/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/210324.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Wednesday, March 24, 2021, Vol. 22, No. 54 Headlines D E N M A R K FAERCH MIDCO: Moody's Withdraws B3 CFR Following Debt Repayment F R A N C E ALMAVIVA DEVELOPPEMENT: Moody's Assigns B2 CFR on Solid Growth FONCIA MANAGEMENT: Moody's Rates New EUR400M Sr Secured Notes 'B2' G E R M A N Y ROEHM HOLDING: Fitch Affirms 'B-' LT IDR, Outlook Stable WIRECARD AG: Fraud Started More Than a Decade Before Collapse WIRECARD AG: Mark Branson to Become President of BaFin I R E L A N D ARES EURO XII: Fitch Affirms B- Rating on Class F Notes ARES EURO XIII: Fitch Affirms B- Rating on Class F Notes CARLYLE EURO 2018-2: Fitch Affirms B- Rating on Class E Notes DUNEDIN PARK: Fitch Affirms BB Rating on Class D Junior Notes GRAND HARBOUR 2019-1: Fitch Affirms B- Rating on Class F Notes HENLEY CLO IV: Fitch Affirms B- Rating on Class F Debt MADISON PARK: Fitch Affirms B- Rating on Class F Junior Notes PALMER SQUARE 2021-1: Moody's Assigns B3 Rating to Class F Notes PALMER SQUARE 2021-1: S&P Assigns B- (sf) Rating on Class F Notes L U X E M B O U R G FLAMINGO II LUX: S&P Assigns 'B' Long-Term ICR, Outlook Stable LSF10 XL: S&P Lowers ICR to 'B' on Proposed Dividend Recap S P A I N CODERE S.A.: S&P Downgrades ICR to 'CC', Outlook Negative S W E D E N RECIPHARM AB: S&P Assigns 'B' Issuer Credit Rating, Outlook Pos. U N I T E D K I N G D O M ARCADIA GROUP: Head Office Assets Put Up for Sale BRITISH AIRWAYS: S&P Affirms 'BB' ICR, Outlook Negative CINEWORLD GROUP: Set to Reopen US Cinemas in April DOWSON 2019-1: Moody's Upgrades GBP14.1MM Class D Notes to Ba2 (sf) GREENSILL CAPITAL: Tokio Says Exposure Won't Have Material Impact INTERNATIONAL CONSOLIDATED: Moody's Rates New Sr. Unsec. Notes 'B1' INTERNATIONAL CONSOLIDATED: S&P Affirms 'BB' Ratings, Outlook Neg. L1R HB FINANCE: Moody's Hikes CFR to B3 on Resilient Performance SYNLAB BONDCO: S&P Alters Outlook to Stable, Affirms 'B+' ICR SYNTHOMER PLC: S&P Affirms BB Issue Rating, Outlook Stable - - - - - ============= D E N M A R K ============= FAERCH MIDCO: Moody's Withdraws B3 CFR Following Debt Repayment --------------------------------------------------------------- Moody's Investors Service has withdrawn the B3 corporate family rating and the B3-PD probability of default rating of Faerch Midco ApS, the ultimate parent of Faerch Group A/S (Faerch), a Danish food plastic packaging company. The stable outlook has also been withdrawn. At the time of withdrawal, the company had no rated debt outstanding. RATINGS RATIONALE The rating action was prompted by the completion of Faerch's acquisition by Danish family owned conglomerate A.P. Moller Holding from funds managed by Advent International, and the repayment of all of Faerch's rated debt on March 12, 2021. Moody's has decided to withdraw the ratings because Faerch's debt previously rated by Moody's has been fully repaid. COMPANY PROFILE Headquartered in Holstebro, Denmark, Faerch Midco ApS (Faerch) is a manufacturer of rigid plastic packaging and supplies plastic trays to the European food industry and mainly to food producers. It has fifteen manufacturing facilities across eight countries (Denmark, the UK, Spain, the Czech Republic, France, Italy, Poland and the Netherlands). The company, which has been majority owned by the private equity firm Advent since 2017, has recently been sold to A.P. Moller Holding. =========== F R A N C E =========== ALMAVIVA DEVELOPPEMENT: Moody's Assigns B2 CFR on Solid Growth -------------------------------------------------------------- Moody's Investors Service has assigned a corporate family rating of B2 and a probability of default rating of B2-PD to Almaviva Developpement. Concurrently, Moody's has assigned a B2 rating to the EUR290 million senior secured term loan B due 2028 and to the EUR80 million senior secured revolving credit facility due 2027 raised by Almaviva. The outlook is stable. RATINGS RATIONALE The B2 CFR assigned to Almaviva is supported by (i) the company's leading position in the French private hospital sector (the number four private operator in France) with long-standing sector expertise and significant presence in affluent areas with strong demographic needs; (ii) a track record of solid organic growth driven by the high quality of the facilities and ongoing recruitment of practitioners, which Moody's believes will continue to attract patients; (iii) Almaviva's overall high degree of visibility in terms of future operating performance supported by social considerations and more particularly favourable demographics and the role of the French National Health System (Social Security) as the payor; (iv) the overall high barriers to entry resulting from the need to obtain necessary authorizations and attract qualified personnel; (iv) adequate liquidity and positive free cash flow generation. Conversely, the B2 rating is constrained by (i) the company's high leverage, measured by Moody's-adjusted (gross) debt/EBITDA, estimated at 5.6x as of end December 2020 and proforma the acquisitions concluded in December 2020, (ii) the company's high exposure to a highly regulated sector with a highly labour intensive nature (personnel costs represented 42% of 2019 revenue); (iii) and a certain degree of event risk as Moody's expects Almaviva will continue to be active in the consolidation of the French private hospital market. Moody's adjusts for capitalized operating leases using a 4x multiple. However, the agency believes that the company's leverage could be well above the 5.6x that it estimates if the agency were to use the net present value of future operating lease commitments, given the long tenor of the company's leases. Moody's expects that Almaviva will gradually deleverage in the next 12-18 months bringing Moody's adjusted leverage below 5.0x by 2022. Almaviva's EBITDA growth will be driven by topline growth and by the ongoing integration and ramp-up of facilities acquired to date. Almaviva's high quality facilities and agile recruitment approach of practitioners is another driver of volume growth, which in turn drive revenue growth. Moody's also expects Almaviva to offset ongoing inflationary pressure on costs through cost efficiencies. LIQUIDITY Moody's expects Almaviva's liquidity profile to be good over the next 12-18 months. The company's liquidity, pro forma the transaction, is supported by cash at closing of around EUR30 million net of the cash advances received and to be reimbursed as part of the French government support measures; expected positive free cash flow of between EUR15 -- EUR20 million; and access to a fully undrawn EUR80 million revolving credit facility (RCF). Moody's expects Almaviva's liquidity sources to fully cover the company's annual maintenance capex of around EUR18 million and partly finance the around EUR10 million growth capex expected in the next two years. Growth capex is mainly related to real estate developments including extensions and refurbishments and to IT projects. Moody's expects growth capex to normalize to around EUR3 million per annum after 2022. The next debt maturity will occur in 2028 when the new EUR290 million Term Loan expires. STRUCTURAL CONSIDERATIONS The B2 rating assigned to the EUR290 million senior secured term loan B and the EUR80 million senior secured RCF reflects their pari passu ranking in the capital structure and the upstream guarantees from material subsidiaries of the group representing 80% of EBITDA. The B2-PD PDR, in line with the CFR, reflects Moody's assumption of a 50% family recovery rate, typical for bank debt structures with a loose set of financial covenants. There is a shareholder loan between Almaviva and its holding company which currently complies with the requirements for equity treatment under Moody's cross-sector rating methodology "Hybrid Equity Credit". However, those requirements will no longer be met if the shareholder loan is still outstanding following an IPO (not considered at this stage) due to the release of certain provisions. OUTLOOK The stable outlook reflects Moody's expectation that Almaviva will continue to grow, mainly through bolt-on acquisitions, while maintaining Moody's-adjusted (gross) debt/EBITDA below 5.5x. The stable outlook also reflects Moody's expectation that the company will continue to generate positive free cash flow and will maintain a good liquidity profile. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive pressure could arise if: i) the company's Moody's-adjusted (gross) debt/EBITDA ratio falls sustainably below 4.5x meaning that the company further grows its earnings and successfully executes its strategy, including the smooth integration of bolt-on acquisitions; or ii) if Moody's-adjusted free cash flow to debt consistently exceeds 5%, and iii) there is no adverse change in the company's business strategy or financial policy. However, negative pressure could arise if: i) the company's Moody's-adjusted (gross) debt/EBITDA ratio remains above 5.5x on a sustained basis; or ii) profitability were to deteriorate because of competitive, regulatory and pricing pressure; or iii) Moody's-adjusted FCF becomes negative for a prolonged period; iv) or the company's financial policy becomes more aggressive with regards to debt financed acquisitions. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. COMPANY PROFILE Almaviva Developpement (Almaviva) is the fourth largest France-based private hospital group. Almaviva is a regional operator focused on French regions: Ile-de-France (19 facilities) and Provence-Alpes-Cote d'Azur (17 facilities). In 2019, the company generated EUR438 million revenue. The group's ownership is shared between a fund managed by Antin Infrastructure Partners (majority shareholder), Sagesse Retraite Santé (SRS) which is a family holding through which Yves Journel, who is the founder of DomusVi, is invested in Almaviva, and by the management and practitioners. FONCIA MANAGEMENT: Moody's Rates New EUR400M Sr Secured Notes 'B2' ------------------------------------------------------------------ Moody's Investors Service has assigned a B2 rating to the new EUR400 million senior secured notes due 2028 issued by Foncia Management SAS, and a Caa1 rating to the new EUR250 million senior unsecured notes due 2029 issued by Flamingo Lux II SCA, a direct parent of Foncia Management SAS and the top entity of the new restricted group following completion of the dividend recapitalization. The B2 corporate family rating and B2-PD probability default rating at Flamingo Lux II SCA, and the B2 ratings on the new senior secured revolving credit facility of EUR437.5 million and term loan B of EUR1,275 million issued by Foncia Management SAS are unchanged. The outlook on Flamingo Lux II SCA and Foncia Management SAS is negative. Net proceeds from the new debt will mainly be used to pay a dividend distribution of EUR475 million and refinance existing debt. "The negative outlook reflects the risk that Foncia's credit metrics will remain weak for the current B2 CFR over the next 12-18 months due to the material releveraging effect of the envisaged dividend recapitalization", said Brad Gustafson, a Moody's Vice President - Senior Analyst and lead analyst for Foncia. "Weak macroeconomic conditions or lower-than-expected benefits from strategic initiatives including the new ERP could hinder organic EBITDA growth, and result in Moody's-adjusted debt/EBITDA remaining above 6.5x and free cash / flow debt not improving towards 5% over the next 12-18 months, adds Mr Gustafson. RATINGS RATIONALE The B2 CFR is weakly positioned because of the material releveraging effect of the envisaged dividend recapitalization, which will result in credit metrics outside of Moody's parameters for the B2 CFR. Moody's-adjusted debt/EBITDA will increase to 9.0x as a result of the transaction from 6.1x as of 31 December 2020 (pro forma acquisitions closed in 2020). However, Moody's expects a gradual recovery from the disruptions caused by the coronavirus, while future acquisitions partly funded with excess cash will result in deleveraging to 6.5x and improving Moody's-adjusted free cash flow / debt towards 5% over the next 12-18 months. Moody's calculations of Foncia's leverage also include around €95 million of preferred equity certificates (PECs) at Flamingo Lux II SCA which do not comply with the requirements for equity treatment under Moody's hybrid methodology. The PECs, which were issued at the time of the leveraged buyout in 2016, were not previously included in Moody's calculations of leverage because they were outside of the restricted group of the existing credit facilities. There are, however, execution risks associated with deleveraging namely the uncertainty as to how earnings will recover if there is an economic fallout following the pandemic, the rollout of strategic initiatives including the new ERP because of the scale of these transformation projects and the company's dependence on acquisitions to grow. The company estimates that the pandemic had an impact of EUR31 million on EBITDA in 2020 (c. 13% of management EBITDA in 2019), notably due to lockdowns in France. Moody's expects the impact to gradually unwind over the next 12-18 months but there could be longer lasting pressure on revenue in the brokerage segment and other related services such as transfer fees and property surveys. More positively, the rating also reflects the company's large recurring revenue base underpinned by management fees in joint property management and lease management notably. It also considers the company's leading market positions in France and increasing presence in neighboring countries, which have both strengthened in recent years thanks to bolt-on acquisitions. Lastly, the rating also incorporates the historical track record of improving margins and positive free cash flow which Moody's expects will continue over the next 12-18 months. LIQUIDITY Liquidity is good supported by positive free cash flow, pro forma cash balances of around EUR52 million, and an undrawn revolving credit facility (RCF) of EUR437.5 million at closing of the transaction. Moody's expects the company to maintain ample headroom under the springing covenant attached to the RCF. There is no material debt maturing before 2027, when the RCF matures. ESG CONSIDERATIONS ESG considerations incorporate in Foncia's ratings mainly relate to governance risks, notably its shareholder-friendly financial policy as reflected by the envisaged dividend recapitalization -- the first since the leveraged buyout in late 2016 -- and history of debt-funded acquisitions. Often in private equity-sponsored deals, owners tend to have higher tolerance for leverage, a greater propensity to favour shareholders over creditors, as well as a greater appetite for dividend recapitalizations and mergers and acquisitions to maximize growth and their return on their investments. STRUCTURAL CONSIDERATIONS The senior secured debt instruments are rated B2, at the same level as the CFR, reflecting their pari passu ranking and the comparatively small amount of junior debt ranking below them. Conversely, the senior unsecured notes are rated Caa1 due to the comparatively high amount of debt ranking ahead of them in the capital structure. The senior secured facilities will benefit from a security package comprising share pledges of material subsidiaries, assignment of intercompany receivables, and pledges over certain bank accounts. The senior secured credit facilities will also benefit from upstream guarantees from most operating subsidiaries. The senior unsecured notes benefit from the same upstream guarantees as the senior secured debt, but on a second ranking basis. RATING OUTLOOK The negative outlook reflects the risk that Foncia's credit metrics will not revert to levels more commensurate with a B2 CFR over the next 12-18 months if macroeconomic conditions remain weak or deteriorate, or the benefits from the company's strategic initiatives are delayed. The outlook could be stabilized if there is a sustained earnings recovery following the recent effects of the pandemic and if the deployment of the new strategic initiatives is successful, such that gross adjusted leverage looks likely to improve to below 6.5x by 2022, FCF/debt looks likely to be around 5%, and liquidity remains adequate. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS While unlikely in the near term given the rating action, upward rating pressure could develop if a strong recovery in revenue and margin expansion on the back of the new strategic initiatives lead to Moody's-adjusted debt/EBITDA falling sustainably to around 5.0x and FCF/debt increasing towards 10%. Downward rating pressure could arise if credit metrics remain sustainably weak for the B2 CFR or liquidity weakens as a result of a prolonged impact from the pandemic or its economic fallout, execution issues with the new strategic initiatives, or debt-funded acquisitions. This would be evidenced by Moody's-adjusted debt/EBITDA remaining sustainably above 6.5x or FCF/Debt not improving towards 5%. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. COMPANY PROFILE Headquartered in France, Foncia is a leading provider of residential real estate services through a network of over 500 branches. The company, which is owned by a consortium led by private equity fund Partners Group since 2016, generated revenue of EUR962 million in 2020. ============= G E R M A N Y ============= ROEHM HOLDING: Fitch Affirms 'B-' LT IDR, Outlook Stable -------------------------------------------------------- Fitch Ratings has affirmed Roehm Holding GmbH (Roehm)'s Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook and a senior secured rating at 'B-' with a Recovery Rating of 'RR4'. The affirmation and Stable Outlook reflect Fitch's view that Roehm's funds from operations (FFO) gross leverage will remain comfortably positioned within the 'B-' rating guidelines over 2021-2023. This is due to a lower-than-expected leverage at the end of 2020 and is despite a rise in capex for the construction of the LiMA plant in the US. Roehm's IDR reflects its position as a leading European producer of methyl methacrylate (MMA), polymerised MMA (PMMA) and MMA derivatives, the company's strong cost position in Europe, its diversification by geography and end-consumer, and its solid, though volatile, EBITDA margins. The rating is constrained by a highly leveraged capital structure with limited deleveraging on a gross debt basis over the medium term and Roehm's exposure to commodity-based products as well as cyclical end-markets. KEY RATING DRIVERS Resilient Volumes, Price Recovery: Despite weak industrial production in most markets in 1H20, Roehm increased its external volumes as higher demand for plastic protection sheets and robust coatings demand more than offset the weakness in automotive or lighting markets. Since 3Q20, strong demand and tight supply have supported above-average EBITDA margins, reflecting top-of-cycle conditions, which are expected to last through 2Q21 given the production shortage and capacity closures. Fitch expects volumes to remain relatively steady in the coming three years, with high MMA spread in 1H21 normalising from 2H21 on. High Financial Leverage: Fitch estimates that Roehm's FFO gross leverage of 6.6x in 2020 was significantly below Fitch's previous expectation of 8.3x. By the end of 2023, Fitch expects Roehm to reduce leverage slightly below its positive sensitivity of 6.5x assuming mid-cycle market conditions and no material issue with the expected construction of its US LiMA plant, which is still pending final investment decision in the coming months. LiMA Project Likely: Fitch sees Roehm's likely investment in an ethylene-based MMA production plant in the US as positive for its cost position as it would provide the company with large-scale and cost-efficient capacity in a market with tightened supply following a competitor's decision to close its plant in March 2021. Fitch assumes the project to go ahead in Fitch's base case, positively contributing to EBITDA from 2024. LiMA Execution Risk: As Roehm intends to self-fund LiMA, it will be neutral on FFO gross leverage provided the company performs according to forecasts. The partnership being considered would allow construction adjacent to the partner's brownfield site, which would mitigate the execution risk associated with a greenfield plant using technology not currently used on a commercial scale by Roehm, although extensively tested. Fitch conservatively assumes a delayed start-up and a 10% cost overrun. Commodity, Automotive Exposure: Roehm's upstream bulk monomers division remains the main contributor to consolidated EBITDA, even although the company is vertically integrated and generates 60% of its revenue by its downstream division. Falling MMA prices can have a dramatic impact on profitability, especially when coupled with weak demand for high-margin automotive uses, as seen in 2019 and 1H20. About half of Roehm's customer contracts are long-term and indexed to raw material prices, allowing it some pass-through. European Market and Cost Leader: Roehm is the clear leader in the European market for the production of MMA and its derivatives. Its plants at Worms and Wesseling in Germany are the most competitive in the region, using the Verbund concept. The group is number two worldwide after Mitsubishi Chemicals, with presence in China, where its cost position is average, and in the US, where its Fortier plant is less competitive. The industry is consolidated and has high barriers to entry including technological know-how and raw material access. DERIVATION SUMMARY Roehm and Nouryon Holding B.V. (B+/Stable) are high-margin chemical companies carved-out by large groups to private equity sponsors, with transaction-related high leverage. Nouryon is larger, has more diversified and less volatile end-markets, stronger specialty focus and more stable cash flows than Roehm. Root Bidco Sarl (Rovensa - B/Stable) has similar ownership and leverage profile to Roehm, significantly weaker scale and diversification, but more stable markets with better growth prospects supporting the deleveraging. Nitrogenmuvek Zrt (B-/Positive) is smaller, with weaker diversification and single-plant operations, but significantly lower leverage since 2019 and benefits from barriers to entry in landlocked Hungary. KEY ASSUMPTIONS -- EUR/USD 0.85 in forecast years; -- Oil price of USD58 per barrel in 2021, USD53 thereafter; -- Roehm proceeding with LiMA project. Assumed to be operational in 2024; -- Stable external volumes of 730-740ktpa in 2021-2023, increasing to above 800ktpa in 2024; -- Cost savings initiatives resulting in 2% decrease in fixed costs in 2021. Inflation of 1% a year in 2022 and 2023; -- No dividend or M&A in 2021-2024; -- Annual capex on average of EUR200 million with peak spending in 2022 and 2023; -- Tax rate of 30%. KEY RECOVERY ANALYSIS ASSUMPTIONS -- The recovery analysis assumes that Roehm would be reorganized as a going-concern in bankruptcy rather than liquidated. -- Post-restructuring going-concern EBITDA is estimated at EUR230 million, reflecting a situation where significant capacity addition in Roehm's markets drive MMA spreads down for a prolonged period, outpacing demand growth, followed by a moderate recovery. -- Fitch expects the company to use EUR76 million of factoring, which Fitch treats as super senior. Fitch also assumes the EUR300 million RCF to be fully drawn. -- Fitch used a distressed enterprise value (EV) multiple of 4.5x, consistent with that of most chemical peers in the 'B' category. -- After the deduction of 10% for administrative claims, Fitch's waterfall analysis generated a ranked recovery in the RR4 band, indicating a 'B-' senior secured rating. The waterfall analysis output percentage on current metrics and assumptions was 48%. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- FFO gross leverage below 6.5x for a sustained period; -- FFO interest coverage above 2.5x on a sustained basis; -- Successful execution of LiMA project broadly on time and on budget. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- FFO gross leverage above 8.0x on a sustained basis; -- FFO interest coverage below 1.5x on a sustained basis; -- Operating EBITDA margin durably below 15%; -- Negative FCF generation. 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 Cash for Capex: Roehm's year-end 2020 cash position increased significantly to EUR229 million (excluding EUR5 million estimated restricted cash) due to operational performance, reduction of working capital and contained capex. Including undrawn RCF of EUR225 million, Roehm's available liquidity stood at EUR454 million compared to mandatory debt amortisation of only EUR5 million a year from 2021 until 2025. This strong liquidity position will decrease over time as the company plans to fund its LiMA project without raising additional loans. Underperformance, construction delays or cost over-runs could lead the company to draw additional amounts on its RCF in 2023 or 2024, resulting in a less comfortable liquidity position. SUMMARY OF FINANCIAL ADJUSTMENTS -- Depreciation of rights-of-use assets and lease-related interest expense reclassified as selling, general and administrative expenses. -- Receivables and financial debt increased by amount of factoring use on the balance sheet. Increase and decrease in factoring use moved from cash flow from operations to cash flow from financing. -- EUR5 million cash classified as restricted to account for cash held in jurisdictions where it cannot be made readily available for debt repayment at group level. -- Preferred Equity Certificates classified as shareholder loans, excluded from financial debt. -- Impact of fair value adjustment eliminated from debt. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. WIRECARD AG: Fraud Started More Than a Decade Before Collapse ------------------------------------------------------------- Olaf Storbeck at The Financial Times reports that Wirecard's fraud started more than a decade before the German payments company imploded, as some senior managers began establishing a network of offshore companies that were used to siphon off millions, a former top executive has told prosecutors. Oliver Bellenhaus has informed Munich prosecutors that starting in 2010 he created an array of shell companies based in Hong Kong and the British Virgin Islands, the FT relays, citing people with knowledge of the matter. The people added, he said he did so at the behest of Jan Marsalek, Wirecard's former chief operating officer who is now on Interpol's most wanted list, the FT notes. According to the FT, the people said Mr. Bellenhaus has told prosecutors that from 2011, he and Mr. Marsalek shifted corporate funds out of Wirecard and into bank accounts in the name of the shell companies. They added, some years later, Mr. Bellenhaus moved millions of these funds to a private foundation, the FT notes. A sports-car enthusiast, Mr. Bellenhaus ran a Wirecard unit at the heart of the company's fraud from his apartment in Dubai's Burj Khalifa, the FT discloses. He was arrested in July on suspicion of aggravated fraud and has been in custody since, the FT recounts. Wirecard collapsed into insolvency last June after it emerged that EUR1.9 billion of corporate cash did not exist, the FT recounts. Large parts of its outsourced activities in Asia, where the group said it relied on third-party business partners and which on paper generated EUR1 billion in annual revenue, were exposed as a sham, according to the FT. The account apparently given by Mr. Bellenhaus puts the beginning of the fraud five years earlier than prosecutors had suggested last summer, the FT says. Since his arrest, Mr. Bellenhaus has become a chief witness for prosecutors and is co-operating with them, according to the FT. WIRECARD AG: Mark Branson to Become President of BaFin ------------------------------------------------------ Tom Sims and John O'Donnell at Reuters report that Mark Branson, the head of Switzerland's financial markets regulator, is to become president of Germany's finance watchdog BaFin, the finance ministry said on March 22, as part of a shake-up at the regulator after the Wirecard fraud. According to Reuters, current BaFin president Felix Hufeld is leaving at the end of the month after coming under pressure for failing to spot wrongdoing ahead of the collapse of the payments company. The implosion of a former blue-chip hailed as a German success story and once worth US$28 billion has embarrassed the government and damaged the country's reputation, Reuters notes. German Finance Minister Olaf Scholz, whose ministry oversees BaFin, has responded by granting the watchdog more powers to spot and investigate wrongdoing and sought fresh leadership, Reuters discloses. Fraser Perring, an investor who highlighted wrongdoing at Wirecard only to be investigated himself by BaFin, said reform of the regulator needed to go beyond changing its president, Reuters notes. Calls for Mr. Hufeld's resignation came to a head after BaFin in January reported one of its own employees to state prosecutors on suspicion of insider trading linked to Wirecard, shortly before the company folded, Reuters recounts. ============= I R E L A N D ============= ARES EURO XII: Fitch Affirms B- Rating on Class F Notes ------------------------------------------------------- Fitch Ratings has revised the Outlooks of ARES European CLO XII DAC's class D, E and F notes to Stable from Negative and affirmed the ratings of all tranches. DEBT RATING PRIOR ---- ------ ----- ARES European CLO XII DAC A XS2034050497 LT AAAsf Affirmed AAAsf B-1 XS2034051032 LT AAsf Affirmed AAsf B-2 XS2034051461 LT AAsf Affirmed AAsf C XS2034051974 LT Asf Affirmed Asf D XS2034052436 LT BBB-sf Affirmed BBB-sf E XS2034052865 LT BB-sf Affirmed BB-sf F XS2034054135 LT B-sf Affirmed B-sf X XS2034310313 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY The transaction consists of cash-flow CLOs, mostly comprising senior secured obligations. It is within its reinvestment period (scheduled to end in April 2024) and is actively managed by Ares European Loan Management LLP. KEY RATING DRIVERS Resilient to Coronavirus Stress (Positive) The affirmations reflect that portfolio credit quality has been mostly stable since it was last reviewed. The Outlook revision of the class D, E and F notes to Stable from Negative and the Stable Outlook for all other tranches reflect the default rate cushion in the sensitivity analysis run in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. Asset Performance Stable (Neutral) Asset performance has been stable since Fitch's last review. The portfolio remains marginally below its target par - by 0.08% as of the 8 February 2021 investor report. All coverage tests and collateral quality tests are passing except for the Fitch weighted average rating factor (WARF) test, although this has improved since the last review. Exposure to assets with a Fitch-derived rating of 'CCC+' and below has reduced to 3.5% from 5.2%. The limit is 7.5%. The manager reports an exposure to defaulted assets of EUR4.3 million in the portfolio. Average Credit Quality Portfolio (Neutral) Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. The Fitch WARF, calculated by Fitch, of the current portfolio as of 13 March 2021 is 34.69. Calculated by the trustee it is 34.57, both above the maximum covenant of 34.0. The Fitch WARF would increase to 36.53 after applying the coronavirus stress. High Recovery Expectations (Positive) Of the portfolio, 99.7% comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the portfolio is reported by the trustee at 64.0% as of 8 February 2021. Portfolio Well Diversified (Positive) The portfolio is well diversified across obligors, countries and industries. The top-10 obligor concentration is no more than 16% and no obligor represents more than 2.2% of the portfolio balance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate - through natural credit migration and through reinvestments. -- Upgrades may occur after the end of the reinvestment period on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As the disruptions to supply and demand due to the pandemic become apparent, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Potential Severe Downside Stress Scenario Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a one-notch downgrade to all the corporate exposure on Negative Outlook. This scenario results in up to a one-notch downgrade. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY ARES European CLO XII DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ARES EURO XIII: Fitch Affirms B- Rating on Class F Notes -------------------------------------------------------- Fitch Ratings has revised the Outlook on ARES European CLO XIII DAC's class C, D, E and F notes to Stable from Negative, and affirmed all ratings. DEBT RATING PRIOR ---- ------ ----- ARES European CLO XIII DAC A XS2084071807 LT AAAsf Affirmed AAAsf B-1 XS2084072367 LT AAsf Affirmed AAsf B-2 XS2084073092 LT AAsf Affirmed AAsf C-1 XS2084073688 LT Asf Affirmed Asf C-2 XS2084074140 LT Asf Affirmed Asf D XS2084074900 LT BBB-sf Affirmed BBB-sf E XS2084075626 LT BB-sf Affirmed BB-sf F XS2084076194 LT B-sf Affirmed B-sf X XS2084071633 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY ARES European CLO XIII DAC is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine and second-lien loans. The portfolio is managed by Ares European Loan Management LLP. The reinvestment period ends in July 2024. KEY RATING DRIVERS Resilient to Coronavirus Stress The affirmation reflects the broadly stable portfolio credit quality since October 2020. The existing Stable Outlooks and the revision of the Outlooks on some notes to Stable from Negative reflect the resilience to the coronavirus baseline sensitivity analysis that Fitch ran in light of the pandemic. All notes displayed cushions under this stress, except the class F notes, which showed a marginal shortfall. Fitch has recently updated its CLO coronavirus stress scenario to assume that half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. Portfolio Performance As of the latest investor report dated 8 February 2021, the transaction was 0.08% below par and all portfolio profile tests, coverage tests and collateral quality tests were passing, except for the Fitch weighted average recovery rating (WARR) and weighted average spread (WAS), which were failing marginally. The manager could elect a new Fitch test matrix point to bring these tests into compliance. The transaction had no defaulted assets. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 3.12 % (excluding unrated assets). Assets with an FDR on Negative Outlook made up 33.29% of the portfolio balance. 'B'/'B-' Portfolio Credit Quality Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch WARF of the current portfolio is 34.55 (assuming unrated assets are 'CCC'), below the maximum covenant of 35, while the trustee-reported Fitch WARF was 34.33. High Recovery Expectations Senior secured obligations make up 99.41% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligors represent 16.27% of the portfolio balance with no obligor accounting for more than 2.33%. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. In addition, Fitch tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario but included all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio's credit quality may still deteriorate through natural credit migration or reinvestments. -- After the end of the reinvestment period, upgrades may occur in case of better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those vulnerable sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its leveraged finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The downside sensitivity incorporates a single-notch downgrade to all FDRs for assets that are on Negative Outlook. In this case, the model-implied ratings for the class C, D, E and F notes would be one notch below their current ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CARLYLE EURO 2018-2: Fitch Affirms B- Rating on Class E Notes ------------------------------------------------------------- Fitch Ratings has revised the Outlooks on Carlyle Euro CLO 2018-2 DAC's class C, D and E notes to Stable from Negative and affirmed the ratings. DEBT RATING PRIOR ---- ------ ----- Carlyle Euro CLO 2018-2 DAC A-1A XS1852487393 LT AAAsf Affirmed AAAsf A-1B XS1852487633 LT AAAsf Affirmed AAAsf A-2A XS1852487989 LT AAsf Affirmed AAsf A-2B XS1852488284 LT AAsf Affirmed AAsf A-2C XS1856085656 LT AAsf Affirmed AAsf B-1 XS1852488524 LT Asf Affirmed Asf B-2 XS1856094567 LT Asf Affirmed Asf C XS1852488953 LT BBBsf Affirmed BBBsf D XS1852486742 LT BBsf Affirmed BBsf E XS1852486312 LT B-sf Affirmed B-sf TRANSACTION SUMMARY The transaction is a cash flow CLO, mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by CELF Advisors LLP. KEY RATING DRIVERS Stable Asset Performance Carlyle Euro CLO 2018-2 DAC was below par by 1.6% as of the latest investor report dated 12 February 2021. All portfolio profile tests, collateral quality tests and coverage tests were passing except for the Fitch 'CCC' test (8.1% versus a limit of 7.5%), and another agency's weighted average rating factor (WARF) test. The manager classifies one asset for EUR2.3 million as defaulted. Resilient to Coronavirus Stress The affirmations reflect a broadly stable portfolio credit quality since October 2020. The Stable Outlooks on all investment-grade notes, and the revision of the Outlooks on the sub-investment-grade notes to Stable from Negative reflect the default rate cushion in the sensitivity analysis in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. 'B'/'B-' Portfolio Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch-calculated WARF (assuming unrated assets are 'CCC') and the WARF calculated by the trustee for Carlyle Euro CLO 2018-2 DAC's current portfolio were 36.04 and 36.36, respectively, below the maximum covenant of 37. The Fitch-calculated WARF would increase by 1.6 after applying the coronavirus stress. High Recovery Expectations Senior secured obligations comprise at least 98.8% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the current portfolio under Fitch's calculation is 63.95%. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is no more than 13.7%, and no obligor represents more than 1.5% of the portfolio balance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. -- After the end of the reinvestment period, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than initially assumed due to an unexpected high level of default and portfolio deterioration. As the disruptions to supply and demand due to Covid-19 related disruptions become apparent for other sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with its Leveraged Finance team's views. Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of Covid-19 infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook. This scenario does not result in downgrades across the capital structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch or other Nationally Recognised Statistical Rating Organisations or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. DUNEDIN PARK: Fitch Affirms BB Rating on Class D Junior Notes ------------------------------------------------------------- Fitch Ratings has revised the Outlooks on Dunedin Park CLO DAC's junior notes to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- Dunedin Park CLO DAC A-1 XS2036104243 LT AAAsf Affirmed AAAsf A-2A XS2036104839 LT AAsf Affirmed AAsf A-2B XS2036105489 LT AAsf Affirmed AAsf B-1 XS2036106024 LT Asf Affirmed Asf B-2 XS2036106883 LT Asf Affirmed Asf C XS2036107428 LT BBBsf Affirmed BBBsf D XS2036108152 LT BBsf Affirmed BBsf X XS2036104086 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY Dunedin Park CLO DAC is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by Blackstone Ireland Limited. KEY RATING DRIVERS Resilient to Coronavirus Stress: Both Fitch' revision of the Outlooks on the class C and D notes to Stable from Negative and the Stable Outlooks on the other notes reflect the very limited default-rate shortfall in the sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch recently updated its CLO coronavirus stress scenario to assume that only half (rather than all) of the corporate exposure that is on Negative Outlook is downgraded by one notch. The affirmations reflect the broadly stable credit quality of the transaction portfolio since November 2020. Good Asset Performance: The transaction is still in its reinvestment period and its portfolio is actively managed by the collateral manager. The transaction was above par by 0.34% as of the investor report of February 2021. All portfolio profile tests, collateral quality tests and coverage tests have been passed. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 4.79% (excluding non-rated assets). The transaction had no defaulted assets. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category for the transaction. Fitch calculated the weighted average rating factor (WARF) as 33.7 (assuming unrated assets are equivalent to 'CCC'). The trustee calculated it to be 33.32, below the maximum covenant of 33.50. The Fitch-calculated WARF would increase by 1.28 if the coronavirus baseline stress scenario were applied. High Recovery Expectations: Senior secured obligations comprise 98.67% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Portfolio Is Well Diversified: The portfolio is well diversified across obligors, countries and industries. The top 10 obligor concentration is 12.57%, and no obligor represents more than 1.62% of the portfolio balance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's Stressed Portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's Stressed Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate, not only through natural credit migration but also through reinvestments. -- Upgrades may occur after the end of the reinvestment period on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As pandemic related disruption to supply and demand becomes more apparent, loan ratings in those sectors will also come under pressure. Fitch will update its sensitivity scenarios in line with the view of its leveraged finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged period of economic stress. The downside sensitivity incorporates a single-notch downgrade to all FDRs on Negative Outlook. For this transaction, this scenario would at most result in two-notch downgrades. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Dunedin Park CLO DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk-presenting entities have ratings or Credit Opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for its rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. GRAND HARBOUR 2019-1: Fitch Affirms B- Rating on Class F Notes -------------------------------------------------------------- Fitch Ratings has revised the Outlooks of Grand Harbour CLO 2019-1 DAC's class D to F notes to Stable from Negative and affirmed the ratings. DEBT RATING PRIOR ---- ------ ----- Grand Harbour CLO 2019-1 DAC A XS2020626953 LT AAAsf Affirmed AAAsf B-1 XS2020628140 LT AAsf Affirmed AAsf B-2 XS2020629114 LT AAsf Affirmed AAsf C XS2020629460 LT A+sf Affirmed A+sf D XS2020630120 LT BBB-sf Affirmed BBB-sf E XS2020630807 LT BB-sf Affirmed BB-sf F XS2020652108 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Grand Harbour CLO 2019-1 DAC is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine and second-lien loans. The portfolio is managed by MeDirect Bank (Malta) plc. The reinvestment period ends in March 2024. KEY RATING DRIVERS Resilient to Coronavirus Stress The affirmation reflects the broadly stable portfolio credit quality since July 2020. The Stable Outlook on the rest of the notes and the revision of the Outlooks on the class D to F notes to Stable from Negative reflect the default rate cushion in the sensitivity analysis ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume that half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. Portfolio Performance As of the latest investor report dated 22 February 2021, the transaction was 0.59% above par and all portfolio profile, coverage and collateral quality tests were passing, except for the Fitch weighted average rating factor (WARF) test. As of the same report, the transaction had no defaulted assets. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 6.04% (excluding unrated assets). Assets with an FDR on Negative Outlook made up 13.15% of the portfolio balance. 'B'/'B-' Portfolio Credit Quality Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch WARF of the current portfolio is 35.48 (assuming unrated assets are 'CCC'), above the maximum covenant of 34, while the trustee-reported Fitch WARF was 34.54. High Recovery Expectations Senior secured obligations are 98.94% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligors represent 18.41% of the portfolio balance with no obligor accounting for more than 1.99%. About 42.7% of the portfolio consists of semi-annual obligations but a frequency switch has not occurred due to the transaction's high interest coverage ratios. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par-value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. In addition, Fitch tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario but included all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The transaction features a reinvestment period and the portfolio is actively managed. At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio's credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. -- After the end of the reinvestment period, upgrades may occur in case of better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those vulnerable sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The downside sensitivity incorporates a single-notch downgrade to all FDRs for assets that are on Negative Outlook. In this case the model-implied ratings for all classes would be the same as their current ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. HENLEY CLO IV: Fitch Affirms B- Rating on Class F Debt ------------------------------------------------------ Fitch Ratings has assigned Henley CLO IV Designated Activity Company final ratings. DEBT RATING PRIOR ---- ------ ----- Henley CLO IV DAC A XS2291281751 LT AAAsf New Rating AAA(EXP)sf B-1 XS2291281918 LT AAsf New Rating AA(EXP)sf B-2 XS2291282130 LT AAsf New Rating AA(EXP)sf C XS2291283021 LT Asf New Rating A(EXP)sf D XS2291282486 LT BBB-sf New Rating BBB-(EXP)sf E XS2291282569 LT BB-sf New Rating BB-(EXP)sf F XS2291283377 LT B-sf New Rating B-(EXP)sf Subordinated Notes XS2291282999 LT NRsf New Rating NR(EXP)sf TRANSACTION SUMMARY Henley CLO IV DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans, first-lien, last-out loans and high-yield bonds. Note proceeds have been used to fund a portfolio with a target par of EUR400 million. The portfolio is actively managed by Napier Park Global Capital Ltd. The transaction has a 4.3-year reinvestment period and an 8.5-year weighted average life. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors to be in the 'B'/'B-' category. The Fitch weighted average rating factor of the identified portfolio is 34.9. High Recovery Expectations (Positive): At least 90% of the portfolio will comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 62.1%. Diversified Portfolio (Positive): The transaction has four matrices corresponding to two of the 10 largest obligors at 18% and 26.5% of the portfolio balance and two maximum fixed-rate asset limits at 0% and 15%. The transaction also includes various concentration limits, including the maximum exposure to the three largest (Fitch-defined) industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Positive): The transaction has a 4.3-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Deviation from Model-Implied Rating (Negative): The expected ratings of the class E and F notes are one notch higher than the model-implied rating (MIR). The ratings are supported by average credit enhancement, as well as a significant default cushion on the identified portfolio at the assigned ratings due to the notable cushion between the covenants of the transactions and the portfolio's parameters. Both notes pass the assigned ratings based on the identified portfolio and the coronavirus sensitivity analysis that is used for surveillance. The class F notes' deviation from the MIR reflects Fitch's view that the tranche displays a significant margin of safety given the credit enhancement level. The notes do not currently present a 'real possibility of default', which is the definition of 'CCC' in Fitch's Rating Definitions. RATING SENSITIVITIES This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modelling process uses the modification of these variables to reflect asset performance in rising and falling environments. The results below should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A 25% reduction of the mean default rate (RDR) and a 25% increase in the recovery rate (RRR), both across all ratings, will result in an upgrade of maximum five notches across the structure, apart from the class A, which is already at the highest 'AAAsf' rating. -- The transaction has a reinvestment period and the portfolio is actively managed. At closing, Fitch uses a standardised stress portfolio (Fitch's Stress Portfolio) that is customised to the specific portfolio limits for the transaction, as specified in the transaction documents. Even if the actual portfolio shows lower defaults and losses at all rating levels than Fitch's Stress Portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio credit quality may still deteriorate, by natural credit migration, and also through reinvestments. -- After the end of the reinvestment period, upgrades may occur if there is better-than-expected portfolio credit quality and deal performance, leading to higher CE and excess spread available to cover for losses on the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A 25% increase of the mean RDR and a 25% decrease of the RRR, both across all ratings, will result in downgrades of two to five notches across the structure. -- Downgrades may occur if the build-up of the notes' CE following amortisation does not compensate for a higher loss expectation than initially assumed due to unexpected high levels of default and portfolio deterioration. As the pandemic-related disruptions to supply and demand for other vulnerable sectors become apparent, loan ratings in such sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Baseline Scenario Impact Fitch carried out a sensitivity analysis on the target portfolio to envisage the coronavirus baseline scenario. Fitch notched down the ratings for half of assets with corporate issuers on Negative Outlook regardless of sector. This scenario shows resilience of the assigned ratings, with a substantial cushion across all notes. Coronavirus Downside Scenario Impact Fitch also considers a sensitivity analysis that contemplates a more severe and prolonged economic stress. The downside sensitivity incorporates a single-notch downgrade to all Fitch-derived ratings of assets with corporate issuers on Negative Outlook regardless of sector. Under this downside scenario, all classes pass the current ratings. For more information on Fitch's stressed portfolio and initial MIR sensitivities, see the presale report. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Henley CLO IV DAC The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. MADISON PARK: Fitch Affirms B- Rating on Class F Junior Notes ------------------------------------------------------------- Fitch Ratings has revised the Outlooks Madison Park Euro Funding XII DAC on the class C, D, E and F notes to Stable from Negative and affirmed the ratings. DEBT RATING PRIOR ---- ------ ----- Madison Park Euro Funding XII DAC A XS1861231667 LT AAAsf Affirmed AAAsf B1 XS1861232046 LT AAsf Affirmed AAsf B2 XS1861235908 LT AAsf Affirmed AAsf C XS1861236039 LT Asf Affirmed Asf D XS1861232806 LT BBB-sf Affirmed BBB-sf E XS1861233101 LT BB-sf Affirmed BB-sf F XS1861233366 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Madison Park Euro Funding XII DAC is a securitisation of mainly senior secured loans (at least 96%) with a component of senior unsecured, mezzanine and second-lien loans. The portfolio is managed by Credit Suisse Asset Management. The reinvestment period ends in April 2023. KEY RATING DRIVERS Stable Asset Performance Asset performance has been stable since the previous review. As per a trustees' report on 12 February 2021, the deal is below target par by 2.7% on account of defaulted assets in the portfolio. However, the exposure to defaulted assets have reduced by about EUR2.95 million since the review in November 2020. All coverage tests, portfolio profile tests and Fitch related collateral quality tests are passing, except for the Fitch weighted average rating factor (WARF) test and 'CCC' limit test. Exposure to assets with a Fitch-derived rating of 'CCC+' and below as calculated by Fitch as of 13 March 2021 is 8.39% (or 8.79% including the unrated names, which Fitch treats as 'CCC' per its methodology, while the manager can classify as 'B-' for up to 10% of the portfolio), slightly higher than the 7.5% limit. Resilience to Coronavirus Stress The affirmation reflects the broadly stable portfolio credit quality since the last review. The Stable Outlooks on the class A and B notes and the revision of the Outlooks on the class C, D and E notes to Stable from Negative reflect the default rate cushion or a small shortfall for the class F notes in the sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch has recently updated its CLO pandemic stress scenario to assume that half of the corporate exposure on the Negative Outlook is downgraded by one notch rather than 100%. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. At 13 March, the Fitch-calculated WARF of the portfolio was 35.19. High Recovery Expectations: Senior secured obligations make up 98.79% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. As per the latest trustee report, the Fitch weighted average recovery rating of the portfolio was 64.5%. Portfolio Well Diversified The portfolio is well diversified across obligors, countries and industries. The top 10 obligor concentration is no more than 12.6%, and no obligor represents more than 1.44% of the portfolio balance. The top Fitch industry and top three Fitch industry concentrations are also within the defined limits of 17.5% and 40.0%, respectively. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade may occur in case of continued better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses on the remaining portfolio. Upgrades would be more likely for the investment-grade tranches if the transaction deleverages and the portfolio credit quality remains stable. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The downside sensitivity incorporates a single-notch downgrade to all Fitch-derived ratings on Negative Outlook. This scenario shows resilience of the ratings for the investment-grade notes and on the sub-investment-grade notes the scenario will result in downgrades of no more than one notch. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. PALMER SQUARE 2021-1: Moody's Assigns B3 Rating to Class F Notes ---------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following definitive ratings to notes issued by Palmer Square European CLO 2021-1 DAC (the "Issuer"): EUR217,000,000 Class A Senior Secured Floating Rate Notes due 2034, Definitive Rating Assigned Aaa (sf) EUR35,000,000 Class B Senior Secured Floating Rate Notes due 2034, Definitive Rating Assigned Aa2 (sf) EUR23,800,000 Class C Senior Secured Deferrable Floating Rate Notes due 2034, Definitive Rating Assigned A2 (sf) EUR23,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2034, Definitive Rating Assigned Baa3 (sf) EUR15,700,000 Class E Senior Secured Deferrable Floating Rate Notes due 2034, Definitive Rating Assigned Ba3 (sf) EUR10,500,000 Class F Senior Secured Deferrable Floating Rate Notes due 2034, Definitive Rating Assigned B3 (sf) RATINGS RATIONALE The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in Moody's methodology. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured obligations and up to 10% of the portfolio may consist of senior unsecured obligations, second-lien loans, mezzanine obligations and high yield bonds. The portfolio is expected to be 95% ramped as of the closing date and to comprise of predominantly corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the 7-months ramp-up period in compliance with the portfolio guidelines. Palmer Square Europe Capital Management LLC ("Palmer Square") will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's four-year reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or credit improved obligations. In addition to the six classes of notes rated by Moody's, the Issuer will issue EUR29,600,000 Subordinated Notes due 2034 which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around Moody's forecasts. Moody's analysis has considered the effect on the performance of corporate assets from a gradual and unbalanced recovery in European economic activity. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2020. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2020. Moody's used the following base-case modeling assumptions: Par Amount: EUR350,000,000 Diversity Score: 48 Weighted Average Rating Factor (WARF): 2900 Weighted Average Spread (WAS): 3.40% Weighted Average Coupon (WAC): 3.75% Weighted Average Recovery Rate (WARR): 43.50% Weighted Average Life (WAL): 8.5 years PALMER SQUARE 2021-1: S&P Assigns B- (sf) Rating on Class F Notes ----------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Palmer Square European CLO 2021-1 DAC's class A, B, C, D, E, and F notes. At closing, the issuer also issued 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 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. -- 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 2580.73 Default rate dispersion 692.10 Weighted-average life (years) 5.33 Obligor diversity measure 118.82 Industry diversity measure 21.97 Regional diversity measure 1.54 Transaction Key Metrics Current Total par amount (mil. EUR) 350.00 Defaulted assets (mil. EUR) 0 Number of performing obligors 142 Portfolio weighted-average rating derived from our CDO evaluator 'B' 'CCC' category rated assets (%) 0.00 'AAA' covenanted weighted-average recovery (%) 37.68 Covenanted weighted-average spread (%) 3.40 Reference weighted-average coupon (%) 3.75 Rating rationale S&P said, "Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. The portfolio primarily comprises 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 manages the transaction. An experienced manager of U.S. CLOs, this is 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 ratings. The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under S&P's current counterparty criteria. S&P said, "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 ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria.. "We consider the transaction's legal structure to be bankruptcy remote, in line with our legal criteria. "Our credit and cash flow analysis indicates 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 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." S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. S&P said, "We use these assumptions 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. Ratings List Class Rating Amount Subordination (%) Interest rate* (mil. EUR) 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 =================== FLAMINGO II LUX: S&P Assigns 'B' Long-Term ICR, Outlook Stable -------------------------------------------------------------- S&P Global Ratings assigned its 'B' long-term issuer credit rating to Luxembourg based Flamingo II Lux S.a.r.l., in line with its rating on Foncia Management; and its 'CCC+' issue rating to the company's proposed junior subordinated debt. The stable outlook reflects S&P's expectation that Foncia's operating performance will remain resilient despite the COVID-19 pandemic, and the company will continue to deliver positive free operating cash flow (FOCF) over the next two years. S&P said, "The group credit profile is driven by Foncia. Parent company Flamingo has no other holdings than its 100% stake in Foncia, a European leader in the real estate service provider industry. Foncia represents 100% of the group's consolidated EBIDTA, so we derive the group credit profile from our appreciation of its business risk and financial risk profiles. We view Foncia Management as a core subsidiary to Flamingo and therefore we align our group credit profile with our 'b' assessment for Foncia. "We will rate Flamingo's proposed junior bonds 'CCC+', two notches below the issuer credit rating Flamingo's EUR250 million junior bonds will be subordinated to Foncia's senior debt. The recovery prospects for the junior bondholders are therefore constrained in an event of default by the material senior debt ranking ahead of them. "The stable outlook reflects our expectation that the operating performance of Foncia, Flamingo's only subsidiary, will remain resilient despite the COVID-19 pandemic, and that the company will continue to deliver positive FOCF over the next two years, with revenue increasing thanks to external growth from acquisitions and growth in core segments and services. Our stable outlook assumes the pandemic will only moderately affect operations and credit ratios in 2021. We also assume that Foncia's funds from operations (FFO) cash interest coverage will remain comfortably above 2.0x over 2021, and that the company will maintain sufficient liquidity to cover uses by at least 1.2x." S&P could take a negative rating action if: -- The group's profitability underperforms compared with our expectations, owing to deteriorating real estate transaction market conditions, changes in the regulatory and legal environment, or increased competition; -- Additional dividend recapitalizations result in higher leverage than expected in our base-case scenario; -- The group fails to reduce leverage from currently elevated levels due to deteriorating operating performance, resulting in negative FOCF from higher-than-expected exceptional costs, capital expenditure investment needs, or increasing churn rates, resulting in FOCF to debt falling below 5%; and -- FFO cash interest coverage approaches 2.0x. S&P could take a positive rating action if: -- The group reduces leverage more quickly than expected, bringing debt to EBITDA toward 5.0x sustainably; -- It reduces dependency on a single country; and -- S&P sees a strong commitment from Partners Group to refrain from raising leverage to increase shareholder remuneration. LSF10 XL: S&P Lowers ICR to 'B' on Proposed Dividend Recap ---------------------------------------------------------- S&P Global Ratings lowered its issuer credit rating on LSF10 XL Investments S.a.r.l (Xella) to 'B' from 'B+'; and assigned its 'B' issue rating and '3' recovery rating to the proposed senior secured facilities. S&P said, "The stable outlook reflects our expectation that positive business trends and Xella's resilient profitability should facilitate a gradual deleveraging to below 7.5x S&P Global Ratings-adjusted debt to EBITDA in 2021, or well below 9.0x including PECs. We also expect Xella to maintain solid free operating cash flow." Xella's planned refinancing will lead to a considerable increase in gross debt and much higher interest costs. The company has proposed a EUR1.95 billion, seven-year first lien TLB, and is considering a potential issuance of subordinated Holdco payment-in-kind (PIK) facility of up to EUR200 million. Xella intends to use the proceeds to refinance EUR1.67 billion of senior secured term loans and make a one-time distribution of EUR710 million to its shareholder, Lone Star Funds. This transaction will also reduce the cash balance by nearly EUR260 million to about EUR150 million. S&P said, "Although the potential PIK will be outside the restricted group of the proposed senior secured facilities, we view the PIK as debt for the group and include it in our pro forma leverage calculation. In addition, Xella will have a EUR250 million, 6.5-year revolving credit facility (RCF) to replace the EUR175 million RCF due 2023. Following the proposed transaction, the company's gross debt, which we base our leverage calculation on, will increase by about EUR470 million and we expect annual interest cost to be about EUR18 million higher." Despite the softening economy in Europe, Xella's performance remained resilient in 2020. The COVID-19 pandemic had a less severe effect on the company's operating performance than we expected. Sales fell only 5% and EBITDA (S&P Global Ratings-adjusted) increased to about EUR318 million in 2020 from EUR305 million in 2019, indicating a rise in EBITDA margin to about 21% in 2020 from 19.2% in 2019. The higher margin stems from maintained prices despite lower raw material costs, a flexible cost structure, continuous focus on efficiency improvement, and reinforced cost-cutting measures during the pandemic. S&P said, "We expect Xella's leverage to peak this year after the proposed transaction, followed by gradual deleveraging from 2021. The higher debt load from the planed dividend recap will significantly outweigh the increase in EBITDA, leading to much higher leverage. We forecast our adjusted pro forma gross debt-to-EBITDA metric for Xella will deteriorate to about 7.5x as of end-2020 (including the potential subordinated PIK facility), or below 9x adding the PECs, which we view as debt. This is about 1.5x higher than before the transaction. We take a cautious view of the likely recovery in market demand and foresee only moderate improvement in 2021, with the stronger rebound in 2022. Combined with our estimate of resilient margins, this will lead to adjusted EBITDA of EUR325 million-EUR335 million in 2021, strengthening to EUR360 million-EUR370 million in 2022. As a result, we anticipate a gradual deleveraging with adjusted debt to EBITDA falling below 7.5x in 2021 and 6.5x-7.0x by 2022, or well below 9x including PECs this year and toward 8x next year. We view the elevated leverage from the aggressive financial policy as a main constraint for the rating. "Despite higher leverage, we expect free operating cash flow (FOCF) to remain solid. We expect strengthened EBITDA and reduced capital expenditure (capex) enabled Xella to increase FOCF to EUR85 million-EUR95 million in 2020, from about EUR55 million in 2019. The company has the flexibility to cut or postpone a large part of its growth capex. Specifically, the EUR80 million-EUR85 million in capex in 2020 is about 13% below its pre-pandemic budget of about EUR95 million. In addition, Xella has focused on more-efficient working capital management. We forecast solid FOCF in 2021 and 2022 at EUR50 million-60 million per year, although lower than the level in 2020." This is mainly due to higher working capital outflow in line with topline growth and the return to a higher annual capex level of EUR95 million-EUR100 million, of which EUR10 million-EUR15 million relate to the ongoing efficiency program, Xcite 2.0. Xella's satisfactory business risk is stronger than most industry peers at the same rating level. Although its markets are niche, the company's leading positions in them supports its business risk. Xella is one of Europe's largest autoclaved aerated concrete and calcium silicate unit providers. Strong market shares in its core European markets and well-recognized brands provides the company with a certain degree of