/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/201127.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, November 27, 2020, Vol. 21, No. 238 Headlines F R A N C E LA FINANCIERE: Moody's Affirms Caa1 CFR; Alters Outlook to Pos. NOVARTEX SAS: Moody's Withdraws Caa3 CFR for Business Reasons G E R M A N Y AVS HOLDING: Moody's Affirms B2 CFR, Outlook Stable THYSSENKRUPP AG: Incurs EUR5.5BB Loss, To Cut 5,000 More Jobs G R E E C E PIRAEUS BANK: S&P Affirms 'B-/B' ICR on Improved Capital Buffer I R E L A N D DANONE: Plans to Cut 2,000 Jobs as Part of Reorganization HENLEY CLO III: S&P Assigns B- (sf) Rating on Class F Notes INA'S KITCHEN: Starkane Opposes Examinership Application PENTA CLO 8: S&P Assigns B- (sf) Rating on $7MM Class F Notes I T A L Y CENTURION BIDCO: Fitch Assigns B+ LT IDR, Outlook Stable CREVAL: Credit Agricole to Acquire Lender for EUR737 Million MONTE DEI PASCHI: DBRS Confirms B (high) Long-Term Issuer [*] ITALY: To Widen Existing Guarantee Scheme for Bank Loans K A Z A K H S T A N ATF BANK: Fitch Affirms B- LT IDR, Outlook Stable HALYK BANK: Fitch Affirms BB+ LT IDR, Outlook Stable L A T V I A MOGO FINANCE: Fitch Puts B- LT IDR on Rating Watch Negative L U X E M B O U R G MATADOR BIDCO: S&P Alters Outlook to Negative, Affirms 'BB-' ICR N E T H E R L A N D S ADRIA MIDCO: Moody's Assigns B2 Rating to New EUR350MM Sec. Notes BARENTZ MIDCO: Moody's Assigns B2 CFR, Outlook Stable JUBILEE PLACE 2020-1: S&P Assigns B(sf) Rating on Cl. X-Dfrd Notes SCHOELLER PACKAGING: Fitch Downgrades LT IDR to B-, Outlook Stable R U S S I A BANK URALSIB: Fitch Affirms BB- LT IDR; Alters Outlook to Stable S P A I N CAIXABANK PYMES 12: DBRS Finalizes B(low) Rating on Series B Notes CAIXABANK PYMES: DBRS Lowers 2 Series B Notes Rating to CCC CAIXABANK RMBS 3: DBRS Confirms CC Rating on Series A & B Notes GESTAMP AUTOMOCION: Moody's Affirms B1 CFR; Alters Outlook to Pos. GRIFOLS SA: Moody's Affirms Ba3 CFR; Alters Outlook to Negative S W I T Z E R L A N D [*] SWITZERLAND: Liquidations Expected to Increase Next Year T U R K E Y MERSIN INTERNATIONAL: S&P Affirms 'BB-' ICR, Outlook Stable U N I T E D K I N G D O M ARROW CMBS 2018: DBRS Confirms BB (low) Rating on Class F Notes BOPARAN HOLDINGS: S&P Ups ICR to 'B-' on Completed Debt Refinancing GREENCORE: Completes GBP90MM Share Placing, Profit Down 81% NATIONAL EXPRESS: Fitch Gives BB+ Rating on GBP500MM Hybrid Notes NEWDAY FUNDING: DBRS Lowers Class F Notes Rating to B (low) PETRA DIAMONDS: Posts Net Loss of US$223MM, Revenue Down 36% TOWD POINT 2019-Granite5: DBRS Confirms B Rating on Class F Notes TOWD POINT 2019-VANTAGE2: DBRS Confirms B Rating on Class F Notes TOWER BRIDGE: DBRS Confirms BB (high) Rating on Class E Notes X X X X X X X X [*] BOOK REVIEW: BOARD GAMES - Changing Shape of Corporate Power - - - - - =========== F R A N C E =========== LA FINANCIERE: Moody's Affirms Caa1 CFR; Alters Outlook to Pos. --------------------------------------------------------------- Moody's Investors Service affirmed the ratings of La Financiere ATALIAN S.A.S., a leading provider of cleaning and facility management services based in France, including the corporate family rating (CFR) of Caa1, the probability of default rating (PDR) of Caa1-PD, and the Caa2 ratings on the guaranteed senior unsecured notes due 2024 and 2025. The outlook was changed to positive from negative. "The positive outlook reflects our expectations that revenues and earnings will continue to improve over the next 12-18 months and result in a strengthening of the credit metrics so that they are more commensurate with a B3 CFR, notably Moody's-adjusted debt/EBITDA of around 7.0x or below, and positive free cash flow", says Eric Kang, a Moody's Vice President - Senior Analyst and lead analyst for Atalian. "We expect margins to remain above the level of 2019 going forward, however, there is still uncertainty as to the pace of revenue recovery and the level of margins once the benefits of partial unemployment schemes subside", adds Mr Kang. RATINGS RATIONALE The Caa1 CFR reflects the company's weak credit metrics at the time of the coronavirus outbreak, notably the elevated Moody's-adjusted debt/EBITDA of around 8.8x at year-end 2019 (including restructuring costs, provisions, and deconsolidated factoring) and negative Moody's-adjusted free cash flow of EUR59 million in 2019 (after neutralization of the change in deconsolidated factoring). There is also uncertainty as to the pace of revenue recovery given the long-lasting impact coronavirus outbreak that Moody's expects on certain end markets such as hospitality and travel, or activities such as multi-technical services and catering. Additionally, it remains unclear as to the level of margins once the benefits of partial unemployment schemes subside. Moody's currently expects margins to remain above the level of 2019 going forward, reflecting underlying improvements and Moody's expectations of further cost savings related to initiatives implemented before the coronavirus outbreak. However, Moody's believes that the impact of the coronavirus outbreak on Atalian's trading and liquidity was not as material as the rating agency's initial expectations in April 2020, because of less severe lockdowns and stronger benefits from governmental support schemes. Atalian's operating and financial performance since the coronavirus outbreak has been overall more resilient than other rated facility management peers, reflecting a more favourable activity mix as well as the results of actions taken by the new management team to address operational issues. As a result, the rating agency expects Moody's-adjusted debt/EBITDA will reduce to around 7.5x in 2020 as opposed to an increase to 9.5x previously. Moody's expects leverage to reduce further to around 7.0x in 2021, driven by a recovery in revenue towards the level of 2019 and a stabilisation of margins at around 4.5% of revenue based on Moody's-adjusted EBITA, which is broadly equivalent to 8% of revenue based on management EBITDA. Moody's expects Atalian to maintain an adequate liquidity profile over the next 12-18 months. The rating agency forecasts positive Moody's-adjusted free cash flow of around EUR65 million in 2020, which benefits from the deferral of EUR26 million social charges and tax payments, which will be paid the following year. In 2021, Moody's expects free cash flow to be around breakeven because of these deferred payments. Liquidity is also supported by cash balances of EUR185 million and EUR70 million available under the EUR103 million revolving credit facility (RCF) maturing in April 2023 as of end of September 2020. The company also has EUR51 million available under its factoring facilities of c.EUR218 million in aggregate, including a GBP27 million facility in the UK, which is renewed annually. The other factoring facility expires in September 2021. The senior unsecured notes mature in May 2024 and May 2025. Moody's also expects the company to maintain ample headroom under the net senior secured leverage attached to the RCF and set at 1.75x. STRUCTURAL CONSIDERATIONS The senior notes due 2024 and 2025 rank pari passu. The notes are unsecured and guaranteed on a senior basis by Atalian S.A.S.U., Atalian Europe S.A., and Atalian Global Services UK 2 Limited, although obligations of certain guarantors are contractually limited because these subsidiaries of La Financiere ATALIAN S.A.S. are holding companies that do not generate any significant revenues. The RCF benefits from guarantees from the same entities and Atalian Cleaning S.A.S. which also guarantees the senior notes due 2024 but with limitations. The notes are rated Caa2, one notch below the CFR, reflecting their structural subordination to non-debt liabilities at the operating subsidiaries, including trade payables. Additionally, the RCF has a priority claim over the notes given it has share pledges over certain intermediary holding companies of Atalian, namely Atalian Cleaning S.A.S., Atalian Proprete S.A.S., Atalian Europe S.A., Atalian Global Services UK 2 Limited, and Servest Limited. RATIONALE FOR THE POSITIVE OUTLOOK The positive outlook reflects the less severe effect of the coronavirus outbreak on the company's operating performance and liquidity than initially anticipated by Moody's. At the same time, it also reflects the uncertainty as to the pace of revenue recovery and the level of margins once the benefits of partial unemployment schemes subside. If Moody's adjusted EBITA margins are lower than Moody's expectations this will increase leverage but also likely lead to negative free cash flows. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's will consider upgrading the ratings if a continued improvement in operating performance leads to Moody's-adjusted debt/EBITDA reducing to below 7.0x, Moody's EBITA/interest remains well above 1.0x, and the company maintains a solid liquidity profile including positive Moody's-adjusted free cash flow. Negative rating action could materialize if the company's operating performance or liquidity weakens from current levels, resulting in an unsustainable capital structure. This would be evidenced by Moody's-adjusted debt/EBITDA above 8.0x, weak Moody's-adjusted EBITA/ interest cover of below 1.0x, or sustained negative free cash flow. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. COMPANY PROFILE Headquartered in France, Atalian is a leading provider of cleaning and facility management services. The company operates throughout 32 countries and had revenues of c.EUR3.1 billion in 2019. NOVARTEX SAS: Moody's Withdraws Caa3 CFR for Business Reasons ------------------------------------------------------------- Moody's Investors Service has withdrawn all outstanding ratings and outlook of French clothing retailer Novartex S.A.S., including its Caa3 corporate family rating, Caa3-PD probability of default rating and negative outlook. The group currently has no outstanding financial debt rated. RATINGS RATIONALE Moody's has decided to withdraw the ratings for its own business reasons. COMPANY PROFILE Novartex S.A.S. is the holding company of Vivarte, a France-based footwear and apparel retailer focusing on city centre boutiques and out-of-town stores through its two remaining banners (Minelli and Caroll). ============= G E R M A N Y ============= AVS HOLDING: Moody's Affirms B2 CFR, Outlook Stable --------------------------------------------------- Moody's Investors Service affirmed the B2 corporate family rating and the B2-PD probability of default rating (PDR) of German traffic safety service provider AVS Holding GmbH (AVS). Concurrently Moody's has affirmed the B2 instrument ratings of the existing EUR565 million senior secured term loan B, including the EUR265 million add-on, and the increased EUR90 million revolving credit facility (RCF) borrowed by AVS Group GmbH, a fully owned subsidiary of AVS. The outlook on the ratings remains stable. RATINGS RATIONALE AVS announced to acquire Sweden-based Ramudden group and UK-based Chevron group for a total consideration of EUR265 million financed via an addon to the existing EUR300 million term loan. The funds will be used to repay debt of the target companies, to finance shareholder distributions, repay RCF drawings and finance transaction costs. AVS's B2 Corporate Family Rating (CFR) reflects as positives: (a) the company's leading position in the traffic safety services markets in its core markets Germany, Belgium, UK and Sweden and the increased scale following the acquisitions, (b) the group's integrated business model, which includes the manufacturing of mobile barriers, representing some barriers to entry, and (c) strong and relatively stable margins, with an EBITA margin (Moody's adjusted) above 15%. The rating is constrained by AVS's (a) high financial leverage of approximately 5.6x debt/EBITDA (Moody's adjusted), expected for fiscal year 2020, pro forma for the acquisition of Ramudden and Chevron and the related refinancing (b) relatively weak track record of free cash flow generation (c) the acquisitive business model that restricts deleveraging and creates ongoing integration risk and (d) the low diversification in terms of products and high dependency on public spending programs for road infrastructure. Given the acquisitions and risks around the expected strong rebound that support revenue growth and free cash flow generation, the rating is weakly positioned in the B2-rating category. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects the expectation that AVS will be able to generate organic revenue growth at least in the low single-digits in percentage terms while maintaining high operating profit margins of well above 15% (Moody's adjusted EBITA). The stable outlook also reflects a gradual de-leveraging within a range of 4.5x - 5.5x Moody's adjusted debt/EBITDA over the next 12-18 months, mainly driven by moderate profit growth and positive free cash flows going forward. Finally, the stable outlook reflects no intention to pay dividends, and that M&A activities would be limited to bolt-on acquisitions, which would not increase leverage beyond the range. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's would consider to upgrade AVS's rating if (i) debt/EBITDA (Moody's adjusted) declined below 4.5x, (ii) EBITA margin (Moody's adjusted) exceeded 25%, and (iii) RCF/net debt (Moody's adjusted) exceeded 20%, all on a sustainable basis. Moody's would consider a rating downgrade if (i) debt/EBITDA remains above 5.5x, (ii) EBITA margins declined below 15%, or (iii) free cash flow remains negative. The rating could also be downgraded if the company's liquidity deteriorated to weak levels. LIQUIDITY AVS's liquidity is adequate, considering the company's expectation of positive free cash flow generation going forward and the absence of any short-term debt maturities following the proposed refinancing transaction. The company has access to a sizeable EUR90 million revolving credit facility (RCF). These liquidity sources are well in excess of cash uses for working cash (estimated at 3% of sales or approximately EUR6 million) and short-term working capital swings. The RCF is subject to a springing net leverage covenant, tested when the facility is drawn down for more than 40%. The covenant is set at 9.31x and Moody's expects the company to retain sufficient headroom going forward. STRUCTURAL CONSIDERATIONS The rating of the EUR565 million senior secured term loan and revolving credit facility (RCF) owed by AVS Group GmbH is in line with the Corporate Family Rating (CFR) of AVS Holding GmbH. AVS Group GmbH is a wholly owned subsidiary of AVS Holding GmbH, which has no other financial liabilities than a EUR131m shareholder loan (as of December 2019), which is deeply subordinated and meets its criteria for treatment as equity. AVS Group GmbH is also the direct and indirect owner of all operating subsidiaries within the group, comprising of the existing AVS operations, predominantly in Germany, the Fero operations in Belgium and the newly acquired assets of Ramudden in Sweden and Chevron in the UK. The senior secured term loan B ranks pari passu with the EUR90 million RCF. Apart from minor pension liabilities (EUR1 million, as of December 2019), and capitalized lease liabilities mainly relating to rent (estimated at around EUR10 million, as of December 2019; based on Moody's global standard adjustments), there is no other financial debt within the group. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Moody's takes into account the impact of environmental, social and governance (ESG) factors when assessing companies' credit quality. AVS' ratings factor in its private equity ownership, illustrated by its high financial leverage. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. COMPANY PROFILE Headquartered in Leverkusen, Germany, AVS Holding GmbH is a provider of traffic safety services in Germany, Belgium, Sweden and the UK. In the fragmented highway traffic safety services market, the group holds leadership positions in its core markets. The enlarged group employs approximately 2,000 professionals and generated EUR450 million of revenues in the last twelve months that ended in September 2020 pro forma for the acquisitions of Ramudden and Chevron. AVS is majority owned by the private equity firm Triton, which owned also Chevron and Ramudden before. THYSSENKRUPP AG: Incurs EUR5.5BB Loss, To Cut 5,000 More Jobs ------------------------------------------------------------- Joe Miller at The Financial Times report that Thyssenkrupp, the ailing German steel and materials group, plunged to a full-year loss of EUR5.5 billion and said it would cut 5,000 more jobs, as the pandemic increased pressure on the former conglomerate to speed up the sale of underperforming businesses. According to the FT, the Essen-based company, which still employs more than 100,000 people, also warned that it expected a further loss of at least EUR1 billion this financial year, as its restructuring costs spiral. Unable to escape a steady decline over the past decade, Thyssenkrupp sold its lucrative elevators business to a private equity consortium for EUR17 billion in February, to help it pay down billions of euros in debt and fund huge pension liabilities, the FT recounts. But the company, one of the best-known names in German industry, has continued to bleed cash in its remaining businesses, the FT notes. Free cash flow, excluding any income from mergers, collapsed to negative EUR5.5 billion in its most recent financial year, which ran to the end of September, the FT states. In May, Thyssenkrupp chief Martina Merz outlined a deep restructuring plan that would result in several smaller businesses -- with combined sales of more than EUR6 billion a year and 20,000 employees -- leaving the company completely, and the remaining units being run under a loose holding structure, the FT relates. The extra job cuts announced on Nov. 19 bring the total number of roles at risk to 11,000, almost 7,000 of which are in Germany, the FT discloses. Shares in Thyssenkrupp, which had already lost roughly 80% of their value over the past three years, fell 7% in early trading in Frankfurt on Nov. 19, the FT relays. =========== G R E E C E =========== PIRAEUS BANK: S&P Affirms 'B-/B' ICR on Improved Capital Buffer --------------------------------------------------------------- S&P Global Ratings affirmed its 'B-/B' long- and short-term issuer credit ratings on Piraeus Bank S.A. (Piraeus). The outlook is stable. On Nov. 23, 2020, Piraeus communicated publicly that the European Central Bank (ECB) would not authorize the EUR165 million coupon payment on its EUR2.040 billion convertible bond (CoCo). The Greek government initially subscribed to the debt in December 2015 as part of the bank's recapitalization plan. This marks the second time that Piraeus is skipping a coupon payment, and will result in the conversion of the CoCo into ordinary shares on Dec. 2, 2020. The conversion will lead to the transformation of the CoCo into tangible capital of EUR2.040 billion and will generate EUR495 million of coupon payment savings over 2020-2022. This will add about 40 basis points annually to the bank's regulatory capital ratio, which stood at 14.1% as of Sept. 30, 2020, reducing pressure on its capitalization. We now expect the bank's capitalization, measured by our projected risk-adjusted capital ratio, will improve over the next 12-18 months to about 3.5% by year-end 2022, compared with our previous estimate of 3.0%, despite the planned EUR7 billion securitization of nonperforming exposures (NPEs) in first-quarter 2021. This stems from S&P's view that ordinary shares have higher equity content than the CoCo. S&P said, "We anticipate the enhanced capital base and quality will provide Piraeus with more leeway in its efforts to reduce NPEs, which still represented 47% of loans at Sept. 30, 2020. This is the highest level of NPEs among Greek banks, while Piraeus also reports relatively low cash coverage at about 45%. Our rating affirmation balances the progress on capitalization with our view that legacy NPEs represent a significant burden, considering the deteriorating economic environment in Greece. We continue to expect the COVID-19-related recession will likely lead to new inflows of NPEs and rising credit losses in the coming quarters. "The stable outlook on Piraeus reflects that COVID-19-related risks to its ongoing asset-quality cleanup over the next 12 months are to some extent balanced by the ECB's and Greek government's extraordinary support measures. We anticipate that, in this environment, Piraeus should maintain the current financial risk and business risk profiles, specifically a stable deposits base and balanced funding position. "We could take a negative rating action if macroeconomic conditions in Greece substantially worsen, leading to intensified stress on asset quality and NPEs rising to levels similar to those seen in the past downturn, or if Piraeus' funding profile unexpectedly weakens. "We could consider a positive rating action if we project Piraeus will meaningfully reduce its stock of NPEs while preserving its solvency. We will likely assess this progress in the context of increased visibility of future economic recovery in Greece and the effective impact of the COVID-19-induced recession. "A positive rating action on Piraeus would not automatically lead to an upgrade of its subordinated debt within the European medium-term note program. This is because we could factor in an additional notch of adjustment for the risk that the regulator could decide to convert the hybrid instruments that are part of the banks' regulatory capital into common equity if needed. We currently do not apply this, in accordance with our methodology, because the ratings are in the 'CCC' category. However, we apply this adjustment to most financial institutions operating in the eurozone or operating under a comparable regulatory framework." ============= I R E L A N D ============= DANONE: Plans to Cut 2,000 Jobs as Part of Reorganization --------------------------------------------------------- The Financial Times reports that French food company Danone will cut up 2,000 jobs, or 2% of its global workforce, as part of a reorganization aimed at giving more power to country managers and squeezing out efficiencies to cope with the pandemic. The company employs about 350 people in the Republic of Ireland. It said it does not yet know whether any Irish jobs will be affected, the FT notes. According to the FT, the maker of Evian bottled water and Activia yoghurts said the changes would save EUR1 billion by 2023, and promised that its recurring operating margin would return to pre-Covid levels of above 15% by 2022. The announcement comes one month after chief executive Emmanuel Faber announced an overhaul of the group's management, as well as plans to sell underperforming businesses and cut its product portfolio, the FT relays. Danone has fared worse than many of the larger consumer groups it competes with since the pandemic began in part because of the products it sells, the FT discloses. Unlike Reckitt Benckiser or Procter & Gamble, it does not sell the cleaning products that have been bestsellers since Covid-19 erupted, the FT states. Its bottled water business has also suffered from the closures of restaurants and working from home, which caused a 17% contraction in sales the first nine months, the FT recounts. Nor has it benefited much from consumers returning to familiar brands of packaged foods, which has boosted demand at companies such as Kellogg's and Kraft-Heinz, according to the FT. Danone also has problems not linked to Covid-19, such as weak demand at its baby formula unit as birth rates fall, especially in the key market of China, the FT notes. The situation has left Mr. Faber grappling with how to reverse a near 30% decline in the shares this year, the FT relates. HENLEY CLO III: S&P Assigns B- (sf) Rating on Class F Notes ----------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Henley CLO III DAC's class A, B-1, B-2, C, D, E, and F notes. The issuer has also issued unrated subordinated notes. Henley CLO III is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Napier Park Global Capital Ltd. manages the transaction. Under the transaction documents, the rated notes pay quarterly interest unless there is a frequency switch event. Following this, the notes will switch to semiannual payment. The portfolio's reinvestment period will end on April 25, 2024. The ratings assigned to the notes reflect S&P's assessment of: -- The diversified collateral pool, which consists primarily of broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with our counterparty rating framework. S&P said, "Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio will be well-diversified on the effective date, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow collateralized debt obligations. "In our cash flow analysis, we used the EUR350 million par amount, the covenanted weighted-average spread of 3.85%, the reference weighted-average coupon of 4.50%, and the actual weighted-average recovery rates for all rating levels. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. Our cash flow analysis also considers scenarios where the underlying pool comprises 100% of floating-rate assets (i.e., the fixed-rate bucket is 0%) and where the fixed-rate bucket is fully utilized (in this case 15%). "The documented downgrade remedies are in line with our current counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the ratings assigned, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "We consider that the issuer is bankruptcy remote, in accordance with our legal criteria. "Our credit and cash flow analysis indicate that the available credit enhancement for the class B to D notes could withstand stresses commensurate with higher rating levels than those we have assigned. However, as the CLO will be in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our ratings on the notes. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our ratings are commensurate with the available credit enhancement for all the rated classes of notes. "In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes to five of the 10 hypothetical scenarios we looked at in our recent publication. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes." S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. S&P said, "We use this assumption in assessing the economic and credit implications associated with the pandemic. As the situation evolves, we will update our assumptions and estimates accordingly." Ratings List Class Rating Credit enhancement (%) Amount (mil. EUR) A AAA (sf) 41.00 206.50 B-1 AA (sf) 31.57 16.00 B-2 AA (sf) 31.57 17.00 C A (sf) 24.71 24.00 D BBB- (sf) 18.43 22.00 E BB- (sf) 11.00 26.00 F B- (sf) 8.63 8.30 Subordinated NR N/A 33.20 NR--Not rated. N/A--Not applicable. INA'S KITCHEN: Starkane Opposes Examinership Application -------------------------------------------------------- Mary Carolan at The Irish Times reports that the High Court was told a petition to secure High Court protection for a chocolate food products company was prepared in secret from its board. According to The Irish Times, Bernard Dunleavy SC for the majority shareholder Starkane said Ina's Kitchen Desserts is trading, no one is refusing to trade with it, and it also has a plentiful supply of finance to meet its requirements. Counsel said Starkane knew nothing of the petition for examinership brought by a director and 10% shareholder Barry Broderick until it was moved, The Irish Times relaets. It was against this background the court must be scrupulous in ensuring it is presented with a genuine insolvency, The Irish Times states. Mr. Dunleavy was making submissions on the second day of a hearing before Mr. Justice Michael Quinn over whether the court should approve examinership for the firm, set up 26 years ago by Ina Broderick, Barry Broderick's mother, The Irish Times relays. The application is supported by Mrs. Broderick, her husband Michael and Barry's brother Bernard, who are also shareholders, The Irish Times notes. It is opposed by Starkane which was incorporated by the BDO Capital Development Fund as a special purchase vehicle to acquire shares and put money into the company and now owns 75% of the shares, The Irish Times discloses. Based in Tallaght, Dublin, its registered business names are Ina's Kitchen Desserts, Broderick's, Ina's Handmade Foods and Broderick's Handmade. It employs 107 people. In the petition it is claimed that court protection is required to restructure the company and deal with accumulated debts of nearly EUR9 million, The Irish Times states. The court heard Mr. Broderick claims the company has been forced to postpone payments to Ulster Bank, a secured creditor owed EUR2.6 million and neutral on the petition, and to Revenue, owned some EUR407,000, The Irish Times recounts. In 2018 it had to get an extension of its facilities from Ulster Bank to pay wages to its employees at Christmas, The Irish Times relates. This year the company found itself obliged to avail of the Covid-19 pandemic payment for employees, the Temporary Wages Subsidy Scheme, The Irish Times notes. This, it is argued on behalf of the petitioner, amounted to an admission by the company of being unable to pay its debts as they fell due, according to The Irish Times. Mr. Dunleavy, for Starkane, said there was no meaningful insolvency and examinership should not be approved, The Irish Times relates. He said Starkane was committed to this company and could not recover the substantial investment it made unless it got a significant degree of profitability, The Irish Times relays. Tony Proudfoot, a director of Ina's Kitchens, says in an affidavit the petition is entirely unwarranted in circumstances where court protection is not needed, The Irish Times discloses. According to The Irish Times, he said the application is in truth an effort by the Broderick family to "wrestle back control" of the company in circumstances where they have abandoned earlier threats to bring proceedings against Starkane arising out of substantially the same issues. He said prior to Starkane taking over the management of the firm it was facing imminent failure and liquidation, and this petition represented a threat to its success "by seeking to wind the clock back to 2017 when the Brodericks were at the helm", The Irish Times notes. He said an expert report prepared for the company showed it was not insolvent having regard to the nature of the debt to Starkane, The Irish Times relays. He said the company had no pressing creditor payments and was able to meet its creditor obligations, which was particularly significant given the commitment of its funders to support, according to The Irish Times. The hearing continues. PENTA CLO 8: S&P Assigns B- (sf) Rating on $7MM Class F Notes ------------------------------------------------------------- S&P Global Ratings assigned credit ratings to Penta CLO 8 DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the issuer will also issue EUR32.70 million of unrated subordinated notes. As of the closing date, the issuer had identified approximately 90% of the target effective date portfolio. S&P said, "We consider that the target portfolio will be well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs." Portfolio Benchmarks Current S&P Global Ratings weighted-average rating factor 2,721 Default rate dispersion 597 Weighted-average life (years) 5.35 Obligor diversity measure 89 Industry diversity measure 17 Regional diversity measure 1.3 Weighted-average rating 'B' 'CCC' category rated assets (%) 1.25 'AAA' weighted-average recovery rate 37.38 Floating-rate assets (%) 100 Weighted-average spread (net of floors; %) 3.78 S&P said, "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned preliminary ratings. "In our cash flow analysis, we used the EUR350 million target par amount, a weighted-average spread of 3.60%, the reference weighted-average coupon (5.50%), and the weighted-average recovery rates as indicated by the collateral manager. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Our credit and cash flow analysis shows that the class B-1, B-2, C, D, E, and F notes benefit from break-even default rate and scenario default rate cushions that we would typically consider to be in line with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our preliminary ratings on the notes." The Bank of New York Mellon, London Branch is the bank account provider and custodian. The documented replacement provisions are in line with our counterparty criteria for liabilities rated up to 'AAA'. The issuer can purchase up to 20% of non-euro assets, subject to entering into asset-specific swaps. S&P expects the downgrade provisions of the swap counterparty or counterparties to be in line with S&P's counterparty criteria for liabilities rated up to 'AAA'. The transaction's legal structure is bankruptcy remote, in accordance with S&P's legal criteria. The CLO is managed by Partners Group (UK) Management. Under our "Global Framework For Assessing Operational Risk In Structured Finance Transactions," published on Oct. 9, 2014, the maximum potential rating on the liabilities is 'AAA'. The issuer may purchase loss mitigation obligations to enhance the recovery value of a related defaulted or credit impaired asset of the same obligor. The cumulative amount of loss mitigation obligations that the issuer may purchase is limited to 10% of the par value test numerator at any point in time. To purchase loss mitigation obligations, the issuer may use principal proceeds--as long as each rated note's par value test is satisfied after the purchase--or interest proceeds--as long as the purchase does not cause any interest deferral on any rated notes and the coverage tests are satisfied on the immediately succeeding payment date. Amounts received from loss mitigation obligations purchased using principal proceeds will be paid into the principal account. If a loss mitigation obligation satisfies all of the eligibility criteria, the manager may designate the asset as a collateral obligation provided that the reinvestment criteria are satisfied. Upon the designation and only if the loss mitigation obligation was originally purchased using interest proceeds, the account bank will transfer from the principal account into the interest account an amount equal to the asset's market value when it was designated a collateral obligation. S&P said, "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our ratings are commensurate with the available credit enhancement for each class of notes. "In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes to five of the 10 hypothetical scenarios we looked at in our recent publication. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes." S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The current consensus among health experts is that COVID-19 will remain a threat until a vaccine or effective treatment becomes widely available, which could be around mid-2021. S&P said, "We are using this assumption in assessing the economic and credit implications associated with the pandemic. As the situation evolves, we will update our assumptions and estimates accordingly." Ratings List Class Rating Amount (mil. EUR) A AAA (sf) 210.00 B-1 AA (sf) 11.00 B-2 AA (sf) 22.00 C A (sf) 28.25 D BBB (sf) 18.00 E BB- (sf) 22.00 F B- (sf) 7.00 Sub notes NR 32.70 NR--Not rated. ========= I T A L Y ========= CENTURION BIDCO: Fitch Assigns B+ LT IDR, Outlook Stable -------------------------------------------------------- Fitch Ratings has assigned Centurion Bidco S.p.A. a final Long-Term Issuer Default Rating (IDR) of 'B+' with a Stable Outlook. Fitch also assigned a final rating of 'BB-'/'RR3' to Centurion's senior secured notes. The rating actions follow the full implementation of the financial structure and the receipt of the final contractual arrangements. Changes to the financial documentation versus the drafts previously received include an increase in the margin on the senior secured notes. The impact of the modifications is not material and does not change its previous rating assessment. Centurion is an entity incorporated by PE funds advised by Bain Capital and NB Renaissance Partners to complete the acquisition of Engineering - Ingegneria Informatica S.p.A. (EII), a leading Italian software developer and provider of IT services. KEY RATING DRIVERS Strong Position in Italy: EII ranks among the top-three players in Italy in implementation and management of software applications, with a market share of around 10%. Its scale and reputation have helped it generate above GDP growth over the last 20 years, driven by organic and inorganic investments. Fitch believes that EII will be able to capitalise on expected growth in digital investments in the country, which still lags the rest of western Europe. However, the domestic market remains competitive. Short-Term Impact on Revenues: EII's contract base has been resilient due to the frequent renewal of outsourcing contracts, despite most services being offered without a subscription model. Total and organic revenues have consistently grown, with minor dips in 2009, due to a disposal, and in 2012. Fitch expects organic revenue, 85% of which is due to a backlog of orders, to decline slightly in 2020. Fitch projects 2% sales growth in 2021 due to the impact of the coronavirus on certain sectors such as public administration, industrials and transportation. Fitch factors in acquisitions of EUR60 million per year for 2022-2023, at an average 6x enterprise value (EV)/EBITDA, feeding into overall revenue CAGR of 7% for 2020-2023. Constrained Margins: A significant portion of EII's revenue is driven by IT projects run on a consultancy basis, resulting in a lower EBITDA margin than solely software supplier peers. Personnel costs make up about 60% of the cost base, while another 25% is for outsourced technical support services. The latter provides scope for cutbacks when revenue dips. Fitch expects EBITDA margins of 12% for 2020, growing towards 13% in 2021, partially benefiting from efficiency initiatives implemented by management. Limited Deleveraging Capacity: Fitch forecasts high funds from operations (FFO) gross leverage at 4.7x at end-2020 and to peak at 5.2x at end-2021, due to the expected slowdown of organic revenues and an increase in gross debt to fund acquisitions. EBITDA growth will be key to deleveraging to 4.7x in 2023. Together with FFO interest coverage over 3.1x, Fitch assesses EII's leverage profile as commensurate with a 'B+' rating. The leverage assessment recognises the full equity features of the EUR210 million payment-in-kind toggle notes issued by TopCo Centurion Newco SpA, which do not have any cross-default provision affecting the senior secured notes. Positive Free Cash Flow: The business model is characterised by low capital intensity, as most R&D costs are expensed, but also by significant working capital swings. Its contracts are structured so that a proportion of revenues is deferred until cash is collected, while relevant investments in client receivables are required to secure these contracts. Fitch does not adjust for deferred revenues in EBITDA, although they are reflected in FFO and accounted for in free cash flow (FCF). Overall, Fitch expects FCF margins to average just below 3% in 2020-2023. Diversification by Sector: EII's revenues are almost entirely derived from the Italian market, but are diversified by sector including financial services, public authorities and healthcare. Around 45% comes from internally developed software solutions, which in most cases play a critical role in the customer's business, while the remainder includes customising third-party products and operations management. Over 50% of services involve digital-enabling technologies such as cloud services, AI and cybersecurity, while the balance involves more traditional operations. Contracts are mostly signed on a single-project basis, with upfront payments but with an increasing share from two- to five-year service contracts. Cloud-Led Market Growth: Fitch expects cloud services to be a significant source of growth and disruptive to the software and technology services industry. Fitch expects EII to leverage on both its significant domestic market share and its relationships with cloud incumbents to capitalise on the digital transition of IT services in Italy. However, Fitch sees technology transition risks associated with around 45% of EII's revenue base that still comes from traditional services, which may see diminishing profitability if they do not transition to digital platforms as planned by management. Recurring Revenues Critical: Fitch sees potential improvements in EII's business profile as strongly linked to the growth of the group's recurring revenue base and to an increase in business-critical services for clients. A better mix towards proprietary software solutions and a development of the revenue base toward a subscription model would provide a more resilient revenue stream. These developments would also transition the business away from the current contract-led model, which requires high working capital investments. DERIVATION SUMMARY EII is firmly positioned in the Italian IT software and services markets due to its diversified client base and to its longstanding capabilities as an innovative proprietary solutions developer and third-party systems integrator. Its capabilities translate into a top-tier market share in the country and a stable contract base. Its project-led business model generates a lower-than-sector average EBITDA margin, although it results in a stable FCF profile. Its rating reflects technological know-how and leading market position in Italy, a contract-base revenue model and high leverage. Its Fitch-rated peers include ERP software-as-a-service provider Teamsystem Holdings SpA (B/Stable) and the web-hosting software company Particle Luxembourg S.A R.L. (WebPros, B/Stable). EII generates higher revenue, lower capex requirements and lower leverage than Teamsystem, but the latter's business model has a subscription base driving a predominant share of predictable and recurring revenues that convert into healthy FCF. As a result, Fitch aligns EII's leverage downgrade sensitivity with Teamsystems' leverage upgrade sensitivity. More general comparisons can be made with payment processing providers such as Nexi S.p.A. (BB-/Rating Watch Positive; RWP) and Nets Topco Lux 3 Sarl (Nets, B+/RWP). The competitive positions of Nets and Nexi are on a standalone basis stronger than EII's, with material barriers to entry and high revenue predictability. As a result, Nets' 'B+' rating can tolerate significantly higher leverage. KEY ASSUMPTIONS - Organic revenue marginally declining in 2020 - Revenue growth of 2% in 2021, followed by around 9% in 2022 and 10% in 2023, driven by organic and M&A-led expansion - EBITDA margin stable at around 13% from 2021 onwards, after a slight drop to 12% in 2020 - Working capital outflow of EUR25 million in 2020, increasing to EUR38 million in 2023, in line with revenue growth - Capex at around 2% of revenue per year until 2023 - Acquisitions of EUR24 million in 2021 and EUR60 million from 2022 onwards - No cash outflow from fines or penalties arising from the ATM investigation Key Recovery Rating Assumptions The recovery analysis assumes that EII would be considered a going-concern (GC) in bankruptcy, and that it would be reorganised rather than liquidated, given the inherent value behind its contract portfolio, its incumbent software licenses and strong client relationships. Fitch has assumed a 10% administrative claim. Fitch assesses the group's going-concern EBITDA at about EUR115 million. Fitch estimates that at this level of EBITDA, after the undertaking of corrective measures, EII would generate zero to slightly positive FCF. Financial distress, leading to a restructuring, may be driven by EII falling technologically behind its competitors, losing its clients' business-critical projects, or by a deep recession causing widespread cuts to non-critical outsourcing. Given its elevated leverage, a restructuring would primarily be triggered by an increase in leverage in a financial distress, leading to unsustainable debt multiples and placing its EV under pressure and squeezing its equity. An EV multiple of 5.5x EBITDA is applied to the GC EBITDA to calculate a post-reorganisation EV. This is in line with multiples used for other software-focused issuers rated in the 'B' category. Its recovery analysis includes EII's EUR605 million senior secured notes and a EUR38 million TLB ranking pari passu with each other, after assuming a fully drawn super senior revolving credit facility (RCF) of EUR160 million. Fitch also considers around EUR7.9 million of bilateral facilities at unrestricted subsidiaries. The debt waterfall analysis results in expected recoveries of 61% for the senior secured debt, resulting in a 'RR3' Recovery Rating and a 'BB-' instrument rating. Based on its criteria, the instrument recovery ratings are capped at 'RR3' in Italy. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - FFO gross leverage below 4.5x - FFO interest coverage above 4.0x - Increase of subscription-based recurring sales in the revenue mix Factors that could, individually or collectively, lead to negative rating action/downgrade: - FFO gross leverage above 6.0x due to low profit growth or debt-funded acquisitions - FFO interest coverage below 2.5x - Deterioration in quality of revenues towards a less recurring, contract-led revenue model - Worsening FCF margin below 2% through-the-cycle with increase in cash outflows from working capital and higher capex requirements LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: Liquidity is underpinned by the presence of cash on balance sheet and by the availability of a EUR160 million super senior revolving credit facility. 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 Centurion has an ESG Relevance Score of 4 for Governance Structure due to the legal and commercial risks derived from being a contractor of the public sector in Italy, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. CREVAL: Credit Agricole to Acquire Lender for EUR737 Million ------------------------------------------------------------ Matthieu Protard, Andrea Mandala, Valentina Za and Pamela Barbaglia at Reuters report that France's Credit Agricole offered to buy third-tier Italian lender Creval for EUR737 million (US$875 million) on Nov. 23, as a wave of consolidation sweeps Italy's banking sector. According to Reuters, France's No. 2 bank had been considering expanding in Italy, its second biggest market, and both Creval and larger rival Banco BPM had been tipped as possible targets. Credit Agricole Italia will pay 10.5 euros per Creval share, a 21.4% premium on today's closing price, Reuters discloses. The buyout offer is expected to be launched by April and is subject to a two-thirds minimum acceptance threshold by Creval shareholders, Reuters notes. Credit Agricole Italia had also doubled over the last few months a 5% Creval stake acquired in 2018 as part of an insurance deal, Reuters states. The merger would save EUR150 million a year before taxes, leading to a return on equity above 10% in 2023 for the combined entity, Reuters says. The offer values Creval at 0.4 times its tangible assets, a level that analysts said was "good news" for Italian banks while still leaving a EUR1 billion earnings boost Credit Agricole Italia will use to cover clean-up and restructuring costs, according to Reuters. The unit plans to launch a share issue to rebuild its capital buffers, fully guaranteed by Credit Agricole, Reuters relays. The EUR737 million offer includes the outlay for the agreed purchase of a 5.4% Creval stake from London-based fund Algebris, as well as the acquisition of a 9.8% holding from the group's Credit Agricole Assurance unit, Reuters notes. As reported by the Troubled Company Reporter-Europe on Jan. 4, 2018, Creval sought court approval for starting creditor vote on its restructuring plan. In 2017, shareholders in mid-sized Italian bank Creval backed a restructuring plan on by approving a new share issue for up to EUR700 million (US$827 million). Creval announced the larger than expected share issue in November to strengthen its balance sheet, piling up the pressure on local rivals to offload loans that turned sour during a deep recession, as demanded by regulators. MONTE DEI PASCHI: DBRS Confirms B (high) Long-Term Issuer --------------------------------------------------------- DBRS Ratings GmbH confirmed the ratings of Banca Monte dei Paschi di Siena SpA (BMPS or the Bank), including the Long-Term Issuer Rating of B (high) and the Short-Term Issuer Rating of R-4. The trend on the Group's long-term ratings has been revised to Stable from Negative. DBRS Morningstar also confirmed the Long-Term and Short-Term Critical Obligations Ratings (COR) at BBB (low) / R-2 (middle) and the Trend remains Stable. This reflects DBRS Morningstar's expectation that, in the event of a resolution of the Bank, certain liabilities (such as payment and collection services, obligations under a covered bond program, payment and collection services, etc.) have a greater probability of avoiding being bailed-in and are likely to be included in a going-concern entity. The Bank's Deposit ratings were confirmed at BB (low)/R-4, one notch above the IA, reflecting the legal framework in place in Italy which has full depositor preference in bank insolvency and resolution proceedings. DBRS Morningstar has also maintained the Intrinsic Assessment (IA) of the Bank is B (high) and the Support Assessment is SA3. KEY RATING CONSIDERATIONS The change of Trend to Stable reflects DBRS Morningstar's view that the transfer of around EUR 7.5 billion of NPEs to the Italian state-owned bad loan manager Asset Management Co. SpA (AMCO) will improve BMPS's asset quality and lower its non-performing exposures (NPE) ratio to around 4.0%, from 11.1% at end-September 2020, one of the lowest levels in Italy. BMPS is in the process of transferring EUR 4.9 billion of bad loans and EUR 2.6 billion of unlikely-to-pay loans (UTPs) to AMCO, a transaction we view as key to paving the way for a potential reprivatisation of the Bank. The transaction has received the authorization by ECB, at the beginning of September, subject to certain conditions, that we understand BMPS should complete very soon, as the transaction is due to take place by December 1, 2020. The rating action also incorporates the fact that, albeit credit positive for the Bank's overall risk profile, the transaction will lower BMPS's capital ratios by around 140 bps by end-2020, which would result in a lower buffer over SREP requirements. At end-September 2020, the Bank reported phased-in common equity tier 1 (CET1) and Total Capital ratios of 12.9% and 16.2% respectively. The rating action also takes into account that BMPS still faces around EUR 10 billion in potential litigation risks. Following the conviction of some of the Bank's former executives for market rigging and accounting fraud, the Bank booked additional provisions in Q3 2020 for around EUR 0.4 billion to cover potential legal risks and triggered BMPS's third consecutive loss. The rating action also reflects the fact that the wide scale economic and market disruption resulting from the coronavirus (COVID-19) pandemic will continue to put pressure on the Bank's profitability and risk profile. All these elements have led the Bank to revise its capital plan in order to boost capital levels, which we view as adding new challenges and higher execution risk to the Italian government's exit from the Bank's shareholder base. The Ministry of Finance has to complete the exit by the end of the Bank's restructuring plan as agreed with the European authorities, which we understand should be by end-2021, RATING DRIVERS An upgrade would require the Bank to resolve the pending litigation issues, successfully dispose of NPEs, restore its capital levels and improve earnings. A downgrade would likely be driven by a significant deterioration in the Bank's profitability as a result of the global COVID-19 pandemic or other potential headwinds on capital. A downgrade could also occur should the Bank experience severe delays in its restructuring plan. ESG CONSIDERATIONS DBRS Morningstar views the Business Ethics and the Corporate/Transaction Governance ESG subfactors as significant to the credit rating. These are included in the Governance category. The Bank has suffered reputational damage from legacy conduct issues, in particular litigation risk linked to former capital increases, the conviction of the former executives of market-rigging and accounting fraud and the ongoing investigation regarding fraudulent sale of diamond by Italian banks. In addition, BMPS is 68% owned by the Italian State because of a precautionary recapitalization which is subject to an EU restructuring plan. Notes: All figures are in EUR unless otherwise noted. [*] ITALY: To Widen Existing Guarantee Scheme for Bank Loans ------------------------------------------------------------ Valentina Za and Giuseppe Fonte at Reuters report that Italy plans to widen an existing guarantee scheme for bank loans in a move that will help the country's lenders cope with any future defaults sparked by the pandemic, a draft of the 2021 budget showed. According to Reuters, Italian banks have raised alarm about the combined effect an obligation to write down problem loans in full over a set number of years could have when coupled with a stricter definition of default kicking in soon and the troubles virus-hit businesses will face once weaned off emergency support schemes. That obligation is known as "calendar provisioning", Reuters notes. The draft budget extends to mid-2021 existing debt moratorium and guarantee schemes Italy deployed during the first COVID-19 wave in the spring to help firms raise new debt, Reuters states. In addition, it allows larger companies, in addition to small firms, to tap state guarantees on their pre-pandemic debt if the sum is increased by at least a quarter and the maturity extended or its cost reduced, Reuters discloses. "If this proposal becomes law, it will give banks an incentive to refinance corporate debt, lengthening its maturity and adding fresh liquidity. This will buy time for companies to attempt to recover as the economic cycle improves," Reuters quotes Gregorio Consoli, a partner at Italian law firm Chiomenti, as saying. The measure falls under a EUR200-billion (US$238 billion) liquidity scheme introduced in April run by export agency SACE, an affiliate of state lender CDP. Approved by cabinet on Nov. 16, the budget will go before parliament this week, to be approved by both houses by Dec. 31, Reuters says. According to Reuters, a study by Cherry Bit, a company applying artificial intelligence to soured loans, last week showed Italian courts faced 11,000 new bankruptcy procedures a year while 83,000 remained pending. =================== K A Z A K H S T A N =================== ATF BANK: Fitch Affirms B- LT IDR, Outlook Stable ------------------------------------------------- Fitch has affirmed Kazakhstan-based ATF Bank JSC's (ATF) Long-Term Issuer Default Ratings (IDRs) at 'B-' with a Stable Outlook. The agency has also affirmed the bank's Viability Rating (VR) at 'ccc'. KEY RATING DRIVERS IDRS, SUPPORT RATING, SUPPORT RATING FLOOR, NATIONAL LONG-TERM RATING ATF's IDRs and Support Rating Floor (SRF) of 'B-' reflect Fitch's view of a possibility of the bank receiving state support from Kazakhstan (BBB/Stable) given the former's moderate systemic importance (5% share in sector assets at end-3Q20). The bail-in of ATF's sizeable Tier 2 subordinated bondholders (9% of end-3Q20 regulatory risk-weighted assets (RWAs)) could be combined with state support measures, in case of need, to protect senior creditors. The significant gap between the sovereign rating and the SRF is due to a mixed record of state support to Kazakh privately-owned banks, which involved a bail-in of state-owned senior unsecured creditors in bank resolutions, including some recent cases. The National Long-Term Rating of 'BB-(kaz)' reflects ATF's creditworthiness relative to other credits in Kazakhstan. VR ATF's VR of 'ccc' reflects a high amount of legacy net problem assets relative to Fitch Core Capital (FCC), which Fitch considers a drag on the bank's asset quality and capitalisation. In Fitch's view, these net problems may require additional provisioning, and Fitch sees a real possibility that resolving these risks would require external capital support and/or the bail-in of junior creditors, as ATF's pre-impairment profitability and core capital buffer would be insufficient to absorb the impairment losses. The bank's funding/liquidity profile is reasonable and remains a rating strength. In November 2020, it was announced that ATF may be sold to First Heartland Jysan Bank JSC (Jysan, formerly Tsesnabank JSC), the seventh-largest bank in Kazakhstan holding about 5% of sector assets. The deal may be concluded by end-November, according to the official statement. In its view, the potential acquisition will not have an immediate rating impact on ATF's VR, unless the acquisition is accompanied with a material transfer of net problem assets from ATF or direct capital support. The negative impact of the coronavirus pandemic and associated lower economic activity in Kazakhstan on the bank's financial profile have been manageable to date. Fitch believes ATF's VR is likely to remain within the tolerance level of the 'ccc' rating despite pressures in the operating environment. ATF's Stage 3 loans comprised a significant 26% of gross loans at end-3Q20, and were only 59% covered with total loan loss allowances (LLAs). Stage 2 exposures added another 8% of gross loans, and these may also require the bank to incur additional impairment losses. Stage 3 loans, net of total LLAs, and Stage 2 loans comprised a substantial 1.1x and 0.8x FCC, respectively. In addition, the on-balance sheet exposure to investment property, repossessed collateral and other non-core items (mostly real estate and land) equaled a further 0.5x FCC. The total volume of potential risks stood at 2.4x FCC at end-3Q20, which is only a marginal reduction from 2.5x at end-2019. ATF's pre-impairment profit, adjusted for interest income on loans not received in cash, shrank to 2% of average gross loans in 9M20 from 3% in 2019 due to the fallout from the pandemic. The bank's earnings may only cover less than 10% of the mentioned problems on an annual basis. ATF's FCC was 9% of RWAs at end-2Q20, which Fitch views as modest for the bank's material asset-quality risks. The bank's Tier 2 subordinated debt buffer is estimated at a significant 9% of end-3Q20 regulatory RWAs. However, the contractual terms of these debt instruments do not envisage loss absorption triggers, and Fitch believes that they may absorb losses only after the bank becomes non-viable. ATF is mostly funded by rather concentrated customer accounts (73% of total liabilities at end-2Q20). Liquid assets, net of wholesale funding repayments in 2H20-2021, covered a reasonable 35% of total customer accounts. DEBT RATINGS Senior unsecured debt ratings are aligned with the bank's Long-Term IDRs of 'B-' and National Long-Term Rating of 'BB-(kaz)', reflecting average recovery prospects in case of default. ATF's dated subordinated debt issues are rated at 'CC', notched down twice from the VR to reflect potential loss severity. The Recovery Rating on these debt issues is 'RR6', reflecting poor recovery prospects in case of default due to the moderate layer of junior debt relative to sizeable asset-quality problems. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: IDRs The support-driven IDRs of ATF are sensitive to changes in its assessment of the propensity of the authorities to support privately-owned banks in Kazakhstan. An extended record of timely and sufficient capital support to privately-owned banks may result in moderate upside for ATF's SRF and hence IDRs. Fitch does not expect ATF's SRF and IDRs to be upgraded if the bank is acquired by Jysan. Jysan and ATF combined would represent the second-/third-largest banking group in Kazakhstan, with a 10% share in system assets. However, this would still be significantly smaller than the largest bank, JSC Halyk Bank (32% market share at end-3Q20), which has a SRF of 'B'. Although Fitch views Jysan's credit profile as stronger than ATF's, potential or actual capital support from Jysan alone would unlikely be sufficient to result in an upgrade of ATF's IDRs to 'B'. However, a fuller resolution of ATF's legacy problem loans, potentially also involving support from the Kazakh authorities, could result in an upgrade of the bank's IDRs. VR Fitch may upgrade ATF's VR to 'b-' if the amount of net impaired loans, Stage 2 loans and other problem assets relative to FCC materially reduces to below 1x, either due to recoveries, or to deeper provisioning without an erosion of core capital. Potential capital support post-acquisition from Jysan, the Kazakh authorities or a combination of the two could also be positive for ATF's VR if it results in a reduction in net problem assets to below 1x FCC or an increase in FCC to above 20% of RWAs. Factors that could, individually or collectively, lead to negative rating action/downgrade: IDRs The IDRs may be downgraded if Fitch takes a view that the authorities' propensity to support privately-owned banks in Kazakhstan has weakened (and the bank's VR does not strengthen following the planned acquisition by Jysan). A weakening support propensity could be evidenced by significant delays in addressing asset quality and capital problems in the sector, resulting in medium-sized private banks' insolvencies or failures. VR If legacy asset-quality problems at ATF are resolved by means of extraordinary state or institutional support, or bail-in of junior creditors, which would be evidence of the bank having faced a material capital shortfall, then its VR may be downgraded to 'f'. In this case, the ratings would simultaneously be upgraded to a level, reflecting the bank's credit profile post-resolution. 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 ATF's IDRs are linked to Kazakhstan's sovereign rating. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. HALYK BANK: Fitch Affirms BB+ LT IDR, Outlook Stable ---------------------------------------------------- Fitch Ratings has revised the Outlooks on Kazakhstan-based JSC Halyk Bank (Halyk), Halyk Finance (HF), JSC SB Alfa Bank (ABK) and ForteBank JSC (Forte) to Stable from Negative. The Long-Term Issuer Default Ratings (IDRs) of these entities have been affirmed at 'BB+' for Halyk and HF, 'BB-' for ABK, and 'B' for Forte. Fitch has also affirmed Subsidiary Bank Sberbank of Russia, JSC (SBK) at 'BBB-' with Stable Outlook. KEY RATING DRIVERS The revision of the Outlooks and affirmation of ratings on Halyk, ABK and Forte reflects Fitch's expectations that the banks' strong pre-impairment profitability and substantial capital buffers will be sufficient to mitigate the ongoing pressure on their asset quality, stemming from the economic recession, lower oil prices, and negative implications from the spread of COVID-19 on the broader economy. Fitch maintains a negative outlook for the operating environment in Kazakhstan, but believes that the ratings of Halyk, ABK and Forte could tolerate a more severe increase in loan impairment charges (LICs) than Fitch currently anticipates. Fitch believes that some aspects of Halyk's credit profile are consistent with a one-notch higher rating (in particular, Halyk's company profile and some of the financial metrics). Its base case expectation is that Halyk may be upgraded by one notch if the economic environment stabilises, and its asset quality, earnings and capitalisation do not substantially deteriorate in a current economic downturn. The affirmation of SBK's IDRs reflects limited changes in the ability and propensity of its parent, Sberbank of Russia (SBR, BBB/Stable), to provide support to SBK, since the previous rating review. IDRS, NATIONAL RATINGS, SUPPORT RATINGS, SUPPORT RATING FLOORS SBK's 'BBB-' Long-Term Foreign- and Local-Currency IDRs and '2' Support Rating (SR) are driven by the potential support the bank may receive from SBR, in case of need. Fitch assesses SBR's propensity to support SBK as high, reflecting the CIS region's strategic importance to SBR, the high level of integration between the parent and its subsidiary, full ownership, common branding and reputational considerations. Fitch rates SBK one notch below its parent due to the cross-border nature of the parent-subsidiary relationship, and SBK's considerable management independence. The IDRs of Halyk, ABK and Forte are driven by their intrinsic financial strength, as measured by their Viability Ratings (VRs). HF is a wholly-owned core subsidiary of Halyk, and its IDRs are equalised with the ratings of its parent to reflect this. The revision of the Outlook on HF mirrors the rating action on its parent. Fitch believes Halyk would have a high propensity to support HF given the full ownership, high degree of integration, common branding, and significant negative reputational implications for Halyk in case of a subsidiary default. HF is small relative to its parent (representing less than 1% of Halyk's total assets at end-2Q20) and its balance sheet is healthy, which limits the cost of any potential support, in its view. The National Ratings reflect issuers' creditworthiness relative to other credits in Kazakhstan. The Support Rating Floors (SRFs) of Halyk (B) and Forte (B-) reflect its view that there is a possibility of them receiving state support without senior unsecured creditors' participation in loss-sharing, given the banks' considerable systemic importance. Halyk's SRF is one notch higher than Forte's due to Halyk's superior systemic importance, as expressed by its larger market shares. A significant gap between the 'BBB' sovereign rating and the banks' SRFs is due to a mixed track record of state support to Kazakh privately-owned banks, involving a bail-in of senior unsecured creditors in bank resolutions including some recent cases. ABK's Support Rating of '4' reflects a limited probability of support from the bank's shareholder, Russia-based Joint Stock Company Alfa-Bank (ABR, BB+/Stable). The support may be forthcoming in light of the common branding, ABK's favorable performance and prospects to date and the low cost of support that may be required. At the same time, the probability of such support is limited, in Fitch's view, by the weak synergies between the two banks, ABK's complex ownership structure and a mixed record of support provided by ABR to its other CIS subsidiaries. VRS The VRs of Kazakh banks capture their exposure to cyclical, developing and concentrated economy. This results in occasional asset price bubbles and vulnerable asset quality, translating into significant swings in banks' performance. These weaknesses are balanced with robust liquidity positions, high capital buffers and decent pre-impairment profitability, providing the banks with strong loss-absorption capacity. Halyk's 'bb+' VR is the highest in Kazakhstan, reflecting its dominant market shares, high pricing power, substantial capital and liquidity buffers, and a track record of superior stability of its asset quality and performance through the credit cycle compared with the sector averages. Fitch rates ABK and SBK two notches lower than Halyk, at 'bb-', to capture their lower market shares (particularly for ABK), less stable business models, slightly lower capital ratios, and historically more cyclical asset quality/performance. Forte is rated 'b', two notches lower than ABK and SBK, due to a high volume of legacy net problem assets relative to capital (75% at end-3Q20), which Fitch views as a drag on its asset quality and capitalisation. Despite an ongoing economic recession (Fitch expects a 1.7% real GDP contraction in 2020, followed by 4.8% growth in 2021, although these growth forecasts are tilted to the downside due to the second wave of the pandemic), Kazakh banks' IFRS9 loan quality ratios showed an only moderate weakening so far. The ratios of Stage 3 loans and POCI loans were broadly stable (end-3Q20: 15% of gross loans at Halyk; 4% at ABK and 23% at Forte; end-2Q20: 12% at SBK), while Stage 2 loans increased only marginally (reduced for ABK). In 9M20 (6M20 for SBK) the banks also reported an only moderate 30bp-140bp increase in the ratios of annualised LICs divided by average gross loans. These ratios equaled a low annualised 1.0% (Halyk), 2.5% (SBK), 3.2% (ABK) and 3.9% (Forte). In Fitch's view, the changes in loan quality ratios have not yet fully captured the projected sector-wide asset-quality weakening. A significant part (up to 30%) of SME and retail borrowers in Kazakhstan were provided with a two-stage three-month statutory payment holidays. Although according to banks, most of these borrowers tend to return to their payment schedule upon the expiry of payment holidays, in Fitch's view asset quality problems have not yet fully emerged, as there may be considerable lags in loan impairment recognition. Certain corporate loans may also generate extra loan impairment due to generally weak quality and the long-term/project-finance nature of corporate lending in Kazakhstan. Accordingly, Fitch expects a moderate increase in impaired loan ratios and higher LICs in 2021. In addition to emerging pressures in new lending, some of the banks have considerable amounts of legacy problem assets. Total unreserved high-risk assets (net Stage 3 and purchased or originated credit impaired loans, and non-core assets) at Forte equaled a high 0.75x of Fitch Core Capital (FCC) at end-3Q20, which is only a marginal reduction compared with end-2019. About two-thirds of the net problem loans were represented by granular retail loans (mostly legacy foreign currency mortgages and home equity loans). Forte's participation in state-sponsored foreign currency mortgage restructuring programme should bring moderate recoveries on these loans in the medium term, in its view, although the progress in loan recoveries in the past few years has been rather slow. In addition, reserve coverage of impaired loans at Forte has gradually increased in recent years (46% at end-3Q20, up from 41% at end-2019 and 38% at end-2018), although still remains lower than peers. At end-3Q20 Halyk's legacy net problem assets (these include net stage 3 loans, POCI loans and non-core assets) equal to 31% of FCC, which is a slight reduction compared with end-2019. In the past few years, Halyk's net problem assets have been consistently trending down due to some recoveries, moderate additional provisioning and capital built-up. Fitch believes that the residual impairment losses from the legacy portfolio will only be moderate. The coverage of legacy problems at ABK and SBK is deeper than at Forte and Halyk, so the ratio of net problem assets relative to capital at ABK and SBK is low. Positively, banks' overall asset quality is supported by low shares of net loan books in banks' assets (end-3Q20: 41% at Halyk; 39% at ABK and 35% at Forte; end-2Q20: 51% at SBK), while non-loan exposures are unlikely to generate any additional impairment, as these predominantly consist of cash, interbank assets and debt securities of mostly quasi-sovereign/investment-grade credit quality. Banks' solid pre-impairment profitability is a further strength. Fitch believes that pre-impairment profit at all four banks should be sufficient to cover higher LICs in 2H20-2021, allowing all four banks to stay profitable through the cycle. In 9M20 (6M20 for SBK) the ratios of annualised core pre-impairment profit to average gross loans equaled a high 10% (Forte), 9% (Halyk) and 8% (SBK and ABK). Interim bottom line results have also been strong, with annualised ROAEs (net of one-off items) of above 20% at all four banks. So far, pressures on banks' revenues have been limited in 2020, and Fitch expects pre-impairment profitability to remain strong in 2021. However, the quality of revenues somewhat weakened due to payment holidays, as expressed by the spikes in uncollected accrued interest, equal to 15% of gross interest income on loans (Halyk), 19% (SBK), 22% (Forte), but a lower 3% at ABK. Fitch believes that given that most of the borrowers tend to return to payment schedule after the payment holidays, the banks will be able to gradually collect this interest in cash. Healthy profit retention and only moderate loan growth helped the banks to build up strong capital buffers in the past few years. The banks' FCC ratios remained high (end-3Q20: 23% at Halyk, 22% at ABK and 18% at Forte; end-2Q20: 16% at SBK), providing them with strong additional loss-absorption capacity. Capital ratios are likely to stay elevated given only moderate loan growth. Fitch expects all banks except ABK to have low single-digit growth in corporate lending in 2H20-2021, but higher growth in retail of about annual 10%-15%. Fitch anticipates more aggressive loan expansion at ABK in 2021, but the bank's internal capital generation capacity should be sufficient to cover the loan growth. Funding and liquidity profiles are rating strengths for all banks. Kazakh banks are mainly deposit-funded and have solid liquidity buffers, as expressed by low ratios of gross loan to deposits (end-3Q20: 66% at Halyk, 56% at ABK and 60% at Forte; end-2Q20: 80% at SBK). Halyk's USD500 m senior unsecured Eurobond issue matures in January 2021, while near-term contractual repayments of wholesale funding for the other three banks are limited. SENIOR UNSECURED DEBT The senior unsecured debt ratings of Halyk and Forte are aligned with their Long-Term IDRs and National Long-Term Ratings, reflecting average recovery prospects in case of default. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: IDRs, SRs The IDRs of SBK and HF would be upgraded if the ratings of their parent banks are upgraded. The IDRs of Halyk, ABK and Forte would be upgraded if their VRs are upgraded. VRs An upgrade of the VRs of all four banks would require a stabilisation of the Kazakh economic environment and only moderate or no deterioration in asset quality, profitability and capitalization. In this case, Halyk could be upgraded by one notch, as some aspects of its credit profile have already been consistent with a one notch higher VR. In addition to the stabilisation of the Kazakh economic environment, an upgrade of ABK and SBK would require an extended track record of their business models' stability and resilient asset quality (particularly in retail and SME lending). In addition to the stabilisation of the Kazakh economic environment, an upgrade of Forte would require a reduction of its net problem assets to at least 50% of its capital. Factors that could, individually or collectively, lead to negative rating action/upgrade: IDRs, SRs The IDRs of SBK and HF would be downgraded if the ratings of their parent banks are downgraded. The IDRs of both FIs could also be downgraded if Fitch takes a view that the propensity of the parent banks to provide support to SBK or HF has weakened, although this scenario is viewed as unlikely by Fitch. The IDRs of Halyk, ABK and Forte could be downgraded if their VRs are downgraded. VRs Halyk's VR could be downgraded if either (i) the ratio of net problem assets relative to capital increases to over 60%; or (ii) Halyk is deeply loss-making for several consecutive quarters and its FCC ratio drops to below 15% due to a combination of losses, growth and higher dividend distributions. SBK's, ABK's and Forte's VRs could be downgraded if these banks are loss-making for several consecutive quarters meaning that their pre-impairment profit is not sufficient to cover the LICs. A substantial reduction in FCC ratios due to fast growth or capital upstream may also be credit negative. Forte may also be downgraded if the amount of net problem assets materially exceeds its capital. The debt ratings of Halyk and Forte are sensitive to changes in the banks' IDRs. 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 Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =========== L A T V I A =========== MOGO FINANCE: Fitch Puts B- LT IDR on Rating Watch Negative ----------------------------------------------------------- Fitch Ratings has placed Mogo Finance S.A.'s (Mogo) 'B-' Long-Term Issuer Default Rating (IDR) and senior secured debt rating on Rating Watch Negative (RWN), reflecting marked deterioration in the company's leverage position. Based in Latvia, Mogo is a specialised auto finance and leasing company operating across eastern Europe, central Asia and Africa. KEY RATING DRIVERS IDRs and SENIOR SECURED DEBT RATING The RWN reflects a material reduction in tangible equity (45% in 3Q20), due to foreign-currency (FX) losses and increased levels of intangible assets following bolt-on acquisitions during the quarter. Leverage, defined as gross debt-to-tangible equity, increased to about 20x at end-3Q20 from 10.6x at end-2019, which is considerably higher than Fitch's range for a 'b' category leverage assessment. However, Fitch has placed the ratings on RWN, rather than downgraded them, because short-term refinancing risk is manageable and also because Fitch believes that Mogo's management has a number of credible options to reduce leverage in the short term. These include an equity injection from its shareholders and disposal of some non-core subsidiaries. These actions combined could reduce leverage to about 12x by end-2020 and could support an affirmation at the current rating, in conjunction with further deleveraging commitments over 2021. Fitch understands from management that Mogo's shareholders have committed to inject additional capital by end-2020. In addition, Mogo is in advanced negotiations to dispose of operations in a number of non-core markets above book value and exit others, all of which should improve tangible equity and reduce outstanding debt. Fitch also understands that additional disposals in non-core markets, conversion of shareholders' loans into equity and a partial portfolio securitisation are among additional options being considered by the company. Mogo incurred a material FX loss (EUR5.2 million) in 3Q20 due to its sizeable unhedged open FX position. It is willing to operate with high FX risk, as its euro-denominated funding is mainly on-lent in other currencies outside its home markets in the Baltics. These currencies often lack hedging instruments (or are costly, making them uneconomical at Mogo's scale), so Mogo tends to price FX risk in its lending margin. This supports Mogo's strong portfolio yield, but also exposes the company to episodic FX losses in case of sharp volatility. Mogo also acquired three small high-cost unsecured lenders in Moldova, Albania and North Macedonia in 3Q20, increasing goodwill by EUR4.8 million to EUR8.8 million at end-3Q20. Management believes that these acquisitions will support Mogo's profitability in the medium term, but they also reflect the company's intrinsically high appetite for inorganic growth and a degree of opportunism in its strategy. Mogo plans to cap its unsecured loan portfolio to 25% of the total. Mogo's leverage was weak and highly sensitive to the company's material exposure to FX and credit risks even prior to end-3Q20. The quality of capital has been weak with high levels of intangible assets. Tangible equity, excluding shareholder loans, at end-3Q20 was a negative EUR1.2 million and was supplement by subordinated shareholders' loans of EUR11.9 million, qualifying for 100% equity credit under Fitch's criteria. Lending to related parties is material and adequately disclosed, but large in relation to tangible equity. The IDRs of Mogo are driven by its nominal franchise in a competitive niche, exposure to volatile markets, elevated risk appetite and high leverage. They also reflect the largely secured nature of lending, acceptable profitability, a proven access to public bond markets and an experienced management team. Mogo's target clients are below-prime individuals in emerging markets who cannot afford newer cars, but they represent median earners in Mogo's countries of operations. In Fitch's view, Mogo's corporate governance framework is developing, following the company's bond listing in 2018, and is in line with other privately-held peers. However, limited independent board oversight, a multi-layered holding structure, concentrated ownership and loans to shareholders increase risks and constrain Mogo's ratings. These features are reflected in Fitch's ESG scores of '4' for Governance Structure and Group Structure. The rating of Mogo's senior secured debt is equalised with the company's Long-Term IDR to reflect its effective structural subordination to outstanding debt at operating entities, which despite their secured nature leads to only average recoveries as reflected in a 'RR4' Recovery Rating. RATING SENSITIVITIES IDRs and SENIOR DEBT RATING Fitch intends to resolve the RWN on Mogo's IDRs and debt rating once it has better visibility on Mogo's end-2020 leverage position, likely in January 2021. Factors that could, individually or collectively, lead to negative rating action/downgrade: A failure to materially reduce leverage (defined as gross debt/tangible equity) to around a management guided 11x-12x and to increase tangible equity (in absolute terms) by end-2020 would lead to a downgrade. Marked deterioration in asset quality and further FX losses, ultimately threatening the company's solvency, could also lead to a downgrade. A downgrade of Mogo's Long-Term IDR would likely be mirrored on the company's senior secured bond rating. Lower recovery assumptions, due for instance to operating entity debt increasing in importance relative to rated debt or worse-than-expected asset-quality trends (which could lead to higher asset haircuts), could lead to below-average recoveries and Fitch to notch down the rated debt from Mogo's Long-Term IDR. Factors that could, individually or collectively, lead to positive rating action/upgrade: Given the RWN on Mogo's IDRs and debt rating, an upgrade is unlikely. A reduction of leverage under 12x by end-2020 would lead to an affirmation of the rating, with a Negative Outlook, reflecting Fitch's view that Mogo's operating environment will remain challenging in 2021. Further deleveraging commitments and a stabilisation of the operating environment could support an affirmation with a Stable Outlook in the medium term. In the longer term, a sustained reduction in Mogo's gross debt/tangible equity to below 6x, increased loss-absorption buffers in the form of a larger absolute levels of capital, the achievement of greater scale and operational break-even in individual countries of operations, a reduction in currency risks and a further expansion of funding options would be credit-positive. An upgrade of Mogo's Long-Term IDR would likely be mirrored on the company's senior secured bond rating. Higher recovery assumptions due to, for instance, operating entity debt falling in importance compared with rated debt instruments, could lead to above-average recoveries and Fitch to notch up the rated debt from Mogo's Long-Term IDR. ESG CONSIDERATIONS Mogo has an ESG Relevance Score of '4' for Governance Structure. This reflects a number of governance issues, among others, around related-party transactions and the extent to which decision-making is concentrated in the hands of a few individuals, as explained above in the Key Rating Drivers section of this Rating Action Commentary. These issues have a moderately negative impact on the rating. Mogo has an ESG Relevance Score of '4' for Group Structure. This reflects its reservations about the appropriateness of Mogo's organisational structure relative to the company's business model, and about some intra-group dynamics, also described. These issues have a moderately negative impact on the rating. Unless otherwise disclosed in this section, the highest level of ESG credit relevance for Mogo is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. =================== L U X E M B O U R G =================== MATADOR BIDCO: S&P Alters Outlook to Negative, Affirms 'BB-' ICR ---------------------------------------------------------------- S&P Global Ratings affirmed its 'BB-' issuer credit rating on Matador Bidco S.a r.l. and its 'BB-' issue rating on the term loan B, as well as maintaining the recovery rating at '4', indicating its expectation of 40% recovery in a payment default. Matador Bidco's credit measures could be negatively affected by lower than anticipated dividend from CEPSA. S&P said, "We see an increasing likelihood that CEPSA's dividends will be much less than our previous expectations. Although we continue to factor in the minimum annual dividend basis of EUR350 million (the minimum amount stipulated by the shareholders agreement), so far CEPSA has paid only EUR30 million for 2020. CEPSA has not yet communicated its plans for additional distributions for 2020 and we see a chance that the shareholders might agree to a lower distribution in 2020 to preserve cash at CEPSA, given the unprecedented circumstances. We note that many oil and gas companies are reducing dividends in this environment in an attempt to partly offset the negative impact of the pandemic on their cash generation." Even if CEPSA pays only EUR120 million dividend, it will be sufficient for Matador Bidco to pay its annual debt services of EUR54 million. However, lower dividends will eventually increase Matador Bidco's leverage beyond our threshold for the 'BB-' rating. S&P forecasts that with dividend of EUR350 million, Matador Bidco's debt to EBITDA will be about 5x, which is the rating threshold. Therefore a lower dividend distribution by CEPSA could result in a downgrade, absent an offsetting higher dividend in 2021. CEPSA's performance this year showed a sharp drop in profits and cash flows, mostly because COVID-19 affected most of its business divisions. In the first nine months of 2020, CEPSA posted EBITDA of about EUR900 million, down about 40% year on year, while its free operating cash flow (FOCF) entered negative territory (versus EUR550 million in the same period in 2019). These declines owed mainly to lower production from OPEC cuts (down about 20%) and the lower crude oil price (down about 40%) affecting its upstream division. This division is typically its most cash-generative business segment. CEPSA's refining also suffered a very severe margin compression that cut its EBITDA by about 90% compared with the same period in 2019. Partially offsetting this was the marketing segment performing in line with the previous year and the chemicals segment's strong growth on the back of strong demand. The negative FOCF was a consequence of the severe overall EBITDA drop, together with the company carrying out its planned sizable growth capital spending. S&P said, "Our rating on Matador Bidco continues to reflect supportive corporate governance and financial policy, private ownership structure, and partial control over dividends. We assess Matador Bidco's corporate governance and financial policy as positive. Carlyle, via Matador Bidco, shares control of CEPSA with Abu Dhabi's Mubadala Investment Co. Matador Bidco holds 38.5% of CEPSA. Matador Bidco has some influence on most key decisions, including those related to yearly dividends. Any changes to financial and dividend policies require approval of both shareholders, even though Carlyle has only minority representation on CEPSA's board. In that context, we believe that Matador Bidco will have more control over dividends than peers in other similarly structured transactions have. We note that an annual CEPSA dividend of about EUR120 million is sufficient for Matador Bidco to cover its annual liquidity needs and we note that that liquidity needs for the rest of 2020 and part of 2021 are already covered by cash on hand." The negative outlook on Matador Bidco reflects the negative credit impact of a potentially lower dividend distribution by CEPSA, which could increase leverage above our expectations for the 'BB-' rating. S&P said, "With a dividend of EUR350 million, Matador Bidco's debt leverage will average 5x in 2020, which we view as the maximum level commensurate with the 'BB-' rating. We are affirming the rating because we assume that this ratio will improve after 2020 and approach 4x, although this has become more uncertain, given that CEPSA, similar to many other oil companies, could reduce dividends due to the pandemic and the global recession. "We could lower the rating if CEPSA's dividend distribution rate decreased to a level that kept Matador Bidco's interest coverage ratio below 3x or that increased its debt to EBITDA to about 5x or more over a prolonged period without prospects of increasing interest coverage above 3x or decreasing debt to EBITDA to at least 4x respectively. "Total annual dividends of EUR300 million or less from CEPSA could result in a downgrade. We would lower the rating if this level is not met in 2020 and if CEPSA does not take any action to pay dividends by midyear 2021 commensurate with reaching 4x leverage by year-end 2021. "We could revise our outlook to stable in the next six-12 months if we believe that shareholder will commit to maintain annual average dividends of at least about EUR350 million, as per their agreement, and despite the current environment. This would require no deterioration in CEPSA's SACP." ===================== N E T H E R L A N D S ===================== ADRIA MIDCO: Moody's Assigns B2 Rating to New EUR350MM Sec. Notes ----------------------------------------------------------------- Moody's Investors Service assigned a B2 rating to the proposed EUR350 million guaranteed senior secured notes due 2027 to be issued by United Group B.V., a fully owned subsidiary of Adria Midco B.V. The outlook is stable. Proceeds from this debt issuance will be used to repay EUR178 million of drawings under the super senior revolving credit facility due 2025, to pay EUR39 million committed amounts in connection with completed acquisitions, and EUR129 million will be left as cash on balance sheet to be used for general corporate purposes, which may include potential future acquisitions, working capital, capital expenditures and other purposes, and to pay associated transaction costs. While this issuance will increase Moody's adjusted gross debt/EBITDA by around 0.3x because part of the proceeds will remain as cash on hand, it will also further enhance the liquidity profile of the company. RATINGS RATIONALE Adria Midco's B2 rating reflects (1) the company's strong operating performance, with well-established market positions in all its core countries of operation, and its good brand recognition; (2) the considerable improvement in its scale, and its geographical and business diversification, following the acquisitions in 2020 of Bulgarian Telecommunications Company EAD (Vivacom), Tele2 Croatia and Greek Pay TV operator Forthnet; (3) the company's well-invested and fully owned networks; and (4) its positive track record of integrating acquired companies. The rating also acknowledges (1) the company's high leverage, with Moody's-adjusted gross debt/EBITDA estimated at around 6.0x in 2020 (pro forma for acquisitions), although the rating agency forecasts this ratio to decline towards 5.5x by 2021; (2) the lack of material free cash flow (FCF) generation because of high capital spending and recurrent dividend outflows to service the PIK notes' interests at the Summer BidCo B.V. (Summer BidCo) level, outside the restricted group defined by the lenders of Adria; (3) Adria's geographical concentration within the Southeastern European region, mainly in Bulgaria (Baa1 stable), Slovenia (A3 stable), Greece (Ba3 stable) and Serbia (Ba3 positive); and (4) the company's ongoing acquisitions, which preclude from significant deleveraging and expose the issuer to execution risks in the integration of these assets. LIQUIDITY At transaction closing, the company will have cash and cash equivalents of around EUR244 million, access to a fully undrawn EUR250 million SSRCF due 2025 and to EUR60 million of local bilateral lines. The company will not have any material debt maturities until 2024 when the EUR525 million fixed rate notes mature. The super senior RCF contains one leverage-based maintenance covenant of 9.5x Net Debt to Consolidated EBITDA tested on a quarterly basis. STRUCTURAL CONSIDERATIONS Adria Midco is the top company of the restricted group and the reporting entity for the consolidated group. Its subsidiary UG is the issuer of the rated notes and also one of the original borrowers under the company's EUR250 million SSRCF. The SSRCF ranks ahead in an enforcement scenario. It shares a guarantee and security package with the rated senior secured notes. In addition, the SSRCF (but not the senior secured notes) is secured on Serbian assets and receives guarantees from Serbian subsidiaries. Consequently, the SSRCF ranks first and the senior secured notes second in the waterfall of claims, together with the local bilateral lines of EUR60 million in aggregate and Adria's trade payables. Given the limited weight of the SSRCF ranking ahead of the senior secured notes, the notes are rated B2, at the same level as the CFR. In addition, EUR476 million PIK notes (unrated) have been issued at the holding company, Summer BidCo, outside of the restricted group defined by the lenders of Adria. RATIONALE FOR STABLE OUTLOOK The company is weakly positioned in the B2 category, with estimated pro forma leverage of around 6.0x by year end 2020. The stable outlook reflects Moody's expectation that the company will successfully integrate recent acquisitions and reduce leverage below 5.5x in 2021, supported by its sound operating performance with strong revenue and EBITDA organic growth. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING Downward pressure may arise if Adria's gross Debt/EBITDA ratio (Moody's definition) is maintained well above 5.5x on a sustained basis. Downward rating pressure could also arise if the company's liquidity profile deteriorates. Conversely, upward pressure may arise if the company reduces its leverage so that its gross Debt/EBITDA ratio (Moody's definition) falls well below 4.5x and demonstrates its capacity to generate adjusted positive FCF/debt (Moody's definition) on a sustainable basis. However, the PIK instrument outside of the restricted group represents an overhang for Adria, as it could be refinanced within the restricted group once sufficient financial flexibility develops. Therefore, the PIK instrument could be a constraint to upward rating pressure in the future. LIST OF AFFECTED RATINGS Issuer: United Group B.V. Assignment: Backed Senior Secured Regular Bond/Debenture, Assigned B2 PRINCIPAL METHODOLOGY The principal methodology used in this rating was Telecommunications Service Providers published in January 2017. COMPANY PROFILE Adria Midco B.V. provides, through its subsidiary United Group B.V., cable (CATV) and satellite (Direct-to-Home or DTH) pay-TV, broadband and telephony in Slovenia, Serbia and Bosnia and Herzegovina, mobile services in Slovenia, satellite pay-TV across the six countries of former Yugoslavia, Slovenia, Serbia, Bosnia and Herzegovina, Croatia, Macedonia and Montenegro and OTT services worldwide. In 2019, the company reported revenues of EUR742 million and Adjusted EBITDA of EUR295 million. In 2020, Company acquired Vivacom, Tele2 Croatia, and Forthnet Greece, thus further expanding in the region of South Eastern Europe. BARENTZ MIDCO: Moody's Assigns B2 CFR, Outlook Stable ----------------------------------------------------- Moody's Investors Service assigned a B2 corporate family rating and B2-PD probability of default rating (PDR) to Barentz Midco B.V., a Netherlands-based specialty ingredients distributor. Concurrently, Moody's has also assigned a B2 rating to Barentz Bidco B.V.'s senior secured facilities (term loan B and a revolving credit facility), guaranteed by Barentz. The list of all assigned ratings is included at the end of the press release. The outlook on Barentz is stable. RATINGS RATIONALE The B2 CFR of Barentz, which is weakly positioned, is primarily constrained by the company's aggressive financial policies, as exemplified by a high starting pro-forma gross leverage of roughly 6.0x for 12 months to September 2020, as adjusted and defined by Moody's, as well as the existence of sizeable PIK notes outside of the restricted group, which the agency does not include in its leverage calculation, but considers qualitatively as a credit negative. The B2 CFR is also constrained by (1) a relatively small size (by revenues) of Barentz compared to other distribution companies the agency rates; (2) still some exposure of the company to cyclical industrial end markets, notwithstanding its focus on life science industries; (3) integration risk with regards to the planned acquisition of the US-based specialty distributor CI (Maroon) Holdings, LLC, which Moody's views as a transformational acquisition for Barentz; and (4) a risk that Barentz will continue pursuing external growth beyond its internal cash flow generation capabilities in a still highly fragmented market, which could limit its deleveraging prospects. The B2 CFR assumes no additional debt-funded transformational acquisitions in the coming two years. Barentz' B2 CFR is primarily supported by its (1) leadership positions in the global specialty ingredients market that has good underlying growth prospects, with no exposure to commodity ingredients; (2) fairly resilient business model with good profitability, underpinned by its focus on the less-cyclical life sciences end markets; high customer diversification; global reach; and fairly flexible cost base, with a good track record of passing through procurement costs; (3) long-standing relationships with key suppliers; (4) prospects for good free cash flow (FCF) generation and deleveraging, supported by its fairly low capital spending needs. Moody's views Barentz' liquidity as adequate, supported by the company's ability to generate positive FCF. The company will have access to a EUR120 million revolving credit facility maturing in 2027, undrawn at closing and with a springing net leverage covenant set initially at 40% capacity. There will be no major debt maturities until the final maturity of the term loans in 2027. Barentz' PDR of B2-PD is in line with its B2 CFR, which reflects Moody's typical 50% corporate family rating recovery assumption for all-senior capital structures. The B2 ratings of the senior secured facilities are also in line with the CFR, reflecting the all-senior capital structure. RATIONALE FOR THE OUTLOOK The stable outlook reflects Moody's expectations that Barentz will be willing and able to maintain its Moody's adjusted leverage below 6.0x in the next 12-18 months. The stable outlook also assumes that the company's liquidity will remain adequate. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS Barentz' ratings recognize the company's resilient operational performance with healthy EBITDA growth achieved so far through the coronavirus pandemic, which Moody's regards as a social risk under its ESG framework, given the substantial implications for public health and safety. Barentz' ratings also factor in its private equity ownership, which entails an aggressive financial policy tolerant of a high leverage and weaker reporting standards. Barentz' ratings are assigned under the assumption that the company will continuously provide necessary reconciliations that would enable Moody's to reliably assess the credit metrics in the restricted group, as the future reporting will be at a level outside of the restricted group. Environmental risks are currently not material for Barentz' credit quality. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward pressure on the ratings could occur if leverage, as measured by Moody's-adjusted debt/EBITDA, was to decrease sustainably below 5.0x. A downgrade could occur if the company was unable to keep its leverage below 6.0x for a prolonged period. A downgrade could be also triggered by Barentz' inability to maintain positive FCF generation or by a weakening of liquidity or interest coverage. LIST OF AFFECTED RATINGS: Issuer: Barentz Bidco B.V. Assignments: BACKED Senior Secured Bank Credit Facility, Assigned B2 Outlook Actions: Outlook, Assigned Stable Issuer: Barentz Finco UK Limited Assignments: BACKED Senior Secured Bank Credit Facility, Assigned B2 Outlook Actions: Outlook, Assigned Stable Issuer: Barentz Midco B.V. Assignments: LT Corporate Family Rating, Assigned B2 Probability of Default Rating, Assigned B2-PD Outlook Actions: Outlook, Assigned Stable Issuer: CI (Maroon) Holdings, LLC Assignments: BACKED Senior Secured Bank Credit Facility, Assigned B2 Outlook Actions: Outlook, Assigned Stable PRINCIPALMETHODOLOGY The principal methodology used in these ratings was Distribution & Supply Chain Services Industry published in June 2018. COMPANY PROFILE Headquartered in the Netherlands, Barentz is one the world's leading specialty ingredients distributors with a focus on life science end markets. Pro-forma for the acquisition of Maroon the company would report around EUR1.4 billion sales for 12 months to June 2020, with a global footprint. The company has been owned by a private equity firm Cinven since December 2019. In October 2020 Barentz signed an agreement to acquire Maroon and is now raising an equivalent of around EUR585 million term loans to fund the acquisition and refinance existing indebtedness. JUBILEE PLACE 2020-1: S&P Assigns B(sf) Rating on Cl. X-Dfrd Notes ------------------------------------------------------------------ S&P Global Ratings assigned ratings to Jubilee Place 2020-1 B.V.'s (Jubilee Place 2020-1's) class A notes and class B-Dfrd to X-Dfrd interest deferrable notes. S&P's ratings address timely receipt of interest and ultimate repayment of principal on the class A notes, and the ultimate payment of interest and principal on the other rated notes. Jubilee Place 2020-1 is a static RMBS transaction that securitizes a portfolio comprising EUR208.97 million of buy-to-let (BTL) mortgage loans secured on properties located in the Netherlands. The loans in the pool were originated by DNL 1 B.V. (DNL; trading as Tulp), Dutch Mortgage Services B.V. (DMS; trading as Nestr), and Community Hypotheken B.V. (Community; trading as Casarion). All three originators are new lenders in the Dutch BTL market, with a very limited track record. However, the key characteristics and performance to date of their mortgage books are similar with peers. Moreover, Citibank N.A., London Branch, maintains significant oversight in operations, and due diligence is conducted by an external company, Fortrum, which completes an underwriting audit of all the loans for each lender before a binding mortgage offer can be issued. At closing, the issuer used the issuance proceeds to purchase the full beneficial interest in the mortgage loans from the seller. The issuer will grant security over all its assets in favor of the security trustee. Of the pool, no loans have been granted payment holidays due to COVID-19. Citibank retains an economic interest in the transaction in the form of a vertical risk retention (VRR) loan note accounting for 5% of the pool balance at closing. The remaining 95% of the pool is funded through the proceeds of the mortgage-backed rated notes. S&P considers the collateral to be prime, based on the originators' conservative lending criteria, and the absence of loans in arrears in the securitized pool. Credit enhancement for the rated notes consists of subordination from the closing date and overcollateralization following the step-up date, which will result from the release of the liquidity reserve excess amount to the principal priority of payments. The class A notes will benefit from liquidity support in the form of a liquidity reserve, and the class A and B-Dfrd through E-Dfrd notes will benefit from the ability of principal to be used to pay interest, provided that, in the case of the class B-Dfrd to E-Dfrd notes, they are the most senior class outstanding. There are no rating constraints in the transaction under S&P's counterparty, operational risk, or structured finance sovereign risk criteria. S&P considers the issuer to be bankruptcy remote. Ratings Assigned Class Rating Amount (mil. EUR) A AAA (sf) 173.210 B-Dfrd AA+ (sf) 10.919 C-Dfrd AA- (sf) 6.948 D-Dfrd A- (sf) 4.467 E-Dfrd BB (sf) 2.978 X-Dfrd B (sf) 8.437 S1 NR 0.100 S2 NR 0.100 R NR 1.000 NR--Not rated. SCHOELLER PACKAGING: Fitch Downgrades LT IDR to B-, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has downgraded the returnable transit packaging manufacturer Schoeller Packaging B.V.'s Long-Term Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook on the IDR is Stable. The downgrade reflects Fitch's expectations that Schoeller's leverage will remain above its negative rating sensitivities in the medium- to long-term. This is due to higher-than-expected debt levels and negative cash flow generation eroding liquidity and restricting deleveraging capacity. Fitch also expects some pressure on revenue and profitability related to the pandemic to remain in 1H21, due mainly to Schoeller´s exposure to the automotive and industrial manufacturing end-markets. The rating of Schoeller is supported by its leading position in its niche market, a diversified product portfolio and its extended geographical presence across Europe. Also, successful long-term co-operation with customers and substantial technology investments in new products acts as effective barriers to entry. KEY RATING DRIVERS Negative Free Cash Flow: Schoeller has a history of weak free cash flow (FCF) generation. Fitch expects FCF to remain negative in the medium- to long-term, due to high interest costs and sustained high capex resulting in pressure on liquidity. Further erosion of Schoeller's already limited liquidity in the short term could result in pressure on the rating. Capex Remains High: Innovation leading to development of new products is key to maintaining competitiveness in the returnable transit packaging industry and Schoeller has been investing heavily in more advanced, higher-margins products the last four years. Fitch forecasts capex to decrease slightly from the expected peak of 7.2% of revenue in 2019, but still be at high levels between 5.5% and 6.5% until 2023. Higher-than-Expected Leverage: Fitch expects Schoeller´s funds from operations (FFO) gross leverage to be 7.6x at end-2020, which is high and above its negative rating sensitivity for the previous 'B' rating. It is due mainly to lower-than-expected FFO in 2020 driven by the pandemic, and somewhat higher debt levels than its previous assumptions. Fitch expects FFO gross leverage to remain high and approach 7x only in 2023 due to improving margins on revenue growth and implemented cost efficiencies. Resilience Shown in Pandemic: Schoeller has benefitted from its large exposure to 'essential' and non-cyclical end-markets, such as food and beverage, in the pandemic. Revenue and profitability strengthened in 1H20 on increasing at-home consumption, improved pricing and a focus on the cost structure. However, in 3Q20 a struggling automotive industry, together with challenges in marketing and selling new products due to social restrictions, resulted in lower revenue. Fitch forecasts low single-digit declines in revenue in 2020 and a turnaround to mid-single-digit growth in 2H21. Adequate Business Profile: Fitch views Schoeller´s business profile as solid and commensurate with a 'BB' rating, based on its European market-leading position within its niche, which includes manufacturing of plastic containers and reusable transit packaging. Despite a market share of about 20% in Europe, the rating is constrained by the company´s modest scale with Fitch-forecast revenue of around EUR520 million in 2020, making it vulnerable to swings in demand. It is, however, partly mitigated by its operations in some 20 countries, providing healthy geographic diversification within Europe, coupled with an ambition to grow its limited presence in the US. Some Customer Concentration: Schoeller has a broad customer base covering a variety of end-markets, but with some concentration in its largest customer in pooling services, IFCO (Irel Bidco S.a.r.l (B+/Stable)), at 18% of total revenue. The business profile is strengthened by a leading product range consisting of more than 1,000 customisable products. It has a good record of longstanding relationships as the majority of its top 100 customers are recurring customers with relationships often exceeding 15 years. Environmentally Driven Growth Opportunities: Fitch believes that reusable plastic containers are set for growth, supported by a number of trends such as supply-chain efficiency, environmental awareness and e-commerce development that will drive a transition to reusable packaging from single-use packaging. Fitch expects growing demand for a circular economy, regulation and costs improvement to encourage companies to adopt more efficient logistics with reusable packaging. This development should benefit Schoeller's products as they are 100% recyclable and have a long lifetime with an average of 15-20 years, making them sustainable. DERIVATION SUMMARY Fitch treats Schoeller as a diversified manufacturer, although Fitch believes that packaging companies are to some extent exposed to similar aspects such as raw material, environmental impact, logistics, similar end-markets and customers and low FCF generation. The returnable transit packaging market remains fragmented, but Schoeller has a leading position in Europe with a 20% market share. Plant locations across Europe allow Schoeller to be more competitive and to operate at lower transportation costs versus peers that usually operate domestically. Most of Fitch-rated packaging peers are producing consumers products (bottles, jars, small packages) and offer a wider range of products (different material/shapes/colour/marketing), such as Ardagh Group S.A. (B+/Stable) and Smurfit Kappa Group plc (BB+/Positive). Like Schoeller, they are exposed to a broad range of end-markets (retail, food, industrial etc.) but are usually more cyclical and more affected by market trends resulting from customers' spending and preferences. Schoeller has weaker margins than Fitch-rated medium-sized companies in niche markets, including the manufacturing companies Ammega Group B.V. (B-/Stable) and AI Alpine AT BidCo GmbH (B/Stable). While Ammega has higher FFO gross leverage, Schoeller and AI Alpine have similar leverage of around 7x in the medium term, albeit with limited deleveraging capacity. The higher rating of Irel Bidco S.a.r.l (B+/Stable), owner of Schoeller's customer IFCO, reflects its very high EBITDA margins and long-term contractual flows, despite similar leverage. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer - Revenue to decline 3% in 2020 followed by growth between 2.2% and 5.1% in 2021-2023. - Stable EBITDA margins around 10% until 2021 and moving towards 11% in 2022-2023. - Neutral to negative change in net working capital until 2023. - Slightly lower capex than in 2019 at 6.5% of revenue in 2020, 6% in 2021 and at 5.5% in 2022-2023. - No M&A activity. - Fully drawn revolving credit facility (RCF) in 2021 to sustain a positive cash position and additional debt required in 2022 and 2023 of EUR25 million and EUR20 million respectively. - Factoring utilisation expected to remain at end-2019 year´s level of around EUR58 million until 2023. Key Recovery Assumptions - The recovery analysis assumes that Schoeller would be restructured as a going concern rather than liquidated in a default. - Fitch applies a distressed enterprise value (EV)/EBITDA multiple of 4.5x to calculate a going-concern EV, reflecting Schoeller´s leading niche market position, long-term customer relationships and geographic diversification. The multiple is limited by Schoeller´s small size. - Post-restructuring going-concern EBITDA estimated at EUR47 million, assuming 20% discount to LTM 9M20 Fitch-defined EBITDA - These assumptions result in a recovery rate for the senior secured instrument rating within the 'RR4' range, resulting in the same rating as the IDR - The principal and interest waterfall analysis output percentage on current metrics and assumptions is 30%-50% RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - FFO gross leverage sustainably below 6.0x - Neutral to positive FCF on a sustained basis - Significant growth in size with evidence of strengthening of the business model through revenue growth and continued EBITDA margin improvements to above 12% Factors that could, individually or collectively, lead to negative rating action/downgrade: - EBITDA margin deterioration towards 9% - FFO gross leverage consistently above 8.0x - Negative FCF on a sustained basis, compromising liquidity - Loss of market share or key customers such as IFCO LIQUIDITY AND DEBT STRUCTURE Limited Liquidity: At end-2019, Schoeller´s readily available cash amounted to EUR22 million. Fitch expects negative cash flow in 2020 and the partial repayment of the RCF to shrink the company's cash to EUR8 million at end-2020. Fitch forecasts a full drawdown of the RCF in 2021 to sustain a positive cash position. FCF generation is expected to remain on average at -3.5% in the medium- to long-term, despite forecast slightly lower capex. Undiversified Debt Structure: The debt structure is not diversified as the vast majority of debt consists of EUR250 million notes resulting in concentrated maturity in 2024. Liquidity needs can be covered by the EUR30 million RCF, of which EUR25 million is expected to be undrawn at end-2020, and factoring facilities of EUR70 million, of which EUR37 million was utilised at end-3Q20. Schoeller has recently raised a EUR9 million unsecured state-guaranteed loan in France, with a minimum tenor of one year and an option to extend it for up to five years thereafter, which Fitch assumes Schoeller will utilise. Additionally, it has local loans of around EUR12 million that Fitch treats as senior secured, pari passu with senior secured notes. 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 Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =========== R U S S I A =========== BANK URALSIB: Fitch Affirms BB- LT IDR; Alters Outlook to Stable ---------------------------------------------------------------- Fitch Ratings has revised Russian-based PJSC Bank Uralsib's (Uralsib) Outlook to Stable from Negative while affirming the bank's Long-Term Issuer Default Rating (IDR) at 'BB-'. The Outlook revision reflects Fitch's view that Uralsib's capital cushion is sufficient to absorb pressure from the pandemic, lower oil prices and the difficult economic environment without significant erosion. This is due to the bank's fairly low exposure to unreserved high-risk assets, a conservative asset structure and moderate core pre-impairment profitability. Loan-quality deterioration has been limited to date. KEY RATING DRIVERS The IDRs of Uralsib are driven by its intrinsic credit strength, as expressed by its Viability Rating (VR). The rating continues to reflect a reasonable franchise, improved reserve coverage of bad assets, sound IFRS capitalisation and conservative risk appetite in lending since the bank's financial rehabilitation started in 2015. The VR also reflects weak core profitability. The impaired loans (Stage 3 and purchased or originated credit-impaired under IFRS 9) increased to 11.3% of gross loans at end-1H20 from 10.8% at end-2019, while the share of Stage 2 loans doubled to 10% in the same period, due to pandemic-driven restructuring in 1H20. Loans accounted at fair value made up a further 2.4% of gross loans. Impaired loans were 94% covered by total impairment reserves; coverage by specific reserves was weaker at 65% but is viewed by Fitch as reasonable as in most cases net exposures are comfortably backed by hard collateral. Net loans (including leasing) made up a moderate 50% of Uralsib's assets at end-1H20, compared with the sector average of 60%. Most non-loan assets are viewed by Fitch as low-risk, represented by fairly high-quality bonds and liquidity placements. Non-core investment property assets made up a marginal 1.4% of total assets. The Fitch-estimated net exposure to high-risk assets was a moderate 21% of Fitch Core Capital (FCC) at end-1H20. The annualised cost of risk (loan impairment charges-to-average gross loans) increased to 4.1% in 1H20 from 1.7% in 2019. The bank's performance was also under pressure in 1H20 from losses on securities and derivatives and investment property (RUB1.7 billion), resulting in a RUB2.3 billion net loss for the period. Fitch expects the bank's profitability to improve in 2H20 and net profit to be close to break-even for 2020. Longer-term performance will be under pressure from still high operating costs, as reflected by a high 81% operating expenses-to-total operating income in 1H20 (74% excluding losses on securities and derivatives). The FCC-to-regulatory risk-weighted assets (RWAs) was healthy at 16.3% at end-1H20, despite a very conservative RWAs/assets ratio (124%), and the equity/assets ratio was a high 20.5%. The regulatory Tier 1 ratio was lower at 9% (compared with an 8.5% minimum requirement including buffers), mainly because fair-value gains on low-yield deposits from the Deposit Insurance Agency (DIA), which Uralsib received as part of the rehabilitation procedure started in 2015, are not reflected in regulatory capital. The regulatory total capital ratio of 9.9% was below the minimum 10.5% requirement including buffers but the bank has a waiver on non-compliance from the Central Bank of Russia until the rehabilitation procedure ends in 2025. Fitch estimates core pre-impairment profit equaled 2.9% of average loans in 1H20 (annualised), providing the bank with moderate ability to absorb loan-quality deterioration through the income statement without pressure on capital. Funding and liquidity are rating strengths. Uralsib is predominantly deposit-funded (81% of total liabilities at end-1H20), with an emphasis on retail clients. Deposit concentration is low with the 20-largest making up 9% of customer accounts. The carrying value of deposits from the DIA made up 15% of Uralsib's funding. The liquidity cushion (cash and unpledged high-quality bonds) covered a very comfortable 54% of customer deposits at end-1H20. Uralsib's Support Rating Floor (SRF) of 'No Floor' captures the bank's limited systemic importance, as reflected by a marginal 0.5% share in the banking system assets. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: An upgrade of Uralsib's ratings would require an extended record of sound credit underwriting, improvement in profitability (core operating profit-to-RWAs consistently above 1%), and a strengthening of the bank's regulatory capital comfortably above required minimums including buffers (8.5% for Tier 1 and 10.5% for Total capital ratios). Factors that could, individually or collectively, lead to negative rating action/downgrade: Substantial prolonged asset-quality deterioration in combination with bottom-line losses resulting in the FCC-to-regulatory RWAs decreasing below 12% could result in negative pressure on the rating. 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 Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ========= S P A I N ========= CAIXABANK PYMES 12: DBRS Finalizes B(low) Rating on Series B Notes ------------------------------------------------------------------ DBRS Ratings GmbH finalized its provisional ratings on the following series of notes issued by CaixaBank PYMES 12, FT (the Issuer): -- Series A Notes at AA (low) (sf) -- Series B Notes at B (low) (sf) The transaction is a cash flow securitization collateralized by a portfolio of secured and unsecured loans originated by CaixaBank, S.A. (CaixaBank or the Originator; rated "A" with a Stable trend by DBRS Morningstar) to corporate, small and medium-size enterprises (SME), and self-employed individuals based in Spain. As of October 20, 2020, the transaction's provisional portfolio included 31,024 loans to 28,623 obligor groups, totalling EUR 2.70 billion. At closing, the Originator selected the final portfolio of EUR 2.55 billion from the provisional pool. The rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in September 2062. The rating of the Series B Notes addresses the ultimate payment of interest and principal on or before the legal maturity date. Interest and principal payments on the Notes will be made quarterly on the 16th of March, June, September, and December, with the first payment date on 16 March 2021. The Notes pay a fixed interest rate equal to 0.30% and 0.50% for the Series A Notes and Series B Notes, respectively. The provisional pool was well diversified across industries and in terms of borrowers. There was some concentration of borrowers in Catalonia (26.8% of the portfolio balance), which is to be expected given that Catalonia is the Originator's home region. The largest and 10 and 20 obligor groups represented 1.2%, 6.5%, and 9.4% of the portfolio balance, respectively. The top three industry sectors according to DBRS Morningstar's industry definition are Building and Development, Farming and Agriculture, and Food Products, representing 14.4%, 10.7%, and 10.3% of the portfolio outstanding balance, respectively. The Series A Notes benefit from 19.0% credit enhancement through subordination of the Series B Notes and the presence of a reserve fund. The Series B Notes benefit from 5.0% credit enhancement provided by the reserve fund. The reserve fund was being funded through a subordinated loan and is available to cover senior fees and interest and principal on the Series A Notes and, once the Series A Notes are fully amortized, interest and principal on the Series B Notes. The cash reserve will amortize subject to the target level being equal to 5.0% of the outstanding balance of the Series A and Series B notes. The Series B Notes interest and principal payments are subordinated to the Series A Notes payments. The ratings are based on DBRS Morningstar's "Rating CLOs Backed by Loans to European SMEs" methodology and the following analytical considerations: -- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS Morningstar compared the internal rating distribution of the portfolio with the internal rating distribution of the loan book and concluded that the portfolio was of marginally better quality than the overall loan book. DBRS Morningstar assumed an annualized PD of 0.78% for secured loans to SME and self-employed individuals, 1.47% for unsecured loans to SME and self-employed individuals, 2.11% for secured corporate loans, 1.86% for unsecured corporate loans, and 1.95% for preapproved loans. Additional adjustments were applied in the context of the current Coronavirus Disease (COVID-19) pandemic. -- The assumed weighted-average life (WAL) of the portfolio is 3.3 years. -- The PD and WAL were used in the DBRS Morningstar Diversity Model to generate the hurdle rates for the respective ratings. -- The recovery rate was determined by considering the market value declines for Spain, the security level, and the type of collateral. For the Series A Notes, DBRS Morningstar applied a 48.0% recovery rate for secured loans and a 15.8% recovery rate for unsecured loans. For the Series B Notes, DBRS Morningstar applied a 70.3% recovery rate for secured loans, and a 21.5% recovery rate for unsecured loans. -- The break-even rates for the interest rate stresses and default timings were determined using the DBRS Morningstar cash flow tool. The transaction structure was analyzed in a proprietary excel tool, 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 increase in the coming months for many SME transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus. Notes: All figures are in Euros unless otherwise noted. CAIXABANK PYMES: DBRS Lowers 2 Series B Notes Rating to CCC ----------------------------------------------------------- DBRS Ratings GmbH took the following rating actions on the notes issued by two CaixaBank PYMES transactions: CaixaBank PYMES 9, FT (CX9) -- Series A Notes confirmed at A (high) (sf) -- Series B Notes downgraded to CCC (high) (sf) from B (low) (sf) CaixaBank PYMES 10, FT (CX10) -- Series A notes confirmed at AA (sf) -- Series B notes downgraded to CCC (sf) from CCC (high) (sf) The ratings of the Series A notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date of each transaction (March 2053 for CX9 and October 2051 for CX10). The ratings of the Series B notes address the ultimate payment of interest and ultimate payment of principal on or before the legal final maturity date of each transaction. The rating actions follow an annual review of the transactions and are based on the following analytical considerations: -- The portfolio performance, in terms of level of delinquencies and defaults, as of the September and October 2020 payment dates. -- The one-year base case probability of default (PD) and default and recovery rates on the receivables. -- The current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels. -- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic. CX9 and CX10 are securitizations of secured and unsecured loans and drawdowns of secured and unsecured lines of credit originated by CaixaBank, S.A. (CaixaBank) to small and medium-size enterprises (SMEs) and self-employed individuals based in Spain. PORTFOLIO PERFORMANCE CX9: As of the September 18, 2020 payment date, loans more than three months delinquent represented 1.7% over the portfolio balance. Gross cumulative defaults amounted to 1.7% of the original collateral balance. CX10: As of the October 26, 2020 payment date, loans more than three months delinquent represented 1.7% over the portfolio balance. Gross cumulative defaults amounted to 0.8% of the original collateral balance. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of each transaction. For CX9, DBRS Morningstar updated the portfolio's one-year base case PD assumption to 2.8%, following coronavirus-related adjustments. In addition, DBRS Morningstar updated the weighted-average recovery rate on the portfolio to 33.5% at the A (high) (sf) rating level and to 40.0% at the CCC (high) (sf) rating level. For CX10, DBRS Morningstar updated the portfolio's one-year base case PD assumption to 3.6%, following coronavirus-related adjustments. In addition, DBRS Morningstar updated the weighted-average recovery rate on the portfolio to 36.6% at the AA (sf) rating level and to 44.4% at the CCC (sf) rating level. The increased base case PD assumption reflects the adjustments applied due to the coronavirus pandemic. As per DBRS Morningstar's assessment, 7.0% and 36.9% for CX9, and 6.8% and 37.3% for CX10 of the outstanding portfolio balance represented industries classified in mid-high and high risk economic sectors, respectively, which led to the underlying one-year PDs to be multiplied by 1.5 and 2.0 times, respectively, as per the relevant commentaries mentioned below. The increase of the PDs following coronavirus adjustments, combined with the decrease compared with one year ago of the credit enhancement available for the Series B notes drove the downgrades of the Series B notes. CREDIT ENHANCEMENT Credit enhancement in both transactions is provided by the subordination of the Series B notes and the reserve fund. The reserve fund is available to cover missed interest and principal payments on the Series A notes and Series B notes once the Series A notes have been paid in full. The reserve funds started to amortize in line with their target amortization amounts one year ago (4.0% of the outstanding balance of the notes) and are currently at their target level of EUR 33.2 million in CX9 and EUR 78.7 million in CX10. CX9: As of the September 2020 payment date, the credit enhancement to the Series A Notes was 33.2%, up from 27.8% at the last annual review; the credit enhancement to the Series B Notes was 4.3%, down from 7.7% one year ago. CX10: As of the October 2020 payment date, the credit enhancement to the Series A notes was 33.4%, up from 26.5% at the last annual review; the credit enhancement to the Series B notes was 4.3%, down from 6.0% one year ago. The decrease of the current reserve funds in both transactions, which started amortizing after two years from closing for CX9 and one year for CX10, has reduced the subordination available for the Series B notes and the credit enhancement levels since the last annual review. CaixaBank acts as the account bank for both transactions. Based on the account bank reference rating of CaixaBank at A (high), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating (COR) of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Series A notes in each transaction, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structures in its proprietary Excel-based cash flow engine. 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 increase in the coming months for many SME 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 these transactions, DBRS Morningstar increased the expected default rate on receivables granted to obligors operating in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus. Additionally, DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio. As of 31 October 2020, around 10.8% and 8.8% of the current portfolio balances for CX9 and CX10, respectively, benefited from any type of payment moratorium. Notes: All figures are in Euros unless otherwise noted. CAIXABANK RMBS 3: DBRS Confirms CC Rating on Series A & B Notes --------------------------------------------------------------- DBRS Ratings GmbH confirmed its A (sf) and CC (sf) ratings of the Series A and Series B Notes, respectively, issued by Caixabank RMBS 3, FT (the Issuer): The rating of the Series A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in September 2062. The rating of the Series B Notes addresses 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 is based on the following analytical considerations: -- Portfolio performance, in terms of delinquencies, defaults, and losses as of the September 2020 payment date; -- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; -- Current available credit enhancement to the Series A Notes to cover the expected losses assumed at the A (sf) rating level, and to the Series B Notes at CC (sf) once the Series A Notes is fully amortized and the reserve fund starts providing credit enhancement. -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic Caixabank RMBS 3, FT is a securitization of Spanish residential mortgage loans and drawdowns of mortgage lines of credit secured over residential properties located in Spain and originated and serviced by CaixaBank, S.A. (CaixaBank). The Issuer used the proceeds of the Series A and Series B Notes to fund the purchase of the mortgage portfolio. In addition, CaixaBank provided separate additional subordinated loans to fund both the initial expenses and the reserve fund. PORTFOLIO PERFORMANCE As of the September 2020 payment date, loans that were one- to two-months and two- to three-months delinquent represented 0.2% and 0.0% of the portfolio balance, respectively, while loans more than three months delinquent represented 2.7%. Gross cumulative defaults amounted to 0.5% of the original collateral balance, of which 6.6% has been recovered so far. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool and updated its base case PD and LGD assumptions on the remaining portfolio collateral pool to 5.8% and 31.0%, respectively. CREDIT ENHANCEMENT The subordination of the Series B Notes and the reserve fund provides credit enhancement to the Series A Notes. As of the September 2020 payment date, credit enhancement to the Series A Notes was 16.9%, same level as 12 months ago because of the amortization of the reserve fund. The transaction benefits from a reserve fund, which was initially funded to EUR 114.8 million at closing. The reserve provides liquidity support and credit support to the Series A Notes. After the first two years since closing, the reserve fund started amortizing. The reserve fund is currently at its target level of EUR 81.5 million. Following the payment in full of the Series A Notes, the transaction reserve fund will also provide liquidity and credit support to the Series B Notes. CaixaBank acts as the account bank for the transaction. Based on the account bank reference rating of CaixaBank at A (high), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Series A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may increase in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers and assumed a moderate reduction in residential property values. In addition, DBRS Morningstar conducted 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 the October 2020 payment date, payment holidays amounted to 16.5% of the outstanding collateral balance. Notes: All figures are in Euros unless otherwise noted. GESTAMP AUTOMOCION: Moody's Affirms B1 CFR; Alters Outlook to Pos. ------------------------------------------------------------------ Moody's Investors Service affirmed Gestamp Automocion, S.A. (Gestamp)'s corporate family rating (CFR) at B1 and the probability of default rating (PDR) at B1-PD. Moody's has also affirmed the B1 instrument ratings of the backed senior secured notes issued by Gestamp and Gestamp Funding Luxembourg S.A. Moody's changed the outlook on both issuers to positive from stable. "The outlook change to positive reflects Gestamp's stronger focus on capex reduction, higher free cash flow generation and leverage reduction." said Matthias Heck, a Moody's Vice President -- Senior Credit Officer and Lead Analyst for Gestamp. "A successful execution of its strategy, together with a so far stronger than expected recovery in auto market activity, could improve Gestamp's financial metrics in 2022 to levels required for a rating upgrade." added Mr. Heck. RATINGS RATIONALE The positive outlook reflects Moody's expectation that Gestamp will manage to generate positive free cash flows from 2020 onwards, supported by improved profitability, reduced growth capex spending and absent of dividend payments until including during 2021. This should allow the company to gradually reduce gross debt levels from 2021. Moody's also expects an improvement in margins towards 5% (Moody's adjusted EBITA) in 2021 and to above 5% from 2022 onwards. This should support a de-leveraging into a range of 4.0-4.5x (Moody's adjusted) from 2021and to below 4.0x from 2022, which could lead to a rating upgrade to Ba3. The rating action is supported by the company's tightened financial policy, which Moody's considers as part of its governance assessment. Governance was identified as a key driver of this rating action. On October 29, Gestamp presented 9M 2020 results and emphasized a stronger focus on free cash flow generation, driven by lower capex intensity due to optimization of existing capacity, as a core element of its long-term vision. After five years of negative free cash flows (2015-19) as a result of high growth capex spending, a sustained positive free cash flow generation would result in lower debt levels and an improvement in leverage metrics. Gestamp's transformation plan also envisages efficiency measures leading to a company-reported EBITDA margin of 13% by 2022, compared to expected 9-10% in 2020, before restructuring costs. A successful execution of these efficiency measures, combined with a recovery of global light vehicle sales, could be the key drivers for a rating upgrade. On September 24, Moody's changed its sector outlook for European automotive parts suppliers to stable from negative. After an expected decline of 19% in global light vehicle sales in 2020, Moody's expects a recovery of 9% for 2021 and 7% for 2022. Whilst Moody's expects that a recovery in EBITDA and reduction in debt levels will improve Gestamp's credit metrics to levels required for the B1 in 2021, positive rating pressure can build on 2022 metrics, if the company stays focused on positive free cash flow generation and debt reduction. In this respect, Moody's notes Gestamp's own target to reduce net leverage (as defined by the company) to around 2x net debt / EBITDA (pre IFRS16), after 2.4x as of December 2019. On a Moody's adjusted basis, Gestamp's net and gross debt/EBITDA amounted to 3.6x and 4.3x respectively. Assuming a cash position around historic levels (after a peak in 2020) and adjustments, a de-leveraging in line with management's target would improve Gestamp's gross leverage metrics to levels required for a rating upgrade. RATIONALE FOR THE AFFIRMATION Gestamp Automocion, S.A.'s (Gestamp) B1 rating reflects the company's (1) size and scale as a tier 1 automotive supplier, predominantly for body-in-white (BIW) components, with market-leading positions in cold stamping and hot forming steel technologies; (2) track record of its revenue growth exceeding volume growth in global light vehicle sales and a strong pipeline of new business, reflected by its consistently high capital spending; (3) long-term agreements with a diversified automotive manufacturer customer base that provides a degree of protection from certain risks; (4) positive exposure to the current industry drivers of vehicle light-weighting and higher safety standards, and (5) solid liquidity. Negatively, the rating reflects Gestamp's (1) dependency on global light vehicle production levels, which are highly cyclical and are expected to decline by 19% in 2020 before recovering gradually in 2021 and 2022; (2) history of negative free cash flow (FCF) generation (Moody's adjusted) during 2015-2019, which results from high capital spending; (3) higher exposure to Europe than that of its similar-sized peers; and (4) weak leverage metrics, driven by high capital spending in greenfield operations, which Moody's expects to come down to more moderate levels from 2020 on. LIQUIDITY Moody's considers Gestamp's liquidity position solid. Gestamp's main sources of liquidity include (1) cash on the balance sheet of EUR1.8 billion (as of September 2020, including proceeds from the fully drawn EUR325 million revolving credit facility due January 2023); and (2) annual funds from operations of around EUR700 million in its stress case. In addition, the company has long-term bilateral bank facilities in place, which had an undrawn volume of approximately EUR260 million at the end of September. These liquidity sources, totaling to more than EUR2.7 billion over the next 12 months, comfortably exceed liquidity uses. Gestamp's main use of liquidity will be capital spending, which Moody's expects at around EUR500-550 million. Short-term debt maturities for the next 12 months amount to EUR697 million, excluding financial leases and including the drawn RCF, which is, however, due January 2023. Uses of liquidity also include Moody's assumption of minimum working cash of around EUR250 million. Furthermore, Moody's liquidity analysis considers risks related to Gestamp's factoring programme (EUR630 million as of September 2020), which is uncommitted, dependent on its top line activity levels and could contract in times of a shrinking market environment. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS A stabilization of the current market situation leading to a recovery in metrics to pre-outbreak levels could lead to positive rating pressure. More specifically adjusted Debt/EBITDA would have to drop back sustainably below 4.0x with an EBITA margin sustainably above 5%. Further negative pressure would build if Gestamp fails to return to meaningful operating profit generation of the second half of 2020 allowing it to stabilize its liquidity situation by keeping positive FCF generation as proved in the last twelve months to September 2020. A prolonged and deeper slump in demand than currently anticipated leading to more balance sheet deterioration and a longer path to restoring credit metrics in line with a B1 credit rating (EBITA margin at least 4%, debt/EBITDA not exceeding 4.5x on a sustained basis) could also lead to further negative pressure on the rating. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Automotive Supplier Methodology published in January 2020. COMPANY PROFILE Gestamp Automocion, S.A. (Gestamp), headquartered in Madrid, Spain, designs, develops and manufactures metal components for the automotive industry. The company, which generated EUR9 billion of revenue in 2019, has over 43,000 employees, and operates 109 plants and 13 R&D centres in 23 countries. Gestamp is listed on the Madrid stock exchange and had a free float of 30.21% as of December 31, 2019. Of the share capital, 69.79% was controlled directly and indirectly by Acek Desarrollo Y Gestion Industrial S.L. (the Riberas Family industrial holding). Gestamp itself was founded only in 1997. GRIFOLS SA: Moody's Affirms Ba3 CFR; Alters Outlook to Negative --------------------------------------------------------------- Moody's Investors Service affirmed the Ba3 corporate family rating of Spanish healthcare company Grifols S.A. and its Ba3-PD probability of default rating. At the same time, Moody's has affirmed the Ba2 senior secured ratings of Grifols, Grifols World Wide Operations Ltd. and Grifols World Wide Operations USA, Inc. Moody's has also affirmed Grifols' B2 senior unsecured rating. The outlook on Grifols, Grifols World Wide Operations Ltd. and Grifols World Wide Operations USA, Inc. has been changed to negative from stable. "The negative outlook reflects our view that declining plasma collection and management's willingness to use cash for acquisitions instead of debt reduction will constrain Grifols' ability to significantly reduce its leverage in 2021, the assumption underpinning the current Ba3 rating," said Mr Gusdorf, a Moody's Vice President--Senior Credit Officer and lead analyst for Grifols. RATINGS RATIONALE Demand for plasma-derived products, Grifols' core business, will remain strong, but the coronavirus pandemic has increased plasma collection prices and reduced supply. Plasma collection will decline by up to 15% in 2020, and higher collection expenses have compelled the company to re-evaluate the cost of its inventories and account for a EUR205 million charge. As a result, the rating agency forecasts that Grifols' Moody's-adjusted EBITDA will decline by 7% in 2020. For 2021, Moody's forecasts only a 2% growth in Moody's-adjusted EBITDA, significantly lower than the 5% annual growth rate achieved over 2014-19, because Grifols will need to increase payments to donors to improve collection. The Ba3 rating incorporates Moody's assumption that Grifols will not revalue re-evaluate the cost of its plasma inventories. The rating agency forecasts that Grifols' Moody's-adjusted debt/EBITDA will rise to 5.5x in 2020 from 5.1x in 2019 and this may not sufficiently improve in 2021 because of subdued earnings growth. Grifols will need to lower its leverage below 5x in 2021 to maintain its Ba3 rating, either by achieving higher-than-expected earnings growth or reducing its gross debt. Declining plasma collection means that inventories will decrease and that cash flow generation will improve in 2020 as a result. Moody's calculates that Grifols will generate nearly EUR1 billion of Moody's-adjusted cash flow from operations (CFO) in 2020, compared with EUR520 million in 2019. While changes in working capital led to a EUR468 million cash outflow in 2019, mostly because of an inventory buildup, Moody's forecasts a EUR100 million inflow in 2020. However, this positive effect will reverse in 2021 because plasma collection will improve. Higher payment to donors will also dent cash flows. Grifols' liquidity is good. As of September 30, 2020, it had EUR1 billion of cash and EUR938 million in undrawn credit facilities, including a $1 billion senior secured revolving credit facility (RCF) maturing in November 2025. These liquidity sources cover EUR320 million of short-term debt as of September 30, 2020. There are no significant debt maturities until 2025 when a EUR905 million bond will mature. However, Grifols has signed EUR565 million of acquisitions that it will finance with its existing liquidity sources. STRUCTURAL CONSIDERATIONS Grifols reported EUR6.4 billion in financial debt as of June, 30 2020. This comprises a $2.5 billion senior secured term loan B maturing in 2027, a EUR1.36 billion senior secured term loan B maturing in 2027, as well as EUR905 million of senior secured notes maturing in 2025 and EUR770 million senior secured notes maturing in 2027. All these instruments are pari passu and benefit from guarantees of subsidiaries representing more than 70% of Grifols' EBITDA. The senior secured notes are rated Ba2, one notch above the CFR. Grifols also has EUR1 billion of unsecured notes maturing in 2025, which are rated B2, two notches below the CFR. Secured debt accounts for a large portion of Grifols' total debt. Any increase in secured debt or decrease in unsecured debt would lead Moody's to align the rating of the secured debt with the CFR. The Ba3-PD probability of default rating is in line with the Ba3 CFR, assuming a 50% corporate family recovery rate appropriate for debt structures comprising bank and bond debt. RATIONALE FOR THE NEGATIVE OUTLOOK The negative rating outlook reflects Moody's view that Grifols may not be able to improve its leverage below 5x by year-end 2021 because limited plasma collection will slow down earnings growth. In this context, Moody's expects financial policy to remain prudent, with no material debt-financed acquisitions over the next 12 months. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS A rating upgrade is unlikely over the next 12 months in light of the negative outlook. Over time, the rating agency could upgrade Grifols' rating if it achieves a Moody's adjusted debt/EBITDA ratio of less than 4.0x and cash flow from operations (CFO)/debt of more than 15%. Such an improvement would require a substantial increase in plasma collection fueling earnings growth and continued strong demand for plasma-derived products. A positive rating action would also require that Grifols commits to maintain a financial policy commensurate with a higher rating. Conversely, Moody's could downgrade Grifols if it fails to bring its Moody's-adjusted debt/EBITDA below 5x by year-end 2021. Such a scenario could unfold if plasma collection does not improve significantly or if Grifols makes material debt-financed acquisitions. A decline in Moody's-adjusted EBITDA margin or in funds from operations (FFO), which currently stand at about 25% and EUR1 billion, respectively, could also cause a downgrade. Lastly, any sanitary issue would trigger a negative rating action. Moody's would align the rating of the secured debt on the CFR in case Grifols' secured debt increases, or its unsecured debt decreases as a proportion of its total liabilities. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Medical Product and Device Industry published in June 2017. COMPANY PROFILE Grifols, headquartered in Barcelona, Spain, is a global healthcare company primarily focused on human blood plasma-derived products and transfusion medicine. Its Bioscience division involves the extraction of essential proteins from human blood plasma, the liquid portion that constitutes 50% of the total blood volume, and the use of these proteins to produce and distribute therapeutic medical products to treat a range of rare, chronic and acute conditions. Grifols also supplies devices, instruments and assays for clinical diagnostic laboratories. ===================== S W I T Z E R L A N D ===================== [*] SWITZERLAND: Liquidations Expected to Increase Next Year ------------------------------------------------------------ John Revill at Reuters reports that as employers shed and furlough staff in an effort to stay afloat during the COVID-19 pandemic, one employer in Switzerland has launched a recruitment drive -- the Zurich liquidation service. In an ominous sign of what could lie ahead, the service has quadrupled the number of staff who visit shuttered companies, take inventory and collect assets which can be sold to pay creditors, Reuters discloses. Hotels, restaurants and bars are among those on the brink as government support measures wind down, Reuters states. According to Reuters, Beat Vogt, leader of the notaries service at the government-run Zurich liquidators service, said they were bracing for an expected increase in the number of liquidations next year, hiring 12 new staff who started training in November. The number of bankruptcies in 2020 is, however, a fifth lower than in the previous three years, according to Creditreform, the Swiss association of creditors, as emergency credit guarantees and deferrals on companies' social security payments helped them through the early stages of the pandemic, Reuters discloses. In Switzerland, measures such as the temporary lifting of an obligation to report excessive debts have now expired, Reuters notes. "The number of companies that have collapsed so far in Switzerland is just the tip of the iceberg," Reuters quotes Creditreform President Raoul Egeli as saying. "There are lots of companies here which are just zombie companies," he added, referring to companies which would struggle to cover their debt payments in normal times. Mr. Egeli expects higher-than-average Swiss bankruptcies next year, while Peter Dauwalder, head of restructuring at KPMG, said the number could double to 800 cases per month with the crisis accelerating structural change in many sectors, Reuters relates. According to Reuters, sixty percent of Swiss companies were experiencing weaker demand a recent survey by the KOF Swiss Economic Institute showed, while 10% feared for their survival. Deloitte's Jan-Dominik Remmen also noted a "good" number of bonds and credit facilities needed refinancing next year, with risk premiums generally significantly higher than pre-COVID levels and refinancing costs more than doubling towards the lower end of the credit spectrum, Reuters discloses. Mr. Remmen, as cited by Reuters, said "There will be liquidations or insolvencies if a company is no longer able to carry its debts and cannot secure fresh funds." =========== T U R K E Y =========== MERSIN INTERNATIONAL: S&P Affirms 'BB-' ICR, Outlook Stable ----------------------------------------------------------- S&P Global Ratings affirmed its issuer and issue ratings on Turkey-based port operator Mersin Uluslararasi Liman Isletmeciligi A.S. (Mersin International Port; MIP) at 'BB-'. The stable outlook primarily reflects the outlook on Turkey, but also its expectations of credit ratios being commensurate with the rating and the maintenance of adequate liquidity in the next 12 months despite the impact of COVID-19. COVID-19 will likely affect MIP less so than other port operators. This year has been challenging for ports as the pandemic and lockdown measures caused supply-chain disruptions and demand contraction in Europe and globally. Although the magnitude of the pandemic's impact is still highly uncertain, S&P estimates a decline of up to 10%-15% in container volumes for the global port sector in 2020 before they recover thereafter. However, MIP's containers volumes have been more resilient amid the pandemic thanks to Turkey's favorable export performance in 2020. S&P said, "During first nine months, container volumes (about 80% of revenues) remained relatively flat compared to the same period of 2019 and we expect this trend to continue for the full year. The conventional segment has been volatile, and more difficult to predict. During the first nine months, volumes declined by 3.2% on last year and we expect this trend will continue for the full year with a decline of up to 7.0% from 2019. We think a slow economic rebound as lockdown measures are gradually lifted could help the port's performance in 2021 and that a modest recovery is only possible from 2021 for all segments in which it operates." S&P said, "We now foresee a slight delay to improvements in MIP's operating and financial positions. We now forecast S&P Global Ratings-adjusted EBITDA to decline slightly to about $215 million-$220 million in 2020, from $226.3 million in 2019, and from our earlier expectation of $230 million-$235 million for this year. "MIP's significant financial flexibility is a key factor offsetting its weaker credit metrics. We forecast that its credit metrics will deteriorate, even without the pandemic, mainly because of the additional leverage it will take on to complete the second phase of the Easter Mediterranean Hub (EMH) expansion (about $250 million for 2021-2023) and shareholder-friendly distributions of about $575 million (also for 2021-2023). Under our base case, we anticipate our weighted average funds from operations (FFO) to debt and debt to EBITDA to dip temporarily to 30%-35% and 3.0x-2.5x, in 2020-2022, from 53% and 1.4x in 2019. Despite weaker credit metrics, these are still commensurate with its 'bbb-' SACP. "Nevertheless, we understand that MIP is committed to maintaining its liquidity position and delivering a net ratio of adjusted debt to EBITDA no higher than 3x. While we have not factored in any offsetting measures at present, the majority shareholder--PSA International (51% shares)--has the flexibility to cancel or postpone its dividend or upstream loans, which are discretionary by nature. We also believe that, in case of stress, the company could defer investments to sustain liquidity. Maintaining adequate liquidity is key to the rating--particularly given that we need at least an adequate assessment to rate MIP higher than the sovereign. Cancelling dividends and upstreaming loans and investments could also sustain lower leverage and better debt coverage. "MIP's exposure to Turkey, which we regard as having a high-risk corporate environment, underpins the rating. MIP has all of its operations in Turkey. Therefore, we cap the foreign currency rating on MIP at the level of our 'BB-' T&C assessment on Turkey, despite the company's SACP of 'bbb-'. We rate MIP one notch above the 'B+' long-term foreign currency sovereign rating on Turkey, because we view MIP's stand-alone credit quality as higher than the sovereign rating. More importantly, our analysis of the company under our sovereign default stress test shows that it can repay its debt even if there is a foreign-currency-denominated sovereign debt default (see "Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions," published Nov. 19, 2013, on RatingsDirect). The test includes both economic stress and potential currency devaluation, and we have fine-tuned our assumptions on the company's revenue and applied more stringent debt costs/interest rates conditions to its financing costs. This translates into a 10% haircut on available cash on balance, combined with a 30% stress on the terminal's EBITDA. MIP passes our stress test following the issuance and the envisaged financing package because it meets our liquidity requirement--namely a ratio of sources to uses of 1x. "The stable outlook on MIP primarily reflects our stable outlook on Turkey. It also reflects our expectation that the company will maintain its relatively resilient operating and financial performance, as well as supportive financial flexibility. In light of significant planned capital expenditure (capex) and dividends, we expect its S&P Global Ratings-adjusted debt to EBITDA will be 2.5x-3.0x, with adjusted FFO to debt of 30%-35% on a three-year weighted-average basis. We consider these ratios to be commensurate with the 'bbb-' SACP. "We could lower the ratings if we took a negative sovereign rating action or if we revised down our 'BB-' T&C assessment for Turkey. We could also consider a downgrade if MIP's liquidity deteriorated in light of heavy cash distributions and/or capital investments over the next 12 months, which would likely pressure its liquidity profile and reduce its ability to pass our liquidity stress test. All else being equal, we could lower our rating on MIP if its SACP deteriorates to below 'bb-', but we view this as unlikely in the short-to-medium term. This could result from weaker liquidity, financial metrics, a deterioration of its business strengths, or a combination of both. "We could lower the SACP to 'bb+' with no effect on the overall rating--all else being equal--if FFO to debt deteriorated to below 30% and debt to EBITDA rose higher than 3x. "All else being equal, we could raise the rating on MIP if we revised upward our T&C assessment for Turkey (currently 'BB-'). Because MIP's business is highly exposed to country risk, the ratings are capped at the T&C on Turkey." =========================== U N I T E D K I N G D O M =========================== ARROW CMBS 2018: DBRS Confirms BB (low) Rating on Class F Notes --------------------------------------------------------------- DBRS Ratings GmbH confirmed the ratings of the following classes of Commercial Mortgage Backed Floating Rate Notes due May 2030 issued by Arrow CMBS 2018 DAC (the Issuer): -- Class A1 at AAA (sf) -- Class A2 at AAA (sf) -- Class B at AA (sf) -- Class C at A (low) (sf) -- Class D at BBB (low) (sf) -- Class E at BB (high) (sf) -- Class F at BB (low) (sf) All trends are Stable. The rating confirmations reflect the stable performance of the transaction, with consistent growth of the portfolio rental income since closing. Arrow CMBS 2018 DAC is the securitization of an originally EUR 308.2 million (69.7% loan-to-value (LTV) ratio) floating-rate senior commercial real estate loan advanced jointly by Deutsche Bank AG, London Branch and Societe Generale, London branch. The loan sellers jointly hold approximately 5.0% of the senior loan. The loan is secured by 82 commercial real estate assets (down from 89 at issuance) which are predominantly logistics assets and are located in France (73.3% of market value (MV)), Germany (21.1% of MV) and the Netherlands (5.6% of MV). As of the August 2020 interest payment date (IPD), the outstanding loan balance had been reduced to EUR 284.4 million (92.3% of the original whole loan balance) because of the disposal of seven assets. Because of the updated (higher) valuation for the remaining assets and the release premiums on the non-French disposed assets, the loan has deleveraged since issuance by more than five percentage points to an LTV of 62.4%. The senior loan refinanced the existing indebtedness of the borrowers, which are located in France, Luxembourg, and the Netherlands and ultimately owned by a joint venture between Blackstone and M7. The assets are now under the management of Mileway. As mentioned in DBRS Morningstar's rating report at issuance, the sponsor has planned to sell off 14 properties, which were identified as the portfolio's noncore assets. As of August 2020, there have been seven property disposals, five in France, and two in the Netherlands. While the selling of the five French assets were part of the business plan at issuance, the two Dutch assets were not originally included in the disposal pool. Nevertheless, the two Dutch assets are mainly of office use; as such, their disposals are consistent with the overall business plan. The three assets disposed since the previous review are Agora, Futuropolis, and Rosny-sous-Bois (aggregate MV of EUR 7.18 million, all located in France). As of the August 2020 IPD, the remaining portfolio reported an annualized rental income of EUR 32.9 million, up from EUR 32.0 million one year earlier (that also included the combined gross rental income of EUR 524,521 from the three sold properties). Therefore, the rental income from the remaining assets has grown by around 2.5% since issuance supported by the portfolio’s vacancy rate decreasing from 12.4% one year ago to 10.6% as of the August 2020 IPD. 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 continue to increase for many CMBS borrowers, some meaningfully. In addition, CRE values will be negatively affected, at least in the short term, affecting 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. Notes: All figures are in Euros unless otherwise noted. BOPARAN HOLDINGS: S&P Ups ICR to 'B-' on Completed Debt Refinancing ------------------------------------------------------------------- S&P Global Ratings raised its issuer credit ratings on Boparan Holdings to 'B-' from 'CCC+' and at the same time, affirming our 'B-' issue rating, with a recovery rating of '3' (50%), on the senior notes. The stable outlook reflects our view that operating performance should remain resilient over the next 12 months, supporting the deleveraging trend. Boparan has refinanced its entire capital structure and addressed pressing liquidity needs. On Nov. 18, 2020, Boparan successfully priced its five-year GBP475 million senior notes at 7.625%, which effectively means the group successfully refinanced its entire capital structure. The group now has access to a new GBP80 million long-term undrawn RCF to fund its working capital needs. All outstanding debt maturities (except lease liabilities) due in 2021 have now been repaid. The business refocus should support improved credit metrics this year and next. Boparan's operating performance has improved over the past quarters, as evidenced by the EBITDA margin rising to about 5% in fiscal 2020 (year-ended Aug. 1, 2020) from 3.3% the previous year. This is notably thanks to improved profitability in its core poultry business while the small ready meals business also remained profitable. With the business refocus on fewer categories, the group should have better control over its production, distribution, and marketing in poultry. S&P said, "We note the group's advances in consolidating manufacturing plants, changing the product mix toward higher-value products, and discontinuing unprofitable contracts. Under our new base case, we project S&P Global Ratings-adjusted EBITDA will stabilize at about GBP130 million at the end of fiscal 2021, stable compared with the previous year and compared with GBP90 million in fiscal 2019. We now forecast adjusted debt to EBITDA will decrease to about 5.5x-6.0x in 2021 (versus about 8.5x in 2020) and EBITDA interest coverage will rise to 2.5x-3.0x (versus 2.0x-2.5x in 2020). Reported net debt leverage will likely stand between 3.0x and 3.5x in 2021, compared with approximately 5.0x in 2020." Headwinds exist in the foodservice channel, particularly for the European poultry business. The U.K. consumer products industry is highly competitive, subject to high price pressure from the large retailers, and exposed to the persisting risk of COVID-19 contamination among staff in the processing plants. S&P said, "We also see potential high volatility in commodity prices and working capital movements should there be no trade agreement between the U.K. and the EU. We think it unlikely that Boparan will generate positive free operating cash flow (FOCF) until next year, given the lower EBITDA base after asset disposals, higher capital expenditure (capex) and potential impact of volatile raw materials prices and working capital. That said, should the group execute well on organic growth and higher profitability in core segments, then FOCF should turn positive by end of next year at about GBP20 million." "The stable outlook reflects our view that Boparan's operating performance will continue to improve over the next 12 months, supporting deleveraging trends. A refocus on the core poultry operations, supportive consumer demand in the retail channel, and a lower and more flexible operating cost structure should help support EBITDA generation. "For the current rating, we believe Boparan should be able to maintain adjusted debt leverage at about 6.0x and EBITDA interest coverage above 2.0x. "We could consider lowering our ratings over the next 12 months if Boparan's EBITDA deteriorates significantly such that its adjusted debt leverage increases to 8x or above, and its EBITDA interest coverage declines to 2.0x or below, resulting in liquidity pressure. This could arise from a sharp rise in raw material prices, combined with inability to increase selling prices, operational disruptions in processing plants, and continued weak demand in foodservice and out of home channels. "We could raise our rating if Boparan's EBITDA generation continues to improve well above our base case on a sustained basis. This would most likely happen should the group's volume growth in the U.K. and in Europe increase by more than expected due to strong positive demand trends in current weak channels like foodservice or out-of-home. We would also need to see evidence that the group is managing well its working capital and operating costs. "Our upside scenario comprises the following triggers: an adjusted debt-to-EBITDA ratio close to 5.0x, EBITDA interest coverage close to 3.0x, and a track record of consistently positive FOCF." GREENCORE: Completes GBP90MM Share Placing, Profit Down 81% ----------------------------------------------------------- Eoin Burke-Kennedy at The Irish Times reports that Irish food group Greencore successfully completed a GBP90 million (EUR101 million) share placing, with the proceeds set to be used to shore up its balance sheet after it reported an 81% plunge in its annual profit due to the coronavirus pandemic. According to The Irish Times, the Dublin-headquartered company said the recent resurgence of Covid-19 cases across the UK, and the imposition of new restrictions, had "hampered the recovery in demand in food-to-go categories". The group also posted results for the year to end of September, which show pre-tax profits dropped by 81% to GBP17 million while headline revenue declined 12.5% to GBP1.2 billion, The Irish Times relates. In a bid to limit the financial fallout, the UK's largest sandwich maker opted for the placing of new shares to raise up to GBP90 million, The Irish Times discloses. A total of 79.7 million shares were placed at a price of 112.0 pence per placing share, which represents a discount of 5.7% to the closing share price of 118.8 pence on Nov. 23, The Irish Times relays. The new shares being issued together represent about 18% of the existing issued ordinary share capital of Greencore prior to the placing and subscription, The Irish Times states. It was expected that the new shares would be admitted for listing on the London Stock Exchange on Nov. 26, according to The Irish Times. Greencore, as cited by The Irish Times, said the placing was designed to "proactively manage debt levels to ensure appropriate liquidity and leverage headroom" while allowing the company avoid further cost reductions. The move is the latest in the series of "mitigating actions" undertaken by the group, The Irish Times says. The London-listed company has already extended its banking facilities, suspended its annual dividend and imposed a 30% pay cut on senior staff, The Irish Times discloses. According to The Irish Times, in a statement regarding the share placing, Greencore said it intends to use a significant portion of the proceeds "to repay sums owing on its revolving credit bank facility, and the remainder for general corporate purposes". The group's earnings per share fell by 82% from 16 pence last year to just below 3 pence per share for the 2020 financial year, The Irish Times relates. Net debt, excluding lease liabilities, stood at GBP350 million as of the end of September, The Irish Times states. NATIONAL EXPRESS: Fitch Gives BB+ Rating on GBP500MM Hybrid Notes ----------------------------------------------------------------- Fitch Ratings has assigned National Express Group Plc's (NEX; BBB/Negative) GBP500 million subordinated hybrid securities (notes) a final rating of 'BB+'. The securities qualify for 50% equity credit. The hybrid notes are deeply subordinated and rank senior only to NEX's ordinary share capital, while coupon payments can be deferred at the option of the issuer. These features are reflected in the 'BB+' rating, which is two notches lower than NEX's Long-Term Issuer Default Rating (IDR). The 50% equity credit reflects the hybrid's cumulative interest coupon, a feature that is more debt-like in nature. The hybrid notes proceeds are being used for general corporate purposes and to further strengthen the group's capital structure and maintain financial flexibility following an equity issue in May 2020, which helps mitigate part of the negative impact on operations and credit metrics resulting from the pandemic. The hybrid rating and assignment of equity credit are based on Fitch's hybrids methodology, "Corporate Hybrids Treatment and Notching Criteria". KEY RATING DRIVERS SUBORDINATED NOTES Ratings Reflect Deep Subordination: The notes are rated two notches below NEX's IDR, given their deep subordination and consequently lower recovery prospects in a liquidation or bankruptcy than senior obligations. The notes rank senior only to the claims of ordinary shareholders. Fitch believes NEX intends to maintain hybrids in the capital structure, and Fitch therefore applies the 50% equity content to the total amount of new hybrid notes. Equity Treatment: The securities qualify for 50% equity credit as they meet Fitch's criteria with regard to deep subordination, remaining effective maturity of at least five years, full discretion to defer coupons for at least five years and limited events of default. These are key equity-like characteristics, affording NEX financial flexibility. Equity credit is limited to 50% given the cumulative interest coupon, a feature that is more debt-like in nature. Effective Maturity Date 2031: While the hybrid is perpetual, Fitch currently deems the first coupon step-up date in February 2031 as the effective maturity date. From this date, the coupon step-up is within Fitch's aggregate threshold rate of 100bp, but the issuer will no longer be subject to replacement language, which discloses the company's intent to redeem the instrument at its call date with the proceeds of a similar instrument or with equity. According to Fitch's criteria, the equity credit of 50% would change to 0% five years before the effective maturity date. Cumulative Coupon Limits Equity Treatment: The coupon deferrals are cumulative and compounding, which result in 50% equity treatment and 50% debt treatment of the hybrid notes by Fitch. Despite the 50% equity treatment, Fitch treats coupon payments as 100% interest. The company will be obliged to make a mandatory settlement of deferred interest payments under certain circumstances, including the declaration of a cash dividend. NATIONAL EXPRESS GROUP PLC 1H20 Results as Expected: NEX's 1H20 results were heavily affected by the COVID-19pandemic, but were broadly in line with its forecasts, with revenues of GBP1,032 million vs its forecast of GBP1,025 million and Fitch-adjusted EBITDA of around GBP40 million vs GBP34 million. As expected, North America with its high share of contracted income proved the most resilient, with a 18% yoy drop in revenues compared with a 33% and 31% drop in UK and ALSA divisions, respectively. Operating cash flow was slightly lower than its forecast (by around GBP20 million), which was due to higher COVID-19 related exceptional costs. Slower Recovery: Its last forecast from March 2020 assumed almost full recovery by 2021, but Fitch now expects financial performance to recover more slowly and reach 2019 levels for revenue and EBITDA only in 2022. In the US, schools remain closed in several regions and Fitch now expects this to continue into 2021. In Europe, many countries have seen further restrictions reintroduced, including national lockdowns, after a more relaxed summer, which has kept the passenger numbers low and increased downside risk in its projections. Governments have continued to support regional bus operations, but Fitch expects that NEX's coach businesses in Spain and the UK will continue to suffer from low passenger volumes until 1H21. Proactive Management: NEX's management responded swiftly to the coronavirus pandemic by implementing measures to mitigate the financial impact on the group. In May 2020, the company issued about GBP235 million of equity, which strengthened its balance sheet and improved its financial flexibility and liquidity. The group also revised its financial policy to target net debt/EBITDA of 1.5x-2.0x compared with the previous target of 2.0-2.5x. In addition, Fitch does not expect the group to pay dividend distributions over 2020 and 2021, and to freeze capex and acquisitions if necessary. Fitch believes it is likely management will consider additional measures to further strengthen the group's financial structure and financial flexibility. The recent issue of hybrid notes enhances the company's financial flexibility and improves FFO adjusted net leverage by about 0.4x on average over FY21-FY23 due to 50% equity credit. Revised Forecast: Fitch has revised its forecast based on the current view of slower recovery and now estimate full year company-defined adjusted EBITDA of around GBP190 million for 2020, down by almost GBP70 million compared with its last rating case. FFO adjusted net leverage will peak in 2020 and Fitch estimates will still be above its negative sensitivity in 2021, after which Fitch expects the company to reduce leverage to within its sensitivities for the current rating. Fitch also expects management to take actions to work towards its revised lower financial structure target, but Fitch does not expect the company to achieve this over the rating horizon. Continued Income Protection and Support: Around 50% of the group's revenues are contracted, some of which provide minimum income levels to support the cost base. In September, the group announced it had secured nearly 70% of its pre-pandemic revenue in the US school bus business. In Spain and Morocco, regional bus operations run under contracts with typically low revenue risk, but Fitch expects these to continue to operate with a reduced capacity. Furthermore, government income protection schemes in Spain and the UK have provided additional support. In the current difficult environment, NEX has taken actions to cut costs such as reduced service levels and staff. DERIVATION SUMMARY NEX's exposure to the COVID-19 outbreak and the group's liquidity buffer is similar to that of closest peer FirstGroup Plc (BBB-/Negative). NEX is more exposed to the outbreak than Nobina AB (BBB-/Stable) due to a smaller share of contracted revenues. Fitch believes that NEX's credit profile is better positioned than peers such as FirstGroup and Nobina. NEX has better revenue visibility with a higher share of contract-based revenues than FirstGroup. In addition, NEX is better-diversified through its ALSA division, and it is not exposed to UK rail, allowing NEX a higher rating than FirstGroup. Nobina has a very strong revenue profile with virtually all of its revenues generated under long-term contracts. However, it operates with lower profit margins and is much less diversified. Fitch forecasts higher leverage for Nobina in the short term, placing its rating one notch lower than NEX's. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - For North America, ALSA and UK a decline in revenues of 24%, 31% and 34% respectively for the full year 2020, resulting in a decline of 26% for total group revenues - Revenue recovery in 2021, but still down around 8% compared with 2019 on a group level with a more rapid recovery expected in the North American division compared with UK and ALSA - Company-defined adjusted EBITDA, pre IFRS-16 adjustments, of around GBP190 million in 2020 and around GBP360 million in 2021 - For 2022-2023 Fitch assumes the company to be back on its growth track, supported by new contracts, growth capex and acquisitions - Total capex at around GBP120 million in 2020, most of which was spent during the first half, and increasing to around GBP170 million for 2021-2022 reflecting an increase in growth capex - Acquisitions of GBP100-150 million per year in 2022-2023 - No dividend paid in 2020-2021 RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Fitch does not anticipate an upgrade as reflected in the Negative Outlook. However, developments that may lead to a revision of the Outlook to Stable are: - Recovery from the market shock supporting sustained credit metrics at levels stronger than its negative sensitivities. Factors that could, individually or collectively, lead to negative rating action/downgrade: - No clear signs of business recovery in 2021 with FFO adjusted net leverage consistently above 3.5x - FFO fixed-charge cover consistently below 3.5x - Negative free cash flow and a weaker business risk profile LIQUIDITY AND DEBT STRUCTURE Solid Liquidity: Liquidity was adequate at end-June 2020 with GBP585 million in cash and over GBP1 billion in undrawn facilities against GBP500 million short-term maturities. The group successfully refinanced over GBP550 million of debt (GBP225million and EUR250 million of notes, and GBP100 million of bank facilities) during 1H20 through the drawdown of new private placement notes. In addition, the group increased its liquidity facilities by a total GBP790 million, including GBP600 million of short-term facilities under the Bank of England Covid Corporate Financing Facilities. The recent GBP500 million hybrid issue has enhanced NEX's liquidity. After a large working capital outflow in the first half, Fitch expects the company to be cash flow neutral for the second half. During a normal year of operations, NEX is expected to be free cash flow positive (pre-acquisitions). Fitch also expects the company to have flexibility in scaling down its capex, as it has done this year. DATE OF RELEVANT COMMITTEE 05 November 2020 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 Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. NEWDAY FUNDING: DBRS Lowers Class F Notes Rating to B (low) ----------------------------------------------------------- DBRS Ratings Limited took the following rating actions on the Sub-series V2 VFN-F1 Loan Notes (the Notes) issued by NewDay Funding Loan Note Issuer Ltd: Class A Notes: downgraded to BBB (low) (sf) from AAA (sf) Class B Notes: discontinued and withdrawn Class C Notes: discontinued and withdrawn Class D Notes: discontinued and withdrawn Class E Notes: confirmed at BB (low) (sf) Class F Notes: downgraded to B (low) (sf) from B (high) (sf) The ratings address the timely payment of scheduled interest and the ultimate repayment of principal by the relevant legal final maturity dates. The rating actions above follow the execution of an amendment which, among other things, re-tranches the Notes by reducing the funding amounts of Class B, Class C and Class D Notes to zero with a corresponding increase in the Class A Notes. DBRS Morningstar removed the relevant ratings of the Notes from Under Review with Negative Implications (UR-Neg.), where they were first placed on 28 May 2020 and maintained on 28 August 2020. For more information, please refer to www.dbrsmorningstar.com. The amendment seeks to revise the advance amounts, margins and scheduled maturity dates of certain classes of the Notes over several stages in the next few years until March 2024. DBRS Morningstar's rating actions above reflect the expected changes at the first stage of the amendment in December 2020: the downgrade of the Class A notes is the result of the subordination reduction to 16.3% from the current 49.8% while the downgrade of the Class F notes reflects the revised asset assumptions discussed below. DBRS Morningstar may take further ratings actions commensurate with the changes effected after December 2020. DBRS Morningstar notes that notwithstanding further amendments and/or changes in asset assumptions, there could be potential positive future rating movements for the Class A Notes as a result of expected reductions in advance rates and increases in the subordination level when the later stages of the amendment are in effect. DBRS Morningstar based its ratings on information provided by the issuer and its agents as of the date of this press release. The notes are backed by a portfolio of own-branded credit cards granted to individuals domiciled in the United Kingdom by NewDay Cards (the originator). The ratings are based on the following analytical considerations: -- The transaction's amended capital structure, including form and sufficiency of available credit enhancement to support DBRS Morningstar's revised expectation of charge-off, principal payment, and yield rates under various stress scenarios. -- The ability of the transaction to withstand stressed cash flow assumptions and repay the notes. -- The originator's capabilities with respect to originations, underwriting, and servicing. -- An operational risk review of the originator, which DBRS Morningstar deems to be an acceptable servicer. -- The transaction parties' financial strength regarding their respective roles. -- The credit quality, diversification of the collateral, and historical and projected performance of the securitized portfolio. -- DBRS Morningstar's sovereign rating of the United Kingdom of Great Britain and Northern Ireland at AA(high) with a Stable trend. -- The consistency of the transaction's legal structure with DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. TRANSACTION STRUCTURE The notes are part of the master issuance structure of NewDay Funding, where all series of notes are supported by the same pool of receivables and generally issued under the same requirements regarding servicing, amortization events, priority of distributions, and eligible investments. During the transaction revolving period, additional receivables may be purchased, provided that the eligibility criteria are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or servicer termination. The scheduled redemption date may be extended. If the Notes are not fully redeemed on the scheduled redemption date, the transaction enters into a rapid amortization. The interest rate mismatch risks between the fixed-interest rate collateral and floating-rate coupons of the notes are, to a degree, mitigated by the excess spread in the transaction and considered in DBRS Morningstar's cash flow analysis. The transaction includes a liquidity reserve that is available to cover the shortfalls in senior expenses and interest on the (post-amendment) Class A notes. DBRS Morningstar analyzed the transaction structure in its proprietary cash flow tool. COUNTERPARTIES HSBC Bank plc is the account bank. Based on DBRS Morningstar's private rating of HSBC Bank and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank to be commensurate with the ratings assigned. PORTFOLIO AND CASH FLOW ASSUMPTIONS/COVID-19 CONSIDERATIONS The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to increases in unemployment rates and adverse financial impact on many borrowers. DBRS Morningstar anticipates that delinquencies could continue to rise, and payment and yield rates could remain subdued in the coming months for many credit card portfolios. 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. The most recent performance in September 2020 shows an improved total payment rate of 12.4% including the interest collections, after a record low level of 10.4% in April because of the impact of coronavirus. The payment rates appear to have stabilized but remain slightly below historical levels. After removing the interest collections, the estimated monthly principal payment rates (MPPRs) of the securitized portfolio have been stable above 8%. Based on the analysis of historical data, macroeconomic factors, and the portfolio-specific COVID-19 adjustments, DBRS Morningstar maintains the expected MPPR at 8%. Similarly, the portfolio yield is largely stable over the reported period until March 2020. The most recent performance in September 2020 shows a total yield of 28.9%, after a record low of 26.5% in May because of the forbearance measures of payment holiday and payment freeze offered and higher delinquencies. Based on the observed trend and the potential yield compression because of the forbearance measures, DBRS Morningstar revised the expected cash interest yield down to 24.5% from 28%. The reported historical charge-off rates have been high but stable around 16% until March 2020. The most recent performance in September 2020 shows an annualized charge-off rate of 13.5%, after reaching a record high of 17.6% in April 2020 because of coronavirus. Based on the analysis of delinquency trends, macroeconomic factors, and the portfolio-specific adjustment because of the impact of coronavirus, DBRS Morningstar revised the expected charge-off rate upward to 18% from 16%. DBRS Morningstar also elected to stress the asset performance deterioration over a longer period for the notes rated below investment grade in accordance with its "Rating European Consumer and Commercial Asset-Backed Securitizations" methodology. Notes: All figures are in British pound sterling unless otherwise noted. PETRA DIAMONDS: Posts Net Loss of US$223MM, Revenue Down 36% ------------------------------------------------------------ Helen Reid at Reuters reports that Petra Diamonds reported a 36% fall in revenue and a net loss of US$223 million (GBP168.7 million) as the pandemic hit production, sales and prices. According to Reuters, Petra, which operates three diamond mines in South Africa and one in Tanzania, kept production guidance for 2021 on hold due to ongoing uncertainty, noting the risks to production if further COVID-19 restrictions are required. The diamond miner was already struggling before the pandemic hit -- it suffered a loss of US$258.1 million last year and its shares have sunk to just 1.6 pence from around 130p at the start of 2017, Reuters notes. Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) fell 58% to US$64.8 million on revenue down 36% to US$295.8 million for the year ended June 30, Reuters discloses. Petra last month agreed a debt-for-equity restructuring with debt holders which will leave existing shareholders with just 9% of the company, Reuters recounts. Although the diamond market has been improving, the resurgence of COVID-19 in key markets poses a threat to the nascent recovery, Petra said, with much resting on consumer activity in the U.S. market in coming months, Reuters relates. TOWD POINT 2019-Granite5: DBRS Confirms B Rating on Class F Notes ----------------------------------------------------------------- DBRS Ratings Limited confirmed its ratings of the Notes issued by Towd Point Mortgage Funding 2019-Granite5 Plc (the Issuer) as follows: -- Class A notes at AAA (sf) -- Class B notes at AA (sf) -- Class C notes at A (low) (sf) -- Class D notes at BBB (sf) -- Class E notes at BB (high) (sf) -- Class F notes at B (sf) The rating of the Class A notes addresses the timely payment of interest and full payment of principal by the legal final maturity date. The rating of the Class B notes addresses the ultimate payment of interest and principal, and timely payment of interest while the senior-most class outstanding. The ratings of the Class C, Class D, Class E, and Class F notes address the ultimate payment of interest and principal on or before the legal final maturity date in July 2044. 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 October 2020 payment date. -- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables. -- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels. -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic. The Issuer is a securitization of UK unsecured consumer loans offered to borrowers at the same time they took out a mortgage loan offered by the Originator, Landmark Mortgages Limited (Landmark, formerly Northern Rock Asset Management plc). The loans were acquired by Cerberus European Residential Holdings B.V. from Landmark and were previously securitized by Towd Point Mortgage Funding 2016-Granite3 plc. The portfolio is serviced by Landmark as Master Servicer who delegated servicing of the loans to Computershare Mortgage Services Limited. PORTFOLIO PERFORMANCE As of October 2020, loans that were two to three months in arrears represented 0.6% of the outstanding portfolio balance, loans at least three months in arrears represented 16.5%, and cumulative losses since closing were 2.3%. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted an analysis of the current pool of receivables including additional coronavirus-related adjustments and updated its base case PD and LGD assumptions to 34.0% and 100%, respectively. CREDIT ENHANCEMENT CE is provided by subordination of the junior notes. DBRS Morningstar excluded the balance of loans at least 12 months in arrears when calculating the CE. As of the October 2020 payment date, Class A CE was 61.0%, up from 49.5% at the DBRS Morningstar initial rating; Class B CE was 56.8%, up from 46.0% at the DBRS Morningstar initial rating; Class C CE was 47.8%, up from 38.6% at the DBRS Morningstar initial rating; Class D CE was 42.2%, up from 34.0% at the DBRS Morningstar initial rating; Class E CE was 35.9%, up from 28.8% at the DBRS Morningstar initial rating; and Class F CE was 31.1%, up from 24.8% at the DBRS Morningstar initial rating. The transaction benefits from a Liquidity Facility, an amortizing Class A Liquidity Reserve Fund, and an Excess Cash Flow Reserve Fund (ECRF). The Liquidity Facility was established at closing, provided by Wells Fargo Bank, N.A. London Branch (privately rated by DBRS Morningstar) and sized at 1.7% of the principal amount outstanding of Class A Notes. The Liquidity Facility covers senior fees and interest payments on Class A Notes up to the Liquidity Facility Cancellation Date. The Class A Liquidity Reserve Fund will cover senior fees and interest payments on Class A Notes from the Liquidity Facility Replacement Date in October 2025 and will be funded by available principal and revenue receipts. It will be amortizing and sized at 1.7% of the principal amount outstanding of the Class A Notes. The ECRF will be established from the First Optional Redemption Date (April 2024, if redemption is not exercised) until the Class B to Class F notes have been repaid in full and will be available to pay interest due on the Class B to Class F notes. The ECRF will be funded with available revenue receipts, and relevant amounts will continue to be credited until the Class B to Class F notes are no longer outstanding. Elavon Financial Services DAC, UK Branch (Elavon) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may increase in the coming months for many ABS and RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased its expected PD for self-employed borrowers as well as loans which have previously been restructured, incorporated a moderate reduction in residential property values for the associated secured mortgage parts, and considered reported payment holidays in its cash flow analysis. As of the October 2020 payment date, 13.6% of the outstanding portfolio were in a payment holiday. Notes: All figures are in British pound sterling unless otherwise noted. TOWD POINT 2019-VANTAGE2: DBRS Confirms B Rating on Class F Notes ----------------------------------------------------------------- DBRS Ratings Limited confirmed its ratings of the notes issued by Towd Point Mortgage Funding 2019-Vantage2 Plc (the Issuer) as follows: -- Class A notes at AAA (sf) -- Class B notes at AA (low) (sf) -- Class C notes at A (low) (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 interest and full payment of principal by the legal final maturity date in February 2054. The rating of the Class B notes addresses the ultimate payment of interest and principal, and timely payment of interest while the senior-most class outstanding. The ratings of the Class C, Class D, Class E and Class F 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. -- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables. -- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels. -- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic. The Issuer is a securitization of UK residential mortgages originated by various lenders that are no longer active in the market (GE Money Home Lending Limited, First National Bank plc, and I group Limited). The mortgages were acquired by Cerberus European Residential Holdings B.V. from Promontoria (Vantage) Limited, which originally acquired them from the originators. The mortgages were previously securitized by Towd Point Mortgage Funding 2016-Vantage1 Plc. The mortgage portfolio was originally serviced by Pepper (UK) Limited as an interim servicer until servicing responsibilities were taken over by Capital Home Loans Limited in November 2019. PORTFOLIO PERFORMANCE As of August 2020, loans two to three months in arrears represented 5.6% of the outstanding portfolio balance and loans at least three months in arrears represented 27.4% of the outstanding portfolio balance. Cumulative losses were 0.1%. PORTFOLIO ASSUMPTIONS AND KEY DRIVERS DBRS Morningstar conducted an analysis of the current pool of receivables including additional coronavirus-related adjustments and updated its base case PD and LGD assumptions to 43.1% and 19.7%, respectively. CREDIT ENHANCEMENT CE is provided by subordination of the junior notes. As of the August 2020 payment date, Class A CE was 37.3%, up from 35.0% at the DBRS Morningstar initial rating; Class B CE was 34.4%, up from 32.3% at the DBRS Morningstar initial rating; Class C CE was 27.0%, up from 25.3% at the DBRS Morningstar initial rating; Class D CE was 21.5%, up from 20.0% at the DBRS Morningstar initial rating; Class E CE was 16.5%, up from 15.3% at the DBRS Morningstar initial rating; Class F CE was 13.3%, up from 12.3% at the DBRS Morningstar initial rating. The transaction benefits from a Liquidity Facility, an amortizing Class A Liquidity Reserve Fund, and an Excess Cash Flow Reserve Fund (ECRF). The Liquidity Facility was established at closing, provided by Wells Fargo Bank, N.A. London Branch (privately rated by DBRS Morningstar), and sized at 1.7% of the principal amount outstanding of Class A Notes. The Liquidity Facility covers senior fees and interest payments on Class A Notes up to the Liquidity Facility Cancellation Date. The Class A Liquidity Reserve Fund will cover senior fees and interest payments on Class A Notes from the Liquidity Facility Replacement Date in November 2025 and will be funded by available principal and revenue receipts. It will be amortizing and sized at 1.7% of the principal amount outstanding of the Class A Notes. The ECRF will be established from the First Optional Redemption Date (November 2022, if redemption is not exercised) until the Class B to Class F notes have been repaid in full and will be available to pay interest due on the Class B to Class F notes. The ECRF will be funded with available revenue receipts, and relevant amounts will continue to be credited until the Class B to Class F notes are no longer outstanding. Elavon Financial Services DAC, UK Branch (Elavon) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS Morningstar analyzed the transaction structure in Intex DealMaker. The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may increase in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased its expected PD for self-employed borrowers as well as loans which have previously been restructured, incorporated a moderate reduction in residential property values, and considered reported payment holidays in its cash flow analysis. As of the August 2020 payment date, 16.2% of the outstanding portfolio were in a payment holiday. Notes: All figures are in British pound sterling unless otherwise noted. TOWER BRIDGE: DBRS Confirms BB (high) Rating on Class E Notes ------------------------------------------------------------- DBRS Ratings Limited confirmed and upgraded the following ratings on the notes issued by Tower Bridge Funding No. 1 PLC (the Issuer): -- Class A confirmed at AAA (sf) -- Class B upgraded to AAA (sf) from AA (high) (sf) -- Class C upgraded to AA (sf) from A (high) (sf) -- Class D upgraded to A (sf) from BBB (sf) -- Class E confirmed at BB (high) (sf) The ratings on the notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in March 2056. The rating actions follow an annual review of the transaction and are based on the following analytical considerations: -- Portfolio performance, in terms of delinquencies, defaults, and losses. -- Portfolio default rate (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. Tower Bridge Funding No. 1 PLC is the first securitization of residential mortgages originated by Belmont Green Finance Limited (BGFL), a specialist UK mortgage lender that offers a full suite of mortgage products including owner-occupied, buy-to-let, adverse-credit-history, and interest-only loans. The securitized mortgage portfolio comprises newly originated first-lien home loans, originated by BGFL through its Vida Homeloans brand. BGFL is the named mortgage portfolio servicer but delegates its day-to-day servicing activities to Homeloan Management Limited. PORTFOLIO PERFORMANCE As of September 2020, loans two to three months in arrears represented 1.1% of the outstanding portfolio balance, the 90+ delinquency ratio was 2.0%, and the cumulative loss ratio was zero. 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 10.8% and 21.3% respectively. CREDIT ENHANCEMENT As of the September 2020 payment date, the credit enhancements available to the Class A, Class B, Class C, Class D, and Class E notes were 37.9%, 27.4%, 18.8%, 12.1%, and 8.3%, respectively, up from 26.0%, 18.7%, 12.7%, 8.1%, and 5.4%, 12 months prior, respectively. Credit enhancement is provided by subordination of junior classes and the general reserve fund. The transaction benefits from a liquidity reserve fund of GBP 1.5 million and a reserve fund of GBP 5.8 million. The liquidity reserve fund covers senior fees and interest on the Class A and Class B notes, while the general reserve fund covers senior fees, interest, and principal (via the principal deficiency ledgers) on the rated notes. Elavon Financial Services DAC, U.K. Branch acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon Financial Services DAC, UK branch, 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. NatWest Markets Plc acts as the swap counterparty for the transaction. DBRS Morningstar's Long-Term Critical Obligations Rating of NatWest Markets Plc at "A" 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 increase in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers, assessed a potential reduction in portfolio prepayment rates, incorporated a moderate reduction in residential property values, and considered reported payment holidays in its cash flow analysis. As of the end of August 2020, around 12.9% of the current portfolio balance benefitted from a payment moratorium. Notes: All figures are in British pound sterling unless otherwise noted. =============== X X X X X X X X =============== [*] BOOK REVIEW: BOARD GAMES - Changing Shape of Corporate Power ---------------------------------------------------------------- Authors: Arthur Fleischer, Jr., Geoffrey C. Hazard, Jr., and Miriam Z. Klipper Publisher: Beard Books Softcover: 248 pages List Price: $34.95 Order your personal copy today at http://www.amazon.com/exec/obidos/ASIN/1587981629/internetbankrupt A ruling by the Delaware Supreme Court on January 29, 1985 was a wake-up call to directors of U. S. corporations. On this date, overruling a lower court decision, the Delaware Supreme Court ruled that the nine board members of Chicago company Trans Union Corporation were "guilty of breaching their duty to the company's shareholders." What the board members had done was agree to sell Trans Union without a satisfactory review of its value. The guilty board members were ordered by the Court to pay "the difference between the per share selling price and the 'real' market value of the company's shares." Needless to say, the nine Trans Union directors were shocked at the guilt verdict and the punishment. The chairman of the board, Jerome Van Gorkom, was a lawyer and a CPA who was also a board member of other large, respected corporations. For the most part, it was he who had put together the terms of the potential sale, including setting value of the company's stock at $55.00 even though it was trading at about $38.00 per share. News of the possible sale immediately drove the stock up to $51.50 per share, and was commented on favorably in a "New York Times" business article. Still, Van Gorkom and the other directors were found guilty of breaching their duty, and ordered by Delaware's highest court to pay a sum to injured parties that would be financially ruinous. This was clearly more than board members of the Trans Union Corporation or any other corporation had ever bargained for. It was more than board members had ever conceived was possible without evidence of fraud or graft. The three authors are all attorneys who have worked at the highest levels of the legal field, business, and government. Fleischer is the senior partner of the law firm Fried, Frank, Harris, Schriver & Jacobson at the head of its mergers and acquisitions department. He's also the author of the textbook "Takeover Defenses" which is in its 6th edition. Hazard is a Professor of Law and former reporter for the American Bar Association's special committee on the lawyers' ethics code; while Klipper has been a New York assistant district attorney prosecuting corporate and financial fraud, and also a corporate attorney on Wall Street. Using the Trans Union Corporation case as a watershed event for members of boards of directors, the highly-experienced legal professionals lay out the new ground rules for board members. In laying out the circumstances and facts of a number of cases; keen, concise analyses of these; and finding where and how board members went wrong, the authors provide guidance for corporate directors, top executives, and corporate and private business attorneys on issues, processes, and decisions of critical importance to them. Household International, Union Carbide, Gelco Corp., Revlon, SCM, and Freuhauf are other major corporations whose merger-and-acquisitions activities resulted in court cases that the authors study to the benefit of readers. The Boards of Directors of these as well as Trans Union and their positions with other companies are listed in the appendix. Many other corporations and their board members are also referred to in the text. With respect to each of the cases it deals with, BOARD GAMES outlines the business environment, identifies important individuals, analyzes decisions, and discusses considerations regarding laws, government regulations, and corporate practice. In all of this, however, given the exceptional legal background of the three authors, the book recurringly brings into the picture the legalities applying to the activities and decisions of board members and in many instances, court rulings on these. Passages from court transcripts are occasionally recorded and commented on. Elsewhere, legal terms and concepts -- e. g., "gross nonattendance" -- are defined as much as they can be. In one place, the authors discuss six levels of responsibility for board members from "assure proper result" through negligence up to fraud. Without being overly technical, the authors' legal experience and guidance is continually in the forefront. Needless to say, with this, BOARD GAMES is a work of importance to board members and others with the responsibility of overseeing and running corporations in the present-day, post-Enron business environment where shareholders and government officials are scrutinizing their behavior and decisions. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2020. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *