/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200828.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, August 28, 2020, Vol. 21, No. 173 Headlines F R A N C E CASSINI SAS: Moody's Downgrades CFR to Caa1, Outlook Negative I R E L A N D CAIRN CLO XII: Fitch Gives Final B-sf Rating on Class F Debt ST. PAUL'S VII: Moody's Confirms B2 Rating on Class F Notes L U X E M B O U R G ATENTO LUXCO: Fitch Affirms B+ LT IDR, Outlook Negative M A C E D O N I A EUROSTANDARD BANK: Central Bank Revokes Operating License R O M A N I A BLUE AIR: EC Approves EUR62MM Loan Guarantee to Avert Collapse PRIMA BROADCASTING: Competition Authority Okays Prima TV Takeover S E R B I A JUGOREMEDIJA: Project One Declared Best Bidder for Assets S L O V E N I A ADRIA AIRWAYS: Slovenia Halves Price of Trademark in New Tender S P A I N SANTANDER CONSUMER 2020-1: Moody's Rates Class E Notes (P)B1 U N I T E D K I N G D O M EUROSAIL-UK 07-4: Fitch Cuts Class D1a Notes to B-sf X X X X X X X X [*] BOOK REVIEW: Hospitals, Health and People - - - - - =========== F R A N C E =========== CASSINI SAS: Moody's Downgrades CFR to Caa1, Outlook Negative ------------------------------------------------------------- Moody's Investors Service downgraded the corporate family rating (CFR) of Cassini SAS, the ultimate parent of Comexposium Holding, a France-based trade fair and exhibitions organizer, to Caa1 from B3 and its probability of default rating (PDR) to Caa1-PD from B3-PD. Concurrently, Moody's has downgraded to Caa1 from B3 the rating of the EUR597 million guaranteed senior secured first lien term loan B (TLB) due 2026 and the EUR90 million guaranteed senior secured first lien revolving credit facility (RCF) due 2025. The outlook remains negative. "The downgrade reflects our expectation of limited trade and exhibition shows activity in the third and fourth quarters of 2020 due to the coronavirus outbreak, leading to a material deterioration in operating and financial performance this year, while any recovery in 2021 remains uncertain," says Victor Garcia Capdevila, a Moody's AVP-Analyst and lead analyst for Cassini. "We estimate that if trade shows are not resumed in Q4 2020, the company's most important quarter of the year, its liquidity position will be very tight and its leverage will deteriorate meaningfully," adds Mr. Garcia. RATINGS RATIONALE The coronavirus outbreak will likely have a more material impact on the company's liquidity and operating and financial performance than previously estimated when the ratings were downgraded to B3 from B2 in March 2020. Since then, the group has cancelled around 65 shows and postponed about 60. Moody's revised base case scenario assumes that most of the exhibitions shows and trade fairs planned for the remainder of 2020 will be cancelled or postponed. Moody's estimates that revenue and EBITDA will fall to a range between EUR100 million to EUR180 million and negative EUR35 million to positive EUR15 million in 2020 from EUR374 million and EUR99 million in 2019, respectively. Comexposium has implemented a number of measures to mitigate the negative effects of the coronavirus outbreak, such as (1) postponing the events instead of cancelling them in order to maintain the same terms of commercial arrangements with exhibitors and avoid customer refunds until the shows are cancelled; (2) transitioning a large part of the employee base to part-time employment, freezing hiring, and achieving savings on general and administrative costs; (3) delaying all non-essential capital spending; (4) and transitioning to teleworking. These measures have translated into a cost reduction of around 40% in the first six months of 2020 compared to budget. There is a high degree of uncertainty around a potential recovery in early 2021. Moody's currently expects operating disruptions to continue in the first few month of 2021 due to capacity restrictions, social distancing measures, slow air travel normalization and health and safety concerns from exhibitors and visitors alike to hold face-to-face events. In addition, the global recession in 2020 will affect Comexposium's customers which may have smaller budgets available for events and trade shows. Moody's base case scenario assumes that revenue and EBITDA will be in a range between EUR220 million to EUR300 million and EUR20 million and EUR80 million in 2021, respectively. Under this scenario, Moody's-adjusted gross leverage would increase to a range between 8x and 14x in 2021 (2019: 6.5x). Comexposium is also likely to face an increase in compulsory customer refunds if more shows end up being cancelled. Moody's estimates that as of June 2020, eligible customer refunds amount to around EUR10 million. The company also faces cash outflows of around EUR80 million in 2021 as the put options for L'Etudiant and WSN fall due. Moody's believes that Comexposium is unlikely to be able to meet all cash obligations without external support from its shareholders. In order to strengthen its liquidity, the company is in discussions with its lenders to secure a EUR60 million state guaranteed loan (PGE loan). LIQUIDITY The company's liquidity profile is likely to deteriorate very rapidly over the next two quarters if events planned are cancelled or postponed. Moody's estimates that Comexposium burns between EUR11 million-13 million of cash every month of inactivity. Therefore, the company could burn between EUR66 million and EUR78 million in a scenario where trade shows are not resumed before 2021. This compares with a cash balance of EUR87 million as of the end of June 2020 and an estimated negative free cash flow generation between EUR60 million and EUR110 million in 2020 and EUR20 million and EUR50 million in 2021. The company's EUR90 million revolving credit facility is fully drawn and the springing covenant of 8.6x net leverage ratio is likely to be breached in the next testing period in September 2020. Moody's understands that the company is currently negotiating a covenant waiver with its banks. ESG CONSIDERATIONS The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility are creating an unprecedented credit shock across a range of sectors, regions and markets. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The rating action reflects the impact on Comexposium of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered. STRUCTURAL CONSIDERATIONS The ratings on the EUR597 million senior secured term loan B due 2026 and the EUR90 million senior secured revolving credit facility due 2025 are Caa1, in line with the CFR, reflecting the fact that they share the same security and guarantor package and that both instruments rank pari passu. The Caa1-PD probability of default rating (PDR), in line with the CFR, reflects Moody's assumption of a 50% recovery rate as is customary for all-bank-debt capital structures with a covenant-lite package. Comexposium is subject to a springing covenant to be tested when drawings under the revolving credit facility exceed 40% of total commitments. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook reflects the high leverage of the company and Moody's expectation of likely liquidity pressures if exhibition shows and trade fairs are not resumed by Q4 2020. Stabilization of outlook would require the resumption of events in Q4 2020 and enough liquidity buffer to be maintained throughout 2020 and beyond. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Downward ratings pressure could develop should operating conditions continue to deteriorate and extend into Q4 2020 and beyond, free cash flow remains negative for a sustained period, leverage remains elevated or the company's liquidity proves to be insufficient to run the business. Positive ratings pressure is unlikely in the current uncertain environment. Over time, upward pressure on the rating could develop should operating conditions normalize, liquidity is strengthened, Moody's-adjusted gross leverage sustainably decreases below 7.5x and free cash flow is consistently in positive territory. LIST OF AFFECTED RATINGS Issuer: Cassini SAS Downgrades: Probability of Default Rating, Downgraded to Caa1-PD from B3-PD Corporate Family Rating, Downgraded to Caa1 from B3 Backed Senior Secured Bank Credit Facilities, Downgraded to Caa1 from B3 Outlook Action: Outlook, Remains Negative PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. COMPANY PROFILE Headquartered in Paris, Cassini SAS, the ultimate owner of Comexposium Holding, is a leading organiser of trade fairs and trade shows, with the largest market position in France and the third market position in exhibitions globally, in terms of revenue. The company owns and operates 135 B2B and B2C events across 11 main sectors, connecting more than 46,000 exhibitors and 3.5 million visitors every year in 30 countries. The company reported pro-forma revenue of EUR374 million and pro-forma EBITDA of EUR99 million in 2019, annualised for the effect of biennial and triennial events. ============= I R E L A N D ============= CAIRN CLO XII: Fitch Gives Final B-sf Rating on Class F Debt ------------------------------------------------------------ Fitch Ratings has assigned Cairn CLO XII DAC final ratings. RATING ACTIONS Cairn CLO XII DAC Class A; LT AAAsf New Rating; previously at AAA(EXP)sf Class B; LT AAsf New Rating; previously at AA(EXP)sf Class C; LT Asf New Rating; previously at A(EXP)sf Class D; LT BBB-sf New Rating; previously at BBB-(EXP)sf Class E; LT BB-sf New Rating; previously at BB-(EXP)sf Class F; LT B-sf New Rating; previously at B-(EXP)sf Class M-1; LT NRsf New Rating; previously at NR(EXP)sf Class M-2; LT NRsf New Rating; previously at NR(EXP)sf TRANSACTION SUMMARY Cairn CLO XII DAC is a cash flow collateralised loan obligation (CLO). Net proceeds from the issuance of the notes are being used to purchase a portfolio of EUR330 million of mostly European leveraged loans and bonds. The portfolio is actively managed by Cairn Loan Investments II LLP. The CLO envisages a three-year reinvestment period and a seven-year weighted average life (WAL). KEY RATING DRIVERS 'B'/'B-' Portfolio Credit Quality: Fitch places the average credit quality of obligors in the 'B'/'B-' category. The Fitch-weighted average rating factor (WARF) of the identified portfolio is 33.45. High Recovery Expectations: At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the identified portfolio is 62.4%. Diversified Asset Portfolio: The transaction will have two Fitch test matrices corresponding to two top 10 obligors' concentration limits of 15% and 25%. The manager can interpolate within and between two matrices. The transaction also includes various concentration limits, including the maximum exposure to the three largest (Fitch-defined) industries in the portfolio at 40%. These covenants ensure the asset portfolio will not be exposed to excessive concentration. Portfolio Management: The transaction has a three-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, and to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. Deviation from Model-implied Ratings: The assigned ratings deviate from the model-implied ratings under the new assumptions of Fitch's updated CLOs and Corporate CDOs Rating Criteria, which was published on August 17, 2020 and effective immediately for new ratings. The new assumptions mostly affect recoveries and include the revision of the WARR calculation, for names that are not rated by Fitch, which is now derived from 'BB' assumptions rather than 'B' assumptions previously. The transaction's documentation does not reflect the new criteria. Fitch has deviated by +one notch from the model-implied ratings since the impact on WARR in the magnitude of -1.5% was not deemed material enough to assign lower ratings than the expected ratings. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: A 25% default multiplier applied to the portfolio's mean default rate, and with this subtracted from all rating default levels, and a 25% increase of the recovery rate at all rating recovery levels, would lead to an upgrade of up to five notches for the rated notes, except for the class A notes whose ratings are already at the highest level on Fitch's scale. The transaction features a reinvestment period and the portfolio is actively managed. At closing, Fitch uses a standardised stress portfolio (Fitch's Stressed Portfolio) that is customised to the specific portfolio limits for the transaction as specified in the transaction documents. Even if the actual portfolio shows lower defaults and losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. After the end of the reinvestment period, upgrades may occur in the event of a better than initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses on the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: A 25% increase in the portfolio's mean default rate across all rating default levels, and a 25% decrease of the recovery rate at all rating recovery levels, would lead to a downgrade of up to five notches for the rated notes. Downgrades may occur if the buildup of credit enhancement for the notes following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to the COVID-19 disruption become apparent for other sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of Fitch's Leveraged Finance team. Coronavirus Baseline Scenario Impact: Fitch carried out a sensitivity analysis on the target portfolio to envisage the coronavirus baseline scenario. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. This scenario shows resilience of the assigned ratings, with substantial cushion across rating scenarios. Fitch also considered the possibility that the stress portfolio, determined by the transaction's covenants, would further deteriorate due to the impact of coronavirus mitigation measures. Fitch believes this circumstance is adequately addressed by the inclusion of the downwards notching by a single subcategory of all collateral obligations on Negative Outlook for the purposes of determining compliance to Fitch WARF at the effective date. Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies, before halting recovery begins in 2Q21. The downside sensitivity incorporates the following stresses: applying a notch downgrade to all Fitch-derived ratings in the 'B' rating category and applying a 0.85 recovery rate multiplier to all other assets in the portfolio. This scenario would lead to a downgrade of one to four notches across the structure. DATA ADEQUACY Most of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied on for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ST. PAUL'S VII: Moody's Confirms B2 Rating on Class F Notes ----------------------------------------------------------- Moody's Investors Service confirmed the ratings on the following notes issued by St. Paul's CLO VII D.A.C.: EUR21,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2030, Confirmed at Baa2 (sf); previously on Jun 3, 2020 Baa2 (sf) Placed Under Review for Possible Downgrade EUR25,250,000 Class E Senior Secured Deferrable Floating Rate Notes due 2030, Confirmed at Ba2 (sf); previously on Jun 3, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade EUR10,000,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Confirmed at B2 (sf); previously on Jun 3, 2020 B2 (sf) Placed Under Review for Possible Downgrade Moody's has also affirmed the ratings on the following notes: EUR229,400,000 Class A-1 Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Jul 12, 2018 Assigned Aaa (sf) EUR10,600,000 Class A-2 Senior Secured Fixed Rate Notes due 2030, Affirmed Aaa (sf); previously on Jul 12, 2018 Assigned Aaa (sf) EUR23,150,000 Class B-1 Senior Secured Floating Rate Notes due 2030, Affirmed Aa2 (sf); previously on Jul 12, 2018 Assigned Aa2 (sf) EUR9,500,000 Class B-2 Senior Secured Fixed Rate Notes due 2030, Affirmed Aa2 (sf); previously on Jul 12, 2018 Assigned Aa2 (sf) EUR21,100,000 Class B-3 Senior Secured Floating Rate Notes due 2030, Affirmed Aa2 (sf); previously on Jul 12, 2018 Assigned Aa2 (sf) EUR5,000,000 Class C-1 Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed A2 (sf); previously on Jul 12, 2018 Assigned A2 (sf) EUR15,000,000 Class C-2 Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed A2 (sf); previously on Jul 12, 2018 Assigned A2 (sf) St. Paul's CLO VII D.A.C., originally issued in March 2017, reissued in July 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Intermediate Capital Managers Limited. The transaction's reinvestment period will end in 30 April 2021. RATINGS RATIONALE The action concludes the rating review on the Classes D, E and F notes initiated on June 3, 2020 as a result of the deterioration of the credit quality and/or the reduction of the par amount of the portfolio following from the coronavirus outbreak. The credit quality has deteriorated as reflected in the increase in Weighted Average Rating Factor (WARF), in the defaulted par amount in the portfolio and in the proportion of obligations from issuers with ratings of Caa1 or lower. The trustee reported WARF worsened by about 6.3% to 3391 [1] from 3191 [2] in January 2020 and is now significantly above the reported covenant of 3100 [1]. The trustee reported default amounts increased to EUR13.69 million [1] from zero [2] in January 2020. The trustee reported securities with default probability ratings of Caa1 or lower have increased to 9.7% [1] from 7.6% [2] in January 2020. An over-collateralisation (OC) haircut of EUR4.6 million to the computation of the OC tests is applied. In addition, the over-collateralisation (OC) levels have weakened across the capital structure. According to the trustee report dated July 2020 the Class A/B, Class C, Class D, Class E and Reinvestment test ratios are reported at 132.9% [1], 124.4% [1], 116.6% [1], 108.4% [1], 105.5%[1] compared to January 2020 levels of 136.6%[2], 127.9%[2], 119.9%[2], 111.5%[2] and 108.5%[2] , respectively. Moody's notes that none of the OC tests are currently in breach and the transaction remains in compliance with the following collateral quality tests: Diversity Score, Weighted Average Recovery Rate (WARR) and Weighted Average Spread (WAS). Despite the credit quality deterioration stemming from the coronavirus outbreak, Moody's concluded that the expected losses on all the rated notes remain consistent with their current ratings following the analysis of the CLO's latest portfolio its relevant structural features and its actual over-collateralisation levels. Consequently, Moody's has confirmed the ratings on the Class D, E and F notes and affirmed the ratings on the Class A-1, A-2, B-1, B-2, B-3, C-1 and C-2 notes. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's analysed the underlying collateral pool as having a performing par and principal proceeds balance of EUR389.5 million, a defaulted par of EUR13.7 million, a weighted average default probability of 25.51% (consistent with a WARF of 3389 over a weighted average life of 4.76 years), a weighted average recovery rate upon default of 45.3% for a Aaa liability target rating, a diversity score of 53 and a weighted average spread of 3.76%. The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. In consideration of the current high uncertainties around the global economy and the ultimate performance of the CLO portfolio, Moody's conducted a number of additional sensitivity analyses representing a range of outcomes that could diverge, both to the downside and the upside, from its base case. Some of the additional scenarios that Moody's considered in its analysis of the transaction include, among others: additional near-term defaults of companies facing liquidity pressure; additional OC par haircuts to account for potential future downgrades and defaults resulting in an increased likelihood of cash flow diversion to senior notes; and some improvement in WARF as the global economy gradually recovers in the second half of the year and future corporate credit conditions generally stabilize. The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Its analysis has considered the effect on the performance of corporate assets from the collapse in global economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around its forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in August 2020. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank and swap providers, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2020. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the note, in light of uncertainty about credit conditions in the general economy. In particular, the length and severity of the economic and credit shock precipitated by the global coronavirus pandemic will have a significant impact on the performance of the securities. CLO notes' performance may also be impacted either positively or negatively by: (1) the manager's investment strategy and behaviour; (2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities; and (3) the additional expected loss associated with hedging agreements in this transaction which may also impact the ratings negatively. Additional uncertainty about performance is due to the following: -- Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. -- Other collateral quality metrics: Because the deal can reinvest, the manager can erode the collateral quality metrics' buffers against the covenant levels. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =================== L U X E M B O U R G =================== ATENTO LUXCO: Fitch Affirms B+ LT IDR, Outlook Negative ------------------------------------------------------- Fitch Ratings has affirmed Atento Luxco 1's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. In addition, Fitch has affirmed Atento Luxco's USD500 million senior secured notes at 'B+'/'RR4' and Atento Brasil S.A.'s long-term national scale rating at 'A-(bra)'. The ratings have been removed from Rating Watch Negative. The Rating Outlook for the corporate ratings is Negative. The removal of the Negative Rating Watch reflects lower than previously expected cash burn since March 2020. EBITDA decline due to the coronavirus pandemic and lockdown measures was better than anticipated, with a more flexible cost structure, and Atento managed its working capital needs. Volumes did not decelerate as the agency initially expected. The company was able to postpone certain taxes and expenses to the second half 2020, reducing short-term liquidity pressure. The Negative Outlook incorporates Atento's medium-term challenges to recover operating margins, as its top line has been pressured by technology changes and market dynamics. The Negative Outlook also considers Atento's challenges to improve its debt amortization profile and refinance its 2022 senior notes within the next 12 months. Failure to address its 2022 senior notes could result in a negative rating action. The rating continues to incorporate Atento's limited liquidity, high leverage and high FX exposure, as only 20% of the company's revenues are in hard currency. The ratings are also tempered by the moderate to high-risk industry profile, deteriorated operating environment, negative client concentration of its revenue, lack of minimum volumes in contracts and the intense competition. KEY RATING DRIVERS Operating Environment Deterioration: Trends have been negative for the contract service industry, as companies develop in-house solutions and digital channels to replace CRM traditional voice services, and the deterioration of operating environment with lower economic growth in Latin America and Spain will add additional challenges to long-term trends. Fitch estimates Atento's revenues to fall by about 20% in 2020, negatively impacted by the restrictions from the coronavirus pandemic. The company faces the important challenges of recovering operating margins and managing working capital needs in a weaker operating environment. Medium to High Risk Sector: Atento operates in the CRM/BPO segment, which has a medium- to high-risk stance, in Fitch's view. Competition is intense, clients tend to diversify outsourcing providers to avoid becoming dependent on one supplier, and players have high customer concentration, especially among large financial institutions and telecommunication carriers. Most of the contracts have no minimum volumes, which adds volatility to results. The industry presents high operating leverage, driven by salaries and rent costs, where a permanent reduction in volumes, which demands capacity adjustments, usually result in heavy labor and rent-related severance payments. Additionally, charging fines from contracts suspensions with large clients has historically been difficult. Lower than Expected Cash Burn: Fitch projects Atento will generate USD85 million of EBITDA in 2020 and USD109 million in 2021, compared to USD118 million in 2019, as per Fitch's criteria. During the first half of 2020, Atento reported USD34 million of EBITDA, which was better than initially forecasted, due to lower revenues decline in the 2Q20 and more flexible cost structure. Base case projections considered about 20% revenues reduction during the year. Fitch projects negative cash flow from operations (CFFO) of about USD20 million in 2020, pressured by lower volume calls, higher working capital needs, potential severance payments and higher delinquency rates, and recovering during 2021. Base case projections also considered investments of about USD46 million, with a negative FCF of about USD70 million in 2020. Leverage to Significantly Increase in 2020: Fitch forecasts Atento's net debt/EBITDA ratio of 6.0x in 2020, due to EBITDA reduction and the negative impact of local currency depreciation in Brazil, Mexico, and Colombia. These three countries represent approximately 70% of the company's consolidated EBITDA. In the LTM ended June 2020, Atento's net leverage reached 4.0x, as per Fitch's criteria, compared to 3.8x reported in 2019. Atento is highly exposed to FX risk, as only 20% of Atento's revenues are in hard currency. The majority of its debt is U.S. dollars. As of June 30, 2020, total debt was USD603 million and included its unhedged USD500 million notes due in 2022 (only their coupons are hedged). High Customer Concentration: Atento has high client concentration, with the top 10 clients surpassing 70% of revenues. Although the relevance of Telefonica Group (BBB/Stable) to Atento's revenues has declined in the last few years, it is still high and represents approximately 31% of total revenue. Fitch views this reduction as positive, as it gradually reduces client concentration risk. Telefonica's public intention is to spin-off its Hispam operations (Chile, Mexico, Colombia, Peru, among others) and focus in Brazil, Spain, Germany and the UK. Atento's revenues from Telefonica in Hispam countries reached USD213 million or 14% of the total sales. Due to the deceleration of volumes from Telefonica, Atento may have to renegotiate the Master Service Agreement (MSA), which could represent a dilution in revenues over the next few years. The current MSA guarantees an inflation-adjusted revenue stream until Dec. 2021 (Dec. 2023 in Brazil and Spain). Strong Linkage with Atento Brasil: Fitch considers in its analysis its "Parent and Subsidiary Rating Linkage Criteria" and believes the legal, operational and strategic ties between Atento Luxco and Atento Brasil as strong, suggesting that their ratings are equivalent. Fitch also evaluates the standalone credit profile of Atento Brasil similar to the one presented by Atento Luxco, which would also lead to the current ratings. DERIVATION SUMMARY Atento is the largest CRM/BPO provider in Latin America with around 15% estimated market share. The ratings are tempered by the intrinsic client concentration in telecommunication and financial sectors and limited ability to charge fines from large clients. The classification also embraces the challenges Atento faces to replace declining traditional voice revenues by more value-added services. Atento's EBITDA margins have been below other CRM players, such as Teleperformance S.A.'s, Sykes Enterprises, Incorporated's and TTEC Holdings, Inc.'s 10%-15% EBITDA range. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer Number of Workstations (WS) of 93,300 in 2020 and 94,900 in 2021, from 92,600 in 2019; Revenue per WS falling 22% in 2020 and 2.5% in 2021 on weaker economic activity and FX depreciation in Brazil, Mexico and Colombia; Fitch-defined EBITDA margins of 6.3% in 2020 and 8.2% in 2021; Capex at 3.5% of revenues; No dividends or buybacks in 2020 and 2021. KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that Atento Luxco would be reorganized as a going-concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. Going-Concern (GC) Approach Atento Luxco's GC EBITDA of USD85.4 million assumptions is the same as Fitch's forecast for 2020. The 2020 EBITDA excludes the IFRS16 effects and already incorporate a stress scenario caused by the pandemic. The GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which Fitch bases the enterprise valuation. An EV multiple of 5x EBITDA is applied to the GC EBITDA to calculate a post-reorganization enterprise value. The choice of this multiple considered the following factors: Historical multiple negotiated by the issuer M&A precedent transactions for peers ranged from 3.7x-6.3x, with recent activity at the lower end of that range. This issuer was acquired in 2012 for USD1.3 billion, representing a multiple of 5.2x EBITDA. Liquidation Approach Fitch excluded the liquidation value (LV) approach because Latin American bankruptcy legislations tend to favor the maintenance of the business in order to preserve direct and indirect job positions. In extreme cases where LV was necessary, the recovery of the assets has been proved very difficult for creditors. Moreover, Atento is an asset-light company and selling parts of it, in Fitch's view, would not be the most successful solution. The allocation of value in the liability waterfall results in recovery corresponding to RR3 recovery for the 2022 senior secured bond and the super senior RCF (together USD550 million) and a recovery corresponding to RR6 for the remaining debt and RCFs (USD53 million). However, given that most of the countries Atento operates, such as Brazil, Argentina, Colombia, Mexico and Peru, are in Group D, as per Fitch's Country-Specific Treatment of Recovery Ratings Rating Criteria, the recovery rating is capped at RR4, which denotes a recovery expectation of 31-50% and limits the rating of the issuance at the same rating of the issuer. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Positive rating actions are not expected for the short-term. The Outlook Negative could be revised to Stable if Atento improves its debt amortization profile, favourably renegotiate the MSA, increase hard currency revenues, preserving manageable liquidity position. Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Fail to address the refinancing of its 2022 senior notes over the next year; Fail to recover margins. LIQUIDITY AND DEBT STRUCTURE Cash Burn to Pressure Liquidity: Fitch expects Atento's liquidity to remain pressure in 2020 with the deceleration of the economic activities caused by the pandemic. Fitch estimates Atento will close 2020 with a cash position close to USD100 million. As of June 2020, the company had cash and marketable securities of USD207 million and USD603 million of total debt. Atento has USD112 million of short-term debt, and has high debt maturities in 2022 when the USD500 million bond is due. Atento withdrew USD92 million of its committed credit facilities during the 2Q20, improving cash position. The company also postponed certain taxes and expenses, reducing liquidity pressure in the short term. Atento Luxco's total debt of USD603 million at June 30, 2020 mainly consisted of USD500 million in senior secured bonds due 2022, USD50 million of super senior revolving credit facilities, USD44 million of other revolving credit facilities and bank loans, and USD9.7 million of factoring. SUMMARY OF FINANCIAL ADJUSTMENTS The net balance of hedging positions was added to the total debt. The issuance costs of the bond of USD9 million was added back to the debt. 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). ================= M A C E D O N I A ================= EUROSTANDARD BANK: Central Bank Revokes Operating License --------------------------------------------------------- SeeNews reports that North Macedonia's central bank said it has revoked the founding and operating license of Eurostandard Bank AD Skopje due to non-compliance with the minimum requirements for operating a bank. According to SeeNews, the central bank said in a statement on Aug. 12 the revoking of Eurostandard's license will not jeopardize the banking system's stability as the bank held just 1.3% of the system's total assets, 1.7% of deposits and 1.6% of loans as of June 30. Eurostandard has been under strict supervision in the past months due to risks in its operations, central bank governor Anita Angelovska-Bezoska, as cited by SeeNews, said during a news conference streamed on the central bank's YouTube channel on Aug. 12. Angelovska-Bezoska added that the crucial problems with the bank stem from past weaknesses, not current circumstances, SeeNews notes. "Supervisory surveillance conducted in 2019 showed undercapitalization of Eurostandard Bank AD Skopje, urging the National Bank to take several measures with the crucial being recapitalization of Eurostandard Bank AD Skopje. The commitments for recapitalization in 2019 were partially met, yet the commitments for recapitalization in the first half of 2020 were not met," SeeNews quotes the central bank as saying. As a result, Eurostandard's capital adequacy ratio fell to 2%, which made the bank insolvent under North Macedonia's banking law, SeeNews discloses. Accordingly, the central bank said it will submit to court a proposal for opening bankruptcy proceedings against Eurostandard Bank, SeeNews notes. ============= R O M A N I A ============= BLUE AIR: EC Approves EUR62MM Loan Guarantee to Avert Collapse -------------------------------------------------------------- SeeNews reports that the European Commission said that it has approved a EUR62 million (US$73 million) loan guarantee to help local low-cost carrier Blue Air avoid bankruptcy due to the COVID-19 pandemic. The Commission said in a press release on Aug. 20 the measure aims at compensating the airline for the damages suffered due to the coronavirus outbreak, as well as providing it with urgent liquidity support, SeeNews relates. According to SeeNews, the EC said Blue Air was not eligible to receive support under the Commission's State aid Temporary Framework, aimed at companies that were not already in difficulty on December 31 2019. The Commission therefore has assessed the measure under other state aid rules, in line with the notification by Romania, SeeNews relays. Earlier this month, Romania's government notified the Commission that it has approved an emergency decree granting the state aid to Blue Air, SeeNews recounts. "The aviation sector has been severely hit by the coronavirus outbreak. This 62 million euro Romanian loan guarantee will in part enable Romania to compensate Blue Air for the damage suffered as a result of the coronavirus outbreak. At the same time, it will provide the airline with the necessary resources to address part of its urgent and immediate liquidity needs," SeeNews quotes EC executive vice-president in charge of competition policy Margrethe Vestager as saying. "This will avoid disruptions for passengers and ensure regional connectivity in particular for the significant number of Romanian citizens working abroad and for many small local businesses that depend on affordable tickets offered by Blue Air on a network of routes aimed at addressing their specific needs." Around EUR28 million will be used as public guarantee to compensate Blue Air for the damage directly caused by the pandemic and the travel restrictions introduced by Romania and other destination countries to limit the spread of the disease during March 16-June 30, SeeNews discloses. The rest will be used as rescue aid in the form of a public guarantee to partly cover Blue Air's acute liquidity needs as a result of the high operating losses it has been experiencing following the coronavirus outbreak, SeeNews states. The Commission also said Romania has committed to ensure that, after six months, the public guarantee will be terminated, or Blue Air will either submit a liquidation plan or carry out a comprehensive restructuring in order to become viable in the long-term, SeeNews notes. In July, Blue Air announced that the Bucharest municipal court has approved its request to enter a concordat procedure with its creditors in order to avoid insolvency, SeeNews recounts. Blue Air, the only air carrier in Romania with 100% domestic capital, started operations in December 2004. PRIMA BROADCASTING: Competition Authority Okays Prima TV Takeover ----------------------------------------------------------------- SeeNews reports that Romania's competition authority said on Aug. 27 that it has approved the recent takeover of local Prima TV by Clever Business Transilvania media group. "Following a review of the transaction, the Competition Council found that it does not raise significant obstacles to effective competition in the market, in particular by establishing or strengthening of a dominant position," SeeNews quotes the Competition Council as saying in a statement. According to SeeNews, Clever Business Transilvania will acquire the Prima TV's business from Prima Broadcasting, a company currently in judicial reorganization. The value of the transaction was not disclosed, SeeNews notes. Prima TV was one of the first commercial television stations in Romania that started to broadcast in 1997. Its operator Prima Broadcasting declared insolvency in 2015 and entered a process of judicial reorganization in 2017, SeeNews relays, citing data posted on the finance ministry website. =========== S E R B I A =========== JUGOREMEDIJA: Project One Declared Best Bidder for Assets --------------------------------------------------------- SeeNews reports that Czech Republic-based APS Capital Group's subsidiary Project One has placed the best bid at an auction for the sale of assets of Serbia's insolvent pharmaceutical company Jugoremedija. Project One has proposed to pay RSD364.5 million (US$3.7 million/EUR3.1 million) for Jugoremedija's assets, Danas daily quoted the bankruptcy administrator of Jugoremedija, Radovan Savic, as saying on Aug. 25, SeeNews relates. "I officially declared APS Holding the best bidder and buyer and checked their documentation. Bank statements on solvency have been obtained. Only creditors have the right to object to this decision, and the largest creditor among them is actually the investment fund that made the best offer," SeeNews quotes Mr. Savic as saying. Mr. Savic noted offers at the auction were also placed by Serbian company Led Vision Style--of RSD360 million; and Turkey's Birgim--of RSD260 million, SeeNews discloses. "The bankruptcy judge at the Commercial Court in Zrenjanin will give its opinion on the sale of Jugoremedija in the next two days," Mr. Savic, as cited by SeeNews, said. Jugoremedija was declared bankrupt in 2016, SeeNews recounts. The most important assets of the company are an industrial complex in Zrenjanin, which comprises several production facilities, as well as 24 trademarks, 28 motor vehicles, inventory and supplies, SeeNews states. =============== S L O V E N I A =============== ADRIA AIRWAYS: Slovenia Halves Price of Trademark in New Tender --------------------------------------------------------------- SeeNews reports that Slovenia is again offering for sale the trademark of collapsed flag carrier Adria Airways, halving the asked price to EUR50,000 (US$59,200), the company's bankruptcy trustee, Janez Pustaticnik, said. Interested bidders can submit their proposals by Sept. 28, Mr. Pustaticnik, as cited by SeeNews, said in an public invitation published on Aug. 19. The results of the sale will be announced within 15 days after the deadline, SeeNews discloses. In January, local media reported that Air Adriatic, a Slovenian company owned by local businessman Izet Rastoder, has bought Adria Airways' operating license at an auction with a starting price of EUR45,000, SeeNews recounts. Bankruptcy proceedings against Adria Airways opened in October after in late September the troubled air carrier suspended flights over lack of funds to run its daily operations, SeeNews relates. In May, state news agency STA reported that Adria Airways' creditors had submitted EUR151 million worth of claims, with the bankruptcy trustee accepting as eligible EUR87.7 million of them, including EUR15 million worth of claims sought by former company employees, SeeNews notes. According to Adria Airway's 2018 financial report, the carrier's fleet comprised 19 airplanes, all of them operated under lease, SeeNews states. ========= S P A I N ========= SANTANDER CONSUMER 2020-1: Moody's Rates Class E Notes (P)B1 ------------------------------------------------------------ Moody's Investors Service assigned provisional credit ratings to the following classes of Notes to be issued by SANTANDER CONSUMER SPAIN AUTO 2020-1, FONDO DE TITULIZACION: EUR[ ]M Class A Notes due March 2033, Assigned (P)Aa1 (sf) EUR[ ]M Class B Notes due March 2033, Assigned (P)A2 (sf) EUR[ ]M Class C Notes due March 2033, Assigned (P)Baa2 (sf) EUR[ ]M Class D Notes due March 2033, Assigned (P)Ba1 (sf) EUR[ ]M Class E Notes due March 2033, Assigned (P)B1 (sf) Moody's has not assigned any rating to the EUR[ ]M Class F Notes due March 2033. RATINGS RATIONALE SANTANDER CONSUMER SPAIN AUTO 2020-1, FT is a static securitisation of auto loans granted by Santander Consumer, E.F.C., S.A. ("Santander Consumer"), 100% owned by Santander Consumer Finance S.A. (A2/P-1 Bank Deposits; A3(cr)/P-2(cr)), to mostly private obligors in Spain. Santander Consumer is acting as originator and servicer of the loans while Santander de Titulizacion S.G.F.T., S.A. (NR) is the Management Company. As of August 19, 2020, the provisional portfolio comprised [49,547] auto loans granted to obligors located in Spain, [97.17] % of whom are private individuals. The weighted average seasoning of the portfolio is [15] months and its weighted average remaining term is [67] months. Around [51.57] % of the loans were originated to purchase new vehicles, while the remaining [48.43] % were made to purchase used vehicles. Geographically, the pool is concentrated mostly in Andalucia ([20.52] %), Catalonia ([13.79] %) and Canarias ([11.85] %). The portfolio, as of its pool cut-off date, did not include any loans in arrears. Moody's analysis focused, amongst other factors, on, (i) an evaluation of the underlying portfolio of loans; (ii) the historical performance information of the total book and past ABS transactions; (iii) the credit enhancement provided by the subordination, the excess spread and the cash reserve; (iv) the liquidity support available in the transaction, by way of principal to pay interest, and the cash reserve; and (v) the overall legal and structural integrity of the transaction. According to Moody's, the transaction benefits from several credit strengths such as the granularity of the portfolio, securitisation experience of Santander Consumer and the significant excess spread. However, Moody's notes that the transaction features a number of credit weaknesses, such as a complex structure including, pro-rata payments on Class A to E notes from the first payment date. These characteristics, amongst others, were considered in Moody's analysis and ratings. Hedging: As the collections from the pool are not directly linked to a floating interest rate, a higher index payable on the floating interest rate Class A to C Notes would not be offset with higher collections from the pool. The transaction therefore benefits from an interest rate cap, with Banco Santander S.A. (Spain) (A2/P-1 Bank Deposits; A3(cr)/P-2(cr)) as cap counterparty, where the issuer will be paid any positive difference between the three-month EURIBOR and the strike rate of [1.0]% on a notional linked to the scheduled amortization of the floating interest rate Class A to C notes. The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Its analysis has considered the effect on the performance of consumer assets from the collapse in the Spanish 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. AUTO SECTOR TRANSFORMATION The automotive sector is undergoing a technology-driven transformation which will have credit implications for auto finance 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 to that 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 AFVs 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. MAIN MODEL ASSUMPTIONS Moody's determined the portfolio lifetime expected defaults of 5.50%, expected recoveries of 35.00% and Aa1 portfolio credit enhancement ("PCE") of 14.00% related to borrower receivables. The expected defaults and recoveries capture 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 loss distribution curve and to associate a probability with each potential future loss scenario in the ABSROM cash flow model to rate Consumer ABS. Portfolio expected defaults of 5.50% are in line with the Spanish Auto Loan ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the loan book of the originator, (ii) benchmark transactions, (iii) the exclusion of Covid-19 related payment holidays as per the eligibility criteria, and (iv) other qualitative considerations. Portfolio expected recoveries of 35.00% are higher than Spanish Auto Loan ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the loan book of the originator, (ii) benchmark transactions, and (iii) other qualitative considerations. PCE of 14.00% is lower than the Spanish Auto Loan ABS average and is based on Moody's assessment of the pool taking into account the relative ranking to originator peers in the Spanish Auto loan market and the fact that the transaction is static. The PCE of 14.00% results in an implied coefficient of variation ("CoV") of [49.25]%. Principal 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. Moody's issues provisional ratings in advance of the final sale of securities and the above ratings reflects Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation and the final notes structure, Moody's will endeavor to assign the definitive ratings to the Class A, Class B, Class C, Class D and Class E Notes. The definitive ratings may differ from the provisional ratings. Factors that would lead to an upgrade or downgrade of the ratings: Factors that may cause an upgrade of the ratings include (i) a significantly better than expected performance of the pool, (ii) an increase in credit enhancement of the notes or (iii) an upgrade of Spain's local country currency (LCC) rating. Factors that may cause a downgrade of the ratings include (i) a decline in the overall performance of the pool, (ii) the deterioration of the credit quality of Santander or (iii) a downgrade of Spain's local country currency (LCC) rating. =========================== U N I T E D K I N G D O M =========================== EUROSAIL-UK 07-4: Fitch Cuts Class D1a Notes to B-sf ---------------------------------------------------- Fitch Ratings has downgraded Eurosail-UK 07-4 BL Plc's class B1a, C1a and D1a notes, affirmed Eurosail-UK 07-3 BL Plc, assigned the class D1a of Eurosail-UK 07-3 a Negative Outlook and removed three tranches from Rating Watch Negative (RWN), as follows: RATING ACTIONS Eurosail-UK 07-3 BL Plc Class A3a XS0308666493; LT AAAsf Affirmed; previously at AAAsf Class A3c XS0308710143; LT AAAsf Affirmed; previously at AAAsf Class B1a XS0308672384; LT AA+sf Affirmed; previously at AA+sf Class B1c XS0308716421; LT AA+sf Affirmed; previously at AA+sf Class C1a XS0308673192; LT A-sf Affirmed; previously at A-sf Class C1c XS0308718047; LT A-sf Affirmed; previously at A-sf Class D1a XS0308673945; LT Bsf Affirmed; previously at Bsf Class E1c XS0308725844; LT CCCsf Affirmed; previously at CCCsf Eurosail-UK 07-4 BL Plc Class A3 XS1150797600; LT AAAsf Affirmed; previously at AAAsf Class A4 XS1150799481; LT AAAsf Affirmed; previously at AAAsf Class A5 XS1150799721; LT AAAsf Affirmed; previously at AAAsf Class B1a XS0311705759; LT Asf Downgrade; previously at AA-sf Class C1a XS0311708696; LT Bsf Downgrade; previously at BB+sf Class D1a XS0311713001; LT B-sf Downgrade; previously at Bsf Class E1c XS0311717416; LT CCsf Affirmed; previously at CCsf TRANSACTION SUMMARY The transactions comprise non-conforming UK mortgage loans originated by Southern Pacific Mortgage Limited, Preferred Mortgages Limited (formerly wholly-owned subsidiaries of Lehman Brothers), London Mortgage Company and Alliance and Leicester Plc. KEY RATING DRIVERS Off RWN The affected notes have been removed from RWN where they were placed in April in response to outbreak of the coronavirus pandemic (see Fitch Places 140 UK RMBS Ratings on RWN on Coronavirus Pandemic). Fitch has analysed the transactions under its coronavirus assumptions (see EMEA RMBS: Criteria Assumptions Updated due to Impact of the Coronavirus Pandemic). The class D1a notes of Eurosail-UK 07-3 and the class C1a and D1a notes of Eurosail-UK 07-4 were placed on RWN due to an expectation of weakening asset performance. These notes were considered exposed both due to their junior ranking for principal redemptions and as their interest payments rely on sufficient revenue funds being available at a junior position in the priority of payments. With the exception of Eurosail-UK 07-4's class C1a and D1a notes, Fitch considered the ratings sufficiently robust to affirm. 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 alternative coronavirus assumptions to the mortgage portfolio. The combined application of revised 'Bsf' representative pool weighted average foreclosure frequency (WAFF) and revised rating multiples resulted in a multiple to the current FF assumptions of 1.2x at 'Bsf' and 1.0x at 'AAAsf'. The alternative coronavirus assumptions are more modest for higher rating levels as the corresponding rating assumptions are already meant to withstand more severe shocks. Fitch also applied a payment holiday stress for the first six months of projected collections, assuming 15% of interest collections will be lost, and related principal receipts will be delayed. This reflects the current payment holiday percentage data provided by the servicer plus a small margin of safety. The payment holiday percentage for these pools as of August 5, 2020 is 8.7% in Eurosail-UK 07-3, and 9.5% in Eurosail-UK07-4. Payment Interruption Risk Eurosail-UK 07-3 does not include a dedicated liquidity facility to cover for interest shortfalls. As the reserve fund can also be drawn to cover for credit losses, it may not be available to cover for payment interruption if it has previously been depleted due to weak asset performance. Nevertheless, Fitch does not expect the reserve fund to be drawn to cover for losses in the short to medium term. Fitch considers the reserve fund sufficient to provide coverage for payment interruption risk. Sequential Amortisation Fitch expects credit enhancement (CE) to continue building up in Eurosail-UK 07-3 as the transaction amortises sequentially. CE for the senior notes has increased since last review in January 2020 from 40.0% to 41.9%. Eurosail 07-4 is amortising on a pro-rata basis and CE is expected to build up more slowly. Weakening Asset Performance Loans that are three month or more in arrears have been increasing in the last collection period. In Eurosail-UK 07-3 they increased from 12% in December 2018 to 15% in June 2020 and the level of arrears is currently in line with the 2011 and 2012 average. In Eurosail-UK 07-4, three months plus arrears increased by 1.5% from 13.0% to 14.5% at the last collection date. Delinquencies have historically been higher than other non-prime market peers. Fitch applies a foreclosure frequency floor for loans in arrears to account for the increased default risk. RATING SENSITIVITIES 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 CE and potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the FF of 15% and an increase in the RR of 15%. The ratings of the junior notes in Eurosail-UK 07-3 could be upgraded by up to three notches and in Eurosail-UK 07-4 up to one notch. Factors that could, individually or collectively, lead to negative rating action/downgrade: 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 initially introduced a suspension on tenant evictions for three months and mortgage payment holidays also for up to three months. Fitch acknowledges the uncertainty of the path of coronavirus-related containment measures and has therefore considered more severe economic scenarios. As outlined in "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases", Fitch considers a more severe downside coronavirus scenario for sensitivity purposes whereby a more severe and prolonged period of stress is assumed with a halting recovery from 2Q21. Under this scenario, Fitch assumed a 15% increase in WAFF and a 15% decrease in WARR. The results indicate a downgrade of up to four notches for the mezzanine notes in both transactions. The economic impact of the coronavirus pandemic could hit considerably borrower affordability, especially in legacy portfolios where borrowers are locked in paying high interest in their mortgage loans. The transactions' performance may be affected by such changes in market conditions and the general economic environment. A weakening economic environment is strongly correlated with increasing levels of delinquencies and defaults that could reduce CE available to the notes. There are a small number of owner-occupied interests only loans that have failed to make their bullet payments at note maturity. The servicer has implemented alternative plans with these borrowers, which have recovered part of the amounts due since the last review. If this trend reverses and grows to a significant number, Fitch may apply more conservative assumptions in its asset and cash flow analysis. Unanticipated declines in recoveries could also result in lower net proceeds, which may make certain notes' 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 RR assumptions, and examining the rating implications on all classes of issued notes. CRITERIA VARIATION The class B1a note of Eurosail-UK 07-4 BL was rated 'AA-sf' and achieved a model-implied rating four notches lower in Fitch's updated rating analysis. According to Fitch's UK RMBS Rating Criteria, as outlined in the Rating Determination paragraph, where an updated analysis results in a difference between the current rating and model-implied rating of no more than three notches, ratings may be affirmed or assigned in line with the model-implied rating. Fitch applied a criteria variation as the high prepayment and back loaded default scenarios, which are leading to the model-implied rating, do not represent Fitch's immediate expectations for this transaction. The portfolio has seasoning of 13 years and historical constant prepayment rate (CPR) performance consistently below 10% since January 2010. Fitch's high prepayment assumption for UK RMBS ratings in the 'Asf' rating category is 20%. The assigned rating was derived by excluding two scenarios combining high prepayments with back loaded defaults. ESG CONSIDERATIONS Eurosail-UK 07-3 BL Plc: Customer Welfare - Fair Messaging, Privacy & Data Security: 4, Human Rights, Community Relations, Access & Affordability: 4 Eurosail-UK 07-4 BL Plc: Customer Welfare - Fair Messaging, Privacy & Data Security: 4, Human Rights, Community Relations, Access & Affordability: 4 Except for the matters discussed, the highest level of ESG credit relevance, if present, is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). Eurosail transactions have an ESG Relevance Score of 4 for Social Impact due to accessibility to affordable housing and compliance risks including fair lending practices, mis-selling, repossession/foreclosure practices and consumer data protection (data security), which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. =============== X X X X X X X X =============== [*] BOOK REVIEW: Hospitals, Health and People --------------------------------------------- Author: Albert W. Snoke, M.D. Publisher: Beard Books Softcover: 232 pages List Price: $34.95 Order your personal copy today at http://www.beardbooks.com/beardbooks/hospitals_health_and_people.html Hospitals, Health and People is an interesting and very readable account of the career of a hospital administrator and physician from the 1930's through the 1980's, the formative years of today's health care system. Although much has changed in hospital administration and health care since the book was first published in 1987, Dr. Snoke's discussion of the evolution of the modern hospital provides a unique and very valuable perspective for readers who wish to better understand the forces at work in our current health care system. The first half of Hospitals, Health and People is devoted to the functional parts of the hospital system, as observed by Dr. Snoke between the late 1930's through 1969, when he served first as assistant director of the Strong Memorial Hospital in Rochester, New York, and then as the director of the Grace-New Haven Hospital in Connecticut. In these first chapters, Dr. Snoke examines the evolution and institutionalization of a number of aspects of the hospital system, including the financial and community responsibilities of the hospital administrator, education and training in hospital administration, the role of the governing board of a hospital, the dynamics between the hospital administrator and the medical staff, and the unique role of the teaching hospital. The importance of Hospitals, Health and People for today's readers is due in large part to the author's pivotal role in creating the modern-day hospital. Dr. Snoke and others in similar positions played a large part in advocating or forcing change in our hospital system, particularly in recognizing the importance of the nursing profession and the contributions of non-physician professionals, such as psychologists, hearing and speech specialists, and social workers, to the overall care of the patient. Throughout the first chapters, there are also many observations on the factors that are contributing to today's cost of care. Malpractice is just one example. According to Dr. Snoke, "malpractice premiums were negligible in the 1950's and 1960's. In 1970, Yale-New Haven's annual malpractice premiums had mounted to about $150,000." By the time of the first publication of the book, the hospital's premiums were costing about $10 million a year. In the second half of Hospitals, Health and People, Dr. Snoke addresses the national health care system as we've come to know it, including insurance and cost containment; the role of the government in health care; health care for the elderly; home health care; and the changing role of ethics in health care. It is particularly interesting to note the role that Senator Wilbur Mills from Arkansas played in the allocation of costs of hospital-based specialty components under Part B rather than Part A of the Medicare bill. Dr. Snoke comments: "This was considered a great victory by the hospital-based specialists. I was disappointed because I knew it would cause confusion in working relationships between hospitals and specialists and among patients covered by Medicare. I was also concerned about potential cost increases. My fears were realized. Not only have health costs increased in certain areas more than anticipated, but confusion is rampant among the elderly patients and their families, as well as in hospital business offices and among physicians' secretaries." This aspect of Medicare caused such confusion that Congress amended Medicare in 1967 to provide that the professional components of radiological and pathological in-hospital services be reimbursed as if they were hospital services under Part A rather than part of the co-payment provisions of Part B. At the start of his book, Dr. Snoke refers to a small statue, Discharged Cured, which was given to him in the late 1940's by a fellow physician, Dr. Jack Masur. Dr. Snoke explains the significance the statue held for him throughout his professional career by quoting from an article by Dr. Masur: "The whole question of the responsibility of the physician, of the hospital, of the health agency, brings vividly to mind a small statue which I saw a great many years ago.it is a pathetic little figure of a man, coat collar turned up and shoulders hunched against the chill winds, clutching his belongings in a paper bag-shaking, tremulous, discouraged. He's clearly unfit for work-no employer would dare to take a chance on hiring him. You know that he will need much more help before he can face the world with shoulders back and confidence in himself. The statuette epitomizes the task of medical rehabilitation: to bridge the gap between the sick and a job." It is clear that Dr. Snoke devoted his life to exactly that purpose. Although there is much to criticize in our current healthcare system, the wellness concept that we expect and accept today as part of our medical care was almost nonexistent when Dr. Snoke began his career in the 1930's. Throughout his 50 years in hospital administration, Dr. Snoke frequently had to focus on the big picture and the bottom line. He never forgot the importance of Discharged Cured, however, and his book provides us with a great appreciation of how compassionate administrators such as Dr. Snoke have contributed to the state of patient care today. Albert Waldo Snoke was director of the Grace-New Haven Hospital in New Haven, Connecticut from 1946 until 1969. In New Haven, Dr. Snoke also taught hospital administration at Yale University and oversaw the development of the Yale-New Haven Hospital, serving as its executive director from 1965-1968. From 1969-1973, Dr. Snoke worked in Illinois as coordinator of health services in the Office of the Governor and later as acting executive director of the Illinois Comprehensive State Health Planning Agency. Dr. Snoke died in April 1988. ********* 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 * * *