/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200729.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Wednesday, July 29, 2020, Vol. 21, No. 151 Headlines C R O A T I A ZAGREBACKI HOLDING: S&P Affirms B+ LT Issuer Rating, Off Watch Neg. F R A N C E EUROPCAR MOBILITY: September Deadline Set for Last-Ditch Bids G E R M A N Y PHOENIX PHARMAHANDEL: S&P Puts BB+ Rating to New Sr. Unsec. Notes VERTICAL HOLDCO: Fitch Corrects Press Release Dated June 21, 2020 I R E L A N D ARDAGH GROUP: Posts Net Loss in 2nd Qtr. Amid Debt Refinancing AVOCA CLO XIX: Fitch Alters Outlook on B-sf Class F Notes to Neg. BOSPHORUS CLO IV: Fitch Affirms Class F Notes Rating at B-sf CAIRN CLO VIII: Moody's Confirms Class F Notes Rating at B2 FINANCE IRELAND: DBRS Confirms BB Rating on Class E Notes LAURELIN 2016-1: Fitch Affirms Class F-R Notes at B-sf SUTTON PARK: Fitch Keeps B-sf Class E Notes Rating on Watch Neg. TORO EUROPEAN 4: Fitch Keeps Class F-R Debt Rating on Watch. Neg. [*] IRELAND: Committee Proposes "Examinership-Lite" Option I T A L Y DOVALUE SPA: Fitch Rates EUR265MM Senior Secured Notes BB(EXP) DOVALUE SPA: S&P Puts BB Rating on New EUR265MM Sr. Sec. Notes N E T H E R L A N D S NORTH WESTERLY: Fitch Affirms Class F Debt Rating at B-sf R O M A N I A KMG INTERNATIONAL: Fitch Affirms LT IDR at B+, Outlook Stable R U S S I A RESO-LEASING: S&P Affirms BB+/B ICRs, Outlook Stable S P A I N AZUL MASTER 2020-1: DBRS Assigns BB Rating to Class C Notes CAIXABANK CONSUMO 3: DBRS Confirms CC Rating on Series B Notes U N I T E D K I N G D O M BAMS CMBS 2018-1: DBRS Confirms BB (low) Rating on Class E Notes NMC HEALTH: Worldwide Freezing Order Issued on Founder's Assets PIZZAEXPRESS: Stakeholders Under Pressure to Reach Debt Deal ROLLS-ROYCE PLC: Moody's Cuts Sr. Unsec. Rating to Ba2, Outlook Neg TWIN BRIDGES 2020-1: Moody's Gives B1 Rating to Class X1 Notes TWIN BRIDGES 2020-1: S&P Assigns B- (sf) Rating to X1-Dfrd Notes - - - - - ============= C R O A T I A ============= ZAGREBACKI HOLDING: S&P Affirms B+ LT Issuer Rating, Off Watch Neg. ------------------------------------------------------------------- S&P Global Ratings removed Zagrebacki Holding d.o.o.'s (ZGH) rating from CreditWatch with negative implications and affirmed its 'B+' long-term issuer rating, but lowered its stand-alone credit profile (SACP) to 'ccc+'. ZGH's stand-alone operating performance and liquidity has suffered as a result of the COVID-19 pandemic and the earthquake that hit while the country was in lockdown. S&P said, "However, we anticipate that Zagreb would support the company through the ongoing challenges related to lockdown, economic recession, and the recent earthquake. We expect its S&P Global Ratings-adjusted EBITDA to decline to around Croatian kuna (HRK) 165 million in 2020 from HRK401 million in 2019, which translates to 0.7% funds from operations (FFO) to debt, down from 7.5% in 2019. Despite the difficult conditions, ZGH continues to roll over existing short-term bank debt, and manage its working capital outflows. We view the likelihood of ZGH receiving timely and extraordinary support from Zagreb (through guarantees or bank negotiations to lengthen existing bank loans) as very high, so we add a three-notch uplift to the 'ccc+' SACP." If Zagreb's financial performance weakened, ZGH would be affected because its credit quality is closely linked to that of the city. Zagreb fully owns ZGH, guarantees its bonds, and significantly influences key strategic decisions, but doesn't intervene in day-to-day business. On the other hand, ZGH implements Zagreb's strategies through its quasi-monopolistic activities in critical infrastructure services, which include gas distribution and supply, water treatment, water supply, waste recycling, and parking spaces. The outlook on Zagreb is currently negative because the combined effects of the COVID-19 outbreak and recent earthquake could considerably worsen the city's financial situation. S&P sees a risk that Zagreb's ability to provide timely support to ZGH could change in the current environment. In addition, the city's policy priorities could change as it faces new challenges in future. That said, S&P assumes that ZGH can still rely on the city's support. Despite the pandemic, ZGH has been able to roll over its short-term debt and doesn't face any large working capital outflows. ZGH has maintained its track record of rolling over its short-term lines with local banks, thanks to its good relationships with them. It does not have any long-term lines. About 58% of ZGH's financial debt comprises short-term loans due before July 2021. About 80% of these have been given a one-year extension and the remaining three short-term loans, which mature in December 2020, are pending approval to be changed into long-term loans. Given the difficult market conditions, the two HRK100 million loans were extended with a 40 basis points (bps) increase in interest rate, and the HRK60 million loan was extended with a 20 bps increase and the HRK185 million loan was extended with a 41 bps increase. The company used the opportunity provided by the Croatian government in the current pandemic environment to sign moratoriums on extending principal payments under long-term bank facilities corresponding to 42% of reported debt by three months. S&P said, "We don't consider that this constitutes a default as systemic interventions provide prudential benefit for banks. Furthermore, we believe that the company's action was opportunistic, rather than distressed--the amount of principal deferred was only marginal (HRK16 million), the company continued to pay interest (2.8 million), and we think it could apply for city government liquidity support if needed." S&P expects FFO to debt to recover to 2019 levels by 2022-2023, once the effects of the pandemic have ebbed. After the 2020 dip in FFO to debt to 0.7%, S&P forecasts gradual recovery in all ZGH's businesses which would result in FFO to debt reaching close to 5% by 2022. Although this is close to the 2019 level, it still views leverage as relatively high. ZGH is a company that provides public services to the citizens of Zagreb like waste, gas and water supply, parking, markets, arena, pharmaceuticals, and cemetery etc. Due to the COVID-19 pandemic and the month-long country lockdown, the company had to stop operations for some of its subsidiaries, such as arena, parking, bus station, and markets. It managed to reallocate resources to other divisions (water, gas, and waste) efficiently, keeping about 80% of employees working during the lockdown period. However, political decisions mean that some divisions, such as the arena, are still not operational. Others, such as the bus station and markets, are operating at reduced rates because of border closures and social distancing requirements. ZGH's waste business has continued to underperform. Its operating expenditure has been increasing and the business is capital-intensive. Tariffs will remain stable until the constitutional court addresses the proposal to increase waste tariffs. S&P expects tariffs to increase in 2021, which will improve EBITDA in ZGH's waste division. The negative outlook on ZGH mirrors that on Zagreb. It also reflects the risk that the company's stand-alone liquidity could deteriorate. At the current rating level, S&P expects no further weakening in liquidity, continuing roll-over of short-term debt, FFO to debt of 5%-12%, no material increase in debt, no significant changes in the group structure, no change to the city's policy to support the company, and ZGH's stable operating performance. A downgrade could follow a material deterioration in ZGH's liquidity combined with reduced financial support from the city caused by the city's weakening financial condition. S&P said, "We could also lower the rating if we downgrade the city to 'BB-' or we perceive a material weakening of government support, for example, due to unexpected changes in the city's policy in the gas or waste management sector based on issues related to the pandemic or the weakened economy. "We could revise the outlook to stable if we took a similar action on Zagreb. We view an upgrade as unlikely in the next 12 months because of ZGH's weak credit metrics." =========== F R A N C E =========== EUROPCAR MOBILITY: September Deadline Set for Last-Ditch Bids ------------------------------------------------------------- Pamela Barbaglia and Arno Schuetze at Reuters report that investment firm Eurazeo has asked bidders to submit last-ditch bids in September for French car rental firm Europcar Mobility Group SA as it seeks to avert a painful restructuring. Sources familiar with the matter told Reuters the Paris-listed firm has attracted takeover interest from Volkswagen but a bid has yet to materialize as the German car maker remains wary of the economic fallout of the COVID-19 pandemic on the car rental industry. According to Reuters, one of the sources said Europcar is trying to attract other industry players to the negotiating table despite the challenging outlook for the travel industry. The sources added private equity firms including Apollo Global Management Inc. have extensively looked at the company but would only invest as part of a distressed deal, Reuters notes. They said if it fails to find a new owner, Europcar is expected to start discussions with its creditors over a debt restructuring deal which would see bondholders taking a haircut, Reuters relates. Europcar, Reuters says, has market value of EUR321 million and reported more than EUR1 billion in net debt as of the end of March. ============= G E R M A N Y ============= PHOENIX PHARMAHANDEL: S&P Puts BB+ Rating to New Sr. Unsec. Notes ----------------------------------------------------------------- S&P Global Ratings assigned a 'BB+' rating to German health care company PHOENIX Pharmahandel GmbH & Co. KG's (Phoenix's; BB+/Negative/--) proposed senior unsecured notes, maturing 2025, to be issued via its subsidiary Phoenix PIB Dutch Finance B.V. The recovery rating is '4', reflecting the unsecured nature of the notes and their subordination to factoring, bilateral, and asset-backed-securities facilities. S&P's indicative recoveries are 30%-50% (rounded estimate: 45%). The issue rating is in line with those on Phoenix's existing senior unsecured debt. The new debt is guaranteed by Phoenix and PHOENIX International Beteiligungs GmbH and will extend the overall maturity of the company's capital structure. This issuance will also improve the company's liquidity profile by reducing refinancing risks and dependency on the revolving credit facility (RCF). The company's upcoming maturities are namely EUR200 million senior unsecured notes due 2021 and EUR1.25 billion of RCF due 2022. S&P said, "We continue to view positively the resilient nature of demand for Phoenix's high-medical-necessity products and the company's reliability in terms of delivering materially higher volumes across countries during the COVID-19 pandemic. Under our base case, we assume revenue growth of 2.0%-2.5% over the next 12-18 months, supported by the company's extensive distribution network and vertical integration of retail via about 2,700 own pharmacies in 14 European countries, despite the potential economic slowdown across Europe. Over the same period, Phoenix's EBITDA margin should stabilize at about 2.2%, as benefits from operating efficiency initiatives are offset by pricing pressure from tenders and strong competition. We forecast modestly positive free operating cash flow in the next two years, assuming the company can limit working capital outflow to EUR50 million-EUR70 million and capital expenditure to EUR180 million. Investment requirements beyond our base will pressure cash flow and weigh on our projections of S&P Global Ratings-adjusted leverage of about 4x over the next two years." VERTICAL HOLDCO: Fitch Corrects Press Release Dated June 21, 2020 ----------------------------------------------------------------- Fitch Ratings replaced a ratings release published on July 21, 2020 to correct the name of the obligor for the bonds. Fitch Ratings has assigned Vertical Holdco GmbH a final Long-Term Issuer Default Rating of 'B' with a Stable Outlook. Fitch has also assigned its senior secured debt issues final senior secured ratings of 'B+'/'RR3' and senior unsecured debt issue a final senior unsecured rating of 'CCC+'/'RR6'. The final ratings are in line with the expected ratings assigned on June 24, 2020. The proceeds from the debt issues are being used to acquire thyssenkrupp Elevator by Vertical TopCo III GmbH, Vertical's parent company, from thyssenkrupp AG. Fitch is withdrawing the rating assigned to Vertical U.S. Newco Inc.'s euro-denominated portion of term loan B as the issuer only has access to the US dollar-denominated portion. KEY RATING DRIVERS High but Sustainable Leverage: Fitch expects thyssenkrupp Elevator to be highly leveraged for the rating in the short- to medium-term, both on a gross and net basis. At end-2020, Fitch expects gross and net leverage to be over 10x, well outside the 'B' category mid-points of 5.5x and 6x, respectively, under Fitch's Navigator for the sector. Fitch's expectation of sustainable free cash flow of around EUR200 million - EUR300 million p.a. should provide gradual deleveraging capacity, but leverage metrics are likely to remain high over the next four years. Moderate Earnings Likely to Improve: Fitch views thyssenkrupp Elevator's Fitch-calculated EBITDA margin, at 11.6% in 2019, as moderate in relation to peers', with a cost structure weighed down by high operating costs. Fitch expects a gradual improvement in the cost structure under the new ownership with profitability steadily rising to 13%-15%, broadly in line with peers' in the medium term. FCF to Remain Stable: Cash flow margins are consistent with a 'BBB' category diversified industrial company, albeit weaker than peers'. Its Fitch-calculated funds from operation margin, which in 2019 was 10%, is expected to decline somewhat due to high financing costs despite likely cost-structure improvements, while the FCF margin is expected to remain stable at 3%-5% in the medium term, through capex and working-capital discipline. Strong Long-Term Market Dynamics: Underlying long-term dynamics for the elevator business are strong with global demand likely to be favourably affected by factors such as urbanisation, especially in emerging markets, the need for modernisation of mature assets, and the related necessity for maintenance services of a growing installed base. Modest COVID-19 Effect: Fitch expects COVID-19 to have a delayed, and probably a more moderate, effect on the elevator sector relative to other diversified industrials companies. Demand for maintenance of existing installations is fairly stable and predictable, with no more than a slight negative effect expected in the short term. The new installation segment, largely driven by new construction activity, may not immediately experience a downturn, as it is probable that most construction already begun will be completed. Lower Demand Mitigated by Diversification: The number of new building starts over the coming years is likely to decline from prior years, and therefore demand for new installations will probably be lower in 2021, depending on the depth of the recession. thyssenkrupp Elevator's good business diversification as well as a broad global exposure mean that the company is somewhat resilient against a material decline in both revenue and earnings in the medium term. Good Market Position: thyssenkrupp Elevator is the global number four player in the elevator industry, with an estimated market share of 13%. Approximately two-thirds of the global market is dominated by four companies, including thyssenkrupp Elevator, with the remainder shared by many smaller players. thyssenkrupp Elevator's position, scale and broad service network provides the company with an advantage over many competitors, while its global footprint serves as a potential benefit in streamlining its cost structure. Limited Business Profile: thyssenkrupp Elevator's business profile is constrained by a narrow product range and end-customer exposure, relative to many other diversified industrials companies. The company chiefly makes and services elevators and is dependent to some degree on property construction cycles. Offsetting this is thyssenkrupp Elevator's strong cycle-proof maintenance business and the good geographic diversification of this business, which limits the effect of cyclicality in the property sector. DERIVATION SUMMARY thyssenkrupp Elevator's present profitability and cash flows are somewhat lower than that of direct peers such as OTIS, Schindler or KONE, who benefit from a more streamlined cost structure, as well as other high-yield diversified industrials issuers such as AI Alpine AT BidCo GmbH (B/Stable) or CeramTec BondCo GmbH (B/Negative), companies which, like thyssenkrupp Elevator, specialise in a fairly narrow range of products. thyssenkrupp Elevator's leverage, both gross and net, will also be weaker than most similarly rated peers' and the sectors for the rating over the medium term, despite Fitch's expectations of material de-leveraging. thyssenkrupp Elevator exhibits a superior business profile to companies such as AI Alpine and CeramTec, with much greater scale and global diversification as well as a stronger market position and less vulnerability to economic cycles and shocks. KEY ASSUMPTIONS Fitch's Key Assumptions Within its Rating Case for the Issuer: - Revenue to decline 1% in FY20 (financial year to September) and 3% in FY21 due to a slowdown in commercial building construction stemming from COVID-19. New installations to slow while maintenance and modernisation services will be broadly stable. A recovery is expected in FY22 and FY23 - EBITDA margin to improve following cost-cutting measures and optimisation of production and non-production processes - Capex around 2% of revenue until FY23 - No M&A or dividend payments until FY23 - Some working capital outflows in 2020 and 2021 as new advance payments are below the level of usage of existing advances; thereafter a broadly neutral working capital cash flow profile RECOVERY ANALYSIS CONSIDERATIONS Fitch's recovery analysis follows the bespoke analysis for issuers in the 'B+' and below range with a going-concern valuation yielding higher realisable values in a distress scenario than liquidation. This reflects the globally concentrated market of elevator manufacturers, where the top four companies have almost a 70% total market share. thyssenkrupp Elevators holds the number four position, has a robust business profile with sustainable cash flow generation capacity, defensible market position and products that are strongly positioned on the global market. For the going-concern analysis enterprise value calculation, Fitch discounts the company's FY19 Fitch-calculated EBITDA of EUR922 million by 20%. The resulting post-distress EBITDA of around EUR740 million would result in marginally but persistently negative FCF, effectively representing a post-distress cash flow proxy for the business to remain a going concern. In this scenario, thyssenkrupp Elevator depletes internal cash reserves due to less favorable contractual terms with customers, which Fitch assumes could help the company in rebuilding the order book post-restructuring. Fitch applies a 6x distressed EV/EBITDA multiple, broadly in line with the average 5.6x distressed EV/EBITDA multiples across 'B' rated peer group in the broad industrial and manufacturing sector. This leads to a total estimated EV of around EUR4,420 million. A leading market position, high recurring revenue base and international manufacturing and distribution diversification justify this approach. After deducting 10% for administrative claims and considering priority of enforcement for the total senior secured debt of EUR7,568 million and senior unsecured debt of EUR1,655 million in total, its waterfall analysis generated a ranked recovery in the RR3 band, indicating a 'B+' instrument rating for the senior secured loans and notes totalling EUR6,550 million issued by Vertical Midco GmbH and Vertical U.S. Newco Inc., representing a one notch uplift from the IDR. The waterfall analysis output percentage on current metrics and assumptions was 53%. Using the same assumptions, its waterfall analysis output for the senior unsecured EUR1,040 million notes issued by Vertical Holdco GmbH generated a ranked recovery in the RR6 band indicating an instrument rating of 'CCC+'. The waterfall analysis output percentage on current metrics and assumptions was zero. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Gross leverage under 6x - FFO margin above 8% - FFO interest cover above 4x Factors that could, individually or collectively, lead to negative rating action/downgrade: - Gross leverage above 8x beyond 2022 - FFO margin under 6% - FCF margin under 2% - FFO interest cover under 2x 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 Comfortable Liquidity. At FYE19 thyssenkrupp Elevator had EUR233 million of cash, adjusted by Fitch for intra-year operating needs of around 1% of revenue. Under thyssenkrupp AG's ownership, thyssenkrupp Elevator regularly generates excess cash that feeds the global cash pooling of thyssenkrupp AG, but which is also utilised by thyssenkrupp Elevator for its operating needs. Post-sale, thyssenkrupp Elevator will have a revolving credit line (RCF) and a guarantee line of EUR2 billion in total, of which the RCF in the expected amount of EUR1 billion will solely serve as an additional source of liquidity. Fitch expects thyssenkrupp Elevator's positive cash flow profile to be sustainable. Fitch forecasts an average Fitch-calculated FCF margin of 3.7% over the next four years, stemming from low working capital needs resulting from favourable contractual conditions regarding prepayments and a capex-light business model. Dividend payments and acquisitions have not been factored into its assumptions as per management and sponsors' guidance. Following the closing of the debt issue, thyssenkrupp Elevator has settled all amounts outstanding under thyssenkrupp AG's cash pooling structure. However, Fitch does not expect any outflow of cash as the receivables related to the cash pool more than offset the balance of liabilities. Upon the funding completion, thyssenkrupp Elevator has EUR100 million of cash, and a long-term debt maturity schedule, with no significant repayment over the next six to seven years. Thereafter the company will be exposed to a largely bullet risk of repayment. 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. Vertical Holdco GmbH - LT IDR B New Rating - Senior unsecured; LT CCC+ New Rating - Senior unsecured; LT CCC+ New Rating Vertical U.S. Newco Inc. - Senior secured; LT WD Withdrawn Vertical Midco GmbH - Senior secured; LT B+ New Rating - Senior secured; LT B+ New Rating ============= I R E L A N D ============= ARDAGH GROUP: Posts Net Loss in 2nd Qtr. Amid Debt Refinancing -------------------------------------------------------------- Joe Brennan at The Irish Times reports that Ardagh Group, the glass and metal containers group led by Dublin financier Paul Coulson, swung into a loss in the three months to the end of June as its sales fell amid the Covid-19 pandemic and it booked one-off expenses relating to a refinancing of some of it debt. According to The Irish Times, the New York-listed company reported a net loss of US$64 million (EUR55.3 million) for the period, compared to a US$69 million profit for the same three months last year. Sales dipped by 6% during the second quarter to US$1.61 billion, The Irish Times notes. The company also paid a premium of US$61 million during the period to buy back some of its bonds ahead of schedule as it continued a long-standing strategy of taking advantage of favorable markets to refinance debt at lower interest rates when opportunities arise, The Irish Times discloses. Interest costs came to US$71 million for the three-month period, down from US$112 million for the corresponding period in 2019, The Irish Times states. Ardagh, which makes drink containers for brands ranging from Budweiser beer to Coca-Cola, said its glass business in particular was affected by the economic disruption caused by coronavirus, The Irish Times relates. AVOCA CLO XIX: Fitch Alters Outlook on B-sf Class F Notes to Neg. ----------------------------------------------------------------- Fitch Ratings has revised the Outlook on two junior tranches of Avoca XIX CLO DAC and three tranches of Arbour XXI CLO DAC to Negative from Stable. Avoca CLO XIX DAC - Class E XS1869413812; LT BB-sf Revision Outlook - Class F XS1869413903; LT B-sf Revision Outlook Avoca CLO XXI DAC - Class D XS2126167969; LT BBB-sf Revision Outlook - Class E XS2126168009; LT BB-sf Revision Outlook - Class F XS2126168421; LT B-sf Revision Outlook TRANSACTION SUMMARY The transactions are cash flow CLOs mainly comprising senior secured euro obligations. Both transactions are within their reinvestment period and are actively managed by KKR Credit Advisors. KEY RATING DRIVERS Portfolio Performance As per the trustee report dated June 30, 2020, both deals are passing all Fitch collateral quality tests, portfolio profile tests and the coverage tests. Avoca XIX is below target par by 38bp and Avoca XXI is above par by 42bp. For Avoca XIX, the Fitch calculated weighted average rating factor of the portfolio as of June 18, 2020 had marginally increased to 34.62 from a reported 34.44. The 'CCC' category or below assets (including unrated assets) represented 6.47% of the portfolio against the 7.50% limit. For Avoca XXI, the Fitch calculated WARF as of June 18, 2020 was 34.69 compared with the trustee reported 34.44 and the 'CCC' or below assets represented 5.69%of the portfolio. Coronavirus Baseline Sensitivity Analysis The revision of the Outlook on five tranches to Negative reflects the sensitivity analysis Fitch ran in light of the coronavirus pandemic. The agency notched down the ratings for all assets with corporate issuers with a Negative Outlook regardless of the sectors. This represented 27.32% of the portfolio balance for Avoca XIX and 29.72% of the portfolio balance for Avoca XXI. The affected tranches' ratings show a shortfall under the coronavirus sensitivity test. The Stable Outlooks on the other tranches' ratings reflect that their ratings can withstand the coronavirus baseline sensitivity analysis. Asset Credit Quality 'B'/'B-' Category Portfolio Credit Quality: Fitch assesses the average credit quality of obligors to be in the 'B'/'B-' category. The Fitch WARF of the portfolios is 34.62 and 34.69, respectively. After applying the coronavirus stress, the Fitch WARF would increase to 37.89 and 37.56, respectively. Asset Security High Recovery Expectations: At least 90% of the portfolios comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch recovery rate of the portfolios is 66.11 and 64.51, respectively. Portfolio Composition The portfolios are well diversified across obligors, countries and industries. The top 10 obligors' range between 13.44% and 13.92% of the portfolio, and no obligor represents more than 2.02% of the portfolio balance. The top Fitch industry and top three industries are also within the defined limits of 17.5% and 40.0%, respectively. Both deals have around 40% of assets with semi-annual payment frequency. However, no frequency switch event has occurred yet as for both the deals the senior tranche interest coverage ratio (Class A/B ICR) is greater than the frequency switch event ICR threshold of 100%. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transactions were modelled using the current portfolio and the current portfolio with a coronavirus sensitivity analysis applied. Fitch's coronavirus sensitivity analysis was based on the stable interest rate scenario only but includes the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. When conducting cash flow analysis, Fitch's model first projects the portfolio scheduled amortisation proceeds and any prepayments for each reporting period of the transaction life assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortisation proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntary terminated, when applicable). This adjustment avoids running out of performing collateral due to amortisation and ensures all of the defaults projected to occur in each rating stress are realised in a manner consistent with Fitch's published default timing curve. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch uses a standardised stress portfolio (Fitch's Stress Portfolio) customised to the specific portfolio limits for the transaction as specified in the transaction documents. Even if the actual portfolio shows lower defaults and losses (at all rating levels) than Fitch's Stress Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. After the end of the reinvestment period, upgrades may occur in the event of a better-than-expected portfolio credit quality and deal performance, leading to higher notes' credit enhancement and excess spread available to cover for losses on the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to coronavirus-related disruption become apparent for other vulnerable sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the views of its Leveraged Finance team. Coronavirus Baseline Scenario Impact Fitch carried out a sensitivity analysis on the current portfolio to envisage the coronavirus baseline scenario. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario shows the resilience of the ratings with cushions except for the class E and F notes of Avoca XIX and class D, E and F notes of Avoca XXI. Coronavirus Downside Scenario In addition to the base scenario, Fitch has defined a downside scenario for the current crisis, where by all ratings in the 'Bsf' category would be downgraded by one notch and recoveries would be lower by a haircut factor of 15%. For typical European CLOs, this scenario results in a rating category change for all ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. BOSPHORUS CLO IV: Fitch Affirms Class F Notes Rating at B-sf ------------------------------------------------------------ Fitch Ratings has revised Bosphorus CLO IV DAC junior notes' Outlook to Negative from Stable and affirmed all tranches. Bosphorus CLO IV DAC - Class A XS1791749523; LT AAAsf; Affirmed - Class B-1 XS1791758433; LT AAsf; Affirmed - Class B-2 XS1791758789; LT AAsf; Affirmed - Class C XS1791753558; LT Asf; Affirmed - Class D XS1791754879; LT BBBsf; Affirmed - Class E XS1791755413; LT BBsf; Affirmed - Class F XS1791755504; LT B-sf; Affirmed - Class X XS1791749440; LT AAAsf; Affirmed TRANSACTION SUMMARY The transaction is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by its collateral manager. KEY RATING DRIVERS Coronavirus Sensitivity Analysis The revision of Outlook to Negative follows a sensitivity analysis Fitch ran in light of the coronavirus pandemic. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. Fitch assumed these assets will be downgraded by one notch (floor at 'CCC') and found the model-implied ratings for the affected tranches under the coronavirus sensitivity test are below the current ratings. 'B'/'B-' Portfolio Credit Quality: Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. The Fitch-weighted average rating factor of the current portfolio is 35.69. Under its COVID-19 baseline scenario, the Fitch WARF would increase to 38.87. High Recovery Expectations: 98.2% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch's weighted average recovery rate of the current portfolio is 62.99% Portfolio Composition: The portfolio is well-diversified across obligors, countries and industries. The top- 10 obligors represent 16.5% of the portfolio balance while single obligor concentration is 2.1%, which is below the 3% limit. The three-largest Fitch-defined industries represent 35.2%, below the 40% portfolio profile test limit. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio and one with a coronavirus sensitivity analysis. Fitch's analysis for the coronavirus sensitivity was based on a stable interest-rate scenario but included the front-, mid- and back-loaded default timing scenarios as outlined in its criteria. When conducting cash flow analysis, Fitch's model first projects the portfolio's scheduled amortisation proceeds and any prepayments for each reporting period of the transaction life, assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortisation proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntarily terminated, when applicable). This adjustment avoids running out of performing collateral due to amortisation and ensures all of the defaults projected to occur in each rating stress are realised in a manner consistent with Fitch's published default timing curve Portfolio Performance; Surveillance: The transaction is currently 21bp above target par. All portfolio profile tests, collateral quality tests and coverage tests are passing as of the latest investor report, except the Fitch WARF test. Its 'CCC' and below exposure (including unrated names) would increase to 15.86% from 7.82% after applying the coronavirus stress. As of the last investor report dated June 30, 2020, the percentage of semi-annual obligations has increased to 45.2% from 27.7% at the previous payment date. However, no frequency switch event has occurred as the class A/B interest coverage test still exhibits significant headroom. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: The transaction features a reinvestment period and the portfolio is actively managed. At closing, Fitch uses a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, given the portfolio credit quality may still deteriorate, not only by natural credit migration, but also by reinvestments. However, no upgrades are expected in the near term given the current environment After the end of the reinvestment period, upgrades may occur in case of a better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement for the notes following amortisation does not compensate for a larger loss than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to coronavirus for other sectors become apparent, loan ratings in such sectors would also come under pressure. Fitch has defined a downside scenario for the current coronavirus crisis, whereby all ratings in the 'B' category would be downgraded by one notch and recoveries would be lowered by 15%. For typical European CLOs this scenario results in a category-rating change for all ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. CAIRN CLO VIII: Moody's Confirms Class F Notes Rating at B2 ----------------------------------------------------------- Moody's Investors Service has confirmed the ratings on the following notes issued by Cairn CLO VIII B.V.: EUR18,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2030, Confirmed at Baa2 (sf); previously on Jun 3, 2020 Baa2 (sf) Placed Under Review for Possible Downgrade EUR22,300,000 Class E Senior Secured Deferrable Floating Rate Notes due 2030, Confirmed at Ba2 (sf); previously on Jun 3, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade EUR9,300,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Confirmed at B2 (sf); previously on Jun 3, 2020 B2 (sf) Placed Under Review for Possible Downgrade Moody's has also affirmed the ratings on the following notes: EUR214,400,000 Class A Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Nov 9, 2017 Definitive Rating Assigned Aaa (sf) EUR27,300,000 Class B-1 Senior Secured Floating Rate Notes due 2030, Affirmed Aa2 (sf); previously on Nov 9, 2017 Definitive Rating Assigned Aa2 (sf) EUR10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2030, Affirmed Aa2 (sf); previously on Nov 9, 2017 Definitive Rating Assigned Aa2 (sf) EUR23,900,000 Class C Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed A2 (sf); previously on Nov 9, 2017 Definitive Rating Assigned A2 (sf) Cairn CLO VIII B.V., originally issued in November 2017, is a collateralised loan obligation backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Cairn Loan Investments LLP. The transaction's reinvestment period will end in November 2021. RATINGS RATIONALE Its action concludes the rating review on the Class D, E and F notes announced on June 3, 2020 as a result of the deterioration of the credit quality and/or the reduction of the par amount of the portfolio following from the coronavirus outbreak, "Moody's places ratings on 234 securities from 77 EMEA CLOs on review for possible downgrade". Stemming from the coronavirus outbreak, the credit quality of the portfolio has deteriorated as reflected in an increase in Weighted Average Rating Factor and in the proportion of securities from issuers with ratings of Caa1 or lower. The percentage of Securities with default probability ratings of Caa1 or lower in the underlying portfolio increased from 1.60% as of December 2019's trustee report [1] to 6.89% in June 2020 [2]. In addition, the over-collateralisation levels have weakened across the capital structure. According to the trustee report of June 2020 [2] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 138.98%, 126.93%, 118.94%, 110.56% and 107.4% compared to December 2019 [1] levels of 139.25%, 127.17%, 119.17%, 110.77% and 107.61% respectively. Moody's notes that none of the OC tests are currently in breach and the transaction remains in compliance with the following collateral quality tests: Diversity Score, Weighted Average Recovery Rate, Weighted Average Spread and Weighted Average Life. Despite the increase in the WARF, Moody's concluded that the expected losses on all the rated notes remain consistent with their current ratings following the analysis of the CLO's latest portfolio and taking into account the recent trading activities as well as the full set of structural features of the transaction. Consequently, Moody's has confirmed the ratings on the Class D, E and F notes and affirmed the ratings on the Class A, B-1, B-2, and C notes. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's analysed the underlying collateral pool as having a performing par and principal proceeds balance of EUR349,745,178.21, a weighted average default probability of 28.89% (consistent with a WARF of 3498 over a weighted average life of 5.83 years), a weighted average recovery rate upon default of 45.5% for a Aaa liability target rating, a diversity score of 43 and a weighted average spread of 3.68%. The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Its analysis has considered the effect on the performance of corporate assets from the collapse in global economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around its forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in March 2019. Counterparty Exposure: Its rating action took into consideration the notes' exposure to relevant counterparties, such as account bank and swap provider, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2020. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, in light of uncertainty about credit conditions in the general economy. CLO notes' performance may also be impacted either positively or negatively by: (1) the manager's investment strategy and behaviour; and (2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to the following: - Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. - Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. - Other collateral quality metrics: Because the deal can reinvest, the manager can erode the collateral quality metrics' buffers against the covenant levels. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. FINANCE IRELAND: DBRS Confirms BB Rating on Class E Notes --------------------------------------------------------- DBRS Ratings GmbH confirmed its ratings on the notes issued by Finance Ireland RMBS No. 1 DAC (the Issuer) as follows: -- Class A at AAA (sf) -- Class B at AA (high) (sf) -- Class C at A (high) (sf) -- Class D at BBB (sf) -- Class E at BB (sf) The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in June 2058. The ratings on the Class B, Class C, Class D, and Class E notes address the ultimate payment of interest and principal on or before the legal final maturity date. The confirmations follow an annual review of the transaction and are based on the following analytical considerations: -- Portfolio performance, in terms of delinquencies, defaults, and losses as of the June 2020 payment date; -- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; -- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels; -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic. The Issuer is a securitization of Irish first-lien residential mortgages originated by Finance Ireland Credit Solutions DAC and Pepper Finance Corporation (Ireland) DAC (Pepper). Pepper also acts as the servicer of the mortgage portfolio. The transaction closed in July 2019 with an initial portfolio balance of EUR 290.2 million, consisting of mortgages originated in 2016 and later, with approximately half of the portfolio originated in 2018. PORTFOLIO PERFORMANCE As of the June 2020 payment date, one- to two-month and two- to three-month arrears represented 0.4% and 0.0% of the outstanding portfolio balance, respectively, while loans more than three months in arrears represented 0.9%. There have not been any repossessions or realized losses to date. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 2.1% and 16.0%, respectively. CREDIT ENHANCEMENT The subordination of the respective junior obligations and the general reserve fund provide credit enhancement to the rated notes. As of the June 2020 payment date, credit enhancement to the Class A notes increased to 19.8% from 15.7% at the time of the initial rating 12 months ago; credit enhancement to the Class B notes increased to 13.1% from 10.2%; credit enhancement to the Class C notes increased to 9.4% from 7.2%; credit enhancement to the Class D notes increased to 6.0% from 4.5%; and credit enhancement to the Class E notes increased to 3.6% from 2.5%. The transaction benefits from a general reserve fund and a liquidity reserve fund, providing credit support and liquidity support, respectively. The reserves were funded at closing using proceeds from the Class X notes issuance and together equal to 1.5% of the initial rated notes balance. As of the June 2020 payment date, the liquidity reserve fund was at its target balance of EUR 2.98 million, equal to 1.5% of the outstanding Class A notes balance, while the general reserve fund was at its target balance of EUR 0.57 million, equal to 1.5% of the outstanding rated notes balance minus the general reserve fund target balance. Elavon Financial Services DAC (Elavon) acts as the account bank for the transactions. Based on the DBRS Morningstar private rating of Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes in the transaction, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. Bank of America Securities Europe S.A. (BoAS Europe) acts as the swap provider for the transaction, with their obligations under the swap agreement guaranteed by the Bank of America Corporation (BoAC). DBRS Morningstar's private rating of BoAS Europe and public rating of BoAC at A (high) are above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers, assumed a moderate decline in residential property prices, and conducted an additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays or payment moratoriums in the portfolio. Notes: All figures are in Euros unless otherwise noted. LAURELIN 2016-1: Fitch Affirms Class F-R Notes at B-sf ------------------------------------------------------ Fitch Ratings has affirmed Laurelin 2016-1 DAC's junior notes and removed them from Rating Watch Negative and assigned a Negative Outlook. All other ratings have been affirmed. Laurelin 2016-1 DAC - Class A-R XS1848756679; LT AAAsf; Affirmed - Class B-1-R XS1848758295; LT AAsf; Affirmed - Class B-2-R XS1848757644; LT AAsf; Affirmed - Class C-R XS1848759426; LT Asf; Affirmed - Class D-R XS1848760861; LT BBB-sf; Affirmed - Class E-R XS1848761240; LT BB-sf; Affirmed - Class F-R XS1848761596; LT B-sf; Affirmed - Class X XS1848762305; LT AAAsf; Affirmed TRANSACTION SUMMARY The transaction is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by its collateral manager. KEY RATING DRIVERS Coronavirus Sensitivity Analysis Fitch carried out a sensitivity analysis on the current portfolio to envisage the coronavirus baseline scenario. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario shows resilience of the current ratings of the class A to C notes with cushions. This supports the affirmation with a Stable Outlook for these tranches. While the class D to F notes show failure under the coronavirus sensitivity analysis, Fitch expects the portfolio's negative rating migration to slow, making downgrades on these tranches less likely in the short term. As a result, these classes are affirmed at their current ratings, removed from RWN and assigned a Negative Outlook. 'B'/'B-' Portfolio Credit Quality: Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. The Fitch-weighted average rating factor of the current portfolio is 35.59. Under its COVID-19 baseline scenario, the Fitch WARF would increase to 40.5. High Recovery Expectations: 99.3% of the portfolios comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the current portfolio under Fitch's calculation is 65.5%. Portfolio Diversification: The portfolio is well diversified across obligors, countries and industries. The top-10 obligors represent 16.76% while single obligor concentration is 2.02% of the portfolio balance, below the 3% limit. The three-largest Fitch-defined industries represent 32.7%, below the 40% limit. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transactions were modelled using the current portfolio and the current portfolio with a coronavirus sensitivity analysis applied. Fitch's analysis was based on the stable interest-rate scenario but included the front-, mid- and back-loaded default timing scenarios as outlined in its criteria. When conducting cash flow analysis, Fitch's model first projects the portfolio's scheduled amortisation proceeds and any prepayments for each reporting period of the transaction life assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortisation proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntarily terminated, when applicable). This adjustment avoids running out of performing collateral due to amortisation and ensures all of the defaults projected to occur in each rating stress are realised in a manner consistent with Fitch's published default timing curve Portfolio Performance; Surveillance: The transaction is still in its reinvestment period and the portfolio is actively managed by the collateral manager. The transaction is currently 96bp below target par, but all the portfolio profile tests, collateral quality tests and coverage tests are passing as of the latest investor reports except the Fitch 'CCC' obligations limit, which currently stands at 10.33% as per Fitch's latest calculations. As of June 15, 2020, the portfolio included 50.7% of semi-annual obligations, up from 35.2% on the 2 April 2020 payment date. An increase in semi-annual obligations greater or equal to 20% of the aggregate collateral balance is one of the conditions that could trigger a frequency switch event. Other condition includes threshold requirements regarding class A/B interest coverage ratio. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: The transaction features a reinvestment period and the portfolio is actively managed. At closing, Fitch uses a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, given the portfolio credit quality may still deteriorate, not only by natural credit migration, but also by reinvestments. However, no upgrades are expected in the near term given the current environment After the end of the reinvestment period, upgrades may occur in case of a better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement for the notes following amortisation does not compensate for a larger loss than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to coronavirus for other sectors become apparent, loan ratings in such sectors would also come under pressure. Fitch has defined a downside scenario for the current coronavirus crisis, whereby all ratings in the 'B' category would be downgraded by one notch and recoveries would be lowered by 15%. For typical European CLOs this scenario results in a rating-category change for all ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. SUTTON PARK: Fitch Keeps B-sf Class E Notes Rating on Watch Neg. ---------------------------------------------------------------- Fitch Ratings has maintained Sutton Park CLO DAC's junior notes on Rating Watch Negative and affirmed the rest. Sutton Park CLO DAC - Class A1-A XS1875399278; LT AAAsf; Affirmed - Class A1-B XS1879555990; LT AAAsf; Affirmed - Class A2-A XS1875401603; LT AAsf; Affirmed - Class A2-B XS1875401942; LT AAsf; Affirmed - Class B XS1875402247; LT Asf; Affirmed - Class C XS1875402676; LT BBB-sf; Affirmed - Class D XS1875403054; LT BBsf; Rating Watch Maintained - Class E XS1875402916; LT B-sf; Rating Watch Maintained - Class X XS1875394121; LT AAAsf; Affirmed TRANSACTION SUMMARY The transaction is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by the collateral manager. KEY RATING DRIVERS The maintenance of RWN on the class D and E notes and Negative Outlook on the class C notes reflects the portfolio's deterioration following negative rating migration in light of the coronavirus pandemic. The 'CCCsf' or below category assets (including non-rated assets) represent, according to Fitch's calculation, 8.11% (including unrated names), which is above the 7.5% limit. The transaction, however, remains above target par. The Fitch-calculated weighted average rating factor of the portfolio increased to 34.12 at June 18, 2020 from the trustee-reported WARF of 33.65 dated 10 June 2020. As per the last trustee report all tests including the overcollateralisation and interest coverage tests, were passing. 'B'/'B-' Portfolio Credit Quality: Fitch places the average credit quality of obligors in the 'B'/'B-' range. High Recovery Expectations: Senior secured obligations comprise 97.8% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the current portfolio is 64.94%. Portfolio Composition: The top-10 obligors' concentration is 13.97% and no obligor represents more than 2% of the portfolio balance. As per Fitch calculation the largest industry is business services at 16.21% of the portfolio balance, and the top-three largest industries account for 40.72% versus 17.5% and 40%, respectively. Semi-annual obligations represent 40.2% of the portfolio balance although the frequency switch event has not yet occurred as the senior interest coverage ratio remains greater than 120%. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. In addition, Fitch also tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The analysis for the portfolio with a coronavirus sensitivity analysis was only based on the stable interest-rate scenario including all default timing scenarios. When conducting cash flow analysis, Fitch's model first projects the portfolio's scheduled amortisation proceeds and any prepayments for each reporting period of the transaction life assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortisation proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntarily terminated, when applicable). This adjustment avoids running out of performing collateral due to amortisation and ensures all of the defaults projected to occur in each rating stress are realised in a manner consistent with Fitch's published default timing curve. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch uses a standardised stress portfolio that was customised to the portfolio limits as specified in the transaction's documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stress Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. After the end of the reinvestment period, upgrades may occur in the event of a better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to coronavirus become apparent for other vulnerable sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the views of its Leveraged Finance team. Coronavirus Baseline Scenario Impact: Fitch carried out a sensitivity analysis on the target portfolio to determine the coronavirus baseline scenario. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario demonstrates the resilience of the current ratings with cushions except for the class C, D and E notes, which show sizeable shortfalls. In addition to the baseline scenario, Fitch has defined a downside scenario for the current pandemic, where by all ratings in the 'B' category would be downgraded by one notch and recoveries would be 15% lower. For typical European CLOs, this scenario results in a category-rating change for all ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. 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. TORO EUROPEAN 4: Fitch Keeps Class F-R Debt Rating on Watch. Neg. ----------------------------------------------------------------- Fitch Ratings has affirmed six tranches of Toro European CLO 4 DAC and maintained two on Rating Watch Negative. Toro European CLO 4 DAC - Class A-R XS1639912762; LT AAAsf; Affirmed - Class B-1-R 89109MAH7; LT AAsf; Affirmed - Class B-2-R 89109MAM6; LT AAsf; Affirmed - Class B-3-R US89109MAP95; LT AAsf; Affirmed - Class C-R US89109MAS35; LT Asf; Affirmed - Class D-R US89109MAV63; LT BBBsf; Affirmed - Class E-R XS1639910808; LT BB-sf; Rating Watch Maintained - Class F-R US89109MAZ77; LT B-sf; Rating Watch Maintained TRANSACTION SUMMARY Toro European CLO 4 DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine and second-lien loans. The transaction is still within its reinvestment period and is actively managed by the collateral manager. KEY RATING DRIVERS Portfolio Performance Deteriorating: The RWN and Negative Outlooks reflect the deterioration in the portfolio as a result of the negative rating migration of the underlying assets in light of the coronavirus pandemic. In addition, as per Fitch calculation, the transaction is below par by 90 bp. As per the trustee report dated July 3 the Fitch weighted average rating factor was 36.35, and the Fitch-calculated WARF of the portfolio increased to 36.43 on June 18, 2020. Coronavirus Baseline Scenario Impact Fitch carried out a sensitivity analysis on the current portfolio to determine the coronavirus baseline scenario. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario shows resilience of the current ratings of the class A and B notes with cushions. Asset Credit Quality 'B'/'B-' Category Portfolio Credit Quality: Fitch assesses the average credit quality of obligors to be in the 'B'/'B-' category. The Fitch WARF of the current portfolio is 36.43. Asset Security High Recovery Expectations: Senior secured obligations comprise 96.4% of the portfolios. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the current portfolio is 62.25%. Portfolio Composition The portfolios are well diversified across obligors, countries and industries. As per Fitch's calculation, the top 10 obligor's exposure is 13.37% and no obligor represents more than 1.61% of the portfolio balance. The largest industry is chemicals at 14.81% of the portfolio balance, followed by business services at 13.95% and healthcare at 9.68%. Semi-annual obligations represent the 48.33% of the portfolio balance. However, a frequency switch event has not been triggered yet according to the current high interest coverage test level. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest rate scenario and the front, mid- and back-loaded default timing scenario as outlined in Fitch's criteria. In addition, Fitch tested the portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The analysis for the portfolio with a coronavirus sensitivity analysis was only based on the stable interest rate scenario including all default timing scenarios. When conducting its cash flow analysis, Fitch's model first projects the portfolio scheduled amortisation proceeds and any prepayments for each reporting period of the transaction life assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortisation proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntary terminated, when applicable). This adjustment avoids running out of performing collateral due to amortisation and ensures all of the defaults projected to occur in each rating stress are realised in a manner consistent with Fitch's published default timing curve. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: The transactions feature a reinvestment period and the portfolios are actively managed. At closing, Fitch uses a standardised stress portfolio (Fitch's Stressed Portfolio) that is customised to the specific portfolio limits for the transaction as specified in the transaction documents. Even if the actual portfolio shows lower defaults and losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, given the portfolio credit quality may still deteriorate, not only by natural credit migration, but also by reinvestments. After the end of the reinvestment period, upgrades may occur in case of a better than initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses on the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement for the notes following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to the coronavirus for other sectors become apparent, loan ratings in such sectors would also come under pressure. Fitch will resolve the RWN over the coming months as it observes rating actions on the underlying loans. Coronavirus Baseline Scenario Impact: Fitch carried out a sensitivity analysis on the target portfolio to envisage the coronavirus baseline scenario. It notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario shows the resilience of the current ratings with cushions, except for the class C, D, E and F notes, which show sizeable shortfalls. In addition to the base scenario, Fitch has defined a downside scenario for the current coronavirus crisis, whereby all ratings in the 'B' category would be downgraded by one notch and recoveries would be lowered by 15%. For typical European CLOs this scenario results in a rating category change for all ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information 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. [*] IRELAND: Committee Proposes "Examinership-Lite" Option ---------------------------------------------------------- Irish Legal News reports that an Oireachtas committee has said the law on examinership should be amended to introduce an "examinership-lite" option for small businesses struggling in the aftermath of the COVID-19 pandemic. The proposal is one of 19 recommendations made by the Oireachtas special committee on COVID-19 response in its Stimulating Enterprise and the Economy report, published on July 17, Irish Legal News notes. According to Irish Legal News, in evidence to the committee, SME Recovery Ireland (SMERI) pointed out that the UK government is "rushing through a new bill on corporate insolvency to ensure that the balance of power between large banks and large landlords, on the one hand, and smaller firms, on the other, is in a different place". The committee report recommends that the law be changed in autumn 2020 to support "struggling small businesses who are currently precluded due to the currently high costs involved", Irish Legal News discloses. ========= I T A L Y ========= DOVALUE SPA: Fitch Rates EUR265MM Senior Secured Notes BB(EXP) -------------------------------------------------------------- Fitch Ratings has assigned doValue S.p.A.'s proposed issue of EUR265 million of five-year senior secured notes an expected rating of 'BB(EXP)'. The assignment of the final rating is contingent on the receipt of final documents conforming to information already received. KEY RATING DRIVERS The notes' rating is in line with doValue's 'BB' Long-Term Issuer Default Rating, reflecting Fitch's expectation of average recovery prospects, as the notes will rank pari passu with the EUR367 million senior facility agreement that constitutes doValue's only material other debt. On completion the notes will be secured on principally doValue's shares in its key Spanish and Greek subsidiaries (Altamira and FPS Holdco respectively) and its rights under loans made to those subsidiaries, each of which will act as a guarantor. doValue's own balance sheet contains a significant proportion of intangible assets, reflecting recent acquisition activity and the asset-light nature of the company's business model. doValue's Long-Term IDR reflects the company's strong franchise in southern European debt and real- estate servicing, typically a cash-generative business model benefiting from long-term contracts with key customers. The rating also takes into account the leverage taken on to finance two significant acquisitions in the last 13 months, the disruption to business experienced since March as a result of the COVID-19 pandemic and its expectation of this continuing to weigh on collections performance throughout 2H20. The proceeds of the new senior notes will be used to refinance a bridging facility used to fund the acquisition earlier this year of Eurobank Financial Planning Services (FPS). Therefore, Fitch does not expect the new debt to have any net impact on doValue's leverage. RATING SENSITIVITIES The senior notes' rating is primarily sensitive to changes in doValue's Long-Term IDR. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Maintenance of a gross debt-to-EBITDA in excess of 3.5x (the boundary of Fitch's 'bb' range for leverage) on a sustained basis without a clear path to meaningful deleveraging; - Under-performance of collection key performance indicators, leading to lower fee payments and ultimately potential contract losses, if not mitigated by contract growth or other remedial measures in the interim; - A material increase in doValue's risk appetite, as reflected for example in weakening risk governance and controls; and - Material erosion of headroom under the financial covenants applicable to either the notes or the SFA, which would reduce doValue's financial flexibility. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Successful integration of FPS, while also building on the positive contribution made by Altamira in 2H19 and maintaining performance of doValue's core domestic business, as reflected in a material sustained reduction in gross debt-to-EBITDA. Changes to Fitch's assessment of recovery prospects for the senior notes in a default, e.g. as a result of introduction to doValue's debt structure of material lower- (or higher-) ranking debt, could also result in the senior notes' rating being notched up or down from the IDR. ESG CONSIDERATIONS Except for the matters discussed, 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 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. DOVALUE SPA: S&P Puts BB Rating on New EUR265MM Sr. Sec. Notes -------------------------------------------------------------- S&P Global Ratings said it has assigned its 'BB' issue rating and '3' recovery rating to the new proposed EUR265 million senior secured notes to be raised by Italian nonperforming loan (NPL) servicer doValue SpA. S&P views the proposed refinancing as leverage neutral, since it expects the proceeds raised will be used to repay the company's existing EUR265 million bridge facility in full. S&P said, "The 'BB' issue rating is in line with our issuer credit rating on doValue SpA (BB/Stable/--). The '3' recovery rating indicates our expectation of meaningful (50%-70%; rounded estimate 55%) recovery in the event of a default. "Our 'BB' long-term issuer credit rating and stable outlook on doValue SpA remains unchanged. Our credit metrics remain in line with our recent publication, "doValue SpA Assigned 'BB' Rating On 80% Acquisition of Eurobank's FPS; Outlook Stable," published July 9, 2020, on RatingsDirect." Covenants The company has received a financial covenant amendment from its lenders. S&P believes that this provides the company with greater financial flexibility and supports our adequate liquidity assessment. The company's financial covenants are tested quarterly and include a minimum EBITDA interest coverage test of 3x and a maximum net debt to EBITDA test of 4.5x. The covenants move to 4x interest coverage and 3.5x net leverage when tested in December 2021 and to 5x interest coverage and 3x net leverage from March 2022. S&P sees comfortable covenant headroom as a result of the covenant amendment and expect that the company will have sufficient headroom to maintain our adequate liquidity assessment. Issue Ratings--Recovery Analysis Key analytical factors -- The new EUR265 million senior secured notes will rank pari passu with the existing senior facility agreement and is rated 'BB' with a recovery rating of '3', which indicates S&P's expectation of approximately 55% recovery prospects in the event of a payment default. -- The security package provided to senior secured lenders consists of share pledges. S&P views this as weak, due to no relevant tangible assets, but in line with the company's business model. -- S&P said, "In our hypothetical default scenario, we assume that regulation changes result in banks insourcing NPLs, further constraining gross book value of assets under management availability in the open market and resulting in a more competitive price environment. We value the group as a going concern. We consider that lenders would maximize recovery prospects in a going concern scenario rather than in a liquidation scenario because of the company's asset-light business." -- S&P has calculated recovery using discounted cash flow modeling, where it sees the greatest value at default, given the group's strong cash generation and low fixed charges until the notes mature. Simulated default assumptions -- Year of default: 2025 -- Jurisdiction: Italy Simplified waterfall -- Gross enterprise value at emergence: EUR210 million -- Net enterprise value after administrative expenses (5%): EUR200 million -- Priority debt claims: About EUR0 million* -- Senior secured debt claims: About EUR338 million* -- Recovery expectation: 50%-70% (rounded estimate: 55%) *Includes six months of prepetition interest and 85% drawn RCF. ===================== N E T H E R L A N D S ===================== NORTH WESTERLY: Fitch Affirms Class F Debt Rating at B-sf --------------------------------------------------------- Fitch Ratings has revised the Outlook on two tranches of North Westerly V B.V. All tranches have been affirmed. North Westerly V B.V. - Class A XS1854511190; LT AAAsf; Affirmed - Class B-1 XS1854511604; LT AAsf; Affirmed - Class B-2 XS1854512321; LT AAsf; Affirmed - Class C XS1854512917; LT Asf; Affirmed - Class D XS1854513642; LT BBBsf; Affirmed - Class E XS1854514020; LT BBsf; Affirmed - Class F XS1854513998; LT B-sf; Affirmed TRANSACTION SUMMARY North Westerly V is a cash flow CLO mostly comprising senior secured obligations. The transaction is within its reinvestment period and is actively managed by its collateral manager. KEY RATING DRIVERS Coronavirus Baseline Sensitivity Analysis Fitch revised the Outlook on the two junior most tranches to Negative from Stable as a result of a sensitivity analysis it ran in light of the coronavirus pandemic. The agency notched down the ratings for all assets with corporate issuers with a Negative Outlook regardless of the sectors. The model-implied ratings for the affected tranches under the coronavirus sensitivity test are below the current ratings. The affirmations of the other tranches reflect the fact that their ratings show resilience under the coronavirus baseline sensitivity analysis with a cushion. This supports the Stable Outlooks on these ratings. Portfolio Performance; Surveillance The transaction is still in its reinvestment period and the portfolio is actively managed by the collateral manager. As of the latest investor report available, the transaction was above par and all portfolio profile tests, collateral quality tests and coverage tests were passing. The transaction has 11bp in defaulted assets. Exposure to assets with a Fitch derived rating of 'CCC+' and below is 3.7% and would increase to 9.6% after applying the coronavirus stress. Assets with a Fitch-derived rating on Negative Outlook represent 25.4% of the portfolio balance. Asset Credit Quality 'B'/'B-' Category Portfolio Credit Quality: Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. The Fitch weighted average rating factor of the current portfolio is 33.6 (assuming unrated assets are 'CCC'), and the trustee-reported Fitch WARF was 33.8, both below the maximum covenant of 34.0. After applying the coronavirus stress, the Fitch WARF would increase to 36.3. Asset Security High Recovery Expectations: At least 90% of the portfolios comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Portfolio Composition The portfolios are well diversified across obligors, countries and industries. The top 10 obligor is 14.4%, and no obligor represent more than 1.74% of the portfolio balance. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest rate scenario and the front, mid, and back-loaded default timing scenario as outlined in Fitch's criteria. In addition, Fitch tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest rate scenario including all default timing scenarios. When conducting cash flow analysis, Fitch's model first projects the portfolio scheduled amortisation proceeds and any prepayments for each reporting period of the transaction life assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortisation proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntary terminated, when applicable). This adjustment avoids running out of performing collateral due to amortisation and ensures all of the defaults projected to occur in each rating stress are realised in a manner consistent with Fitch's published default timing curve. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As the disruptions to supply and demand due to COVID-19 for other vulnerable sectors become apparent, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Factors that could, individually or collectively, lead to negative rating action/downgrade: Fitch carried out a sensitivity analysis on the target portfolio to determine the coronavirus baseline scenario. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario demonstrates the resilience of the ratings on the class A, B-1, B-2, C, and D notes, whereas credit enhancement for the class E and F notes may be eroded quickly with deterioration of the portfolio. In addition to the baseline scenario, Fitch has defined a downside scenario for the current crisis, whereby all ratings in the 'B' category would be downgraded by one notch and recoveries would be 15% lower. For typical European CLOs, this scenario results in a rating category change for all ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Most of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied on for its rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ============= R O M A N I A ============= KMG INTERNATIONAL: Fitch Affirms LT IDR at B+, Outlook Stable ------------------------------------------------------------- Fitch Ratings has affirmed KMG International NV at Long-Term Issuer Default Rating of 'B+' with Stable Outlook. KMGI is a wholly-owned subsidiary of JSC National Company KazMunayGas (NC KMG; BBB-/Stable), the national oil and gas company of Kazakhstan. It is rated two notches above its Standalone Credit Profile of 'b-', based on a bottom-up assessment and due to strong legal, moderate operational and weak strategic ties with NC KMG. The affirmation reflects its expectation that funds from operations net leverage will average 2.8x over 2021-2023, below its negative rating sensitivity of 4.0x, despite a severe increase in leverage in the near term due to COVID-19. The execution of its Memorandum of Understanding with the Romanian government, however, will require continued capex and financing over the next four years, making KMGI vulnerable to the macro-economic environment. The Stable Outlook reflects its expectation that KMGI will continue to have access to credit lines with its relationship banks and of a recovery in Romanian fuel demand by 2021. Fitch expects a potential breach of its covenant test at end-December 2020 to be waived. The rating also reflects the removal of uncertainty as criminal charges and related asset freezes from Romania's Directorate for Combating Organised Crime and Terrorism have been resolved in favour of KMGI. KEY RATING DRIVERS Charges Dropped in DIICOT Investigation: Fitch views the dismissal of criminal charges by DIICOT as credit-positive as it removes substantial uncertainty surrounding KMGI. A precautionary seizure is kept over four refinery installations of subsidiary Rompetrol Rafinare for potential civil litigation although this has no impact on the day-to-day operations of KMGI. Neutral Impact from Asset Freeze: An asset freeze from the Romanian tax authorities, ANAF, over KMGI's Petromidia refinery remains in place. According to management, the freeze has no impact on KMGI's day-to-day operations and the implementation of MoU could increase the likelihood of a resolution of the conflict with the government of Romania (BBB-/Negative). Management expects the asset freeze to be lifted once the final condition of the MoU, the purchase by KMGI of 26.7% in RRC from the government for USD200 million, has been met. Due to a new bill passed by the Romanian parliament barring privatisations over the next two years and continued political uncertainty Fitch expects the stake sale to take place in 2022 earliest. COVID-19 Impact in 2020: After a strong January-February KMGI's 2020 financial results were severely impacted by the nationwide lockdown in Romania from mid-March to mid-May. Fitch expects an exceptionally weak result from the refining segment due to weak refining margin and losses from holding inventory. Overall performance remains highly uncertain and Fitch estimates 2020 EBITDA at around USD70 million, subject to no recurrence of a nationwide lockdown. Fitch expects domestic fuel demand to grow in 2021 as economic recovery boosts demand for individual transportation even if social distancing measures remain in place. Covenant Breach in Focus: Its calculations imply KMGI is at risk of breaching one of its covenants under its USD360 million syndicated loan facility for the testing period at end-December 2020. This covenant requires maintaining EBITDA/bank interest at above 3.5x, and is tested semi-annually. Fitch expects a potential covenant breach to be waived by the banks, given the extension of its committed facility A by another year to 2023 with a limit of USD240 million. A waiver is not certain given the current environment and Fitch would treat failure to obtain a waiver as a credit event risk. Negative FCF due to MoU Outlays: Fitch forecasts free cash flow (FCF) to be negative on average in 2020-2023 due to additional capex associated with the MoU. The Kazakh-Romanian Energy Investment Fund, set up under the MOU, has an investment scope of up to USD1 billion within seven years. Its base case captures two approved projects costing USD180 million over the next four years. They are the construction of a cogeneration plant at the Petromidia refinery, which Fitch expects to be finalised in 2023, and the expansion of the domestic gas station network. Fitch expects these investments to enhance KMGI's business profile and profitability. 'b-' SCP: KMGI's SCP is constrained by negative FCF related to the implemented MoU, impact of the pandemic on fuel demand in Romania, the asset freeze on the Petromidia refinery, refining margins and throughput volumes being the lowest among Fitch-rated European peers' and a high portion of short-term credit facilities (55% of total debt at end-June 2020). The SCP is supported by some diversification into fuel marketing, the high white-product yield of KMGI's Petromidia refinery, and Fitch-projected FFO net leverage at around 3.5x on average over 2020-2023. Moderate Linkage with Parent: According to Fitch's Parent and Subsidiary Rating Linkage Criteria, legal ties are strong and underpinned by KMGI being a material subsidiary under the cross-default clause in NC KMG's notes. Currently, no KMGI debt is guaranteed by NC KMG. KMGI operates independently but acts as the sole trader for KMG's crude volumes in Europe through KMG Trading AG. This supports moderate operational links. Fitch views the strategic ties with NC KMG as weak. Following the parent's failed attempt to sell a majority stake in KMGI, a divestment is unlikely over the next four years as KMGI is no longer listed in the Kazakh state's privatisation programme and is viewed as an asset that could positively contribute to NC KMG's business profile. Improved Operations: KMGI's results were substantially stronger in 2017-2019 than in 2015-2016 although performance weakened yoy in 2019. Fitch-adjusted EBITDA decreased 11% yoy to USD182 million in 2019, after negative inventory effects and weaker European refining margins offset improved operational efficiency and higher retail volumes. DERIVATION SUMMARY KMGI's closest peer is Corral Petroleum Holdings AB. CPH operates two medium-sized refineries in Sweden with a total capacity of 345kbbl/d and a retail network of around 600 filling stations. KMGI operates one large refinery with roughly 100kbbl/d capacity, another 10kbbl/d refinery, a small petrochemical plant, a trading business servicing NC KMG group and a retail chain of more than 1,000 filling stations. KMGI's 'B+' rating reflects a two-notch uplift from the company's 'b-' SCP due to the ties between the company and NC KMG. KMGI lags behind Polski Koncern Naftowy ORLEN S.A. (PKN; BBB-/Stable), MOL Hungarian Oil and Gas Company Plc (BBB-/Stable) and Turkiye Petrol Rafinerileri A.S. (Tupras; BB-/Negative) in refining capacity, and has weaker integration with petrochemical and upstream assets. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer - Gross refining margins of USD0.4/bbl in 2020, gradually increasing thereafter to USD3.5/bbl by 2023. - Moderate increase in EBITDA at the retail segment from a 2020 trough. - Capex of USD126 million for the power plant in 2021-2023. - USD200 million outflow in 2022 for the purchase of a 26.7% stake in RRC from the Romanian government. - Fitch assumes that KMGI will raise financing for the RRC stake acquisition without NC KMG's support. - No dividend pay-out in 2020-2021 and USD15 million a year of dividend thereafter. RATING SENSITIVITIES Fitch has revised its leverage guidelines based on its new approach to leases following IFRS 16 implementation. Factors that could, individually or collectively, lead to positive rating action/upgrade: - FFO net leverage below 2.0x (1.4x at end-2019) on a sustained basis coupled with improved liquidity position and a higher share of long-term debt. - Evidence of stronger ties between NC KMG and KMGI. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Deterioration in KMGI's liquidity and ability to refinance debt. - Un-remedied covenant breach. - FFO net leverage above 4.0x and FFO interest coverage below 2.0x (2019: 4.7x) on a sustained basis. - Negative FCF on a sustained basis. - Weaker ties with NC KMG leading to a reassessment of the two-notch uplift to the SCP for parental support. 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 Limited Liquidity: At June 30, 2020, KMGI held cash balances of USD72 million against short-term debt of USD227 million (versus USD417 million of total debt) and forecast negative FCF of around USD150 million in 2020. KMGI has USD58 million availability under its only long-term committed USD240 million revolving credit facility due in April 2023. At end-June 2020, the company had also available around USD151 million under its USD185 million uncommitted short-term credit facilities which could be used for general corporate purposes. KMGI also maintains a substantial amount of short-term uncommitted credit lines, mainly for its trading activities, but Fitch does not view them as a source of liquidity. KMGI has relied on rolling over short-term credit facilities to cover its liquidity requirements. The high proportion of short-term debt in its capital structure is a constraint on the rating, even though the company has a record of successful refinancing with its relationship banks. KMGI's USD240 million RCF and USD120 million uncommitted credit line have a minimum interest coverage (EBITDA/bank interest) covenant of 3.5x and a limit for a maximum bank debt utilisation of USD1 billion, which is tested bi-annually. A covenant breach is possible in December 2020 based on its estimates. SUMMARY OF FINANCIAL ADJUSTMENTS Lease-related depreciation and interests are reclassified as operating costs in the income statement. Lease payments reclassified as cash outflow from operations in the cash-flow statement. Lease liabilities are excluded from financial debt on the balance sheet. Fitch has adjusted cash by USD143 million in 2019, which it treats as not readily available for debt repayment because of working-capital swings for the trading business, which reverse in the subsequent accounting period. 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). =========== R U S S I A =========== RESO-LEASING: S&P Affirms BB+/B ICRs, Outlook Stable ---------------------------------------------------- On July 27, 2020, S&P Global Ratings affirmed its 'BBB-' long-term insurer financial strength and issuer credit ratings on Russia-based insurer RESO-GARANTIA. The outlook is stable. Simultaneously, S&P affirmed its 'BB+/B' long- and short-term issuer credit ratings on RESO-Leasing, 100% subsidiary of RESO-GARANTIA. The outlook is stable. In addition, S&P affirmed its 'BB' long-term issuer credit rating on Stanpeak Ltd. LLC, the Cyprus-based NOHC of RESO-GARANTIA. The outlook is stable. S&P said, "We affirmed our ratings on RESO-GARANTIA, RESO-Leasing, and Stanpeak because we consider that the group in the next two years will be able to withstand the pressure from the challenging operating environment created by COVID-19 and measures to contain it. We expect that RESO-GARANTIA, the main operating company in the group, will continue to benefit from its market position as one of the leading Russian property/casualty (P/C) insurers. We also expect that the company's capital position will continue strengthening on the back of solid operating performance and the recently established moderate dividend policy. "We expect that RESO-GARANTIA will keep its focus on motor insurance lines, which accounted for 55% of the insurer's gross premium written (GPW) in 2019. We expect that RESO-GARANTIA's GPW will be flat in 2020, supported by the strong growth in the first quarter of the year (by 39% compared with the first quarter of 2019) driven by several large medical and property insurance contracts. We expect the pace of growth will decline in the second half of the year because of the measures to contain COVID-19. We expect the company's GPW will increase by around 5% annually in the next two years, which is close to our expectations for the Russian insurance sector average. We also expect that the company will be able to keep its combined (loss and expense) ratio at 90%-92% in the next two years, increasing only moderately from 88% reported in 2019. "RESO-GARANTIA has historically been one of the leaders in terms of efficiency. We forecast the company's investment yield will be around 7% in the next two years (including the contribution from the leasing business), decreasing from 7.6% reported in 2019 in view of declining interest rates in Russia. "We expect that RESO-GARANTIA will be able to continue strengthening its capital position in the next two years. The company's capital adequacy according to our capital model was above the 'BBB' threshold with a comfortable buffer at the end of 2019. This is lower than we expected last year because of a one-off extraordinary expense related to the share buyback. The company's solvency ratio was 4.14x on April 1, 2020, with significant buffer above the minimum required level of 1x. We forecast that the company's capital adequacy will gradually improve to the 'AA' category in the next two years, based on a strong profit forecast and assuming dividends won't exceed 50% of net income. We note, however, the volatility of dividend policy over recent years and potential pressure on the operating performance from the challenging economic environment, which moderates our assessment of the company's capital position. "We also note the higher use of leverage by RESO-GARANTIA group compared with its peers in the Russian P/C insurance sector, stemming from the debt assumed to fund the leases extended by RESO-Leasing. The consolidated group's debt leverage ratio increased to 36% and interest coverage ratio decreased to 3.7x at the end of 2019 from 35% and 13.3x, respectively, a year before. In our forecast, the debt leverage ratio may increase to around 38% and the fixed-charge coverage ratio will stay around 4x in the next two years. We base these projections on the assumption that RESO-Leasing, which is currently the main debt issuer in the group, will keep its lease portfolio flat in 2020 and expand it by 10%-15% in the next two years. "We continue to see RESO-Leasing as a highly strategic subsidiary of its parent RESO-GARANTIA. Its business development is an important part of the group's long-term strategy. RESO-Leasing materially contributes to the group's financial performance. Leasing assets accounted for 22% of the group's consolidated invested assets at the end of 2019 and the share of group EBITDA adjusted for foreign currency effects was 38% last year. We also note the high level of integration between the two companies--a united treasury, financial reporting, and liquidity management functions--combined with continued support commitment from the parent. "Our rating on Stanpeak, the NOHC that ultimately owns 56.6% of RESO-GARANTIA, is two notches below our 'bbb-' assessment of RESO-GARANTIA's group credit profile. This reflects our view of the structural subordination of NOHCs' obligations, compared with those of operating subsidiaries. In our analysis, we do not deduct further notches, because Stanpeak has issued no debt at the NOHC level, nor does it plan to. "The stable outlook on RESO-GARANTIA, RESO Leasing, and Stanpeak reflects our expectation that the insurer will be able to withstand the pressure from COVID-19 containment measures and economic contraction in Russia, thanks to its leading market positions in the Russian P/C insurance sector and solid operating performance. The stable outlook also assumes RESO-Leasing will remain highly strategic to the group and Stanpeak will not contract any debt." S&P could lower the rating on RESO-GARANTIA in the next two years if its financial risk profile deteriorated, for instance due to: -- Slower strengthening of the capital position than it assumes in its base-case scenario, which may result from weaker technical performance, investment losses, or a higher dividend appetite than it currently expect; -- A riskier investment strategy that could lead S&P to shift its assessment of RESO-GARANTIA's weighted-average investment quality toward the 'BB' category; or -- The insurer adopting a less conservative funding structure with leverage increasing above 50% or the fixed-charge coverage ratio decreasing materially below 4x. S&P said, "We are unlikely to take a positive rating action on RESO-GARANTIA at this stage. It would depend on the insurer's ability to materially strengthen its financial risk profile by improving its capital position through strong earnings generation and sustainable dividend payouts. For a positive rating action, we would also need to observe the consolidated group's risk appetite stabilizing, in particular in terms of attracting debt leverage and business expansion. In addition, any positive rating action would depend on whether RESO-GARANTIA passes our sovereign stress test, given our sovereign credit ratings on Russia(foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-2)." ========= S P A I N ========= AZUL MASTER 2020-1: DBRS Assigns BB Rating to Class C Notes ----------------------------------------------------------- DBRS Ratings Limited assigned ratings to the notes issued by aZul Master Credit Cards DAC (the Issuer) as follows: -- Series 2020-01, Class A Notes at A (high) (sf) -- Series 2020-01, Class C Notes at BB (sf) The rating of the Class A Notes addresses the timely payment of scheduled interest and ultimate repayment of principal by the legal final maturity date. The rating of the Class C Notes addresses the ultimate payment of interest and ultimate repayment of principal by the legal final maturity date. DBRS Morningstar does not rate the seller interest credit facility (SICF). DBRS Morningstar based its ratings on information provided by the Issuer and its agents as of the date of this press release. The rated notes are backed by an initial portfolio of approximately EUR 295 million of credit card receivables acquired (Ruby portfolio) or granted (core portfolio) by WiZink Bank S.A. (WiZink or the seller) to individuals in Spain. WiZink is also the initial servicer. As the Ruby portfolio is in run-off, the securitized pool is expected to migrate over time toward the core portfolio, a large portion of which is currently funded in WiZink Master Credit Cards, Fondo de Titulizacion. The ratings are based on the following analytical considerations: -- The transaction's capital structure including the form and sufficiency of available credit enhancement to support DBRS Morningstar's expectation of charge-off, principal payment, and yield rates under various stress scenarios. -- The ability of the transaction to withstand stressed cash flow assumptions and repays the rated notes. -- The seller's capabilities with respect to origination, underwriting, and servicing. -- An operational risk review of the seller, which DBRS Morningstar deems to be an acceptable servicer. -- The transaction parties' financial strength with regard to their respective roles. -- The credit quality and diversification of the collateral and historical and projected performance of the securitized portfolio. -- The sovereign rating of the Kingdom of Spain, currently rated A (high) with a Stable trend by DBRS Morningstar. -- The general consistency of the transaction's legal structure with DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology (except for the transaction governance issue discussed in ESG Considerations section below). TRANSACTION STRUCTURE The credit enhancement available to the rated notes during the amortization period consists of subordination of the junior notes and SICF note, potential over-collateralization, and excess spread. An amortizing Class A general reserve for liquidity purposes can be used to cover senior fees and any interest shortfall on the Class A Notes of the entire program but is not meant for providing credit enhancement. The general reserve was funded to its target level of EUR 2,696,400 at closing, equal to 1.2% of the initial Class A Notes balance. As both the underlying receivables and the notes carry fixed rates, there is a limited risk of interest rating mismatch. COUNTERPARTIES Societe Generale S.A. (Spanish branch) is the account bank for the transaction. The account bank replacement trigger of BBB (high) and the downgrade provisions outlined in the transactions' documents are consistent with DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology for the rating on the Class A Notes. PORTFOLIO ASSUMPTIONS The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and adverse financial impact on many borrowers. DBRS Morningstar anticipates that delinquencies would continue to arise, and payment and yield rates would remain subdued in the coming months for many credit card portfolios. The total payment rates of the core portfolio have been largely stable around 14%-16% over the reported period until March 2020 while the Ruby portfolio experienced noticeably lower levels around 7%-9%. The most recent performance in May 2020 shows a principal payment rate of 7.1%, after a record low level of 6.5% due to the coronavirus impact. Based on the analysis of historical data, macroeconomic factors, and the portfolio-specific coronavirus adjustments, DBRS Morningstar set the expected monthly principal payment rate at 9.75%. The portfolio yield is largely stable over the reported period. There are no major differences between the cash interest yields between Ruby and the core portfolios. However, the recent Spanish supreme court ruling on the usury rates exposes the transaction to yield uncertainty and potential set-off risk. DBRS Morningstar elected to set the expected cash interest yield at 18.5%, reflecting the observed recent trend, potential yield compression due to the usury rate constraint. As the Ruby portfolio is in run-off, the charge-off rates are expected to increase continuously due to the declining portfolio balances. the reported historical charge-off rates of the core portfolio tend to be volatile and increasing without clear, stabilizing trends, DBRS Morningstar used the arrears roll rates to assess the migration of delinquent balances and eventual charge-offs. Based on the analysis of delinquency trends, the expected future inflows of receivables in arrears, macroeconomic factors, and the portfolio-specific adjustment due to the coronavirus impact and the positive selection of eligible assets, the expected charge-off rate is set at 12.5%. The portfolio asset assumptions above also take into consideration of the migration of the securitized pool to the core portfolio over the next two years. DBRS Morningstar analyzed the transaction structure in its proprietary cash flow tool. COVID-19 CONSIDERATIONS The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that payment holidays and delinquencies may arise in the coming months for many ABS, some meaningfully. The rating/ratings is/are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. ESG CONSIDERATIONS DBRS Morningstar considers some unusual aspects of general eligibility criteria and related representations and warranties given by the seller to the Issuer regarding the compliance with law (specifically, an usury law carve-out) to have a negative rating impact. In DBRS Morningstar's view, the legal and regulatory risks arising from the non-standard eligibility criterion fall under the 'transaction governance' in the environmental, social, and governance (ESG) analytical framework for structured finance transactions. The A (high) (sf) rating assigned to the Class A notes is, consequently, one notch lower than the level implied by the cash flow results. The rating of Class C Notes, on the other hand, is not impacted by the ESG considerations. Notes: All figures are in Euros unless otherwise noted. CAIXABANK CONSUMO 3: DBRS Confirms CC Rating on Series B Notes -------------------------------------------------------------- DBRS Ratings GmbH confirmed its ratings on the Series A and Series B notes issued by Caixabank Consumo 3 F.T. (the Issuer) at A (high) (sf) and CC (sf), respectively. The rating on the Series A notes addresses timely payment of interest and ultimate repayment of principal by the final legal maturity date in March 2053. The rating on the Series B notes addresses ultimate payment of interest and repayment of principal by the final legal maturity date. The confirmations follow an annual review of the transaction and are based on the following analytical considerations: -- Portfolio performance, in terms of delinquencies, defaults, and losses as of the June 2020 payment date; -- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; -- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels; -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic. The Issuer is a securitization collateralized by a portfolio of consumer loans granted by CaixaBank, S.A. (Caixabank) to individuals in Spain. The portfolio consists of unsecured and mortgage loans, including standard contracts and drawdowns from a revolving credit line (Disposiciones de Credito Hipotecario). At closing, the EUR 2.5 billion portfolio consisted of loans granted to borrowers primarily in Catalonia (32.7% of the initial portfolio balance), Andalusia (17.4%), and Madrid (11.9%). The transaction closed in July 2017, with no revolving period. PORTFOLIO PERFORMANCE As of the June 2020 payment date, loans that were 30- to 60-days delinquent represented 1.2% of the outstanding collateral balance and 60- to 90-day delinquencies represented 0.1%, while delinquencies greater than 90 days represented 4.2%. Gross cumulative defaults were 3.3% of the original portfolio balance, with cumulative recoveries of 3.2% to date. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted a loan-by-loan analysis of the portfolio of receivables and updated its PD and LGD assumptions to 5.9% and 65.8%, respectively, for the unsecured consumer loans in the portfolio, and to 6.8% and 9.9%, respectively, for the mortgage loans in the portfolio. CREDIT ENHANCEMENT The subordination of the Series B notes and the cash reserve provide credit enhancement to the Series A notes, while the sole source of credit enhancement to the Series B notes is the cash reserve, following the full repayment of the Series A notes. As of the June 2020 payment date, credit enhancement to the Series A notes increased to 27.3% from 23.2% at the time of the last annual review 12 months ago; credit enhancement to the Series B notes decreased to 4.4% from 8.4%, due to the start of amortization of the cash reserve. The transaction benefits from an amortizing cash reserve available to cover senior expenses and all payments due on the senior-most class of notes outstanding. This reserve was funded to EUR 98.0 million at closing through a subordinated loan granted by CaixaBank, and starting from the September 2019 payment date, has been amortizing to its target level of 4% of the outstanding principal balance of the Series A and Series B notes. As of the June 2020 payment date, the cash reserve was at its target of EUR 33.2 million. CaixaBank acts as the issuer account bank provider for the transaction. Based on the account bank reference rating of CaixaBank at A (high), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Series A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS and RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers, assumed a moderate decline in residential property prices, and an additional haircut on unsecured loan recovery rates. Notes: All figures are in Euros unless otherwise noted. =========================== U N I T E D K I N G D O M =========================== BAMS CMBS 2018-1: DBRS Confirms BB (low) Rating on Class E Notes ---------------------------------------------------------------- DBRS Ratings Limited confirmed its ratings on the following classes of Commercial Mortgage-Backed Floating Rate Notes due August 2029 issued by BAMS CMBS 2018-1 DAC (the Issuer): -- Class A at AAA (sf) -- Class B at AA (low) (sf) -- Class C at A (low) (sf) -- Class D at BBB (low) (sf) -- Class E at BB (low) (sf) DBRS Morningstar maintains Stable trends. The Issuer is the securitization of a GBP 315.3 million (67.5% loan-to-value or LTV at issuance) floating-rate senior commercial real estate loan advanced by Morgan Stanley Principal Funding, Inc. (novated from Morgan Stanley Bank N.A.) and Bank of America Merrill Lynch International Limited to borrowers sponsored by Blackstone Group L.P. (Blackstone or the sponsor). The acquisition financing was also accompanied by a GBP 58.4 million (80% LTV) mezzanine loan granted by LaSalle Investment Management and Blackstone Real Estate Debt Strategies (BREDS), each holding 51% and 49% interest of the mezzanine loan, respectively. BREDS, however, is disenfranchised and thus cannot exercise any voting rights so long as Blackstone holds an equity interest in the portfolio. The mezzanine loan is structurally and contractually subordinated to the senior facility and is not part of the transaction. The senior loan (68.53% LTV) is backed by 59 urban logistic and multi-let industrial properties (for more information regarding the portfolio, please refer to the related DBRS Morningstar rating report). At issuance, 92.2% of the portfolio's net lettable area was occupied by approximately 300 tenants with long-term leasehold interests in certain estates. The top 10 tenants contributed 28.4% to the gross rental income. The borrower has exercised the first extension option which extends the loan maturity to May 2021 and there are two further 12-month extension options available, which if exercised would extend the loan maturity date to May 2023. Since issuance, the overall performance of the portfolio has been stable. As of May 2020, the portfolio was 87% occupied with a weighted-average lease-to-break of 4.37 years; the annual rental income achieved was GBP 25.4 million. DBRS Morningstar notes that although rental income remains in line with issuance, the vacancy rate has been increasing and is now at 12.63% versus 7.8% at issuance. DBRS Morningstar underwrote a vacancy of 12.5% at issuance and as such will carefully monitor the occupancy rate of the transaction in the next available investors reporting. During the Coronavirus Disease (COVID-19) lockdown period, the borrower advised that 8% of the tenants requested some form of rent relief, which resulted in 3% of the total portfolio either receiving rental deferrals or switching to monthly payments. However, given the nature of this portfolio, the borrower is optimistic that the logistics sector will weather the storm better than other asset classes as there is increased demand for e-commerce. DBRS Morningstar also believes that last-mile industrial assets will be relatively less affected, going forward. Following a market revaluation in November 2019, there was a small drop in value of 1.5%, showing that the portfolio metrics have not significantly deteriorated since issuance. The LTV is still below the cash trap threshold of 75% but since the loan was extended into its third year, the debt yield (DY) threshold has now increased to 8.5% from 8% previously, the current DY of 8.27% resulted in surplus cash being trapped in the cash trap account. The loan structure does not include financial default covenants unless there is a permitted change of control, after which the default covenants are based on the LTV and DY. The LTV covenant is set at 77.5% LTV and the DY at 7.4%. The transaction benefits from a liquidity support facility of GBP 7 million, which is provided by Bank of America N.A., London Branch. The liquidity facility can be used by the Issuer to fund expense shortfalls (including any amounts owed to third-party creditors and service providers that rank senior to the notes), property protection shortfalls, and interest shortfalls (including with respect to deferred interest, but excluding default interest and exit payment amounts) in connection with interest due on Class A and Class B notes and, after Class A and B have been paid down, Class C notes in accordance with the relevant waterfall. DBRS Morningstar estimated the 12 months' coverage based on a stressed Libor of 2.32%. The loan hedge has a cap strike rate of 2% but DBRS Morningstar has stressed this as the loan is 95% hedged. The coverage based on a Libor margin cap of 5% is seven months. The legal final maturity of the notes is expected to be in May 2028, five years after the maturity of the fully extended loan term. Considering two further one-year extension options that are conditional upon the loan being fully hedged, the latest expected loan maturity date is May 15, 2023. Given the security structure and jurisdiction of the underlying loan, DBRS Morningstar believes that this provides sufficient time to enforce on the loan collateral, if necessary, and repay the bondholders. COVID-19 CONSIDERATIONS The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many tenants and borrowers. DBRS Morningstar anticipates that vacancy rate increases and cash flow reductions may arise for many CMBS borrowers, some meaningfully. In addition, commercial real estate values will be negatively affected, at least in the short term, impacting refinancing prospects for maturing loans and expected recoveries for defaulted loans. The ratings are based on additional analysis as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar did not adjust its net cash flow (NCF) and cap rate assumptions due to the current performance of the portfolio. Notes: All figures are in British pound sterling unless otherwise noted. NMC HEALTH: Worldwide Freezing Order Issued on Founder's Assets --------------------------------------------------------------- Simeon Kerr at The Financial Times reports that a Dubai court has issued a worldwide freezing order on the assets of NMC founder BR Shetty at the request of a Dutch bank, as creditors scramble to recover funds from the collapsed hospital operator. Credit Europe Bank's Dubai business has brought proceedings against NMC and Mr. Shetty for non-payment of US$8.4 million in outstanding debt relating to a 2013 facility, the FT relays, citing recently unsealed court documents. It said roughly US$25 million in security cheques issued by Mr. Shetty bounced, the FT notes. The Indian entrepreneur argued he was not liable to repay because his signature in the lending agreements was forged and he never gave a personal guarantee or security cheques, the documents show--claims the bank disputed, according to the FT. NMC was placed into administration in April as the healthcare group imploded amid accusations of fraud and the discovery of billions of dollars in unreported debt, the FT recounts. Mr. Shetty has blamed the "serious fraud" on various former and current executives, claiming they used bank accounts in his name of which he had no knowledge, the FT discloses. The DIFC Courts' injunction, issued in April, ordered Mr. Shetty not to dispose of assets up to the value of US$8.4 million without the lender's consent, pending resolution of the claim, the FT relates. But if Mr. Shetty maintains that amount of unencumbered value within the Dubai International Financial Centre, he can sell other assets, the FT states. The freezing order, made public months after it was implemented, complicates attempts by NMC's administrators to keep the healthcare provider solvent during the pandemic, the FT says. Mr. Shetty has also been hit with injunctions in Indian courts, including a claim for repayment from the Bank of Baroda, the FT notes. PIZZAEXPRESS: Stakeholders Under Pressure to Reach Debt Deal ------------------------------------------------------------ Katie Linsell at Bloomberg News reports that PizzaExpress stakeholders are under pressure to reach a debt deal this week before a deadline to pay more than GBP20 million (US$26 million) in debt interest. According to Bloomberg, a group of the company's bondholders, including U.S. firms Cyrus Capital Partners LP, HIG Bayside Capital and Bain Capital Credit, are seeking to take control of PizzaExpress's U.K. and Irish business in exchange for providing fresh funding and cutting the debt load. ROLLS-ROYCE PLC: Moody's Cuts Sr. Unsec. Rating to Ba2, Outlook Neg ------------------------------------------------------------------- Moody's Investors Service has downgraded the long-term senior unsecured rating of Rolls-Royce plc to Ba2 from Baa3. Concurrently, Moody's has assigned a corporate family rating of Ba2 and Ba2-PD probability of default rating to the company. The outlook remains negative. Its rating action reflects: - Moody's expectations of substantial cash outflows in 2020 and 2021 resulting in materially increased leverage, in excess of Moody's previous expectations - Uncertainties over the timing and extent of recovery in flying hours and commercial aircraft deliveries due to the coronavirus pandemic with risks of further material cash absorption and an uncertain path to recover the company's balance sheet metrics - Execution risks in the implementation of the company's substantial operational restructuring and cost-cutting programme - Rolls-Royce's material liquidity, strategic importance and willingness to restore metrics Concurrently, Moody's has downgraded the rating on the company's senior unsecured Euro Medium Term Notes programme to (P)Ba2 from (P)Baa3, and downgraded the notes issued under the EMTN programme to Ba2 from Baa3. RATINGS RATIONALE The company's Ba2 corporate family rating reflects: 1) high barriers to entry given the critical technological content of the company's engines; 2) the solid performance of the company's defence division and its diverse revenues across different end markets; 3) the strong to date performance of the company's Trent XWB and Trent 7000 engine programmes which represent the majority of future orders and installed engine base; 4) the strategic importance of the company to UK defence capabilities and to the aerospace supply chain, resulting in a high likelihood of government support if required as a result of the coronavirus outbreak; 5) the company's commitment to a conservative financial profile; and 6) significant levels of liquidity. The rating also reflects: 1) an expected multi-year slowdown in new commercial aerospace and in commercial aftermarket revenues; 2) Moody's expectations for substantial free cash outflows in 2020 and 2021 and possibly beyond, leading to increases in leverage which the company faces challenges to recover over the next 2-3 years; 3) high uncertainties over the progression of the coronavirus pandemic which could lead to further material cash outflows; 4) execution risks in implementing a material restructuring programme whilst maintaining operational effectiveness and competitive position; 5) ongoing execution risks of rectifying problems relating to the Trent 1000 engine programme and risks to the company's reputation and position on future programmes if Trent 1000 fixes are further delayed; and 6) concentration risks with reliance on a small number of commercial aerospace engines for widebody aircraft. The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The aerospace and defense industry will be affected by the deep capacity cuts and financial stress for passenger airlines, leading to very significant reductions in aftermarket activity and widespread deferrals of new commercial aircraft deliveries. Rolls-Royce has been materially affected by the coronavirus pandemic as a result of reduced flying hours, which drive lower aftermarket revenues and cash flows, and lower demand for commercial aircraft. Moody's does not expect commercial passenger demand to recover to 2019 levels until 2023 at the earliest, and it is likely to remain severely constrained in 2021. New aircraft demand is likely to recover even slower than passenger demand, and there are substantial risks that Airbus SE (A2 Negative) and Boeing (The Boeing Company - Baa2 Negative) will need to cut production rates below current levels in response. Rolls-Royce is exposed to the widebody aircraft segment which is likely to recover more slowly than the market as a whole. The company has incurred a free cash outflow of approximately GBP3 billion in the first half of 2020 and expects an outflow of GBP4 billion for the full year 2020, including around GBP1.1 billion outflow from the cessation of invoice discounting. The underlying outflows are driven by lower flight hours, which have not been matched by an equivalent reduction in maintenance costs under the company's long-term aftermarket service agreements, leading to a significant working capital outflow. There has been a further material cash outflow in the current year as a result of a high working capital inflow at the end of 2019 associated with the timing of aircraft deliveries, which is unlikely to be repeated in 2020 or future years. Further contributing factors to the cash outflow are lower engine deliveries as well as restructuring and other exceptional costs. Moody's estimates that Rolls-Royce will incur a working capital outflow of around GBP2 billion in 2020 and does not expect this to reverse materially in subsequent periods. Moody's expects further cash outflows to arise in 2021, and potentially in subsequent years, depending on the profile of demand recovery and the company's ability to deliver its restructuring and cost saving programme. Moody's notes the scale of the company's restructuring which is subject to execution risk both in the delivery of savings and also in the company's ability to sustain its operational performance and competitive position during this period of disruption. There are also execution risks remaining in completing the fixes of the company's Trent 1000 engine and delivering anticipated levels of durability and aftermarket profitability, although Moody's notes that Rolls-Royce has now eliminated grounded aircraft relating to Trent 1000 fixes and the company is making continued progress addressing the remaining component redesign. As a result of higher that previously expected cash outflows, Moody's expects material increases in leverage, and considers that the company faces significant challenges to recover its metrics over the next two to three years. Moody's also factors into the ratings the willingness and intention of Rolls-Royce to strengthen its balance sheet. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Governance considerations that Moody's includes in its credit assessment of Rolls-Royce include: (1) the company is listed on the London Stock Exchange and reported that during 2019 it was compliant with the UK 2018 Corporate Governance Code, other than in relation to the appointment of the Chairman of the Remuneration Committee; and (2) Rolls-Royce's complex business model and financial reporting is a significant challenge in understanding financial performance, particularly in relation to profitability on long-term aftermarket contracts, quality of cash flows, and adjustments to normalised profits. LIQUIDITY Rolls-Royce continues to maintain significant levels of liquidity. As at June 30, 2020 the company's total pro forma liquidity amounted to GBP8.1 billion, comprising a gross cash balance of GBP4.2 billion, an undrawn revolving credit facility of GBP1.9 billion and pro forma for a new GBP2.0 billion five year term loan partially guaranteed by UK Export Finance. Moody's considers that the company would be well placed to receive support from the UK Government (Aa2, Negative) if required as a result of the coronavirus pandemic, given the company's strategic importance to UK defence and engineering capabilities, and as a large employer directly and via its extensive supply chain. Given the company's significant liquidity such support is not currently expected to be required, however this cannot be discounted in view of uncertainties surrounding the duration and severity of the outbreak, alleviation actions by the company and potential working capital movements. STRUCTURAL CONSIDERATIONS The company's EMTN programme is rated (P) Ba2, and its senior unsecured notes issued under this programme are rated Ba2, in line with the corporate family rating. This reflects their pari passu ranking with the rest of the company's debt facilities. OUTLOOK The negative outlook reflects Moody's expectations that the commercial aerospace market will remain significantly reduced over the next 12-18 months and beyond. It also reflects the highly uncertain operating environment with risks to the pace of recovery in passenger demand, potential for further travel restrictions and execution risks in the implementation of the company's restructuring programme. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings are unlikely to be upgraded in the short term. Positive rating pressure, including a stabilisation of the outlook, would not arise until the coronavirus outbreak is brought under control, travel restrictions are lifted, airline passenger traffic resumes and the market for commercial aircraft stabilises. At this point Moody's would evaluate the balance sheet and liquidity strength of the company and positive rating pressure would require evidence that the company is capable of substantially improving its financial metrics and liquidity headroom within around a 2-3-year time horizon. Quantitively an upgrade would require: - Moody's-adjusted leverage to reduce towards 5x, and maintaining material cash on balance sheet - Moody's-adjusted free cash flow to become materially positive In addition, positive rating pressure would require that the company resolves its Trent 1000 engine issues as anticipated in 2021, generates a track record of performance in line with guidance, and maintains a conservative financial policy. The ratings could be downgraded if: - The effects of the coronavirus outbreak increase in severity leading to liquidity concerns for which government support is not readily available - There are clear expectations that the company will not be able to improve financial metrics to a level compatible with a Ba2 rating following the coronavirus outbreak, in particular if: - Moody's-adjusted debt / EBITDA is not reduced sustainably below 6x, especially if not sufficiently balanced by cash on balance sheet - Moody's-adjusted FCF / debt does not turn positive - EBIT / interest cover is sustained materially below 2x - There are signs of a weaker business profile, including a weakening in the company's market positions, or lower than expected aftermarket profitability, including as a result of further challenges in remediating Trent 1000 issues - The company adopts more aggressive shareholder return initiatives and financial policies PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Aerospace and Defense Methodology published in July 2020. COMPANY PROFILE Headquartered in London, England, Rolls-Royce is a leading global manufacturer of aero-engines, gas turbines and reciprocating engines with operations in three principal business segments -- Civil Aerospace, Defence and Power Systems. In 2019 the company reported revenue of GBP16.6 billion and Moody's-adjusted EBITDA of GBP1.45 billion. TWIN BRIDGES 2020-1: Moody's Gives B1 Rating to Class X1 Notes -------------------------------------------------------------- Moody's Investors Service has assigned definitive ratings to Notes issued by Twin Bridges 2020-1 PLC: GBP290,100,000 Class A Mortgage Backed Floating Rate Notes due December 2054, Definitive Rating Assigned Aaa (sf) GBP22,800,000 Class B Mortgage Backed Floating Rate Notes due December 2054, Definitive Rating Assigned Aa1 (sf) GBP17,400,000 Class C Mortgage Backed Floating Rate Notes due December 2054, Definitive Rating Assigned Aa3 (sf) GBP8,800,000 Class D Mortgage Backed Floating Rate Notes due December 2054, Definitive Rating Assigned A2 (sf) GBP7,600,000 Class X1 Mortgage Backed Floating Rate Notes due December 2054, Definitive Rating Assigned B1 (sf) Moody's has not assigned any ratings to the GBP10,600,000 Class Z1 Mortgage Backed Notes due December 2054 and the GBP7,000,000 Class Z2 Mortgage Backed Notes due December 2054. This transaction represents the fifth securitisation transaction rated by Moody's that is backed by buy-to-let mortgage loans originated by Paratus AMC Limited ("Paratus" as originator and seller, not rated). The portfolio consists of loans secured by first lien mortgages on properties located in the UK extended to 1,024 borrowers and the current pool balance is approximately equal to GBP349.6 million as of May 2020. RATINGS RATIONALE The ratings take into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Credit Enhancement and the portfolio expected loss, as well as the transaction structure and legal considerations. The expected portfolio loss of 2.2% and the MILAN required credit enhancement of 13.0% serve as input parameters for Moody's cash flow model and tranching model. The expected loss is 2.2%, which is in line with other UK BTL RMBS transactions owing to: (i) the current weighted average LTV of around 71.6%; (ii) the performance of comparable originators; (iii) the expected outlook for the UK economy in the medium term and in particular the fact that at closing 10.5% of the pool has suspended its payment according to coronavirus-related payment holidays; (iv) the historic data does not cover a full economic cycle (since 2015); and (v) benchmarking with similar UK BTL transactions. MILAN CE for this pool is 13.0%, which is in line with other UK BTL RMBS transactions, owing to: (i) the current weighted average LTV for the pool of 71.6%; which is in line with comparable transactions; (ii) top 20 borrowers accounting for approx. 13.3% of current balance, which represents a higher concentration level than observed in both previous transactions and in comparable transactions; (iii) the historic data does not cover a full economic cycle; and (iv) benchmarking with similar UK BTL transactions. At closing, the transaction will benefit from a fully funded liquidity reserve fund and general reserve fund. The liquidity reserve fund equals 1.5% of the outstanding Class A and Class B Notes and will amortize together with Class A and Class B Notes. It will cover fees and interest on Class A and Class B Notes (in respect of the latter, if it is the most senior Class outstanding and otherwise subject to a PDL condition). The liquidity reserve fund will stop amortising if the rated Notes are not redeemed on the optional redemption date or if cumulative defaults of the mortgage loans exceed 6%. The non-amortising general reserve fund equals 2.0% of the principal amount outstanding of the collateralized Notes (Class A, B, C, D, and Z1) as of the closing date. In addition, the transaction will benefit from an additional fully funded payment holiday reserve. The reserve will be sized at 0.45% of the collateralised Notes balance (Classes A to D and Z1) at closing. The reserve will amortise over the first two IPDs (2/3 on the first one and 1/3 on the second one) providing additional liquidity to the transaction. Operational Risk Analysis: Paratus is the servicer in the transaction whilst U.S. Bank Global Corporate Trust Limited (not rated) will be acting as a cash manager. In order to mitigate the operational risk, Intertrust Management Limited (not rated) will act as back-up servicer facilitator. To ensure payment continuity over the transaction's lifetime the transaction documents incorporate estimation language whereby the cash manager can use the three most recent servicer reports to determine the cash allocation in case no servicer report is available. The transaction also benefits from approx. 4 quarters of liquidity based on Moody's calculations. Finally, there is principal to pay interest as an additional source of liquidity for the Class A Notes and Class B Notes (in respect of the latter, if it is the most senior Class outstanding and otherwise subject to a PDL condition). Interest Rate Risk Analysis: 99.9% of the loans in the pool are fixed rate loans reverting to three months LIBOR. The Notes are floating rate securities with reference to daily SONIA. To mitigate the fixed-floating mismatch between the fixed-rate asset and floating liabilities, there will be a scheduled notional fixed-floating interest rate swap provided by Natixis (Aa3(cr)/P-1(cr)) acting through its London branch. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in May 2020. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Its analysis has considered the effect on the performance of consumer assets from the collapse in the UK economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around its forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Factors that would lead to an upgrade or downgrade of the ratings: Significantly different loss assumptions compared with its expectations at close, due to either a change in economic conditions from its central scenario forecast or idiosyncratic performance factors would lead to rating actions. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in a downgrade of the ratings. Deleveraging of the capital structure or conversely a deterioration in the Notes available credit enhancement could result in an upgrade or a downgrade of the ratings, respectively. TWIN BRIDGES 2020-1: S&P Assigns B- (sf) Rating to X1-Dfrd Notes ---------------------------------------------------------------- S&P Global Ratings has assigned credit ratings to Twin Bridges 2020-1 PLC's (TB 2020-1) class A and B notes, and class C-Dfrd to X1-Dfrd interest deferrable notes. At the same time, TB 2020-1 also issued unrated class Z1-Dfrd and Z2-Dfrd notes. TB 2020-1 is a static RMBS transaction that securitizes a portfolio of GBP349.6 million buy-to-let (BTL) mortgage loans secured on properties in the U.K. There is no prefunding mechanism in this transaction. This is the fifth transaction within the Twin Bridges shelf and the first one that S&P rates. The loans in the pool were originated in 2018, 2019, and 2020 by Paratus AMC Ltd., a non-bank specialist lender, under the brand of Foundation Home Loans (other than three loans). The collateral comprises first-lien U.K. BTL residential mortgage loans made to both commercial and individual borrowers. Of the pool, 10.5% of the mortgage loans have payment holidays due to COVID-19 as of June 30, 2020. The transaction incorporates a payment holiday reserve, which provides liquidity to help mitigate the effect of these payment holidays over the first two payment dates. In addition to the payment holiday reserve, the transaction benefits from liquidity provided by a general reserve fund and liquidity reserve fund. Credit enhancement for the rated notes consists of subordination and the general reserve from the closing date and overcollateralization following the optional redemption date. The transaction incorporates a swap to hedge the mismatch between the notes, which pay a coupon based on the compounded daily Sterling Overnight Index Average (SONIA), and the loans, which pay fixed-rate interest before reversion. At closing, the issuer used the issuance proceeds to purchase the full beneficial interest in the mortgage loans from the seller. The issuer grants security over all of its assets in favor of the security trustee. S&P said, "Our ratings on the class A and B notes address the timely payment of interest and ultimate payment of principal, although the terms and conditions of the class B notes allow for the deferral of interest until they are the most senior class outstanding. Our ratings on the class C-Dfrd, D-Dfrd, and X1-Dfrd notes address ultimate payment of principal and interest while they are not the most senior class outstanding. When the class C-Dfrd, D-Dfrd, and X1-Dfrd notes become the most senior class outstanding, our ratings will address the timely payment of interest and ultimate payment of principal." No further interest will accrue on the class X1-Dfrd notes after the optional redemption date, in line with the notes' coupon. Repayment of interest and principal on the class X1-Dfrd notes relies on excess spread. Upon the optional redemption date, excess spread will be diverted to the principal priority of payments until the class D notes fully redeem. Therefore, any remaining class X1-Dfrd interest and principal will only be paid once the class A to D-Dfrd notes have fully redeemed. Upon the redemption of the unrated class Z notes, principal inflows will also be used to pay down interest and principal on the class X1-Dfrd notes. S&P said, "Our standard cash flow analysis indicates that the available credit enhancement and excess spread for the class D-Dfrd and X1-Dfrd notes is commensurate with higher ratings than those currently assigned. The ratings on these notes also reflect their ability to withstand the potential repercussions of the COVID-19 pandemic, including higher defaults, longer foreclosure timings stresses, and additional liquidity stresses, Our ratings also consider their relative position in the capital structure, and potential increased exposure to potential tail-end risk. "As a consequence, for the X1-Dfrd notes we applied our 'CCC' criteria to assess if either a 'B-' rating or a rating in the 'CCC' category would be appropriate. In line with our 'CCC' criteria, we performed a qualitative assessment of the key variables, together with an analysis of performance and market data, taking into consideration the current macroeconomic environment and the fact that this is a non-asset-backed class of notes, and we consider that repayment of the class X1-Dfrd notes is not dependent upon favorable business, financial, and economic conditions. We have therefore assigned our 'B- (sf)' rating to the class X1-Dfrd notes." There are no rating constraints in the transaction under our counterparty, operational risk, or structured finance sovereign risk criteria. S&P considers the issuer to be bankruptcy remote. S&P said, "Our credit and cash flow analysis and related assumptions consider the transaction's ability to withstand the potential repercussions of the COVID-19 pandemic, namely, higher defaults, longer recovery timing, and additional liquidity stresses. Considering these factors, we believe that the available credit enhancement is commensurate with the ratings assigned. As the situation evolves, we will update our assumptions and estimates accordingly." 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." Ratings Assigned Class Rating Amount (mil. GBP) A AAA (sf) 290.1 B AA (sf) 22.8 C-Dfrd A (sf) 17.4 D-Dfrd BBB+ (sf) 8.8 X1-Dfrd B- (sf) 7.6 Z1-Dfrd NR 10.6 Z2-Dfrd NR 7.0 Certificates NR N/A NR--Not rated. N/A--Not applicable. ********* 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. 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