pricing power. It used this to increase prices in late 2019, offsetting the higher energy prices in 2018-2019. Maintaining these prices in 2020, combined with lower raw material costs, more than offset the margin pressure from lower demand. In addition, Xella has a track record of improving profitability through continuous focus on commercial discipline and cost efficiency. S&P's adjusted EBITDA for the company has risen continuously to about 21% in 2020 from 12.1% in 2015, and is now above the industry average. S&P said, "The stable outlook reflects our expectation that current positive business trends and Xella's resilient profitability should facilitate a gradual deleveraging to below 7.5x S&P Global Ratings-adjusted debt to EBITDA in 2021, or well below 9.0x including PECs. We also expect the company to maintain solid FOCF. "We could lower the rating if Xella's margin declined significantly, or if FOCF deteriorated compared with our expectations without near-term recovery prospects. In addition, a more aggressive financial policy regarding acquisitions and dividends, as reflected in a failure to gradually deleverage after the proposed transaction, could constrain the rating. "We could raise the rating if Xella demonstrated a track record of healthy organic growth while at least maintaining its profitability and generating sustainably solid FOCF. An upgrade would be contingent on adjusted debt to EBITDA improving to below 6.5x sustainably, or below 7.5x including PECs, and a strong commitment from the shareholder to keep adjusted leverage at this level." ========= S P A I N ========= CODERE S.A.: S&P Downgrades ICR to 'CC', Outlook Negative --------------------------------------------------------- S&P Global Ratings lowered to 'CC' from 'CCC' its long-term issuer credit rating (ICR) on Codere S.A. At the same time S&P lowered the issue ratings on the company's EUR250 million super senior notes to 'CCC-' from 'CCC+', and the EUR500 million and $300 million senior secured notes to 'CC' from 'CCC'. The negative outlook indicates that S&P could lower its ICR and issue rating on Codere should the group trigger a default, such as debt restructuring, interest nonpayment, or other selective default events. On account of COVID-19 related disruptions, Codere's operating performance in 2020 was weaker than anticipated, and it continued through the first couple of months of 2021, with a material tightening of covenant headroom and overall thin liquidity resources. The company's revenue and EBITDA notably declined in 2020 because of the pandemic. In the year, revenue fell 57.2% to EUR595 million and adjusted EBITDA, as per S&P Global definition, turned negative, to about EUR30 million (compared with positive EUR275 million in 2019). In addition, subsequent waves of the pandemic at the end of 2020 and early 2021 resulted in additional closures and restrictions to Codere's operations, which only started to soften in mid-February and have strained the company's cash availability and cash flow significantly. Cash and equivalents have fallen, to EUR85.6 million in January and about EUR70 million as of Feb. 28, 2021, as per S&P Global expectations, from EUR110 million as of Dec. 31, 2020. S&P said, "We understand Codere has two coupon payments due in March (EUR13.4 million) and April (EUR17 million), in addition to EUR5 million payment per month, related to the gaming tax deferrals in Italy. In this context of thin liquidity, the company has engaged financial advisors to assess alternatives in tackling liquidity issues, which could ultimately result in a restructuring or liquidity raising that we would view as a selective default. Codere has one maintenance liquidity covenant which requires a minimum of EUR40 million in cash, cash equivalents, and undrawn facilities, tested at the end of every month. In our view, the company will likely breach this next month, absent any debt restructuring and waiver agreement. As of the date of publication, only Italian operations continue to be shut down, as Mexico reopened earlier in the week, although at limited capacity. We expect Codere to gradually ramp up operations, as evidenced when previous restrictions were lifted in the second part of 2020. However, this will not prevent the company, in our view, from having to reorganize its capital structure and necessitating a liquidity injection in the near term." S&P said, "Our ratings reflect an imminent liquidity crisis, which we think could result in specific default events such as a restructuring, interest nonpayment, or amendments and variations to existing instruments We believe the company's credit conditions have continued to deteriorate given its unsustainable capital structure and the ongoing closures and restrictions to its operations. In our view, Codere will imminently likely run out of cash, absent a liquidity injection. We understand the company is in negotiations with an ad hoc committee comprising noteholders of the group's super senior and senior notes outstanding to assess financial alternatives. "We would likely view any transaction as distressed and therefore, upon implementation, as tantamount to a default. Codere's senior notes continue to trade at a steep discount to par, below 60% at time of writing. Therefore, in S&P Global Ratings' view, any restructuring that involved these notes receiving less than originally promised is likely to result in a default event. We understand the group can raise up to EUR30 million under existing permitted indebtedness baskets at the operating company level, an amount we view as unlikely to solve the liquidity crisis. Also, Codere has the capacity to raise an additional EUR100 million at the super senior level, if it obtains majority consent of its super senior noteholders to increase the EUR250 million limit. If this were to occur, it would push senior debtholders further down in the waterfall by raising additional super senior debt. We view a likely restructuring or liquidity raising involving the senior debt instruments in some form as a virtual certainty." Environmental, social, and governance (ESG) credit factors for this credit rating change: -- Health and safety The negative outlook is based on Codere's ongoing liquidity crisis and the negotiations with the ad hoc committee of super senior and senior lenders to assess financial alternatives. S&P said, "We would lower our ICR on Codere to 'SD' (selective default) or 'D' (default) upon completion of any restructuring or triggering of specific default events. This could include nonpayment of interest or a debt restructuring. "We could raise the ICR if a restructuring transaction did not happen and we no longer viewed default as a virtual certainty, for instance, due to very material liquidity support and the waiver of covenants." =========== S W E D E N =========== RECIPHARM AB: S&P Assigns 'B' Issuer Credit Rating, Outlook Pos. ---------------------------------------------------------------- S&P Global Ratings assigned its 'B' issuer credit rating to Swedish pharmaceutical company Recipharm AB (Roar BidCo AB), and its 'B' issue rating, with a recovery rating of '3' (rounded estimate of 60%), to the group's proposed EUR1.1 billion term loan B (TLB). The positive outlook reflects S&P's expectation that Recipharm's EBITDA will continue to grow, with an S&P Global Ratings-adjusted EBITDA margin improvement of more than 100 basis points each year, supported by positive underlying market dynamics, increasing capacity, tight cost-control, and focus on synergies. Recipharm's significant scale, diverse product mix, and vertically integrated business model are key credit strengths. Recipharm is the second-largest contract development and manufacturing organization (CDMO) in Europe and fifth in the world. In S&P's view, scale is an important factor in the CDMO industry since large groups can secure better pricing, larger volume contracts, and benefit from barriers to entry in terms of manufacturing footprint. Recipharm offers manufacturing capabilities and development services to branded pharmaceutical groups and generics companies across a broad range of geographies and capabilities including sterile, solids, advanced delivery systems (mainly inhalation) and development and licensing services. Recipharm benefits from a vertically integrated business model with broad technology offering capable of offering pre-clinical development, formulation development, material for clinical studies, manufacturing and packaging and supply chain services for companies that outsource such services. Equity sponsor EQT acquired Recipharm after the successful public offer was completed on Feb. 15, 2020, and the group's founding shareholders have retained a stake. Since then, Recipharm has been refinancing its current capital structure and plans to issue a EUR1.1 billion first-lien TLB, GBP228 million second-lien term loan, and a SEK3 billion RCF. S&P said, "Our assumptions reflect solid revenue visibility thanks to long sales cycles and relatively high switching costs compared with potential customer savings. We understand that a 20%-30% price gap could prompt customers to switch to another CDMO provider, and we consider this to be a sizable buffer. We note that 95% of Recipharm's customer sales are confirmed, although actual volumes could vary during the year, reflecting underlying products demand. In addition, the stability of Recipharm's revenue should benefit from customer loyalty, since 95% of its revenue stems from customers for which Recipharm is the sole supplier. Furthermore, the group enjoys a diversified customer base, considering that the top-five customers represent 27% of pro forma revenue, with no single customer representing more than 10%, which is split across a number of different products and markets. The group's stable customer relationships are a testament to Recipharm's capacity to offer clients an end-to-end service. We observed this in the group's acquisition of Consort Medical in February 2020, a transaction that enabled Recipharm to significantly improve its inhalation technology offering. We therefore do not rule out future debt-financed acquisitions to strengthen its vertically integrated business model, and we acknowledge that this could create integration and acquisitions risks over our rating horizon. "We believe that, similar to other CDMOs, Recipharm is subject to stringent manufacturing standards and lacks pricing powers. As such, operating efficiency and capacity to renew or gain new contracts--in order to continually increase volumes--are essential to our assessment of Recipharm's business risk profile. Furthermore, we consider that operational setbacks, such as material production bottlenecks, could jeopardize Recipharm's capacity to retain its customer base." Consequently, any misplaced orders or delays in deliveries, loss of key accounts, or underutilized capacity could cause a deviation from our base case and constrain the rating. The CDMO market should continue to expand at 6%-8% over the next three years. This growth should be driven by increasing outsourcing penetration and underlying growth in pharmaceutical demand. The market will remain price competitive, especially in the older technologies like solids, which are becoming commoditized (over 70% of marketed drugs in Europe have a solid dosage). S&P said, "We note that solids represent about 44% of the group's total sales, which exposes it to price pressures. That said, we understand that Recipharm aims to reinforce its presence in the more technologically complex and higher growth segment of biologics, where the groups currently lacks a strong position." Failure to successfully shift its product mix, however, could create rating pressure. Recipharm should benefit from the increasing demand for vaccines. S&P believes it's the group's technological capabilities and manufacturing footprint that position it favorably to reap these benefits. Going forward, the group expects incremental demand for CDMO capacity for COVID vaccine production both for trials (very short term) and manufacturing. Recipharm is responsible for producing the Moderna vaccine against COVID-19 in France, and it has reached an agreement with Acturus Therapeutics to support the manufacturing of LUNAR-COV19 (ARCT-021) vaccine, which is currently in phase one and two of clinical trials. S&P anticipates additional revenue of SEK550 million in 2021 and SEK100 million-SEK300 million annually thereafter. Additional benefits should stem from the European Commission's re-evaluation of pharmaceutical supply chains. The European Commission wants to protect against future disruption and over-reliance on certain geographies, shifting production capacities toward Europe, and this, in the long run, would support the group's strong foothold in Europe. Still, the extent and timing of such measures remain uncertain. S&P said, "In our view, the group's strong capital expenditure (capex) plan over the past three years have led the group to be well invested. Nevertheless, capex requirements will continue to weigh on free operating cash flow (FOCF), which we expect will stay between SEK760 million and SEK860 million in 2021." Recipharm's leverage, as adjusted by S&P Global ratings, will likely stabilize at 6.0x-6.5x over the next couple of years. This is thanks to steady growth, margin improvements, and supportive investments in its manufacturing facilities. S&P said, "We assume growth capex of SEK580 million-SEK630 million per year over the next two years and that the group will comfortably generate FOCF of around SEK815 million on average for the same period. We assume the company will be able to deliver EBITDA of more than SEK2.0 billion in 2021 and around SEK2.2 billion in 2022, allowing it to deleverage from around 6.9x S&P Global Ratings-adjusted debt to EBITDA in 2021 to about 6.4x in 2022. Our estimate reflects strong organic growth of about 2.5% in 2021 and 3.5% in 2022, supported by long-term contracts. This is broadly in line with the group's track record. We expect an S&P Global Ratings-adjusted EBITDA margin of nearly 18% in 2021 and 19% in 2022, benefiting from ongoing cost-savings, significant scale, and increased utilization of its manufacturing facilities thanks to secured contracted volumes." Despite healthy FOCF levels, debt-financed acquisitions could jeopardize the group's projected deleveraging path. Rating pressure could emerge from the group's failure to deleverage toward 6.0x-6.5x S&P Global Ratings-adjusted leverage, and inability to sustainably maintain FOCF of SEK800 million-SEK1,000 million. Our adjusted debt calculations include the proposed SEK11,196 million senior secured TLB, the second-lien senior secured term loan SEK2,560 million, and SEK339 million of adjustments related to lease liabilities, and net pension liabilities of about SEK288 million (after tax). S&P said, "We do not deduct any cash from our leverage calculations, due to EQT's financial-sponsor ownership. The group's liquidity will benefit from the SEK3,000 million RCF, which we assume will remain undrawn. As part of its corporate social responsibility strategy, the margin on the term loan comes with a ratchet linked to sustainability key performance indicators (KPIs). We note that Recipharm achieved a reduction in greenhouse gas emission per employee to 4.5% in 2020 versus 11.0% in 2019, increased supplier assessment and monitoring (88% ISO certified in 2020 versus 85% in 2019), and has advanced on-site reviews at suppliers in accordance with its Supplier Code of Conduct." The group is also developing guidelines around processes for review, communication and training to prevent corruption. S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. S&P said, "We use these assumptions 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 said, "The positive outlook reflects our expectation that Recipharm will continue to see EBITDA margin improvement of at least 100 bps per year, on the back of positive underlying market dynamics, increasing penetration in margin accretive biologic segments, tight cost-control, and materialized synergies. In our base case, we assume sound profitable growth should translate into FOCF of SEK760 million-SEK860 million per year. This would facilitate deleveraging to below 6.5x S&P Global Ratings-adjusted debt to EBITDA by 2022 and below 6.0x by 2023, reflecting a prudent external growth strategy. "We could take a positive rating action if Recipharm demonstrated profitable growth, with an adjusted EBITDA margin advancing by at least 100 bps annually over the coming two years, pushing FOCF beyond SEK750 million and adjusted leverage comfortably and sustainably below 6.0x from 2023. This scenario could result, for example, from significant gains in market share through larger contract gains, robust growth from product developments (dosage forms and categories, for example), enhanced operating efficiency, and a conservative approach to external expansion. "We could revise the outlook to stable if Recipharm's performance deviates materially from our base case, such that the group fails to improve its profitability in line with our assumptions and adjusted debt to EBITDA does not improve to below 6.5x." This scenario could stem, for example, from: -- Loss of key customers; -- More aggressive financial policy causing adjusted leverage to be higher that S&P anticipates in its base case; -- Non-renewal of contracts; or -- A significant increase in production and distribution costs, with an inability to pass-through costs to customers. S&P could also revise the outlook on Recipharm if it is unable to generate healthy and recurring FOCF of at least SEK760 million–SEK860 million per year, resulting in a material deterioration in its credit metrics that would hamper expected deleveraging. =========================== U N I T E D K I N G D O M =========================== ARCADIA GROUP: Head Office Assets Put Up for Sale ------------------------------------------------- Business Sale reports that property from the head office of retail group Arcadia has been put up for sale, as the former empire's assets continue to be moved on following its collapse. According to Business Sale, assets in the auction, held by Hilco Valuation Services, will include furniture, IT and photographic equipment, fabric cuttings and sewing machinery that has been housed in former Arcadia Group head office Colegrave House's executive suite. According to Business Sale, the valuation firm said they expect the auction to draw interest from a number of parties including growing IT companies and other office-based firms. There will also be a separate private treaty sale held for the contents of the main executive suite and the commercial level kitchen facilities, Business Sale notes. Arcadia Group was the parent company of high street brands including Burton, British Home Stores, Dorothy Perkins, Debenhams and Miss Selfridge, Business Sale discloses. The group, which also owned Topshop and Topman, collapsed in November 2020 with debts of GBP750 million after calling in administrators from Deloitte LLP, Business Sale recounts. BRITISH AIRWAYS: S&P Affirms 'BB' ICR, Outlook Negative ------------------------------------------------------- S&P Global Ratings affirmed its 'BB' long-term issuer credit rating on British Airways PLC (BA), following the same rating action on its parent International Consolidated Airlines Group S.A. (IAG). At the same time, our stand-alone credit profile assessment for BA is unchanged at 'bb-'. S&P also affirmed its issue ratings on BA's enhanced equipment trust certificates. The negative outlook mirrors that on IAG given the airline's integral relationship with the group. Pandemic-related lockdowns, travel restrictions, and virus variants continue to weigh on BA's prospects. Governments across Europe have introduced a new round of lockdowns and tighter travel restrictions to contain the spread of new coronavirus variants, which continue to weigh on airline passenger demand and confidence. Although the rollout of several vaccines inspires hope that social and economic activity will begin to normalize, the outlook for air travel remains uncertain. S&P said, "We have recently revised downward our forecasts on European air passenger traffic We now believe that European air passenger traffic and revenue in 2021 will be 30%-50% of 2019 levels (underperforming our global average of 40%-60%). We maintain our expectations for 2022 that traffic will reach 70%-80% of 2019 levels, with recovery to 2019 levels by 2024. This estimate incorporates our assumptions that vaccine production will ramp up, rollouts will gather pace, and widespread immunization across Europe will be achieved by the end of third-quarter 2021. Furthermore, we anticipate a slow recovery of business and corporate traffic. We now anticipate a likely delay in a more meaningful recovery to after the crucial summer season and an acceleration in traffic more toward year-end. We estimate that BA's air passenger traffic this year will be about 30%-35% of 2019 levels; it could recover to 65%-70% in 2022. However, our forecast is subject to significant uncertainties and, most importantly, hinges on the vaccination progress, widespread immunization, and new variant risk." BA's traffic recovery depends on governments easing travel restrictions. Under normal operating conditions, BA deploys about 80% of its capacity on long-haul international flights. The transatlantic network, which we normally view as a strength to BA's competitive position and profitability, has been restricted since March 2020, when the U.S. closed its borders to foreign travelers from Europe, including the U.K. While S&P recognizes significant pent-up demand for air travel, BA's cash flow restoration is pending recovery in passenger traffic and new bookings, which are in turn contingent on governments easing border, travel, and quarantine restrictions. It is currently uncertain when these restrictions will ease, particularly for BA's routes between North America and the U.K., and its short-haul intra-Europe routes between the U.K. and major European countries such as France, Germany, Italy, and Spain. However, S&P recognize that vaccination rollouts in the U.S. and the U.K. have quickly gathered pace, which could pave the way for easing restrictions on transatlantic travel between the two countries. S&P said, "We expect 2021 to be another very difficult year for BA. BA continues to adjust capacity and cut operating costs, having furloughed staff through the U.K. government employee support scheme, which has been further extended to September 2021. Management is also implementing an operational restructuring program that reduced almost a quarter of its workforce by the end of 2020. Additionally, the airline has deferred GBP450 million of pension contributions from 2020-2021 to 2023. It should further benefit from a lower fuel bill, which we forecast to be about GBP1.1 billion in 2021 (about one-third of the GBP3.2 billion fuel bill in 2019). We forecast that EBITDA could turn positive, albeit at a low level, in 2021, from negative GBP2.4 billion in 2020. "We anticipate BA's adjusted debt to almost double in 2021 compared with 2019. BA's extensive cash burn throughout the pandemic, including hefty fuel hedge losses and restructuring costs, is likely to accumulate in adjusted debt of about GBP7 billion in 2021 (almost double the adjusted debt of GBP3.7 billion at the end of 2019). Consequently, we do not expect BA's debt leverage profile to be restored to pre-pandemic levels over the next few years, absent significant credit-supportive measures. That said, BA has the flexibility to adjust capital expenditure (capex) if passenger demand does not recover as expected, and this could help moderate debt accumulation. "We expect credit metrics to recover significantly in 2022. In our view, widespread immunization looks to be achievable by most developed economies by the end of third-quarter 2021. We believe this will help to lessen or lift travel restrictions and restore passenger confidence in flying. We forecast adjusted EBITDA could recover to GBP1.5 billion-GBP1.8 billion in 2022 (50%-60% of the GBP3 billion generated in 2019) and reach GBP2.0 billion-GBP2.2 billion in 2023 (65%-70%). We forecast that adjusted funds from operations (FFO) to debt will rebound to 12%-20% in 2022 and could exceed 20% in 2023. However, low visibility regarding the pandemic and recessionary trends--and their impact on passenger volumes--adds significant uncertainty to our forecasts. "In our view, BA's parent, IAG, will provide liquidity support if necessary. BA is the largest airline owned by IAG. We consider that IAG will retain the financial capacity and provide liquidity support to BA if necessary. IAG started 2020 with more financial leeway and a larger liquidity buffer than that of many peers and has maintained strong liquidity so far. We estimate that IAG had total pro forma liquidity of EUR9.1 billion at the start of 2021, as adjusted by S&P Global Ratings. This includes BA's new GBP2.0 billion term loan facilities substantially guaranteed by UK Export Finance (UKEF), and excludes revolving credit facilities that are due within 12 months. BA has obtained over GBP3 billion of external financing since the pandemic began. This includes GBP300 million from the U.K. government's COVID Corporate Financing Facility (CCFF); $1 billion of EETCs (about GBP720 million equivalent, which replaced the $750 million, GBP540 million equivalent, previously raised secured bridge loan); and GBP2.0 billion term loan facilities substantially guaranteed by UKEF. "Our outlook on BA is aligned with that on IAG due to the airline's integral relationship with the group. "The negative outlook reflects our view that the group's financial metrics will remain under considerable pressure in the next few quarters and that there is high uncertainty regarding the pandemic and its effects on air traffic demand, as well as IAG's financial position and liquidity. "We would lower the rating if passenger demand recovery is further delayed or appears to be structurally weaker than expected, placing additional pressure on IAG's credit metrics; and if we expect that adjusted FFO to debt won't recover to at least 12% by 2022. This could occur if the pandemic cannot be contained, resulting in prolonged lockdowns and travel restrictions, or if passengers remain reluctant to book flights. "Although we currently don't see liquidity as a near-term risk, we would lower the rating if air traffic does not recover in line with our expectations, external funding becomes unavailable for IAG, and management's proactive efforts to adjust operating costs and capex are insufficient to preserve at least adequate liquidity, such that sources exceed uses by more than 1.2x in the coming 12 months. "We could also lower the rating if industry fundamentals weaken significantly for a prolonged period, impairing IAG's competitive position and profitability. "To revise the outlook to stable, we would need to be more certain that demand is normalizing and the recovery is robust enough to enable IAG to partly restore its financial strength, such that adjusted FFO to debt increases sustainably to at least 12%, alongside a stable liquidity position. Prudent capital spending and shareholder returns are also necessary for a return to a stable outlook." CINEWORLD GROUP: Set to Reopen US Cinemas in April -------------------------------------------------- Alice Hancock at The Financial Times reports that Cineworld has said it will be back to "business as usual" by the fourth quarter of this year and will start to reopen its US cinemas in April. According to the FT, the phased reopening of the chain's US Regal movie theatres will begin with a limited number in time for the Warner Bros Godzilla vs. Kong film on April 2. The UK-listed group said more would follow as states relaxed pandemic restrictions in the wake of the vaccine rollout, the FT notes. The group's cinemas in the UK, its second-biggest market after the US, will reopen from May 17, in line with government plans to ease the lockdown there, the FT discloses. It will be the first time that the world's second-largest cinema operator has opened screens in its two largest markets since it closed its 660 US and UK theatres in October, citing delays to the release of blockbusters, the FT states. "There is a long way back to recover," the FT quotes Ivor Jones, an analyst at Peel Hunt, as saying, adding that cinemas might not benefit from the same post-lockdown boost as pubs and restaurants. Cineworld has said it will be back to "business as usual" by the fourth quarter of this year and will start to reopen its US cinemas in April, the FT relays. Alongside the reopening announcement, Cineworld, as cited by the FT, said it had agreed an exclusive deal with Warner Bros starting in 2022 that will allow it to show the studio's films for six weeks before they are released on Warner's streaming service. Before the pandemic, the standard cinema release window for films was about 10 weeks, the FT says. Cineworld came close to collapse in November but secured an extra US$750 million funding from lenders after emergency talks, the FT recounts. It has also cut its monthly cash outgoings to about US$60 million after negotiations with landlords, the FT states. DOWSON 2019-1: Moody's Upgrades GBP14.1MM Class D Notes to Ba2 (sf) ------------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of three notes in Dowson 2019-1 plc. The rating action reflects increased levels of credit enhancement for the affected notes. Moody's affirmed the rating of the notes that had sufficient credit enhancement to maintain the current rating on the affected notes. GBP229.8M Class A Notes, Affirmed Aaa (sf); previously on Sep 20, 2019 Definitive Rating Assigned Aaa (sf) GBP75.9M Class B Notes, Upgraded to Aa3 (sf); previously on Sep 20, 2019 Definitive Rating Assigned A2 (sf) GBP15.9M Class C Notes, Upgraded to Baa2 (sf); previously on Sep 20, 2019 Definitive Rating Assigned Baa3 (sf) GBP14.1M Class D Notes, Upgraded to Ba2 (sf); previously on Sep 20, 2019 Definitive Rating Assigned Ba3 (sf) RATINGS RATIONALE The rating action is prompted by an increase in credit enhancement for the affected tranches. Revision of Key Collateral Assumptions: As part of the rating action, Moody's reassessed its default probability and recovery rate assumptions for the portfolio reflecting the collateral performance to date. The performance of the transaction has continued to be stable since closing. Total delinquencies with 90 days plus arrears currently standing at 1.1% of current pool balance. Cumulative default currently stand at 6.5% of original pool balance. The current default probability is 15% of the current portfolio balance, the fixed recovery rate is 30% and the portfolio credit enhancement is 40%. The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around Moody's forecasts. Moody's analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in the UK economic activity. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Increase in Available Credit Enhancement Sequential amortization led to the increase in the credit enhancement available in this transaction. For instance, the credit enhancement for the most senior tranche affected by the rating action, class B, increased to 23.3% from 13.5% since closing. The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in December 2020. 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 (1) performance of the underlying collateral that is better than Moody's expected, (2) an increase in available credit enhancement, (3) improvements in the credit quality of the transaction counterparties and (4) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include (1) an increase in sovereign risk, (2) performance of the underlying collateral that is worse than Moody's expected, (3) deterioration in the notes' available credit enhancement and (4) deterioration in the credit quality of the transaction counterparties. GREENSILL CAPITAL: Tokio Says Exposure Won't Have Material Impact ----------------------------------------------------------------- Leo Lewis and Kana Inagaki at The Financial Times report that Tokio Marine said its exposure to the Greensill Capital collapse would not have "any material impact" on its coming financial year, as the Japanese insurer moved to dismiss market speculation that it was on course for a significant hit. "Our expected net exposure remains unchanged," Tokio Marine, as cited by the FT, said in the statement, following an internal review of its Greensill-related risk. "We don't see any need to adjust our financial guidance nor do we anticipate any material impact on our financials for the next fiscal year." The company's upcoming financial year begins in April, the FT notes. Tokio Marine, which acquired Sydney-based underwriter Bond & Credit Co in 2019, said it continues to assess the validity of the insurance policies at the heart of Greensill's downfall, the FT relates. The company had maintained that its exposure to Greensill was limited since a large part of its risk was covered by reinsurance, the FT states. But it had not previously discussed the impact for the new fiscal year that ends in March 2022, the FT relays. Hideyasu Ban, an analyst at Jefferies, said last week that the explanations offered by Tokio Marine appeared to make sense, but that it could also take some time before the full extent of the various claims and financial fallout from the Greensill collapse was revealed, the FT recounts. Tokio Marine's stance is that the insurance covering Greensill could be void because receivables might not exist, said Mr. Ban, adding that if the underlying insurance was void, it did not matter whether or not the reinsurance was effective, according to the FT. "If, via litigation, the court acknowledges the receivables existed, then Tokio's losses could be bigger," the FT quotes Mr. Ban as saying in an email, adding that the company currently did not have sufficient grounds to set aside reserves against such potential losses. On the basis that Tokio Marine would maintain its guidance for the current financial year, analysts have said its losses on trade credit insurance for business transactions financed by Greensill would be in the JPY10 billion (US$92 million) to JPY20 billion range, the FT notes. Tokio Marine notified Greensill of its decision to stop coverage in July after it discovered that an underwriter at BCC had exceeded his risk limits, insuring amounts that added up to more than A$10 billion (US$7.7 billion), the FT discloses. INTERNATIONAL CONSOLIDATED: Moody's Rates New Sr. Unsec. Notes 'B1' ------------------------------------------------------------------- Moody's Investors Service has assigned a B1 rating to the proposed senior unsecured notes of approximately EUR1 billion to be issued by International Consolidated Airlines Group, S.A. (IAG or the company -- Ba2 negative). The company's existing ratings are unchanged, including its Ba2 corporate family rating, its Ba2-PD probability of default rating and the B1 ratings of the company's EUR1 billion senior unsecured notes divided into EUR500 million series A bonds due 2023 and EUR500 million series B bonds due 2027. The outlook remains negative. RATINGS RATIONALE The current very low levels of flying activity, extensive travel restrictions and uncertainties over the timing and pace of a recovery in European air travel continue to weigh heavily on the ratings, which are focused on liquidity headroom and thereafter the potential for the company to recover its balance sheet metrics. Whilst vaccination programmes and reducing infection rates and hospitalisations provide prospects for a recovery, significant challenges remain in relation to the coordination of testing regimes across travel corridors and risks of new Covid variants driving continued travel restrictions. Whilst there is very low visibility on the shape of the recovery, prospects for a resumption of tourist flows in the later part of 2021 are stronger, and there is likely to be very strong latent demand in the event that travel restrictions are eased. Although IAG's operating losses and cash burn remain substantial in the current environment, the company has been successful in optimising revenue generation through a focus on domestic and international routes that remain open and in particular where demand for visiting friends and family remains strong. In addition the company has exploited the supply shortages in air freight capacity to grow its cargo revenues, and retains further income streams from its maintenance activities and loyalty schemes. As a result the company generated revenues of around EUR1.3 billion in the fourth quarter of 2020, whilst operating capacity, as measured in available seat kilometres (ASK) was around 27% of 2019 levels. In the first quarter of 2021 IAG expects to operate around 20% of 2019 capacity which whilst reduced, is better than European point-to-point short haul airlines and continues to provide meaningful revenues. Moody's forecasts that IAG's revenue passenger kilometres (RPKs) will be in the range of 20-30% of 2019 levels in 2021. This remains subject to high uncertainty and the key focus initially is on reducing cash burn over the course of 2021 and positioning for a recovery thereafter. IAG's recovery will be supported by its scale, broad network and leading competitive positions, which are likely to be enhanced after the pandemic by the weakness or withdrawal of smaller competitors from certain routes. Moody's also expects the company to benefit from its substantial restructuring and cost reduction actions, significant proportion of which should be retained as air travel recovers. However, the company's focus on long haul and degree of exposure to business travel could result in a slower recovery from the crisis that the market as a whole. Moody's forecasts that IAG's leverage will reduce to around 4.5-5.0x on a Moody's adjusted-basis by 2023 on a material recovery in air traffic. LIQUIDITY IAG carries substantial liquidity of around EUR11.3 billion as of December 31, 2020, pro forma for the proposed issuance, and also adjusting for a GBP2 billion loan to British Airways, Plc ("British Airways", Ba2 negative) partially guaranteed by UK Export Finance which was expected to be drawn down by the end of February 2021. Liquidity comprises cash balances of EUR5.9 billion, undrawn general and secured financing of EUR2.2 billion, the aforementioned loan to British Airways and the proposed new issuance. IAG's near-term debt maturities include British Airways' EUR329 million Covid Commercial Finance Facility due in April 2021, British Airways' RCF of $1.38 billion expiring in June 2021, the repayment of IAG's EUR500 million convertible bond due in November 2022 and ongoing leasing obligations. IAG estimates that its operating cash burn is currently around EUR185 million per week, before revenue, working capital, tax, debt amortisation and pension deficit payments. Moody's estimates that following the proposed debt issuance the company's liquidity will provide coverage of net cash burn, at current activity levels, through to around the second quarter of 2022. STRUCTURAL CONSIDERATIONS The proposed new senior unsecured notes are rated B1, in line with the company's existing EUR1 billion senior unsecured notes, and two notches below the corporate family rating. This reflects the substantial levels of senior secured and unsecured debt in the company's operating companies, which rank ahead of the debt at IAG holding company level. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Moody's regards the coronavirus pandemic as a social risk under its ESG framework, given the substantial implications for public health and safety. IAG has a strong corporate governance framework. It is incorporated in Spain, listed in Spain and on the London Stock Exchange and subject to both the Spanish Good Governance Code of Listed Companies and the UK Corporate Governance Code. During 2020 the company complied with almost all the applicable recommendations of these codes with minor exceptions as detailed in its 2020 annual report. The company is targeting a 10 per cent improvement in fuel efficiency between 2019 and 2025, a 20 per cent reduction in net CO2 emissions by 2030, and net zero CO2 emissions by 2050. OUTLOOK The negative outlook reflects the continued uncertain prospects for the airline industry, with risks of extended disruption to travel causing further strain on the company's balance sheet and liquidity. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings are unlikely to be upgraded in the short term. Positive rating pressure would not arise until the coronavirus pandemic is brought under control, travel restrictions are lifted, and passenger volumes return to more normal levels. At this point Moody's would evaluate the balance sheet and liquidity strength of the company and positive rating pressure would require evidence that the company is capable of substantially recovering its financial metrics within a 1-2 year time horizon. Moody's could downgrade IAG if: There are expectations of deeper and longer declines in passenger volumes extending materially into the second half of 2021 There are concerns over the adequacy of liquidity There are clear expectations that the company will not be able to maintain financial metrics compatible with a Ba2 rating following the coronavirus pandemic, in particular if: Gross adjusted leverage is not expected to reduce sustainably below 5x Reported operating profit margin were to fall substantially below 10% Retained cash flow to debt reduces towards 10% PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Passenger Airline Industry published in April 2018. COMPANY PROFILE IAG was formed in January 2011 following the merger of British Airways and Iberia and manages five airline subsidiaries including British Airways, Iberia, Vueling, Aer Lingus and LEVEL, representing complementary brands and operating in distinct markets. IAG has minimal operations of its own other than its Global Business Services division, which incorporates the Group's centralised and back office functions, and Cargo. 2019 revenues and Moody's adjusted EBIT were EUR25.5 billion and EUR3.3 billion respectively. INTERNATIONAL CONSOLIDATED: S&P Affirms 'BB' Ratings, Outlook Neg. ------------------------------------------------------------------ S&P Global Ratings affirmed its 'BB' ratings on International Consolidated Airlines Group S.A. (IAG) and its existing unsecured debt and assigned its 'BB' issue and '3' recovery ratings to the company's proposed about EUR500 million senior unsecured notes due 2025 and about EUR500 million senior unsecured notes due 2029. The negative outlook reflects S&P's view that the group's financial metrics will remain under considerable pressure in the next few quarters and that there is high uncertainty regarding the pandemic and its effects on air traffic demand, as well as IAG's financial position and liquidity. Pandemic-related lockdown measures and travel restrictions, as well the emergence of new virus variants, continue to weigh on IAG's prospects. The approval of several vaccines has created a path to more normal social and economic activity, but complex and slow rollouts across the EU will burden air traffic recovery while new variants appear more transmissible and have led to concerns over vaccine efficacy. There remains considerable uncertainty regarding the outlook for air travel. S&P said, "We now believe that European air passenger traffic (measured by revenue passenger kilometers; RPK) and revenue in 2021 will be 30%-50% of 2019 levels. Our estimate for global traffic and revenue in 2021 is unchanged at 40%-60% of 2019 levels. We maintain our expectations for 2022 that traffic will reach 70%-80% of 2019 levels, with a recovery to 2019 levels by 2024. This estimate incorporates our assumptions that vaccine production will ramp up, rollouts will gather pace, and widespread immunization across Europe and most other developed economies will be achieved by the end of third-quarter 2021." S&P said, "We expect 2021 to be another very difficult year for IAG. According to our base-case, IAG's 2021 revenue generation will recover slower than in our November 2020 forecast. Ongoing bumpy traffic conditions are likely in the coming months, depending on local travel constraints, including quarantine rules or mandatory testing for COVID-19, particularly in IAG's home markets. Furthermore, we anticipate a delayed and subdued recovery of business and corporate traffic, which typically is one of IAG's most profitable segments. Overall, we estimate that this year's passenger numbers for the group will rebound to about 40% of 2019 levels. This includes only up to 20% air traffic recovery in the first quarter because of continuing extensive lockdowns and travel restrictions, and our expectation of only a gradual recovery in the spring, translating to our overall estimate of up to 30% of pre-pandemic traffic volumes in first-half 2021. This compares with IAG's current passenger capacity plans in first-quarter 2021 for about 20% of 2019 capacity. We now anticipate a likely delay in a more meaningful recovery to after the crucial summer season and an acceleration in traffic more toward year-end. However, our forecast is subject to significant uncertainties and, most importantly, it hinges on vaccination progress. "We expect IAG will report a continuing substantial OCF (after lease payments) deficit and accumulate new debt in 2021, while its credit metrics remain under considerable pressure. The group executed significant restructuring measures during 2020, among others, to downscale the workforce and aircraft fleet to expected capacity levels and reduce payments to suppliers. It should benefit from a lower fuel bill, which S&P Global Ratings forecasts at up to EUR2.2 billion (versus last year's EUR3.7 billion, including EUR1.7 billion of losses from ineffective fuel hedges). That said, these factors will be insufficient to counterbalance only gradual revenue recovery in 2021 to 50%-55% below 2019 levels, according to our base case. We estimate that IAG's adjusted EBITDA will turn positive this year to EUR0.7 billion-EUR1.0 billion from negative EUR4.47 billion in 2020, but it will be below our November 2020 forecast and far-off the strong EUR5.4 billion in 2019. This, aggravated by (i) working capital needs, which could be material because of potential ongoing ticket refunds and slow forward bookings (particularly in first-half 2021); (ii) the outstanding cash settlement of ineffective hedge losses (estimated by S&P Global Ratings at EUR500 million in 2021, after EUR1.2 billion paid by IAG in 2020); and (iii) cash outflows for restructuring, will result in continually negative OCF (after lease payments) and buildup of financial leverage in 2021. We forecast IAG's S&P Global Ratings-adjusted debt (including an EUR830 million upfront payment from American Express, which we view akin to factoring) will increase to EUR12.5 billion-EUR12.8 billion by year-end 2021 from EUR10.6 billion in 2020. Financial flexibility for operational glitches under S&P's base-case scenario and the 'BB' rating has diminished in the context of expected subdued air traffic. Nevertheless, IAG's efforts to contain capital spending and safeguard cash should partly offset the slower rebound in passenger volumes, contribute to the group's financial recovery and help to preserve the rating. The accumulation of new debt will be hindered to some extent by deferrals or cuts to capital expenditure (capex) for new planes and other discretionary projects. IAG slashed its capex guidance further to EUR1.7 billion in 2021, from the previously communicated EUR1.9 billion and pre-pandemic target of EUR4.0 billion-EUR4.5 billion. Trimmed capex and a good grip on working capital control (more specifically, with regards to liabilities from deferred revenue on ticket sales and collection of receivables) meant new debt was close to EUR2 billion lower than we expected in 2020. S&P said, "Furthermore, we envisage passenger traffic and IAG's operating performance will start to improve meaningfully from late third-quarter 2021--after the crucial summer season--and strengthen in 2022, with adjusted EBITDA reaching up to EUR3.0 billion (below our November 2020 forecast of EUR3.6 billion-EUR3.7 billion). We assume that widespread immunization across Europe and most other developed economies will be achieved by the end of third-quarter 2021 and help to lessen or lift travel restrictions and restore passenger confidence in flying. Our revised base case supports our view that adjusted funds from operations (FFO) to debt will rebound to the rating-commensurate level of more than 12% only in 2022, which is about one year later than in our November 2020 review. That said, our forecast is subject to significant uncertainties and highly dependent on uninterrupted vaccine rollouts." IAG started 2020 with more financial leeway and a larger liquidity buffer than that of many peers and has maintained strong liquidity so far. S&P continues to view IAG as among the financially strongest groups in the airline industry, with total liquidity of EUR6.9 billion at Dec. 31, 2020, comprising EUR5.9 billion of cash and deposits and close to EUR1 billion of undrawn committed general and aircraft facilities maturing beyond 12 months, as adjusted by S&P Global Ratings. Liquidity received another boost from the GBP2.0 billion (EUR2.2 billion) five-year Export Development Guarantee term-loan underwritten by a syndicate of banks and partially guaranteed by U.K. Export Finance (UKEF; fully drawn in March 2021) to a pro-forma total liquidity position of about EUR9.1 billion. IAG demonstrates proactive treasury management, continued access to debt markets, and an ability to safeguard liquidity, underpinned by its October 2020 equity raise with EUR2.67 billion in net proceeds. S&P also acknowledges IAG's determination and flexibility to defer capex for new planes and suspend shareholder remuneration, with a focus on preserving cash and restoring its credit metrics. S&P said, "The negative outlook reflects our view that the group's financial metrics will remain under considerable pressure in the next few quarters and that there is high uncertainty regarding the pandemic and its effects on air traffic demand, as well as IAG's financial position and liquidity. "We would lower the rating if passenger demand recovery is further delayed or appears to be structurally weaker than expected, placing additional pressure on IAG's credit metrics; and if we expect that adjusted FFO to debt won't recover to at least 12% by 2022. This could occur if the pandemic cannot be contained, resulting in prolonged lockdowns and travel restrictions, or if passengers remain reluctant to book flights. "Although we currently don't see liquidity as a near-term risk, we would lower the rating if air traffic does not recover in line with our expectations, external funding becomes unavailable for IAG, and management's proactive efforts to adjust operating costs and capex are insufficient to preserve at least adequate liquidity, such that sources exceed uses by more than 1.2x in the coming 12 months. "We could also lower the rating if industry fundamentals weaken significantly for a prolonged period, impairing IAG's competitive position and profitability. "To revise the outlook to stable, we would need to be more certain that demand is normalizing and the recovery is robust enough to enable IAG to partly restore its financial strength, such that adjusted FFO to debt increases sustainably to at least 12%, alongside a stable liquidity position. Prudent capital spending and shareholder returns are also necessary for a return to a stable outlook." L1R HB FINANCE: Moody's Hikes CFR to B3 on Resilient Performance ---------------------------------------------------------------- Moody's Investors Service has upgraded to B3 from Caa1 the corporate family rating and to B3-PD from Caa1-PD the probability of default rating of L1R HB Finance Limited, the parent and 100% owner of Holland & Barrett (the company). In addition, Moody's has upgraded to B3 from Caa1 the ratings on the company's Backed Senior Secured credit facilities. The outlook remains stable. RATINGS RATIONALE The action reflects Holland & Barrett's resilient performance in the fiscal year 2020, ended September 2020, as well as Moody's expectation that strong performance will continue in the current fiscal year, despite the ongoing challenges posed by the pandemic. Holland & Barrett's credit metrics have improved materially, with gross debt to EBITDA (as adjusted by Moody's) standing at 7.1x as at the end of fiscal 2020 from 8.9x in fiscal 2019. This also compares favourably with Moody's previous expectation of over 8.0x in fiscal 2020. The rating agency expects a deleveraging trend to be sustained over the next 12-18 months on the back of continued operational improvements, as well as the long-term positive dynamics in the wellness market, which have themselves been reinforced by increased focus on health prompted by Covid-19. Holland & Barrett stores have for the most part remained open throughout the pandemic as it qualifies as an essential retailer in all core markets. Nevertheless the business has seen a significant decline in footfall since the start of the pandemic with a consequent reduction of in-store retail sales partially offset by larger average size of baskets. The company achieved overall revenue growth driven by a significant acceleration in online sales. Profitability over the period increased due to customers' purchasing behaviour favouring higher-margin products, efficiencies in operating expenses, and a reduction in occupancy costs, notably in respect of a business rates holiday, more than offsetting the higher distribution costs associated with the growing share of digital sales. LIQUIDITY Moody's views Holland & Barrett's liquidity profile as adequate. The company had GBP45 million of cash on balance sheet at January 31, 2021 along with full access to an undrawn GBP75 million revolving credit facility (RCF) expiring in 2023. Moody's does not anticipate any drawings of the RCF over the next 12-18 months. RATING OUTLOOK The stable outlook reflects Moody's expectations that Holland & Barrett will continue to perform at least as strongly as over the past year despite the ongoing challenges posed by the pandemic. This should lead to a permanent deleveraging from fiscal 2020 levels, while maintaining an adequate liquidity position. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS A further ratings upgrade is unlikely in the short term. This is because it remains to be seen whether the recent strengthening of the company's credit quality can be sustained beyond the current fiscal year. In due course an upgrade would be possible if the company's leverage, measured in terms of debt to EBITDA on a Moody's adjusted basis, remains well below 6x on a sustained basis, and the company continues to record positive free cash flow while maintaining an adequate liquidity position. The rating could be downgraded following a marked deterioration in the company's profitability, resulting in leverage increasing to above 7x. A downgrade could also result from a weakening in the company's liquidity including meaningful negative free cash flows. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Moody's regards the coronavirus pandemic as a social risk under its ESG framework, given the substantial implications for public health and safety. That said, the pandemic contributed to accelerate the demand for immunity and health products, which accounts for around half of Holland & Barrett's revenue and carry high margins, therefore benefitting the company's operating performance. From a governance perspective the main risks are the highly leveraged capital structure and the lower reporting requirements typical of private companies compared with listed ones. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail Industry published in May 2018. Holland & Barrett is a specialist health and wellness retailer with 1,054 stores mainly located in the UK but also in The Netherlands, Ireland and Belgium. Headquartered in Nuneaton, England, the company is owned by L1 Retail, a division of LetterOne, a privately-owned investment vehicle which invests across energy, health, technology and retail. SYNLAB BONDCO: S&P Alters Outlook to Stable, Affirms 'B+' ICR ------------------------------------------------------------- S&P Global Ratings revised its outlook to stable from negative and affirmed its 'B+' long-term issuer credit rating on Synlab Bondco PLC (Synlab). The stable outlook reflects S&P's view that Synlab will maintain pre-COVID-19 profitability levels in the next 12-18 months such that S&P Global Ratings-adjusted debt to EBITDA decreases below 6x. The company's preliminary 2020 results set the tone for continuing solid performance in 2021. Synlab has reported strong preliminary nonaudited figures for 2020 that show an increase in sales of about 38% versus 2019 to about EUR2.6 billion (excluding the analytical and service segment) and about EUR679 million of Synlab-adjusted EBITDA. Most of this growth was supported by high demand for COVID-19 testing throughout 2020. Synlab surpassed our previous base-case expectations because it benefitted from being an important part of the pandemic control strategies set by governments and a trusted partner for most private institutions, securing more than 6,000 contracts with different companies including the Union of European Football Associations. S&P said, "We expect Synlab will continue to play an important role in helping governments to ease lockdown restrictions throughout 2021 and some of 2022, including back-to-work policies or resumption in air travel. We now expect sales of about EUR2,400 million-EUR2,600 million and S&P Global Ratings-adjusted EBITDA of about EUR450 million-EUR550 million in 2021 and 2022." Uncertainties will remain regarding the future earnings contribution from PCR testing since it depends on volume and pricing established in each jurisdiction, which could pressure profitability going forward. The company's prepayment of TLB tranches due in 2022 and 2024 puts it on a clear deleveraging track, but with debt to EBITDA remaining in the highly leveraged category. In January 2021, the company prepaid all outstanding borrowings under its senior facility agreement dated Sept. 12, 2017, including EUR76 million of the TLB maturing in July 2022 and about EUR467.5 million of the TLB maturing in 2024. This payment of about EUR544 million, together with the solid results in 2020 and at the beginning of 2021, puts the company on a clear deleveraging path. S&P said, "We expect debt to EBITDA of below 6.0x in 2021 and 2022 under the current capital structure. In November 2020, the company also refinanced all of its EUR375 million existing senior unsecured bonds under Synlab Unsecured Bondco PLC (bearing an interest of 8.25%) maturing in 2023 with a new EUR385 million TLB maturing in 2027. Our EUR2.6 billion estimate of Synlab's 2021 debt includes EUR850 million of floating-rate notes, the EUR1.3 billion TLB, as well as EUR20 million-EUR25 million of other short-term debt. We add EUR430 million of operating and financial leases and about EUR40 million of pension liabilities. We do not net any cash due to the company's ownership by financial sponsors." Profitability and deleveraging will depend on the company's merger and acquisition (M&A) appetite going forward. S&P said, "We expect the company's strong M&A track record to continue as the market recovers from the pandemic hit and opportunities for further consolidation arise. Synlab has successfully combined organic growth with inorganic growth in recent years with an average of 20 bolt-on deals per year and eight new countries added to its footprint via M&A since 2017. We expect this trend to continue in a market characterized by being highly fragmented and with acquisition multiples of EBITDA exceeding 8x post synergies." This could potentially pressure Synlab's deleveraging trajectory going forward. S&P said, "The stable outlook reflects our view that Synlab will benefit from the current organic and inorganic growth and PCR testing contribution while overcoming integration risks related to acquisitions. This should translate into an S&P Global Ratings-adjusted EBITDA margin of about 20%-22% and S&P Global Ratings-adjusted debt to EBITDA below 6x in the following 12 months. We also expect that, despite the contribution from PCR testing dissipating in 2022, the company's leverage will remain below 7x, assuming the same capital structure. "The stable outlook reflects our belief that management's focus on cash collection will continue to translate into comfortable free operating cash flow (FOCF) of more than EUR50 million and a fixed-charge coverage ratio above 3x. This takes into account normalized pre-COVID-19 working capital outflows and higher capital expenditure (capex) as operating activity resumes. "We could take a negative rating action if Synlab's financial leverage moves permanently close to 7x by 2022. This could happen due to large discretionary spending, continued accelerated debt-funded acquisitions as the market is driven by laboratory-consolidation, or if we see deteriorating earnings generation once the PCR testing contribution dissipates. We could also lower the rating if the company's ability to service its fixed costs worsens or in case of liquidity pressure. "We would take a positive rating action if Synlab's S&P Global Ratings-adjusted leverage falls sustainably below 5.0x. This would also be supported by S&P Global Ratings-adjusted fixed-charge coverage sustainably above 3.0x and be conditional on rising FOCF and a focus on debt reduction. In our view, this is unlikely under the same capital structure because the company will pursue further M&A under its consolidation strategy." SYNTHOMER PLC: S&P Affirms BB Issue Rating, Outlook Stable ---------------------------------------------------------- S&P Global Ratings affirmed its 'BB' rating on U.K.-based chemical producer Synthomer PLC, as well as the 'BB' issue rating, with a '3' recovery rating, on the senior notes. S&P said, "The stable outlook reflects our expectation that favorable market conditions, additional nitrile butadiene rubber capacity, and contribution from Omnova will support strong sales and EBITDA expansion in 2021. We anticipate adjusted debt to EBITDA to decline to about 2.0x. This provides leeway for potential bolt-on acquisitions and further growth initiatives, which we expect will be in line with Synthomer's stated financial policy. "After strong results throughout the COVID-19 pandemic, we anticipate that Synthomer will report continued growth in 2021. Synthomer posted revenue of £1.6 billion in 2020, up 12.7%, with strong EBITDA growth across all core divisions. The performance elastomers segment saw a 48% increase in EBITDA to GBP143 million, while the nitriles business continued to benefit from significant capacity investment in Malaysia, combined with the ongoing pandemic-related growth in demand for medical protective gloves. The functional solutions segment saw a 37% increase in EBITDA to GBP96 million, with Omnova adding nine months of additional profitability. This was modestly offset by about GBP21 million of site closure costs in the European styrene butadiene rubber (SBR) network, and implementation costs to integrate Omnova over a two-year period. In 2021, S&P's anticipate continued strong demand from health and hygiene end-markets, along with an improving business environment in all divisions, reflecting economic recovery. With anticipated further market capacity additions, conditions in nitrile butadiene rubber (NBR) could normalize over the second half of 2021 and into 2022. However, an additional 60 kilotonnes of NBR at Pasir Gudang in Malaysia in fourth-quarter 2021 will lead to further growth in 2022. In April 2020, Synthomer completed the GBP654 million acquisition of U.S.-listed specialty chemicals company, Omnova. The integration was completed successfully, with $30 million run rate synergies delivered since April 2020, ahead of schedule and with enhanced cost synergies of $40 million, compared with $30 million planned initially by 2022. Free cash flow generation in 2020 was also strong, primarily reflecting the focus on costs, tight working capital control and cash savings from proactively reducing capital expenditure (capex) to GBP54 million from GBP65 million-GBP75 million planned before the pandemic, and cancelling its 2019 final dividend to mitigate the impact of COVID-19. This allowed Synthomer to reduce net debt to GBP462 million and net leverage (as calculated by the company) to 1.8x, within its target range as of year-end 2020. Synthomer's financial policy targets about 1.0x-2.0x net debt to EBITDA under mid-cycle market conditions, on a sustainable basis. The total dividend of about GBP50 million proposed for 2020 is in line with Synthomer's dividend policy, with payout representing 40% of the underlying earnings. S&P said, "The company's stated financial policy supports the current rating level, in our view, and factors in headroom for the company to deploy further capital and deliver on organic and external growth. Synthomer indicated that it is committed to supporting long-term growth and maintaining its market share in nitrile latex, which is used in the production of medical protective gloves, through capacity expansion, investments, and innovation. We anticipate that Synthomer will resume its disciplined approach to assessing bolt-on and transformational acquisition opportunities in the next two years. We expect the company will continue to expand through acquisitions, based on its recent track record, either with strategically targeted bolt-on acquisitions, or potentially through a prudently funded larger business add-on. While such an acquisition may not be planned for the immediate future, external growth initiatives may bring strategic benefits and expand current size and scope of Synthomer, in our view. The Omnova acquisition was financed within Synthomer's conservative financial policy, with a rights issue executed to reduce leverage below its stated upper limit of 2.5x-3.0x at closing. "The stable outlook reflects our expectation that favorable market conditions, additional NBR capacity, and contribution from Omnova will support strong sales and EBITDA expansion in 2021. We anticipate S&P Global Ratings-adjusted debt to EBITDA will reduce to about 2x, which we view as strong for the rating. This provides leeway for potential bolt-on acquisitions and further growth initiatives, which we expect will be in line with Synthomer's financial policy. We view adjusted debt to EBITDA of 3x-4x as commensurate with the rating." Rating upside could arise as a result of an extended track record of resilient operating performance, in combination with management's commitment to a 'BB+' rating and a more conservative financial policy, which would be aligned with maintaining adjusted debt to EBITDA below 2x. Pressure on the rating would arise from lower-than-expected free cash flows, either from unexpectedly high capex or from earnings volatility stemming from butadiene or styrene price swings or lost market share in one of the key NBR, SBR, or dispersions markets. S&P could also take a negative rating action if adjusted debt to EBITDA were to exceed 4x. This could arise in the case of large debt-funded acquisitions or material deviations in Synthomer's financial policy. ********* 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 * * *