/raid1/www/Hosts/bankrupt/TCREUR_Public/210212.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 12, 2021, Vol. 22, No. 26
Headlines
D E N M A R K
ORSTED A/S: S&P Assigns 'BB+' Rating on New 3021 Hybrid Securities
F I N L A N D
VASTAAMO: Collapses Into Bankruptcy Following Cyber Attack
F R A N C E
BISCUIT INTERNATIONAL: S&P Cuts ICR to 'B-', Outlook Stable
CONSTELLIUM SE: Moody's Rates New $500MM 2029 Unsecured Notes 'B2'
CONSTELLIUM SE: S&P Affirms 'B' LongTerm ICR, Outlook Stable
G E R M A N Y
INSTITUTE FOR BROADCASTING: Enters Liquidation, Halts Operations
NICE SOLAR: Opens Self-Administered Insolvency Proceedings
WIRECARD AG: Accounting Watchdog Did Not Want to Probe Fraud
G R E E C E
NAVIOS MARITIME: Moody's Cuts CFR to Caa1 & Alters Outlook to Neg.
I R E L A N D
ADIENT PLC: S&P Alters Outlook to Stable & Affirms 'B+' ICR
BARINGS EURO 2016-1: Moody's Hikes Rating on Class F-R Notes to B1
NEWHAVEN CLO: Moody's Affirms B2 Rating on Class F-R Notes
PALMER SQUARE 2021-1: S&P Assigns Prelim. B- Rating on F Notes
L U X E M B O U R G
NORTHPOLE NEWCO: S&P Alters Outlook to Negative, Affirms 'B' ICR
N E T H E R L A N D S
ECOBANK NIGERIA: Fitch Gives B-(EXP) Rating on USD Unsec. Notes
PZEM NV: S&P Withdraws 'BB' LongTerm Issuer Credit Rating
R O M A N I A
GARANTI BANK: Fitch Affirms 'BB-' LongTerm IDR, Outlook Negative
S P A I N
ABANCA CORP: S&P Alters Outlook to Stable & Affirms 'BB+/B' ICRs
U N I T E D K I N G D O M
CASTELL PLC 2018-1: Moody's Hikes GBP11.6MM Class F Notes to Ba1
CONCORDE MIDCO: S&P Assigns Preliminary 'B-' ICR, Outlook Stable
EDINBURGH WOOLLEN: Carlisle United Debt Now Owed to Different Co.
ICELAND FOODS: S&P Affirms 'B' ICR on Proposed Refinancing
LANNIS LIMITED: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
PEAK JERSEY: Moody's Completes Review, Retains B3 CFR
X X X X X X X X
[*] BOOK REVIEW: Bankruptcy and Secured Lending in Cyberspace
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D E N M A R K
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ORSTED A/S: S&P Assigns 'BB+' Rating on New 3021 Hybrid Securities
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S&P Global Ratings said that it has assigned its 'BB+' long-term
issue rating to the proposed 3021, optionally deferrable, and
subordinated hybrid capital security to be issued by Orsted A/S
(BBB+/Stable/A-2). The hybrid amount remains subject to market
conditions, but S&P understands it will be up to an aggregate EUR1
billion. The proceeds will be used for green purposes and to
partially replace the existing EUR700 million hybrids, with first
call date in 2023. S&P understands the tender offer on these
securities would target up to EUR250 million and remains subject to
market conditions.
S&P considers the proposed security to have intermediate equity
content until its first reset date because it meets our criteria in
terms of its ability to absorb losses and preserve cash in times of
stress, including through its subordination and the deferability of
interest at the company's discretion in this period.
Parallel with the issuance, Orsted launched a tender offer on part
of the existing EUR700 million NC2023 securities. S&P said, "We
understand that, subject to market conditions, Orsted aims to
increase the net nominal value of hybrid capital issued by a
minimum of EUR600 million. According to our estimates, after this
transaction, the overall amount of hybrid capital eligible for
intermediate equity credit will remain within the 15%
capitalization limit."
S&P said, "Upon completion of the transaction, we will assign
intermediate equity content to the new hybrid instruments until the
first reset date set, which is at least 10 years after issuance in
both cases. We assess as intermediate the equity content of the new
hybrid. We will lower to minimal the equity content of the portion
of the NC2023 hybrid bond that will be replaced. We also continue
to assess as intermediate the equity content on the remaining
portion of NC2023 hybrid not repurchased and replaced as part of
this combined new issue and tender offer transaction. This is
notably because we consider that the issuance of the new hybrid
instrument will partially replace the existing hybrid, subject to
tender offer.
"We arrive at our 'BB+' issue rating on the proposed security by
notching down from our 'bbb' stand-alone credit profile for Orsted.
This is because we believe the likelihood of extraordinary
government support from the Danish state to this security is low."
The two-notch differential reflects our notching methodology of
deducting:
-- One notch for subordination because its long-term issuer credit
rating on Orsted is investment-grade (that is, higher than 'BB+');
and
-- An additional notch for payment flexibility, to reflect that
the deferral of interest is optional.
S&P said, "The notching to rate the proposed security reflects our
view that the issuer is relatively unlikely to defer interest.
Should our view change, we may increase the number of notches we
deduct to derive the issue rating.
"In addition, to reflect our view of the intermediate equity
content of the proposed security, we allocate 50% of the related
payments on the security as a fixed charge and 50% as equivalent to
a common dividend. The 50% treatment of principal and accrued
interest also applies to our adjustment of debt.
"Orsted can redeem the security for cash at any time during the six
months before the first interest reset date, which we understand
will be between 10 and 12 years after issuance, subject to market
conditions (with a first call date in 2031 at the earliest) and on
any coupon payment date thereafter. Although the proposed security
is due in 3021, it can be called at any time for tax, accounting,
ratings, or a substantial repurchase event. If any of these events
occur, Orsted intends, but is not obliged, to replace the
instruments. In our view, this statement of intent mitigates the
issuer's ability to repurchase the notes on the open market. We
understand that the interest to be paid on the proposed security
will increase by 25 basis points (bps) at least 10 years from
issuance (it can be up to 12 years), and by a further 75 bps 20
years after its first reset date. We consider the cumulative 100
bps as a material step-up, which is currently unmitigated by any
binding commitment to replace the instrument at that time. We
believe this step-up provides an incentive for the issuer to redeem
the instrument on its first reset date.
"Consequently, we will no longer recognize the instrument as having
intermediate equity content after its first reset date, because the
remaining period until its economic maturity would, by then, be
less than 20 years. However, we classify the instrument's equity
content as intermediate until its first reset date, so long as we
think that the loss of the beneficial intermediate equity content
treatment will not cause the issuer to call the instrument at that
point. Orsted's willingness to maintain or replace the instrument
in the event of a reclassification of equity content to minimal is
underpinned by its statement of intent."
KEY FACTORS IN S&P's ASSESSMENT OF THE SECURITIES' DEFERABILITY
S&P said, "In our view, Orsted's option to defer payment on the
proposed security is discretionary. This means that Orsted may
elect not to pay accrued interest on an interest payment date
because it has no obligation to do so. However, any outstanding
deferred interest payment, plus interest accrued thereafter, will
have to be settled in cash if Orsted declares or pays an equity
dividend or interest on equally ranking securities, and if Orsted
redeems or repurchases shares or equally ranking securities.
However, once Orsted has settled the deferred amount, it can still
choose to defer on the next interest payment date."
KEY FACTORS IN S&P's ASSESSMENT OF THE SECURITIES' SUBORDINATION
The proposed security and coupons are intended to constitute the
issuer's direct, unsecured, and subordinated obligations, ranking
senior to their common shares and parity securities.
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F I N L A N D
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VASTAAMO: Collapses Into Bankruptcy Following Cyber Attack
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Alex Scroxton at ComputerWeekly.com reports that Vastaamo, the
Finland-based private psychotherapy practice that covered up a
cyber attack on its patient record system in 2018 and then saw its
patients directly extorted by cyber criminals, has collapsed into
bankruptcy with its services to be acquired by medical services
firm Verve.
The firm came to worldwide attention in the wake of the extortion
attack in October 2020, in which cyber criminals threatened to leak
personal data unless patients paid a bitcoin ransom of EUR200,
ComputerWeekly.com discloses.
It subsequently emerged that the business' former owner, Ville
Tapio, who had sold Vastaamo to an investment company in 2019, may
have been aware of the 2018 cyber attack but failed to disclose it,
ComputerWeekly.com recounts.
Assets belonging to Mr. Tapio and his family totalling EUR10
million were seized in the initial investigation by the Finnish
authorities, ComputerWeekly.com relates.
The firm was subsequently placed into liquidation while attempting
to continue its operations but "despite tenacious attempts", this
was not possible, and liquidator Lassi Nyyssoenen of law firm Fenno
has now filed for bankruptcy in the Helsinki District Court,
according to ComputerWeekly.com.
In a statement, representatives of Vastaamo said that high
non-recurring costs and uncertainty caused by the cyber attack,
coupled with its handling of the breach, had put such a strain on
the business' finances that it was no longer possible to continue,
ComputerWeekly.com notes.
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F R A N C E
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BISCUIT INTERNATIONAL: S&P Cuts ICR to 'B-', Outlook Stable
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S&P Global Ratings lowered its issuer credit rating on Cookie
Acquisition SAS (doing business as Biscuit International [BI]) and
issue rating on the first-lien debt instrument to 'B-' from 'B',
and its rating on the second-lien instrument to 'CCC' from 'CCC+'.
The stable outlook reflects S&P's view that the company's operating
performance should recover steadily in 2021, supporting at least
stable debt leverage and adequate liquidity.
S&P said, "We forecast adjusted debt to EBITDA above 8x in
2020-2021 due to lower sales and higher operational costs in 2020,
which will challenge performance through sales volatility,
considering multiple lockdowns in Europe. We think the loss of
volumes is notably due to its significant exposure to discounters
with limited or nonexistent home delivery capabilities, which
suffered from a shift in consumption toward convenience stores and
nearby supermarkets. Due to lockdown measures, discretionary
spending has been partly redirected from finished products to
preparations at home. We also account for costs to offset
COVID-19-related production and distribution disruptions as well as
investment for efficiency savings. This means we now see S&P Global
Ratings-adjusted EBITDA reaching around EUR55 million in 2020,
compared with about EUR85 million in our previous base-case
scenario. With the low EBITDA base, we now see adjusted debt to
EBITDA of about 10x in 2020 and decreasing to above 8x in 2021.
Excluding the second-lien EUR110 million payment-in-kind debt
instrument that is noncash, adjusted debt leverage is below 10x in
2020 and around 7x in 2021. However, in our analysis, we also
factor the company's ambitions (it is owned by private equity firm
Platinum) to consolidate its sector most likely through
debt-financed acquisitions as a parameter for slower debt
deleveraging. Indeed, BI has undertaken a string of acquisitions
under current and former private-equity ownership: Dan Cake
(Portugal) in 2021; Aviateur in 2019; Arluy (Spain), Stroopwafel &
Co. (Netherlands), and NFF (U.K.) in 2018; and A&W (Germany) in
2017."
The acquisition of Dan Cake should slightly enhance BI's product
offering and geographic footprint. Based in Coimbra, Portugal, Dan
Cake is mainly a private-label manufacturer of traditional butter
biscuits with revenue of about EUR53 million in 2019. It notably
manufactures Danish butter cookies sold in round tins and has a
branded business in its two factories in the country. BI will
benefit from a complementary portfolio of products, expanding its
offering in butter cookies and geographic footprint, with possible
cross-selling in international markets like the U.S. S&P
understands cash balances and drawings under the existing RCF to
finance this acquisition.
BI's operating performance should improve in 2021 led by a rebound
in volume and operating cost savings The COVID-19 pandemic greatly
affected the group's operational performance in 2020. BI suffered
from a large drop in volumes due to lower consumer demand for its
products. S&P said, "In 2021, we forecast a strong pick-up in
volume, notably in the second half of the year, translating into
organic revenue growth of 9%-10% and benefiting from revenue from
Dan Cake (about 10% of BI's pro forma total). We believe
longstanding relationships with large retailers and an efficient
sourcing strategy will enable the group to recover most of its
volume in the next 12 months. Regarding EBITDA, growth should
notably benefit from lower operating costs directly linked to
COVID-19-related disruptions, changes in the product mix, and cost
savings from the group's efficiency plans. For 2021, we see the S&P
Global Ratings-adjusted EBITDA margin rebounding to 13%-14%, which
compares well with the industry average for European private label
companies. Still, we factor the limited pricing power considering
its focus on private label sweet biscuits. Consumers' changing
daily habits has brought some uncertainty and volatility to a
historically resilient segment."
S&P said, "The stable outlook reflects our view that BI's operating
performance should improve over the next 12 months with a rebound
in revenue and improved S&P Global Ratings-adjusted margin
rebounding to 13-14%. We anticipate that S&P Global
Ratings-adjusted debt leverage will remain above 8x in 2021 and
decline below 7x in 2022, with adjusted funds from operations (FFO)
cash interest coverage to remain above 3x. In our view, BI's EBITDA
margin is supported by the group's strategy of building a
European-wide private-label biscuits platform with the plan to
leverage cross-selling in different regions. This is supported by
the long-standing relationships with large European retailers. We
also think that the group should adequately manage working capital
swings, maintain sufficient headroom under its financial covenants,
and fund its day-to-day business needs.
"We could downgrade the company over the next 12 months if BI's FFO
cash interest coverage falls below 2x or if it fails to generate
positive free operating cash flow (FOCF) due to continued decline
in volume, inability to execute the cost savings plan to offset
price pressures and manage raw materials volatility, or working
capital swings volatility. We would also view negatively adjusted
debt leverage following a slower deleveraging path than we expect.
This could arise from an aggressive debt-financed acquisition
strategy or if BI's adjusted EBITDA deteriorates significantly.
"We could take a positive rating action if the group's revenue and
EBITDA base increase significantly higher than our assumptions,
such that adjusted debt leverage deleverages clearly and sustained
toward 5x. This could occur from strong volume increase due to
higher penetration of its products in core regions, notably France,
and very successful operational improvement plan and business
integration, enabling higher profitability."
CONSTELLIUM SE: Moody's Rates New $500MM 2029 Unsecured Notes 'B2'
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Moody's Investors Service has assigned a B2 instrument rating to
Constellium SE's proposed sustainability-linked $500 million senior
unsecured notes due 2029. All other ratings on Constellium,
including the B2 corporate family rating, the B2-PD probability of
default rating, and the B2 instrument ratings on its existing
senior unsecured notes (due 2024, 2025, 2026 and 2028) remain
unchanged. The outlook on all ratings is negative.
RATINGS RATIONALE
The proposed new 8-year $500 million notes will rank pari passu
with the group's existing senior unsecured notes, including the
$400 million notes due 2024, the $650 million notes due 2025, the
$500 million and EUR400 million notes due 2026 and the $325 million
notes due 2028, all issued by Constellium SE. The assigned B2
rating on the new notes is in line with Constellium's B2 CFR and
B2-PD PDR, reflecting Moody's standard assumption of a 50% family
recovery rate. Constellium has targeted a 25% reduction of its
greenhouse gas emission intensity by 2025 versus 2015 and a 10%
increase in recycled aluminum input by 2026 versus 2019. The new
notes will have a sustainability-linked feature of a 12.5 basis
points coupon step-up from 2026 onwards in the event that the first
sustainability performance target is not achieved and a 12.5 basis
points coupon step-up from 2027 onwards in the event that the
second sustainability performance target is not achieved.
Proceeds from the proposed notes together with available cash on
the balance sheet will be used to redeem Constellium's 6.625% $650
million senior unsecured notes due 2025 at a redemption price of
101.656% and to pay accrued and unpaid interest and expected
transaction costs. Upon completion of the refinancing, Moody's
expects to withdraw the B2 instrument rating on the 2025 notes.
Moody's acknowledges the group's demonstrated commitment to reduce
debt in line with its de-leveraging targets, as shown by the about
EUR130 million decrease in total debt (0.3x leverage effect)
resulting from the transaction, besides the associated interest
cost savings. The proposed refinancing will further improve the
group's debt maturity profile, with the 2024 $400 million bond and
the EUR180 million French state guaranteed loan (expiring 2026)
maturing in the upcoming five years. Moody's also recognizes the
sustainability-linked component of the new notes, which underscores
the group's commitment to significantly lower its carbon
emissions.
The B2 CFR and the negative outlook remain unchanged, however,
considering a continued challenging macro-economic environment,
still-sluggish demand in some end-markets (e.g. aerospace) and
ongoing coronavirus related uncertainties. Latest credit metrics,
such as Moody's-adjusted gross leverage of 8.5x as of September 30,
2020, position Constellium weakly in the B2 category, although
Moody's expects the ratio to clearly recover and solidify the
rating positioning during 2021. Moody's also acknowledges
Constellium's better than anticipated performance last year thanks
to effective cost cutting, while overall shipments fell by 14% in
the first nine months of 2020. The rating agency further expects
Constellium to post solid positive Moody's-adjusted free cash flow
(FCF) in 2020 (EUR199 million in the 12 months ended September 30,
2020), primarily driven by lower capital spending and working
capital reductions.
Other factors supporting the B2 CFR include Constellium's (1) solid
business profile, underpinned by its diverse product mix and strong
market share in high-value-added aluminum rolled and extruded
products; (2) healthy liquidity with available cash sources of more
than EUR1 billion at September-end 2020; and (3) measures initiated
to reduce costs and preserve free cash flow and liquidity during
the coronavirus-driven crisis.
Factors constraining the rating include (1) Constellium's exposure
to cyclical end markets, such as automotive, aerospace and
industrial; (2) the high capital intensity of its business,
resulting in earnings sensitivity to volumes; and (3) exposure to
metal premium price volatility, although a large share can usually
be passed through to customers.
LIQUIDITY
Constellium bolstered its solid liquidity profile during 2020
through a $166 million Delayed Drawn Term Loan (currently undrawn),
around EUR250 million of European government-sponsored credit
facilities, and the refinancing of notes due 2021 with new $325
million notes due 2028. As of September 30, 2020, Constellium had
EUR432 million cash on the balance sheet and close to EUR600
million additional liquidity sources. These, together with forecast
positive FCF for 2021, will comfortably cover its basic near-term
cash needs and the proposed bond transaction.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook indicates Constellium's currently weak
positioning in the B2 rating category which is driven by a sharp
deterioration in the company's operating performance in 2020 due to
the coronavirus pandemic and the lack of visibility into the pace
of recovery in 2021. Demonstration of a steady performance recovery
and improvement in credit metrics, however, could support a
stabilization of the outlook over the next quarters.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Negative rating pressure would build, if Constellium's (1)
Moody's-adjusted EBIT margin remains persistently below 5%, (2)
leverage could not be reduced towards 6.0x Moody's-adjusted
debt/EBITDA over the next 18 months, (3) FCF turns sustainably
negative, (4) liquidity deteriorates.
Upward pressure on the rating would build, if Constellium's (1)
Moody's-adjusted debt/EBITDA falls below 4.5x, (2) (CFO -
dividends)/debt improves to at least 15%, (3) FCF remains
consistently positive.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Steel Industry
published in September 2017.
COMPANY PROFILE
Headquartered in France, Constellium SE (Constellium) is a global
leader in the designing and manufacturing of innovative and
high-value-added aluminum products for a broad range of
applications dedicated primarily to packaging, aerospace and
automotive end-markets. Constellium is organized in three business
segments: Packaging & Automotive Rolled Products (P&ARP); Aerospace
& Transportation (A&T), and Automotive Structures & Industry
(AS&I). In the last 12 months ended September 30, 2020, Constellium
generated revenue of EUR5.0 billion and Moody's-adjusted EBITDA of
EUR386 million (7.7% margin).
CONSTELLIUM SE: S&P Affirms 'B' LongTerm ICR, Outlook Stable
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S&P Global Ratings affirmed its 'B' long-term rating on
France-based aluminum manufacturer Constellium SE and assigned a
'B' rating to the company's proposed bond.
S&P said, "The stable outlook on Constellium continues to reflect
our expectation that the company will increase its EBITDA over
time, without a debt increase, while maintaining a very supportive
maturity profile.
"We expect the company's resilient performance will continue in
2021, within a still muted market environment. Under our revised
base case, we estimate 2020 S&P Global Ratings-adjusted EBITDA
reached about EUR435 million (equivalent to company-adjusted EBITDA
of EUR465 million), slightly below our previous expectations
(EUR450 million-EUR500 million), with breakeven free operating cash
flow (FOCF), excluding changes in working capital. The 2020 results
are likely to reflect the decline in shipments in all divisions,
notably the impact of the pandemic on the aerospace segment (a drop
of 40%-50% expected in 2020 EBITDA). During the year, the company
took several actions to mitigate the negative impact of the
pandemic, most importantly cost controls, lower capital spending,
and good working capital management. Importantly, Constellium has
shown resilience in its packaging divisions, owing to end-market
diversification and rigid demand. The automotive division also
recorded decent results, explained by the company's long-term
contracts. In 2021, we foresee growth driven by the recovery of the
automotive industry and further growth of the packaging industry.
On top of the market recovery, the company will enjoy internal
operational improvements (ramp-up of the company's U.S. automotive
turnaround program and facilities in Europe; and volume increases
at Muscle Shoals, Alabama). We now expect adjusted EBITDA to reach
EUR500 million-EUR550 million in 2021, a material improvement over
2020, but still very low compared with the company's pre-pandemic
expectations (EUR700 million by 2022)."
Proactive refinancing further strengthens the company's liquidity
and cash flows, with an added commitment to sustainability.
Constellium continues to manage its liquidity proactively, ensuring
a long-dated maturity profile and reducing its finance costs. With
the proposed $500 million senior unsecured bond, the company will
push maturities to 2029, while using the proceeds and $150 million
of cash to repay its $650 million notes due in 2025 (bearing a
coupon of 6.625%). After the transaction, the company's maturity
profile will include EUR346 million in 2024, EUR821 million in
2026, EUR277 million in 2028, and the new EUR427 million notes in
2029.
Leverage continues to be on the high side for the 'B' rating.
With adjusted debt to EBITDA of about 6x in 2021 after more than 7x
in 2020, the headroom under the rating is somewhat limited, and any
increase in debt (stemming from lower EBITDA, higher capital
expenditure [capex], or an acquisition) is likely to result in a
lower rating. S&P said, "We still see improving EBITDA as the only
means to meaningful deleveraging, considering the high adjusted
debt amount of EUR3.0 billion (equivalent to reported debt of about
EUR2.5 billion) and comparatively meagre FOCF (EUR100
million-EUR150 million). In our view, the company's ability to
reach EBITDA of at least EUR550 million in 2022, reducing adjusted
debt to EBITDA to 5.0x or better, will become a key rating driver
later this year. This assumption is supported by the company's
strong fundamentals , with long-term growth expected to come from
the replacement trends, such that demand for aluminum outpaces
demand for other metal."
S&P said, "The stable outlook on Constellium continues to reflect
our expectation that the company's EBITDA will expand over time,
without a debt increase, while it maintains a very supportive
maturity profile. Under our revised base-case scenario, we expect
the company will report S&P Global Ratings-adjusted EBITDA of
EUR500 million-EUR550 million in 2021, translating into adjusted
debt to EBITDA just below 6x and positive FOCF of about EUR100
million on average. We assume the company will achieve leverage of
5.0x and positive FOCF in 2022, which would be commensurate with
the 'B' rating.
In S&P's view, the company has limited headroom under the rating,
and a negative rating action would become imminent if:
-- Market conditions remained sharply deteriorated for more than
one year, with EBITDA remaining below EUR500 million in 2021 and
below EUR550 million from 2022;
-- An increase of the debt driven by weaker earnings, large
working capital outflows, capex, or M&A;
-- Liquidity deteriorated.
S&P does not expect to upgrade Constellium in the coming 12 months.
Any upgrade would depend on the following:
-- Completion of the ongoing expansion programs with a tangible
contribution to EBITDA;
-- Some track record of reduction in the absolute debt level,
supported by more meaningful positive FOCF (excluding changes in
working capital); and
-- Adjusted debt to EBITDA of close to 4x.
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G E R M A N Y
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INSTITUTE FOR BROADCASTING: Enters Liquidation, Halts Operations
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Jennny Priestley at TVBEurope reports that Germany's Institute for
Broadcasting Technology (IRT) has officially closed its doors after
going into liquidation.
According to TVBEurope, all of the IRT's research has been stopped,
with all projects moved to the IRT's partners, while all staff will
be redundant by the end of March.
The IRT's 14 shareholders, which include ARD, ZDF, and Deutsche
Welle, as well as ORF in Austria and SRG in Switzerland, terminated
their agreement with the organisation at the end of 2020, stating
that they couldn't find "a viable model" to keep it going,
TVBEurope discloses.
Founded in 1956, the IRT developed technical solutions alongside
its shareholders, the broadcasting industry and other
organisations.
NICE SOLAR: Opens Self-Administered Insolvency Proceedings
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Ralph Diermann at PV Magazine reports that Germany-based Nice Solar
Energy has opened the proceedings for self-administered insolvency
at the Heilbronn District Court, in Germany.
According to PV Magazine, the CIGS thin-film photovoltaics
specialist will now have three months to present a restructuring
plan.
Nice Solar Energy said in the meantime, business operations
continue with no disruption, PV Magazine relates. The company
cited the coronavirus pandemic as the reason for the insolvency
proceedings, PV Magazine discloses.
Nice Energy is supported in the restructuring process by
consultants from Ebner Stolz, PV Magazine notes. The Heilbronn
District Court has appointed the lawyer Andreas Kleinschmidt as
trustee, PV Magazine states.
Nice Solar Energy employs 160 people in Schwaebisch Hall, in
southern Germany.
WIRECARD AG: Accounting Watchdog Did Not Want to Probe Fraud
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Olaf Storbeck at The Financial Times reports that Germany's
accounting watchdog told Wirecard in 2016 that it did "not want" to
formally investigate fraud allegations raised by short sellers and
asked the now-disgraced payments company to prepare arguments "why
the accusations are unfounded", according to people briefed on the
matter.
Wirecard collapsed last year into insolvency after admitting that
EUR1.9 billion of corporate cash did not exist, the FT recounts.
On Feb. 11, German MPs scrutinized Edgar Ernst, the head of the
Financial Reporting Enforcement Panel, over the body's internal
governance and its dealings with Wirecard, the FT relates. The
private-sector body, which has quasi-official powers, has come
under fire for its inept handling of the allegations against
Wirecard, the FT notes.
Matthias Hauer, an MP for Angela Merkel's conservative CDU/CSU
bloc, accused Mr. Ernst of potentially violating FREP's internal
governance rules, the FT discloses.
In May 2016, the body decided that its leadership must not take on
new supervisory board mandates, but in February 2017, Mr. Ernst
joined the board of German wholesaler Metro AG, the FT relates.
New evidence uncovered by the parliamentary inquiry commission
shows that the FREP was highly reluctant to take a serious look at
misconduct allegations at Wirecard as early as 2016, the FT
discloses.
In February of that year, anonymous short sellers raised serious
allegations of accounting fraud and money laundering against the
Munich-based company in a report called Zatarra, the FT recounts.
At the time, the FREP was amid an ongoing routine probe into
Wirecard's financial reporting, the FT notes.
According to the FT, last year, the FREP told the European
Securities and Markets Authority, the European financial regulator,
that it did not investigate the Zatarra allegations because BaFin
was investigating short sellers for potential market manipulation.
It also added that "the market" had said that the allegations were
old and pointed out that Wirecard's auditor had issued an
unqualified audit, the FT relays.
People familiar with the matter told the FT that in 2016 and 2017
the accounting watchdog was repeatedly asked by Germany's financial
regulator to investigate the allegations against Wirecard.
===========
G R E E C E
===========
NAVIOS MARITIME: Moody's Cuts CFR to Caa1 & Alters Outlook to Neg.
------------------------------------------------------------------
Moody's Investors Service has downgraded the corporate family
rating of Navios Maritime Acquisition Corporation to Caa1 from B3
and probability of default rating to Caa2-PD from B3-PD.
Concurrently, Moody's has also downgraded the senior secured first
lien notes due 2021 co-issued with Navios Acquisition Finance (US)
Inc. to Caa1 from B3. The outlook changed to negative from ratings
under review.
This action concludes the ratings review initiated on May 21,
2020.
RATINGS RATIONALE
The rating action reflects the significant debt maturities in the
next 12 months including the senior secured first lien notes due in
November 2021 as well as the continued weak market environment and
resulting high expected Moody's-adjusted debt EBITDA in 2021 if the
market environment persists. The Caa2-PD also reflects the
execution risk linked to the refinancing including the risk of a
distressed exchange, for example in the form of debt buy-backs.
Moody's views Navios Acquisition's liquidity as weak until the $603
million outstanding senior secured first lien notes maturity in
November 2021 has been resolved. The company also has a number of
smaller but still substantial ongoing debt amortization and balloon
payments in 2021. As of September 2020, the company had $60 million
of unrestricted cash and 7 container ships held for sale in the
coming months, which should provide some net cash proceeds subject
to prices achieved. Moody's also expects ongoing free cash flow to
cover ongoing debt amortization payments other than larger balloon
payments. The company's various financing arrangements also include
a range of financial maintenance covenants, often loan-to-value
ratios, under which the company has maintained compliance.
Tanker charter rates have continued to weaken from the exceptional
peaks in the second quarter of 2020. Navios Acquisition's last
twelve months to September 2020 Moody's-adjusted debt/EBITDA was
5.7x and FFO interest cover 2.5x. Moody's currently expects metrics
for 2021 to weaken meaningfully, because of currently low tanker
charter rates, especially for large crude tankers (VLCCs), a
supply-demand balance more at risk of oversupply than other
shipping markets although dependent on the pace of oil demand
recovery and VLCC scrapping rates, and because the exceptionally
good Q2 2020 is unlikely to be repeated in 2021.
Navios Acquisition's Caa1 CFR continues to reflect (1) a diverse
and modern fleet with a mix of crude oil and product tankers; (2)
low operating costs as a result of the low average age of its fleet
and the fleet management contract signed with a related entity
controlled by the company's CEO; (3) highly leveraged capital
structure; and (4) volatile charter rates with some contracted
revenue but also significant exposure to spot rates. Moody's also
notes the close ties with Navios Holdings, a company with a
currently weak credit profile, including its 29.7% equity
ownership, management overlap and hence significant influence over
Navios Acquisition.
GOVERNANCE CONSIDERATIONS
Governance considerations include the aggressive financial policy
with regard to the maturity, liquidity and leverage profile.
OUTLOOK
The negative outlook reflects the uncertainty regarding the
refinancing as well as the weak tanker market environment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A prerequisite for an outlook stabilization or upgrade would be to
address the substantial near-term maturities and an adequate
liquidity profile. In addition, positive pressure would require a
(FFO + interest)/interest expense ratio visibly above 1.5x and
debt/EBITDA sustained below 7.0x. Conversely, a failure to address
the upcoming debt maturities, worsening tanker market conditions or
a weakening liquidity profile could result in further pressure on
the rating.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Shipping
Methodology published in December 2020.
COMPANY PROFILE
Listed Navios Maritime Acquisition Corporation ("Navios
Acquisition", "the company") is an owner and operator of tanker
vessels focusing on the transportation of petroleum products (clean
and dirty) and bulk liquid chemicals. In 2019, the company reported
revenues and adjusted EBITDA of $280 million and $132 million,
respectively.
=============
I R E L A N D
=============
ADIENT PLC: S&P Alters Outlook to Stable & Affirms 'B+' ICR
-----------------------------------------------------------
S&P Global Ratings revised its outlook on Adient PLC to stable from
negative and affirmed its 'B+' issuer credit rating.
The stable outlook incorporates S&P's expectation that Adient will
maintain EBITDA margins at about 5%-6% and will generate near
breakeven free operating cash flow (FOCF) in 2021, with a further
improvement in 2022 as restructuring costs and certain deferred tax
payments are reduced.
Adient's margins have recovered significantly in the last two
quarters, and despite further COVID-19 pandemic risks, S&P expects
credit metrics will improve in 2021 and 2022. Although sales were
down slightly in the last couple of quarters, the company's gross
margins have recovered significantly as restructuring efforts,
launch management, and commercial discipline are showing benefits.
In particular, the company has improved its troubled seating
structures and mechanism business by focusing on profitable
business and optimizing its plants to reduce cost and use its
assets more efficiently. This has reduced the cash burn from this
business which the company expects should exit 2021 as free cash
flow neutral.
S&P said, "The stable outlook incorporates our expectation that
Adient will maintain margins near current levels and will generate
near breakeven FOCF in 2021, with the ability to generate
significantly higher free cash flow in 2022 as restructuring costs
and certain deferred tax payments decline.
"We could raise our rating on Adient if the company sustains debt
to EBITDA below 4x and we expect the company will sustain FOCF to
debt above 5%. This would occur if the company improves its EBITDA
margins due to greater operating efficiency and consistent
program-launch execution, as well as a reduction of restructuring
costs longer term.
"We would also expect the SS&M segment to continue to show
improvement.
"We could lower our rating on Adient if the company's liquidity
were to worsen due to the adverse effect of ongoing negative FOCF.
This could occur, for instance, if COVID-19 restrictions were
reestablished, consumer confidence declined significantly, or
EBITDA margins started to decline due to operational missteps or a
lack of commercial discipline."
Adient is the world's largest provider of seating systems for the
global light-vehicle market, with leading market positions in the
Americas, Europe, and China. With operations in 35 countries, the
company delivers over 23 million seating systems per year and has
long-standing relationships with all of the premier automotive
manufacturers. In addition, Adient has 19 joint-venture
partnerships in China, with key suppliers to the Chinese and
foreign original equipment manufacturers.
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."
S&P's assumptions:
-- U.S. real GDP contracted 3.9% in 2020 and expands 4.2% in 2021.
European GDP contracted 6.4% in 2020 and will grow 4.4% in 2021.
Asia-Pacific GDP contracted 1.7% in 2020 and will grow 6.1% in
2021.
-- Global light-vehicle production increases 14% in 2021. As per
the latest S&P Global economic forecasts, U.S. light-vehicle sales
will recover to 16.4 million in 2021 from 14.4 million in 2020, and
increase to 16.7 million for 2022. However, S&P believes there are
increasing downside risks to its base-case, as affordability
continues to be a risk and the industry is grappling with a
shortage in supply of semiconductors, which will lead to some
supply disruption over the next couple of quarters.
-- Revenue increases 15%-16% in 2021, and increases 2%-3% in
2022;
-- EBITDA margins of about 5.5%-6% in 2021, improving to 6%-7% in
2022 as restructuring costs fall and operating efficiencies improve
margins. This includes China dividends of around $200 million; and
-- Capital expenditures of around $350 million in 2021 and 2022.
This leads to credit metrics over the next two years of:
-- Adjusted debt to EBITDA of just below 4x in 2021 and below 3.5x
in 2022.
-- FOCF to debt near breakeven in 2021 and over 5% in 2022.
-- S&P believes Adient has adequate liquidity. In our view, the
company's future free cash flow generation and availability under
its $1.25 billion revolving credit facility should be sufficient to
cover its needs for the next several months, even if EBITDA
declines unexpectedly.
S&P's expectations and assumptions include:
-- Liquidity sources, including cash and facility availability,
will exceed uses by 1.2x or more over the next 12 months;
-- Net sources will remain positive, even if EBITDA declines more
than 15%; and
-- Well-established and solid relationships with banks.
Principal liquidity sources:
-- Pro forma cash and equivalents totaling about $1.82 billion as
of Dec. 31, 2020.
-- No amount outstanding under the company's $1.25 billion ABL
revolving credit facility, which is subject to a borrowing base, as
of Dec. 31, 2020.
-- Adjusted funds from operations of over $400 million in 2021.
Principal liquidity uses:
-- Capital spending of around $350 million in 2021 and 2022.
-- Increase in working capital as volumes recover.
-- VAT payments, which will be elevated in 2021.
BARINGS EURO 2016-1: Moody's Hikes Rating on Class F-R Notes to B1
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Barings Euro CLO 2016-1 Designated Activity
Company:
EUR38,500,000 Class B-1-R Senior Secured Floating Rate Notes due
2030, Upgraded to Aa1 (sf); previously on Dec 8, 2020 Aa2 (sf)
Placed Under Review for Possible Upgrade
EUR7,300,000 Class B-2-R Senior Secured Fixed Rate Notes due 2030,
Upgraded to Aa1 (sf); previously on Dec 8, 2020 Aa2 (sf) Placed
Under Review for Possible Upgrade
EUR22,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aa3 (sf); previously on Dec 8, 2020 A2
(sf) Placed Under Review for Possible Upgrade
EUR20,500,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Baa1 (sf); previously on Jul 27, 2018
Definitive Rating Assigned Baa2 (sf)
EUR12,800,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to B1 (sf); previously on Jul 27, 2018
Definitive Rating Assigned B2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR228,000,000 (Current Outstanding amount EUR 190,410,597) Class
A-1-R Senior Secured Floating Rate Notes due 2030, Affirmed Aaa
(sf); previously on Jul 27, 2018 Definitive Rating Assigned Aaa
(sf)
EUR12,000,000 (Current Outstanding amount EUR 10,021,610) Class
A-2-R Senior Secured Fixed Rate Notes due 2030, Affirmed Aaa (sf);
previously on Jul 27, 2018 Definitive Rating Assigned Aaa (sf)
EUR27,300,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed Ba2 (sf); previously on Jul 27, 2018
Definitive Rating Assigned Ba2 (sf)
Barings Euro CLO 2016-1 Designated Activity Company, issued in July
2016 and reset in July 2018, is a collateralised loan obligation
(CLO) backed by a portfolio of mostly high-yield senior secured
European loans. The portfolio is managed by Barings (U.K.) Limited.
The transaction's reinvestment period ended in July 2020.
The actions conclude the rating review on the Class B-1-R, B-2-R
and C-R 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",
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_437186.
RATINGS RATIONALE
The rating upgrades on the Class B-1-R, B-2-R, C-R, D-R and F-R
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
3379 after applying the revised assumptions as compared to the
trustee reported WARF of 3832 as of January 2021 [1].
The actions also reflect the deleveraging of the Classes A-1-R and
A-2-R notes following amortisation of the underlying portfolio
since the end of the reinvestment period in July 2020.
The Class A-1-R and A-2-R notes have paid down by approximately EUR
39.6million (16.5%) in the last 6 months. As a result of the
deleveraging, over-collateralisation (OC) has increased for the
senior classes in the capital structure. According to the trustee
report dated January 2021 [1] the Class A/B and Class C ratios are
reported at 137.3% and 127.1% compared to July 2020 [2] levels of
134.3%, and 124.7%, respectively. Moody's notes that the January
2021 principal payments are not reflected in the above reported OC
ratios.
The rating affirmations on the Class A-1-R, A-2-R and E-R 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 351.6m
Defaulted Securities: EUR 9.9m
Diversity Score: 52
Weighted Average Rating Factor (WARF): 3379
Weighted Average Life (WAL): 4.3 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.82%
Weighted Average Coupon (WAC): 5.36%
Weighted Average Recovery Rate (WARR): 44.64%
Par haircut in OC tests and interest diversion test: 2.00%
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, 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
collateral manager or be delayed by an increase in loan
amend-and-extend restructurings. Fast amortisation would usually
benefit the ratings of the notes beginning with the notes having
the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries higher
than Moody's expectations would have a positive impact on the
notes' ratings.
NEWHAVEN CLO: Moody's Affirms B2 Rating on Class F-R Notes
----------------------------------------------------------
Moody's Investors Service has upgraded the rating on the following
Notes issued by Newhaven CLO Designated Activity Company:
EUR35,000,000 Class B-R Senior Secured Floating Rate Notes due
2030, Upgraded to Aa1 (sf); previously on Dec 8, 2020 Aa2 (sf)
Placed Under Review for Possible Upgrade
Moody's has also confirmed the rating on the following notes:
EUR23,500,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030, Confirmed at A2 (sf); previously on Dec 8, 2020 A2
(sf) Placed Under Review for Possible Upgrade
Moody's has also affirmed the ratings on the following notes:
EUR205,900,000 Class A-1R Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Sep 8, 2020 Affirmed Aaa
(sf)
EUR10,000,000 Class A-2R Senior Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on Sep 8, 2020 Affirmed Aaa (sf)
EUR18,600,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed Baa2 (sf); previously on Sep 8, 2020
Confirmed at Baa2 (sf)
EUR20,400,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed Ba2 (sf); previously on Sep 8, 2020
Confirmed at Ba2 (sf)
EUR10,000,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed B2 (sf); previously on Sep 8, 2020
Confirmed at B2 (sf)
Newhaven CLO Designated Activity Company, issued in November 2014
and refinanced in February 2017, is a collateralised loan
obligation (CLO) backed by a portfolio of mostly high-yield senior
secured European loans. The portfolio is managed by Bain Capital
Credit, Ltd. The transaction's reinvestment period will end in
February 2021.
The action concludes the rating review on the Classes B-R and C-R
Notes initiated on December 8, 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.",
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_437186.
RATINGS RATIONALE
The rating upgrade on the Class B-R 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 2996 after applying the
revised assumptions as compared to the trustee reported WARF of
3471 as of August 04, 2020 [1].
The rating confirmation on the Class C-R Notes and rating
affirmations on the Classes A-1R, A-2R, D-R, E-R and F-R Notes
reflect 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 342.0m
Defaulted Securities: EUR 3.5m
Diversity Score: 51
Weighted Average Rating Factor (WARF): 2996
Weighted Average Life (WAL): 4.4 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.7%
Weighted Average Coupon (WAC): 4.3%
Weighted Average Recovery Rate (WARR): 45.1%
Par haircut in OC tests and interest diversion test: 1.0%
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 over the last 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, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2020. Moody's concluded the
ratings of the Notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
Notes, in light of uncertainty about credit conditions in the
general economy. In particular, the length and severity of the
economic and credit shock precipitated by the global coronavirus
pandemic will have a significant impact on the performance of the
securities. CLO Notes' performance may also be impacted either
positively or negatively by: (1) the manager's investment strategy
and behaviour; and (2) divergence in the legal interpretation of
CDO documentation by different transactional parties because of
embedded ambiguities.
Additional uncertainty about performance is due to the following:
Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings. The effect on the ratings of
extending the portfolio's weighted average life can be positive or
negative depending on the notes' seniority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries higher
than Moody's expectations would have a positive impact on the
Notes' ratings.
PALMER SQUARE 2021-1: S&P Assigns Prelim. B- Rating on F Notes
--------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Palmer Square European CLO 2021-1 DAC's class A, B, C, D, E, and F
notes. At closing, the issuer will also issue unrated subordinated
notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The portfolio's reinvestment period will end approximately 4.1
years after closing, and the portfolio's weighted-average life test
will be approximately 8.5 years after closing.
The preliminary ratings assigned to the notes reflect S&P's
assessment of:
-- The diversified collateral pool, which primarily comprises
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 (OC).
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
Current
S&P Global Ratings weighted-average rating factor 2597.05
Default rate dispersion 678.07
Weighted-average life (years) 5.25
Obligor diversity measure 117.97
Industry diversity measure 21.45
Regional diversity measure 1.56
Transaction Key Metrics
Current
Total par amount (mil. EUR) 350.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 141
Portfolio weighted-average rating
derived from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 0.29
'AAA' covenanted weighted-average recovery (%) 37.97
Covenanted weighted-average spread (%) 3.40
Reference weighted-average coupon (%) 3.75
Rating rationale
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
primarily comprise broadly syndicated speculative-grade senior
secured term loans and senior secured bonds. Therefore, we
conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR350 million par amount,
the covenanted weighted-average spread of 3.40%, the reference
weighted-average coupon of 3.75%, and the covenanted
weighted-average recovery rates for all rated notes. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"Our cash flow analysis also considers scenarios where the
underlying pool comprises 100% of floating-rate assets (i.e., the
fixed-rate bucket is 0%) and where the fixed-rate bucket is fully
utilized (in this case, 10%)."
Palmer Square Europe Capital Management will manage the
transaction. An experienced manager of U.S. CLOs, this will be its
first reinvesting transaction in Europe. Following the application
of our structured finance operational risk criteria, S&P considers
the transaction's exposure to be limited at the assigned
preliminary ratings.
S&P said, "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.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"At closing, we expect that the transaction's legal structure will
be bankruptcy remote, in line with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B to F notes could withstand
stresses commensurate with higher rating levels than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on the notes.
"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
the class A, B, C, D, E, and F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
to five of the 10 hypothetical scenarios we looked at in our recent
publication.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
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."
Palmer Square European CLO 2021-1 is a European cash flow CLO
securitization of a revolving pool, comprising euro-denominated
senior secured loans and bonds issued by speculative-grade
borrowers. Palmer Square Europe Capital Management LLC will manage
the transaction.
Ratings List
Class Preliminary Preliminary Sub (%) Interest
rating amount (mil. EUR) rate*
A AAA (sf) 217.00 38.00 Three/six-month
EURIBOR plus 0.87%
B AA (sf) 35.00 28.00 Three/six-month
EURIBOR plus 1.35%
C A (sf) 23.80 21.20 Three/six-month
EURIBOR plus 2.20%
D BBB (sf) 23.50 14.49 Three/six-month
EURIBOR plus 3.15%
E BB (sf) 15.70 10.00 Three/six-month
EURIBOR plus 5.71%
F B- (sf) 10.50 7.00 Three/six-month
EURIBOR plus 7.79%
Sub NR 29.60 N/A N/A
* The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
===================
L U X E M B O U R G
===================
NORTHPOLE NEWCO: S&P Alters Outlook to Negative, Affirms 'B' ICR
----------------------------------------------------------------
S&P Global Ratings revised its outlook on cyber security software
provider Northpole Newco S.a.r.l. (NSO) to negative from stable and
affirmed its 'B' long-term issuer credit and issue ratings on the
company.
S&P said, "The negative outlook indicates that that we could lower
our ratings by one notch if in 2021, NSO's S&P Global
Ratings-adjusted leverage is likely to remain materially above 5x
on a constant-currency basis, its reported free operating cash flow
(FOCF) below $30 million, or its EBITDA cash interest coverage
materially below 2.5x."
The tough lockdown in Israel is likely to lead to a steep decline
in new license sales in the first quarter of 2021.
S&P said, "We assume that NSO's new license sales in the first
quarter might fall by more than 25%-30% year on year, reflecting
restrictions on its ability to travel abroad to fulfil existing
bookings and secure new bookings. Under Israel's full lockdown,
which has been in place since Jan. 8, 2021, travel abroad has been
prohibited. However, we understand that NSO is requesting
exceptional approvals, which, if granted, will likely mitigate the
extent of the revenue decline."
NSO has the flexibility to cure a potential covenant breach.
S&P said, "We understand that NSO will spend more on research and
development (R&D) in the first quarter of 2021 than in the same
period in 2020 as it is in the process of launching new products.
Although cost savings from reduced travel partly offset these R&D
costs, there is a risk that the year-on-year decline in EBITDA
might exceed 20%. We therefore anticipate tight covenant headroom
in the first quarter. Headroom might be as low as about 3%-4%,
possibly even lower. However, the risk of a potential covenant
breach triggering a default is alleviated by NSO's ability to
convert a $14 million shareholder loan that it received in 2020
into equity to provide an EBITDA equity cure if needed.
"We view a substantial improvement in NSO's credit metrics in 2021
as essential to maintain the current ratings.
"NSO's credit metrics were weaker than we expected in 2020. We
estimate that NSO's adjusted gross debt to EBITDA increased to
about 5.7x-5.8x in 2020 from 4.5x-4.7x in our previous base case.
This was partly due to higher spending than we expected on R&D,
including capitalized R&D, and nonrecurring costs, including
retention bonuses and costs relating to a lawsuit by Facebook.
These costs, in turn, reflected an increase in the value of NSO's
shekel-denominated costs of about $7 million-$8 million due to a
weaker U.S. dollar. NSO's gross debt increased due to the full
drawdown of its $30 million revolving credit facility (RCF) and the
issuance of a $14 million shareholder loan that we treat as debt.
We also estimate that a weaker U.S. dollar in 2020 will have
increased the value of NSO's euro-denominated debt by about $17
million-$18 million, increasing leverage by about 0.2x. We estimate
that NSO's reported FOCF dropped to less than $20 million in 2020,
below the level of its annual debt amortization of about $26
million, compared with about $40 million of reported FOCF in our
previous base case. This was due to higher capitalized R&D expenses
than we expected and an unexpected working capital outflow of about
$10 million due to delays in payment collection from two
customers.
"We forecast that NSO will recover strongly after the first quarter
of 2021, leading to a reduction in its leverage.
"We forecast adjusted debt to EBITDA of about 5.3x-5.4x in 2021, or
about 5.1x-5.2x excluding the impact of a weaker U.S. dollar on
NSO's euro-denominated debt. This assumes about 6%-8% of annual
revenue growth, supported by strong demand for several new
products, as well as delayed bookings from 2020. Revenue growth
will be partly offset by a slight dilution of the adjusted EBITDA
margin to about 34%-35% in 2021 from about 35%-36% in 2020 due to
increased spending on R&D, including capitalized R&D, and on sales
and marketing. We also anticipate that NSO's reported FOCF after
leases will increase to about $30 million, partly thanks to our
assumption of an approximately neutral working capital balance.
"Nonetheless, there is material downside risk to our base case.
"If the revenue decline in the first quarter is sharper than we
expect and the subsequent recovery in the remainder of the year is
weaker than we expect, NSO's credit metrics in 2021 may no longer
be consistent with the current ratings. We see particular downside
risk to the extent of the recovery in the second quarter, as it
depends on the extent to which global travel restrictions are
eased."
The Facebook lawsuit is not an imminent risk for the ratings, but
could be relevant for NSO's medium- to long-term prospects.
S&P said, "The ongoing Facebook lawsuit reflects NSO's
above-average social and reputational risks. We capture these risks
in our weak business risk assessment, as well as in the overall
ratings. While we do not expect an imminent resolution of the
Facebook lawsuit, an unfavorable ruling or the forced disclosure of
sensitive information might restrict NSO's ability to grow in the
U.S. market and have broader repercussions for its global
operations over the medium-to-long term. We understand that NSO is
arguing for sovereign immunity from the lawsuit as it sells its
tools to foreign governments to fight terrorism and crime. While
there is a risk of potential misuse of its tools, we understand
that NSO can shut down systems after it verifies misuse, and it
puts great effort into minimizing this risk with a vetting system
when considering a new contract."
Environmental, social, and governance (ESG) factors relevant to the
rating action.
-- Health and safety. Tough COVID-19 containment measures imposed
in Israel restrict the company's ability to travel abroad to fulfil
and secure new license sales.
S&P said, "The negative outlook reflects the downside risk to our
forecast that NSO will achieve high-single-digit revenue growth in
2021 and grow its free cash flow to at least cover ongoing debt
amortization. We will likely lower the ratings over the next six
months if the first-half performance is weaker than we expect,
meaning that NSO is unlikely to restore its credit metrics in
2021."
S&P could lower the ratings if:
-- NSO's adjusted debt to EBITDA remains or is likely to remain
materially above 5x in 2021 on a constant-currency basis, excluding
the impact of a weaker U.S. dollar on its euro-denominated debt,
which we estimate increased its leverage by about 0.2x in 2020;
-- NSO's reported FOCF remains or is likely to remain below $30
million, which would mean tight or negative headroom on its annual
debt amortization of about $26 million; or
-- NSO's EBITDA cash interest coverage remains materially below
2.5x.
-- These outcomes could be the result of a sharper fall in new
license sales than S&P expects in the first quarter of 2021,
followed by a slower recovery than S&P expects in the following
quarters.
S&P could revise the outlook to stable if:
-- NSO's adjusted debt to EBITDA is about 5x in 2021 on a
constant-currency basis;
-- NSO's reported FOCF rises above $30 million; and
-- NSO's EBITDA cash interest coverage improves to around 2.5x.
S&P expects this to be the case if NSO contains the extent of its
revenue decline in the first quarter and recovers strongly in the
remainder of the year.
=====================
N E T H E R L A N D S
=====================
ECOBANK NIGERIA: Fitch Gives B-(EXP) Rating on USD Unsec. Notes
---------------------------------------------------------------
Fitch Ratings has assigned Ecobank Nigeria Limited's (ENG;
B-/Stable/b-) forthcoming US dollar-denominated senior unsecured
notes an expected 'B-(EXP)' rating with a Recovery Rating of 'RR4'.
The notes are being issued by EBN Finance Company BV a special
purpose vehicle of ENG incorporated in the Netherlands. ENG's other
ratings are unaffected by today's rating action.
The proceeds of the senior participation notes will be used by ENG
for general-banking purposes, including providing the bank with
stable medium-term funding.
The assignment of final rating is contingent on the receipt of
final documents conforming to information already received.
KEY RATING DRIVERS
The rating of the notes is solely driven by ENG's Long-Term Issuer
Default Rating (IDR) of 'B-'. This reflects Fitch's view that
default of these senior unsecured obligations would reflect a
default of ENG in accordance with Fitch's rating definitions and
the transaction documents described in the prospectus.
Fitch has given no consideration to the underlying transaction
structure as it believes that the issuer's ability to satisfy
payments due on the notes will ultimately depend on ENG satisfying
its senior unsecured payment obligations to the issuer under the
transaction documents.
The Recovery Rating of 'RR4' reflects average recovery prospects in
the event of a default based on country-specific factors.
The Long-Term IDR of 'B-' of ENG is driven by its intrinsic credit
strength as expressed by its Viability Rating (VR) of 'b-'. The VR
reflects the constraint of Nigeria's challenging operating
environment, the bank's very high impaired loan ratio, weak
profitability and modest core capital buffers. This is balanced by
company profile strengths as well as a solid funding profile and
good foreign-currency liquidity, supported by ordinary support from
Ecobank Group as part of its inter-affiliate placement programme
(IAP).
The rating of the notes is directly linked to ENG's IDR.
Date of the relevant rating committee: 28 January 2021
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The rating of the notes would be upgraded if ENG's Long-Term
IDR is upgraded, which is not Fitch’s base case given the
Stable Outlook.
-- Upside to ENG's IDR is limited at present given the bank's
high impaired loan ratio and the ensuing pressure on other
financial factors. Upside is contingent on a material
improvement in the bank's operating income and profitability,
with performance metrics more akin to that of larger banks in
Nigeria. This will depend on volume growth and a sustained
improvement in asset quality.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The rating of the notes would be downgraded if ENG's Long-Term
IDR is downgraded, which is not Fitch’s base case given the
Stable Outlook. The IDR could be downgraded in case of a sharp
increase in the net impaired loans/Fitch core capital (FCC)
ratio, closer to its recent peak of around 50%, or a drop in
the FCC ratio to below 10%.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of 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.
PZEM NV: S&P Withdraws 'BB' LongTerm Issuer Credit Rating
---------------------------------------------------------
S&P Global Ratings said it withdrew its 'BB' long-term issuer
credit rating on PZEM N.V. at the issuer's request. At the time of
the withdrawal, the outlook was stable.
=============
R O M A N I A
=============
GARANTI BANK: Fitch Affirms 'BB-' LongTerm IDR, Outlook Negative
----------------------------------------------------------------
Fitch Ratings has affirmed Garanti Bank S.A.'s (GBR) Long-Term
Issuer Default Rating (IDR) at 'BB-' with a Negative Outlook and
Viability Rating (VR) at 'bb-'.
KEY RATING DRIVERS
IDRS AND VR
GBR's IDRs are driven by its standalone profile, as reflected in
its VR. The VR reflects GBR's small size and narrow franchise in
Romania, reasonable profitability and asset quality, adequate
capitalisation and good funding and liquidity. In Fitch's view,
GBR's risk profile is sufficiently independent from its 100%
shareholder, Turkiye Garanti Bankasi A.S. (Garanti BBVA;
B+/Negative), and internal and regulatory restrictions on capital
and funding transfers are sufficiently strict to allow GBR to be
rated above Garanti BBVA.
The Negative Outlook on GBR's IDR reflects the downside risks to
its credit profile as a result of the Covid-19 pandemic. The
uncertainty over the depth of the damage to the Romanian economy
drives Fitch's negative outlooks on the operating environment,
asset quality and earnings and profitability scores. In Fitch's
view, a potential downgrade of the operating environment assessment
would pose further downside risks to the VR. Fitch expects the
Romanian economy to contract by 5.4% in 2020 and then gradually
recover, with real GDP growing by 3.4% in 2021. Downside risks to
Fitch's forecast remain as the resurgence of the pandemic increases
the risk of further lockdowns.
GBR provides a universal banking offering to retail, SME and
corporate customers with fairly limited pricing power given its
position as a small player in the sector. The bank plans moderate
loan growth in 2021, primarily to SMEs, given its fairly cautious
growth appetite since 2018 as the bank has focused on reducing
risks and improving its liquidity profile. The bank continues to
target more granular deposits by strengthening its retail banking
franchise.
GBR reports reasonable asset quality metrics (non-performing loans
ratio of 4.0% at end-1H20; 100% coverage of Stage 3 loans by total
loan loss allowances), which compare well with the sector average
(4.4%). However, the weaker economic environment has increased
downside risks and Fitch expects impaired loans to rise moderately
in the short term given the bank's exposure to SMEs and unsecured
retail borrowers. The bank's direct exposure to Turkey or Turkish
entities operating in Romania represents a small share of the
bank's assets. However, Fitch's assessment of the bank's largest
exposures indicates GBR's exposure to borrowers linked to Turkish
groups is larger, but still moderate. Nevertheless, these borrowers
(typically large, diversified conglomerates) have performed well to
date despite the volatile Turkish economy.
Fitch considers GBR's profitability metrics reasonable, with
operating profit-to-risk-weighted assets (RWAs) at 2.1% in 1H20
(2019: 2.0%). However, Fitch expects asset quality weakening to put
pressure on profitability metrics in the short term as loan
impairment charges increase. Fitch believes loan impairment charges
will stay elevated in 2021 as asset quality risks materialise, but
could be supported by recovery prospects as the economy recovers.
The bank's pre-impairment operating profitability provides a modest
buffer to absorb credit losses through the income statement. GBR's
cost efficiency (cost/assets: 2.7% in 9M20) remains weak due to
limited economies of scale.
Fitch considers GBR's high capital ratios as adequate for its risk
profile in light of the bank's small size, asset quality risks and
weakening internal capital generation. The bank's common equity
Tier 1 ratio increased to 22.5% at end-1H20, from 19.8% at
end-2019, and compares well with the sector average (20.6%). The
improvement reflects internal capital generation but also lower
risk-weighting on foreign currency government exposures and SME
lending (following the easing of capital requirement regulation).
Capital ratios are comfortably above regulatory requirements.
GBR is largely deposit-funded (89% of total funding at end-1H20),
with customer deposits split 60%/40% between corporate and retail,
and its loans-to-deposits ratio (end-1H20: 92%) is broadly in line
with peers. GBR reduced larger and more expensive deposits in 1H20
to improve deposit stability, and this resulted in total deposits
falling by 9%. GBR's wholesale funding is limited and comprises
mainly repos with the central bank and borrowings from
international financial institutions. Available liquidity is
adequate with cash (including central bank reserves), bank
placements and unpledged securities representing 28% of total
assets and 38% of customer deposits at end-1H20.
Support Rating
GBR's Support Rating (SR) is driven by potential institutional
support from Banco Bilbao Vizcaya Argentaria (BBVA; BBB+/Stable),
Garanti BBVA's majority and controlling shareholder, which Fitch
views as the ultimate source of support. GBR's SR indicates a
limited probability of institutional support from BBVA due to
Fitch's view of the low strategic importance of the Romanian
operations for the BBVA group.
In addition, Fitch would not expect BBVA to support GBR over and
above the support it would extend to Garanti BBVA. Hence, Garanti
BBVA 's 'B+' IDR, which incorporates Fitch's view of government
intervention risk in the Turkish banking sector, constrains
Fitch’s assessment of support available to GBR at the 'B+' level.
This corresponds to a SR of '4'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- GBR's IDRs are mainly sensitive to changes in the VR. The VR
could be downgraded due to a marked deterioration in the
operating environment or if economic recovery was not as swift
as currently expected by Fitch. In addition, a greater than
expected deterioration of GBR's asset quality (in particular
if the impaired loans ratio rises durably above 5%) and a
protracted weakening in operating profitability (in particular
if the operating profit/RWA ratio fell durably below 1.25%)
would likely lead to a downgrade of the VR.
-- Potential contagion risk means that GBR's VR and IDRs could be
sensitive to a multi-notch downgrade of Garanti BBVA's Long
Term Foreign-Currency IDR. Contagion risk usually limits the
potential uplift of a subsidiary's VR from the parent's Long
Term IDR to a maximum of three notches under Fitch’s
criteria.
-- GBR's SR is sensitive to a multi-notch downgrade of Garanti
BBVA's Long-Term Foreign-Currency IDR or to a weakening in our
assessment of GBR's strategic importance to Garanti BBVA.
Although unlikely at present, a change in ownership of the
bank to a lower rated entity or to an entity from which Fitch
cannot assess the likelihood of support could lead to a
downgrade of SR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade is unlikely in the short term given downside risks
to GBR's credit profile. However, in the event GBR is able to
withstand rating pressure arising from the pandemic, a
sustained improvement in the bank's franchise together with
the maintenance of reasonable asset quality and profitability
metrics could lead to upside for the VR.
-- GBR's SR is sensitive to changes in Garanti BBVA's Long-Term
Foreign-Currency IDR, or to an increase in GBR's strategic
importance for BBVA, which Fitch views as unlikely. GBR's SR
could be upgraded to '3' if Garanti BBVA's Long-Term Foreign
Currency IDR was upgraded to 'BB-' and Fitch’s assessment of
Garanti BBVA's propensity to provide support to GBR did not
change. In the unlikely case of a multi-notch upgrade of
Garanti BBVA's Long-Term Foreign-Currency IDR, or increased
importance of GBR's strategic importance for BBVA, Fitch could
upgrade GBR's Long-Term IDR to reflect the flow of
institutional support.
-- Although unlikely at present, a change in ownership of the
bank, in particular to a highly rated parent with a strong
support propensity, could affect support considerations and
lead to changes in GBR's IDRs and SR.
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
GBR's SR is driven by potential support from BBVA and constrained
by Garanti BBVA's Long-Term Foreign-Currency IDR.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
=========
S P A I N
=========
ABANCA CORP: S&P Alters Outlook to Stable & Affirms 'BB+/B' ICRs
----------------------------------------------------------------
S&P Global Ratings revised the outlook on Spain-based Abanca
Corporacion Bancaria S.A. (Abanca) to stable from negative. S&P
affirmed its 'BB+/B' long- and short-term issuer credit ratings on
the bank.
S&P said, "The outlook revision reflects our view that Abanca's
recent EUR375 million AT1 issuance, as well as its expected
decision to abandon plans to acquire Portugal-based Eurobic will
strengthen its capitalization, putting it in a better position to
withstand any further deterioration in economic conditions. At the
same time, we think Abanca's risk profile is well placed to deal
with expected asset quality erosion."
Abanca's recent issuance of EUR375 million of additional Tier 1
notes (AT1), as well as its likely decision to abandon plans to
acquire Banco BIC Portugues S.A. (Eurobic) has strengthened the
bank's capital position.
The AT1 issuance, completed in January 2021, caused Abanca's
risk—adjusted capital (RAC) ratio to increase by about 80 basis
points (bps), and fulfills the bank's AT1 regulatory requirements.
S&P said, "We estimate the Eurobic acquisition, if it had gone
ahead, would have caused the RAC ratio to fall by 90bps. While we
believe Abanca's acquisition appetite remains intact, we do not
incorporate any potential acquisitions into our forecasts. Thus, we
now forecast our RAC ratio will stand about 8.8% by end-2021
compared with our previous expectation of about 7.9%. We think that
it could mildly improve to about 9.0% by end-2022 due to modest
retained earnings. Therefore, Abanca's capitalization would have a
comfortable buffer to absorb a harsher economic shock than we
currently envisage. We estimate that increasing economic risks in
Spain would cause the RAC ratio to drop by 90bps, leaving it
comfortably above 7%, which is in line with the current rating."
Abanca faces the current economic downturn with a healthier risk
profile than most of its closest peers, having made good progress
in the clean-up of its legacy problematic assets from the previous
downturn. As of end-2020, the bank reported nonperforming assets
(NPAs) of 3.8% of its gross loans, down 17% from the previous year
in absolute terms. S&P said, "While we haven't yet observed signs
of asset quality erosion, we expect to see them throughout this
year and into 2022. We estimate that Abanca's NPAs could increase
by 2.0-2.5 percentage points. Consequently, we believe credit
provisions will remain elevated at 60-45 bps in 2021 and 2022, but
at a level that the bank could still cover with pre-provision
income."
S&P said, "We expect Abanca's bottom-line profitability will remain
modest this year and next, and anticipate modest efficiency
improvements. Both factors will thus continue weighting negatively
on the ratings. However, we expect Abanca will remain focused on
further extracting commercial value from its recent acquisitions,
starting to generate insurance revenue through its 50-50 joint
venture with Credit Agricole Assurances and continuing with its
digital transformation. We anticipate a high cost-to-income ratio
of 65%-70%, since a flat yield curve and more moderate lending
growth will weigh on net interest income.
"The stable outlook on Abanca indicates that, while we expect some
asset quality deterioration and elevated provisions in the next
12-18 months, we think the bank's solid capitalization is
sufficient to cope with a harsher economic scenario than we
envisage. We also expect Abanca will focus on further extracting
commercial value from its various recent acquisitions, while our
expectation of an ultra-low interest rate environment and elevated
credit losses will pose challenges to Abanca's underlying
profitability and efficiency, which we expect will remain
comparatively weaker than those of highly rated peers.
"We could lower the ratings if Abanca's asset quality deteriorates
much more than what we expect; if it engages in additional
acquisitions that weaken its capitalization, increase its risk
profile, or pose managerial challenges; or if it increases its risk
appetite in an attempt to build up business more rapidly.
"An upgrade is unlikely in the current environment. However, we
could consider it in the medium term if Abanca successfully
extracts business value from its recent acquisitions, enhancing its
efficiency and underlying profitability to levels closer to those
of its higher rated domestic peers. At the same time, Abanca would
have to demonstrate that the downturn did not significantly impair
its risk profile or capitalization."
===========================
U N I T E D K I N G D O M
===========================
CASTELL PLC 2018-1: Moody's Hikes GBP11.6MM Class F Notes to Ba1
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of eight notes
in Castell 2018-1 PLC and Castell 2019-1 PLC. The rating action
reflects the increased levels of credit enhancement for the
affected notes and better than expected collateral performance.
Moody's affirmed the ratings of the notes that had sufficient
credit enhancement to maintain their current ratings.
Issuer: Castell 2018-1 PLC
GBP244.9M Class A Notes, Affirmed Aaa (sf); previously on Nov 1,
2018 Definitive Rating Assigned Aaa (sf)
GBP22.6M Class B Notes, Upgraded to Aaa (sf); previously on Nov 1,
2018 Definitive Rating Assigned Aa1 (sf)
GBP20.9M Class C Notes, Upgraded to Aaa (sf); previously on Nov 1,
2018 Definitive Rating Assigned Aa3 (sf)
GBP14.4M Class D Notes, Upgraded to Aa1 (sf); previously on Nov 1,
2018 Definitive Rating Assigned Baa1 (sf)
GBP10.6M Class E Notes, Upgraded to A1 (sf); previously on Nov 1,
2018 Definitive Rating Assigned Ba2 (sf)
GBP11.6M Class F Notes, Upgraded to Ba1 (sf); previously on Nov 1,
2018 Definitive Rating Assigned Caa2 (sf)
Issuer: Castell 2019-1 PLC
GBP196.6M Class A Notes, Affirmed Aaa (sf); previously on Sep 19,
2019 Definitive Rating Assigned Aaa (sf)
GBP19.7M Class B Notes, Upgraded to Aaa (sf); previously on Sep
19, 2019 Definitive Rating Assigned Aa1 (sf)
GBP15.8M Class C Notes, Upgraded to Aa3 (sf); previously on Sep
19, 2019 Definitive Rating Assigned A1 (sf)
GBP6.6M Class D Notes, Upgraded to Baa1 (sf); previously on Sep
19, 2019 Definitive Rating Assigned Baa2 (sf)
GBP5.3M Class E Notes, Affirmed Ba1 (sf); previously on Sep 19,
2019 Definitive Rating Assigned Ba1 (sf)
GBP5.9M Class F Notes, Affirmed B2 (sf); previously on Sep 19,
2019 Definitive Rating Assigned B2 (sf)
RATINGS RATIONALE
The rating action is prompted by deal deleveraging resulting in an
increase in credit enhancement for the affected tranches, as well
as the decreased key collateral assumption, namely the portfolio
Expected Loss (EL) assumption due to better than expected
collateral performance.
In addition, Moody's incorporated enhancements in its cash flow
modeling approach that allow greater refinement in assessing
certain structural features, such as the support provided by the
liquidity reserve in the transaction.
Increase in Available Credit Enhancement
Sequential amortization and fully funded reserve funds led to the
increase in the credit enhancement available in both transactions.
The credit enhancement for Classes B, C, D, E and F in Castell
2018-1 PLC increased to 44.8%, 33.7%, 26.1%, 20.4% and 14.3%, from
24.1%, 18.0%, 13.8%, 10.7% and 7.3% respectively since closing.
The credit enhancement for Classes B, C, and D in Castell 2019-1
PLC increased to 26.5%, 18.7%, and 15.5% from 20.0%, 14.0% and
11.5% respectively since closing.
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.
The performance of both transactions have continued to be stable
since closing. The 90 days plus arrears in Castell 2018-1 PLC and
Castell 2019-1 PLC are currently standing at 2.0% and 0.8% of
current pool balance respectively. Cumulative losses in Castell
2018-1 PLC and Castell 2019-1 PLC currently stand at 0.4% and 0.1%
of original pool respectively.
Moody's decreased the expected loss assumption in Castell 2018-1
PLC to 4.5% as a percentage of original pool balance from 6.0% due
to the stable performance and maintained the expected loss
assumption in Castell 2019-1 PLC at 6%.
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 maintained the MILAN CE
assumptions at 23% and 21% for Castell 2018-1 PLC and Castell
2019-1 PLC respectively.
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.
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; (iii) improvements in the credit quality of the
transaction counterparties; and (iv) 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.
CONCORDE MIDCO: S&P Assigns Preliminary 'B-' ICR, Outlook Stable
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B-' long-term issuer
credit rating to Concorde Midco Ltd. and its final 'B-' rating to
Concorde Lux Sarl. S&P also assigned a 'B-' issue rating to the
proposed EUR515 million first-lien loans to be issued by Concorde
Lux Sarl.
The stable outlook indicates that revenue is forecast to dip 1%-3%
in the financial year ending June 30, 2021, before reverting to
growth of 1%-3% in FY2022. Cost-saving initiatives are expected to
boost S&P Global Ratings-adjusted EBITDA margins, enabling adjusted
debt to EBITDA to fall below 8x within the next two years.
FP's acquisition of CDKI is being funded by a combination of debt
and equity, giving it a highly leveraged capital structure.
Adjusted debt to EBITDA is expected to spike to above 10x in FY2021
and revert to just below 8x in FY2022--this includes the
exceptionally high restructuring costs and considers capitalized
development costs as expenses. Excluding the restructuring costs,
debt to EBITDA would be above 7.5x in FY2021 and below 7x in
FY2022.
FP plans to issue the following instruments to fund the
acquisition:
-- A senior secured first-lien loan of EUR515 million;
-- A senior secured second-lien loan of GBP125 million; and
-- An equity contribution of EUR570 million, in the form of common
equity.
The resulting heavy interest charges will weigh on the EBITDA
interest coverage and free cash flow generation. Given that the
second-lien loan is being privately placed and has a relatively
high margin, S&P expects CDKI's EBITDA interest coverage ratio to
remain below 3x for 2021 and 2022.
A highly leveraged capital structure, combined with relatively
modest free cash flow (FCF) generation, constrains our rating on
CDKI. S&P said, "We calculate adjusted FCF as operating cash flow
less capital expenditure (capex), cash interest, cash taxes, and
exceptional costs. As such, we expect free operating cash flow
(FOCF) to debt to reach 1%-3% in Even excluding the high
restructuring costs over the next couple of years, adjusted FCF to
debt is expected to remain below 5% in FY2022.2021 and 2022."
CDKI targets a niche end market, with an estimated size of $870
million as of FY2020. It holds leading positions in dealership
management systems (DMS) market in key geographies such as the
U.K., Finland, Norway, South Africa, The Netherlands, Italy, and
the Middle East. In some geographies--for example, the U.K.,
Denmark, and Finland, which together account for about 40% of total
revenue--CDKI has a market share at or above 50%. DMS solutions are
vertically integrated enterprise resource planning (ERP) and
customer relationship management (CRM) solutions focused on the
automotive retail industry. Given the small size of the end market,
the high cost of developing a DMS solution shields DMS vendors from
larger software providers like SAP and Oracle.
In S&P's view, CDKI's DMS solutions are inexpensive, but deeply
embedded in the operations of automotive dealers, making them
mission critical. This combination makes the switching barrier
relatively high, as demonstrated by CDKI's long-term, entrenched
relationships with its customers. The average customer tenure is 13
years and it sees extremely low churn, even compared with other ERP
software provider (average customer churn for ERP is less than
3%).
Although CDKI is exposed to a volatile end market, its revenue is
not directly linked to car sales, or even to dealership service
volumes. DMS solutions and layered applications are sold as
subscriptions with a fixed fee per user and a typical contract
duration of three to five years for DMS and one to three years for
layered applications. Overall, recurring revenue represents 83% of
total revenue, which makes future earnings more predictable.
CDKI suffers from its modest scale compared with larger ERP
vendors, and its focus on the automotive retail industry. CDKI's
products are aimed at a single niche end market--the automotive
retail industry--and specifically, at franchised dealerships. This
exposes it to economic downturns in that market. If demand for cars
remains muted, dealers could close sites and we could see
consolidation in the auto dealership ecosystem. This would shrink
CDKI's user base and weaken its growth prospects. CDKI's relatively
modest scale in terms of EBITDA generation leaves it vulnerable to
underperformance, causing its debt protection metrics to
deteriorate quickly.
The increasing popularity of electric vehicles presents a long-term
risk to the business. As S&P understands, some electric vehicles
are cheaper to service than the traditional internal combustion
engines (ICE) because there are fewer mechanical parts in an
electric vehicle. As the number of electric vehicles being serviced
increases and the number of ICE vehicles reduces, autodealers could
see their earnings decline, which could disrupt long-term growth
prospects for CDKI. Given the slow increase in market penetration
of electric vehicles, this issue could surface after five years.
Growth prospects are limited in the next 12 months, but we expect
gradually improving growth opportunities thereafter. Demand for
cars is being disrupted by the pandemic, testing the
auto-dealership ecosystem, we anticipate that autodealers could
seek consolidation, causing the number of dealership sites to
shrink and chipping away at CDKI's user base over the next few
years. As the end market experiences financial stress, prices for
CDKI's solutions will remain static, with few increases, at least
for the next 12 months. As the financial stress at end market
gradually eases in 2022, upselling of layered applications will
allow CDKI to grow in line with pre-pandemic trends. Revenue from
layered applications grew by more than 20% annually from
2017-2019.
S&P said, "Sizable cost-saving initiatives should help in the
company reduce debt, although we are mindful of the execution risk.
CDK Global announced a cost-saving project for its international
operations in May 2020. The target was to reduce costs by $27
million, mainly by reducing the number of full-time equivalent
staff in China, France, and the U.K. We understand that all the
cost savings related to this project will be realized before June
2021. Additionally, the new owners, FP, aims to streamline the
business and achieve an additional $26 million in cost savings over
the next 12-18 months." FP plans to reduce costs by cutting staff
further and making use of staff in nearby, but cheaper labor
markets.
CDKI is exposed to execution risk associated with the carve out and
several of its current initiatives. First, it lacks a track record
as a stand-alone entity. The execution risk associated with the
carve-out could result in operational difficulties that could erode
the group's earnings. Second, its cost-saving initiative targets a
saving of more than 10% of the total cost base, which increases the
execution risk associated with the project. Downside risks to S&P's
base-case forecast include delayed realization of cost savings or
higher-than-expected restructuring costs.
The restructuring costs related to the cost-savings project are
already significant. S&P said, "We estimate them at $40
million-$45 million over the next 18 months, with more than 65% of
the cost incurred in FY2021. Significant restructuring expenses
over FY2021 and FY2022 would dilute adjusted EBITDA and FCF.
Although the company may incur restructuring costs beyond FY2022,
we don't expect these to be as material as the costs associated
with the current projects to streamline the business. Over the next
12-18 months, we expect adjusted debt to EBITDA (excluding
restructuring costs) to remain around 6x-8x and FOCF to debt
(excluding restructuring costs) to be around 3%-5%. This still
indicates a highly leveraged capital structure."
S&P said, "The final ratings will depend on our receipt and
satisfactory review of all final transaction documentation.
Accordingly, the preliminary ratings should not be construed as
evidence of final ratings. If S&P Global Ratings does not receive
final documentation within a reasonable time frame, or if final
documentation departs from materials reviewed, we reserve the right
to withdraw or revise our ratings. Potential changes include, but
are not limited to, use of loan proceeds, maturity, size and
conditions of the loans, financial and other covenants, and
ranking.
"The stable outlook indicates that we expect weak economic
conditions at the end market to cause revenue decline of 1%-3% even
as adjusted EBITDA margins remain relatively stable at 22%-24% in
FY2021. From FY2022, as economic conditions gradually improve,
cost-saving measures take effect, and restructuring costs fall,
revenue should grow by 1%-3% and adjusted-EBITDA margins rise to
about 30%-32%. Adjusted leverage should therefore shrink to below
8x and FOCF to debt to 1%-3% by the end of FY2022.
"We could lower the rating if weak economic conditions at the end
market persist, causing revenue to decline for longer than expected
or if the company fails to realize the proposed synergies from its
cost-saving plans." The effect on adjusted EBITDA could cause:
-- Negative FOCF generation;
-- EBITDA cash interest coverage to fall below 1.5x; or
-- Liquidity to weaken, such that sources of liquidity fail to
cover the expected liquidity needs.
S&P sees an upgrade as unlikely over the next 12 months, given
CDKI's highly leveraged capital structure and relatively modest
free cash flow generation. S&P could raise the rating over the
longer term if:
-- Adjusted debt to EBITDA falls below 7x; and
-- The company maintains FOCF to debt above 5% for a sustained
period.
EDINBURGH WOOLLEN: Carlisle United Debt Now Owed to Different Co.
-----------------------------------------------------------------
Jon Colman at News & Star reports that Carlisle United's debts of
more than GBP2 million to Edinburgh Woollen Mill are now owed to a
different company after the recent sale of the retail business, the
News & Star has been told.
According to News & Star, administrators overseeing the sale have
confirmed that the Blues' GBP2.1 million of loans -- drawn from EWM
since 2017 -- formed part of the transaction which saw EWM sold to
an international investment consortium.
It means United still owe the amount -- but the club have described
it as a "good outcome" because the loan has been moved rather than
called in, News & Star notes.
And the Cumbrians say the involvement of John Jackson -- a director
of both United and the new company, Purepay Retail Limited -- has
helped to ensure the club has not been put at risk by recent events
involving part of billionaire Philip Day's retail empire, News &
Star relays.
A spokesperson on behalf of administrators FRP Advisory, who
handled EWM's recent sale, told the News & Star: "The loan formed
part of the sale of the business and assets by the joint
administrators."
That sale saw EWM Limited, Bonmarche and Ponden Home packaged into
Purepay Retail Limited -- a dormant subsidiary of EWM Group -- with
the new consortium injecting fresh funds into the business, News &
Star discloses.
ICELAND FOODS: S&P Affirms 'B' ICR on Proposed Refinancing
----------------------------------------------------------
S&P Global Ratings affirmed its long-term rating on Lannis Ltd. at
'B', and its 'B' issue rating and recovery rating of '3' (rounded
estimate: 60%) on the existing senior secured notes.
Lannis Ltd., the parent entity of frozen food retailer Iceland
Foods (previously named Iceland Topco Ltd.), has launched a process
to issue a GBP250 million senior secured bond, and intends to use
the proceeds to redeem its remaining GBP200 million senior secured
notes due July 2024, and its GBP20 million super senior term loan
due July 2021. The group is also amending its revolving credit
facility (RCF), with revised commitments of GBP20 million and a new
maturity in February 2025.
S&P said, "We will withdraw the ratings on the GBP200 million
senior secured notes due 2024 upon completion of the transaction.
We are also assigning an issue rating of 'BB' to the amended GBP20
million RCF due 2025, in line with the previous RCF, and reflecting
its limited size and first ranking in the priority of payments. In
addition, we are assigning an issue rating of 'B' and recovery
rating of '3' (rounded estimate: 60%) to the proposed GBP250
million senior secured notes.
"The stable outlook indicates that Iceland Foods' operating
performance will stay sound over the next 12 months, despite
volatile market conditions. This should enable the group to
maintain S&P Global Ratings-adjusted debt to EBITDA of about
5.1x-5.3x and EBITDAR cash interest coverage at about 1.6x, while
generating robust positive free operating cash flow (FOCF) after
leases and maintaining adequate liquidity."
Iceland Foods has experienced revenue growth well above other
grocers amid the pandemic, supported by strong demand trends in the
frozen food sector and high growth in its online operations.
Since the start of the pandemic, frozen food has been one of the
fastest growing categories within the U.K. grocery market, fueled
by households increasing their freezer capacity to accommodate
fewer store visits, and reduced spending on out-of-home dining. As
a result, over the nine months leading to Jan. 1, 2021, Iceland
Foods reported top line growth 20% higher than the same period in
2020. Meanwhile, according to Kantar Worldpanel data, the group
increased its market share to 2.5% (versus 2.3% over the same
period in 2019). Revenue growth was also driven by significant
investment in the group's online operations. S&P anticipates that
amid continued restrictions of movement in the U.K., demand will
stay strong through the remainder of the fiscal year, and it
estimates that the group will report revenue of about GBP3.9
billion in FY2021, up about 20% from FY2020.
While Iceland's cost base has been affected by the volatile trading
environment, government support measures have contained the impact
on Iceland's profitability, leading to record earnings and cash
flow generation. Higher staff costs, protective equipment
purchases, and increased cleaning needs have led to an inflated
operating cost base. However, Iceland Foods has been able to offset
these additional costs with a reduction in central administration
costs and through the comprehensive set of support measures put in
place by the government to support the retail sector; in
particular, the 12-month business rates relief, which finishes in
March 2021, and which provided the group with a cost relief of
about GBP45 million. S&P understands the group does not intend to
voluntarily pay business rates, despite most of its major
competitors electing to do so over the past few months.
S&P said, "As a result, we anticipate that the group will report
EBITDA of about GBP180 million-GBP190 million in FY2021, versus
GBP114 million in FY2020. Coupled with working capital inflows and
reduced capital expenditure (capex), we expect Iceland Foods will
report positive FOCF after lease payments of GBP80 million-GBP90
million (compared with a broadly neutral level in FY2020).
"In our view, the acquisition of the Individual Restaurant Company
adds operating and financial risk, although we do not think it will
affect our forecast credit metrics. A subsidiary of WD FF Ltd.
(majority shareholder of Lannis Ltd.), Ice Acquisitions Ltd.
acquired a large part of the assets and operations of the troubled
casual dining operator Individual Restaurant Company in late 2020,
shortly after Individual Restaurant Company was put under
administration. This transaction consolidated the restaurant
business, which was previously held separately, into the Iceland
group, in what we view as an opportunistic transaction to improve
the restaurant group's financial position. We anticipate that
Individual Restaurant Company will be run separately from Iceland
Foods' core food retail business, and we do not expect this
acquisition to mark a shift in Iceland Foods' main strategy."
That said, and despite the fact that the size and scope of the
restaurant operations are limited compared with the rest of the
core Iceland group, the acquisition and its intended turnaround add
execution risk and more debt to the broader group. S&P said,
"Although we do not expect the transaction to add significant
leverage in the medium term (with our expectation of S&P Global
Ratings-adjusted debt to EBITDA remaining broadly stable at about
5.1x-5.3 in FY2022, versus 5.6x in FY2020), we consider that the
restaurant business could consume a significant amount of the FOCF
generated by Iceland Foods' core business in the next one to two
years, rather than reinvested in the core business."
The stable outlook indicates that, despite the temporary spike in
trading through the pandemic, market conditions will remain tough
over the medium to long term, with high price competition in the
U.K. and continued cost inflation. S&P said, "While we forecast
abnormally strong earnings in FY2021, we expect the phase-out of
government support measures to bring earnings and profitability
levels toward historical levels. Under our base case, we anticipate
adjusted debt to EBITDA to normalize toward 5.1x-5.3x, and stable
EBITDAR cash interest coverage at about 1.6x over the next 12
months."
S&P could take a negative rating action if Iceland Foods' operating
performance weakened over the next 12 months, including
deteriorating profitability and cash flow, or if the group notably
deviated from its core strategy or financial policy. In particular,
S&P could lower the ratings if:
-- Reported EBITDAR to cash interest plus rents coverage fell
toward 1.2x;
-- FOCF generation after leases weakened and approached neutral on
a consolidated basis; or
-- S&P perceived a shift in financial policy, illustrated through
further material debt-funded acquisitions or shareholder
distributions.
S&P said, "Although unlikely in the next 12 months, we could raise
the ratings if Iceland Foods outperformed our base-case forecast
posting strong like-for-like sales growth, higher-than-historical
profitability margins, and strong positive FOCF after leases on a
consolidated basis. A positive rating action would hinge on a
sustained improvement in the credit metrics including adjusted debt
to EBITDA of below 5x, reported EBITDAR cash interest coverage of
close to 2x, and Iceland Foods' financial policy being consistent
and supportive of such metrics in the medium term."
LANNIS LIMITED: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Lannis Limited's (previously Iceland
Topco Ltd) Long-Term Issuer Default Rating (IDR) at 'B' with a
Stable Outlook. Fitch also affirmed the senior secured instrument
rating at 'B+'/'RR3'/53% for the outstanding bonds issued by
Iceland Bondco PLC and assigned 'B+(EXP)' to a prospective GBP250
million senior secured bond.
The new bond will share the same guarantors and rank pari passu
with its other senior secured instruments, but will be subordinated
to GBP20 million super senior revolving credit facility (RCF). The
assignment of the final rating is conditional upon the completion
of the new bond, prepayment of existing GBP170 million notes due in
2024, and the final terms and conditions of the new bond being in
line with information received.
The rating headroom under the current 'B' IDR is tight as the
incremental debt to be incurred by Lannis will increase the
expected funds from operation (FFO) adjusted gross leverage back to
7.0x in the year to March 2022 (FY22). Fitch only expects leverage
to reduce slightly over the rating horizon. The group's funding of
the share purchase from Brait (GBP109 million) in June 2020, and
other non-core investments from cash and new debt, signals
opportunistic financial behaviour in the context of high leverage.
However, the company performed well during the pandemic and Fitch
expects it to continue generating cash that can be used to
deleverage and start rebuilding rating headroom.
The 'B' rating reflects the specialist business model focused on
the frozen food and value-seeking consumer segments, which have
been resilient through business cycles. Fitch believes this segment
would benefit from a recessionary environment and from more people
working from home post-pandemic.
KEY RATING DRIVERS
New Notes Add Leverage: Fitch expects Iceland's gross debt to
increase from GBP740 million at end-1H21 to GBP820 million at
end-FY21. Fitch expects FFO gross adjusted leverage to return to
7.0x in FY22 from 6.2x in FY21, as only GBP190 million of the
planned GBP250 million senior notes will be used for refinancing
purposes, while Fitch forecasts EBITDA to fall from the high levels
seen during the pandemic. Fitch assumes a super senior loan of
GBP20 million will be repaid and refinanced at its maturity in July
2021.
Tight Rating Headroom: The rating headroom remains tight despite
strong cash generation during the pandemic, as cash that could have
been used for deleveraging was diverted to shareholders' other
business interests. Fitch only expects a minimal reduction in
leverage over the rating horizon, with leverage metrics remaining
close to Fitch's negative rating sensitivity threshold, similar to
Fitch's previous forecasts.
Fitch's rating case assumes some debt prepayment under the bonds
over the rating horizon, which would be aligned with the company's
record of prepaying a portion of outstanding bonds before maturity.
The use of excess cash for early debt redemption is essential to
start building some rating headroom especially if EBITDA growth is
more muted than through the pandemic.
Opportunistic Financial Behaviour: The company-funded share
purchase from Brait (fully paid in FY21) and non-core investments
signal an opportunistic financial behaviour in the context of its
high leverage. In addition to GBP31 million up-streamed in 3Q21,
the company plans to use a further GBP43 million to invest in
non-core restaurant business, which Fitch does not expect to
contribute materially to Iceland's earnings. While ownership by two
families, following the share buyback from Brait, should allow a
longer-term strategic focus, Fitch does not assume any further
material outflows to support its restaurant business under Fitch's
rating-case projections.
Upgraded Forecasts: Fitch upgraded its rating case projections for
FY21 and FY22, but lowered the like-for-like sales growth
thereafter. This follows the strong performance in 9MFY21, with
revenue growth of 20% driven by increased demand, online growth and
store openings. Reported 9MFY21 EBITDA of GBP122 million is before
additional pandemic costs that have been more than offset by
business rates relief. Fitch therefore forecasts slightly higher
EBITDA than under Fitch's previous rating case, assuming a high
portion of the incremental EBITDA remains in FY22.
Margins Under Downward Pressure: Profit margins are still
satisfactory compared with other rated UK food retailers, down to
3.9% in FY20 from 5.2%-5.7% in 2016-2018. Tough price competition,
wage pressures, an increasing online segment and investment in
store openings - which take time to mature - remain the main margin
drivers. Fitch expects continued margin pressure and forecast
EBITDA margin to remain slightly below 4% over the rating horizon,
which still represents relatively solid profitability for its
rating level. The GBP8 million difference between Fitch's EBITDA
and the group's reported EBITDA in FY20 and in forecast period is
due to Fitch's treatment of leases.
Growing Online Channel: Iceland significantly grew its online
channel in response to increased demand to about a million weekly
slots in December 2020, which is second to Tesco PLC (BBB-/Stable)
in the UK. Fitch expects online sales to contribute about a quarter
of its revenue in FY21 and management indicates that this channel
is already profitable. Iceland uses a similar store-picking model
to that of Tesco and ASDA. The growth of the online channel
typically puts pressure on profit margins due to additional picking
and delivery costs, but Iceland has lower delivery charges than its
peers.
Specialist Business Model: Fitch's rating reflects Iceland's
specialist business model as a niche operator in the frozen food
and value-seeking consumer segments. Iceland mildly increased its
share in the UK grocery market between 2008 and 2020 despite
competitive pressures and the rapid growth of discount stores. This
was achieved by greater differentiation in its product offering,
improved pricing, investment in stores and formats, as well as an
improved brand positioning with regard to the environment and
sustainability. Fitch expects competitive pressures in the UK food
industry to remain strong.
Good FCF Generation: Fitch expects Iceland to generate a healthy
free cash flow (FCF) margin of 1% on average over FY22-FY24, which
compares well to its much larger retail peers. This follows
exceptionally strong FCF of about GBP100 million expected to be
generated in FY21. Fitch's rating case assumes a capex programme of
GBP50 million a year, which is lower than in the past couple of
years, when the company invested in its distribution network,
online and IT infrastructure. Fitch expects prudent balancing of
capital allocation between modernisation of the store estate,
growth and debt reduction to manage leverage.
DERIVATION SUMMARY
Iceland's business risk profile, as a mostly UK-based specialist
food retailer, is constrained by the company's modest size and less
diversification than other Fitch-rated European food retailers,
such as Tesco and Ahold Delhaize NV (BBB+/Stable). Both peers have
leading market shares in their core domestic markets, larger scale,
as well as greater diversification by product, store format,
distribution channel, and geography.
FFO adjusted gross leverage, expected at about 7x in FY22-24, is
higher than the median of 'B'-rated companies, and also compared to
Fitch-rated UK peers, such as Bellis Finco plc (ASDA) at 5.4x
(BB-(EXP)/Stable) and Tesco at 3.9x. This is offset by reasonably
healthy profitability and comfortable liquidity.
Iceland is larger than Picard Bondco S.A. (B/Stable), a French
specialist food retailer also active in frozen foods, but weaker in
profitability and FFO. Picard operates mostly in the higher-margin
premium segment. However, Picard's financial risk profile and
financial leverage are higher than Iceland's, with FFO-adjusted
gross leverage at 9.0x In FY20.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Fitch anticipates revenue to increase by around 17% in FY21
and by an average of 1% a year in FY22-FY24;
-- EBITDA margin to decrease to 3.7% in FY24 from 4.2% in FY21 on
the back of pressure on gross margin from the increase in the
UK minimum wage;
-- Capex at 1.3% of sales in FY22-FY24;
-- No dividends over the rating horizon
Key Recovery Rating Assumptions
-- The recovery analysis assumes that Iceland would be
reorganised as a going concern in bankruptcy rather than
liquidated.
-- Fitch has assumed a 10% administrative claim.
-- Iceland's going-concern EBITDA assumption includes pro-forma
adjustments for cash flows added via the acquisition of the
restaurant group, which is reflected in additional GBP4
million from the previous going-concern EBITDA. It also
reflects the increasing scale of the business with 20 to 25
stores opened a year. The going-concern EBITDA estimate
reflects Fitch's view of a sustainable, post-reorganisation
EBITDA level upon which Fitch bases the enterprise valuation.
The assumption also reflects corrective measures taken in a
hypothetical reorganisation to offset the adverse conditions
that triggered default, such as cost-cutting or a material
business repositioning.
-- Fitch applies an enterprise value multiple of 4.5x EBITDA to
the going-concern EBITDA to calculate a post-reorganization
enterprise value.
-- RCF is assumed to be fully drawn upon default. The RCF and
GBP20 million super senior loan are super senior to the senior
notes in the debt waterfall.
-- The allocation of value in the liability waterfall results in
recovery expectations corresponding to 'RR3' recovery rating
for the rated notes totalling GBP800 million with an output
percentage based on the current assumptions of 53%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch views an upgrade of the IDR as unlikely over the rating
horizon, unless the company demonstrates material improvements
in operating performance and adopts more conservative capital
allocation. However Fitch could envisage a positive rating
action as a result of:
-- Evidence of positive and profitable like-for-like sales growth
and the maintenance of stable market shares leading to
resilient profitability with EBITDA margins trending towards
5%
-- FFO adjusted gross leverage below 6.0x on a sustained basis
-- FFO fixed-charge coverage at or above 2.0x on a sustained
basis
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Evidence of negative like-for-like sales growth, with loss of
market shares due to a competitive environment or to
permanently lower capex leading to prolonged and accelerating
EBITDA margin erosion or neutral FCF
-- Tightening of liquidity position amid unexpected cash outflows
-- FFO adjusted gross leverage above 7.0x on a sustained basis
-- FFO fixed-charge coverage below 1.5x on a sustained basis
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
Comfortable Liquidity: Fitch views Iceland's liquidity position as
comfortable in light of forecast GBP155 million cash balance at
FYE21, which excludes restricted GBP20 million for working capital
purposes, along with GBP20 million of an undrawn RCF. This is more
than sufficient to repay GBP20 million of loans maturing in FY22
and to fund operations.
Following the issuance of the planned GBP250 million bonds, and
consequent repayment of GBP170 million bonds due in 2024, the
company would not have any significant financial debt maturities
until March 2025. Fitch has also assumed GBP40 million of voluntary
debt repayments a year in FY22-FY24.
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.
PEAK JERSEY: Moody's Completes Review, Retains B3 CFR
-----------------------------------------------------
Moody's Investors Service has completed a periodic review of the
ratings of Peak Jersey Holdco Limited and other ratings that are
associated with the same analytical unit. The review was conducted
through a portfolio review discussion held on February 5, 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
Peak Jersey's (Stats Perform) B3 corporate family rating is
supported by (1) the group's leading position in the sports data
analytics and sports content services market with a wide
geographical reach as well as product suite and patented technology
that act as barriers to entry; (2) strong market fundamentals
supportive of good medium to long term business growth; (3) the
company's established long-term relationships with key sports
betting, media and technology companies, global sportsbooks groups,
and content rights providers; and (4) its successful integration of
STATS and Perform.
Stats Perform's rating is constrained by 1) the high leverage of
around 7x, however the company performed better than expected in
the context of the pandemic and we now forecast leverage to
decrease below 6x in 2021; (2) the company's negative
Moody's-adjusted free cash flow (FCF) in 2019 following the merger,
which is now expected to continue until H2 2021; (3) the small
scale of the company - although with a niche advantage - and its
dependence on sports rights which drives high fixed costs; and (4)
the risk of further leveraging acquisitions.
The principal methodology used for this review was Business and
Consumer Service Industry published in October 2016.
===============
X X X X X X X X
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[*] BOOK REVIEW: Bankruptcy and Secured Lending in Cyberspace
-------------------------------------------------------------
Author: Warren E. Agin
Publisher: Bowne Publishing Co.
List price: $225.00
Review by Gail Owens Hoelscher
Red Hat Inc. finds itself with a high of 151 5/8 and low of 20 over
the last 12 months! Microstrategy Inc. has roller-coasted from a
high of 333 to a low of 7 over the same period! Just when the IPO
boom is imploding and high-technology companies are running out of
cash, Warren Agin comes out with a guide to the legal issues of the
cyberage.
The word "cyberspace" did not appear in the Merriam-Webster
Dictionary until 1986, defined as "the on-line world of computer
networks." The word "Internet" showed up that year as well, as "an
electronic communications network that connects computer networks
and organizational computer facilities around the world."
Cyberspace has been leading a kaleidoscopic parade ever since, with
the legal profession striding smartly in rhythm. There is no
definition for the word "cyberassets" in the current
Merriam-Webster. Fortunately, Bankruptcy and Secured Lending in
Cyberspace tells us what cyberassets are and lays out in meticulous
detail how to address them, not only for troubled technology
companies, but for all companies with websites and domain names.
Cyberassets are primarily websites and domain names, but also
include technology contracts and licenses. There are four types of
assets embodied in a website: content, hardware, the Internet
connection, and software. The website's content is its fundamental
asset and may include databases, text, pictures, and video and
sound clips. The value of a website depends largely on the traffic
it generates.
A domain name provides the mechanism to reach the information
provided by a company on its website, or find the products or
services the company is selling over the Internet. Examples are
Amazon.com, bankrupt.com, and "swiggartagin.com." Determining the
value of a domain name is comparable to valuing trademark rights.
Domain names can come at a high price! Compaq Computer Corp. paid
Alta Vista Technology Inc. more than $3 million for "Altavista.com"
when it developed its AltaVista search engine.
The subject matter covered in this book falls into three groups:
the Internet's effect on the practice of bankruptcy law; the ways
substantive bankruptcy law handles the impact of cyberspace on
basic concepts and procedures; and issues related to cyberassets as
secured lending collateral.
The book includes point-by-point treatment of the effect of
cyberassets on venue and jurisdiction in bankruptcy proceedings;
electronic filing and access to official records and pleadings in
bankruptcy cases; using the Internet for communications and
noticing in bankruptcy cases; administration of bankruptcy estates
with cyberassets; selling bankruptcy estate assets over the
Internet; trading in bankruptcy claims over the Internet; and
technology contracts and licenses under the bankruptcy codes. The
chapters on secured lending detail technology escrow agreements for
cyberassets; obtaining and perfecting security interests for
cyberassets; enforcing rights against collateral for cyberassets;
and bankruptcy concerns for the secured lender with regard to
cyberassets.
The book concludes with chapters on Y2K and bankruptcy; revisions
in the Uniform Commercial Code in the electronic age; and a
compendium of bankruptcy and secured lending resources on the
Internet. The appendix consists of a comprehensive set of forms for
cyberspace-related bankruptcy issues and cyberasset lending
transactions. The forms include bankruptcy orders authorizing a
domain name sale; forms for electronic filing of documents;
bankruptcy motions related to domain names; and security agreements
for Web sites.
Bankruptcy and Secured Lending in Cyberspace is a well-written,
succinct, and comprehensive reference for lending against
cyberassets and treating cyberassets in bankruptcy cases.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2021. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *