/raid1/www/Hosts/bankrupt/TCREUR_Public/200724.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, July 24, 2020, Vol. 21, No. 148
Headlines
F R A N C E
DELACHAUX SA: S&P Downgrades Rating to B on Weaker Profitability
I R E L A N D
CAIRN CLO XII: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
I T A L Y
DEDALUS SPA: Fitch Assigns B LT IDR, Outlook Stable
N E T H E R L A N D S
REFRESCO HOLDING: Moody's Rates EUR400MM Sr. Sec. Term Loan B1
WERELDHAVE NV: Moody's Cuts CFR & Sr. Unsec. Bonds Rating to B1
S P A I N
GRUPO EMBOTELLADOR: Fitch Hikes LT IDR to B+, Outlook Stable
U K R A I N E
METINVEST BV: S&P Affirms B ICR, Off CreditWatch Negative
U N I T E D K I N G D O M
CENTRAL NOTTINGHAMSHIRE HOSPITALS: S&P Lowers Bond SPUR to BB+
CHESTER'S GROSVENOR: "Business as Usual" Despite Receivership
CO-OPERATIVE BANK: Fitch Maintains B- IDR on Watch Negative
ELVET MORTGAGES 2020-1: Fitch Rates Class E Debt BB+(EXP)sf
ELVET MORTGAGES 2020-1: S&P Assigns Prelim BB+ Rating on E Notes
ST MARY'S: Enters Administration Due to Coronavirus Pandemic
WIGAN ATHLETIC: Administrator Says Preferred Buyer Chosen
WRA: Optimistic on Future Despite Voluntary Administration
XERCISE4LESS: Bought Out of Administration by JD Sports Gyms
X X X X X X X X
[*] BOOK REVIEW: BOARD GAMES - Changing Shape of Corporate Power
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F R A N C E
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DELACHAUX SA: S&P Downgrades Rating to B on Weaker Profitability
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S&P Global Ratings lowered its ratings on Delachaux S.A. and the
group's term loan B to 'B' from 'B+'. The recovery ratings remains
unchanged at '3' (50%-60; rounded estimate 50%).
S&P said, "Due to COVID-19's impact on the train industry, we
believe Delachaux's revenue, absolute profitability, FOCF, and
credit metrics will weaken in 2020. We expect the company's S&P
Global Ratings-adjusted debt to EBITDA will rise to more than 10x
including EUR156 million of preference shares that we view as
debt-like, compared with 9.0x in 2019 including preferred shares
(7.8x excluding them). Our estimate also assumes Delachaux's EUR75
million revolving credit facility (RCF) will remain fully drawn at
year-end 2020. If the RCF is repaid, we forecast adjusted debt to
EBITDA of 9.5x-10.0x. The COVID-19 pandemic continues to disrupt
and depress demand in Delachaux's end markets, resulting in
pressure on the group's financial results. We expect revenue will
drop by more than 10% at the end of 2020 to less than EUR850
million, compared with EUR965 million in 2019. In addition, we
forecast the group's absolute EBITDA will fall to EUR115 million,
and its margins will come under slight pressure as it adapts its
cost base. Despite our expectation that management will cut costs
and reduce capital expenditure (capex), we expect FOCF will weaken
in 2020, but recover and become strongly positive again in 2021 as
end markets rebound.
"We believe COVID-19 will have the most significant impact on rail
infrastructure and Energy and Data Management Systems (EDMS)
businesses due to delayed sales and given Delachaux's projects
linked to the rail and automotive industry. The group posted a
10.4% decline in topline sales growth to EUR213.5 million for the
quarter ending March 31, 2020, compared with EUR249.9 million in
same period in the previous year. This drop stemmed from reduced
sales in each of the group businesses. As a consequence, we now
forecast a topline decrease of 13%-14% for full year 2020, versus a
2%-3% increase in our last review. We expect to see a recovery in
2021 given we observed a very slight 1.8% decline in the order
intake for the quarter ending March 31, 2020, to EUR260.6 million
from EUR265.7 million in the same period last year." The marginal
decline can be attributed to demand pressure in Asia Pacific amid
the COVID-19 pandemic, alongside a slowdown in order intake in
April in the EDMS and Chromium business. This is offset by
significant orders in rail infrastructure and rail signaling from
China.
Delachaux's ability to reduce costs and preserve its liquidity will
be key to weathering the pandemic. At March 31, 2020, Delachaux
has EUR95 million of cash on the balance sheet. The group
subsequently fully drew down its EUR75 million RCF, meaning that we
estimate it has EUR160 million of cash on hand at the time of this
publication. Delachaux also recently negotiated a springing
covenant waiver with its banks until the end of 2020. S&P said, "We
also expect Delachaux will tighten its working capital, as many
other European issuers are doing, to preserve liquidity. We
estimate the group will close 2020 with cash comfortably in excess
of EUR100 million (including the fully drawn RCF)." Moreover, the
group has no material debt maturities before 2025.
S&P said, "We continue to see Delachaux as a market leader,
creating barriers to entry, but it it's position is constrained by
a dependence on the rail infrastructure market. Our view of
Delachaux's business risk remains supported by the group's leading
global position in niche rail-fastening and welding systems sector
(about 57% of sales in 2019), which features high barriers to entry
and an inherently stable revenue base. Moreover, Delachaux is No. 1
in the EDMS market, with a share of about 20%, and has a 25% share
of the chromium metal market. We also note balanced geographic
exposure and good customer diversification. On the downside, we
note the limited scale of Delachaux' operations compared with those
of bigger capital goods companies, as well as somewhat limited
end-market diversification given its large exposure to rail
infrastructure.
"Given the ownership by financial sponsor Caisse de depot et
placement du Quebec (CDPQ), we don't net cash against debt. CDPQ
owns 43.02% of Delachaux, the Delachaux family controls 56.49%
through its holding company Ande Investments and management owns
0.49%. We note that CDPQ's investment horizon and return targets
are less aggressive than of a typical private equity investor and,
positively, also note it has provided equity support for the
Frauscher acquisition. However, we continue to base our assessment
of the group's financial policy on its highly leveraged capital
structure. Although the Delachaux family has a majority stake, we
still think CDPQ might exercise control over the company given its
consent could be required for some strategic decisions, and it
could exercise a veto right in certain situations. Also, while we
understand that the company does not intend to make significant
dividend distributions over the coming years, we don't rule out a
dividend recap once CDPQ decides to exit the company. In the
absence of a stapling clause, we add EUR156 million preferred
shares to our adjusted debt calculation. We also added about EUR30
million of factored trade receivables, EUR35 million of lease
liabilities, about EUR20 million of pensions, and EUR75 million of
the drawn RCF to our calculated adjusted debt in 2020 from EUR885
million reported debt in 2019.
"We acknowledge a high degree of uncertainty about the evolution of
the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions,
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021. We are using the assumption in assessing the economic and
credit implications associated with the pandemic. As the situations
evolves, we will update our assumptions and estimates
accordingly."
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety.
S&P said, "The stable outlook reflects our view that, despite
weaker results and higher leverage, we expect some end markets,
specifically the rail industry, have the potential to recover. We
expect the group's FOCF will recover to strongly positive and it
will begin to gradually deleverage toward 7x (excluding the
preferred shares) through 2021. We also consider that Delachaux's
liquidity position will enable the group to withstand significant
industry headwinds and fund cash outflows stemming from depressed
profits following the outbreak of COVID-19.
"We could lower the rating on Delachaux if the company's margins
deteriorate toward 10% or lower, adjusted debt to EBITDA (excluding
preferred shares) increases to more than 9x on a sustained basis,
FOCF turns negative, or funds from operations cash interest
coverage decreases below 2.5x without the prospect of a swift
improvement. We could also lower the rating if the ratio of
liquidity sources to uses decreases to less than 1.2x.
"We consider a positive rating action unlikely at this stage.
However, we could raise the rating if Delachaux increases margins
back to sustainably more than 15%, with continued positive FOCF,
and improves debt to EBITDA (without preferred shares) to
sustainably below 5.5x, supported by positive industry trends and a
robust operating performance."
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I R E L A N D
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CAIRN CLO XII: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
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S&P Global Ratings assigned its preliminary credit ratings to Cairn
CLO XII DAC's class A, B, C, D, E, and F notes. The issuer also
issued unrated subordinated notes.
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans or bonds. The
portfolio's reinvestment period ends approximately three years
after closing, and the portfolio's maximum average maturity date is
seven years after closing. Under the transaction documents, the
rated notes pay quarterly interest unless there is a frequency
switch event. Following this, the notes will switch to semiannual
payment.
As of the closing date, the issuer will own close to 80% of the
target effective date portfolio. We consider that the portfolio on
the effective date will be well-diversified, primarily comprising
broadly syndicated speculative-grade senior secured term loans and
senior secured bonds. Therefore, we have conducted our credit and
cash flow analysis by applying our criteria for corporate cash flow
collateralized debt obligations.
Portfolio Benchmarks
Current
S&P Global Ratings weighted-average rating factor 2,884.19
Default rate dispersion 451.10
Weighted-average life (years) 5.31
Obligor diversity measure 89.83
Industry diversity measure 15.97
Regional diversity measure 1.26
Transaction Key Metrics
Current
Total par amount (mil. EUR) 330
Defaulted assets (mil. EUR) 0
Number of performing obligors 98
Portfolio weighted-average rating
derived from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 2.10
'AAA' weighted-average recovery (%) 36.09
Weighted-average spread net of floors (%) 3.75
S&P said, "In our cash flow analysis, we modeled the EUR330 million
target par amount, a weighted-average spread of 3.60%, the
reference weighted-average coupon of 6.00%, and a weighted-average
recovery rates for the 'AAA' rated note of 35.00%. 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.
"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.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B to F notes is commensurate with
typically higher rating levels than those we have assigned.
However, as the CLO will have a reinvestment period, during which
the transaction's credit risk profile could deteriorate, we have
capped our assigned ratings on the notes."
Elavon Financial Services DAC will be the bank account provider and
custodian. Its documented downgrade remedies are in line with our
counterparty criteria.
The issuer can purchase up to 25.0% of non-euro assets, subject to
entering into asset-specific swaps. J.P. Morgan AG will act as swap
counterparty. Its downgrade provisions are in line with S&P's
counterparty criteria for liabilities rated up to 'AAA'.
S&P considers that the transaction's legal structure is bankruptcy
remote, in line with our legal criteria.
S&P said, "The CLO will be managed by Cairn Loan Investments II
LLP. We expect the manager to support a maximum potential rating on
the liabilities of 'AAA' under our "Global Framework For Assessing
Operational Risk In Structured Finance Transactions," published on
Oct. 9, 2014.
"Following our analysis of the credit, cash flow, counterparty, and
legal risks, we believe that our preliminary ratings are
commensurate with the available credit enhancement for the class A,
B, C, D, E, and F 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 evolution of the coronavirus pandemic. The consensus among
health experts is that the pandemic may now be at, or near, its
peak in some regions, but will remain a threat until a vaccine or
effective treatment is widely available, which may not occur until
the second half of 2021. S&P said, "We are using this assumption in
assessing the economic and credit implications associated with the
pandemic. As the situation evolves, we will update our assumptions
and estimates accordingly."
Cairn CLO XII is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by sub-investment grade borrowers. Cairn
Loan Investments II will manage the transaction.
Ratings List
Class Prelim. Prelim. Sub (%) Interest rate*
rating amount
(mil. EUR)
A AAA (sf) 188.00 43.03 Three/six-month EURIBOR
plus 1.51
B AA (sf) 38.50 31.36 Three/six-month EURIBOR
plus 2.30
C A (sf) 24.00 24.09 Three/six-month EURIBOR
plus 3.00
D BBB (sf) 19.60 18.15 Three/six-month EURIBOR
plus 4.10
E BB- (sf) 16.00 13.30 Three/six-month EURIBOR
plus 6.43
F B- (sf) 7.75 10.95 Three/six-month EURIBOR
plus 7.55
M-1 NR 16.75 N/A N/A
M-2 NR 18.50 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event
occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A—-Not applicable.
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I T A L Y
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DEDALUS SPA: Fitch Assigns B LT IDR, Outlook Stable
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Fitch Ratings has assigned Dedalus SpA a final Long-Term Issuer
Default Rating of 'B' with a Stable Outlook. Fitch has also
assigned Dedalus Finance GmbH's EUR680 million first-lien senior
secured term loan a final rating of 'B+'/'RR3'/63%.
Dedalus is the leading pan-European player in a fragmented
healthcare software market, formed in May 2020 from the merger of
Dedalus's operations in Italy and France and Aceso, a carve-out of
the healthcare software business from Agfa-Gevaert with operations
in Germany, Austria, Switzerland and France. Both companies also
have small operations in other countries.
The rating of Dedalus is constrained by high funds from operations
leverage, which Fitch expects to be between 6.5x and 7.5x in
2021-2023. Fitch believes Dedalus's private-equity ownership limits
deleveraging as equity owners are likely to prioritise M&A, growth
and dividends over debt reduction. The company is approximately
75%-owned by a private investment firm, Ardian, with the remaining
25% owned by Dedalus's founder and minority shareholders. Fitch
expects that deleveraging will be primarily achieved with EBITDA
growth driven by organic expansion and synergies from the merger.
The rating benefits from strong positions in its key market
segments, a highly diversified customer base, the recurring nature
of its revenues and supportive market trends.
KEY RATING DRIVERS
Leverage Constrains Rating: Fitch estimates Dedalus's FFO leverage
at 8.3x in 2020 on a pro-forma basis and to decline to 7.4x and
7.0x in 2021 and 2022, respectively. Deleveraging will be driven by
organic EBITDA growth and acquisition synergies. The other leverage
metric (cash from operations less capex/gross debt) is estimated at
7%-10% in 2021-2023, which is consistent with other 'B' software
peers'. Fitch expects Dedalus to generate strong free cash flow
with high single-digit margins.
Strong Position in Fragmented Markets: The European healthcare
software market is highly fragmented and Dedalus competes with
different set of competitors in each market. Its share varies from
20% to 70% across different sub-segments. Dedalus's main
competitive advantages are a dedicated focus on the healthcare
industry, strong R&D capabilities and a fairly large scale. These
allow it to operate efficiently in different healthcare systems in
compliance with local regulation and international standards.
Extensive Product Offering: Dedalus covers the entire spectrum of
healthcare software needs for clinical activities including
electronic medical records, diagnostic solutions (including
laboratory, anatomical pathology and radiology information
systems), administration activities and enterprise resource
planning, which supports day-to-day administrative functions (e.g.
procurement, HR, finance) and primary/integrated care and GPs and
the care process of chronic and complex patients. EMR is the main
segment for Dedalus, contributing around 50% to its revenue,
followed by diagnostic solutions at around 30%.
Resilient Revenues: Around 80% of Dedalus's revenues are recurring
or re-occurring, which provide fairly high cash-flow visibility and
stability. The critical nature of software products, combined with
significant barriers to entry (e.g. high switching costs and
initial R&D), long-term nature of contracts (three to six years),
as well as low technological risk underpin customer-base
sustainability, which is evidenced by a low churn rate (around
1%).
Diversified Customer Base: Dedalus benefits from a well-diversified
customer base with its top-20 customers together accounting for no
more than 12% of revenue. Its customer base includes over 5,000
hospitals, more than 4,800 labs and over 23,000 GPs. Fitch believes
that geographic, product and customer diversification reduces
revenue volatility and supports more sustainable revenue growth
compared with single-market peers.
Synergies Drive EBITDA Growth: Fitch expects that Dedalus's EBITDA
growth in 2021-2023 to be driven by organic revenue growth and
synergies from the merger, which should come from cost-cutting and
cross-selling. The major synergies, including optimisation of
overlapping functions and property and centralised procurement, are
expected to come from France, where Dedalus's and Aceso's
operations overlap and from R&D optimisation.
Low-to-Moderate Execution Risks: Fitch views execution risks as low
to moderate, given both companies' strong record in extracting
synergies from previous M&As. Fitch applies a modest 25% haircut to
the synergies expected by management to incorporate these risks.
The restructuring and integration will involve additional costs in
2020-2023, some of which it treats as one-off.
Supportive Industry Trends: Fitch believes that Dedalus is
well-positioned to benefit from the digitalisation of European
healthcare systems. This is deemed essential not only to improve
treatment quality and patient experience, but also to tackle rising
healthcare costs driven by secular trends, such as ageing
population. The low digitalisation of healthcare infrastructure in
EU pushes governments to promote investments in IT infrastructure,
particularly with COVID-19 underlining the importance of medical
data storage and the necessity for collaborations across healthcare
systems. However, this trend is partially offset by the
rationalisation of hospitals, data security concerns and budget
constraints.
DXC Technology Transaction Strategically Sound: Fitch believes that
the acquisition of Healthcare Software Solutions from DXC
Technology Company for USD525 million will positively impact
Dedalus via increased geographical diversification, enhanced R&D
capacity and larger scale of operations. The assets are similar to
Dedalus's operating profile, with a focus on hospital information
systems and are characterised by high recurring revenues, long-term
contracts and a low customer churn. They operate in 24 countries
and have leading positions in multiple countries where they have a
significant presence, including the UK, Ireland, Australia, New
Zealand and Spain.
Deal Financial Impact Pending Information: Based on its current
knowledge of the DXC Technology transaction, Fitch expects
Dedalus's leverage to remain within its thresholds for the next
three years and the Recovery Rating for the senior secured debt to
remain at 'RR3'. The detailed impact of the deal on Dedalus's
profile will be estimated once more information is available. The
deal requires regulatory clearance and is expected to close by
March 2021.
DERIVATION SUMMARY
The ratings of Dedalus are supported by its leading market
positions in its key segments in all countries of presence, its
unique pan-European footprint in the highly fragmented healthcare
software industry, the long-term nature of contracts and a
sustainable customer base as evidenced by low churn rates. Its
closest Fitch-rated peer is TeamSystem Holding S.p.A (B/Stable), a
leading Italian accounting and ERP software company with a good
proportion of recurring revenue. The companies have similar
leverage profiles and benefit from healthy market trends and a
sustainable customer base. Dedalus has a larger geographical
footprint with exposure to more stable economies in Germany and
France, while TeamSystems operates only in Italy but benefits from
higher margins.
Dedalus's operating profile compares well with that of other
Fitch-rated software peers, in particular Project Angel Holdings,
LLC (MeridianLink, B/Stable), Particle Luxembourg S.A R.L.
(WebPros, B/Stable) and Ellie Mae, Inc (B+/Negative). Another peer
group would be cybersecurity firms such as Imperva Inc.
(B-/Stable), Surf Intermediate I Limited (Sophos, B-/Stable), which
enjoy higher medium-term revenue growth prospects and stronger
margins but have higher leverage. Dedalus is also broadly
comparable with the other private and publicly Fitch-rated peers in
the wider technology sector. It has slightly higher leverage but
benefits from its market leadership, diversification and robust FCF
generation.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
(excluding the DXC Technology transaction)
- Mid-single digit revenue growth in 2021-2023
- Pro-forma EBITDA margin at 21.4% (pre-IFRS16) in 2020 gradually
increasing to 26% as synergies materialise
- Working capital change per year between EUR1 million and EUR4
million in 2020-2023
- Capex at 1.2% of sales in 2020-2023
- Capitalised R&D costs at Dedalus Italy SpA are treated as
expensed and included in EBITDA
- Integration and transformation expenses totalling EUR22 million
spread across 2020-2023, treated mainly as one-off items below FFO
- Factoring of EUR38 million (end-2019 outstanding amount)
included in total debt
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis is based on the current asset scope without
the DXC Technology transaction and assumes that Dedalus would be
reorganised as a going-concern in bankruptcy rather than
liquidated.
- Fitch estimates that its post-restructuring EBITDA would be
around EUR90 million. Fitch would expect a default to come from a
secular decline or a drop in revenue and EBITDA following an
unlikely emergence of a disruptive technology, reputational damage
or intensified competition. The EUR90 million GC EBITDA is lower
than Fitch-defined 2020 EBITDA forecast of EUR104 million.
- An enterprise value multiple of 6.0x is applied to the GC
EBITDA to calculate a post-reorganisation EV. The multiple is in
line with that of other similar software companies that exhibit
strong pre-dividend FCF generation. Historical bankruptcy exit
multiples for peer companies range from 2.6x to 10.8x, with a
median of 5.1x. However, software companies demonstrated higher
multiples (4.6x-10.8x). In the current transaction, Aceso was
valued at approximately 16x EBITDA. Fitch believes that the high
acquisition multiple also supports its recovery multiple
assumption.
- 10% of administrative claims taken off the EV to account for
bankruptcy and associated costs.
- Fitch estimates the total amount of secured debt for claims at
EUR760 million, which includes a EUR680 million senior secured term
loan and assuming that the equally ranked EUR80 million revolving
credit facility is fully drawn.
- Fitch does not include EUR140 million PIK notes outside of the
scope of the restricted group in total debt and treat it as equity
in line with its criteria.
- Fitch does not include factoring facilities in the total claims
estimates as Fitch believes that the factoring programme will
continue to be available.
- Fitch estimates the expected recoveries for senior secured debt
at 63%. This results in the senior secured debt rating of
'B+'/'RR3', one notch above the IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO gross leverage below 6x
- CFO less capex/gross debt at above 10%
- Continued strong market leadership and strong FCF generation
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO gross leverage sustainably above 7.5x
- CFO less capex/gross debt below 5%
- FFO interest coverage sustainably below 2.0x;
- Failure to extract synergies from the Aceso acquisition leading
to slower EBITDA growth and delayed deleveraging
- A weakening market position as evidenced by slowing revenue
growth
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).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: Fitch expects liquidity to remain strong over the
next four years, supported by positive FCF generation, a prudent
approach to the amount of cash on the balance sheet and a EUR80
million RCF. The term loan is due in seven years.
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.
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N E T H E R L A N D S
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REFRESCO HOLDING: Moody's Rates EUR400MM Sr. Sec. Term Loan B1
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Moody's Investors Service has assigned a B1 rating to the new
EUR400 million senior secured term loan maturing in March 2025
issued by Refresco Holding B.V., a fully owned subsidiary of
Sunshine Mid B.V. Terms, ranking and guarantee and security package
of the new term loan mirror those of the existing term loan.
Proceeds from the new loan will be used for acquisition financing
purposes. Although the specifics of the M&A transactions deal have
not been publicly disclosed, management has indicated that there
are potential targets in the same business lines within Europe,
which in aggregate would add a pro-forma EBITDA contribution of
EUR147 million, including run-rate synergies. Refresco will fund
the potential deal through a mix of debt of EUR400 million,
existing cash and potential drawing under the revolving credit
facility of EUR300 million and EUR150 equity contribution from the
selling shareholders, such that the deal is leverage positive.
RATINGS RATIONALE
While the company is currently weakly positioned in the rating
category due to its high leverage, the rating reflects Refresco's
(1) significant scale and relevance as the largest independent
beverage solutions provider in Europe and North America; (2)
expected profit growth over 2020-21 and modest positive free cash
flow generation; (3) wide product offering in terms of drinks and
types of packaging; and (4) good track record in integrating
acquired assets.
The rating is constrained by the company's (1) highly leveraged
capital structure with Moody's-adjusted gross debt/EBITDA of 7.0x
in 2019; (2) operations in mature markets with modest potential for
volume growth; (3) exposure to price competition and fluctuation in
raw material prices; (4) modest geographical diversification and
degree of customer concentration; and (5) ongoing appetite for
M&A.
The company's adjusted EBITDA increased by 39% to EUR448 million in
2019, driven by the full contribution from Cott's acquired assets
and additional synergies achieved from the combination. Operating
performance remained strong in Q1 2020, with EBITDA up 21% driven
by strong organic growth and contribution from bolt-on
acquisitions. Notwithstanding the strong earnings growth, Moody's
adjusted debt to EBITDA at December 2019 was high at 7.0x and
increased to around 7.2x at March 2020, because of the $150 million
additional debt raised in the first quarter the proceeds of which
were mainly used for the acquisition of AZPACK in January 2020.
Despite the weakened economic environment due to the coronavirus
outbreak, Refresco's operating performance has been less impacted
compared to other global beverage companies. This is because
Refresco has a low exposure to the "out of home" channel, which
experienced the most severe trading conditions during the full
lock-down period. For Refresco, this channel represents around
10%-15% of total revenue, compared to around 30%-40% on average for
other European beverage companies.
In addition, Moody's expects that Refresco's total earnings in the
first half of the year will grow modestly supported by the
contribution from AZPACK, a company specialized in manufacturing
complex products for branded beverage companies in the US, which
was completed in the first quarter.
As a result, the rating agency expects modest EBITDA increase for
the full year driven by positive organic revenue, contribution from
acquired assets, as well as additional synergies. Moody's expects
that Refresco's adjusted debt to EBITDA would decline towards 7.0x
in 2020, excluding the impact of the potential acquisition.
Including the new EUR400 million acquisition financing debt and the
EBITDA contribution from the potential new acquisition (and
assuming cash and equity included in the funding mix), pro-forma
Moody's adjusted debt to EBITDA would improve by around 0.5x in
2020 versus the 7.0x for Refresco stand alone, further declining
towards 6.0x in 2021.
LIQUIDITY
Refresco's liquidity is currently adequate, supported by its (1)
cash balance of EUR307 million as of March 2020; (2) EUR200 million
revolving credit facility (which will be upsized to EUR300
million); (3) modest positive FCF generation; and (4) long-term
debt maturity profile.
However, Moody's expects liquidity to weaken due to a material
reduction in the cash balance following the potential acquisition
to complete in the next 12 months. This will be partially offset by
the increase in the RCF.
The RCF has a springing financial covenant with a net secured
leverage test below 8.6x (4.9x at March 2020) for drawings above
35% which is more likely to be tested given the potential reduced
cash balance and increased reliance on the RCF. However, the rating
agency expects the company to maintain ample headroom under the
springing covenant over the next 12-18 months.
STRUCTURAL CONSIDERATIONS
The senior secured credit facilities, including the new EUR400
million term loan, are rated B1, one notch above the B2 CFR because
of their first ranking position in the waterfall of liabilities.
The senior secured credit facilities are guaranteed by material
subsidiaries representing at least 80% of total EBITDA and secured
by shares, material intercompany receivables and material bank
accounts of these subsidiaries.
The Caa1 rating on the EUR445 million unsecured notes due in May
2026 reflects its contractual subordination to the company's first
lien term loans.
RATIONALE FOR STABLE OUTLOOK
While the company is weakly positioned in the rating category, the
stable outlook reflects the good and resilient operating
performance despite the challenges created by the coronavirus
outbreak, the expectation that the potential M&A transactions in
Europe will be at least leverage neutral, and the company's strong
track-record in integrating acquired assets.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
While unlikely in the near term, given the high leverage, there
could be positive pressure over time if the company maintains (1) a
Moody's-adjusted EBITA margin in the mid-to-high single digits in
percentage terms, (2) a Moody's-adjusted debt/EBITDA below 5.5x,
and (3) solid liquidity, including strong positive FCF.
The rating could be lowered if the company's operating performance
deteriorates or if there are unforeseen challenges during the
integration of acquired assets. Quantitatively, downward pressure
would arise if (1) the Moody's-adjusted debt/EBITDA remains above
7.0x, or (2) FCF deteriorates or liquidity weakens.
LIST OF AFFECTED RATINGS
Issuer: Refresco Holding B.V.
Assignment:
Senior Secured Bank Credit Facility, Assigned B1
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Global Soft
Beverage Industry published in January 2017.
COMPANY PROFILE
Refresco, headquartered in Rotterdam, is a leading independent
manufacturer of soft drinks and juices for A-brands and retailers.
Its private-label product portfolio includes fruit juices,
carbonated soft drinks, noncarbonated soft drinks (still drinks),
energy drinks, ready-to-drink teas and bottled water. The company
also manufactures widely recognised European and international
brands, or A-brands, of beverages on contract (also known as
co-packing or contract manufacturing). It reported revenue and
EBITDA of EUR3.9 billion and EUR448 million respectively in 2019.
Refresco is controlled by funds managed and advised by PAI Partners
and BCI.
WERELDHAVE NV: Moody's Cuts CFR & Sr. Unsec. Bonds Rating to B1
---------------------------------------------------------------
Moody's Investors Service has downgraded Wereldhave N.V.'s
corporate family rating and the rating on the senior unsecured
bonds to B1 from Ba2 and placed the ratings on review for
downgrade. The outlook has changed to ratings under review from
negative.
RATINGS RATIONALE
Against its expectation incorporated into the prior rating,
Wereldhave has not yet been able to secure additional funding over
the last couple of months by extending existing facilities or
entering into new facilities, resulting in a further deterioration
in the company's liquidity coverage as per Moody's definition.
Based on its estimations, the company has secured liquidity until
and including Q1 next year, after which some of the existing
funding and subsequently some revolving lines mature. In its
liquidity estimation, Moody's does not consider any not yet
committed new facilities, property sales or other intended
cash-generating activities.
The B1 rating balances the short-dated maturity profile and
short-term refinancing needs with its view that the company will
succeed in addressing 2021 maturities over the next few months.
Moody's notes that Wereldhave's H1 results contain some initial
positives such as a stable occupancy and relatively good leasing
levels, while like-for-like earnings declined, and values dropped
(in line with its longer-term expectations) by 5.6%.
Despite increased liquidity pressure, Moody's expects the company
to enter into new financing arrangements in the next months that
will secure liquidity throughout and beyond 2021, and term out the
debt maturity profile. The company still has a large amount of
unencumbered assets and sufficient headroom remaining under its
secured debt / unencumbered assets undertakings. Nevertheless, in
the currently very challenging environment for retailers and retail
landlords, the uncertainty around restoring adequate liquidity and
the terming out of the debt maturity profile has increased. Besides
debt maturities, Moody's also considers the declining headroom
under its covenants given the value declines reported, which
Moody's expects to continue.
The rapid spread of the coronavirus outbreak, deteriorating global
economic outlook, low oil prices and high asset price volatility
have created an unprecedented credit shock across a range of
sectors and regions. Moody's regards the coronavirus outbreak as a
social risk under its ESG framework, given the substantial
implications for public health and safety.
The coronavirus outbreak has accelerated the challenges to the
operating environment for Wereldhave. Moody's has not materially
altered its assumptions for directional views on value declines or
its projections on cash flows since its last rating action in May
2020. Moody's does consider a high amount of rent deferrals to
ultimately lead to rent abatements in 2020, and a moderate recovery
in 2021 despite increasing pressure from lease renewals and
vacancies. This was however not the main driver for the rating
change. Moody's notes that any projections are subject to
substantial uncertainties as the impact of the lockdown on
occupancy and rents will only unfold over the next 12-18 months.
After a period of partial lockdown, Wereldhave's centers are open
again and Moody's anticipates retail sales within Wereldhave's
centers to slowly recover from the low levels in April and May.
The rating review will focus on liquidity measures the company aims
to take in the next months, its impact on balance sheet metrics as
well as on covenant headroom. During the rating review, Moody's
will also aim to estimate further how earnings will evolve over
2020 and 2021, as well as updating its directional view on property
values for the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the review for downgrade, an upgrade is unlikely at this
point. It would require a material improvement to the liquidity
situation and the debt term structure of the company to remove
liquidity uncertainty in 2021. Moody's would also consider further
company actions to protect the balance sheet, restore and protect
covenant headroom, and execute on its sales plans. Upward rating
pressure would also require more clarity around the impact of the
coronacrisis on Wereldhave's business, and a stabilising operating
performance outlook.
Negative rating pressure would develop if the company is unable to
address its refinancing needs within the next months, and restore
liquidity or if covenant headroom would materially deteriorate.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was REITs and Other
Commercial Real Estate Firms published in September 2018.
LIST OF AFFECTED RATINGS:
Downgrades:
Issuer: Wereldhave N.V.
LT Corporate Family Rating, Downgraded to B1 from Ba2; Placed Under
Review for further Downgrade
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to B1
from Ba2; Placed Under Review for further Downgrade
Outlook Actions:
Issuer: Wereldhave N.V.
Outlook, Changed to Ratings Under Review from Negative
=========
S P A I N
=========
GRUPO EMBOTELLADOR: Fitch Hikes LT IDR to B+, Outlook Stable
------------------------------------------------------------
Fitch Ratings has upgraded Grupo Embotellador Atic, S.A.'s
Long-Term Foreign and Local-Currency Issuer Default Ratings to 'B+'
from 'B' and the senior unsecured notes of its Ajecorp B.V.
subsidiary to 'B+'/'RR4' from 'B'/'RR4'. The Rating Outlook is
Stable.
The upgrade reflects Atic's resilient business despite a
challenging economic environment, ongoing debt repayment and
improved credit profile. The ratings continue to be constrained by
the company's moderate size and several below-average
Environmental, Social and Governance factors, as well as the
refinancing risk associated with the maturity of its 2022 bond.
KEY RATING DRIVERS
Coronavirus Impact Manageable: Atic's operations are expected to be
only moderately impacted by disruptions related to the coronavirus
pandemic. As an essential business, the company has been operating
despite the quarantine and lockdown measures implemented by
governments in most countries to reduce the spread of the disease.
The group is mainly exposed to the traditional channel (mom and
pops and supermarkets). Atic's EBITDA increased during 1Q20 by 8%
yoy due to strong performance in Ecuador, Thailand and Colombia and
weaker performance in Peru. For 2020, Fitch's base case projections
incorporate a decline in volumes of 7% for 2020 due to disruptions
during the second quarter. Fitch expects EBITDA (excluding
royalties and IFRS16) to fall to USD148 million in 2020 from USD160
million in 2019.
Steady Leverage: Fitch expects Atic's adjusted net adjusted
debt/EBITDA to remain below 3x by YE 2020 from 3.1x at YE 2019,
which is low for a 'B+' rating. Fitch expects the company to
generate positive FCF due to steady EBITDA, limited capex and no
dividend payments. Fitch forecasts FCF to be about USD 50 million
(or EUR45 million in 2020 from EUR56 million in 2019). The company
remains exposed to currency risks because its raw material costs
and debt are denominated in U.S. dollars (95% of the debt).
Noncore Assets: Atic's Indonesian and Thailand operations are
consolidated in its financial statements. During 1Q20, these
business units generated adjusted EBITDA of USD64,000 and USD5.5
million, respectively. Fitch understands that the company intends
to discontinue these two businesses depending on market conditions.
Fitch is not factoring in any cash proceeds from the sale of
noncore operations due to the lack of visibility in the divestment
process. The combined businesses are not a cash drain for the group
as Thailand is performing well.
Geographic and Product Diversification: Atic is geographically
diversified in Latin America, with Peru, Central America, Ecuador
and Colombia representing about 25%, 29%, 22% and 14%,
respectively, of EBITDA as of LTM 2020. The company's strategy is
to move its product mix toward non-carbonated soft drink products
that have higher potential growth in less mature markets than
carbonated soft drinks; about 48% of volumes consisted of soft
drinks as of 1Q20, and the other 52% included mainly citrus, water,
isotonic, energy drinks and nectar.
Governance: Fitch has assigned an ESG score of 5 for governance
structure due to ownership concentration, and the strong influence
of Atic's owners on its management. Fitch lowered to 4 from 5 the
ESG factor on management strategy due to improved focus by the
company on its core operation, through the closing of facilities,
operating efficiencies measures and debt reduction. The ESG
Relevance Scores of 5 for governance structure have resulted in
Atic's ratings being lower than most beverage companies that
operate with leverage level of below 3x.
DERIVATION SUMMARY
Atic's 'B+' rating is supported by the company's geographical
diversification in Latin America and its stable position in the 'B'
brand segment within most of its markets.
The company's business profile is constrained by the moderate size
compared with international peers and lower group EBITDA margins
than other companies such as Arca Continental, S.A.B. de C.V.
(A/Stable) and Coca-Cola FEMSA, S.A.B. de C.V. (A-/Stable). Atic
also is exposed to low-rated countries such as Ecuador and mostly
non-investment-grade countries within its Central America division,
except Panama.
Leverage is low for the 'B+' category; however, Atic's ratings are
tempered by the company's need to refinance the bond due in 2022.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Agency's Rating Case for the
Issuer
-- Single-digit sales decline driven mainly by lower volumes;
-- Capex of about USD30 million in 2020;
-- EBITDA of about USD148 million in 2020;
-- Net debt /EBITDA below 3x at YE20.
KEY RECOVERY RATING ASSUMPTIONS
-- The recovery analysis assumes that Atic would be reorganized
as a going-concern in bankruptcy rather than liquidated;
-- Fitch has assumed a 10% administrative claim.
A distressed multiple of 6x was used in this analysis. This
multiple reflects the company's lower brand equity than larger
multinational companies with stronger business positions and higher
brand equity. Fitch assumes a conservative post-restructuring going
concern EBITDA of about USD82 million (or EUR73 million), which
assumes a 40% distressed value on group adjusted EBITDA and a total
debt of about USD422 million (EUR383 million.)
The recovery performed under this scenario resulted in a recovery
level of 'RR1', which indicates good recovery prospects. Atic's
recovery rating is capped at 'RR4' due to the location of the
group's operations; Fitch limits Recovery Ratings for corporates
located mainly in Peru and in most South American countries to
'RR4'. This Recovery Rating reflects average recovery prospects.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- Net debt/EBITDA below 3x on a sustained basis;
-- Consistent positive FCF;
-- Refinancing of the 2022 unsecured bond.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- Net debt/EBITDA above 4x on a sustained basis;
-- Negative FCF;
-- Lack of progress toward refinancing of the bond by 1H21.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Manageable Liquidity: The company had USD32 million of cash and
cash equivalents as of 1Q20 and USD37 million of short-term debt.
The company faces a major refinancing hurdle in May 2022, when its
USD450 million senior unsecured notes mature. The company
repurchased USD20.2 million and USD37 million of its notes in 2019
and 1Q20 respectively. The primary source of liquidity is the
company's available cash, uncommitted bank lines and positive FCF.
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
Grupo Embotellador Atic, S.A.: Management Strategy: 4, Group
Structure: 4, Governance Structure: 5,
Financial Transparency: 4
Grupo Atic has an ESG Relevance Score of 5 for ownership
concentration due to the strong influence on Atic's owners upon its
management. The ESG score on group's on management strategy,
group's structure, and financial transparency is 4 due to existing
related parties' transactions.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity(ies),
either due to their nature or the way in which they are being
managed by the entity(ies).
=============
U K R A I N E
=============
METINVEST BV: S&P Affirms B ICR, Off CreditWatch Negative
---------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit rating
on Ukrainian steelmaker Metinvest B.V., and removed it from
CreditWatch negative.
S&P said, "We affirmed our 'B' rating on Metinvest after revising
upward our base case following encouraging performance in the first
half of the year. Compared with our previous review, we are no
longer concerned that the company would breach its financial
covenants.
"With the trough behind us and early signs of recovery in the
demand for steel in Europe, we now forecast EBITDA of $1.4
billion-$1.7 billion in 2020 (excluding about $170 million
contribution from joint ventures), compared with the $1.1
billion-$1.3 billion we assumed when placing the rating on
CreditWatch with negative implication at the end of March."
This would translate into positive FOCF after capital expenditure
(capex) and before dividends, of about $500 million-$600 million in
2020 and an adjusted FFO-to-debt of 30%-35% in 2020, compared with
a range of 20%-40% through the cycle, which we consider
commensurate for a 'B' rating.
S&P said, "Performance in the first half of 2020 was not much
affected by the COVID-19 pandemic, and as we start the second half,
we expect that the trough is behind us. Under our base case, we
assume that the company would report EBITDA of about $700 million
for the first half of 2020 (excluding joint ventures), taking into
account reported EBITDA of $329 million (or $373 million including
joint ventures) in the first quarter of 2020. The relatively strong
results stem from the mining division, as iron ore prices continued
to trade close to $90/ton."
In addition, the company also performed better than expected in the
steel division. S&P had originally assumed a material profit
squeeze as the COVID-19 pandemic caused volumes and prices to fall.
In practice, the volume decline was more moderate, partly offset by
the positive contribution of lower energy prices, lower
distribution costs, and the slight depreciation of the local
currency in the year-to-date.
Looking forward to the second half of the year, we expect EBITDA of
at least $700 million, supported by healthy iron ore prices (about
$85/ton) and a pick-up in demand for steel products compared to the
first half of the year. That said, steel prices are expected to
remain depressed.
S&P said, "We continue to view a minimum EBITDA of $1.1 billion as
a key anchor for the rating, supporting its ongoing capex needs
while meeting the minimum threshold of adjusted funds from
operations (FFO) to debt of 20% under low-cycle market conditions.
The company has taken a number of measures to improve its liquidity
and we now see the risk of a covenant breach in the next six to 12
months as low. Since our review in March 2020, when we put the
rating on CreditWatch with negative implications, the company has
taken various steps to bolster its liquidity, securing about $100
"n measures include releasing working capital, reducing capex, and
not paying any dividends in the year to date. We understand that
the company is looking into additional initiatives to further
improve its liquidity position."
Although the company has no public financial policy or gearing
objectives, its past performance and the restrictions under the
existing financial documents provide a supportive anchor for our
financial risk assessment. In this respect, S&P will continue to
monitor the following:
-- Absolute reported net debt, which has been about $2.5
billion-$2.7 billion over the past three years. As of March 31,
2020, it was around $2.8 billion, flat compared with Dec. 31,
2019.
-- Returns to shareholders--the company has not yet distributed
any dividends in 2020. S&P understands that it can distribute up to
$400 million under the current documentation, and it expects that
actual payments would be lowered in the coming 12-18 months, and
would be linked to actual performance.
-- Proactive liquidity management. S&P considers the company has a
mixed track record. Although it has successful refinanced debt and
proved its ability to secure new lines, it relies on short-term
facilities and has limited long-term committed credit lines.
The stable outlook is based on Metinvest's ability to generate
positive FOCF while building headroom under the rating despite less
favorable steel industry conditions in the coming six to 12
months.
S&P said, "Under our base case, we project EBITDA of $1.4
billion-$1.7 billion in 2020, with a further upside in 2021. This
implies adjusted FFO to debt of 30%-35% each year. We see a range
of 20%-40% through the cycle as commensurate with the current 'B'
rating.
"Lastly, the current rating and outlook remain closely linked to
our long-term foreign currency rating on Ukraine (B/Stable/--) and
our assessment of the creditworthiness of Metinvest's parent
company, System Capital Management (SCM) Ltd. ('b').
"We could lower the rating on Metinvest if adjusted FFO to debt
deteriorated below 20% during a downturn (or below 40% during the
peak of the cycle), without the prospect of improvement in the
following year." This could occur if S&P observes one or more of
the following:
-- Iron ore prices and/or pellet premiums fell well below our
base-case assumptions, without an offset from the steel division,
leading to EBITDA of $1.1 billion or less;
-- Operational issues in Ukraine; and
-- The company embarking on a sizable debt-financed acquisition or
deciding to distribute material dividends.
Pressure on the rating could also increase if liquidity
deteriorates from the current less-than-adequate assessment.
S&P said, "A downgrade of our sovereign rating on Ukraine would
likely trigger a similar rating action on Metinvest, as would a
deterioration in the credit quality of the parent company.
"At this stage, we see limited upside for our rating on Metinvest
in the next 12 months. This is because of the caps imposed by the
sovereign rating on Ukraine and the credit quality of the parent
company. Both would need to improve before we would take a positive
rating action on Metinvest."
In addition, a higher rating would also require the following:
-- Adjusted FFO to debt of 40% or more during the low point of the
cycle;
-- Lower volatility of earnings; and
-- No material changes from the current cash flow allocation
framework, supported by either public financial objectives or
restrictions from its lenders.
===========================
U N I T E D K I N G D O M
===========================
CENTRAL NOTTINGHAMSHIRE HOSPITALS: S&P Lowers Bond SPUR to BB+
--------------------------------------------------------------
S&P Global Ratings lowered its S&P underlying rating (SPUR) on the
bonds issued by U.K.-based limited-purpose entity Central
Nottinghamshire Hospitals PLC (CNH or ProjectCo) to 'BB+' from
'BBB-' and maintaining the rating on CreditWatch with negative
implications.
CNH issued a GBP351.9 million index-linked senior secured bond
(including a GBP32.0 million variation bond) due 2042 to finance
the design, construction, and operations of the hospital facilities
at three sites--King's Mill Hospital, Mansfield Community Hospital,
and Newark General Hospital, for the trust) and NHS Property
Services Ltd. (formerly Mansfield and Ashfield Clinical
Commissioning Group).
The bonds were issued in 2005 under a 37-year private finance
initiative concession agreement. Construction was completed in
2011. Hard facilities management (FM) services are provided by
Skanska Facilities Services (SFS), which is part of Skanska AB.
Compass Contract Services (UK) Ltd., trading as Medirest Ltd.,
provides soft FM services.
STRENGTHS
The senior debt benefits from a guarantee of payment from AGE.
There is an availability-based revenue stream with no exposure to
volume or market risk.
RISKS
Weak performance in operations as per the project agreement's
requirements has led to a high number of service failure points
(SFPs) since an independent third-party review of the contractual
payment mechanism at the end of 2018.
The breach of the contractual thresholds due to the high number of
SFPs allows the trust to unilaterally terminate the agreement; and
creditors to accelerate repaying the senior debt due to a
persisting event of default.
Relationships among the parties are strained.
ProjectCo retains the risk that required lifecycle expenditures
might exceed budget.
The trust's growing frustration increases the risk of triggering an
event of default and terminating of the project.
The trust has been refraining from taking any contractual actions
despite the number of SFPs it has issued exceeding the termination
thresholds under the project agreement. In S&P's view this is
because the SFPs were largely due to failures in communicating to
the trust the timing, scope, and cost of the planned preventative
maintenance works; and reporting, rather than actual, failures in
delivery of services.
Although the trust had acknowledged SFS's and Medirest's excellent
response under COVID-19, following the recent performance failures,
it is considering issuing additional formal warning notices for the
first time.
The issuance of warning notices per se does not have material
detrimental consequences, because it leads to increased monitoring
and imposes a requirement on ProjectCo to deliver a remedy plan.
However, it signifies that the trust's level of dissatisfaction has
reached the point at which it might take action it is entitled to
under the project's documentation. Since 2018, CNH has breached
several times the events of default thresholds under the collateral
deed for incurring excessive SFPs.
CNH has not reached a settlement agreement that would clear SFPs.
ProjectCo has intended to agree to a service improvement plan and
compensate the trust for the underperformance, in return for
agreeing a settlement agreement under which the trust would cancel
the SFPs. However, after nearly two years and a number of attempts,
the settlement agreement has not been reached. While COVID-19
rediverted the parties' attention to service delivery rather than
negotiations, the trust continues to be entitled to terminating the
project.
The settlement agreement might be delayed by another year.
The trust is offering a head of terms agreement, one of the
conditions of which would be for SFS to implement a service
improvement plan. Only if the plan is delivered and services are
indeed improved over the next 9-12 months will the trust sign the
agreement, clearing all the historical SFPs. While SFS and its
consultants have submitted a service improvement plan to the trust,
signing the agreement will depend on the contractors' performance.
Senior lenders continue reserving the right to accelerate the debt
in case of an event of default under the financing documents.
In the project's 2019 annual accounts, the auditor has noted a
material uncertainty relating to going concern and noted that CNH's
ability to continue as one depends on the continued financial
support of its financing providers. While S&P does not think AGE
intends to accelerate, in December 2019, the insurer enforced its
rights to place the project into distribution lock-up until the
agreement with the trust and other parties is fully finalized.
However, this does not seem to be an incentive in achieving the
desired outcome.
The downgrade reflects what S&P views as an increased risk of
detrimental consequences to the project.
This includes a potential project's termination given the strained
relationships between the parties, and debt acceleration. S&P will
resolve the CreditWatch and affirms the rating upon evidence of an
agreed-to head of terms.
The stable outlook on the long-term issue rating reflects the
outlook on the rating on the bond insurer, AGE, and will move in
line with any rating changes or outlook revisions on the insurer.
The CreditWatch negative placement on the SPUR reflects the risk of
a further lowering of the SPUR if the agreement's heads of terms
are not signed by October; and a multi-notch downgrade if the trust
takes steps that demonstrate an elevated risk of the project
agreement being terminated, including the application of warning
notices or significant number of deductions. Resolving the
CreditWatch placement is contingent on resolving performance issues
and progressing toward the settlement agreement.
CHESTER'S GROSVENOR: "Business as Usual" Despite Receivership
-------------------------------------------------------------
David Holmes at CheshireLive reports that Chester's Grosvenor
Shopping Centre says it's "business as usual" despite being placed
into receivership.
The mall is owned by HIG Chester Property SARL, part of global
private equity and alternative assets investment firm HIG Capital,
CheshireLive notes.
HIG Capital has placed the shopping centre and its car park in the
hands of receivers, CheshireLive relates.
Managing agent Savills has written to suppliers advising them of a
change in billing details, CheshireLive discloses.
New invoicing details with effect from July 10 are: HIG Chester
Property SARL, Acting by Fixed Charge Receivers T Perkin & J
Barber, c/o Savills UK Ltd., CheshireLive says.
Asset managers Ellandi remain the same along with managing agent
Savills, CheshireLive states.
According to CheshireLive, the mall has been impacted by changing
retail trends, in some cases accelerated by the economic effects of
the coronavirus epidemic.
CO-OPERATIVE BANK: Fitch Maintains B- IDR on Watch Negative
-----------------------------------------------------------
Fitch Ratings is maintaining The Co-operative Bank's Long-Term
Issuer Default Rating of 'B-' and Viability Rating of 'b-', on
Rating Watch Negative.
The RWN reflects heightened risks to the bank's ratings from
further deterioration in the economic environment. Fitch believes
that the bank has only a limited margin of safety before requiring
additional capital.
Fitch forecasts UK GDP to fall 9% in 2020, with unemployment rising
to 6.8% by end-2020 and remaining above this level in 2021. This
expectation is based on the assumption that the gradual lifting of
pandemic-containment measures since the beginning of July will
result in a sharp rebound in GDP growth in 2021. However, Fitch
sees material downside to these economic forecasts, which also
assume a smooth Brexit transition.
Fitch expects to resolve the RWN in 2H20, when Fitch hasgreater
visibility of the impact of the current health crisis on the bank's
performance, regulatory requirements, and expansion plans.
KEY RATING DRIVERS
IDRs and VR
The Co-operative Bank's IDRs and VR primarily reflect the
vulnerability of capital to losses given that the bank is
structurally loss-making. Earnings generation and capital erosion
are two factors of high importance to the ratings. The ratings also
incorporate heightened execution risk as the bank continues to grow
its business and restructure amid economic uncertainties and
competitive pressures in the market, resulting in uncertainty over
the business model's viability. The ratings also consider the
bank's healthy loan quality, adequate liquidity and resilient
franchise.
The bank reported high regulatory capital ratios at end-1Q20
(common equity Tier 1 ratio: 18.3%; total capital ratio: 22.6%) but
these are expected to fall on additional losses as well as
risk-weighted asset inflation, due to increased risk weightings of
its assets. Capital requirements for the bank, as a share of RWAs,
at end-1Q20 were CET1 of 10.9% and a total capital requirement of
14.5%, to which a capital conservation buffer of 2.5% is added -
which must be met with CET1. This provides the bank with some
limited headroom, estimated at GBP243 million at end-1Q20, before
breaching its capital requirements.
The buffer over capital requirements has been supported by setting
the pillar 2A capital requirement to a nominal amount instead of as
a share of RWAs, lower risk weights for government-backed loans,
transitional arrangements on the application of IFRS9 and a
temporary reduction of the countercyclical buffer to 0%.
The bank's Basel leverage ratio of 3.8% at end-1Q20, although not
binding until 2021, presents a material constraint on the ability
to grow its business.
The Co-operative Bank recorded a pre-tax loss of GBP27 million in
1Q20 and Fitch expects a greater loss for the full year on lower
revenues from lower business volumes and a lower base rate, as well
as higher loan impairment charges. Fitch expects the bank to
control costs by delaying or cancelling planned investments,
implementing a hiring freeze and reducing variable pay. Fitch views
the bank's planned return to profitability in 2022 as ambitious.
Execution of the business turnaround had been moderately successful
pre-coronavirus with the sectionalisation of its pension scheme,
its completed separation from The Co-operative Group, and
consequently the reduction of its Pillar 2A requirement to 6.54% in
2019 from 15% in 2017. Loan growth had been in line with plans, and
asset quality has shown significant improvement, with material
deleveraging of legacy assets (5% of assets at end-1Q20).
The Stage 3 loans/ gross loans ratio was 0.4% at end-2019 (1.4%
including purchased or credit - impaired loans) which is in line
with peers', although Fitch expects some moderate asset-quality
deterioration as higher unemployment and lower economic growth
affect the borrower's ability to service mortgage loans. Government
initiatives such as mortgage loan payment holidays and the job
retention scheme may delay or alleviate some pressure but Fitch
sees an underlying increase in credit risk associated with
borrowers.
The Co-operative Bank continues to be primarily funded by granular
deposits, which have shown resilience through various stresses.
Fitch considers on-balance sheet liquidity adequate given
additional access to contingent liquidity from the Bank of England,
if required. Refinancing the outstanding term funding scheme
balances of GBP960 million at end-1Q20 should be manageable due to
the new TFSME scheme, which, in addition to base-rate cuts and
lower competition for deposits should reduce the bank's funding
costs. Fitch views the bank's access to wholesale funding as weak.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Co-operative Bank's SR of '5' and SRF of 'No Floor' reflect
Fitch's view that senior creditors cannot rely on extraordinary
support from the UK authorities in the event the bank becomes
non-viable, because in its opinion the legislation and regulation
implemented in the UK is likely to require senior creditors to
participate in losses for resolving the bank. In addition, they
reflect the lack of systemic importance of the bank.
RATING SENSITIVITIES
IDRs and VR
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Ratings will likely be downgraded if the bank is unable to address
the economic impact of the pandemic on growth prospects or show an
improvement in profitability. Fitch will also likely downgrade the
bank if it does not improve its resilience by increasing the
headroom over its minimum regulatory capital requirements, or if
prospects to generate sustainable operating profit and therefore
the outlook for its longer-term viability do not improve.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
In the event that the bank is able to withstand rating pressure
arising from the pandemic, the most likely trigger for an upgrade
would be evidence of medium-term earnings and capitalisation
resilience. This will require some evidence of success in executing
its turnaround plan, by returning to structural profitability.
The Co-operative Bank is an operating company and may benefit from
a combination of internal MREL (minimum requirement for own funds
and eligible liabilities) and qualifying junior debt buffer
amounting to over 10% of RWAs, on an ongoing basis. Once Fitch
gains certainty around the timing and the ability of the bank to
reach this target, it would likely rate the IDR one notch higher
than the VR to reflect added protection this buffer gives to senior
creditors in case of the bank's failure.
SR AND SRF
Fitch does not expect any changes to the SR and the SRF due to
legislation requiring senior creditors to participate in losses for
resolving The Co-operative Bank.
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.
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).
ELVET MORTGAGES 2020-1: Fitch Rates Class E Debt BB+(EXP)sf
-----------------------------------------------------------
Fitch Ratings has assigned Elvet Mortgages 2020-1 plc expected
ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already received.
Elvet Mortgages 2020-1 plc
- Class A; LT AAA(EXP)sf Expected Rating
- Class B; LT AAA(EXP)sf Expected Rating
- Class C; LT A(EXP)sf Expected Rating
- Class D; LT BBB+(EXP)sf Expected Rating
- Class E; LT BB+(EXP)sf Expected Rating
- Class Z; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
EM 20-1 is a securitisation of owner-occupied residential mortgages
originated in England, Wales and Scotland by Atom Bank plc, which
originated its first mortgage loan in December 2016. This is the
third UK residential mortgage securitisation originated by Atom.
KEY RATING DRIVERS
Prime Assets, Limited History: The loans within the pool all have
characteristics in line with Fitch'sexpectations for a prime
mortgage pool. These include no previous adverse credit, full
income verification, full or automated valuation model property
valuation and a clear lending policy. The limited history of
origination and subsequent performance data are sufficiently
mitigated through available proxy data and adjustments made to the
foreclosure frequency in Fitch's analysis.
Coronavirus-related Alternative Assumptions: Fitch expects a
generalised weakening in borrowers' ability to keep up with
mortgage payments due to the economic impact of the coronavirus
pandemic and the related containment measures. As a result, Fitch
applied updated criteria assumptions to EM 20-1's mortgage
portfolio.
The combined application of revised 'Bsf' representative pool
weighted average FF, revised rating multiples and arrears
adjustment resulted in a 'Bsf' multiple of 1.4x to the current FF
assumptions and of 1.1x at 'AAAsf'. The updated assumptions are
more modest for higher rating levels as the corresponding rating
assumptions are already meant to withstand more severe shocks.
Fitch also applied a payment holiday stress for the first 12 months
of projections, assuming up to half of interest collections will be
lost, and related principal receipts will be delayed.
Unrated Originator and Seller: Atom is not a rated entity and as
such may have limited resources available to repurchase any
mortgages in the event of a breach of the representations and
warranties given to the issuer. This weakness is mitigated by the
satisfactory findings of the agreed-upon procedures report and of
Fitch's loan file review. As contracted servicer, Atom has limited
experience of the full end-to-end servicing process. This limited
experience is mitigated by back-up servicer provisions.
Link Mortgage Services Limited (RPS2-/RSS2-) is the appointed
back-up servicer.
Replaceable Collection Account Bank: National Westminster Bank Plc
is the appointed collection account bank, but Atom can assume this
role if it becomes a direct member of CHAPS and cheque clearing.
Payment interruption risk is mitigated by a dedicated liquidity
reserve fund for the class A and B notes.
Impact of Payment Holidays: As at 2 July, 11.3% of the portfolio's
loans were on payment holidays. Atom grants payment holidays based
on a borrower's self-certification in response to the coronavirus
pandemic in line with government guidance. Fitch expects providing
borrowers with a payment holiday of up to six months to have a
temporary positive impact on loan performance. However, the
transaction may face some liquidity constraints if a large number
of borrowers opt for a payment holiday.
Fitch has tested the ability of the liquidity reserves to cover
senior fees, net swap payments and class A and B note interest, and
found that payment interruption risk would be mitigated. The class
C to E notes may defer interest at any time per documentation and
are rated below the 'AAsf' category so are therefore tested only
for ultimate interest. These notes have no dedicated liquidity
protection so are capped at 'A+'sf.
RATING SENSITIVITIES
Downgrade Rating Sensitivity to Coronavirus-Related Stresses
The broader global economy remains under stress due to the
coronavirus pandemic, with surging unemployment and pressure on
businesses stemming from social distancing guidelines. Recent
government measures related to the coronavirus pandemic allow for
mortgage payment holidays of up to six months. Fitch acknowledges
the uncertainty of the path of coronavirus-related containment
measures and has therefore considered more severe economic
scenarios.
As outlined in "Fitch Ratings Coronavirus Scenarios: Baseline and
Downside Cases", Fitch considers a more severe downside coronavirus
scenario for sensitivity purposes whereby a more severe and
prolonged period of stress is assumed with a halting recovery from
2Q21. Under this scenario, Fitch assumed a 15% WAFF increase and a
15% decrease in weighted average recovery rates. The results
indicate up to a six-notch adverse rating impact on the notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing credit enhancement and
consideration for potential upgrades. Fitch tested an additional
rating sensitivity scenario: by applying a decrease in the FF of
15% and an increase in the recovery rates of 15% the ratings for
the subordinated notes could be upgraded by up to three notches.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transaction's performance may be affected by adverse changes in
market conditions and economic environment. Weakening asset
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce credit enhancement
available to the notes.
In addition, unanticipated declines in recoveries could result in
lower net proceeds, which may make certain note ratings susceptible
to potential negative rating actions depending on the extent of the
decline in recoveries. Fitch conducts sensitivity analyses by
stressing both a transaction's base case FF and recovery rate
assumptions. As a result, ratings could be downgraded by up to
three categories (based on 30% WAFF increase and a 30% decrease in
weighted average recovery rates).
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 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 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.
ELVET MORTGAGES 2020-1: S&P Assigns Prelim BB+ Rating on E Notes
----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Elvet
Mortgages 2020-1 PLC's class A, B-Dfrd, C-Dfrd, D-Dfrd, and E-Dfrd
notes. At closing, Elvet Mortgages 2020-1 will issue unrated class
Z notes, VRR notes, and certificates.
Elvet Mortgages 2020-1 is a U.K. pool of residential loan mortgages
(first-ranking and owner-occupied in England, Wales, and Scotland)
originated by Atom Bank PLC. Atom Bank is a regulated online bank
with no physical branches, based in Durham, U.K., and established
in April 2014. In December 2016, it launched its residential
mortgage platform. Since then, the growth rate of its mortgage book
has been significant (reaching about GBP1.7 billion as of February
2020). All loans are originated through brokers, and interest-only
loans are not allowed.
Atom Bank will service the portfolio but delegate late-stage
arrears. However, Atom Bank will decide whether to repossess
properties.
At closing, the issuer will purchase the beneficial interest in an
initial portfolio of U.K. residential mortgages from the sellers,
using the proceeds from the issuance of the rated and unrated
notes.
The issuer is an English special-purpose entity, which S&P assumes
to be bankruptcy remote for its credit analysis.
The notes pay interest quarterly on the interest payment dates in
March, June, September, and December, beginning in September 2020.
The rated notes pay interest equal to compounded Sterling Overnight
Index Average (SONIA) plus a class-specific margin with a further
step-up in margin following the optional call date in June 2025.
All of the notes reach legal final maturity in March 2065.
S&P derived the stressed interest rate curves for the compounded
SONIA by subtracting a spread of 0.15% from our stressed
three-month British pound sterling (GBP) London Interbank Offered
Rate (LIBOR) curves. There has been a close relationship between
backward-looking compounded SONIA and forward-looking LIBOR
determined for the same period. However, since SONIA does not
include the various risk premiums reflected in LIBOR, the former
has generally been lower. The spread adjustment applied to our GBP
LIBOR curves reflects the lower SONIA rates historically observed.
S&P also performed some COVID-19 pandemic-related stresses, such as
adding arrears projections, a delay in principal and interest
receipts, and a longer recovery period.
S&P Global Ratings acknowledges a high degree of uncertainty about
the evolution of the coronavirus pandemic. The consensus among
health experts is that the pandemic may now be at, or near, its
peak in some regions but will remain a threat until a vaccine or
effective treatment is widely available, which may not occur until
the second half of 2021. S&P said, "We are using this assumption in
assessing the economic and credit implications associated with the
pandemic. As the situation evolves, we will update our assumptions
and estimates accordingly."
Preliminary Ratings Assigned
Class Preliminary rating Amount (GBP)
A AAA (sf) TBD
B-Dfrd AA+ (sf) TBD
C-Dfrd A- (sf) TBD
D-Dfrd BBB (sf) TBD
E-Dfrd BB+ (sf) TBD
Z NR TBD
VRR note NR N/A
Certificate NR N/A
N/A--Not applicable.
NR--Not rated.
TBD--To be determined.
VRR--Vertical risk retention.
ST MARY'S: Enters Administration Due to Coronavirus Pandemic
------------------------------------------------------------
Hannah Baker at Bristol Post Business reports that St Mary's
Shaftesbury, a private Roman Catholic day and boarding school for
girls aged nine to 18, has fallen into administration after being
hit with "considerable challenges" caused by the coronavirus
pandemic.
According to Bristol Post Business, the independent school in
Dorset had been operating at a loss for some time, Bristol Post
Business relays, citing a letter sent out by the board of
governors.
It has now closed permanently with immediate effect, Bristol Post
Business discloses.
The former convent school said it had agreed a sale with a
Chinese-based education company in April but the deal collapsed in
June--just one day before contracts were exchanged, Bristol Post
Business relates.
The letter said investors reportedly pulled out of the agreement
after "political tensions" arose with China, Bristol Post Business
notes.
The school, as cited by Bristol Post Business, said 40 interested
parties came forward afterwards but no firm offers had been
received by a deadline of July 6.
"We have sought every other possible means of getting through the
current situation including potential mergers, but without
success," Bristol Post Business quotes the board of governors as
saying.
"Without an investor, the bank is not prepared to extend our
credit, and we have other pressing debts to pay. Very sadly, we are
now at the end of the road.
"It is therefore the governors' decision to enter administration
and close the school.
"We realise that this is a deeply unwelcome shock for the whole St
Mary's community, especially for our wonderful staff, for whom this
decision has major personal and professional consequences, and our
pupils, who will suffer a further interruption to their
education."
WIGAN ATHLETIC: Administrator Says Preferred Buyer Chosen
---------------------------------------------------------
Simon Stone at BBC Sport reports that a preferred buyer for
Championship club Wigan Athletic has been chosen, says
administrator Gerald Krasner.
The Latics were placed in administration on July 1 when the new
Hong Kong-based owners conceded they could not support the club
financially, BBC Sport recounts.
According to BBC Sport, Mr. Krasner said the bidder had until 12:00
BST on Thursday, July 23, to sign a letter confirming their lawyers
are holding the entire funds.
He added that contracts have to be exchanged by July 31, BBC Sport
notes.
Wigan were deducted 12 points as punishment for going into
administration, BBC Sport states.
Mr. Krasner says the appeal against that decision is set for July
31, adding it will cost between GBP400,000 and GBP500,000 because
the club must also pay the English Football League's fees, BBC
Sport relays.
Of 64 non-disclosure agreements sent out at the beginning of July,
Mr. Krasner says he received "six proof of funds and five offers",
BBC Sport discloses.
WRA: Optimistic on Future Despite Voluntary Administration
----------------------------------------------------------
Knitting Industry, citing the Southern Reporter, reports that
management at a luxury knitwear manufacturing business in the
Scottish Borders region, maintains the company still has a bright
future despite its owners going into voluntary administration.
Hawick based Scott & Charters parent company WRA has called in
administrators in order to restructure its business in the face of
insurmountable financial problems, Knitting Industry relates.
However, managing director Malcolm Grant told the newspaper that
despite the shock decision, the 38-strong workforce at Scott and
Charters should feel secure, Knitting Industry notes.
According to Knitting Industry, Mr. Grant said: "Although the
holding company is now in administration, Scott & Charters, and our
sister company Chrysalis Clothing are not, and we are both
continuing to operate as normal, manufacturing and shipping orders
to our customers worldwide."
"We have an excellent, strong order book, which has held up well
through the Covid-19 lockdown, and which has grown with new orders
since businesses have started to reopen, and we also have a good
cashflow and we will continue to go forward to fulfil our
obligations to all our customers."
"It is frustrating and disappointing to have been advised of this
voluntary administration, out of the blue, at such short notice,
however, we will work with the joint administrators to find a
successful resolution for Scott & Charters and all our employees
that lets the business go forward and thrive for many years to
come. We have an excellent company, and wonderful factory in which
to work, and a superb workforce who deserve success and
stability."
XERCISE4LESS: Bought Out of Administration by JD Sports Gyms
------------------------------------------------------------
Ben Ormsby at TheBusinessDesk.com reports that national gym chain,
Xercise4Less and its parent company Wright Leisure Topco Limited
have called in administrators.
The Leeds-based firm has appointed Toby Underwood and Rob Lewis of
PwC as joint administrators, who have confirmed the sale of the
business to a subsidiary of JD Sports Gyms Limited (JDG),
TheBusinessDesk.com relates.
The sale included the majority of the business and assets of the
Xercise4Less Group including 50 of its 51 gyms and all 400 staff,
TheBusinessDesk.com states. The chain's site in Wakefield was the
only one not included in the sale as it was closed prior to the
administrators appointment, TheBusinessDesk.com notes.
According to TheBusinessDesk.com, the business is said to have
faced "financial difficulties caused by an increasing competitive
market, which was exacerbated by Covid-19", had previously spoken
of ambitious plans to double in size and have 100 gyms open by
2021.
The administrators have confirmed there will be no interruption
with regards to its existing 250,000 customer memberships,
TheBusinessDesk.com states.
"Following our appointment, we immediately completed a sales
process that had been running for some time," TheBusinessDesk.com
quotes Toby Underwood, joint administrator and PwC partner, as
saying.
"This sale puts the ongoing business on a firmer financial footing
and JDG will be working with the existing team to continue to grow
and develop the new business.
"We are delighted that, in these extremely challenging
circumstances, all employees have transferred to the purchaser."
The joint administrators were advised by Andy Bates and Jonathan
Jackson of Addleshaw Goddard, TheBusinessDesk.com discloses.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: BOARD GAMES - Changing Shape of Corporate Power
----------------------------------------------------------------
Authors: Arthur Fleischer, Jr.,
Geoffrey C. Hazard, Jr., and
Miriam Z. Klipper
Publisher: Beard Books
Softcover: 248 pages
List Price: $34.95
Order your personal copy today at
http://www.amazon.com/exec/obidos/ASIN/1587981629/internetbankrupt
A ruling by the Delaware Supreme Court on January 29, 1985 was a
wake-up call to directors of U. S. corporations. On this date,
overruling a lower court decision, the Delaware Supreme Court ruled
that the nine board members of Chicago company Trans Union
Corporation were "guilty of breaching their duty to the company's
shareholders." What the board members had done was agree to sell
Trans Union without a satisfactory review of its value. The guilty
board members were ordered by the Court to pay "the difference
between the per share selling price and the 'real' market value of
the company's shares."
Needless to say, the nine Trans Union directors were shocked at the
guilt verdict and the punishment. The chairman of the board, Jerome
Van Gorkom, was a lawyer and a CPA who was also a board member of
other large, respected corporations. For the most part, it was he
who had put together the terms of the potential sale, including
setting value of the company's stock at $55.00 even though it was
trading at about $38.00 per share. News of the possible sale
immediately drove the stock up to $51.50 per share, and was
commented on favorably in a "New York Times" business article.
Still, Van Gorkom and the other directors were found guilty of
breaching their duty, and ordered by Delaware's highest court to
pay a sum to injured parties that would be financially ruinous.
This was clearly more than board members of the Trans Union
Corporation or any other corporation had ever bargained for. It was
more than board members had ever conceived was possible without
evidence of fraud or graft.
The three authors are all attorneys who have worked at the highest
levels of the legal field, business, and government. Fleischer is
the senior partner of the law firm Fried, Frank, Harris, Schriver &
Jacobson at the head of its mergers and acquisitions department.
He's also the author of the textbook "Takeover Defenses" which is
in its 6th edition. Hazard was a Professor of Law and former
reporter for the American Bar Association's special committee on
the lawyers' ethics code; while Klipper has been a New York
assistant district attorney prosecuting corporate and financial
fraud, and also a corporate attorney on Wall Street. Using the
Trans Union Corporation case as a watershed event for members of
boards of directors, the highly-experienced legal professionals lay
out the new ground rules for board members. In laying out the
circumstances and facts of a number of cases; keen, concise
analyses of these; and finding where and how board members went
wrong, the authors provide guidance for corporate directors, top
executives, and corporate and private business attorneys on issues,
processes, and decisions of critical importance to them. Household
International, Union Carbide, Gelco Corp., Revlon, SCM, and
Freuhauf are other major corporations whose merger-and-acquisitions
activities resulted in court cases that the authors study to the
benefit of readers. The Boards of Directors of these as well as
Trans Union and their positions with other companies are listed in
the appendix. Many other corporations and their board members are
also referred to in the text.
With respect to each of the cases it deals with, BOARD GAMES
outlines the business environment, identifies important
individuals, analyzes decisions, and discusses considerations
regarding laws, government regulations, and corporate practice. In
all of this, however, given the exceptional legal background of the
three authors, the book recurringly brings into the picture the
legalities applying to the activities and decisions of board
members and in many instances, court rulings on these. Passages
from court transcripts are occasionally recorded and commented on.
Elsewhere, legal terms and concepts -- e. g., "gross nonattendance"
-- are defined as much as they can be. In one place, the authors
discuss six levels of responsibility for board members from "assure
proper result" through negligence up to fraud. Without being overly
technical, the authors' legal experience and guidance is
continually in the forefront. Needless to say, with this, BOARD
GAMES is a work of importance to board members and others with the
responsibility of overseeing and running corporations in the
present-day, post-Enron business environment where shareholders and
government officials are scrutinizing their behavior and
decisions.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2020. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *