/raid1/www/Hosts/bankrupt/TCREUR_Public/201231.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, December 31, 2020, Vol. 21, No. 262
Headlines
A R M E N I A
ARMENIA: Moody's Completes Review, Retains Ba3 Issuer Rating
A U S T R I A
SCHUR FLEXIBLES: Moody's Withdraws B2 CFR on Refinancing Completion
A Z E R B A I J A N
AZERBAIJAN: Moody's Completes Review, Retains Ba2 Issuer Rating
B E L A R U S
BELGAZPROMBANK: Fitch Affirms 'B' Long-Term IDR, Outlook Negative
B U L G A R I A
BULGARIAN ENERGY: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
D E N M A R K
DFDS A/S: Egan-Jones Lowers Senior Unsecured Ratings to BB+
DKT HOLDINGS: Moody's Completes Review, Retains B2 CFR
F R A N C E
EUTELSAT COMMUNICATIONS: Moody's Completes Review, Keeps Ba1 Rating
G E O R G I A
GEORGIA: Moody's Completes Review, Retains Ba2 Issuer Rating
I R E L A N D
MARINO PARK CLO: Moody's Rates EUR6MM Class E Notes 'B3(sf)'
MARINO PARK: S&P Assigns B- (sf) Rating to $6MM Class E Notes
PENTA CLO 2: Moody's Ups EUR26.7MM Class E Notes Rating to Ba1 (sf)
I T A L Y
INTESA SANPAOLO: Fitch Assigns 'BB' Rating to EUR600MM T2 Notes
MONTE DEI PASCHI: Fitch Revises Rating Watch on 'B' LT IDR to Neg.
L U X E M B O U R G
CURIUM BIDCO: Fitch Downgrades LongTerm IDR to B, Outlook Stable
MANGROVE LUXCO: S&P Downgrades Rating to 'CCC+', Outlook Negative
MILLICOM INT’L: Fitch Affirms BB+ Long-Term IDRs, Outlook Stable
M A L T A
MELITA BIDCO: Moody's Completes Review, Retains B3 Rating
N E T H E R L A N D S
ADRIA MIDCO: Moody's Completes Review, Retains B2 Rating
EUROSAIL-NL 2007-2: Fitch Affirms 'CCCsf' Rating on 2 Tranches
PPF TELECOM: Moody's Completes Review, Retains Ba1 CFR
UPC HOLDING: Moody's Completes Review, Retains B1 CFR
VODAFONEZIGGO GROUP: Moody's Completes Review, Retains B1 CFR
R U S S I A
CHUVASHIA REPUBLIC: Moody's Completes Review, Retains Ba2 Rating
KRASNODAR KRAI: Moody's Completes Review, Retains Ba2 Rating
PROMSVYAZBANK: Moody's Hikes Long-Term Bank Deposit Ratings to Ba2
S P A I N
TDA CAM 6: Fitch Affirms 'Bsf' Rating on Class B Notes
S W E D E N
SEB DIVERSIFIED: Board Opts to Put Fund Into Liquidation
T U R K E Y
ISTANBUL METROPOLITAN: Moody's Completes Review, Retains B2 Rating
IZMIR METROPOLITAN: Moody's Completes Review, Retains B2 Rating
U K R A I N E
CITY OF KYIV: Fitch Gives 'B' Short-Term Rating to UAH570MM Bond
U N I T E D K I N G D O M
ADVANZ PHARMA: Moody's Completes Review, Retains B3 CFR
AVATION PLC: Fitch Downgrades Long-Term IDR to 'CC'
BURY FC: Investor Can't Proceed with Acquisition Deal
CD&R ARTEMIS: Moody's Affirms B3 CFR, Alters Outlook to Positive
COLT GROUP: Moody's Completes Review, Retains Ba2 CFR
DEBENHAMS PLC: Former Employees Set to Reject Foley Proposals
IWH UK: Moody's Downgrades CFR to B3 on Worsening Credit Metrics
LENDY: Administration Process May Extend Beyond 2023 Deadline
NEWGATE FUNDING 2006-2: Fitch Affirms BB+sf Rating on Cl. E Debt
PAYSAFE GROUP: Moody's Reviews B3 CFR for Upgrade
STOLT-NIELSEN: Egan-Jones Hikes Senior Unsecured Ratings to B
TORO PRIVATE: Fitch Affirms 'CCC+' Long-Term IDR
VANNERS: Bought Out of Administration by Roger Gawn
VMED O2 UK: Moody's Completes Review, Retains Ba3 CFR
ZELLIS HOLDINGS: Moody's Affirms Caa1 CFR, Alters Outlook to Stable
- - - - -
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A R M E N I A
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ARMENIA: Moody's Completes Review, Retains Ba3 Issuer Rating
------------------------------------------------------------
Moody's Investors Service reviews all of its ratings periodically
in accordance with regulations -- either annually or, in the case
of governments and certain EU-based supranational organisations,
semi-annually. This periodic review is unrelated to the requirement
to specify calendar dates on which EU and certain other sovereign
and sub-sovereign rating actions may take place.
Moody's conducts these periodic reviews through portfolio reviews
in which Moody's reassesses the appropriateness of each outstanding
rating in the context of the relevant principal methodology(ies),
recent developments, and a comparison of the financial and
operating profile to similarly rated peers. Since January 1, 2019,
Moody's issues a press release following each periodic review
announcing its completion.
Moody's has now completed the periodic review of a group of issuers
that includes Armenia and may include related ratings. The review
did not involve a rating committee, and this publication does not
announce a credit rating action and is not an indication of whether
or not a credit rating action is likely in the near future; credit
ratings and/or outlook status cannot be changed in a portfolio
review and hence are not impacted by this announcement.
The credit profile of Armenia (issuer rating of Ba3) reflects the
country's "ba2" economic strength, which balances high growth
potential and increasingly diverse growth drivers against the
economy's small size and low income levels; its "baa3" institutions
and governance strength, which takes into account improved
credibility and effectiveness of macroeconomic policies and
institutions that buffer the impact of economic shocks, as well as
structural reforms aimed at strengthening the control of corruption
and rule of law; the government's "b1" fiscal strength given its
moderately high debt burden and high share of foreign currency
debt; and "ba" susceptibility to event risks driven by geopolitical
risk, which relates to a low probability, high impact scenario
involving an escalation in tensions with Azerbaijan over the
disputed territory of Nagorno-Karabakh to full scale hostilities.
The principal methodology used for this review was Sovereign
Ratings Methodology published in November 2019.
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A U S T R I A
=============
SCHUR FLEXIBLES: Moody's Withdraws B2 CFR on Refinancing Completion
-------------------------------------------------------------------
Moody's Investors Service has withdrawn the B2 corporate family
rating and the B2-PD probability of default rating of flexible
plastic packaging manufacturer Schur Flexibles GmbH. The stable
outlook has also been withdrawn.
At the time of withdrawal, the company had no rated debt
outstanding.
RATINGS RATIONALE
The rating action was prompted by the completion of a refinancing
transaction on December 10, 2020. Part of the proceeds from the new
debt raised by Schur Flexibles have been used to repay the existing
rated loans. Moody's has decided to withdraw the ratings because
Schur Flexibles' debt previously rated by Moody's has been fully
repaid.
COMPANY PROFILE
Headquartered in Wiener Neudorf, Austria, Schur Flexibles is a
leading European manufacturer of flexible packaging containers for
the food, healthcare, cosmetic and tobacco industries. The company
has been owned by private equity firm Lindsay Goldberg since
mid-2016.
===================
A Z E R B A I J A N
===================
AZERBAIJAN: Moody's Completes Review, Retains Ba2 Issuer Rating
---------------------------------------------------------------
Moody's Investors Service reviews all of its ratings periodically
in accordance with regulations -- either annually or, in the case
of governments and certain EU-based supranational organisations,
semi-annually. This periodic review is unrelated to the requirement
to specify calendar dates on which EU and certain other sovereign
and sub-sovereign rating actions may take place.
Moody's conducts these periodic reviews through portfolio reviews
in which Moody's reassesses the appropriateness of each outstanding
rating in the context of the relevant principal methodology(ies),
recent developments, and a comparison of the financial and
operating profile to similarly rated peers. Since January 1, 2019,
Moody's issues a press release following each periodic review
announcing its completion.
Moody's has now completed the periodic review of a group of issuers
that includes Azerbaijan and may include related ratings. The
review did not involve a rating committee, and this publication
does not announce a credit rating action and is not an indication
of whether or not a credit rating action is likely in the near
future; credit ratings and/or outlook status cannot be changed in a
portfolio review and hence are not impacted by this announcement.
The credit profile of Azerbaijan (issuer rating Ba2) reflects the
country's "ba3" economic strength, which balances moderate wealth
levels against the economy's significant exposure to hydrocarbons;
its "b2" institutions and governance strength that takes into
account weaknesses in control of corruption and rule of law, as
well as limited voice and accountability, balanced against
gradually increasing monetary and fiscal policy credibility and
effectiveness from a low base; the government's "a2" fiscal
strength underpinned by the country's strong net creditor position,
as the size of sovereign wealth assets covers all of the
government's direct debt and guarantees, notwithstanding the high
share of foreign currency debt; and its "ba" susceptibility to
event risks driven by persistent geopolitical tensions with Armenia
over the disputed territory of Nagorno-Karabakh.
The principal methodology used for this review was Sovereign
Ratings Methodology published in November 2019.
=============
B E L A R U S
=============
BELGAZPROMBANK: Fitch Affirms 'B' Long-Term IDR, Outlook Negative
-----------------------------------------------------------------
Fitch Ratings has affirmed Belgazprombank's (BGPB) 'B' Long-Term
Issuer Default Rating (IDR) and 'b' Viability Rating (VR), and
removed them from Rating Watch Negative (RWN). The Outlook is
Negative.
Fitch placed BGPB's rating on RWN in June 2020 after the National
Bank of the Republic of Belarus (NBRB) placed BGPB under temporary
administration and suspended the bank's management board (see
'Fitch Places Belgazprombank's ratings on Negative Watch on
Regulatory Intervention' dated 18 June 2020 at
www.fitchratings.com)
The removal of RWN follows termination of the temporary
administration at the bank after the bank's owners - PJSC Gazprom
(BBB/Stable) and Gazprombank (Joint-stock Company) (BBB-/Stable),
each holding a 49.82% stake - have regained operational control
over the bank. This has diminished uncertainty over the bank's
ownership and the shareholders' support stance. This underpins the
affirmation of the bank's IDRs and Support Rating (SR).
The removal of RWN and affirmation of the bank's VR reflect
Fitch’s view of reduced near-term risks to the bank's standalone
credit profile, in particular, to funding and liquidity given
recent deposit instability. Restored access to the parents'
financial resources benefits BGPB's liquidity profile. At the same
time, risks remain heightened for banks in Belarus's difficult
operating environment, implying continued pressures on their
financial metrics.
KEY RATING DRIVERS
BGPB's Long-Term IDR and SR are driven by potential support the
bank could receive, if required, from its joint Russian owners,
Gazprom and Gazprombank. Despite the parents' high ability and
propensity to support BGPB, its 'B' Long-Term IDR is aligned with
and capped by Belarus's 'B' Country Ceiling. The Negative Outlook
on the Long-Term IDR reflects the Belarusian sovereign's
potentially weaker financial position, which could cause an
increase in Belarusian transfer and convertibility risks and
therefore limit the extent to which parental support could be
utilised to service BGPB's obligations.
In Fitch's view the propensity of BGPB's owners to provide support
to the bank, if needed, remains high. This view considers the
strategic importance of the Belarusian market, majority ownership,
significant parent-subsidiary integration, a record of support
provided to date and the small cost of potential support compared
with the parents' resources, and high reputational risks from a
subsidiary default.
The IDRs of BGPB are also underpinned by its standalone profile, as
reflected in its 'b' VR. The VR captures the bank's moderate market
shares and systemically important status, reasonable (in the local
context) financial metrics and the bank's still acceptable
liquidity despite large deposit outflows since NBRB's intervention
in June 2020.
The VR is also highly influenced by Fitch’s assessment of the
domestic operating environment and the bank's asset quality, which
are highly sensitive to Belarus's economic performance and changes
in the sovereign credit profile. This is, in particular, due to the
bank's high concentration of operations in Belarus and the large
holdings of Belarusian government debt (0.6x Fitch Core Capital
(FCC) at end-3Q20).
The impact of the pandemic on Belarus's economic growth proved to
be less severe than at regional peers as the country did not adopt
harsh containment measures. Fitch expect real GDP to contract 2.1%
in 2020, before a slow recovery of 0.7% in 2021. However, asset
quality is under pressure from weaker domestic activity, external
market's constraints and exchange-rate pressures as lending is
highly dollarised (at end-3Q20; BGPB's foreign-currency corporate
loans were 68% of the total; zero in the retail segment as
restricted by regulation).
BGPB's asset-quality metrics have historically been more resilient
than domestic peers'. At end-3Q20, its Stage 3 under IFRS 9 loans
were 4.9% of the total (end-2019: 4.7%), with 70% coverage by
specific loan loss allowances (LLAs). Heightened credit risks are
captured by Stage 2 exposures, which rose to a large 33.8% of loans
at end-3Q20 from 16.5% at end-2019. These loan migrations mostly
reflected deterioration of borrowers' reported financial metrics,
rather than challenges to service loans. However, Fitch expects
Stage 3 loans to significantly increase, including migration from
the Stage 2 portfolio, should operating conditions continue to
deteriorate in 2021. This makes asset quality an important driver
of the bank's financial profile and a factor of high influence on
the bank's VR.
Pre-impairment profitability has remained reasonable in 9M20 (equal
to 3.6% of average gross loans; 2019: 4.4%), despite market
volatility and business constraints. Net interest margin proved to
be resilient, as the bank has been able to pass on higher deposit
costs to its borrowers while collateralised borrowings from NBRB
and local banks have also helped contain funding costs. Fee income
remained healthy, while foreign-exchange (FX) revaluation and
trading gains have underpinned operating revenues. Quality of
revenues remained sound and the bank has recovered all of its
accrued interest income in cash. Higher loan impairment charges
(74% of pre-impairment profit in 9M20; 2019: 5%) constrained return
on average equity (ROAE) to a low 4.8% in 9M20 (2019: 16.4%). Fitch
expects future performance to be largely dependent on asset-quality
trends.
BGPB's FCC ratio (end-3Q20:15.4%) has been stable in 9M20, helped
by deleveraging and profitable activity. Stage 3 loans, net of
specific LLAs, were a small 7% of FCC, although sizeable and weakly
reserved Stage 2 exposures (1.6x FCC) heighten risks to capital.
Regulatory solvency ratios of 13.8% (CET1), 14.6% (Tier 1) and
18.3% (total capital adequacy (CAR)) at end-11M20 have been managed
at above the regulatory minimums (8%, 8% and 12%, including
buffers, respectively). The solvency ratios also reflected the
moderate effect of regulatory forbearance measures.
Client deposits are the bank's core funding source, at 54% of
end-3Q20 funding, down from 71% at end-2019. BGPB experienced
larger-than-peers' deposit outflows in 9M20 as a result of the
reputational damage (following introduction of the temporary
administration in June) and then due to market volatility following
the presidential election in August. Liquidity pressures have been
managed through loan deleveraging and collateralised borrowings
from local banks and NBRB (11% of liabilities at end-3Q20). Deposit
outflows and liquidity pressures have, however, diminished by
December, as for the sector.
BGPB's upcoming wholesale third-party refinancing needs are
moderate and could be backed by the parent banks, in case of need.
BGPB's cushion of liquid assets (cash, interbank and unpledged
government securities) was a comfortable 37% of client deposits at
the beginning of December.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The bank's IDR and SR could be downgraded if Belarus's
sovereign ratings are downgraded and the Country Ceiling is
revised lower.
-- The bank's VR could be downgraded in case of a sovereign
downgrade as Fitch believes the bank should not be rated above
the sovereign. Fitch could also downgrade the VR if sharp
deterioration in operating conditions drives an increase in
stage 3 loans sustainably above 10% of gross loans, resulting
in significant performance pressures and capital erosion.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of the IDR is unlikely in the near term given the
Negative Outlook on Belarus's sovereign rating. Improvements
in operating conditions allowing for stabilisation of asset
quality and performance metrics will be positive for the
bank's standalone profile. However, a VR upgrade is unlikely
without a corresponding upgrade of the sovereign rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
BGPB's Long-Term IDs and SR are driven by potential support from
Gazprom JSC and Gazprombank.
ESG CONSIDERATIONS
Fitch has revised ESG relevance score to 3 from 4 for the
governance structure to reflect decreased governance risks as the
bank's shareholders have regained operational control over the
bank, following termination of temporary administration, and
appointed the new management board. Therefore, governance structure
has a neutral impact on the bank's credit profile.
Except for the matters discussed above, 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.
===============
B U L G A R I A
===============
BULGARIAN ENERGY: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
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Fitch Ratings has affirmed Bulgarian Energy Holding EAD's (BEH)
Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR)
at 'BB' with a Stable Outlook. Fitch has also affirmed BEH's senior
unsecured debt, including EUR550 million (due 2021) and EUR600
million (due 2025) bonds, at 'BB-'.
The IDR of BEH reflects its standalone credit profile (SCP) of
'b+', which is notched up twice for strong links with its sole
owner, the Bulgarian state (BBB/Stable) to arrive at the 'BB' IDR.
The senior unsecured rating, which is notched down once from the
IDR, reflects a high share of debt at subsidiaries resulting in
structural subordination of bondholders at the BEH level.
KEY RATING DRIVERS
Strong Market Position: BEH is the largest utility in Bulgaria and
has an integrated business profile. In 2019 the group generated
26TWh of electricity, of which 65% was from nuclear (NPP Kozloduy),
26% from lignite (TPP Maritsa East 2) and 9% from hydro power
plants (NEK), leading to a low carbon exposure. Beyond generation
the group is active in more stable electricity transmission (ESO)
and gas transmission and transit (Bulgartransgaz), which
contributed 30% to the group's reported EBITDA in 2019, supporting
its credit profile. BEH is present also in electricity and gas
supply (NEK and Bulgargaz, respectively), excavates lignite (Mini
Maritsa) and indirectly controls a telecom business (Bulgartel).
Improved SCP: Fitch has revised up BEH's SCP to 'b+' from 'b' as
Fitch anticipates higher earnings (mainly from gas transit, but
also market liberalisation) to result in more balanced free cash
flows (FCF) and lower leverage from 2022. However, the SCP is still
low for the group's strong market position and diversified business
mix. The main constraints are high capex expectations (in
particular over 2020-2021 in relation to the expansion of gas
infrastructure), a fairly weak regulatory framework in Bulgaria and
corporate-governance limitations.
Gas Network Expansion: BEH's main investment, under construction
since 2019 by fully owned Bulgartransgaz, is the expansion of the
gas transmission and transit infrastructure between the
Bulgarian-Turkish and the Bulgarian-Serbian borders (Balkan
Stream). The project is of strategic importance for Bulgaria by
contributing to the diversification of gas-supply routes. Since
completion of the project's first stage in 4Q19, Bulgaria has begun
importing Russian gas from Turkey instead of the traditional route
via Ukraine. The output capacity at the Serbian border (14bcm vs.
19bcm input at the Turkish border) will allow, upon completion in
2021, for gas transit to Serbia and further to Hungary and
Austria.
The second large investment is the construction of a gas
interconnector between Greece and Bulgaria (IGB). It will have a
capacity of 3bcm (extendable to 5bcm) and should become operational
in 2021.
Large Capex Plans: Fitch expects BEH's capex (already high in 2019
at BGN1.1 billion) to remain large also over 2020 and 2021 at
BGN1.1 billion and BGN0.8 billion, respectively. This will be
driven by spending on the Balkan Stream and the IGB projects. Fitch
expects it to stabilise at around BGN0.6 billion from 2022.
High Leverage to Decrease: BEH's funds from operations (FFO) net
leverage (2019: 4.7x) has increased due to high capex and new
debt-like financing (EUR1.1 billion) from the Arkad-led consortium
constructing the Balkan Stream, which Fitch adds to Fitch-adjusted
debt from 2019. The leverage increase was lower than Fitch
originally expected due to strong results at NPP Kozloduy in 2019.
FFO net leverage will remain high in 2020 and 2021 (on average 6x)
as construction of the Balkan Stream and the IGB proceeds. However,
it should then trend towards 4x over 2022-2024 as capex stabilises
and the gas transit starts contributing EBITDA.
Evolving Regulatory Framework: Fitch deems the Bulgarian regulatory
framework as more volatile and higher-risk than for BEH's peers in
the EU. However, it has been evolving with notable success, e.g.
reduction of the tariff deficit at NEK and reflection of higher CO2
prices in regulated tariffs at TPP Maritsa East 2. The electricity
market has also become more liberalised.
Liberalisation on Track: The electricity market was 67% liberalised
at end-2019 (vs. 33% regulated). The Bulgarian government plans to
achieve full liberalisation of the wholesale segment by mid-2021
and of the retail segment in the following years (non-households
are unregulated since October 2020). This should have a positive
impact on BEH's SCP over time.
Corporate-Governance Limitations: BEH's corporate-governance
limitations include in particular a qualified audit opinion for the
group's 2009-2019 consolidated financial statements. Positively the
group reports under IFRS, but its structure is quite complex and
financial transparency, including on its business segments, is
weaker than EU peers'.
Support from State: Reflecting links with the Bulgarian state,
Fitch applies a two-notch uplift to BEH's SCP of 'b+', taking the
group's IDR to 'BB'. Based on Fitch's Government-Related Entities
Rating Criteria, Fitch views the status, ownership and control
links between BEH and the Bulgarian state as 'Strong', and the
support track record and socio-political and financial implications
of a BEH default as 'Moderate', which altogether lead to a support
score of 17.5. The uplift is a notch lower than the previously
applied three notches as under the current support score BEH's IDR
cannot be higher than a cap defined as sovereign rating minus three
notches.
DERIVATION SUMMARY
BEH has a leading position in the Bulgarian gas and electricity
market through its ownership of most of Bulgaria's power generation
assets (including a nuclear power plant, lignite-fired and hydro
power plants), is the country's largest mining company, the
country's electricity transmission network, gas transmission and
transit networks and through its position as public supplier of
both electricity and gas in Bulgaria.
BEH's integrated business structure and strategic position in the
domestic market make the group comparable to some of central
European peers such as CEZ, a.s. (A-/Stable) and PGE Polska Grupa
Energetyczna S.A. (PGE, BBB+/Stable). However, BEH operates in a
more volatile and less transparent regulatory environment than CEZ
or PGE, has higher leverage and its results are less predictable
with some corporate-governance issues. BEH's rating includes a
two-notch uplift from the SCP to reflect links with the sovereign,
whereas this is not the case for CEZ or PGE.
KEY ASSUMPTIONS
Fitch's key assumptions within Fitch’s rating case for the issuer
include:
-- Group EBITDA averaging BGN1.1 billion a year over 2020-2024
-- Total capex at BGN3.8 billion over 2020-2024
-- Zero dividend payments until 2024
-- Refinancing of the EUR550 million bond in 2Q21
-- State-provided financing to NEK (EUR602 million) refinanced at
the BEH level on maturity in 2023
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Further tangible government support, such as additional state
guarantees materially increasing the share of state-guaranteed
debt, or cash injections, which would more tightly link BEH's
credit profile with Bulgaria's stronger credit profile
-- Stronger SCP due to FFO net leverage falling below 4x on a
sustained basis, lower regulatory and political risk, higher
earnings predictability and better corporate governance
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Weaker links with the Bulgarian state
-- Downgrade of the sovereign rating of Bulgaria as it would
lower the "sovereign-less-three" cap for BEH's rating
-- Weaker SCP, e.g. due to FFO net leverage exceeding 6x on a
sustained basis, escalation of regulatory and political risk
or insufficient liquidity
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Refinancing Required: At end-2019 BEH had BGN1,237 million of
Fitch-calculated readily available cash against short-term
financial liabilities of BGN481 million and negative
Fitch-calculated free cash flow (FCF) for both 2020 and 2021. As
per Fitch’s forecast BEH will need to refinance its next large
debt repayment, which is its EUR550 million bond maturing in August
2021. Fitch expects BEH to complete a new bond issue no later than
2Q21.
Large Fitch-adjusted Debt: BEH's main debt items include two
Eurobonds of EUR550 million (maturity in August 2021) and of EUR600
million (maturity in June 2025). However, Fitch adds several other
debt-like items to Fitch-adjusted debt. This includes the
state-provided financing to NEK in connection with the Belene
arbitration of EUR602 million (maturity in 2023), financing
provided to Bulgartransgaz by Arkad in connection with the Balkan
Stream project of EUR1.1 billion (amortising over 10 years), and
the bank guarantee provided for BEH, Bulgartransgaz and Bulgargaz
in connection with EU claims in the gas market of EUR77 million.
Consequently, Fitch-adjusted debt at end-2019, including some other
smaller facilities, reached BGN6.3 billion.
State-related Debt: As per Fitch rating case, the state-guaranteed
debt (at single-digit percentages of gross debt) together with
state-provided financing to NEK will account for 20%-25% of
Fitch-adjusted debt until NEK financing's maturity in 2023. Fitch
deems it as a still considerable amount, reflecting close links
between BEH and its sovereign owner.
Fitch expects that the NEK facility will be refinanced at the BEH
level in 2023, similarly to the existing Eurobonds or, assuming
better results than in the current rating case, repaid from
on-balance-sheet cash. Either option should eliminate the notching
down from IDR applied to the senior unsecured rating as Fitch
anticipates the ratio of prior-ranking debt (the debt of
subsidiaries that do not guarantee BEH) to EBITDA to fall below 2x
from 2023 (2019: 4x).
SUMMARY OF FINANCIAL ADJUSTMENTS
Financial debt at end-2019 is increased by EUR602 million of the
face value of the state-financing given to NEK to settle Belene
obligations, by EUR1.1 billion of financing provided by Arkad-led
consortium to Bulgartransgaz for the Balkan Stream project and by a
bank guarantee of EUR77 million given to BEH, Bulgartransgaz and
Bulgargaz to cover EU claims.
ESG CONSIDERATIONS
BEH has scores of 4 for "Group Structure" and "Financial
Transparency" to reflect a relatively complex group structure, a
qualified audit opinion and lower financial transparency than EU
peers'. This ESG constraint has a negative impact on BEH's SCP in
combination with other factors, in particular high capex and a
volatile regulatory framework.
BEH has also some exposure to carbon intensive generation via its
lignite-fired power plant. However, the fuel mix is diversified
with most of electricity generated from nuclear and hydro sources,
therefore the scores for "GHG Emissions & Air Quality" and "Energy
Management" are at 3.
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.
=============
D E N M A R K
=============
DFDS A/S: Egan-Jones Lowers Senior Unsecured Ratings to BB+
-----------------------------------------------------------
Egan-Jones Ratings Company, on December 22, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by DFDS A/S to BB+ from BBB-.
Headquartered in Copenhagen, Denmark, DFDS A/S provides passenger
and freight shipping services, and offers shipping related
logistics solutions.
DKT HOLDINGS: Moody's Completes Review, Retains B2 CFR
------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of DKT Holdings ApS and other ratings that are associated
with the same analytical unit. The review was conducted through a
portfolio review in which Moody's reassessed the appropriateness of
the ratings in the context of the relevant principal methodology,
recent developments, and a comparison of the financial and
operating profile to similarly rated peers. The review did not
involve a rating committee. Since January 1, 2019, Moody's practice
has been to issue a press release following each periodic review to
announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
DKT Holdings ApS' B2 corporate family rating reflects TDC's leading
market position as the incumbent operator in Denmark, its good
quality network and the ownership of the most essential
infrastructure in the country, an expected stable operating
performance in 2021, and an adequate liquidity profile.
The rating also takes into consideration the company's relatively
small scale compared to other European incumbents, the high revenue
concentration in the very competitive Danish market, the company's
high leverage position and its track record of negative FCF
generation.
The principal methodology used for this review was
Telecommunications Service Providers published in January 2017.
===========
F R A N C E
===========
EUTELSAT COMMUNICATIONS: Moody's Completes Review, Keeps Ba1 Rating
-------------------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Eutelsat Communications SA and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review in which Moody's reassessed the
appropriateness of the ratings in the context of the relevant
principal methodology(ies), recent developments, and a comparison
of the financial and operating profile to similarly rated peers.
The review did not involve a rating committee. Since January 1,
2019, Moody's practice has been to issue a press release following
each periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
Eutelsat SA is weakly positioned in its rating category due to
modest revenue pressure across most of its verticals partially
offset by an improving cost base. However, the Baa3 long-term
issuer rating also accounts for the company's joint market
leadership in satellite-distributed video in Europe and the solid
contract backlog; as well as high EBITDA margin. The Ba1 rating for
the senior unsecured bank facilities at the parent Eutelsat
Communications SA reflects the structural subordination to the debt
and other claims at Eutelsat SA.
The principal methodology used for this review was Communications
Infrastructure Industry published in September 2017.
=============
G E O R G I A
=============
GEORGIA: Moody's Completes Review, Retains Ba2 Issuer Rating
------------------------------------------------------------
Moody's Investors Service reviews all of its ratings periodically
in accordance with regulations -- either annually or, in the case
of governments and certain EU-based supranational organisations,
semi-annually. This periodic review is unrelated to the requirement
to specify calendar dates on which EU and certain other sovereign
and sub-sovereign rating actions may take place.
Moody's conducts these periodic reviews through portfolio reviews
in which Moody's reassesses the appropriateness of each outstanding
rating in the context of the relevant principal methodology(ies),
recent developments, and a comparison of the financial and
operating profile to similarly rated peers. Since January 1, 2019,
Moody's issues a press release following each periodic review
announcing its completion.
Moody's has now completed the periodic review of a group of issuers
that includes Georgia and may include related ratings. The review
did not involve a rating committee, and this publication does not
announce a credit rating action and is not an indication of whether
or not a credit rating action is likely in the near future; credit
ratings and/or outlook status cannot be changed in a portfolio
review and hence are not impacted by this announcement.
The credit profile of Georgia (issuer rating Ba2) is supported by
the country's "ba3" economic strength, reflecting relatively high,
albeit volatile, GDP growth, relatively low income per capita,
heavy dependence on external financing for investment as domestic
savings are low, and relatively high unemployment and
underemployment; its "baa1" institutions and governance strength
reflecting the authorities' strong track record in institutional
capacity building, notwithstanding some of the institutional gaps
in addressing land rights; its "ba1" fiscal strength reflecting a
modest government debt burden and a favorable debt structure; and
its "ba" susceptibility to event risk which is driven by Georgia's
relatively large banking sector, which is highly dollarized and
somewhat reliant on wholesale market funding, and external
vulnerability risk, reflecting its large current account deficits,
moderately high ratio of short-term and currently-maturing debt to
foreign exchange reserves, and its large net liability
international investment position.
The principal methodology used for this review was Sovereign
Ratings Methodology published in November 2019.
=============
I R E L A N D
=============
MARINO PARK CLO: Moody's Rates EUR6MM Class E Notes 'B3(sf)'
------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to notes issued by Marino Park CLO DAC
(the "Issuer"):
EUR1,500,000 Class X Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aaa (sf)
EUR201,500,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
EUR30,500,000 Class A-2 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aa2 (sf)
EUR22,500,000 Class B Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned A2 (sf)
EUR18,000,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned Baa3 (sf)
EUR19,500,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned Ba3 (sf)
EUR6,000,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology. The Issuer is a managed cash flow
CLO. At least 90% of the portfolio must consist of senior secured
obligations and up to 10% of the portfolio may consist of senior
unsecured obligations, second-lien loans, mezzanine obligations and
high yield bonds. The portfolio is expected to be 96% ramped as of
the closing date and to comprise of predominantly corporate loans
to obligors domiciled in Western Europe. The remainder of the
portfolio will be acquired during the 6 month ramp-up period in
compliance with the portfolio guidelines.
Blackstone Ireland Limited will manage the CLO. It will direct the
selection, acquisition and disposition of collateral on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's three-year
reinvestment period. Thereafter, subject to certain restrictions,
purchases are permitted using principal proceeds from unscheduled
principal payments and proceeds from sales of credit risk
obligations or credit improved obligations.
Interest and principal amortisation amounts due to the Class X
Notes are paid pro rata with payments to the Class A-1 notes. The
Class X Notes amortise by 12.5% or EUR 187,500 over the first 8
payment dates starting on the second payment date.
In addition to the seven classes of notes rated by Moody's, the
Issuer has issued EUR 24,000,000 Subordinated Notes due 2034 which
are not rated. The transaction incorporates interest and par
coverage tests which, if triggered, divert interest and principal
proceeds to pay down the notes in order of seniority.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Our analysis has considered the effect on the performance of
corporate assets from the current weak European economic activity
and a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the degree
of uncertainty around our forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology underlying the rating action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR 325m
Diversity Score: 48
Weighted Average Rating Factor (WARF): 2935
Weighted Average Spread (WAS): 3.74%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 43.0%
Weighted Average Life (WAL): 8.5 years
Moody's has addressed the potential exposure to obligors domiciled
in countries with local currency ceiling of A1 or below. As per the
portfolio constraints and eligibility criteria, exposures to
countries with LCC of A1 to A3 cannot exceed 10% and obligors
cannot be domiciled in countries with LCC below A3.
On the issue date, certain assets will be transferred to the Issuer
at a price below the applicable discount obligation threshold, but
will not be treated as discount obligations for the purposes of OC
calculations. Typically, obligations purchased below the discount
obligation threshold are carried at their respective purchase
prices when calculating OC test numerators until they have traded
above 90% (or 85% if such obligation is not a Senior Secured Loan)
for at least 30 consecutive days. Because these assets will be
carried at par in the OC calculations rather than at purchase
price, the OC ratios will be overstated. To address this concern,
we adjusted our base case modelling, inflating the OC ratios
numerator by an amount equal to the difference between these
obligations par amount and their transfer price to the Issuer.
MARINO PARK: S&P Assigns B- (sf) Rating to $6MM Class E Notes
-------------------------------------------------------------
S&P Global Ratings assigned credit ratings to Marino Park CLO DAC's
class X to E European cash flow CLO notes. At closing, the issuer
has issued unrated subordinated notes.
The ratings 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.
-- he 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 S&P considers to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P considers to be
in line with its counterparty rating framework.
Portfolio Benchmarks
Current
S&P weighted-average rating factor 2,703.06
Default rate dispersion 664.52
Weighted-average life (years) 4.99
Obligor diversity measure 132.25
Industry diversity measure 17.73
Regional diversity measure 1.19
Transaction Key Metrics
Current
Portfolio weighted-average rating derived
from S^P's CDO evaluator 'B'
'CCC' category rated assets (%) 3.5
Covenanted 'AAA' weighted-average recovery (%) 37.30
Covenanted weighted-average spread (%) 3.74
Covenanted weighted-average coupon (%) 4.00
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately three years after
closing.
At closing, the portfolio is well-diversified, primarily comprising
broadly syndicated speculative-grade senior-secured term loans and
senior-secured bonds. Therefore, S&P has conducted its credit and
cash flow analysis by applying its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR325 million
target par amount, the covenanted weighted-average spread (3.74%),
the reference weighted-average coupon (4.00%), and the target
portfolio weighted-average recovery rates, except for the 'AAA'
level for which we considered the covenanted weighted-average
recovery rate provided 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."
The transaction includes an amortizing reinvestment target par
amount, which is a predetermined reduction in the value of the
transaction's target par amount unrelated to the principal payments
on the notes. This may allow for the principal proceeds to be
characterized as interest proceeds when the collateral par exceeds
this amount, subject to a limit, and affect the reinvestment
criteria, among others. This feature allows some excess par to be
released to equity during benign times, which may lead to a
reduction in the amount of losses that the transaction can sustain
during an economic downturn. Hence, in S&P's cash flow analysis, it
has considered scenarios in which the target par amount declined by
the maximum amount of reduction indicated by the arranger.
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 ratings."
Until the end of the reinvestment period on Jan. 16, 2024, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
S&P said, "We consider at closing that the transaction's documented
counterparty replacement and remedy mechanisms adequately mitigate
its exposure to counterparty risk under our current counterparty
criteria.
"We consider the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"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 the class X
to E notes. Our credit and cash flow analysis indicate that the
available credit enhancement could withstand stresses commensurate
with the same or higher rating levels than those we have assigned.
However, as the CLO will be in its reinvestment phase starting from
closing, during which the transaction's credit risk profile could
deteriorate, we have capped our ratings assigned to the notes.
"In our view, the portfolio is granular in nature, and it is
well-diversified across obligors, industries, and asset
characteristics when compared to other CLO transactions we have
rated recently. Hence, we have not performed any additional
scenario analysis.
"Taking the above factors into account and 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 of 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 X to D 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 E notes."
S&P Global Ratings believes there remains a high degree of
uncertainty about the evolution of the coronavirus pandemic. While
the early approval of a number of vaccines is a positive
development, countries' approval of vaccines 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 mid-2021. 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."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and is managed by Blackstone/GSO Debt
Funds Management Europe Ltd.
Ratings List
Class Rating Amount Interest rate (%) Credit
(mil. EUR) enhancement (%)
X AAA (sf) 1.50 3mE + 0.45 N/A
A-1 AAA (sf) 201.50 3mE + 1.07 38.00
A-2 AA (sf) 30.50 3mE + 1.70 28.62
B A (sf) 22.50 3mE + 2.70 21.69
C BBB (sf) 18.00 3mE + 3.55 16.15
D BB- (sf) 19.50 3mE + 5.67 10.15
E B- (sf) 6.00 3mE + 8.03 8.31
Sub NR 24.00 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
PENTA CLO 2: Moody's Ups EUR26.7MM Class E Notes Rating to Ba1 (sf)
-------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Penta CLO 2 B.V.:
-- EUR 49,000,000 Refinancing Class B Senior Secured Floating Rate
Notes due 2028, Upgraded to Aaa (sf); previously on Dec 8, 2020 Aa1
(sf) Placed Under Review for Possible Upgrade
-- EUR 25,250,000 Refinancing Class C Senior Secured Deferrable
Floating Rate Notes due 2028, Upgraded to Aa2 (sf); previously on
Dec 8, 2020 A1 (sf) Placed Under Review for Possible Upgrade
-- EUR 20,000,000 Refinancing Class D Senior Secured Deferrable
Floating Rate Notes due 2028, Upgraded to A3 (sf); previously on
Dec 8, 2020 Baa1 (sf) Placed Under Review for Possible Upgrade
-- EUR 26,750,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2028, Upgraded to Ba1 (sf); previously on Sep 4, 2019
Affirmed Ba2 (sf)
Moody's has also affirmed the ratings on the following notes:
-- EUR 234,000,000 Refinancing Class A Senior Secured Floating
Rate Notes due 2028, Affirmed Aaa (sf); previously on Sep 4, 2019
Affirmed Aaa (sf)
-- EUR 13,000,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2028, Affirmed B1 (sf); previously on Sep 4, 2019
Affirmed B1 (sf)
Penta CLO 2 B.V., issued in June 2015 and partially refinanced in
August 2017, is a collateralised loan obligation backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Partners Group (UK) Management Ltd. The
transaction's reinvestment period ended in August 2019.
The actions conclude the rating review on the Class B, C and D
notes initiated on 8 December 2020, "Moody's upgrades 23 securities
from 11 European CLOs and places ratings of 117 securities from 44
European CLOs on review for possible upgrade",
https://bit.ly/3mGMO1o.
RATINGS RATIONALE
The rating upgrades on the Class B, C, D and E notes are primarily
due to the update of Moody's methodology used in rating CLOs, which
resulted in a change in overall assessment of obligor default risk
and calculation of weighted average rating factor. Based on Moody's
calculation, the WARF is currently 3234 after applying the revised
assumptions as compared to the trustee reported WARF of 3440 as of
November 30, 2020 [1].
The actions also reflect the deleveraging of the Class A notes
following amortisation of the underlying portfolio since the
payment date in February 2020.
The Class A notes have paid down by approximately EUR 62.1 million
(26.5%) in the last 10 months and EUR 80.8 million (34.5%) since
closing. As a result of the deleveraging, over-collateralisation
has increased for the senior classes in the capital structure.
According to the trustee report dated 30 November 2020 [1] the
Class A/B, Class C, Class D, Class E and Class F OC ratios are
reported at 149.83%, 133.20%, 122.44%, 110.49% and 105.49% compared
to January 2020 [2] levels of 143.05%, 130.57%, 122.14%, 112.42%
and 108.24%, respectively.
The rating affirmations on the Class A and F notes reflects the
expected losses of the notes continuing to remain consistent with
their current ratings after taking into account the CLO's latest
portfolio, its relevant structural features and its actual
over-collateralization levels as well as applying Moody's revised
CLO assumptions.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR 306.5mm
Defaulted Securities: EUR 7.0mm
Diversity Score: 44
Weighted Average Rating Factor (WARF): 3234
Weighted Average Life (WAL): 4.0 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.66%
Weighted Average Recovery Rate (WARR): 45.74%
Par haircut in OC tests and interest diversion test: 2.06%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Moody's notes that the credit quality of the CLO portfolio has
deteriorated since earlier this year as a result of economic shocks
stemming from the coronavirus outbreak. Corporate credit risk
remains elevated, and Moody's projects that default rates will
continue to rise through the first quarter of 2021. Although
recovery is underway in the US and Europe, it is a fragile one
beset by unevenness and uncertainty. As a result, Moody's analyses
continue to take into account a forward-looking assessment of other
credit impacts attributed to the different trajectories that the US
and European economic recoveries may follow as a function of
vaccine development and availability, effective pandemic
management, and supportive government policy responses.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Moody's analysis has considered the effect on the performance of
corporate assets from the current weak global economic activity and
a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the degree
of uncertainty around our forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology Underlying the Rating Actions:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Counterparty Exposure:
The rating actions took into consideration the notes' exposure to
relevant counterparties, such as account bank and swap provider,
using the methodology "Moody's Approach to Assessing Counterparty
Risks in Structured Finance" published in June 2020. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the note,
in light of uncertainty about credit conditions in the general
economy. In particular, the length and severity of the economic and
credit shock precipitated by the global coronavirus pandemic will
have a significant impact on the performance of the securities. CLO
notes' performance may also be impacted either positively or
negatively by the manager's investment strategy and behaviour and
divergence in the legal interpretation of CDO documentation by
different transactional parties because of embedded ambiguities.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions, and CLO's reinvestment criteria after the end of the
reinvestment period, both of which can have a significant impact on
the notes' ratings. Amortisation could accelerate as a consequence
of high loan prepayment levels or collateral sales by the
collateral manager or be delayed by an increase in loan
amend-and-extend restructurings. Fast amortisation would usually
benefit the ratings of the notes beginning with the notes having
the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries higher
than Moody's expectations would have a positive impact on the
notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
=========
I T A L Y
=========
INTESA SANPAOLO: Fitch Assigns 'BB' Rating to EUR600MM T2 Notes
---------------------------------------------------------------
Fitch Ratings has assigned Intesa Sanpaolo Vita S.p.A.'s (ISV)
issue of EUR600 million of subordinated Tier 2 notes a 'BB' rating.
The notes are rated two notches below ISV's Issuer Default Rating
(IDR) of 'BBB-' to reflect Fitch's 'below average' recovery
assumption (one notch) and 'moderate' assessment of non-performance
risk (one notch), in line with Fitch's notching criteria.
The proceeds will be used by ISV for its general funding purposes
and to improve its regulatory capital structure.
KEY RATING DRIVERS
The notes have a 10-year bullet maturity. The issue ranks junior to
senior creditors and pari passu with senior subordinated
securities. This level of subordination results in Fitch's
'below-average' baseline recovery assumptions.
The notes include a mandatory interest deferral feature, which
would be triggered if the company is not able to meet the
applicable solvency capital requirement. Under the agency's
criteria, Fitch regards this feature as leading to 'moderate'
non-performance risk.
The notes qualify as Tier 2 regulatory capital under Solvency II
and are therefore treated as 100% capital in Fitch's Prism
Factor-Based Model because of the agency's regulatory override.
However, given that the notes are dated instruments, they are
treated as 100% debt in Fitch's financial leverage calculation.
Following the issuance, Fitch expects ISV's financial debt leverage
to weaken and fixed-charge coverage to reduce. However, both
metrics remain commensurate with the ratings.
RATING SENSITIVITIES
The ratings remain sensitive to any material change in Fitch's
rating-case assumptions with respect to the coronavirus pandemic.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of ISV's parent Intesa Sanpaolo S.p.A.'s (ISP)
IDR, which would likely lead to a downgrade of ISV's ratings.
-- A lessening of ISV's strategic importance to ISP.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of ISP's IDR, which would likely lead to an upgrade
of ISV's ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
MONTE DEI PASCHI: Fitch Revises Rating Watch on 'B' LT IDR to Neg.
-------------------------------------------------------------------
Fitch Ratings has revised the Rating Watch on Banca Monte dei
Paschi di Siena S.p.A.'s (MPS) Long-Term Issuer Default Rating
(IDR) of 'B' and Viability Rating (VR) of 'b' to Negative (RWN)
from Evolving (RWE).
The change in the Rating Watch follows capital erosion suffered by
the bank due to the materialisation of some larger-than-anticipated
legal risks and the impact of the spin-off a collection of assets
and liabilities to AMCO - Asset Management Company S.p.A. (AMCO,
BBB-/Stable), the credit management company fully owned by the
Italian Ministry of Finance. These, in conjunction with expected
losses and regulatory impact (phase-in of IFRS9 transitional
arrangements and risk-weighted assets inflation from the conclusion
of the ECB's targeted review of internal models), will lead to a
regulatory capital shortfall from March 2021.
Fitch expects to resolve the RWN once Fitch has more clarity on the
bank's announced capital and strategic plans and their implications
for creditors.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
The RWN reflects MPS's expectation of capital falling below
Supervisory Review and Evaluation Process (SREP, including the
capital conservation buffer) requirements from March 2021 as the
bank remains loss-making due to the adverse economic environment
and might need to book additional provisions on legal or other
risks. The RWN also reflects the risk of a downgrade if Fitch
considers the capital-strengthening actions taken by the bank to be
insufficient and view its upcoming strategy to have high execution
risks.
At end-September 2020, MPS's transitional Tier 1 capital of 12.9%
was about 200bp above SREP requirements. The buffer, however, fell
by about 140bp following the spin-off of about EUR7.5 billion gross
impaired loans and EUR1.1 billion of shareholder's equity to AMCO,
thus leaving the bank in compliance with regulatory requirements by
a small margin that it expects to be eroded in the next two
quarters. While capital encumbrance by unreserved impaired loans
has become more manageable at about 25% after the impaired loans
spin-off, capital is exposed to a large amount of unreserved legal
claims and litigation threats that the banks deems probable (EUR6.5
billion at end-September 2020) and large holdings of Italian
government bonds (EUR12.6 billion), even though the latter have
reduced in recent years.
MPS expects to return to break-even by end-2022. This is because
the pandemic has exacerbated the bank's already weak capacity to
generate revenues and is likely to lead to higher loan impairment
charges once government-support measures for borrowers expire.
Operating costs are also high relative to revenues, which the bank
aims to tackle by further simplifying the organisation.
Fitch believes that MPS has some flexibility to absorb near- to
medium-term shocks, also in light of the ECB's decision to allow
banks to tap into their 2.5% capital conservation buffers until
end-2022. Management is working on the details of a new capital
plan, which will include actions to strengthen regulatory capital
by about EUR2 billion-EUR2.5 billion with the support of the
Italian state, MPS's largest shareholder with 64%. Further avenues
to strengthen the bank's capital could open from a proposed
provision to be included in the 2021 budget law, allowing banks to
transform deferred tax assets, which are deducted from regulatory
capital, into tax credits upon the completion of a capital increase
or a business combination.
Asset quality has improved markedly following MPS's impaired loans'
spin-off to AMCO, which was conducted by means of a partial
non-proportional demerger. The spin-off resulted in full
deconsolidation of relevant assets and liabilities from MPS's
balance sheet. Fitch estimates the current pro-forma impaired loan
ratio to be about 5%, which is well below the 13.6% of
end-September 2020 and lower than the Italian industry average of
7.6% at end-June 2020.
Fitch expects asset quality to deteriorate in 2021 as a result of
the economic downturn and given MPS's significant exposure to SMEs
and small businesses, which Fitch views as more vulnerable to the
effects of the downturn. However, Fitch expects deterioration to be
less severe than in the past, given MPS's improved underwriting
standards and risk controls.
Funding for MPS is sensitive to sudden changes in depositors' and
investors' confidence given its weak credit profile. However, MPS
has enjoyed healthy deposit growth during 2020 and has successfully
accessed the unsecured debt market in 2H20 through the issuance of
EUR300 million Tier 2 bonds and EUR750 million of senior preferred
notes. Liquidity is sound, supported by ample unencumbered assets
eligible for ECB financing of over EUR28 billion at end-September
2020.
MPS's Short-Term IDR of 'B' is in line with Fitch’s rating
correspondence table for banks with 'B' Long-Term IDRs.
Senior preferred obligations are rated in line with the bank's
Long-Term IDR of 'B'/RWN to reflect that the likelihood of default
on any given senior preferred obligation is the same as that of the
bank. The Recovery Rating of 'RR4' reflects Fitch’s expectations
of average recovery prospects, as Fitch views a liquidation of MPS
less likely than an intermediate restructuring ahead of resolution,
which would narrow losses for senior bondholders.
Buffers of senior preferred liabilities are fairly tight, but Fitch
expects them to increase as the bank builds its minimum requirement
for own funds and eligible liabilities (MREL) buffers. This, in
conjunction with existing subordinated debt and adequate capital
buffers, would allow distribution of potential losses in a
resolution across a reasonable amount of principal.
DEPOSIT RATINGS
Long-term deposits are rated one notch above the Long-Term IDR
because Fitch expects the bank to comply with its MREL requirements
over the medium term and that deposits will therefore benefit from
the protection offered by more junior bank resolution debt and
equity resulting in a lower probability of default.
The short-term deposit rating of 'B' is in line with Fitch’s
rating correspondence table for banks with 'B+' long-term deposit
ratings.
SUBORDINATED DEBT
MPS's tier 2 debt is rated two notches below the VR for loss
severity to reflect poor recovery prospects in resolution. No
notching is applied for incremental non-performance risk because
write-down of the notes will only occur once the point of
non-viability is reached and there is no coupon flexibility before
non-viability. Poor recoveries for subordinated bondholders in a
resolution are also reflected in the 'RR6' Recovery Rating on the
notes.
SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)
The SR of '5' and SRF of 'No Floor' reflect Fitch's view that
although external extraordinary sovereign support is possible it
cannot be relied upon. Senior creditors can no longer expect to
receive full extraordinary support from the sovereign in the event
that the bank becomes non-viable.
The EU's Bank Recovery and Resolution Directive and the Single
Resolution Mechanism for eurozone banks provide a framework for the
resolution of banks that requires senior creditors to participate
in losses, if necessary, instead of or ahead of a bank receiving
sovereign support.
RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The ratings could be downgraded if Fitch deems the new
strategy to be insufficient to turn the bank's profitability
around in a reasonable time frame and/or the envisaged capital
strengthening is insufficient to meaningfully protect the bank
from potential asset-quality deterioration and legal or other
risks.
-- Downside risks could also arise if the economic downturn
results in sustained asset-quality deterioration or if larger
legal risks crystallise. The ratings also remain sensitive to
deterioration of the bank's funding and liquidity profile if,
for example, MPS is subject to idiosyncratic stress and
experiences deposit outflows as it is still one of the weakest
credit institutions in Italy.
-- The VR could also be downgraded if the Italian state completes
a capital injection or provides support in other forms that
Fitch might view as necessary extraordinary support to restore
the bank's viability, or if such capital injection is
accompanied by the need to impose losses on subordinated
creditors.
-- The senior preferred debt rating could be downgraded below the
Long-Term IDR and associated Recovery Rating to below 'RR4' if
Fitch believes that the bank is at risk of being put into
outright liquidation or resolution without an intermediate
restructuring that could partially protect senior bondholders.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch would take the ratings off RWN if management presents a
clear and credible strategy to strengthen capital and improve
profitability to more acceptable levels, and if Fitch does not
view the capital- strengthening actions as a provision of
extraordinary support required to restore the bank's
viability. Assigning a Stable Outlook would require at least
some progress in plan execution.
-- The ratings could also benefit from the announcement of a
business combination with a larger and stronger group. The
Italian government intends to sell its stake in MPS by end
2021 to satisfy a condition set by European authorities at the
time of MPS's precautionary recapitalisation in 2017, and the
government has reportedly initiated negotiations with some
domestic groups.
-- An upgrade would also require evidence that pressures on asset
quality that have arisen from the economic fallout of the
pandemic are overall manageable for the bank, earnings are on
a path of sustained improvement and legal risks are
significantly reduced. Continued access to wholesale debt
markets and funding stability could also benefit the ratings.
-- The senior preferred debt rating could be upgraded by one
notch if MPS decides to meet its resolution buffer
requirements only with senior non-preferred debt and junior
instruments, which Fitch however does not expect since this is
not contemplated in the bank's plans.
DEPOSIT RATINGS
The deposit ratings are primarily sensitive to changes in the
bank's IDRs. The long-term deposit rating is also sensitive to a
revision of Fitch’s expectation that MPS will be able to achieve
and maintain compliance with its MREL requirements over the medium
term.
SUBORDINATED DEBT
The rating of subordinated debt is primarily sensitive to changes
in the bank's VR, from which it is notched. The rating is also
sensitive to a change in the notes' notching, which could arise if
Fitch changes its assessment of their non-performance relative to
the risk captured in the VR.
SR AND SRF
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support the bank. In Fitch's view, this is highly unlikely,
although not impossible.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
MPS has an ESG Relevance Score of '4' for Governance Structure,
reflecting the recently heightened legal risks to its
capitalisation, which might be temporary. While the events leading
to the increase in legal risks happened in 2015, the impact on 2020
results is negative for the bank's credit profile and is relevant
to the Rating Watch revision to Negative in conjunction with other
factors.
For the other ESG credit relevance scores, the highest level 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 U X E M B O U R G
===================
CURIUM BIDCO: Fitch Downgrades LongTerm IDR to B, Outlook Stable
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Fitch Ratings has downgraded Curium Bidco S.a.r.l.'s Long-Term
Issuer Default Rating (IDR) to 'B' from 'B+'. The Outlook is
Stable. Fitch has also downgraded Curium's senior secured rating to
'B+'/'RR3' from 'BB-'/'RR3' mirroring the one-notch downgrade of
the IDR. All ratings have been removed from Rating Watch Negative
(RWN). Fitch has also assigned a final rating to USD325 million
second-lien loans issued by Curium of 'CCC+'/'RR6'.
The rating actions follow the completion of the sales process
between CapVest's private equity Funds III and IV (including
related financing).
The downgrade reflects the use of the incremental debt raised
solely to fund the acquisition price and not deployed to enhance
the business profile or EBITDA. Fitch estimates Curium's
post-transaction funds from operations (FFO) gross leverage to rise
above 8.5x at FYE20 (December year-end) from 5.3x at FYE19. Despite
strong deleveraging capacity, the incremental debt will leave
Curium's leverage around 6.5x, a level more consistent with a 'B'
IDR for the sector, over the rating horizon. The reduced financial
flexibility resulting from the increase in leverage also drives the
one-notch downgrade.
The IDR and Stable Outlook are underpinned by Fitch’s expectation
of steady underlying operations with sustainably positive organic
revenue growth underpinning the launch of new product lines and
acquired revenues.
KEY RATING DRIVERS
Manageable Pandemic Impact: Fitch expects top-line growth to be
slightly negative for 2020, reflecting some demand disruption from
hospitals allocating resources towards treating Covid-19 patients,
away from nuclear imaging scans in 2Q20. However, Fitch expects the
recovery that began in 2H20 to continue into 2021, with a return to
normal testing volumes and new product launches allowing Curium to
exceed pre-pandemic EBITDA in 2021.
However, while the pandemic continues, there is a risk that volumes
and profit margins could be lower than expected by Fitch in the
autumn and winter months, especially in the event of renewed or
more generalised lockdowns, with hospitals becoming overwhelmed
again and delaying the recovery trajectory to 2021. A much longer
or protracted pace of recovery could put further negative pressure
on the IDR, if profit stagnation is not compensated by material
cash preservation actions, resulting in lack of visibility of
deleveraging.
Strong Position in Niche Market: Curium's solid market leadership
in the nuclear medicine industry means no other competitor is able
to service Curium's geographical footprint or product range. The
company's vertical integration allows it to have control from the
sourcing of radioactive substances to the distribution of products
to end users, underpinning a robust business model.
Despite being a dominant player in a niche industry, Curium's
business model is heavily influenced by rather weak product
diversification and scale relative to broader healthcare peers. A
meaningful increase in Curium's scale would most likely be achieved
via debt-funded M&A, likely to further elevate the company's
leverage profile in the medium term.
Deleveraging Capacity Remains Strong: Following the transaction,
Fitch expects FFO gross leverage to rise above 8.5x and stay above
7.0x in 2021, a level that would be consistent with a lower rating.
However, Fitch expects a steady pace of organic deleveraging (by
2.0x by 2023), given an envisaged return to uninterrupted testing
volumes and subsequent margin improvement exploiting Curium's
operational leverage. Nevertheless, Fitch expects leverage to
remain at sustained high levels of 6.5x by 2023, reducing interest
coverage and the generation of free cash flow (FCF) to levels more
commensurate with a 'B' financial profile.
Moderate Execution Risks: Aside from any pandemic-related near-term
performance volatility, Fitch believes that Curium will continue
its acquisitive strategy, as this is central to the sponsors' value
creation strategy. Fitch’s view of moderate execution risks
reflects the broad scope (and scale) of possible acquisitions and
subsequent integration, of which there is a limited track record.
Being vertically integrated offers a variety of opportunities for
further consolidation, which creates some uncertainty about how the
business model will evolve.
Industry with High Barriers to Entry: The nuclear medicine industry
exhibits very high barriers to entry as strict regulatory approvals
are required from both nuclear and medical agencies, as well as
clearance at various customs for transportation. Fitch believes the
creation of Curium consolidates key markets (the US and the EU),
further entrenching the position of existing players, as entry into
the niche industry would require a significant up-front capital
investment. This remains an important consideration supporting
Fitch’s assessment of Curium's robust business model.
DERIVATION SUMMARY
Fitch applies its rating navigator framework for producers of
medical products and devices in assessing Curium's rating, also
against peers. Larger medical devices-focused peers such as Boston
Scientific Corporation (BBB/Stable) and Fresenius SE & Co. KGaA
(BBB-/Stable) do not necessarily relate to Curium's line of
business. Nevertheless, both issuers clearly illustrate the
benefits of size upon ratings (revenue of more than EUR10 billion)
and diversified product offering, which in the case of Fresenius
offsets about 4.5x FFO adjusted leverage for an investment grade
rating.
Upon completion of the transaction Curium's rating has converged
with the ratings of European lab testing companies, such as Synlab
(B/Positive), which operates with slightly higher levels of
leverage (8.0x) due to its continuing "buy and build" strategy,
similar to CAB Societe d'exercice liberal par actions simplifiee
(CAB; B/Negative). However, both lab testing groups will continue
to have notably larger operations than Curium.
KEY ASSUMPTIONS
-- Revenue increasing above EUR700 million by 2022 driven by
organic growth and bolt-on M&A;
-- EBITDA margins trending towards 30% by 2022;
-- Modest annual working capital outflows of EUR5 million 2021;
-- Capex intensity at around 10% of sales, supporting new product
launches;
-- Bolt-on M&A of EUR20 million per year;
-- No dividend distributions.
KEY RECOVERY RATING ASSUMPTIONS
-- Curium would be considered a going concern in bankruptcy and
would be reorganised rather than liquidated;
-- Curium's post-reorganisation, going-concern EBITDA reflects
Fitch's view of a sustainable EBITDA that is 33% below 2019's
Fitch-defined EBITDA of EUR164 million. In such a scenario,
the stress on EBITDA would most likely result from severe
operational or/and regulatory issues;
-- A distressed EV/EBITDA multiple of 6.0x has been applied to
calculate a going-concern enterprise value; this multiple
reflects the group's strong infrastructure capabilities,
leading market positions and FCF capabilities;
-- Based on the payment waterfall, the enlarged revolving credit
facility (RCF) of EUR200 million ranks pari passu with the
senior secured term loans, EUR960 million equivalent. After
deducting 10% for administrative claims, Fitch’s waterfall
analysis therefore generates a ranked recovery for the senior
secured loans in the 'RR3' band, indicating a 'B+' instrument
rating, maintaining the one-notch uplift from the IDR. The
waterfall analysis output percentage on current metrics and
assumptions was 55%.
-- The recovery rating for the placed second-lien loans is 'RR6'
with 0% expected recoveries, driving the 'CCC+' rating, two
notches below the IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Maintenance of a financial policy driving FFO gross leverage
below 6.0x on a sustained basis;
-- Better product and geographical diversification indicative of
successful operational integration and execution of
acquisitions;
-- Enhanced profitability evident in improved scale and pricing
power reflected in FCF margin staying well above 5%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Operational challenges or loss of contracts that would lead to
a stable decline in revenues eroding the EBITDA margin towards
25%;
-- FFO gross leverage sustained above 8.0x beyond 2021;
-- Neutral to mildly positive FCF margin, reflecting limited
organic deleveraging capabilities;
-- Loss of regulatory approval relating to the
handling/processing of nuclear substances or key products in
core markets (the US and the EU).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity Post Transaction: The higher debt burden
partly erodes the group's financial flexibility, even though Fitch
expects FCF will remain positive in the low-to-mid single digits
(around 5% of sales from 2022). Curium will have access to an
enlarged EUR200 million RCF, in addition to EUR55 million of
factoring facilities available to help manage intra-year working
capital needs. Fitch does not foresee a notable build-up of cash on
balance sheet in the medium term despite the expectation of strong
FCF margins; excess funds will likely to be quickly deployed
towards new product launches and selective M&A.
ESG CONSIDERATIONS
Curium has an ESG Relevance Score of 3 for Waste & Hazardous
Materials Management; Ecological impacts due to the production and
transportation of radioactive materials central to its operations.
The successful management of handling hazardous materials and
corresponding ecological impacts means that there is no influence
on Curium's rating at the current level. Production of radioactive
material leads to contamination of the production sites, so Curium
is obliged to fully decommission and decontaminate such sites when
no longer used. Nevertheless, per the company's disclosure under
its IAS 37 requirements, no decommissioning will start taking place
until 2048 at earliest, with environmental accounting provisions
and bank guarantees in place.
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.
MANGROVE LUXCO: S&P Downgrades Rating to 'CCC+', Outlook Negative
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S&P Global Ratings lowered its ratings on heat exchanger maker
Mangrove LuxCo III and its senior secured notes to 'CCC+' from
'B-', and its rating on the company's super senior revolving credit
facility (RCF) and guarantee facility to 'B' from 'B+'; the
recovery ratings on the debt remain at '4' and '1' respectively.
The negative outlook reflects its view that the group's
profitability, cash flows, and liquidity might deteriorate more
than anticipated amid the uncertain economic environment, alongside
execution risk linked to its planned restructuring.
The global recession resulting from the COVID-19 pandemic has
materially affected Mangrove's end markets, in particular the oil
and gas industry. Low commodity prices have led to muted demand
from customers in the oil and gas industry. Furthermore Mangrove's
revenue has been negatively affected in the heating, ventilation,
and air conditioning (HVAC), and refrigeration segment, by delays
in project execution. As a result, the group's revenue declined by
about 9% year over year in the first nine months of 2020, and
EBITDA margins reached 6.4%. Besides the loss in volumes, new
restructuring charges will pressure the group's profitability for
the full year. S&P now expects Mangrove will achieve an S&P Global
Ratings-adjusted EBITDA margin of less than 3% in 2020 compared
with our previous forecast of more than 6.5%.
Subdued investment sentiment in core end markets will translate
into low order intake and implies a slow recovery of operating
performance in 2021. Mangrove's revenue declined by about 9% for
the nine months ended Sept. 30, 2020, and its order intake was down
27% compared with the previous year's level. This is primarily due
to cautious order placements from oil and gas customers and, to
some extent, a reduced product offering at Mangrove's ENEXIO
division. Owing to the smaller order backlog, S&P expects a
sluggish recovery, with revenue remaining broadly flat, but EBITDA
margins to recover to about 6.5% in 2021 (versus our previous
projection of 7.6%). The rebound of the EBITDA margin will likely
stem from lower restructuring charges, the sale and wind-down of
the cyclical low-margin dry cooling business, benefits from the
planned cost-optimization program, and positive volume effects at
Kelvion.
Likely weak credit metrics and negative FOCF over the next 12 to 18
months will hamper Mangrove's deleveraging prospects, raising
concerns that financial commitments might not be sustainable over
the long term. S&P said, "We estimate that debt to EBITDA will
increase to about 17.0x in 2020 due to the sharp drop in EBITDA.
For 2021, we project a decline to below 8.5x on an expected
recovery in EBITDA. At the same time, the funds from operations
(FFO) cash interest coverage ratio will remain below 1.0 in 2020
and is likely to improve only gradually to 1.0x-1.5x in 2021. We
forecast negative FOCF in 2020, reflecting the group's weak
profitability and, in 2021, also high outflows relating to the
wind-down of the dry cooling operations and other provisions. We
estimate a gradual improvement in FOCF toward the second half of
2021 when operating performance should gain traction."
The group's financial covenants have been reset, providing some
headroom for the upcoming restructuring and recovery phase. S&P
said, "We understand that the group has successfully negotiated a
reset of the financial covenants in its super senior facilities.
This became necessary due to the sharp decline in EBITDA, which
meant the company was unlikely to pass the next covenant test
without a reset. The financial covenants include a minimum
liquidity, net leverage, and minimum EBITDA requirement. With the
reset, the group should have sufficient headroom over the coming 12
to 18 months. However, we estimate that headroom will remain below
15% before operating performance gains traction toward the end of
2021. With that, we have changed our liquidity assessment to less
than adequate from adequate. We note as positive that the group has
about EUR60 million of unrestricted cash on hand, full access to
its EUR65 million RCF, a long-dated maturity profile, and an option
to capitalize interest payments in 2021, which would support
liquidity if needed. However, we don't anticipate that in our
base-case scenario."
S&P said, "The negative outlook reflects our view that the group's
profitability, cash flows, and liquidity might deteriorate more
than anticipated amid the uncertain global economic environment,
alongside execution risk linked to its planned restructuring. It
also reflects our expectation that Mangrove's operating performance
will recover only slowly in 2021 and below our previous
expectations, reflecting cautious order placement of clients,
primarily in the oil and gas industry. Profitability and cash flow
generation will be depressed by restructuring measures, including
the closing of ENEXIO's dry cooling operations, resulting in
negative FOCF in 2021.
"The uncertain global economic environment, weak commodity prices,
and potential failure of the restructuring plan could lead to
weaker-than-expected profitability and ultimately weaker cash
generation, translating into lower liquid sources, which could
result in a payment crisis. We could lower the rating if the
group's operating performance and profitability do not recover as
expected, leading to even lower cash generation and a liquidity
crisis. Additionally, inability to comply with financial covenants,
would likely trigger a downgrade.
"We could raise the rating if the group can sustainably improve its
profitability and operating performance, translating into positive
FOCF and an FFO cash interest coverage ratio higher than 1.5x. We
estimate that, to achieve positive FOCF, the group would need to
generate at least EUR85 million-EUR90 million of EBITDA, which we
view as unlikely over the next 12 to 18 months."
MILLICOM INT’L: Fitch Affirms BB+ Long-Term IDRs, Outlook Stable
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Fitch Ratings has affirmed Millicom International Cellular, S.A.'s
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB+'/Outlook Stable. In addition, Fitch has affirmed Millicom's
senior unsecured debt at 'BB+'.
Millicom's ratings reflect geographic diversification, strong brand
recognition and network quality, all of which contributed to
leading positions in key markets, a strong subscriber base, and
solid operating cash flow generation. In addition, the rapid uptake
in subscriber data usage and Millicom's ongoing expansion into the
underpenetrated fixed-line services bode well for medium- to
long-term revenue growth.
Despite the company's diversification benefits, Millicom's ratings
are tempered by the issuer's presence in countries in Latin America
with low sovereign ratings and low GDP per capita. The operational
environment in these regions, in terms of political and regulatory
stability and economic conditions, tends to be more volatile than
in developed markets. Millicom's ratings are currently constrained
by the operating environments and country ceilings of operations
that contribute to significant dividend flow, mainly Guatemala and
Paraguay.
KEY RATING DRIVERS
Strong Upstream Dividends: Creditors of the holding company are
subject to structural subordination to the creditors of the
operating subsidiaries given that all cash flows are generated by
subsidiaries. Millicom's ratings are limited to BB+ due to the
majority of upstream dividends coming from non-investment grade
countries. Over the past few years, Millicom has received a
majority of dividends and upstreams from operations in Guatemala
and Paraguay, and Fitch expects this trend to continue during the
next couple of years.
Millicom's subsidiaries in investment-grade countries include
Panama and Colombia; Fitch does not expect these operations to
upstream material dividends over the rating horizon as funds are
either reinvested in the business or used to reduce debt.
Positively, Fitch believes that a stable and high level of cash
upstreams, through dividends and management fees from its
subsidiaries, will likely remain intact over the long term and will
mitigate any risk stemming from this structural weakness.
Millicom's adequate amount of available hard-currency cash also
augments the company's ability to service its debt.
Strong Market Positions: Fitch expects Millicom's strong market
position to remain intact, supported by network quality and
extensive coverage, strong brand recognition and growing fixed-line
home operations (cable and broadband). The company holds a number
one or number two position in most of the markets where it
operates. These qualities, exhibited across well-diversified
operational geographies, should enable the company to continue to
support stable cash flow generation and growth opportunities in
underpenetrated data and cable segments. As of Sept. 30, 2020, the
company maintained competitive market positions in its key mobile
markets of Guatemala, Paraguay, Colombia and Panama.
Improved Position in Central America: Millicom's acquisition of
Telefonica's mobile assets in Panama and Nicaragua improves its
service diversification and competitive position in Central America
by adding mobile services to countries in which the company already
has an existing fixed-line presence. Fitch expects Millicom to
benefit from leading market shares in these countries and increased
cross-selling opportunities. Millicom now has a convergent
fixed-mobile business in each of the markets in which it operates
throughout Latin America.
Deleveraging Expected: Millicom's debt-funded acquisitions over the
past year have added pressure on the company's financial position;
Fitch's calculated consolidated net leverage is expected to reach
3.3x in 2020. The ratings incorporate Fitch's expectation that the
company will reduce net leverage below 3.0x in the short to medium
term, backed by solid cash flow generation. Failure to reduce net
leverage below 3.0x would add pressure to the ratings at the
current level. Fitch expects Millicom's net leverage to reach 2.7x
by 2022.
Increased Competitive and Macroeconomic Pressures: Recent
performance has been impacted by increased macroeconomic and
political disruptions in Nicaragua, Paraguay and Bolivia. These
pressures have exacerbated the impact of increased competition and
have mainly affected the prepaid mobile and B2B segments. Fitch
expects average revenue per user (ARPU) in the mobile segment will
continue to be pressured as the company defends its market
positions amid an increase in competition throughout the region.
Millicom's growth strategy will be increasingly centered on mobile
data and fixed line home services (cable and broadband) as the
company seeks to alleviate pressure on declining voice and SMS
revenue. Fitch expects this strategy will allow the company to
maintain stable EBITDA generation over the medium term.
Pandemic's Impact on Telecoms: Fitch does not expect the same level
of disruption to telecom as other sectors from the coronavirus
pandemic. Increased screen and voice time, across both fixed and
mobile platforms, will likely be offset by declining disposable
income, pressuring revenues and EBITDA generation. A prolonged
recession or significant government intervention into telecom
operators' price-setting would be negative. The mobile markets
Millicom where operates are mostly prepaid, with approximately 85%
of subscribers opting for this plan. Prepaid customers are more
price-sensitive than those that opt for post-paid plans.
Positively, relatively low broadband penetration presents a
continued growth opportunity for Telecom service providers.
DERIVATION SUMMARY
Millicom's ratings are well positioned relative to regional telecom
peers in the 'BB' rating category based on a solid financial
profile, operational scale and diversification, as well as strong
positions in key markets. These strengths are offset by high
concentration in countries with low sovereign ratings in Latin
America and Africa, which tend to have more volatile economic
environments.
Millicom boasts a much stronger financial profile, compared with
diversified integrated telecom operators in the region such as
Cable & Wireless Communications Limited (BB-/Stable) and Digicel
Limited (CCC), supporting a higher, multi-notch rating. Millicom's
leverage is moderately higher than Empresa de Telecomunicaciones de
Bogota, S.A. E.S.P. (ETB; BB+/Stable) but benefits from a stronger
business profile that has leading market positions in multiple
markets. Millicom also has a stronger capital structure and
business profile than Axtel S.A.B. de C.V. (BB-/Positive), a
Mexican fixed-line operator. When compared to Colombia
Telecomunicaciones, S.A. E.S.P. (BBB-/Stable), an integrated
telecom operator, Millicom's consolidated net leverage compares
unfavorably.
KEY ASSUMPTIONS
Fitch's key assumptions within Fitch’s rating case for the issuer
include:
-- Low single-digit annual revenue contraction in 2020, due to
impact of closures and adverse FX impact; low-single-digit
revenue growth from 2021-2022.
-- Mobile service revenue contraction to be partly offset by
increasing mobile data revenues over the medium term.
-- Revenue contribution from mobile data and home service
operations to grow toward 60% of total revenues by YE2021.
-- Average Capex/Sales of 16% over the medium term.
-- No material shareholder distributions in the short term.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Material and consistent dividends from Millicom's subsidiaries
in Colombia and Panama;
-- Total adjusted net debt/EBITDA sustained at 2.5x or below over
the rating horizon;
-- Upgrades of the country ceiling of Guatemala and Paraguay to
'BBB-'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Consolidated total adjusted net debt/ EBITDA sustained at or
above 3.5x;
-- Holding company debt /upstream dividends received consistently
above 4.5x;
-- Downgrades of the country ceiling of Guatemala and Paraguay to
'BB'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity Profile: Millicom benefits from a good liquidity
position, given the company's large cash position that fully covers
short-term debt. As of Sept. 30, 2020, the consolidated group's
readily available cash was USD1,502 million, which covers its
short-term reported debt obligations of USD1,085 million. Fitch
does not foresee any liquidity problem for both the operating
companies and the holding company given the operating companies'
stable cash generation and consistent cash upstreaming to the
holding company. Millicom has a good track record in terms of
access to capital markets when in need of external financing,
further supporting its liquidity management.
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.
=========
M A L T A
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MELITA BIDCO: Moody's Completes Review, Retains B3 Rating
---------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Melita BidCo Limited and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review in which Moody's reassessed the
appropriateness of the ratings in the context of the relevant
principal methodology(ies), recent developments, and a comparison
of the financial and operating profile to similarly rated peers.
The review did not involve a rating committee. Since January 1,
2019, Moody's practice has been to issue a press release following
each periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
Melita BidCo Limited's B3 rating reflects the company's leading
position as an integrated telecommunications provider in a market
with strong growth prospects. The rating also reflects the
company's high margins and its good quality cable network and
product offering.
The rating also takes into consideration its high leverage, its
limited size and the lack of geographical diversification.
The principal methodology used for this review was
Telecommunications Service Providers published in January 2017.
=====================
N E T H E R L A N D S
=====================
ADRIA MIDCO: Moody's Completes Review, Retains B2 Rating
--------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Adria Midco B.V. and other ratings that are associated
with the same analytical unit. The review was conducted through a
portfolio review in which Moody's reassessed the appropriateness of
the ratings in the context of the relevant principal methodology,
recent developments, and a comparison of the financial and
operating profile to similarly rated peers. The review did not
involve a rating committee. Since January 1, 2019, Moody's practice
has been to issue a press release following each periodic review to
announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
Adria Midco's B2 rating is supported by its sound operational
performance; the considerable improvement in the scale of revenues
and EBITDA; and the positive track record of integrating acquired
companies.
Constraining factors for the rating include its high leverage ratio
for the rating category, the currently constrained free cash flow
generation, and the company's appetite for debt financed
acquisitions, which preclude from significant deleveraging.
The principal methodology used for this review was
Telecommunications Service Providers published in January 2017.
EUROSAIL-NL 2007-2: Fitch Affirms 'CCCsf' Rating on 2 Tranches
--------------------------------------------------------------
Fitch Ratings has upgraded two tranches each of Eurosail-NL 2007-1
B.V. (Eurosail 2007-1) and Eurosail-NL 2007-2 B.V. (Eurosail
2007-2), and affirmed the rest as listed below.
DEBT RATING PRIOR
---- ------ -----
Eurosail-NL 2007-2 B.V.
Class A XS0327216569 LT A+sf Upgrade A-sf
Class B XS0327217880 LT Bsf Affirmed Bsf
Class C XS0327218425 LT CCCsf Affirmed CCCsf
Class D1 XS0327219159 LT CCCsf Affirmed CCCsf
Class M XS0330526772 LT BBBsf Upgrade BB+sf
Eurosail-NL 2007-1 B.V.
Class A XS0307254259 LT A+sf Affirmed A+sf
Class B XS0307256114 LT A+sf Upgrade Asf
Class C XS0307257435 LT BBB+sf Upgrade BB+sf
Class D XS0307260496 LT CCCsf Affirmed CCCsf
Class E1 XS0307265370 LT CCCsf Affirmed CCCsf
TRANSACTION SUMMARY
The transactions are securitisations of Dutch residential mortgages
originated by ELQ Portefeuille I BV.
KEY RATING DRIVERS
Pandemic-Related Alternative Assumptions
In July 2020, Fitch published its coronavirus-related assumptions
(see EMEA RMBS: Criteria Assumptions Updated due to Impact of the
Coronavirus Pandemic). Fitch has now applied these assumptions to
the Eurosail portfolios and consider the ratings sufficiently
robust to withstand the stresses, leading to today's affirmations.
The upgrade of Eurosail 2007-1 class B and C as well as of Eurosail
2007-2 class A and M reflects increases in credit enhancement (CE)
that have more than offset the additional stresses.
Stable Asset Performance to Date
Portfolio performance data as of October 2020 did not show signs of
deterioration due to the pandemic. Since January, the share of
performing loans has increased by 4pp for Eurosail 2007-1 and by
2pp for Eurosail 2007-2. Late-stage arrears remain high (over 2.5%
arrears of three months or more in October 2020) compared with the
equivalent measure in the Fitch Netherlands All Deals Index (0.3%
as of October 2020). Fitch expects arrears in Dutch RMBS to
increase once government-support programmes expire.
As the arrears in these two transactions are already high and have
been declining so far, Fitch has not applied an arrears adjustment
(see EMEA RMBS: Criteria Assumptions Updated due to Impact of the
Coronavirus Pandemic).
Low Payment Holiday Take-Up
In line with other Dutch RMBS, the amount of loans on payment
holidays was low, at around 1% of the collateral balance in
October. The payment holidays (deferral of principal and interest
payments) were only available until end-September 2020 and for a
maximum term of three months. As such, the affected proportion of
these pools will continue to decline. Given the transactions' low
and declining exposure to payment holidays, Fitch has not adjusted
Fitch’s cash flow analysis for payment holidays (see EMEA RMBS:
Criteria Assumptions Updated due to Impact of the Coronavirus
Pandemic).
Originator Adjustment
To account for the significant portion of borrowers with adverse
credit characteristics, Fitch applied originator adjustments of
3.35x for Eurosail 2007-1 and 3.1x for Eurosail 2007-2. These
adjustments address the portfolios' sub-standard credit quality and
the weak performance reported since closing compared with prime
Dutch RMBS.
Ratings Capped in the 'Asf' category
Fitch currently views the transactions' portfolio characteristics
as not compatible with high investment-grade categories (AA-sf or
higher). The cap aims to account for residual uncertainty around
high maturity concentrations of interest-only loans in combination
with the non-standard nature of the assets in both transaction
portfolios. Consequently, Fitch has capped the transactions'
ratings in the 'Asf' rating category. As a result, Eurosail
2007-1's class A notes have been affirmed and class B notes
upgraded to 'A+sf'.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable or improved asset performance, driven by a stable or
declining number of delinquencies and foreclosures, would lead
to increased CE and, potentially, upgrades. For instance,
Fitch tested an additional rating sensitivity scenario by
applying a decrease in the weighted average foreclosure
frequency (WAFF) of 15% and an increase in the weighted
average recovery rate (WARR) of 15%, all else being equal. In
such a scenario, Eurosail 2007-1 class C and D notes would be
upgraded to 'A+sf' and 'B-sf', respectively, and Eurosail
2007-2 class M notes would be upgraded to 'BBB+sf', while all
other notes' ratings would remain unchanged.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Unanticipated increases in frequency of defaults or decreases
in recovery rates could result in larger losses.
-- A longer-than-expected deterioration of macroeconomic and the
mortgage market fundamentals could result in increasing levels
of delinquencies and foreclosures, which could reduce CE
available to the notes.
-- Since the notes can be called net of amounts on the respective
principal deficiency ledger (PDL), occurrence of material PDLs
in Fitch's cash flow analysis over the life of the
transactions may trigger negative rating actions.
Coronavirus Downside Sensitivity Scenario:
As outlined in "Fitch Ratings Coronavirus Scenarios: Baseline and
Downside Cases - Update", Fitch has considered a more severe
downside coronavirus scenario for sensitivity purposes whereby a
more severe health crisis and a prolonged period of stress is
assumed. In this scenario, targeted measures to contain the virus
have had limited success, resulting in more frequent and severe
lockdowns to the breaking point until late 1H21. Setbacks in
efficiency or availability of vaccines delay a confidence boost
from a medical solution. Fitch has assumed an increase in defaults
of 15% and a decrease in recoveries of 15%. In such a scenario, the
notes' ratings would be about one category lower than the current
ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
CRITERIA VARIATION
The portfolios comprise over 90% of interest-only loans with
maturity profiles clustered within a short two-year period, close
to the notes' final legal maturity, exposing the structures to the
risk of extended recovery timings (beyond Fitch's standard
assumptions) that may put pressure on the issuers' ability to meet
the payments due to the noteholders. To account for this perceived
maturity concentration risk, Fitch applied a criteria variation by
changing the distribution of defaults for the back-loaded default
curve and extending the recovery timing for additional 18 months
across all rating scenarios.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. There were no findings that affected
the rating analysis. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied on for its initial rating analysis
was adequately reliable.
Overall, Fitch's assessment of the information relied on for the
agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
ESG CONSIDERATIONS
Eurosail 2007-1 and Eurosail 2007-2 have an ESG Relevance Score of
4 for Transaction Parties & Operational Risk due to weaker
underwriting standards applied by the originator that have
manifested in weaker-than market performance of the asset
portfolio. This is reflected in originator adjustments to the
foreclosure frequency, 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'. 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.
PPF TELECOM: Moody's Completes Review, Retains Ba1 CFR
------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of PPF Telecom Group B.V. and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review in which Moody's reassessed the
appropriateness of the ratings in the context of the relevant
principal methodology(ies), recent developments, and a comparison
of the financial and operating profile to similarly rated peers.
The review did not involve a rating committee. Since January 1,
2019, Moody's practice has been to issue a press release following
each periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
PPF Telecom B.V.'s Ba1 CFR reflects its strong business profile as
the integrated incumbent operator in the Czech Republic and its
good geographic diversification across the CEE area; its good
margins and robust operating cash flow generation; and its
commitment to maintain leverage as per management's public
guidance. The Ba1 CFR also takes into consideration the company's
moderate scale, the mobile-only operations in the CEE region
position, the low retained cash flow metrics driven by the large
dividend payments and the structural subordination of PPF Telecom's
debt relative to external debt raised at operating companies.
The principal methodology used for this review was
Telecommunications Service Providers published in January 2017.
UPC HOLDING: Moody's Completes Review, Retains B1 CFR
-----------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of UPC Holding B.V. and other ratings that are associated
with the same analytical unit. The review was conducted through a
portfolio review in which Moody's reassessed the appropriateness of
the ratings in the context of the relevant principal
methodology(ies), recent developments, and a comparison of the
financial and operating profile to similarly rated peers. The
review did not involve a rating committee. Since January 1, 2019,
Moody's practice has been to issue a press release following each
periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
UPC Holding B.V.'s B1 corporate family rating reflects the improved
business profile of the company pro forma for the acquisition of
Sunrise Communications Group AG thanks to its larger scale,
significant market share, and fixed-mobile convergence, the
significant synergies to be extracted from the integration of
Sunrise, and the good quality of UPC's DOCSIS 3.1-ready network and
Sunrise's 4G/5G mobile network.
These strengths are mitigated by the company's high adjusted
leverage pro forma for the acquisition of Sunrise, limited
deleveraging prospects based on the company's net leverage target
of 5.0x (as reported by the company), the continued pressure on
revenues and earnings at UPC resulting from the increasing
competition in the Swiss telecom market.
The principal methodology used for this review was
Telecommunications Service Providers published in January 2017.
VODAFONEZIGGO GROUP: Moody's Completes Review, Retains B1 CFR
-------------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of VodafoneZiggo Group B.V. and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review in which Moody's reassessed the
appropriateness of the ratings in the context of the relevant
principal methodology(ies), recent developments, and a comparison
of the financial and operating profile to similarly rated peers.
The review did not involve a rating committee. Since January 1,
2019, Moody's practice has been to issue a press release following
each periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
VodafoneZiggo Group B.V.'s B1 corporate family rating reflects good
traction of its converged fixed mobile services increasing customer
stickiness, its competitive network advantage supported by the
DOCSIS 3.1 technology as well as well-invested mobile network, and
significant underlying cash flow generation potential although the
company has been distributing most of the excess cash to its
shareholders.
However, the rating remains constrained by the company's high
Moody's adjusted leverage and VodafoneZiggo's exposure to the
highly competitive communications market in the Netherlands which
has nevertheless benefited from the merger of Tele2 AB and T-Mobile
Nederland BV.
The principal methodology used for this review was
Telecommunications Service Providers published in January 2017.
===========
R U S S I A
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CHUVASHIA REPUBLIC: Moody's Completes Review, Retains Ba2 Rating
----------------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Chuvashia, Republic of and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review in which Moody's reassessed the
appropriateness of the ratings in the context of the relevant
principal methodology, recent developments, and a comparison of the
financial and operating profile to similarly rated peers. The
review did not involve a rating committee. Since January 1, 2019,
Moody's practice has been to issue a press release following each
periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
The credit profile of the Republic of Chuvashia (Ba2) reflects
historically conservative budgetary policy translating into modest
leverage, low interest expenses and historically sound operating
performance. At the same time, the credit profile is constrained by
overall weakness of the local economy with limited growth
prospects, contracting population and economic output per capita
just below half of the Russian average. It reduces budgetary
flexibility and can lead to debt growth during significant and
prolonged economic shock.
The principal methodology used for this review was Regional and
Local Governments published in January 2018.
KRASNODAR KRAI: Moody's Completes Review, Retains Ba2 Rating
------------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Krasnodar, Krai of and other ratings that are associated
with the same analytical unit. The review was conducted through a
portfolio review in which Moody's reassessed the appropriateness of
the ratings in the context of the relevant principal methodology,
recent developments, and a comparison of the financial and
operating profile to similarly rated peers. The review did not
involve a rating committee. Since January 1, 2019, Moody's practice
has been to issue a press release following each periodic review to
announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
The credit profile of Krai of Krasnodar (Ba2) reflects the region's
relatively diversified economy which ensures diversified revenue
base and good budgetary performance. Rapidly growing local
population and good dynamics of investments should bolster
long-term economic growth potential. Local authorities' budget
consolidation efforts and better tax administration helped
improving budget resilience to economic downturns: decreased
leverage to moderate levels and reduced refinancing risks to low
levels. The credit profile is constrained by the significant
spending requirements which negatively affect budgetary
flexibility.
The principal methodology used for this review was Regional and
Local Governments published in January 2018.
PROMSVYAZBANK: Moody's Hikes Long-Term Bank Deposit Ratings to Ba2
------------------------------------------------------------------
Moody's Investors Service upgraded the long-term foreign and local
currency bank deposit ratings of Promsvyazbank to Ba2 from Ba3. The
rating agency also upgraded the bank's long-term Counterparty Risk
Assessment to Ba1(cr) from Ba2(cr), its long-term local and foreign
currency Counterparty Risk Ratings to Ba1 from Ba2, and the
Baseline Credit Assessment and Adjusted BCA to b3 from caa1. The
outlook on the long-term bank deposit ratings remains positive.
Concurrently, Moody's affirmed PSB's short-term bank deposit
ratings and short-term CRRs of Not Prime, and the short-term CR
Assessment at NP(cr).
RATINGS RATIONALE
The upgrade of the bank's BCA, Adjusted BCA and bank deposit
ratings was driven by the steady revamp of the bank's business
model and recovery of its profitability since the end of 2017 when
PSB was bailed out by the Central Bank of Russia.
Despite a difficult operating environment in Russia, PSB reported
improved profitability over the first nine months of 2020, with an
annualised return on tangible assets of 0.8%, up from 0.7% in 2019
and 0.1% in 2018. This result was bolstered by an improved net
interest margin of 3.1%, up from 2.9% in 2019, thanks in part to a
decline in problem loans. Credit costs remained modest at 0.6% of
the average net loan book, which reflected the limited impact on
the bank's borrowers from lockdown measures introduced by the
Russian authorities earlier this year.
Moody's assesses PSB's asset quality as weak. Although problem
loans have declined and are well provisioned, loan growth has been
very rapid and is increasingly concentrated on large companies in
the defence sector .
PSB's loss absorption buffer is good, with its Tangible Common
Equity to risk-weighted assets ratio of 10.7% as of September 30,
2020, while the coverage of problem loans by reserves was solid at
93%. The bank's rapid loan book growth over the recent years has
been supported by regular equity injections from the state via
Ministry of Finance, in particular, RUB25 billion in 2018 and
RUB33.2 billion in 2019. In December 2020 PSB registered additional
share issue of RUB31.8 billion, which will increase TCE/RWA ratio
by about 1.5 percentage points.
The bank maintained a robust liquidity buffer of 35% of total
assets as of September 30, 2020, which comprised mainly cash and
equivalents, the Russian government and CBR bonds. Customer
deposits remained the bank's main source of funding and accounted
for 80% of total liabilities as of the same date.
VERY HIGH GOVERNMENT SUPPORT
Moody's incorporates a very high likelihood of support for PSB's
deposits from the Russian government, resulting in four notches of
uplift for these ratings from the BCA of b3. This view is
underpinned by 100% ownership of the bank by the state since June
2018 followed by regular equity injections by MinFin; PSB's status
as a systemically important bank (with a significant market share
by assets among the ten largest Russian banks; and a special
mandate to service the defence sector and its dominant market
position in state defence order. PSB's strategic objective is to
service up to 70% of Russia's defence industry by 2022, up from 60%
of state defence order this year.
POSITIVE OUTLOOK
The positive outlook reflects Moody's expectations that the bank's
business model and profitability will strengthen further supported
by increasing share in the state defence order, while its key
credit metrics such as asset quality, capital adequacy and
liquidity will remain resilient over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The bank's BCA could be upgraded if the bank proves sustainability
of its business model under the defence industry service mandate
through the cycle, or materially improves its financial and
non-financial disclosures, or further improves its solvency
metrics. Moody's could upgrade the deposit ratings if the bank's
BCA was upgraded, but this would also depend on an updated
assessment of further government support.
The bank's BCA could be downgraded if the bank's solvency or
liquidity deteriorated significantly, which is not currently
expected. The ratings could be downgraded in the unlikely event
that PSB's public-sector mandate diminished or if the Russian
government appeared less likely to continue its support to PSB or
SIBs more generally.
LIST OF AFFECTED RATINGS
Issuer: Promsvyazbank
Upgrades:
Adjusted Baseline Credit Assessment, Upgraded to b3 from caa1
Baseline Credit Assessment, Upgraded to b3 from caa1
Long-term Counterparty Risk Assessment, Upgraded to Ba1(cr) from
Ba2(cr)
Long-term Counterparty Risk Ratings, Upgraded to Ba1 from Ba2
Senior Unsecured Medium-Term Note Program, Upgraded to (P)Ba2 from
(P)Ba3
Long-term Bank Deposit Ratings, Upgraded to Ba2 from Ba3, Outlook
Remains Positive
Affirmations:
Short-term Counterparty Risk Assessment, Affirmed NP(cr)
Short-term Counterparty Risk Ratings, Affirmed NP
Short-term Bank Deposit Ratings, Affirmed NP
Outlook Action:
Outlook, Remains Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in November 2019.
=========
S P A I N
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TDA CAM 6: Fitch Affirms 'Bsf' Rating on Class B Notes
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Fitch Ratings has affirmed two Spanish RMBS TDA CAM transactions.
The Outlooks are Stable. A full list of rating actions is below.
DEBT RATING PRIOR
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TDA CAM 6, FTA
Class A3 ES0377993029 LT A+sf Affirmed A+sf
Class B ES0377993037 LT Bsf Affirmed Bsf
TDA CAM 4, FTA
Class A ES0377991007 LT AAAsf Affirmed AAAsf
Class B ES0377991015 LT Asf Affirmed Asf
TRANSACTION SUMMARY
The transactions comprise fully amortising Spanish residential
mortgages serviced by Banco de Sabadell S.A. (BBB-/Stable/F3).
KEY RATING DRIVERS
Counterparty Risks Cap Ratings
TdA CAM 4's class B notes' rating is capped at the issuer account
bank provider's deposit rating (Societe Generale S.A.,
A-/Stable/F1, deposit rating A), as the main source of structural
credit enhancement (CE) for the notes is the reserve fund held at
the account bank. The rating cap reflects the excessive
counterparty dependence on the SPV account bank holding the cash
reserves, as the sudden loss of these amounts could imply a
downgrade of 10 or more notches of the notes in accordance with
Fitch's Structured Finance and Covered Bonds Counterparty Rating
Criteria.
Fitch views the payment interruption risk for TdA CAM 6 as
insufficiently mitigated because the available liquidity source
(reserve fund) has proved volatile and may be depleted in case of
performance deterioration so it would be insufficient to cover
senior fees, net swap payments and senior notes' interest in the
event of a servicer disruption. The notes' maximum achievable
ratings are commensurate with the 'Asf' category, in line with
Fitch's Structured Finance and Covered Bonds Counterparty Rating
Criteria.
Resilient to Coronavirus Additional Stresses
The affirmations with Stable Outlooks reflect Fitch’s view that
the notes are sufficiently protected by CE and excess spread to
absorb the additional projected losses driven by the coronavirus
and the related containment measures, which are producing an
economic recession and increased unemployment in Spain. Fitch also
considers a downside coronavirus scenario for sensitivity purposes
whereby a more severe and prolonged period of stress is assumed,
which accommodates a further 15% increase to the portfolio weighted
average foreclosure frequency (WAFF) and a 15% decrease to the WA
recovery rates (WARR).
Fitch expects structural CE to continue increasing in the short
term for both transactions given the prevailing sequential
amortisation of the notes. However, the CE ratio for the senior and
junior notes of TdA CAM 6 could reduce in the medium term if the
transaction complies with contractually defined performance
triggers that permit the reserve fund to reduce to its absolute
floor. Fitch views these CE trends as sufficient to withstand the
rating stresses commensurate with the affirmations.
Catalonia Lease Stresses
The rating analysis reflects the potentially adverse effects of
Catalonian Decree Law 17/2019, which allows some defaulted
borrowers in the region that meet defined eligibility criteria to
remain in their homes as tenants for as long as 14 years paying a
low monthly rent. The share of the portfolio balance that is
located in Catalonia ranges between 13% and 18% for both
transactions. Fitch's analysis has accounted for a longer recovery
timing on future loan defaults in Catalonia that ranges between 72
and 96 months under 'B' and 'AAA' rating stresses, respectively,
which compares with 48 and 60 months applicable to other regions.
Low Payment Holidays Take-up
Fitch does not expect the Covid-19 emergency support measures
introduced by the Spanish government and banks for borrowers in
vulnerability to negatively affect the SPVs' liquidity positions,
given the very low take-up rate of payment holidays in both
transactions of less than 5% relative to the current portfolio
balances as of November 2020.
ESG Considerations
TdA CAM 6, FTA has an Environmental, Social and Governance (ESG)
Relevance Score of 5 for "Transaction & Collateral Structure" due
to payment interruption risk, which has a negative impact on the
credit profile, and is highly relevant to the rating, resulting in
a change to the rating of at least one-notch downgrade.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- TdA CAM 4's class A notes are rated at the highest level on
Fitch's scale and cannot be upgraded.
-- For TdA CAM 4's class B notes, an upgrade of the SPV account
bank's Long-Term Deposit Rating could trigger a corresponding
upgrade of the notes. This because the notes' rating is capped
at the bank's rating given the excessive counterparty risk
exposure.
-- For TdA CAM 6's class A notes, improved liquidity protection
against a servicer disruption event. This is because the
rating is capped at 'A+sf' driven by unmitigated payment
interruption risk.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- For TdA CAM 4's class A notes, a downgrade of Spain's Long
Term Issuer Default Rating (IDR) that could decrease the
maximum achievable rating for Spanish structured finance
transactions. This is because the class A notes are capped at
the 'AAAsf' maximum achievable rating in Spain, six notches
above the sovereign IDR.
-- For TdA CAM 4's class B notes, a downgrade of the SPV account
bank's long-term deposit rating could trigger a corresponding
downgrade of the notes. This is because the notes' rating is
capped at the bank's rating given the excessive counterparty
risk exposure.
-- A longer-than-expected coronavirus crisis that erodes
macroeconomic fundamentals and the mortgage market in Spain
beyond Fitch's current base case and downside sensitivities.
CE ratios unable to fully compensate the credit losses and
cash flow stresses associated with the current ratings
scenarios, all else being equal.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring. Fitch did not undertake a review of the information
provided about the underlying asset pool ahead of the transactions'
initial closing. The subsequent performance of the transactions
over the years is consistent with the agency's expectations given
the operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable. Overall, Fitch's assessment of the
information relied upon for the agency's rating analysis according
to its applicable rating methodologies indicates that it is
adequately reliable.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
TdA CAM 4's class B notes are capped at the issuer account bank
provider's deposit rating because the notes are exposed to an
excessive counterparty dependency risk.
ESG CONSIDERATIONS
TDA CAM 6, FTA: Transaction & Collateral Structure: '5'
TdA CAM 6, FTA has an Environmental, Social and Governance (ESG)
Relevance Score of '5' for "Transaction & Collateral Structure" due
to payment interruption risk, which has a negative impact on the
credit profile, and is highly relevant to the rating, resulting in
a change to the rating of at least one- notch downgrade.
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.
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S W E D E N
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SEB DIVERSIFIED: Board Opts to Put Fund Into Liquidation
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Citywire Selector reports that SEB Investment Management's global
quantitative investment team will leave the asset manager on Dec.
31 this year.
A spokesperson for the firm told Citywire Selector that the team
was led by Hans-Olov Bornemann and included Jan Hillerstroem,
Matthias Eriksson, Mikael Deckfors and Adam Ahlstroem-Montille.
According to Citywire Selector, they will hand over the management
of the SEB Asset Selection Lux to the quantitative investments &
liquid alternatives team at the firm.
Following the change, Otto Francke and Mikael Nilsson will be lead
managers on the fund and its investment strategy remains unchanged,
Citywire Selector discloses.
The global quant team also used to manage several SEB alternative
strategies, which included the SEB Diversified, SEB Diversified V8
and SEB Asset Selection Opportunistic funds, Citywire Selector
states.
On December 18, 2020, the board of directors decided that the SEB
Diversified fund will be put into liquidation, Citywire Selector
relays. The shareholders will vote on Jan. 12 whether to put the
other two alternative funds into liquidation, according to Citywire
Selector.
The SEB Asset Allocation fund lost 9.4% in euro terms over the last
three years to the end of November 2020, Citywire Selector notes.
SEB Investment Management is based in Stockholm, Sweden.
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T U R K E Y
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ISTANBUL METROPOLITAN: Moody's Completes Review, Retains B2 Rating
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Moody's Investors Service has completed a periodic review of the
ratings of Istanbul, Metropolitan Municipality of and other ratings
that are associated with the same analytical unit. The review was
conducted through a portfolio review in which Moody's reassessed
the appropriateness of the ratings in the context of the relevant
principal methodology, recent developments, and a comparison of the
financial and operating profile to similarly rated peers. The
review did not involve a rating committee. Since January 1, 2019,
Moody's practice has been to issue a press release following each
periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
The credit profile of the Metropolitan Municipality of Istanbul
(B2) reflects its large and diversified economy and robust
operating performance, predictable shared taxes paid by the central
government, a valuable asset and reserve base which provides fiscal
flexibility. The rating is also constrained by the city's
relatively high burden, which will further increase during 2020-21,
and the upward pressure on debt servicing costs given the city's
significant exposure to foreign currency debt and the depreciation
of the Turkish lira. Moody's expects a significant impact on
financial results in 2020 and 2021 from weaker revenues but also
additional cost related to the coronavirus pandemic. The city's
baseline credit assessment BCA is b2. Moody's assesses a moderate
likelihood that the Government of Turkey (B2) would provide support
if the city were to face acute liquidity stress.
The principal methodology used for this review was Regional and
Local Governments published in January 2018.
IZMIR METROPOLITAN: Moody's Completes Review, Retains B2 Rating
---------------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Izmir, Metropolitan Municipality of and other ratings
that are associated with the same analytical unit. The review was
conducted through a portfolio review in which Moody's reassessed
the appropriateness of the ratings in the context of the relevant
principal methodology, recent developments, and a comparison of the
financial and operating profile to similarly rated peers. The
review did not involve a rating committee. Since January 1, 2019,
Moody's practice has been to issue a press release following each
periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
The credit profile of the Metropolitan Municipality of Izmir (B2)
reflects its relatively high operating balance, although it is
expected to significantly weaken this year, and its large economic
base in the country. At the same time, the rating is constrained by
the moderately relatively high debt and the city's significant
exposure to foreign currency debt and the depreciation of the
Turkish lira. The deterioration in global economy following the
coronavirus outbreak impacts the Turkish economy significantly.
Moody's expects real gross domestic product to decline by 5%. As a
result for Izmir, Moody's expects a significant impact on financial
results in 2020 and 2021 from weaker revenues but also additional
costs related to the coronavirus pandemic. The city's baseline
credit assessment BCA is b2. Moody's assesses a moderate likelihood
that the Government of Turkey (B2) would provide support if the
city were to face acute liquidity stress.
The principal methodology used for this review was Regional and
Local Governments published in January 2018.
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U K R A I N E
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CITY OF KYIV: Fitch Gives 'B' Short-Term Rating to UAH570MM Bond
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Fitch Ratings has assigned Ukrainian City of Kyiv's UAH570 million
(Serie I, ISIN UA4000213847) and UAH200 million (Serie J, ISIN
UA4000213854) senior unsecured fixed 11% domestic bonds due 29
March 2021 (Serie I) and 29 April 2021 (Serie J) a short-term
rating of 'B'.
The assigned short-term rating 'B' is different to the expected
long-term rating of 'B(EXP)' assigned on 2 November 2020 due to
final information on the maturity of the bonds.
Simultaneously Fitch has withdrawn Kyiv's expected long-term senior
unsecured rating 'B(EXP)' assigned on 2 November 2020 as the
expected rating is no longer expected to convert to a final
rating.
KEY RATING DRIVERS
Kyiv's bond issue rating is equalised with the city's Short-term
Issuer Default Rating as the bonds are senior, unsecured
obligations and rank pari passu with the city's other senior
unsecured obligations.
Kyiv's IDRs are capped by the Ukrainian sovereign IDRs (B/Stable)
as the city's Standalone Credit Profile is higher at 'b+'. The City
of Kyiv is the capital of Ukraine and its economic and financial
centre with a population approaching three million inhabitants and
gross city product accounting for about 23% of the country's GDP.
Proceeds from this issue will be used to fund the city's capital
expenditure.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive action on Kyiv's ratings will be mirrored in the bond
issue's rating.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Negative action on Kyiv's ratings will be mirrored in the bond
issue's rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Kyiv's senior unsecured bond rating is linked to the Ukrainian
sovereign's IDR.
ESG CONSIDERATIONS
Kyiv has an ESG Relevance Score of '4' for 'Political Stability and
Rights' due to its exposure to the impact of political pressure or
instability on operations and tendency toward unpredictable policy
shifts which, in combination with other factors, have a negative
impact on the rating. 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.
===========================
U N I T E D K I N G D O M
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ADVANZ PHARMA: Moody's Completes Review, Retains B3 CFR
-------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of ADVANZ PHARMA Corp. Limited and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review in which Moody's reassessed the
appropriateness of the ratings in the context of the relevant
principal methodology, recent developments, and a comparison of the
financial and operating profile to similarly rated peers. The
review did not involve a rating committee. Since January 1, 2019,
Moody's practice has been to issue a press release following each
periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
ADVANZ PHARMA Corp. Limited's B3 corporate family rating reflects
the company's high leverage which will remain in the region of 6.0x
or above on a Moody's-adjusted basis because of its modestly
declining revenue and EBITDA organically. This regression calls for
product acquisitions to support earnings stabilisation and growth.
ADVANZ's credit profile is also constrained by some geographic
concentration in the UK where the company is subject to ESG risks
pertaining to pricing and litigation.
Those risks are offset by the company's good product and
therapeutic diversity, broad geographic presence, high profit
margins and solid free cash flow conversion before drug license
acquisitions thanks to limited capex requirements. ADVANZ also has
adequate liquidity through its cash balance, despite the absence of
a revolving credit facility.
The principal methodology used for this review was Pharmaceutical
Industry published in June 2017.
AVATION PLC: Fitch Downgrades Long-Term IDR to 'CC'
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Fitch Ratings has downgraded the Long-Term Issuer Default Ratings
(IDR) of Avation PLC and the subsidiaries, Avation Capital S.A. and
Avation Group (S) Pte. Ltd., to 'CC' from 'B'. Fitch has also
downgraded the rating of Avation Capital's senior unsecured notes
guaranteed by Avation to 'C' from 'B-' and maintained a 'RR5'
Recovery Rating. The ratings have been removed from Rating Watch
Negative.
KEY RATING DRIVERS
The downgrade of Avation's ratings reflects the imminent
refinancing risk for the company's senior unsecured bond due in May
2021. The 'CC' IDR reflects Fitch's expectation of a very high
level of credit risk and that an event of default or an exchange or
restructuring of existing debt is probable.
Avation has not finalised a plan for the upcoming maturity, and
Fitch believes that the company does not have sufficient liquidity
to repay the unsecured bond in full in the next six months. The
company's deteriorating credit profile and the wider challenges in
the aviation sector have severely affected its funding access. Rent
deferrals have weakened Avation's cash flow, despite the company
benefiting from a loan repayment deferral granted by its lenders.
Unrestricted cash amounted to $35 million at end-June 2020, against
the remaining outstanding bond of USD342.6 million at end-November
2020, after the company repurchased $7.4 million of unsecured debt
through the market at a deep discount.
In October 2020, Avation obtained a waiver on a minimum tangible
net worth/net debt ratio covenant that was in breach at end-June
2020, and the auditors expressed material uncertainty on the
company's ability to continue as a going concern in relation to the
extension or refinancing of the unsecured bond due in May 2021.
That said, Avation continues to operate. It paid the interest as
scheduled on the unsecured bond in November 2020. A debt
restructuring appears highly likely because of the size of the bond
coming due. Fitch would classify a debt restructuring as a
distressed debt exchange if the restructuring imposes a material
reduction in terms, compared with the original contractual terms,
and is conducted to avoid bankruptcy, similar insolvency or
intervention proceedings, or a traditional payment default.
Fitch continues to expect a slow recovery for the aircraft leasing
sector following the unprecedented downturn in commercial aviation,
driven by a dramatic decline in global air traffic as a result of
the coronavirus pandemic. The spread of the coronavirus has
resulted in a prolonged worldwide grounding of the majority of
commercial passenger aircraft, leading to widespread rent deferral
requests and numerous airline bankruptcies, which will put pressure
on earnings for the company relative to historical levels.
Consequently, Avation's asset risk has increased since Fitch's last
review. All thirteen aircraft leased to Virgin Australia Holdings
Limited (VAH, rating withdrawn) have been returned to Avation, more
than originally anticipated by the company. The company has sold
two Fokker 100 aircraft and entered operating leases for 3 ATR
72-500s with new airline customers in Australia and Asia. However,
it may take longer for the company to reposition or sell the
remaining eight ATR72 aircraft in the challenging operating
environment. Avation recognised an impairment loss of USD18.9
million on the aircraft formerly leased to VAH, and Fitch expects
further impairment to be recorded in coming quarters.
In addition, Avation has a B777-300ER leased to Philippine Airlines
(PAL, not rated), which announced its restructuring in November
2020. Avation expects PAL to retain its B777-300ER with a
substantial reduction in lease rent, but the outcome is uncertain.
Returning the aircraft would severely affect Avation, as PAL
accounted for 11% of Avation's monthly rent and the B777-300ER
accounted for around 12% of its aircraft net book value. Fitch
believes impairment risk on current technology passenger widebody
aircraft is elevated given a longer and deeper pandemic-driven
decline in international air travel relative to domestic air travel
and a smaller user base than narrowbody aircraft.
The Recovery Rating of 'RR5' on senior unsecured debt reflects
Fitch's expectation of below-average recovery prospects for the
debtholders in a stress scenario under the Fitch criteria, which
states that Fitch assigns Recovery Ratings to non-bank financial
institutions which have a Long-Term IDR of 'B+' or below.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- A further downgrade on Avation's ratings would be triggered if
the company cannot refinance its senior unsecured notes and
extend the debt maturity before May 2021, leading to an event
of default. The beginning of a default or default-like
process, the issuer entering into a standstill agreement, an
execution of a distressed debt exchange, or an unexpected
deterioration in the company's liquidity position which
results in an event of default would also lead a negative
rating action.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating action appears unlikely unless and until the
company successfully refinances its senior unsecured notes due
in May 2021. Fitch would evaluate the company's credit profile
after a refinancing, and the magnitude of any rating action
would depend on the terms of the refinancing, the resolution
of the PAL restructuring, the status of the aircraft returned
by VAH and the performance of other airline customers.
-- The rating assigned to the unsecured debt is one notch below
Avation's Long-Term IDR, reflecting below-average recovery
prospects, and is likely to move in tandem with the IDR. The
unsecured debt rating could be notched down further from
Avation's IDR should aircraft values deteriorate beyond our
expectations in a stressed scenario or if secured debt
increases as a percentage of total debt, such that the
unencumbered pool shrinks and causes the expected recoveries
on the senior unsecured debt to decline.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch has adjusted its core leverage calculation by including
maintenance right assets and lease premiums in tangible equity.
This reflects Fitch's assessment that the balance-sheet items
contain sufficient economic value to support creditors. Fitch
regards aircraft purchase rights as intangible assets until they
are exercised and reflected in the cost of the aircraft. As such,
Fitch excludes these from its calculation of tangible equity.
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.
BURY FC: Investor Can't Proceed with Acquisition Deal
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Bury Times reports that an investor at Ilkeston Town Football Club
has revealed he has been in talks with Steve Dale to buy Bury FC.
However, in an address to the Derbyshire club's supporters, David
Hilton has said he "cannot proceed" with a deal for the Shakers,
who entered administration last month, Bury Times relates.
Mr. Hilton, who has put funds into the Northern Premier League
South East Division club, is a director of Nottinghamshire firm
Maxwell Cohen, Bury Times discloses.
The Shakers have been in both financial and football limbo since
being expelled from the Football League in August 2019, Bury Times
notes.
Mr. Dale placed the club into administration last month with the
club's affairs being handled by Steven Wiseglass, a director at
Inquesta Corporate Recovery & Insolvency, who has been appointed
administrator, Bury Times recounts.
Mr. Wiseglass was previously responsible for the club's Company
Voluntary Agreement, a move by Mr. Dale to reduce the club's debts
which defaulted, Bury Times relays.
CD&R ARTEMIS: Moody's Affirms B3 CFR, Alters Outlook to Positive
----------------------------------------------------------------
Moody's Investors Service has affirmed the B3 corporate family
rating and the B3-PD probability of default rating of London-based
medical communications, market access and marketing services
company CD&R Artemis Holdco 3 Limited, and also affirmed the B2
instrument ratings on the senior secured facilities borrowed by
CD&R Artemis UK Bidco Limited and CD&R Artemis Bidco Inc. At the
same time, Moody's has changed the outlook on all ratings to
positive from stable.
The outlook change follows the acquisition of Nucleus Global and is
driven by:
A material increase in overall size and scale with key customers
and within the Medical segment
The complementary nature of Nucleus' business, its good track
record and attractive growth profile
Slightly deleveraging impact of the acquisition funding
RATINGS RATIONALE
RATIONALE FOR THE POSITIVE OUTLOOK
"The outlook change to positive on Huntsworth's ratings primarily
reflects the combination of scale and business profile improvements
that the acquisition of Nucleus Global brings to the company" says
Frederic Duranson, a Moody's Assistant Vice President and lead
analyst for Huntsworth. "The acquisition will be slightly
deleveraging and, in addition, strong year to date performance
means we now expect that Huntsworth will grow EBITDA in 2020", Mr
Duranson adds.
The acquisition of Nucleus Global is transformational insofar as it
will increase Huntsworth's size, measured by revenue and EBITDA, by
around a third to GBP370 million - GBP380 million and around GBP90
million respectively in 2020. Scale benefits of the deal include an
increased presence in the medical communications segment (relative
to commercialisation services) which will now represent 39% of
revenue versus 17% prior to the acquisition (and a greater
proportion of earnings given the Medical segment's higher
profitability). The number of projects in the segment will double
to almost 450. Huntsworth's management believe that the combined
group will become one of the top two operators in this segment.
Nucleus is complementary to the existing Huntsworth platform in
terms of product offering, therapeutic areas and customer
portfolio, which is more geared toward large pharmaceutical
companies as opposed to biotechs.
Nucleus' smaller size and greater customer concentration by logo
means that the contribution of the five and ten largest customers
to combined total revenue will increase to around 25% and over 40%
respectively. There is limited customer overlap and the number of
projects with each customer is increasing, which tends to enhance
the diversity in buying points. Huntsworth has demonstrated good
customer retention in the last three to four years but contracts
provide little visibility and customer or project loss remains a
key industry risk in case of pipeline failures, customer
consolidation or procurement rationalisation or because of
competition from new drugs and from Huntsworth's peers.
Huntsworth and Nucleus have both recorded organic revenue and
EBITDA growth in the first nine months of 2020 thanks to new
customer additions and despite coronavirus headwinds in the
Immersive segment (which is more event-driven) and the legacy
communications business. As a result, Moody's estimates that
Huntsworth adjusted gross debt/EBITDA has reduced to around 6.6x as
of September 2020 (6.4x pro forma for Nucleus). The rating agency
expects that adjusted pro forma leverage will be around 6.8x at the
end of 2020, however, because of a particularly strong EBITDA in
the fourth quarter of 2019. Moody's forecasts that organic EBITDA
growth, including benefits from the take private and the Nucleus
acquisition, will help Huntsworth delever to around 6.0x in 2021.
Further positive ratings pressure will depend not only on
deleveraging from organic EBITDA growth but also on governance
factors including the integration of Nucleus and financial
policies. The rating agency expects that the group will maintain
its acquisitive stance and the funding mix associated with this
strategy will also determine which leverage level Huntsworth
sustains on an ongoing basis.
Nucleus has a good cash conversion and will be accretive to the
combined group's cash generation. Moody's expects the two companies
will generate close to GBP40 million Moody's-adjusted free cash
flow in 2020 while the rating agency forecasts that the combined
group's free cash flow will reach around GBP20 million in 2021. The
increased interest burden next year will in part constrain free
cash flow compared with 2020. Huntsworth will continue to face
fluctuating deferred consideration payments but the acquisition
reduces their weight relative to cash flows.
Moody's continues to view Huntsworth's liquidity profile as
adequate. At completion of the Nucleus acquisition in December
2020, the rating agency expects that the group will have a cash
position of at least GBP15 million and full availability under its
GBP45 million senior secured revolving credit facility due 2026, in
addition to ongoing positive net cash generation. The RCF has a net
senior leverage springing covenant, under which the company will
retain ample capacity should it be tested.
STRUCTURAL CONSIDERATIONS
The B2 ratings on the GBP45 million senior secured first lien RCF
and $300 million senior secured first lien term loan B, one notch
above the CFR, reflect their priority ranking ahead of the GBP75
million senior secured second lien facility in the event of
security enforcement and around GBP64 million of lease obligations.
The new debt raised to partly fund the acquisition of Nucleus
Global is unrated and ranks pari passu with the senior secured
first lien term loan B and RCF.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Huntsworth's ratings could be upgraded if the group reduces
customer concentration and builds a longer and successful track
record of profitable growth, and reduces Moody's adjusted gross
debt/EBITDA sustainably below 6.0x, and consistently generates
positive Moody's adjusted FCF after addressing redemption
liabilities and earnout payments, while not making any debt-funded
acquisitions or shareholder distributions.
Conversely, Huntsworth's ratings could come under downward pressure
if a significant deterioration in operating performance, for
example as a result of major customer losses, or more aggressive
financial policy led to a sustained increase in Moody's adjusted
leverage, or FCF generation turned negative or the liquidity
position deteriorated.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
CORPORATE PROFILE
Headquartered in London, UK, Huntsworth is a global provider of
medical communications, market access and marketing services to
pharma and biotech clients. In 2019, Huntsworth generated revenue
of GBP265 million and EBITDA of GBP56.5 million (before exceptional
items and post-IFRS16 impact). Huntsworth is owned by funds advised
and managed by financial sponsor CD&R following a take-private in
May 2020.
COLT GROUP: Moody's Completes Review, Retains Ba2 CFR
-----------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Colt Group Holdings Limited and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review in which Moody's reassessed the
appropriateness of the ratings in the context of the relevant
principal methodology(ies), recent developments, and a comparison
of the financial and operating profile to similarly rated peers.
The review did not involve a rating committee. Since January 1,
2019, Moody's practice has been to issue a press release following
each periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
Colt Group Holdings Limited's Ba2 corporate family rating reflects
the company's fully owned and managed pan-European fibre network,
which gives it a competitive advantage over non-facilities based
alternative carriers; the continued improvement in profitability in
recent years driven by cost savings from prior restructurings; the
company's increasing yet moderate Moody's-adjusted gross leverage
expected to be around 1.3x-1.6x in the next 12-18 months (compared
to 1.3x in 2019), with moderate level of financial debt in its
capital structure; and a supportive ownership strategy from the
company's controlling shareholders, SHM Lightning Investors LLC and
FIL Limited.
However, Colt's CFR is constrained by the fragmented and very
competitive business telecoms market in Europe; the company's
broadly flat average revenue over 2015-19; execution risks
associated with the company's strategic initiatives; and Moody's
expectation of continued negative free cash flow generation until
at least 2022 as the company pursues its growth investment
initiatives.
The principal methodology used for this review was Communications
Infrastructure Industry published in September 2017.
DEBENHAMS PLC: Former Employees Set to Reject Foley Proposals
-------------------------------------------------------------
Ingrid Miley at RTE reports that shop stewards for former Debenhams
employees are to recommend rejection of proposals aimed at
resolving their long-running dispute over redundancy payments.
According to RTE, the proposals formulated by mediator and Labour
court Chairman Kevin Foley would see the Government establishing a
EUR3 million fund for training, up-skilling and business start-ups
for the 1,200 former employees who lost their jobs when the
Debenhams Irish operation went into liquidation last April.
However, the potential deal did not deliver any cash payments to
the workers who have been demanding the enhanced redundancy terms
provided for under a 2016 collective agreement, RTE states.
Mr. Foley found that the collective agreement no longer had legal
application following the insolvency, and that the current legal
framework did not permit an alternative settlement, RTE notes.
The former Debenhams employees are due to ballot on the Foley
proposals over the coming weeks, RTE discloses.
IWH UK: Moody's Downgrades CFR to B3 on Worsening Credit Metrics
----------------------------------------------------------------
Moody's Investors Service has downgraded women's health drugs
provider IWH UK Finco Limited's ('Theramex') corporate family
rating to B3 from B2 and probability of default rating to B3-PD
from B2-PD. The rating agency has also downgraded the instrument
ratings on the senior secured first lien facilities borrowed by IWH
UK Midco Limited to B3 from B2. At the same time, Moody's has
changed the outlook on all ratings to stable from negative.
The rating actions primarily reflect the following factors:
Continued lack of free cash flow generation
Lost volumes during the pandemic which are slower to come back
versus other categories
Moody's expectation that adjusted leverage will remain sustainably
above 6.0x
RATINGS RATIONALE
"The downgrade to B3 reflects the compounding effect of
coronavirus-induced drug volume reductions and ensuing worsening of
credit metrics, as well as our expectation that leverage will
remain elevated" says Frederic Duranson, a Moody's Assistant Vice
President - Analyst and lead analyst for Theramex. "Theramex was
already weakly positioned following significant cash consumption in
2018 and 2019 to build the company, which is yet to demonstrate its
ability to generate sustainable free cash flow" Mr Duranson adds.
Throughout 2020, women's health has been one of the therapeutic
categories suffering the most from a reduction in prescription
volumes as patients delayed physician visits, fertility clinics
were closed and the salesforce was grounded for a period of time.
Theramex's sole exposure to this therapeutic area has led to an
organic revenue decline of around 10% in the 10 months to October
according to Moody's, even if total revenue increased by around 6%
owing to the consolidation of System (acquired in November 2019)
and the remaining rights for Zoely (acquired in January 2020).
Including the effect of the increased business scope, management
EBITDA was still 6.5% below last year in the first 10 months of
2020, therefore the rating agency estimates that the like-for-like
regression in EBITDA was materially higher than that of revenues.
This reflects the high fixed costs in the business and limited
ability to reduce costs, as well as the full year effect of
infrastructure investments made in 2019. In addition to coronavirus
effects, Theramex performance this year has been adversely impacted
by inefficiencies in its distributor markets including lack of
commercial focus, destocking and high fees.
Despite very low tax and capital spending, Theramex has not
generated any free cash flow so far this year, because significant
working capital outflows compounded the lower EBITDA. In
particular, the company has had to maintain higher levels of safety
stocks in light of distributor inefficiencies and ahead of
marketing authorisation transfers from Teva Pharmaceutical
Industries Ltd. (Ba2 negative) and Merck & Co., Inc. (A1 stable).
While they have reduced to around EUR13 million this year versus
EUR32 million last year (both for the year-to-date October),
exceptional costs also remain somewhat high compared to Theramex's
size and constrain cash generation. Moody's believes that the
company will report exceptional items in the high single-digit
millions Euros and, as such, has started to incorporate these costs
in its adjusted EBITDA calculation.
Following the planned repayment of the EUR22 million drawings under
the revolving credit facility, Moody's forecasts that Theramex's
adjusted gross debt/EBITDA will be around 8.6x at the end of 2020.
Next year, the rating agency expects that adjusted leverage could
decrease below 7.0x.
On a like-for-like basis, Moody's expects that Theramex will be
able to bring revenue back to the level of 2019 in 2021. The
planned launch of osteoporosis biosimilar drug Teriparatide and
menopause treatment Bijuva bear approval and commercial execution
risk but should help shore up revenue, in addition to new direct
markets and a somewhat slow return of patients to physician's
offices and fertility clinics. Moody's forecasts that management
EBITDA will improve to EUR80 million - EUR85 million in 2021.
Investments in new direct markets and launches will constrain the
initial bounce back in earnings. Moody's believes that Theramex has
the potential to grow its revenue by 3% to 4% per annum and
generate free cash flow (after interest) of around EUR40 million.
In 2021, the absence of large working capital outflows should
support cash conversion before further drug licence acquisition
spend.
The B3 ratings and stable outlook also incorporate social
considerations including risks related to product safety and
responsible production. The security of supply is also a key social
risk which has somewhat constrained revenues since the LBO.
Governance risks that Moody's considers in Theramex's credit
profile include the risk that deleveraging is derailed by the use
of debt to fund licence acquisitions and the company's access to
qualified staff and resulting costs to cope with further product
acquisitions and transitions of products from vendors.
LIQUIDITY
Theramex's liquidity remains adequate. It is supported by around
EUR46 million of cash on balance sheet as of the end of October
2020 and around EUR33 million availability under the company's
EUR55 million RCF maturing in 2024. The RCF only has a springing
maintenance covenant based on net leverage, tested if drawn at 40%
or more.
STRUCTURAL CONSIDERATIONS
The B3 ratings on the EUR470 million senior secured term loan B and
EUR55 million senior secured RCF borrowed by IWH UK Midco Limited,
remain in line with the CFR and reflect the fact that they are the
only debt instruments in the capital structure.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that over the next
12-18 months the group will grow revenue and Moody's adjusted
EBITDA, with the current portfolio and new product launches more
than offsetting the sales decline in older products, delever to
below 7.0x on a Moody's adjusted basis, generate positive Moody's
adjusted free cash flow (after exceptionals and interest) and not
make any shareholder distributions or material debt-funded
acquisitions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on Theramex's ratings could develop should the
company build a track record of sustainable organic revenue and
Moody's-adjusted EBITDA growth, supported by successful product
launches and integration of acquired drugs reduce and subsequently
maintain Moody's adjusted leverage below 5.5x and generate
materially positive free cash flow such that FCF/debt is well above
5%. Upward ratings pressure would also require the absence of
shareholder distributions and material debt-funded acquisitions.
Theramex's ratings could be under downward pressure if revenue and
EBITDA continued to decline organically or in case of significant
supply and operational issues or litigation or, Moody's adjusted
leverage failed to decline to 7.0x or below or, FCF generation were
to remain negative or the liquidity position deteriorated.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceutical
Industry published in June 2017.
LIST OF AFFECTED RATINGS:
Downgrades:
Issuer: IWH UK Finco Limited
Probability of Default Rating, Downgraded to B3-PD from B2-PD
LT Corporate Family Rating, Downgraded to B3 from B2
Issuer: IWH UK Midco Limited
Backed Senior Secured Bank Credit Facility, Downgraded to B3 from
B2
Outlook Actions:
Issuer: IWH UK Finco Limited
Outlook, Changed To Stable From Negative
Issuer: IWH UK Midco Limited
Outlook, Changed To Stable From Negative
CORPORATE PROFILE
Headquartered in London, UK, Theramex is primarily a sales and
marketing organisation focused on women's health. The majority of
its portfolio is made up of the international women's health assets
acquired from Teva by private equity firm CVC Capital Partners in
January 2018 for an enterprise value of $703 million. The company
is currently skewed toward the treatment of osteoporosis (around
50% of sales). In the 12 months ended October 2020, Theramex
generated revenues of EUR237 million and EBITDA before exceptional
items of EUR70 million.
LENDY: Administration Process May Extend Beyond 2023 Deadline
-------------------------------------------------------------
Kathryn Gaw at Peer2Peer Finance News reports that the Lendy
administration process could extend beyond its 2023 deadline,
administrators RSM have warned in a new update to investors.
The peer-to-peer lending platform went into administration in May
2019, and RSM recently won a 36-month extension to carry out checks
and investigations, Peer2Peer Finance News relates.
However, in an update covering the six months to November 23, 2020,
the administrator said that "it is not possible to ascertain at
present when the administration will end", Peer2Peer Finance News
notes.
The update also confirmed that approximately GBP9 million was
recovered from Lendy's loan book during the six-month period,
Peer2Peer Finance News states.
The total value of the Lendy loan book was approximately GBP152
million when the firm went into administration, Peer2Peer Finance
News discloses.
According to Peer2Peer Finance News, the administrator's update
also stated that a 10-day trial will commence on June 28, 2021, to
clarify the legal position of the "distribution waterfall" employed
by RSM.
The proposed "distribution waterfall" sees former Lendy investors
split into two groups: model 1 and model 2, which impacts how they
receive funds, Peer2Peer Finance News states.
NEWGATE FUNDING 2006-2: Fitch Affirms BB+sf Rating on Cl. E Debt
----------------------------------------------------------------
Fitch Ratings has affirmed Newgate Funding plc (NF) 2006
transactions.
DEBT RATING PRIOR
---- ------ -----
Newgate Funding Plc Series 2006-2
Class A3a XS0257991603. LT AAAsf Affirmed AAAsf
Class A3b XS0257989458 LT AAAsf Affirmed AAAsf
Class Ba XS0257993138 LT AA+sf Affirmed AA+sf
Class Bb XS0257993302 LT AA+sf Affirmed AA+sf
Class Ca XS0257994532 LT AA-sf Affirmed AA-sf
Class Cb XS0257994888 LT AA-sf Affirmed AA-sf
Class Da XS0257995265 LT BBB+sf Affirmed BBB+sf
Class Db XS0257996073 LT BBB+sf Affirmed BBB+sf
Class E XS0257996743 LT BB+sf Affirmed BB+sf
Class M XS0257992676 LT AAAsf Affirmed AAAsf
Newgate Funding Plc Series 2006-1
Class A4 XS0248865494 LT AAAsf Affirmed AAAsf
Class Ba XS0248222142 LT AAsf Affirmed AAsf
Class Bb XS0248866971 LT AAsf Affirmed AAsf
Class Ca XS0248222225 LT A+sf Affirmed A+sf
Class Cb XS0248867789 LT A+sf Affirmed A+sf
Class D XS0248867946 LT BBB-sf Affirmed BBB-sf
Class E XS0248222571 LT BB+sf Affirmed BB+sf
Class Ma XS0248221920 LT AAAsf Affirmed AAAsf
Class Mb XS0248866542 LT AAAsf Affirmed AAAsf
Newgate Funding Plc Series 2006-3
Class A3a XS0272617282 LT AAAsf Affirmed AAAsf
Class A3b XS0272626788 LT AAAsf Affirmed AAAsf
Class Ba XS0272619817 LT AA+sf Affirmed AA+sf
Class Bb XS0272629295 LT AA+sf Affirmed AA+sf
Class Cb XS0272629881 LT A+sf Affirmed A+sf
Class Da XS0272621805 LT BBB+sf Affirmed BBB+sf
Class Db XS0272630624 LT BBB+sf Affirmed BBB+sf
Class E XS0272622795 LT BB+sf Affirmed BB+sf
Class Mb XS0272627836 LT AAAsf Affirmed AAAsf
TRANSACTION SUMMARY
The Newgate Funding 2006 transactions are securitisations of UK
non-conforming residential mortgages originated by Mortgages plc.
The three transactions have similar portfolio characteristics with
high proportions of self-certified borrowers, ranging between 60%
and 75% of the outstanding portfolio, and interest-only loans
representing roughly 80% of the respective pools.
KEY RATING DRIVERS
Coronavirus-related Assumptions
Fitch expects a general weakening in borrowers' ability to keep up
with mortgage payments due to the economic impact of the
coronavirus outbreak and the associated containment measures. As a
result, Fitch applied coronavirus assumptions to the mortgage
portfolios.
The combined application of revised 'Bsf' representative pool
weighted average foreclosure frequency (WAFF) and revised rating
multiples resulted in a multiple to the current FF assumptions of
between 1.4x and 1.5x at 'Bsf' and between 1.1x and 1.2x at
'AAAsf'. The coronavirus assumptions are more modest for higher
rating levels as the corresponding rating assumptions are already
meant to withstand more severe shocks.
The take up of payment holidays over 2020 was significant at over a
third of each pool, although it did not lead to any draws on the
reserve funds. It has lessened considerably in recent months and
currently stands at less than 2.5% of borrowers across the 2006
series. Fitch has not applied any additional stress for payment
holidays due to the low proportion of loans currently affected.
Pro-Rata Amortisation
Credit enhancement (CE) has increased for all the notes across the
2006 series despite them having continued to amortise pro rata
since 2017. The build-up in CE is a result of breaches in the
cumulative loss triggers, which has prevented the reserve funds
from amortising and is sufficient for the notes to withstand the
increased stresses in Fitch's alternative assumptions at their
current ratings. The 2006-2 and 2006-3 transactions also benefit
from a 10% switchback to sequential trigger on the amortisation of
the notes. Despite the 2006-1 transaction having no switch back
trigger, CE available to the notes is sufficient for the current
rating.
Weakening Asset Performance
Performance since the last review in February 2020 has worsened
across the series. Three months plus arrears have increased over
2020 (to 15.3% from 13.9% for NF 2006-1, to 14.5% from 12.9% for NF
2006-2 and to 14.0% from 12.2% for NF 2006-3, as of the latest
respective investor reports). Fitch applies a floor to its FF for
loans in arrears to reflect the increased probability of these
loans subsequently defaulting.
Back-loaded Default Risks
All three transactions contain a high proportion of interest-only
loans (over 80%), many to owner-occupied borrowers that
self-certified their incomes. The prevalence of a significant
proportion of interest-only loans led Fitch to apply a performance
adjustment factor floor of 100% to the owner-occupied sub-pool in
each of the transactions. Along with the persistently high
proportion of late stage arrears these factors led Fitch to affirm
the notes below their model-implied ratings.
Reduced Collection Rates
Collection rates have shown significant increases in borrowers in
arrears by one month or more making no monthly payment. This is
most likely as a result of these borrowers taking payment holidays.
These figures are reported on a two-month lag from the investor
reports dates and are likely to have started to abate as borrowers
roll off payment holidays.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance driven by stable
delinquencies and defaults would lead to increasing CE levels
and potentially upgrades. Fitch tested an additional rating
sensitivity scenario by applying a decrease in the FF of 15%
and an increase in the RR of 15%. The results indicate up to a
three- to eight-notch upgrades for the junior notes and one-
to three-notch upgrades for mezzanine tranches.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The broader global economy remains under stress due to the
coronavirus pandemic, with surging unemployment and pressure
on businesses stemming from social-distancing guidelines.
Recent government measures related to the coronavirus pandemic
introduced a moratorium on foreclosures until January 2021 and
mortgage payment holidays for up to six months. Fitch
acknowledges the uncertainty of the path of coronavirus
related containment measures and has therefore considered more
severe economic scenarios.
-- As outlined in "Fitch Ratings Coronavirus Scenarios: Baseline
and Downside Cases", Fitch considers a more severe downside
coronavirus scenario for sensitivity purposes whereby a more
severe and prolonged period of stress is assumed with a
halting recovery from 2Q21. Under this scenario, Fitch assumed
a 15% increase in the WAFF and a 15% decrease in the weighted
average recovery rate. The results indicate up to a two-to
four-notch downgrade for the junior notes and a three-to-four
notch downgrade for the mezzanine notes
-- The transactions' performance may be affected by changes in
market conditions and economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce CE available to
the notes.
-- Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain notes'
ratings susceptible to potential negative rating actions
depending on the extent of the decline in recoveries. Fitch
conducts sensitivity analyses by stressing both a
transaction's base-case FF and RR assumptions, and examining
the rating implications on all classes of issued notes.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. There were no findings that were material to
this analysis.
Fitch did not undertake a review of the information provided about
the underlying asset pool ahead of the transaction's initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall and together with the assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable
ESG CONSIDERATIONS
Newgate Funding Plc Series 2006-1: Customer Welfare - Fair
Messaging, Privacy & Data Security: 4, Human Rights, Community
Relations, Access & Affordability: 4
Newgate Funding Plc Series 2006-2: Customer Welfare - Fair
Messaging, Privacy & Data Security: 4, Human Rights, Community
Relations, Access & Affordability: 4
Newgate Funding Plc Series 2006-3: Customer Welfare - Fair
Messaging, Privacy & Data Security: 4, Human Rights, Community
Relations, Access & Affordability: 4
Newgate Funding plc - 2006-1, 2006-2 and 2006-3 have ESG Relevance
Score of 4 for Human Rights, Community Relations, Access &
Affordability due to the underlying asset pools with limited
affordability checks and self-certified income, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Newgate Funding plc - 2006-1, 2006-2 and 2006-3 have ESG Relevance
Score of 4 for Customer Welfare - Fair Messaging, Privacy & Data
Security due to a material concentration of interest-only loans,
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 the way in which they are being
managed by the entity.
PAYSAFE GROUP: Moody's Reviews B3 CFR for Upgrade
-------------------------------------------------
Moody's Investors Service placed Paysafe Group Holdings II Limited
B3 corporate family rating and the B3-PD probability of default
rating on review for upgrade. At the same time, Moody's has placed
on review for upgrade the B3 instrument rating on the first lien
facilities held by by Pi Lux Finco S.a r.l., Paysafe Holdings (US)
Corp. and PI UK BidCo Limited, and the Caa2 instrument rating on
the second lien facilities issued by Pi Lux Finco S.a r.l. The
outlook has changed to ratings under review, from stable.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The review follows the announcement that Paysafe will be acquired
by special purpose acquisition company Foley Trasimene Acquisition
Corp. II in a transaction that will ultimately lead to the public
listing of Paysafe on the New York Stock Exchange.
The investment from the SPAC, along with proceeds from a private
investment in public equity and a forward purchase agreement with
Cannae Holdings, Inc, total roughly $3.6 billion of new equity. The
new equity will be used to acquire a controlling interest in
Paysafe and repay some existing debt. The transaction is expected
to close in the first half of 2021 and is subject to approval by
Foley Trasimene 's stockholders and regulatory approvals.
The review will focus on the capital structure and resulting
financial leverage following the completion of the SPAC merger.
Moody's expects that Paysafe will materially reduce its leverage as
about 30% of equity proceeds appear earmarked for debt repayment.
The review will also focus on the achievability of the operational
transformation planned by Paysafe's management and the new
shareholders, intended acquisition strategy and financial policy.
The new capital structure would strengthen Paysafe's credit profile
by reducing debt levels. For the twelve months ended 30 September
2020, the company's Moody's adjusted debt-to-EBITDA leverage is
8.6x, and the rating agency estimates this would be below the
previously indicated 6x leverage trigger for a B1 CFR, pro-forma
for the proposed structure. Moody's notes the company's current
sponsors are supportive of the financing by committing to roll
about $3.3 billion of existing equity. They are expected to retain
approximately 45.7% of equity pro forma for the transaction and
keep existing management in place.
Positive pressure could arise if the group maintains its adjusted
gross leverage well below 7.5x on a sustained basis; FCF-to-debt
remains around 5% on a sustained basis.
Negative pressure could arise if the group is not able to grow
EBITDA sustainably and/or reduce leverage from 2021 onwards,
experiences weakness in its core segments over a prolonged period
of time, the liquidity position weakens or the group embarks on
additional significant debt-funded acquisitions, or Paysafe's
FCF/debt turns negative on a sustained basis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
LIST OF AFFECTED RATINGS:
On Review for Upgrade:
Issuer: Paysafe Group Holdings II Limited
Probability of Default Rating, Placed on Review for Upgrade,
currently B3-PD
LT Corporate Family Rating, Placed on Review for Upgrade,
currently B3
Issuer: Paysafe Holdings (US) Corp.
Backed Senior Secured Bank Credit Facility, Placed on Review for
Upgrade, currently B3
Issuer: Pi Lux Finco S.a r.l.
Backed Senior Secured Bank Credit Facility, Placed on Review for
Upgrade, currently B3
Backed Senior Secured Bank Credit Facility, Placed on Review for
Upgrade, currently Caa2
Issuer: PI UK BidCo Limited
Backed Senior Secured Bank Credit Facility, Placed on Review for
Upgrade, currently B3
Outlook Actions:
Issuer: Paysafe Group Holdings II Limited
Outlook, Changed To Ratings Under Review From Stable
Issuer: Paysafe Holdings (US) Corp.
Outlook, Changed To Ratings Under Review From Stable
Issuer: Pi Lux Finco S.a r.l.
Outlook, Changed To Ratings Under Review From Stable
Issuer: PI UK BidCo Limited
Outlook, Changed To Ratings Under Review From Stable
COMPANY PROFILE
Paysafe is a global provider of online payment solutions and
stored-value products. The company reported net revenue of $1,419
million and adjusted EBITDA of $498 million in 2019. Paysafe was
acquired by private equity sponsors Blackstone and CVC Capital
Partners in 2017.
STOLT-NIELSEN: Egan-Jones Hikes Senior Unsecured Ratings to B
-------------------------------------------------------------
Egan-Jones Ratings Company, on December 21, 2020, upgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Stolt-Nielsen Limited to B from C.
Headquartered in London, United Kingdom, Stolt-Nielsen Limited is a
global company with significant operations within various maritime
related industries.
TORO PRIVATE: Fitch Affirms 'CCC+' Long-Term IDR
------------------------------------------------
Fitch Ratings has affirmed Toro Private Holdings I, Ltd's
(Travelport) Long-Term Issuer Default Rating (IDR) at 'CCC+'. Fitch
has also affirmed Travelport Finance (Luxembourg) S.a.r.l's
priority first-lien and remaining first-lien ratings at 'B+'/'RR1'
and 'CCC-'/'RR6', respectively.
The affirmation follows the completion of the disposal of eNett.
The resolution of the disputed, long-standing sales process sees
the proceeds being materially allocated to the mandatory prepayment
of the priority first-lien, with a small net cash inflow (post
prepayment). While Fitch sees these actions as overall positive,
they are insufficient to create any positive rating momentum. This
is due to the small magnitude of both debt repayment and
incremental liquidity relative to Travelport's debt position and
interest burden, respectively, especially against the backdrop of
the uncertain pace and scale of the recovery trajectory in global
air demand.
The IDR reflects the severe impact that the coronavirus pandemic
has had on Travelport's operations and financial profile. Once
travel resumes, Fitch expects revenues and operating margins to
recover, but forecasts leverage to remain elevated at around 10.0x
until at least 2022 under the current capital structure. The
uncertain operating environment, high leverage, minimal liquidity
headroom and weak free cash flow (FCF) remain commensurate with a
'CCC+' rating.
KEY RATING DRIVERS
Minimal Liquidity Headroom Remains: The resolution of the disputed,
long-standing sales process for eNett provides Travelport with
total proceeds significantly below than what was previously
envisaged at the outset of the purchase agreement pre-pandemic. The
small cash inflow retained by Travelport in tandem with the
proceeds from the recent tap issue provide a slight boost to the
group's liquidity position.
Travelport's liquidity profile is still vulnerable to a protracted
recovery in global air-demand, which in turn could still compromise
the current liquidity headroom, creating a further capital
requirement in the absence of established liquidity lines. Fitch
notes that if elected, payment-in-kind (PIK) features on the
priority first-lien loans could help alleviate around USD100
million of cash interest payments per year, but this is unlikely to
be a medium-term solution given the punitive nature of rolling
interest capitalisation.
Severe Impact from Coronavirus: Travelport's business remains
severely impacted by the disruption to global travel caused by the
pandemic. The depth and duration of the outbreak and corresponding
disruption to booking volumes weigh heavily on the near-term
operating outlook. Nevertheless, the decline in Travelport's
booking revenues during 3Q20 has been broadly commensurate with
direct peers, Amadeus and Sabre, with no current indications of
Travelport losing market share.
Travelport is reliant on a speedy recovery in global travel given
its increasingly leveraged balance sheet with debt service
obligations already constituting about half of Fitch-defined EBITDA
for 2019 pre-pandemic.
Revised Global Travel Assumptions: Fitch has revised its global
travel assumptions, including for travel services and global
distribution systems (GDS). For 2021 and 2022 Fitch forecasts GDS
revenue be about 35% and 15% lower than 2019's revenue levels,
respectively. For Travelport, eNett has now been excluded from the
recovery of revenues given the disposal. Travelport's credit
metrics for 2020 and 2021 (as the trough years) are not
commensurate with the current 'CCC+' rating. A slower than
forecasted recovery in Travelport's revenues could erode the
current liquidity headroom under the rating, leading to further
negative rating pressures.
Intact Business Model: The sector outlook remains negative given
the disruption to global travel in 2020, which may be accentuated
if the current circumstances result in sustained economic weakness
in 2021. Nevertheless, Fitch views Travelport's business model as
intact given the company's entrenched position in the GDS market,
albeit highly susceptible to lower demand over the next four years.
Travelport's recovery could deviate from global travel trends due
to customer losses driven by customers shifting between GDS
platforms, or those forced out of business by the heightened
disruption to the travel industry.
Leverage to Remain Elevated: Fitch currently estimates that EBITDA
is unlikely to recover towards 2019 levels for several years due to
expectations of lower global travel volumes, despite permanent cost
reductions made by management since the start of the pandemic.
However, a resolution of the pandemic, mainly around an effective
rollout of vaccines around the world, could translate into a faster
pace of recovery in 2H21 and 2022, and stronger deleveraging than
currently assumed, benefiting the group's financial flexibility.
DERIVATION SUMMARY
Travelport's rating reflects a well-established position in the
travel industry, with a 21% market share in the dominant GDS
segment that has historically provided a high proportion of
recurring revenues. This position provides the company with an
advantage to further develop technology and data solutions to
travel buyers and providers. Sabre is the most comparable peer with
a higher market share of the GDS segment at 36% in 2018,
structurally higher margins and notably lower leverage.
KEY ASSUMPTIONS
-- Net revenue decline of around 70% in 2020, with lost volumes
heavily accentuated by cancellations. This is followed by a
moderate recovery in travel demand with revenue in 2021 and
2022 being 36% and 13% below 2019's levels excluding eNett
sales, respectively;
-- Corresponding compression to the (Fitch-defined) EBITDA margin
to -25.5% in 2020, from 17.3% in 2019. In tandem with a
recovery in revenue, Fitch assumes that EBITDA margin
increases towards 21% by 2022, facilitated by cost savings
made in 2020, the decline in loyalty cash payments and the
divestiture of eNett;
-- The PIK option on the priority first-lien loans to be elected
in Q420 and for the duration of 2021;
-- Capex to be broadly in line with 5.5% of sales per year;
-- Customer loyalty payments to travel agencies for their use of
Travelport's platform (typically such agreements last three to
five years). Even though under US GAAP these are capitalized
and subsequently amortised over the life of the contract, we
view the loyalty payments (estimated at USD30 million for
FY20) as an operating cash outflow that has been paid in
advance. Therefore, Fitch reverses the capitalised treatment
and consider such expense an operating cost. Fitch forecasts
loyalty payments to continue to be lower than previous year
albeit slightly higher than in 2020, at USD40 million.
KEY RECOVERY RATING ASSUMPTIONS
-- Travelport would be considered a going-concern in bankruptcy
and be reorganised rather than liquidated given the asset
light business model.
-- Fitch estimates going-concern EBITDA in a scenario in which
default may be caused by continued travel disruption,
sustaining the currently high levels of cash burn. Under this
scenario, Fitch estimates a going-concern EBITDA of roughly
USD355 million, which is slightly below Fitch’s 2022
Forecasted EBITDA two years forward from the 2020 trough
level;
-- Fitch has maintained the distressed enterprise value
(EV)/EBITDA multiple applied to the estimated going- concern
post restructuring-EBITDA at 5.0x, balancing medium-term
uncertainties over the recovery in global passenger numbers,
including business travel, with Travelport's entrenched
position in the GDS sector.
-- Based on the payment waterfall by priority instrument ranking,
the resized USD1,695 million (inclusive of capitalized
interest for Q420 and the duration of 2021 under our
assumptions) of new priority first-lien term loans ranks
senior to the remaining first-lien loans totalling USD2,050
million.
-- After deducting 10% for administrative claims, Fitch’s
principal waterfall analysis generates a ranked recovery for
priority first-lien lenders in the 'RR1' category, leading to
a 'B+' instrument rating, three notches above the IDR. The
waterfall analysis output percentage based on current metrics
is maintained reduced to 95% from 100%.
-- The structurally subordinated first-lien facilities also see
their recoveries reduce to 0% from 5% within the 'RR6'
category, leading to an affirmation of the 'CCC-' instrument
rating, two notches below the IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO leverage returning below 8.5x on a sustained basis;
-- FCF margins trending sustainably towards 1%;
-- FFO interest coverage trending towards 1.8x; and
-- Enhanced internal liquidity cushion.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Deviation from Fitch’s stated revenue recovery assumption
Leading to reduced prospects of deleveraging below 10.5x on a
FFO gross leverage basis by 2022;
-- Sustained negative FCF margin or an acceleration of cash
outflow depleting remaining liquidity headroom; and
-- FFO interest coverage below 1.2x beyond 2021
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.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Minimal Liquidity Headroom: Fitch recognises some improvement in
Travelport's liquidity profile from the small cash retained as part
of eNett's disposal and the recent tap issue. Nevertheless, given
the high interest burden, a weaker recovery in booking volumes than
currently envisaged in 2021 could quickly exhaust current liquidity
headroom, creating a capital need in the absence of other
established liquidity lines. Fitch’s base case projections
foresee FFO interest coverage trending above 1.0x in 2021, combined
with neutral FCF.
VANNERS: Bought Out of Administration by Roger Gawn
---------------------------------------------------
Isabella Fish at Drapers reports that Silk Industries, the
Sudbury-based textiles manufacturer that trades as Vanners, has
been bought out of administration by businessman Roger Gawn.
Mr. Gawn, who owns British luxury goods maker Swaine Adeney Brigg,
bought the silk weaver earlier this month, after it collapsed into
administration on Nov. 9, Drapers relates.
Vanners made half of its 64 employees redundant as a result of the
administration, Drapers notes. It retained 32 members of staff, as
it continued to fulfil orders while administrators searched for a
buyer, Drapers states.
VMED O2 UK: Moody's Completes Review, Retains Ba3 CFR
-----------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of VMED O2 UK Limited and other ratings that are associated
with the same analytical unit. The review was conducted through a
portfolio review in which Moody's reassessed the appropriateness of
the ratings in the context of the relevant principal
methodology(ies), recent developments, and a comparison of the
financial and operating profile to similarly rated peers. The
review did not involve a rating committee. Since January 1, 2019,
Moody's practice has been to issue a press release following each
periodic review to announce its completion.
This publication does not announce a credit rating action and is
not an indication of whether or not a credit rating action is
likely in the near future. Credit ratings and outlook/review status
cannot be changed in a portfolio review and hence are not impacted
by this announcement.
KEY RATING CONSIDERATIONS
VMED O2 UK Limited's (Virgin Media O2) Ba3 corporate family rating
reflects the large scale of the joint venture which creates a fully
converged fixed and mobile communications operator in the UK, the
good quality of the joint venture's fixed and mobile networks, and
the significant cost and capital expenditures savings and revenue
synergies to be realized from the merger of Virgin Media and O2.
However the rating is constrained by Virgin Media O2's high
leverage, limited de-leveraging prospects based on Moody's
assumption that the joint venture will remain at close to the
higher end of its 4.0x-5.0x target net leverage ratio to maximize
distributions to the parents subject to market and operating
conditions, and the highly competitive nature of the UK telecom
market and the increased pressure over the medium-term from the
rollout of fibre by the incumbent and alternative network
providers.
The principal methodology used for this review was
Telecommunications Service Providers published in January 2017.
ZELLIS HOLDINGS: Moody's Affirms Caa1 CFR, Alters Outlook to Stable
-------------------------------------------------------------------
Moody's Investors Service has affirmed Zellis Holdings Limited's
Caa1 corporate family rating and Caa1-PD probability of default
rating, as well as the Caa1 ratings on the guaranteed senior
secured bank credit facilities. The outlook on all ratings has
changed to stable from negative.
"The change in outlook to stable from negative reflects our
expectation of an improvement in operating performance over the
next 12-18 months, which will lead to break-even free cash flow
generation and moderate deleveraging in fiscal 2022. The stable
outlook also reflects the improved liquidity profile and lower
default risk of the company after the equity injection from
financial sponsor Bain Capital." says Luigi Bucci, Moody's lead
analyst for Zellis.
"At the same time uncertainties remain around the ultimate impact
of the company's exposure to small and medium businesses and
sectors highly affected by the pandemic, such as retail. Moreover,
the recent distressed exchange transaction is not transformational
for the capital structure and it does not address the very high
leverage of the company." adds Mr. Bucci.
RATINGS RATIONALE
Zellis' Caa1 CFR mainly reflects the overall resilience of the
company's operating performance post coronavirus; its continued
negative free cash flow generation, although expected to gradually
improve as the impact of exceptional charges relating to the
company's transformation phase out; its very high Moody's-adjusted
leverage, expected to remain elevated at around 8.5x-9.5x over the
next 12-18 months; its low product diversification and high
geographical concentration in the UK market; and its adequate
liquidity after the capital injection from the financial sponsor
Bain Capital and interest payment deferral as part of the recently
completed distressed exchange transaction.
The rating also takes into consideration Zellis' leading position
in the niche market for payroll and HR software and services in the
UK; the high switching costs for the company's product offerings,
leading to good retention rates; its high degree of recurring
revenue and large exposure to SaaS; and its track record to date of
receiving financial support from Bain Capital.
Moody's expects Zellis' revenues to be growing organically at
around 2%-3% over fiscal 2021 and 2022, ending April. This compares
to a 4% revenue increase recorded in the first six months of fiscal
2021 as slightly positive results in the Mid-Market segment
partially offset the solid contribution from the SMB unit,
Moorepay, and Benefex. Current organic growth estimates are driven
by the rating agency's assumption of a low single digit growth for
Zellis, low-to-mid single digit growth for Moorepay and double
digit growth for Benefex. On a reported basis, growth will be
complemented by the recent acquisition of the people, platform and
customers of Capita Employee Benefits, a competitor of Benefex.
Nevertheless, risks persist around the extent of the recovery in
fiscal 2021-2022. These risks include a potential increase in gross
attrition because of the increased insolvency risk across SMBs or
sectors particularly affected by the pandemic, such as retail,
particularly once the UK government begins to reduce its support
programmes. Zellis' performance will also be exposed to the
continued decline of its legacy business, although to a lower
extent compared to historical levels. Those uncertainties are
compounded by the upcoming Brexit, as a no-deal Brexit would weaken
the fragile recovery prospects post-coronavirus.
The rating agency forecasts Moody's-adjusted FCF (excluding pension
contributions) to remain negative over the next 12 months and stand
at around minus GBP14 million and GBP1 million in fiscal 2021 and
fiscal 2022, respectively (fiscal 2020: minus GBP14 million). The
relative improvement in FCF over fiscal 2022 will be driven by a
reduction in exceptional charges, largely related to Zellis'
transformation programme; mid-single digit company-adjusted EBITDA
growth supported by top-line expansion and initial benefits of
ongoing cost-savings projects, namely Oxygen; and full year impact
of the interest deferral. A certain degree of downside risk
persists on these estimates as ongoing macroeconomic uncertainties
may lead to higher levels of bad debt, potentially hurting working
capital movements over fiscal 2021 and 2022.
Moody's-adjusted debt/EBITDA is expected to stand at around 9.4x in
fiscal 2021 (fiscal 2020: 10.3x) supported by Moody's assumption of
a partial revolving credit facility repayment, making use of the
equity injection from the sponsor. Moving into fiscal 2022, Moody's
anticipates deleveraging towards 8.5x to be driven by moderate
EBITDA improvements although interest cover will remain weak with
Moody's-adjusted EBITDA - capex/interest below 1x in fiscal
2021-22. Moody's notes that its assessment of Moody's-adjusted
EBITDA numbers from fiscal 2020 considers exceptional items to be
of a more recurring nature than those booked previously in the
context of the company's carve-out in 2017.
ENVORONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
In terms of governance, after the carve-out of Zellis from NGA
Human Resources in 2017 Bain Capital is the key shareholder in the
company. Bain Capital has actively supported Zellis over the course
of fiscal 2020-2021 through the injection of GBP60 million into the
business to offset liquidity pressures deriving from
underperformance and higher than expected exceptional costs related
to the carve-out and business transformation.
LIQUIDITY
Moody's views Zellis' liquidity as adequate, based on the company's
expected improvement in FCF over the next 12-18 months, available
cash resources of GBP54 million (pro forma for the sponsor's equity
injection and excluding GBP1.6 million of restricted cash) and
fully drawn RCF of GBP40 million as of October 2020. Moody's
expects internal sources and cash flow generation through fiscal
2021-2022 to be sufficient to cover cash requirements over the
period.
The RCF, due 2024, is subject to a springing guaranteed senior
secured first lien net leverage covenant of 9.05x when more than
35% of the facility is drawn. Moody's anticipates Zellis to remain
in compliance with the covenant.
STRUCTURAL CONSIDERATIONS
The guaranteed senior secured first lien bank credit facilities,
comprising the term loan B and RCF, are rated Caa1, in line with
the CFR, reflecting the small relative size of the second lien
facility ranking behind. GBP25 million worth of pension claims
benefit from a security ranking pari passu with the senior secured
first lien facilities.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation of a gradual
improvement in operating performance over fiscal 2021 and 2022
leading to deleveraging from current high levels and break-even FCF
by fiscal 2022. The stable outlook is also reliant on the company
maintaining an adequate liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure could materialize should Zellis demonstrate
a sustainable track-record of revenue and Moody-adjusted EBITDA
growth; return to positive FCF generation (after interest and
exceptional items); reduce Moody's adjusted gross debt/EBITDA
(after the capitalization of software development costs)
sustainably towards 7.0x; and maintain an adequate liquidity.
Conversely, Zellis' ratings could be downgraded if the operating
performance of the company were to deteriorate; the company did not
demonstrate evidence of clear improvements in FCF generation over
fiscal 2021-2022; and, chances of a default increased.
LIST OF AFFECTED RATINGS
Issuer: Zellis Holdings Limited
Affirmations:
Probability of Default Rating, Affirmed Caa1-PD
Corporate Family Rating, Affirmed Caa1
Gtd Senior Secured Revolving Credit Facility, Affirmed Caa1
Gtd Senior Secured Term Loan, Affirmed Caa1
Outlook Action:
Outlook, Changed To Stable From Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Software
Industry published in August 2018.
COMPANY PROFILE
Based in Hemel Hempstead, England, Zellis is a provider of payroll
and HR software, as well as outsourcing services underpinned by its
proprietary software, to private and public sector clients in the
UK and Ireland. In the twelve months ended 31 October 2020, the
group had GBP155 million of revenue and GBP51 million of
company-adjusted EBITDA. Zellis is owned by financial investor Bain
Capital.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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Editors.
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