed the B1 corporate family
rating and B1-PD probability of default rating of Garrett Motion
Inc., as well as the B1 senior secured bank credit facilities
ratings of its subsidiaries Garrett LX III SARL, and Honeywell
Technologies Sarl. Moody's has also confirmed the senior unsecured
B3 rating of Garrett LX I SARL. The outlook on all ratings changed
to negative from ratings under review.
This rating action concludes the review for downgrade process,
which was initiated on March 26, 2020.
"The rating confirmation is driven by the improved liquidity of
Garrett, following the successful covenant waiver, and the
expectation that a recovery in global light vehicle sales will
allow the company to improve margins and leverage in line with its
expectations for the B1", said Matthias Heck, a Moody's Vice
President -- Senior Credit Officer and Lead Analyst for Garrett.
"The negative outlook reflects the ongoing challenging sector
environment in the automotive industry." added Mr. Heck.
RATINGS RATIONALE
On June 12, 2020, Garrett obtained a covenant waiver on its
September 2018 senior credit facilities, comprising of a seven-year
term loan B facility of $425 million, a five-year term loan A
facility of EUR330 million and a five-year revolving credit
facility of EUR430 million. During the relief period, Garrett's
covenant levels will gradually increase over the next quarters from
5.75x secured net leverage for 2Q 2020 to 11.75x in 1Q 2021 before
gradually declining to 3.5x for 2Q 2022. Moody's expects this to
provide the company with sufficient headroom, so the overall
liquidity situation has become more adequate.
The confirmation of Garrett's B1 rating reflects Moody's
expectation that Garrett remains profitable in a very difficult
year 2020 (in terms of Moody's adjusted EBITA) and recovers margins
into its expected range of 5%-8% in 2021, a level which is
commensurate for the B1. This expectation is supported by (i)
Moody's expectation of a recovery in global light vehicle sales
from 2021, after a sharp drop in 2020, (ii) Garrett's track record
of continued outperformance of its revenues versus global light
vehicle production, which Moody's expects to continue over the next
two years at least, and (ii) the company's actions to mitigate the
negative impact of the global coronavirus outbreak by cost
reduction and variabilization and capex reduction. With this
Moody's also expects that Garrett's leverage (debt/EBITDA, Moody's
adjusted) will come down into a range of 4.0-5.0x in 2021, from
4.0x in 2019 and a spike of around 9x-10x in 2020.
Moody's forecasts for the global automotive sector a 20% decline in
unit sales in 2020, with a steep year-over year contraction in the
first three quarters followed a modest rebound in the fourth
quarter. Moody's expects 2021 industry unit sales to rebound and
grow by approximately 11%. However, future demand for vehicles
could be weaker than its current estimates, the already competitive
environment in the auto sector could intensify further, and Garrett
could encounter greater headwinds than currently anticipated.
The 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 global automotive industry
is one of the sectors that will be most severely impacted by the
outbreak. Moody's regards the coronavirus outbreak as a social risk
under its ESG framework, given the substantial implications for
public health and safety.
The rating balances (i) Garrett's market leading position in
turbochargers for passenger and commercial vehicles, (ii) the
increased market penetration of turbochargers globally, which
should alow the company to outperform global light vehicle sales in
the next few years, (iii) long-standing customer relationships with
original equipment manufacturers.
Garrett's rating is constrained by (i) the company's focus on
rebalancing its product mix toward light vehicle gasoline engines
in recent years, with an expectation of further growth, (ii) a
historically strong presence in light vehicle diesel engines in
Europe, whereas vehicle demand is shifting toward gasoline engines,
(iii) ongoing automotive industry developments in electric
vehicles, although Moody's believes internal combustion engines
will retain a significant share of the vehicle powertrain well into
the next decade, (iv) expected increase in leverage and decrease in
profitability.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects (i) the negative impact that the
global coronavirus outbreak will have on Garrett's operating
performance, credit metrics and liquidity at least into 2021, (ii)
continued challenges in the automotive industry, such as
electrification and disruptive technologies, which require ongoing
high amounts of R&D spending and limit free cash flow generation.
In this environment, it might be difficult for Garrett to improve
credit metrics by the end of 2021 to levels, which Moody's expects
for the B1, including EBITA margins (Moody's adjusted) of 5%-8%
(10.5% at December 2019), leverage of a 4x-5x (debt/EBITDA, Moody's
adjusted; 4.0x at December 2019.
LIQUIDITY
Moody's considers Garrett's liquidity profile as adequate, although
it will materially weaken over the next couple of quarters, given
the significant expected decline in revenue and EBITDA, leading to
downside pressure on cash flow. Nevertheless, cash on balance sheet
amounted to $254 million end of March 2020, supported by a $404
million availability of its revolving credit facility ($66 million
of EUR430 million drawn). With the relief until 2Q 2022, Moody's
expects Garrett to have sufficient headroom to the new covenant
levels. The company does not have short-term debt maturities, so
the total liquidity available of $658 million as of March 2020
should be sufficient to mitigate short-term negative free cash
flows in 2020, before returning to positive free cash flows from
2021 on.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the current market situation, Moody's does not anticipate any
short term positive rating pressure for Garrett Motion. A
stabilization of the market situation leading to a recovery towards
metrics to pre-outbreak levels could lead to positive rating
pressure. More specifically adjusted Debt/EBITDA would have to drop
back sustainably below 4x with an EBITA margin sustainably above
8%.
Further negative pressure would build if Garrett Motion fails to
return to meaningful operating profit generation of the second half
of 2020, thus sustaining adjusted debt/EBITDA above 5x and an
adjusted EBITA margin trending below 5%. Furthermore, a
deterioration in Garrett's liquidity profile would also excerpt
negative ratings pressure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automotive
Supplier Methodology published in January 2020.
LIST OF AFFECTED RATINGS:
Issuer: Garrett LX I SARL
Confirmations, Previously Placed On Review For Downgrade:
BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at B3
Outlook Actions:
Outlook, Changed To Negative From Rating Under Review
Issuer: Garrett Motion Inc.
Confirmations, Previously Placed On Review For Downgrade:
LT Corporate Family Rating, Confirmed at B1
Probability of Default Rating, Confirmed at B1-PD
Withdrawal:
Speculative Grade Liquidity Rating, previously rated SGL-4
Outlook Actions:
Outlook, Changed To Negative From Rating Under Review
Issuer: Garrett LX III SARL
Confirmations, Previously Placed On Review For Downgrade:
Senior Secured Bank Credit Facility, Confirmed at B1
Outlook Actions:
Outlook, Changed To Negative From Rating Under Review
Issuer: Honeywell Technologies Sarl
Confirmations, Previously Placed On Review For Downgrade:
BACKED Senior Secured Bank Credit Facility, Confirmed at B1
Senior Secured Bank Credit Facility, Confirmed at B1
Outlook Actions:
Outlook, Changed To Negative From Rating Under Review
COMPANY PROFILE
Garrett Motion Inc., headquartered in Rolle, Switzerland, is the
spinoff of Honeywell's Transportation Systems business. Garrett
designs, manufactures and sells highly engineered turbocharger and
electric-boosting technologies for light and commercial vehicle
OEMs and the aftermarket. The completion of the spin-off occurred
October 1, 2018. Its shares are listed on the New York Stock
Exchange, with a reported market cap of $505 million as of June 08,
2020. For 2019, the company reported revenue of $3.2 billion and
EBITDA of $480 million.
KONGSBERG AUTOMOTIVE: S&P Stays 'B-' ICR on Watch Negative
----------------------------------------------------------
S&P Global Ratings extended its CreditWatch negative on its 'B-'
issuer and 'B' issue credit ratings on Switzerland-based global
auto supplier Kongsberg Automotive and its debt, respectively.
S&P said, "The capital increase alleviates Kongsberg's near-term
liquidity concerns, but we think additional initiatives have to
materialize in order to further increase its liquidity cushion. On
June 15, an Extraordinary General Meeting approved Kongsberg's
planned capital increase with maximum gross proceeds of Norwegian
krone (NOK) 1 billion (about EUR91 million). It is split into a
private placement that will be completed in the coming days and a
subsequent rights issue with targeted completion by early August.
In our view, the net proceeds of EUR62 million from the first stage
of the equity raise mark a vital step for Kongsberg to shore up its
near-term liquidity position, and, combined with good cash
management during the second quarter, eliminate the risk of a
breach of Kongsberg's springing 3.5x net leverage maintenance
covenant at end-June. In addition, Kongsberg is about to sign an
agreement that would relax the amount of the revolving credit
facility (RCF) that can be used without testing of the net leverage
covenant to EUR56 million from EUR28 million until first-quarter
2021. Furthermore, we anticipate that the second stage of the
capital increase could raise EUR13 million-EUR27 million of
additional funding by August. Moreover, Kongsberg is in the final
stages of implementing a factoring program that could yield up to
EUR80 million to fund the build-up of accounts receivable during a
re-start of normal operations and ramp-up of production. Because we
believe Kongsberg will successfully complete these steps, Kongsberg
should reach an adequate liquidity position for the next 12 months.
However, at this time, these initiatives are still incomplete, and
we think the company's liquidity buffer for the next 12 months is
currently too thin to absorb any last-minute setbacks. We capture
this uncertainty in the extension of the CreditWatch negative on
the ratings on Kongsberg and its debt." At end-May, Kongsberg had
about EUR85 million of cash, but EUR67 million drawn under its
EUR70 million RCF. With these funds, plus the inflow from the
private placement, the company needs to pay down the RCF
sufficiently to avoid covenant testing, and will have to cover our
estimates of intra-year working capital needs of up to EUR50
million, capital expenditure of EUR55 million-EUR60 million, and
slightly negative funds from operations over the next 12 months.
Stronger credit metrics in 2021 may not mitigate downside to the
rating if FOCF remains materially negative. S&P said, "In line
with our forecast for global light and commercial vehicle markets,
we currently expect Kongsberg's topline to rebound in 2021, with
10%-15% growth after an expected steep decline of 20%-25% in 2020.
This will be accompanied by a recovery in its EBITDA margins, as
adjusted by S&P Global Ratings, to 6%-8% next year, from our 2020
forecast of 0%-2%. As a result, we currently project that the
company's adjusted debt to EBITDA could recede to less than 7x in
2021 from a peak of more than 30x in 2020, but it is poised to stay
significantly above the pre-COVID-19 level of 3.6x in 2019. We also
see a risk that FOCF could remain materially negative next year,
after our expectation of negative EUR80 million-EUR120 million in
2020, particularly since we believe the risks for the industry and
Kongsberg's key markets remain skewed to the downside." Weak
operating performance leading to a combination of still-high
adjusted leverage and materially negative FOCF in 2021 would raise
questions about the long-term sustainability of Kongsberg's capital
structure.
CreditWatch
S&P sadi, "We expect to resolve the CreditWatch once Kongsberg
concludes its pending initiatives to secure further liquidity, and
we have a clearer picture of recovery prospects for Kongsberg's
earnings and cash flows, which we expect by August.
"We are likely to affirm the issuer credit rating if Kongsberg
unlocks at least EUR50 million of additional funding through a
combination of factoring, further equity, and higher flexibility
with its RCF. An affirmation will also hinge on our assumption,
based on our market outlook, that the company will be able to
strengthen FOCF to about break-even in 2021, alongside adjusted
leverage of less than 7x.
"We could still lower the issuer credit rating by one notch if
Kongsberg restores adequate liquidity without improving its FOCF
substantially in 2021, and its adjusted leverage remains high.
"Although highly unlikely at this stage, we could lower the issuer
credit rating by more than one notch if Kongsberg fails to secure
sufficient additional funding through the aforementioned
initiatives.
"Upon CreditWatch resolution, we will likely equalize the rating on
Kongsberg's EUR275 million senior secured notes, which are
presently rated 'B', with the issuer credit rating. This is because
we think the additional factoring debt we expect Kongsberg to issue
will dilute recovery prospects for the notes."
===========================
U N I T E D K I N G D O M
===========================
BLACKHOUSE GRILL: Falls Into Administration, Seeks Buyer
--------------------------------------------------------
Katherine Price at The Caterer reports that Living Ventures'
Blackhouse and Newgate Restaurants has appointed administrators,
which includes the group's Blackhouse Grill restaurants in Leeds,
Glasgow and Manchester and Olive restaurant in Liverpool.
Administrators Duff & Phelps were appointed on June 18 to both
companies and will be leading the process, The Caterer relates.
The Blackhouse business was due to exit a Company Voluntary
Arrangement (CVA) process it had agreed with creditors in March
this year, but was prevented from doing so by the coronavirus
crisis and enforced closure of the restaurants in March, The
Caterer discloses.
According to The Caterer, Scott Grimbleby, managing director of the
businesses, said: "We have explored every avenue possible to try to
save the business, however we have been left with no choice but to
take this incredibly difficult decision now. We are working with
all our teams to try and support them as best we can through this
time. The administrators will be seeking to find a buyer for the
businesses."
The Blackhouse steakhouse brand recorded post-tax losses of GBP1.3
million in the year to March 30, 2018, followed by a CVA which saw
the closure of four sites, The Caterer notes. Later that year its
Manchester restaurants Artisan and Manchester House were both
placed into administration following a "period of difficult
trading", The Caterer recounts.
CBC: Financial Difficulties Prompt Administration
-------------------------------------------------
Greenock Telegraph reports that a multi-million pound project to
build a cruise ship terminal at Greenock has ran aground.
According to Greenock Telegraph, contractors hired by Inverclyde
Council to navigate the high-profile Ocean Terminal development
have gone into administration.
A report by council chief executive Aubrey Fawcett went before
members of the policy and resources executive sub-committee on June
17, Greenock Telegraph relates.
In it, Mr. Fawcett informs the committee that builder CBC has hit
major financial difficulties and that administrators have axed the
contract, Greenock Telegraph discloses.
Mr. Fawcett, as cited by Greenock Telegraph, said: "In May, the
council was advised that the contractor CBC had been put in
administration.
"The council entered into discussions with the administrators of
CBC to see if there was an opportunity to continue the contract.
"Unfortunately, we have been advised that the administrators have
chosen to terminate this contract."
CROYDON PARK: Enters Administration Due to Covid-19 Impact
----------------------------------------------------------
Katherine Price at The Caterer reports that the Croydon Park hotel
in London has fallen into administration due to the impact of
Covid-19, with all 91 members of staff made redundant.
On June 15, James Bennett and Steve Absolom from KPMG's
restructuring practice were appointed joint administrators to
Kasterlee UK, which traded as Croydon Park hotel, a four-star hotel
with 211 bedrooms, The Caterer relates.
According to The Caterer, while the hotel had been closed to
visitors since lockdown measures were introduced on March 23, it
had been used in recent weeks by the local authority to provide
temporary accommodation for key workers, as well as shielded
accommodation for vulnerable people in the local community.
However, with that arrangement coming to an end on June 14, and
with the impact of Covid-19 having a significant impact on the
company's cash position, directors took the decision to appoint
administrators, The Caterer notes.
The administrators are speaking with employees to provide them with
all available support and assistance and are considering their
options to realise value for the business, The Caterer discloses.
ENQUEST PLC: Moody's Cuts CFR to Caa1 & PDR to Caa1-PD
------------------------------------------------------
Moody's Investors Service downgraded EnQuest plc's corporate family
rating to Caa1 from B3 and probability of default rating to Caa1-PD
from B3-PD, as well as the ratings assigned to the $677.5 million
high yield notes due 2022 to Caa2 from Caa1. The outlook on all
ratings was changed to stable from ratings under review.
This concludes the review for downgrade initiated by Moody's on 25
March 2020.
RATINGS RATIONALE
The rating downgrade reflects Moody's expectation that despite the
rebound in oil prices since mid-April and the significant cuts in
operating costs and capital expenditure initiated by EnQuest in
order to lower its free cash flow breakeven to $33/barrel (bbl) for
2020, which equates to c.$25/bbl for the remainder of the year, and
$27/bbl for 2021, an extended period of low oil prices averaging
$35/bbl over the 2020-2021 period would require approximately a
third of the final amortisation of $360 million due under the
group's credit facility in October 2021 to be refinanced.
Taking into account the group's hedge book, which covers
approximately 8.1 million barrels (bbl) of oil (about 40% of 2020
entitlement production) at an average price of c.$45/bbl, and
assuming an average production of 60 thousand barrel of oil
equivalent per day (kboepd), Brent of $35/bbl and a unit operating
cost of around $18/boe, Moody's estimates that EnQuest would post
Moody's-adjusted EBITDA of around $500 million in 2020. After capex
and Magnus contingent consideration payment, EnQuest would generate
Moody's-adjusted FCF of around $150 million. In this context,
Moody's notes that EnQuest has no further amortisation payment due
on its senior credit facility in 2020 and should be able to meet
the next April 2021 amortisation of $65 million out of internally
generated cash flow and available cash. At year-end 2020, Moody's
estimates that the group's adjusted total debt to EBITDA would be
close to 5.1x compared to 3.1x in 2019.
EnQuest's ratings continue to be underpinned by its robust
operating track record as an efficient independent UK North Sea oil
and gas company. The group's reserve base and production profile
have been significantly enhanced by the acquisition of the
remaining 75% interest in Magnus in 2018 and recent improved
performance at the Kraken field, even though its 2P reserve life
remains under 10 years of 2020 projected production, underlining
the need to bring new resources to production to offset the decline
rates of mature fields.
STRUCTURAL CONSIDERATIONS
EnQuest's major borrowings, which included the $475 million senior
term loan and RCF, $742 million high-yield bond and $225 million
retail bond at year-end 2019, are guaranteed by essentially all of
its producing subsidiaries. The senior facility is secured by share
pledges and floating charges of the subsidiary guarantors. The
guarantees and security pledges are subject to a priority of claim
in accordance with their terms, ranking the facility most senior
with the senior notes effectively subordinated.
The Caa2 rating on the senior notes is one notch below the Caa1
CFR, reflecting the substantial amount of secured liabilities
ranking ahead of the senior notes within the capital structure. The
notes are senior unsecured guaranteed obligations and are
subordinated in right of payment to all existing and future senior
secured obligations of the guarantors, including their obligations
under the senior secured facility. However, the amount of secured
debt ranking ahead of the senior notes will decrease as the term
loan gets repaid and has reduced very significantly since 2016.
RATINGS OUTLOOK
The stable outlook reflects Moody's expectation that efforts to
control operating costs and reduce capital expenditure in the near
term will help EnQuest remain free cash flow positive even in the
absence of any meaningful oil price recovery, and limit any further
deterioration in its leverage metrics.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While an upgrade is unlikely at this juncture, EnQuest's ratings
could be upgraded should a sustained recovery in operating
profitability boost FCF generation, allowing to the group to
strengthen its liquidity profile and permanently reduce
Moody's-adjusted gross leverage below 5x.
Conversely, the ratings could come under pressure should persistent
weakness in cash flow generation lead to some further deterioration
in the group's liquidity profile and leverage metrics.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Independent
Exploration and Production Industry published in May 2017.
EnQuest plc is an independent oil and gas development & production
company with the majority of its asset base on the United Kingdom
Continental Shelf region of the North Sea. In 2019, it reported
average daily production of 68.6 thousand barrels of oil equivalent
(boe). As of 2019 year-end, EnQuest had 2P reserves of 213 million
boe, of which 89% were located in the UKCS in the North Sea, where
it has interests in 17 production licences. In addition, EnQuest
holds interests in Malaysia, which include the PM8/Seligi and PM409
Production Sharing Contracts, both of which the group operates. In
2019, EnQuest reported business performance revenue of $1,712
million and EBITDA of $1,007 million.
FINSBURY SQUARE 2020-2: Fitch Gives B-(EXP) Rating on Class X Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Finsbury Square 2020-2 plc's (FSQ2020-2)
notes expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already received.
Finsbury Square 2020-2 PLC
- Class A; LT AAA(EXP)sf Expected Rating
- Class B; LT AA-(EXP)sf Expected Rating
- Class C; LT A-(EXP)sf Expected Rating
- Class D; LT BBB(EXP)sf Expected Rating
- Class E; LT BB-(EXP)sf Expected Rating
- Class F; LT CCC(EXP)sf Expected Rating
- Class X; LT B-(EXP)sf Expected Rating
TRANSACTION SUMMARY
FSQ2020-2 is a securitisation of owner-occupied and buy-to-let
mortgages originated by Kensington Mortgage Company and backed by
properties in the UK. The transaction features recent originations
of both OO and BTL loans originated up to April 2020 and the
residual origination of the Finsbury Square 2017-2 PLC
transaction.
KEY RATING DRIVERS
Prime OO and BTL Originations: The provisional pool comprises a mix
of recent and more seasoned OO and BTL loans. The most recent
portion includes loans originated in March and April 2020
representing about 41% of the pool. All loans come from offers that
have been issued pre-lockdown. About 36% of the pool is more
seasoned and corresponds to the residual origination of FSQ2017-2.
Negative Asset Performance Outlook: Moody's expects a generalised
weakening in borrowers' ability to keep up with mortgage payments
due to the economic impact of the coronavirus pandemic and the
related containment measures. Fitch's base-case scenario is for a
global recession in 2020 driven by sharp contractions in major
economies with a rapid increase in unemployment. The slump in
global economic activity is close to reaching its trough but
returning to economic normality is likely to be slow. Despite
significant stimulus, Fitch expects the return to pre-coronavirus
GDP could take more than two years in the US and Europe.
Under this scenario, Fitch reviewed the rating assumptions
applicable to FSQ2020-2's mortgage portfolio, in particular the
foreclosure frequency. At 'Bsf', a multiple of 1.3x for the OO
sub-pool and 1.4x for the BTL sub-pool was applied to standard FF
assumptions to broadly cover the peak of defaults observed after
the global financial crisis in the UK prime and BTL sectors plus a
buffer.
For higher rating levels, the expected changes are more modest as
the corresponding rating assumptions are already meant to withstand
more severe shocks. The multiple applied at 'AAAsf' is 1.15x for
the OO sub-pool and 1.1x for the BTL sub-pool. This is a variation
to Fitch's criteria.
Self-employed Borrowers: Kensington may lend to self-employed
individuals with only one year's income verification completed or
the latest year's income if profit is rising. Moody's believes this
practice is less conservative than at other prime lenders. An
increase of 1.3x to the FF for self-employed borrowers with
verified income was applied instead of 1.2x, as per its criteria.
Impact of Payment Holidays: About 27% of the portfolio's loans were
on payment holidays as at 19 May. In line with Financial Conduct
Authority guidance, Kensington granted payment holidays based on a
borrower's self-certification. Moody's expects providing borrowers
with a payment holiday of up to six months to have a temporary
positive impact on loan performance. However, the transaction may
face some liquidity constraints if a large number of borrowers opt
for a payment holiday.
Fitch has tested the ability of the liquidity reserves to cover
senior fees, net swap payments and class A and B note interest, and
found that payment interruption risk would be mitigated.
The criteria variation applied to FF assumptions is aimed at
addressing increased default risk from the pandemic, whether those
follow a period of payment holidays or not. Fitch considered
scenarios related to a temporary decrease in collections, longer
recovery timings and temporary reduction of prepayments in
assigning the ratings. These adjustments also constitute criteria
variations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The broader global economy remains under stress due to the
coronavirus pandemic, with surging unemployment and pressure on
businesses stemming from social-distancing guidelines. Recent
government measures related to the coronavirus pandemic introduced
a suspension of tenant evictions for three months and mortgage
payment holidays for BTL landlords, also for up to three months.
Fitch acknowledges the uncertainty of the path of
coronavirus-related containment measures and has therefore
considered more severe economic scenarios.
As outlined in "Fitch Ratings Coronavirus Scenarios: Baseline and
Downside Cases" (published on 29 April 2020), Fitch considers a
more severe downside coronavirus scenario for sensitivity purposes
whereby a more severe and prolonged period of stress is assumed
with a halting recovery from 2Q21. Under this scenario, Fitch
assumed a 15% increase in weighted average foreclosure frequency
(WAFF) and a 15% decrease in weighted average recovery rate (WARR).
The results indicate a downgrade of the notes of up to two
notches.
The transaction's performance may be affected by changes in market
conditions and the economic environment. Weakening asset
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce credit enhancement
available to the notes.
Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain note ratings
susceptible to negative rating actions depending on the extent of
the decline in recoveries. Fitch conducts sensitivity analyses by
stressing both a transaction's base-case FF and RR assumptions, and
examining the rating implications on all classes of issued notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing credit enhancements and
potential upgrades. Fitch tested an additional rating sensitivity
scenario by applying a decrease in the FF of 15% and an increase in
the RR of 15%. The impact on the subordinate notes could be an
upgrade of up to three notches.
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.
CRITERIA VARIATION
Kensington may choose to lend to self-employed individuals with
only one year's income verification completed. Fitch believes this
practice is less conservative than that at other prime lenders. For
OO mortgages, Fitch applied an increase of 1.3x to FF for
self-employed borrowers with verified income instead of the 1.2x
increase, as per its criteria.
Moody's expects a generalised weakening in borrowers' ability to
keep up with mortgage payments due to the economic impact of the
coronavirus pandemic and the related containment measures. As a
result, Fitch has reviewed the rating assumptions applicable to the
mortgage portfolio of FS20Q20-2, in particular the FF. For
high-investment-grade ratings, the expected changes are more modest
as the corresponding rating assumptions are meant to withstand very
severe shocks.
Fitch has therefore applied only a limited buffer to its FF
assumptions in the rating categories above 'Asf'. Greater relative
changes were applied to the base-case and non-investment-grade
ratings as the underlying assumptions are more influenced by
economic cycles. An increase of 1.3x and 1.15x to the FF for 'Bsf'
and 'AAAsf' rating, respectively, for the OO sub-pool and 1.4x and
1.1x for the BTL sub-pool, were applied to the corresponding
assumptions for the portfolio.
Fitch has tested scenarios of significant reduction in collections
of interest and principal in the 30%-to- 50% range and for up to
the first 12 months, designed to capture liquidity constraints,
placing immediate reliance on the transaction's general reserve
fund to cover costs and interest payments and the risk of payment
holidays being taken in higher numbers and potentially for periods
beyond six months should guidance to lenders change.
In the first 12 months, a zero-prepayment rate has been considered
to capture the decreased likelihood of borrowers prepaying their
mortgages given greater financial strain and fewer mortgage
products being available.
Finally, greater recovery timings of up to six months applied
across rating scenarios unilaterally have been factored into the
cash flows analysis; this sought to capture a likely backlog in
potential repossession cases and likely forbearance for borrowers
facing repossession given the coronavirus pandemic.
The ratings based on the assumptions excluding the set of criteria
variations, has a one- to two-notch impact on the model-implied
ratings of the class B, C, D, E notes and a category-level impact
on the class X notes, with no rating impact for the class A and F
notes.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E as prepared by
Deloitte LLP. The third-party due diligence described in Form 15E
focused on comparison and re-computation of certain characteristics
with respect to the mortgage loans and related mortgaged properties
in the data file. Fitch considered this information in its analysis
and it did not have an effect on Fitch's analysis or conclusions.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted on
the asset portfolio information and concluded that there were no
findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of Kensington's
origination files during the FS2020-1 rating process and found the
information contained in the reviewed files to be adequately
consistent with the originator's policies and practices, and the
other information provided to the agency about the asset
portfolio.
Overall, Fitch's assessment of the asset pool information relied
upon for the agency's rating analysis according to its applicable
rating methodologies indicates that it is adequately reliable.
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).
JAGUAR LAND: Moody's Confirms B1 CFR, Outlook Negative
------------------------------------------------------
Moody's Investors Service has confirmed the B1 corporate family
rating, B1-PD probability of default rating and B1 bond ratings of
Jaguar Land Rover Automotive Plc. The outlook has been changed to
negative from ratings under review.
This rating action concludes a review for possible downgrade that
began on March 25, 2020.
RATINGS RATIONALE
The challenges posed by the coronavirus outbreak will significantly
weigh on the company's performance for fiscal year 2021 (March).
Free cash flow is likely to turn visibly negative while
Moody's-adjusted debt/EBITDA is likely to rise again above 10x,
which is higher than Moody's expectation of below 6.0x for a B1.
However, the company was also on a positive trajectory prior to the
coronavirus outbreak and Moody's believes that a degree of market
recovery, ongoing model launches including refreshes and the
company's extended transformation programme will provide potential
for the company to achieve metrics commensurate with the B1 rating
by fiscal 2022. The rating also continues to factor in the Tata
ownership, which Moody's views as supportive for the rating.
The negative outlook reflects the continued significant risks for
the business, including the uncertainty regarding future demand
recovery, JLR's relative performance and execution as well as
external risks such as a potential "no-deal" Brexit at the end of
2020. The company's cash flow also remains negative and the debt
burden is rising, posing challenges to restoring a financial
profile more commensurate with the rating. Accordingly, any further
negative developments could cause a downgrade.
Moody's currently expects JLR's sales and profits to fall
significantly in the first quarter of fiscal 2021 followed by some
easing of operating conditions thereafter. As a result,
Moody's-adjusted EBITA margin is likely to turn negative in fiscal
2021. The company has reacted with a reduction of investment
spending, working capital and cost efficiency actions (project
Charge+) and Moody's understands that production is increasingly
resuming across its operations, in particular Europe and the UK,
with a focus on higher profit vehicles and also considering demand.
The number of reopened dealerships has also been rising.
Moody's also expects a large cash outflow during the March-June
quarter with some recovery thereafter as working capital
normalizes. Accordingly, free cash flow after interest and capital
expenditures will turn visibly negative again for at least fiscal
2021. Deleveraging and the ability to generate sustained positive
free cash flow in fiscal 2022 and thereafter will significantly
depend on the company's ability to improve profit margin while
maintaining investment discipline. The pace of market recovery will
also be critical to the overall trajectory of the business. The
company's financial debt burden has also continued to rise over the
past years from GBP3.7 billion in fiscal 2018 to GBP5.9 billion as
of March 2020 and could rise further to bridge the negative free
cash flow. For example, the company announced an additional GBP567
equivalent unsecured revolving credit facility entered into by its
China subsidiary and a GBP63 million increase in the fleet buy back
facility, both completed during fiscal Q1 2021.
While Moody's forecasts for the global automotive sector a 20%
decline in unit shipments during calendar year 2020 with a steep
year-over year contraction in the second and third calendar
quarters and a 11% recovery in 2021, there remains considerable
uncertainty regarding future demand. In addition, JLR faces a
number of industry and company-specific risks in the coming 12-24
months, including (i) uncertainty around the success of new and
refreshed models including its electrified range, (ii) execution
risks in restoring its profitability, (iii) some impact from
reduced investments and some resulting delays for certain
(electric) model launches, (iv) challenge to achieve emission
compliance requirements and avoid fines and (v) remaining
significant exposure to a potential "no-deal" Brexit that could
alter its competitive position in key markets such as the EU.
Moody's also currently assumes that there has been no sustained
damage to the company's dealership networks from the lockdown
measures and that the production ramp up can be executed without
disruptions.
Moody's continues to view JLR as important to both its parent Tata
Motors and the broader Tata Group, which Moody's also views as a
supporting factor for the rating. Additionally the rating remains
supported by (i) the company's strong brand names with a track
record of successfully launching new models, (ii) the broad
consumer acceptance of its core models including the Range Rover,
Range Rover Sport, Evoque, Velar, Jaguar F-PACE, E-PACE, Land Rover
Discovery and Discovery Sport and (iii) broad geographic profile in
terms of sales including emerging markets and China.
JLR's liquidity profile is adequate, but will weaken in March-June
quarter due to seasonal effects, severe demand reductions and
production shutdowns. As of March 2020, the company had GBP3.7
billion of cash and short-term investments on the balance sheet and
access to the fully undrawn and committed GBP1.9 billion revolving
credit facility due July 2022 with no financial covenants. However,
Moody's also currently expects some recovery in cash flows during
the following quarters. Meaningful working capital volatility,
particularly between Q4 (January to March) and Q1 (April to June)
due to higher seasonal sales and manufacturing activity in Q4
requires generally meaningful ongoing cash. While the company's
debt maturity profile is generally well balanced, the next larger
maturities include quarterly GBP31.25 million of UKEF loan
repayments, the GBP163 million of fleet buy back facility in Q3
FY2020 (although JLR intends to negotiate a renewal), the GBP300
million bond maturing in January 2021 and GBP400 million bond due
February 2022. In June 2020, the company additionally announced
that it had arranged a GBP567 million equivalent 3-year revolving
credit facility with Chinese banks through its Chinese subsidiary.
The facility carries some covenants, but Moody's expects the
company to retain sufficient headroom.
ESG CONSIDERATIONS
The 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 global automotive industry
is one of the sectors that will be most severely impacted by the
outbreak and Moody's regards the coronavirus outbreak as a social
risk under its ESG framework, given the substantial implications
for public health and safety. In addition, meeting regional
emission requirements, particularly those relating to CO2, is one
of the most pressing and challenging objectives facing the auto
industry over the medium to long term. Continued tightening of
emissions standards and regulations across most major markets,
driven by environmental concerns, also require investments into
greater efficiency and electrification to maintain compliance and
avoid fines or additional costs. Accordingly, environmental
considerations remain an important driver, because these trends
restrict the company's ability to reduce certain investments. The
varying pace of adoption for hybrid and electric vehicles among
different consumers also presents a challenge. As a governance
consideration, Moody's factors in the support from JLR's parent.
STRUCTURAL CONSIDERATIONS
The instrument ratings remain aligned with the CFR given the
essentially all unsecured, guaranteed and pari passu capital
structure of the company, although Moody's notes some secured debt
financing from the fleet financing facility first entered into in
Q3 FY2020 (GBP100 million) and upsized to GBP163 million in Q1
FY2021. The additional revolving credit facility arranged with
Chinese banks through Jaguar Land Rover (China) Investment Co.,
Ltd., a wholly-owned subsidiary of Jaguar Land Rover Holdings
Limited (a guarantor for the rated bonds). This facility is
unsecured and not guaranteed by Jaguar Land Rover Automotive plc or
any of its subsidiaries. However, Moody's understands Jaguar Land
Rover (China) Investment Co., Ltd. sells JLR vehicles imported into
China and also owns 25% of Chery Jaguar Land Rover, the JV with
Chery Motors in China (with rated bond guarantor Jaguar Land Rover
Limited owning the remaining 25% of this JV).
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
JLR's ratings could come under further negative pressure in case of
(1) failure to demonstrate material improvements in profitability
by fiscal 2022; (2) Moody's-adjusted debt/EBITDA to consistently
exceed 6.0x; or (3) a deterioration in JLR's liquidity position and
continued high negative free cash flows. Conversely, positive
pressure could arise should JLR be able to (1) reduce leverage
(Debt/EBITDA) to below 5.0x; (2) improve Moody's-adjusted EBITA
margin sustainably to above 2% and (3) materially reduce negative
free cash flow towards a sustained positive free cash flow
profile.
LIST OF AFFECTED RATINGS
Confirmations:
Issuer: Jaguar Land Rover Automotive Plc
Corporate Family Rating, Confirmed at B1, previously on review for
downgrade
Probability of Default Rating, Confirmed at B1-PD, previously on
review for downgrade
Senior Unsecured Regular Bond/Debenture, Confirmed at B1,
previously on review for downgrade
Outlook Actions:
Issuer: Jaguar Land Rover Automotive Plc
Outlook, changed to Negative from Ratings Under Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automobile
Manufacturer Industry published in June 2017.
JLR is a UK manufacturer of premium passenger cars and all-terrain
vehicles under the Jaguar and Land Rover brands. JLR operates six
sites in the UK, one in Slovakia and has a joint venture in China
as well as some contract manufacturing. The company generated 42%
of fiscal 2020-unit (retail) sales in Europe (of which 21% in the
UK), 25% in North America, 18% in China (including JV) and 15% in
other overseas markets, resulting in total revenue of GBP23 billion
for fiscal 2020.
SUITE HOSPITALITY: Enters Administration After Rescue Talks Fail
----------------------------------------------------------------
Business Sale reports that Suite Hospitality, which operates hotels
in Exeter, Windsor and Belper, has entered administration after
negotiations with landlords and creditors stalled.
Ian Walker and Julie Palmer of Begbies Traynor Group plc have been
appointed as administrators by company directors, Business Sale
relates.
The company operates three hotels, the Buckerell Lodge Hotel in
Exeter, the Harte and Garter Hotel in Windsor and the Makeney Hall
Hotel in Belper in the Peak District. All are operated under
leases. It employs 110 staff, most of whom are currently under
furlough.
According to Business Sale, the administrators said Suite
Hospitality suffered a disappointing 2019 and had been in talks
with its major creditors and landlords as it sought to safeguard
the future of the business. However, two of its larger landlords
could not agree terms, leading to the decision to appoint
administrators, Business Sale notes.
"We are working very hard to transfer the business to new owners
and preserve as many jobs as possible at the three hotels,
including Exeter's Buckerell Lodge," Business Sale quotes joint
administrator Ian Walker as saying.
Administrators have requested that any customers who have paid
deposits to Suite Hospitality for future events make contact with
them, Business Sale states.
In a statement, the company, as cited by Business Sale, said:
"Until such time that we have considered all available options for
the Business, we will not be taking any further bookings across any
of the Group's Hotels in Windsor, Belper & Exeter. Any future
bookings for rooms, weddings or other events are suspended until
further notice."
In its accounts filed to the year ending December 30 2018, Suite
Hospitality reported fixed assets at around GBP2.4 million, with
current assets at GBP772,736 and creditors of GBP2.6 million,
Business Sale 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.
[*] Record Number of Distressed Debt Funds Seek to Raise Cash
-------------------------------------------------------------
Katherine Doherty and Kelsey Butler at Bloomberg News report that a
record number of distressed debt funds are seeking to raise fresh
capital as the coronavirus pandemic sparks dislocation in the
credit markets.
Seventy funds that focus on troubled companies are looking to bring
in a combined US$72 billion of capital amid a possible prolonged
downturn, Bloomberg relays, citing London-based research firm
Preqin. That's more than double the capital targeted by distressed
debt funds during 2019, and is higher than any point since 2016,
Bloomberg notes.
*********
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
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