/raid1/www/Hosts/bankrupt/TCREUR_Public/210205.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, February 5, 2021, Vol. 22, No. 21
Headlines
A R M E N I A
AMERIABANK CJSC: S&P Affirms 'B+/B' ICRs, Outlook Negative
B O S N I A A N D H E R Z E G O V I N A
VITEZIT: Winsley Defence Buys Explosive Factory for BAM10.6MM
F R A N C E
AIR FRANCE: May Have to Give Up Airport Slots for State Aid
I C E L A N D
ORKUVEITA REYKJAVIKUR: Moody's Completes Review, Retains Ba1 CFR
I R E L A N D
CLARINDA PARK: Moody's Gives '(P)B3' Rating on Class E Notes
CORK STREET: Moody's Affirms Ba1 Rating on Class D Notes
NEUBERGER BERMAN 1: S&P Assigns Prelim. 'B-' Rating on Cl. F Notes
I T A L Y
NEXI SPA: Moody's Completes Review, Retains Ba3 Rating
L U X E M B O U R G
ATENTO LUXCO 1: Fitch Assigns B+ Rating on New Secured Notes
ATENTO LUXCO 1: Moody's Rates New $500MM Sr. Secured Notes 'Ba3'
R O M A N I A
[*] ROMANIA: Repeals Two-Year Ban on Sale of State-Held Stakes
R U S S I A
MARITIME BANK: Moody's Affirms 'B3' Bank Deposit Ratings
S P A I N
TELEFONICA EUROPE: Moody's Gives Ba2 Rating on New Hybrid Debt
T U R K E Y
QNB FINANSBANK: Fitch Affirms 'B+' LT Foreign Currency IDR
U K R A I N E
PROCREDIT BANK: Fitch Affirms 'B' LT Foreign Currency IDR
U N I T E D K I N G D O M
BELLIS FINCO: Fitch Assigns First-Time 'BB-(EXP)' LongTerm IDR
BELLIS FINCO: Moody's Assigns Ba2 CFR, Outlook Stable
ELDON STREET: Feb. 19 Deadline Set for Proofs of Debt Submission
KCA DEUTAG: S&P Assigns 'B' LongTerm ICR Following Restructuring
LB HOLDINGS 2: Feb. 12 Deadline Set for Proofs of Debt Submission
LEHMAN BROTHERS PTG: Feb. 19 Deadline Set for Proofs of Debt
LEHMAN BROTHERS: Feb. 12 Deadline Set for Proofs of Debt
ROLLS-ROYCE: Fitch Lowers LT IDR to 'BB-', Outlook Negative
THAYER PROPERTIES: Feb. 19 Deadline Set for Proofs of Debt
[*] Moody's Takes Actions on 6 UK Non-Conforming RMBS Deals
X X X X X X X X
[*] BOOK REVIEW: Hospitals, Health and People
- - - - -
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A R M E N I A
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AMERIABANK CJSC: S&P Affirms 'B+/B' ICRs, Outlook Negative
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S&P Global Ratings affirmed its 'B+/B' long- and short-term issuer
credit rating on Ameriabank CJSC. The outlook remains negative.
S&P said, "The COVID-19 pandemic and the six-week long
Nagorno-Karabakh conflict put material pressure on the Armenian
economy, which we expect contracted by about 8% in 2020. We
therefore project net general government debt will rise to 62% of
GDP in 2021 from 48% in 2019, and that Armenia's narrow net
external debt will hover around 100% of current account receipts in
the next two years, up from about 80% in 2019. We also see an
elevated risk that external metrics will deteriorate more than we
envisage, for example if external debt increases more than we
anticipate.
"In addition to expenditure pressure, the fiscal deficit is likely
to expand to over 5% in 2021. We also expect unemployment will
remain high at about 20%. We expect the Armenian economy will
return to growth in 2021-2022 at an annual average of about 3.75%.
However, despite the anticipated recovery, we believe that
operating environment and growth prospects for Armenian banks
remain challenging, with continuous pressure on asset quality and
profitability.
"The rating affirmation reflects our belief that the bank's
conservative and well-developed risk management practices will
enable it to withstand the current crisis. Nevertheless, we expect
Ameriabank's capitalization will continue to decrease until the
bank receives sizable capital injections from new prospective
equity investors, which were originally planned for 2020, but were
postponed due to the stressed environment. We estimate that our
risk-adjusted capital (RAC) ratio declined to about 6.5% at
year-end 2020 from 7.1% at year-end 2019, which is still
commensurate with the current rating. As of year-end 2020 the
bank's total capital adequacy ratio of 13.6% was moderately above
the 12% regulatory minimum. In 2020, the bank's return on assets
decreased to 0.9% from an average of 1.4% in 2018-2019.
"We anticipate the COVID-19 pandemic will negatively affect the
bank's asset quality. We believe the bank's Stage 3 loans could
increase to about 5% in 2021, from 4.2% as of year-end 2020. We
also expect cost of risk will remain elevated in 2021, at about 2%,
compared with 2.8% in 2020, up from 1.3% in 2019.
"We expect Ameriabank will maintain its adequate funding profile,
which is well diversified across maturities and funding sources
compared with that of peers in Armenia. We observed an about 11%
reduction of nonresident deposits in the Armenian banking system in
the first 10 months of 2020. Positively, Ameribank's retail
deposits remained stable throughout the year. We believe the bank's
well-recognized brand name and solid financial profile will support
its deposit stability in 2021.
"The 'B+' long-term rating on Ameriabank is one notch lower than
the bank's 'bb-' stand-alone credit profile, because our view of
the sovereign's lower creditworthiness constrains our ratings on
Ameriabank. This is because the bank's exposures are predominantly
in Armenia, with strong links to the domestic economy from a
business, funding, and lending point of view.
"The negative outlook reflects our view of continuing risks from
the severe impact of COVID-19 pandemic on the Armenian economy and
banking system to Ameriabank's creditworthiness over the next 12
months.
"We could lower the ratings on Ameriabank over the next 12 months
if COVID-19 continued to put material pressure on the Armenian
economy, its fiscal and external position, and on the operating
environment for Armenian banks, namely on banks' asset quality and
the stability of nonresident deposits.
"We could revise the outlook to stable if the fiscal and external
position of the Armenian economy strengthened, facilitating a
better macroeconomic environment for the banking sector and
Ameriabank's credit profile, because we consider the bank's
creditworthiness closely linked with that of the sovereign."
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B O S N I A A N D H E R Z E G O V I N A
===========================================
VITEZIT: Winsley Defence Buys Explosive Factory for BAM10.6MM
-------------------------------------------------------------
Stefan Radulovikj at SeeNews reports that Bosnian military
equipment company Winsley Defence Group, owned by Croatian
businessman Zvonko Zubak, bought bankrupt explosive factory Vitezit
for BAM10.6 million (US$6.5 million/EUR5.4 million).
According to SeeNews, Mr. Zubak told local news portal Viteski.ba
on Feb. 1 Winsley Defence Group will invest EUR65 million in the
factory and employ some 500 workers.
Production is expected to begin in 18 months and is planned at
4,000 tonnes of gunpowder annually, SeeNews discloses.
The court sold the bankrupt factory after three unsuccessful sale
attempts, SeeNews relays, citing the report.
The Vitezit factory, located in the town of the same name, was
founded in 1950 and used to be one of the biggest employers in
Bosnia. Vitez is located in the Federation, one of two autonomous
entities forming Bosnia and Herzegovina. The other one is the Serb
Republic.
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F R A N C E
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AIR FRANCE: May Have to Give Up Airport Slots for State Aid
-----------------------------------------------------------
Ellen Proper, Diederik Baazil, and Ania Nussbaum at Bloomberg News
report that France and the Netherlands appear to be readying for a
clash with the European Commission over a fresh aid package to
debt-laden carrier Air France-KLM.
Dutch Finance Minister Wopke Hoekstra warned lawmakers on Feb. 3 he
couldn't rule out the possibility that the airline will be asked by
European regulators to give up airport slots in exchange for
approval for more state aid, Bloomberg News relates.
His comments to a parliamentary committee followed stronger wording
from his French counterpart, Bruno Le Maire, who suggested the
country would oppose any requirement for Air France to relinquish
slots at Paris-Orly airport, Bloomberg News notes.
"The point is not to weaken Air France, it's to strengthen Air
France," Mr. Le Maire told France Info TV on Feb. 2. "When we took
a decision to support Air France at the beginning, it's not to give
it up in the end."
A tussle over landing rights at Orly would come amid crucial talks
between France and the Netherlands, which together hold a combined
28% of the company, and are considering more financial help to the
airline. The states have already provided a EUR10.4 billion
lifeline in the form of direct loans and guarantees to keep the
carrier afloat during the pandemic, Bloomberg discloses. Air
France-KLM has said it needs fresh equity, Bloomberg notes.
According to Bloomberg, French newspaper La Tribune first reported
on the possible quid pro quo on the state aid, saying the number of
slots Air France would be asked to give up by the EU would be
comparable to those rival Deutsche Lufthansa had to give up in
Germany for its own bailout.
According to Bloomberg, giving up slots at Orly would come as a
setback to Air France because the airport is closer to the city
center than Paris-Charles de Gaulle and is part of the carrier's
strategy to expand through its low-cost arm Transavia.
While Air France-KLM is considered a strategic asset by the French
government, which has vowed to allocate more public funds to help
it survive, a new aid package is still under discussion with the
Dutch government, Bloomberg notes.
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I C E L A N D
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ORKUVEITA REYKJAVIKUR: Moody's Completes Review, Retains Ba1 CFR
----------------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Orkuveita Reykjavikur and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review discussion held on January 26, 2021 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
Orkuveita Reykjavikur's Ba1 corporate family rating incorporates a
one-notch uplift for potential government support from its
standalone credit quality (or baseline credit assessment (BCA)) of
ba2. This is based on Moody's assessment of very high dependence
between OR and its majority shareholder, the municipality of
Reykjavik, and moderate likelihood of OR receiving support.
OR's BCA in turn reflects (1) the company's strong market position
and its strategic importance to the City of Reykjavik and Iceland
(A2) as the provider of essential utility services to almost 70% of
the country's population, the low business risk profile of its
regulated activities, which provide around 53% of EBITDA, and
moderate levels of capital spending. However, the BCA is
constrained by significant unregulated earnings from electricity
generation; exposure to weakness in aluminium prices, directly
through aluminium-linked offtake contracts and indirectly through
the rating of its largest customer, a subsidiary of Century
Aluminum (Caa1), exposure to depreciation of the Icelandic krona,
because around half of its debt is denominated in foreign
currencies but only a quarter of EBITDA, and Iceland's structural
vulnerability to external shocks as a result of its concentrated
economy.
The principal methodologies used for this review were Regulated
Electric and Gas Utilities published in June 2017.
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I R E L A N D
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CLARINDA PARK: Moody's Gives '(P)B3' Rating on Class E Notes
------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following provisional ratings to the refinancing notes to be issued
by Clarinda Park CLO Designated Activity Company (the "Issuer"):
EUR690,000 Class X Senior Secured Floating Rate Notes due 2034,
Assigned (P)Aaa (sf)
EUR248,000,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Assigned (P)Aaa (sf)
EUR40,000,000 Class A-2 Senior Secured Floating Rate Notes due
2034, Assigned (P)Aa2 (sf)
EUR26,000,000 Class B Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)A2 (sf)
EUR25,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Baa3 (sf)
EUR 21,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Ba3 (sf)
EUR 11,500,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)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 our methodology.
The Issuer will issue the refinancing notes in connection with the
refinancing of the following classes of notes: Class A-1 Notes,
Class A-2 Notes, Class B Notes, Class C Notes and Class D Notes due
in 2029 (the "2019 Refinancing Notes"), previously issued on May
15, 2019 (the "2019 Refinancing Date") as well as the Class E Notes
due 2029 (the "2016 Original Notes"), previously issued on November
15, 2016 (the "Original Closing Date"). On the refinancing date,
the Issuer will use the proceeds from the issuance of the
refinancing notes to redeem in full the 2019 Refinancing Notes and
the 2016 Original Notes.
On the Original Closing Date, the Issuer also issued EUR 45,100,000
of subordinated notes, which will remain outstanding. The terms and
conditions of the subordinated notes will be amended in accordance
with the refinancing notes' conditions.
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 EUR 240,000 on the first payment date and
by EUR 90,000 over the following five payment dates.
As part of this full refinancing, the Issuer will renew the
reinvestment period at four years and extend the weighted average
life by four years to 8.5 years. It will also amend certain
concentration limits, definitions and minor features. In addition,
the Issuer will amend the base matrix and modifiers that Moody's
will take into account for the assignment of the definitive
ratings.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of secured senior loans or senior secured
bonds and up to 10% of the portfolio may consist of unsecured
senior loans, second-lien loans, high yield bonds and mezzanine
loans. The underlying portfolio is expected to be fully ramped as
of the closing date; the modelled performing par amount is
marginally below the target par amount of EUR 400,000,000.
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 four-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.
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.
Moody's 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:
Performing par*: EUR 399,506,234.03
Defaulted Par: EUR 2,500,000 as of January 2021 Trustee Report [1]
Diversity Score: 55
Weighted Average Rating Factor (WARF): 2950
Weighted Average Spread (WAS): 3.55%
Weighted Average Coupon (WAC): 4.0%
Weighted Average Recovery Rate (WARR): 43.0%
Weighted Average Life (WAL): 8.5 years
CORK STREET: Moody's Affirms Ba1 Rating on Class D Notes
--------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Cork Street CLO Designated Activity Company:
EUR15,650,000 Refinancing Class A-2A Senior Secured Floating Rate
Notes due 2028, Upgraded to Aaa (sf); previously on Dec 8, 2020 Aa1
(sf) Placed Under Review for Possible Upgrade
EUR26,350,000 Refinancing Class A-2B Senior Secured Fixed Rate
Notes due 2028, Upgraded to Aaa (sf); previously on Dec 8, 2020 Aa1
(sf) Placed Under Review for Possible Upgrade
EUR24,000,000 Class B Senior Secured Deferrable Fixed Rate Notes
due 2028, Upgraded to Aa3 (sf); previously on Dec 8, 2020 A1 (sf)
Placed Under Review for Possible Upgrade
EUR21,000,000 Class C Senior Secured Deferrable Fixed Rate Notes
due 2028, Upgraded to A3 (sf); previously on Feb 28, 2020 Upgraded
to Baa1 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR127,300,000 Refinancing Class A-1A Senior Secured Floating Rate
Notes due 2028, Affirmed Aaa (sf); previously on Feb 28, 2020
Affirmed Aaa (sf)
EUR112,700,000 Class A-1B Senior Secured Step-up Floating Rate
Notes due 2028, Affirmed Aaa (sf); previously on Feb 28, 2020
Affirmed Aaa (sf)
EUR26,000,000 Class D Senior Secured Deferrable Fixed Rate Notes
due 2028, Affirmed Ba1 (sf); previously on Feb 28, 2020 Upgraded to
Ba1 (sf)
Cork Street CLO Designated Activity Company, issued in November
2015, is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Guggenheim Partners Europe Limited. The
transaction was refinanced in November 2017 and its reinvestment
period ended in November 2019.
The action conclude the rating review on the Classes A-2A, A-2B and
B 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/39L9bj8.
RATINGS RATIONALE
The rating upgrades on the Classes A-2A, A-2B, B and C 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
(WARF). Based on Moody's calculation, the WARF is currently 3101
after applying the revised assumptions as compared to the trustee
reported WARF of 3205 as of January 2021 [1].
The actions also reflects the deleveraging of the Classes A-1A and
A-1B following the amortisation of the underlying portfolio since
the payment date in August 2020 [2].
The Class A-1A and A-1B notes have paid down by approximately EUR 3
million (7.7%) in the last 6 months. As a result of the
deleveraging, over-collateralisation (OC) has increased across the
capital structure. According to the trustee report dated January
2021 [1] the Class A, Class B, Class C and Class D OC ratios are
reported at 144.8%, 132.6%, 123.5% and 113.8% compared to August
2020 [2] levels of 142.9%, 131.4%, 122.8% and 113.5%,
respectively.
The rating affirmations on the Classes A-1A, A-1B and D 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 (OC) 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 373.06M
Defaulted Securities: NIL
Diversity Score: 40
Weighted Average Rating Factor (WARF): 3101
Weighted Average Life (WAL): 4.19 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.58%
Weighted Average Coupon (WAC): 3.40%
Weighted Average Recovery Rate (WARR): 47.02%
Par haircut in OC tests and interest diversion test: 0.206%
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 Moody's 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.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank and swap providers
using the methodology "Moody's Approach to Assessing Counterparty
Risks in Structured Finance" published in June 2020. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the note,
in light of uncertainty about credit conditions in the general
economy. In particular, the length and severity of the economic and
credit shock precipitated by the global coronavirus pandemic will
have a significant impact on the performance of the securities. CLO
notes' performance may also be impacted either positively or
negatively by 1) the manager's investment strategy and behaviour
and 2) divergence in the legal interpretation of CDO documentation
by different transactional parties because of embedded
ambiguities.
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
liquidation agent/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.
NEUBERGER BERMAN 1: S&P Assigns Prelim. 'B-' Rating on Cl. F Notes
------------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Neuberger
Berman Loan Advisers Euro CLO 1 DAC's class A, B-1, B-2, C, D, E,
and F notes. At closing, the issuer will issue subordinated notes.
The preliminary 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.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio Benchmarks
Current
S&P weighted-average rating factor 2,731.76
Default rate dispersion 465.01
Weighted-average life (years) 4.92
Obligor diversity measure 106.07
Industry diversity measure 18.29
Regional diversity measure 1.47
Transaction Key Metrics
Current
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.85
Covenanted 'AAA' weighted-average recovery (%) 36.39
Covenanted weighted-average spread (%) 3.45
Covenanted weighted-average coupon (%) 3.50
Loss mitigation Obligations
Under the transaction documents, the issuer can purchase loss
mitigation obligations, which are assets of an existing collateral
obligation held by the issuer offered in connection with
bankruptcy, workout, or restructuring of such obligation, to
improve the recovery value of such related collateral obligation.
Loss mitigation obligations allow the issuer to participate in
potential new financing initiatives by the borrower in default.
This feature aims to mitigate the risk of other market participants
taking advantage of CLO restrictions, which typically do not allow
the CLO to participate in a defaulted entity's new financing
request. Hence, this feature increases the chance of a higher
recovery for the CLO. While the objective is positive, it can also
lead to par erosion, as additional funds will be placed with an
entity that is under distress or in default. This may cause greater
volatility in our ratings if the positive effect of such
obligations does not materialize. In S&P's view, the presence of a
bucket for loss mitigation obligations, the restrictions on the use
of interest and principal proceeds to purchase such assets, and the
limitations in reclassifying proceeds received from such assets
from principal to interest help to mitigate the risk.
The purchase of loss mitigation obligations is not subject to the
reinvestment criteria or the eligibility criteria. The issuer may
purchase loss mitigation obligations using either interest
proceeds, principal proceeds, or amounts in the supplemental
reserve account. The use of interest proceeds to purchase loss
mitigation obligations is subject to:
-- The manager determining that there are sufficient interest
proceeds to pay interest on all the rated notes on the upcoming
payment date; and
-- Following the purchase of such loss mitigation obligation, all
coverage tests shall be satisfied.
The use of principal proceeds is subject to:
-- Passing par coverage tests;
-- The manager having built sufficient excess par in the
transaction such that the adjusted collateral principal amount is
equal to or exceeds the portfolio's reinvestment target par balance
after the reinvestment;
-- The obligation purchased is a debt obligation that ranks senior
or pari passu, has a maturity date that does not exceed the
maturity date of the rated notes, and has a par value greater than
or equal to its purchase price; and
-- The reinvestment overcollateralisation test being satisfied
immediately following such payment.
Loss mitigation obligations that are purchased with principal
proceeds and have limited deviation from the eligibility criteria
will receive collateral value credit in the principal balance
determination. To protect the transaction from par erosion, any
distributions received from loss mitigation obligations purchased
with the use of principal proceeds will form part of the issuer's
principal account proceeds and cannot be recharacterized as
interest.
Loss mitigation obligations that are purchased with interest
proceeds or proceeds from the supplemental reserve account, will
receive zero credit in the principal balance determination and the
proceeds received will form part of the issuer's interest account
proceeds. The manager may, at their sole discretion, elect to apply
collateral value credit to such loss mitigation obligations that
meet the same limited deviation from eligibility criteria. This is
subject to the condition that once collateral value credit is
applied, all proceeds from this loss mitigation loan will be
credited to the principal account. The manager also maintains the
ability to classify any amounts received from any interest funded
loss mitigation obligations as principal proceeds.
The cumulative exposure to loss mitigation obligations purchased
with principal is limited to 5% of the target par amount. The
cumulative exposure to loss mitigation obligations purchased with
principal and interest is also limited to 10% of the target par
amount.
Rating rationale
S&P said, "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 four years
after closing.
"We understand that at closing the portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR300 million target par
amount, the covenanted weighted-average spread (3.45%), the
reference weighted-average coupon (3.50%), and the target minimum
weighted-average recovery rates as indicated by the collateral
manager. We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings."
Until the end of the reinvestment period on April 17, 2025, 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, "At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect 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 preliminary ratings
are commensurate with the available credit enhancement for the
class A to F notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B-1, B-2, C, D,
and E notes could withstand stresses commensurate with 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 preliminary ratings assigned to the notes.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our preliminary ratings are commensurate
with the available credit enhancement for all the rated classes of
notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
to five of the 10 hypothetical scenarios we looked at in our recent
publication."
As vaccine rollouts in several countries continue, S&P Global
Ratings believes there remains a high degree of uncertainty about
the evolution of the coronavirus pandemic and its economic effects.
Widespread immunization, which certain countries might achieve by
midyear, will help pave the way for a return to more normal levels
of social and economic activity. S&P said, "We use this assumption
about vaccine timing 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 it will be managed by Neuberger
Berman Europe Ltd.
Ratings List
Class Prelim. Prelim. Amount Interest Credit
Rating (mil. EUR) rate (%) enhancement (%)
A AAA (sf) 186.00 3mE + 0.88 38.00
B-1 AA (sf) 21.30 3mE + 1.35 27.90
B-2 AA (sf) 9.00 1.70 27.90
C A (sf) 17.90 3mE + 2.10 21.93
D BBB (sf) 18.90 3mE + 3.00 15.63
E BB- (sf) 16.90 3mE + 5.52 10.00
F B- (sf) 8.30 3mE + 7.90 7.23
Sub NR 29.00 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
=========
I T A L Y
=========
NEXI SPA: Moody's Completes Review, Retains Ba3 Rating
------------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Nexi S.p.A. and other ratings that are associated with
the same analytical unit. The review was conducted through a
portfolio review discussion held on January 15, 2021 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.
Nexi S.p.A.'s (Nexi, the company) Ba3 rating, reflects the
company's presence across the payment value chain in Italy, with
leading market shares and strong relationships with around 150
partner banks, which are both clients and distributors of its
payment solutions; its position in the payment processing market
with high barriers to entry; high growth prospects supported by the
relatively low penetration of card transactions in Italy compared
with other Western European markets; and good liquidity. The rating
also reflects the potential for greater size and scale as well as
geographical, customer and product line diversification which would
occur following the completion of the acquisitions of SIA and
Nets.
These strengths are balanced by the concentration of Nexi's
operations in Italy, although this is expected to improve following
the acquisition of Nets, and of its customer base, given the
wholesale nature of the company's issuing and clearing services;
execution risks related to growth, a reduction in non-recurring
items and improvement in free cash flow (FCF)/debt; potential
competition following the implementation of PSD2; as well as
integration risks linked to the company's acquisitive nature and
implied potential increase in leverage, should debt financing be
used.
The principal methodology used for this review was Business and
Consumer Service Industry published in October 2016.
===================
L U X E M B O U R G
===================
ATENTO LUXCO 1: Fitch Assigns B+ Rating on New Secured Notes
------------------------------------------------------------
Fitch Ratings has assigned a 'B+'/'RR4' rating to Atento Luxco 1's
proposed senior secured notes issuance. The up to USD500 million
issuance, with a five-year term, and will be fully and
unconditionally guaranteed by certain subsidiaries of Atento Luxco
on a joint and several basis. Proceeds from the senior secured
notes will be used to refinance the existing USD500 million senior
secured notes, due August 2022. Fitch currently rates Atento
Luxco's Long-Term Foreign Currency Issuer Default Ratings (IDRs)
'B+'/Outlook Negative.
Atento's rating incorporates the company's limited liquidity,
moderate leverage and exposure to FX fluctuations, as only 20% of
the company's revenues are in hard currency, and most of its debt
is USD-denominated. Atento plans to fully hedge the new issuance to
mitigate this risk. The rating also reflects the moderate to
high-risk industry profile, deteriorated operating environment,
negative client concentration, lack of minimum volumes in contracts
and the intense competition.
The Negative Outlook incorporates Atento's medium-term challenges
to recover operating margins, as its top line has been pressured by
technology changes and market dynamics. The Negative Outlook also
considers Atento's challenges to improve its debt amortization
profile.
KEY RATING DRIVERS
Operating Environment Deterioration: Trends have been negative for
certain segments of the CRM industry, as companies develop in-house
solutions and digital channels to replace traditional voice
support. The deterioration of the operating environment, along with
lower economic growth in Latin America and Spain, has added
additional challenges to long-term trends. Fitch estimates Atento's
revenues to fall 18% in 2020, negatively impacted by the pandemic
and currency depreciation. The company faces important challenges
of recovering operating margins and managing working capital needs
in a weaker operating environment.
Medium to High Risk Sector: Atento provides CRM/BPO services, which
has a medium- to high-risk stance, in Fitch's view. Competition is
intense, clients tend to diversify outsourcing providers to avoid
becoming dependent on one supplier, and players have high customer
concentration, especially among large financial institutions and
telecommunication carriers. Most of the contracts have no minimum
volumes, which adds volatility to results. The industry presents
high operating leverage, driven by salaries and rent costs, where a
permanent reduction in volumes usually results in heavy labor and
rent-related severance payments. Additionally, charging fines from
contracts suspensions with large clients has historically been
difficult.
Lower than Expected Cash Burn: Fitch projects Atento will generate
USD102 million of EBITDA in 2020 and USD128 million in 2021,
compared to USD118 million in 2019, as per Fitch's criteria. EBITDA
decline in 2020, due to the coronavirus pandemic and lockdown
measures, was better than anticipated, due to lower revenues
reduction and more flexible cost structure. Cash flow from
operations (CFFO) is expected to reach USD58 million in 2020 and
USD78 million in 2021, which favorably compares with USD47 million
in 2019. Base case projections considered investments of about
USD37 million, with a positive FCF of USD21 million in 2020.
Moderate Leverage: Fitch forecasts Atento's net debt/EBITDA ratio
of 3.7x in 2020, stable compared to 2019, and to gradually reduce
during 2021. Despite the expected 13% reduction in EBITDA for 2020,
the company managed to reduce net debt by about USD70 million.
Atento is highly exposed to FX risk, as only 20% of its revenues
are in hard currency, while the majority of its debt is in U.S.
dollars. The company plans to mitigate this risk by fully hedging
the principal and interests of the new issuance, while only coupons
of the 2022 notes are hedged.
High Customer Concentration: Atento has high client concentration,
with the top 10 clients surpassing 70% of revenues. Although the
relevance of Telefonica Group (BBB/Stable) to Atento's revenues has
declined in the last few years, it is still high and represents
approximately 32% of total revenue. Fitch views this trend as
positive, as it gradually reduces client concentration risk.
Telefonica's public intention is to spin-off its Hispanic
operations (Chile, Mexico, Colombia, Peru, among other Latin
American countries) and focus in Brazil, Spain, Germany and the UK.
Fitch expects no material impact from the expiration of Atento's
Master Service Agreement (MSA) with Telefonica in Dec. 2021 (Dec.
2023 for Brazil and Spain). Atento's revenues from Telefonica in
Hispanic countries that expires in Dec. 2021 reached USD146 million
in 9M20 and represented 14% of Atento's sales. As contracts usually
last for three years and Telefonica will continue to demand CRM
solutions, the agency anticipates a smooth transition to the new
model.
DERIVATION SUMMARY
Atento is the largest CRM/BPO provider in Latin America with around
15% estimated market share. The ratings are tempered by the
intrinsic client concentration in telecommunication and financial
sectors and limited ability to charge fines from large clients. The
classification also embraces the challenges Atento faces to replace
declining traditional voice revenues by more value-added services.
Atento's EBITDA margins have been below other CRM players, such as
Teleperformance S.A.'s, Sykes Enterprises, Incorporated's and TTEC
Holdings, Inc.'s 10%-15% EBITDA range.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Number of Workstations (WS) of 93,300 in 2020 and 94,900 in
2021, from 92,600 in 2019;
-- Revenue per WS falling 18% in 2020 and 2.3% in 2021 on weaker
economic activity and FX depreciation in Brazil, Mexico and
Colombia;
-- Fitch-defined EBITDA margins of 7.2% in 2020 and 9.2% in 2021;
-- Capex of USD37 million in 2020 and USD49 million in 2021;
-- No dividends or buybacks in 2020 and 2021.
KEY RECOVERY RATING ASSUMPTIONS
-- The recovery analysis assumes that Atento Luxco would be
reorganized as a going-concern in bankruptcy rather than
liquidated. Fitch has assumed a 10% administrative claim.
Going-Concern (GC) Approach
-- Atento Luxco's GC EBITDA of USD102 million assumptions is the
same as Fitch's forecast for 2020. The 2020 EBITDA excludes
the IFRS16 effects and already incorporate a stress scenario
caused by the pandemic.
-- The GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganization EBITDA level upon which Fitch bases the
enterprise valuation.
-- An EV multiple of 5x EBITDA is applied to the GC EBITDA to
calculate a post-reorganization enterprise value. The choice
of this multiple considered the following factors:
-- Historical multiple negotiated by the issuer M&A precedent
transactions for peers ranged from 3.7x-6.3x, with recent
activity at the lower end of that range. This issuer was
acquired in 2012 for USD1.3 billion, representing a multiple
of 5.2x EBITDA.
Liquidation Approach
-- Fitch excluded the liquidation value (LV) approach because
Latin American bankruptcy legislations tend to favor the
maintenance of the business to preserve direct and indirect
job positions. In extreme cases where LV was necessary, the
recovery of the assets has proved very difficult for
creditors. Moreover, Atento is an asset-light company and
selling parts of it, in Fitch's view, would not be the most
successful solution.
-- The allocation of value in the liability waterfall results in
recovery corresponding to RR2 recovery for the 2022 senior
secured bond and the super senior RCF (together USD550
million) and a recovery corresponding to RR6 for the remaining
debt and RCFs (USD29 million). However, given that most of the
countries Atento operates, such as Brazil, Argentina,
Colombia, Mexico and Peru, are in Group D, as per Fitch's
"Country-Specific Treatment of Recovery Ratings Rating
Criteria", the recovery rating is capped at 'RR4', which
denotes a recovery expectation of 31%-50% and limits the
rating of the issuance at the same rating of the issuer.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating actions are not expected for the short-term.
The Outlook Negative could be revised to Stable if Atento
improves its debt amortization profile, favorably renegotiate
the MSA, increase hard currency revenues, preserving
manageable liquidity position.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Failure to address the refinancing of its 2022 senior notes in
2021;
-- Failure to recover margins.
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
Pressured Liquidity: Atento's liquidity will improve if the company
successfully concludes its proposed senior secured bond issuance
and refinance the existing USD500 million senior secured notes due
Aug. 2022. As of Sep. 2020, the company had cash and marketable
securities of USD197 million and total debt was USD579 million, of
which USD84 million was due in the short-term.
Atento withdrew USD92 million of its committed RCFs during the
2Q20, improving cash position. The company also postponed certain
taxes and expenses, and renegotiated contracts with suppliers,
reducing liquidity pressure in the short term.
Atento Luxco's total debt on Sep. 30, 2020 mainly consisted of
USD500 million in senior secured bonds, USD50 million of super
senior revolving credit facilities, and USD29 million of net
derivatives, other revolving credit facilities and bank loans.
SUMMARY OF FINANCIAL ADJUSTMENTS
The net balance of hedging positions was added to the total debt.
The issuance costs of the bond of USD9 million was added back to
the debt.
ESG CONSIDERATIONS
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.
ATENTO LUXCO 1: Moody's Rates New $500MM Sr. Secured Notes 'Ba3'
----------------------------------------------------------------
Moody's Investors Service affirmed Atento Luxco 1's Ba3 corporate
family ratings and assigned a Ba3 rating to the proposed up to $500
million senior secured notes due 2026, irrevocably and
unconditionally guaranteed by Atento S.A. and certain subsidiaries.
The outlook was changed to stable from negative.
Net proceeds will be directed to refinance Atento's outstanding Gtd
Senior Secured Notes due in 2022.
The rating of the proposed notes assumes that the final transaction
documents will not be materially different from draft legal
documentation reviewed by Moody's to date and assume that these
agreements are legally valid, binding and enforceable.
Rating Assigned:
Issuer: Atento Luxco 1
Proposed Gtd Senior Secured Notes: assigned Ba3
Rating Affirmation:
Issuer: Atento Luxco 1
Corporate Family Rating: affirmed Ba3
Gtd Senior Secured Notes due 2022: affirmed Ba3
Outlook changed to stable from negative
RATINGS RATIONALE
The change in outlook to stable reflects Atento's adequate
liquidity profile and the resilient results posted in 2020, along
with the expectation of higher EBITDA generation and deleveraging
in 2021 and 2022. Despite the disruptions caused by the COVID-19
outbreak, Atento was able to keep on track with its 3-year
efficiency plan, while increasing its client base, retiring of low
margin contracts, and reducing structural costs. With a gradual
normalization of economic activity in 2021, Moody's estimate EBITDA
will grow around 12.5% to $197 million, compared to our estimated
EBITDA of $175 million for 2020. Moody's believe leverage will
reach 3.3x by year-end 2021 from an expected 4.1x at year-end 2020.
Atento's rating and outlook incorporate Moody's expectation that
Atento will successfully refinance, well in advance, its $500
million notes due in 2022.
The stable outlook also incorporates Moody's expectation that the
company will continue to benefit from the good prospects for the
customer service industry in Latin America while pursuing its
efficiency plan and offerings of higher value-added services.
Atento's Ba3 ratings are supported by its size and scale, among the
top five Business Process Outsourcing ("BPO") providers globally by
revenues, its geographic and product diversity and leading position
in its markets. The ratings also consider its long-term service
contracts, including the service agreement between Atento and its
largest client Telefonica that expires in 2023 for Brazil and
Spain. The agreement mitigates the risk of Atento's concentration
in Telefonica ("TEF"), although currently the concentration is at
32% of revenues, from 50% in 2012. The growth prospects of the BPO
and customer relationship management (CRM) industry in Latin
America also support the company's ratings.
Conversely, Atento's ratings are constrained by the large component
of labor in the cost structure of this industry, which weakens the
operating flexibility and potentially generates high contingency
provisions. The industry's fragmented nature and the necessity to
diversify, implement technological innovation and boost value-added
offerings to remain competitive increase the likelihood of M&A
activity. Also, the exposure of EBITDA generation in currencies
which are susceptible sharp depreciations against the US dollar
risk higher leverage and reduced debt coverage because of currency
mismatch. To mitigate such volatility, in the short-term, Atento
hedges its expected debt payments.
Since 2018, Atento has made considerable changes in management to
put together a team focused on digital acceleration and customer
experience. To achieve such goals the company has been focused on
(i) operational improvement, including sales and operational
execution, coupled with cost optimization; (ii) digital
acceleration, including the offering of next-generation services
focused on high-value voice, integrated multichannel solutions and
back-office automation; and (iii) new businesses, including the
expansion to new verticals and geographies. In Moody's view, the
execution of such strategy will help Atento to maintain its
competitive position within a rapidly changing business support
industry. Most services and consumer sectors have seen a need to
increase digital services and automation. The implementation of
such touch-points needs to be executed in a way that improves the
user experience leading to client wins and client retention.
Although simple voice commoditized CRM solutions loose
attractiveness, other solutions will help the CRM sector grow
including omnichannel support, complex voice, back office
automation, mix of human agents -- chatbots, and digital
marketing.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines created a severe and extensive credit shock
across many sectors, regions and markets. For Atento it led to site
closings and disruptions to operations that limited Atento
operations during March, April and May of 2020 causing a sharp drop
in EBITDA generation during these months. Nonetheless, by June
EBITDA was already back to January-February levels, despite the
sharp currency depreciation in Argentina, Brazil and Mexico. Atento
was able to secure an adequate liquidity profile, reduced capex,
advanced with cost cutting, and pushed contingency actions by
adding up to 66,000 remote working stations (out of almost 92,000
presently), scaling back site capacity, and revisiting service
level agreements. Also, the bulk of Atento's volumes derive from
telephony and financial institutions, with other verticals
including technology, utilities and healthcare, sectors which were
less impacted by coronavirus linked disruptions than certain retail
and services related activities. Even in the retail support
operations, lower volumes from more traditional companies were
somewhat mitigated by higher volumes from online and delivery
platforms.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be downgraded if Atento is unable to extend its
maturity profile or to deleverage its balance sheet. The ratings
would suffer downward pressure if Atento's total adjusted debt to
EBITDA remains above 4.0x on a sustained basis and if company's
free cash flow to total adjusted debt remains negative for an
extended period of time. Downward pressure could also arise from
high dividend payouts that result in liquidity shortfalls.
Atento's ratings could be upgraded if the company is able to
continue diversifying its customer base while registering sustained
organic revenue and EBITDA growth, higher operating margins and
gradual deleveraging. Additionally, the company would need to
maintain total adjusted debt/EBITDA below 3.5x and free cash
flow/total adjusted debt above 8.0% on a sustained basis for a
rating upgrade.
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
Headquartered in Luxembourg, Atento Luxco 1 (Atento) is the holding
company of the Atento group with direct and indirect subsidiaries
operating in Latin America, North America and EMEA. The company is
the largest provider of CRM and BPO services in Latin America, and
ranks among the top providers globally, with net revenue of $1.5
billion for the 12 months ended September 2020 and more than
150,000 employees. Atento is ultimately owned by Atento S.A., a
publicly listed company since October 2014.
=============
R O M A N I A
=============
[*] ROMANIA: Repeals Two-Year Ban on Sale of State-Held Stakes
--------------------------------------------------------------
Nicoleta Banila at SeeNews reports that Romania's government
repealed a two-year ban on the sale of state-held stakes in
companies which has been in force since August, the energy ministry
said on Feb. 3.
According to SeeNews, the energy ministry said in a press release
by revoking the law, the government aims to encourage market
competition and avoid the financial deterioration of state-owned
companies.
"As I have said on other occasions, I would like to assure you that
we are not privatising companies. The state must be the majority
shareholder in all energy companies of national strategic
interest," SeeNews quotes the energy minister Virgil Popescu as
saying.
"The listing of a minority package of shares on the stock exchange
does not mean privatisation but a chance to modernise, to make
investments which, obviously, will benefit every Romanian," Popescu
added.
The bill was approved by parliament in June and promulgated by
president Klaus Iohannis in August, SeeNews recounts. The new
legislation is pending approval by parliament and the president,
SeeNews notes.
According to the bill enforced in August, the two-year ban on the
sale of state-held shares in local companies aimed to protect the
national interest amidst the economic crisis caused by the
coronavirus pandemic, SeeNews discloses.
The suspension delayed the planned initial public offering (IPO) of
state-owned hydro power producer Hidroelectrica, SeeNews notes.
The company's CEO Bogdan Badea earlier said that Hidroelectrica's
IPO could take place at the end of 2021 at the earliest, SeeNews
relays.
Hidroelectrica exited insolvency in April 2017, which paved the way
for its listing on the Bucharest Stock Exchange, expected to be the
biggest IPO in Romania's history, SeeNews recounts.
The court-appointed administrator of the company said at the time
the offering of a stake of 10% to 15% in Hidroelectrica is expected
to raise up to EUR1 billion, according to SeeNews.
===========
R U S S I A
===========
MARITIME BANK: Moody's Affirms 'B3' Bank Deposit Ratings
--------------------------------------------------------
Moody's Investors Service affirmed Maritime Bank's long-term local
and foreign currency bank deposit ratings of B3 with stable outlook
on these ratings. Concurrently, Moody's affirmed the bank's
Baseline Credit Assessment and Adjusted BCA of b3, its long-term
local and foreign currency Counterparty Risk Ratings of B2 and its
long-term Counterparty Risk Assessment (CR Assessment) of B2(cr).
The bank's short-term local and foreign currency bank deposit
ratings and short-term local and foreign currency CRRs of Not Prime
and its short-term CR Assessment of Not Prime(cr) were also
affirmed. The outlook remains stable.
RATINGS RATIONALE
The affirmation of Maritime Bank's B3 long-term bank deposit
ratings with stable outlook reflects, on the one hand, the bank's
low business diversification and weak operating profitability, and
on the other hand, its good capital and liquidity buffers and
reduced risk appetite.
Maritime Bank's customer base is limited, and the bank displays
high single-name concentrations on both sides of its balance sheet.
As of June 30, 2020, the bank's 20 largest credit exposures were
around 71% of total gross loans and 258% of total shareholder
equity reported under IFRS. As of the same date, Maritime Bank's
five largest depositors together accounted for 22% of its total
deposit base.
Moody's expects Maritime Bank to be marginally profitable in 2021.
The bank's profitability is strained by high operating costs, as
reflected in cost-to-income ratio of 68% reported in the first half
of 2020, and elevated credit losses, with loan loss provisions
having increased to 2.5% of total gross loans (annualised) in the
first half of 2020 from 1.9% in 2019. This increase in credit
losses is explained by the overall deterioration of operating
environment in Russia resulting from the coronavirus pandemic and
building-up financial hardship for banks' borrowers. As of June 30,
2020, the bank's problem loans were 8.6% of its total gross loans
and their coverage by loan loss reserves was high at 130%, which
will mitigate the risk of abnormal high provisioning charges for
2021.
As of June 30, 2020, Maritime Bank's ratio of tangible common
equity to total risk-weighted assets was good at 11.8%, and Moody's
expects the bank's capital adequacy to remain stable throughout
2021, owing to profitable performance and moderate expected loan
growth. The bank will continue to be funded predominantly by
customer deposits, and the rating agency expects it to preserve
high liquidity cushion of more than a quarter of total assets.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Moody's applies a negative corporate governance adjustment on
Maritime Bank's BCA. The adjustment reflects the rating agency's
perception that the bank lacks clear competitive advantages which
would enable it to safeguard and expand its market franchise in the
next several years, and to withstand competitive pressure from
larger banks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Any upward rating pressure is currently limited, given the
unfavourable operating environment in Russia and Maritime Bank's
still relatively weak profitability metrics.
The bank's long-term bank deposit ratings could be downgraded or
the ratings outlook could be revised to negative from stable if its
financial fundamentals, namely asset quality, capitalisation and
profitability were to be eroded materially, beyond our current
expectations.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in November 2019.
=========
S P A I N
=========
TELEFONICA EUROPE: Moody's Gives Ba2 Rating on New Hybrid Debt
--------------------------------------------------------------
Moody's Investors Service has assigned a Ba2 rating to Telefonica
Europe B.V.'s proposed issuance of undated, deeply subordinated,
guaranteed fixed rate reset securities (the "hybrid debt"), which
are fully and unconditionally guaranteed by Telefonica S.A. on a
subordinated basis. The outlook is stable.
"The Ba2 rating assigned to the hybrid debt is two notches below
Telefonica's senior unsecured rating of Baa3 primarily because the
instrument is deeply subordinated to other debt in the company's
capital structure," says Carlos Winzer, a Moody's Senior Vice
President and lead analyst for Telefonica.
Telefonica plans to use the net proceeds from the offering
predominantly towards eligible green investments, mainly energy
efficiency in the network transformation from copper to fiber
optic, and also accelerating deployment of broadband in unconnected
or underserved areas.
RATINGS RATIONALE
The Ba2 rating assigned to the hybrid debt is two notches below the
group's senior unsecured rating of Baa3.
The two-notch rating differential reflects the deeply subordinated
nature of the hybrid debt. The instrument: (1) is perpetual; (2) is
senior only to common equity; (3) provides Telefonica with the
option to defer coupons on a cumulative basis; (4) steps up the
coupon by 25 basis points (bps) at least 10 years after the
issuance date and a further 75 bps occurring 20 years after the
first reset date; and (5) the issuer must come current on any
deferred interest if there are any payments on parity or junior
instruments. The issuer does not have any preferred shares
outstanding that would rank junior to the hybrid debt, and the
issuer's articles of association do not allow the issuance of such
shares by the issuer.
In Moody's view, the notes have equity-like features that allow
them to receive basket "C" treatment, i.e., 50% equity and 50% debt
for financial leverage purposes (please refer to Moody's Hybrid
Equity Credit methodology published in September 2018). Moody's
notes, however, that as of September 2020 the company has exceeded
the 30% limit set on the amount of equity credit that can be
derived from the issuance of hybrids within its capital structure.
Moody's will review the hybrid issuance capacity after Telefonica's
audited statements for 2020 are published. Hybrid issuances that
exceed the cap will be accounted for as 100% debt for Moody's ratio
calculations.
Telefonica's Baa3 rating reflects (1) the company's large scale;
(2) the diversification benefits associated with its strong
position in its key markets; (3) the company's strengthened
position as an integrated mobile fixed operator in the UK, after
the creation of the joint venture (JV) VMED O2 UK Limited (VMED O2
UK, Ba3 stable); (4) the ample fibre roll-out of its high-quality
network in Spain; (5) management's track record, and (6) the
company's good liquidity risk management.
However, Telefonica's rating also reflects (1) fierce competition
in the low-end residential mobile market in Spain; (2) the negative
impact of the coronavirus pandemic and the subsequent economic
recession, which will lead to weaker operating performance in
2020-21; (3) the company's exposure to emerging market risk,
including significant foreign-currency volatility, and (4) the
group's increased complexity as the company fully consolidates
subsidiaries that it does not fully own.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects the company's strong position in its
four core countries of operation (Spain, Brazil, Germany and the
UK) which should mitigate the pressure on cash flow arising from
the weakness of Latin American currencies and the declining revenue
in Spain because of increasing competition and the weak economic
environment.
The stable outlook reflects Moody's expectation that Telefonica's
management continues to prioritise debt reduction and that the
company's Moody's adjusted net leverage will be only slightly
above, but very close to, the maximum level of tolerance of 3.75x
for the current rating over the next two to three years. Negative
pressure on the rating will arise if leverage exceeds the current
trigger with no improvement expectation over the next two to three
years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
As the hybrid debt rating is positioned relative to another rating
of Telefonica, either: (1) a change in Telefonica's senior
unsecured rating; or (2) a re-evaluation of its relative notching
could affect the hybrid debt rating.
A rating downgrade could result if (1) Telefonica were to deviate
from its financial strengthening plan, as a result of weaker cash
flow generation; and/or (2) the company's operating performance in
Spain and other key markets were to deteriorate, with no likelihood
of short-term improvement in underlying trends. Resulting metrics
would include the ratio of retained cash flow to net adjusted debt
of less than 15% and/or the ratio of net adjusted debt to EBITDA of
3.75x or higher with no expectation of improvement.
Conversely, Moody's could consider an upgrade of Telefonica's
rating to Baa2 if the company's credit metrics were to strengthen
significantly as a result of improved operational cash flow and
debt reduction. More specifically, the rating could benefit from
positive pressure if it became clear that the company were able to
achieve sustainable improvements in its debt ratios, such as a
ratio of adjusted retained cash flow to net debt above 22% and a
ratio of adjusted net debt to EBITDA comfortably below 3.0x.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was
Telecommunications Service Providers published in January 2017.
LIST OF AFFECTED RATINGS
Issuer: Telefonica Europe B.V.
Assignment:
Backed Preference Stock, Assigned Ba2
COMPANY PROFILE
Telefonica S.A. (Telefonica), domiciled in Madrid, Spain, is a
leading global integrated telecommunications provider, with
significant presence in Spain, Germany, the UK and Latin America.
In 2019, Telefonica generated revenue and EBITDA of EUR48.4 billion
and EUR16.5 billion, respectively.
===========
T U R K E Y
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QNB FINANSBANK: Fitch Affirms 'B+' LT Foreign Currency IDR
----------------------------------------------------------
Fitch Ratings has affirmed QNB Finansbank A.S.'s Long-Term
Foreign-Currency (LTFC) Issuer Default Rating (IDR) at 'B+' with a
Negative Outlook and Viability Rating (VR) at 'b+'.
The support-driven LTFC IDRs of the bank's subsidiaries QNB Finans
Finansal Kiralama A.S. (QNB Finansleasing) and QNB Finans Faktoring
A.S. (QNB Faktoring), which are equalised with that of their
parent, have also been affirmed.
KEY RATING DRIVERS
IDRS, SUPPORT RATING, NATIONAL RATING, SENIOR DEBT RATING
QNB Finansbank's 'B+' LTFC IDR and senior debt rating is
underpinned by both potential institutional support and its
standalone creditworthiness, as measured by its VR. The Support
Rating of '4' reflects its strategic importance to its 99.9% owner,
Qatar National Bank (Q.P.S.C.) (QNB; A+/Stable), integration with
and role within the wider QNB group and small size relative to
QNB's ability to provide support, if needed.
Fitch's view of government intervention risk caps the bank's LTFC
IDR at 'B+', one notch below Turkey's LTFC IDR (BB-/ Negative), and
is also the main driver of the Negative Outlook on the bank. This
reflects Fitch’s assessment that weaknesses in Turkey's external
finances would make some form of intervention in the banking system
that would impede banks' ability to service their foreign-currency
(FC) obligations more likely than a sovereign default. The
sovereign's significantly weaker net FC reserves position together
with weak monetary policy credibility have exacerbated external
financing risks, and this is a key driver of the Negative Outlook
on the sovereign ratings.
QNB Finansbank's 'BB-' Long-Term Local-Currency (LTLC) IDR, which
is also driven by institutional support, is one notch above its
LTFC IDR, reflecting Fitch’s view of a lower likelihood of
government intervention that would impede the bank's ability to
service obligations in local currency (LC). However, the Outlook on
the LTLC IDR is also Negative, mirroring the sovereign Outlook,
reflecting Fitch’s view that the likelihood of government
intervention that would impede the bank's ability to service its
obligations in LC is not lower than the probability of a sovereign
default in LC obligations.
The affirmation of QNB Finansbank's National Rating with a Stable
Outlook reflects Fitch’s view that the bank's creditworthiness in
local currency relative to other Turkish issuers is unchanged.
VR
QNB Finansbank's 'b+' VR is in line with that of the largest,
systemically important banks in the sector despite the bank's small
size. The affirmation of the VR considers the concentration of the
bank's operations in the challenging Turkish operating environment,
which exposes it to market volatility and political and
geopolitical uncertainty. However, the VR also considers the bank's
moderate franchise (end-9M20: 4% share of banking-sector assets;
unconsolidated basis) and ensuing limited competitive advantages.
QNB Finansbank provides a mix of services to corporate and
commercial customers (a segment where it is looking to increase its
market shares) small and medium-sized companies (SMEs, which are
highly sensitive to the macro outlook) and retail customers. As a
key subsidiary of QNB, Fitch also sees increasing integration with
the wider group in its risk management and control environment and
policies and procedures.
Fitch sees downside risks to QNB Finansbank's VR, given
uncertainties over the impact of the pandemic and potential further
market volatility. A deeper and more extended economic contraction
than expected could exacerbate Turkish operating environment risks,
heightening pressure on the bank's asset quality capitalisation and
performance metrics. In addition, regulatory forbearance measures,
which are currently providing uplift to banks' reported asset
quality and capital metrics, are due to fall away at end-June
2021.
Loan growth at the bank was 11% in FX-adjusted terms in 9M20,
despite operating environment pressures. However, growth was below
sector average (of 19%) as the bank curtailed its expansion plans
(targeting both retail and business lending) in response to the
weaker growth environment and pandemic-related disruption.
The bank's impaired loans ratio improved to 5.7% at end-9M20
(sector average: 4.1%) from 7% at end-2019, due to lower inflows
(reflecting regulatory forbearance) and the denominator impact from
nominal loan growth. Fitch calculates the impaired loans ratio
would have been 30bp higher net of regulatory forbearance. Stage 2
loans were also fairly high (8.1% of gross loans at end-9M20),
although below the peer average, and nearly two-thirds were
restructured. Total reserve coverage of non-performing loans was
solid at 120% end-9M20 (sector average: 127%), with specific
reserve coverage of 76% (sector: 74%) and average Stage 2 reserve
coverage of 19%.
Asset-quality risks were already high for QNB Finansbank entering
the crisis, exacerbated by the below-trend growth in Turkey,
exposure to troubled sectors and segments and high, although
slightly below the sector average, FC foreign-currency (FC) lending
(35% of loans at end-3Q20; sector: 36%), given that not all
borrowers are likely to be fully hedged against lira depreciation
(the lira depreciated by 19% against the US dollar in 2020).
FC loan exposure mainly relates to the corporate and commercial
segments and includes significant project finance (end-9M20: around
a fifth of gross loans), whereby loans are long term and slowly
amortising, meaning asset quality problems will feed through only
gradually. Project finance comprises public-private-partnership
loans (PPPs, 48%), largely covered by state government revenue and
debt assumption guarantees, and energy loans (15%), including
renewable energy projects eligible for government-guaranteed
feed-in tariffs set in US dollars. As a result, around 60% of the
bank's project-finance exposure was covered by some form of state
guarantee, mitigating the credit risk. Real estate comprised a
further 27% of total project finance.
QNB Finansbank's sectoral exposures are reasonably diversified,
typically at 10% or less of the loan book. However, the bank has
exposure to the troubled construction and real estate sector (9%)
and energy & commodities sector (8%). Borrower concentration is
moderate compared with peers, with the top 25 cash loans equal to
19% of loans or 1.6x common equity Tier 1 (CET1) capital.
Fitch believes the improving growth outlook in Turkey (Fitch
forecasts 3.5% real GDP growth in 2021), recent appreciation of the
lira, and greater market stabilisation should be moderately
supportive of Turkish banks' loan portfolios and collection
capacities. Nevertheless, risks are to the downside given
uncertainty over the pandemic, operating environment volatility and
the higher lira interest rate environment.
QNB Finansbank's profitability metrics remained in line with the
sector average in 9M20. It reported an operating
profit/risk-weighted assets (RWA) ratio of 2.1% (annualised) at
end-9M20 (sector: 2.0%). Its performance in recent years has been
underpinned by its above-sector-average net interest margin
(reflecting its historical focus on higher-yielding but more risky
segments), above-sector-average growth and only moderate impairment
charges. However, loan impairment charges rose to 45% of
pre-impairment operating profit in 9M20 (2019: 36%) and remain
sensitive to asset-quality weakening.
The bank's cost efficiency is weaker than the sector average as the
bank does not benefit from economies of scale. However, cost
efficiency ratios have improved steadily in recent years (9M20:
cost/income ratio of 41%; sector: 32%) and are in line with that of
mid-sized bank peers as the bank has focused on optimisation
measures and network rationalisation and achieved efficiency gains
through volume growth.
Core capitalisation is only moderate given the bank's risk profile
(end-9M20: CET1 ratio of 11.3% including forbearance uplift),
growth appetite, sensitivity to lira depreciation (due to the
inflation of FC RWAs) and asset-quality risks. The CET1 ratio would
have been even lower at 9.1% excluding the impact of regulatory
forbearance (set to expire at end-1H21). The bank's total
regulatory capital is stronger, at 16.7%, and comfortably above the
regulatory minimum, supported by FC subordinated debt from QNB,
which provides a partial hedge against potential lira depreciation.
Pre-impairment operating profit (9M20: equal to 4.5% of average
loans) also provides a solid buffer to absorb losses through the
income statement.
The bank is mainly customer deposit funded (9M20: 66% of total
funding) and deposits are sticky despite being contractually short
term. Deposits are fairly granular with retail accounts comprising
72% of the total. Customer deposits rose by 10% in FX-adjusted
terms in 9M20 mainly driven by FC deposits. The bank reports an
above sector average share of FC deposits (63% versus 54% for the
sector). It also reports a slightly above-sector-average
loans/deposit ratio (119% at end-9M20, sector: 108%), reflecting
reliance on wholesale funding. FC wholesale funding amounted to 30%
of total funding at end-9M20. However, parent funding comprised 4%
of the total, resulting in net FC debt exposure of 26%.
FC liquidity is adequate and was broadly sufficient to cover the
bank's short-term liabilities maturing within one year as at
end-9M20, meaning it should be able to cope with a short-lived
market closure. Available FC liquidity comprises cash and interbank
placements (including balances with the Central Bank of Turkey),
maturing FX swaps and government securities. Refinancing risks are
also mitigated by potential liquidity support from QNB. However, FC
liquidity could come under pressure from prolonged loss of market
access or FC deposit instability.
SUBSIDIARY AND AFFILIATED COMPANIES
The support-driven ratings of QNB Finansleasing and QNB Faktoring
are equalised with those of QNB Finansbank, reflecting their
strategic importance to and close integration with their parent
(including the sharing of risk-assessment systems, customers,
branding and management resources).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The bank's LT IDRs and Support Rating are primarily sensitive
to a change in Turkey's sovereign rating and in Fitch's view
of government intervention risk in the banking sector. A
sovereign downgrade, particularly if triggered by further
weakening in Turkey's external finances or in the country's FX
reserves, or an increase in intervention risk, would likely
result in a downgrade of QNB Finansbank's LT IDRs.
-- A marked reduction in QNB's ability and propensity to support
QNB Finansbank could also result in a downgrade but only if
the bank's VR was simultaneously downgraded. However, this is
not Fitch’s base case, given the bank's strategic importance
to QNB.
-- The bank's VR could be downgraded due to a marked
deterioration in the operating environment - as reflected in
adverse changes to the lira exchange rate, interest rates, and
economic growth prospects - or if economic recovery was not as
swift as currently expected by Fitch. In addition, a greater
than expected deterioration of QNB Finansbank's asset quality
and a protracted weakening in operating profitability would
likely lead to a downgrade of the VR. The headroom at the
current VR level would reduce and QNB Finansbank's VR would
likely be downgraded, if its CET1 ratio fell and remained
below 9% for a sustained period or if Fitch viewed
capitalization as no longer commensurate with the bank's risk
profile.
-- The National Rating could be downgraded if the bank's LTLC IDR
was downgraded and Fitch believed QNB Finansbank's
creditworthiness had weakened relative to other rated Turkish
issuers.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of the bank's LTIDRs is unlikely in the near term
given the Negative Outlooks. The Outlook on the LT IDRs could
be revised to Stable if Fitch believes that the risk of
government intervention in the banking system has abated, for
example as a result of greater confidence in the
sustainability of Turkey's external financing position. A
significant reduction in intervention risks, likely reflected
in a sovereign upgrade or resulting from a marked improvement
in Turkey's net FX reserves position, could result in an
upgrade.
-- Upside for the VR is limited in the near term in light of the
challenging Turkish operating environment, the bank's moderate
franchise, and the 'BB-' sovereign LTFC IDR. However, a record
of resilient financial metrics notwithstanding the pandemic,
an improvement in underlying asset quality and the maintenance
of adequate core capitalisation in line with its risk profile
would reduce downside risks to the VR.
-- The National Rating could be upgraded if Fitch believed QNB
Finansbank's creditworthiness had improved relative to other
rated Turkish issuers.
SUBSIDIARY AND AFFILIATED COMPANIES
The ratings of QNB Finansleasing and QNB Faktoring are sensitive to
changes in QNB Finansbank's Long-Term IDRs.
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
An adjustment has been made in Fitch's financial spreadsheets of
QNB Finansbank that had an impact on core and complimentary
metrics. Fitch has taken a loan that was classified as a financial
asset measured at fair value through profit and loss in the bank's
financial statements and reclassified it under gross loans as Fitch
believes this is the most appropriate line in Fitch spreadsheets to
reflect this exposure.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
All IDRs of the rated entities are either driven or underpinned by
institutional support from their respective shareholders.
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.
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U K R A I N E
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PROCREDIT BANK: Fitch Affirms 'B' LT Foreign Currency IDR
---------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Foreign-Currency Issuer
Default Ratings (IDRs) of PJSC Credit Agricole Bank (CAB),
ProCredit Bank (Ukraine) (PCBU) and PRAVEX-BANK JSC (Pravex) at 'B'
and Long-Term Local-Currency IDRs at 'B+'. Fitch has also affirmed
Ukraine-based JSC Alfa-Bank's (ABU) Long-Term Foreign- and
Local-Currency IDRs at 'B-'. The Outlooks are Stable.
KEY RATING DRIVERS
IDRS, SUPPORT RATINGS, NATIONAL RATINGS AND DEBT RATINGS
CAB, PCBU and Pravex's Long-Term Foreign-Currency IDRs of 'B' and
Support Ratings (SR) of '4' reflect the limited extent to which
institutional support from their foreign shareholders can be
factored into the ratings, as captured by Ukraine's Country Ceiling
of 'B'. The Country Ceiling reflects Fitch's view of transfer and
convertibility risks in Ukraine.
CAB is fully owned by Credit Agricole S.A. (A+/Negative). PCBU is
owned by Germany's ProCredit Holding AG & Co. KGaA (BBB/Stable).
Pravex is fully owned by Intesa Sanpaolo S.p.A (BBB-/Stable). The
Long-Term Foreign-Currency IDRs of CAB and PCBU are also
underpinned by the banks' standalone profiles, as captured by their
relatively higher Viability Ratings (VRs) of 'b'.
The 'B+' Long-Term Local-Currency IDRs of CAB, PCBU and Pravex, one
notch above their Long-Term Foreign-Currency IDRs and the sovereign
IDRs (B), consider the likely lower potential impact of Ukrainian
country risks on the issuers' ability to service senior unsecured
obligations in the local currency, hryvnia, than in foreign
currency.
The Stable Outlooks on the IDRs of CAB, PCBU and Pravex are in line
with that on the Ukrainian sovereign.
ABU's Long-Term Foreign- and Local-Currency IDRs are driven by the
bank's 'b-' VR and are also underpinned by Fitch's view of
potential support from its controlling shareholder, ABH Holdings
S.A (ABHH), and the wider group. ABHH is a holding company for
several other banking subsidiaries, mostly in the CIS, including
Russia-based Joint Stock Company Alfa-Bank (BB+/Stable). ABU's SR
of '5' reflects that potential support from the group is possible,
but cannot be relied upon due to a mixed record of support from the
group and its shareholders.
The National Long-Term Ratings of CAB and PCBU of 'AAA(ukr)' and
Pravex and ABU of 'AA+(ukr)' and 'BBB+(ukr)' reflect the banks'
creditworthiness relative to peers in Ukraine.
ABU's senior unsecured debt ratings are aligned with its Long-Term
Local-Currency IDR and National Rating.
VRs
CAB and PCBU
CAB and PCBU's VRs of 'b' consider their relatively strong
standalone financial profiles compared with domestic peers, as
captured by good profitability metrics through the cycle, limited
impact of the pandemic on loan quality to date, healthy
capitalisation and stable funding profiles. At the same time, the
VRs capture their sensitivity to the higher-risk domestic operating
environment.
The share of impaired loans (Stage 3) amounted to a low 2.7% at CAB
(IFRS accounts) and 2.5% at PCBU (management accounts) at end-3Q20.
Impaired loans were fully covered by total loan loss allowances
(LLAs). In addition, Stage 2 loans stood at 8% and 11% at CAB and
PCBU, respectively, although Fitch believes these are not
necessarily of high risk and unlikely to materially migrate to
Stage 3. The impact of the pandemic on both banks' loan quality
metrics has been limited to date, but Fitch believes that some
further deterioration is possible as loans season in a post-stress
environment.
Performance through the cycle has been healthy at both banks, but
the declining interest rate environment, accumulation of a sizeable
liquidity buffer (mainly at CAB) and high pre-emptive
pandemic-driven provisioning (mainly at CAB) resulted in a decrease
in operating profit to risk-weighted assets (RWA) ratio to 3% for
both banks in 9M20, annualised (2019: 8% for CAB and 5% for PCBU).
Capitalisation is healthy at both CAB and PCBU, as reflected in
Fitch Core Capital (FCC) ratios of 16.6% and 17.5%, respectively,
at end-3Q20, underpinned by good internal capital generation and
moderate credit growth.
The banks' funding profiles benefit from stable deposit franchises
and healthy liquidity buffers. High liquid assets (cash, short-term
placements with National Bank of Ukraine, NBU, and other banks,
unencumbered securities) covered 48% and 35% of customer deposits
at CAB and PCBU, respectively, as of end-3Q20.
Pravex
Pravex's 'b-' VR balances its very small size and weak business
model, as reflected by its pre-impairment operating losses over the
last eight years, against solid asset quality and capitalisation
metrics following its balance sheet clean-up in 2017 and equity
injections from the parent. A return to sustainable profitability
is likely to be protracted.
Pravex's impaired loans were equal to 0.5% of gross loans at
end-3Q20, fully covered by LLAs. Concentration of the loan book is
high as the majority of loans were written-off in 2015-2017, while
growth in corporate lending since 2018 was driven by a few large
exposures. In retail, Pravex focuses on mortgages, car loans and
consumer loans to affluent customers, which were equal to 26% of
gross loans at end-3Q20. The bank's loan book has been immune to
the coronavirus pandemic to date, except for several restructurings
in the retail segment, but these were immaterial relative to the
overall portfolio.
Fitch estimates that the bank's FCC/regulatory RWA ratio was a
strong 51% at end-3Q20, benefiting from the zero risk-weighting of
sovereign debt securities and NBU deposit certificates (33% of
assets). If these were 100% risk-weighted, the FCC ratio would have
still been robust at 30%.
The bank's balance sheet liquidity is healthy with liquid assets
covering 77.5% of customer deposits at end-3Q20.
ABU
ABU's 'b-' VR reflects reduced but still moderate capital
encumbrance due to the bank's unreserved impaired exposures. The
asset quality risks are somewhat balanced by ABU's strong loss
absorption capacity through profits, while the impact of the
pandemic has been containable to date. The bank has abundant
liquidity.
Impaired loans formed a significant 37% of gross loans, but were to
a large extent provisioned at 84% at end-3Q20. The impaired loans
net of LLA were a manageable 0.4x FCC at end-3Q20 compared with
0.6x at end-2019.
The bank's strong pre-impairment profit (10%-12% of average net
loans in 2019-9M20) was boosted by high-yielding but potentially
cyclical consumer business. Its return on average equity (ROAE)
reduced to 12% in 9M20 from 30% in 2019 due to pandemic-related
impairment charges.
The FCC ratio was an acceptable 14% at end-3Q20. The regulatory
total and Tier 1 capital ratios of 14% and 12% at end-2020 were
comfortably above the minimum requirements of 10% and 7%,
respectively.
ABU's funding/liquidity profile benefits from a granular deposit
base and strong liquidity position. Liquid assets covered customer
accounts by a comfortable 53% at end-November 2020.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
CAB, PCBU, Pravex
-- The IDRs of CAB, PCBU and Pravex could be upgraded if
Ukraine's sovereign ratings were upgraded and the Country
Ceiling revised upwards.
-- An upgrade of CAB's and PCBU's VRs would require both an
upgrade of the sovereign and improvement in the operating
environment, as well as an easing of pandemic-related
pressures on loan quality, while maintaining good performance
through the cycle.
-- An upgrade of Pravex's VR would result from the bank
demonstrating sustained profitability, along with reasonable
asset quality metrics and capitalisation.
ABU
-- An upgrade of ABU's IDRs would require either a strengthening
of the support track record for the bank (not currently our
base case scenario), or improvement of the bank's standalone
profile, as captured by ABU's VR.
-- Upside for ABU's VR is possible, if the bank's FCC ratio rises
sustainably above 15%, while the amount of net impaired loans
reduces to below 0.1x FCC. A sustained record of profitable
performance with ROAE ranging between 20%-30%, in line with
stronger peers, would be also credit-positive.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
CAB, PCBU, Pravex
-- The IDRs of CAB, PCBU and Pravex could be downgraded if
Ukraine's sovereign ratings were downgraded and the Country
Ceiling revised downwards. Significant reduction in the
shareholders' propensity to support subsidiaries could also
lead to a downgrade, although this is not expected by Fitch.
-- The downgrade of CAB's and PCBU's VRs would require a marked
weakening of asset quality metrics (impaired loans ratio of
above 10%), deterioration of profitability and capital to an
extent where the regulatory capital ratios are only marginally
above the minimum requirements. A downgrade of Pravex's VR
would result from the bank remaining loss-making despite
management's efforts to turnaround the business.
ABU
-- ABU's IDRs would only be downgraded if both the VR is
downgraded and the shareholder's propensity to support the
bank weakens.
-- The downgrade of ABU's VR may be triggered by a sharp
deterioration of the bank's asset quality, which would lead to
an increase in net impaired loans to around 1x FCC and
material erosion of regulatory capital ratios to levels close
to the minimum requirements.
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
The Long-Term IDRs of the four banks reflect potential support they
may receive from their respective shareholders, in case of need.
ESG CONSIDERATIONS
Fitch has revised ABU's relevance score for Group Structure to '3'
from '4'. In Fitch’s view, the completion of ABU's merger with
its troubled sister bank, Ukrsotsbank, in 4Q19 has had a low direct
impact on the issuer's ratings.
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
===========================
BELLIS FINCO: Fitch Assigns First-Time 'BB-(EXP)' LongTerm IDR
--------------------------------------------------------------
Fitch Ratings has assigned Bellis Finco Plc (ASDA, restricted
group) an expected Long-Term Issuer Default Rating (IDR) of
'BB-(EXP)' with Stable Outlook. Fitch has also assigned senior
secured instrument ratings of 'BB(EXP)'/'RR2' to GBP3,185 million
debt to be issued by Bellis Acquisition Company Plc, and second
lien instrument ratings of 'B+(EXP)'/'RR5' to GBP500 million debt
to be issued by Bellis Finco Plc.
Final ratings are contingent upon completion of the LBO transaction
under a structure as presented, and receipt of final documentation
conforming materially to information already received.
The IDR reflects ASDA's market position and scale in a resilient,
but competitive UK food retail sector. The ratings recognise its
solid profitability and strong free cash flow cash (FCF)
generation, which is comparable with Fitch-rated peers. Fitch
recognises some inherent execution risks in ASDA repositioning
itself in the market, and expect management to continue managing
cost savings well, as it has done in the past. Fitch views Walmart,
Inc.'s (Walmart, AA/Stable) continued involvement as a positive
factor, considering ASDA's reliance on its technology and the
benefits from its purchasing power in non-food.
The rating incorporates the projected higher leverage with funds
from operations (FFO) lease adjusted gross leverage at around 5.4x
in line with the rating. The Stable Outlook is driven by Fitch’s
expectation of steady operating and financial performance, and is
predicated on the maintenance of financial policies consistent with
gradually declining leverage, adhering to governance principles
that demonstrate adequate alignment of interests between
shareholders and creditors. This is relevant to the ratings
trajectory, given the current absence of a public leverage target
and dividend policy.
KEY RATING DRIVERS
Resilient Food Retail Operations: ASDA is one of the leading food
retailers in the UK with a good brand and scale. Fitch considers
food retail to be relatively resilient through the economic cycles,
even though grocers' like-for-like sales suffer in low inflationary
periods. ASDA has lost market share since discounters started
expanding in the UK, given its higher exposure to lower income
customers and store base skewed towards the North/Midlands, where
discounters were directing most of their expansion.
ASDA lacks meaningful presence in the convenience segment, but its
online channel has grown significantly with weekly slots at around
720,000, exceeding Ocado Retail JV (345,000 weekly orders).
Moderate Execution Risk: The rating factors in some execution risks
in separating IT and other key functions from Walmart. Fitch has
included GBP150 million of one-off costs in 2021 and 2022 to create
a standalone IT landscape, but Fitch believes that part of IT,
including e-commerce and merchandising would remain on a long-term
agreement with Walmart, which may require further significant
investments.
Synergies with EG Group (B-/Stable) via partnerships on wholesale
revenue into EG convenience stores and rents from Food Services are
not material at GBP14 million. Cost saving initiatives are
significant, with execution risks somewhat mitigated by
management's proven ability to deliver them. Moreover, the strategy
to narrow the price gap with discounters and further expand the
existing price gap with other traditional grocers may not work if
competitors react to this move. Additional cost savings may not be
fully achieved, which could suppress margin improvement in
Fitch’s forecast horizon through to 2023.
Strong Cash Generation: Fitch’s rating reflects continued
cost-saving initiatives that offset both the cost challenges and
some gross margin sacrifice to stay competitive. These lead to
good, steady profit margins (EBITDAR above 6% from 2022), which are
broadly aligned with Tesco's (BBB-/Stable), and strong cash
generation with FFO margin of around 3% and FCF margin of 1% in
2021, trending upwards thereafter. This profitability is solid for
the rating, although there will be a temporary impact on 2021
profitability from the repayment of business rates relief that was
offsetting pandemic related costs.
Transaction Adds Leverage: Fitch expects FFO adjusted gross
leverage of around 5.4x in 2021, which is commensurate with a 'BB-'
rating, following the GBP3.68 billion of new debt added to ASDA's
capital structure. Fitch’s rating case reflects the potential to
deleverage by an average of 0.5x per year given strong cash
generation. Fitch notes the inherent risk related to repayment of
forecourts bridge loan in terms of asset sales. Fitch has assumed
that the forecourts bridge is fully repaid from disposal proceeds
in 1H21 and other bridges are repaid from the notes' issuance.
Financial Policies Define Deleveraging Path: In the absence of
material scheduled debt amortisation and publicly stated financial
policies, the use of accumulated cash balances will depend on
capital allocation decisions that are not yet fully articulated.
Fitch does not expect the repayment of Walmart's GBP500 million
instrument, which Fitch has treated as equity in line with
Fitch’s criteria, at least over the next couple of years despite
a step-up coupon clause, due to Walmart's importance to ASDA in
terms of technology.
There is no intention to pay dividends currently, but this may be
revised at some point. For example, the company retains the
flexibility to do so once net debt/ EBITDA is under 2.6x according
to documentation.
Acceptable Liquidity Buffer: Fitch considers that ASDA has
acceptable levels of expected initial liquidity as it starts with
around GBP355 million cash (cash relating to working capital is
restricted) post completion, although Fitch considers the available
GBP690 million revolving credit facilities (RCFs) to be somewhat
limited given the size of the business, and relative to peers. One
of the RCFs, amounting to GBP190 million, has a short tenor (364
days).
Fitch considers that the structurally negative working capital
position, cash generative nature of the business and continuation
of supply chain finance facilities should support liquidity. The
strong freehold asset base, valued at around GBP9 billion post
forecourts disposal, provides further financial flexibility.
Fitch’s rating case assumes that repayment of business rates
relief does not have a negative impact on cash position after
completion of the transaction.
Governance Under Scrutiny: Although ASDA will remain a
privately-owned company, there are some weaknesses in the planned
governance and complexity of the group structure, with a number of
planned related-party transactions, which indicate a moderate
impact on the rating. At the same time, Fitch recognises the
intention to have a diverse board with three independent members
and the progress made on this so far.
Fitch notes the execution risks on its strategic repositioning and
separation from Walmart, which requires solid implementation by
management. Moreover, given the scale of the business, Fitch would
consider solid financial disclosure in financial reporting to be an
important safeguard for creditors, as well as clarity on consistent
financial policies that favour deleveraging.
DERIVATION SUMMARY
Fitch rates ASDA applying its global Food Retail Navigator. ASDA's
rating is negatively influenced by the group's smaller scale and
weaker market position compared with main food retailers in Europe,
such as Tesco plc (BBB-/Stable) and Ahold Delhaize NV
(BBB+/Stable). ASDA has a similar market position as Sainsbury's
(NR) with operations restricted in the UK. ASDA lacks convenience
presence, but has a strong online contribution. ASDA benefits from
healthy profitability in line with Tesco's, and strong cash
generation with historical and expected FFO margins trending
towards 4%. Following completion of the transaction, Fitch expects
FFO adjusted net leverage (5.4x in 2021) to be meaningfully higher
than Tesco's (around 3.0x excluding Tesco Bank).
KEY ASSUMPTIONS
-- Revenue to drop by 12% in FY21 to reflect the disposal of
petrol stations division, growing at 1.2% thereafter;
-- EBITDA margin at 3.8% in FY20, increasing to 4.5% in FY21 and
stable at 5.4% thereafter;
-- Capex intensity between 2.0% and 2.4% of sales over FY21-24;
-- One-off costs at GBP150 million over FY21-22 derived by the
separation from Walmart;
-- No dividends or major M&A activity over the next four years.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch does not anticipate an upgrade over the next two years,
until ASDA successfully executes its new strategy and delivers
cost-saving measures to maintain profitability despite cost
challenges. Positive rating momentum would also be dependent
on governance principles and financial disclosure being
aligned with listed peers and a commitment to conservative
financial policies favouring deleveraging leading to:
-- FFO adjusted gross leverage trending below 4.0x on a sustained
basis
-- FFO fixed charge cover above 3.0x
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Negative like-for-like growth exceeding other "Big Four"
competitors especially if combined with material drop in
profitability.
-- Weakening liquidity buffer due to neutral or negative FCF
margin
-- FFO adjusted gross leverage above 5.5x on a sustained basis
-- FFO fixed charge cover below 2.0x
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
Sufficient Liquidity: Fitch expects pro forma readily available
cash following the buy-out transaction at around GBP355 million
which, along with an undrawn GBP690 million RCF, should be
sufficient to fund operations and working capital needs. Fitch's
readily available cash excludes an amount of GBP150 million
restricted for working capital purposes.
In addition, the company will have no material financial debt
maturing before 4.5 years (assuming all financing bridges are taken
out as planned). Thanks to a healthy FCF margin at 1.5% on average
over FY21-24, Fitch expects readily available cash to subsequently
accumulate towards GBP1.1 billion by FY24 (excluding any dividends
and M&A activity).
ESG CONSIDERATIONS
Bellis Finco has an ESG Relevance Score of '4' for Governance
Structure due to private equity ownership that may favour
aggressive financial policy decisions in the future, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Bellis Finco has an ESG Relevance Score of '4' for Group Structure
due to complexity of the group structure with a number of
related-party transactions, 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(ies), either due to their nature or to the way in which they
are being managed by the entity(ies).
BELLIS FINCO: Moody's Assigns Ba2 CFR, Outlook Stable
-----------------------------------------------------
Moody's Investors Service has assigned a Ba2 Corporate Family
Rating and Ba2-PD Probability of Default Rating to Bellis Finco
PLC, a holding company formed to effect the acquisition of ASDA
Group Limited by the Issa Brothers and TDR Capital from Walmart
Inc. ("Walmart", Aa2 stable). ASDA is the third largest grocery
retailer in the UK by revenue.
Concurrently Moody's has assigned Ba2 ratings to 1) the GBP195
million senior secured first lien term loan A due August 2025, 2)
the EUR840 million senior secured first lien term loan B due
December 2026, 3) the GBP2.25 billion senior secured notes due
December 2026, 3) the GBP500 million senior secured first lien
revolving credit facility due June 2025, and 4) the GBP190 million
364-day senior secured first lien revolving credit facility all
envisaged by Bellis Acquisition Company PLC, a fully-owned
subsidiary of Bellis Finco PLC. Moody's has also assigned a B1
rating to the GBP500 million senior unsecured notes due December
2027 issued by Bellis Finco PLC. The outlook on both entities is
stable.
The proceeds of the debt financing, alongside rolled finance leases
and new equity, will be used to finance the acquisition of ASDA,
refinance existing debt and pay transaction fees and expenses. The
Transaction is subject to approvals by the Competition and Markets
Authority (CMA) and by the Financial Conduct Authority (FCA) with
expected closing in the first half of 2021.
The rating action reflects:
-- An opening leverage of 5.3x on a Moody's-adjusted basis, with
expectations of gradual de-leveraging and positive free cash flow
generation over the next 12-18 months
-- The company's established market position in the stable UK
grocery sector and significant scale
-- The very competitive nature of the UK grocery market, some
execution risks related to the separation from Walmart and the lack
of an operational and financial policy track record under the new
ownership
RATINGS RATIONALE
ASDA's Ba2 CFR reflects i. its established market position and
significant scale in the UK grocery sector, ii. the stable demand
for groceries, resulting in relatively stable and recurring cash
flow generation, iii. ongoing focus on efficiency and cost
reductions and iv. an established and further expanding online
offering. In addition, and less positively, the rating also
reflects i. the very competitive nature of the UK grocery business,
ii. a higher reliance on large store formats compared to peers,
iii. relatively higher leverage compared to rated peers, iv. a lack
of operational and financial track record under the new ownership,
including some moderate risks from the separation from Walmart, and
v. more limited governance oversight compared to listed peers.
With a market share of around 14%, ASDA is the third largest grocer
in the UK, only marginally below Sainsbury's but well behind Tesco
Plc (Baa3 stable). The UK grocery market is very competitive both
at national and local level across all formats but particularly
across traditional supermarkets and hypermarkets, which represent
80% of ASDA's revenue. The company benefits from a low risk
business profile thanks to its predominant focus on grocery
retailing, accounting for around 85% of its product offering.
Demand for food is subject to much less severe fluctuations, cycles
and seasonal variations than non-food retail, as demonstrated by
the company's relatively stable and recurring cash flow generation.
Prior to the current coronavirus pandemic, the food retailing
sector was expected to grow by around 3% (in nominal terms) per
year until 2023.
Like all of the "Big 4" supermarkets, ASDA has faced competitive
challenges in the last decade due to the changing dynamics of the
UK food market, as a result of which ASDA has seen revenues
decline. With a portfolio of shops leaning towards the North of
England and Scotland and a value-conscious customer base, ASDA has
been particularly exposed to competition from the discounters while
booming online shopping negatively impacted on its non-food
business. While the sales decline slowed down between 2016-18, it
had started to accelerate again before the lockdown measures
temporarily benefitted the larger supermarkets with an online
offering at the expense of the discounters. ASDA is not present in
the convenience grocery segment, one of the fastest growing grocery
retail formats in recent years.
ASDA has historically operated as a standalone entity of Walmart,
with limited reliance on its former parent company with one
important exception, as the company is fully integrated with
Walmart's IT organisation. Moody's understands that Walmart will
provide relevant services through the transition as part of various
separation agreements and under a Long Term Agreement (LTA)
covering e-commerce, merchandising and supply-chain activities.
ASDA's capital structure is relatively highly levered compared to
other rated grocers, with Moody's adjusted gross initial leverage
of 5.3x in the last 12 months to June 30, 2020 but set to improve
to 4.4x by the end of 2022 in Moody's base case, driven by broadly
stable EBITDA, positive free cash flows and moderate debt
amortisations. Moody's-adjusted initial EBITDA excludes the
royalties ASDA has historically paid to Walmart, as the Rating
Agency understands they will be terminated, but it includes the
additional costs that ASDA will pay for the IT services that
Walmart will continue to provide under the LTA. Also excluded is
the EBITDA related to operations to be sold, i.e. the petrol fuel
stations and the distribution assets. Moody's considers the risks
related to planned disposals to be limited because the former
represents a condition precedent to the completion of the ASDA
transaction itself and because the latter disposal is a sale and
leaseback arrangement funded through a bridge loan without recourse
to restricted group.
Moody's regards the coronavirus outbreak as a social risk given the
substantial implications for public health and safety. Although the
retail sector is less exposed from a demand standpoint than other
sectors, social distancing has increased the costs related to
safety of both employees and customers, so far partly offset by
business rates relief. The Rating Agency considers the expenses
sustained to implement safety measures related to the coronavirus
pandemic (net of the business rates relief) as recurring, and
therefore included in Moody's adjusted initial EBITDA.
Brexit related risks are also not negligible for the UK grocery
sector as a whole, in the opinion of Moody's, with around one third
of ASDA products being imported from the EU, in line with the UK
grocery market average.
There are also material contingent liabilities related to ASDA's
personnel, including i. the equal value legal claim, ii. the new
employee contract introduced in 2019 and iii. the ongoing national
minimum wage (NMW) national living wage (NLW) investigations by
HRMC. ASDA's directors believe that there are substantial factual
and legal defences to these claims and intend to defend the claims.
No provision has been recognised on the basis that any potential
liability arising is not considered probable by the company's
directors. At December 2019, ASDA had around 141,000 staff.
Governance considerations relevant to ASDA's credit profile include
lacking a track record under the new ownership and without a clear
long-term leverage target, the use of PIK debt outside the
restricted group creating structural complexity, and currently
limited governance oversight. The Rating Agency understands that
the company intends to set up a board consisting of a chairman, an
independent non-executive director and audit chair, in addition to
four board representatives from the new shareholders and one from
Walmart.
LIQUIDITY
Moody's considers ASDA's liquidity profile to be adequate,
supported by the undrawn GBP500 million equivalent senior secured
first lien revolving credit facility (RCF). The company is expected
to generate significant positive free cash flow after debt service
costs on an annual basis.
STRUCTURAL CONSIDERATIONS
The first lien instrument ratings are in line with the CFR
reflecting the limited cushion provided by the unsecured notes and
the relatively weak positioning of the CFR in its rating category.
OUTLOOK
The stable outlook reflects Moody's expectations that ASDA will
reduce Moody's-adjusted leverage below 5x by the end of 2022,
driven by broadly stable EBITDA, positive free cash flows and debt
amortisations, and with free cash flow to debt in mid-single
digits. The stable outlook also factors in the competitive but
broadly stable market conditions in the UK grocery sector, no major
market disruption due to the exit of the UK from the European
Union, and a smooth transition under the new ownership.
In addition, the stable outlook factors in broadly stable revenues
and EBITDA over the next two years, with planned cost savings
offsetting competitive and inflationary pressures. It also assumes
adequate liquidity and the absence of major social disputes or
governance issues.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if Moody's-adjusted leverage reduces
sustainably below 4x, with a clear financial policy in line with
lower leverage. An upgrade would also require a material increase
in free cash flow, with free cash flow to debt improving to at
least 10%. An upgrade would also require meaningful like-for-like
revenue and EBITDA growth, the absence of major execution
challenges, and adequate liquidity.
The ratings could be downgraded if leverage remains sustainably
well above 5x on a Moody's-adjusted basis over the next 12-18
months, or if there is evidence of a more aggressive financial
policy, including shareholder distributions, or if the company
generates negative free cash flows. A downgrade could ensue also in
case of material execution issues following the separation from its
former parent, or if liquidity concerns arise.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Retail Industry
published in May 2018.
COMPANY PROFILE
With GBP22.9 billion revenue in 2019, ASDA is the third largest
grocery retailer in the UK. Revenue is split between 73% food, 6%
general merchandise, 7% clothing and 14% fuel. Food sales are
roughly equally split between fresh & produce (53%) and ambient
(47%), and between 90% in-store and 10% online. Headquartered in
Leeds, West Yorkshire, the group has around 141,000 employees and
18 million customers.
ELDON STREET: Feb. 19 Deadline Set for Proofs of Debt Submission
----------------------------------------------------------------
Pursuant to Rule 14.29 of the Insolvency (England and Wales) Rules
2016, the Joint Administrators of Eldon Street Holdings Limited
intend to declare a tenth interim dividend to unsecured,
non-preferential creditors within two months from the last date of
proving, being February 19, 2021. Such creditors are required on or
before that date to submit their proofs of debt to the Joint
Administrators, PricewaterhouseCoopers LLP, 7 More London
Riverside, London SE1 2RT, United Kingdom, marked for the attention
of Diane Adebowale or by email to uk_lehmanaffiliates@pwc.com.
Persons so proving are required, if so requested, to provide such
further details or produce such documents or other evidence as may
appear to the Joint Administrators to be necessary.
The Joint Administrators will not be obliged to deal with proofs
lodged after the last date for proving but they may do so if they
think fit.
Creditors who wish to have dividend payments made to another person
or who have assigned their entitlement to someone else are asked to
provide formal notice to the Joint Administrators.
For further information, contact details, and proof of debt forms,
please visit
http://www.pwc.co.uk/services/business-recovery/administrations/lehman/esh-ltd-inadministration.html.
Alternatively, please call Diane Adebowale on +44(0)20-7583-5000.
The Joint Administrators can be reached at:
Derek Anthony Howell (IP no. 6604)
Gillian Eleanor Bruce (IP no. 9120)
Edward John Macnamara (IP no. 9694)
Russell Downs (IP no. 9372)
PricewaterhouseCoopers LLP
7 More London
Riverside, London SE1 2RT, United Kingdom
The Joint Administrators were appointed on December 9, 2008.
KCA DEUTAG: S&P Assigns 'B' LongTerm ICR Following Restructuring
----------------------------------------------------------------
S&P Global Ratings assigned its 'B' long-term issuer credit rating
to U.K.-headquartered oilfield services company, KCA Deutag Alpha
Ltd. (KCAD), and its 'B+' issue rating to its new $500 million
senior secured notes due 2025.
S&P said, "The positive outlook reflects that we could upgrade KCAD
in the coming six-to-12 months if it delivers positive free cash
flow on the back of gradual market recovery and builds a financial
policy track record.
"Our 'B' rating underscores the company's healthy credit metrics
during the trough of the cycle, as well as its position in
attractive oil and gas regions. KCAD completed the debt
restructuring in December 2020 following the lock-up agreement it
announced in July. In early 2020, the COVID-19 pandemic and
associated oil demand shock resulted in stressful market conditions
for oilfield services companies. KCAD entered the crisis with
overwhelming gross debt of about $2 billion. Despite its sound
operations compared with some peers, it was unable to sustain the
debt servicing costs. As part of the restructuring process, the
company completed a debt to equity swap, reducing its gross debt
from about $2 billion to $500 million, compared with our estimated
cash-on-balance sheet of about $200 million as of Dec. 31, 2020. We
estimate KCAD now has the capacity to generate free cash flow of
about $50 million a year, partly thanks to reduced interest
costs."
The company's presence in supportive oil and gas markets, such as
the Middle East and Russia, helps to soften the effect of the
industry downturn. During 2020, the oilfield services industry
faced significant challenges, as oil and gas producers cancelled or
delayed projects. As a result, KCAD's backlog reduced to $4.7
billion on Nov. 1, 2020, from $5.8 billion on Nov. 1, 2019. In
KCAD's land division, utilization dropped to about 51% in fourth
quarter (Q4) 2020, from 78% in Q1 2020. The company introduced a
number of cost saving initiatives--including reducing staff
expenses, inventory optimization, overhead reductions, and cutting
capital expenditure (capex)--to prevent a substantial EBITDA and
free cash flow decline.
S&P said, "Market headwinds will persist in 2021, but we expect
slow recovery toward the end of the year as lockdowns are lifted
and economic growth picks up. KCAD's focus on the Middle East and
Russia, regions with low oil production costs, will likely help it
to recover quicker. Under our base case, we expect KCAD to post S&P
Global Ratings-adjusted EBITDA of about $210 million-$240 million
in 2021 (compared with about $250 million 2020 and about $294
million in 2019). Although we expect EBITDA to decline, we believe
that KCAD is less vulnerable than its peers in less attractive
geographies. For example, we expect U.S.-focused Weatherford
International PLC and Nabors Industries Ltd. to post revenue
declines of close to 30% in 2020 (compared with about 15% for
KCAD), and we project their EBITDA margin to drop while short-term
prospects remain uncertain."
The combination of the EBITDA and the comfortable debt position
will translate into an adjusted funds from operations (FFO) to debt
of about 17%-20% in 2021, compared with the rating-commensurate
12%-20% during the cycle. In this context, a higher rating would
require the company to maintain adjusted FFO to debt of 20% or more
during the lower part of the cycle.
Financial policy, shareholder structure, and inorganic
opportunities will be key to the rating evolution in the coming
quarters. S&P understands that after the lengthy restructuring
process, KCAD's management is keen to adopt a conservative
financial policy with the following pillars:
-- Supportive leverage of reported net debt to EBITDA of up to
2.0x (equivalent to an adjusted FFO to debt of about 15% under
S&P'a definitions). Under its base case, the company will post
reported net debt to EBITDA of about 1.0x-1.2x in 2021.
-- Hefty cash on the balance sheet; S&P estimates the company held
about $200 million as of Dec. 31, 2020.
-- No official dividend policy. S&P notes provisions in the
company's senior secured notes' documentation that limit
dividends.
S&P said, "In our view, although KCAD will likely generate positive
free cash flow in the coming years, it will not use it to reduce
the absolute debt or pay hefty dividends. Instead, we expect the
company to direct the additional cash to organic and inorganic
growth, maximizing the value, as some of the current shareholders
(previous debt holders) look for their exit strategy. We estimate
that in 2022, KCAD could spend up to $400 million on an acquisition
(assuming no additional EBITDA), before putting significant
pressure on the balance sheet. Although we do not forecast asset
sales in the base case, KCAD might also consider portfolio
optimization. Any sale of low-profit divisions is unlikely to weigh
on our business risk assessment.
"The positive outlook reflects that we could upgrade KCAD in the
coming six-to-12 months if it delivers positive free cash flow on
the back of gradual recovery in the market, and builds a financial
policy track record.
"Under our base case, we project adjusted FFO to debt of 17%-20% by
the end of 2021. A positive rating action would need to be
supported by KCAD presenting adjusted FFO to debt comfortably above
20% during the cycle. Another important element would be better
visibility around the current shareholders' exit strategy, which
may result in some changes to the capital structure."
Upside scenario
S&P could raise the rating if it observes:
-- KCAD maintaining and, over time, increasing the backlog with
stronger market dynamics.
-- The company preserving adequate liquidity, preferably with
access to committed credit lines.
-- No changes in the company's current capital structure as a
result of higher capex, inorganic growth, or material dividends.
-- No setbacks from the already muted recovery prospects to the
oil and gas industry.
Downside scenario
S&P may revise the outlook to stable if the current market
conditions do not support an improvement of the company's credit
metrics over time. Alternatively, this could be the case if KCAD
engaged in aggressive shareholder distributions or inorganic
growth.
LB HOLDINGS 2: Feb. 12 Deadline Set for Proofs of Debt Submission
------------------------------------------------------------------
Pursuant to Rule 14.29 of the Insolvency (England and Wales) Rules
2016, the Joint Administrators of LB Holdings Intermediate 2
Limited intend to declare a fourth interim distribution to
unsecured creditors within two months from the last date of
proving, being February 12, 2021.
Such creditors are required on or before that date to submit their
proofs of debt to the Joint Administrators, PricewaterhouseCoopers
LLP, 7 More London Riverside, London SE1 2RT, United Kingdom,
marked for the attention of Diane Adebowale or by email to
uk_lehmanaffiliates@pwc.com.
Persons so proving are required, if so requested, to provide such
further details or produce such documents or other evidence as may
appear to the Joint Administrators to be necessary. The Joint
Administrators will not be obliged to deal with proofs lodged after
the last date for proving but they may do so if they think fit.
For further information, contact details, and proof of debt forms,
please visit
http://www.pwc.co.uk/services/business-recovery/administrations/lehman/lbhi2-limited-in-administration.html.
Alternatively, please call Diane Adebowale on +44(0)20-7583-5000.
Data processing details are available in the privacy statement at
PwC.co.uk.
The Joint Administrators can be reached at:
Derek Anthony Howell (IP no. 6604)
Gillian Eleanor Bruce (IP no. 9120)
Ian David Green (IP no. 9045)
Russell Downs (IP no. 9372)
Edward John Macnamara (IP no. 9694)
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT, United Kingdom
The Joint Administrators were appointed on January 14, 2009.
LEHMAN BROTHERS PTG: Feb. 19 Deadline Set for Proofs of Debt
------------------------------------------------------------
Pursuant to Rule 14.29 of the Insolvency (England and Wales) Rules
2016 (the "Rules") the Joint Administrators of Lehman Brothers
(PTG) Limited intend to declare a tenth interim dividend to
unsecured, non-preferential creditors within two months from the
last date of proving, being February 19, 2021. Such creditors are
required on or before that date to submit their proofs of debt to
the Joint Administrators, PricewaterhouseCoopers LLP, 7 More London
Riverside, London SE1 2RT, United Kingdom, marked for the attention
of Diane Adebowale or by email to uk_lehmanaffiliates@pwc.com.
Persons so proving are required, if so requested, to provide such
further details or produce such documents or other evidence as may
appear to the Joint Administrators to be necessary.
The Joint Administrators will not be obliged to deal with proofs
lodged after the last date for proving but they may do so if they
think fit.
Creditors who wish to have dividend payments made to another person
or who have assigned their entitlement to someone else are asked to
provide formal notice to the Joint Administrators.
For further information, contact details, and proof of debt forms,
please visit
http://www.pwc.co.uk/services/business-recovery/administrations/lehman/lbptg-limited-in-administration.html.
Alternatively, please call Diane Adebowale on +44(0)20-7583-5000.
Further details are available in the privacy statement at
PwC.co.uk.
The Joint Administrators can be reached at:
Derek Anthony Howell (IP no. 6604)
Gillian Eleanor Bruce (IP no. 9120)
Edward John Macnamara (IP no. 9694)
Russell Downs (IP no. 9372)
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT, United Kingdom
The Joint Administrators were appointed on November 6, 2008.
LEHMAN BROTHERS: Feb. 12 Deadline Set for Proofs of Debt
--------------------------------------------------------
Pursuant to Rule 14.29 of the Insolvency (England and Wales) Rules
2016, the Joint Administrators of Lehman Brothers Holdings plc
intend to declare a sixth interim distribution to unsecured
creditors within two months from the last date of proving, being
February 12, 2021.
Such creditors are required on or before that date to submit their
proofs of debt to the Joint Administrators, PricewaterhouseCoopers
LLP, 7 More London Riverside, London SE1 2RT, United Kingdom,
marked for the attention of Diane Adebowale or by email to
uk_lehmanaffiliates@pwc.com.
Persons so proving are required, if so requested, to provide such
further details or produce such documents or other evidence as may
appear to the Joint Administrators to be necessary. The Joint
Administrators will not be obliged to deal with proofs lodged after
the last date for proving but they may do so if they think fit.
For further information, contact details, and proof of debt forms,
please visit
https://www.pwc.co.uk/services/business-recovery/administrations/non-lbie-companies/lbh-plc-in-administration.html.
Alternatively, please call Diane Adebowale on +44(0)20-7583-5000.
Data processing details are available in the privacy statement at
PwC.co.uk.
The Joint Administrators' can be reached at:
Gillian Eleanor Bruce (IP no. 9120)
Derek Anthony Howell (IP no. 6604)
Ian David Green (IP no. 9045)
Russell Downs (IP no. 9372)
Edward John Macnamara (IP no. 9694)
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT, United Kingdom
The Joint Administrators were appointed on September 15, 2008.
ROLLS-ROYCE: Fitch Lowers LT IDR to 'BB-', Outlook Negative
-----------------------------------------------------------
Fitch Ratings has downgraded Rolls-Royce plc's Long-Term Issuer
Default Rating (IDR) and senior unsecured rating to 'BB-' from
'BB+'. The Outlook is Negative.
The downgrade reflects Fitch's expectations of fewer engine flying
hours (EFH) for 2021 leading to reduced fund from operations (FFO).
This, combined with higher cash outflows from working capital
changes, reflects a materially greater Fitch-calculated free cash
outflow for 2021 of around GBP2.1 billion.
The 'BB-' rating reflects a weakening financial profile and a
business profile impacted by the challenging environment for the
Civil Aerospace division. Fitch expects the absolute level of free
cash outflow and leverage metrics to be outside its previous rating
sensitivities until at least 2023.
The Negative Outlook continues to reflect the ongoing uncertainty
of the impact from the coronavirus pandemic and the uncertain form
and timing of recovery for both aftermarket services and engine
deliveries for Rolls-Royce's civil aerospace division.
KEY RATING DRIVERS
Worsening 2021 FCF Outflow: Fitch forecasts deteriorating free cash
flow (FCF) for 2021 with an outflow of around GBP2.1 billion. This
is expected to be driven by lower EFH and further significant
working capital outflow for 2021 impacted by both the original
equipment (OE) and aftermarket services activities within civil
aerospace. Fitch's forecast of 2021 EFH is 50% of 2019 levels,
which is close to Rolls-Royce's "reasonable worst case" scenario of
45%, as published by the group on 1 October 2020. This is driven by
Fitch's expectation of wide-body EFH recovery taking longer than
narrow-body, with ongoing negative impact anticipated from
long-haul travel in 2021 from increasingly stringent global
restrictions.
FCF Risks: FCF improvement will significantly rely on the group
being able to successfully implement its reorganisation and, more
specifically, align its civil aerospace capacity with future
expected demand. Short-term FCF improvement remains constrained by
direct reorganisation costs (e.g. employee redundancy and site
closures) together with the associated costs from reduced civil
aerospace demand (e.g. cash hedge settlement costs) and finally the
remaining cash costs of the Trent 1000 engine fix programme, which
is expected to be finalised in 2021.
Weaker Leverage Expectations: While the recapitalisation undertaken
in October 2020 provided improved liquidity and some leverage
headroom, the deteriorating operating profitability and FCF
generation expected for 2021 (versus Fitch's prior estimates) have
resulted in an overall weakening of forecast leverage metrics.
Fitch now expects that the group will remain outside its previous
sensitivities until at least 2023, with FFO gross leverage
remaining in double digits for 2021 (around 15.8x) and only
reducing to 4.6x by 2023 as operating profitability improves.
Restructuring Addressing Operational Challenges: Rolls-Royce's
restructuring remains key in realigning the group to post-pandemic
demand, which Fitch expects to reduce the civil aerospace
division's revenue and profitability by a third compared with 2019
levels. Aligned to this are the associated cost savings, both
short-term (around GBP1 billion for 2020) and long-term (around
GBP1.3 billion from 2022 onwards), which will be key in driving
management's target of achieving positive FCF generation during
2H21.
Successful Balance-Sheet Recapitalisation: Rolls-Royce completed
its balance-sheet recapitalisation in October 2020, raising GBP2
billion in debt proceeds through senior bond note issuance, albeit
with higher interest costs, reflecting its current ratings and
operational challenges. The group also raised an additional GBP2
billion in equity proceeds from its rights issue to further shore
up its liquidity.
Strong Short-term Liquidity: Management have indicated that
following the recapitalisation the group's liquidity at end-2020
was around GBP9 billion, which is more than sufficient to cover the
expected operational FCF and debt maturities for 2021. This,
together with cash conservation measures introduced through the
restructuring, provides the group with the financial and operating
headroom in the short term to address challenges arising from the
pandemic. Nonetheless the continuing cash burn expected for 2021
and associated leverage increase highlight the risks from any
extension of pandemic-related impact to its civil aerospace
business in particular.
Disposal Proceeds Potential: Fitch recognises the disposal process
that Rolls-Royce has established to raise a potential GBP2 billion
of proceeds has the ability to provide additional liquidity. It has
earmarked both ITP Aero and Bergen Engines and, most recently,
announced the sale of its civil nuclear instrumentation and
controls business. Fitch does not include any disposal proceeds in
Fitch's forecasts until the sale is completed.
ESG Influence: Rolls-Royce has an ESG relevance score of '4' for
Management and Strategy as a consequence of the
longer-than-expected implementation of design and engineering fixes
towards Trent 1000 engines, representing risk from potential
reputational damage. The group also has an ESG relevance score of
'4' for Financial Transparency highlighting complexities and
somewhat limited disclosure regarding certain balance-sheet
elements, notably working capital.
DERIVATION SUMMARY
Rolls-Royce's business profile remains fairly strong for the rating
although Fitch's assessment of certain business profile factors has
weakened (including innovation and revenue visibility), while its
product diversification remains significantly exposed to the most
negatively impacted segments of commercial aerospace, which are
wide-body aircraft and aftermarket engine services. This in turn
could mean that Rolls-Royce will likely be significantly exposed to
a part of the sector with the slowest recovery. Recent debt and
equity capital market activity have improved liquidity, providing
some operating headroom.
Its business profile reflects strong revenue and geographical
diversification and a high portion of turnover sourced from service
activities, although it is weak performance in these service
activities that is currently putting pressures on operating
profitability and cash flow. Its broad operational profile firmly
positions the group's business risk profile against that of global
peers, such as General Electric Company (BBB/Stable), United
Technologies Corporation or Lockheed Martin Corporation
(A-/Stable).
Rolls-Royce's financial risk profile has recently been
significantly weaker than major peers', due to weaker profitability
and cash generation resulting from operational problems, and Fitch
expects significant short-term deterioration due to the coronavirus
pandemic. Given the significant cash burn for 2020 and 2021 Fitch
expects leverage to remain outside Fitch's previous sensitivities
until 2023.
No Country Ceiling, parent/subsidiary or operating environment
aspects affect the rating.
KEY ASSUMPTIONS
-- Slower recovery of estimated EFH for 2021 at approximately 50%
of 2019 levels.
-- For 2021-2023 Fitch factors in a structural change for Rolls
Royce's civil aerospace division with declining revenue and
profitability to reflect the group's reorganisation actions to
address capacity changes (which Fitch estimates will affect
about one third of the civil aerospace workforce) as well as
Fitch's continued comparatively lower market recovery
expectations for wide-body deliveries in the ramp-up following
The pandemic.
-- A lower-than-expected recovery in ITP Aero revenue and
operating margins for 2020-2023, following the reduction in
estimated EFH.
-- Full drawdown of its GBP2 billion five-year term loan facility
in 2021.
-- No dividends distribution in 2021.
-- Working capital outflow in 2021 as a result of inventory
build-up and lower advances on new engines.
-- Short- and long-term restructuring cost-cutting plans factored
into Fitch's forecasts, which incorporate a headcount
reduction of 9,000 employees.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO gross leverage sustainably below 4.5x
-- FCF margin above 1%
-- (Cash flow from operations (CFO)-capex)/total debt above 5%.
-- FFO margin above 7%
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Inability to deliver the longer-term annual cost savings of
around GBP1.3 billion associated with the group's
reorganisation by 2022
-- FFO gross leverage above 5.5x
-- FCF margin remaining consistently negative
-- FFO margin below 5%
-- (CFO-capex)/total debt below neutral to negative
-- Additional Trent 1000 costs beyond those announced
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
Strong Liquidity: At end-1H20 Rolls-Royce had Fitch-adjusted cash
of GBP4.7 billion (net of Fitch's GBP500 million adjustment for
intra-year operational cash requirements). In October 2020,
Rolls-Royce finalised its balance-sheet recapitalisation whereby
the group issued GBP2 billion of senior notes and raised a further
GBP2 billion of equity proceeds through its rights issue.
Furthermore the group has access to GBP2 billion from its UKEF
facility and an additional GBP1 billion under a two-year
term-loan.
Set against this the group had bond maturities of USD500 million in
October 2020, a further EUR750 million due in June 2021, its GBP300
million CCFF commercial paper due in March 2021 and a fully drawn
GBP2.5 billion RCF as at early December 2020. Management have
indicated the net effect of the recapitalisation is a strong
liquidity position of around GBP9 billion as at end-2020.
ESG CONSIDERATIONS
Rolls-Royce plc has an ESG Relevance Score of '4' for Management
Strategy due to the Trent 1000 engine design and cost issues and
'4' for Financial Transparency for balance-sheet disclosure
limitations. This has had a negative impact on its credit profile
and is relevant to the rating in conjunction with other ESG
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.
THAYER PROPERTIES: Feb. 19 Deadline Set for Proofs of Debt
----------------------------------------------------------
Pursuant to Rule 14.29 of the Insolvency (England and Wales) Rules
2016 (the "Rules"), the Joint Liquidators of Thayer Properties
Limited intend to declare an eleventh interim dividend to
unsecured, non-preferential creditors within two months from the
last date of proving, being February 19, 2021. Creditors are
required on or before that date to submit their proofs of debt to
the Joint Liquidators, PricewaterhouseCoopers LLP, 7 More London
Riverside, London SE1 2RT, United Kingdom, marked for the attention
of Andrew Maran or by email to uk_lehmanaffiliates@pwc.com.
Persons so proving are required, if so requested, to provide such
further details or produce such documents or other evidence as may
appear to the Joint Liquidators to be necessary.
The Joint Liquidators will not be obliged to deal with proofs
lodged after the last date for proving but they may do so if they
think fit.
Creditors who wish to have dividend payments made to another person
or who have assigned their entitlement to someone else are asked to
provide formal notice to the Joint Liquidators.
For further information, contact details, and proof of debt forms,
please visit
http://www.pwc.co.uk/services/business-recovery/administrations/lehman/thayer-properties-limited-in-administration.html.
Alternatively, please call Diane Adebowale on +44(0)20-7583-5000.
Further details are available in the privacy statement at
PwC.co.uk.
The Joint Liquidators can be reached at:
Gillian Eleanor Bruce (IP no. 9120)
Edward John Macnamara (IP no 9694)
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT, United Kingdom
The Joint Liquidators were appointed on November 1, 2012.
[*] Moody's Takes Actions on 6 UK Non-Conforming RMBS Deals
-----------------------------------------------------------
Moody's Investors Service, on Feb. 3, 2021, upgraded the ratings of
8 notes, downgraded the ratings of 2 notes, and affirmed the
ratings of 24 notes in 6 UK non-conforming transactions.
The rating action reflects:
-- better than expected collateral performance for Clavis
Securities plc: Series 2006-01 and Eurosail 2006-1 PLC
-- worse than expected collateral performance for Eurosail-UK
2007-5NP PLC
-- the increased levels of credit enhancement for Eurosail 2006-1
PLC, Eurosail-UK 2007-1NC PLC, Eurosail-UK 2007-3BL PLC, and
Eurosail-UK 2007-6NC PLC.
Moody's affirmed the ratings of the notes that had sufficient
credit enhancement to maintain the current rating on the affected
notes.
Issuer: Clavis Securities plc: Series 2006-01
GBP125M Class A3a Notes, Affirmed Aa1 (sf); previously on Feb 6,
2020 Affirmed Aa1 (sf)
EUR181.95M Class A3b Notes, Affirmed Aa1 (sf); previously on Feb
6, 2020 Affirmed Aa1 (sf)
GBP2M Class B1a Notes, Affirmed A3 (sf); previously on Feb 6, 2020
Affirmed A3 (sf)
EUR16.8M Class B1b Notes, Affirmed A3 (sf); previously on Feb 6,
2020 Affirmed A3 (sf)
GBP8.1M Class B2a Notes, Affirmed Baa3 (sf); previously on Feb 6,
2020 Affirmed Baa3 (sf)
GBP12.25M Class M1a Notes, Affirmed Aa1 (sf); previously on Feb 6,
2020 Upgraded to Aa1 (sf)
EUR45M Class M1b Notes, Affirmed Aa1 (sf); previously on Feb 6,
2020 Upgraded to Aa1 (sf)
GBP24M Class M2a Notes, Upgraded to Aa3 (sf); previously on Feb 6,
2020 Affirmed A1 (sf)
Issuer: Eurosail 2006-1 PLC
GBP321.2M Class A2c Notes, Affirmed Aa1 (sf); previously on Dec
21, 2018 Affirmed Aa1 (sf)
EUR20.7M Class B1a Notes, Affirmed Aa1 (sf); previously on Dec 21,
2018 Affirmed Aa1 (sf)
GBP17.5M Class B1c Notes, Affirmed Aa1 (sf); previously on Dec 21,
2018 Affirmed Aa1 (sf)
EUR13.6M Class C1a Notes, Upgraded to Aa1 (sf); previously on Dec
21, 2018 Upgraded to Aa3 (sf)
GBP16.5M Class C1c Notes, Upgraded to Aa1 (sf); previously on Dec
21, 2018 Upgraded to Aa3 (sf)
EUR26.4M Class D1a Notes, Affirmed Caa1 (sf); previously on Dec
21, 2018 Affirmed Caa1 (sf)
GBP3M Class D1c Notes, Affirmed Caa1 (sf); previously on Dec 21,
2018 Affirmed Caa1 (sf)
Issuer: Eurosail-UK 2007-1NC PLC
EUR194.8M Class A3a Notes, Affirmed Aa1 (sf); previously on Jul
27, 2017 Upgraded to Aa1 (sf)
GBP100M Class A3c Notes, Affirmed Aa1 (sf); previously on Jul 27,
2017 Upgraded to Aa1 (sf)
EUR36.9M Class B1a Notes, Upgraded to Aa2 (sf); previously on Oct
14, 2015 Upgraded to A3 (sf)
GBP20M Class B1c Notes, Upgraded to Aa2 (sf); previously on Oct
14, 2015 Upgraded to A3 (sf)
EUR42.1M Class C1a Notes, Affirmed Ba3 (sf); previously on Oct 14,
2015 Upgraded to Ba3 (sf)
EUR23.25M Class D1a Notes, Affirmed Caa3 (sf); previously on Oct
14, 2015 Upgraded to Caa3 (sf)
GBP5M Class D1c Notes, Affirmed Caa3 (sf); previously on Oct 14,
2015 Upgraded to Caa3 (sf)
Issuer: Eurosail-UK 2007-3BL PLC
GBP145.1M Class A3a Notes, Affirmed Aa1 (sf); previously on Jul
27, 2017 Upgraded to Aa1 (sf)
GBP64.5M Class A3c Notes, Affirmed Aa1 (sf); previously on Jul 27,
2017 Upgraded to Aa1 (sf)
GBP10.2M Class B1a Notes, Upgraded to Aa3 (sf); previously on Apr
8, 2016 Upgraded to A2 (sf)
GBP23M Class B1c Notes, Upgraded to Aa3 (sf); previously on Apr 8,
2016 Upgraded to A2 (sf)
GBP17M Class C1a Notes, Affirmed B2 (sf); previously on Apr 8,
2016 Upgraded to B2 (sf)
GBP10M Class C1c Notes, Affirmed B2 (sf); previously on Apr 8,
2016 Upgraded to B2 (sf)
Issuer: Eurosail-UK 2007-5NP PLC
GBP439.1M Class A1a Notes, Downgraded to Baa2 (sf); previously on
Dec 21, 2018 Downgraded to A3 (sf)
GBP75M Class A1c Notes, Downgraded to Baa2 (sf); previously on Dec
21, 2018 Downgraded to A3 (sf)
GBP29.04M Class B1c Notes, Affirmed Caa3 (sf); previously on Dec
21, 2018 Affirmed Caa3 (sf)
Issuer: Eurosail-UK 2007-6NC PLC
GBP122.1M Class A3a Notes, Upgraded to Aa1 (sf); previously on Dec
17, 2015 Upgraded to Aa2 (sf)
GBP21.7M Class B1a Notes, Affirmed Caa2 (sf); previously on Dec
17, 2015 Upgraded to Caa2 (sf)
GBP15.5M Class C1a Notes, Affirmed Caa3 (sf); previously on Dec
17, 2015 Upgraded to Caa3 (sf)
Maximum achievable rating is Aaa (sf) for structured finance
transactions in United Kingdom, driven by the corresponding local
currency country ceiling of the country.
RATINGS RATIONALE
The rating action is prompted by :
decreased key collateral assumptions, namely the portfolio
Expected Loss (EL) and MILAN CE assumptions due to better than
expected collateral performance for Clavis Securities plc: Series
2006-01 and Eurosail 2006-1 PLC;
increased key collateral assumptions, namely the MILAN CE
assumptions due to worse than expected collateral performance for
Eurosail-UK 2007-5NP PLC;
an increase in credit enhancement for the affected tranches.
Revision of Key Collateral Assumptions:
As part of the rating action, Moody's reassessed its lifetime loss
expectation for the portfolio reflecting the collateral performance
to date.
For Clavis Securities plc: Series 2006-01, the performance of the
transaction has continued to be stable with 90 days plus arrears
currently standing at 7.35% of current pool balance. Cumulative
losses currently stand at 0.72% of original pool balance unchanged
from a year earlier.
Moody's decreased the expected loss assumption to 0.93% as a
percentage of original pool balance from 1.00% due to the improving
performance.
Moody's has also assessed loan-by-loan information as a part of its
detailed transaction review to determine the credit support
consistent with target rating levels and the volatility of future
losses. As a result, Moody's has decreased the MILAN CE assumption
to 14%.
For Eurosail 2006-1 PLC the performance of the transaction has
slightly deteriorated with 90 days plus arrears currently standing
at 41.48% of current pool balance, slightly up from 38.84% a year
ago. However, cumulative losses currently stand at 4.23% of
original pool balance up from 4.22% a year earlier. As a result,
Moody's decreased the expected loss assumption to 5.87% as a
percentage of original pool balance from 6.00%. Moody's has
maintained the MILAN CE assumption at 29.00%.
For Eurosail-UK 2007-5NP PLC, the performance of the transaction
has continued to deteriorate since last year. Total delinquencies
have increased in the past year, with 90 days plus arrears
currently standing at 10.66% of current pool balance up from 9.22%
a year earlier. Moody's has maintained the expected loss assumption
at 5.64% as a percentage of original pool balance but has increased
the MILAN CE assumption to 22%. The rating action also took into
consideration the lack of Liquidity Facility to meet the timely
repayment of interest on the Notes in stressed scenarios. The
Liquidity Facility agreement had been terminated at the
restructuring implemented in November 2013.
Moody's has maintained the expected loss and MILAN CE assumptions
for the other transactions in this rating action.
Moody's updated the MILAN CE due to the Minimum Expected Loss
Multiple, a floor defined in Moody's methodology for rating EMEA
RMBS transactions.
Increase in Available Credit Enhancement
Sequential amortization and non-amortizing reserve funds led to the
increase in the credit enhancement available in Eurosail 2006-1
PLC, Eurosail-UK 2007-1NC PLC, Eurosail-UK 2007-3BL PLC, and
Eurosail-UK 2007-6NC PLC.
For the tranches C1a and C1c of Eurosail 2006-1 PLC, the credit
enhancement has increased to 34.1% from 30.8% a year earlier.
For the tranches B1a and B1c of Eurosail-UK 2007-1NC PLC, the
credit enhancement has increased to 41.1% from 37.7% a year
earlier.
For the tranches B1a and B1c of Eurosail-UK 2007-3BL PLC, the
credit enhancement has increased to 27.4% from 25.0% a year
earlier.
For the tranche A3a of Eurosail-UK 2007-6NC PLC, the credit
enhancement has increased to 34.7% from 32.76% a year earlier.
The rating actions also took into consideration the notes' exposure
to relevant counterparties, such as servicer, account banks or swap
providers.
The ratings of the Notes in all transactions, are capped at Aa1
(sf) due to the Financial Disruption Risk, stemming from the fact
that the servicer is an unrated entity and the transaction's
mitigating structural features are not sufficient to achieve the
Aaa (sf) rating. This cap constraints the ratings of senior Notes
in the transactions.
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
consumer assets from the current weak UK 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 Moody's 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.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
December 2020.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage. Please see "Moody's Approach to Rating RMBS Using the MILAN
Framework" for further information on Moody's analysis at the
initial rating assignment and the on-going surveillance in RMBS.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include: (i) performance of the underlying collateral that
is better than Moody's expected; (ii) an increase in available
credit enhancement; and (iii) improvements in the credit quality of
the transaction counterparties and (4) a decrease in sovereign
risk.
Factors or circumstances that could lead to a downgrade of the
ratings include: (i) an increase in sovereign risk; (ii)
performance of the underlying collateral that is worse than Moody's
expected; (iii) deterioration in the notes' available credit
enhancement; and (iv) deterioration in the credit quality of the
transaction counterparties.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Hospitals, Health and People
---------------------------------------------
Author: Albert W. Snoke, M.D.
Publisher: Beard Books
Softcover: 232 pages
List Price: $34.95
Order your personal copy today at
http://www.beardbooks.com/beardbooks/hospitals_health_and_people.html
Hospitals, Health and People is an interesting and very readable
account of the career of a hospital administrator and physician
from the 1930's through the 1980's, the formative years of today's
health care system. Although much has changed in hospital
administration and health care since the book was first published
in 1987, Dr. Snoke's discussion of the evolution of the modern
hospital provides a unique and very valuable perspective for
readers who wish to better understand the forces at work in our
current health care system.
The first half of Hospitals, Health and People is devoted to the
functional parts of the hospital system, as observed by Dr. Snoke
between the late 1930's through 1969, when he served first as
assistant director of the Strong Memorial Hospital in Rochester,
New York, and then as the director of the Grace-New Haven Hospital
in Connecticut. In these first chapters, Dr. Snoke examines the
evolution and institutionalization of a number of aspects of the
hospital system, including the financial and community
responsibilities of the hospital administrator, education and
training in hospital administration, the role of the governing
board of a hospital, the dynamics between the hospital
administrator and the medical staff, and the unique role of the
teaching hospital.
The importance of Hospitals, Health and People for today's readers
is due in large part to the author's pivotal role in creating the
modern-day hospital. Dr. Snoke and others in similar positions
played a large part in advocating or forcing change in our hospital
system, particularly in recognizing the importance of the nursing
profession and the contributions of non-physician professionals,
such as psychologists, hearing and speech specialists, and social
workers, to the overall care of the patient. Throughout the first
chapters, there are also many observations on the factors that are
contributing to today's cost of care. Malpractice is just one
example. According to Dr. Snoke, "malpractice premiums were
negligible in the 1950's and 1960's. In 1970, Yale-New Haven's
annual malpractice premiums had mounted to about $150,000." By the
time of the first publication of the book, the hospital's premiums
were costing about $10 million a year.
In the second half of Hospitals, Health and People, Dr. Snoke
addresses the national health care system as we've come to know it,
including insurance and cost containment; the role of the
government in health care; health care for the elderly; home health
care; and the changing role of ethics in health care. It is
particularly interesting to note the role that Senator Wilbur Mills
from Arkansas played in the allocation of costs of hospital-based
specialty components under Part B rather than Part A of the
Medicare bill. Dr. Snoke comments: "This was considered a great
victory by the hospital-based specialists. I was disappointed
because I knew it would cause confusion in working relationships
between hospitals and specialists and among patients covered by
Medicare. I was also concerned about potential cost increases. My
fears were realized. Not only have health costs increased in
certain areas more than anticipated, but confusion is rampant among
the elderly patients and their families, as well as in hospital
business offices and among physicians' secretaries." This aspect of
Medicare caused such confusion that Congress amended Medicare in
1967 to provide that the professional components of radiological
and pathological in-hospital services be reimbursed as if they were
hospital services under Part A rather than part of the co-payment
provisions of Part B.
At the start of his book, Dr. Snoke refers to a small statue,
Discharged Cured, which was given to him in the late 1940's by a
fellow physician, Dr. Jack Masur. Dr. Snoke explains the
significance the statue held for him throughout his professional
career by quoting from an article by Dr. Masur: "The whole question
of the responsibility of the physician, of the hospital, of the
health agency, brings vividly to mind a small statue which I saw a
great many years ago.it is a pathetic little figure of a man, coat
collar turned up and shoulders hunched against the chill winds,
clutching his belongings in a paper bag-shaking, tremulous,
discouraged. He's clearly unfit for work-no employer would dare to
take a chance on hiring him. You know that he will need much more
help before he can face the world with shoulders back and
confidence in himself. The statuette epitomizes the task of medical
rehabilitation: to bridge the gap between the sick and a job."
It is clear that Dr. Snoke devoted his life to exactly that
purpose. Although there is much to criticize in our current
healthcare system, the wellness concept that we expect and accept
today as part of our medical care was almost nonexistent when Dr.
Snoke began his career in the 1930's. Throughout his 50 years in
hospital administration, Dr. Snoke frequently had to focus on the
big picture and the bottom line. He never forgot the importance of
Discharged Cured, however, and his book provides us with a great
appreciation of how compassionate administrators such as Dr. Snoke
have contributed to the state of patient care today.
Albert Waldo Snoke was director of the Grace-New Haven Hospital in
New Haven, Connecticut from 1946 until 1969. In New Haven, Dr.
Snoke also taught hospital administration at Yale University and
oversaw the development of the Yale-New Haven Hospital, serving as
its executive director from 1965-1968. From 1969-1973, Dr. Snoke
worked in Illinois as coordinator of health services in the Office
of the Governor and later as acting executive director of the
Illinois Comprehensive State Health Planning Agency. Dr. Snoke died
in April 1988.
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S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
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Copyright 2021. All rights reserved. ISSN 1529-2754.
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