/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200805.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Wednesday, August 5, 2020, Vol. 21, No. 156 Headlines A U S T R I A AI ALPINE: Fitch Affirms LT IDR at B, Outlook Stable F R A N C E BIOGROUP: Moody's Affirms CFR at B2, Outlook Negative CAB SOCIETE: Fitch Affirms LT IDR at B, Outlook Negative G E R M A N Y WIRECARD AG: German Regulator Probes EY's Audit of Accounts K A Z A K H S T A N JUSAN GARANT: S&P Affirms B+ Long-Term ICR, Outlook Stable N E T H E R L A N D S RENOIR CDO: Moody's Upgrades Class D-2 Notes to Ba1 R U S S I A PIK GROUP: S&P Withdraws B+ Long-Term Issuer Credit Rating U N I T E D K I N G D O M BYRON BURGER: Bought Out of Administration by Calveton UK DOVER ATHLETIC: At Risks of Insolvency Due to Covid-19 Pandemic NMC HEALTH: Secures US$250MM Financing Facility to Support Ops PIZZA EXPRESS: May Close 67 of UK Restaurants Under CVA Proposal [*] UK: Corporate Insolvencies Expected to Rise in Coming Quarter - - - - - ============= A U S T R I A ============= AI ALPINE: Fitch Affirms LT IDR at B, Outlook Stable ---------------------------------------------------- Fitch Ratings has affirmed Austria-based reciprocating engine maker AI Alpine's Long-Term Issuer Default Rating at 'B' with a Stable Outlook. The ratings of Alpine remain constrained by its high leverage as Fitch believes that significant de-leveraging is unlikely until 2021 at the earliest. Funds from operations gross leverage, which was close to 8x at end-2019, is expected by Fitch to remain above 7x until 2022, a level considered high for the rating. Offsetting this are rating positive factors such as Alpine's high proportion of revenue derived from services, a strong market position in gas-fired power generation and diversification by end-customer and geography. While cash flows in 2019 were weak, partly as a result of the continuing costs of the company's carve-out from GE in 2018, Fitch expects FCF to improve to sustainably positive levels from 2021. Furthermore, its business profile benefits from an exposure to end-markets with broadly favourable long-term demand dynamics. KEY RATING DRIVERS Limited COVID-19 Impact: To date, the direct effects from the pandemic on Alpine are limited. Fitch expects some decline in demand from customers in 2020 as a result, especially where financing availability is unpredictable, but the long-term growth trajectory of the business should recover by end-2021. The company's supply chain is, for the most part, not reliant on long-distance cross-border shipments of parts from heavily affected regions; consequently, there have been no production disruptions. Strong Niche Market Position: Alpine's business profile benefits from the company being the number one global manufacturer in power generation and number two in gas compression engines in a sector with high barriers to entry. Its market-leading positions are protected by proven technology and reliability, low life-cycle costs, fuel efficiency and a comprehensive service offering. Its diversification by end-customer and geography is weakened by a narrow product range and operating in a niche, albeit growing, market. Alpine's ratings benefit from strong business risk, as nearly half of its revenue (48% in 2019) is from stable maintenance and service activities. Stable and Robust Long-Term Cash Flows: Alpine's FFO margin declined to 9.4% in 2019 as a result higher financing and tax costs, and is expected to be around 10% in 2020, due to the pandemic. Nevertheless, Fitch expects the FFO margin to rebound to 12%-13% from 2021, underpinned by a high portion of service-related revenue and diversified end-markets. Stable working capital cash flows from 2021 should ensure healthy free cash flow (FCF) margins of above 9% on a sustained basis once one-off carve-out expenses end, although this assumes no dividend distributions. FX Risk Minimal: Alpine's transactional currency exposure is small as sales and operating costs are broadly matched. However, following the transfer of the Waukesha activities to Welland, Canada, certain costs will be in Canadian dollars. The debt currency mix closely reflects Alpine's revenue and cost structure, providing a natural hedge against FX risk. It achieves additional protection against interest rates by hedging debt facilities. Alpine's FX translation effects are much lower since it changed its reporting currency to euros, to which most of its business is exposed. Leverage to Decline from 2021: While leverage is likely to remain high at end-2020 as a result of the pandemic-related market weakness, Fitch forecasts FFO-adjusted net leverage to decline to around 6x at end-2021 and below 5x by end-2022 under its rating case, from 7.7x at end-2019. This is expected to be driven by a steady improvement in trading in 2021, the finalisation of carve-out costs and the achievement of targeted cost savings by new management. DERIVATION SUMMARY Alpine's closest competitors by product are Generac Power Systems Inc and Rolls-Royce Power Systems, both of which exhibit better rating profiles than that of Alpine. Generac has a materially stronger financial profile as it consistently generates FFO and FCF margins of around 15% and 12%, respectively, due to a larger exposure to residential end-markets. Its leverage, typically around 3x-4x, is also lower than Alpine's. Offsetting this, Generic's credit profile is somewhat constrained by a less diversified business profile (end-customer and geography) than Alpine's. RRPS, fully owned by Rolls-Royce plc (BBB-/Negative) and benefiting from intra-company funding arrangements), generates FFO margins (usually around 7%) that are lower than those of Alpine as a result of its exposure to a wider range of more competitive end-markets. However, its business profile benefits from being far more diversified than Alpine's by product offering and end-markets. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer: - Revenue to grow 2% CAGR for 2019-2023, driven by 5% growth in services supported by an enlarged installed base leading to more long-term service agreements; new equipment revenue expected to decline at 3% CAGR for 2019-2023, reflecting lower demand post-coronavirus in 2020 and 2021 and low oil prices. - Contribution (gross) margin to improve to 34%-36% until 2022, due to cost savings mainly from improved production efficiencies. - Fitch-adjusted EBITDA margin to decline to 18% in 2020 and gradually improving to 22% by 2022, due to higher contribution margins and fixed-cost reductions. - High working capital requirements for 2020, in line with prior year's, reflecting extended terms for customer payments post-coronavirus in line with new liquidity policy, before stabilising in 2021. - Capex requirements to remain low, as the company is well-invested, rising towards 4% of sales a year up to 2022. R&D to remain at 50%-60% of total capex until 2023. Recovery Assumptions: Fitch estimates under its bespoke recovery analysis that a going-concern approach will lead to higher recoveries for creditors, given Alpine's long-term proven robust business model, long-term relationship with customers and suppliers, and existing barriers to entry in the market. Fitch estimates a going-concern value for Alpine at around EUR1.03 billion (before deducting 10% for administrative claims), assuming a post-reorganisation EBITDA of about EUR201 million with a multiple of 6x. This reflects the company's premium market positioning and adjusts for the value factoring drawdown of about EUR155 million (as per Fitch criteria the highest amount drawn in the past 12 months). Its waterfall analysis generated a ranked recovery in the 'RR3' band, indicating a 'B+' rating for the senior secured debt, and recovery in the 'RR6' band for the second-lien debt, indicating a 'CCC+' rating. The waterfall analysis output percentage on current metrics and assumptions is 56% for the senior secured debt, and 0% for the second-lien debt. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - FFO gross leverage below 6x (2019: 7.9x; 2020E: 8.6x) - FCF margin above 5% (2019: -16.5%; 2020E: -0.4%) - FFO margin above 10% (2019: 9.4%; 2020E: 10.4%) - Improved business diversification through an expansion of the product portfolio - Successful implementation of the carve-out process without operating disruptions and proven successful delivery of cost-efficiencies Factors that could, individually or collectively, lead to negative rating action/downgrade: - FFO gross leverage above 8x beyond 2020 - FCF margin below 4% beyond 2020 - FFO margin below 8% beyond 2020 - FFO interest cover below 2x (2019: 2.7x; 2020E: 2.8x) 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 Satisfactory Liquidity: Fitch expects Alpine to have healthy liquidity from 2021 onwards, driven by high cash generation and lack of material scheduled debt repayments until 2025. However, liquidity was reduced in 2019, reflecting a EUR150 million dividend payment to shareholders, coupled with the impact of non-recurring revenue. Lower trading expected in 2020 and non-recurring items related to the carve-out will reduce cash flow generation and liquidity buffers in the short-term. Fitch assumes around EUR175 million of reported cash on the balance sheet by end-2020, including a revolving credit facility drawn by EUR100 million, which Fitch expects to be fully repaid by end-2021. Fitch also assumes trading recovery in 2021 to lead to healthy FCF generation at 10% of sales, building cash on balance sheet to EUR375 million by end-2022 (assuming no further shareholder-friendly actions) with additional liquidity from a fully available RCF of EUR200 million. Fitch treats EUR25 million of reported cash as necessary for operating needs of the business during the year and hence unavailable for debt servicing. SUMMARY OF FINANCIAL ADJUSTMENTS - Fitch restricts EUR25 million of cash as non-available due to intra-year swings and operating needs. - Adjustments to IFRS 16 metrics made according to its Corporate Rating Criteria. - 8x multiplier applied to annual rents for operating leases. - Adjustments to factoring according to its Corporate Rating Criteria. 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). =========== F R A N C E =========== BIOGROUP: Moody's Affirms CFR at B2, Outlook Negative ----------------------------------------------------- Moody's Investors Service has affirmed Biogroup's B2 corporate family rating and its B2-PD probability of default rating. Concurrently, Moody's has affirmed the B2 rating of the company's EUR1,479 million outstanding senior secured term loan maturing in April 2026 as well as the B2 senior secured rating of the EUR120 million revolving credit facility maturing in June 2023. Concurrently, Moody's has assigned a B2 to the planned EUR536 million add-ons to the senior secured term loan maturing in April 2026. The outlook remains negative. The planned add-on will be used along with new equity and EUR118 million planned add-on to the second lien term loan maturing November 2026 to finance business additions. RATINGS RATIONALE Its rating action reflects the following interrelated drivers: - The increased scale and better geographic diversification following these business additions, improving the business profile - The fact that the transaction is leverage neutral thanks to the significant equity contribution and based on the expectation of a normalization of the coronavirus related disruptions in Q2 and a smooth integration of the acquired businesses - The expectation that Moody's adjusted debt/EBITDA will remain around 6.5x in the next 12-18 months, as Moody's believes that the company will pursue its mostly debt funded M&A strategy, the pace of which has been historically significantly higher than for other rated peers - The good operating track record so far even if the high pace of M&A activity limits the ability to track organic performance and integration of past acquisitions, a credit negative. - The adequate liquidity From the beginning of 2017 to July 2020, the company committed a total of around EUR3 billion on acquisitions (including the proposed business additions), of which around 70% was funded by debt, 25% by equity and 5% by cash. As a result, the revenue has increased from EUR215 million in 2017 to above EUR1 billion pro forma for the announced transactions. Biogroup's ratings are supported by its size, leading position and network density in the routine market, its high profitability above that of its peers and good free cash flow generation. The ratings are further supported by the defensive nature and positive underlying fundamental trends for demand for clinical laboratory tests and strong barriers to entry. The ratings are constrained by the company's high leverage (6.3x Moody's adjusted gross debt / EBITDA at YE 2019 pro forma full-year effect of acquisitions), the very ambitious debt funded M&A strategy since 2017, the key man risk and the presence of a subordinated bond located outside of the restricted group. The ratings are further constrained by still some concentration in France and the continuous price pressure in the industry. RATING OUTLOOK The negative outlook primarily reflects the risk that the company's mostly debt-funded acquisition strategy could drive credit metrics outside the triggers set for the B2 for a prolonged period of time. The negative outlook also reflects the uncertainties related to the length and severity of the coronavirus spread, which in a more challenging downside scenario, could further deteriorate the issuers' liquidity profile and credit metrics. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Given the negative outlook, upward rating pressure is unlikely in the near term. A stabilization of the outlook at B2 would require the company to establish a track record of good operating performance for the new perimeter (including the proposed business additions) and visibility in terms of leverage trajectory in the context of the active M&A strategy. However, positive pressure could arise over time if: - The Moody's-adjusted debt/EBITDA falls below 5.25x on a sustained basis; - The Moody's-adjusted free cash flow (FCF)/debt improves to around 10% on a sustained basis; - The company refinances the subordinated bond sitting at the Laboratoire Eimer Selas level. Biogroup is weakly positioned in the B2 rating category and negative pressure could arise if: - Leverage, as measured by Moody's-adjusted debt/EBITDA, exceeds 6.5x on a sustained basis; - The Moody's-adjusted FCF/debt does not improve to around 5% on a sustained basis; - The company's liquidity deteriorates. LIQUIDITY Biogroup's liquidity is adequate supported by (1) EUR104 million of cash on balance sheet as of the end of May 2020; (2) a EUR120 million revolving credit facility, fully undrawn as of the end of May 2020 and (3) long-dated maturities, with the RCF maturing in June 2023, the first-lien term loan in April 2026 and the second-lien term loan in November 2026. The rating agency notes that the size of the RCF is relatively small compared to the size of the enlarged perimeter. Moody's expects positive FCF generation in the next 12-18 months. The term loan is covenant-lite, whereas the RCF is subject to a springing covenant (flat total net leverage covenant at 7.0x) tested quarterly when drawings exceed 35% of the total commitments. ESG CONSIDERATIONS Moody's considers that Biogroup has an inherent exposure to social risks given the highly regulated nature of the healthcare industry and the sensitivity to social pressure related to affordability of and access to health services. Biogroup is exposed to regulation and reimbursement schemes which are important drivers of its credit profile. The ageing population supports long-term demand for diagnostic testing services, supporting Biogroup's credit profile. At the same time, rising demand for healthcare services puts pressure on public sector budgets, which could result in cuts to reimbursement levels for Biogroup's services. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Moody's considers that governance risks for Biogroup would be any potential failure in internal control which would result in a loss of accreditation or reputational damage and as a result could harm its credit profile, although there is no evidence of weak internal control to date. Biogroup has an aggressive financial strategy characterized by high financial leverage and the pursuit of debt-financed acquisitions. Moreover, Moody's believes that the strong growth of Biogroup has been led mainly by Stephane Eimer, the company's founder and CEO, which exposes the company to a key man risk. The risk is only to some extent mitigated by (i) the alignment of interest between the founder, whose personal net worth is tied to the company; (ii) the presence of a supervisory board which oversees management's decision; (iii) the fact that the majority of lab operations are run locally and do not require material involvement from top management and (iv) the presence of CDPQ as a long term partner and as a member of the supervisory board. Creditors also benefit from restrictions in corporate activity provided in the senior debt financial documentation. However, Moody's notes that the supervisory board does not comprise any independent member. STRUCTURAL CONSIDERATIONS The B2-PD probability of default, in line with the CFR, reflects Moody's assumption of a 50% family recovery rate typical for bank debt structures with a limited or loose set of financial covenants. The first lien term loan and the RCF have a pari passu ranking in the capital structure and benefit from upstream guarantees from material subsidiaries of the group representing at least 80% of the group's EBITDA. The security package includes shares, intercompany loans and bank accounts. The first lien term loan and the RCF rank ahead of the EUR305 million second lien (including the planned add-on) in the waterfall analysis but they do not benefit from a notch uplift from the CFR reflecting the limited cushion provided by the EUR305 million second lien term loan. PROFILE Biogroup, headquartered in Wissembourg, France, is one of the largest clinical laboratory testing networks in France. The company, with more than 700 laboratories (pro forma for proposed business additions), offers mainly routine and to a smaller extent specialty tests which are either performed internally or outsourced to other private laboratories. Biogroup is owned by its founder, Stephane Eimer, who controls the company. Minority shareholders include Caisse de Depot et Placement du Quebec, members of the management team and partner biologists. CDPQ is an institutional investor managing mainly pensions and insurance plans in Quebec and is a long-term partner of Biogroup. Mr Stephane Eimer is the founder, the majority owner and the Chief Executive Officer/Chairman of the company and has been managing the company since its creation in 1998. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. CAB SOCIETE: Fitch Affirms LT IDR at B, Outlook Negative -------------------------------------------------------- Fitch Ratings has affirmed CAB Societe d'excercice liberal par actions simplifiee's Long-Term Issuer Default Rating at 'B' ahead of the company's planned business additions. The Outlook is Negative. Fitch has also affirmed CAB's senior secured debt at 'B+'/'RR3', ahead of an EUR536 million term loan B add-on to be raised to repay a EUR90 million drawdown on the company's revolving credit facility and partly finance the planned business additions. The IDR of CAB remains materially constrained by its aggressive leverage profile and financial policies, which are driven by an opportunistic, albeit well-executed, business strategy. The business additions would have a positive impact on CAB's operating profile, which in combination with more conservative funding expectations than for previous acquisitions, could facilitate deleveraging towards 8.0x on a funds from operations adjusted basis in 2020 after accounting for the full-year impact of the transaction. Nevertheless, Fitch maintains the Negative Outlook given expected M&A activity in excess of EUR1 billion for 2020, the highest in CAB's history, in combination with persistently low visibility and unpredictability of the company's funding approach to future growth. KEY RATING DRIVERS Strategy Drives IDR: Given a highly fragmented European laboratory-testing market, acquisitive growth will dominate CAB's business strategy, with the quality of target assets and funding mix as a decisive rating driver. The 'B' IDR encapsulates its assumptions around a disciplined selection of acquisition targets with strong margin-accretive characteristics, rigorous integration and partial equity co-funding in line with levels observed in the last two years. Departure from the established business development strategy resulting in increasing execution risks, lax financial policies and absence of deleveraging by 2021 will lead to a downgrade. Excessive Leverage: CAB's highly opportunistic business strategy has undermined deleveraging prospects, leading to periods of excessive leverage in 2017-2019. The Negative Outlook reflects the risk of a downgrade in the next 12 months if FFO-adjusted leverage remains well above 8.0x in the medium-term. However, CAB's plan to acquire margin-accretive assets, which together with a higher equity funding contribution, could allow for deleveraging towards 8.0x on a pro-forma basis in 2020. Evidence of further EBITDA-accretive, conservatively-funded M&A targets could contribute to the Outlook being revised to Stable. Aggressive Financial Policy: The Negative Outlook still reflects an aggressive financial policy underlined by a string of largely debt-funded acquisitions. CAB's decision to tolerate significantly higher indebtedness over a prolonged period exposes lenders to increased credit risk. At the same time, Fitch does not expect cash leakage in the form of dividends or other shareholder distributions despite loosely structured senior loan documentation offering little creditor protection. Defensive Business Model: CAB's business model is defensive with stable revenues and high and resilient operating margins. The sector has a positive long-term demand outlook and high barriers to entry where scale is an important factor of cost management. Given its growing national coverage and a focused approach to M&A, CAB is well-placed to continue capitalising on the supportive sector fundamentals and deriving value from its buy-and-build strategy, which should allow it to grow faster than the market. Concentration risks due to narrow product diversification, and still large exposure to France, are counter-balanced by high operating profitability and strong cash flow generation. Healthy Cash Flow Generation: Fitch projects CAB will generate sustained solid free cash flow margins in the low double digits through 2023, which it views as strong for the sector. This is particularly evident against larger peers such as Synlab Unsecured Bondco PLC with broadly similar FCF size and expected mid-single digit FCF margins. High intrinsic profitability is also evident in CAB's stronger FCF/total debt cover, which Fitch projects at around 5%-7% in 2020-2023, against 2%-4% at Synlab and other peers. Fitch also expects increasing FCF, as the business gains scale, to become a meaningful source of funding for external growth, contributing to leverage containment. Coronavirus Rating-Neutral: Fitch projects a neutral rating impact from COVID-19 in 2020 as CAB's intra-year performance suggests new testing will fully compensate for a temporary loss of routine-testing activity experienced during the lockdown period. It may also provide a new stream of revenues and cash flows beyond 2020. Stable Regulatory Framework: The triennial agreement between the French Ministry of Health, the National Fund for Health Insurance and the trade association of laboratory unions provides a steady regulatory framework through 2022, supporting its projections of stable sales and operating margins for CAB. Adverse regulatory changes in the lab-testing sector may, however, have a negative impact on CAB's cash flow predictability, and hence on ratings. DERIVATION SUMMARY CAB's defensive business risk with strong execution is underlined in superior operating and cash flow margins against similarly rated peer Synlab (B/Stable), which supports the 'B' IDR. The Negative Outlook reflects Fitch's view of the elevated leverage profile following successive acquisitions in 2018-2020 and limited expected deleveraging, suggesting heightened financial risks for CAB. As a result of rapid acquisitive growth CAB's market position continues to improve, raising the company's relevance in the French lab-testing market. Although the enlarged CAB will remain less diversified in geography and product portfolio than its larger peers, Fitch expects lower integration risk from these acquisitions with good visibility on contractual savings and synergies. This means profitability and FCF generation should remain sustainably strong and above those of Synlab and private peers. CAB's FFO adjusted gross leverage is forecast to remain well above 8.0x in the next two years, which in isolation corresponds to a 'CCC' leverage profile. Excessive leverage is a feature shared by CAB's peers, but deleveraging prospects for CAB are less visible given its highly opportunistic M&A behaviour compared with Synlab's clearer communication on business strategy and acquisition policy. KEY ASSUMPTIONS Fitch's Key Assumptions Within its Rating Case for the Issuer - Sales growth of 35% in 2020, including full-year impact for 2019 acquisitions but excluding 2020 acquisitions; - Organic growth at 0.7% p.a for 2021-2023, reflecting the triennial agreement renewal in France; - Additional COVID-19 testing fully compensates routine activity loss during lockdown months; - M&A of EUR1 billion per year in 2021-2023, using a mix of additional debt, new equity and FCF; - EUR10 million of recurring expenses (above FFO) and general expenses and EUR10 million of M&A-driven trade working capital outflows a year until 2023; Fitch projects a larger trade working capital outflow and recurring expenses in 2020 following investments for new COVID-19 tests, lower-than-anticipated routine testing and planned asset additions to close in 4Q20; - EBITDA margin improvement following planned business additions and as low-risk synergies materialise on earlier acquisitions; Capex at 2% a year until 2023; and - No dividend payments throughout the life of CAB's debt facilities. KEY RECOVERY RATING ASSUMPTIONS - Fitch follows a going-concern approach over balance-sheet liquidation given the quality of CAB's network and strong national market position - Going-concern EBITDA reflects breakeven FCF, implying a 30% discount to projected 2020 EBITDA, adjusted for a 12-month contribution of all acquisitions (excluding the planned business addition), and excluding the anticipated temporary margin reduction due to COVID-19 but including an estimated cost of capital leases; - Distressed enterprise value (EV)/EBITDA multiple of 5.5x, which reflects CAB's strong market position albeit limited geograpical diversification, implying a discount of 0.5x against Synlab's distressed EV/EBITDA multiple of 6.0x; - Committed revolving credit facility fully drawn prior to distress, in line with Fitch's criteria; - Structurally higher-ranking senior debt of around EUR25 million at operating companies to rank ahead of RCF and TLB; - RCF and TLB rank pari passu with each other; - After deducting 10% for administrative claims from the estimated post-distress EV, its principal and interest waterfall analysis generates a ranked recovery for the senior secured debt (including RCF and the enlarged TLB) in the 'RR3' band, indicating a 'B+' instrument rating. The waterfall analysis output percentage on current metrics and assumptions is 54%. - Upon completion of the planned business addition, Fitch expects going-concern EBITDA would grow faster than senior secured debt keeping recoveries in the 'RR3' band. This will still indicate a 'B+' instrument rating but improving marginally the waterfall analysis percentage to 57%. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - A larger scale, increased product/geographical diversification, full realisation of contractual savings and synergies associated with acquisitions and/or voluntary prepayment of debt from excess cash flow, followed by: - FFO adjusted gross leverage (pro forma for acquisitions) trending towards 6.0x on a sustained basis; and - FFO fixed charge cover (pro forma for acquisitions) trending towards 3.0x on a sustained basis. Factors that could, individually or collectively, lead to the Outlook being revised to Stable: - FFO adjusted gross leverage (pro forma for acquisitions) trending below 8.0x by 2021 - FFO fixed charge cover above 2.0x (pro forma for acquisitions) on a sustained basis; and - FCF/total debt in mid-single digits and stable operating performance. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Weak operating performance with neutral to negative like-for-like sales growth and declining EBITDA margins due to a delay in M&A integration, competitive pressures or adverse regulatory changes; - Failure to show significant deleveraging towards 8.0x (pro forma for acquisitions) by 2021 (2019: 9.5x, pro-forma: 9.0x) on a FFO adjusted gross basis due to lost discipline in M&A and an equity-biased financial policy; - FCF margin declining towards mid-single digits such that FCF/total debt falls to low single digits; and - FFO fixed charge cover below 2.0x (pro forma for acquisitions) (2019: 2.1x, pro-forma: 2.2x) on a sustained basis. 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: At end-May 2020 CAB had EUR104 million of cash on its balance sheet (including EUR15 million that Fitch treats as the minimum cash required in daily cash operation and unavailable for debt service), and a EUR120 million committed revolving credit facility available. Routine testing is returning to normal levels while the COVID-19 testing has significantly picked up. Fitch expects the latter to still increase in the coming months, which would allow the business to maintain adequate liquidity for a potential second wave of infections and re-imposition of some restrictions. CAB's term loan B and second lien debt have long maturity to 2026 (bullet repayment). Although the long timeframe lowers refinancing risk, the concentrated funding may make refinancing more challenging for the company, especially if leverage remains high prior to refinancing. The RCF matures in 2023, as its maturity, contrary to the TLB's, was not extended at previous incremental debt transactions. 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 CAB has an ESG Relevance Score of '4' for Social Impacts due to its exposure to the French regulated medical market, which is subject to pricing and reimbursement pressures as governments seek to control national healthcare spending. Adverse regulatory changes in the lab-testing sector may, therefore, have a negative impact on CAB's ratings. This is mitigated by the 2020-2022 triennial plan agreement, providing some market growth and earnings visibility until December 2022. Except for the matters discussed, the highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). ============= G E R M A N Y ============= WIRECARD AG: German Regulator Probes EY's Audit of Accounts ----------------------------------------------------------- Thomas Escritt, Christian Kraemer, Hans Seidenstuecker and Douglas Busvine at Reuters report that the German body in charge of regulating auditors is examining the work of Ernst & Young, the auditor that approved the books of collapsed payment services firm Wirecard, the German Economy Ministry said on Aug. 3. The ministry said Auditors' Regulator (Apas) had upgraded a preliminary investigation that had been running since October 2019, when the Financial Times first reported allegations of fraud at Wirecard, into a full formal regulatory inquiry, Reuters relates. Handelsblatt newspaper, which first reported that the inquiry was underway, said the regulator was examining all audits that EY had conducted of Wirecard's accounts since 2015, Reuters notes. "A preliminary inquiry was launched in October 2019," the ministry, as cited by Reuters, said in a statement. "In May 2020, after KPMG's report came out, that was turned into a full regulatory inquiry, which is still underway." According to Reuters, EY, Wirecard's auditor for more than a decade, said it was assisting the authorities with their investigations. As reported by the Troubled Company Reporter-Europe on June 26, 2020, The Financial Times reported that Wirecard filed for insolvency after the once high-flying payments group revealed a multiyear fraud that led to the arrest of its former chief executive. In a remarkable collapse of a company once regarded as a European tech champion, Wirecard said in a statement on June 25 that it faced "impending insolvency and over-indebtedness", the FT related. According to the FT, EY on June 25 said there were "clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception", adding that "even the most robust and extended audit procedures may not uncover a collusive fraud". Wirecard's admission that EUR1.9 billion of cash was missing was the catalyst for the company's unravelling, the FT noted. =================== K A Z A K H S T A N =================== JUSAN GARANT: S&P Affirms B+ Long-Term ICR, Outlook Stable ---------------------------------------------------------- S&P Global Ratings affirmed its 'B+' long-term issuer credit and financial strength ratings on Kazakhstan-based Insurance Company Jusan Garant JSC. The outlook is stable. At the same time, S&P affirmed its 'kzBBB+' national scale rating on the company. S&P said, "We affirmed the ratings because Jusan Garant's extremely strong capital adequacy balances its relatively modest absolute size in an international context and gradually stabilizing operating performance. Our ratings solely reflect Jusan Garant's stand-alone characteristics, since we do not anticipate any negative implications from its ownership by the weaker-rated First Heartland Jusan Bank JSC (B/Stable/B). "We consider that current disruptions on financial markets, notably due to the coronavirus pandemic, will not materially harm Jusan Garant's business prospects or profits. The insurer has relatively low exposure to COVID-19-related claims and had fewer motor claims during government-imposed mobility restrictions. We estimate the insurer will report a net property/casualty (P/C) combined (loss and expenses) ratio close to 100% in 2020 and gradually improve it to 97% in 2021-2022, which is still higher than our expectation for the whole P/C market (close to 92%). We expect Jusan Garant will post an average annual net profit of above Kazakh tenge (KZT)750 million (about $1.7 million) in 2020-2021, which supports capital adequacy and future growth of the company. We do not incorporate the impact of foreign exchange volatility for 2020 results, even though we've observed depreciation of the tenge during 2020. However, we acknowledge that this could add to the company's net profit. We expect return on equity (ROE) will be close to 7%-8% in 2021, which will be below the expected market average (about 14%). "We acknowledge that decreased business activity and intensifying competition could hinder further business development and underwriting performance. We also recognize that further financial market turbulence in 2020 could add volatility to Jusan Garant's investment results. However, the company's results have held up well so far and we believe the capital buffer is sufficient to absorb any foreseeable volatility. As the situation evolves, we will update our assumptions and estimates on Jusan Garant accordingly. "In our view, Jusan Garant's competitive position is fair, reflecting the company's small premium base in absolute terms, its still-developing franchise, and intense competition in Kazakhstan's insurance market. We take a positive view of the company's cleanup of its insurance portfolio, which led to improvement of the net loss ratio to 90% in 2019 compared with a five-year average of close to 100%." Jusan Garant's small absolute capitalization in an international context offsets its sound capital adequacy, according to our risk-based model. In S&P's view, the company is likely to maintain sufficient capital buffers in 2020-2021, thanks to modest premium growth and no substantial losses. S&P said, "Our rating on Jusan Garant is higher than that of its parent, Jusan Bank, since we believe the regulatory framework in Kazakhstan will continue to prevent an outflow of funds from Jusan Garant to support the bank parent. That said, we also believe that Jusan Garant is strategically important to the bank's long-term strategy, which envisages diversification of business within the group. We believe the insurance company is unlikely to be sold during the medium term, and could stand to benefit from its association with the banking group, should the bank's creditworthiness improve. "The stable outlook reflects our view that over the next 12 months, the insurer will be able to withstand the current recession without compromising its competitive position and capitalization. We also expect Jusan Garant to preserve current conservative investment and underwriting standards." S&P could take a negative rating action in the next 12 months if: -- Capital adequacy deteriorated due to the payout of a material amount of dividends or support to the banking group via other available instruments; -- Competitive position weakened, for example, after a substantial insurance loss or a decline in premium volumes; or -- The company revised its investment strategy, resulting in average asset quality declining to 'B' or lower. S&P said, "We could take a positive rating action within the next 12 months if we believed the company would be able to demonstrate sustainable improvement in asset quality alongside sound operating results. We could also consider a positive rating action if we saw substantial growth of capital size, with all other factors remaining the same. So far, we believe that a modest deterioration of Jusan Bank's creditworthiness would not automatically affect the rating on Jusan Garant." ===================== N E T H E R L A N D S ===================== RENOIR CDO: Moody's Upgrades Class D-2 Notes to Ba1 --------------------------------------------------- Moody's Investors Service has upgraded the ratings of the following classes of notes issued by Renoir CDO B.V.: EUR4.25M (Current outstanding balance EUR4.20M) Class D-1 Deferrable Fixed Rate Notes, Upgraded to Ba1 (sf); previously on Apr 26, 2018 Upgraded to B1 (sf) EUR5.05M (Current outstanding balance EUR5.00M) Class D-2 Deferrable Floating Rate Notes, Upgraded to Ba1 (sf); previously on Apr 26, 2018 Upgraded to B1 (sf) EUR8.50M (Current outstanding rated balance EUR3.70M) Combination Notes, Upgraded to Ba1 (sf); previously on Apr 26, 2018 Affirmed Ca (sf) Renoir CDO B.V. is a managed cash-flow collateralized debt obligation backed primarily by a portfolio of Euro dominated Structured Finance securities. At present, the portfolio is composed mainly of RMBS. The portfolio is managed by BNP Paribas Asset Management and the transaction passed its reinvestment period in April 2010. RATINGS RATIONALE The upgrade action on the notes is primarily a result of the deleveraging of the transaction, following amortisation of the underlying portfolio. Between January and July 2020, EUR5.3m of principal payments were received, of which more than half were unscheduled and included a significant amount from assets reported as defaulted. During the last six months, Class C notes have been redeemed in full, and Class D-1 and Class D-2 notes paid down by approximately EUR45.1K and EUR53.5K, respectively. Following the deleveraging, Class D over-collateralisation (OC) ratio has improved to 173.7% as per July 2020 trustee report [1], compared to 148.78%, as per the January 2020 report [2]. Furthermore, the Class D-1 and D-2 notes are no longer deferring interest, and they have paid all of the previously deferred interest of EUR1.1M and EUR0.5M, respectively. Moody's notes that the July 2020 principal payments are not reflected in the reported OC ratio. The upgrade of the Combination Notes is a result of its remaining rated balance now being overcollateralised by its Class D-1 component. Moody's rating of the Combination Securities addresses only the ultimate receipt of the Combination Securities Rated Balance by the holders of the Combination Securities. Moody's rating of the Combination Securities does not address any other payments or additional amounts that a holder of the Combination Securities may receive pursuant to the underlying documents. 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 global economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around its forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Approach to Rating SF CDOs" published in July 2020. Counterparty Exposure: Its rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2020. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, in light of uncertainty about credit conditions in the general economy. In particular, the length and severity of the economic and credit shock precipitated by the global coronavirus pandemic will have a significant impact on the performance of the securities. Additional uncertainty about performance is due to the following: - Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. - Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =========== R U S S I A =========== PIK GROUP: S&P Withdraws B+ Long-Term Issuer Credit Rating ---------------------------------------------------------- On Aug. 3, 2020, S&P Global Ratings withdrew its 'B+' long-term issuer credit rating on the Russian residential property developer PIK Group at the issuer's request. S&P said, "At the time of withdrawal, our 'B+' rating and stable outlook reflected our expectation that PIK Group will sustain its leading position in the Russian real estate development sector and maintain revenue growth despite COVID-19, although we anticipate somewhat slower growth compared with our pre-pandemic forecasts. We believe that PIK will be a key beneficiary of government support, which will somewhat mitigate the longer-term pressure on demand stemming from the softer economic conditions. "The stable outlook incorporated our expectation that PIK will maintain adjusted debt to EBITDA of 3.0x-3.5x in 2020-2021, with more than half of its debt being project finance loans covered by cash in escrow accounts. We also expect the company will demonstrate a prudent financial policy and keep its liquidity at least adequate, implying minimal refinancing risk." =========================== U N I T E D K I N G D O M =========================== BYRON BURGER: Bought Out of Administration by Calveton UK --------------------------------------------------------- Business Sale reports that Byron Burger has been sold in a pre-pack deal that will see over half of the chain's 51 restaurants permanently close. Byron appointed Will Wright and Steve Absalom from KPMG as joint administrators, Business Sale relates. The administrators have now sold Byron and certain assets to a newco owned by investment firm Calveton UK Ltd., Business Sale discloses. Former owner Three Hills Capital Partners appointed KPMG to seek a buyer for the business at the beginning of May before filing notice of intention to appoint administrators at the end of June, having attracted no bids, Business Sale relays. Three Hills will now become a minority stakeholder in the business, Business Sale states. According to Business Sale, in the deal, 20 sites will continue trading, with 551 of Byron's formerly 1,200 staff transferring to the new owner. The remaining 31 sites will not reopen, having been shut since the beginning of coronavirus lockdown, while there will be 651 staff redundancies, Business Sale says. COVID-19 lockdown has had a catastrophic impact on the UK's casual dining sector, something we explored in-depth in this recent insight, and Byron Burger has been among those to suffer, with KPMG's Will Wright saying the pandemic's impact on the company "has been profound", Business Sale notes. DOVER ATHLETIC: At Risks of Insolvency Due to Covid-19 Pandemic --------------------------------------------------------------- Paul MacInnes at The Guardian reports that National League side Dover Athletic have said they are likely to become insolvent by the end of the month without further investment or an alternative solution, becoming the first professional club to warn of collapse because of the Covid-19 pandemic. The chairman, Jim Parmenter, has made the entire squad available on free transfers in an attempt to cut costs, after he claimed the players refused a temporary pay cut of 20%, The Guardian relates. "The board have been busy assessing the club's financial position and immediate future due to the very difficult circumstances of the Covid-19 pandemic," The Guardian quotes Mr. Parmenter as saying in an open letter to supporters. "The club is still unsure of its income in the coming season but the board are clear income will be greatly reduced." According to the government, Oct. 1 is the earliest date by which fans could make a comeback, but there are doubts over that possibility after the prime minister paused pilot events owing to a resurgence in Covid-19 infections, The Guardian notes. NMC HEALTH: Secures US$250MM Financing Facility to Support Ops -------------------------------------------------------------- Yousef Saba and Saeed Azhar at Reuters report that hospital operator NMC Health has secured a US$250 million financing facility which will allow it to continue to provide healthcare, its administrators Alvarez & Marsal said. According to Reuters, the loan is conditional on a planned second-phase restructuring, Alvarez & Marsal said on Aug. 3, after its London-listed holding company was forced into administration in April following months of financial turmoil. The administrators said the restructuring would allow the funding to support operations and stop adverse creditor actions, Reuters relates. Sources have told Reuters that NMC's UAE entity is considering applying for insolvency under the jurisdiction of Abu Dhabi Global Markets to obtain protection from creditors, a process which is similar to Chapter 11. Last month, Reuters reported that NMC Health, the largest private healthcare provider in the UAE, was raising $250 million in so-called debtor-in-possession financing, Reuters recounts. The administrators said Perella Weinberg Partners had been appointed to explore the potential sale of its international businesses and advise on restructuring alternatives, Reuters notes. The conditions of the financing, to be provided by NMC's leading lenders, will be met by the start of the second-phase restructuring and as NMC starts a three-year business plan, which includes the potential sale of international businesses, Reuters discloses. PIZZA EXPRESS: May Close 67 of UK Restaurants Under CVA Proposal ---------------------------------------------------------------- Henry Saker-Clark at The Scotsman reports that Pizza Express has said it could close around 67 of its UK restaurants and cut up to 1,100 jobs, as part of a major restructuring plan to shore up its finances. The chain said it plans to launch a Company Voluntary Arrangement (CVA) "in the near future", in a move which could lead to the closure of 15% of its 449 UK restaurants, The Scotsman relates. However, it stressed that the final outcome of the restructuring has "yet to be decided", The Scotsman says. According to The Scotsman, Pizza Express, which is majority-owned by Chinese firm Hony Capital, said it has also hired advisers from Lazard to lead a sale process for the business. The company closed all of its UK restaurants on March 23 after the Government-mandated lockdown, before starting a phased reopening of sites last month, The Scotsman recounts. It said the coronavirus pandemic has been a "huge setback" for the restaurant sector but it believes the turnaround plan "will put the business on a stronger financial footing in the new socially distanced environment", The Scotsman states. The restructuring will also involve a "significant" de-leveraging of the group's external debt, reducing it from GBP735 million to GBP319 million, and extending maturities, The Scotsman notes. It also said the move could potentially result in "the transfer of majority ownership of the group to its secured noteholders", according to The Scotsman. Pizza Express also plans to sell its business in mainland China, where it runs 60 restaurants, The Scotsman discloses. [*] UK: Corporate Insolvencies Expected to Rise in Coming Quarter ----------------------------------------------------------------- Andrew Seymour, writing for Foodservice Equipment, reports that corporate insolvencies dropped to their lowest point in four years during the second quarter--but experts have warned that it is looking like the calm before the storm. A total of 274 companies in the UK entered administration in the second quarter of 2020, representing a 28% reduction on Q1, Foodservice Equipment relays, citing an analysis by KPMG. The quarter was almost entirely a period of lockdown, with government measures having a dramatic impact as consumer spending plummeted, Foodservice Equipment discloses. Blair Nimmo head of restructuring at KPMG, said a sharp rise in insolvency numbers should be expected in the coming quarter, Foodservice Equipment notes. "Businesses are emerging into a quite different landscape. They may be required to navigate unforgiving territory, combining the withdrawal of government support, local lockdowns, consumer caution and shrinking margins due to new health and safety regimes and reduced productivity. "The months ahead will see real pressure on cash flow as a consequence of the working capital demands of reopening, while at the same time servicing and repaying new bank facilities, repaying tax arrears and the costs of any required redundancies." The severity of the poor financial health of some casual dining businesses in particular is already evident, Foodservice Equipment states. Many operators were struggling pre-Covid-19 and the easing of lockdown has brought a raft of closures, CVA proposals and administrations, Foodservice Equipment discloses. These are expected to continue and indeed accelerate as some of the government support schemes wind down, Foodservice Equipment says. According to Foodservice Equipment, Mr. Nimmo concluded: "Given this outlook, the Q3 insolvency data could tell quite a different story. However, the most significant change to insolvency legislation in nearly two decades came into effect at the end of June. "These provision--including a new moratorium process providing breathing space from creditor pressure and temporary changes to certain director requirements--may help some businesses find a solvent solution to their financial challenges, avoiding the need to enter administration or liquidation." ********* 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 * * *