/raid1/www/Hosts/bankrupt/TCREUR_Public/200730.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
Thursday, July 30, 2020, Vol. 21, No. 152
Headlines
A U S T R I A
NOVOMATIC AG: S&P Affirms BB+ Ratings, Outlook Neg.
B E L G I U M
RADISSON HOSPITALITY: Fitch Affirms LT IDR at B, Outlook Negative
F R A N C E
FAURECIA SE: S&P Assigns BB Rating to Sr. Sec. Notes
FAURECIA: Moody's Rates New EUR500MM Sr. Unsecured Notes Ba2
MOBILUX 2: S&P Affirms B ICR, Keeps Negative Outlook
VALEO SA: Egan-Jones Lowers Senior Unsecured Ratings to B+
G E R M A N Y
NOVEM GROUP: S&P Affirms B+ LT ICR, Off Watch Negative
I R E L A N D
EUROPEAN RESIDENTIAL 2019-NPL1: Moody's Cuts Class C Notes to Caa1
L U X E M B O U R G
INTEL SA: Egan-Jones Withdraws D Senior Unsecured Ratings
N E T H E R L A N D S
KOOS HOLDING: S&P Affirms B ICR on Planned Acquisition by KKR
R U S S I A
CENTRALLY ASIATIC: Bank of Russia Cancels Banking License
NEVA CONSTRUCTION: Bank of Russia Revokes Banking License
PUBLIC BANK JSC: Bank of Russia Revokes Banking License
RESOURCE-TRUST JSCB: Bank of Russia Cancels Banking License
S P A I N
INSTITUT CATALA: Fitch Affirms BB LT IDR, Alters Outlook to Stable
U N I T E D K I N G D O M
AZURE FINANCE NO.2: Moody's Rates Class X1 Notes Caa2
AZURE FINANCE NO.2: S&P Assigns CCC+ (sf) Rating on F-Dfrd Notes
BRIDGEPOINT: S&P Assigns B ICR, Outlook Stable
CENTRICA PLC: Moody's Affirms Ba1 Debt Rating, Outlook Now Neg.
CRUDEN CONSTRUCTION: Goes Into Administration
ELVET MORTGAGES 2020-1: Fitch Rates Class E Debt BB+sf
GALAXY FINCO: Moody's Affirms CFR at B2, Outlook Stable
GALAXY FINCO: S&P Alters Outlook to Negative & Affirms B LT ICR
INTERGEN NV: Moody's Assigns B1 CFR, Outlook Negative
NOBLE CORPORATION: Egan-Jones Lowers Sr. Unsecured Ratings to D
VEDANTA RESOURCES: Moody's Confirms CFR at B1, Outlook Negative
WINFRESH UK: Enters Administration, Sale Among Options
- - - - -
=============
A U S T R I A
=============
NOVOMATIC AG: S&P Affirms BB+ Ratings, Outlook Neg.
---------------------------------------------------
S&P Global Ratings affirmed its 'BB+' ratings on Novomatic AG and
its debt.
S&P said, "The majority of gaming arcades in Europe have reopened
following the COVID-19 outbreak, and core markets show solid
recovery, so we see receding earnings risk. While some of
Novomatic's core gaming markets such as Germany, Austria, and
Eastern Europe opened arcades in May, other regions like Spain,
Italy, and the U.K. opened later in June and July, which is overall
in line with our expectation of the lockdown's duration. In
addition, we expect consumer spending will recover only moderately
given the recession. Early trading results for gaming machine
operators have shown that in Germany, Austria, and Italy, there
might be an element of pent-up demand following the lockdown,
supported by fewer leisure alternatives. Overall, we view the
downside risks to our previous revised base-case as lessening. Our
forecast base-case scenario is for a decline in sales of up to 20%
sales and 30%-40% EBITDA in 2020. We therefore believe that S&P
Global Ratings-adjusted debt to EBITDA will reach 4.4x–5.0x in
2020, which will be out of line with the rating temporarily.
Therefore, a rebound to normalized performance in FY21, where we
forecast leverage to fall sustainably below 3.5x, remains an
underpinning factor supporting the current rating level."
S&P said, "Legal proceedings pose reputational risks and could
constrain the ability to do business if current investigations were
to lead to prosecution or other legal actions, in our view.
Investigations by Austrian economic and corruption authorities
against Novomatic, its former CEO, the majority shareholder, and
some former and current employees are ongoing. The allegations
under investigation include attempting to illegally influence
gaming legislation and licensing in Austria. These investigations
are connected to broader allegations surrounding a political
scandal in Austria, which began in 2019 and are likely to continue
for some time. While we understand Novomatic and named parties deny
any wrongdoing and are cooperating fully with authorities, and
while we believe the current impact of the investigations on
Novomatic's business is minimal, it remains that the investigations
could threaten the group's reputation the longer they continue."
This is particularly the case if they are seen to progress toward
legal proceedings against the company or connected parties, or if
they are found to have breached some ethical obligation. Gaming
operators rely on their good standing and reputation, and that of
their key personnel, among regulators to maintain gaming licenses,
which has always been the case with Novomatic so far, but could
become more challenging if investigations and proceedings are
protracted.
S&P said, "We believe the group has sufficient liquidity sources to
pay down the maturity of long-term debt over the next 12 months as
planned, despite the lockdowns. Following the confirmed disposal
of Casino Austria, the company has nearly EUR1.2 billion in cash,
other liquid investments, and availability under its revolving
credit facility (RCF) for liquidity management, which is more than
twice maturing long-term debt over the next 12 months. The RCF
documentation includes a net debt-to-EBITDA covenant with
temporarily low headroom of only 10%-20% in 2020. While we do not
expect a covenant breach in our base-case scenario and full
availability over the next 12 months, we believe Novomatic is well
positioned to negotiate a waiver following the end of the lockdown
in Europe and the business' ramp-up."
Uncertainties regarding the pandemic and the recession's impact
still cloud our earnings visibility. 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.
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety
Other governance factors
S&P said, "The negative outlook reflects our assumption of a
contained COVID-19 outbreak in Europe for the remainder of the year
and our view that the risk of a second wave and the recession
limits our visibility on further development of consumer spending
and the group's earnings in 2020. On this basis, we still expect
S&P Global Ratings-adjusted debt to EBITDA will temporarily
increase to 4.4x-5.0x in 2020 and moderating to 3.0x-3.5x in 2021.
"The outlook also reflects our view of the downside risk to
Novomatic should the ongoing investigations from Austrian
authorities progress to prosecution or other legal action, or
result in findings of unethical behavior, against the company or
connected parties, and the impact this could have on the group's
reputation and standing."
S&P could lower the rating if:
-- The impact of the pandemic and related recession was more
severe that it assumes, resulting in S&P Global Ratings-adjusted
debt to EBITDA remaining materially above 3.5x, free operating cash
flow (FOCF) after all lease payments remaining negative, or
liquidity weakening to a degree not offset by any remedial action.
-- The pandemic led to a structurally weaker gaming industry as a
whole, exemplified by Novomatic's operating margins not recovering
to pre-COVID-19 levels, or the company's positioning weakening
compared with that of peers. The latter, for example, could occur
if the group loses market share to online competitors. In these two
cases, S&P could reevaluate our assessment of Novomatic's business
strength; and
-- The investigations progressed, for example, to prosecution or
other legal action, or led to findings of unethical behavior.
S&P said, "While it is not our base-case scenario, we could also
consider lowering the rating if investigations were protracted and
we saw evidence of impacts on reputation or standing in operating
or financial markets. Lastly, we might take a negative rating
action if there were further allegations and proceedings beyond the
current scope that would lead us to reassess the group's governance
and control functions."
S&P could revise the outlook to stable once it has more certainty
regarding the COVID-19 pandemic and the related recession's effect
on consumer spending in the European gaming market and Novomatic's
operating performance, liquidity, and cash flow. In particular, an
outlook revision would depend on the group's ability to reduce
costs, preserve cash, manage upcoming debt maturities, and defend
its market position in recovering from COVID-19, with its S&P
Global Ratings-adjusted debt to EBITDA therefore falling toward
3.5x after 2020. A stable outlook would also hinge on a termination
of the investigations.
=============
B E L G I U M
=============
RADISSON HOSPITALITY: Fitch Affirms LT IDR at B, Outlook Negative
-----------------------------------------------------------------
Fitch Ratings has affirmed Radisson Hospitality AB's Long-Term
Issuer Default Rating at 'B' and removed it from Rating Watch
Negative where it was placed in April 2020. The Outlook on the IDR
is Negative.
The affirmation of the IDR reflects the support from the
shareholder after the announcement of a global financing plan that
incorporates up to EUR200 million of cash in the form of
subordinated loans to face the coronavirus-related disruption. The
Negative Outlook reflects delayed deleveraging compared with
Fitch's previous expectations, and an uncertain credit profile once
the coronavirus pandemic abates, in a sector that is among the most
severely hit by the current crisis.
The 'B' IDR reflects Radisson's solid market position in the
upscale hotel segment in EMEA, with a balanced portfolio structure
shifting to an asset-light model, and a continued deleveraging
capacity which Fitch expects to resume in 2021.
KEY RATING DRIVERS
High Exposure to Coronavirus Disruption: The Negative Outlook
reflects the material impact of the economic disruption caused by
the pandemic on the lodging sector. As a result of lockdowns
imposed by governments to limit the pandemic spread, and despite
exceptional measures to offset sharp declining demand, Fitch
expects worldwide occupancies to sharply fall during 2020, before
gradually recovering from 4Q20 into 2021, 2022 and 2023. Some
public support to soften the economic shock has been incorporated
into its assumptions, but additional initiatives could ease the
immediate downturn impact of the outbreak.
Shareholder Support to Reinforce Liquidity Headroom: Radisson's
main shareholder, a consortium led by Jinjiang International
Holdings Co, Ltd. (Jinjiang; BBB+/Stable) has provided Radisson a
shareholder loan of EUR100 million that receives 100% of equity
credit under Fitch's criteria. The cash injection, together with
the fully drawn EUR20 million revolving credit facility, will ease
the cash burned during 2020, cover potential operating losses and
capex needs until operations resume.
A cash balance of EUR147 million as of March 2020 and the financial
support of its shareholder through a support letter provides
further liquidity headroom.
Parent-Subsidiary Linkage: The 94% takeover of Radisson by a
consortium led by Jinjiang requires Fitch to apply its
Parent-Subsidiary Rating Linkage Criteria. Fitch rates Jinjiang
using a top-down approach from its internal assessment of the
credit profile of the company's parent, the Shanghai government, in
line with its Government-Related Entities Rating Criteria. Fitch
believes that the support that Jinjiang could receive from the
Shanghai government is unlikely to flow to Radisson, Fitch is using
Jinjiang's Standalone Credit Profile (SCP, excluding support) of
'b' as a starting point, which is equal to Radisson's 'B' IDR. The
links between the entities are strong, and could strengthen in
future through the inclusion of Radisson in Jinjiang's financial
management. Fitch deems the operational and strategic links
moderate to strong.
Higher Post-Crisis Leverage: Fitch projects funds from operations
adjusted net leverage to peak in 2020 and to remain around 4.0x in
2021-2023 (2019: 4.2x). This is partly due to its assumption that
Jinjiang would prompt a refinancing to avoid current restrictions
to dividends, which Fitch assumes could take place from 2022. This
is expected to slow the deleveraging trajectory, albeit with no
impact on medium-term deleveraging capacity.
The uncertainty around a fast return to pre-crisis trading
conditions, continued focus on free cash flow generation, which
Fitch expects will be rather volatile, and future financial policy,
are reflected in the Negative Outlook.
Flexibility in Cost Base: Fitch projects a sharp decline in
Radisson's revenues of close to 60% in 2020 leading to a negative
EBITDA margin, despite a reasonably flexible cost base. However,
costs are above industry peers as a result of expensive staff
costs, leases and fees paid to sister Radisson Hospitality Inc.
Cost flexibility is supported by an efficient cap mechanism on
rentals, as 68% of all leases comprise a variability component
acting as downside protection.
Ambitious Repositioning Plan, Successful Start: In 2018, Radisson
launched an ambitious five-year plan that includes a significant
repositioning of hotels, 25,000 new rooms (mostly through
management and franchise contracts) and an optimisation plan to
gain organisational efficiency. The first phase of the plan has
been in line with, or slightly exceeding, the budgeted signings in
2019.
Due to Radisson's positioning and management record, the rating
reflects its view of the business plan's moderate execution risks.
The strategy is complemented by an exhaustive IT plan and the
acquisition of the remaining stake of Prizehotel, reflected in
higher than average capex in 2020.
Good Upscale Positioning: Radisson is well-positioned as an upscale
operator covering differentiated target customers (54% business
clients with a generally upscale profile, and 46% leisure
travellers), which is a risk-mitigating factor. It is present in 79
countries, with a concentration in the Nordics and western Europe.
Radisson has a balanced portfolio structure with an asset-light
model (only 17% of the rooms are leased). This business model with
recurring (albeit flexible) fees mitigates FCF volatility in a
cyclical sector, given the low capex it entails.
Governance Practices and Strategy Uncertain: The involvement of the
new shareholder in the operations and the new board of directors'
composition, with the majority of seats representing Jinjiang,
might affect the decision-making process potentially introducing
conflicts with creditors' interests although no such conflicts have
materialised so far. Moreover, Fitch recognises the new business
opportunities that may stem from Jinjiang as one of the leading
hospitality groups in the world and being the common shareholder
for the full Radisson group.
DERIVATION SUMMARY
Radisson is the third-largest hotel chain in Europe, but its scale
and diversification are limited in a hospitality industry dominated
by leaders with a significant presence such as Marriott
International, Inc. (BBB-/Negative), Accor SA (BBB-/Negative ) and
Meliá. Radisson is comparable with NH Hotel Group S.A. (NHH,
B-/Negative) in urban positioning, although Radisson is present in
a greater number of cities. Being part of a global group and
focused on the attractive upscale segment provides notorious brand
awareness worldwide. This market recognition and the capability to
grow under an asset-light model acts as a competitive advantage
compared with more local and asset-heavy peers, such as Whitbread
PLC (BBB/Negative) or Alpha Group SARL (B-/Negative).
Radisson operates with lower EBITDA margins than peers, due to
above-average rent expenses, fees derived from the master franchise
agreement with Radisson Hotel Group, high salaries in Nordic and
western Europe countries and a sub-optimal pricing strategy.
However, a variability mechanism deployed in its lease contracts
establishes a loss limit in a downturn such as the current
pandemic. FFO adjusted net leverage of 4.2x at end-2019 is lower
than close peers.
KEY ASSUMPTIONS
- Revenue decreasing by more than 55% in 2020, driven by RevPar
decline across all regions.
- Sharp EBITDA deterioration in 2020 as a result of limited
flexibility of the cost base and sudden reduction of trading
activity. EBITDA margin recovering towards 15% by 2022.
- EUR400 million of capex for 2020-2023, including maintenance
capex and repositioning spending.
- Debt refinancing to optimise financial burden and cash in
balance sheet.
- EUR35 million of extraordinary dividend distribution in 2022
and 2023.
- No disposal of Prizehotel during the rating horizon.
Recovery Assumptions:
The recovery analysis is based on a going-concern approach given
Radisson's asset-light model. Fitch uses its estimate for a
going-concern EBITDA of EUR67 million, unchanged from previous
assumptions.
The applied enterprise value (EV)/EBITDA multiple is 4x, reflecting
Radisson's lack of real-estate assets and brand ownership. Fitch
has assumed a 10% administrative claim.
Radisson's super senior RCF of EUR20 million is assumed to be fully
drawn upon default and ranks senior to the group's senior secured
notes of EUR250 million.
Its assumptions of going concern EBITDA and EV/EBITDA multiple
result in a recovery rate for the senior secured notes within the
'RR2' range translating into a two-notch uplift from the IDR at
'BB-'. The principal waterfall output percentage on current metrics
and assumptions is 88%.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to Stable
Outlook:
No change in Jinjiang's 'b' SCP along with:
Evidence of continued support from shareholder if needed
Visibility of liquidity buffer supporting operations for the next
24 months
Recovery of Revenue Per Available Room (RevPAR) in line with
Fitch's expectations
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- A downward revision of Jinjiang's SCP so long as legal,
operational and/or strategic ties are assessed as strong.
The following developments would be considered for the assessment
of Radisson's SCP:
- Prolonged COVID-19 disruption leading to a tightening liquidity
and/or worsening of operational performance.
- FFO lease-adjusted net leverage above 5.5x on a sustained
basis, for example due to shareholder's initiatives such as
increased dividend payments.
- EBITDAR/ (gross interest + rents) below 1.0x.
- No evidence of successful implementation of the repositioning
plan, leading to EBIT margin below 1.5% on a sustained basis.
- Continuing negative FCF.
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
Adequate Liquidity: Radisson had an unrestricted cash position of
EUR115.9 million as of June 2020. Fitch expects this to be consumed
as a result of the pandemic disruption, partly offset by the recent
EUR100 million cash injection in the form of a subordinated
shareholder loan that Radisson Hospitality AB received on June 4,
2020.
Liquidity has also been supported by EUR20 million RCF (fully drawn
in April 2020) maturing at end-2022, along with the capacity to
shore up liquidity with further cash-preservation measures. This
includes flexibility on both capex and the cost base, and a
potential additional cash injection up to EUR100 million in the
form of subordinated shareholder funding. All this should cover the
cash needs required for the group's ongoing operations during the
COVID-19 crisis.
Radisson will have no significant maturities until 2023 when its
EUR250 million bond matures.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings (IDR and senior secured) of Radisson are directly
linked to the SCP of Jinjiang.
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).
===========
F R A N C E
===========
FAURECIA SE: S&P Assigns BB Rating to Sr. Sec. Notes
----------------------------------------------------
S&P Global Ratings assigned its 'BB' issue rating and '3' recovery
rating to Faurecia SE's proposed EUR250 million add-on to its
EUR700 million senior unsecured notes due 2025 and to the proposed
EUR500 million senior secured notes due 2028. The '3' recovery
rating indicates our expectation for meaningful (50%-70%; rounded
estimate: 55%) recovery in the event of a payment default. The
proposed notes will rank pari passu with the existing unsecured
debt at Faurecia SE.
Faurecia will use the proceeds to redeem its existing EUR800
million club deal loan maturing in October 2021. S&P expects that
the proposed transaction will be almost neutral for the company's
credit metrics because it is a pure refinancing.
S&P said, "Our 'BB' long-term issuer credit rating on Faurecia
embeds our belief that the company will retain leading market
positions in its three largest divisions (seating systems,
interiors, and clean mobility) and reinforce its strict cost
discipline. With a gradual recovery in global auto production
volumes assumed from second-half 2020, we expect that Faurecia's
operating performance will also gradually improve from the low
level seen in the first half. For instance, we forecast that
Faurecia's funds from operations to debt will increase to 15%-20%
in 2021 from a low 7%-9% expected in 2020 and that its free
operating cash flow to debt will rise to 7%-10% in 2021 from
negative levels expected in 2020."
Issue Ratings – Recovery Analysis
Key analytical factors
-- S&P said, "Our issue rating and recovery ratings on Faurecia's
senior unsecured notes and its EUR1.2 billion revolving credit
facility (RCF) are 'BB' and '3' respectively. Indicative recovery
prospects are mainly constrained by factoring liabilities of about
EUR1.2 billion and debt at operating companies, which we consider
as priority liabilities in our payment waterfall. The recovery
rating of '3' on this debt reflects our expectation of meaningful
(50%-70%, rounded estimate: 55%) recovery prospects in the event of
a hypothetical default."
-- In S&P's hypothetical default scenario for Faurecia, it assumes
a cyclical downturn in the industry, combined with intensified
competition, would negatively affect production volumes and prices
and would cause the company's operating performance to deteriorate
markedly and EBITDA and cash flow generation to decline sharply.
-- S&P values Faurecia as a going concern, given its global
industrial footprint and longstanding relationships with auto
original equipment manufacturers.
Simulated default assumptions
-- Simulated year of default: 2024
-- EBITDA at emergence: EUR915 million
-- EBITDA multiple: 5x
-- RCF assumed to be 85% drawn at default.
Simplified waterfall
-- Net enterprise value (after 5% administrative costs): EUR4.35
billion
-- Priority claims: EUR1.60 billion*
-- Total value available to unsecured claims: EUR2.56 billion
-- Senior unsecured debt claims: EUR5.01 billion*
--Recovery expectations: 50%-70% (rounded estimate: 55%)
*All debt amounts include six months of prepetition interest.
FAURECIA: Moody's Rates New EUR500MM Sr. Unsecured Notes Ba2
------------------------------------------------------------
Moody's Investors Service has assigned Ba2 ratings to Faurecia's
new EUR500 million senior unsecured notes due 2028 and to the
EUR250 million tap issuance to the existing EUR700 million senior
unsecured notes due 2025. The outlook is stable.
RATINGS RATIONALE
The new notes rank pari passu with Faurecia's existing senior
unsecured debt instruments, also rated Ba2. Moreover, the rating of
the new notes is in line with Faurecia's corporate family rating of
Ba2. Proceeds from the new issuance will be used to refinance
Faurecia's EUR800 million Club Deal Loan signed in April 2020 and
to pay fees and expenses related to the issuance of the notes.
Moody's expects that the bond issuance will have no material impact
on Faurecia's gross debt and related leverage metrics, while the
maturity profile of its debt instruments will improve. Without the
refinancing, the club deal would mature in 2021.
In the first half of 2020, Faurecia's operating and financial
performance was strongly negatively impacted by the global
coronavirus outbreak. Sales declined by 35% organically, largely in
line with global light vehicle sales. This reflects an
outperformance in the individual regions, being offset by an
unfavorable regional mix, with a relatively high exposure to weakly
performing regions. The company's operating income turned negative
to EUR109 million, after plus EUR645 million in the first half of
2019. The operating loss results from lower volumes and was
partially mitigated by cost flexibilization and cost savings. In
the first half, Faurecia's net debt increased by EUR1.5 billion to
EUR4.0 billion, including net financial investments of EUR369
million. This leaves free cash flows (before acquisitions) at
around minus EUR1.1 billion, which was substantially negatively
impacted by working capital changes (minus EUR647 million) and
lower factoring volumes (EUR96 million).
For 2020, Moody's also expects an increase in Faurecia's debt
levels versus December 31, 2019 2019, driven by negative free cash
flows in the highly challenging automotive sector environment. For
2021, Moody's expects free cash flows to break-even and improve
further into 2022. Moody's expects Faurecia's EBITA (Moody's
adjusted) to drop materially but remain positive in 2020. Moody's
expect a subsequent recovery in Faurecia's margins to 4% in 2021,
and 6% in 2022.
This expectation is supported by:
(i) Faurecia's track record of continued margin improvements and
moderate outperformance of its revenues versus global light vehicle
production, and
(ii) the company's actions to mitigate the negative impact of the
global coronavirus outbreak by cost reduction and variabilization
and capex reduction.
With this, Moody's expects Faurecia's leverage (debt/EBITDA,
Moody's adjusted) to spike in 2020 to around 7x, before improving
towards 4x in 2021 and to around 3.0x-3.5x in 2022, which Moody's
considers to be appropriate for a Ba2.
Faurecia's Ba2 CFR reflects as positives:
(a) the large size of the group, which positions it as one of the
10 largest global automotive suppliers;
(b) its strong market position with a leading market share in
seating, emission control technologies and interiors;
(c) long-standing relationships across a diversified number of
original equipment manufacturers (OEMs);
(d) positive exposure to megatrends in the automotive industry
(emissions reduction, light weighting and autonomous driving) that
supports revenue growth above light vehicle production.
The rating also balances offsetting negative considerations,
including:
(a) significant exposure to OEM production which is highly cyclical
and subjects the company to the manufacturers bargaining power;
(b) limited exposure to aftermarket activities, which are typically
more stable and at higher margin;
(c) weak, albeit improving profitability (5.0% adjusted EBITA
margin 2019), with a temporary drop in 2020,
(d) recently improved but overall, still limited free cash flow
generation.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects the expectation that Faurecia will
manage to recover its EBITA margins (Moody's adjusted) towards 6%
by 2022, where Moody's expects global light vehicle sales to
recover somewhat from a very weak 2020 but still to remain below
2019 levels. The expected margin recovery also reflects continued
efficiency measures by the company. With this, and supported by
positive free cash flow generation (post dividends) from 2021,
Moody's expects a gradual improvement of debt/EBITDA (Moody's
adjusted) into the range of 3.0-3.5x, which is appropriate for the
Ba2.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's would consider a positive rating action should Faurecia
sustainably achieve EBITA margins above 6% (5.0% in 2019), it
continues to generate positive FCF, indicated by FCF/debt in the
low to mid-single digits (1.4% as of 2019) through the cycle and if
the company can manage its leverage ratio to a level materially
below 3.0x debt/EBITDA on a sustainable basis (4.1x as of 2019). An
upgrade would also require Faurecia to maintain a solid liquidity
profile.
However, EBITA margin approaching 4% or recurring negative free
cash flow would put downward pressure on the ratings. Moody's would
also consider downgrading Faurecia's ratings if its leverage ratio
remained sustainably above 3.5x debt/EBITDA. Likewise, a weakening
liquidity profile could result in a downgrade.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automotive
Supplier Methodology published in January 2020.
COMPANY PROFILE
Headquartered in Paris, France, Faurecia is one of the world's
largest automotive suppliers for seats, exhaust systems and
interiors. In 2019, sales amounted to EUR17.8 billion. Faurecia is
listed on the Paris stock exchange and the largest shareholder is
Peugeot S.A., which holds 46.3% of the capital and 62.99% of the
voting rights (data as of December 31, 2019). The remaining shares
of Faurecia are in free float.
MOBILUX 2: S&P Affirms B ICR, Keeps Negative Outlook
------------------------------------------------------
S&P Global Ratings affirmed its 'B' issuer credit rating and 'BB-'
and 'B' issue ratings on Mobilux 2 S.A.S.'s revolving credit
facility (RCF) and EUR380 million senior secured notes, and
maintained its negative outlook.
The acquisition of Conforama France by the parent company of
Mobilux 2 has a business rationale but presents uncertainty and
event risks, in S&P's view. On July 8, the parent company of
Mobilux 2 reached an agreement with Steinhoff to acquire Conforama
France, pending approval from the French competition authority. The
acquisition will be funded by an equity injection of EUR200
million, as well as EUR300 million of government backed loans.
Conforama France is the third-largest furniture retailer in France,
with a market share of 10.36% in 2019, behind BUT (10.86%), and
IKEA (15.43%). This transaction has a business logic by relieving
some of the competitive pressures because both brands share common
target clientele and geographies. In addition, the purchasing
alliance until now composed of BUT and its shareholder XXXLutz will
benefit from the inclusion of Conforama France.
Mobilux 2 and Conforama France will consist of separate outfacing
entities with independent brands, finances, and management teams.
Mobilux, the parent company, has stated publically that although
the Mobilux 2 and Conforama France will be collaborating
operationally on several fronts, both companies will remain
distinct and autonomous. Mobilux's shareholders are composed of the
financial sponsor CD&R and Europe's second-largest furniture
retailer, XXXLutz), each holding 50%. S&P said, "Although so far we
have not been privy to Mobilux 2's parent's accounts, nor to those
of Conforama France, we understand that Conforama France's
profitability and cash flow generation are currently very weak and
its debt amounts to at least EUR300 million. We also understand
from Mobilux 2's management that currently there are no financial
links (cross default, cross acceleration, loans, or guarantees)
between Mobilux 2 and Conforama France, and that despite Mobilux
2's debt documentation containing financial covenants allowing for
dividend payments, we understand that Mobilux 2's intention is to
not distribute its material cash balances. We also understand that
Mobilux 2's parent is debt free."
S&P said, "However, we believe that this transaction raises
uncertainties and event risk for Mobilux 2 because we cannot rule
out completely that the ultimate aim of this transaction may be to
merge the two companies at some point. Notwithstanding that Mobilux
has stated the two companies will remain distinct and autonomous,
S&P Global Ratings notes that they will be run with a group logic
from an operational standpoint, and they will be owned by and
consolidated into the same parent company. We therefore see
uncertainties about the group's long-term strategy and scope of
consolidation as regards Mobilux and Conforama France and the
implications that this could potentially have on Mobilux 2's future
capital structure and financial policy."
Mobilux 2's activity since its reopening has been stronger than
anticipated, confirming the good momentum. S&P said, "BUT, along
with the furniture and DIY industries, has benefitted from strong
tailwinds following the reopening of its stores on May 11,
significantly outperforming our previous forecasts. In our revised
forecasts, we expect Mobilux 2's S&P Global Ratings-adjusted
leverage to remain below 5x, including the EUR100 million of RCF
drawn as a precaution during the lockdown, and free cash flow
generation to be positive for fiscal 2020, better than our previous
forecasts of S&P Global Ratings-adjusted leverage above 6x and
negative free operating cash flow." This strong performance
following the reopening confirms the good momentum of the last
three years with continued market share gain, improved
profitability and sustained cash flow generation.
S&P said, "However, despite solid results since the end of the
lockdown, we believe that the recessionary environment in France
will constrain the company's growth and deleveraging prospects in
2021. We anticipate a 9.5% contraction of French GDP for 2020,
while 2019's GDP levels should recover only by the end of 2022.
Furthermore, we expect to see the group's growth return to normal
levels after the high growth they met immediately following the
lockdown period, because consumers generally don't purchase
furniture on a recurrent basis, as they would food or clothing."
The negative outlook reflects S&P Global Ratings' views that there
is uncertainty and event risks relative to the future scope of
consolidation and capital structure of Mobilux 2 following the
acquisition of Conforama France France by Mobilux 2's parent, and
the risks associated with any potential extended disruption to
consumer spending in fiscal 2021 associated with COVID-19 or the
subdued macroeconomic environment.
S&P could lower the ratings in the next 12 months if:
-- The trading environment deteriorated in 2021, causing negative
free cash flow and leverage above 5x;
-- Mobilux 2 and Conforama France merged and this resulted in a
significantly weaker combined entity; or
-- Mobilux 2's cash buffer and liquidity were to be depleted
materially, for example in the form of a sizable dividend payment.
S&P could revise the outlook to stable if:
-- The trading environment did not deteriorate in the next few
months and Mobilux 2 continued strengthening its cash flow
generation and deleveraging sustainably below 5x; and
-- S&P obtained certainty about the long-term strategy of Mobilux
2's shareholders regarding the future scope of consolidation,
capital structure, and operational profile of Mobilux 2's parent,
and these were compatible with a 'B' rating.
VALEO SA: Egan-Jones Lowers Senior Unsecured Ratings to B+
----------------------------------------------------------
Egan-Jones Ratings Company, on July 24, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Valeo SA to B+ from BB.
Headquartered in Paris, France, Valeo designs and manufactures
automobile components.
=============
G E R M A N Y
=============
NOVEM GROUP: S&P Affirms B+ LT ICR, Off Watch Negative
------------------------------------------------------
S&P Global Ratings affirmed and removed from CreditWatch negative
its 'B+' long-term issuer credit rating on Germany-based auto parts
manufacturer Novem Group GmbH as well as its 'B+' issue rating on
the company's senior secured debt and its 'BB' issue rating on its
super senior revolving credit facility.
Novem cannot escape the market downturn, but its positioning in the
premium segment provides an edge. S&P said, "We think that sales
of premium cars will fare better than sales of mass market cars in
economic downturns. In our view, this should offer some protection
for Novem as a manufacturer of high-end decorative trim elements
for premium cars, with about half of its sales exposed to
high-selling sport utility vehicles (SUVs). We assume that Novem's
sales will drop by about 15% in FY2021, better than our forecast of
a drop in car unit sales of about 20%-25% in Europe and of about
21% in the U.S. in 2020. Although it will be difficult for Novem to
sustain EBITDA margins in the high-teens as reported before the
crisis, we expect that short-term work schemes and cuts in
discretionary spending will enable the company to still post an
EBITDA margin in the mid-teens in FY2021. We view this as
relatively benign for auto suppliers, both with respect to the
margin level as well as the margin decline during the crisis. In
our base case, we include only small amounts of restructuring
charges, but we expect that there could be a need to structurally
streamline the company's cost base if market recovery falls short
of expectations."
Credit metrics will deteriorate in FY2021, but recovery in volumes
should provide room for gradual deleveraging. S&P said, "We
forecast that the company's debt-to-EBITDA ratio will soar toward
6.0x-6.5x and that its funds from operations (FFO) to debt ratio
will decline to well below 12% in FY2021. These levels are weaker
than our guidance for the current rating. However, we expect that
auto production volumes will gradually recover from second-half
2020, followed by a rebound in 2021, with 10%-15% growth expected
for Europe." This will help Novem's absolute EBITDA to gradually
converge to FY2020 levels from the trough expected in FY2021. This
should translate into debt to EBITDA declining toward 4.5x and FFO
to debt increasing toward 12% in the course of FY2022.
Robust FOCF offsets temporarily higher leverage. Unlike many auto
suppliers, Novem should generate positive adjusted FOCF, at EUR20
million-EUR30 million in FY2021 and similarly in FY2022,
translating into adjusted FOCF to debt exceeding 5% in FY2021. FOCF
benefits from the company's limited capital expenditure (capex)
needs, since Novem has completed major investment programs with the
opening of new plants in Mexico and China. As a result, capex fell
to about EUR23 million in FY2020, from about EUR41 million in
FY2019, and we understand the company will further cut its capex in
FY2021 to about EUR20 million. S&P said, "In our view, the robust
level of FOCF offsets to a certain degree our expectation of
elevated leverage and weaker FFO in the next 12–18 months. We
also note positively the company's liquidity position, with large
cash balances of about EUR170 million at the end of June 2020
(including the fully drawn EUR75 million revolving credit facility
[RCF])."
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety
S&P said, "The negative outlook reflects our view that uncertainty
surrounding the extremely challenging economic situation following
the COVID-19 pandemic could put further pressure on the group's
operating performance, resulting in weaker-than-expected credit
metrics.
"We could lower our ratings on Novem if its FFO to debt remained
below 12% or if its debt to EBITDA remained above 4.5x on a
sustained basis, or if its FOCF to debt fell below 5% for an
extended period. Albeit not expected at this stage, a large
debt-financed acquisition or dividend recapitalization could also
lead to a negative rating action.
"We could revise the outlook to stable if we saw prospects of
Novem's debt to EBITDA declining to below 4.5x and its FFO to debt
increasing to above 12% on a sustained basis while at the same time
FOCF to debt remained above 5%."
=============
I R E L A N D
=============
EUROPEAN RESIDENTIAL 2019-NPL1: Moody's Cuts Class C Notes to Caa1
------------------------------------------------------------------
Moody's Investors Service has confirmed the rating of one note and
downgraded the ratings of four notes in two Irish NPL deals. The
downgrades reflect the slower and potentially lower than
anticipated cash-flows in the transactions in the context of
reduced operability of judicial system, economic disruption and
negatively affected investor sentiment following the coronavirus
outbreak. The confirmation reflects sufficient credit enhancement
and liquidity to maintain the rating. Its action concludes the
placing under review for downgrade of these notes due to the
economic disruption caused by the coronavirus outbreak.
Issuer: EUROPEAN RESIDENTIAL LOAN SECURITISATION 2019-NPL1 DAC
GBP34.2M Class B Notes, Downgraded to Ba2 (sf); previously on Jun
3, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
GBP29.6M Class C Notes, Downgraded to Caa1 (sf); previously on Jun
3, 2020 B3 (sf) Placed Under Review for Possible Downgrade
Issuer: European Residential Loan Securitisation 2019-NPL2 DAC
GBP621.5M Class A Notes, Confirmed at A2 (sf); previously on Jun 3,
2020 A2 (sf) Placed Under Review for Possible Downgrade
GBP59.6M Class B Notes, Downgraded to Ba1 (sf); previously on Jun
3, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
GBP59.6M Class C Notes, Downgraded to B3 (sf); previously on Jun 3,
2020 B2 (sf) Placed Under Review for Possible Downgrade
EUROPEAN RESIDENTIAL LOAN SECURITISATION 2019-NPL1 DAC and European
Residential Loan Securitisation 2019-NPL2 DAC are backed by pools
comprised mostly of non-performing mortgage loans to private
obligors in Ireland. Both transactions closed within the last 12
months and have thus had limited time to build up additional credit
enhancement cushions.
RATINGS RATIONALE
The downgrades reflect the slower and potentially lower than
anticipated cash-flows in the transactions in the context of
reduced operability of judicial system, economic disruption and
negatively affected investor sentiment following coronavirus
outbreak. The confirmation reflects sufficient credit enhancement
and liquidity to maintain the rating.
Slower and potentially lower anticipated cash-flows
NPL transactions' cash flows depend on the timing and the amount of
collections, generated mainly from the sales of properties securing
the loans. Measures imposed to contain the spread of the
coronavirus directly and severely affected the operability of
judicial systems, creating a backlog which will delay NPLs
securitisations' gross recoveries. Until courts return to normal
activity, recoveries for transactions will be delayed.
In Ireland, an important driver behind NPL transactions'
performance is the possibility of loan restructurings and
re-performance. In the current economic environment, the ability to
achieve sustainable restructuring solutions is likely to be
impeded.
Negatively affected investor sentiment
NPL transactions are exposed to investment sentiment and how the
property markets are functioning. Real estate prices could
deteriorate to a varying extent, depending on the magnitude of the
economic slowdown, property characteristics and location.
Due to the current circumstances, Moody's has considered additional
stresses in its analysis, including a 6-month delay in the recovery
timing and more negative house price developments. As a result,
Moody's has downgraded the ratings of the notes that the agency
views as more vulnerable to a deterioration of timeline and amount
of cash-flows.
This higher anticipated vulnerability could be driven by one or
more of a number of factors, including:
(i) the composition of the loan portfolios;
(ii) the credit enhancement under the Notes and the deleveraging
since the last rating action; and
(iii) the transactions' performance to date.
In the coming months, liquidity available in the transactions may
be needed to ensure payments of senior costs and interest on Notes,
given reduced cash flows. Moody's expects available liquidity in
the transactions to be sufficient to cover over 18 months of senior
costs and coupon payments.
Moody's will continue to monitor performance data of each
transaction, evolution of operability of the judicial system and
property price developments.
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 cash flows generated from the recovery process on
the non-performing loans from the collapse in Irish economic
activity in the second quarter and a gradual recovery in the second
half of the year. However, that outcome depends on whether
governments can reopen their economies while also safeguarding
public health and avoiding a further surge in infections. As a
result, the degree of uncertainty around its forecasts is unusually
high. Moody's regards the coronavirus outbreak as a social risk
under its ESG framework, given the substantial implications for
public health and safety.
The principal methodology used in these ratings was "Non-Performing
and Re-Performing Loan Securitizations Methodology" published in
April 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include:
(1) the recovery process of the non-performing loans producing
significantly higher cash-flows in a shorter time frame than
expected; and
(2) improvements in the credit quality of the transaction
counterparties.
Factors or circumstances that could lead to a downgrade of the
ratings include:
(1) significantly lower or slower cash-flows generated from the
recovery process on the non-performing loans due to either a longer
time for the courts to process the foreclosures and bankruptcies, a
change in economic conditions from its central scenario forecast or
idiosyncratic performance factors. For instance, should economic
conditions be worse than forecasted and the sale of the properties
generate less cash-flows for the issuer or take a longer time to
sell the properties, all these factors could result in a downgrade
of the ratings;
(2) deterioration in the credit quality of the transaction
counterparties; and
(3) increase in sovereign risk.
===================
L U X E M B O U R G
===================
INTEL SA: Egan-Jones Withdraws D Senior Unsecured Ratings
---------------------------------------------------------
Egan-Jones Ratings Company, on July 24, 2020, withdrew its 'D'
foreign currency and local currency senior unsecured ratings on
debt issued by Intelsat SA.
Headquartered in Luxembourg District, Luxembourg, Intelsat SA
operates as a satellite services company that provides diversified
communications services to the media companies, fixed and wireless
telecommunications operators, and data networking service providers
for enterprise and mobile applications, multinational corporations,
and Internet service providers.
=====================
N E T H E R L A N D S
=====================
KOOS HOLDING: S&P Affirms B ICR on Planned Acquisition by KKR
-------------------------------------------------------------
S&P Global Ratings affirmed its 'B' issuer credit rating on Dutch
holiday park operator Koos Holding's (Roompot) owner Koos Holding
Cooperatief and 'B+' ratings on its senior secured facilities and
removing them from CreditWatch negative, where they were placed on
April 14.
Private equity firm Kohlberg Kravis Roberts & Co's (KKR)
acquisition has no immediate impact on Roompot's capital structure,
if the change-of-control waiver is received. KKR's acquisition of
Roompot is expected to be leverage neutral since KKR intends to
roll Roompot's outstanding EUR30 million revolving credit facility
and EUR279 million term loan B into the new structure, asking
lenders for a change-of-control waiver. The transaction comes with
about EUR750 million equity, which comprises ordinary shares, to
finance the remainder of the acquisition price and pay transaction
fees. S&P said, "The outstanding shareholder loan will remain in
place, with no changes expected to its terms, and it continues to
meet our criteria for equity treatment. We also understand the
group's organizational structure will not change. We therefore
continue to base our rating analysis on the consolidated financials
of Koos Holding, the parent company of Roompot, which includes
properties outside the restricted group securing term loan B."
S&P said, "Roompot's recent trading since reopening shows a solid
rebound and we expect its credit metrics will recover by 2021.
Since COVID-19 lockdown restrictions have been progressively lifted
in the Netherlands, Germany, and Belgium, Roompot has reopened all
its holiday parks. It has seen a surge in bookings, notably
exceeding its July and August budget. We believe this is owing to
Roompot's sound position as a leading Dutch holiday park operator
with a strong presence in the coastal areas, and its mainly
domestic customer base. We understand Roompot anticipates healthy
customer levels, since families may be reluctant to travel abroad
this year due to the ongoing risk of infection. Still, we expect
its EBITDA in 2020 will be about 20% lower than in 2019, S&P Global
Ratings-adjusted leverage will increase to about 6.5x compared with
5.4x, and free operating cash flow (FOCF) will be slightly negative
compared with positive EUR27 million. That said, we anticipate
operating performance will recover in 2021, such that leverage
declines below 5.0x and FOCF returns to positive pre-pandemic
levels. This also factors in the opening of new parks and expansion
of current parks.
"We acknowledge a high degree of uncertainty about the evolution of
the coronavirus pandemic. Although bookings for the remainder of
the year show promise, we continue to see risks for Roompot, due to
the recessionary environment in Europe in 2020, the knock-on
effects on consumer sentiment and spending, as well as risks of a
second wave of COVID-19 cases. The consensus among health experts
is that the pandemic may now be at, or near, its peak in some
regions but will remain a threat until a vaccine or effective
treatment is widely available, which may not occur until the second
half of 2021. We are using 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.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety
The negative outlook reflects S&P's view that material
macroeconomic uncertainty and further COVID-19 risks remain,
suggesting a fragile recovery for the sector, which could prevent
Roompot's credit metrics from improving in line with its base-case
assumptions.
S&P could lower the ratings if:
-- Roompot experiences sustained material weakness in operating
earnings, margins, and credit metrics, for example from a further
shutdown linked to COVID-19, such that its adjusted leverage metric
remains above 6.5x or reported FOCF, after all lease payments,
stays neutral to negative;
-- Liquidity deteriorates materially; or
-- Financial policy becomes more aggressive, via debt-funded
acquisitions or shareholder returns, resulting in sustained weaker
credit metrics.
To revise the outlook to stable, S&P would expect to have greater
certainty of Roompot's ability to sustain positive recovery
momentum and stronger credit metrics, with:
-- Adjusted leverage staying at about 5.0x; and
-- Meaningful FOCF generation after all lease payments.
===========
R U S S I A
===========
CENTRALLY ASIATIC: Bank of Russia Cancels Banking License
---------------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-1178, dated July
24, 2020, cancelled the banking license of Commercial Bank
Centrally Asiatic, or LC CBCA (Registration No. 3037, Abakan). The
credit institution ranked 418th by assets in the Russian banking
system.
The license of LC CBCA was cancelled following the request that the
credit institution submitted to the Bank of Russia after the
decision of its sole owner on its voluntary liquidation (in
accordance with Article 61 of the Civil Code of the Russian
Federation).
Based on the reporting data provided to the Bank of Russia, the
credit institution has enough assets to satisfy creditors' claims.
A liquidation commission will be appointed to LC CBCA.
LC CBCA is member of the deposit insurance system.
NEVA CONSTRUCTION: Bank of Russia Revokes Banking License
---------------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-1176, dated July
24, 2020, revoked the banking license of Neva Construction and
Investment Bank Limited Liability Company, or NCI Bank LLC
(Registration No. 1926, Saint Petersburg; hereinafter, NCI Bank).
The credit institution ranked 349th by assets in the Russian
banking system.
The Bank of Russia took this decision in accordance with Clauses 6
and 6.1, Part 1, Article 20 of the Federal Law "On Banks and
Banking Activities", based on the facts that NCI Bank:
-- failed to comply with legislation and Bank of Russia
regulations on countering the legalization (laundering) of
criminally obtained incomes and the financing of terrorism. The
credit institution failed to timely provide credible information to
the authorized body about operations subject to obligatory
control;
-- conducted dubious transit operations related to shadow sales
of cash receipts to third parties by retail trade firms;
-- violated federal banking laws and Bank of Russia regulations,
making the regulator repeatedly apply supervisory measures over the
last 12 months.
The credit institution's activity was of a strongly captive nature.
A significant share of the bank's loan portfolio consisted of
loans to legal entities associated with its main owner. That said,
low-quality loans accounted for more than 70% of the loan
portfolio.
The Bank of Russia appointed a provisional administration to NCI
Bank for the period until the appointment of a receiver or a
liquidator. In accordance with federal laws, the powers of the
credit institution's executive bodies were suspended.
Information for depositors: NCI Bank is a participant in the
deposit insurance system, therefore depositors6 will be compensated
for their deposits in the amount of 100% of the balance of funds
but no more than a total of RUR1.4 million per depositor (including
interest accrued).
Deposits are to be repaid by the State Corporation Deposit
Insurance Agency (hereinafter, the Agency). For details of the
repayment procedure, depositors may call the Agency's 24/7 hotline
(8 800 200-08-05) or refer to its website
(https://www.asv.org.ru/), the Deposit Insurance / Insured Events
section.
PUBLIC BANK JSC: Bank of Russia Revokes Banking License
-------------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-1174, dated July
24, 2020, revoked the banking license of Moscow-based Joint-Stock
Company Public Bank (Public Bank (JSC)) (Registration No. 2249;
hereinafter, Public Bank). The credit institution ranked 297th by
assets in the Russian banking system.
The Bank of Russia made this decision in accordance with Clauses 6
and 6.1, Part 1, Article 20 of the Federal Law "On Banks and
Banking Activities", based on the facts that Public Bank:
-- Violated federal banking laws and Bank of Russia regulations,
which included the understatement of the value of required loss
provisions to be formed, due to which the regulator repeatedly
applied supervisory measures against it over the last 12 months,
including restrictions on a number of banking operations.
-- Committed violations of the anti-money laundering and
counter-terrorist financing laws and Bank of Russia regulations.
The credit institution failed to ensure the completeness and
accuracy of the information identifying payers in settlement
documents.
Public Bank's priority area was the issue of bank guarantees, the
amount of which was several times larger than the credit
institution's equity. Moreover, the credit institution
inadequately assessed the risks it accepted under the bank
guarantees provided and the related court proceedings, which
entailed a significant understatement of the value of required loss
provisions to be formed.
In addition, this year the bank carried out non-transparent
transactions in large amounts with non-resident payment agents to
transfer individuals' funds, and the related information has been
sent by the Bank of Russia to law enforcement authorities.
The Bank of Russia appointed a provisional administration3 to
Public Bank for the period until the appointment of a receiver4 or
a liquidator. In accordance with federal laws, the powers of the
credit institution's executive bodies were suspended.
Information for depositors: Public Bank is a participant in the
deposit insurance system; therefore depositors6 will be compensated
for their deposits in the amount of 100% of the balance of funds
but no more than a total of RUR1.4 million per depositor (including
interest accrued).
Deposits are to be repaid by the State Corporation Deposit
Insurance Agency (hereinafter, the Agency). Depositors may obtain
detailed information regarding the repayment procedure 24/7 at the
Agency's hotline (8 800 200-08-05) and on its website
(https://www.asv.org.ru/) in the Deposit Insurance / Insurance
Events section.
RESOURCE-TRUST JSCB: Bank of Russia Cancels Banking License
-----------------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-1179, dated July
24, 2020, cancelled the banking license of Joint-stock Commercial
Bank Resource-trust, or JSCB Resource-trust (Registration No. 3122,
Moscow). The credit institution ranked 396th by assets in the
Russian banking system.
The license of JSCB Resource-trust was cancelled following the
request that the credit institution submitted to the Bank of Russia
after the decision of the general shareholders' meeting on its
voluntary liquidation (in accordance with Article 61 of the Civil
Code of the Russian Federation).
Based on the reporting data provided to the Bank of Russia, the
credit institution has enough assets to satisfy creditors' claims.
A liquidator will be appointed to JSCB Resource-trust.
JSCB Resource-trust is not a member of the deposit insurance
system.
=========
S P A I N
=========
INSTITUT CATALA: Fitch Affirms BB LT IDR, Alters Outlook to Stable
------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Institut Catala de
Finances' Long-Term Issuer Default Rating to Stable from Negative
and affirmed the IDR at 'BB'. Fitch has also affirmed ICF's
Short-Term Foreign-Currency IDR at 'B'. The long- and short-term
ratings on ICF's senior unsecured outstanding bonds and commercial
paper programme have been affirmed at 'BB' and 'B', respectively.
The revision of the Outlook reflects the rating action on ICF's
sponsor on July 23, 2020. Under Fitch's Government-Related Entity
Criteria, ICF's IDRs are equalised with the Autonomous Community of
Catalonia's IDRs based on the unchanged statutory guarantee for
ICF's financial obligations from the Autonomous Community of
Catalonia.
The recent outbreak of coronavirus and related government
containment measures worldwide creates an uncertain global
environment for the public sector in Spain in the near term. While
ICF's performance data through most recently available issuer data
has indicated strength, material changes in revenue and cost
profile are occurring across the sector and are likely to worsen in
the coming weeks and months as economic activity suffers and
government restrictions are maintained or expanded. Fitch's ratings
are forward-looking in nature, and Fitch will monitor developments
in the sector as a result of the coronavirus outbreak for their
severity and duration, and incorporate revised base and rating case
qualitative and quantitative inputs based on expectations for
future performance and assessment of key risks.
KEY RATING DRIVERS
ICF's IDRs are equalised with the Autonomous Community of
Catalonia's IDRs based on the unchanged statutory guarantee for
ICF's financial obligations from the Autonomous Community of
Catalonia.
Under Fitch's GRE top-down rating approach, the strength of linkage
with the regional government as well as the incentive to provide
support lead to an overall score of 25 points so that ICF could be
credit linked to the regional government of Catalonia, but the
statutory, irrevocable and unconditional guarantee allow us to
override this and equalise ICF's rating with the regional
government of Catalonia's rating.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
ICF's IDR could be upgraded if Catalonia's IDR was upgraded.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A weakening in its assessment of the guarantee from the regional
government on ICF's liabilities could eventually lead to a
downgrade depending on its Standalone Credit Profile.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure 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 three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The revision of the Outlook on the Autonomous Community of
Catalonia to Stable from Negative (on July 23, 2020).
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
===========================
U N I T E D K I N G D O M
===========================
AZURE FINANCE NO.2: Moody's Rates Class X1 Notes Caa2
-----------------------------------------------------
Moody's Investors Service has assigned the following ratings to
notes issued by Azure Finance No.2 plc:
GBP126.421M Class A Floating Rate Notes due July 2030, Definitive
Rating Assigned Aaa (sf)
GBP26.415M Class B Floating Rate Notes due July 2030, Definitive
Rating Assigned Aa1 (sf)
GBP16.982M Class C Floating Rate Notes due July 2030, Definitive
Rating Assigned A3 (sf)
GBP5.661M Class D Floating Rate Notes due July 2030, Definitive
Rating Assigned Ba1 (sf)
GBP7.076M Class E Floating Rate Notes due July 2030, Definitive
Rating Assigned B1 (sf)
GBP6.132M Class F Floating Rate Notes due July 2030, Definitive
Rating Assigned Caa1 (sf)
GBP12.265M Class X1 Floating Rate Notes due July 2030, Definitive
Rating Assigned Caa2 (sf)
Moody's has not assigned a rating to the GBP6.604M Class X2
Floating Rate Notes due July 2030.
The transaction is a static cash securitisation of agreements
entered into for the purpose of financing vehicles to obligors in
the United Kingdom by Blue Motor Finance Limited. This is the
second public securitisation transaction sponsored by Blue. The
originator will also act as the servicer of the portfolio during
the life of the transaction.
The portfolio of receivables backing the Notes consists of Hire
Purchase agreements granted to individuals' resident in the United
Kingdom. Hire Purchase agreements are a form of secured financing
without the option to hand the car back at maturity. Therefore,
there is no explicit residual value risk in the transaction. Under
the terms of the HP agreements, the originator retains legal title
to the vehicles until the borrower has made all scheduled payments
required under the contract.
As of June 30, 2020, the portfolio of underlying assets totalled
GBP188.7 million and consisted of 22,799 agreements mainly
originated between 2019 and 2020 financing the purchase of
predominantly used (98.7%) vehicles distributed through national
and regional dealers as well as brokers. It has a weighted average
seasoning of 5.7 months and a weighted average remaining term of
4.4 years. The pool's current weighted average LTV is 97.6%.
RATINGS RATIONALE
The transaction's main credit strengths are the significant excess
spread, the static and granular nature of the portfolio, and
counterparty support through the back-up servicer (Equinity Gateway
Limited trading as Equiniti Credit Services), interest rate hedge
provider (Barclays Bank PLC A1(cr)/P-1(cr)) and independent cash
manager (Citibank N.A., London Branch Aa3 senior unsecured/P-1;
Aa3(cr)/P-1(cr)). The structure contains tranche specific cash
reserves which in aggregate equal 1.4% of the pool, and will
amortise in line with the Notes. Each tranche reserve will be
purely available to cover liquidity shortfalls related to the
relevant Note throughout the life of the transaction and can serve
as credit enhancement following the tranche's repayment. The Class
A reserve provides approximately [6] months of liquidity at the
beginning of the transaction. The portfolio has an initial yield of
13.72%. Available excess spread can be trapped to cover defaults
and losses, as well as to replenish the tranche reserves to their
target level through the waterfall mechanism present in the
structure.
However, Moody's notes some credit weaknesses in the transaction.
First, the pool includes material exposure to higher risk
borrowers. For example, some borrowers may previously have been on
debt management plans or currently be in low level arrears on other
unsecured contracts. Although these features are reflected in the
originator's scorecard, and exposure to the highest risk borrowers
(risk tiers 6-8 under the originator's scoring) is limited at 7.20%
of the initial pool, the effect is that the pool is riskier than a
typical benchmark UK prime auto pool. Second, operational risk is
higher than a typical UK auto deal because Blue is an unrated
entity acting as originator and servicer to the transaction. The
transaction does envisage certain structural mitigants to
operational risk such as a back-up servicer, independent cash
manager, and tranche specific cash reserves, which cover
approximately [6] months of liquidity for the Class A Notes at deal
close. Third, the structure does not include principal to pay
interest for any Class of Notes, which makes it more dependent on
excess spread and the tranche specific cash reserves combined with
the back-up servicing arrangement to maintain timeliness of
interest payments on the Notes. Fourth, the historic vintage
default and recovery data does not cover a full economic cycle,
reflecting Blue's short trading history (it began lending
meaningful amounts in its current form in 2015). The data cover
approximately five years that Blue has been originating.
In addition, the underlying obligors may exercise the right of
voluntary termination as per the Consumer Credit Act, whereby an
obligor has the option to return the vehicle to the originator in
reasonable condition as long as the obligor has made payments equal
to at least one half of the total financed amount. If the obligor
returns the vehicle, the issuer may be exposed to residual value
risk. The potential for additional losses due to these risks has
been incorporated into Moody's quantitative analysis.
Moody's analysis focused, among other factors, on (i) an evaluation
of the underlying portfolio; (ii) historical performance
information; (iii) the credit enhancement provided by
subordination, by the excess spread and the tranche reserves; (iv)
the liquidity support available in the transaction through the
tranche reserves; (v) the back-up servicing arrangement of the
transaction; (vi) the independent cash manager and (vii) the legal
and structural integrity of the transaction.
MAIN MODEL ASSUMPTIONS:
Moody's determined portfolio lifetime expected defaults of 12.0%,
expected recoveries of 35.0% and a Aaa portfolio credit enhancement
of 32.0% related to the borrower receivables. The expected default
captures its expectations of performance considering the current
economic outlook, while the PCE captures the loss Moody's expects
the portfolio to suffer in the event of a severe recession
scenario. Expected defaults and PCE are parameters used by Moody's
to calibrate its lognormal portfolio default distribution curve and
to associate a probability with each potential future default
scenario in its ABSROM cash flow model.
The rapid spread of the coronavirus outbreak, the government
measures put in place to contain it and the deteriorating global
economic outlook, have created a severe and extensive credit shock
across sectors, regions and markets. Its analysis has considered
the effect on the performance of consumer assets from the collapse
in UK economic activity in the second quarter and a gradual
recovery in the second half of the year. However, that outcome
depends on whether governments can reopen their economies while
also safeguarding public health and avoiding a further surge in
infections. As a result, the degree of uncertainty around its
forecasts is unusually high. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety.
The portfolio expected mean default level of 12% is higher than
other UK auto transactions and is based on Moody's assessment of
the lifetime expectation for the pool taking into account:
(i) the higher average risk of the borrowers;
(ii) the historic performance of the loan book of the originator;
(iii) benchmark transactions; and
(iv) other qualitative considerations.
Portfolio expected recoveries of 35.0% are lower than the UK auto
average and are based on Moody's assessment of the lifetime
expectation for the pool taking into account:
(i) older average age of the vehicles;
(ii) historic performance of the loan book of the originator;
(iii) benchmark transactions; and
(iv) other qualitative considerations.
The PCE of 32.0% is higher than the average of its UK auto peers
and is based on Moody's assessment of the pool taking into account
the higher risk profile of the pool borrowers and relative ranking
to originator peers in the UK auto and consumer markets. The PCE of
32% results in an implied coefficient of variation of 35.8%.
AUTO SECTOR TRANSFORMATION:
The automotive sector is undergoing a technology-driven
transformation which will have credit implications for auto finance
and lease portfolios. Technological obsolescence, shifts in demand
patterns and changes in government policy will result in some
segments experiencing greater volatility in the level of recoveries
and residual values compared with those seen historically. For
example, diesel engines have declined in popularity and older
engine types face restrictions in certain metropolitan areas.
Similarly, the rise in popularity of alternative fuel vehicles
introduces uncertainty in the future price trends of both legacy
engine types and AFVs themselves because of evolutions in
technology, battery costs and government incentives. As of the
cut-off date June 30, 2020, the securitised portfolio is backed by
63% of vehicles with diesel engines of which 24.7% were produced in
or before 2013 and as such adhere to Euro 5 emission standards or
earlier. 3.5% of the portfolio are labelled as "Other" fuel type.
METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
July 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of Class B-X1
Notes include significantly better than expected performance of the
pool together with an increase in credit enhancement of Notes.
Factors that may cause a downgrade of the Class A-X1 Notes rating
include a decline in the overall performance of the pool or a
significant deterioration of the credit profile of the servicer's
parent, Santander Consumer Finance S.A.
AZURE FINANCE NO.2: S&P Assigns CCC+ (sf) Rating on F-Dfrd Notes
----------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Azure Finance No.
2 PLC's (Azure 2's) class A, B, C, D-Dfrd, E-Dfrd, F-Dfrd, and
X1-Dfrd notes. At closing, Azure 2 also issued unrated subordinated
class X2 notes.
S&P said, "Our ratings on the class A, B, and C notes address the
timely payment of interest and ultimate payment of principal, while
our ratings on the class D-Dfrd, E-Dfrd, F-Dfrd, and X1-Dfrd notes
address the ultimate payment of both interest and principal no
later than the legal final maturity date."
Azure 2 is the second public securitization of U.K. auto loans
originated by Blue Motor Finance Ltd. Blue is an independent auto
lender in the U.K., with a focus on used car financing for prime
and near-prime customers.
The class A through F-Dfrd notes are collateralized by a static
pool of U.K. fully amortizing fixed-rate auto loan receivables
arising under hire purchase (HP) agreements granted to borrowers
resident in the U.K. for the purchase of used and new vehicles
(including light commercial vehicles and motorcycles). There are no
personal contract purchase (PCP) agreements in the pool; therefore
the transaction is not exposed to residual value risk. The X1-Dfrd
and X2 notes are uncollateralized and will be repaid from any
available excess spread.
The transaction has separate waterfalls for interest and principal
collections, and the notes amortize fully sequentially from day
one.
There are dedicated reserve amounts for each class of notes,
excluding class X1-Dfrd and X2, which were funded at closing and
available to cover any senior expense shortfalls or to pay interest
shortfalls for the respective class over the life of the
transaction. The required reserve amount for each class amortizes
in line with the outstanding note balance.
A combination of note subordination, cash reserves, and any
available excess spread provide credit enhancement for the rated
notes.
Blue remains the initial servicer of the portfolio. Following a
servicer termination event, including insolvency of the servicer,
the back-up servicer, Equiniti Gateway Ltd., will assume servicing
responsibility for the portfolio.
The assets pay a monthly fixed interest rate, and the rated notes
pay compounded daily Sterling Overnight Index Average (SONIA) plus
a margin, subject to a floor of zero. To mitigate fixed-float
interest rate risk, the notes benefit from an interest rate cap.
S&P said, "Counterparty risks are adequately mitigated in line with
our criteria. There is a declaration of trust over the servicer's
collection account, which partially mitigates commingling risk.
However, due to the lack of minimum required ratings and remedies
for the collection account bank, we have assumed one week of
commingling loss in the event of the account provider's insolvency.
We deem set-off risk to be fully mitigated.
"The issuer is an English special-purpose entity, which we consider
to be bankruptcy remote. We reviewed legal opinions which provide
assurance that the sale of the assets would survive the seller's
insolvency, and tax opinions which address the issuer's tax
liabilities under the current tax legislation. We believe that the
issuer's cash flows will be sufficient to meet all the tax
liabilities identified.
"Our ratings on this transaction are not constrained by our
operational risk criteria, counterparty risk criteria, or
structured finance ratings above the sovereign criteria."
S&P Global Ratings acknowledges a high degree of uncertainty about
the evolution of the coronavius 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 List
Class Ratings assigned Amount (mil. GBP)
A AAA (sf) 126.421
B A+ (sf) 26.415
C BBB+ (sf) 16.982
D-Dfrd BBB- (sf) 5.661
E-Dfrd B (sf) 7.076
F-Dfrd CCC+ (sf) 6.132
X1-Dfrd CCC (sf) 12.265
X2 NR 6.604
NR--Not rated.
BRIDGEPOINT: S&P Assigns B ICR, Outlook Stable
----------------------------------------------
S&P Global Ratings assigned its 'B' long-term issuer credit rating
to U.K.-based private equity firm Bridgepoint that has acquired a
majority share in French Insurance Broker CEP via Hestia Holding
SAS and the company's proposed EUR725 million of first-lien term
debt (with a '3' recovery rating); and its 'CCC+' issue rating to
the proposed second-lien facility (with a '6' recovery rating).
-- Bridgepoint's acquisition of Hestia closed in June 2020.
On March 9, 2020, Bridgepoint signed an agreement to acquire CEP
for an enterprise value of EUR1.2 billion, or a 9x EBITDA multiple.
To finance the transaction, Hestia Holding SAS was set up as the
new holding company, and issued EUR125 million of both the first
and second lien term loans with EUR600 million of remaining
first-lien notes issued by Financiere Holdings CEP. Bridgepoint and
CEP's management team also contributed EUR460 million of new equity
by way of a shareholder loan and preference shares. Following the
transaction's completion the existing debt facilities were repaid
and S&P's ratings withdrawn as a result. Issue ratings for this
transaction on the new first- and second-lien term loan of EUR725
million and EUR125 million are 'B' and 'CCC+', respectively.
Hestia is a market leader in France's credit protection insurance
market. S&P said, "In our view, the business risk profile is
supported by the company's No. 1 market position in France in both
its insurance and credit brokerage divisions with market shares of
25% and 10%, respectively. We view this leading position, strong
customer relationships, strong renewal rates, and above-average
margin generation to support our fair business risk assessment."
S&P said, "Constraining our assessment are Hestia's relatively
small scale, limited geographical scale, and high customer
concentration (albeit with minimal churn). The company generates
over 80% of revenue from its insurance brokerage division, where it
has a high customer concentration on its group contracts. We
estimate that its top client generates nearly 50% of consolidated
revenue. This is tempered by customer stickiness being high,
because it would be complex and costly for banks to internalize
this service. Hestia continues to diversify its business to reduce
this concentration with actions such as geographical expansion to
Italy, Spain, Germany, and Poland; expanding its partnerships to
more than 50 customers; and changing regulation from the Bourquin
law, where we expect a continued growth in individual insurance
contracts. We do not expect to see a material change in
diversification in the medium term."
Hestia has adequate operating efficiency supported by its strong
EBITDA margins. The company's insurance brokerage division has much
higher margins than many rated professional services companies.
Hestia has sustained above-average margins even with a change in
product mix toward its lower margin credit brokerage services, but
is a strategic segment, given its strong cross-selling platform
with its insurance brokerage business. S&P said, "We expect the
company will continue generating margins exceeding 50% from solid
growth in insurance brokerage, and will benefit from efficiencies
of scale. We also expect it will improve its credit brokerage
business, moving this to a more franchise based model." In
addition, the company has good working capital management, solid
per unit metrics, and a modest capital expenditure (capex)
requirement to support our adequate operating efficiency
assessment.
S&P said, "We consider Hestia's capital structure highly leveraged
at closing. Our assessment of the financial risk profile takes into
account the group's private-equity ownership and its tolerance for
high leverage. We anticipate S&P Global Ratings-adjusted debt to
EBITDA of 7.2x for year-end 2020. Bridgepoint and management
provided equity in the form of a shareholder loan and preference
shares to finance the acquisition. We have excluded these from our
financial analysis, because we believe the common-equity financing
and the noncommon equity financing are sufficiently aligned. We
forecast adjusted funds from operations (FFO) to debt of about 5.6%
in 2020, improving in the coming years and solid free operating
cash flow (FOCF). We expect S&P Global Ratings-adjusted debt to
EBITDA will decline to about 6.7x by 2021. We continue to assess
the company's free cash flow as sound and project that growth in
EBITDA and potential debt repayments from excess cash flow will
support gradual deleveraging. We do not expect dividend payments in
the medium term, but expect management might seek tuck-in
acquisitions, either of which would put downward pressure on credit
metrics."
The final ratings are in line with the preliminary ratings S&P
assigned in May.
Outlook
S&P said, "The stable outlook reflects our view that Hestia will
continue to benefit from its existing backbook of contracts and we
expect continued new wins. We expect the mortgage market to remain
relatively resilient following a sluggish mortgage production
period in 2020 from the initial impact from COVID-19. We expect the
company will generate resilient cash inflows owning to its
long-term contracts with minimal churn and strong adjusted EBITDA
margins will be relatively stable, at above 50% and positive FOCF
in the coming 12 months."
S&P could consider a negative rating action if:
-- FFO cash interest coverage declines below 2x or reported FOCF
turned negative. S&P expects this could happen due to a decline in
mortgage production in France, resulting in a weaker stream of new
commission; or underperforming European activities, which would
affect its credit brokerage activities;
-- The company sees a significant decline in operating margins and
a higher volatility in profitability due to an unfavorable business
mix and increased competition;
-- The group were to pursue shareholder friendly actions, such as
material dividend distributions or large debt-financed
acquisitions, given its highly leveraged structure.
S&P said, "While we view an upgrade as unlikely in the near term
due to the high debt structure, we could consider an upgrade if the
company demonstrated a track record of improved credit metrics such
that adjusted debt to EBITDA approached about 5x and the group
maintained a financial policy consistent with a higher rating. We
would expect this from better operating conditions than we
forecast, leading to accelerated growth in adjusted EBITDA and
FFO-to-debt metrics above 10%."
CENTRICA PLC: Moody's Affirms Ba1 Debt Rating, Outlook Now Neg.
---------------------------------------------------------------
Moody's Investors Service has affirmed the Baa2 issuer and senior
unsecured ratings, and the Ba1 junior subordinated debt ratings of
Centrica plc. The Prime-2 short-term commercial paper rating has
been also affirmed. Concurrently, Moody's has changed the outlook
on Centrica to negative from stable.
RATINGS RATIONALE
-- RATIONALE FOR RATINGS AFFIRMATION --
The rating affirmation follows Centrica's announcement on July 24
that the company has entered into an agreement to sell its North
American energy supply, services and trading business
-- Direct Energy, to NRG Energy, Inc. for USD3.6 billion
(equivalent to approximately GBP2.8 billion) in cash [1]. The
transaction is subject to customary regulatory approvals, with
expected completion in the fourth quarter of 2020.
The disposal of Direct Energy is in line with Centrica's strategic
objective to focus its activities predominantly in the UK and
Ireland. The disposal will improve the company's financial metrics
but, in Moody's view, the reduction in diversification and scale
will weaken Centrica's business risk profile. The NA business,
combining consumer and business divisions, accounted for 26%, or
GBP233 million, of Centrica's adjusted operating profit in 2019.
Notwithstanding robust competition, Direct Energy's performance has
been supported by strong retail energy supply margins relative to
Centrica's UK business, where profitability has been hit by the
introduction of a price cap and increased competition. While energy
supply to NA business customers has been subject to greater working
capital volatility, it has also been a positive contributor to
Centrica's earnings and cash flows.
Centrica has said that it will use the cash proceeds for a
significant reduction in net debt and a material contribution to
the group's defined benefit pension schemes, subject to the
negotiation of the final payment terms with the Trustee. As of
end-June 2020, Centrica's reported net debt stood at GBP2.8
billion. This amount excludes Centrica's net pension liability of
GBP522 million reported on balance sheet, or the estimated pension
funding deficit of GBP2.4 billion. While Moody's adjusted debt does
not consider the amount of an actuarial pension deficit, the
significant rise in liabilities -- from GBP1.4 billion based on the
last triennial valuation, would increase Centrica's annual pension
contributions. Moody's therefore views positively the company's
intention to contribute some of the cash proceeds to the pension
schemes as it will lead to lower annual cash outflows over the
medium term.
Overall, the Baa2 rating affirmation recognises (1) Centrica's
leading market position in the UK supply segment; (2) a
well-established brand and market position in the services division
in the UK; (3) the company's track record and stated commitment to
strong credit quality; and (4) good liquidity.
These factors are balanced by (1) strong competitive dynamics in
the UK retail supply, given low barriers to entry; (2) limited
potential for improvement in margins, given the UK default tariff
cap; (3) low profitability of the business supply segment, coupled
with exposure to commodity markets and weather; (4) uncertainty
around the company's ability to sustainably improve profitability
in the context of the ongoing business restructuring; and (5)
presence of the loss-making businesses that are yet to bring
positive cash flows.
The Ba1 long-term rating on the hybrid securities, which is two
notches below the issuer rating of Baa2 for Centrica, reflects the
features of the hybrids that receive basket 'C' treatment, i.e. 50%
equity or "hybrid equity credit" and 50% debt for financial
leverage purposes.
-- RATIONALE FOR NEGATIVE OUTLOOK --
As part of its interim results announcement on July 24, Centrica
confirmed its intention to divest certain other businesses,
including its exploration and production (E&P) and nuclear power
businesses, again in line with the company's strategic objective to
shift towards the customer-facing activities [2]. While Centrica
had previously anticipated completion of the sale of the Spirit
Energy E&P business and its nuclear interest by the end of this
year, both processes have been delayed and are currently paused,
given falls in commodity markets and the impact of the coronavirus
outbreak on asset prices.
The planned disposals will lead to a simpler and leaner corporate
structure but, in the view of the rating agency and subject to
execution, they will also further erode Centrica's scale and
diversification. While the company's exposure to commodity markets
will decrease and credit metrics will be bolstered by the disposal
of the NA business, there is uncertainty around the extent and
sustainability of the improvement in Centrica's financial profile
and debt reduction, given execution risks associated with the
disposal of the E&P and nuclear businesses, and yet to be
negotiated terms regarding the company's contribution to the
pension schemes.
Centrica's activities are subject to various pressures in the
context of a difficult operating environment. The spread of the
coronavirus, which has, amongst other things, resulted in a
reduction in electricity demand from business customers because of
restrictions to business activity, and the falls in commodity
prices reduced the company's earnings by some GBP425 million in the
first half of 2020. In this regard, Centrica's performance showing
a GBP56 million decline in adjusted operating profit to GBP343
million was fairly strong owing to management mitigating actions.
While Centrica remains focused on actions to preserve cash flows,
and has so far not reported any deterioration in bad debt, the
outlook for the business remains uncertain.
The change in outlook to negative thus takes account of Centrica's
evolving business risk profile and the uncertainty regarding the
final shape of the group and its financial profile -- as the
company pursues its strategy to divest Spirit Energy and nuclear
interest -- in the context of persistently difficult operating
environment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade is unlikely in the near term given continued
regulatory and competitive pressures in Centrica's key markets of
operations and exposure to commodity markets. The outlook could be
changed to stable if there was sufficient clarity over the future
evolution of Centrica's business profile in conjunction with
financial metrics commensurate with a Baa2 rating, taking into
account the shape of the business.
Downward rating pressure could arise if Centrica appeared unlikely
to maintain a financial profile in line with the current ratings,
namely funds from operations (FFO)/net debt above 35% on a
sustainable basis. This ratio guidance factors in Centrica's
planned sale of the NA business, but it could be revised in the
context of further disposals, including Spirit Energy and nuclear
interest, once these appear sufficiently likely.
The principal methodology used in these ratings was Unregulated
Utilities and Unregulated Power Companies published in May 2017.
LIST OF AFFECTED RATINGS
Issuer: Centrica plc
Affirmations:
LT Issuer Rating, Affirmed Baa2
Junior Subordinated Regular Bond/Debenture, Affirmed Ba1
Senior Unsecured Bank Credit Facility, Affirmed Baa2
Senior Unsecured Commercial Paper, Affirmed P-2
Senior Unsecured Regular Bond/Debenture, Affirmed Baa2
Outlook Actions:
Issuer: Centrica plc
Outlook, Changed To Negative From Stable
Centrica plc is the UK's largest energy supplier. It provides gas
and electricity to residential and commercial customers, mostly
under the British Gas brand. The company also provides
energy-related services, mainly comprising maintenance and repair.
In North America, Centrica supplies energy to commercial and
residential customers via its Direct Energy subsidiary.
CRUDEN CONSTRUCTION: Goes Into Administration
---------------------------------------------
Business Sale reports that Warrington-based construction firm
Cruden Construction, which has been operating for more than 50
years, has revealed that it is set to go into administration.
The well-established company has announced that it has filed a
notice of intent to appoint an administrator just one month after
it was awarded a GBP19 million contract to construct a care home in
Southport, Business Sale relates.
The news comes after the company reported an operating loss of
GBP2.3 million for the financial year ending September 2018,
despite turning over more than GBP38 million, Business Sale notes.
Like many other construction companies, Cruden saw a number of its
construction sites closed at the start of April due to a lack of
availability of materials following the coronavirus lockdown,
Business Sale discloses.
This resulted in many of the firm's senior managers having to share
short term pay cuts in order to prevent further financial problems.
However, their decision did not change the outcome for the company,
Business Sale states.
According to Business Sale, KPMG are believed to be overseeing the
administration process for Cruden, and have informed the company's
staff of the developments.
ELVET MORTGAGES 2020-1: Fitch Rates Class E Debt BB+sf
------------------------------------------------------
Fitch Ratings has assigned Elvet Mortgages 2020-1 plc final
ratings.
Elvet Mortgages 2020-1 plc
- Class A; LT AAAsf New Rating
- Class B; LT AAAsf New Rating
- Class C; LT Asf New Rating
- Class D; LT BBB+sf New Rating
- Class E; LT BB+sf New Rating
- Class Z; LT NRsf New Rating
TRANSACTION SUMMARY
EM 20-1 is a securitisation of owner-occupied residential mortgages
originated in England, Wales and Scotland by Atom Bank plc, which
originated its first mortgage loan in December 2016. This is the
third UK residential mortgage securitisation originated by Atom.
KEY RATING DRIVERS
Prime Assets, Limited History: The loans within the pool all have
characteristics in line with Fitch's expectations for a prime
mortgage pool. These include no previous adverse credit, full
income verification, full or automated valuation model property
valuation and a clear lending policy. The limited history of
origination and subsequent performance data are sufficiently
mitigated through available proxy data and adjustments made to the
foreclosure frequency in Fitch's analysis.
Coronavirus-related Alternative Assumptions: Fitch expects a
generalised weakening in borrowers' ability to keep up with
mortgage payments due to the economic impact of the coronavirus
pandemic and the related containment measures. As a result, Fitch
applied updated criteria assumptions to EM 20-1's mortgage
portfolio.
The combined application of revised 'Bsf' representative pool
weighted average FF, revised rating multiples and arrears
adjustment resulted in a 'Bsf' multiple of 1.4x to the current FF
assumptions and of 1.1x at 'AAAsf'. The updated assumptions are
more modest for higher ratings as the corresponding rating
assumptions are already meant to withstand more severe shocks.
Fitch also applied a payment holiday stress for the first 12 months
of projections, assuming up to half of interest collections will be
lost, and related principal receipts will be delayed.
Unrated Originator and Seller: Atom is not a rated entity and as
such may have limited resources available to repurchase any
mortgages in the event of a breach of the representations and
warranties given to the issuer. This weakness is mitigated by the
satisfactory findings of the agreed-upon procedures report and of
Fitch's loan file review. As contracted servicer, Atom has limited
experience of the full end-to-end servicing process. This limited
experience is mitigated by back-up servicer provisions.
Link Mortgage Services Limited (RPS2-/RSS2-) is the appointed
back-up servicer.
Replaceable Collection Account Bank: National Westminster Bank Plc
is the appointed collection account bank, but Atom can assume this
role if it becomes a direct member of CHAPS and cheque clearing.
Payment interruption risk is mitigated by a dedicated liquidity
reserve fund for the class A and B notes.
Impact of Payment Holidays: As of July 2, 11.3% of the portfolio's
loans (by balance) were on payment holidays. Atom grants payment
holidays based on a borrower's self-certification in response to
the coronavirus pandemic in line with government guidance. Fitch
expects providing borrowers with a payment holiday of up to six
months to have a temporary positive impact on loan performance.
However, the transaction may face some liquidity constraints if a
large number of borrowers opt for a payment holiday.
Fitch has tested the ability of the liquidity reserves to cover
senior fees, net swap payments and class A and B note interest, and
found that payment interruption risk would be mitigated. The class
C to E notes may defer interest at any time per documentation and
are rated below the 'AAsf' category so are therefore tested only
for ultimate interest. These notes have no dedicated liquidity
protection so are capped at 'A+'sf.
RATING SENSITIVITIES
Downgrade Rating Sensitivity to Coronavirus-Related Stresses
The broader global economy remains under stress due to the
coronavirus pandemic, with surging unemployment and pressure on
businesses stemming from social distancing guidelines. Recent
government measures related to the coronavirus pandemic allow for
mortgage payment holidays of up to six months. Fitch acknowledges
the uncertainty of the path of coronavirus-related containment
measures and has therefore considered more severe economic
scenarios.
As outlined in "Fitch Ratings Coronavirus Scenarios: Baseline and
Downside Cases" (published on April 29, 2020), Fitch considers a
more severe downside coronavirus scenario for sensitivity purposes
whereby a more severe and prolonged period of stress is assumed
with a halting recovery from 2Q21. Under this scenario, Fitch
assumed a 15% WAFF increase and a 15% decrease in weighted average
recovery rates. The results indicate up to a six-notch adverse
rating impact on the notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing credit enhancement and
consideration for potential upgrades.
Fitch tested an additional rating sensitivity scenario: by applying
a decrease in the FF of 15% and an increase in the recovery rates
of 15% the ratings for the subordinated notes could be upgraded by
up to one notch.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transaction's performance may be affected by adverse changes in
market conditions and economic environment. Weakening asset
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce credit enhancement
available to the notes.
In addition, unanticipated declines in recoveries could result in
lower net proceeds, which may make certain note ratings susceptible
to potential negative rating actions depending on the extent of the
decline in recoveries. Fitch conducts sensitivity analyses by
stressing both a transaction's base case FF and recovery rate
assumptions. As a result, ratings could be downgraded by up to
three categories (based on 30% WAFF increase and a 30% decrease in
weighted average recovery rates).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Overall, Fitch's assessment of the asset pool information relied
upon for the agency's rating analysis according to its applicable
rating methodologies indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
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).
GALAXY FINCO: Moody's Affirms CFR at B2, Outlook Stable
-------------------------------------------------------
Moody's Investors Service has affirmed the B2 corporate family
rating and B2-PD probability of default rating on Galaxy Finco
Limited, which is an intermediate holding company of Domestic &
General Group Holdings Limited. D&G is a Jersey-domiciled provider
of subscription-based appliance care for the home. Concurrently,
Moody's has affirmed the B2 rating of the backed senior secured
notes issued by Galaxy Bidco Limited, the immediate subsidiary of
Galaxy Finco Limited. The outlook for both issuers remains stable.
This rating action follows the group's announcement of a EUR100
million tap issuance to its EUR305 million 6.5% senior secured
notes due in 2026 to increase it to a total of EUR405 million.
RATINGS RATIONALE
The affirmation of the B2 CFR reflects Moody's view that, despite
the increase in financial debt, the pro-forma net leverage will
remain within the top end of the range expected for the current
rating level, mainly because the group intends to use the proceeds
to repay the amount drawn in its revolving credit facility. The
affirmation also reflects the group's strong revenue visibility,
driven by good retention rates and new business growth and a solid
track record of stable EBITDA growth through the economic cycle.
D&G has thus far not been significantly impacted by the economic
effects of coronavirus, with renewal retention levels remaining
strong.
The group's gross Debt-to-EBITDA leverage (Moody's calculation)
increased to approximately 7.3x at March 31, 2020, following the
July 2019 debt refinancing and the group drawing down on its RCF
during March 2020, to increase its liquidity buffer in the event of
any covid related shocks. However, the group held a significant
level of unrestricted cash – approximately EUR124 million at the
end of May 2020 – resulting in net leverage remaining at around
6.0x on a pro-forma basis, following the increased size of the
senior secured notes. D&G expects to use the note proceeds to repay
its RCF, mainly to build additional capacity for potential
investments into the US and management of any additional regulatory
capital impacts related to Brexit. To the extent that the RCF is
drawn down again and deployed in the business, Moody's would expect
an incremental EBITDA benefit that would maintain Debt-to-EBITDA
leverage below 6.5x over the medium term.
D&G has reported rising profitability, with underlying EBITDA
increasing by 2% to EUR106.9 million for the year ended March 31,
2020, due to revenue growth from strong subscription renewals. The
business has thus far remained resilient to the economic effects of
coronavirus, with renewals retention remaining consistent at around
85% and subscription plan sales growing 8% year on year for the
quarter ended June 30, 2020. Moody's expects the group's retention
levels and profitability could come under pressure later in 2020
with the potential of the end of the UK governments furlough scheme
to result in elevated job losses.
OUTLOOK AND DEBT RATINGS
The stable outlook on D&G is predicated on Moody's expectation that
leverage will not breach the 6.5x downgrade trigger for a period of
more than 12 months and that the group will gradually reduce
Debt/EBITDA over the coming years. The stable outlook also
incorporates Moody's expectation that, over the coming 12 to 18
months, the group's free cash flow and bottom-line profitability
will improve, despite the high financing costs and ongoing business
investments to improve customer services and cost efficiency.
The B2 instrument ratings on the backed senior secured notes are in
line with the CFR, which reflects their ranking ahead of the backed
senior unsecured notes, but behind the super senior RCF. The backed
senior unsecured notes, issued by Galaxy Finco Limited, are rated
Caa1, which reflects their junior ranking within the capital
structure.
The B2-PD probability of default rating is in line with the B2 CFR
reflecting Moody's assumption of a 50% recovery rate typical for
transactions including a mix of bank debt and bonds.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could arise if: (i) Moody's-adjusted
Debt/EBITDA ratio falls below 5.5x on a sustainable basis; and (ii)
the group generates materially positive free cash flow whilst
maintaining adequate liquidity and interest coverage.
Negative rating pressure would arise if: (i) Moody's-adjusted
Debt/EBITDA ratio remains above 6.5x for a prolonged period; (ii)
the company's free cash flow remains negative with a meaningful
deterioration in the liquidity profile; and/or (iii) D&G's business
profile and market position in its niche market segment
deteriorates significantly.
RATING LIST
Moody's has affirmed the following ratings on Galaxy Finco
Limited:
-- Corporate family rating at B2,
-- Probability of default rating at B2-PD
-- GBP150 million backed senior unsecured notes at Caa1.
Moody's has affirmed the following rating on Galaxy Bidco Limited:
-- EUR200 million backed senior secured floating rate notes at
B2,
-- GBP305 million backed senior secured fixed rate notes at B2.
Moody's has assigned the following rating to Galaxy Bidco Limited's
tap issuance:
-- GBP100 million backed senior secured fixed rate notes at B2.
The rating outlook for Galaxy Finco Limited and Galaxy Bidco
Limited remains stable.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Insurance
Brokers and Service Companies published in June 2018.
GALAXY FINCO: S&P Alters Outlook to Negative & Affirms B LT ICR
---------------------------------------------------------------
S&P Global Ratings revised the outlook on U.K.-based warranty
services provider Galaxy Finco Ltd. (trading as Domestic & General;
D&G) to negative from stable and affirmed its 'B' long-term issuer
credit and issue ratings on D&G and financing subsidiary Galaxy
Bidco Ltd.
D&G is enhancing its liquidity position with a proposed GBP100
million add-on to its 6.5% fixed-rate senior secured notes. D&G
intends to use the net proceeds to increase liquidity, repay the
drawn amounts under the super senior revolving credit facility
(RCF), and add an additional GBP20 million of cash to the balance
sheet. S&P expects that D&G's adjusted leverage will stand at 7.8x
in fiscal 2021, relative to 7.5x in fiscal 2020, given its
expectations of a marginally reduced EBITDA base due to significant
one-off costs relating to the U.S. business expansion. EBITDA will
not fully counterbalance the increase in the cash interest burden
due to continued costs weighing on D&G's adjusted profitability
metrics. This will lead to FFO cash interest coverage only
returning to 2.1x in fiscal 2022 from 1.8x in fiscal 2020. S&P
expect D&G's investments in its digital infrastructure and its
transition to a flexible subscription-based model through its
"customer first" strategy to weigh on adjusted EBITDA growth in
fiscal 2021 before receding in fiscal 2022 and supporting renewal
rates and profitability.
S&P said, "Although we expect working capital flows to decrease
materially following the completion of the "customer first"
transition, we anticipate that D&G's FOCF will likely remain
negative until fiscal 2021. The transition has also resulted in
larger working capital and capital expenditure (capex) outflows.
This has led D&G to perform below our expectations, with negative
adjusted FOCF. We forecast that FOCF will remain negative by about
GBP5 million in fiscal 2021, even as working capital outflows abate
to around GBP20 million per year. We also expect continued costs
related to the U.K.'s exit from the EU (Brexit) and the U.S.
launch, as D&G seeks to expand its presence internationally. We
note that D&G also publishes its own non-International Financial
Reporting Standard free cash flow metric, which includes
distributable reserves, and which we understand will turn negative
based on a transitionary one-off Brexit-related capital impact.
"However, we believe the deterioration in credit metrics is
transitionary and our base case factors in D&G benefiting from
robust revenue and EBITDA growth and generating positive FOCF in
fiscal 2022. We believe a combination of lower working capital
requirements and recurrent costs will spur positive FOCF of GBP12
million in fiscal 2021 as credit metrics normalize to levels
commensurate with the 'B' rating. Furthermore, the affirmation is
underpinned by the company's track record of organic revenue growth
(about a 6.4% compound annual growth rate in fiscal 2016-fiscal
2020). We expect revenue growth will be supported in the medium
term by high revenue visibility given the high revenue renewal
rates (about 80% in the U.K.) and long-term contractual
relationships D&G holds with its original equipment manufacturer
(OEM) partners.
"The negative outlook reflects our expectation that D&G's credit
metrics will remain stressed for the current rating over the next
12 months and that we could take a negative rating action if we
were to expect a weaker recovery in fiscal 2022 than under our
current base case.
"We could lower the ratings if D&G fails to stem working capital
outflows and continues recording significant one-off costs. This
would lead to underperformance relative to our fiscal 2021 base
case, such that we expected D&G to sustain negative FOCF and FFO
cash interest below 2.0x in fiscal 2022.
"We could revise the outlook to stable if D&G's FOCF rebounds in
line with our base case of cash interest coverage sustainably above
2.0x and positive FOCF in fiscal 2022 and beyond."
INTERGEN NV: Moody's Assigns B1 CFR, Outlook Negative
-----------------------------------------------------
Moody's Investors Service has assigned a B1 corporate family rating
and B1-PD probability of default rating to InterGen N.V., in line
with the existing senior secured rating. The outlook on the rating
remains negative.
RATINGS RATIONALE
The B1 ratings are supported by InterGen's very strong liquidity
and Moody's expectation that net leverage will decline over the
next 18-24 months with positive free cashflow. In addition, the
rating reflects good short-term cash flow visibility as a result of
the Spalding tolling contract, which runs until September 2021, and
significant revenues from the UK's capacity mechanism until
September 2024. Moody's expects the company's modern and efficient
fleet of combined-cycle gas turbines in the UK and supercritical
coal-fired stations in Queensland, Australia to remain profitable
in both markets.
However, the rating is constrained by the likelihood that dividends
from the company's Australian joint venture will fall sharply as
lower market prices are reflected in project cash flow, and that
the profitability of the company's UK assets will be reduced with
the expiry of a key contract in 2021. A 2021 debt maturity at the
company's Millmerran coal project may need to be funded from
internal cash flow, which would further constrain distributions to
InterGen. Taken together, these factors mean InterGen's ratio of
funds from operations to debt could fall to the mid-single digits,
in percentage terms, in 2022 and 2023.
The rating is also constrained by refinancing risk at the holding
company, which will rise as the June 2023 maturity of most of its
debt approaches, given weak projected metrics at that time and
lenders' growing focus on ESG-related risks to coal and gas
generators.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The outlook could be stabilised if Moody's believes InterGen will
be able to maintain FFO/debt sustainably above 8% and debt/EBITDA,
based on consolidated and unencumbered assets, below 7x, and if
forthcoming debt maturities are refinanced in good time.
In the longer term, the rating could be upgraded if InterGen
maintains FFO/debt consistently above 12% with prudent liquidity,
or if there were a significant increase in revenue visibility as a
result of long-term offtake contracts with creditworthy
counterparties.
The rating could be downgraded if FFO/debt appears likely to fall
persistently below 8% or if debt/EBITDA rose above 7x. The rating
could also be downgraded if InterGen failed to secure liquidity
comfortably ahead of the 2023 debt maturity, or if there were
changes in the company's business profile that increased cash flow
volatility, without offsetting measures to strengthen the balance
sheet.
The principal methodology used in these ratings was Unregulated
Utilities and Unregulated Power Companies published in May 2017.
Headquartered in Edinburgh, United Kingdom, InterGen N.V. is a
holding company with a 3,269 MW portfolio in operations consisting
of four natural gas-fired power plants in the UK and two coal-fired
power plants in Queensland, Australia. InterGen N.V. is owned by
Sev.en Energy and China Huaneng Group Co., Ltd (A2 stable).
NOBLE CORPORATION: Egan-Jones Lowers Sr. Unsecured Ratings to D
---------------------------------------------------------------
Egan-Jones Ratings Company, on July 20, 2020, downgraded the local
currency senior unsecured ratings on debt issued by Noble
Corporation PLC to D from CC. EJR also downgraded the rating on
commercial paper issued by the Company to D from C.
Headquartered in London, United Kingdom, Noble Corporation PLC
provides diversified services for the oil and gas industry.
VEDANTA RESOURCES: Moody's Confirms CFR at B1, Outlook Negative
---------------------------------------------------------------
Moody's Investors Service has confirmed Vedanta Resources Limited's
B1 corporate family rating and the B3 rating on the company's
senior unsecured bonds.
Moody's has also confirmed the B3 rating on the senior unsecured
bonds issued by the company's wholly-owned subsidiary, Vedanta
Resources Finance II Plc, and guaranteed by Vedanta.
The outlook on all ratings has been changed to negative from
ratings under review.
This concludes the rating review initiated on March.
"The confirmation of all ratings recognizes that while Vedanta's
credit profile will remain stretched, reflecting the challenges
brought on by the pandemic, Moody's believes that the company's
financial metrics will likely recover to levels appropriate for its
current ratings in the fiscal year ending March 2022 (fiscal
2022)," says Kaustubh Chaubal, a Moody's Vice President and Senior
Credit Officer. "That said, the negative outlook reflects the
company's weak liquidity and sizeable upcoming refinancing needs
under extremely challenging market conditions."
RATINGS RATIONALE
The ratings confirmation reflects Moody's expectation that
Vedanta's leverage, as measured by adjusted debt/EBITDA, will
improve to 3.5x-4.0x during fiscal 2022 after remaining about 5.0x
-- 6.0x in fiscal 2021. Aside from refinancing risk, the negative
outlook also indicates the risk of a downgrade if the
coronavirus-driven downturn causes the volatile commodity prices to
drop further, thereby posing downside risks to Moody's current
expectations.
These leverage estimates are based on Moody's price-sensitivity
analysis and expectation that Vedanta will reduce debt and
deleverage following the privatization of Vedanta Limited. Vedanta
is in the process of fully privatizing Vedanta Limited by
increasing its stake to 100% from 50.1%. The transaction, which has
been approved by both companies' shareholders, is now pending price
discovery. At the closing price of INR112.05 per share on July 27,
the additional 49.9% stake in Vedanta Limited was valued at $2.7
billion. Vedanta plans to fund the transaction by raising new
debt.
As a result, pro forma, Moody's expects that the company's
consolidated leverage will rise to 6.0x in March 2020, up from 5.0x
before the transaction. However, immediately following the
privatization, Moody's expects the company to reduce its debt by at
least $2.0 billion, keeping its consolidated leverage around the
5.0x mark.
Moody's views the privatization as credit positive and a major step
in the simplification of the company's complex group structure with
less than 100% ownership in operating subsidiaries, which has
historically hindered its credit profile. The privatization will
provide Vedanta with better access to future cash surpluses and
cash of around $1.7 billion held at Vedanta Limited and its
wholly-owned subsidiary, Cairn India Holdings Limited, in addition
to improving its cash access and ability to allocate assets and
liabilities across the group.
Vedanta's US dollar bonds, issued by/guaranteed by the holding
company are rated two notches lower than the corporate family
rating, reflecting the complex group structure with less than 100%
shareholding in key operating companies and the bondholders' legal
and structural subordination to operating company claims. The
proposed privatization will not completely alleviate the risk for
holding company creditors, who remain legally and structurally
subordinated to claims at the operating companies.
ESG Considerations
In terms of environmental, social and governance factors, the CFR
reflects elevated environmental risk and moderate social risk
associated with the company's mining and oil and gas production
activities that require government approval and licenses, and
historical instances of discontinued operations following alleged
noncompliance with environmental regulations. Moody's also views
the coronavirus pandemic as a social risk given its substantial
implications for public health and safety and the subsequent impact
on the company's operations.
Vedanta's concentrated ownership by Volcan Investments, its sole
shareholder, raises the potential for related-party transactions
that are not in the best interests of creditors. In this regard,
Vedanta's related-party investment in Volcan's structured product
in 2019 - although subsequently unwound - and the additional
support in fiscal 2020 to repay the shareholder's scheduled debt
maturity, are viewed negatively by Moody's. Moody's assessment is
premised on the two transactions' materiality to the holding
company.
Vedanta's planned privatization of Vedanta Limited and its
subsequent delisting expose creditors to the risk of a change in
disclosure practices because the requirements of publicly listed
companies are different from private companies. But, given its
substantial access to international capital markets, Moody's
expects Vedanta will maintain good disclosures even after Vedanta
Limited becomes a private entity, in adherence with the
requirements outlined in its debt agreements. That said, the timing
requirements with respect to these disclosures as per the debt
agreements are likely to remain more relaxed in comparison with the
statutory requirements for listed companies. In addition to Vedanta
Resources being privatized in 2018, now Vedanta Limited will also
be private, unlisted and not be under the scrutiny of minority
shareholders and equity analysts.
LIQUIDITY
Vedanta's liquidity is weak. Vedanta's cash needs for the period
April 2020 through September 2021 include:
(1) $2.0 billion of debt maturities, including the $670 million
bond due in June 2021;
(2) Volcan's entire $425 million privatization debt; and
(3) interest expenses of $700 million and regular dividend
payments.
These cash needs do not consider the acquisition finance debt
Vedanta will raise to privatize Vedanta Limited. As a pure holding
company with no operations of its own, Moody's believes that the
holding company will raise new debt to meet its cash needs if there
is a shortfall in the management fees and dividends it receives
from its operating subsidiaries.
Liquidity at Vedanta's operating subsidiaries will remain weak as
well, because of debt maturities aggregating $2.5 billion from
April 2020 through September 2021. Moreover, Moody's expects the
company to deliver on its accelerated debt reduction plan following
the privatization of Vedanta Limited that would further weaken
liquidity at its key subsidiaries. Owing to their operating
statuses however, the operating subsidiaries should be able to
continue to raise new financing thanks to their ability to offer
assets as security and their proximity to operating cash flow.
OUTLOOK
The negative outlook reflects Moody's view that Vedanta's operating
and financial metrics will remain sensitive to movements in
commodity prices that are exposed to further downside risk. The
negative outlook also reflects the acute refinancing risk
associated with the company's large debt maturities.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
From an operations perspective, rating upgrade momentum could build
if commodity prices improve and support an expansion in Vedanta's
earnings and free cash flow generation, thereby helping the company
reduce debt and strengthen its credit metrics. Absolute debt
reduction, especially at the holding company will also be key.
Financial metrics indicative of an upgrade includes adjusted
debt/EBITDA leverage below 4.0x and EBIT/interest coverage of at
least 1.5x; both on a sustained basis.
Adherence to good and timely disclosures, even as its key
subsidiary Vedanta Limited operates as a private unlisted company
will be a prerequisite for a rating upgrade to Ba3.
Moody's could downgrade the CFR if commodity prices slide or if
Vedanta is unable to sustain and improve its cost reduction
initiatives, such that its profitability weakens, with consolidated
EBIT margin falling below 12% on a sustained basis.
Leverage remaining in excess of 4.5x or EBIT/interest coverage
remaining below 1.25x, both on a sustained basis, will be leading
indicators for a downgrade of the CFR.
Moody's could also downgrade the CFR if:
(1) Vedanta fails to refinance its debt in a timely manner;
(2) there is additional exposure of Vedanta to Volcan in the form
of additional dividends or upstreaming, other than towards
servicing the balance of the privatization loan, which Moody's now
includes for Vedanta's leverage calculations;
(3) Vedanta undertakes large debt-financed acquisitions that
materially skew its financial profile; or
(4) there is any adverse ruling with respect to Cairn India
Limited's disputed tax liability.
Reduced levels of disclosure or transparency for bond holders or
increased incidence of related party transactions, or both, could
also put pressure on the company's ratings.
The principal methodology used in these ratings was Mining
published in September 2018.
Vedanta Resources Limited, headquartered in London, is a
diversified resources company with interests mainly in India. Its
main operations are held by Vedanta Ltd, a 50.1%-owned subsidiary.
Through Vedanta Resources' various operating subsidiaries, the
group produces oil and gas, zinc, lead, silver, aluminum, iron ore
and power.
Delisted from the London Stock Exchange in October 2018, Vedanta
Resources is now wholly owned by Volcan Investments Ltd. Founder
chairman of Vedanta Resources, Anil Agarwal, and his family, are
the key shareholders of Volcan.
For the 12 months to March 31, 2020, Vedanta Resources generated
estimated revenues of $11.8 billion and estinated adjusted EBITDA
of $3.4 billion.
WINFRESH UK: Enters Administration, Sale Among Options
------------------------------------------------------
Business Sale reports that UK-based banana supplier Winfresh UK Ltd
has revealed that it has entered administration after 26 years of
operation.
Located near Stansted Airport in Essex, Winfresh has supplied UK
retailers and food service providers with bananas since it was
first established in 1994.
However, the firm has now been forced to appoint Michael Lennon,
Sarah Bell and Philip Dakin of Duff & Phelps Ltd as joint
administrators to the business, Business Sale relates.
"In recent years, the UK banana market has become highly
competitive and that has impacted the company in terms of volume
and pricing. As a result, the financial position of the company
has become untenable and mounting cash flow pressures have resulted
in the appointment of the joint administrators," Business Sale
quotes Mr. Lennon as saying.
According to Business Sale, Duff & Phelps said it is working
closely with the Winfresh's customers and suppliers to establish
what the short-term future could hold for the company, stating that
it is "too early" to define what its long-term prospects could be.
However, the advisors have confirmed that they will explore all the
options available to them, including the possible sale of the
company, Business Sale notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2020. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *