/raid1/www/Hosts/bankrupt/TCREUR_Public/200722.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
Wednesday, July 22, 2020, Vol. 21, No. 146
Headlines
F R A N C E
KAPLA HOLDINGS: Moody's Confirms B2 CFR, Alters Outlook to Stable
G E R M A N Y
SCHAEFFLER AG: S&P Cuts LT Issuer Rating to BB+, Off Watch Neg.
WESER-METALL: Creditors Commence Exclusive Sale Talks with Glencore
WIRECARD AG: Ex-COO May Still Be in Belarus or Russia
WIRECARD AG: Taps Alix Partners for Forensic Investigation
I R E L A N D
ADAGIO IV: Fitch Affirms Class F Notes at B-sf
BARINGS EURO 2017-1: Moody's Confirms Class F Notes Rating at B2
JUBILEE CLO 2017-XVIII: Fitch Keeps B- Class F Notes Rating on RWN
LIBRA DAC: DBRS Confirms BB Rating on Class E Notes
MONTMARTRE EURO 2020-2: S&P Assigns Prelim B-(sf) Rating to F Notes
I T A L Y
ITAS MUTUA: Fitch Maintains BB+ LT IDR on Watch Negative
P O R T U G A L
CAIXA ECONOMICA: DBRS Lowers Sub. Debt Rating to CCC
R U S S I A
BANK KUZNETSKY: Bank of Russia Cancels Banking License
PROMINVESTBANK: Bank of Russia Cancels Banking License
S P A I N
DEOLEO SA: S&P Upgrades ICR to B- Following Debt Restructuring
RMBS SANTANDER 6: DBRS Finalizes CCC Rating on Class B Notes
SANTANDER CONSUMER 2014-1: Fitch Affirms Serie E Notes at CCsf
U N I T E D K I N G D O M
COMET BIDCO: Moody's Cuts CFR to Caa1, Outlook Negative
HUNTSWORTH PLC: S&P Assigns B- LT ICR to Parent, Outlook Stable
POLARIS 2020-1: Moody's Gives (P)Caa3 Rating on Class X Notes
POLARIS 2020-1: S&P Assigns Prelim BB (sf) Rating to Cl. F Notes
STONEGATE PUB: Moody's Affirms CFR at B3, Outlook Stable
TOWER BRIDGE 2020-1: Moody's Gives Ba1 Rating to Class E Notes
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F R A N C E
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KAPLA HOLDINGS: Moody's Confirms B2 CFR, Alters Outlook to Stable
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Moody's Investors Service has confirmed the ratings of KAPLA
HOLDING S.A.S., a French-based equipment rental company, including
the B2 corporate family rating, the B2-PD probability of default
rating and the B2 instrument ratings on the guaranteed senior
secured notes due 2026. At the same time, Moody's has changed the
outlook to stable from ratings under review. This concludes the
review process initiated on April 28, 2020.
"Its rating action reflects Kiloutou's better-than-expected
operating performance since its network re-opened that will support
lower cash burn than initially projected in 2020" said Florent
Egonneau, Moody's AVP-Analyst and lead analyst for Kiloutou. "The
company's liquidity profile also improved as a result of the
temporary covenant holiday and the EUR125 million additional
liquidity provided by the banks through the state-guaranteed loan"
added Mr. Egonneau.
RATINGS RATIONALE
The equipment rental sector has been one of the sectors affected by
the shock of the coronavirus outbreak given restrictions on
movement in some European countries, including France, and the
related temporary halt to activity on construction sites and other
projects. More specifically, Kiloutou has seen a material decline
in its operating performance during the lockdown period with April
revenues 75% lower than last year. However, the recovery has been
stronger than anticipated since the re-opening of its network with
revenues above 90% of prior year levels since the end of May thanks
to the fast ramp-up of construction sites and other projects across
previously affected countries. As a result, Moody's now expects
Kiloutou to generate EBITDA in the range of EUR170-180 million in
2020, up EUR40 million compared to Moody's previous projections
that will translate into a lower cash burn of EUR35-45 million.
On July 20, 2020, Kiloutou announced that it reached an agreement
with banks for a EUR125 million state-guaranteed loan. This new
debt, issued by Kiloutou S.A.S., will be guaranteed 90% by the
French state. Following an initial one-year maturity, the company
will have the option to either repay the loan or extend it up to
five years under new terms. In parallel, Kiloutou announced that it
obtained the consent from its lenders to waive the financial
covenant on the revolving credit facility agreement for the period
ending September 30, 2020.
In the short-term, Moody's views positively the additional
liquidity and covenant holiday that is expected to give the company
enough flexibility to operate through the coronavirus crisis.
However, Moody's expectations remain unchanged for the medium-term
with a weakening of the macroeconomic environment that will impact
the equipment rental sector in 2021, once the current pipeline of
projects is cleared. Given the projected deterioration,
Moody's-adjusted leverage will remain above 4.5x for an extended
period of time.
LIQUIDITY
Moody's considers Kiloutou's liquidity to be adequate and supported
by: (i) EUR208 million of cash on balance sheet as of May 28, 2020,
which included the proceeds from the full drawdown on its EUR120
million revolving credit facility; (ii) EUR125 million of
additional liquidity thanks to the state-guaranteed loan obtained
in July 2020; (iii) a certain level of capex flexibility and a
history of maintaining positive EBITDA-capex through the cycle; and
(iv) no meaningful debt amortization before 2026.
As part of the documentation, the super senior RCF contains a
springing financial covenant based on net leverage set at 7.2x and
tested on a quarterly basis only when the RCF is drawn by more than
40%. Under the revised base case, Moody's now expects Kiloutou to
remain in compliance with this covenant in the next 12-18 months,
especially given the covenant waiver agreed for the period ending
September 30, 2020.
ESG CONSIDERATIONS
The equipment rental sector is one of the sectors affected by the
rapid and widening spread of the coronavirus outbreak and
deteriorating global economic outlook given the temporary halt to
activity on construction sites and other projects in some
countries, including France, and the sensitivity to the
macroeconomic environment. Moody's regards the coronavirus outbreak
as a social risk under its ESG framework, given the substantial
implications for public health and safety.
STRUCTURAL CONSIDERATIONS
Using Moody's Loss Given Default for Speculative-Grade Companies
methodology, the PDR is B2-PD, in line with the CFR, reflecting
Moody's assumption of a 50% recovery rate as is customary for
capital structures including bonds and bank debt. The senior
secured notes are rated B2 in line with the CFR due to a limited
amount of super senior RCF ranking ahead in the structure. Moody's
considers that the new state-guaranteed loan ranks pari passu with
the senior secured notes because it is borrowed by operating
companies which also guarantee the notes.
RATING OUTLOOK
The stable outlook includes Moody's expectations that Moody's
adjusted leverage will return below 5.5x in the next 12-18 months.
It also includes Moody's expectation for an improved free cash flow
generation thanks to a reduction in the company's capex plan after
a period of unprecedented disruptions. Moody's considers that the
company will not execute any major debt-funded acquisitions or
shareholders distributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure on the rating could occur if: (i) the company
successfully achieves further international diversification; (ii)
operating performance improves to historical levels; (iii) Moody's
adjusted leverage declines below 4.5x on a sustainable basis; and
(iv) liquidity remains adequate.
Negative pressure on the rating could occur if: (i) the company's
operational performance further deteriorates; (ii) Moody's adjusted
leverage remains above 5.5x in the next 12-18 months; and (iii)
free cash flow generation remains negative leading to weaker
liquidity.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Equipment and
Transportation Rental Industry published in April 2017.
COMPANY PROFILE
Founded by Franky Mulliez in 1981, Kiloutou is the number two
operator in the French equipment rental market and the number three
in Europe. The company serves more than 300,000 customers through a
network of 532 branches across five countries. Kiloutou has a focus
on tools and light equipment, construction equipment, access
equipment and services. In 2019, the company generated EUR737
million of revenues and EUR244 million of EBITDA.
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G E R M A N Y
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SCHAEFFLER AG: S&P Cuts LT Issuer Rating to BB+, Off Watch Neg.
---------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer rating on
Schaeffler AG and parent IHO Verwaltungs to 'BB+' from 'BBB-'; and
its issue rating on Schaeffler's unsecured debt to 'BB+' from
'BBB-' and its issue rating on IHO's secured debt to 'BB-' from
'BB+'.
S&P is removing all ratings from CreditWatch with negative
implications, where they were placed April 3, 2020.
Schaeffler's earnings and cash flow will deteriorate materially in
2020 as COVID-19 affects all segments. S&P said, "We project that
the company's sales will decline by 16%-18% in 2020, following
extensive lockdowns globally in first-half 2020. We believe that
the auto OEM segment, which accounts for about 63% of total sales,
will suffer the most. This reflects our assumption of a significant
decline in auto unit sales this year of 20%-25% in Europe and about
21% in the U.S., which should lead to similar declines in auto
production volumes. In 2019, Europe and the Americas represented
about 66% of the auto OEM segment's sales. We think Schaeffler's
industrial business (24% of 2019 sales) will also see revenue fall
by 9%-11% this year due to the recessionary environment. We
currently assume that global real GDP will contract by 3.5% in
2020. In contrast, we believe that the company's aftermarket
business (13% of 2019 sales) will decline significantly in
first-half 2020, but should offer better recovery prospects in
second-half 2020 thanks to the countercyclical nature of the auto
replacement parts business. Based on our understanding of
Schaeffler's cost structure and accounting for the company's
countermeasures to curb fixed costs, we believe that Schaeffler's
adjusted EBITDA margin will drop to about 10% in 2020 from an
already-weak 12.5% in 2019 (14.5% excluding EUR325 million of
restructuring charges). The company's free operating cash flow
(FOCF) will likely drop significantly compared with EUR521 million
in 2019. Nevertheless, our forecast reduction in capital
expenditure (capex) by about one-third should allow FOCF to remain
positive in 2020."
S&P said, "We project credit metrics will recover in 2021, but not
enough to maintain an investment-grade rating. The steep decline
in 2020 EBITDA and FOCF will cause a material deterioration in the
group's near-term credit metrics, with FFO to debt at the IHO level
dropping to 12%-14% this year, after an already-weak about 19% in
2019; and FOCF to debt at Schaeffler AG sliding to 2%-4% from about
10% in 2019. We forecast that IHO's adjusted FFO to debt will
remain below 25% until at least 2022. This is primarily due to our
expectation of a protracted recovery in Schaeffler's key
end-markets, particularly with auto production volumes unlikely to
return to 2019 levels before 2022-2023. This is reflected in our
2021 projections for Schaeffler that are still 6%-9% below 2019
levels for revenue and 9%-11% below 2019 levels for adjusted EBITDA
(excluding 2019 restructuring charges)." This will also cap the
company's FOCF next year, with adjusted FOCF to debt of 8%-10%.
Lower dividends from Continental AG will also dent IHO's credit
metrics in 2020, and potentially in 2021. S&P said, "Our adjusted
credit metrics for IHO fully consolidate 75%-owned Schaeffler, but
only include the dividends received from German auto supplier and
tire manufacturer Continental, in which IHO indirectly owns a 46%
stake. Continental has reduced its dividend per share to EUR3.00 in
2020 (total payout of EUR600 million) from EUR4.75 in 2019. This
represents a significant impediment to IHO's cash flow on top of
our expectations of lower cash flow at Schaeffler. Continental has
not disclosed its dividend policy for 2021, but our expectations of
a difficult macroeconomic environment in 2021 lead us to assume
stable dividends at best."
The product portfolio's transformation and high dividends will
constrain long-term deleveraging at the Schaeffler level. The
combined effect of subdued auto production volumes and a shift in
product mix toward the company's e-mobility products will likely
prevent it from restoring an EBITDA margin above 15% in the next
couple of years. Schaeffler's e-mobility products are less
profitable than its traditional products because the company
operates more as an integrator than as a parts manufacturer. This
should be somewhat offset by lower capex needs of 6%-7% of sales,
compared with 7.2% in 2019 and 8.7% in 2018, thereby allowing the
company to generate sizable positive FOCF. Nevertheless, S&P
expects Schaeffler will use the majority of cash flow to pay
dividends, which will likely slow deleveraging prospects the
company recovers from COVID-19.
S&P said, "We align our long-term issuer credit rating on
Schaeffler with that on parent IHO. We assume that IHO group's
stake in Continental will not change, and that Schaeffler will not
integrate Continental into its operations. Therefore, our
assessment of Schaeffler's business risk profile does not factor in
any meaningful synergies from a potential tie-up with Continental,
or any integration risk. As a result, our view of IHO's credit
quality is determined by our assessment of Schaeffler's business
and financial risk, as well as the additional leverage from the
debt at IHO."
The market value of the Continental stake is volatile but provides
some financial flexibility. As of June 30, 2020, the market value
of IHO's participation in Continental amounted to about EUR7.9
billion, compared with an adjusted debt for the IHO group of about
EUR9.2 billion. S&P does not anticipate that IHO will monetize its
stake in Continental in the near term, but it can represent a
positive factor when benchmarking the group against peers.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety
S&P said, "The stable outlook reflects our view that, following
extremely challenging market conditions in 2020, the recovery of
key end-markets and tight cost control will enable the group to
restore its FFO to debt to the 20%-25% range and adjusted debt to
EBITDA to less than 4x over the next 12-18 months
"We could lower our ratings on Schaeffler and IHO if Schaeffler's
operating performance does not sufficiently recover from the trough
expected in 2020, coupled with little or no dividend payments from
Continental, such that the group's FFO to debt remains below 15%
and debt to EBITDA exceeds 4.5x in 2021.
"We could raise our rating if Schaeffler's operating performance
improves such that the group's FFO to debt exceeds 25% and its debt
to EBITDA remains below 3.5x sustainably."
WESER-METALL: Creditors Commence Exclusive Sale Talks with Glencore
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Michael Hogan at Reuters reports that creditors of insolvent German
lead producer Weser-Metall on July 14 said they have decided to
start exclusive talks about selling the plant to commodity group
Glencore.
Weser-Metall GmbH in Nordenham produces about 105,000 tonnes of
lead annually and is one of Europe's main lead producers. It filed
for insolvency in May after the coronavirus crisis cut metal
demand, Reuters relates.
Weser-Metall, previously part of French metals producer Recylex,
stopped production over the weekend, Reuters recounts.
According to Reuters, a statement said a meeting of creditors on
July 14 decided the process to find a potential buyer was ended.
A takeover by Glencore could also depend on negotiations with the
German regional government of Lower Saxony, which includes the
plant, about liabilities for past environmental pollution from the
plant, Reuters notes.
WIRECARD AG: Ex-COO May Still Be in Belarus or Russia
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Tom Sims at Reuters reports that former Wirecard chief operating
officer Jan Marsalek travelled to Minsk soon after he was suspended
and may still be in Belarus or Russia, a German magazine reported
on July 18.
Mr. Marsalek, a central figure in the collapse of the German
payments company, remains at large but his whereabouts have been a
mystery, Reuters notes.
According to Reuters, Der Spiegel cited travel information it had
obtained in cooperation with Bellingcat and other investigative
outfits.
Der Spiegel reported Mr. Marsalek arrived at Minsk airport at 2
minutes past midnight on June 19, Reuters relays. So far, no
departure has been registered in an immigration data bank, which
Der Spiegel said suggested Marsalek remains in Belarus or Russia,
Reuters states.
Wirecard filed for insolvency last month owing creditors EUR4
billion (US$4.6 billion) after disclosing a EUR1.9 billion hole in
its accounts that its auditor EY said was the result of a
sophisticated global fraud, Reuters recounts.
As reported by the Troubled Company Reporter-Europe on June 26,
2020, The Financial Times reported that Wirecard filed for
insolvency after the once high-flying payments group revealed a
multiyear fraud that led to the arrest of its former chief
executive. In a remarkable collapse of a company once regarded as
a European tech champion, Wirecard said in a statement on June 25
that it faced "impending insolvency and over-indebtedness", the FT
related. According to the FT, EY on June 25 said there were
"clear
indications that this was an elaborate and sophisticated fraud,
involving multiple parties around the world in different
institutions, with a deliberate aim of deception", adding that
"even the most robust and extended audit procedures may not
uncover
a collusive fraud". Wirecard's admission that EUR1.9 billion of
cash was missing was the catalyst for the company's unravelling,
the FT noted.
WIRECARD AG: Taps Alix Partners for Forensic Investigation
----------------------------------------------------------
Arno Schuetze and Alexander Huebner at Reuters report that German
payments company Wirecard has hired Alix Partners for a forensic
investigation of the accounting scandal that led to its collapse,
people close to the matter said.
The blue-chip company filed for insolvency last month, owing
creditors almost US$4 billion after disclosing a EUR1.9 billion
(US$2.17 billion) hole in its accounts that auditor EY said was the
result of a sophisticated global fraud, Reuters recounts.
According to Reuters, sources said Alix Partners has been given the
task of finding out which Wirecard employees, including executive
and supervisory board members, knew what about potentially criminal
incidents.
Findings are expected to be valuable in any litigation against
Wirecard managers and claims to their directors and officers
liability (D&O) insurers, Reuters states.
The sources added the investigation is being carried out with the
consent of the insolvency administrator for Wirecard, Reuters
notes.
While the forensic investigation is at an early stage, the
administrator is making headway with asset sales as he tries to
recoup money owed to creditors of the payments company, the market
capitalization of which peaked at EUR24 billion in 2018, Reuters
discloses.
As reported by the Troubled Company Reporter-Europe on June 26,
2020, The Financial Times reported that Wirecard filed for
insolvency after the once high-flying payments group revealed a
multiyear fraud that led to the arrest of its former chief
executive. In a remarkable collapse of a company once regarded as
a European tech champion, Wirecard said in a statement on June 25
that it faced "impending insolvency and over-indebtedness", the FT
related. According to the FT, EY on June 25 said there were
"clear
indications that this was an elaborate and sophisticated fraud,
involving multiple parties around the world in different
institutions, with a deliberate aim of deception", adding that
"even the most robust and extended audit procedures may not
uncover
a collusive fraud". Wirecard's admission that EUR1.9 billion of
cash was missing was the catalyst for the company's unravelling,
the FT noted.
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I R E L A N D
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ADAGIO IV: Fitch Affirms Class F Notes at B-sf
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Fitch Ratings has revised Adagio IV CLO junior class of notes'
Outlook to Negative from Stable. All notes have been affirmed.
Adagio IV CLO DAC
- Class A1-R XS1693938422; LT AAAsf; Affirmed
- Class A2-R XS1693939156; LT AAAsf; Affirmed
- Class B1-R XS1693939743; LT AAsf; Affirmed
- Class B2-R XS1693940675; LT AAsf; Affirmed
- Class C-R XS1693941210; LT Asf; Affirmed
- Class D-R XS1693942028; LT BBBsf; Affirmed
- Class E-R XS1693942614; LT BBsf; Affirmed
- Class F XS1117288875; LT B-sf; Affirmed
TRANSACTION SUMMARY
Adagio IV CLO DAC is a cash flow collateralised loan obligation.
The portfolio is managed by Axa Investment Managers, Inc. The
reinvestment period ended in October 2019.
KEY RATING DRIVERS
Portfolio Performance Deterioration: The revision of Outlook to
Negative reflects the negative rating migration of the underlying
assets in light of the COVID-19 pandemic. The transaction is
currently 1% below par value. The Fitch-calculated weighted average
rating factor was 36.4 as of July 11, 2020, up from 36.27 in the
June 22, 2020 trustee report, and above a maximum of 34. The 'CCC'
category or below assets represented 7.8% as of July 11, 2020, also
above its 7.5% limit. Assets with a Fitch-derived rating on
Negative Outlook represent 31% of the portfolio balance. The
exposure to defaulted assets is EUR2 million. All other tests are
passing, including the coverage tests, collateral quality test and
portfolio profile tests.
End of Reinvestment Period: The transaction has deleveraged by
EUR10.5 million since its reinvestment period ended in October
2019. However, reinvestments from sale proceeds of credit-impaired
obligations, credit-improved obligations and from unscheduled
principal proceeds have been constrained due to the breach of the
Fitch 'CCC' limit. Nevertheless, one asset was purchased for EUR1.5
million on July 3, 2020. The manager confirmed this non-compliant
trade was then sold out of the portfolio.
'B'/'B-' Portfolio Credit Quality: Fitch assesses the average
credit quality of obligors in the 'B'/'B-' category. The Fitch
weighted average rating factor of the current portfolio is 36.4.
Under the COVID-19 baseline scenario the Fitch WARF would increase
to 39.9.
High Recovery Expectations: The portfolio comprises all senior
secured obligations. Fitch views the recovery prospects for these
assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch weighted average recovery rate of the
current portfolio as calculated by the agency is 63.15%.
Diversified Portfolio: The portfolio, which has started to
amortised by EUR12 million, remains well- diversified. The top 10
obligors represent 17.7% and the largest single obligor represents
2.5% of the portfolio balance.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, as well as to
assess their effectiveness, including the structural protection
provided by excess spread diverted through the par value and
interest coverage tests. The transaction was modelled using the
current portfolio based on both the stable and rising interest-rate
scenarios and the front-, mid- and back-loaded default timing
scenario as outlined in Fitch's criteria. In addition, Fitch also
tests the current portfolio with a coronavirus sensitivity analysis
under the stable interest-rate scenario only to estimate the
resilience of the notes' ratings.
When conducting cash flow analysis, Fitch's model first projects
the portfolio's scheduled amortisation proceeds and any prepayments
for each reporting period of the transaction life assuming no
defaults (and no voluntary terminations, when applicable). In each
rating stress scenario, such scheduled amortisation proceeds and
prepayments are then reduced by a scale factor equivalent to the
overall percentage of loans that are not assumed to default (or to
be voluntarily terminated, when applicable). This adjustment avoids
running out of performing collateral due to amortisation and
ensures all of the defaults projected to occur in each rating
stress are realised in a manner consistent with Fitch's published
default timing curve.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A 25% reduction of the mean default rate (RDR) at all rating
levels and a 25% increase in the recovery rate (RRR) at all rating
levels would result in an upgrade of up to five notches.
- Except for the class A1-R and A2-R notes, which are already at
the highest 'AAAsf' rating, upgrades may occur in case of
better-than-expected portfolio credit quality and deal performance,
leading to higher credit enhancement and excess spread available to
cover for losses in the remaining portfolio. If asset prepayment is
faster than expected and outweighs the negative pressure from the
portfolio's migration, this could increase credit enhancement and
add upgrade pressure to notes rated below 'AAAsf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A 25% increase of the RDR at all rating levels by and a 25%
decrease of the RRR at all rating levels will result in downgrades
of no more than five notches.
- Downgrades may occur if the build-up of credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high level
of default and portfolio deterioration.
As the disruptions to supply and demand due to COVID-19 become
apparent for other vulnerable sectors, loan ratings in those
sectors would also come under pressure. Fitch will update the
sensitivity scenarios in line with the view of its Leveraged
Finance team.
Coronavirus Baseline Scenario Impact
Fitch carried out a sensitivity analysis on the current portfolio
to envisage the coronavirus baseline scenario. The agency notched
down the ratings for all assets with corporate issuers on Negative
Outlook regardless of sector. They represent 31% of the portfolio
balance. This scenario shows resilience of the ratings of all the
classes of notes, except the class E and F notes, with a
substantial shortfall at their current ratings, leading to the
Outlook change.
Coronavirus Downside Scenario
In addition to the base scenario Fitch has defined a downside
scenario for the current crisis, whereby all ratings in the 'Bsf'
category would be downgraded by one notch and recoveries would be
lower by a haircut factor of 15%. This scenario would result in
downgrades of up to five 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.
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.
BARINGS EURO 2017-1: Moody's Confirms Class F Notes Rating at B2
----------------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by Barings Euro CLO 2017-1 B.V.:
EUR23,600,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2030, Confirmed at Baa2 (sf); previously on Apr 20, 2020 Baa2
(sf) Placed Under Review for Possible Downgrade
EUR32,850,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2030, Confirmed at Ba2 (sf); previously on Apr 20, 2020 Ba2
(sf) Placed Under Review for Possible Downgrade
EUR14,100,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2030, Confirmed at B2 (sf); previously on Apr 20, 2020 B2 (sf)
Placed Under Review for Possible Downgrade
Moody's has also affirmed the ratings on the following notes:
EUR271,000,000 Class A-1 Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Aug 30, 2017 Assigned Aaa
(sf)
EUR5,750,000 Class A-2 Senior Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on Aug 30, 2017 Assigned Aaa (sf)
EUR9,000,000 Class B-1 Senior Secured Floating Rate Notes due 2030,
Affirmed Aa2 (sf); previously on Aug 30, 2017 Assigned Aa2 (sf)
EUR30,950,000 Class B-2 Senior Secured Fixed Rate Notes due 2030,
Affirmed Aa2 (sf); previously on Aug 30, 2017 Assigned Aa2 (sf)
EUR27,000,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2030, Affirmed A2 (sf); previously on Aug 30, 2017 Assigned A2
(sf)
Barings Euro CLO 2017-1 B.V., issued in August 2017, is a
collateralised loan obligation backed by a portfolio of mostly
high-yield senior secured European loans. The portfolio is managed
by Barings (U.K.) Limited. The transaction's reinvestment period
will end in October 2021.
RATINGS RATIONALE
Its action concludes the rating review on Classes D, E and F notes
initiated on April 20, 2020.
The rating affirmations on Classes A-1, A-2, B-1, B-2 and C notes
and rating confirmations on Classes D, E and F notes are primarily
a result of the expected losses of the notes, which remain
consistent with their current ratings despite the risks posed by
credit deterioration and loss of collateral coverage observed in
the underlying CLO portfolio, which have been primarily prompted by
economic shocks stemming from the coronavirus outbreak.
Since the coronavirus outbreak widened in March, the decline in
corporate credit has resulted in a significant number of
downgrades, other negative rating actions, or defaults on the
assets collateralising the CLO. The deterioration in credit quality
of the portfolio is reflected in an increase in Weighted Average
Rating Factor and of the proportion of securities from issuers with
ratings of Caa1 or lower. According to the trustee report dated May
2020 [1], the WARF was 3655, compared to value of 3134 in February
2020 [2]. Securities with ratings of Caa1 or lower currently make
up approximately 12.16% of the underlying portfolio. In addition,
the over-collateralisation levels have weakened across the capital
structure. According to the trustee report of May 2020 [1] the
Class A/B, Class C, Class D, Class E and Class F OC ratios are
reported at 134.52%, 123.96%, 115.99%, 106.47% and 102.85% compared
to March 2020 [3] levels of 139.11%, 128.18%, 119.94%, 110.10% and
106.35% respectively. Moody's notes that the transaction remains in
compliance with the following collateral quality tests: Diversity
Score, Weighted Average Recovery Rate, Weighted Average Spread and
Weighted Average Life.
Moody's analysed the CLO's latest portfolio and took into account
the recent trading activities as well as the full set of structural
features of the transaction and concluded that the current ratings
on the Class D, E and F notes continue to reflect the expected
losses of the notes.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analysed the underlying collateral pool as having a
performing par and principal proceeds balance of EUR430.2 million,
defaulted par of EUR21.5 million, a weighted average default
probability of 29.7% (consistent with a WARF of 3779), a weighted
average recovery rate upon default of 44.58% for a Aaa liability
target rating, a diversity score of 56 and a weighted average
spread of 3.82%.
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.
Moody's notes that the June 2020 trustee report [4] was published
at the time it was completing its analysis of the May 2020 data.
Key portfolio metrics such as WARF, diversity score, weighted
average spread and life remain relatively similar. However, the
Class D, Class E and Class F OC ratios are now reported as 117.52%,
107.87% and 104.2%, which demonstrates a month on month
improvement.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the global economy gradually recovers
in the second half of the year and future corporate credit
conditions generally stabilize.
The rapid spread of the coronavirus outbreak, the government
measures put in place to contain it and the deteriorating global
economic outlook, have created a severe and extensive credit shock
across sectors, regions and markets. Its analysis has considered
the effect on the performance of corporate assets from the collapse
in global economic activity in the second quarter and a gradual
recovery in the second half of the year. However, that outcome
depends on whether governments can reopen their economies while
also safeguarding public health and avoiding a further surge in
infections. 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 note,
in light of uncertainty about credit conditions in the general
economy. In particular, the length and severity of the economic and
credit shock precipitated by the global coronavirus pandemic will
have a significant impact on the performance of the securities. CLO
notes' performance may also be impacted either positively or
negatively by: (1) the manager's investment strategy and behaviour;
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.
JUBILEE CLO 2017-XVIII: Fitch Keeps B- Class F Notes Rating on RWN
------------------------------------------------------------------
Fitch Ratings is maintaining Jubilee CLO 2017-XVIII B.V.'s class E
and F notes on Rating Watch Negative while affirming the rest. The
Outlook on the class D notes is revised to Negative from Stable.
Jubilee CLO 2017-XVIII B.V.
- Class A XS1619572164; LT AAAsf; Affirmed
- Class B XS1619572917; LT AAsf; Affirmed
- Class C XS1619573568; LT Asf; Affirmed
- Class D XS1619574376; LT BBBsf; Affirmed
- Class E XS1619574962; LT BBsf; Rating Watch Maintained
- Class F XS1619575183; LT B-sf; Rating Watch Maintained
TRANSACTION SUMMARY
The transaction is a cash flow CLO mostly comprising senior secured
obligations. The transaction is in its reinvestment period and the
portfolio is actively managed by the asset manager.
KEY RATING DRIVERS
Portfolio Performance Deterioration Slows
The portfolio's quality deterioration has slowed with the weighted
average rating factor calculated by Fitch as of July 15, 2020 at
37.3, largely unchanged from 37.2 as of June 6, 2020. This follows
a reported WARF of 35.2 as of 4 May 2020 in light of the
coronavirus pandemic. The transaction is currently slightly below
par by about 2%. Assets with a Fitch- derived rating of 'CCC'
category or below (including unrated assets and excluding defaults
reported by the trustee) represent 9.3%, while assets with a
Fitch-derived rating on Negative Outlook is at 30% of the portfolio
balance. The Fitch WARF test and the 'CCC' limit test have failed
as per Fitch calculation while all other tests including the
coverage tests are passing.
Coronavirus Baseline Scenario Impact
Fitch carried out a sensitivity analysis on the current 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
current ratings of the class A to C notes with cushions. This
supports the affirmation with a Stable Outlook for these tranches.
The class D to F notes however show failure under the coronavirus
sensitivity analysis. As a result, the Outlook on class D is
revised to Negative to reflect a mild shortfall in the sensitivity
analysis while the RWN is maintained for both the class E and F
notes.
'B'/'B-' Portfolio Credit Quality: Fitch assesses the average
credit quality of obligors in the 'B'/'B-' category.
High Recovery Expectations: Ninety-eight per cent of the portfolio
comprises senior secured obligations. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The Fitch's weighted average
recovery rate of the current portfolio is 63.6%.
Diversified Portfolio: The portfolio is reasonably diversified with
the exposure to top-10 obligors and the largest obligor at about
17% and 2% respectively. The top-three industry exposure is 32%.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, as well as to
assess their effectiveness, including the structural protection
provided by excess spread diverted through the par value and
interest coverage tests. The transaction was modelled using the
current portfolio based on both the stable and rising interest-rate
scenarios and the front-, mid- and back-loaded default timing
scenarios as outlined in Fitch's criteria. The analysis for the
portfolio with a coronavirus sensitivity analysis was only based on
the stable interest-rate scenario including all default timing
scenarios.
When conducting cash flow analysis, Fitch's model first projects
the portfolio's scheduled amortisation proceeds and any prepayments
for each reporting period of the transaction life assuming no
defaults (and no voluntary terminations, when applicable). In each
rating stress scenario, such scheduled amortisation proceeds and
prepayments are then reduced by a scale factor equivalent to the
overall percentage of loans that are not assumed to default (or to
be voluntarily terminated, when applicable). This adjustment avoids
running out of performing collateral due to amortisation and
ensures all of the defaults projected to occur in each rating
stress are realised in a manner consistent with Fitch's published
default timing curve.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
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 was customised to the
portfolio limits as specified in the transaction documents. Even if
the actual portfolio shows lower defaults and smaller 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's 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 in the
remaining portfolio.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a larger
loss expectation than initially assumed due to unexpectedly high
levels of defaults and portfolio deterioration. As the disruptions
to supply and demand due to COVID-19 become apparent for other
sectors, loan ratings in those sectors would also come under
pressure. Fitch will update the sensitivity scenarios in line with
the view of its Leveraged Finance team. Should the transaction
deteriorate materially within a short period and not be offset by
the deleveraging of the transaction, the class D to F notes may be
downgraded.
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
single-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. For typical European CLOs this
scenario results in a category-rating change for all ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognised Statistical Rating Organisations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the 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.
LIBRA DAC: DBRS Confirms BB Rating on Class E Notes
---------------------------------------------------
DBRS Ratings GmbH confirmed the ratings on all classes of the
Commercial Mortgage-Backed Floating Rate Notes issued by Libra
(European Loan Conduit No. 31) DAC (the Issuer) as follows:
-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
DBRS Morningstar maintained a Stable trend.
The rating confirmations are based on slightly improving loan
metrics and a relatively good collection rate of 79% in spite of
the current Coronavirus Disease (COVID-19) outbreak.
The Issuer is the 78.2% securitization of a senior commercial real
estate loan advanced by Morgan Stanley Bank N.A. in 2018. The
original sponsors were Starwood Capital and M7 Real Estate, who
sold the portfolio to Blackstone Group (the Sponsor) shortly after
the issuance via a permitted change of control. The Sponsor
purchased the portfolio to add it on its Mileway pan-European
logistics platform.
As of the Q2 2020 interest payment date (IPD), the outstanding
whole loan balance has been reduced to EUR 223.9 million because of
scheduled amortization, which has come into effect in the second
year of the loan term. The underlying properties remain the same
and the servicer did not undertake any further valuation since the
previous review. As such, the senior loan's loan-to-value (LTV)
ratio has reduced slightly to 63.2% from 63.5% at the last review
and is comfortably above the cash trap and default LTV covenant of
74.25% and 80%, respectively. The vacancy has slightly reduced to
11.0% from 12.5% since the last review with the gross annual rent
increasing to EUR 33.4 million from EUR 31.5 million during the
same period. The debt yield (DY) at Q2 2020 was 10.7%, 1.8% above
the stepped-up DY cash covenant of 8.9%.
In the context of the current coronavirus pandemic, the servicer
has provided some updates on the portfolio's collection data. As of
the April 2020 IPD, 79% of the rent has been collected and 21 out
of 44 relief requests have been agreed, representing a total EUR
0.2 million rent loss. A similar amount of rental income has been
postponed or switched to monthly payment. DBRS Morningstar
maintained its cash flow of EUR 22.2 million and stressed value of
EUR 305.6 million at last review. The value haircut on the March
2019 valuation is 28.9%.
As the current haircut on the property values largely exceed DBRS
Morningstar's coronavirus-linked light industrial/logistics sector
medium-term value decline assumption, which is based on DBRS
Morningstar's moderate scenario, DBRS Morningstar did not make any
coronavirus-related value adjustment in its analysis.
The senior loan will mature on January 26, 2021 but can be extended
subject to certain conditions. The first extension will prolong the
loan maturity to 15 August 2022 and the second extension option
will push the maturity date further to August 15, 2023. The notes'
final maturity is on 26 October 2028.
The Coronavirus Disease (COVID-19) and the resulting isolation
measures have caused an economic contraction, leading to sharp
increases in unemployment rates and income reductions for many
tenants and borrowers. DBRS Morningstar anticipates that vacancy
rate increases and cash flow reductions may arise for many CMBS
borrowers, some meaningfully. In addition, commercial real estate
values will be negatively affected, at least in the short term,
impacting refinancing prospects for maturing loans and expected
recoveries for defaulted loans.
Notes: All figures are in Euros unless otherwise noted.
MONTMARTRE EURO 2020-2: S&P Assigns Prelim B-(sf) Rating to F Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Montmartre Euro CLO 2020-2 DAC's class A, B-1, B-2, C, D, E, and F
notes. At closing, the issuer will also issue unrated subordinated
notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The portfolio's reinvestment period will end approximately 2.9
years after closing.
The preliminary ratings assigned to the notes reflect our
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 2,506.73
Default rate dispersion 676.53
Weighted-average life (years) 5.16
Obligor diversity measure 80.51
Industry diversity measure 15.28
Regional diversity measure 1.50
Transaction Key Metrics
Current
Total par amount (mil. EUR) 300.00
Defaulted assets (mil. EUR) 0.00
Number of performing obligors 92
Portfolio weighted-average rating derived
from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 0.00
Covenanted 'AAA' weighted-average recovery (%) 37.07
Covenanted weighted-average spread (%) 3.40
Covenanted weighted-average coupon (%) 4.00
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
be well-diversified on the effective date, primarily comprising
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 EUR300 million par amount,
the covenanted weighted-average spread of 3.40%, the covenanted
weighted-average coupon of 4.00%, and the covenanted
weighted-average recovery rates for all rating levels designated 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.
"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.
"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 preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"At closing, we consider that the transaction's legal structure
will be bankruptcy remote, in line with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B 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. In our view the
portfolio is granular in nature, and well-diversified across
obligors, industries, and asset characteristics when compared to
other CLO transactions we have rated recently. As such, we have not
applied any additional scenario and sensitivity analysis when
assigning ratings on any classes of notes in this transaction."
Until the end of the reinvestment period on July 15, 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 may, through trading, deteriorate
the transaction's current risk profile, as long as the initial
ratings are maintained.
S&P said, "Following our analysis of the credit, cash flow,
counterparty, operational, and legal risks, we believe that our
preliminary ratings are commensurate with the available credit
enhancement for the class A, B-1, B-2, C, D, E, and F notes.
"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. Some
government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. S&P said, "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."
Montmartre Euro CLO 2020-2 DAC is a European cash flow CLO
securitization of a revolving pool, comprising euro-denominated
senior secured loans and bonds issued mainly by speculative-grade
borrowers. CBAM CLO Management Europe LLC will manage the
transaction.
Ratings List
Class Preliminary Preliminary Sub (%) Interest rate*
rating amount
(mil. EUR)
A AAA (sf) 180.00 40.00 Three/six-month EURIBOR
plus 1.59%
B-1 AA (sf) 20.00 30.00 Three/six-month EURIBOR
plus 2.25%
B-2 AA (sf) 10.00 30.00 2.65%
C A- (sf) 34.50 18.50 Three/six-month EURIBOR
plus 2.90%
D BBB-(sf) 15.00 13.50 Three/six-month EURIBOR
plus 4.00%
E BB- (sf) 11.25 9.75 Three/six-month EURIBOR
plus 6.43%
F B- (sf) 5.25 8.00 Three/six-month EURIBOR
plus 6.92%
Sub. notes NR 24.74 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.
=========
I T A L Y
=========
ITAS MUTUA: Fitch Maintains BB+ LT IDR on Watch Negative
--------------------------------------------------------
Fitch Ratings has maintained ITAS Mutua's ratings on Rating Watch
Negative.
KEY RATING DRIVERS
The maintained RWN reflects the ongoing uncertainty and risk to
ITAS's earnings and capitalisation due to the coronavirus pandemic.
Fitch placed ITAS's ratings on RWN on May 7, 2020. Its key
considerations included ITAS's low profitability based on both
end-2019 numbers and Fitch's pro-forma results, as well as the
length and severity of the pandemic.
Fitch is continuously assessing ITAS's capital, earnings and the
group's strategic direction following the departure of the former
general manager with the aim of resolving the RWN. However, any
resolution would in part be dependent on a positive change in
Fitch's rating assumptions with respect to the coronavirus impact.
Fitch believes that ITAS's strategic direction has increased in
stability after a number of senior management changes during 1H20.
Furthermore, the group initiated several management actions aimed
at strengthening its capital base in the remainder of 2020. ITAS is
liaising regularly with IVASS, the Italian insurance regulator, who
is monitoring ITAS's capital position. However, the increased
communication with the regulator is not exclusive to ITAS, as IVASS
has lodged several information requests with market participants
since the outbreak began.
Fitch views ITAS's 'Capitalisation and Leverage' as strong despite
pressure on earnings from the pandemic and sensitivity to sovereign
spreads and interest rates in its life accounts. ITAS's
capitalisation scored 'Strong' at end-2019 as measured by Fitch's
Prism Factor-Based Capital Model, unchanged from 2018's score.
However, ITAS's Solvency II coverage was moderate at 137% at
end-2019, down from 140% at end-2018. Fitch believes ITAS's capital
position remains vulnerable to sovereign spread changes, given its
pronounced exposure to Italian debt, hence management's plan to
strengthen the company's capital base.
ITAS's financial leverage ratio was strong at 18% at end-2019. The
company issued 10-year subordinated notes for about EUR19 million
in June 2020, aimed at strengthening its capital position. However,
the negative impact of the issuance on ITAS's FLR was offset by the
unwinding of a put & call option on a EUR15 million Tier 2 fund,
which also makes the capital eligible for Solvency II purposes.
ITAS's FLR is consequently unchanged at 18%.
ITAS reported a loss for 2019 due to an increase in the combined
ratio (104.8% in 2019) caused by higher natural catastrophe claims.
Fitch expects the coronavirus pandemic to lead to further
deterioration of ITAS's technical results and lower financial and
operating earnings.
RATING SENSITIVITIES
The ratings remain sensitive to a material change in Fitch's
rating-case assumptions with respect to the coronavirus pandemic.
Periodic updates to its assumptions are possible given the rapid
pace of changes in government actions in response to the pandemic,
and the pace with which new information is made available on the
medical aspects of the outbreak.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A material adverse change in Fitch's rating assumptions with
respect to the coronavirus impact.
-- Sustained deterioration in ITAS's financial performance and
earnings with the combined ratio above 108%.
-- Deterioration of ITAS's Prism FBM score falling to below
'Strong' for a sustained period or a deterioration of ITAS's
Solvency ratio falling below 120% with no prospects of immediate
recovery.
-- A single-notch downgrade of Italy's Long-Term Local-Currency
IDR, which would likely lead to a one-notch downgrade of ITAS's
rating.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A material positive change in Fitch's rating assumptions with
respect to the coronavirus impact.
-- Positive rating action would be prefaced by Fitch's ability to
reliably forecast the impact of the coronavirus pandemic on the
financial profiles of both the Italian the insurance industry and
ITAS.
-- A swift resolution of the coronavirus pandemic, with minimal
impact on ITAS's financial performance and earnings, which will
result in an affirmation of ITAS's ratings.
-- A single-notch upgrade of Italy's Long-Term Local-Currency
IDR, which would likely lead to a one-notch upgrade of ITAS's
rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond 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.
ITAS Mutua
- LT IDR BB+; Rating Watch Maintained
- Ins Fin Str BBB-; Rating Watch Maintained
- Subordinated; LT BB-; Rating Watch Maintained
===============
P O R T U G A L
===============
CAIXA ECONOMICA: DBRS Lowers Sub. Debt Rating to CCC
----------------------------------------------------
DBRS Ratings GmbH downgraded Caixa Economica Montepio Geral, S.A.'s
(Banco Montepio, Montepio or the Bank) Long-Term Issuer Rating to B
from BB, and its Long-Term Deposits rating to B (high) from BB
(high). The subordinated debt was downgraded to CCC (high). The
Bank's Intrinsic Assessment (IA) was also lowered to B while the
Support Assessment remains unchanged at SA3. The Trend on these
ratings remains Negative.
The Bank's B (high) Long-Term Deposits rating is one notch above
the IA, reflecting the legal framework in place in Portugal which
has full depositor preference in bank insolvency and resolution
proceedings. The Bank's Short-Term Deposits rating was downgraded
to R-4 with a Stable Trend. See a full list of ratings at the end
of this press release.
KEY RATING CONSIDERATIONS
The downgrade of Montepio's ratings takes into account the
significant deterioration of the Bank's capital position and its
persistent weak profitability, which make the Bank particularly
vulnerable in the worsening operating environment. The Bank's
capital ratios at end-Q1 2020 were 180 basis points (bps) lower
than end-Q1 2019, thus reducing the Bank's loss absorbing capacity
and the ability to reduce the still high stock of Non-Performing
Loans (NPLs). The Bank's total capital ratio is currently below its
total 2020 SREP requirement (including CCB and O-SII buffers),
although recent regulatory changes mean the Bank is not in breach
of its requirements. At the same time, the ratings consider the
very weak contribution from retained earnings due to modest
revenues and low efficiency levels, and the expectation of high
provisioning costs. In addition, the Bank faces a growing number of
issues with regards to alleged past failures in operational risk
and internal controls, which pose additional risks to the Bank's
financial position and reputation.
The Negative Trend reflects the downside risks to the Bank's
capital, profitability and asset quality exacerbated by the
deteriorating operating environment due to COVID-19.
RATING DRIVERS
Given the Negative Trend, an upgrade of the ratings is unlikely,
although the Trend could change to Stable if the Bank strengthens
its capital buffers. An upgrade would require an improvement in
efficiency and some stabilization in core revenues. The Bank will
also need to demonstrate its ability to manage the asset quality
impact from the current environment.
A downgrade could occur if the Bank fails to improve its capital
position, or if there is a significant deterioration in asset
quality amidst the COVID-19 operating environment. Further
instability in the Bank's corporate governance and/or a
deterioration in the customer franchise could also contribute to
downward rating pressure.
RATING RATIONALE
Banco Montepio is a small Portuguese retail and commercial bank
with total assets of around EUR 17.5 billion at end-Q1 2020 and is
majority owned by the Montepio Geral Associacao Mutualista (MGAM).
The Bank also has a small presence in some Portuguese speaking
countries, such as Angola and Cape Verde. Over recent years, the
Bank has experienced instability in corporate governance with high
management turnover. In our view, this has contributed to a
slowdown in the implementation of the actions needed to strengthen
the Banks' balance sheet and organization. In January 2020, the
Bank appointed a new CEO, and we anticipate that he will try to
accelerate the process of digitalization and corporate
simplification to improve efficiency and productivity levels.
Separately, we note that Montepio has been subject to several
administrative procedures from supervisory authorities, in relation
to allegations of past failures of duties concerning accounting
standards and internal control systems. We expect the Bank to take
further actions to strengthen risk management and controls
The Bank's capital buffers deteriorated significantly over the past
year. At end-Q1 2020, the Bank reported phased-in CET1 and total
capital ratios of 11.7% and 13.2%, respectively, which are 180 bps
lower YoY, or 70 bps QoQ. The capital erosion in Q1 2020 was mainly
due the impact on the fair value reserve from the sovereign spread
widening, as well as currency devaluation in Angola and Brazil amid
worsening markets conditions due to COVID-19.
The Bank is currently operating below the total capital SREP
requirement of 13.9% set in January 2020 which includes the capital
conservation buffer (CCB) of 2.5% and the O-SII (other systemically
important institutions) buffer of 0.188%. This means that the Bank
is using the temporary capital relief allowed by the ECB and the
national authorities in response to COVID-19.
In June, the Bank issued EUR 50 million of Tier 2 bonds that were
placed with MGAM. Further capital relief might result from
potential measures of RWAs optimization. Nonetheless, the Bank's
capital position remains vulnerable and it will face additional
pressure given the already weak profitability levels and expected
adverse impact from COVID-19.
Banco Montepio's net income in Q1 2020 was EUR 5.4 million, a 17%
decline YoY, after reductions in net interest income and increases
in both costs and impairments. The results did, however, continue
to benefit from capital gains on the sale of sovereign securities.
The reported core cost-to-income ratio increased to 70.9% from
68.1% in Q1 2019. At the same time, total loan impairments
increased by 64% YoY to EUR 30.4 million, with EUR 15.5 million of
the total attributed to the expected impact from COVID-19. The cost
of risk was reported at 99 bps, up from the 58 bps in Q1 2019.
In DBRS Morningstar's view, the economic and market disruption
caused by COVID-19 will put additional pressure on the Bank's
revenues, cost of risk and profitability. We expect fees from
payment systems to suffer from lower transaction volumes, while the
challenging operating environment will result in higher
provisioning costs. We understand that the COVID-19 related
provisions reported in Q1 2020 are still based on very preliminary
estimates and expect further provisions as the Bank's
macro-economic scenarios and credit models are updated. The sectors
that are most vulnerable to the pandemic are those that are
directly and indirectly linked to the tourism industry, which is a
key contributor to the economy of Portugal. The exposure to high
risk sectors, such as hotels & hospitality, food services and
transportation, wholesale and retail trade, accounted for 12% of
Banco Montepio's gross loan book at YE 2019. We also expect rising
risks in the manufacturing and real estate sectors.
Despite the expectation of some relief from debt moratorium
programs and some government initiatives, including state
guaranteed loans, we expect an increase in Stage 2 loans as well as
higher NPE inflows when these measures have expired. In addition,
the current environment creates additional risks to reduce existing
NPEs. Any meaningful disposal of problem assets would likely face
lower valuations in this environment. At end-Q1 2020, the Bank
reported a gross NPE ratio of 12.1%, down from 14.3% at end-Q1
2019, and a coverage ratio of 53.5%. On a quarterly basis, the NPE
ratio remained stable, though the gross stock slightly increased.
In general, the pace of NPL reduction at the Bank has been slower
than at many peers, and the future ability to reduce NPLs will be
constrained by the weak capital buffers and weak profitability.
The Bank is largely funded by deposits, which accounted for around
70% of total funding sources at end-Q1 2020, however access to
unsecured wholesale market remains more challenging and costly.
ESG CONSIDERATIONS
Corporate Governance is a material rating factor for the Bank and
is reflected in the Risk and Franchise building blocks. The
instability of the Bank's corporate governance creates risks for
the Bank's balance sheet and reputation, as well as the execution
of its strategic plan. DBRS Morningstar also notes that the Bank
has received various notifications from the Central Bank of
Portugal around past potential issues about accounting standards
and internal controls.
Notes: All figures are in EUR unless otherwise noted.
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R U S S I A
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BANK KUZNETSKY: Bank of Russia Cancels Banking License
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The Bank of Russia, by virtue of its Order No. OD-1111, dated July
17, 2020, cancelled the banking license of the credit institution
Bank Kuznetsky Most Joint-stock Company or Bank Kuznetsky Most
(Registration No. 2254, Moscow). The credit institution ranked
362nd by assets in the Russian banking system.
The license of Bank Kuznetsky Most was cancelled following the
request that the credit institution had submitted to the Bank of
Russia after the decision of the general shareholders' meeting on
its voluntary liquidation (in accordance with Article 61 of the
Civil Code of the Russian Federation).
Based on the reporting data provided to the Bank of Russia, the
credit institution has sufficient assets to satisfy creditors'
claims.
A liquidation commission will be appointed to Bank Kuznetsky Most.
Bank Kuznetsky Most is a member of the deposit insurance system.
PROMINVESTBANK: Bank of Russia Cancels Banking License
------------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-1112, dated July
17, 2020, cancelled the banking license of the credit institution
PROMINVESTBANK (Reg. No. 2433, Moscow). The credit institution
ranked 236th by assets in the Russian banking system.
The license of PROMINVESTBANK was cancelled2 following the request
that the credit institution had submitted to the Bank of Russia
after the decision of the general shareholders' meeting on its
voluntary liquidation (in accordance with Article 61 of the Civil
Code of the Russian Federation).
Based on the reporting data provided to the Bank of Russia, the
credit institution has sufficient assets to satisfy creditors'
claims.
A liquidation commission will be appointed to PROMINVESTBANK.
PROMINVESTBANK is not a member of the deposit insurance system.
=========
S P A I N
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DEOLEO SA: S&P Upgrades ICR to B- Following Debt Restructuring
--------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
Spanish olive oil bottler Deoleo S.A. to 'B-' from 'SD', as well as
its issue ratings on the senior term loan to 'B-' and the junior
term loan to 'CCC' from 'D' respectively. S&P also revised upward
its recovery rating on the EUR160 million senior term loan to '3'
from '4'.
The upgrade follows Deoleo's successful debt restructuring, which
S&P believes will allow it to operate with lower debt.
As part of the agreement, Deoleo's syndicated debt will reduce by
EUR333 million, thanks to a debt-to-equity swap of EUR283 million
and a capital increase of EUR50 million. As a result, the
syndicated creditors will acquire 49% of Deoleo Holding S.L.U., the
company that owns the operating business. The remainder of
outstanding debt, EUR242 million, will comprise a five-year bullet
EUR160 million senior term loan and a six-year bullet EUR82 million
junior term loan.
S&P said, "We believe that Deoleo now has an adequate liquidity
position given the potential for volatile cash flows.
"Furthermore, we consider that the extended debt maturities reduce
refinancing risk significantly. In our view, the company does not
face material short-term liquidity risks, given its ample cash
balances of about EUR71 million as of March 31, 2020."
Nevertheless, as part of the debt restructuring agreement, Deoleo
will not benefit from a revolving credit facility and any excess
cash above EUR60 million at each year end will be paid to the
lenders, thereby reducing the group's capacity to absorb unexpected
cash outflows, notably working capital swings.
High volatility of olive oil prices remains a risk for the group's
profitability and free cash flow generation.
In S&P's view, Deoleo's business remains vulnerable to raw material
price swings, given its reliance on olive oil production. Global
olive oil production is mainly carried out in Mediterranean
countries, specially Spain, and any shortage due to bad weather
conditions or plant disease could lead to greater price volatility,
which, in the past, has severely hampered Deoleo's operations. This
risk reduces our visibility of free operating cash flow (FOCF)
generation. A surge in olive oil price may affect Deoleo in three
key ways: it challenges the company to pass on price hikes to
retailers; leads to higher working capital; and, most notably,
causes a decrease in volumes in the domestic market because
consumers might switch to cheaper products.
S&P expects the group's earnings to recover over 2020 but soften in
2021, resulting in an adjusted EBITDA margin of 5%-10% and positive
FOCF generation over the same period.
Deoleo experienced a boost in sales and EBITDA in first-quarter
2020 as a result of the COVID-19 pandemic, with customers stocking
up on olive oil. Positively, Deoleo is not exposed to the Horeca
channel, so its sales have not been materially affected by the
global lockdowns or the social gathering restrictions. Moreover,
the group was already experiencing positive business momentum
before COVID-19. For 2021, S&P expects sales to stabilize at 3%-5%,
after increasing by more than 10% in 2020, and EBITDA margins to
remain within 5%-10% alongside positive FOCF.
S&P said, "In our view, Deoleo's improved operating performance in
fourth-quarter 2019 and first-quarter 2020 stems from favorable
olive oil prices and more consistent execution of its business
strategy. We believe Deoleo has had some successes with its recent
commercial strategies, allowing it to increase its share of most of
key markets (except Italy). For instance, in North America, a
crucial market for Deoleo due to its growth potential and higher
margins, the company reduced its prices to maximize volumes, which
resulted in market-share gains in the first three months of 2020.
We understand senior staff turnover has significantly reduced in
regions like North America, which helps ensure the business
strategy is executed consistently."
Outlook
S&P said, "The stable outlook reflects our view that Deoleo should
be able to manage its liquidity position following the successful
completion of its debt restructuring. The currently positive
revenue and EBITDA growth momentum, thanks to solid demand in main
markets and stable market shares, should enable Deoleo to report
adjusted debt to EBITDA of 4x-5x while generating positive FOCF in
2020.
"We could lower our ratings if Deoleo's EBITDA drops significantly
again and free cash flow turns negative in the next 12-18 months
which would pressure its liquidity position, including financial
covenants."
This could arise from high volatility of olive oil prices, which
would hurt profitability and potentially create large working
capital movements.
S&P said, "We could raise our rating if we saw a lasting and
significant improvement in Deoleo's operational performance such
that its profitability margin increased comfortably above 10%, and
we were confident about the group's ability to generate recurring
FOCF to debt close to 10%. We would also consider raising our
rating if the group's adjusted debt leverage remained close to 4x
for a protracted period."
RMBS SANTANDER 6: DBRS Finalizes CCC Rating on Class B Notes
------------------------------------------------------------
DBRS Ratings GmbH finalized its provisional ratings of A (high)
(sf) and CCC (sf) assigned to the Class A and Class B notes,
respectively, issued by FT RMBS Santander 6 (the Issuer), a
securitization fund incorporated under Spanish securitization law.
The rating on the Class A notes addresses the timely payment of
interest and the ultimate payment of principal on or before the
legal final maturity date in February 2063, while the rating on the
Class B notes addresses the ultimate payment of interest and
principal on or before the legal final maturity date.
The notes were issued to fund the purchase of a portfolio of
first-lien residential mortgage loans originated by Santander S.A.
(49.7%), Banco Popular Español (44.7%), and Banesto (5.6%). The
mortgage loans are secured over residential properties located in
Spain. Santander de Titulizacion S.A. (the Management Company)
manages the transaction, with Santander S.A. acting as the servicer
of the portfolio. The transaction has no backup servicer in place
at closing.
DBRS Morningstar was provided with the closing portfolio amounting
to EUR 4.6 billion as of 19 June 2020, which consisted of 32,875
loans extended to 31,188 borrowers. The weighted-average (WA)
current loan-to-value (LTV) ratio stands at 96.0% whereas the WA
current indexed LTV calculated by DBRS Morningstar is 92.9% with a
WA seasoning of 5.3 years. Almost all the loans included in the
portfolio (96.8%) pay a floating-rate coupon mainly linked to the
12-month Euribor, and the remaining 3.2% of the portfolio are
fixed-rate loans. The notes pay a floating rate of interest linked
to three-month Euribor. Of the loans in the portfolio, 3.9% were
granted a moratorium by the Spanish government, with interest and
principal payments suspended for a period of up to three months. A
further 11.9% of the loans were granted a sector moratorium, where
Spanish financial institutions agreed to grant principal payment
holidays of up to 12 months. The current WA interest rate of the
portfolio is 0.94% and the WA margin of the floating-rate loans is
1.1%. The repayment type for all the loans in the portfolio is
French amortization.
The mortgage loan portfolio is distributed amongst the Spanish
regions of Madrid (26.9% by current balance), Andalusia (17.9%),
and Catalonia (13.0%). The majority of the mortgage loans (86.4%)
were granted for the purchase of the main residence of the
borrower, with a further 7.9% granted for the purchase of
second/holiday homes. The remaining 5.7% of the loans were granted
for renovation or other purposes, and all loans are backed by a
residential property. Of the loans in the portfolio, 14.4% were
granted to self-employed borrowers, and a further 14.2% were
granted to employees of the Seller. At origination, no borrower was
unemployed. The pool also includes 9.4% of the loans granted to
foreign borrowers resident in Spain. As of 19 June 2020, no loans
in the portfolio were in arrears for more than three months.
The Servicer is allowed to grant loan renegotiations for margin
compressions, interest rate type switch, and extension of maturity,
subject to certain limits. DBRS Morningstar factored in these loan
modifications in its cash flow analysis.
The Class A notes benefit from the EUR 720.0 million (21.0%)
subordination of the Class B notes plus a EUR 225.0 million (5.0%
of the outstanding balance of the Class A and Class B notes)
reserve fund, which is available to cover senior expenses as well
as interest and principal payments of the rated notes until they
are paid in full. The reserve fund was funded at closing via a
subordinated loan and will start amortizing after three years since
closing, up to a floor of EUR 112.5 million. The reserve fund will
not amortize if certain performance triggers are breached, if it
was used on any payment date and is under its target level, or
until it reaches 10% of the outstanding balance of the Class A and
Class B notes. The Class A notes benefit from full sequential
amortization, whereas principal on the Class B notes will not be
paid until the Class A notes have been redeemed in full.
Additionally, the Class A principal will be senior to the Class B
interest payments in the priority of payments at all times.
The transaction's account bank agreement and respective replacement
trigger require Santander, acting as the transaction account bank,
to find (1) a replacement account bank within 60 days or (2) an
account bank guarantor upon loss of the applicable account bank
rating. The DBRS Morningstar Critical Obligations Rating (COR) of
Santander is AA (low), while DBRS Morningstar's Long-Term Senior
Debt and Issuer rating on Santander is at A (high) (as of the date
of this press release). The account bank applicable rating is the
higher of one notch below the Santander COR and Santander`s
Long-Term Senior Debt rating.
DBRS Morningstar based its ratings on the following analytical
considerations:
-- The transaction's capital structure as well as form and
sufficiency of available credit enhancement to support DBRS
Morningstar's projected cumulative losses under various stressed
scenarios.
-- The credit quality of the portfolio and DBRS Morningstar's
qualitative assessment of Santander, Banco Popular, and Banesto's
capabilities with regard to originations, underwriting, and
servicing.
-- DBRS Morningstar's estimated stress-level probability of
default (PD), loss given default (LGD), and expected loss levels on
the mortgage portfolio, which were used as inputs into the cash
flow engine. The mortgage portfolio was analyzed in accordance with
DBRS Morningstar's "European RMBS Insight Methodology" and the
"European RMBS Insight: Spanish Addendum".
-- The transaction's ability to withstand stressed cash flow
assumptions and repay the noteholders according to the terms and
conditions of the notes and the transaction documents. The
transaction cash flows were analyzed using Intex DealMaker. DBRS
Morningstar considered additional sensitivity scenarios of 0%
conditional repayment rate stress.
-- The transaction parties' financial strength to fulfill their
respective roles.
-- The transaction's legal structure and its consistency with DBRS
Morningstar's "Legal Criteria for European Structured Finance
Transactions" methodology as well as the presence of the
appropriate legal opinions that address the assignment of the
assets to the Issuer.
-- DBRS Morningstar's sovereign rating on the Kingdom of Spain of
"A" with a Stable trend as of the date of this press release.
The Coronavirus Disease (COVID-19) and the resulting isolation
measures have caused an economic contraction, leading to sharp
increases in unemployment rates and income reductions for many
borrowers. DBRS Morningstar anticipates that payment holidays and
delinquencies may arise in the coming months for many RMBS, some
meaningfully. The ratings are based on additional analysis and
adjustments to expected performance as a result of the global
efforts to contain the spread of the coronavirus. For this
transaction DBRS Morningstar assumed loans previously restructured
as being in arrears and a moderate decline in residential property
prices.
Notes: All figures are in Euros unless otherwise noted.
SANTANDER CONSUMER 2014-1: Fitch Affirms Serie E Notes at CCsf
--------------------------------------------------------------
Fitch Ratings has upgraded Santander Consumer Spain Auto 2014-1,
Santander Consumer Spain Auto 2016-2 and Santander Consumer Spain
Auto 2019-1 notes, as follows;
Santander Consumer Spain Auto 2019-1, FT
- Class A ES0305442008; LT AA+sf; Affirmed
- Class B ES0305442016; LT AA+sf; Affirmed
- Class C ES0305442024; LT Asf; Affirmed
- Class D ES0305442032; LT A-sf; Upgrade
- Class E ES0305442040; LT BBBsf; Upgrade
FTA, Santander Consumer Spain Auto 2014-1
- Serie A ES0305053003; LT A+sf; Affirmed
- Serie B ES0305053011; LT A+sf; Affirmed
- Serie C ES0305053029; LT Asf; Upgrade
- Serie D ES0305053037; LT BBB+sf; Affirmed
- Serie E ES0305053045; LT CCsf; Affirmed
FT, Santander Consumer Spain Auto 2016-2
- Class A ES0305213003; LT AA+sf; Affirmed
- Class B ES0305213011; LT AA+sf; Affirmed
- Class C ES0305213029; LT Asf; Affirmed
- Class D ES0305213037; LT A-sf; Upgrade
- Class E ES0305213045; LT BBB-sf; Upgrade
TRANSACTION SUMMARY
The transactions are securitisations of auto loans originated by
Santander Consumer, E.F.C., S.A. a wholly-owned and fully
integrated subsidiary of Santander Consumer Finance SA (SCF,
A-/Negative/F2) whose ultimate parent is Banco Santander S.A.
(A-/Negative/F2).
KEY RATING DRIVERS
Coronavirus-Related Revision to Assumptions:
Fitch expects defaults and delinquencies to increase beyond
recently observed levels as a result of the coronavirus crisis. The
severity of the shock is likely to be unprecedented, but the
duration should be shorter than the 2008 crisis. The scale of the
impact may also be offset by measures taken by the servicer and the
Spanish government, which are in stark contrast to the austerity
measures of 2010.
Nevertheless, Fitch expects a material deterioration in performance
and accordingly Fitch has recalibrated its individual product base
cases, defining the base case at 6.5% for new cars and used cars at
8% for SCSA 2014 and 2016 and 7.5% for SCSA 2019. This results in a
weighted-average remaining default base cases for the three
transactions of 6.8%, 7.0% and 7.1% for SCSA 2014, 2016 and 2019,
respectively, considering the different portfolio compositions. The
weighted-average 'A+sf' default multiple for SCSA 2014 has been
reduced to 2.6x and the 'AA+sf' default multiple for SCSA 2016 and
2019 has been reduced to 3.6x and 3.5x, to reflect that the base
case incorporates a significant stress.
The base case recovery rate has been decreased to 55% for new cars
and 50% for used cars, resulting on a weighted-average of 53.9%,
53.5% and 51.8% for SCSA 2014, 2016 and 2019, respectively,
considering the different portfolio compositions, to account for
the deterioration in recoveries due to the macroeconomic
environment foreseen for the next years. At the same time, the
weighted-average 'AAAsf' recovery haircut has been maintained at
50%.
Removal from Under Criteria Observation
On June 12 Fitch placed the class D and E notes of SCSA 2016 and
2019 Under Criteria Obsercation as Fitch identified them as
potentially affected by the new consumer ABS criteria published
June 9, 2020. The new version of the criteria includes a new
methodology for deriving default timing vectors. This methodology
uses the weighted average life of the portfolio including base case
prepayments as key input to derive the front-, even-and back-loaded
default vectors. The new convention replaces the previous default
vectors that were based on representative portfolios with WALs of
18 and 30 months. Defaults are allocated in five, six and seven
equally sized buckets depending on the default scenario. Fitch has
performed a full review of the transactions under the new criteria
and removed them from UCO.
Adequate Protection Against Credit Losses
For SCSA 2014 credit enhancement has continued to increase since
the last review as the transaction has deleveraged. CE is now
24.6%, 17.5%, 13.6% and 9.8% for the class A to D notes,
respectively. On the contrary, SCSA 2016 and 2019 are still in
their revolving periods, which are scheduled to terminate in
February 2021 and December 2021, respectively, and therefore CE has
remained stable since closing. In its analysis, Fitch continues to
capture the risks associated with the remaining revolving period in
the default rate multiples and assuming the migration of the
portfolio to the worst-case portfolio composition.
Moreover, the transactions benefit from significant excess spread
given the high WA fixed interest rate of the loans (around 8.0%)
relative to the coupon paid on the notes.
SCSA 2019 Pro Rata Amortisation Risks Mitigated
After the revolving period ends, the class A to F notes will be
repaid pro rata until a sequential redemption event occurs, which
includes a cumulative loss trigger of 1.3% of the initial portfolio
balance. Fitch views this trigger as robust to prevent the pro rata
amortisation from continuing upon early signs of performance
deterioration. Fitch believes tail risk posed by the pro rata
pay-down is also mitigated by the mandatory switch to sequential
amortisation when the outstanding collateral balance falls below
10% of the initial balance.
Servicer and Liquidity Risk Mitigated
Emergency support measures introduced in Spain to mitigate the
effects of the coronavirus crisis include payment moratoriums for
consumer credit to vulnerable borrowers. Fitch views payment
interruption risk on the securitisation notes mitigated by the
structural liquidity protection in place.
Account Bank Rating Caps
Santander Consumer Finance is the account bank for the
transactions. According to Fitch's counterparty criteria, the
ratings of the notes for SCSA 2014 are capped at 'A+sf' based on
the account bank eligibility rating thresholds being set at 'BBB+'
or 'F2. In the case of SCSA 2016 and SCSA 2019, the ratings of the
notes are capped at 'AA+sf' based on the account bank eligibility
rating thresholds being set at 'A-' or 'F1'.
Payment Interruption Risk Mitigated
For SCSA 2014, payment interruption risk is capped at SCF's rating
as Fitch expects SCF will support its wholly-owned subsidiary SC.
For SCSA 2016 and 2019, payment interruption risk is mitigated up
to 'AA+' due to the liquidity reserves provided by SCF, which are
sufficient to cover over three months of senior fees in line with
Fitch's Structured Finance and Covered Bond counterparty criteria.
In the case of SCSA 2016 the liquidity reserve is equal to 1% of
the outstanding balance of the class A to E notes and will be
funded within 14 calendar days if SCF is downgraded below 'A-'. In
the case of SCSA 2019, the liquidity reserve is a non-amortising
reserve fund equal to 1% of the initial class A to E notes, which
is only available to cover interest shortfalls on the class A to E
notes according to the combined priority of payments.
RATING SENSITIVITIES
Developments that may, individually or collectively, lead to
positive rating action include:
- Credit enhancement ratios increase as the transactions
deleverage, able to fully compensate the credit losses and cash
flow stresses commensurate with higher rating scenarios, all else
being equal.
- For the class A notes' ratings in all three transactions,
modified account bank minimum eligibility rating thresholds
compatible with 'AAAsf' ratings as per the agency Structured
Finance and Covered Bonds Counterparty Rating Criteria. This is
because the class A notes' ratings are capped at 'A+sf' (SCSA 2014)
and 'AA+sf' (SCSA 2016 and 2019) due to the eligibility thresholds
contractually defined at BBB+' or 'F2' (SCSA 2014) 'A-' or 'F1'
(SCSA 2014 and2016), which are insufficient to support 'AAAsf'
ratings.
Developments that may, individually or collectively, lead to
negative rating action include:
- A longer-than-expected coronavirus crisis that deteriorates
macroeconomic fundamentals and the credit markets in Spain beyond
Fitch's current base case.
- A multi notch downgrade pf Spain's Long-Term Issuer Default
Ratings that could decrease the maximum achievable rating for
Spanish structured finance transactions below 'AA+sf'. This is
because the senior notes are rated 'AA+sf'
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. There were no findings that affected
the rating analysis. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.Prior to the transactions' closing, 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.
Overall, Fitch's assessment of the information relied upon for the
agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
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).
===========================
U N I T E D K I N G D O M
===========================
COMET BIDCO: Moody's Cuts CFR to Caa1, Outlook Negative
-------------------------------------------------------
Moody's Investors Service downgraded Comet Bidco Limited's (the
holding company of the restricted group that owns Clarion Events or
"Clarion") corporate family rating to Caa1 from B3 and probability
of default rating to Caa1-PD from B3-PD. Concurrently, the B3
ratings of the outstanding GBP307 million senior secured term loan
B1 due 2024 and $410 million senior secured term loan B2 due 2024,
and the GBP75 million revolving credit facility due 2023 have also
been downgraded to Caa1. Outlook on all ratings is negative.
The ratings downgrade reflects the pronounced pressure on Clarion's
revenue and EBITDA in FY2021 (fiscal year ending 31st January 2021)
driven by the cancellation and delays of its trade shows globally,
due to the coronavirus outbreak. It remains unclear at this stage
if the company's key trade shows will be held as currently planned
from September onwards.
"Clarion's leverage is set to deteriorate meaningfully in FY2021
and its liquidity position could become very tight over the coming
quarters if cash flow generation turns out to be weaker than we
currently expect. Moreover, the prospects of recovery in FY2022 are
also highly uncertain", says Gunjan Dixit, a Moody's Vice
President--Senior Credit Officer and lead analyst for Clarion.
This rating action concludes the review for downgrade initiated on
Clarion's ratings on April 1, 2020.
RATINGS RATIONALE
The coronavirus outbreak will likely have a more material impact on
the company's operating performance and liquidity in FY2021 than
previously estimated when the ratings were placed under review for
downgrade in April 2020. Since then, the group has cancelled and
postponed most of the shows that had been initially scheduled to
run between April and September 2020 globally.
Clarion did not run any shows in April or May and expects its first
shows since the disruptions to run in September, with a return to a
comprehensive calendar from October 2020. Moody's now estimates
that Clarion's revenue could reduce by about 50% to around GBP200
million in FY2021 compared to GBP400 million in FY2020. The higher
than originally anticipated lost revenue, as well as coronavirus
related costs will deplete the company's reported EBITDA (after
coronavirus related losses) in FY2021 to around GBP 35 million
(compared to GBP 112 million in FY2020), despite management's
comprehensive cost-cutting actions. Clarion's free cash flow (after
capex and working capital) will also be negative in FY2021 by
around GBP 60 million, leading to increase in gross debt. Moody's
forecasts are based on the assumption that the events scheduled
from October go ahead as planned, and bookings for calendar 2021
events continue. Moody's currently expects the company's leverage
to spike to 18x in FY2021 with some recovery in FY2022, yet
remaining high at around or over 10x.
There remains a high degree of uncertainty about recovery in the
second half of FY2021 and in FY2022. Moody's currently expects that
the shows currently scheduled from October 2020 will go ahead.
However, shows will run at reduced capacity as social distancing
measures are implemented, and health and safety concerns could
force some exhibitors to avoid attending face-to-face events.
To survive this difficult period, Clarion has adopted a prudent
strategy - (1) to defer events where it can (rather than cancel)
and move committed customers with the show; (2) where cancellation
is the only option, move the customers booking and any prepaid
revenues into the next years' show; (3) work with customers to
minimize refunds and with suppliers to delay payments; (4) minimize
any non-recoverable sunk costs; (5) explore potential savings of
direct and indirect costs; and (6) continue to sell and collect
revenues on the shows in the second half of FY2021 and FY2022 shows
where possible.
At the end of May 2020, Clarion had about GBP95 million of cash on
the balance sheet, including the fully drawn GBP 75 million
revolving credit facility maturing in September 2023. Moody's
positively recognizes that the cash balance was ahead of
management's guidance in March 2020, helped by the company's
efforts towards continued collection of payments, cost-cutting
measures, and minimal refunds to date. However, Moody's expects
that until September, Clarion's EBITDA and free cash flow will
likely be constrained and the company will need to rely on its cash
balance to meet its needs. This will leave the company with limited
headroom for any operational under-performance or unanticipated
working capital cash outflows. Moody's estimates that cash interest
of about GBP23 million is also due to be paid between September and
November 2020.
While the company's liquidity profile appears tight, Moody's takes
some comfort from the fact that Clarion's indirect controlling
shareholder, Blackstone Capital Partners (Cayman) VII, LP, part of
The Blackstone Group Inc., has provided a letter confirming that,
for a period of a year from the date of the FY2020 annual report,
it will provide support to the company up to a fixed amount, if
required. However, the form and level of support remain highly
unclear at this stage. Moody's also acknowledges that Blackstone
Capital Partners (Cayman) VII, LP, has confirmed that for a period
of a year, it does not intend to undertake any decision or action,
in its capacity as an indirect controlling shareholder of Clarion,
which would reasonably be expected to negatively affect the
company's ability to continue as a going concern.
Clarion faces no large debt maturities or refinancing risks in the
near term. There is a springing covenant that applies to the RCF
and is tested when it is more than 40% drawn. The covenant is set
at a maximum senior secured leverage to EBITDA ratio of 10.2x. The
covenant definition allows exceptional coronavirus-related losses
to be excluded from the EBITDA calculation. Moody's therefore
forecasts Clarion will have some headroom under the covenant over
the next 12 months.
ESG CONSIDERATIONS
The rapid spread of the coronavirus outbreak, deteriorating global
economic outlook, low oil prices, and high asset price volatility
are creating an unprecedented credit shock across a range of
sectors, regions and markets. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety. Its rating
action reflects the impact on Clarion of the breadth and severity
of the shock, and the broad deterioration in credit quality it has
triggered.
RATIONALE FOR NEGATIVE OUTLOOK
The negative rating outlook reflects the uncertainty around the
resumption of events from September 2020 as well as the weak
liquidity profile of the company.
Stabilisation of outlook would require (1) resumption of Clarion's
events from September onwards and company's performance in line
with Moody's base case and (2) sufficient liquidity buffers to be
maintained throughout FY2020 and beyond.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Negative pressure on the rating could develop should (1) the
company's leverage does not improve materially (Moody's-adjusted
gross debt/EBITDA, smoothed for biennial events) beyond FY 2021,
(2) liquidity deteriorate as a result of a prolonged weakness in
the underlying business performance and/ or (3) there be a more
permanent reduction in demand for its shows beyond FY2021.
Positive pressure on the rating could develop over time should
Clarion's leverage (Moody's-adjusted gross debt/EBITDA, smoothed
for biennial events) fall below 7.5x on a sustained basis as a
result of recovery in operating performance and its liquidity
position appears comfortable.
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: Comet Bidco Limited
Probability of Default Rating, Downgraded to Caa1-PD from B3-PD
Corporate Family Rating, Downgraded to Caa1 from B3
BACKED Senior Secured Bank Credit Facility, Downgraded to Caa1 from
B3
Outlook Actions:
Issuer: Comet Bidco Limited
Outlook, changed to Negative from Ratings Under Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
COMPANY PROFILE
Clarion Events is a UK-based events business that organizes and
runs approximately 220 events worldwide. Its revenue is diversified
across geographies, with roughly equal proportions coming from Rest
of the world (36%), Europe (32%) and North and South America (32%)
in a normal year of operations. In FY2020, the company generated
revenues of GBP 414 million and EBITDA of GBP 112 million.
HUNTSWORTH PLC: S&P Assigns B- LT ICR to Parent, Outlook Stable
---------------------------------------------------------------
S&P Global Ratings assigned its long-term 'B-' issuer credit rating
to private equity firm Clayton, Dubilier & Rice LLC (CD&R) Artemis
Holdco 3, Huntsworth's holding company and parent. It also assigned
its 'B-' issue rating and '3' recovery rating to the group's
proposed first-lien senior secured credit facilities.
S&P said, "Our rating reflects Huntsworth's highly leveraged
capital structure, small scale, and operations in a fragmented and
competitive market. Huntsworth provides medical communications,
market access and marketing services to pharmaceutical and biotech
companies, within a very competitive and fragmented industry. With
revenue of about GBP270 million and S&P Global Ratings-adjusted
EBITDA of GBP55 million-GBP60 million that we forecast in 2020, the
group is much smaller in scale than contract research (CRO) and
contract sales organizations (CSO) IQVIA and Syneos, which are
larger and more diversified global peers that provide a broader
range of services and have better revenue and cash flow visibility.
Huntsworth also competes with the health care divisions of large
advertising holding groups such as WPP, Publicis, and Omnicom, but
in our view provides a more specialized offering to its clients.
"We forecast that following the acquisition by CD&R, Huntsworth's
adjusted leverage will be high, with adjusted debt to EBITDA of
about 7.5x in 2020, which will reduce toward 6.5x from 2021. In our
view, continued robust organic revenue and EBITDA growth will
support some deleveraging, but we think that the group's
private-equity sponsors might prioritize further growth by
acquisitions over debt reduction.
Favorable growth prospects in the health care and pharma industry,
long-term customer relationships, and some flexibility in the cost
structure support Huntsworth's business profile. Over the past five
years, Huntsworth has shifted from providing marketing and
communications services to a wide range of industries, to focusing
on the robustly growing and higher margin health care, pharma, and
biotech sectors. In 2019, the health care division accounted for
72% of revenue. S&P said, "In our view, the strong fundamentals in
the health care industry, the growing number of more specialized
drugs and clinical trials, and the increasing outsourcing of
marketing and communications by pharma companies will support the
group's revenue and profits growth. Huntsworth also benefits from
long-standing relationships with its key clients. The group's
profitability is average compared with peers exposed to the health
care and pharma industry, but we expect it will maintain higher
adjusted EBITDA margins compared with traditional advertising and
marketing providers, in the 20%-22% range in 2020-2022."
Sound cash conversion and positive cash flow generation supports
Huntsworth's financial profile. The group usually faces a modest
intra-year working capital outflow and receives payments from
clients toward the end of the year, which supports a stronger cash
position at year-end, but causes some volatility on a half-to-half
year basis. S&P said, "We forecast in 2020 and 2021 that it will
generate FOCF of GBP20 million-GBP25 million, supported by
increasing EBITDA and limited capital expenditure (capex)
investment. Nonetheless, we expect that payments related to
deferred considerations for past acquisitions and leases will
absorb most of the cash flow, limiting potential for
deleveraging."
So far COVID-19 has had a limited impact on the group's operations,
because marketing growth has largely compensated for decline in the
other divisions, but global recession might hamper growth. In the
months up to end-May 2020, Huntsworth's total revenue increased by
9%, partly supported by previous acquisitions. On a like-for-like
basis, the marketing segment grew by 21%, as certain projects began
earlier than expected. However, the other segments, primarily the
immersive and medical segments, suffered from a decline of 26% and
10% respectively on a like-for-like basis – albeit the latter was
a timing issue and has recovered since June, growing at 14% on a
like-for-like basis. The immersive segment is exposed to
face-to-face interactions, which were curbed by COVID-19. Equally,
the communications division is exposed to reduced client spending,
also stemming from COVID-19, with a 6% decline in revenue. In June,
marketing continued growing at 8%.
In S&P's view, during an economic slowdown, pharmaceutical and
biotech clients could delay decision-making processes, cancel
certain drug developments, or reduce marketing budgets, as newly
launched products are likely to see slower uptake in 2020 and early
2021 as social distancing hampers normal marketing practices.
Customer concentration and the short-term nature of contracts poses
a risk for the company. Huntsworth's top 10 customers represent
approximately 35% of the group's total revenue, with the largest
accounting for about 9%. Contracts have a duration of less than a
year on average, limiting revenue visibility, although this is
partly offset by the high retention rate across products and
clients, in S&P's view.
Pharma companies' decisions to reduce marketing spending, delay the
launch of new drugs or clinical trials, or the weak performance of
existing drugs that could be pulled from the market could lead to
loss of revenue for Huntsworth. There is higher diversification on
a project basis, with the top 10 projects accounting for 25% of
revenue, which lowers this risk to an extent.
Huntsworth is positioned weaker than more specialized peers in the
health care sector. S&P said, "We rate Huntsworth lower than IQVIA
and Syneos, which are much larger in size, better diversified, and
have higher revenue visibility. We also view Huntsworth as
positioned weaker overall than Certara Holdco Inc., which provides
decision support technology and consulting services for optimizing
drug development and improving health outcomes, because Certara has
more revenue visibility thanks to upfront subscription payments and
multi-year contracts, limited customer concentration, and
above-average margins of 31%."
S&P said, "At the same time, we rate Huntsworth higher than LSCS
Holdings, which provides drug commercialization solutions and has
weaker operating performance because of channel and compliance
segment challenges and integration issues, as well as minimal cash
flow generation.
"The stable outlook on Huntsworth reflects our view that COVID-19's
impact on the group's operations in 2020 will be limited and that
the group's revenue and EBITDA will increase organically and by
successfully integrating acquisitions, such that in 2021 it will
generate positive reported FOCF and reduce leverage toward 6.5x.
The stable outlook also assumes the company could continue bolt-on
acquisitions, but such that it remains self-funding.
"We could raise the rating if Huntsworth performs better than we
currently expect, with stronger organic revenue and adjusted EBITDA
growth, such that it generates a higher FOCF (after deferred
consideration and lease payments) in absolute terms and
progressively deleverages from current levels, with financial
policy supporting the lower levels of leverage on a sustainable
basis.
"We could lower the rating over the next 12 months if the group's
operating performance and cash generation were substantially weaker
than we forecast, with its FOCF turning negative, and if the
company struggles to remain self-funding. This could result in its
capital structure becoming unsustainable." This could happen, for
example, due to:
-- The loss of large contracts, or delays to or cancellation of
drug launches by the group's clients; or
-- The group's financial sponsor pursuing a more aggressive
financial policy with large debt-financed acquisitions or
shareholder distributions.
POLARIS 2020-1: Moody's Gives (P)Caa3 Rating on Class X Notes
-------------------------------------------------------------
Moody's Investors Service has assigned provisional long-term credit
ratings to Notes to be issued by Polaris 2020-1 plc:
GBP []M Class A Mortgage Backed Floating Rate Notes due May 2057,
Assigned (P)Aaa (sf)
GBP []M Class B Mortgage Backed Floating Rate Notes due May 2057,
Assigned (P)Aa3 (sf)
GBP []M Class C Mortgage Backed Floating Rate Notes due May 2057,
Assigned (P)A2 (sf)
GBP []M Class D Mortgage Backed Floating Rate Notes due May 2057,
Assigned (P)Baa3 (sf)
GBP []M Class E Mortgage Backed Floating Rate Notes due May 2057,
Assigned (P)Ba3 (sf)
GBP []M Class F Mortgage Backed Floating Rate Notes due May 2057,
Assigned (P)B3 (sf)
GBP []M Class X Mortgage Backed Floating Rate Notes due May 2057,
Assigned (P)Caa3 (sf)
Moody's has not assigned ratings to the GBP []M Class Z Notes due
May 2057 and to the Residual Certificates.
The Notes are backed by a static portfolio of UK non-conforming
residential mortgage loans originated by Pepper (UK) Limited (not
rated). This is the second securitization of this originator in the
UK. The securitised portfolio consists of mortgage loans granted to
1,953 borrowers with a current portfolio balance of GBP 352.7
million in the pool-cut as of end of June 2020.
RATINGS RATIONALE
The ratings take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determined the MILAN Credit
Enhancement and the portfolio expected loss, as well as the
transaction structure and legal considerations.
The rapid spread of the coronavirus outbreak, the government
measures put in place to contain it and the deteriorating global
economic outlook, have created a severe and extensive credit shock
across sectors, regions and markets. Its analysis has considered
the effect on the performance of consumer assets from the collapse
in UK's economic activity in the second quarter and a gradual
recovery in the second half of the year. However, that outcome
depends on whether governments can reopen their economies while
also safeguarding public health and avoiding a further surge in
infections. 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.
The expected portfolio loss of 4.0% and the MILAN CE of 16.0% serve
as input parameters for Moody's cash flow model, which is based on
a probabilistic lognormal distribution.
Portfolio expected loss of 4.0%: This is in line with the UK
Non-conforming sector average and is based on Moody's assessment of
the lifetime loss expectation for the pool taking into account: (1)
the static portfolio; (2) the above average percentage of loans
with an adverse credit history; (3) the share of owner-occupied
properties of 74.8% in the pool; (4) the current macroeconomic
environment in the UK and in particular the fact that at closing
33% of the pool has suspended its payments, at some point in time,
according to coronavirus-related payment holidays and (5)
benchmarking with similar UK Non-conforming RMBS.
MILAN CE of 16.0%: This is lower than the UK Non-conforming sector
average and follows Moody's assessment of the loan-by-loan
information taking into account the following key drivers: (1) the
static portfolio; (2) the low WA current LTV of 70.6% in comparison
to other portfolios in this asset class; (3) the low WA seasoning
of 0.6 years; (4) high borrower concentration; and (5) the fact
that 25.2% of the pool are non-owner occupied.
The transaction benefits from a liquidity reserve fund sized at
2.0% of the Class A Notes balance at closing. The liquidity reserve
fund will be tracking the outstanding balance of the Class A Notes.
It covers senior fees, swap payments and only interest on Class A
Notes. However, the liquidity reserve does not cover any other
Class of Notes in the event of financial disruption of the servicer
and therefore limits the achievable ratings of Class B Notes.
Credit enhancement for Class A Notes is equal to 16.5% provided by
subordination.
Additionally, the transaction benefits from a payment holiday
reserve fund that will be fully funded at closing. Its level at
closing is 0.90% of the principal-backed-notes and it will be
decreased gradually over the first 18 IPDs until reaching 0.0%.
Interest Rate Risk Analysis: At closing, 99.9% of the loans in the
pool will be fixed rate loans reverting to 3M LIBOR. To mitigate
the fixed-floating rate mismatch between the loans and the
SONIA-linked coupon on the Notes, there is an interest rate swap
with a scheduled amortisation provided by NatWest Markets Plc
(A3/P-2 & A3(cr)/P-2(cr)) in place. The issuer pays the swap rate
of [-]% in return for SONIA. The swap notional is based on the
pre-determined amortization schedule for fixed-rate loans in the
pool with 0% CPR assumption. The risk of issuer becoming
over-hedged, as well as the difference between the LIBOR rate of
the assets and the SONIA-linked liabilities was taken into account
in the stressed margin vector used in the cash flow modelling. The
swap collateral trigger is set at loss of A3(cr) and there is no
transfer trigger in place.
Linkage to the Servicer: Pepper (UK) Limited is the servicer in the
transaction. To help ensure continuity of payments in stressed
situations, the deal structure provides for: (1) a back-up servicer
facilitator (CSC Capital Markets UK Limited (NR)); (2) an
independent cash manager (Citibank, N.A., London Branch
(Aa3(cr),P-1(cr))); (3) liquidity for the Class A Notes; and (4)
estimation language whereby the cash flows will be estimated from
the three most recent servicer reports should the servicer report
not be available.
Moody's issues provisional ratings in advance of the final sale of
securities, but these ratings represent only Moody's preliminary
credit opinions. Upon a conclusive review of the transaction and
associated documentation, Moody's will endeavour to assign
definitive ratings to the Notes. A definitive rating may differ
from a provisional rating.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in May
2020.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
Factors that would lead to an upgrade or downgrade of the ratings:
Significantly different loss assumptions compared with its
expectations at close due to either a change in economic conditions
from its central scenario forecast or idiosyncratic performance
factors would lead to rating actions. For instance, should economic
conditions be worse than forecast, the higher defaults and loss
severities resulting from a greater unemployment, worsening
household affordability and a weaker housing market could result in
downgrade of the ratings. Deleveraging of the capital structure or
conversely a deterioration in the Notes available credit
enhancement could result in an upgrade or a downgrade of the
ratings, respectively.
POLARIS 2020-1: S&P Assigns Prelim BB (sf) Rating to Cl. F Notes
----------------------------------------------------------------
S&P Global Ratings has assigned preliminary ratings to Polaris
2020-1 PLC's class A to F notes as well to its class X notes.
S&P said, "Our preliminary ratings are based on the pool of
GBP352.75 million (as of June 30, 2020). Although we consider the
collateral to be nonconforming based on the level of county court
judgments, we still acknowledge prime factors in the pool, like low
level of arrears and the prudent underwriting criteria (detailed
affordability assessment)."
At closing, the issuer will use the issuance proceeds of the class
A to Z notes to purchase the full beneficial interest in the
mortgage loans from the seller, Pepper Money Ltd. The issuer will
grant security over all of its assets in favor of the security
trustee, Citicorp Trustee Company Ltd. The balance of the class A
to Z notes is equal to the pool balance as of June 30, 2020. The
issuer will use the issuance proceeds of the class X to pay
up-front fees, to fund the liquidity reserve and the payment
holiday reserve fund, and, to the extent not fund from the proceeds
of the other notes, to pay the purchase price of the portfolio.
The issuer will pay interest monthly in arrears on each monthly
interest payment date (IPD), beginning on Sept. 28, 2020. The legal
final maturity date for all classes of notes will be in May 2057.
All classes of notes will accrue interest at a rate of compounded
daily Sterling Overnight Index Average (SONIA) plus a class
specific margin, which for the class A to F notes will step up in
September 2023.
Credit enhancement for the class A to F notes will consist of
subordination from the closing date.
The class A notes will benefit from liquidity support in the form
of a liquidity reserve fund, and the class A to F notes will
benefit from the ability of principal to be used to pay interest,
provided that, in the case of the class B to F notes, the
respective tranche's principal deficiency ledger does not exceed
10% unless they are the most senior class outstanding.
All of the notes benefit from liquidity support for the first 18
months after closing, in the form of a payment holiday reserve fund
equal to 0.9% of the class A to Z notes' balance at closing. This
reserve will amortize periodically, releasing 0.05% of the initial
class A to Z notes' balance into the revenue waterfall each month
for the first 18 monthly IPDs after closing.
S&P said, "Our preliminary ratings reflect our assessment of the
collateral pool's credit profile, cash flow mechanics, and the
results of our cash flow analysis to assess whether the notes would
be repaid under stress test scenarios. The transaction's structure
relies on a combination of subordination, excess spread, principal
receipts, a reserve fund, and a payment holiday reserve fund. We
consider the rated notes' available credit enhancement, given by
subordination, to be commensurate with the preliminary ratings that
we have assigned."
The class X notes are not supported by any subordination or any use
of principal receipts to pay interest shortfalls or the reserve
fund, relying entirely on excess spread. S&P said, "In our
analysis, the class X notes are unable to withstand the stresses
that we apply at our 'B' rating level. In our analysis, ultimate
repayment of principal and timely payment of interest on the class
X notes is not dependent on favorable business, financial, or
economic conditions. We have therefore assigned our 'B- (sf)'
rating to the class X notes."
S&P said, "The issuer is an English special-purpose entity, which
we assume to be bankruptcy remote. We analyzed its corporate
structure in line with our legal criteria. We assume that final
transaction documents and legal opinions will be in line with our
legal and counterparty criteria and that there are no rating
constraints in the transaction under our counterparty risk
criteria."
As of date, there are no rating constraints in the transaction
under our operational risk or structured finance sovereign risk
criteria.
Ratings List
Class Prelim. Rating Class size (%)*
A AAA (sf) 83.5
B AA (sf) 6.0
C A (sf) 3.5
D BBB (sf) 2.0
E BB+ (sf) 1.5
F BB (sf) 1.0
Z NR 2.5
X B- (sf) 2.75
RC1 Residual Certs NR N/A
RC2 Residual Certs NR N/A
NR--Not rated.
N/A--Not applicable.
STONEGATE PUB: Moody's Affirms CFR at B3, Outlook Stable
--------------------------------------------------------
Moody's Investors Service has affirmed the B3 corporate family
rating and B3-PD probability of default rating of Stonegate Pub
Company Limited.
Concurrently the rating agency has assigned a Ba3 rating to the
GBP250 million Super Senior Revolving Credit Facilities of
Stonegate Pub Company Bidco Limited, a B3 rating to the Senior
Secured Notes totalling GBP1,900 million in the name of the
company's subsidiary, Stonegate Pub Company Financing 2019 plc, and
a Caa2 rating to Bidco's GBP400 million Second Lien Facility.
Moody's changed the company's rating outlook to stable from
developing and assigned stable outlooks to Bidco and Finco.
RATINGS RATIONALE
Its rating action follows the launch of publicly listed senior
secured notes totalling GBP1,400 million which will refinance the
remaining bridge facilities used by Bidco to fund Stonegate's
acquisition of Ei Group plc (EiG), which completed on 3 March
2020.
The prospects for the company's credit quality were particularly
uncertain in the wake of the rapid spread of the Coronavirus which
led to a government requirement for all pubs in the UK to be closed
from 20 March. Re-openings began in England on 4 July and this
brings the prospect of a gradual improvement in Stonegate's
profitability and cash generation. However, during the forced
closure period the company endured a significant cash burn, even
after taking mitigating actions such as furloughing staff and
deferring all non-essential expenditure, including rent payments.
As at 3 July the company had a cash balance of GBP96 million, down
from GBP229 million on 30 March (in each case excluding cash within
the ringfenced Unique Pubs perimeter). On both dates the company
also had drawings of GBP175 million under its SSRCF, which in more
normal times would have been undrawn.
On the basis of pre-crisis pro-forma results for the twelve months
to January 2020 and the debt quantum immediately post-close of the
acquisition, the company's Moody's-adjusted leverage, measured as
Moody's-adjusted debt to EBITDA, would have been high at more than
7.5x. Without the intervention of the Coronavirus crisis, Moody's
believes that prospects for deleveraging would have been good,
helped by expectations of continued solid underlying performance
and GBP80 million of planned synergies.
However, the length of time that it takes for the number of
pub-goers to return to pre-crisis levels is uncertain and until
that happens the company's ability to generate historic levels of
earnings will be constrained. In its base case Moody's expects it
will take until mid-way through 2022 before earnings growth results
in Stonegate deleveraging to below 8.0x, albeit the rating agency
highlights there are numerous factors that mean the pace of
recovery could be slower or faster than in its base case.
More positively, Moody's believes that the company's liquidity will
remain adequate over the next 12-18 months. This assessment factors
in the recent additional equity injection of GBP50 million and an
equivalent increase in the level of the SSRCF, to GBP250 million
from GBP200 million. Furthermore, the rating agency expects that
Stonegate will take a prudent and measured approach towards capital
spending, notably in respect of sites earmarked for conversion from
leased and tenanted to the managed format. In addition, the rating
agency's current expectation is that the company's shareholders
would provide additional support to liquidity in the event that a
second wave of the Coronavirus negatively affected Stonegate's
operations.
In addition to the risks already mentioned Stonegate's B3 CFR takes
account of (a) the continuing competitive industry dynamics and the
company's exposure to economic conditions in a single jurisdiction;
(b) a highly leveraged capital structure which along with
expansionary capital spending constrains free cash flow (FCF); and
(c) execution risks around the scale of the EiG acquisition in
particular in respect of planned synergies, notwithstanding the
strong track record of Stonegate's management over an extended
period.
The CFR also takes due consideration of (a) the company's strong
business profile which benefits from significant scale, wide
geographic spread across the UK, and a mix between managed and
tenanted pubs, with all of these attributes enhanced following the
EiG acquisition; (b) a history of strong revenue and profit growth
for Stonegate and solid pre-acquisition performance by EiG; and (c)
significant scope for synergies to drive further earnings growth
for the enlarged business.
ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONS
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety. Stonegate is controlled by the private equity firm TDR
Capital, which in common with other financial sponsors typically
has tolerance for relatively high leverage in the companies it
controls. However, more positively the rating agency expects TDR
will continue to counter-balance this with a desire to ensure that
Stonegate's capital structure is sustainable over the medium term.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectations that Stonegate
will maintain adequate liquidity over the next 12-18 months, with
additional support from its shareholders if necessary. The outlook
also assumes Stonegate will be able to achieve a gradual return
towards pre-crisis revenue levels, which will facilitate some
deleveraging as profitability also increases.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Although unlikely in the short to medium term, an upgrade could be
considered if in operating conditions akin to the pre-crisis
environment Stonegate is expected to achieve a sustained
improvement in interest coverage to above 1.5x and leverage
sustainably below 7.0x, combined with positive FCF and good
liquidity.
Conversely, a downgrade would be likely if the company's liquidity
weakens or could be appropriate in the event of material delays in
the return to pre-crisis operating conditions that bring into
question the sustainability of the capital structure. Quantitively,
a lack of progress in the next 12-18 months towards leverage
improving to below 8.0x and interest coverage returning to above
1.0x would lead to negative rating pressure.
STRUCTURAL CONSIDERATIONS
All of the rated facilities are secured by a collateral package
which includes share pledges, guarantees and debentures from
Stonegate's material subsidiaries, with the exclusion of companies
within the Unique Pubs sub-grouping, whose assets and cash flows
are used to secure and service its ring-fenced bankruptcy remote
securitisation facilities.
An inter-creditor agreement regulates the relationship between the
rated facilities. In its loss given default analysis Moody's has
used a 50% recovery rate assumption, standard for capital
structures which include a mix of bonds and loans. As such, the
B3-PD PDR is in line with the CFR.
The priority ranking of the SSRCF drives its Ba3 rating, three
notches above the CFR and PDR. The Senior Secured Notes are rated
B3, in line with the CFR, because the subordination cushion
provided by ranking ahead of the Second Lien Facility is offset by
the priority claims of the SSRCF in the event of a default. The
Caa2 rating of the Second Lien Facility reflects its position at
the bottom of the priority waterfall.
LIST OF AFFECTED RATINGS:
Issuer: Stonegate Pub Company Limited
Affirmations:
LT Corporate Family Rating, Affirmed B3
Probability of Default Rating, Affirmed B3-PD
Outlook Actions:
Outlook, Changed to Stable from Developing
Issuer: Stonegate Pub Company Bidco Limited
Assignments:
Senior Secured Bank Credit Facility, Assigned Ba3
Senior Secured Bank Credit Facility, Assigned Caa2
Outlook Actions:
Outlook, Assigned Stable
Issuer: Stonegate Pub Company Financing 2019 plc
Assignments:
BACKED Senior Secured Regular Bond Debenture, Assigned B3
Outlook Actions:
Outlook, Assigned Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Restaurant
Industry published in January 2018.
CORPORATE PROFILE
Stonegate is controlled by the private equity firm TDR Capital.
Before the acquisition of EiG the company had grown via a number of
acquisitions to become the largest privately held managed pub
company in the UK, with more than 750 pubs under management.
Separately with an estate of over 4,000 EiG was the largest leased
and tenanted pub operator in the country, quoted on the London
Stock Exchange with a market capitalisation of around GBP0.9
billion prior to Stonegate launching its successful GBP1.3 billion
equity bid last summer.
The enlarged group had pro-forma reported underlying EBITDA (before
IFRS 16) of GBP405 million in the twelve months to January 2020,
approximately 65% of which was generated by EiG and its
subsidiaries.
TOWER BRIDGE 2020-1: Moody's Gives Ba1 Rating to Class E Notes
--------------------------------------------------------------
Moody's Investors Service has assigned definitive credit ratings to
the following Classes of Notes issued by Tower Bridge Funding
2020-1 plc:
GBP 283,072,000 Class A Mortgage Backed Floating Rate Notes due
September 2063, Definitive Rating Assigned Aaa (sf)
GBP 18,871,000 Class B Mortgage Backed Floating Rate Notes due
September 2063, Definitive Rating Assigned Aa1 (sf)
GBP 14,410,000 Class C Mortgage Backed Floating Rate Notes due
September 2063, Definitive Rating Assigned A1 (sf)
GBP 9,264,000 Class D Mortgage Backed Floating Rate Notes due
September 2063, Definitive Rating Assigned Baa1 (sf)
GBP 8,921,000 Class E Mortgage Backed Floating Rate Notes due
September 2063, Definitive Rating Assigned Ba1 (sf)
Moody's has not assigned ratings to the GBP 8,578,000 Class X
Floating Rate Notes due September 2063, the GBP 8,580,000 Class Z1
Notes due September 2063, or the GBP 8,578,000 Class Z2 Notes due
September 2063.
This transaction represents the fifth securitisation transaction
that is backed by buy-to-let mortgage loans and non-conforming
loans originated by Belmont Green Finance Limited ("Belmont Green",
not rated).
The portfolio consists of 1,785 loans, secured by first ranking
mortgages on properties located in the UK, of which 77.6% are
buy-to-let and 22.4% are owner occupied. The current pool balance
was approximately GBP 343.1 million as of 30th June 2020, the
cut-off date.
RATINGS RATIONALE
The ratings take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determined the MILAN Credit
Enhancement ("MILAN CE") and the portfolio expected loss, as well
as the transaction structure and legal considerations. The expected
portfolio loss of 5.0% and the MILAN required CE of 20.0% serve as
input parameters for Moody's cash flow model and tranching model.
The expected loss is 5.0%, which is in line with other recent UK
non-conforming transactions and takes into account: (i) the
proportion of the portfolio having some adverse credit (9.7%); (ii)
the relatively high proportion of buy-to-let loans (77.6%) and
interest-only loans (75.9%); (iii) the weighted average current LTV
of 72.0%; (iv) the lack of historical performance data from the
originator in particular through any economic downturn; (v) the
current macroeconomic environment and its view of the future
macroeconomic environment in the UK taking into account the impact
of Covid-19 outbreak as well as Brexit; (vi) the 13.2% exposure to
Covid-19 related payment holidays as of 30th June 2020 in terms of
the closing pool outstanding balance; and (vii) benchmarking with
similar transactions in the UK non-conforming sector.
MILAN CE for this pool is 20.0%, which is in line with other recent
UK non-conforming transactions and takes into account: (i) the
current LTV of 72.0%; (ii) borrowers with adverse credit history
(9.7%); (iii) lack of seasoning of the originated loans (c. 0.5
years); (iv) less standard income streams of the underlying
borrowers (32.6% Self-employed borrowers); (v) loans to expatriate
borrowers (11.1%) or companies (22.8%), where the loans are for
buy-to-let purposes; and (vi) the limited track record of the
originator.
The rapid spread of the coronavirus outbreak, the government
measures put in place to contain it and the deteriorating global
economic outlook, have created a severe and extensive credit shock
across sectors, regions and markets. Its analysis has considered
the effect on the performance of consumer assets from the collapse
in the UK economic activity in the second quarter and a gradual
recovery in the second half of the year. However, that outcome
depends on whether governments can reopen their economies while
also safeguarding public health and avoiding a further surge in
infections. 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.
At closing, the non-amortising General Reserve Fund has been fully
funded to 2.5% of the closing principal balance of the mortgage
backed Notes i.e. GBP 8.6 million. The General Reserve Fund will be
replenished from the interest waterfall after the PDL cure of the
Class E Notes and can be used to pay senior fees and costs,
interest and PDL on the Class A-E Notes. The Liquidity Reserve Fund
target is 1.5% of the outstanding Class A and B Notes and is funded
by the diversion of principal receipts until the target is met.
Once the Liquidity Reserve Fund is fully funded, it will be
replenished from the interest waterfall. The Liquidity Reserve Fund
is available to cover senior fees, costs and Class A and B Notes
interest only. Amounts released from the Liquidity Reserve Fund
will flow down the principal priority of payments. The Class A
Notes, or if these are not outstanding, the most senior Notes
outstanding at that time, further benefit from a principal to pay
interest mechanism.
Additionally, the transaction benefits from a payment holiday
reserve fund that has been fully funded at closing and available
until the IPD of September 2021. Its level at closing is 0.75% of
the principal-backed-notes and it will be decreased gradually over
the first 4 IPDs until it is at 0.0% in September 2021.
Operational Risk Analysis: Although Belmont Green is the servicer
in the transaction, it delegates all the servicing to Homeloan
Management Limited, "HML" (not rated, parent Computershare Ltd
rated Baa2). U.S. Bank Global Corporate Trust Limited ("US Bank",
not rated) is the cash manager. Although US Bank is not rated, it
is part of the U.S. Bancorp (A1/P-1). In order to mitigate the
operational risk, CSC Capital Markets UK Limited (not rated) acts
as back-up servicer facilitator. To ensure payment continuity over
the transaction's lifetime, the transaction documents incorporate
estimation language, whereby the cash manager can use the three
most recent monthly servicer reports to determine the cash
allocation in case no servicer report is available. The transaction
also benefits from the equivalent of at least 10 months of
liquidity for Class A notes once the Liquidity Reserve has been
funded from principal, to supplement the General Reserve which is
funded in full to 2.5% of the principal-backed Notes at closing.
Interest Rate Risk Analysis: majority of mortgages in the pool
(99.81%) carry a fixed rate of interest. The transaction benefits
from a swap agreement to mitigate the fixed-floating mismatch
between the initial fixed rate paid by the mortgages and the SONIA
paid under the Notes. The swap provider is NatWest Markets Plc
(Baa2/P-2; A3(cr)/P-2(cr)). Over time, all the loans in the
portfolio will reset from fixed rate to a floating rate linked to
LIBOR or Belmont Green's base rate (Vida Variable Rate "VVR"). As
is the case in many UK RMBS transactions, this basis risk mismatch
between the floating rate on the underlying loans and the floating
rate on the Notes will be unhedged. Moody's has applied a stress to
account for the basis risk on the mortgage loans linked to LIBOR
and Belmont Green VVR, in line with the stresses applied to the
various types of unhedged basis risk seen in UK RMBS.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in May
2020.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage. Please see "Moody's Approach to Rating RMBS Using the MILAN
Framework" for further information on Moody's analysis at the
initial rating assignment and the on-going surveillance in RMBS.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of the Notes
include significantly better than expected performance of the pool
together with an increase in credit enhancement of Notes.
Factors that would lead to a downgrade of the ratings include: (i)
increased counterparty risk leading to potential operational risk
of servicing or cash management interruptions; and (ii) economic
conditions being worse than forecast resulting in higher arrears
and losses.
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S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
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Editors.
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