/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/200930.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, September 30, 2020, Vol. 21, No. 196 Headlines F R A N C E AUTONORIA 2019: DBRS Confirms B Rating on Class F Notes CASSINI SAS: Moody's Lowers CFR to Ca, Outlook Negative CASSINI SAS: S&P Cuts ICR to D on Filing for Safeguard Procedures COBALT BIDCO: S&P Assigns 'B' LT ICR & Alters Outlook to Stable FCT GIAC II: Moody's Cuts EUR28.5MM Mezzanine A Bonds to Caa2 FNAC DARTY: S&P Affirms 'BB' ICR, Off CreditWatch, Outlook Neg. G E R M A N Y SC GERMANY 2020-1: Fitch Gives 'BB(EXP)' Rating on Class F Notes SC GERMANY 2020-1: Moody's Gives (P)B2 Rating on Class F Notes I R E L A N D ADAGIO V CLO: Fitch Affirms B-sf Rating on Class F Notes BARINGS EURO 2017-1: Fitch Affirms B-sf Rating on Class F Notes BARINGS EURO 2018-2: Fitch Affirms B-sf Rating on Class F Notes CARLYLE GLOBAL 2016-2: Moody's Confirms B2 Rating on Cl. E Notes CROSTHWAITE PARK: Fitch Affirms B-sf Rating on Class E Notes CVC CORDATUS XV: Moody's Confirms B3 Rating on Class F Notes EURO-GALAXY III CLO: Fitch Affirms B-sf Rating on Class F-RR Notes FINANCE IRELAND 2: DBRS Finalizes BB(high) Rating on Class E Notes HALCYON LOAN 2016: Fitch Affirms B-sf Rating on Class F Notes HARVEST CLO XXII: Fitch Affirms B-sf Rating on Class F Notes JUBILEE CLO 2014-XIV: Fitch Affirms B-sf Rating on Class F Notes JUBILEE CLO 2019-XXIII: Fitch Affirms B-sf Rating on Class F Notes OZLME V: Moody's Confirms B2 Rating on Class F Notes OZLME VI: Moody's Confirms B2 Rating on Class F Notes PENTA CLO 4: Fitch Affirms B-sf Rating on Class F Notes TIKEHAU CLO IV: Fitch Affirms B-sf Rating on Class F Notes L U X E M B O U R G PICARD BONDCO: Fitch Alters Outlook on 'B' LongTerm IDR to Stable SOFTWARE LUXEMBOURG: Moody's Assigns Caa1 CFR, Outlook Stable SOFTWARE LUXEMBOURG: S&P Assigns 'B-' ICR on Bankruptcy Emergence N E T H E R L A N D S DRYDEN 63: Moody's Confirms B2 Rating on Class F Notes N O R W A Y PGS ASA: Fitch Cuts LT IDR to 'C' on Missed Principal Payment P O R T U G A L HIPOTOTTA PLC 4: Fitch Affirms BB-sf Rating on Class C Notes MADEIRA: DBRS Confirms BB(high) LongTerm Issuer Rating R U S S I A NATIONAL STANDARD: Moody's Withdraws B3 LT Deposit Ratings S P A I N CAIXA PENEDES 1: Fitch Affirms BBsf Rating on Class C Notes SABADELL CONSUMO I: DBRS Confirms B(high) Rating on Class D Notes SANTANDER CONSUMER 2020-1: DBRS Finalizes BB Rating on D Notes SANTANDER CONSUMER 2020-1: Moody's Rates Class E Notes 'B1' U N I T E D K I N G D O M CASTELL PLC 2020-1: DBRS Finalizes BB(low) Rating on Class F Notes CINEWORLD GROUP: S&P Lowers ICR to 'CCC-', Outlook Negative COTE RESTAURANTS: Bought Out of Administration by Partners Group E-CARAT 10: DBRS Confirms BB Rating on Class F Notes HF SPORT: Goes Into Administration, Owes Half a Million Pounds NMC HEALTH: Alvarez & Marsal Appointed as Administrator ONWATCH MULTIFIRE: Bought Out of Administration in Pre-Pack Deal PIZZA HUT: 29 Sites Face Closure Following CVA Approval TAURUS 2019-2: DBRS Confirms BB (low) Rating on Class E Notes TORO PRIVATE II: Moody's Affirms 'Caa2' CFR, Outlook Negative VUE INTERNATIONAL: S&P Lowers ICR to 'CCC+', Outlook Negative WELLESLEY: Investors to Get Up to 12p in the Pound More Under CVA - - - - - =========== F R A N C E =========== AUTONORIA 2019: DBRS Confirms B Rating on Class F Notes ------------------------------------------------------- DBRS Ratings GmbH confirmed the following ratings of the bonds (together, the Notes) issued by Autonoria 2019 (the Issuer): -- Class A Notes at AAA (sf) -- Class B Notes at AA (sf) -- Class C Notes at A (sf) -- Class D Notes at BBB (sf) -- Class E Notes at BB (sf) -- Class F Notes at B (sf) The rating of the Class A Notes addresses the timely payment of scheduled interest and ultimate repayment of principal by the legal final maturity date in September 2035. The ratings of the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes, and the Class F Notes address the ultimate payment of scheduled interest while subordinated but timely payment of scheduled interest as the most-senior class and ultimate repayment of principal by the legal final maturity date. The confirmations follow an annual review of the transaction and is based on the following analytical considerations: -- Portfolio performance, in terms of delinquencies, defaults and losses as of the August 2020 payment date; -- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; -- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels; -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic; and -- No revolving termination events have occurred. The Issuer is a securitization backed by a portfolio of automobile, motorcycle, and recreational vehicle-related loans underwritten to French consumers originated and serviced by BNP PARIBAS Personal Finance (the seller). The transaction closed in September 2019 with a portfolio balance of EUR 950 million and included a 12-month revolving period, which ended on the September 2020 payment date. PORTFOLIO PERFORMANCE As of the August 2020 payment date, loans that were one to two months and two to three months delinquent represented 0.6% and 0.2% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.1%. Gross cumulative defaults amounted to 0.5% of the aggregate original and subsequent portfolios, 1.9% of which have been recovered to date. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD at 6.1% and has updated its LGD assumptions to 73.0%, based on a worst-case portfolio composition as permitted by the concentration limits applicable during the revolving period. CREDIT ENHANCEMENT The subordination of the respective junior obligations provides credit enhancement to the Notes. As of the August 2020 payment date, credit enhancements to the Class A, Class B, Class C, Class D, Class E, and Class F notes were 29.0%, 20.0%, 14.0%, 10.5%, 7.0%, and 5.0% respectively. The credit enhancement has remained stable since DBRS Morningstar's initial rating because of the inclusion of the revolving period. The transaction benefits from a liquidity reserve funded by the seller, which is available to cover senior expenses, swap expenses, Class A Notes interest and, if not deferred in the waterfalls, Class B, Class C, and Class D notes interest payments. The liquidity reserve is currently at its target level of EUR 8.5 million. BNP Paribas Securities Services acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. BNP Paribas Personal Finance acts as the interest rate swap counterparty and the cash swap counterparty for the transaction. DBRS Morningstar's private rating of BNP Paribas Personal Finance is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied an additional haircut to its base case recovery rate and conducted an additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand potentially high payment holiday levels in the portfolio. As of August 2020, around 0.86% of the current portfolio balance benefits from a payment moratorium. Notes: All figures are in Euros unless otherwise noted. CASSINI SAS: Moody's Lowers CFR to Ca, Outlook Negative ------------------------------------------------------- Moody's Investors Service downgraded the corporate family rating (CFR) of Cassini SAS ("Cassini"), the ultimate parent of Comexposium Holding ("Comexposium"), a France-based trade fair and exhibitions organizer, to Ca from Caa1 and its probability of default rating (PDR) to Ca-PD from Caa1-PD. Concurrently, Moody's has downgraded to Ca from Caa1 the ratings of the EUR483 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 was prompted by the company's announcement that it has entered into safeguard procedures which will likely lead to a missed payment and debt restructuring for Comexposium," said Victor Garcia Capdevila, a Moody's Assistant Vice President -- Analyst and lead analyst for Cassini. RATINGS RATIONALE The rating action follows Comexposium's announcement on September 22, 2020 [1] that four holding companies of the group, including Cassini SAS, the borrower of the TLB and RCF, have decided to enter into safeguard procedure with the Commercial Court of Nanterre. All debt payments, including cash interests will be frozen during the safeguard procedure which will last for at least six months. The next upcoming interest payment on the TLB amounts to EUR5.7 million and comes due on September 28, 2020. A non-payment of interests would constitute a default under Moody's definition. The company's PDR has therefore been revised to Ca-PD, a level which reflects the strong likelihood of the subsequent default occurring. Upon the payment default, Moody's will append the "/LD" suffix to the PDR to reflect the limited default that will have occurred at that time. Moody's expects that in a default scenario, recovery rates for creditors are likely to be between 35%-65%, which is commensurate with a Ca rating. Comexposium's decision to enter into safeguard procedure follows the large impact that the coronavirus outbreak has had on the company's ability to organize events and trade shows since March 2020. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Management expects operating disruptions to continue during the rest of 2020 and in 2021, with a normalization of business conditions only starting in 2022. 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. Governance considerations were also relevant factors for the rating action, due to the company's decision to file for safeguard procedures. In addition, the company faces over the next 6 to 12 months large cash outflows related to put options, earn-outs and potential customer refunds which Moody's estimates at around EUR180 million in total. This, coupled with Moody's estimate of a cash burn of around EUR11 million - EUR13 million for every month of inactivity, means that the company's cash balance of EUR76 million as of the end of July will be insufficient to meet all these obligations. Comexposium also faces legal proceedings related to the failed acquisition of Europa, a leading conference organizer of medical events, which was valued at around EUR200 million. Moody's also notes that Compexposium will be in breach of its 8.6x net leverage ratio springing covenant in the next test dating at the end of September 2020. STRUCTURAL CONSIDERATIONS The ratings on the EUR483 million senior secured term loan B due 2026 and the EUR90 million senior secured revolving credit facility due 2025 are Ca, 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 Ca-PD probability of default rating (PDR), in line with the CFR, reflects the high likelihood of a missed payment and debt restructuring in the immediate future. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook on the ratings reflect Comexposium's uncertain operating and financial prospects in light of its highly likely debt default and the uncertainties surrounding the final recoveries for financial creditors in the event of default, owing to the unprecedented and lengthy disruption to Comexposium's operations. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Downward pressure on the ratings could materialise in the event that recovery prospects for creditors are lower than those assumed in the Ca CFR and Ca instrument ratings. Upward pressure on the ratings is unlikely in the short term but could arise if a sustainable financial structure is put in place following the safeguard procedure and the company is able to restore its operations. LIST OF AFFECTED RATINGS Issuer: Cassini SAS Downgrades: Probability of Default Rating, Downgraded to Ca-PD from Caa1-PD Corporate Family Rating, Downgraded to Ca from Caa1 Backed Senior Secured Bank Credit Facilities, Downgraded to Ca from Caa1 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. CASSINI SAS: S&P Cuts ICR to D on Filing for Safeguard Procedures ----------------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit rating on Comexposium's parent, Cassini SAS, to 'D' (default) from 'CCC', and the issue rating on the senior secured notes to 'D' from 'CCC'. On Sept. 22, 2020, French trade show organizer Comexposium announced it had entered into safeguard procedures because of losses caused by COVID-19-related show cancellations and postponements. The safeguard procedure, which S&P Global Ratings considers tantamount to default, implies that the debt of the protected companies is frozen, allowing for a reorganization of liabilities and a grace period. Comexposium has been facing very challenging trading conditions, given the bans on public gatherings. These bans have led Comexposium to incur material losses since the beginning of the COVID-19 pandemic, which has diminished its cash position. The increase in the number of COVID-19 cases in France during the summer pushed the French government to take new measures to fight the pandemic. These include lowering the number allowed in a public gathering to 1,000 people from 5,000 in some risky areas, while the ban on public gatherings of more than 5,000 remains in place everywhere in France until at least the end of October. S&P believes the health and safety state of emergence will likely remain in place until at least March 2021 and that the company's operating performance will still be severely disrupted for the last quarter of 2020 and in 2021. That will make potential customer refunds, earn out payments, and put option liability payments impossible in absence of additional liquidity lines. In addition, the company decided not to proceed with the French state guarantee loan transaction because of the elevated risks associated with the transaction for the lenders. This has led the company to file for safeguard procedures, which entails a reorganization of its liabilities and a grace period. On Sept. 22, 2020, a French court validated the opening of safeguard procedures for Cassini SAS and three of its subsidiaries. This procedure triggers automatic stay provisions on all liabilities of the entities concerned, including the rated entity, Cassini SAS, and will likely imply a reorganization of its liabilities and a grace period. Under S&P Global Ratings criteria, this implies a default. S&P expects the 'D' rating to stay until the safeguard procedures complete. Environmental, social, and governance (ESG) credit factors for this credit rating change: -- Health and safety COBALT BIDCO: S&P Assigns 'B' LT ICR & Alters Outlook to Stable --------------------------------------------------------------- S&P Global Ratings assigned its 'B' long-term issuer credit rating to Cobalt Bidco, and its 'B' issue-level rating and '3' recovery rating to the proposed term loan. On Aug. 31, 2020, EQT Infrastructure announced it had entered negotiations to acquire a majority stake in France-based nursing homes operator Financiere Colisee SAS, with the transaction to close by the end of November 2020. The newly created holding entity, Cobalt Bidco, is contemplating issuing EUR1.05 billion of new debt to finance the acquisition, including a EUR875 million term loan B (TLB) and a EUR175 million revolving credit facility (RCF). The proposed buyout and associated refinancing will not result in higher adjusted debt, supporting the group's 'B' credit profile. The infrastructure arm of private equity firm EQT announced on Aug. 31 that it plans to acquire a majority stake in Colisee from IK Investment Partners, the remaining being split with Caisse de depot et placement du Quebec (CDPQ) and the existing management team. To support the transaction, the newly created holding company, Cobalt Bidco, is planning to issue an EUR875 million TLB and a EUR175 million RCF, and we project these issuances will lead to an S&P Global Ratings-adjusted debt-to-EBITDA ratio of 6.5x-7.5x and fixed charge coverage ratio of 1.5x-1.6x in the 12-18 months following the transaction's closing. A EUR1.4 billion pure equity injection from the sponsor will finance the rest, translating in neutral impact on gross debt. S&P said, "We estimate adjusted debt will amount to EUR2.15 billion, including the proposed EUR875 TLB, EUR25 million of real estate debt rolled over, EUR1.2 billion of lease commitments, EUR20 million of cumulative earn-outs, and EUR5 million of pension-related liabilities. We typically believe that the private equity-owned sponsors' interest in deleveraging is low. Nevertheless, we view positively that both EQT and CDPQ are akin to infrastructure investors with long-term horizons and that the debt maturity will be extended by one year following the transaction, thereby decreasing refinancing risks." The outlook revision reflects S&P's view that Colisee's integration of Armonea has faced few hurdles and that the combined group benefits from improved earnings stability. Colisee acquired the second-largest player in the Belgian market in May last year, almost doubling its size and entering a new geography with a different regulatory framework. At the time, this raised risks about integration and management's ability to execute growth strategy at some homes that were identified to perform below industry standards. Since May 2019, the group has managed to rapidly increase occupancy rates at Armonea's perimeter, benefiting from a local management force set up in July 2019 while strengthening its commercial teams. In addition, the group divested Armonea's loss-making German operations at the end of 2019. It delivered synergies of EUR5 million in 2019, as per budget, reflecting mainly economies of scale from procurement. S&P said, "Although we assume limited synergies ahead, we believe the group's integration progressed as planned and we view earnings stability as supported by improved payer profile through exposure to the highly regulated Belgian market, including by pass-through mechanisms for close to 55% of revenue and caps on licenses beds driving high occupancy." The affirmation reflects the group's resilient performance amid the pandemic and S&P's view of limited risks to recovery of occupancy rates to pre-pandemic levels in the next 12-18 months. Colisee is exposed mainly to France and Belgium, where state support has been favorable both in terms of lost in accommodation revenue and reimbursement of protective equipment, with subsidies arriving in the second half of the year. The group has limited exposure to Italy (less than 5% of revenue) and Spain (about 11%), where support was less favorable. The French government has also agreed to a salary increase for medical staff including for private nursing homes operators, which will be fully financed by care rate increases. The group's occupancy rates in France decreased to close to 95.3% for the first six months of the year from 98.7% for the same period a year before. S&P said, "We understand they were almost back to previous levels at the end of August, at 97.5% and we anticipate they will return to pre-pandemic levels by the end of the year. In Belgium, occupancy rates were about 90.0% for the first six months of the year, still higher than that of the previous year, but lower than budget as it decreased to close to 86% at the end of the lockdown period. We understand that recovery is under way, although slower than in France and we anticipate it should reach previous levels by mid-2021. We anticipate slower recovery in both Spain and Italy, although the group has a 42% exposure to public beds in Spain and a lot of subcontracting in Italy, mitigating risks. Overall, we see limited risks to ongoing recovery supported by lack of alternatives in the market and essential nature of services due to high dependence of residents. Therefore, our base-case scenario is for S&P Global Ratings-adjusted EBITDA of EUR245 million-EUR255 million in 2020, improving to EUR280 million-EUR300 million in 2021 and EUR300 million-EUR330 million in 2022. As well, given the business' relatively low capital intensity, we assume the group will generate positive free cash flow after lease payments of above EUR20 million in 2021 and above EUR40 million in 2022 after negative cash flow in 2020. Therefore, we assume Colisee will maintain credit measures commensurate with the rating and achieve deleveraging toward below 7x by the end of 2022." S&P anticipates that the group's earnings will recover from the large COVID-19-related costs incurred in 2020, supporting a fixed charge coverage ratio of at least 1.5x in the next 12-18 months. S&P said, "We assume Colisee's credit metrics to gradually improve in 2021 and beyond as occupancy rates normalize to pre-pandemic levels and the group better manages its fixed cost base. This will be supported by the availability of COVID-19 testing, which was limited at the beginning of the pandemic, enabling the group to systematically isolate affected residents. In addition, shorter quarantine periods and mutualization of resources will ease staff planning, mitigating the need for additional temporary staff. We view as a downside protection the favorable regulatory framework in France, because 80% of the market is run by public operators, with lower profitability, who would probably not survive without a benign environment. As such, we anticipate that the group will incur close to EUR5 million of COVID-19-related costs starting 2021, down from EUR25 million in 2020 (EUR32 million offset by EUR7 million of state subsidies). Due to the high portion of rents in the group's servicing structure, we focus on the fixed-charge coverage ratio (adjusted EBITDA divided by rents and cash interest). We project that adjusted EBITDA before rental payments covering interest payments of EUR38 million and rent payments of EUR140 million-EUR150 million by 1.5x-1.6x in the next 12-18 months from the transaction's closing after having fallen temporarily to close to 1.4x in 2020, which is below the threshold for the ratings." Outlook S&P said, "The stable outlook reflects our expectation that Colisee's performance will remain resilient in the COVID-19 environment, benefiting from exposure to geographies with highly regulated frameworks and favorable state support. We understand that the group has delivered on its revenue growth plan for Armonea and will benefit from improved earnings stability over the forecast horizon. "Our base-case projections imply that occupancy rates gradually normalize to pre-pandemic levels in the second half of the year in France, by 2021 in Belgium, and by 2022 in Spain and Italy, benefiting from the restart of the commercial activity and leading the group to improve its profitability to at least 26%-27% starting 2021." Therefore, Colisee will return to our previous guidance of fixed charge coverage higher than 1.5x in 2021-2022, enabling it to cover comfortably its rents and interest payments. This would correspond to deleveraging toward 7x by the end of 2021, alongside positive FOCF of above EUR20 million (after rent expense). Downside scenario S&P could take a negative rating action if: -- The group's profitability underperforms compared with our expectations, owing to the competitive environment and an inability to optimize pricing for its services. This could happen if occupancy rates do not recover as anticipated in S&P's base-case scenario, fixed costs such as staff costs and rent expenses increase, or the group incurs higher-than-expected COVID-19-related costs. S&P sees pressure from reimbursement as a less likely trigger given the visibility of the funding system over the medium term; this would correspond to the fixed-charge coverage ratio falling consistently below 1.5x. -- The group incurs higher-than-expected working capital outflows and capex that would result in negative FOCF delaying deleveraging. -- The group pursues a predominantly debt-funded acquisition strategy that would delay deleveraging. Upside scenario S&P would consider an upgrade if Colisee: -- Reduced its leverage below 5.0x sustainably, thereby decreasing refinancing risk; -- Developed a track record of growing revenue to improve both its overall size and its cash flow generation; or -- Outperformed its forecasts significantly through organic growth and accretive acquisitions, while managing its cost-base. FCT GIAC II: Moody's Cuts EUR28.5MM Mezzanine A Bonds to Caa2 ------------------------------------------------------------- Moody's Investors Service downgraded the ratings of the following Notes issued by FCT GIAC Obligations Long Terme II ("FCT GIAC OLT II"): EUR75M Senior Bonds P1, Downgraded to A2 (sf); previously on Feb 27, 2019 Affirmed Aa3 (sf) EUR15M Senior Bonds P2, Downgraded to Ba1 (sf); previously on Feb 27, 2019 Downgraded to Baa3 (sf) EUR28.5M Mezzanine A Bonds, Downgraded to Caa2 (sf); previously on Feb 27, 2019 Downgraded to B3 (sf) FCT GIAC OLT II is a collateralised loan obligation ("CLO") backed by a portfolio of bonds issued by small and medium-sized enterprises ("SMEs") and mid-cap corporates domiciled in France. FCT GIAC OLT II was issued in May 2015 and the portfolio is now in its amortization phase. RATINGS RATIONALE The downgrade actions are due to the deterioration in the credit quality of the underlying collateral pool in the past year, as measured by the weighted average rating factor, or WARF, which increased from 3246 in Jan 2019 to 3714 in July 2020, and the loss of par from the default of one obligor with a notional principal amount of EUR 1.0m recorded in July 2020. The decline is credit quality and loss of collateral coverage are prompted by economic shocks stemming from the coronavirus outbreak. Between January and July 2020, the number of performing borrowers reduced from 29 to 27 as a result of one pre-repayment and one default. Moody's observes that a lower performing par balance resulting from principal payments and EUR 5.6m cumulative defaults have led to enhanced concentration risk; the largest seven loans now represent 49% of the total performing pool balance. In July 2020 only EUR 1.1m out of EUR 2.6m scheduled principal collections were received due to the payment moratorium approved by the Noteholders, with twelve borrowers only paying interest and fee amounts and deferring principal payments. This analysis has considered the updated portfolio amortization resulting from the moratorium. Moody's has been made aware that a new consultation may result in an extension to the moratorium which could impact the principal payments to be received in October 2020. Moody's also notes that in line with the transaction documentation, repayment of rated Notes is expected to switch from pro-rate to sequential from the October 2020 payment date onwards as a result of the breach of cumulative net defaults trigger. In FCT GIAC OLT II, the obligors of the underlying bonds are not rated by Moody's. Their credit quality is assessed using the Ellipro score produced by Ellisphere. A mapping was used to convert the Ellipro Scores into Moody's rating factors. In line with Moody's approach for outdated mappings, this mapping has been subjected to an additional default probability stress. Also, when the remaining number of mapped assets has reduced over the transaction life, Moody's may subject the mapped assets to a default probability stress given that the mapping becomes less statistically robust the smaller the number of assets in the transaction portfolio. Accordingly, in its base case, Moody's has stressed large concentrations of single obligors, with an additional stress on obligors deemed more vulnerable to sudden adverse difficulties according to the size of their revenues. Interest and principal payments on the Mezzanine A Bonds are guaranteed by Bpifrance Financement (rated Aa2/P-1). Moody's has not factored in its analysis any potential benefit of this guarantee for the Mezzanine A Bond Noteholders. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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. PRINCIPAL METHODOLOGY 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, 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. 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, particularly the uncertainty surrounding the end of the postponement of principal payments, which can vary significantly depending on market conditions and have a significant impact on the Notes' rating. A fast amortisation would usually benefit the rating of the Notes beginning with the Notes having the highest prepayment priority. Recovery of defaulted assets: The differential between realised recoveries on trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Recoveries higher than Moody's expectations would have a positive impact on the Notes' rating. Lack of portfolio granularity: The performance of the portfolio depends to a large extent on the credit conditions of a few large obligors with low non-investment-grade ratings, especially when they default. 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. FNAC DARTY: S&P Affirms 'BB' ICR, Off CreditWatch, Outlook Neg. --------------------------------------------------------------- S&P Global Ratings affirmed its rating on FNAC Darty at 'BB', and removed it from CreditWatch with negative implications, where S&P placed it on April 7, 2020. The negative outlook reflects the possibility of a downgrade over the next 12 months if economic disruptions from the COVID-19 pandemic are longer lasting and more severe than S&P expects, given the recent uptick in cases. While the momentum in Fnac Darty's trading has been positive post lockdown, uncertainties around household consumption could hamper recovery in company sales. COVID-19-related lockdowns significantly disrupted FNAC Darty's operations, leading to a respective sales and EBITDA decline of 8% and 42% in first-half 2020. However, the company's operating performance has been gradually recovering since the lockdown restrictions were lifted. S&P understands that, on a month-to month basis, sales growth has been encouraging, and was up about 10% in July and in August compared with last year. This is mainly thanks to the rebound in household consumption post lockdown. The demand for information technology (IT) and entertainment products is increasing due to more people working from home and because home entertainment is becoming more popular due to ongoing social distancing measures. However, S&P believes the nonfood retail industry will continue to face continuing pressure from potential weaker consumer confidence and purchasing power. In particular, following the recent increase in the number of COVID-19 cases across Europe since this summer, the effect of the pandemic on the economy could be longer lasting and more severe than anticipated. In S&P's view, this has the potential to impede the current recovery in demand for consumer electronics, entertainment products, and household appliances. S&P said, "Our base case scenario is contingent on whether FNAC Darty's can sustain its positive trading momentum into the key Christmas season and show tangible signs of sustained recovery in 2021. More than half of the group's EBITDA is generated in the third and fourth quarters of the year, supported in particular by the back-to-school period, Black Friday, and the Christmas shopping season. Consequently, given positive sales momentum and the implementation of cost reduction strategies during lockdown, the decline in FNAC Darty's in EBITDA (including International Financial Reporting Standards [IFRS] 16) should be limited to maximum 20% in 2020, compared with 42% in the first half of the year. In this scenario, we expect the group's credit metrics will remain commensurate with the rating, with S&P Global Ratings-adjusted debt to EBITDA of below 2.5x in 2020 (post adoption of IFRS16), funds from operations (FFO) to debt of 30%-35% in 2020, and break even reported free operating cash flow (FOCF) after lease-related payments. That said, FNAC Darty's exposure to discretionary expenses leaves it vulnerable to consumer confidence and purchasing power, which remain highly volatile in the current macroeconomic environment. We see some downside risk if FNAC Darty's can't sustain the positive trading momentum into the key Christmas trading season and through 2021, as a result of a depressed economic environment, resulting in weaker earnings and cash flows than we currently anticipate. Mitigating this, even in a recessionary environment, is our expectation of resilient home equipment and IT expenses in the next 18 months, driven by an increase in work-from-home practices. This should support FNAC Darty's business fundamentals and partially offset more challenging economic conditions, including high unemployment rates and low consumption levels. "We view FNAC Darty's liquidity as robust, supported by the EUR500 million state guarantee loan and a prudent financial policy. Despite operational disruptions, FNAC Darty's maintained a sound liquidity position during the first half of the year, bolstered by the EUR500 million French state guarantee loan it obtained from its pool of banks. It also obtained a waiver for its financial covenant tests in June and December 2020, demonstrating the company's sound relationship with banks. The company has also demonstrated limited cash flow erosion in the first half of the year thanks to effective cost reduction measures, working capital management, and capital expenditure (capex) reduction. In addition, the company reimbursed its EUR400 million revolving credit facility (RCF), which was drawn on a preventive basis in the beginning of lockdown, making it fully available again. Finally, we believe management's prudent financial policy and risk management should enable the company to maintain a sound liquidity position against a backdrop of heightened uncertainty caused by the pandemic. "Uncertainties regarding the COVID-19 pandemic are clouding earnings visibility. We acknowledge a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly. We see a risk that governments could impose further restrictions or that current restrictions may continue for longer than we anticipate. This clouds our projections of FNAC Darty's future earnings and cash." Environmental, social, and governance (ESG) credit factors for this credit rating change: -- Health and safety The negative outlook reflects the possibility of a downgrade over the next 12 months if economic disruptions from the COVID-19 pandemic are longer lasting and more severe, following the recent increase in cases since this summer. This could impede ongoing recovery in demand for consumer electronics, entertainment products, and household appliances, and leave the company unable to meet our expectations of debt to EBITDA of 2.5x and FFO to debt of 30%-35% in 2020. S&P could lower the rating if the spread of the virus or weaker consumer confidence prevents FNAC Darty's from sustaining its positive trading momentum into the key Christmas season, which could result in weaker earnings and cash flows than it currently anticipate. In particular, S&P could lower the ratings if: -- S&P Global Ratings-adjusted debt to EBITDA approaches 3.0x; -- FFO to debt falls below 30%; -- EBITDAR coverage drops sustainably below 2.0x; or -- FOCF after leases repayment turns materially negative. S&P said, "We could revise our outlook to stable if FNAC Darty limits its revenue and EBITDA contraction and improves it working capital position in line with our base case scenario, achieving S&P Global Ratings-adjusted debt to EBITDA below 2.5x and FFO to debt above 30% over the second half of this year." More importantly, a positive rating action would also hinge on the group continuing to demonstrate a prudent financial policy against the backdrop of heightened uncertainty caused by the pandemic, translating into sustained deleveraging. ============= G E R M A N Y ============= SC GERMANY 2020-1: Fitch Gives 'BB(EXP)' Rating on Class F Notes ---------------------------------------------------------------- Fitch Ratings has assigned SC Germany S.A., Compartment Consumer 2020-1's (SCGC 2020-1) notes expected ratings. The final ratings are contingent upon receipt of the final documents and legal opinions conforming to the information already received. RATING ACTIONS SC Germany S.A., Compartment Consumer 2020-1 Class A; LT AAA(EXP)sf Expected Rating Class B; LT AA(EXP)sf Expected Rating Class C; LT A(EXP)sf Expected Rating Class D; LT BBB(EXP)sf Expected Rating Class E; LT BB+(EXP)sf Expected Rating Class F; LT BB(EXP)sf Expected Rating Class G; LT NR(EXP)sf Expected Rating TRANSACTION SUMMARY In SCGC 2020-1 Santander Consumer Bank AG (SCB, A-/Negative/F2) will securitise an unsecured consumer loan portfolio with a 12-month revolving period. The rated notes will pay down pro rata until a performance or other trigger is breached. This is SCB's sixth unsecured consumer transaction but the first that Fitch will rate. KEY RATING DRIVERS Better Performance Than After Financial Crisis Fitch set a base case between the global financial crisis of 2007-2009 and more recent vintages, at 6% default rate and 15% recovery rate. Fitch believes default and recovery rates will be slightly below the peaks reached during the financial crisis, because measures to halt the spread of the coronavirus will shrink borrowers' incomes. Fitch expects the economy will recover more quickly than after 2009, so Fitch expects the performance to be better than in the financial crisis. Revolving Period Affects Pro-Rata Length The portfolio's behaviour during the revolving period will extend or shorten the pro-rata amortisation period, because triggers that terminate the pro rata period incorporate the revolving period's defaults, recoveries and replenishment. A lower trigger value will shorten the pro-rata period and allow less funds to flow to junior notes. Fitch has set assumptions for defaults and replenishment during the revolving period to determine a trigger value at start of amortisation. CPR Exposes Senior Notes Fitch has set a 22% base-case prepayment (CPR) assumption, which is high relative to peers but still slightly below the historical average in SCB's portfolio. The high CPR exposes senior notes to late defaults by allocating a large portion of principal payments to junior notes during the pro rata period. Protected Against Payment Holidays Loans on a coronavirus payment holiday are excluded from the portfolio. For any payment holidays granted to loans already in the portfolio, the general liquidity reserve adequately covers liquidity shortfalls. It is sufficient to pay more than three months of senior expenses and note interest. This is also enough to mitigate payment interruption risk as set out in its counterparty rating criteria. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: Unanticipated decreases in the frequency of defaults or decreases in recovery rates could produce lower losses than the base case and could result in positive rating action on the notes. For example, a simultaneous decrease of the default base case by 10% and increase of the recovery base case by 10% would lead to a one-notch upgrade of the class C notes. Original ratings Class A: AAA(EXP)sf; Class B: AA(EXP)sf; Class C: A(EXP)sf; Class D: BBB(EXP)sf; Class E: BB+(EXP)sf; Class F: BB(EXP)sf 10% decrease in default rate Class A: AAA(EXP)sf; Class B: AA+(EXP)sf; Class C: A+(EXP)sf; Class D: BBB+(EXP)sf; Class E: BBB-(EXP)sf; Class F: BB(EXP)sf 10% increase in recovery rate Class A: AAA(EXP)sf; Class B: AA(EXP)sf; Class C: A(EXP)sf; Class D: BBB+(EXP)sf; Class E: BB+(EXP)sf; Class F: BB(EXP)sf 10% decrease in default rate and 10% increase in recovery rate Class A: AAA(EXP)sf; Class B: AA+(EXP)sf; Class C: A+(EXP)sf; Class D: BBB+(EXP)sf; Class E: BBB-(EXP)sf; Class F: BB+(EXP)sf Factors that could, individually or collectively, lead to negative rating action/downgrade: Unanticipated increases in the frequency of defaults or decreases in recovery rates could produce larger losses than the base case and could result in negative rating action on the notes. For example, a simultaneous increase of the default base case by 10% and decrease of the recovery base case by 10% would lead to a one-notch downgrade of the class A notes. Original ratings Class A: AAA(EXP)sf; Class B: AA(EXP)sf; Class C: A(EXP)sf; Class D: BBB(EXP)sf; Class E: BB+(EXP)sf; Class F: BB(EXP)sf 10% increase in default rate Class A: AA+(EXP)sf; Class B: AA-(EXP)sf; Class C: A-(EXP)sf; Class D: BBB-(EXP)sf; Class E: BB+(EXP)sf; Class F: BB-(EXP)sf 10% decrease in recovery rate Class A: AA+(EXP)sf; Class B: AA(EXP)sf; Class C: A(EXP)sf; Class D: BBB(EXP)sf; Class E: BB+(EXP)sf; Class F: BB(EXP)sf 10% increase in default rate and 10% decrease in recovery rate Class A: AA+(EXP)sf; Class B: AA-(EXP)sf; Class C: A-(EXP)sf; Class D: BBB-(EXP)sf; Class E: BB+(EXP)sf; Class F: BB-(EXP)sf Coronavirus Downside Scenario Fitch acknowledges the uncertainty of the future path of coronavirus-related containment measures, and has therefore considered a more severe economic downturn than currently contemplated in Fitch's base-case scenario. In the downside scenario, targeted measures to contain coronavirus hotspots fail, resulting in renewal of lockdowns to prevent health systems from being overwhelmed. Lockdown measures, coupled with extended periods of voluntary social distancing, cause a second round of GDP declines, although less severe than those in 1H20. This would prompt a fresh wave of stress in financial markets, which in turn would provoke a longer-lasting, negative wealth and confidence shock that depresses consumer demand and lead to a prolonged period of below-trend economic activity. Recovery to pre-crisis GDP levels would be delayed until around the middle of the decade. Economic contraction will return in the US and Europe as major setbacks in containing the spread of the coronavirus derail recovery progress and keep unemployment at elevated levels, depressing personal income. For this sensitivity Fitch assumed an 8% default rate, a 4.0x 'AAA'sf multiple, 10% recovery rate and 50% 'AAA'sf haircut. Fitch found the ratings to be sensitive to this more severe scenario causing a rating category changes for all notes. Class A: AA(EXP)sf; Class B: A+(EXP)sf; Class C: BBB+(EXP)sf; Class D: BB-(EXP)sf; Class E: BB(EXP)sf; Class F: CCC(EXP)sf USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the transaction, either due to their nature or to the way in which they are being managed. SC GERMANY 2020-1: Moody's Gives (P)B2 Rating on Class F Notes -------------------------------------------------------------- Moody's Investors Service has assigned the following provisional ratings to Notes to be issued by SC Germany S.A., Compartment Consumer 2020-1: EUR[]M Class A Floating Rate Notes due November 2034, Assigned (P)Aaa (sf) EUR[]M Class B Floating Rate Notes due November 2034, Assigned (P)Aa1 (sf) EUR[]M Class C Floating Rate Notes due November 2034, Assigned (P)Aa3 (sf) EUR[]M Class D Floating Rate Notes due November 2034, Assigned (P)Baa2 (sf) EUR[]M Class E Floating Rate Notes due November 2034, Assigned (P)Ba2 (sf) EUR[]M Class F Floating Rate Notes due November 2034, Assigned (P)B2 (sf) Moody's has not assigned a rating to the EUR []M Class G Fixed Rate Notes due November 2034 and the EUR []M Liquidity Reserve Loan due November 2034. RATINGS RATIONALE The Notes are backed by a 12 months revolving pool of German unsecured consumer loans originated by Santander Consumer Bank AG (A3/P-2, A1(cr)/P-1(cr)) ("SCB Germany"). The provisional portfolio consists of 135,042 loans granted to obligors in Germany, for a total of approximately EUR 1.7 billion as of the August 31, 2020 pool cut-off date. The average balance is 12,589, the weighted average interest rate is 6.1%, and weighted average seasoning is 8.2 months. 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 at closing and incremental risk due to loans being added during the 12 months revolving period; (ii) the historical performance information of the total book; (iii) the credit enhancement provided by the subordination and excess spread; (iv) the liquidity support available in the transaction including the liquidity 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, the securitisation experience of SCB Germany and 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 F 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 Class A to F Notes would not be offset with higher collections from the pool. The transaction benefits from an interest rate swap, with DZ Bank AG (Aa1/P-1 Bank Deposits; Aa1(cr)/P-1(cr)) as swap counterparty, where the issuer will pay a fixed swap rate and will receive one-month EURIBOR on a notional linked to the outstanding balance of the Class A to F Notes. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of consumer assets from the current weak German economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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. MAIN MODEL ASSUMPTIONS Moody's determined the portfolio lifetime expected defaults of 5.0%, expected recoveries of 10% and Aaa portfolio credit enhancement ("PCE") of 17% 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. Portfolio expected defaults of 5.0% are in line with the EMEA Consumer Loan ABS average and are based on Moody's assessment of the lifetime expectation for the pool. Moody's primarily based its analysis on the historical cohort performance data that the originator provided for a portfolio that is representative of the securitised portfolio. Moody's stressed the results from the historical data analysis to account for: (i) the expected outlook for the German economy in the medium term; (ii) the fact that the transaction is revolving for 12 months and that there are portfolio concentration limits during that period; and (iii) benchmarks in the German consumer ABS market. Portfolio expected recoveries of 10% are slightly lower than the EMEA Consumer 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 17% is lower than the EMEA Consumer Loan ABS average and is based on Moody's assessment of the pool which is mainly driven by: (i) evaluation of the underlying portfolio, complemented by the historical performance information as provided by the originator; and (ii) the relative ranking to originator peers in the EMEA Consumer loan market. The PCE level of 17% results in an implied coefficient of variation ("CoV") of 35.51%. The principal methodology used in these ratings was "Moody's Approach to Rating Consumer Loan-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 endeavour to assign the definitive ratings to the Class A Notes, Class B Notes, Class C Notes, Class D Notes, Class E Notes and Class F Notes. The definitive ratings may differ from the provisional ratings. Factors that would lead to an upgrade or downgrade of the ratings: Significantly different loss assumptions compared with its expectations at close, due to either a change in economic conditions from its central scenario forecast or idiosyncratic performance factors would lead to rating actions. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in downgrade of the ratings. A deterioration in the Notes available credit enhancement could result in a downgrade of the ratings, while an increase in credit enhancement could result in rating upgrades. Additionally, counterparty risk could cause a downgrade of the ratings, due to a weakening of the credit profile of transaction counterparties. Finally, unforeseen regulatory changes or significant changes in the legal environment may also result in changes of the ratings. ============= I R E L A N D ============= ADAGIO V CLO: Fitch Affirms B-sf Rating on Class F Notes -------------------------------------------------------- Fitch Ratings has affirmed the ratings on Adagio V CLO DAC's issues. At the same time, it removed the bottom two tranches from Rating Watch Negative and assigned them Negative Outlooks. The C-1, C-2 and D notes remain on Negative Outlook. The remaining notes are on Stable Outlook. RATING ACTIONS Adagio V CLO DAC Class A XS1879604368; LT AAAsf Affirmed; previously AAAsf Class B-1 XS1879604798; LT AAsf Affirmed; previously AAsf Class B-2 XS1879605175; LT AAsf Affirmed; previously AAsf Class C-1 XS1879605506; LT Asf Affirmed; previously Asf Class C-2 XS1887443114; LT Asf Affirmed; previously Asf Class D XS1879605928; LT BBB-sf Affirmed; previously BBB-sf Class E XS1879607627; LT BB-sf Affirmed; previously BB-sf Class F XS1879606579; LT B-sf Affirmed; previously B-sf Class X XS1879604012; LT AAAsf Affirmed; previously AAAsf TRANSACTION SUMMARY This is a cash flow CLO mostly comprising senior secured obligations. The transaction is within its reinvestment period and is actively managed by its collateral manager. KEY RATING DRIVERS Coronavirus Baseline Sensitivity Analysis Fitch placed the C-1, C-2, D, E and F tranches on Outlook Negative as a result of a sensitivity analysis it ran in light of the coronavirus pandemic. For the sensitivity analysis Fitch notched down the ratings for all assets with corporate issuers with a Negative Outlook (36.4% of the portfolio) regardless of sector. The model-implied ratings for the affected tranches under the coronavirus sensitivity test are below the current ratings. The Negative Outlook reflects the risk of credit deterioration over the long term due to the economic fallout from the pandemic. The bottom two tranches, which now have Negative Outlooks, were previously on Rating Watch Negative. The shortfalls are still material for both classes but Fitch considers the portfolio's negative credit migration likely to slow and category-level downgrades on these tranches as less likely in the short term. The Stable Outlook on the remaining tranches reflects the fact that the respective tranche's ratings show resilience under the coronavirus baseline sensitivity analysis with a cushion. Portfolio Performance; Surveillance The transaction is still in its reinvestment period and the portfolio is actively managed by the collateral manager. The transaction was below par by 84bp as of the latest investor report available. All portfolio profile tests and coverage tests are passing. All collateral quality tests are passing other than another agencies and Fitch's WARF test (35.58 versus a minimum Fitch WARF of 34). The transaction had no defaulted assets as of the same report. Exposure to assets with a Fitch derived rating of 'CCC+' and below is 7.25% excluding non-rated assets and 9.01% including non-rated assets. Asset Credit Quality 'B'/'B-' Category Portfolio Credit Quality: Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. The Fitch weighted average rating factor (WARF) of the current portfolio is 35.83 (assuming unrated assets are 'CCC'), and the trustee-reported Fitch WARF is 35.58 above the maximum covenant of 34.0. The Fitch WARF would increase by 3.60 after applying the coronavirus stress. Asset Security High Recovery Expectations: Of the portfolio, 100% comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Portfolio Composition The portfolio is well diversified across obligors, countries and industries. The top 10 obligor concentration is 15.65%, and no obligor represents more than 1.9% of the portfolio balance. Of the portfolio, 42.41% consists of semi-annual obligations but a frequency switch has not occurred due to the high interest coverage ratios. 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. The transaction was modelled using the current portfolio based on both the stable and rising interest rate scenario and the front-, mid-, and back-loaded default timing scenario as outlined in Fitch's criteria. Fitch also tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest rate scenario including all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch used a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. Upgrades may occur after the end of the reinvestment period on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As the disruptions to supply and demand due to the pandemic become apparent, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Sensitivity 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. For typical European CLOs this scenario results in a category rating change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Most of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied on for its rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. BARINGS EURO 2017-1: Fitch Affirms B-sf Rating on Class F Notes --------------------------------------------------------------- Fitch Ratings has affirmed Barings Euro CLO 2017-1 BV, and removed the class E and F notes from Rating Watch Negative (RWN). RATING ACTIONS Barings Euro CLO 2017-1 B.V. Class A-1 XS1646517547; LT AAAsf Affirmed; previously AAAsf Class A-2 XS1646510963; LT AAAsf Affirmed; previously AAAsf Class B-1 XS1646511938; LT AAsf Affirmed; previously AAsf Class B-2 XS1646512233; LT AAsf Affirmed; previously AAsf Class C XS1646512829; LT Asf Affirmed; previously Asf Class D XS1646513553; LT BBBsf Affirmed; previously BBBsf Class E XS1646513983; LT BBsf Affirmed; previously BBsf Class F XS1646514874; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY The transaction is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by its collateral manager. KEY RATING DRIVERS Coronavirus Baseline Sensitivity Analysis The removal of the class E and F notes from RWN reflects its view that the portfolio's negative rating migration is likely to slow and a category-level downgrade is less likely in the short term. The Negative Outlooks on the class D, E and F notes reflect the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic, following Fitch's sensitivity analysis of the coronavirus pandemic. In its sensitivity analysis for the pandemic, Fitch notched down the ratings for all assets of corporate issuers with a Negative Outlook regardless of sector. The portfolio includes almost EUR164.9 million of assets with a Fitch-derived rating (FDR) on Negative Outlook, which amounts to 36.73% of the transaction's portfolio balance. The Fitch weighted-average rating factor (WARF) increases to 43.39 after the coronavirus baseline sensitivity analysis. The Stable Outlooks on the remaining tranches reflect the notes' resilience to its base case for the pandemic. Par Performance At the most recent payment date on July 7, 2020, Barings Euro CLO 2017-1 BV's interest diversion test was breached, causing EUR1,155,071.58 of interest distributions to be diverted to the principal account for further reinvestment. This mechanism utilises excess interest proceeds to compensate for par erosion. As of August 28, 2020, the transaction has a portfolio loss of 1.69%, an improvement from the 2.79% loss as of the last review in June 2020. Previously the class D, E, and F overcollaterallisation tests were breached, this was not the case as of the payment date and, therefore, no note redemption occurred. 'B'/'B-' Credit Quality Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. As of September 19, 2020, the Fitch-calculated 'CCC' and below category assets were 11.3% of the portfolio and, including unrated assets, 12.7%. The Fitch-calculated WARF of the current portfolio is 36.96. High Recovery Expectations 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-calculated weighted average recovery rate (WARR) of the current portfolio is 63.58%. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. Exposure to the top 10 obligors is 15.11% of the portfolio balance and no obligor represents more than 1.92% of the portfolio balance. The largest industry is computer and electronics at 10.27% of the portfolio balance, followed by business services at 10.16% and healthcare at 8.09%. Cash Flow Analysis Fitch used a customised proprietary cash-flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios, as outlined in Fitch's criteria. Fitch also tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario including all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to a positive rating action/upgrade: At closing, Fitch used a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, given the portfolio credit quality may still deteriorate, not only by natural credit migration, but also by reinvestments. After the end of the reinvestment period, upgrades may occur in case of a better-than-initially-expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement for the notes following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As disruptions to supply and demand due to coronavirus for other sectors become apparent, loan ratings in such sectors would also come under pressure. Coronavirus Downside Sensitivity 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 a single-notch downgrade to all FDRs in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs, this scenario results in a rating category change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. BARINGS EURO 2018-2: Fitch Affirms B-sf Rating on Class F Notes --------------------------------------------------------------- Fitch Ratings has removed the Rating Watch Negative from Barings Euro CLO 2018-2 BV's class E and F notes of, and affirmed all the notes. RATING ACTIONS Barings Euro CLO 2018-2 B.V. Class A-1 A XS1857759762; LT AAAsf Affirmed; previously AAAsf Class A-1 B XS1859510221; LT AAAsf Affirmed; previously AAAsf Class A-2 XS1857760265; LT AAAsf Affirmed; previously AAAsf Class B-1 A XS1857761073; LT AAsf Affirmed; previously AAsf Class B-1 B XS1860319034; LT AAsf Affirmed; previously AAsf Class B-2 XS1857761586; LT AAsf Affirmed; previously AAsf Class C-1 XS1857762394; LT Asf Affirmed; previously Asf Class C-2 XS1860319620; LT Asf Affirmed; previously Asf Class D XS1857763012; LT BBBsf Affirmed; previously BBBsf Class E XS1857763525; LT BBsf Affirmed; previously BBsf Class F XS1857763871; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY The transaction is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by its collateral manager. KEY RATING DRIVERS Coronavirus Baseline Sensitivity Analysis The removal of the class E and F notes from RWN reflects its view that the portfolio's negative rating migration is likely to slow and a category-level downgrade is less likely in the short term. The Negative Outlooks on the class E and F notes reflect the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic, following Fitch's sensitivity analysis of the coronavirus pandemic. In its sensitivity analysis for the pandemic, Fitch notched down the ratings for all assets of corporate issuers with a Negative Outlook regardless of sector. The portfolio includes almost EUR137.7 million of assets with a Fitch-derived rating on Negative Outlook, which amounts to 34.21% of the transaction's portfolio balance. The Fitch weighted average rating factor (WARF) increases to 42.91 after the coronavirus baseline sensitivity analysis. The Stable Outlooks on the remaining tranches reflect the notes' resilience to its base case for the pandemic. 'B'/'B-' Credit Quality Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. As of September 19, 2020, the Fitch-calculated 'CCC' and below category assets represented 10.02% of the portfolio. Including unrated assets, this figure rises to 13.80%. The Fitch-calculated WARF of the current portfolio is 37.81. High Recovery Expectations 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-calculated weighted average recovery rate of the current portfolio is 64.25%. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. Exposure to the top 10 obligors is 17.03% of the portfolio balance and no obligor represents more than 2.73% of the portfolio balance. The largest industry is business services at 9.90% of the portfolio balance, followed by computer and electronics at 8.99%, and retail at 7.76%. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid-, and back-loaded default timing scenarios, as outlined in Fitch's criteria. Fitch also tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario including all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, given the portfolio credit quality may still deteriorate, not only by natural credit migration, but also by reinvestments. After the end of the reinvestment period, upgrades may occur in case of a better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement for the notes following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As disruptions to supply and demand due to coronavirus for other sectors become apparent, loan ratings in such sectors would also come under pressure. Coronavirus Downside Sensitivity 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 a halting recovery begins in 2Q21. The downside sensitivity incorporates a single-notch downgrade to all Fitch-derived ratings in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs this scenario results in a rating category change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CARLYLE GLOBAL 2016-2: Moody's Confirms B2 Rating on Cl. E Notes ---------------------------------------------------------------- Moody's Investors Service confirmed the ratings on the following notes issued by Carlyle Global Market Strategies Euro CLO 2016-2 Designated Activity Company: EUR19,000,000 Class C-R 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 EUR25,000,000 Class D-R 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 EUR11,500,000 Class E 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: EUR232,000,000 Class A-1-R Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Jun 6, 2019 Definitive Rating Assigned Aaa (sf) EUR59,000,000 Class A-2 Senior Secured Floating Rate Notes due 2030, Affirmed Aa2 (sf); previously on Jun 6, 2019 Affirmed Aa2 (sf) EUR24,000,000 Class B-R Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed A2 (sf); previously on Jun 6, 2019 Definitive Rating Assigned A2 (sf) Carlyle Global Market Strategies Euro CLO 2016-2 Designated Activity Company, originally issued in December 2016, refinanced in June 2019, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by CELF Advisors LLP. The transaction's reinvestment period will end in January 2021. RATINGS RATIONALE The action concludes the rating review on the Classes C-R, D-R and E 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 rating confirmations on the Classes C-R, D-R and E notes and rating affirmations on the Class A-1-R, A-2, and B-R notes reflects the expected losses of the notes continuing to remain consistent with their current ratings despite the risks posed by credit deterioration and loss of collateral coverage observed in the underlying CLO portfolio, which have been primarily prompted by economic shocks stemming from the coronavirus outbreak. Moody's analysed the CLO's latest portfolio and took into account the recent trading activities as well as the full set of structural features. Since the coronavirus outbreak widened in March, the decline in corporate credit has resulted in a significant number of downgrades, other negative rating actions, or defaults on the assets collateralising the CLO. The deterioration in credit quality of the portfolio is 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 18.1% to 3589 [1] in August 2020 from 3039 [2] in January 2020 and is now significantly above the reported covenant of 3149 [1]. The trustee reported default amounts increased to EUR 7.876 million [1] in August 2020 from EUR 0.75 million [2] in January 2020. The trustee reported securities with default probability ratings of Caa1 or lower have increased to 4.9% [1] in August 2020 from 1.7% [2] in January 2020. An over-collateralisation (OC) haircut of EUR 4.0 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 August 2020 the Class A, Class B, Class C, Class D, Class E and Reinvestment test ratios are reported in August 2020 at 133.4% [1], 123.2% [1], 116.2% [1], 108.1% [1], 104.7%[1] compared to January 2020 levels of 137.1%[2], 126.7%[2], 119.5%[2], 111.1%[2] and 107.7%[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), Weighted Average Spread (WAS) and Weighted Average Life (WAL). 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 EUR 389.6 million, a defaulted par of EUR 7.876 million, a weighted average default probability of 27.0% (consistent with a WARF of 3589 over a weighted average life of 4.74 years), a weighted average recovery rate upon default of 45.8% for a Aaa liability target rating, a diversity score of 53 and a weighted average spread of 3.85%. 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 coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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, 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. CLO notes' performance may also be impacted either positively or negatively by: (1) the manager's investment strategy and behaviour; and (2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to the following: -- Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. -- Other collateral quality metrics: Because the deal can reinvest, the manager can erode the collateral quality metrics' buffers against the covenant levels. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. CROSTHWAITE PARK: Fitch Affirms B-sf Rating on Class E Notes ------------------------------------------------------------ Fitch Ratings has affirmed Crosthwaite Park CLO Designated Activity Company's ratings. The ratings of the class D and E notes have been removed from Rating Watch Negative (RWN). The Outlook on the class C notes has been revised to Negative from Stable and the class D and E notes have been assigned a Negative Outlook. RATING ACTIONS Crosthwaite Park CLO DAC Class A-1A XS1934761047; LT AAAsf Affirmed; previously AAAsf Class A-1B XS1934766434; LT AAAsf Affirmed; previously AAAsf Class A-2A XS1934769453; LT AAsf Affirmed; previously AAsf Class A-2B XS1934772671; LT AAsf Affirmed; previously AAsf Class B XS1934774370; LT Asf Affirmed; previously Asf Class C XS1934775690; LT BBB-sf Affirmed; previously BBB-sf Class D XS1934782803; LT BB-sf Affirmed; previously BB-sf Class E XS1934782985; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY This is a cash flow CLO mostly comprising senior secured obligations. The transaction is in the reinvestment period and the portfolio is actively managed by the asset manager. KEY RATING DRIVERS Coronavirus Baseline Scenario Impact: Fitch carried out a sensitivity analysis on the portfolio to envisage the coronavirus baseline scenario. Fitch notched down the ratings for all assets on Negative Outlook with corporate issuers, regardless of sector. This scenario shows the resilience of the current ratings of class A1, A2 and B notes with cushions. This supports the affirmation with a Stable Outlook for these tranches. The class C to E notes pass the current portfolio analysis with a cushion, yet have shortfalls in the coronavirus sensitivity analysis. The removal of the class D and E notes from RWN reflects its view that the portfolio's negative rating migration will probably slow and that category-level downgrade has become less likely in the short term. The Negative Outlook assigned to the class D and E notes and the revision of the Outlook on the class C notes to Negative from Stable, reflects the risk of credit deterioration over the long term, due to the economic fallout from the pandemic. Portfolio Performance: According to Fitch's calculation, the portfolio weighted average rating factor (WARF) is 33.7. This would increase by around 2.7 points in the coronavirus sensitivity analysis for the respective transactions. Assets with a Fitch-derived rating (FDR) on Negative Outlook total 30% of the portfolio balance. Assets with an FDR in the 'CCC' category or below including unrated assets represent 6.7% of the portfolio, and excluding unrated assets they represent 5.9%. The transaction is slightly above par and has no reported defaults. 'B'/'B-' Category Portfolio Credit Quality: Fitch calculated that the Fitch WARF of the current portfolio is 33.7. Recovery Expectations: Senior secured obligations comprise 98% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Fitch's weighted average recovery rate of the current portfolio is 65.8%. Portfolio Composition: The portfolio is reasonably diversified as exposure to the top 10 obligors and the largest obligor is 12.0% and 1.5%, respectively. The top three industry exposure is at about 35%. Semi-annual paying obligations represent over 40% of the portfolio balance on a cumulative basis. No frequency event has occurred since the frequency switch obligation exposure within the due period is within the limit and interest coverage ratios remain high. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest rate scenario and the front-, mid- and back-loaded default timing scenario, as outlined in Fitch's criteria. Fitch also tests the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The analysis for the portfolio with a coronavirus sensitivity analysis was based on the stable interest rate scenario, including all default timing scenarios. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: The transaction features a reinvestment period and the portfolio is actively managed. At closing, Fitch uses a standardised stress portfolio (Fitch's Stressed Portfolio) that 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 case of a better-than-initially-expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses on the remaining portfolio. Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than was initially assumed due to unexpectedly high levels of default and portfolio deterioration. As the disruptions to supply and demand due to the pandemic-related 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 Downside Sensitivity: 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 FDRs in the 'B' rating category and applying a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs this scenario results in a rating category change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CVC CORDATUS XV: Moody's Confirms B3 Rating on Class F Notes ------------------------------------------------------------ Moody's Investors Service confirmed the ratings on the following notes issued by CVC Cordatus Loan Fund XV Designated Activity Company: EUR27,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2032, Confirmed at Baa3 (sf); previously on Jun 3, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade EUR22,500,000 Class E Senior Secured Deferrable Floating Rate Notes due 2032, Confirmed at Ba3 (sf); previously on Jun 3, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade EUR9,000,000 Class F Senior Secured Deferrable Floating Rate Notes due 2032, Confirmed at B3 (sf); previously on Jun 3, 2020 B3 (sf) Placed Under Review for Possible Downgrade Moody's has also affirmed the ratings on the following notes: EUR1,500,000 (current outstanding amount EUR 1,125,000) Class X Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Sep 2, 2019 Definitive Rating Assigned Aaa (sf) EUR246,000,000 Class A Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Sep 2, 2019 Definitive Rating Assigned Aaa (sf) EUR22,500,000 Class B-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aa2 (sf); previously on Sep 2, 2019 Definitive Rating Assigned Aa2 (sf) EUR18,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aa2 (sf); previously on Sep 2, 2019 Definitive Rating Assigned Aa2 (sf) EUR24,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2032, Affirmed A2 (sf); previously on Sep 2, 2019 Definitive Rating Assigned A2 (sf) CVC Cordatus Loan Fund XV Designated Activity Company, issued in September 2019, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by CVC Credit Partners European CLO Management LLP. The transaction's reinvestment period will end in February 2024. The action concludes the rating review on the Class D, E and F notes initiated on June 3, 2020. RATINGS RATIONALE The rating affirmations on the Class X, A, B-1, B-2 and C notes and the rating confirmations on the Class D, E and F notes reflects that expected losses of the notes continue to remain consistent with their current ratings despite the risks posed by credit deterioration and loss of collateral coverage observed in the underlying CLO portfolio, which have been primarily prompted by economic shocks stemming from the coronavirus outbreak. Moody's analysed the CLO's latest portfolio and took into account the recent trading activities as well as the full set of structural features. Since the coronavirus outbreak widened in March, the decline in corporate credit has resulted in a significant number of downgrades, other negative rating actions, or defaults on the assets collateralising the CLO. The deterioration in credit quality of the portfolio is reflected in an increase in Weighted Average Rating Factor (WARF) and of the proportion of securities from issuers with ratings of Caa1 or lower. According to the trustee report dated August 2020 [1], the WARF was 3240 compared to the trigger level of 2887. Securities with ratings of Caa1 or lower currently make up approximately 4.8% of the underlying portfolio. In addition, the over-collateralisation (OC) levels have weakened across the capital structure. According to the trustee report of August 2020 [1], the Class A/B, Class C, Class D, and Class E OC ratios are reported at 138.05%, 127.38%, 117.19% and 109.87% compared to February 2020 levels [2] of 139.67%, 128.87%, 118.56% and 111.15% 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), Weighted Average Spread (WAS) and Weighted Average Life (WAL). 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 EUR 396.6million, a weighted average default probability of 26.94% (consistent with a WARF of 3231 over a weighted average life of 5.97 years), a weighted average recovery rate upon default of 45.16% for a Aaa liability target rating, a diversity score of 45 and a weighted average spread of 3.61%. 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 coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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 provider, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2020. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, in light of uncertainty about credit conditions in the general economy. 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; and (2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to the following: -- Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. -- 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. EURO-GALAXY III CLO: Fitch Affirms B-sf Rating on Class F-RR Notes ------------------------------------------------------------------ Fitch Ratings has affirmed Euro-Galaxy III CLO B.V. and removed the class E-RR and F-RR notes from Rating Watch Negative (RWN). RATING ACTIONS Euro-Galaxy III CLO B.V. Class A-R-RR XS1843430965; LT AAAsf Affirmed; previously AAAsf Class A-RR XS1843430700; LT AAAsf Affirmed; previously AAAsf Class B-1-RR XS1843430023; LT AAsf Affirmed; previously AAsf Class B-2-RR XS1844068533; LT AAsf Affirmed; previously AAsf Class C-RR XS2010046915; LT Asf Affirmed; previously Asf Class D-RR XS2010046246; LT BBBsf Affirmed; previously BBBsf Class E-RR XS2010045602; LT BB-sf Affirmed; previously BB-sf Class F-RR XS2010046089; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY This is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by the collateral manager. KEY RATING DRIVERS Pandemic Baseline Sensitivity Analysis Fitch removed the class E-RR and F-RR notes from RWN and assigned the Negative Outlooks as a result of a sensitivity analysis it ran in light of the coronavirus pandemic. Fitch has also revised the Outlook on the class D notes to Negative from Stable. Fitch notched down the ratings of all assets of corporate issuers with Negative Outlooks (32% of the portfolio) regardless of sector. The class E-RR and F-RR notes have a negative cushion under this stress, while the class D has a small positive cushion. Fitch believes the portfolio's negative credit migration is likely to slow down and downgrades of the two junior tranches are less likely in the short term. As a result, the junior notes have been removed from RWN and affirmed with Negative Outlooks. The Negative Outlooks on the three junior tranches reflect the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic. The Stable Outlook on the remaining tranches reflect that their ratings show resilience under the coronavirus baseline sensitivity analysis with a large cushion. Portfolio Performance; Surveillance The transaction is still in its reinvestment period, which ends in January 2021, and the portfolio is actively managed by the collateral manager. As of the latest investor report available, the transaction was 10bp above par, while most portfolio profile tests, coverage tests and most collateral quality tests were passing. Only the Fitch 'CCC' bucket and the Fitch weighted average rating factor (WARF) test were failing as of the last investor report. The transaction currently holds two defaulted assets that represent 0.73% of the target par amount. Exposure to assets with a Fitch-derived rating of 'CCC+' and below is 10.06% as of September 19, 2020. 'B'/'B-'Category Portfolio Credit Quality Fitch assesses the average credit quality of obligors to be in the 'B'/'B-' category. The Fitch WARF calculated by Fitch as of September 19, 2020 of the current portfolio is 35.8 (assuming unrated assets are 'CCC' and excluding defaulted assets) and the trustee-reported WARF is also 35.8, both below the maximum covenant of 34.0. Under the coronavirus baseline scenario, the Fitch WARF would increase to 39.0. High Recovery Expectations Senior secured obligations constitute 98.4% of the portfolio. Fitch views the recovery prospects for these assets as more favorable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate (WARR) of the current portfolio is 66.5% above the minimum covenant of 65.6% Portfolio Composition The portfolio is well diversified across obligors, countries and industries. The top 10 obligors' concentration is 13.6% and no obligor represents more than 2% of the portfolio balance. Semi-annual obligations constitute 43% of the portfolio but a frequency switch has not occurred due to high interest coverage ratios. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid-, and back-loaded default timing scenarios, as outlined in Fitch's criteria. Fitch also tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario including all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch used a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. Upgrades may occur after the end of the reinvestment period on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpected high levels of defaults and portfolio deterioration. As the disruptions to supply and demand due to COVID-19 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 its Leveraged Finance team. Coronavirus Downside Sensitivity 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 a single-notch downgrade to all FDRs in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs this scenario results in a rating category change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets have ratings or credit opinions from Fitch and/or other nationally recognized statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. FINANCE IRELAND 2: DBRS Finalizes BB(high) Rating on Class E Notes ------------------------------------------------------------------ DBRS Ratings Limited finalized the following ratings on the residential mortgage-backed floating-rate notes issued by Finance Ireland RMBS No.2 DAC. (the Issuer): -- Class A rated AAA (sf) -- Class B rated AA (high) (sf) -- Class C rated A (high) (sf) -- Class D rated BBB (high) (sf) -- Class E rated BB (high) (sf) -- Class F rated BB (low) (sf) DBRS Morningstar does not rate the Class Y, X, or Class Z notes. The final ratings of Class B, Class C, Class D, Class E, and Class F notes are higher than the provisional ratings because of the considerable tightening of the notes' margins across the structure once the transaction priced. The rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal. The ratings on Class B, Class C, and Class D notes address the timely payment of interest once most senior and the ultimate repayment of principal on or before the final maturity date. The ratings of Class E and F notes address the ultimate payment of interest and principal. The Issuer is a bankruptcy-remote, special-purpose vehicle incorporated in the Republic of Ireland. The issued notes were used to fund the purchase of Irish residential mortgage loans originated by Finance Ireland Credit Solutions DAC (Finance Ireland) and Pepper Finance Corporation DAC (Pepper). Since 2018, Finance Ireland has been offering residential mortgage loans within the Irish market distributed by regulated intermediaries. Finance Ireland's residential mortgages are available exclusively through appointed mortgage brokers. Pepper began originating mortgage loans in 2016, and in December 2018 it sold its mortgage business to Finance Ireland. All mortgages have been originated post-crisis and are originated in accordance with the new mortgage code of conduct. As of 31 July 2020, the mortgage portfolio aggregated to EUR 295.2 million. All loans were originated between 2016 and 2019 but 86.5% of the pool has been originated in the past year (i.e., from July 2019 to July 2020), as loans pre-dating the second half of 2019 have been securitized under Finance Ireland RMBS No.1. The beneficial interest of the mortgage loans has been transferred to the issuer, whereas the legal titles of the mortgage loans remained with Finance Ireland. Pepper also services the mortgage portfolio, with Intertrust Management Ireland Limited acting as the backup servicer facilitator. Pepper's servicing capabilities are appropriate to monitor and manage the performance of its mortgage book and securitized mortgage portfolios. In DBRS Morningstar's view, this setup can mitigate a potential servicer termination and therefore remedy potential interest shortfalls arising from operational issues. The Class A notes benefit from an amortizing liquidity reserve fund (ALRF) providing liquidity support for items senior in the waterfall to payments of interest on the Class A notes. The liquidity reserve has a target amount equal to 1.0% of the outstanding Class A notes balance, down to a floor of EUR 1 million. While the amortized amounts are released through the revenue waterfall, the final release of the floor occurs through the principal waterfall when the sum of principal available funds and the ALRF floor is enough to fully redeem the Class A notes. Credit support for the rated notes is provided by the general reserve fund. The general reserve has a target amount equal to 1.0% of the outstanding balance of Class A to Class F notes less than the ALRF amount. It will amortize with a target equal to 1.0% of the outstanding balance of Class A to Class F notes minus the ALRF outstanding balance. Classes B to F are locked out of support if there is an outstanding principal deficiency ledger (PDL) balance on the respective class ledger. However, when they are the most-senior classes outstanding the support will be available regardless of PDL debiting. The general reserve can only be used after the ALRF but in priority to principal to cover the interest shortfalls and debited PDLs. While the amortized amounts are released through the revenue waterfall, the final release of the floor occurs through the principal waterfall when the sum of principal available funds and the available reserve funds is enough to fully redeem the Class F notes. Credit enhancement for the Class A notes is calculated at 18.2% and is provided by the subordination of the Class B notes to the Class Z notes and the reserve funds. Credit enhancement for the Class B notes is calculated at 12.2% and is provided by the subordination of the Class C notes to the Class Z notes and the reserve funds. Credit enhancement for the Class C notes is calculated at 9.0% and is provided by the subordination of the Class D notes to the Class Z notes and the reserve funds. Credit enhancement for the Class D notes is calculated at 6.2% and is provided by the subordination of the Class E notes to the Class Z notes, and the reserve funds. Credit enhancement for the Class E notes is calculated at 4.2% and is provided by the subordination of the Class Z notes and the reserve funds. Credit enhancement for the Class F notes is calculated at 3.2% and is provided by the subordination of the Class Z notes and the reserve funds. A key structural feature is the provisioning mechanism in the transaction that is linked to the arrears status of a loan besides the usual provisioning based on losses. The degree of provisioning increases with the increase in number of months in arrears status of a loan. This is positive for the transaction, as provisioning based on the arrears status traps any excess spread much earlier for a loan that may ultimately end up in foreclosure. The Issuer entered into a fixed-to-floating balance guaranteed swap agreement with BNP Paribas SA (rated AA (low) with a Stable trend by DBRS Morningstar), which, in combination with the fixed rate floor of 200 basis points (bps) over the then prevailing mid-swap rate for loans that reset or switch to fixed-rate loans, will lock-in a post-swap margin of at least 187 bps for all loans that reset to a new fixed rate or switch to a fixed rate before the step-up date. In order to hedge the floating rate portion of the portfolio, the loans that are currently paying a standard variable rate (SVR) rate, revert to SVR or switch to SVR are subject to a minimum rate of one-month Euribor (floored at zero) plus 240 bps. Borrower collections are held with The Governor and Company of the Bank of Ireland (rated A (low) with a Negative trend by DBRS Morningstar) and are deposited on the next business day into the Issuer transaction account held with Elavon Financial Services DAC, U.K. Branch. DBRS Morningstar's private rating of the Issuer Account Bank is consistent with the threshold for the account bank outlined in its "Legal Criteria for European Structured Finance Transactions" methodology, given the ratings assigned to the notes. DBRS Morningstar based its ratings on a review of the following analytical considerations: -- The transaction capital structure and form and sufficiency of available credit enhancement. -- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss outputs on the mortgage portfolio. The PD, LGD, and expected losses are used as an input into the cash flow tool. The mortgage portfolio was analyzed in accordance with DBRS Morningstar's "Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda". -- The ability of the transaction to withstand stressed cash flow assumptions and repay the Class A, Class B, Class C, Class D, Class E, and Class F notes according to the terms of the transaction documents. The transaction structure was analyzed using Intex DealMaker. -- The sovereign rating of A (high)/R-1 (middle) with Stable trends (as of the date of this press release) of the Republic of Ireland. -- The consistency of the legal structure with DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that payment holidays and delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar assumed that there was a moderate decline in residential property prices. Notes: All figures are in Euros unless otherwise noted. HALCYON LOAN 2016: Fitch Affirms B-sf Rating on Class F Notes ------------------------------------------------------------- Fitch Ratings has affirmed Halcyon Loan Advisors Euro Funding 2016 DAC, revised the Outlook on the class C notes to Negative from Stable and removed the class D, E and F notes from Rating Watch Negative (RWN) and assigned them Negative Outlooks. RATING ACTIONS Halcyon Loan Advisors Euro Funding 2016 Class A-1 XS1886369856; LT AAAsf Affirmed; previously AAAsf Class A-2 XS1886370516; LT AAAsf Affirmed; previously AAAsf Class B-1 XS1886370946; LT AAsf Affirmed; previously AAsf Class B-2 XS1886371670; LT AAsf Affirmed; previously AAsf Class C XS1886372215; LT Asf Affirmed; previously Asf Class D XS1886372991; LT BBB-sf Affirmed; previously BBB-sf Class E XS1886373619; LT BB-sf Affirmed; previously BB-sf Class F XS1886373452; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY Halcyon Loan Advisors European Funding 2016 DAC is a cash flow collateralised loan obligation (CLO), originally closed in August 2016 and refinanced in October 2018, of mostly European leveraged loans and bonds. The portfolio is actively managed by Halcyon Loan Advisors (UK) LLP and it is still in its reinvestment period. KEY RATING DRIVERS Portfolio Performance Deterioration: The portfolio has deteriorated as a result of the negative rating migration of the underlying assets in light of the coronavirus pandemic. As per the trustee report dated August 10, 2020, the Fitch weighted average rating factor (WARF) stood at 36.32, above its covenant of 34.00, and represented an increase from the 35.31 recorded in April. The portfolio is below target par by 1.58% and there are four defaulted assets accounting for 2.64% of the aggregate principal balance. The Fitch-calculated 'CCC' category or below assets (including unrated names) represented 16.11% of the portfolio against the limit of 7.50% and the assets with a Fitch-derived rating (FDR) on Negative Outlook represented 40.72% of the portfolio balance. Coronavirus Baseline Sensitivity Analysis: The Negative Outlook on the class C, D, E and F notes reflects the result of the sensitivity analysis Fitch ran in light of the coronavirus pandemic. The agency notched down the ratings for all assets with corporate issuers with a Negative Outlook regardless of the sector. The agency believes that the portfolio's negative rating migration is likely to slow down and category-level downgrades are less likely in the short term. As a result, the class D, E and F notes have been removed from RWN, affirmed and assigned Negative Outlooks. The Negative Outlook on the class C, D, E and F notes reflects the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic. 'B'/'B-' Portfolio Credit Quality: Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. The Fitch-calculated WARF stands at 37.02 and would increase to 42.38 after applying the coronavirus stress. High Recovery Expectations: Senior secured obligations comprise 97.25% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Fitch's weighted average recovery rate of the current portfolio is 64.92%. Portfolio Composition: The portfolio is well diversified across obligors, countries and industries. Exposure to the top 10 obligors is 14.32% and no obligor represents more than 3.00% of the portfolio balance. The largest industry is chemicals at 13.66% of the portfolio balance, followed by retail at 13.39% and computer and electronics at 10.08%. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transactions were modelled using the current portfolio and the current portfolio with a coronavirus sensitivity analysis applied. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch uses a standardised stress portfolio (Fitch's Stressed Portfolio) customised to the specific portfolio limits for the transaction as specified in the transaction documents. Even if the actual portfolio shows lower defaults and losses at all rating levels than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. After the end of the reinvestment period, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement to the notes and more excess spread available to cover for losses on the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to the coronavirus disruption become apparent for other vulnerable sectors, loan ratings in those sectors would al so come under pressure. Fitch will update the sensitivity scenarios in line with the views of its leveraged finance team. Coronavirus Downside Sensitivity: 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 a single-notch downgrade to all FDRs in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs this scenario results in a rating category change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. HARVEST CLO XXII: Fitch Affirms B-sf Rating on Class F Notes ------------------------------------------------------------ Fitch Ratings has affirmed all the tranches of Harvest CLO XXII DAC, revised the class C notes' Outlook to Negative from Stable, and removed the class D, E and F notes from Rating Watch Negative (RWN) and assigned them Negative Outlooks. RATING ACTIONS Harvest CLO XXII DAC Class A XS2025983821; LT AAAsf Affirmed; previously AAAsf Class B XS2025984555; LT AAsf Affirmed; previously AAsf Class C XS2025985958; LT Asf Affirmed; previously Asf Class D XS2025986501; LT BBB-sf Affirmed; previously BBB-sf Class E XS2025987145; LT BB-sf Affirmed; previously BB-sf Class F XS2025987574; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY Harvest CLO XXII DAC is a securitisation of mainly senior secured obligations with a component of senior unsecured, mezzanine and second-lien loans. The portfolio is actively managed by Investcorp Credit Management EU Limited and is still in its reinvestment period. KEY RATING DRIVERS Portfolio Performance Deterioration: The portfolio has deteriorated as a result of the negative rating migration of the underlying assets in light of the coronavirus pandemic. According to the latest trustee report, dated August 28, 2020, the Fitch weighted average rating factor (WARF) was 34.02, which was above its covenant of 33, and an increase from the 33.76 recorded in April. The portfolio is below target par by 0.80% and there are no defaulted assets. Assets in the Fitch-calculated 'CCC' rating category or below (including unrated names) represented 6.50% of the portfolio against the limit of 7.50%, and assets with a Fitch-derived rating (FDR) on a Negative Outlook represented 34.21% of the portfolio balance. Coronavirus Baseline Sensitivity Analysis: The Negative Outlooks on the class C, D, E and F notes reflect the result of the sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch notched down the ratings for all assets with corporate issuers with a Negative Outlook regardless of the sector. Fitch believes that the portfolio's negative rating migration is likely to slow down and that category-level downgrade is less likely in the short term. As a result, the class D, E and F notes have been removed from RWN, affirmed, and assigned a Negative Outlook. The Negative Outlook on the class C, D, E and F notes reflects the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic. 'B'/'B-' Portfolio Credit Quality: Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. The Fitch-calculated WARF is 34.48 and would increase to 37.73 after applying the coronavirus stress scenario. High Recovery Expectations: Senior secured obligations comprise 99.50% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Fitch's weighted average recovery rate of the current portfolio is 63.43%. Portfolio Composition: The portfolio is well diversified across obligors, countries and industries. Exposure to the top 10 obligors is 17.21% and no obligor represents more than 3% of the portfolio balance. The largest industry is business services, at 19.08% of the portfolio balance, followed by healthcare at 15.22% and computer and electronics at 8.72%. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transactions were modelled using both the current portfolio and the current portfolio with a coronavirus sensitivity analysis applied. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: At closing, Fitch uses a standardised stress portfolio ("Fitch's Stress Portfolio") customised to the specific portfolio limits for the transaction as specified in the transaction documents. Even if the actual portfolio shows lower defaults and losses at all rating levels than Fitch's Stress Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. After the end of the reinvestment period, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement to the notes and more excess spread available to cover for losses on the remaining portfolio. Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. As the disruptions to supply and demand due to the coronavirus-related disruption become apparent for other vulnerable sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the views of its Leveraged Finance team. Coronavirus Downside Sensitivity: Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by an increase of infection rates in the major economies, before a halting recovery begins in 2Q21. The downside sensitivity incorporates a single-notch downgrade to all FDRs in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs this scenario results in a category rating change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. JUBILEE CLO 2014-XIV: Fitch Affirms B-sf Rating on Class F Notes ---------------------------------------------------------------- Fitch Ratings has affirmed the ratings on Jubilee CLO 2014-XIV, and removed two tranches from Rating Watch Negative (RWN). RATING ACTIONS Jubilee CLO 2014-XIV B.V. Class A1-R XS1635062463; LT AAAsf Affirmed; previously AAAsf Class A2-R XS1635064758; LT AAAsf Affirmed; previously AAAsf Class B1-R XS1635066456; LT AA+sf Affirmed; previously AA+sf Class B2-R XS1635067694; LT AA+sf Affirmed; previously AA+sf Class C-R XS1635069716; LT A+sf Affirmed; previously A+sf Class D-R XS1635071373; LT BBBsf Affirmed; previously BBBsf Class E XS1114473652; LT BBsf Affirmed; previously BBsf Class F XS1114491126; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY Jubilee CLO 2014-XIV is a cash flow collateralised loan obligation (CLO) of mostly European leveraged loans and bonds. The transaction is outside of its reinvestment period and the portfolio is actively managed by Alcentra Limited. KEY RATING DRIVERS Weakening Portfolio Performance As explained in the trustee report dated August 20, 2020, the trustee-reported Fitch weighted average rating factor (WARF) and Fitch 'CCC' concentration (%) of 36.68 and 8.6% respectively were not in compliance with its test. The transaction also fails the weighted average life (WAL) and top five obligor test. Assets with a Fitch-derived rating (FDR) of 'CCC' category or below represented 9.8% of the portfolio (there is one unrated asset representing 1.5% of the portfolio) according to Fitch's calculation on September 19, 2020. Assets with a FDR on Negative Outlook represented 29.0% of the portfolio balance. However, the weakening portfolio is compensated for by the increase in the Credit Enhancement (C/E) for the mezzanine/senior notes due to the deleveraging of the portfolio. Coronavirus Baseline Scenario Impact Fitch carried out a sensitivity analysis on the current portfolio for its coronavirus baseline scenario. The agency notched down the ratings for all assets, with corporate issuers on Negative Outlook regardless of sector. This scenario demonstrates the resilience of the ratings of the class A1-R, A2-R, B1-R, B2-R, C-R and D-R notes with cushions. The class E and F notes show sizeable shortfalls in this scenario. The agency's view is that the portfolio's negative rating migration is likely to slow and category-level downgrades on the class E and F notes are less likely in the short term. As a result, the class E and F notes have been removed from Rating Watch Negative (RWN) and assigned a Negative Outlook. The Negative Outlook reflects the risk of credit deterioration over the longer term due to the economic fallout from the pandemic. 'B/B-' Portfolio Credit Quality Fitch assesses the average credit quality of obligors in the 'B/B-' category. The Fitch WARF of the current portfolio was 37.2, according to Fitch's calculation, on September 19, 2020. High Recovery Expectations Approximately 95% 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 current portfolio was 61.05% under Fitch's calculation on September 19, 2020. Diversified Portfolio The portfolio is reasonably diversified across obligors, countries and industries. Exposure to the top-10 obligors and the largest obligor is 23.3% and 3.1% respectively. The top-three industry exposures accounted for about 36.9% of the total under Fitch's calculation. Semi-annual obligations represented 51.4% of the portfolio at August 20, 2020. No frequency switch event had occurred. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: A 25% reduction of the mean default rate (RDR) at all rating levels and a 25% increase in the recovery rate (RRR) at all rating levels would result in an upgrade of up to five notches. Except for the class A1-R and A2-R notes, which are already at the highest 'AAAsf' rating, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. If asset prepayment is faster than expected and outweighs the negative pressure from the portfolio's migration, this could increase credit enhancement and add upgrade pressure to notes rated below 'AAAsf'. Factors that could, individually or collectively, lead to negative rating action/downgrade: A 25% increase in the rating default rate (RDR) at all rating levels by and a 25% decrease of the RRR at all rating levels will result in downgrades of no more than five notches. Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to an unexpectedly high level of default and portfolio deterioration. Coronavirus Downside Sensitivity 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 a recovery begins in 2Q21. The downside sensitivity incorporates a single-notch downgrade to all FDRs in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs this scenario results in a category-rating change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Most of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied on for its rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. JUBILEE CLO 2019-XXIII: Fitch Affirms B-sf Rating on Class F Notes ------------------------------------------------------------------ Fitch Ratings has affirmed the ratings on Jubilee CLO 2019-XXIII, revised the outlook in one tranche to Negative from Stable and removed two tranches from Rating Watch Negative (RWN). RATING ACTIONS Jubilee CLO 2019-XXIII B.V. Class A XS2075328943; LT AAAsf Affirmed; previously AAAsf Class B XS2075329677; LT AAsf Affirmed; previously AAsf Class C XS2075330097; LT Asf Affirmed; previously Asf Class D XS2075330683; LT BBB-sf Affirmed; previously BBB-sf Class E XS2075331228; LT BB-sf Affirmed; previously BB-sf Class F XS2075331731; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY Jubilee CLO 2019-XXIII is a cash flow collateralised loan obligation (CLO) of mostly European leveraged loans and bonds. The transaction is in its reinvestment period and the portfolio is actively managed by Alcentra Limited. KEY RATING DRIVERS Weakening Portfolio Performance As explained in the trustee report dated August 10, 2020, the aggregate collateral balance was slightly above par by 28bp. The trustee-reported Fitch weighted average rating factor (WARF) and Fitch weighted average recovery rate (WARR) of 36.28 and 63.8%, respectively, were not in compliance with its test. Assets with a Fitch-derived rating (FDR) of 'CCC' category or below represented 9.3% of the portfolio (there are two unrated assets representing 2.3% of the portfolio), according to Fitch's calculation, on September 19, 2020. Assets with a FDR on Negative Outlook represented 37.7% of the portfolio balance. Coronavirus Baseline Scenario Impact Fitch carried out a sensitivity analysis on the current portfolio for its coronavirus baseline scenario. The agency notched down the ratings for all assets, with corporate issuers on Negative Outlook regardless of sector. This scenario demonstrates the resilience of the ratings of the class A notes with cushions. The class B, C, D, E and F notes show sizeable shortfalls in this scenario. As a result, Fitch has placed the class B on Negative Outlook and had maintained the classes C and D on Outlook Negative. The agency's view is that the portfolio's negative rating migration is likely to slow and category-level downgrades on the class E and F are less likely in the short term. As a result, the class E and F notes have been removed from RWN and assigned a Negative Outlook. The Negative Outlooks reflect the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic. 'B/B-' Portfolio Credit Quality Fitch assesses the average credit quality of obligors in the 'B/B-' category. The Fitch WARF of the current portfolio was 36.9, according to Fitch's calculation, on September 19, 2020. High Recovery Expectations Approximately 99% 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 current portfolio was 63.65%, according to Fitch's calculation, on September 19, 2020. Diversified Portfolio The portfolio is reasonably diversified across obligors, countries and industries. Exposure to the top-10 obligors and the largest obligor is 16.7% and 2.0% respectively. The top-three industry exposures accounted for about 36.1% under Fitch's calculation. At August 10, 2020, no frequency switch event had occurred. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch used a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. Upgrades may occur after the end of the reinvestment period on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpected high levels of defaults and portfolio deterioration. As the disruptions to supply and demand due to COVID-19 become apparent for other sectors, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Sensitivity 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 recovery begins in 2Q21. The downside sensitivity incorporates a single-notch downgrade to all FDRs in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs this scenario results in a category-rating change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Most of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied on for its rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. OZLME V: Moody's Confirms B2 Rating on Class F Notes ---------------------------------------------------- Moody's Investors Service confirmed the ratings on the following notes issued by OZLME V Designated Activity Company: EUR24,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2032, Confirmed at Baa3 (sf); previously on Jun 3, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade EUR22,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2032, Confirmed at Ba2 (sf); previously on Jun 3, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade EUR12,000,000 Class F Senior Secured Deferrable Floating Rate Notes due 2032, 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: EUR248,000,000 Class A Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Dec 12, 2018 Definitive Rating Assigned Aaa (sf) EUR19,000,000 Class B-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aa2 (sf); previously on Dec 12, 2018 Definitive Rating Assigned Aa2 (sf) EUR20,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aa2 (sf); previously on Dec 12, 2018 Definitive Rating Assigned Aa2 (sf) EUR27,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2032, Affirmed A2 (sf); previously on Dec 12, 2018 Definitive Rating Assigned A2 (sf) OZLME V Designated Activity Company, issued in December 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Sculptor Europe Loan Management Limited. The transaction's reinvestment period will end in July 2023. The action concludes the rating review on the Class 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, "Moody's places ratings on 234 securities from 77 EMEA CLOs on review for possible downgrade". RATINGS RATIONALE The rating confirmations on the Class D, E and F notes and rating affirmations on the Class A, B-1, B-2 and C notes reflect the expected losses of the notes continuing to remain consistent with their current ratings despite the risks posed by credit deterioration and loss of collateral coverage observed in the underlying CLO portfolio, which have been primarily prompted by economic shocks stemming from the coronavirus outbreak. Moody's analysed the CLO's latest portfolio and took into account the recent trading activities as well as the full set of structural features. Since the coronavirus outbreak widened in March, the decline in corporate credit has resulted in a significant number of downgrades, other negative rating actions, or defaults on the assets collateralising the CLO. The deterioration in credit quality of the portfolio is reflected in an increase in Weighted Average Rating Factor (WARF) and of the proportion of securities from issuers with ratings of Caa1 or lower. According to the trustee report dated August 17, 2020 [1], the WARF was 3328, compared to value of 2868 as per the February 2020[2] report. Securities with ratings of Caa1 or lower currently make up approximately 6.2% of the underlying portfolio. In addition, the over-collateralisation (OC) levels have weakened across the capital structure. According to the trustee report of August 2020 [1] the Class A/B, Class C, Class D and Class E OC ratios are reported at 138.4%, 126.5%, 117.5% and 110.3%, compared to February 2020 [2] levels of 139.4%, 127.5%, 118.4% and 111.2%, 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), Weighted Average Spread (WAS) and Weighted Average Life (WAL). Moody's notes that the September 2020 trustee report was published at the time it was completing its analysis of the August 2020 data. Key portfolio metrics such as WARF, diversity score, weighted average spread and life, and OC ratios exhibit little or no change between these dates. 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 of EUR 395.9 million, after considering a negative cash exposure of around EUR 2.4 million, a defaulted par of EUR 3.8m, a weighted average default probability of 28.2% (consistent with a WARF of 3368 over a weighted average life of 6.0 years), a weighted average recovery rate upon default of 45.5% for a Aaa liability target rating, a diversity score of 57 and a weighted average spread of 3.66%. 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 coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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. PRINCIPAL METHODOLOGY 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, 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. CLO notes' performance may also be impacted either positively or negatively by: (1) the manager's investment strategy and behaviour; and (2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to the following: -- Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. -- Other collateral quality metrics: Because the deal can reinvest, the manager can erode the collateral quality metrics' buffers against the covenant levels. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. OZLME VI: Moody's Confirms B2 Rating on Class F Notes ----------------------------------------------------- Moody's Investors Service confirmed the ratings on the following notes issued by OZLME VI Designated Activity Company: EUR24,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2032, Confirmed at Baa3 (sf); previously on Jun 3, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade EUR21,100,000 Class E Senior Secured Deferrable Floating Rate Notes due 2032, Confirmed at Ba2 (sf); previously on Jun 3, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade EUR10,600,000 Class F Senior Secured Deferrable Floating Rate Notes due 2032, 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: EUR2,000,000 (current outstanding amount EUR 1.3m) Class X Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Jun 20, 2019 Definitive Rating Assigned Aaa (sf) EUR248,000,000 Class A Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Jun 20, 2019 Definitive Rating Assigned Aaa (sf) EUR20,000,000 Class B-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aa2 (sf); previously on Jun 20, 2019 Definitive Rating Assigned Aa2 (sf) EUR20,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aa2 (sf); previously on Jun 20, 2019 Definitive Rating Assigned Aa2 (sf) EUR15,800,000 Class C-1 Senior Secured Deferrable Floating Rate Notes due 2032, Affirmed A2 (sf); previously on Jun 20, 2019 Definitive Rating Assigned A2 (sf) EUR10,000,000 Class C-2 Senior Secured Deferrable Fixed Rate Notes due 2032, Affirmed A2 (sf); previously on Jun 20, 2019 Definitive Rating Assigned A2 (sf) OZLME VI Designated Activity Company, issued in June 2019, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Sculptor Europe Loan Management Limited (previously known as Och-Ziff Europe Loan Management Limited). The transaction's reinvestment period will end in January 2024. The action concludes the rating review on the Class 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, "Moody's places ratings on 234 securities from 77 EMEA CLOs on review for possible downgrade". RATINGS RATIONALE The rating confirmations on the Class D, E and F notes and rating affirmations on the Class X, A, B-1, B-2, C-1 and C-2 notes reflect the expected losses of the notes continuing to remain consistent with their current ratings despite the risks posed by credit deterioration and loss of collateral coverage observed in the underlying CLO portfolio, which have been primarily prompted by economic shocks stemming from the coronavirus outbreak. Moody's analysed the CLO's latest portfolio and took into account the recent trading activities as well as the full set of structural features. Since the coronavirus outbreak widened in March, the decline in corporate credit has resulted in a significant number of downgrades, other negative rating actions, or defaults on the assets collateralising the CLO. The deterioration in credit quality of the portfolio is reflected in an increase in Weighted Average Rating Factor (WARF) and of the proportion of securities from issuers with ratings of Caa1 or lower. According to the trustee report dated August 2020, the WARF was 3324 [1], compared to value of 2829 [2] in February 2020. Securities with ratings of Caa1 or lower currently make up approximately 7.0% of the underlying portfolio. In addition, the over-collateralisation (OC) levels have weakened across the capital structure. According to the trustee report of August 2020 the Class A/B, Class C, Class D , Class E and Class F OC ratios are reported at 138.1% [1], 126.7% [1], 117.5% [1], 110.6% [1] and 107.5% [1] compared to February 2020 levels of 139.0% [2], 127.6% [2], 118.3% [2], 111.4% [2] and 108.2% [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), Weighted Average Spread (WAS) and Weighted Average Life (WAL). Moody's notes that the September 2020 trustee report was published at the time it was completing its analysis of the August 2020 data. Key portfolio metrics such as WARF, diversity score, weighted average spread and life, and OC ratios exhibit little or no change between these dates. 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 EUR396.3 million, a defaulted par of EUR3.9 million, a weighted average default probability of 28.2% (consistent with a WARF of 3358 over a weighted average life of 6.1 years), a weighted average recovery rate upon default of 44.9% for a Aaa liability target rating, a diversity score of 54 and a weighted average spread of 3.75%. 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 coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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. PRINCIPAL METHODOLOGY 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, 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; and 2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to the following -- Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. -- Other collateral quality metrics: Because the deal can reinvest, the manager can erode the collateral quality metrics' buffers against the covenant levels. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. PENTA CLO 4: Fitch Affirms B-sf Rating on Class F Notes ------------------------------------------------------- Fitch Ratings has affirmed Penta CLO 4 DAC, and removes Rating Watch Negative (RWN) on sub-investment-grade tranches. RATING ACTIONS Penta CLO 4 DAC Class A XS1814398829; LT AAAsf Affirmed; previously AAAsf Class B-1 XS1814399637; LT AAsf Affirmed; previously AAsf Class B-2 XS1814400237; LT AAsf Affirmed; previously AAsf Class C XS1814400823; LT Asf Affirmed; previously Asf Class D XS1814401631; LT BBBsf Affirmed; previously BBBsf Class E XS1814402100; LT BBsf Affirmed; previously BBsf Class F XS1814402365; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY Penta CLO 4 DAC (the issuer) is a cash flow collateralised loan obligation (CLO). Net proceeds from the issuance of the notes were used to purchase a EUR400 million portfolio of mostly euro-denominated leveraged loans and bonds. The transaction closed in June 2018, and the reinvestment period expires on June 2022. The portfolio is actively managed by Partners Group (UK) Management Ltd. KEY RATING DRIVERS Coronavirus Baseline Sensitivity Analysis The rating actions are a result of a sensitivity analysis Fitch ran in light of the coronavirus pandemic. For the sensitivity analysis, Fitch notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. Under this scenario, the class E and class F notes show a shortfall. Fitch views that the portfolio's negative rating migration is likely to slow down, making a category-rating downgrade on the class E and F notes less likely in the short term. As a result, both tranches have been affirmed and removed from RWN. The Negative Outlook on both the class E-R and F-R notes reflects the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic. The Stable Outlooks on the remaining tranches reflect the resilience of their ratings under the coronavirus baseline sensitivity analysis. Portfolio Performance Stabilises As of the latest investor report dated September 7, 2020, the transaction was 0.7% below par and all portfolio profile tests, coverage tests and Fitch collateral quality tests were passing. As of the same report, the transaction had one defaulted asset with an exposure of about EUR3.7 million. Exposure to assets with a Fitch-derived rating of 'CCC+' and below was 7.26%. Assets with a Fitch-derived rating (FDR) on Negative Outlook were 15.73% of the portfolio balance. 'B'/'B-' Portfolio Credit Quality Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch weighted average rating factor (WARF) of the current portfolio is 35.61 (assuming unrated assets are 'CCC') - above the maximum covenant of 35, and the trustee-reported Fitch WARF was 35. After applying the coronavirus stress, the Fitch WARF would increase by 2.77. High Recovery Expectations Senior secured obligations are 98.6% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligors represent 12.88% of the portfolio balance with no obligor accounting for more than 1.5%. About 46% of the portfolio consists of semi-annual obligations but a frequency switch has not occurred due to the transaction's high interest coverage ratios. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. In addition, Fitch tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario but included all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to a positive rating action/upgrade: Upgrades may occur in case of a better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement (CE) and excess spread available to cover for losses in the remaining portfolio except for the class A-R notes, which are already at the highest 'AAAsf' rating. If asset prepayment is faster than expected and outweighs the negative pressure of the portfolio migration, this may increase CE and, potentially, add upgrade pressure on the rated notes. Factors that could, individually or collectively, lead to a negative rating action/downgrade: Downgrades may occur if the build-up of CE following amortisation does not compensate for a larger loss than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those vulnerable sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its leveraged finance team. Coronavirus Downside Sensitivity 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 a single-notch downgrade to all FDRs in the 'B' rating category and a 0.85 recovery rate multiplier to all other assets in the portfolio. For typical European CLOs, this scenario results in a category-rating change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. TIKEHAU CLO IV: Fitch Affirms B-sf Rating on Class F Notes ---------------------------------------------------------- Fitch Ratings has affirmed Tikehau CLO IV B.V. and removed the class E and F notes from Rating Watch Negative (RWN). RATING ACTIONS Tikehau CLO IV B.V. Class A-1 XS1850277838; LT AAAsf Affirmed; previously AAAsf Class A-2 XS1857740077; LT AAAsf Affirmed; previously AAAsf Class B-1 XS1850278133; LT AAsf Affirmed; previously AAsf Class B-2 XS1850278992; LT AAsf Affirmed; previously AAsf Class B-3 XS1857740408; LT AAsf Affirmed; previously AAsf Class C-1 XS1850279610; LT Asf Affirmed; previously Asf Class C-2 XS1857740820; LT Asf Affirmed; previously Asf Class D XS1857935164; LT BBBsf Affirmed; previously BBBsf Class E XS1850280204; LT BBsf Affirmed; previously BBsf Class F XS1850280469; LT B-sf Affirmed; previously B-sf TRANSACTION SUMMARY Tikehau CLO IV B.V. is a cash flow collateralised loan obligation (CLO) comprising mostly senior secured obligations. The transaction is in its reinvestment period, which is scheduled to end in January 2023, and the portfolio is actively managed by Tikehau Capital Europe Limited KEY RATING DRIVERS Portfolio Performance As per the trustee report dated August 28, 2020, the transaction is below target par by 30bp. The Fitch-calculated weighted average rating factor (WARF) of the portfolio marginally increased to 34.77 at September 19, 2020 from the trustee-reported WARF of 34.68. The Fitch calculated 'CCC' or below category assets (including non-rated assets) represents 6.57% of the portfolio compared with the 7.50% limit. As per the trustee, except for the Fitch WARF test, all other portfolio profile tests, coverage tests and collateral quality tests are passing. Coronavirus Sensitivity Analysis Fitch carried out a sensitivity analysis on the target portfolio to determine the coronavirus baseline scenario. The agency notched down the ratings for all assets with corporate issuers on Negative Outlook regardless of sector. These assets represent 32.8% of the portfolio. This scenario demonstrates the resilience of the ratings. However, for the class D, E and F notes the cushions are marginal and remain volatile. The agency expects that the portfolio's negative rating migration is likely to slow down and any downgrades of the two junior tranches are less likely in the short term. As a result, the junior notes have been removed from RWN and affirmed with Negative Outlooks. The Negative Outlooks on the three junior tranches reflect the risk of credit deterioration over the longer term, due to the economic fallout from the pandemic. 'B'/'B-' Category Portfolio Credit Quality Fitch assesses the average credit quality of obligors in the 'B'/'B-' category. High Recovery Expectations Senior secured obligations comprise 99% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the current portfolio is 64.03%. Portfolio Composition The top-10 obligors' concentration is 14.93% and no obligor represents more than 1.86% of the portfolio balance. As per Fitch's calculation, the largest industry is business services at 17.43% of the portfolio balance, and the top-three largest industries account for 36.00% against the limit of 17.50% and 40.00%, respectively. As of August 28, 2020, semi-annual obligations represent 38.88% of the portfolio balance. An increase in semi-annual obligations greater or equal to 20% of the aggregate collateral balance in a due period and breach of modified class A/B interest coverage ratio threshold of 101% could trigger a frequency switch event. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. In addition, Fitch also tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. Fitch's coronavirus sensitivity analysis was only based on the stable interest-rate scenario including all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: At closing, Fitch used a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. After the end of the reinvestment period, upgrades may occur in the event of a better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses on the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to an unexpected high level of default and portfolio deterioration. As the disruptions to supply and demand due to COVID-19 become apparent for other vulnerable sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Scenario 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. For typical European CLOs this scenario results in a rating category change for all ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. =================== L U X E M B O U R G =================== PICARD BONDCO: Fitch Alters Outlook on 'B' LongTerm IDR to Stable ----------------------------------------------------------------- Fitch Ratings has changed the Outlook on Picard Bondco S.A.'s Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at 'B'. Fitch has also affirmed all ratings for debt instruments issued by Picard Group SAS and Picard Bondco S.A. Frozen food retail has benefitted from the pandemic due to strong demand for non-perishable products. Picard has high brand awareness in France, which helps the company to outperform the market. The IDR is supported by Picard's leading position and its continued high profitability, which remain very high compared with close peers. These factors are offset by very high leverage, which continues to be a rating constraint. The Stable Outlook is supported by Picard's demonstrated ability to keep costs under control and generate positive free cash flow (FCF) before dividends reflecting an intact deleveraging capacity. While refinancing risk is high due to still high leverage for its rating, Fitch expects a steady operating performance and some commitment to improve credit metrics further before large debt refinancing commitments in 2022-2023. KEY RATING DRIVERS Strong Coronavirus-driven Performance: After a moderate start of the financial year to March 2020 (FY20) that showed neutral to mildly positive like-for-like sales dynamics, Picard benefited from the market environment, with like-for-like sales growth of 14% in 4QFY20 and over 20% in 1QFY21. Effective negotiations with suppliers allowed it to maintain healthy operating margins. Fitch expects that at least part of the unexpected revenue will be retained driven by strong brand awareness and uncertainty surrounding the pandemic, which Fitch believes will last well into 2021. Fitch still forecasts a small decrease of sales in FY22 due to a very high base effect of FY21. Profitability Still Under Pressure: Due to its demonstrated ability to control costs, Fitch raised its EBITDA margin forecasts by about 50bp, also considering extra sanitary and distancing costs. Fitch still expects margins to trend downwards over the forecasting horizon due to a tougher cost environment in France than in previous years. Fitch believes that Picard's profit margins, which remain very high for the sector, will continue to be underpinned by its business model, with revenue largely generated by own-branded products and also structurally profitable international expansion. Uncertainty Over Financial Policy: Picard has limited room to pay dividends given its current debt structure and Fitch expects its capex programme to be moderate, with an expansion increasingly based on franchises in France and partnerships in international, and being more focused on store redesign and online development. Positive FCF should help deleveraging prior to refinancing. Although the financial policy is largely unclear - in particular a possible looser dividend policy under a potential refinancing documentation - under the current debt structure Fitch factors in dividends of EUR30 million from FY22 in its forecasts. This should still allow for positive FCF margin. Persistently High Leverage: Picard's high leverage remains a key rating constraint. Fitch expects funds from operations (FFO) adjusted leverage to remain elevated, staying between 8.0x and 9.0x over the forecast horizon (by 2023), representing a significant outlier factor from the ratings' perspective. FFO adjusted gross leverage reached a record high of 9.8x at end-FY19, and has improved to 9.0x in FY2020, about 0.7x better than anticipated. Shareholders previously exploited Picard's highly cash generative business model with two dividend recapitalisations in 2017 and 2018, leading to a cumulative debt increase of 30%. Since dividends are limited by the current debt structure it is premature to assess the appetite for dividends of new shareholders, although Fitch remains cautious. The group retains its deleveraging capacity but has exhausted its headroom under its 'B' rating. Robust Business Model: Leadership in a niche market and a highly profitable own brand continue to underpin Picard's business model strength, although showed lower resilience to adverse market conditions in FY18 and FY19, which led to lower margins. The group has shown greater resilience in FY20 and the coronavirus has had a positive impact on margins. Structural market changes are likely to accelerate after the pandemic, including increasing competition from organic food retailers, which could pose put pressure on Picard's sales and profitability. Positive Free Cash Flow: Fitch expects Picard will continue to benefit from a high cash conversion ratio due to the combination of structurally high profitability, limited working-capital swings and even lower capex needs. This makes us expect positive FCF even on the back of high interest costs and assumed dividends. Fitch continues to see this cash flow generation as a key positive differentiating factor from retail peers, offsetting high leverage to some extent. Refinancing Risk Looming: Fitch previously noted that high leverage markedly increases Picard's reliance on strong operating performance and favourable market conditions to address its refinancing needs. There is still time before refinancing needs emerge (December 2022 for the revolving credit facility (RCF), November 2023 for the notes), but retaining the profitability and positive like-for-like sales will remain key factors to mitigate refinancing risks ensuring leverage is kept below current levels and more in line with 'B' rated peers. The current rating encapsulates continued high profitability but sustainably low interest charges relative to its debt burden, with FFO fixed-charge cover expected stable at about 1.9x over the next four years, a level comparable to 'BB' rated food retailers. DERIVATION SUMMARY Picard's rating remains constrained by significantly higher leverage than peers. Despite the company's robust business model in the niche frozen food segment, its overall profile is weaker than larger food retail peers, such as Ahold Delhaize NV (BBB+/Stable) or Russian retailers X5 Retail Group N.V. (BB+/Stable) or Lenta LLC (BB/Positive), due to its smaller scale and poorer diversification. Picard is also smaller than UK frozen food specialist Iceland Topco Limited (B/Stable). However, Picard enjoys a strong brand awareness, which is key for its strong positioning as a market leader in the French frozen-food retail sector. Picard also has high profitability levels mainly due to its unique business model mostly based in own-branded products, which make it comparable with food manufacturers, such as Premier Foods plc (not rated), rather than with its immediate food retailing peers. This differentiating factor implies superior cash flow generation that supports financial flexibility and comfortable liquidity. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Revenue growth of 10% in FY21 affected by the coronavirus, 2.7% in FY22 due to high base effect and then 1.5% on average from FY23. - Capex intensity averaging 3% over the rating horizon. - EUR26 million dividends in FY21 and then about EUR30 million on average from FY22. - Working capital gradually affected by growth of organic food share leading to faster payables RECOVERY ASSUMPTIONS In its recovery analysis, Fitch follows a going-concern approach in restructuring and believe that Picard would be reorganised rather than liquidated. Its calculations reflect Picard's brand value and well-established, albeit niche, position, in the French frozen-food market. The going-concern enterprise value of EUR870 million is based on a post-distress EBITDA of EUR145 million resulting from Fitch-adjusted FY2020 EBITDA of EUR206 million, discounted by 30%. Fitch regards this level of post-distress EBITDA to be appropriate as it would be sufficient to cover a cash debt service cost of EUR55 million, estimated cash taxes under stressed scenario of about EUR20 million and a sustainable level of capex of EUR30 million to maintain the viability of Picard's business model. Fitch applies a distressed enterprise value/EBITDA multiple of 6.0x, which reflects its niche positioning and less vulnerable business profile as a retailer generating sales mostly through own-branded products. Fitch also assumes a fully drawn EUR30 million RCF. After a deduction of 10% for administrative charges from the post-distress enterprise value of EUR870 million, its waterfall analysis generates high recovery prospects for the super senior RCF issued by Picard Groupe S.A.S., in the RR1 band, leading to a 'BB' instrument rating. These assumptions also result in above-average recovery prospects in the 51%-70% range for the senior secured floating-rate notes, leading to a 'B+' rating. Following the payment waterfall, the senior notes' recovery rate is in the 0%-10% range, leading to a 'CCC+' instrument rating. The waterfall analysis output percentage on current metrics and assumptions was 60% for the senior secured floating-rate notes, 100% for the super-senior RCF and 0% for the senior notes. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - FFO adjusted gross leverage below 6.5x (6.0x net of readily available cash) on a sustained basis driven mostly by debt prepayments. - FFO fixed-charge cover above 2.2x (FY20: 2.0x) on a sustained basis. - FCF margin to remain strong at mid-single digits. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Inability to reduce FFO adjusted gross leverage towards 8.5x (7.0x net of cash) by end-FY22, resulting in a too high level of refinancing risk for the rating closer to major debt maturities. - Deteriorating competitive position leading to sustained erosion in like-for-like sales and EBITDA margin. - Aggressive dividend policy leading to sustainably negative free cash flow - FFO fixed-charge cover below 1.5x. LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: Picard's liquidity is supported by high cash on balance (EUR196 million Fitch-adjusted) and its healthy cash flow generation due to limited working capital outflows and low capex. Liquidity is further supported by access to EUR30 million RCF maturing in FY23 although totally drawn as of March 2020 as a precautionary measure. 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). SOFTWARE LUXEMBOURG: Moody's Assigns Caa1 CFR, Outlook Stable ------------------------------------------------------------- Moody's Investors Service, assigned to Software Luxembourg Acquisition S.A R.L. a Caa1 corporate family rating (CFR) and Caa1-PD probability of default rating (PDR). Concurrently, Moody's assigned a B1 rating to the company's senior secured first out first lien term loan facility and a Caa1 rating to the company's senior secured second out first lien term loan facility. Proceeds from the new credit facilities were used to refinance the company's DIP loan facility, pay bankruptcy and restructuring fees, fund associated transaction fees and expenses and add to the company's cash position. The outlook is stable. Assignments: Issuer: Software Luxembourg Acquisition S.A R.L. Corporate Family Rating, Assigned Caa1 Probability of Default Rating, Assigned Caa1-PD Senior Secured 1st Out 1st Lien Bank Credit Facility, Assigned B1 (LGD1) Senior Secured 2nd Out 1st Lien Bank Credit Facility, Assigned Caa1 (LGD4) Outlook Actions: Issuer: Software Luxembourg Acquisition S.A R.L. Outlook, Assigned Stable RATINGS RATIONALE Skillsoft's Caa1 Corporate Family Rating reflects the risk that it will not be able to turnaround overall organic revenue and EBITDA declines over the next 2 years. Moody's expects continued execution risks in restructuring its operations and marketing its product offerings. The company's cash adjusted leverage is high in the context of its turnaround efforts, currently estimated at about 5x when adjusting for certain one-time expenses and expected to decline toward 4x over the next 12-18 months. Liquidity is adequate over the next 12 months. The rating also recognizes the highly competitive nature of the human capital management ("HCM") and enterprise e-learning markets, which have relatively low barriers to entry in addition to discretionary demand drivers in some industries. Effectively owned by the company's prior creditors, Skillsoft is expected to maintain a moderate financial policy over the near term. The Caa1 rating derives support from Skillsoft's business model that generates fairly predictable revenues from contracts with gross margins in the 90% range. The rating is also supported by the company's highly diversified customer base consisting of enterprise and small & medium sized businesses, as well as organic growth opportunities for its Percipio content delivery platform and certain segments of its content library. The stable outlook reflects Moody's expectation for negative free cash flow generation (negative free cash flow is due to significant bankruptcy related costs in FY 2021) and continued declines in revenue over the next 12-18 months, which are expected to reverse during Skillsoft's fiscal year ended January 31, 2022. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Skillsoft's ratings could be upgraded if the company were to improve its liquidity position materially by generating greater positive free cash flow while reversing organic revenue declines. The ratings could be downgraded if the company continues to generate negative free cash flow, if revenue declines accelerate, or if liquidity materially weakens. Liquidity is considered adequate, based on a cash balance of $90 million at August 31, 2020 and expectations for negative free cash flow generation in fiscal 2021 (as a result of significant bankruptcy related costs) which is expected to turn positive over the course of fiscal 2022. The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Given Skillsoft's exposure to the North American and European economies, the company remains vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions. Software Luxembourg Acquisition S.A R.L. ("Skillsoft") provides cloud-based e-learning solutions for enterprises, government, and education customers through its Skillsoft and SumTotal businesses. In September 2014 Evergreen Skills acquired SumTotal Systems, Inc. ("SumTotal") for approximately $725 million. SumTotal is a global provider of personalized learning and human capital management ("HCM") software to organizations. The company reported approximately $514 million of total revenue in its fiscal year ended January 31, 2020. Skillsoft is headquartered in Nashua, New Hampshire. The principal methodology used in these ratings was Software Industry published in August 2018. SOFTWARE LUXEMBOURG: S&P Assigns 'B-' ICR on Bankruptcy Emergence ----------------------------------------------------------------- S&P Global Ratings assigned its 'B-' issuer credit rating on Software Luxembourg Holding S.A. ("Skillsoft"). S&P said, "At the same time, we are assigning our 'B+' issue-level rating and '1' recovery rating to the debt issuing subsidiary - Software Luxembourg Acquisition S.a.r.l.'s $110 million first-out term loan facility due 2024 and 'B-' issue-level rating and '3' recovery rating to its $410 million second-out term loan facility due 2025. "The stable outlook reflects our expectation that the company will maintain sufficient liquidity over the next 12 months despite continued revenue and margin pressures, causing S&P adjusted leverage to rise to 7x over the next year from about 5x at emergence. "We believe Skillsoft's business turnaround plan faces high execution risk because of competitive headwinds and gradual customer migrations to new software platforms that have better retention rates. Skillsoft has experienced many years of order intake declines in its content and HCM businesses. The content business represents about 70% of annual order intake and has been declining in the mid-single-digit percentage range during fiscals 2019 and 2020. We expect a similar rate of decline during this fiscal year as customers either churn off of Skillsoft's legacy software (Skillport) to competing products, or as the company offers price concessions to retain customers. We expect retention rates and revenue declines to start to stem after this fiscal year as the company continues to grow customer count on its newer software platform, Percipio. More than half of the customers in the company's content business are using Percipio through dedicated or dual deployment with Skillsoft and Percipio currently represents 40% of the content business' annual recurring revenues and has been growing organically in the 15%-20% range. We believe that this growth in Percipio is slightly better than industry growth (high-single-digit percentage range) and we expect customer retention rates at Percipio to remain above 100%. While the Percipio software offers a number of features that differentiate it positively from Skillport, such as AI-driven personalization, mobile apps, and different modalities focused on learner skill development, we expect execution risks to remain elevated until the content business is primarily driven by Percipio (as opposed to Skillport). We expect the transition to occur gradually over the next few years as is the case for many enterprise software transitions. We believe many existing Skillport customers may consider all available competing options such as Linkedin Learning or more niche learning providers such as Navex when deciding to churn. It is also possible that some customers downgrade their e-learning packages to only essential needs, such as compliance training, as it has become easier to learn other skills (such as Excel or basic programming) using free online resources. We note that it is difficult to win back customers once customers churn given the stickiness of enterprise software, challenging prospects for large market share gain over the next few years." This heightens management's need to retain existing customers. New capital structure provides some financial flexibility for management to execute on business turnaround. Following the emergence from Chapter 11 bankruptcy, Skillsoft benefits from having a substantial reduction in its debt. Funded debt has been reduced to $571 million from over $2 billion, and annual cash interest costs have declined to about $50 million from $160 million. S&P said, "(We do not net cash from debt for this credit.) The lower fixed interest burden alleviates some pressures allowing management to invest and support revenue growth in future years, such as in sales and marketing. We note that several of Skillsoft's competitors in its e-learning business (such as Linkedin Learning) have heavily invested in marketing and have targeted corporate buyers in specific departments of organizations, rather than selling to centralized corporate buyers. This has resulted in competitors gaining market share over the past few years. We expect Skillsoft to increase spend in marketing and continue to re-orient its sales force to target line of business leaders within organizations in order to reduce customer churn and eventually stabilize recent revenue declines." S&P said, "We expect the company to maintain sufficient liquidity despite further near-term revenue and margin pressures. We note that the company emerged from the Chapter 11 filing with a good cash balance of $90 million, which is more than enough to offset seasonally weaker cash flow quarters during the second half of the fiscal year. The company is also not required to test its financial covenant until January 2022, allowing some financial flexibility to navigate over the next year. We forecast annual free operating cash flows to be in the $20 million to $40 million range annually (pro forma for a full year's worth of interest expense in fiscal 2021 and excluding one-time costs related to the bankruptcy), despite modeling in continued margin declines to the low-20% area. We believe that margin decline will result from loss of operating leverage as revenues contract, industry pricing pressures, and the need to increase spend to support the Percipio and new SumTotal platforms. We think that further margin declines may be slightly offset by management taking appropriate cost-saving measures to preserve margins in the low-20% area. Management has displayed a track record of executing on cost savings from 2016 to 2019, preserving margins amid a declining top-line revenue environment. We believe that execution on further cost restructurings may be more difficult than in the past as the company has already executed on the easier cost takeouts in prior years." Skillsoft's cash flow benefits from lower interest costs than its previous capital structure, negligible working capital usage requirements after this fiscal year, and low capex needs. The company's financial covenants do not get tested until January 2022. S&P said, "The stable outlook reflects our view that the company will maintain positive free operating cash flows (excluding one-time payments related to the Chapter 11 bankruptcy proceedings) and will be able to improve free cash flow over time as revenue churn reduces after the current fiscal year (fiscal 2021). We expect EBITDA margins to contract to the low-20% area as the company increases investment spend as a percentage of revenue. "We could lower the rating if order intake, revenues, and earnings declines accelerate, and results in free operating cash flow (FOCF) to turn negative. This could occur if efforts to retain customers fail, or if further pricing disruption in the industry causes the company to reduce contract values. We could also lower the rating if covenant compliance remains uncertain--we note that the financial maintenance leverage covenant will not be tested until January 2022. "We consider an upgrade unlikely given our expectation that leverage will rise over the next year as revenues and margins contract and timing for business stabilization is uncertain. Longer term we could raise the ratings with the company returning to annual revenue growth and EBITDA margin improving to above 25%. We believe that sustainable revenue growth would be indicative of Skillsoft's improving competitive position. From a financial metrics standpoint, leverage under 6.5x with FOCF to debt exceeding 5% would be viewed positively." ===================== N E T H E R L A N D S ===================== DRYDEN 63: Moody's Confirms B2 Rating on Class F Notes ------------------------------------------------------ Moody's Investors Service confirmed the ratings on the following notes issued by Dryden 63 GBP CLO 2018 B.V.: GBP16,450,000 Class D Mezzanine Secured Deferrable Floating Rate Notes due 2032, Confirmed at Baa2 (sf); previously on Jun 3, 2020 Baa2 (sf) Placed Under Review for Possible Downgrade GBP23,800,000 Class E Mezzanine Secured Deferrable Floating Rate Notes due 2032, Confirmed at Ba2 (sf); previously on Jun 3, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade GBP11,400,000 Class F Mezzanine Secured Deferrable Floating Rate Notes due 2032, 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: GBP171,000,000 Class A-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Sep 20, 2018 Definitive Rating Assigned Aaa (sf) GBP9,000,000 Class A-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aaa (sf); previously on Sep 20, 2018 Definitive Rating Assigned Aaa (sf) GBP29,100,000 Class B-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aa2 (sf); previously on Sep 20, 2018 Definitive Rating Assigned Aa2 (sf) GBP14,400,000 Class B-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aa2 (sf); previously on Sep 20, 2018 Definitive Rating Assigned Aa2 (sf) GBP17,300,000 Class C-1 Mezzanine Secured Deferrable Floating Rate Notes due 2032, Affirmed A2 (sf); previously on Sep 20, 2018 Definitive Rating Assigned A2 (sf) GBP911,000 Class C-2 Mezzanine Secured Deferrable Fixed Rate Notes due 2032, Affirmed A2 (sf); previously on Sep 20, 2018 Definitive Rating Assigned A2 (sf) Dryden 63 GBP CLO 2018 B.V. issued in September 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by PGIM Limited. The transaction's reinvestment period will end in October 2022. RATINGS RATIONALE The rating confirmations on the Class D, E and F notes and rating affirmations on the Class A-1, A-2, B-1, B-2, C-1 and C-2 notes reflect the expected losses of the notes continuing to remain consistent with their current ratings despite the risks posed by credit deterioration and loss of collateral coverage observed in the underlying CLO portfolio, which have been primarily prompted by economic shocks stemming from the coronavirus outbreak. Moody's analysed the CLO's latest portfolio and took into account the recent trading activities as well as the full set of structural features. The deterioration in credit quality of the portfolio is reflected in an increase in Weighted Average Rating Factor (WARF) and of the proportion of securities from issuers with ratings of Caa1 or lower. According to the trustee report dated August 2020 [1], the WARF was 3145, compared to 3076 in January 2020 [2]. Securities with ratings of Caa1 or lower currently make up approximately 3.4% [1] of the underlying portfolio. In addition, the over-collateralisation (OC) levels have weakened across the capital structure. According to the trustee report of August 2020 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 142.6%, 131.9%, 123.5%, 113.0% and 108.7% compared to January 2020 levels [2] of 145.8%, 134.8%, 126.2%, 115.5% and 111.0% 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: Weighted Average Recovery Rate (WARR), Weighted Average Spread (WAS) and Weighted Average Life (WAL). 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 GBP 318.2 million, a defaulted par of GBP 4.6 million, a weighted average default probability of 28.0% (consistent with a WARF of 3351 over a weighted average life of 6 years), a weighted average recovery rate upon default of 42.7% for a Aaa liability target rating, a diversity score of 35 and a weighted average spread of 4.5%. 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 coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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 and 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. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. -- Other collateral quality metrics: Because the deal can reinvest, the manager can erode the collateral quality metrics' buffers against the covenant levels. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =========== N O R W A Y =========== PGS ASA: Fitch Cuts LT IDR to 'C' on Missed Principal Payment ------------------------------------------------------------- Fitch Ratings has downgraded global oilfield services company PGS ASA's Long-Term Issuer Default Rating (IDR) to 'C' from 'CCC' following the company's missed principal payment on its revolving credit facility (RCF) and the announcement of an agreement, in principle, with a majority of its lenders to amend and extend most of its existing debt agreements. Following the missed principal payment on the RCF the company reached a forbearance agreement with a required majority of lenders under the RCF and term loan B (TLB) facilities and is in negotiations with the export credit facilities (ECF) parties to obtain the same agreement. The debt restructuring plan announced by the company would involve the postponement of all maturities and amortisation payments under its RCF, TLB, and ECF to September 2022, as well as a significant incentive for RCF and TLB lenders to convert a portion of their commitments to a new convertible bond to be issued by the company. The announcement also contains a declaration of intention to seek the implementation of the agreement via alternative legal restructuring procedures if support from all lenders is not received. These actions, which in its view PGS is pursuing to avoid a liquidity event following demand destruction caused the coronavirus crisis and related measures, would likely constitute a distressed debt exchange (DDE) under Fitch's DDE Rating Criteria if they are finalised in the form announced. KEY RATING DRIVERS Missed Payment of Principal: PGS has failed to repay the USD135 million of senior secured revolver borrowings falling due on September 25, 2020, after receiving a one-week extension from lenders on September 18, 2020 (the original maturity date). This results in a default under the credit agreement, which has been temporarily remedied with a forbearance agreement that ensures PGS that RCF and TLB lenders will not enforce their claims under what will be an ongoing state of default. PGS is negotiating a forbearance agreement with the ECF parties to obtain the same forbearance agreement to avoid triggering a cross-default provision under the ECF agreement. Precarious Liquidity Position: PGS' liquidity position has become very weak since the onset of the pandemic, with resulting lockdowns and other restrictions yielding an unparalleled destruction in demand across the oil & gas value chain. Fitch had expected the company would exhaust its current liquidity by early 2021, absent a successful debt restructuring. The current missed principal payment on its RCF may signal that cash burn since end-2Q20 may have eroded liquidity to such an extent that the liquidity inflection point is likely to happen sooner, if the agreement is not implemented. DDE: Fitch would view the proposed restructuring as DDE if implemented as announced as Fitch assesses it to have a material reduction in terms and to be conducted to avoid bankruptcy. Upon completion of the announced offer, Fitch will downgrade PGS' IDR to RD to record the default event. Once sufficient information is available, Fitch will re-rate PGS to reflect its post-exchange capital structure and risk profile in accordance with relevant Fitch criteria. Step Towards Exchange to Equity: The proposed offer includes the issuance of a new USD12 million convertible bond, with incentives for RCF and TLB lenders to exchange their pro rata loan commitments for a stake in the bond. The convertible bond can be exchanged for PGS shares voluntarily at NOK3/share, but it also contains a unilateral conversion option at the company's disposal in case PGS's share price exceeds NOK6/share for 30 consecutive days. Fitch views this as an intermediate potential step towards exchanging debt for equity. Legal Alternatives: PGS said it has already agreed with supporting lenders to engage in alternative legal restructuring if the proposed plan does not receive 100% lender consent. Fitch views this as indicating that the offer is meant to avoid bankruptcy or similar legal proceedings, which would support a DDE designation. Weak Liquidity Access: PGS's strained liquidity, and the fairly high amortisation payments required on its TLB and ECF, are likely to limit the company's ability to sustain interest increases on its senior secured debt, which are already at Libor + 750bp for the TLB and Libor + 650bp for the RCF (with a 75bp utilisation fee). Fitch expects lender and debt investor appetite for exposure to high-yield oilfield services companies will remain very low through 2022 at least. DERIVATION SUMMARY PGS is a global marine seismic company with a market share of about 35%, offering both multiclient and contract services. PGS's market-leadership derives from its young and high-capacity vessels (Ramform) fully equipped with GeoStreamers, a proprietary technology that allows for clearer and more accurate images. PGS focuses solely on the offshore segment of the market, so it does not benefit from diversification, unlike other oilfield services companies with exposure to both offshore and onshore, such as Nabors Industries, Inc. (B-/Negative). In addition, while Nabors is highly exposed to the spending patterns of higher-cost US shale producers, its liquidity position is less strained than that of PGS. Both companies' credit profiles are constrained by their liquidity positions, albeit with Nabors' liquidity position being much more sustainable than PGS's with no near-term inflection points on the horizon, compared with companies such as Precision Drilling Corporation (B+/Negative), which faces the same fundamental pressures as Nabors and PGS but has entered the downturn with a more robust liquidity position and relatively low leverage. KEY ASSUMPTIONS Once the transaction with lenders is finalised, Fitch will establish new assumptions in support of its forecasts for the company based on an updated business plan, liquidity profile and its views on the market recovery. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: A positive rating action is highly unlikely in the short term, but Fitch would consider it if the proposed restructuring is successful and new sources of liquidity become available to PGS such that it is sufficient to fund near-term debt service requirements Factors that could, individually or collectively, lead to negative rating action/downgrade: Implementation of a DDE, by way of debt recapitalisation according to the terms presented, and/or an uncured payment default would lead to a downgrade to 'RD' 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). =============== P O R T U G A L =============== HIPOTOTTA PLC 4: Fitch Affirms BB-sf Rating on Class C Notes ------------------------------------------------------------ Fitch Ratings has taken rating actions on HipoTotta No. 4 Plc (Hipototta 4) and Gamma, STC S.A. / Hipototta No. 13 (Hipototta 13), as follows: RATING ACTIONS HipoTotta No. 13 Class A PTGMMBOM0001; LT A+sf Affirmed; previously A+sf HipoTotta No. 4 Plc Class A XS0237370605; LT Asf Affirmed; previously Asf Class B XS0237370787; LT Asf Affirmed; previously Asf Class C XS0237370860; LT BB-sf Affirmed; previously BB-sf TRANSACTION SUMMARY The transactions comprise Portuguese residential mortgage loans originated and serviced by Banco Santander Totta S.A. (BBB+/Negative/F2). The rating actions follow a periodic review of the transactions. KEY RATING DRIVERS Coronavirus Stress Drives Outlook Revision The affirmation of the ratings of the notes of Hipototta 4 and Hipototta 13 reflects their resilience to higher projected losses, notably from risks associated with the coronavirus crisis. The revised Outlook for the rating of Hipototta 4's class C notes reflects the decreased likelihood of a rating upgrade given the macroeconomic environment. Fitch Ratings has identified additional stress-scenario analysis to be applied in conjunction with its "European RMBS Rating Criteria" in response to pandemic-related developments, in accordance with its "Global Structured Finance Rating Criteria". Fitch applies this additional stress-scenario analysis to its existing and new rating analysis. Counterparty Risks Cap Ratings For Hipototta 13, the class A notes' rating is capped at 'A+sf' as the account bank replacement trigger being set at 'BBB' and 'F2' is insufficient to support 'AAsf' or 'AAAsf' ratings, as per Fitch's "Structured Finance and Covered Bonds Counterparty Rating Criteria". For Hipototta 4, the counterparty provisions of 'F2' do not support note ratings in the 'AAsf' or 'AAAsf' rating categories, but this does not constrain the rating of the senior notes at the moment. However, it is the driver for the '4' ESG Relevance Score for Transaction Parties & Operational Risk. Steady Performance for The Transactions In the past 12 months, asset performance remained stable for the transactions, supported by portfolio deleveraging and sufficient CE. The cumulative gross default ratio for Hipototta 4 remained stable at 3.5%, while first defaults for the Hipototta 13 have started to rise, as the seasoning of this transaction is still low. As the pandemic intensified, the originator granted payment holidays under the Portuguese government and Portuguese Banking Association schemes (that can include principal and interests) that may last until September 2021 (extended by the Portuguese government from March 2021). As of June 2020, they represented around 14% of the outstanding portfolio for Hipototta 4 and around 24% for Hipototta 13 compared to a market average of around 25% in Portugal. Hipototta 13 Interest Rate Risk Hipototta 13 is marginally exposed to interest rate risk, as the structure is unhedged and nearly 1% of the pool pays a fixed interest rate, while the securitisation notes pay floating coupons. Fitch has accounted for this risk in its analysis and found the available CE on the class A notes sufficient to mitigate it. HipoTotta 4 has an ESG Relevance Score of '4' for Transaction Parties & Operational Risk due to modification of counterparty eligibility triggers after transaction closing, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Hipototta 4's class A and B notes and Hipototta 13's class A notes could be upgraded up to the 'AAsf' country ceiling for Portugal, provided the account bank replacement triggers were updated to 'A-' or 'F1' in accordance with Fitch's "Structured Finance and Covered Bonds Counterparty Rating Criteria", subject to the counterparty compliance to those triggers, and an adequate level of CE to sustain stresses associated with higher ratings. - Hipototta 4's class A, B and C notes could also be upgraded if there is a sufficient increase in the CE level to compensate for higher expected losses. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Liquidity positions of the senior notes weakening due to large take-ups of mortgage payment moratoria and new defaults as a consequence of the coronavirus crisis. - Drawdowns on the cash reserve accounts (due to greater-than-expected defaults) will reduce available payment-interruption mitigants and may lead to downgrades of the notes. - A longer-than-expected coronavirus crisis that erodes macroeconomic fundamentals and the mortgage market in Portugal beyond Fitch's expectations. - A CE level failing to fully compensate for credit losses and cash flow stresses associated with the current ratings scenarios, all else being equal. As outlined in "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases -- Update", 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 the weighted average recovery rate. The results indicate no impact for Hipototta 13, whereas there is an impact of up to two notches for Hipototta 4. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. For Hipototta 4, Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. For Hipototta 13, prior to the transaction closing, Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS HipoTotta 4 as assigned a score of '4' for Transaction Parties & Operational Risk. 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 entities, either due to their nature or the way in which they are being managed by the entities. MADEIRA: DBRS Confirms BB(high) LongTerm Issuer Rating ------------------------------------------------------ DBRS Ratings GmbH confirmed the Long-Term Issuer Rating of the Autonomous Region of Madeira (Madeira) at BB (high) and its Short-Term Issuer Rating at R-4. The trend on all ratings remains stable. KEY RATING CONSIDERATIONS Madeira's ratings are underpinned by (1) the region's stabilizing financial performance over the last few years and its slowly improving debt metrics prior to the start of the crisis; (2) the financial oversight and support to the regional government from the Republic of Portugal (BBB (high), Stable); and (3) Madeira's enhanced control over its indirect debt as well as its commercial liabilities through a gradual re-centralization of these liabilities onto its own balance sheet. The adverse impact of the Coronavirus Disease (COVID-19) on the regional economy, and particularly its tourism sector, and the considerable uncertainty concerning the timeframe for full recovery are key challenges for Madeira's creditworthiness. The Stable trend on Madeira's ratings, however, reflects DBRS Morningstar's view that ongoing support from the national government should help the region navigate through the current period of heightened challenges. This support will remain key for Madeira's economic recovery in 2021 and 2022 but also to avoid a structural weakening of the region's credit profile. While Madeira's debt is set to increase in 2020 and possibly in 2021 reflecting the economic and fiscal shock related to the COVID-19 pandemic, DBRS Morningstar currently considers that Madeira's debt metrics are likely to return to their downward trend over the medium-term, once full recovery is underway. Nevertheless, the region's still very high direct and indirect debt levels continue to weigh on Madeira's ratings. The regional government's still large exposure to regional companies (although it had decreased in recent years) and its economic concentration in the tertiary sector, particularly tourism, also remain key challenges to Madeira's overall credit profile. RATING DRIVERS Madeira's ratings could be upgraded if any or a combination of the following occur: (1) Madeira substantially reduces its indebtedness; (2) the Portuguese sovereign rating is upgraded; (3) Madeira's economic indicators recover significantly faster than currently anticipated and the region enhances its economic resiliency; or (4) there are indications of a further strengthening of the relationship between the region and the central government. Madeira's ratings could be downgraded if any or a combination of the following occur: (1) the Portuguese sovereign rating is downgraded; (2) Madeira fails to stabilize its financial performance and debt metrics over the medium-term; or (3) indications emerge that the financial support and oversight currently provided by the central government weaken. RATING RATIONALE Regional Economy is Significantly Affected by the Collapse of the Tourism Sector On the economic front, the region had delivered solid gross domestic product (GDP) growth prior to 2020 with GDP growing between 2015 and 2019, at an average annual rate of 2.2%. While DBRS Morningstar expects considerable economic disruption in 2020 and most likely 2021, the full impact of the coronavirus pandemic will depend on the depth and duration of the shock. Air passenger inflows into the region have declined substantially, with a drop of 63% between January and June 2020 compared with the same period in 2019. This decline had direct consequences for restaurants and hotels in the region, with hotels' revenues estimated to have fallen by about 64% at the end of June 2020, compared with the first six months of 2019. The impact of the pandemic on the regional labor market is currently difficult to estimate, as corporate have benefited from the national government's subsidized working scheme, in line with the rest of Portugal, as well as regional support, which has so far mitigated against job losses. Going forward, the region's tourism sector will remain constrained by the evolution of the healthcare situation, particularly in Europe which represents the main source of tourists in the region. DBRS Morningstar will also monitor the potential uplift in the economic recovery linked to additional funds expected to be received by the region from the European Union (EU, AAA, Stable) under its next generation EU programme (NGEU) and possibly its new multi-annual financial framework (2021-27 period). Financial Performance and Debt Levels, Although Improving in Recent Years, Will Be Impacted by the COVID-19 Pandemic In terms of fiscal performance, Madeira's results had markedly improved prior to the pandemic. The region's deficit therefore represented less than 7% of operating revenues on average in the last four years, significantly down from a very large 74% at the end of 2013. In 2020, the region expects its financing deficit to widen substantially due to COVID-19, with the impact of the pandemic estimated at EUR 458 million for the year, or around 38% of 2019 operating results, split between a decline in tax receipts (around 40% of the total) and an increase in expenditure (60%). This is expected to be financed by debt, most likely with the guarantee from the national government. The region also plans to increase its expenditure in healthcare, education and other social expenses in 2021, in order to support the economic recovery within its territory. While large deficits are credit negative for Madeira, DBRS Morningstar will focus its analysis on whether these deficits remain concentrated in one or two years and do not translate into a structural weakening of the region's financial performance. The region's solid GDP growth and the parallel rise in tax proceeds prior to 2020 had also supported the decrease in Madeira's debt ratios. From an international comparison, the region's debt-to-operating revenues, at 472% at the end of 2019, remains, however, very high. Madeira's debt ratio continues to represent, in DBRS Morningstar's view, the main constraint on the region's ratings. In line with the deterioration of Madeira's fiscal performance in 2020, its debt ratio is expected to increase markedly this year. However, the national government's support via the explicit guarantees provided by the Portuguese Treasury and Debt Management Agency (IGCP) and the General Directorate of Treasury and Finance (DGTF) should mitigate the risk of an increase in the region's debt financing costs, in line with the very low costs of funding currently experienced by Portugal. Sovereign Guarantees Will Continue to Support the Rating The explicit guarantees provided by the central government for the refinancing of the regional debt and DBRS Morningstar's expectation that this support will continue are positive credit features, critical for Madeira's rating. The region's refinancing needs have fully benefited from the national government's explicit guarantee in recent years and should continue to do so going forward (upon request from the regional government). The medium-term debt trajectory of the region will remain the key focus of DBRS Morningstar's analysis. Any indication that higher debt levels will linger for longer or that the central government's support to the region is weaker than currently foreseen, would be credit negative for Madeira. ESG CONSIDERATIONS Institutional Strength, Governance and Transparency (G) was a key driver behind this ration action. Madeira's re-centralization of its reclassified public entities' debt onto its own balance sheet and the subsequent enhanced transparency and oversight over their operations and finances highlight the strengthening of the region's Governance in recent years and was significant to the region's credit rating. Notes: All figures are in Euros (EUR) unless otherwise noted. Public finance statistics reported on a general government basis unless specified. =========== R U S S I A =========== NATIONAL STANDARD: Moody's Withdraws B3 LT Deposit Ratings ---------------------------------------------------------- Moody's Investors Service withdrawn the following ratings of National Standard Bank: - Long-term bank deposit ratings of B3 - Short-term bank deposit ratings of Not Prime - Long-term Counterparty Risk Ratings of B2 - Short-term Counterparty Risk Ratings of Not Prime - Long-term Counterparty Risk Assessment of B2(cr) - Short-term Counterparty Risk Assessment of Not Prime(cr) - Baseline Credit Assessment (BCA) of b3 - Adjusted BCA of b3 At the time of the withdrawal, the bank's long-term deposit ratings carried a stable outlook and the bank's issuer outlook was also stable. RATINGS RATIONALE Moody's has decided to withdraw the ratings for its own business reasons. National Standard Bank is a relatively small financial institution, ranking 114th by total assets and 79th by capital among Russian banks as of June 30, 2020, according to Interfax. The ultimate beneficial owner of the bank is Lev Kvetnoy, who has material business interests in the Russian cement industry. As of June 30, 2020, the bank reported total IFRS assets of RUB31.8 billion and total equity of RUB6.2 billion. The bank's net IFRS profit for the first half of 2020 amounted to RUB34 million. ========= S P A I N ========= CAIXA PENEDES 1: Fitch Affirms BBsf Rating on Class C Notes ----------------------------------------------------------- Fitch Ratings has downgraded one tranche and affirmed 10 tranches of three Spanish RMBS transactions. Fitch has also maintained two tranches on Rating Watch Negative (RWN). RATING ACTIONS Caixa Penedes 1 TDA, FTA Class A ES0313252001; LT BBB+sf Downgrade; previously A+sf Class B ES0313252019; LT BBBsf Affirmed; previously BBBsf Class C ES0313252027; LT BBsf Affirmed; previously BBsf TDA Cajamar 2, FTA Class A3 ES0377965027; LT AAAsf Affirmed; previously AAAsf Class B ES0377965035; LT AAAsf Affirmed; previously AAAsf Class C ES0377965043; LT AAAsf Affirmed; previously AAAsf Class D ES0377965050; LT A+sf Rating Watch Maintained; previously A+sf TDA 19 - MIXTO, FTA Class A ES0377964004; LT AAAsf Affirmed; previously AAAsf Class B ES0377964012; LT AAAsf Affirmed; previously AAAsf Class C ES0377964020; LT AAAsf Affirmed; previously AAAsf Class D ES0377964038; LT A+sf Rating Watch Maintained; previously A+sf TRANSACTION SUMMARY The transactions comprise fully amortising residential mortgages serviced by Banco de Sabadell, S.A. (BBB-/Stable/F3) for Caixa Penedes 1 TDA, Banco Bilbao Vizcaya Argentaria, S.A. (BBB+/Stable/F2) and Cajamar Caja Rural, Sociedad Cooperativa de Credito (BB-/Negative/B) for TDA 19 - Mixto, FTA, and Cajamar for TDA Cajamar 2, FTA. KEY RATING DRIVERS Coronavirus Additional Stresses In its analysis of the transactions, Fitch has applied additional stresses in conjunction with its "European RMBS Rating Criteria" in response to the coronavirus outbreak. Fitch anticipates a generalized weakening of Spanish borrowers' ability to keep up with mortgage payments linked to a spike in unemployment and vulnerability for self-employed borrowers. Performance indicators such as levels of arrears could increase in the following months and therefore Fitch has also incorporated a 10% increase to the weighted average foreclosure frequency (WAFF) of the portfolios. Fitch also considers a downside coronavirus scenario for sensitivity purposes whereby a more severe and prolonged period of stress is assumed. Under this scenario, Fitch's analysis accommodates a further increase to the portfolio WAFF and a decrease in WA recovery rates. The sensitivity of the ratings to scenarios more severe than expected is provided in "Rating Sensitivities". Penedes Downgrade Linked to Catalonia Leases The downgrade of Caixa Penedes 1's class A notes reflects the adverse effects of the Catalonian Decree Law 17/2019, which allows some defaulted borrowers to remain in their homes as tenants for as long as 14 years and paying a low monthly rent. As almost 99% of the securitised portfolio is in Catalonia, Fitch's rating assessment has accounted for a longer recovery timing on loan defaults in Catalonia of 84 months under a 'BBB' rating stress, up from 54 months for other regions. The downgrade also reflects performance uncertainty of mortgage portfolios in Spain, influenced by an unprecedented recession in 2020 as GDP is likely to fall by 13.2% according to Fitch's latest "Global Economic Outlook". Caixa Penedes 1 is exposed to open interest rate risk, especially in a rising interest rate scenario, because the notes pay a floating coupon rate linked to three-month Euribor, but around 32% of the underlying mortgages pay a fixed interest rate. The rest of the portfolio pays a floating rate mainly linked to 12-month Euribor and there is a hedging arrangement that mitigates basis risk. Credit Enhancement Trends All the notes in TDA Cajamar 2 and TDA 19 - Mixto, and Caixa Penedes 1 classes B and C notes, are sufficiently protected by credit enhancement (CE) able to mitigate the risks associated with the agency coronavirus scenario analysis, consistent with the affirmation of the notes' ratings. The high portfolio seasoning of around 15 years and the prevailing share of floating-rate loans benefiting from low interest rates are strong mitigants of macroeconomic uncertainty. Low Take-Up Rates on Payment Holidays Fitch does not expect the pandemic-related emergency support measures introduced by the Spanish government for borrowers in vulnerability to negatively affect the SPV's liquidity positions, largely due to the very low take-up rate on payment holidays in these transactions of less than 2.5% as of July 2020, and the definition of transaction available funds, which can use principal collections to pay interest due amounts on the notes. Excessive Counterparty Exposure TDA 19 - Mixto and TDA Cajamar 2 class D notes' ratings are capped at the issuer account bank provider's rating (BNP Paribas Securities Services; A+/RWN/F1), as the only source of structural CE for these classes is the reserve fund at the account bank. As BNP Paribas Securities Services remains on RWN these notes also remain on RWN, and the resolution of the RWN is directly linked to the resolution of the RWN on the bank, which may take longer than six months. The rating cap reflects the excessive counterparty dependence on the SPV account bank holding the cash reserves, as the sudden loss of these amounts would imply a downgrade of 10 or more notches of the notes in accordance with Fitch's criteria. The TDA 19 - Mixto and TDA Cajamar 2 class C notes are not affected by the excessive counterparty risk, but could be exposed to that risk in the future subject to CE developments. Portfolio Risky Attributes The portfolios' current balances include between 10.5% and 16.5% of loans to self-employed borrowers, which are riskier due to income volatility and are subject to a foreclosure frequency adjustment of 70%. The portfolios are exposed to geographic concentration risk, mainly to the regions of Catalonia (Caixa Penedes 1) and Murcia (TDA 19 - Mixto and TDA Cajamar 2), and Fitch has applied a higher set of rating multiples to the base FF assumption to the portion of the portfolios that exceed 2.5x the population within these regions. ESG Considerations - Governance Caixa Penedes 1 has an Environmental, Social and Governance (ESG) Relevance Score of 4 for Transaction & Collateral Structure due to loan modifications after transaction closing that introduced interest rate risk, which has a negative impact on the credit profile, and is relevant to the rating in combination with other factors. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Increase in CE, as the transactions deleverage, to fully compensate for the credit losses and cash flow stresses commensurate with higher rating scenarios. - For Caixa Penedes 1, the introduction of an interest rate hedging agreement that mitigates the open interest rate risk as liabilities pay a floating coupon rate linked to three-month Euribor, but around 32% of the underlying mortgages pay a fixed interest rate. - TDA 19 - Mixto and TDA Cajamar 2 Class D note ratings are capped at the SPV account bank provider rating. An upgrade to the account bank rating could trigger a corresponding upgrade to these notes' ratings. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A longer-than-expected coronavirus crisis that weakens macroeconomic fundamentals and the mortgage market in Spain beyond Fitch's current base case, or insufficient CE to fully compensate the credit losses and cash flow stresses associated with the current ratings scenarios, all else being equal. To approximate this scenario, a rating sensitivity has been conducted by increasing default rates by 15% and reducing recovery expectations by 15%, which would imply a downgrade of at least one notch for all notes of Caixa Penedes 1 and TDA Cajamar 2. - TDA 19 - Mixto and TDA Cajamar 2 Class D note ratings are capped at the SPV account bank provider rating. A downgrade to the account bank rating could trigger a corresponding downgrade to these notes' rating. - TDA 19 - Mixto and TDA Cajamar 2 Class C note ratings could be downgraded if the proportion of CE coming solely from the reserve fund that is held at the SPV account bank materially increases from current levels. In that scenario, the note ratings would be capped at the SPV account bank provider rating. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. For Caixa Penedes 1, because the loan-by-loan portfolio data sourced from the European Data Warehouse did not include information about "Occupancy Type", "Foreign National" and "Restructuring Agreement", Fitch assumed all loans were "no data" and did not apply any additional FF adjustments to such loans. Fitch views the ResiGlobal model output of this transaction to adequately capture the risky attributes of the portfolio. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS TDA 19 - Mixto and TDA Cajamar 2 class D notes' ratings are capped at the issuer account bank provider's rating (BNP Paribas Securities Services) because they are exposed to an excessive counterparty dependency risk. ESG CONSIDERATIONS Caixa Penedes 1 TDA, FTA: Transaction & Collateral Structure: 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). SABADELL CONSUMO I: DBRS Confirms B(high) Rating on Class D Notes ----------------------------------------------------------------- DBRS Ratings GmbH confirmed its ratings on the notes issued by Sabadell Consumo 1 Fondo de Titulización (the Issuer) as follows: -- Class A Notes confirmed at AA (low) (sf) -- Class B Notes confirmed at A (sf) -- Class C Notes confirmed at BBB (sf) -- Class D Notes confirmed at B (high) (sf) The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in March 2031. The ratings on the Class B, Class C, and Class D Notes address the ultimate payment of interest and principal on or before the legal final maturity date. The confirmations follow an annual review of the transaction and are based on the following analytical considerations: -- Portfolio performance, in terms of delinquencies, defaults, and losses as of the June 2020 payment date; -- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; -- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels; -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic. The transaction is a securitization of Spanish consumer loan receivables originated and serviced by Banco Sabadell, S.A. (Sabadell). The transaction closed in September 2019 with an original portfolio balance of EUR 1,000.0 million and had no revolving period. PORTFOLIO PERFORMANCE As of August 31, 2020, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.4% and 0.3% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 1.0%. Gross cumulative defaults amounted to 1.1% of the aggregate original and subsequent portfolio balance, 2.1% of which has been recovered to date. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 7.1% and 71.0%, respectively. CREDIT ENHANCEMENT The subordination of the respective junior obligations provides credit enhancement to the rated notes. As of the June 2020 payment date, credit enhancement to the Class A Notes was 12.5%; credit enhancement to the Class B Notes was 9.0%; credit enhancement to the Class C Notes was 5.5%; and credit enhancement to the Class D Notes was 3.0%. The credit enhancement levels have remained unchanged since the DBRS Morningstar initial rating because of the pro rata amortization of the rated notes. The transaction benefits from an amortizing cash reserve, available to cover senior expenses, interest payments on the Class A Notes and, unless deferred, interest payments on the Class B Notes. The reserve has a target balance equal to 0.55% of the outstanding Class A and Class B Notes balance, subject to a floor of EUR 1.25 million. As of the June 2020 payment date, the reserve was at its target balance of EUR 3.71 million. Societe Generale, S.A., Sucursal en España (SocGen) acts as the account bank for the transaction. Based on DBRS Morningstar's private rating of SocGen, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. Deutsche Bank AG, London Branch (DB London) acts as the interest cap provider for the transaction. DBRS Morningstar's private rating of DB London is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, additional stresses to expected performance as a result of the global efforts to contain the spread of the coronavirus. DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment moratoriums in the portfolio. Actual payment moratoriums are currently at a low level, below 5% of the outstanding portfolio balance. Notes: All figures are in Euros unless otherwise noted. SANTANDER CONSUMER 2020-1: DBRS Finalizes BB Rating on D Notes -------------------------------------------------------------- DBRS Ratings GmbH finalized its provisional ratings on the following series of notes issued by Santander Consumer Spain Auto 2020-1, FT (the Issuer): -- Series A Notes at AA (sf) -- Series B Notes at A (sf) -- Series C Notes at BBB (high) (sf) -- Series D Notes at BB (sf) -- Series E Notes at B (low) (sf) DBRS Morningstar does not rate the Series F notes issued in this transaction. The rating on the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in March 2033. The ratings on the Series B Notes, Series C Notes, Series D Notes, and Series E Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date. DBRS Morningstar based its ratings on a review of the following analytical considerations: -- The transaction's capital structure, including form and sufficiency of available credit enhancement. -- Credit enhancement levels are sufficient to support DBRS Morningstar's projected expected net losses under various stress scenarios. -- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes. -- The seller's, originators, and servicer's financial strength and their capabilities with respect to originations, underwriting, and servicing. -- The other parties' financial strength with regard to their respective roles. -- DBRS Morningstar's operational risk review of Santander Consumer E.F.C. (SC EFC), which it deemed to be an acceptable servicer. -- The credit quality, diversification of the collateral, and historical and projected performance of the portfolio. -- DBRS Morningstar's current sovereign rating of the Kingdom of Spain at "A" with a Stable trend. -- The consistency of the transaction's legal structure with DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology, and the presence of legal opinions that address the true sale of the assets to the Issuer. The transaction represents the issuance of Series A Notes, Series B Notes, Series C Notes, Series D Notes, and Series E Notes backed by a portfolio of approximately EUR 520 million of fixed-rate receivables related to auto loans granted by SC EFC (the originator) to private individuals and corporate residing in Spain for the acquisition of new or used vehicles. The originator also services the portfolio. Proceeds of the Series F Notes funded the cash reserve. The transaction allocates payments on a combined interest and principal priority of payments basis and benefits from an amortizing EUR 5.2 million cash reserve funded through the subscription proceeds of the Series F Notes. The cash reserve can be used to cover senior costs and interest on the Series A Notes, Series B Notes, Series C Notes, Series D Notes, and Series E Notes. The cash reserve is part of the available funds. The repayment of the notes will start on the first payment date in December 2020 on a pro rata basis unless certain events such as breach of performance triggers, insolvency of the servicer, or termination of the servicer occur. Under these circumstances, the principal repayment of the notes will become fully sequential, and the switch is not reversible. Interest and principal payments on the notes will be made quarterly on the 20th of March, June, September, and December. The Series A Notes, Series B Notes, and Series C Notes pay interest indexed to three-month Euribor whereas the total portfolio pays a fixed-interest rate. The interest rate risk arising from the mismatch between the Issuer's liabilities and the portfolio is hedged through a cap collateral agreement with an eligible counterparty. Santander Consumer Finance acts as the account bank for the transaction. Based on the DBRS Morningstar rating of Santander Consumer Finance, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to Santander Consumer Finance to be consistent with the rating assigned to the Series A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker, considering the default rates at which the notes did not return all specified cash flows. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar assumed a moderate expected decline in the recovery rate. Notes: All figures are in Euros unless otherwise noted. SANTANDER CONSUMER 2020-1: Moody's Rates Class E Notes 'B1' ----------------------------------------------------------- Moody's Investors Service assigned definitive credit ratings to the following classes of Notes issued by SANTANDER CONSUMER SPAIN AUTO 2020-1, FONDO DE TITULIZACION: EUR450M Class A Notes due March 2033, Definitive Rating Assigned Aa1 (sf) EUR24M Class B Notes due March 2033, Definitive Rating Assigned A2 (sf) EUR19M Class C Notes due March 2033, Definitive Rating Assigned Baa2 (sf) EUR17M Class D Notes due March 2033, Definitive Rating Assigned Ba1 (sf) EUR10M Class E Notes due March 2033, Definitive Rating Assigned B1 (sf) Moody's has not assigned any rating to the EUR 5.2M 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., 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 coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Its analysis has considered the effect on the performance of consumer assets from the current weak Spanish economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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. The securitised portfolio is at low risk due to the exposure to approx. 50% diesel engines. 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. 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 =========================== CASTELL PLC 2020-1: DBRS Finalizes BB(low) Rating on Class F Notes ------------------------------------------------------------------ DBRS Ratings GmbH finalized its provisional ratings on the following classes of notes issued by Castell 2020-1 plc (Castell 2020 or the Issuer): -- Class A Notes at AAA (sf) -- Class B Notes at AA (sf) -- Class C Notes at A (high) (sf) -- Class D Notes at BBB (high) (sf) -- Class E Notes at BB (high) (sf) -- Class F Notes at BB (low) (sf) -- Class X Notes at A (sf) The final ratings assigned to the Class B, Class C, and Class D notes differ from the provisional ratings of AA (low) (sf), A (sf), and BBB (sf), respectively, because of the tighter spreads and step-up margins on Classes A through X in the final structure and a lower swap rate. The ratings assigned to the Class A, Class B, Class C, Class D, Class E, Class F, and Class X notes address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date. Castell 2020 is a bankruptcy-remote special-purpose vehicle incorporated in the United Kingdom. The notes have been used to fund the purchase of UK second-lien mortgage loans originated by Optimum Credit Limited (Optimum Credit or the seller) while primary and special servicing of the portfolio are undertaken by Pepper UK Limited. Optimum Credit, established in November 2013, is a specialist provider of second-lien mortgages based in Cardiff, Wales. Both Optimum Credit and Pepper are part of Pepper Group Limited (Pepper Group), a worldwide consumer finance business, third-party loan servicer, and asset manager, which has been operating successfully in Australia since 2001. The servicing businesses of the Pepper Group are being acquired by Link Group, which is subject to regulatory approval and expected to be completed in 2020. Intertrust Management Limited has been appointed as the backup servicer facilitator. DBRS Morningstar was provided with information on a mortgage portfolio as of August 31, 2020. Unlike previous Castell transactions, Castell 2020 does not have a prefunding period, and the portfolio is static. The portfolio consists of 6,745 mortgage loans with an aggregate principal balance of EUR 272.5 million. The average loan per borrower is GBP 40,397. All of the mortgage loans in the portfolio are owner-occupied and almost all loans are repaying on a capital and interest basis. Within the portfolio, 67.4% of the loans are fixed-rate loans that switch to floating rate upon completion of the initial fixed-rate period whereas 30.1% are floating-rate loans for life, and the remaining portion are fixed-rate loans for life. Interest rate risk is hedged through a fixed-floating interest rate swap with Natixis (the swap counterparty) to mitigate the fixed interest rate risk from the mortgage loans and Sonia payable on the notes. The issuer will pay the swap counterparty an amount equal to the swap notional amount multiplied by the swap rate and in turn, the issuer will receive the swap notional amount multiplied by Sonia. Natixis is rated privately by DBRS Morningstar and the swap documents reflect DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology. Furthermore, approximately 2.4% of the portfolio by loan balance comprises loans originated to borrowers with a prior County Court Judgment, 0.9% of the borrowers are in arrears, and 13.9% of the loans were granted to self-employed or unemployed borrowers or pensioners (referring to the primary borrowers' employment status only). Castell 2020 includes approximately one-third of the loans from the previous Castell 2017-1 plc transaction, which was called in July 2020. The weighted-average seasoning of the portfolio is 21 months with a weighted-average remaining term of approximately 14 years. The weighted-average current loan-to-value, inclusive of any prior ranking balances of the portfolio, is 61.8% (based on DBRS Morningstar's calculation). Credit enhancement for the Class A Notes is 27.0% at closing and is provided by the subordination of the Class B Notes to the Class H Notes (excluding the uncollateralized Class X Notes). The Class A and the Class B notes benefit from further liquidity support provided by an amortizing liquidity reserve, which can support the payment of senior fees and interest on the Class A and Class B notes. The liquidity reserve fund (LRF) is unfunded at closing, with the required amount of 1.5% of the outstanding balance of the Class A and Class B notes. Initially, the LRF will be funded through principal receipts. Any subsequent use of the LRF will be replenished from revenue receipts. The excess amounts following amortization of the Class A and Class B notes will form part of available principal. The structure includes a principal deficiency ledger (PDL) comprising eight subledgers (Class A PDL to Class H PDL) that provision for realized losses as well as the use of any principal receipts applied to meet any shortfall in payment of senior fees and interest. The losses will be allocated starting from Class H PDL and then to the subledgers of each class of notes in reverse sequential order. Available principal funds can be used to provide liquidity support to the transaction. Following the application of the available revenue funds and liquidity reserve, available principal funds can be used to pay senior fees, swap payments, and interest shortfalls on the Class A to Class F notes. In more detail, principal is available to provide liquidity support to the Class B to Class F notes provided the respective PDL balance is less than 10% of the outstanding balance of the respective class of notes. There is no condition for principal being used to provide liquidity support for the Class A notes, given that available revenue funds and the LRF have been applied first. Any use will be recorded as a debit in the PDL. The coupon on the notes will step up on the interest payment date falling in October 2023, which is also the first optional redemption date. The notes can be redeemed in full, at the outstanding balance plus accrued interest, on any subsequent payment date. DBRS Morningstar has considered the increased interest payable on the notes on the step-up date in its cash flow analysis. The issuer account bank is Citibank N.A., London Branch. Based on the DBRS Morningstar private rating of the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar based its ratings on a review of the following analytical considerations: -- The transaction capital structure and form and sufficiency of available credit enhancement. -- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss (EL) outputs on the mortgage portfolio, which are used as inputs into the cash flow tool. The mortgage portfolio was analyzed in accordance with DBRS Morningstar's "European RMBS Insight: U.K. Addendum". -- The ability of the transaction to withstand stressed cash flow assumptions and repay the Class A, Class B, Class C, Class D, Class E, Class F, and Class X notes according to the terms of the transaction documents. The transaction structure was analyzed using Intex DealMaker. -- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as a downgrade, and replacement language in the transaction documents. -- DBRS Morningstar's sovereign rating on the United Kingdom of Great Britain and Northern Ireland at AAA with Negative trend as of the date of this press release. -- The consistency of the transaction's legal structure with DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology and presence of legal opinions addressing the assignment of the assets to the issuer. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that payment holidays and delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar assumed that there was a moderate decline in residential property prices. Notes: All figures are in British pound sterling unless otherwise noted. CINEWORLD GROUP: S&P Lowers ICR to 'CCC-', Outlook Negative ----------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based cinema operator Cineworld Group PLC and its issue ratings on its debt to 'CCC-' from 'CCC+', and assigned a negative outlook. The negative outlook reflects the uncertainty on whether Cineworld would be able to stabilize its cash flow and liquidity and obtain additional financing and a covenant waiver. It also reflects the potential risk of a distressed debt exchange. S&P believes there is an increased likelihood that Cineworld could default over the next few months due to its weak liquidity and highly uncertain operating conditions. S&P said, "Under our base case, we believe Cineworld's liquidity position will be strained over the next few quarters. Following several months of closure amid the COVID-19 pandemic, Cineworld started reopening its cinemas in June 2020. Most its cinemas globally are now operating, apart from Israel, the U.S. states of New York and California, and several sites in the U.K. We expect that over the coming months, operating conditions for cinema exhibitors will remain difficult, and Cineworld's free operating cash flow (FOCF) could stay deeply negative. This could lead Cineworld to rapidly deplete its cash reserves and increase the chances of a liquidity crisis or debt restructuring. The group could also breach the covenant that applies to its revolving credit facility (RCF) at the next test at the end of December 2020, unless it obtains a waiver from its lenders. "We anticipate that global cinema attendance will recover much more slowly in the fourth quarter of 2020 and in 2021 than we had previously expected. This is due to the ongoing pandemic, continued delays of film releases by major studios, and the risk that authorities could impose stricter lockdown measures to limit local resurgences of the virus. We think cinema attendance will remain constrained by consumers' health and safety concerns and social-distancing measures until an effective treatment or vaccine becomes widely available--which could be around mid-2021--and will not recover to 2019 levels until the end of 2022. "In this context, and over the next few months in particular, we see high uncertainty around when Cineworld will be able to fully reopen its cinema circuit in the U.S., and when cinema attendance will ramp up to the levels that make the group's operations profitable, such that its cash burn would reduce. While its cinemas were closed in March-June 2020, Cineworld was able to significantly reduce its costs, including rent, staff, and administrative and operating expenses. We estimate that its cash burn over that period--including capital expenditure (capex) and interest--was about $50 million per month. However, after reopening started in July-September, attendance was significantly lower than normal levels, and we think the cash burn has increased to at least $60 million-$80 million per month." Cineworld's liquidity could rapidly deteriorate over the short term. S&P said, "We estimate that at the end of September 2020, Cineworld will have about $200 million–$250 million of available liquidity, including cash on balance and limited availability under the additional $110 million RCF due in December 2020, while the $463 million senior secured RCF due in February 2023 will be fully drawn. In our view, there is a significant risk that unless Cineworld's cash burn reduces or it obtains incremental financing, it could rapidly deplete its cash reserves." On Sept. 24, 2020, Cineworld announced that it is assessing several options to strengthen its liquidity. These include an extension of the $110 million RCF that matures in December 2020, an additional term loan issuance, and potential equity or semi-equity raise. The group will also need to negotiate a waiver or a further reset of the covenant that applies to its RCF and will be tested at the end of December 2020. The covenant threshold for the test at Dec. 31, 2020, is set at 9.0x net debt to EBITDA (excluding International Financial Reporting Standards [IFRS] 16 accounting for leases), and is stepping down to 5.5x at June 30, 2021, and 5.0x at Dec. 31, 2021 and beyond. S&P estimates that Cineworld's net debt to EBITDA will significantly exceed these thresholds at the next testing dates through to December 2021. Over the medium term, Cineworld's capital structure will remain unsustainable, with adjusted leverage above 7x in 2021 and minimal free cash flow. S&P said, "In our base case, we expect Cineworld's total admissions in 2020 will shrink by at least 70%-80% compared with 2019, and will be down 15%-20% in 2021 versus 2019, despite the strong film slate for November-December 2020 and the first half 2021 and pent-up demand for out-of-home entertainment. This will lead to negligible EBITDA in 2020 and only gradual recovery in 2021, when we expect S&P Global Ratings-adjusted EBITDA (including addback of lease expenses under IFRS 16) of $1 billion-$1.2 billion." FOCF after lease payments will be deeply negative in 2020, and will likely only improve to breakeven in 2021, because of deferred rent payments and the need to invest in capex thereafter. This will limit Cineworld's ability to reduce leverage, such that adjusted debt to EBITDA will exceed 7x in 2021. If the company pursued incremental borrowing, this would support its liquidity in the near term but would result in higher interest expense and fixed charges, and leverage would remain high beyond 2021. Environmental, social, and governance (ESG) factors relevant to the rating action: -- Health and safety. The negative outlook indicates that over the next few months, Cineworld could face a liquidity shortfall or pursue a distressed debt exchange, and reflects the uncertainty around whether it could secure additional liquidity or obtain a covenant waiver. S&P could lower the rating if: -- Cineworld experienced a liquidity shortfall, if it operated its cinemas while admissions and box office revenue remained insufficient to cover running costs, leading to higher cash burn; -- Cineworld failed to obtain a waiver or a reset of the covenant to be tested in December 2020 and June 2021; -- There is an increased risk that the group is unable to make the interest payments on its senior secured debt; or -- The group announced a debt restructuring, exchange offer or debt buyback that S&P would view as distressed and therefore tantamount to a default. S&P said, "While unlikely, we could raise the rating if Cineworld were able to secure additional liquidity without further burdening its capital structure, obtained a covenant waiver through the end of 2021, and its cash generation improved following a stronger recovery in cinema attendance and operating performance than we currently expect." COTE RESTAURANTS: Bought Out of Administration by Partners Group ---------------------------------------------------------------- Jessica Clark at City A.M. reports that Cote Restaurants has been bought by investment management firm Partners Group after the struggling casual dining chain fell into administration. According to City A.M., administrator FTI Consulting said the deal had saved 94 of the firm's 98 French-style restaurants, with all 3,148 employees working under the Cote brand transferred to the new owners. However its Limeyard and Jackson & Rye brands were not included in the deal, resulting in the closure of three sites and 56 redundancies, City A.M. notes. Cote Restaurants, which launched its first venue in 2007, said business had been trading well ahead of the UK coronavirus lockdown in March, reporting record sales for the previous financial year, City A.M. relates. The closure of all its sites during the lockdown had a "huge impact" on the business, City A.M. states. FTI Consulting, as cited by City A.M., said the lockdown had caused liquidity problems for the restaurant chain. E-CARAT 10: DBRS Confirms BB Rating on Class F Notes ---------------------------------------------------- DBRS Ratings GmbH confirmed the following ratings of the bonds issued by E-CARAT 10 (the Issuer): -- Class A Notes at AAA (sf) -- Class B Notes at AA (sf) -- Class C Notes at AA (low) (sf) -- Class D Notes at A (sf) -- Class E Notes at BBB (low) (sf) -- Class F Notes at BB (sf) -- Class G Notes at B (high) (sf) The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2028. The ratings on the Class B Notes, Class C Notes, Class D Notes, Class E Notes, Class F Notes, and Class G Notes address the ultimate payment of interest and principal on or before the legal final maturity date. The confirmations follow an annual review of the transaction and are based on the following analytical considerations: -- Portfolio performance, in terms of delinquencies, defaults, and losses as of the August 2020 payment date; -- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; -- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels; -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic; and -- No revolving termination events have occurred. E-CARAT 10 is a securitization of automotive loan contracts comprising standard amortizing and balloon loan products granted for the purchase of new and used motor vehicles. The securitized portfolios do not include lease contracts, meaning the Issuer is not directly exposed to residual value risk deriving from a borrower put option or purchase obligation. The pool is originated and serviced by OPEL Bank GmbH, and the deal closed in September 2019. The transaction includes a one-year revolving period, which is expected to end in September 2020. PORTFOLIO PERFORMANCE As of the August 2020 payment date, loans that were one to two months and two to three months delinquent represented 0.1% and 0.04% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.2%. Gross cumulative losses amounted to 0.02% of the aggregate original and subsequent portfolios. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions at 2.3% and 33.7%, respectively, based on a worst-case portfolio composition as permitted by the concentration limits applicable during the revolving period. CREDIT ENHANCEMENT The subordination of the respective junior obligation provides credit enhancement to the notes. As of the August 2020 payment date, credit enhancement to the Class A, B, C, D, E, F, and G Notes was stable at 11.4%, 9.0%, 7.0%, 5.0%, 3.0%, 2.0%, and 1.0% since the DBRS Morningstar initial rating due to the transaction's revolving period. The transaction benefits from a liquidity reserve available only if the principal collections are not sufficient to cover the shortfall of senior expenses, swap expenses and Class A interest and, if not deferred in the waterfalls, the Class B, Class C, and Class D interest payments. The liquidity reserve is currently at its target level of EUR 8.6 million. BNP Paribas Securities Services SCA acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. BNP Paribas SA is the swap counterparty to the transaction and has a DBRS Morningstar reference rating of AA, one notch below its long term Critical Obligations Rating of AA (high), consistent with the First Rating Threshold as defined in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology. HF SPORT: Goes Into Administration, Owes Half a Million Pounds -------------------------------------------------------------- Jim Armitage at Evening Standard reports that HF Sport Horses, one of the equestrian companies linked to Spencer Golding, the millionaire accused of receiving millions of pounds from collapsed bond company London Capital & Finance, has been put into administration owing him nearly half a million pounds. According to Evening Standard, HF Sport Horses has gone under with its biggest debt being for GBP461,111 owed to Home Farm Equestrian Centre. Mr. Golding is alleged by LCF's administrators to have received GBP42.8 million of bondholders' money, Evening Standard states. HF Sport Horses was set up by equestrian worker John Cubitt in January 2019 with its activities cited at Companies House as raising and owning horses, Evening Standard notes. HF Sport Horses is being administered by Quantuma, which said the business's sole asset appears to be a horse with a potential realisable value of GBP8,000, Evening Standard relates. LCF collapsed last year owing 11,500 bondholders around GBP237 million, Evening Standard recounts. NMC HEALTH: Alvarez & Marsal Appointed as Administrator ------------------------------------------------------- Hadeel Al Sayegh and Davide Barbuscia at Reuters report that restructuring consultancy Alvarez & Marsal said on Sept. 27 it had been appointed as administrator of a group of operating businesses related to NMC Healthcare by the Abu Dhabi Global Market Courts. Richard Fleming and Ben Cairns of Alvarez & Marsal have been appointed as joint administrators, the firm said in an emailed statement, adding the administration process would address the "high levels of debt in the businesses", Reuters relates. NMC Healthcare's London-listed holding company NMC Health Plc is already being run by Alvarez & Marsal after going into administration in April following months of turmoil over its finances, Reuters discloses. According to Reuters, the turnaround specialist said on Sept. 27 the appointment related directly to 36 operating businesses in the United Arab Emirates, but did not apply to businesses outside the country. Alvarez & Marsal said the administrators would lead the financial restructuring of those businesses while the existing NMC management team remained in operational control of the day-to-day running of medical and clinical activities, Reuters notes. NMC's implosion this year amid allegations of fraud and the disclosure of more than US$4 billion in hidden debt has left some UAE and overseas lenders with heavy losses and prompted legal battles to try and recover money owed, Reuters relays. ONWATCH MULTIFIRE: Bought Out of Administration in Pre-Pack Deal ---------------------------------------------------------------- Business Sale reports that safety and security systems firm Onwatch Multifire has been acquired in a pre-pack administration deal. OM Realisations 2020 Ltd, which trades as Onwatch Multifire, appointed FRP Advisory on Sept. 7, Business Sale relates. According to Business Sale, the security division was acquired by company directors Peter Gould and Chris Cunningham and will continue to trade under the Onwatch (UK) brand from its sites in Sunderland and East Sussex. Onwatch will continue to employ 38 staff, Business Sale states. Fire services division Multifire, meanwhile, was acquired by Churches Fire Security Ltd., Business Sale notes. This division will continue to operate from its UK-wide office network, with 20 staff members transferring, Business Sale discloses. In its most recent available accounts, for the nine months ending December 31 2018, OM Realisations 2020 Ltd recorded total sales of GBP4.4 million, but registered a total loss for the period of GBP1.3 million, Business Sale relays. At the time, the company's total assets were valued at close to GBP2.2 million, according to Business Sale. PIZZA HUT: 29 Sites Face Closure Following CVA Approval ------------------------------------------------------- Beth Murray at The Scotsman reports that two Scottish restaurants are among a list of 29 site closures announced by the chain Pizza Hut in a deal agreed with their landlords to prevent the company from going bust. The closures put 450 jobs at risk and include the Great Western Retail Park in Glasgow and the Cumbernauld restaurants in Scotland, The Scotsman discloses. According to The Scotsman, 215 restaurants will continue trading, maintaining 5,000 jobs and their takeaway restaurants are currently not affected by the change. The landlords and creditors voted in favor of a Company Voluntary Arrangement, which sees them take a cut on future bills, The Scotsman relates. Had this process not been successful, the chain says it could have collapsed without extra funding, The Scotsman notes. The chain said earlier this month that they put forward the CVA proposals because sales were not expected to improve and bounce back until later in 2021, despite the precautions they were taking amid reopening their restaurants, The Scotsman recounts. TAURUS 2019-2: DBRS Confirms BB (low) Rating on Class E Notes ------------------------------------------------------------- DBRS Ratings Limited confirmed its ratings on the following classes of Commercial Mortgage-Backed Floating Rate Notes due November 2029 issued by Taurus 2019-2 UK DAC (the Issuer): -- Class A at AAA (sf) -- Class B at AA (low) (sf) -- Class C at A (low) (sf) -- Class D at BBB (low) (sf) -- Class E at BB (low) (sf) DBRS Morningstar maintained Stable trends. The Issuer is the securitization of a 92.1% interest in a GBP 418.1 million (63.9% loan-to-value or LTV at issuance) floating-rate senior commercial real estate loan advanced by Bank of America Merrill Lynch International DAC to borrowers sponsored by Blackstone Group L.P. (Blackstone or the sponsor). The acquisition financing was also accompanied by a GBP 65.0 million (73.9% LTV) mezzanine loan, coterminous with the senior facility. The mezzanine loan is structurally and contractually subordinated to the senior facility and is not part of the securitization transaction. There is no scheduled amortization before the completion of a permitted change of control, at which time the borrower must repay the aggregate outstanding principal amount of the senior loan in quarterly installments equal to 0.25% of the outstanding principal amount as at the date of the permitted change of control. The loan carries a floating interest rate with a Libor benchmark providing an interest rate coverage in the range of >2.0 times (x) at the hedged rate and >2.5x at the current Libor rate. The loan is 95.0% hedged with a Libor interest cap with a strike rate of 1.75%. Bank of America N.A., London branch provides the cap. The legal final maturity of the notes is in November 2029, five years after the latest possible loan maturity. Considering the three one-year extension options that are conditional upon the loan being fully hedged, the latest loan maturity date is 17 November 2024. Given the security structure and jurisdiction of the underlying loan, DBRS Morningstar believes that this provides sufficient time to enforce on the loan collateral, if necessary, and repay the bondholders. The senior loan is backed by 126 urban logistics and industrial assets, which are well-diversified throughout the UK with strategic locations in and around major UK logistics hubs. Since issuance, the overall performance of the portfolio has been stable. As of August 2020, the portfolio remained well occupied at 90.2% compared with 91.5% at closing, with a weighted-average lease-to-break (WALTB) of 2.46 years compared with 3.1 years at origination. The relatively short WALTB is primarily because the majority of tenants are small and medium-sized enterprises that are typically not used to signing lease terms longer than three or five years. DBRS Morningstar underwrote a vacancy of 11.6% at issuance and as such will carefully monitor the occupancy rate of the assets in the next available investors reporting. During the Coronavirus Disease (COVID-19) lockdown period, the borrower advised that 141 requests from tenants for some sort of rent relief were received, amounting to GBP 1.5 million or 4.7% of the annual net operating income (NOI). This resulted in GBP 767,097, or 2.3% of the total portfolio NOI, either receiving rental deferrals or switching to monthly payments. However, given the nature of this portfolio, being largely the last mile, the borrower is optimistic that the logistics sector will weather the storm better than other asset classes because of the increased demand for e-commerce. DBRS Morningstar also believes that last mile industrial assets will be relatively less affected. The initial valuation from Cushman & Wakefield (C&W) valued the assets individually at GBP 622.7 million but applied a portfolio premium of 7.5% for a total value of GBP 669.5 million, assuming the properties were sold as a single lot. However, the LTV is calculated based on the adjusted portfolio value, which caps the portfolio premium associated with any portfolio valuation at 5% of the aggregate property valuation. As a result, the transaction LTV is 63.95% based on a value of GBP 653.8 million. The servicer confirmed that, in accordance with the facility agreement, C&W has been instructed to complete a revaluation of the portfolio. The loan structure does not include financial default covenants unless there is a permitted change of control, after which the default covenants are based on the LTV and debt yield (DY). The LTV ratio is set at a level that is not greater than the sum of the LTV ratio on the change of control date and an additional 15.0%. Additionally, the new obligors must ensure that after the change of control date, the DY is not less than the highest of both 85.0% of the DY as of the change of control date or 6.75%. The transaction benefits from a liquidity facility of GBP 8.0 million (or 4.1% of the total outstanding balance of the covered notes), which is provided by Bank of America N.A., London Branch. The liquidity facility can be used by the Issuer to fund expense shortfalls (including any amounts owed to third-party creditors and service providers that rank senior to the notes), property protection shortfalls, and interest shortfalls (including with respect to deferred interest, but excluding default interest and exit payment amounts) in connection with interest due on Class A and Class B notes. According to DBRS Morningstar's analysis, the commitment amount as at closing provides 12.6 months and 6.4 months of coverage on the covered notes based on the cap rate of 1.75% and the Libor notes cap of 5.0% after loan maturity, respectively. COVID-19 CONSIDERATIONS The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many tenants and borrowers. DBRS Morningstar anticipates that vacancy rate increases and cash flow reductions may arise for many CMBS borrowers, some meaningfully. In addition, commercial real estate values will be negatively affected, at least in the short-term, impacting refinancing prospects for maturing loans and expected recoveries for defaulted loans. The ratings are based on additional analysis as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar did not adjust its net-cash flow and cap rate assumptions because of the current performance of the portfolio and nature of the assets. Notes: All figures are in British pound sterling unless otherwise noted. TORO PRIVATE II: Moody's Affirms 'Caa2' CFR, Outlook Negative ------------------------------------------------------------- Moody's Investors Service affirmed Toro Private Holdings II, Limited's Caa2 corporate family rating (CFR) and its Caa2-PD/LD (/LD appended) probability of default rating (PDR). Concurrently, Moody's has downgraded Travelport Finance (Luxembourg) S.a.r.l.'s first lien senior secured term loan due May 2026 to Caa3 from Caa2 and assigned a B3 rating to the new $1,630 million priority first lien senior secured term loan due February 2025. The outlook remains negative. On September 17, 2020, Travelport announced it had reached an agreement with lenders on the terms of a debt-exchange offer and issuance of priority debt. The transaction included, amongst other factors: (i) the offering of $500m of new money with a cash/PIK toggle feature to all first lien term loan and revolving credit facility (RCF) lenders on a pro rata basis with proceeds used to repay Travelport Technologies LLC (Travelport Tech) financing and maintain cash on balance sheet; (ii) the conversion and extension of funded outstanding RCF to first lien term loans with a maturity in May 2026 from May 2024; and (iii) the re-designation as restricted subsidiaries of Travelport Tech and its direct parent. The transaction was successfully completed on September 25, 2020. "The limited default designation appended to Travelport's PDR reflects the loss for lenders because of the company's debt restructuring and the clear default avoidance, as evidenced in the net leverage covenant amendment and the potential use of PIK interest in the future to alleviate liquidity shortfalls. Moody's views these elements as a distressed exchange which constitutes an event of default under Moody's definitions" says Luigi Bucci, Moody's lead analyst for Travelport. "The transaction enhances liquidity in the short term and reduces structural complexity after re-designating Travelport Tech as a restricted subsidiary. However, Moody's continues to perceive Travelport's capital structure as unsustainable due to the continued operating performance weakness and the overall uncertainties around the extent of recovery" adds Mr Bucci. RATINGS RATIONALE The weaknesses in Travelport's credit profile, including its high leverage and weak interest cover, have left it vulnerable to shifts in market dynamics as a consequence of the coronavirus outbreak. As a result, the company remains exposed to the effects of a potential extended pandemic and the uncertainties around speed of recovery. 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 analysis now assumes a reduction in Travelport's revenue of over 70% in 2020 with recovery over 2021 and 2022 to be slower than previously expected at around 60%-70% and 70%-80% of 2019 levels, respectively. The rating agency is also modelling significantly deeper downside cases including sustained stress in operating performance through 2021. Moody's currently expects that recovery over 2021 will continue to be subject to: (1) the potential for additional travel restrictions; (2) consumer concerns over travelling; (3) health screening and social distancing; (4) weak economic environment; and, (5) more generally, threats of a prolonged coronavirus pandemic. Moody's also continues to believe that a rebound in corporate travel after a period in which companies have invested heavily in remote working solutions and have actively attempted to reduce their cost base appears at risk. Moody's anticipates Travelport will continue to address revenue pressures through tight management of its cost and capex base. Despite a large portion of Travelport's cost base being variable the company will not, however, in Moody's view record break-even or positive EBITDA levels before the first part of 2021, at best. The rating agency notes that ongoing cost initiatives, on top of the $100 million of synergies planned in the take-private transaction of the company, will likely support a recovery in EBITDA over 2021. In terms of capex, the company is expected to maintain investments muted over 2020 before moving to a moderately more normalized level over 2021. The rating agency expects under its base case, absent additional actions to further address the capital structure constraints, that Moody's-adjusted leverage will peak in 2020 at unprecedented levels before reducing towards 10x by 2022. Moody's also anticipates Moody's-adjusted EBITA/Interest Expense of below 1x over the same time frame. Whilst the transaction provides additional liquidity to Travelport and reduces the risk of potential shortfalls in the future through the PIK toggle feature embedded in the new priority term loan, it does not, however, in Moody's view reduce the likelihood of an additional distressed exchange at some point in the future. Moody's current estimates continue to factor-in the successful completion of the sale of Travelport majority owned subsidiary eNett to WEX Inc. (Ba2 negative). However, execution of the transaction is at present highly uncertain and subject to an ongoing legal litigation after the buyer publicly announced in May 2020 that deal terms were no longer applicable because eNett's business has had a material adverse change (MAC) due to the pandemic. ENVORONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Moody's perceives the coronavirus outbreak as a social risk given the substantial implications for public health and safety. In terms of governance, after the take private transaction in May 2019, Siris Capital Group, LLC and Evergreen Coast Capital Corp. are the main shareholders in the company. After the start of the coronavirus pandemic, financial sponsors' focus has shifted to protect their investment while supporting the viability of Travelport. This was evidenced by the transfer of IP-assets outside of the restricted group in May 2020, unwound as part of the debt restructuring plan. The rating agency sees the successful completion of the debt restructuring plan as a positive credit development under a governance perspective given it will release all parties involved (ie. Travelport, financial sponsors and lenders) from pending litigations or claims against each other. LIQUIDITY Moody's views Travelport's liquidity as weak, largely based on the company's expected negative FCF generation over 2020-2021. Pro forma for the proposed transaction, the company is expected to have approximately $340 million (approximately $270 million excluding eNett) of cash on balance sheet. Cash balance will be however materially lower at the end of the third quarter after having paid transaction expenses and accrued interest. Support to liquidity from the sale of majority owned subsidiary eNett is expected to be only limited. Even when assuming a successful completion of the deal, the delay in closing from the previously anticipated mid-2020 will entail that most of the cash proceeds will be subject to a mandatory debt prepayment of the new priority term loan. STRUCTURAL CONSIDERATIONS The senior secured priority first lien term loan is rated B3, two notches above the CFR, reflecting its contractual seniority ahead of the senior secured first lien term loan, which is rated Caa3. Moody's notes that the security package of the rated debt is now stronger than in the previous structure (ie. post IP-assets transfer outside of the restricted group in May 2020) thanks to re-designation as restricted subsidiary of Travelport Tech. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook is driven by the uncertain time and trajectory of the recovery and the impact of the outbreak on Travelport's credit metrics and liquidity. Significant uncertainty remains regarding the depth and duration of the current decline in global consumer and business demand for travel related services. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Although ratings are unlikely to be upgraded in the short term, positive rating pressure would not arise until the coronavirus outbreak is brought under control and passenger volumes return to a more normalized level. At that stage Moody's would evaluate the capital structure sustainability and the liquidity strength of the company. Positive rating pressure would then require evidence that the company is capable of recovering materially its financial metrics from its 2020 lows and restoring liquidity headroom over the following 12-24 months. Moody's could downgrade Travelport's ratings if pressures on the travel market were to extend for a prolonged period of time leading to a material slowdown in the company's expected recovery in credit metrics and liquidity. Particularly, downward pressure would arise if the risk of an additional distressed exchange increased and/or if expected recovery rates for current lenders were to reduce. LIST OF AFFECTED RATINGS Issuer: Travelport Finance (Luxembourg) S.a.r.l. Assignments: BACKED Senior Secured Bank Credit Facility, Assigned B3 Downgrades: BACKED Senior Secured Bank Credit Facility, Downgraded to Caa3 from Caa2 Outlook Actions: Outlook, Remains Negative Issuer: Toro Private Holdings II, Limited Affirmations: LT Corporate Family Rating, Affirmed Caa2 Probability of Default Rating, Affirmed Caa2-PD /LD (/LD appended) Outlook Actions: 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 Langley, United Kingdom, Travelport is a leading travel commerce platform providing distribution, technology, payment and other solutions for the global travel and tourism industry. In 2019, the group reported net revenue and company-adjusted EBITDA of $2,494 million and $568 million, respectively. VUE INTERNATIONAL: S&P Lowers ICR to 'CCC+', Outlook Negative ------------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based Vue International Bidco PLC (Vue) and the issue ratings on its debt to 'CCC+' from 'B-'. The negative outlook indicates that the difficult operating conditions for cinema exhibitors over the next few months could cause Vue's cash flow, liquidity position, and credit metrics to deteriorate further. S&P forecasts a slow recovery in global cinema attendance during 2020-2021, causing Vue's credit metrics and free cash flow to remain weak. Vue has started reopening its cinemas at the end of May 2020, and since the end of August 2020 has been operating its sites in all territories, after closing for several months due to the pandemic. However, S&P now thinks that global cinema attendance will recover much more slowly in the fourth quarter of 2020 and in 2021 than we previously forecasted. Major studios continue to delay the release of blockbuster films, which leads to lower cinema admissions. Cinema attendance will also remain constrained by consumers' health and safety concerns, and social distancing measures will remain until there is an effective treatment or vaccine available, which could be mid-2021. Authorities could also re-impose stricter lockdown measures to limit local resurgences of the virus, disrupting the ramp up in cinema operations. Admissions, and thus revenue, are not likely to recover to 2019 levels until the end of FY2022. S&P sauid, "We currently forecast that admissions and Vue's revenue will be about 50% lower in FY2020 and 20%-30% down in FY2021, compared with FY2019. Therefore, the group's profitability and cash flow will remain below the historical average. All cinemas will operate at reduced capacity, but costs will be higher because Vue will have to repay the rent that was deferred while its cinemas were closed. In addition, government programs supporting employment are being phased out, and cinemas are implementing enhanced sanitary measures that carry additional costs. We estimate that Vue's adjusted EBITDA (including adding back operating lease rent and deducting exceptional costs) will be minimal in FY2020, and will recover to GBP170 million-GBP200 million in FY2021, compared with GBP270 million in FY2019." As a result, Vue's free cash flow will likely be deeply negative in FY2020, and will only recover to breakeven in FY2021. Combined with very high leverage and tough operating conditions, this will make Vue's capital structure unsustainable in the medium term. At the end of FY2019, Vue's S&P Global Ratings-adjusted debt to EBITDA was 9.5x. (It was 6.2x excluding the GBP897 million unsecured and subordinated shareholder loans but including the GBP165 million senior secured second-lien payment-in-kind (PIK) notes that we treat as debt.) S&P estimates that in FY2021 adjusted debt to EBITDA will exceed 14x including shareholder loans and 9x excluding them, and will gradually improve toward FY2019 levels in FY2022. Vue has sufficient liquidity to operate for the next several quarters, but external factors could cause a rapid deterioration in liquidity. S&P said, "In our view, Vue has enough liquidity to cover its operating costs, capital expenditure (capex), and interest payments for the next 12 months, assuming operating performance recovers in line with our base case. At the end of its third quarter on Aug. 31, 2020, we estimate that Vue had GBP110 million-GBP130 million of available liquidity, including cash on balance and the undrawn portion of the GBP65 million-equivalent multicurrency revolving credit facility (RCF) maturing in 2025. While the cinemas were closed in March-May 2020, the group was able to materially reduce its costs, including rent, staff and administrative, and operating expenses. As a result, we estimate its cash burn was only about GBP15 million-GBP20 million per month. After it started reopening in June-August, attendance remained significantly lower than normal, and we think Vue's cash burn increased. If the delays in film releases continue over the next several months and attendance fails to ramp up, Vue's liquidity position could rapidly deteriorate." On Sept. 24, 2020, Vue announced that it had obtained a unanimous waiver on the springing covenant that applies to its RCF. This gives Vue full access to its RCF at least until November 2021. Vue's lenders have agreed to waive the net leverage covenant test for the next four testing dates (until Aug. 31, 2021). Instead, Vue will need to comply with a minimum liquidity test. S&P said, "We estimate that at the end of FY2021, Vue's leverage will remain high, leaving it with little to no headroom under the covenant. That said, we assume the group could negotiate a further waiver, or a reset of the covenant threshold." Vue does not have any debt maturities until 2025, when the RCF is due. The cash interest expense is currently manageable, as the group only pays cash interest on a EUR634 million (about GBP540 million) first-lien senior secured term loan due in 2026 and on the RCF, which we estimate at GBP25 million-GBP30 million per year. In 2019, one of Vue's main shareholders, OMERS, supported the group's refinancing by providing GBP165 million in second-lien secured PIK notes due in 2027. This helped Vue to alleviate its cash interest burden. Over the medium term, secular challenges to the cinema exhibition industry will intensify. Cinema attendance and exhibitors' revenue, profits, and cash flow largely depend on the availability and timing of film releases, which are under the control of major film studios. Since March 2020, studios have delayed numerous releases to later dates in 2020 and into 2021, because tent-pole blockbusters generally require a wide theatrical release to be profitable. Currently, the film slate for the November-December 2020 and the first half of 2021 looks strong, but if COVID-19 cases continue to surge in the U.S. and Europe, there could be further delays. S&P sees an increasing risk that major studios could push to change the traditional theatrical release window over the medium term. Exhibitors have always strongly opposed such a change. Alternatively, studios could release more films through premium video on-demand (PVOD), as Disney and Universal did during the pandemic. Although we believe theatrical releases will remain the only viable way to fully monetize large-budget films, studios could release more small-to-midsize titles on PVOD. If PVOD releases proved financially successful and studios increasingly chose to bypass theaters and distribute larger films directly, this could fundamentally alter theaters' competitive position and have negative implications for the entire exhibition industry. Vue's presence in European markets partly offsets its exposure to structural trends and the Hollywood film slate. Vue's rated peers--AMC Entertainment, Cineworld, and Cinemark--derived 75%-80% of their revenue from the U.S. in 2019. Unlike them, Vue mainly operates in European markets. This reduces its reliance on the Hollywood film slate, because there are successful local titles. S&P also thinks Vue is more efficient at utilizing its cinema circuit and has higher average attendance per screen than its U.S. peers. If cinema attendance remains low for longer than S&P currently forecasts, or the structural shift of audiences from cinemas to other distribution channels intensifies post-pandemic, Vue could be better positioned to adapt to these changes. S&P said, "In the near term, we expect Vue to continue to benefit from longer theatrical release windows in its main markets. The average in the U.K. and Italy is four months and is six months in Germany, compared with about three months in the U.S. Although pressure to shorten the windows is mounting globally, we think the current rules will be more resistant to change in Europe than in the U.S. In addition, the major studios don't yet have PVOD distribution channels in all the European markets where Vue operates; this limits the opportunity for them to bypass theatrical release. "We don't include the CineStar acquisition in our analysis on Vue, as its timing, final conditions, and financing remain uncertain. In March 2020, Vue obtained conditional clearance from the German authorities for the acquisition of CineStar that it had announced in October 2018. To satisfy the conditions, Vue has to dispose of six cinema sites in Germany. The deadline to sell the sites has recently been extended to Nov. 13, 2020. If the deal goes ahead, it will likely further increase the group's leverage. We will reassess the implications of the acquisition on Vue's credit quality over the coming months as we get more clarity regarding the final conditions of the transaction and the financing that the group will need to arrange to fund it." Environmental, social, and governance (ESG) factors relevant to the rating action: -- Health and safety. S&P said, "The negative outlook reflects the tough operating conditions that we foresee for cinema exhibitors over the next several months, and the probability that Vue's cash flow, liquidity position and credit metrics could rapidly deteriorate due to external factors." S&P could lower the rating over the next several months if it saw an increased probability that Vue could default, for example, if: -- The recovery in theater admissions, revenue, earnings, and cash flow over the next several quarters is substantially below our base case, leading to a liquidity shortfall; -- There is an increased risk that the group is unable to make the interest payments on its senior secured debt; or -- S&P believes that the group could announce a debt restructuring, exchange offer, or debt buyback that it would view as distressed and therefore as tantamount to a default. S&P could revise the outlook to stable if Vue's operating performance recovers quickly, generating sufficient free cash flow generation to preserve its liquidity and to reduce leverage to more sustainable levels. WELLESLEY: Investors to Get Up to 12p in the Pound More Under CVA ----------------------------------------------------------------- Marc Shoffman at Peer2Peer Finance News reports that Wellesley investors stand to be up to 12p more in the pound better off if creditors back a company voluntary arrangement (CVA) rather than the property investment platform falling into administration, according to estimates. The property development lender announced earlier this month that it had suspended all payments to investors while it asked its creditors to back a CVA to support a restructure, Peer2Peer Finance News recounts. A CVA outline, seen by Peer2Peer Finance News, outlines the financial benefits of a CVA compared with the alternative of the company having to go down the administration route. Creditors are currently voting in the CVA until Oct. 13, Peer2Peer Finance News states. According to Peer2Peer Finance News, investors in Wellesley's mini-bonds are being offered an alternative equity option, by which they can subscribe for shares in the company instead of receiving a proposed cash payment. Under the proposals, investors in Wellesley's first unsecured mini-bond series launched in 2014 would receive 58p in the pound on a cash basis or 73p for equity from a CVA, compared with 48p in the pound from falling into administration, Peer2Peer Finance News discloses. Its asset-backed mini-bond investors, from products launched in 2019, could receive 71p in the pound through a CVA on a cash basis or 89p for equity compared with 77p under administration, Peer2Peer Finance News relays, citing the documents. P2P investors could receive 48p in the pound from a CVA compared with 44p in the pound from falling into administration, Peer2Peer Finance News notes. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2020. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. 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