/raid1/www/Hosts/bankrupt/TCREUR_Public/210330.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
Tuesday, March 30, 2021, Vol. 22, No. 58
Headlines
F I N L A N D
FINNAIR OYJ: Egan-Jones Lowers Senior Unsecured Ratings to CCC-
F R A N C E
AIR FRANCE: French Government Nears Recapitalization Deal
CARREFOUR SA: Egan-Jones Keeps BB+ Senior Unsecured Ratings
CASINO GUICHARD-PERRACHON: Egan-Jones Keeps CCC Sr. Unsec. Ratings
RAMSAY SANTE: S&P Assigns 'BB-' Rating to Secured Term Loan B
RENAULT SA: Egan-Jones Keeps BB- Senior Unsecured Ratings
VALEO SA: Egan-Jones Keeps B+ Senior Unsecured Ratings
G E R M A N Y
CONTINENTAL AG: Egan-Jones Keeps BB Senior Unsecured Ratings
NOVEM GROUP: Moody's Affirms Ba3 CFR on Continued Outperformance
WIRECARD: Questions Raised on Finance Ministry's Role in Collapse
I R E L A N D
ANCHORAGE CAPITAL 2021-4: S&P Assigns B-(sf) Rating on Cl. F Notes
ANCHORAGE CAPITAL 2: S&P Assigns B- (sf) Rating on Class F Notes
ARBOUR CLO IV: Moody's Assigns B3 Rating to EUR11M Class F-R Notes
AURIUM CLO VII: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
BLUEMOUNTAIN EUR 2021-1: Moody's Assigns B3 Rating to Class F Notes
BOSPHORUS CLO VI: S&P Assigns B (sf) Rating on Class F Notes
SHEFFIELD CDO: S&P Lowers Class C Notes Rating to 'CC (sf)'
I T A L Y
PIAGGIO & C: Moody's Affirms Ba3 CFR & Alters Outlook to Stable
K A Z A K H S T A N
FREEDOM FINANCE: S&P Alters Outlook to Positive, Affirms 'B' ICR
NATIONAL COMPANY: Moody's Affirms B1 CFR on Large Recapitalisation
P O R T U G A L
HIPOTOTTA NO. 5: S&P Affirms 'CCC- (sf)' Rating on Class F Notes
MAGELLAN MORTGAGES NO.1: S&P Affirms 'B- (sf)' Rating on C Notes
R U S S I A
VSMPO-AVISMA: S&P Assigns 'BB+' Long-Term Rating, Outlook Stable
S P A I N
BANKINTER 13: S&P Affirms 'D (sf)' Rating on Class E Notes
CAIXA PENEDES 1: S&P Raises Class C Notes Rating to 'BB (sf)'
TDA IBERCAJA 4: S&P Affirms 'D (sf)' Rating on Class F Notes
UCI 10: S&P Affirms 'B- (sf)' Rating on Class B notes
UCI 12: S&P Raises Class C notes Rating to 'B (sf)'
S W I T Z E R L A N D
TRANSOCEAN LIMITED: Egan-Jones Keeps C Senior Unsecured Ratings
U N I T E D K I N G D O M
ENTAIN PLC: Moody's Affirms Ba2 CFR, Outlook Stable
GREENSILL CAPITAL: Airbus Says Core Banks Funding Suppliers
GREENSILL CAPITAL: France Investigates Missing GFG Alliance Loan
JESSOPS: Files Notice to Appoint Administrators
L1R HB: S&P Upgrades LT ICR to 'B-', Outlook Stable
LIBERTY STEEL: MP Demands Answers Over Government Guarantees
TRINITY SQUARE 2021-1: S&P Assigns BB- (sf) Rating on X-Dfrd Notes
TRITON UK: Moody's Affirms Caa1 CFR, Outlook Positive
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F I N L A N D
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FINNAIR OYJ: Egan-Jones Lowers Senior Unsecured Ratings to CCC-
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Egan-Jones Ratings Company, on March 17, 2021, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Finnair Oyj to CCC- from CCC. EJR also maintained
its 'C' rating on commercial paper issued by the Company.
Headquartered in Vantaa, Finland, Finnair Oyj operates scheduled
passenger traffic, technical and ground handling operation,
catering, travel agencies, and reservation services.
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F R A N C E
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AIR FRANCE: French Government Nears Recapitalization Deal
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Tara Patel and William Horobin at Bloomberg News report that French
Finance Minister Bruno Le Maire said the government and the
European Commission are nearing a deal for the recapitalization of
Air France that could be finalized in the coming days.
"The negotiation was long and difficult and isn't entirely
finished," Bloomberg quotes Mr. Le Maire as saying on March 29 on
France Info radio. He said the accord will be fair and protective
for Air France, while guaranteeing the country's interests and
competition rules.
The minister said the package still needs final approval from the
Commission and the struggling carrier's board of directors,
Bloomberg relates.
France and the Netherlands, which own a combined 28% stake in Air
France-KLM, have been in talks for months on follow-on funding
after granting the carrier EUR10.4 billion (US$12.3 billion) in
direct loans and state-backed guarantees last year, Bloomberg
recounts. The airline partnership, which had net debt of EUR11
billion at the end of last year, has said it's planning to raise
equity and quasi-equity, Bloomberg notes.
Mr. Le Maire declined to comment on specific details of the plan,
saying only that it contains remedies "that are required to
maintain fair competition between Air France and other companies",
Bloomberg relays. He said the plan isn't about closing routes or
cutting jobs, according to Bloomberg.
CARREFOUR SA: Egan-Jones Keeps BB+ Senior Unsecured Ratings
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Egan-Jones Ratings Company, on March 15, 2021, maintained its 'BB+'
foreign currency and local currency senior unsecured ratings on
debt issued by Carrefour SA.
Headquartered in Massy, France, Carrefour SA operates supermarkets,
hypermarkets, cash and carry stores, and e-commerce websites.
CASINO GUICHARD-PERRACHON: Egan-Jones Keeps CCC Sr. Unsec. Ratings
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Egan-Jones Ratings Company, on March 18, 2021, maintained its 'CCC'
foreign currency and local currency senior unsecured ratings on
debt issued by Casino Guichard-Perrachon SA. EJR also maintained
its 'C' rating on commercial paper issued by the Company.
Headquartered in Saint-Etienne, France, Casino Guichard-Perrachon
SA operates a wide range of hypermarkets, supermarkets, and
convenience stores.
RAMSAY SANTE: S&P Assigns 'BB-' Rating to Secured Term Loan B
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S&P Global Ratings assigned its 'BB-' issue rating to the proposed
EUR1,350 million senior secured term loan B (TLB) that European
private operator of acute care hospitals Ramsay Generale de Sante
(Ramsay Sante; BB-/Stable/--) intends to issue. The company will
use the proceeds, along with EUR200 million from other debt to be
issued (not rated), to refinance its outstanding TLB. The recovery
rating on the proposed term loan is '3', reflecting our expectation
of meaningful recovery prospects (50%-70%; rounded estimate: 60%).
The group is planning to fully refinance its existing EUR1,510
million term loan and EUR40 million of drawings on a capital
expenditure (capex) facility with the new EUR1,350 million TLB. The
proposed TLB comprises one tranche of EUR600 million maturing in
2026 and one tranche of EUR750 million maturing in 2027. In
addition, Ramsay Sante will issue its first private placement
notes: of EUR100 million, split into a EUR50 million tranche
maturing in 2028 and a EUR50 million tranche maturing in 2029; it
also intends to issue EUR100 million of mortgage debt (Fiducie
Sûrete) maturing in 2031.
As a result, the refinancing will benefit Ramsay Sante's average
debt maturity while diversifying its funding mix, but the total
amount of debt will be unchanged following the planned issuances.
As part of the refinancing, the group will also issue a new EUR100
million revolving credit facility and a new EUR100 million capex
facility, both maturing in 2026, to refinance its existing lines.
The proposed euro private placement notes are senior secured and
benefit from the same guarantors and securities as the proposed
TLB. S&P said, "However, we treat the proposed EUR100 million
mortgage debt as priority debt in our recovery analysis, since it
is secured and backed by assets at the operating companies. Our
estimate of the company's gross enterprise value at emergence is
broadly unchanged and can absorb the company's higher priority
debt, due to senior secured debt reducing by a similar amount,
leaving recovery prospects unchanged at 60%.” The recovery rating
is constrained by a large amount of outstanding debt and the
company's prior-ranking mortgage debt.
S&P understands the group plans to reprice all proposed instruments
to incorporate corporate social responsibility factors. As such,
the margin on the three instruments will be amended and come with a
ratchet linked to sustainability key performance indicators. This
allows margins to be tighter if the firm performs under four
criteria:
-- Increasing patient satisfaction (measured by the national
E-Statis survey results in France and the net promoter scores in
the Nordics).
-- Developing proximity care and telemedicine services (measured
by the number of patients benefiting from proximity care
services).
-- Increasing staff access to preventive consultations for mental
and physical health (measured by the percentage of French employees
entering their preventive health program).
-- Reducing its environmental impact (measured by reduction of gas
emissions).
Ramsay's credit quality has been preserved in the COVID-19
environment due to supportive state assistance programs in the
group's main markets, France and Sweden. Since Dec. 31, 2020, sales
declined by 0.7% at constant exchange rates, and EBITDA increased
by 14.5% compared with the previous year. This reflects the
activity catch up in July, August, and September and the positive
impact from state support from October 2020. In France and Sweden,
the level of infections have been elevated in recent weeks, leading
to targeted cancellation of elective surgeries in most hit regions,
while activity progressively stabilized in Norway and Denmark.
S&P said, "We assume the group will perform broadly in line with
our expectations in financial year ending June 30, 2021, reflecting
additional state support in the first half of this year. The
revenue guarantee scheme in France and compensation of COVID-19
related costs have been extended to June 30, 2021, and we assume
further subsidies for the Sankt Göran emergency hospital in
Stockholm. We assume that volumes will return to prepandemic levels
in the second half of 2021 as vaccination progresses. We have
updated our model to reflect recent trends in performance and about
EUR220 million-EUR250 million of working capital outflows owing to
reversals in the French government's cash advances system compared
with our previous estimate of around EUR180 million. We still
assume that leverage will be close to 6x in 2021, decreasing to
comfortably below this level in 2022 and free operating cash flow
after rent payment of at least EUR50 million (normalized for swings
from reversals in the cash advance system) improving to above EUR70
million thereafter."
Ramsay Generale de Sante--Key Metrics*
--Fiscal year ended June 30--
Mil. EUR 2020e 2021f 2022f
Revenue 3,883 3,880-3,910 4,040-4,070
EBITDA 511 600-630 640-660
Free operating cash flow (FOCF)
after lease payments** 253 50-70 70-90
Debt to EBITDA (x) 6.8 5.8-6.1 5.5-5.8
*S&P's debt calculation includes the proposed EUR1.4 billion term
loan, proposed EUR200 million of other debt, around EUR170 million
of real estate debt, EUR2.2 billion of IFRS-16 related debt, EUR300
million of cash on the balance sheet, and about EUR90 million of
pensions.
**FOCF for 2021 are normalized for the EUR220 million-EUR250
million of working capital outflows linked to the French cash
advance system.
e--Estimate.
f--Forecast.
RENAULT SA: Egan-Jones Keeps BB- Senior Unsecured Ratings
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Egan-Jones Ratings Company, on March 16, 2021, maintained its 'BB-'
foreign currency and local currency senior unsecured ratings on
debt issued by Renault SA. EJR also maintained its 'B' rating on
commercial paper issued by the Company.
Headquartered in Boulogne-Billancourt, France, Renault SA designs,
manufactures, markets, and repairs passenger cars and light
commercial vehicles.
VALEO SA: Egan-Jones Keeps B+ Senior Unsecured Ratings
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Egan-Jones Ratings Company, on March 15, 2021, maintained its 'B+'
foreign currency and local currency senior unsecured ratings on
debt issued by Valeo SA.
Headquartered in Paris, France, Valeo SA designs and manufactures
automobile components.
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G E R M A N Y
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CONTINENTAL AG: Egan-Jones Keeps BB Senior Unsecured Ratings
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Egan-Jones Ratings Company, on March 16, 2021, maintained its 'BB'
foreign currency and local currency senior unsecured ratings on
debt issued by Continental AG.
Headquartered in Hanover, Germany, Continental AG manufactures
tires, automotive parts, and industrial products.
NOVEM GROUP: Moody's Affirms Ba3 CFR on Continued Outperformance
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Moody's Investors Service has affirmed the Ba3 corporate family
rating and the Ba3-PD probability of default rating of Novem Group
GmbH and the Ba3 instrument ratings of the backed senior secured
notes. Concurrently, the outlook on the ratings is changed to
stable from negative.
"The change in outlook of Novem's Ba3 ratings to stable reflects
the recovery in its revenue and margins from the trough of the
pandemic, and our expectation that the company will grow its
revenue and lower its leverage over the coming 12 to 18 months,"
said Falk Frey, a Moody's Senior Vice President and Lead Analyst
for Novem.
RATINGS RATIONALE
The affirmation of Novem's Ba3 rating reflects Moody's expectation
that Novem's margins (i) remain high and well above sector average
in a very difficult year 2020 (in terms of Moody's adjusted EBITA),
(ii) will recover and reach the minimum level of 14% expected for
the Ba3 in the fiscal year ending March 2022. Due to the negative
impact of the coronavirus outbreak, Moody's expects leverage to
increase above 4x (debt/EBITDA, Moody's adjusted) in fiscal year
ending March 2021, before gradually de-levering to below 4x by
March 2022. The confirmation also reflects Novem's strong
liquidity, with EUR159 million cash on hand at the end of December
2020.
This expectation of a recovery in margins and leverage is based on
(i) Novem's track record of continued outperformance of its
revenues versus global light vehicle sales, and within this, a
continued outperformance of the premium segment versus the mass
market, (ii) Moody's expected recovery in global light vehicle
sales from the second half of 2020, and (iii) the company's actions
to mitigate the negative impact of the global coronavirus outbreak
predominantly by capex reduction but also by cost reduction and
flexibilization, and (iv) the company's strong free cash flow
generation, absent of shareholder distributions.
Moody's forecasts for the global automotive sector a 7% recovery in
unit sales in 2021 and another 6% in 2022, compared with a decline
of 14% in 2020. However, future demand for vehicles could be weaker
than Moody's current estimates, the already competitive environment
in the auto sector could intensify further, and Novem could
encounter greater headwinds than currently anticipated.
Novem's Ba3 Corporate Family Rating reflects as positives: (a) the
company's leading position in the decorative interior trims market
for premium cars, with long-standing relationships to premium
automotive original equipment manufacturers (OEMs), (b) history of
revenue growth in excess of global light vehicle production while
preserving strong profitability, and (c) solid financial metrics
with EBITA margins above 15% for the years 2017/18 to 2019/20
(prior to the Covid-19 impact), with prospects of positive free
cash flow generation, a conservative financial policy and good
liquidity.
The rating is constrained by Novem's: (a) relatively small size,
with revenues of around EUR650 million in FY2019/20, (b) its
exposure to the cyclicality of the automotive industry environment,
which faces a number of headwinds, and (c) customer concentration
to some large premium OEMs.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects the expectation that the company will
continue to gradually recover from the materially negative impact
of the global coronavirus outbreak on credit metrics and Moody's
believe that Novem will continue growing above market whilst
sustaining its high margins. Against previous expectations we now
anticipate in Moody's base case that Novem's key credit metrics
will recover close to expectations for the Ba3 (debt/EBITA below
4x, EBITA margins above 14%) in fiscal year through March 2021 and
finally become comfortly positioned within the current rating range
by FY2021/22.
LIQUIDITY
Novem's liquidity is excellent and reflects the company's
consistently positive free cash flow generation and its available
liquidity sources, which comfortably exceed liquidity uses in the
next 12-18 months. Even in an unexpected scenario of a prolonged
market weakness, Moody's expect the company to be able to weather
adverse working capital swings and service its debts. As per end of
December 2020, the company had cash on balance amounting to around
EUR159 million as well as its fully undrawn EUR75 million super
senior revolving credit facility (RCF) due in 2024 which the
company repaid after a temporary drawdown following the steep
market decline beginning of last year. Over the next 12 months,
Moody's expect Novem to generate funds from operations (FFO) of
almost EUR70 million, which means liquidity sources will total more
than EUR300 million over the next 12 months.
Liquidity sources are well in excess of expected uses, comprising
of capex spending (approximately EUR25-30 million), working cash
needs (Moody's estimate 3% of group sales or around EUR20 million)
and a working capital outflow (EUR20 million), while no dividend
payments are expected in the near-term. The group has no
significant debt maturities until 2024.
Novem has a factoring programme in place with a volume of up to
around EUR45 million. As of December 2020, the company had utilised
around EUR38 million.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the current market situation we do not anticipate any short
term positive rating pressure for Novem. However, Moody's would
consider a rating upgrade, if (i) EBITA margins (Moody's adjusted)
were sustained in the high teens in percentage terms through the
cycle, (ii) Debt / EBITDA (Moody's adjusted) declined to below 3.0x
sustainably, and (iii) RCF/Net debt sustained above 30%. Moreover,
an upgrade would require Novem to (iv) successfully build new OEM
relationships and thus diversify its customer mix and grow its
size.
Moody's would consider a rating downgrade, if (i) EBITA margins
(Moody's adjusted) fell below 14%, (ii) Debt / EBITDA (Moody's
adjusted) increased towards 4.0x, (iii) free cash flows turned
negative, or (iv) the liquidity profile weakened.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automotive
Supplier Methodology published in January 2020.
COMPANY PROFILE
Headquartered in Vorbach, Germany, Novem Group GmbH (Novem) is a
specialized supplier of interior trim elements for the premium
automotive industry and is the market leader in its niche market.
The company was founded in 1947 and is owned by Bregal (86%), an
investment business of Swiss COFRA Holding AG, which was
established to consolidate and manage direct investments of the
Brenninkmeijer family and the company's management and other
co-investors (14%). Novem operates 11 production sites across eight
countries in Europe, Americas and Asia. In fiscal year ending March
2020, Novem generated net sales of approximately €648 million.
WIRECARD: Questions Raised on Finance Ministry's Role in Collapse
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Birgit Jennen at Bloomberg News reports that Germany's Finance
Ministry gave explicit backing in 2019 to financial regulator
BaFin's controversial approach to fraud accusations at Wirecard AG,
raising questions about its role in one of the biggest corporate
scandals in recent history.
In a March 2019 phone call, Deputy Finance Minister Joerg Kukies
gave the head of BaFin,
Felix Hufeld, broad support for his efforts to investigate the
allegations, according to briefing documents for a parliamentary
hearing on Wirecard seen by Bloomberg.
By that point, Mr. Hufeld had implemented an unprecedented ban on
short-selling Wirecard stock, Bloomberg says. He went on to file
lawsuits against journalists who had reported on the accounting
irregularities at the company, Bloomberg relates.
In an election year, the revelation that it supported BaFin's
strategy early on puts the Finance Ministry under center-left
chancellor candidate Olaf Scholz in the spotlight, Bloomberg notes.
Lawmakers are raising the question whether it should have
intervened with the regulator's actions sooner or whether the
ministry had even ordered the controversial course of action,
Bloomberg states.
Mr. Hufeld testified on March 26 that he and Mr. Kukies talked for
as long as 45 minutes in the March 2019 call, Bloomberg relays.
BaFin's top leadership resigned earlier this year after a series of
missteps in the Wirecard scandal undermined confidence in the
authorities' grip on corporate malfeasance, Bloomberg recounts.
BaFin didn't investigate allegations of accounting fraud as
forcefully as it did journalists and short-sellers who pointed to
irregularities, Bloomberg discloses. The ban on bets against
Wirecard stock also gave the impression that BaFin and the German
authorities wanted to protect the company, Bloomberg notes.
According to Bloomberg, the German parliament's committee is due to
call Mr. Kukies, Mr. Scholz and Chancellor Angela Merkel in the
coming weeks to testify on their role in the 2020 collapse of the
former tech champion, one of Germany's biggest bankruptcies.
Even though BaFin formally reports to it, the Finance Ministry has
tried to distance itself from the regulator, citing its nominal
autonomy over matters of supervision, Bloomberg states. Yet
parliamentary and Finance Ministry documents show that the ministry
and BaFin were in close and constant contact over the regulator's
actions regarding Wirecard, according to Bloomberg.
From late 2019, the Finance Ministry directly and repeatedly asked
BaFin for updates on the state of play in the Wirecard
investigation, Bloomberg discloses. From April 2020, after a
special audit by KMPG -- commissioned by Wirecard amid repeated
fraud allegations -- raised more questions than it answered, Mr.
Kukies began to directly intervene in the case, Bloomberg notes.
The former Goldman Sachs Group Inc. banker "demanded" from BaFin
chief Mr. Hufeld full transparency and asked him to present a list
of measures to be taken, Bloomberg relays, citing documents that
include email exchanges between the ministry and BaFin.
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I R E L A N D
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ANCHORAGE CAPITAL 2021-4: S&P Assigns B-(sf) Rating on Cl. F Notes
------------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Anchorage Capital
Europe CLO 2021-4 DAC's class A to F European cash flow CLO notes.
At closing, the issuer also issued unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments.
The portfolio's reinvestment period will end approximately four
years after closing.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which comprises primarily
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 transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
its counterparty rating framework.
Portfolio Benchmarks
Current
S&P weighted-average rating factor 3,010.67
Default rate dispersion 575.64
Weighted-average life (years) 5.25
Obligor diversity measure 112.70
Industry diversity measure 22.66
Regional diversity measure 1.28
Transaction Key Metrics
Current
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 5.07
Actual 'AAA' weighted-average recovery (%) 35.81
Covenanted weighted-average spread (%) 3.87
Covenanted weighted-average coupon (%) 4.25
S&P said, "We consider the portfolio at closing, primarily
comprising broadly syndicated speculative-grade senior-secured term
loans and senior-secured bonds, to be well-diversified. Therefore,
we have conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow CDOs.
"In our cash flow analysis, we assumed a EUR449.42 million par
amount, the covenanted weighted-average spread (3.87%), the
covenanted weighted-average coupon (4.25%), and the actual
weighted-average recovery rates for all rating levels. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"Until the end of the reinvestment period on April 25, 2025, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date."
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
S&P considers the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
S&P said, "Following our analysis of the credit, cash flow,
counterparty, operational, and legal risks, we believe our ratings
are commensurate with the available credit enhancement for the
class A to F notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B-1, B-2, C, D,
and E notes could withstand stresses commensurate with higher
rating levels than those we have assigned." However, as the CLO
will be in its reinvestment phase starting from closing, during
which the transaction's credit risk profile could deteriorate, we
have capped our ratings assigned to the notes.
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and it will be managed by Anchorage CLO
ECM LLC.
With regards the class F notes, as S&P's ratings analysis makes
additional considerations before assigning ratings in the 'CCC'
category it would assign a 'B-' rating if the criteria for
assigning a 'CCC' category rating are not met.
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."
Ratings List
Class Rating Amount Interest rate (%) Credit
(mil. EUR) enhancement (%)
A AAA (sf) 265.50 3mE + 0.87 40.92
B-1 AA (sf) 20.20 3mE + 1.50 30.20
B-2 AA (sf) 28.00 1.80 30.20
C A (sf) 26.60 3mE + 2.20 24.28
D BBB (sf) 34.70 3mE + 3.20 16.56
E BB- (sf) 28.80 3mE + 5.71 10.15
F B- (sf) 12.60 3mE + 7.49 7.35
Sub NR 46.90 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
ANCHORAGE CAPITAL 2: S&P Assigns B- (sf) Rating on Class F Notes
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S&P Global Ratings assigned preliminary credit ratings to Anchorage
Capital Europe CLO 2 DAC's class A, B-1, B-2, C, D, E, and F notes.
At closing, the issuer has EUR42 million of unrated subordinated
notes outstanding from the existing transaction.
The transaction is a reset of the existing Anchorage Capital Europe
CLO 2, which closed in October 2018. The issuance proceeds of the
refinancing notes will be used to redeem the refinanced notes
(class A-1, A-2, B, C, D-1, D-2, E and F of the original Anchorage
Capital Europe CLO 2transaction), and pay fees and expenses
incurred in connection with the reset.
The reinvestment period, originally scheduled to last until
November 2022, will be extended to July 2025. The covenanted
maximum weighted-average life will be 9.0 years from closing.
Under the transaction documents, the manager can exchange defaulted
obligations for other defaulted obligations from a different
obligor with a better likelihood of recovery.
S&P considers that the closing date portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans. Therefore, S&P has
conducted its credit and cash flow analysis by applying our
criteria for corporate cash flow collateralized debt obligations.
Portfolio Benchmarks
S&P Global Ratings weighted-average rating factor 2970.88
Default rate dispersion 609.93
Weighted-average life (years) 5.034
Obligor diversity measure 100.94
Industry diversity measure 20.86
Regional diversity measure 1.28
Weighted-average rating 'B'
'CCC' category rated assets (%) 6.11
'AAA' weighted-average recovery rate 36.39
Floating-rate assets (%) 91.62
Weighted-average spread (net of floors; %) 3.91
S&P said, "In our cash flow analysis, we used the EUR400.00 million
par amount, the actual weighted-average spread of 3.90%,
weighted-average coupon of 4.66%, and weighted-average recovery
rates in the portfolio. We applied various cash flow stress
scenarios, using four different default patterns, in conjunction
with different interest rate stress scenarios for each liability
rating category.
"Our credit and cash flow analysis show that the class B-1, B-2, C,
and D notes benefit from break-even default rate (BDR) and scenario
default rate cushions that we would typically consider to be in
line with higher ratings than those assigned. However, as the CLO
is still in its reinvestment phase, during which the transaction's
credit risk profile could deteriorate, we have capped our
preliminary ratings on the notes.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement could withstand stresses that
are commensurate with a 'CC+' rating. However the recommendation is
to apply our 'CCC' rating criteria, to assign a 'B-' rating to this
class of notes."
The one notch of ratings uplift (to 'B-') from the model generated
results (of 'CCC+'), reflects several key factors, including:
-- Credit enhancement comparison: S&P noted that the available
credit enhancement for this class of notes is in the same range as
other CLOs that it rates, and that have recently been issued in
Europe.
-- Portfolio characteristics: The average credit quality of the
portfolio is similar compared to other recent CLOs.
-- S&P's model generated breakeven default rate at the 'B-' rating
level of 28.46% (for a portfolio with a weighted average life of
5.034 years) versus if it was to consider a long term sustainable
default rate of 3.1% for 5.034 years which would result in a target
default rate of 15.605%.
-- S&P also noted that the actual portfolio is generating higher
spreads and recoveries versus the covenanted thresholds that it has
modelled in our cash flow analysis.
-- S&P said, "For us to assign a rating in the 'CCC' category, we
also assessed if; a) whether the tranche is vulnerable to
non-payments in the near future, b) if there is a one in two
chances for this note to default, and c) if we envision this
tranche to default in the next 12-18 months."
Elavon Financial Services DAC is the bank account provider and
custodian. The manager can purchase up to 20% non-euro assets
subject to entering into perfect asset swaps. S&P expects at
closing that the transaction participants' documented replacement
provisions will be in line with its counterparty criteria for
liabilities rated up to 'AAA'.
S&P said, "Under our structured finance sovereign risk criteria,
the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary rating levels.
"The issuer is bankruptcy remote, in accordance with our legal
criteria.
"The CLO is managed by Anchorage CLO ECM LLC. We currently have one
European CLOs from the manager under surveillance. Under our
"Global Framework For Assessing Operational Risk In Structured
Finance Transactions," published on Oct. 9, 2014, the maximum
potential rating on the liabilities is 'AAA'.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for each
class of notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
to five of the 10 hypothetical scenarios we looked at in our
publication "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class E notes "Criteria For Assigning 'CCC+', 'CCC',
'CCC-', And 'CC' Ratings," published on Oct. 1, 2012."
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."
Ratings List
Class Prelim. Prelim. Amount Interest rate* Sub(%)
Rating (mil. EUR)
A AAA (sf) 240.00 Three-month EURIBOR 40.00
plus 0.85%
B-1 AA (sf) 28.00 Three-month EURIBOR 30.75
plus 1.60%
B-2 AA (sf) 9.00 2.15% 30.75
C A (sf) 29.00 Three-month EURIBOR
plus 2.40% 23.50
D BBB- (sf) 28.00 Three-month EURIBOR
plus 3.55% 16.00
E BB- (sf) 26.00 Three-month EURIBOR
plus 6.45% 10.00
F B- (sf) 12.00 Three-month EURIBOR
plus 8.94% 7.00
Sub notes NR 42.00 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.
N/A--Not applicable.
NR--Not rated.
ARBOUR CLO IV: Moody's Assigns B3 Rating to EUR11M Class F-R Notes
------------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to refinancing Notes issued by Arbour
CLO IV Designated Activity Company (the "Issuer"):
EUR248,000,000 Class A-R Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
EUR40,000,000 Class B-R Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aa2 (sf)
EUR25,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned A2 (sf)
EUR27,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Baa3 (sf)
EUR21,000,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Ba3 (sf)
EUR11,000,000 Class F-R 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 will issue the Notes in connection with the refinancing
of the following Classes of Notes (the "Original Notes"): Class A-1
Notes, Class A-2 Notes, Class B Notes, Class C Notes, Class D
Notes, Class E Notes, Class F Notes due 2030, originally issued on
November 11, 2016 (the "Original Issue Date"). The Class A-1 Notes,
Class A-2 Notes, Class B Notes, Class C Notes, Class D Notes due
2030 were refinanced on June 7, 2019.
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 is fully ramped up as of the closing date
and to comprise of predominantly corporate loans to obligors
domiciled in Western Europe.
Oaktree Capital Management (UK) LLP ("Oaktree") 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
4.25-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.
On the Original Issue Date, the Issuer also issued EUR43,000,000
Subordinated Notes due 2034, which will remain outstanding
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: EUR400,000,000
Diversity Score: 54
Weighted Average Rating Factor (WARF): 3116
Weighted Average Spread (WAS): 3.40%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 43.50%
Weighted Average Life (WAL): 8.5 years
AURIUM CLO VII: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Aurium CLO VII DAC's class A, B-1, B-2, C, D, E, and F notes. At
closing, the issuer will also issue unrated subordinated notes.
Aurium CLO VII is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by speculative-grade borrowers. Spire
Management Ltd. will manage the transaction.
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
four-and-a-half years after closing, and the portfolio's maximum
average maturity date will be eight-and-a-half years after
closing.
The preliminary ratings assigned to the notes reflect S&P's
assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio Benchmarks
Current
S&P Global Ratings weighted-average rating factor 2,774.53
Default rate dispersion 435.23
Weighted-average life (years) 5.33
Obligor diversity measure 112.06
Industry diversity measure 21.34
Regional diversity measure 1.32
Transaction Key Metrics
Current
Portfolio weighted-average rating
derived from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 1.10
Covenanted 'AAA' weighted-average recovery (%) 34.61
Covenanted weighted-average spread (%) 3.55
Covenanted weighted-average coupon (%) 3.55
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
be well-diversified on the effective date, primarily comprising
broadly syndicated speculative-grade senior secured term loans and
senior secured bonds. Therefore, we conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
collateralized debt obligations.
"In our cash flow analysis, we used the EUR400 million par amount,
the covenanted weighted-average spread of 3.55%, the covenanted
weighted-average coupon of 3.55%, and the covenanted
weighted-average recovery rates for all rating levels. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category. Our cash flow
analysis also considers scenarios where the underlying pool
comprises 100% of floating-rate assets (i.e., the fixed-rate bucket
is 0%) and where the fixed-rate bucket is fully utilized (in this
case 10%)."
Under the transaction documents, the issuer can purchase workout
loans, which are assets of an existing collateral obligation held
by the issuer offered in connection with bankruptcy, workout, or
restructuring of the obligation, to improve the related collateral
obligation's recovery value. The purchase of workout loans is not
subject to the reinvestment criteria or the eligibility criteria.
Although, where the workout loan meets the eligibility criteria
with certain exclusions, it is accorded defaulted treatment in the
principal balance and par coverage tests. The issuer's cumulative
exposure to workout loans that can be acquired with principal
proceeds is limited to 5% of the target par amount.
The issuer may purchase workout loans using interest proceeds,
principal proceeds, or amounts in the supplemental reserve account.
The use of interest proceeds to purchase workout loans is subject
to all coverage tests passing following the purchase and there
being sufficient interest proceeds to pay interest on all the rated
notes on the upcoming payment date. The use of principal proceeds
is subject to the following conditions: (i) par coverage tests
passing following the purchase, (ii) the manager having built
sufficient excess par in the transaction so that the principal
collateral amount is equal to or exceeding the portfolio's target
par balance after the reinvestment, and (iii) the obligation is a
debt obligation that is pari passu or senior to the obligation
already held by the issuer.
This transaction also features a principal transfer test, which is
slightly different to that in the Aurium CLO VI DAC transaction. In
Aurium CLO VI, interest proceeds exceeding the principal transfer
coverage ratio can be paid into either the principal or
supplemental reserve account. This could reduce the amount of
interest proceeds available to cure the reinvestment
overcollateralization test. S&P said, "We therefore assumed in our
cash flow analysis that such amounts will be paid to equity. In
this transaction, the interest proceeds can only be paid into the
principal account senior to the reinvestment overcollateralization
test and into the supplemental reserve account junior to the
reinvestment overcollateralization test. Therefore, we have not
applied a similar cash flow stress here. Nevertheless, as the
transfer to principal is at the discretion of the collateral
manager, we did not give credit to this test in our cash flow
analysis."
S&P said, "We expect that the transaction's documented counterparty
replacement and remedy mechanisms will adequately mitigate its
exposure to counterparty risk under our current counterparty
criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"We expect the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
the class A to F notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B-1, B-2, C,
and D 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.
"We note that the class F notes' available credit enhancement is
lower than other CLOs we have rated and that have been recently
issued in Europe. Nevertheless, based on the portfolio's actual
characteristics and additional overlaying factors, including our
long-term corporate default rates and recent economic outlook, we
believe this class is able to sustain a steady-state scenario, in
accordance with our criteria." S&P's analysis reflects several
factors, including:
-- S&P's break-even default rate (BDR) at the 'B-' rating level is
23.8% versus a portfolio default rate of 15.5% if it was to
consider a long-term sustainable default rate of 3.1% for a
portfolio with a weighted-average life of 5.33 years.
-- Whether the tranche is vulnerable to nonpayment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If S&P envisions this tranche to default in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F notes is commensurate with a
preliminary 'B- (sf)' rating.
-- The transaction securitizes a portfolio of primarily senior
secured leveraged loans and bonds, and will be managed by Spire
Management Ltd.
S&P said, "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 publication "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"For the class E and F notes, 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."
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."
Ratings List
Class Prelim. Prelim. Credit Interest rate*
Rating Amount enhancement (%)
(mil. EUR)
A AAA (sf) 248.00 38.00 Three/six-month EURIBOR
plus 0.83%
B-1 AA (sf) 21.50 29.50 Three/six-month EURIBOR
plus 1.25%
B-2 AA (sf) 12.50 29.50 1.65%
C A (sf) 34.00 21.00 Three/six-month EURIBOR
plus 2.05%
D BBB (sf) 25.00 14.75 Three/six-month EURIBOR
plus 3.10%
E BB- (sf) 20.00 9.75 Three/six-month EURIBOR
plus 5.86%
F B- (sf) 13.00 6.50 Three/six-month EURIBOR
plus 8.06%
Sub NR 28.40 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.
BLUEMOUNTAIN EUR 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 BlueMountain EUR
2021-1 CLO 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)
EUR22,800,000 Class C Deferrable Mezzanine Floating Rate Notes due
2034, Definitive Rating Assigned A2 (sf)
EUR23,600,000 Class D Deferrable Mezzanine Floating Rate Notes due
2034, Definitive Rating Assigned Baa3 (sf)
EUR16,600,000 Class E Deferrable Junior Floating Rate Notes due
2034, Definitive Rating Assigned Ba3 (sf)
EUR10,500,000 Class F Deferrable Junior Floating Rate Notes due
2034, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology. The Issuer is a managed cash flow
CLO. At least 90% of the portfolio must consist of senior secured
obligations and up to 10% of the portfolio may consist of senior
unsecured obligations, second-lien loans, mezzanine obligations and
high yield bonds. The portfolio is expected to be 96% ramped as of
the closing date and to comprise of predominantly corporate loans
to obligors domiciled in Western Europe. The remainder of the
portfolio will be acquired during the approximately 6 month ramp-up
period in compliance with the portfolio guidelines.
Assured Investment Management, LLC ("Assured Investment
Management") 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 4.3 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 EUR31,900,000 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 European 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: EUR350m
Diversity Score: 47
Weighted Average Rating Factor (WARF): 3147
Weighted Average Spread (WAS): 3.75%
Weighted Average Coupon (WAC): 3.75%
Weighted Average Recovery Rate (WARR): 44.5%
Weighted Average Life (WAL): 8.5 years
BOSPHORUS CLO VI: S&P Assigns B (sf) Rating on Class F Notes
------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Bosphorus CLO VI
DAC's class X to F European cash flow CLO notes. The issuer also
issued unrated notes.
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds. It is managed by Commerzbank AG, London
Branch.
The ratings assigned to Bosphorus CLO VI's notes reflect its
assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure is bankruptcy remote.
-- The transaction's counterparty risks are in line with S&P's
counterparty rating framework.
Under the transaction documents, the issuer can purchase loss
mitigation loans, which are assets of an existing collateral
obligation held by the issuer offered in connection with
bankruptcy, workout, or restructuring of such obligation, to
improve the recovery value of such related collateral obligation.
The purchase of loss mitigation loans is not subject to the
reinvestment criteria or eligibility criteria. It receives no
credit in the principal balance definition, although where the loss
mitigation loan meets the eligibility criteria with certain
exclusions, it is accorded defaulted treatment in the par coverage
tests. The cumulative exposure to loss mitigation loans is limited
to 10% of target par.
The issuer may purchase loss mitigation loans using either interest
proceeds, principal proceeds, or amounts standing to the credit of
the collateral enhancement account. The use of interest proceeds to
purchase loss mitigation loans is subject to (1) all the interest
and par coverage tests passing following the purchase, and (2) the
manager determining there are sufficient interest proceeds to pay
interest on all the rated notes on the upcoming payment date. The
usage of principal proceeds is subject to (1) passing par coverage
tests and the manager having built sufficient excess par in the
transaction so that (2) the principal collateral amount is equal to
or exceeds the portfolio's target par balance after the
reinvestment and (3) has a par value of less than its purchase
price.
To protect the transaction from par erosion, any distributions
received from loss mitigation loans that are either (1) purchased
with the use of principal, or (2) purchased with interest or
amounts in the supplemental account, but which have been afforded
credit in the coverage test, will irrevocably form part of the
issuer's principal account proceeds and cannot be recharacterized
as interest.
Payments on the class Z-1 notes will rank pro rata with senior
management fees in accordance with the transaction waterfall, which
in aggregate will total 15 basis points of the performing pool
balance. Interest payments on the class Z-1 notes will be fist used
to repay principal until the balance falls to EUR1.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will permanently switch to semiannual payment.
The portfolio's reinvestment period will end approximately 4.1
years after closing.
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average 'B' rating
(with an S&P Global Ratings' weighted-average rating factor of
2,649.68). In our analysis, we note that the current portfolio
presented to S&P Global Ratings contains a larger proportion of
nonidentified assets than we would typically see in other European
CLO transactions. We consider that the portfolio on the effective
date will be well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, we have conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
CDOs.
"In our cash flow analysis, we used the EUR350 million target par
amount, the covenanted weighted-average spread (3.70%), the
covenanted weighted-average coupon (4.00%), and the covenanted
weighted-average recovery rates for all rating levels. As the
portfolio is being ramped, we have relied on indicative spreads and
recovery rates of the portfolio.
"We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-1 to F notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO is in its reinvestment phase, during
which the transaction's credit risk profile could deteriorate, we
have capped our ratings assigned to the notes. In our view the
portfolio is granular in nature, and well-diversified across
obligors, industries, and assets."
The Bank of New York Mellon, London Branch, is the bank account
provider and custodian. The transaction's documented counterparty
replacement and remedy mechanisms adequately mitigate its exposure
to counterparty risk under S&P's c current counterparty criteria.
S&P said, "Under our structured finance sovereign risk criteria,
the transaction's exposure to country risk is sufficiently
mitigated at the assigned rating levels.
"We consider the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for each class
of 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."
S&P said, "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 publication, "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"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.
Bosphorus CLO VI is a European cash flow CLO securitization of a
revolving pool, a portfolio of primarily senior secured leveraged
loans and bonds. Commerzbank AG, London Branch, manages the
transaction.
Ratings List
Class Rating Amount Interest rate* Subordination(%)
(mil. EUR)
Z-1 NR 1.50 N/A N/A
X AAA (sf) 2.00 Three-month EURIBOR N/A
plus 0.30%
A AAA (sf) 217.00 Three-month EURIBOR 38.00
plus 0.85%
B-1 AA (sf) 26.75 Three-month EURIBOR 27.50
plus 1.35%
B-2 AA (sf) 10.00 1.65% 27.50
C A (sf) 24.50 Three-month EURIBOR 20.50
plus 2.10%
D BBB (sf) 19.60 Three-month EURIBOR 14.90
plus 3.43%
E BB (sf) 17.15 Three-month EURIBOR 10.00
plus 5.80%
F B (sf) 10.50 Three-month EURIBOR 7.00
plus 7.90%
Z-2 NR 1.50 N/A N/A
Sub A notes NR 9.05 N/A N/A
Sub B notes NR 20.90 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
SHEFFIELD CDO: S&P Lowers Class C Notes Rating to 'CC (sf)'
-----------------------------------------------------------
S&P Global Ratings lowered to 'CC (sf)' from 'CCC- (sf)' its credit
rating on Sheffield CDO Ltd.'s class C notes. At the same time, S&P
has affirmed its 'CC (sf)' rating on the class D notes.
The rating actions follow its analysis of the transaction's
performance using data from the trustee report dated Jan. 13,
2021.
S&P said, "Since our previous review, the number of performing
obligors has decreased to one from 16. We therefore believe that
this assets pool is not granular and diversified. Consequently, in
our analysis, we considered additional features such as the credit
quality, and other qualitative factors unique to the transaction,
rather than the cash flow outputs."
As per the January 2021 report, the interest proceeds were just
sufficient to service the senior fees, class C interest, and
partial payment of class D interest. Class C is a controlling class
and non-deferrable note, and it has been paying timely interest.
Due to a heavily concentrated pool of defaulted assets, there has
been only one principal repayment as of the last payment date.
Except for the class C overcollateralization test and interest
coverage test, all other par coverage and interest coverage tests
are failing.
S&P said, "Since our previous review, the credit enhancement for
class C notes has decreased substantially. We therefore believe
that this class of notes is highly vulnerable to a payment default,
given the current level of undercollateralization and only one
performing asset in the portfolio. As a consequence, we have
lowered to 'CC (sf)' from 'CCC- (sf)' our rating on the class C
notes.
"For the class D notes, we believe that this class of notes is
highly vulnerable to a payment default at maturity, given the
current level of undercollateralization and the amount of deferred
interest to be cured. Therefore, we have affirmed our 'CC (sf)'
rating on this class of notes in line with our criteria for
assigning 'CCC' category ratings."
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."
=========
I T A L Y
=========
PIAGGIO & C: Moody's Affirms Ba3 CFR & Alters Outlook to Stable
---------------------------------------------------------------
Moody's Investors Service has affirmed Piaggio & C. S.p.A.'s Ba3
corporate family rating and Ba3-PD probability of default rating.
Concurrently, Moody's has also affirmed the Ba3 senior unsecured
rating on Piaggio's EUR250 million senior unsecured notes due 2025.
The outlook has been changed to stable from negative.
"The stabilization of the outlook reflects Moody's expectation that
sales and earnings recovery during 2021 will support a sequential
improvement in the company's profitability and gross leverage to a
level commensurate with its Ba3 rating," says Giuliana Cirrincione,
Moody's lead analyst for Piaggio. "The rating affirmation takes
also into account a lower than anticipated impact of the
coronavirus pandemic on Piaggio's financial performance in 2020, as
evidenced by the progressive rebound in sales and EBITDA in the
second half of the year", adds Mrs. Cirrincione.
RATINGS RATIONALE
In the six months to June 2020, Piaggio's sales and company
reported EBITDA fell sharply by 27% and 38%, respectively, compared
to the same period the year before. However, market demand and
earnings rebounded strongly during the second half of 2020,
reducing the gap versus 2019 and resulting in sales and company
reported EBITDA down 14% and 18% respectively in the twelve months
to December 2020. This allowed the company to contain the
deterioration in key credit metrics, with leverage (measured as
Moody's adjusted gross debt to EBITDA ratio) increasing to 5.0x in
2020 from 4.0x in 2019, and Moody's adjusted EBIT margin
contracting to 5.3% from 6.7% in 2019. Free cash flow generation
remained positive, at around EUR17 million including Moody's
adjustments, mainly thanks to tight working capital management and
lower dividend payments.
With challenging trading conditions likely to continue in certain
key markets and segments, particularly the Indian commercial
vehicles business, Moody's expects Piaggio's sales and earnings in
2021 to remain slightly below pre-pandemic levels. However, based
on the rating agency's forecasts, adjusted EBIT margin will recover
to around 6%-6.5% and gross leverage will trend towards 4.0x, or
slightly below that, over the next 12-18 months -- which is within
the boundaries indicated to maintain the Ba3 rating.
The improvement in profit margins and leverage is based on Moody's
expectation that market demand will remain supportive in Europe and
North America, as well as in Asia, with countries like Vietnam and
Indonesia to partly offset the still soft conditions in the Indian
market. The recovery in credit metrics also assumes that Piaggio's
pipeline of new products in 2021 will further improve product mix,
in line with the company's strategy to maintain a premium brand
positioning across its entire product portfolio.
Expected leverage reduction in 2021 will be also supported by some
debt repayment.
LIQUIDITY
Piaggio's liquidity is adequate, supported by EUR230 million cash
on balance sheet as of December 2020 and approximately EUR180
million of availability under the company's committed revolving
credit facility due in April 2023, plus additional undrawn amounts
under minor committed loans. In Moody's view, Piaggio's liquidity
is constrained by its reliance on some short-term uncommitted
credit lines and significant use of reverse factoring.
Based on Moody's forecasts, Piaggio's liquidity sources will be
sufficient to its cash needs over the next 12-18 months, although
free cash flow generation in 2021 (after dividend payments) will be
very limited or at break-even. This will reflect mainly a more
normal contribution from working capital items and slightly higher
capital investments, estimated at around EUR160 million annually
(including the portion related to the lease adjustment and
captalized development costs). Moody's notes that working capital
requirements have a degree of seasonality, with high absorption
during the first quarter, of approximately EUR50 million to EUR60
million, and that the company will have to manage carefully any
unwinding of working capital in 2021 from a relatively strong
contraction in 2020.
The rating agency also expects Piaggio to maintain comfortable
capacity under its net leverage maintenance covenant.
STRUCTURAL CONSIDERATIONS
The EUR250 million senior unsecured notes due in 2025 were issued
by Piaggio & C. S.p.A. - i.e. the parent company of the group but
also the main operating company - and are not guaranteed by other
subsidiaries. The notes are rated Ba3 in line with the group's CFR,
reflecting that they rank pari passu with all of Piaggio's other
senior debt, namely the main bank facilities (including revolving
credit lines). The company has a small amount of local debt in
Vietnam, which, however, is not sizeable enough to cause
subordination for the rest of the capital structure. The Ba3-PD
reflects the use of a 50% recovery rate, as customary for capital
structures comprising both bonds and bank debt.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects our expectations that Piaggio's key
credit metrics will improve from 2020 level, with Moody's adjusted
gross debt to EBITDA trending towards 4.0x, or slightly below that,
over the next 12-18 months. The stable outlook also assumes that
the company will maintain overall stable profit margins, close to
pre-pandemic levels, but modest free cash flow generation over the
next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
For a rating upgrade, Piaggio has to demonstrate (1) improvements
in its business profile as evidenced by greater geographic
diversification and lower earnings volatility; (2) stronger
profitability, with Moody's adjusted EBIT margin growing towards
the high-single-digit level in percentage terms; (3) a financial
leverage, measured as Moody's adjusted gross debt to EBITDA,
trending towards 3.5x for a prolonged period of time; and (4) track
record of sustainably stronger free cash flow generation (after
dividend payments).
Piaggio's rating could be lowered in case of (1) a deterioration in
operating performance leading to a weaker Moody's adjusted EBIT
margin falling below the mid-single digit level in percentage
terms; (2) failure to maintain a Moody's adjusted gross leverage
below 4.5x on a sustained basis; or (3) persistently negative free
cash flow generation.
LIST OF AFFECTED RATINGS
Issuer: Piaggio & C. S.p.A.
Affirmations:
Probability of Default Rating, Affirmed Ba3-PD
LT Corporate Family Rating, Affirmed Ba3
Senior Unsecured Regular Bond/Debenture, Affirmed Ba3
Outlook Action:
Outlook, Changed To Stable from Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Durables Industry published in April 2017.
COMPANY PROFILE
Based in Italy, Piaggio & C. S.p.A. (Piaggio) is a leading global
manufacturer and distributor of light mobility vehicles for both
personal and business purposes. Piaggio is the largest European
manufacturer of two-wheelers and the market leader in the scooter
segment by sales volume. In 2020, the group generated EUR1.3
billion revenue (2019: EUR1.5 billion) and company-reported EBITDA
of EUR186 million (2019: EUR228 million).
===================
K A Z A K H S T A N
===================
FREEDOM FINANCE: S&P Alters Outlook to Positive, Affirms 'B' ICR
----------------------------------------------------------------
S&P Global Ratings revised its outlook on Kazakhstan-based Freedom
Finance Life (FFL) to positive from stable. At the same time, S&P
affirmed its 'B' issuer credit and financial strength ratings on
FFL. S&P also affirmed its 'kzBBB-' national scale rating on the
company.
The outlook revision predominantly reflects a more conservative
investment mix with the average bond portfolio rated at 'BBB-',
which S&P expects to continue.
Financial market volatility in 2020; the population's declined
purchasing power and reduced business activity, notably due to the
coronavirus pandemic; and intensifying competition have not
affected FFL's business development and operating performance.
At the same time, there is foreign exchange risk on the company's
balance sheet, and FFL is exposed to the financial sector of
Kazakhstan, which S&P views as risky. However, the company's
results have held up well so far and it believes the capital buffer
can absorb any foreseeable volatility.
FFL has strengthened its position in Kazakhstan's life insurance
market. It remains modest, though gradually increasing (9% market
share in January 2021 and 5% for full-year 2019) compared with
market leaders such as Halyk Life and Nomad Life (28% and 36%,
respectively, based on gross premiums written [GPW] for the same
period). Substantial premium growth in 2020 (2.16x; 2019 figures)
did not compromise the company's bottom-line results and capital
adequacy.
S&P said, "We forecast that FFL will continue to show above-market
GPW growth of close to 55% in 2021, which is above the expected
market average of 25%. This stems from the continual development of
the emerging Kazakhstan life insurance sector, the company growing
from a very low base by developing new products, and its wider
brand recognition on the Kazakhstan financial market.
"In our view, regulatory initiatives to develop the life insurance
market will stimulate medium-term market growth. State annuity
transfers to life insurance companies from the JSC Unified
Accumulative Pension Fund, tax benefits, and the implementation of
unit-linked products will likely propel medium-term growth for the
life sector. In 2022, we expect FFL's GPW growth to be 20%, which
will be comparable with the expected market average.
"At the same time, in our base-case scenario, we expect FFL will
report average annual net profit of at least Kazakhstani tenge 3
billion, return on equity of 30%-40%, and return on assets of
6%-8%. Around 10% of the company's products (based on GPW) are
insurance policies with investment guarantee. For these products,
we expect FFL's investment yield will be close to 8.0%-8.5% to meet
its obligations under insurance policies with investment
guarantees.
"We expect limited overlap in terms of business from other parts of
the group owned by Mr. Timur Turlov. We assume FFL's business will
come primarily from the open market."
The company benefits from a strong commitment of support from its
owner. However, FFL's forecast capital adequacy in the next two
years might come under pressure due to substantial insurance
premium growth in 2021-2022. S&P said, "We believe the company
might lean on potential capital support from the shareholder if
this happens. FFL generated sufficient earnings in 2020, which
supported the regulatory ratio at 154% as of March 1, 2021,
sufficiently above minimum requirements of 100%. Our view of the
company's capital adequacy is constrained by potential volatility
stemming from its relatively modest absolute size in an
international context, which we expect to build up to above $25
million in the next two years due to sufficient earnings and zero
dividend policy."
The positive outlook reflects that S&P could raise the ratings by
one notch in the next 12 months if FFL further sustains asset
quality metrics at the 'BBB-' level; and the company's high premium
growth does not impede its underwriting performance, which we
continuously expect to support its capital growth and competitive
position.
S&P could consider revising its rating on FFL if:
-- The above factors are sustained in the next 12 months and
beyond; and
-- The company's financial performance will not suffer from a
substantial premium volume increase anticipated in 2021.
-- An upgrade would also depend on any potential constraints on
FFL's overall financial strength coming from the wider group's
creditworthiness.
S&P could consider revising the outlook to stable in the next 12
months if the company increased its exposure to lower quality
instruments, or the capital position weakened, squeezed either by
weaker-than-expected operating performance, investment losses, or
considerable dividend payouts.
NATIONAL COMPANY: Moody's Affirms B1 CFR on Large Recapitalisation
------------------------------------------------------------------
Moody's Investors Service has affirmed the B1 corporate family
rating and B1-PD probability of default rating of National Company
Food Contract Corp JSC (FCC), a state-owned grain trader in
Kazakhstan. Concurrently, Moody's has affirmed the company's b3
baseline credit assessment, which is a measure of its stand-alone
credit strength. The outlook remains stable.
RATINGS RATIONALE
The affirmation of the ratings reflects the company's low leverage,
status as the state grain trader, and large recapitalisation in
2020 which are balanced by its very small size, negative operating
cash flow generation, volatile performance, and exposure to the
inherent cyclicality of the grain sector. The rating action also
reflects Moody's expectation that the company will pursue its
prudent financial management and sustain the existing business
model, following the change in its shareholder structure in 2020.
FCC's credit quality reflects its small scale, with revenue of
KZT30 billion ($78 million) in 2019 and around KZT18 billion ($44
million) in 2020, which positions the company on the very low end
of the rated universe in terms of size. Although FCC is likely to
increase its grain sales to 600,000 tons in 2021 from 195,000 tons
in 2020 and 346,000 tons in 2019, which may result in revenue of
KZT55 billion ($130 million), Moody's does not foresee long term
sustained growth in revenue.
In addition, FCC is likely to generate negative free cash flow
(FCF) of KZT7 billion in 2021, following negative FCF of KZT28
billion in 2020 and KZT5 billion in 2019. This is driven by the
company's target to replenish and maintain its grain stock around
900,000 tons-1,000,000 tons in 2020-21, compared with around
605,000 tons as of year-end 2019.
The rating also factors in the company's heavy dependence on the
Kazakh grain sector, which exacerbates its exposure to the inherent
cyclicality of the agricultural industry and the volatility of
commodity prices. This exposure may result in lack of visibility
and significant swings in the company's earnings and cash flow,
and, hence, its financial metrics.
On the positive side, the rating action reflects the company's
solid credit metrics. Its reported net debt/EBITDA is likely to
increase to 3.0x-3.5x in 2020-21 from 2.5x in 2019. However,
Moody's adjusted net leverage, which incorporates a debt deduction
adjustment amounting to 50% of the grain stock under the Trading
Companies methodology, will be around -1.0x in 2020 and 0.5x in
2021, compared with 1.3x in 2019. EBIT/interest expense ratio
should be at or above 3.0x in 2020-21. While EBITDA may remain
volatile and leverage as well, Moody's takes comfort from the
strengthened equity over the last few years, which translates in a
sound debt/book capitalisation remaining comfortably below 25%.
The company has adequate liquidity underpinned by its sizeable cash
balance as of year-end 2020, positive funds from operations in
2021, available committed credit facility and the placement of
RUB2.45 billion bond ($33 million) in March 2021. This should be
sufficient to cover all debt maturities and grain procurement
campaign of around 600,000 tons in 2021. FCC also has a comfortable
debt maturity profile, with KZT7 billion due May 2021, KZT3 billion
in July 2021, KZT7 billion due February 2022 and the bond starting
to amortise in the second half of 2024.
The rating factors in the transfer of ownership of the company
directly to the Kazakh government from KazAgro National Management
Holding JSC in 2020, which strengthened the state's commitment to
the company and the likelihood of support in case of need.
Following the transfer, the government recapitalised the company
with KZT24.5 billion ($59 million) in equity which strengthened its
balance sheet and provided cash to finance trading operations.
The rating agency also notes some consistency in the company's
business model over the last two years, following the turnaround in
the end of 2018 after the prolonged period of losses and liquidity
issues in 2017 and 1H 2018. Although the ownership change might
trigger a revision of FCC's financial policies and strategic
directions, it has not materialised to date. However, the company
has yet to demonstrate positive free cash flow generation. In
addition, the company still remains an important tool for the
government to support the agricultural sector, which may involve
substantial non-commercial market interventions or rapid changes in
its strategy and policies.
At the same time, FCC benefits from its status as the state grain
trader, with a long track record of operations in domestic and
international markets, and its established relationships with
farmers, grain storage companies, key grain importers and foreign
banks. Under its mandate to ensure food security in Kazakhstan, the
company is also the owner and operator of the country's grain
reserves.
Moody's views FCC as a government-related issuer (GRI) because the
company is owned by the Government of Kazakhstan (Baa3 positive).
Therefore, FCC's B1 rating factors in a sizeable uplift to its b3
BCA based on Moody's assumption of the strong probability of state
support to the company in the event of financial distress, and the
high default dependence between the company and the government.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
FCC's rating takes into account the company's developing corporate
governance. Moody's positively notes the state's oversight over
strategic decisions at the company, as well as its relative
transparency through publication of audited financial reports and
annual reports. Following the change in ownership, FCC's board of
directors was expanded to seven members including four independent
directors. However, the new shareholder might potentially drive
other changes in the company's corporate governance later.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on FCC's rating reflects the company's
comfortable positioning in the rating category and Moody's
expectation that it will continue to maintain its solid credit
metrics and adequate liquidity. The stable outlook also factors in
Moody's assumption of the strong probability of sovereign support
to FCC in case of need.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the rating if the company (1) demonstrates a
consistent track record of strong financial and operating
performance, (2) pursues predictable and sustainable managerial
practices and adheres to high standards of corporate governance,
(3) demonstrates a track record of sound and disciplined liquidity
management, (4) maintains a solid balance sheet, with
Moody's-adjusted net debt/EBITDA below 2.5x and debt/book
capitalisation below 25% on a sustainable basis, and (5) pursues a
conservative financial policy and generates sustainable positive
post-dividend free cash flow.
The rating could be downgraded if (1) FCC's revamped business model
does not prove viable, resulting in a deterioration in the
company's operating and financial performance; (2) its liquidity
deteriorates; (3) Moody's revises its assessment of strong
government support for the company downwards; or (4) Kazakhstan's
sovereign rating is downgraded.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Trading Companies
published in June 2016.
National Company Food Contract Corp JSC (FCC) is the state grain
trader fully owned by the government of Kazakhstan. FCC's principal
activities are to purchase grain from domestic producers and sell
it domestically and for export to ensure food security in
Kazakhstan, the stability of the domestic grain market, and the
development of the export potential of domestic grain. FCC is also
engaged in commercial operations, including the storage,
transshipment and sale of grain. For the 12 months ended September
30, 2020, FCC generated revenue of KZT19 billion (around $48
million).
===============
P O R T U G A L
===============
HIPOTOTTA NO. 5: S&P Affirms 'CCC- (sf)' Rating on Class F Notes
----------------------------------------------------------------
S&P Global Ratings raised its credit rating on HipoTotta No. 5
PLC's class E notes to 'A (sf)' from 'BBB (sf)'. At the same time,
S&P affirmed its 'A (sf)' ratings on the class A, B, C, and D
notes, and its 'CCC- (sf)' rating on the class F notes.
S&P said, "Upon expanding our global RMBS criteria to include
Portuguese transactions, we placed our rating on the class E notes
under criteria observation. Following our review of the
transaction's performance and the application of our updated
criteria, the rating is no longer under criteria observation.
"Of the pool, we understand that about 20% of the loans are on
payment holidays under a moratorium scheme. The performance of the
transaction remains stable with arrears remaining low, currently
under 1% of the outstanding collateral balance.
"Cumulative defaults, defined as loans in arrears for a period
equal to or greater than 12 months, represent 2.0% of the closing
pool balance. The interest deferral trigger for the class E notes
is not at risk of being breached because it is defined at 7.5%, and
we do not expect that this level will be reached in the near term.
"Our weighted-average foreclosure frequency (WAFF) assumptions have
decreased due to the introduction of the effective loan-to-value
(ELTV) ratio, which is weighted by 80% of the original LTV (OLTV)
and 20% of the indexed current LTV (CLTV). Under our previous
criteria, only the OLTV was considered.
"Our weighted-average loss severity (WALS) assumptions remain
unchanged, as the seasoning of the assets is high, supporting a low
indexed CLTV."
Table 1
Credit Analysis Results
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 6.26 2.00 0.13
AA 4.27 2.00 0.09
A 3.27 2.00 0.07
BBB 2.48 2.00 0.05
BB 1.65 2.00 0.03
B 1.07 2.00 0.02
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
S&P said, "Our operational, sovereign risk, and legal risk analyses
remain unchanged since our previous review. Therefore, the ratings
assigned are not capped by any of these criteria.
"We also analyzed the transaction's counterparty exposure. The
maximum rating achievable for this transaction under our current
counterparty criteria remains constrained by the issuer credit
rating on the issuer's bank account provider. In accordance with
our current counterparty criteria, the replacement framework can
support a maximum potential rating of 'A' in this transaction.
"Although our analysis indicates that the credit enhancement levels
for the class A to D notes is commensurate with higher rating
stresses, our ratings on these classes of notes remain constrained
at 'A (sf)' due to counterparty reasons. We have therefore affirmed
our 'A (sf)' ratings on these classes of notes.
"We have raised to 'A (sf)' from 'BBB (sf)' our rating on the class
E notes. While this class of notes can withstand credit and cash
flow stresses at a higher rating, it is now also constrained due to
the counterparty reasons detailed above.
"We continue to believe class F notes' junior position in the
waterfall and reliance upon excess reserve fund amounts to amortize
makes these notes dependent on favorable business, financial, and
economic conditions. We have therefore affirmed our 'CCC- (sf)'
rating on the class F notes, in line with our 'CCC' criteria."
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."
MAGELLAN MORTGAGES NO.1: S&P Affirms 'B- (sf)' Rating on C Notes
----------------------------------------------------------------
S&P Global Ratings affirmed its 'A- (sf)' and 'B- (sf)' credit
ratings on Magellan Mortgages No. 1 PLC's class B and C notes,
respectively.
Upon expanding S&P's global RMBS criteria to include Portuguese
transactions, it placed its rating on the class C notes under
criteria observation. Following S&P's review of the transaction's
performance and the application of our updated criteria, the rating
is no longer under criteria observation.
Arrears are low, currently under 1% of the outstanding collateral
balance. At the same time, the existing credit enhancement for the
class B notes is above 50%, while for the class C notes it is 15%.
S&P's weighted-average foreclosure frequency (WAFF) assumptions
have decreased due to the introduction of the effective
loan-to-value (ELTV) ratio, which is weighted by 80% of the
original LTV (OLTV) and 20% of the indexed current LTV (CLTV).
Under our previous criteria, only the OLTV was considered.
S&P's weighted-average loss severity (WALS) assumptions remain
unchanged, as the seasoning of the assets is high, supporting a low
indexed CLTV.
Table 1
Credit Analysis Results
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 5.68 2.00 0.11
AA 4.01 2.00 0.08
A 3.17 2.00 0.06
BBB 2.51 2.00 0.05
BB 1.82 2.00 0.04
B 1.33 2.00 0.03
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
S&P said, "Despite our analysis indicating that the class B notes
could withstand our 'AAA' rating stresses, these notes continue to
be capped by the bank account provider counterparty rating,
currently NatWest Markets PLC. We have therefore affirmed our 'A-
(sf)' rating on the class B notes.
"We have also affirmed our rating on the class C notes. Despite the
notes' robust credit enhancement, they continue to fail all our
cash-flow stress scenarios, mainly driven by the costs related to
the liquidity facility (which is currently sized at EUR30 million),
which erodes the excess spread available in the transaction. We
believe, however, that payments on this class of notes are not
dependent upon favorable financial and economic conditions and, as
per our criteria for assigning 'CCC' category rating, we have we
affirmed our 'B- (sf)' on these 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."
===========
R U S S I A
===========
VSMPO-AVISMA: S&P Assigns 'BB+' Long-Term Rating, Outlook Stable
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S&P Global Ratings assigned its 'BB+' long-term rating to Russian
titanium producer VSMPO-AVISMA.
The stable outlook reflects S&P's expectation that VSMPO-AVISMA
will focus on preserving FFO to debt above 60%, while its operating
performance, alongside the overall industry, gradually recovers
from the pandemic-driven downturn.
Leading positions in the global titanium market, high barriers to
entry, and long-standing relationships with top aircraft and engine
manufacturers are VSMPO-AVISMA's key strengths. VSMPO-AVISMA is
the largest supplier of titanium in the world, with a global market
share of about 25%. The company is also one of the world's oldest
industrial suppliers of titanium, and its alloys, particularly for
aerospace industry, date back to 1933. The company's history points
to its large knowledge base, developed technology and excellent
quality track record. VSMPO-AVISMA's key market is aerospace
(aircraft and jet engines), where it generates roughly three
quarters of its revenue and holds nearly 30% of the market.
Furthermore, the group has been supplying key global aircraft
manufacturers with alloys (usually with aluminum and vanadium) for
more than 25 years (since its first contract with Boeing in 1994).
VSMPO-AVISMA's high-quality products, which is one of the critical
requirements for aviation materials, underpins the company's
long-standing relationships with its key customers (such Boeing and
Airbus).
VSMPO-AVISMA's foothold in the titanium industry--where unique
product characteristics create high barriers to entry--provide good
long-term demand fundamentals. Titanium, thanks to its high
strength-to-density ratio, has multiple unique uses, such as in
landing gear, engine pylons, and critical structural elements in
aircraft manufacturing, particularly jet engines, and in aggressive
environments, such as chemical and desalination plants, thanks to
its resistance to corrosion. Additionally, its biocompatibility
lends itself to medical uses, such as surgical instruments and
implants. Exceptional quality standards in the aerospace
industry--VSMPO-AVISMA's key market--means it takes between five
and 15 years to introduce a new alloy or certify a new supplier,
and this creates natural barriers to entry. However, this gives
producers with long-term quality track record, such as
VSMPO-AVISMA, an advantage in one of the most lucrative
titanium-consuming sectors. S&P notes that quality could be at
least as important as price for the aerospace customers. Long
certification process also means fast replacement of titanium with
another material in aviation would be nearly impossible, since any
new plane with a different material used would take more than a
decade to develop, giving producers enough time to adjust to the
change in demand. At this time, newer planes such as Airbus a350 or
Boeing 787 are actually using incrementally more titanium since it
performs much better than aluminum in places where it is used
alongside composites (they result in aluminum corroding).
High country risk in Russia and exposure to a single metal are key
rating constraints. VSMPO-AVISMA is fully exposed to the titanium
market and the aerospace segment. The latter, in particular, can be
volatile at times of stress in the world economy when the aviation
industry slows down, as was the case in 2009 or due to travel
restrictions like the ones implemented during the current
coronavirus pandemic. Furthermore, with its three largest customers
generating 46% of revenue in 2020, the group has a very high
customer concentration. This is a clear constraining factor, in our
view, despite the clients being industry leaders. S&P understands
that VSMPO-AVISMA is gradually expanding into other industries.
Expansion won't be a fast process, however, because the company
will need to increase production capacity, which is normally almost
fully utilized with aerospace orders. VSMPO-AVISMA's exposure to
Russia, where all of its assets are located, is another rating
constraint. The changing regulatory environment and taxation
practices are among the key risks for VSMPO-AVISMA. Russia's
confrontation with the western countries could lead to business
disruptions for Russian companies, especially for those that
produce materials used by the defense industry (the U.S. department
of commerce actually put VSMPO-AVISMA on the export control list,
by mistake, before quickly removing it in 2020). The Russian
government might consider limiting export of strategic material if
tension with the western countries continue escalating, but this is
not our base case. Moreover, we note that VSMPO-AVISMA continues to
sell up to a third of its products domestically (although at a
somewhat lower price), controlling roughly 90% of the domestic
titanium market.
Low cost of production, thanks to low labor costs and cheap ruble,
and high profitability support VSMPO-AVISMA's resilient EBITDA
generation. S&P said, "We expect VSMPO-AVSMA's EBITDA to contract
in 2021 to about $310 million-$330 million from $466 million in
2020. This decline suggests relative resilience, however,
considering our expectation of revenue to drop by up to 15% in 2021
due to muted sales volumes and slightly lower prices. EBITDA should
start to recover in 2022 to $360 million-$390 million and further
in 2023 to $410 million-$440 million, on the back of a rebound in
sales following the recovery of aircraft deliveries by major
manufacturers. However, we don't expect the company will reach the
pre-COVID-19 EBITDA level of $589 million any time soon. We note
that the depreciating ruble has contributed to EBITDA's resilience.
The ruble was about 10% lower in 2020 than in 2019, and we
anticipate a limited likelihood of appreciation in the coming
years. In 2020, the company took measures focused on reducing
production, as well as targeting of lower waste, energy efficiency,
reduction of administrative costs and higher labor productivity. As
a result, the 37% EBITDA margin in 2020 was actually slightly
better than the 36% posted in 2019. We expect the margin to fall to
about 30% in 2021 with gradual recovery thereafter."
VSMPO-AVISMA's leverage should remain conservative with FFO to debt
of at least 60% for the next few years thanks to effective working
capital management and cost optimization. The company has
responded to the severe COVID-19-related setbacks with
cash-preserving measures, including deferring of the dividends and
reducing production, thereby releasing its working capital. Until
2020, VSMPO-AVISMA had paid $200 million-$400 million dividends per
year, so deferring the payment in 2020 materially eased the strain
on cash flow. S&P said, "We expect the company to return paying up
to $250 million per year in 2022, with no payments in 2021. Working
capital management, which has led to significant working capital
release of $163 million (partly thanks to advance purchases by some
large customers), was another efficiency measure in 2020. In
2021-2022, we expect slightly negative working capital as further
elevated purchases from suppliers might not be achievable."
The group's track record of non-strategic investments is a
constraining factor for the rating. VSMPO-AVISMA has made several
sizable, non-strategic investments in the past, such as two
purchases of RusHydro shares, spending $126 million in 2017 and
$211 million in 2018. There is no operational or strategic synergy
between the companies and we consider such investments as high
risk. The group also purchased $102 million worth of gold bars in
2019, which was opportunistic and unrelated to the core business.
S&P said, "Additionally, we note that in 2020 the group put most of
its cash on a short-term deposit in a single relatively small bank,
which we view as an aggressive treasury policy. The deposit has
since expired and was placed in large Russian banks while the
treasury policy was updated to avoid such cases in future. We
understand the company does not expect to make any nonstrategic
investments in the future, but any reassessment of its financial
policy would hinge on a track record of the updated policies."
S&P said, "The board's lack of independence also constrains the
rating, in our view. We view VSMPO-AVISMA's board composition as
not sufficiently independent as most of its members have previously
worked at or were related to Rostec, a 25% shareholder of the
company, or the chairman of VSMPO-AVISMA's board and Rostec's CEO,
Mr. Sergey Chemezov. We note that the current majority shareholder,
Mr. Mikhail Shelkov, is a former Rostec employer and a former
advisor to Mr. Chemezov. Although the board had no negative impact
on VSMPO-AVISMA's operations, except for approving the
aforementioned nonstrategic investments, we view current governance
set up as somewhat weaker than that of the rated peers in our
investment-grade category. As such, we do not expect to rate the
company above the current rating level in the near term.
"The stable outlook reflects our expectation that VSMPO-AVISMA will
sustain solid operating performance in the current challenging
conditions. Although we expect VSMPO-AVISMA's EBITDA to decline
further in 2021 to $320 million-$340 million, we expect FFO to debt
will remain above 60% thanks to cost-cutting and postponing of
dividends to preserve cash and liquidity buffers. We expect the
company to abstain from investment in non-strategic assets as it
has done in the past, while maintaining prudent treasury policy.
"With relatively high maturities in the coming years we expect the
company to maintain at least adequate liquidity at all times."
Downside scenario
S&P said, "We could lower the rating in case of protracted, more
severe crisis in the aviation industry, pushing FFO to debt toward
45%. We could also lower the rating if the identified weaknesses in
governance and policies result in related-party transactions,
sizeable non-core investments or credit-negative decisions.
"At this stage we believe that further tensions between Russia and
western countries will not create any disruptions for VSMPO-AVISMA
as it would be fairly difficult for U.S. and European producers to
replace them. However, if the conflict escalates more than we
expect, VSMPO-AVISMA might inadvertently be affected by operational
setbacks."
Upside scenario
S&P sees limited upside potential in the rating at the moment,
given that structural improvements in governance and building a
track record of conservative financial management will take longer
than 12 months.
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S P A I N
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BANKINTER 13: S&P Affirms 'D (sf)' Rating on Class E Notes
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S&P Global Ratings raised its credit ratings on Bankinter 13, Fondo
de Titulizacion de Activos' class B, C, and D notes to 'AAA (sf)',
'AA (sf)', and 'BBB (sf)', from 'AA (sf)', 'A-(sf)', and 'BB (sf)',
respectively. At the same time, S&P affirmed its 'AAA (sf)' rating
on the class A2 notes and its 'D (sf)' rating on the class E
notes.
S&P said, "Upon expanding our global RMBS criteria to include
Spanish transactions, we placed our ratings on the class B, C, and
D notes under criteria observation. Following our review of the
transaction performance and the application of our updated
criteria, the ratings are no longer under criteria observation.
"We estimate that around 2% of the loans are on payment holidays
under a moratorium scheme. Arrears are low, in the region of 1% of
the outstanding collateral balance. Cumulative defaults have also
been limited, and overall, the transaction has performed strongly
over the years.
"Our weighted-average foreclosure frequency (WAFF) assumptions have
decreased due to the introduction of the effective loan-to-value
(ELTV) ratio, which is weighted by 80% of the original LTV (OLTV)
and 20% of the indexed current LTV (CLTV). Under our previous
criteria, only the OLTV was considered.
"Our weighted-average loss severity (WALS) assumptions reflect the
seasoning of the assets which supports a low indexed CLTV."
Table 1
Credit Analysis Results – Bankinter 13
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 8.63 5.68 0.49
AA 6.02 3.90 0.24
A 4.72 2.00 0.09
BBB 3.68 2.00 0.07
BB 2.59 2.00 0.05
B 1.83 2.00 0.04
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
S&P said, "We affirmed our 'AAA (sf)' rating on the class A2 notes
because we believe these notes have sufficient credit enhancement
to withstand our stresses at the 'AAA' rating level.
"Following our review, we raised our ratings on the class B, C, and
D notes to 'AAA (sf)', 'AA (sf)', and 'BBB (sf)' from 'AA (sf)',
'A- (sf)', and 'BB (sf)', respectively. These notes could withstand
stresses at higher ratings under our credit and cash flow analysis.
However, we have limited our upgrades based on deteriorating
macroeconomic conditions, and the risk associated with an eventual
increase in arrears.
"In February 2021 we downgraded the class E notes to 'D (sf)' from
'CCC- (sf)' because, in our view, the class E notes' interest
shortfall that occurred in January 2021 reflects structural
weaknesses, which we expect to prevail in the longer term. We have
affirmed our 'D (sf)' rating because we believe the same
considerations persist.
"None of the assigned ratings are capped by the application of our
counterparty or sovereign risk criteria."
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."
CAIXA PENEDES 1: S&P Raises Class C Notes Rating to 'BB (sf)'
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S&P Global Ratings raised its credit ratings on Caixa Penedes 1 TDA
Fondo de Titulizacion de Activos' class A, B, and C notes to 'AA
(sf)', 'A (sf)', and 'BB (sf)', from 'A- (sf)', 'BBB- (sf)', and 'B
(sf)', respectively.
S&P said, "The upgrades follow the implementation of our revised
criteria and assumptions for assessing pools of Spanish residential
loans (see "Related Criteria"). They also reflect our full analysis
of the most recent information that we have received and the
transaction's current structural features.
"Upon expanding our global RMBS criteria to include Spanish
transactions, we placed our ratings on the class A, B, and C notes
under criteria observation. Following our review of the
transaction's performance and the application of our updated
criteria for rating Spanish RMBS transactions, the ratings are no
longer under criteria observation.
"Our weighted-average foreclosure frequency (WAFF) assumptions have
decreased due to the calculation of the effective loan-to-value
(LTV) ratio, which is based on 80% original LTV (OLTV) and 20%
current LTV (CLTV). Under our previous criteria, we only used the
OLTV. In addition, our weighted-average loss severity assumptions
(WALS) have decreased, due to lower market value declines. The
reduction in our WALS is partially offset by the increase in our
foreclosure cost assumptions."
Table 1
Credit Analysis Results
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 9.74 2.69 0.26
AA 6.67 2.00 0.13
A 5.13 2.00 0.10
BBB 3.92 2.00 0.08
BB 2.64 2.00 0.05
B 1.74 2.00 0.03
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
Loan-level arrears are low at 0.29%. Overall delinquencies remain
well below our Spanish RMBS index.
There are interest deferral triggers in this transaction, based on
gross cumulative defaults, to allow for deferral of interest junior
in the waterfall if the transaction´s performance deteriorates.
The triggers are set at 7.5% and 4.9% for the class B and C notes,
respectively. Currently, the level of gross cumulative defaults as
a percentage of the closing pool balance is 3.52%.
S&P said, "Our analysis also considers the transaction's
sensitivity to the potential repercussions of the coronavirus
outbreak. Of the pool, 4.7% of loans are on payment holidays under
the Spanish sectorial moratorium schemes, and the proportion of
loans with either legal or sectorial payment holidays has remained
in line with the market average (below 5%). The government approved
a new payment holiday scheme available until March 31, 2021, where
the payment holidays could last up to three months, therefore
current figures might increase. In our analysis, we considered the
potential effect of this scheme extension and the risk the payment
holidays could present should they become arrears or defaults in
the future.
"Our operational, sovereign, and legal risk analyses remain
unchanged since our previous review. Therefore, the ratings
assigned are not capped by any of these criteria. Under our
counterparty criteria, the swap documentation caps our ratings on
this transaction at 'AA (sf)'. However, the class A and B notes can
pass higher stresses without the support of the swap counterparty
by applying the relevant basis and spread compression stresses in
our analysis." The replacement framework for the transaction bank
account does not limit the maximum potential rating on the notes.
The servicer, Banco de Sabadell S.A., has a standardized,
integrated, and centralized servicing platform. It is a servicer
for various Spanish RMBS transactions, and its transactions'
historical performance has outperformed our Spanish RMBS index.
Credit enhancement available in Caixa Penedes 1 has remained stable
since our previous full review because the notes amortized pro-rata
with the reserve fund at its required level.
S&P said, "We have raised to 'AA (sf)', 'A (sf)', and 'BB (sf)'
from 'A- (sf)', 'BBB- (sf)', and 'B (sf)' our ratings on the class
A, B, and C notes, respectively. These classes of notes could
withstand stresses at a higher rating than those currently
assigned. However, we have limited our upgrades based on their
overall credit enhancement, the deterioration in the macroeconomic
environment, and the risk that payment holidays could become
arrears in the future."
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."
TDA IBERCAJA 4: S&P Affirms 'D (sf)' Rating on Class F Notes
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S&P Global Ratings raised its credit ratings on TDA Ibercaja 4
Fondo de Titulizacion de Activos's class A2, B, C, D, and E notes
to 'AAA (sf)', 'AA+ (sf)', 'AA (sf)', 'A+ (sf)', and 'A (sf)' from
'AA+ (sf)', 'AA (sf)', 'A+ (sf)', 'A- (sf)', and 'BBB+ (sf)',
respectively. At the same time, S&P has affirmed its 'AAA (sf)' and
'D (sf)' ratings on the class A and F notes, respectively.
S&P said, "The rating actions follow the implementation of our
revised criteria and assumptions for assessing pools of Spanish
residential loans. They also reflect our full analysis of the most
recent information that we have received and the transaction's
current structural features.
"Upon revising our Spanish RMBS criteria, we placed our ratings on
the class A2, B, C, D, and E notes under criteria observation.
Following our review of the transaction's performance and the
application of our updated criteria for rating Spanish RMBS
transactions, the ratings are no longer under criteria
observation.
"Our weighted-average foreclosure frequency (WAFF) assumptions have
decreased due to the calculation of the effective loan-to-value
(LTV) ratio, which is based on 80% original LTV (OLTV) ratio and
20% current LTV (CLTV) ratio. Under our previous criteria, we used
only the OLTV. Our WAFF assumptions also declined because of the
transaction's decrease in arrears. In addition, our
weighted-average loss severity (WALS) assumptions have decreased,
due to the lower CLTV ratio and lower market value declines. The
reduction in our WALS is partially offset by the increase in our
foreclosure cost assumptions."
Table 1
Credit Analysis Results
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 11.28 7.29 0.82
AA 7.92 5.56 0.44
A 6.21 2.89 0.18
BBB 4.84 2.00 0.10
BB 3.38 2.00 0.07
B 2.36 2.00 0.05
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
Loan-level arrears stand at 1.12%. Overall delinquencies remain
well below S&P's Spanish RMBS index.
The level of outstanding defaults (net of recoveries), defined as
loans in arrears for a period equal to or greater than 18 months,
represent 0.46% of the closing pool balance. The first interest
deferral trigger is for class E, and it is not at risk of being
breached because it is defined at 4%, and we do not expect that
this level will be reached in the near term.
S&P said, "Our analysis also considers the transaction's
sensitivity to the potential repercussions of the coronavirus
outbreak. Of the pool, only 1.77% of loans are on payment holidays
under the Spanish sectorial moratorium schemes, and the proportion
of loans with either legal or sectorial payment holidays has
remained low. The government approved a new payment holiday scheme
available until March 30, 2021. Therefore, current figures might
increase. In our analysis, we considered the potential effect of
this scheme extension and the risk the payment holidays could
present should they become arrears or defaults in the future.
"Our operational, counterparty, rating above the sovereign, and
legal risk analyses remain unchanged since our previous review.
Therefore, the ratings assigned are not capped by any of these
criteria."
The servicer, Ibercaja Banco S.A., has a standardized, integrated,
and centralized servicing platform. It is a servicer for many
Spanish RMBS transactions, and its transactions' historical
performance has outperformed S&P's Spanish RMBS index.
Although the notes are amortizing on a pro rata basis, the
available credit enhancement for all classes of notes has increased
since our previous reviews due to the nonamortizing reserve fund.
S&P said, "Our analysis indicates that the credit enhancement
available for class A1 and A2 notes is commensurate with a 'AAA'
rating. We have therefore affirmed our 'AAA (sf)' rating on the
class A1 notes and raised to 'AAA (sf)' from 'AA+ (sf)' our rating
on class A2 notes.
"We have raised to 'AA+ (sf)', 'AA (sf)', 'A+ (sf)', and 'A (sf)'
from 'AA (sf)', 'A+ (sf)', 'A- (sf)', and 'BBB+ (sf)' our ratings
on the class B, C, D, and E notes, respectively. These notes could
withstand stresses at a higher rating than the current ratings
assigned. However, we have limited our upgrades based on their
overall credit enhancement and position in the waterfall, the
deterioration in the macroeconomic environment, and the risk that
payment holidays could become arrears in the future."
The class F notes paid all unpaid interest due on the August 2019
interest payment date. Since then, interest on this tranche has
been paid timely. However, this tranche is not collateralized and
is paid after amortization of the reserve fund. It missed a
significant amount of interest payments in the past, and it is
still not certain that future interest payments will not be missed.
Given its current credit enhancement and its position in the
waterfall, S&P has affirmed its 'D (sf)' rating on 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."
UCI 10: S&P Affirms 'B- (sf)' Rating on Class B notes
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S&P Global Ratings raised its credit rating on Fondo de
Titulizacion Hipotecaria UCI 10's class A to 'AA (sf)' from 'AA-
(sf)', and affirmed its credit rating at 'B- (sf)' on the class B
notes.
S&P said, "The rating actions follow the implementation of our
revised criteria and assumptions for assessing pools of Spanish
residential loans. They also reflect our full analysis of the most
recent information that we have received and the transaction's
current structural features.
"Upon expanding our global RMBS criteria to include Spanish
transactions, we placed our ratings on the class A and B notes
under criteria observation. Following our review of the
transaction's performance and the application of our updated
criteria for rating Spanish RMBS transactions, the ratings are no
longer under criteria observation."
In this transaction, 23.5% of the portfolio loans have been
restructured at least once since origination. Out of this share,
9.4% have been restructured within the last five years, and 3% of
those have already been extended for more than seven years. These
borrowers are repaying a lower amount compared with their original
schedule. S&P said, "Therefore, we have increased our reperforming
adjustment to 5x from 2.5x as we consider these loans to introduce
higher risk in the transaction. In our view, these restructurings
do not appear to be successful, are not a permanent solution, and
they have been extended multiple times."
S&P said, "Our weighted-average foreclosure frequency (WAFF)
assumptions have increased due to the higher originator adjustment
and the consideration of restructured loans in the pool. This has
offset the calculation of the effective loan-to-value (LTV) ratio,
which is based on 80% original LTV (OLTV) and 20% current LTV
(CLTV). Under our previous criteria, we used only the OLTV.
"In addition, our weighted-average loss severity (WALS) assumptions
have decreased, due to the lower CLTV and lower market value
declines. However, this is partially offset by the increase in our
foreclosure cost assumptions. Additionally, based on actual data
received from UCI on comparable asset sales, we have seen a risk
that property prices were overvalued at origination. Therefore, we
have introduced a 10% haircut on valuations."
Table 1
Credit Analysis Results
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 23.97 2.00 0.48
AA 17.98 2.00 0.36
A 14.72 2.00 0.29
BBB 11.89 2.00 0.24
BB 8.71 2.00 0.17
B 6.33 2.00 0.13
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
S&P said, "UCI 10's class A and B notes' credit enhancement has
increased to 13.7% and 7.3%, from 12.4% and 6.4% as of our previous
review due to the notes' amortization, which is sequential
following the arrears trigger breach. This trigger also prevents
the reserve fund from amortizing, which currently stands at its
target level. Given currently negative three-month Euro Interbank
Offered Rate (EURIBOR) and considering the margin on the notes, no
interest is due on the class A and B notes. Therefore, collections
are currently used to pay principal on the class A notes only."
Loan-level arrears have increased to 5.8%, compared with 2.5% as of
the previous review. This increase was driven by the lower
delinquencies bucket. Overall delinquencies remain in line with our
Spanish RMBS index.
S&P said, "Our analysis also considers the transaction's
sensitivity to the potential repercussions of the coronavirus
outbreak. Of the pool, around 5.8% of loans are on payment holidays
under the Spanish sectorial moratorium schemes, and the proportion
of loans with either legal or sectorial payment holidays has
remained higher than the market average, which is below 5%. The
government approved a new payment holiday scheme available until
March 30, 2021; therefore, current figures might increase. In our
analysis, we considered the potential impact of this scheme
extension by assuming a larger share of loans in payment holidays
and the risk the payment holidays could present should they become
arrears or defaults in the future.
"Our operational, rating above the sovereign, counterparty, and
legal risk analyses remain unchanged since our last review.
Therefore, the ratings assigned are not capped by any of these
criteria. The replacement framework for the collection account does
not satisfy our counterparty criteria, therefore, we have stressed
one month of commingling risk as a loss.
"We have raised to 'AA (sf)' from 'AA- (sf)' our rating on the
class A notes. The class A notes could withstand our cash-flow
stresses at a higher rating than the revised rating. However, our
revised rating considers the uncertain macroeconomic environment,
the large amount of performance arrangements in this portfolio, the
historical performance of the transaction, the amount of
restructured loans in the portfolio, and the risk that payment
holidays could become arrears in the future.
"The class B notes are failing our cash flow 'B' stresses. Credit
enhancement has increased since our last review and is currently at
7.3%. However, this class of notes has an interest deferral trigger
based on 90 days plus arrears, including written-off loans
exceeding 9% of the outstanding pool balance. If breached, its
interest payments would be deferred in the priority of payments
after the replenishment of the reserve fund and the amortization of
the notes. In our stressed scenarios, this trigger is breached, and
the class B notes have interest shortfalls. However, given the
transaction's stable performance and the current levels of excess
spread, we do not expect the 9% trigger to be reached in a steady
state scenario. In our view, the payment of this class of notes is
not dependent upon favorable business, financial, or economic
conditions and is commensurate with our currently assigned rating
(see "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC'
Ratings," published on Oct. 1, 2012). We have therefore affirmed
our 'B- (sf)' rating on this class of 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."
UCI 12: S&P Raises Class C notes Rating to 'B (sf)'
---------------------------------------------------
S&P Global Ratings raised its credit ratings on Fondo de
Titulizacion Hipotecaria UCI 12's class A and C notes to 'AA (sf)'
and 'B (sf)' from 'AA- (sf)' and 'B- (sf)', respectively. At the
same time, it has affirmed its rating on the class B notes at 'BBB-
(sf)'.
S&P said, "The rating actions follow the implementation of our
revised criteria and assumptions for assessing pools of Spanish
residential loans. They also reflect our full analysis of the most
recent information that we have received and the transaction's
current structural features.
"Upon expanding our global RMBS criteria to include Spanish
transactions, we placed our ratings on the class A, B, and C notes
under criteria observation. Following our review of the
transaction's performance and the application of our updated
criteria for rating Spanish RMBS transactions, the ratings are no
longer under criteria observation.
"In this transaction, 44% of the portfolio loans have been
restructured at least once since origination. Out of this share,
22% have been restructured within the last five years, and 12% of
those have already been extended for more than seven years. These
borrowers are repaying a lower amount compared with their original
schedule. Therefore, we have increased our reperforming adjustment
to 5x from 2.5x because we consider these loans to introduce higher
risk in the transaction. In our view, these restructurings do not
appear to be successful, are not a permanent solution, and they
have been extended multiple times.
"Our weighted-average foreclosure frequency (WAFF) assumptions have
increased due to the higher originator adjustment and the
consideration of restructured loans in the pool. This has offset
the calculation of the effective loan-to-value (LTV) ratio, which
is based on 80% original LTV (OLTV) and 20% current LTV (CLTV).
Under our previous criteria, we used only the OLTV.
"In addition, our weighted-average loss severity (WALS) assumptions
have decreased, due to the lower CLTV and lower market value
declines. However, this is partially offset by the increase in our
foreclosure cost assumptions. Additionally, based on actual data
received from UCI on comparable assets, we have seen a risk that
property prices were overvalued at origination. Therefore, we have
introduced a 10% haircut on valuations."
Table 1
Credit Analysis Results
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 40.39 6.67 2.69
AA 32.02 4.82 1.54
A 27.12 2.31 0.63
BBB 22.69 2.00 0.45
BB 16.80 2.00 0.34
B 12.19 2.00 0.24
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
UCI 12's class A, B, and C notes' credit enhancement has increased
to 22.5%, 17.6%, and 4.7%, respectively, from 20.9%, 16.4%, and
4.3% as of S&P's previous review due to the notes' amortization,
which is sequential following the arrears trigger breach. This
trigger also prevents the reserve fund from amortizing, which
currently stands at its target level. Given the currently negative
three-month Euro Interbank Offered Rate (EURIBOR) and considering
the margin on the notes, no interest is due on the class A and B
notes. Therefore, collections are currently used to pay principal
on the class A notes and only interest on the class C notes.
Loan-level arrears increased to 7.9%, compared with 6.2% as of the
previous review. Overall delinquencies remain above our Spanish
RMBS index.
S&P said, "Our analysis also considers the transaction's
sensitivity to the potential repercussions of the coronavirus
outbreak. Of the pool, around 7% of loans are on payment holidays
under the Spanish sectorial moratorium schemes, and the proportion
of loans with either legal or sectorial payment holidays has
remained higher than the market average, which is below 5%. The
government approved a new payment holiday scheme available until
March 30, 2021; therefore, current figures might increase. In our
analysis, we considered the potential impact of this scheme
extension by assuming a larger share of loans in payment holidays
and the risk the payment holidays could present should they become
arrears or defaults in the future.
"Our operational, rating above the sovereign, counterparty, and
legal risk analyses remain unchanged since our last review.
Therefore, the ratings assigned are not capped by any of these
criteria. The replacement framework for the collection account does
not satisfy our counterparty criteria, and therefore, we have
stressed one month of commingling risk as a loss.
"We have raised to 'AA (sf)' and 'B (sf)' from 'AA- (sf)' and 'B-
(sf)' our ratings on the class A and C notes, respectively. At the
same time, we have affirmed our rating at 'BBB- (sf)' on the class
B notes. The class A, B, and C notes could withstand our cash-flow
stresses at a higher rating than the revised ratings. However, our
revised ratings consider the uncertain macroeconomic environment,
the historical performance of the transaction, the amount of
restructured loans in the portfolio, and the risk that payment
holidays could become arrears in the future."
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 W I T Z E R L A N D
=====================
TRANSOCEAN LIMITED: Egan-Jones Keeps C Senior Unsecured Ratings
---------------------------------------------------------------
Egan-Jones Ratings Company, on March 16, 2021, maintained its 'C'
foreign currency and local currency senior unsecured ratings on
debt issued by Transocean Ltd. EJR also maintained its 'D' rating
on commercial paper issued by the Company.
Headquartered in Steinhausen, Switzerland, Transocean Ltd. is an
offshore drilling contractor.
===========================
U N I T E D K I N G D O M
===========================
ENTAIN PLC: Moody's Affirms Ba2 CFR, Outlook Stable
---------------------------------------------------
Moody's Investors Service has affirmed Entain plc's Ba2 corporate
family rating and Ba2-PD probability of default rating.
Concurrently, Moody's has affirmed the Ba2 ratings on the undrawn
GBP535 million backed senior secured revolving credit facility due
2023 issued by Entain plc and the Ba2 ratings on the EUR1,125
million senior secured term loan B3 due 2024, and the $786 million
backed senior secured term loan B3 due 2024, issued by GVC Holdings
(Gibraltar) Limited. The outlook has been changed to stable from
negative for Entain plc and GVC Holdings (Gibraltar) Limited.
RATINGS RATIONALE
Moody's revised the company's outlook to negative in April 2020
because of the pandemic-driven national lockdown in the UK and
Europe which shut down the entire retail network. Despite these
challenges the company's online gaming and sports betting segments
successfully mitigated the losses from betting shops, resulting in
an increase in EBITDA for the year 2020. With decreased leverage of
around 3x for 2020 compared with 3.3x in 2019 (Moody's-adjusted),
improved interest coverage of 7.7x (compared with 6x in 2019), and
expectations that the improvement is sustainable, Moody's views the
company's metrics as strongly positioned for the Ba2 rating and the
outlook has therefore been revised to stable from negative.
Entain's Ba2 rating reflects (1) the maturity of the LBO retail
segment with its fixed cost structure, although under normal
operating conditions this segment provides stable cash flow; (2)
the highly competitive nature of the online betting and gaming
industry, particularly in the established UK market, and in the
nascent US market; (3) the negative free cash flow (FCF) expected
in 2021 driven by high level of capex required for investment in
its JV, BetMGM, however FCF is expected to turn positive in 2022;
(4) its presence in the volatile sports betting segment which will
see margin contraction in 2021/22, and; (5) the ongoing threat of
greater regulation and gaming tax increases, particularly in the UK
and Germany.
The rating is supported by (1) the size of the group; with revenue
of GBP3.6 billion in 2020, Entain is one of the world largest
gaming operators with leading positions in the UK, Germany, Italy,
Georgia, Australia Brazil and USA via its JV, BetMGM; (2) its
geographic diversity with customers in over 35 countries, although
the UK remains the largest market accounting for approximately 47%
of revenue; with low exposure to unregulated jurisdictions of only
around 1% and aiming for zero by 2025; (3) its online focus and
success in increasing market share organically, with positive
industry trends underpinning the online betting and gaming sector
both in Europe and globally; (4) the competitive advantage from
Entain's proprietary technology platform and customer relationship
management system (CRM) providing the group with the ability to
adjust odds and adapt to customers' preferences and games in a
timely manner, and; (5) the company's pro-active approach to
gambling safety, acting as a market leader in promoting the
sustainability of gaming.
LIQUIDITY
Moody's considers Entain's liquidity position to be good for its
near-term needs which include a relatively low level of cash burn
during the coronavirus shutdown, supported by (1) cash on balance
sheet of around GBP700 million; (2) the undrawn GBP535 million RCF,
and; (3) no material debt amortisation until 2022.
The RCF has one springing covenant if drawn at 35% or more, set
with adequate headroom. The covenant is tested on a quarterly basis
and the term loans benefits from cross-acceleration with respect to
the RCF.
STRUCTURAL CONSIDERATIONS
Using Moody's Loss Given Default for Speculative-Grade Companies
methodology, the Ba2-PD Probability of Default Rating (PDR) is in
line with the CFR. This is based on a 50% recovery rate, as is
typical for transactions including bonds and bank debt. The loans
rank pari passu because they share the same security, consisting
mainly of share pledges, and upstream guarantees. The loans also
benefit from the guarantees of material subsidiaries representing
at least 75% of the consolidated EBITDA. The senior secured
Ladbroke bonds rank pari passu with the loans.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook assumes that Entain could experience continued
underperformance from the lockdowns in the UK and Europe, but that
the company will be able to offset these adversities as
demonstrated in 2020. In the UK it is expected that the successful
vaccine roll-out will support the government's planned opening of
non-essential retail in mid-April.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the ratings could arise over time if (1) there
is no expected material adverse regulatory or tax event in its core
markets; (2) company's debt/EBITDA (as adjusted by Moody's) falls
sustainably below 4.0x; (3) the company's retained cash flow
(RCF)/debt (as adjusted by Moody's) remains sustainably above 10%,
and; (3) Moody's adjusted free cash flow is positive. For an
upgrade, Moody's also expects the group to maintain a conservative
financial policy and good liquidity.
Downward pressure on the ratings could occur if the company's
debt/EBITDA (as adjusted by Moody's) is maintained sustainably
above 4.5x, or if free cash flow remains negative for the next 18
months, or if there any material weakening of the company's
liquidity. A downgrade could also occur as a result of materially
adverse regulatory actions.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Gaming
Methodology published in October 2020.
GREENSILL CAPITAL: Airbus Says Core Banks Funding Suppliers
-----------------------------------------------------------
Bloomberg News reports that Airbus SE said its core banks have
stepped in to provide vital financing to suppliers following the
collapse of Greensill Capital.
According to Bloomberg, lenders including Societe Generale SA are
ensuring that prompt payments continue after the insolvency of the
London-based firm, which Airbus says had acted as a broker for
short term supply-chain financing.
Its fall risked cutting off access to financing for aerospace firms
that have already seen revenues hit hard by the coronavirus
pandemic, Bloomberg discloses.
GREENSILL CAPITAL: France Investigates Missing GFG Alliance Loan
----------------------------------------------------------------
Gaspard Sebag and William Horobin at Bloomberg News report that the
disappearance of a loan provided by failed startup lender Greensill
Capital to a French aluminum smelting plant linked to industrialist
Sanjeev Gupta's GFG Alliance Ltd. is the focus of a preliminary
investigation in France.
The case relates to a state-backed loan worth about EUR18 million
(US$21 million) provided to a GFG-owned site, Liberty Alumnium
Poitou, in central France, Bloomberg relays, citing local media.
According to Bloomberg, an official from France's industry ministry
said local investigators will seek to determine whether any
criminal offense took place.
According to local newspaper La Nouvelle Republique, the Liberty
Aluminium Poitou smelting plant received the loan in December but
Greensill then requested the money be sent back in line with a
two-month waiting period on such loans, Bloomberg notes. The
newspaper states the funds were never sent back to the plant after
that period, Bloomberg relays.
The official at the industry ministry said the state will support
the business with its cash needs if necessary, but not bail out
shareholders, according to Bloomberg.
French Finance Minister Bruno Le Maire said last week that the
state is closely monitoring all businesses in France owned by the
Liberty group and will provide all the "necessary support" for
workers, Bloomberg recounts.
JESSOPS: Files Notice to Appoint Administrators
-----------------------------------------------
BBC News reports that High Street photographic equipment chain
Jessops has filed a notice to appoint administrators.
The camera retailer, which employs 120 staff and has 17 stores, is
owned by Dragons' Den star Peter Jones.
Jessops said it had hired advisors FRP to help it restructure the
business, severely impacted by the pandemic, BBC relates.
The notice of intent provides the business with protection for 10
days from existing or pending creditor claims, BBC discloses.
According to BBC, the retailer said it planned to continue to trade
when lockdown restrictions lift in April.
It is considering a rescue deal in the form of a Company Voluntary
Arrangement (CVA), an insolvency process that allows a business to
reach an agreement with its creditors to pay off all or part of its
debts, BBC states.
"Bricks and mortar retailers have been heavily affected by the
ongoing lockdowns," BBC quotes Clive Chalkley, partner at law firm
Gowling WLG as saying.
"Unfortunately for Jessops, which is quite specialist, its products
can now be easily acquired online, which will have accelerated the
process."
L1R HB: S&P Upgrades LT ICR to 'B-', Outlook Stable
---------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on L1R
HB Finance Ltd., parent of U.K.-based specialty retailer Holland &
Barrett (H&B), to 'B-' from 'CCC+'. S&P also raised to 'B-' the
issue ratings on the GBP820 million-equivalent term loan
facilities, in line with the change in the rating on the group. The
recovery rating is unchanged at '4' indicating that S&P expects
average recovery in the event of a default.
Despite a sharp decline in footfall since the pandemic started,
Holland & Barrett has managed to increase its revenue and
significantly improve its profitability and credit metrics. After
significant underperformance in FY2019, H&B traded better in FY2020
than we expected, given the pandemic. Although footfall in its
stores fell materially during the pandemic, this was more than
offset by increased conversion rates and average spending and by
sales through its digital channel, which doubled during the year
and accounted for almost 22% of total revenue in FY2020 (up from
11% in FY2019).
Lower branch costs and a higher-margin product mix offset the
increased distribution costs related to the growth in its digital
channel. H&B's product mix shifted more heavily toward the sale of
vitamins, herbs, minerals, and supplements (VHMS), which carry
higher profit margins. As a result, adjusted EBITDA grew 16% to
GBP170 million and adjusted leverage saw a sharp decline to 6.7x in
FY2020 from 7.9x in FY2019.
H&B delivered its first year of positive reported FOCF after
leases, although free cash flow remains muted compared with its
debt burden. A strong operating performance, sound working
capital management, and a reduction in overall capital expenditure
(capex) over the second half of the financial year boosted H&B's
FOCF after leases to GBP41 million in FY2020. Free cash flow
generation was also aided by the group's decision to postpone its
September interest payment to December (semiannual payment instead
of quarterly), leading to a reduction in the payments made in
FY2020 compared with FY2019.
S&P said, "We anticipate that FOCF will be muted over the near
term, as the group increases its capex to maintain and strengthen
its competitive position in a much more digital retail market after
the pandemic. This is partly to catch up on postponed spending
from FY2020, and primarily on discretionary projects. We expect
FOCF in FY2021 to be undermined by the catch-up in interest
payments, as the group is likely to return to its usual quarterly
schedule."
H&B's successful cost controls and cash management have
strengthened its liquidity position and increased its covenant
headroom. At the end of FY2020, the group had a cash balance of
EUR60 million, and full availability under its GBP75 million
revolving credit facility (RCF) due June 2023. S&P said, "Given
that we expect free cash flow generation to be broadly neutral or
marginally positive in FY2021, we anticipate that H&B will maintain
a comfortable liquidity position over the next 12 months."
The recent changes to the management team have so far had no effect
on H&B's operating performance. Tony Buffin was named CEO in
mid-2019 and led H&B's operational turnaround. However, he left the
group in October 2020 and soon after, Steve Willet took over as CEO
of the group. Robbie Bell was appointed as H&B's new chief
financial officer in mid-2020, replacing Chris Keen (Gregg Watts
had been acting as interim CFO since mid-2019). Despite these
changes in leadership during a period of uncertain trading
conditions as the U.K. faced further waves of infections, the
group's operating performance remained resilient.
Going forward, the new management team will focus on strengthening
H&B's omnichannel proposition in a market that is set to remain
much more digital than it was before the pandemic. That said, H&B
will also look to maintain its strength in the physical retail
space by gradually renewing its store estate and strengthening
H&B's own-brand product offering.
S&P said, "The stable outlook indicates that we expect H&B to
maintain its robust operating performance with strong like-for-like
growth and improving profitability metrics, despite persistently
challenging trading conditions during the third nationwide
lockdown. Our revised forecast envisions that credit metrics will
strengthen over the second half of FY2021, with adjusted leverage
of about 5.5x and marginally positive reported FOCF after leases
for the year ending in September.
"The stable outlook also reflects our expectation that H&B will
maintain a healthy liquidity position over the next 12 months,
supported by full availability under its GBP75 million RCF and
comfortable headroom under its springing covenant."
S&P could lower the rating within the next 12 months if:
-- H&B's leverage increased, such that earnings before interest,
taxes, depreciation, amortization, and rent (EBITDAR) coverage were
to fall below 1.3x;
-- Reported FOCF (after lease payments) were to deteriorate and
turn negative; or
-- H&B's liquidity position were to deteriorate significantly.
This could occur if earnings and profitability weakened as a result
of a sharp decline in demand for immunization products and health
supplements over the next 12 months, resulting in cash burn. S&P
could also lower the rating if one of these factors, or a more
aggressive financial policy, were to bring the sustainability of
the capital structure into question.
S&P said, "We could raise our ratings on H&B if the group were to
continue to outperform our base-case forecast, with earnings growth
causing adjusted debt to EBITDA to approach 5.0x. A positive rating
action would depend on H&B maintaining EBITDAR interest coverage
comfortably above 1.5x, combined with meaningful positive reported
FOCF after lease payments, as well as our view that the financial
policy would support the stronger credit metrics going forward."
LIBERTY STEEL: MP Demands Answers Over Government Guarantees
------------------------------------------------------------
Alexander Brown at The Scotsman reports that Liberal Democrats MP
Alistair Carmichael demanded answers from both administrations
after it emerged more than GBP500 million of Scottish Government
guarantees and hundreds of jobs could be at risk.
The failure of Greensill, a financial services company, has left
many fearing that thousands of jobs at Liberty Steel's assets in
the UK could be at risk, including those who work at the Lochaber
aluminium smelting plant, The Scotsman relates.
It comes as calls intensified for an inquiry into former prime
minister David Cameron's involvement after allegations surfaced
that Lex Greensill was given privileged access to Whitehall
departments, The Scotsman notes.
The Sunday Times claimed the Australian financier was given access
to the departments while Mr. Cameron was in No 10 so he could
promote a financial product he specialized in, The Scotsman
relays.
Last week, Fergus Ewing told MSPs steel magnate Sanjeev Gupta had
reassured him his Scottish companies were financially sound despite
the collapse of his financiers, The Scotsman recounts.
Mr. Gupta's company, GFG Alliance, also operates the Dalzell and
Clydebridge steel works, the hydro-electric power station at Fort
William, Jahama Highland Estates and Shand Cycles, The Scotsman
discloses. It is believed the parent firm owes Greensill more than
GBP3 billion, The Scotsman notes.
Scottish Government ministers have insisted that commercial
confidentiality prevents a full explanation of the risk to
taxpayers and the lack of progress on jobs, The Scotsman states.
Speaking in Parliament last week, Mr. Carmichael argued that when
taxpayer money was concerned, commercial confidentiality should not
prevent accountability, The Scotsman relays.
Labour's shadow business secretary Ed Miliband has previously
labelled the GFG Alliance situation "urgent and worrying" and
hinted at nationalization, according to The Scotsman.
TRINITY SQUARE 2021-1: S&P Assigns BB- (sf) Rating on X-Dfrd Notes
------------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Trinity Square
2021-1 PLC's class A, B-Dfrd to G-Dfrd, and X-Dfrd notes. The
transaction also issued class H-Dfrd and Z notes; S1, S2, and Y
certificates; and VRR loan notes.
Trinity Square 2021-1 is a static RMBS transaction that securitizes
a portfolio of GBP1.14 billion owner-occupied and buy-to-let (BTL)
mortgage loans secured on properties in the U.K. The transaction is
a refinancing of the Trinity Square 2015-1 PLC and Trinity Square
2016-1 PLC transactions, which closed in December 2015 and February
2016 respectively.
At closing, the issuer used the issuance proceeds to purchase the
full beneficial interest in the mortgage loans from the seller
(Trinity Square 2021-1 Seller Ltd.). The issuer granted security
over all of its assets in favor of the security trustee.
S&P considers the collateral to be nonconforming based on the
prevalence of loans to self-certified borrowers and borrowers with
adverse credit history, such as prior county court judgments
(CCJs), an individual voluntary arrangement, or a bankruptcy
order.
The pool is well seasoned with more than 97% of loans being more
than 10 years seasoned.
Of the pool, 1.5% of the mortgage loans by current balance are
currently granted payment holidays due to COVID-19. Payment holiday
usage peaked at 18.6% for the pool.
Approximately 5.2% of the pool comprises BTL loans, and the
remaining 94.8% are owner-occupier loans.
There is high exposure to interest-only loans in the pool at 71.1%,
and 7.4% of the mortgage loans are currently in arrears greater
than (or equal to) one month.
A general reserve fund provides credit enhancement for the class A
to G-Dfrd notes, a liquidity reserve fund provides liquidity
support for the class A and B-Dfrd notes, and principal can be used
to pay senior fees and interest on the notes subject to various
conditions.
Kensington Mortgage Company Ltd. is the mortgage administrator in
this transaction.
S&P said, "There are no rating constraints in the transaction under
our counterparty, operational risk, or structured finance sovereign
risk criteria. We consider the issuer to be bankruptcy remote.
"Our credit and cash flow analysis and related assumptions consider
the transaction's ability to withstand the potential repercussions
of the COVID-19 outbreak, namely, higher defaults and longer
recovery timing. Considering these factors, we believe that the
available credit enhancement is commensurate with the ratings
assigned. As the situation evolves, we will update our assumptions
and estimates accordingly."
Ratings
Class Rating Class size (GBP)
A AAA (sf) 943,368,000
B-Dfrd AA+ (sf) 65,059,000
C-Dfrd AA (sf) 21,686,000
D-Dfrd A (sf) 16,264,000
E-Dfrd BBB+ (sf) 10,843,000
F-Dfrd BBB- (sf) 10,843,000
G-Dfrd BB (sf) 5,421,000
H-Dfrd NR 10,843,000
X-Dfrd BB- (sf) 16,264,000
Z NR 10,844,000
S1 certs NR N/A
S2 certs NR N/A
Y certs NR N/A
VRR loan notes NR 58,497,000
N/A--Not applicable.
NR--Not rated.
TRITON UK: Moody's Affirms Caa1 CFR, Outlook Positive
-----------------------------------------------------
Moody's Investors Service has affirmed Triton UK Midco Limited's
(Synamedia or the company) Caa1 corporate family rating and Caa1-PD
probability of default rating. Concurrently, Moody's has affirmed
the B3 ratings of the USD305 million guaranteed first lien senior
secured term loan due 2024 and the USD50 million guaranteed first
lien senior secured revolving credit facility due 2023 issued by
Synamedia Americas Holdings, Inc. The outlook of both entities has
been changed to positive from stable.
RATINGS RATIONALE
The change of outlook to positive reflects (1) the successful
completion in 2020 of the separation of Synamedia from Cisco
Systems, Inc. (A1, stable) including through the winding down of
all of the transitional service agreements (TSAs) between the
company and its former parent, (2) the good progress made by
Synamedia's management in delivering the cost optimization
programme initiated following the separation of the company from
Cisco which will result in run-rate cost savings of approximately
USD53 million realized by fiscal year ending June 2022, (3) the
projected significant reduction in Moody's adjusted gross leverage
(as adjusted mainly for separation and set up costs as well as
reorganization and restructuring costs) to between 3.0x and 3.5x by
the end of fiscal year 2021 from 5.5x as of prior year driven by
EBITDA growth supported by cost savings, and (4) the adequate
liquidity backed by the fully undrawn USD50 million RCF as of the
end of December 2020.
However the ratings remain constrained by (1) the sustained
pressure on revenues of Synamedia's higher-margin Video Platform
segment, which accounted for 78% of fiscal 2020 revenues, with
limited visibility on timeline for revenue stabilization or return
to growth, and (2) the sustained negative free cash flow (FCF) in
fiscal year 2020 and projected in 2021 partly driven by large
separation and restructuring costs which Moody's expects will be
mostly phased out by the end of the current fiscal year providing a
path for positive FCF from fiscal year 2022 although its magnitude
will also depend on working capital movements.
Moody's projects that Synamedia will experience a significant
improvement in its adjusted EBITDA (as reported by the company
pre-separately disclosed items which include separation and
restructuring charges) to around USD120 million in fiscal year 2021
from USD74 million in prior year thanks to the realization of cost
savings as part of the optimization programme. Such cost savings
will more than offset the loss of EBITDA resulting from an
unfavourable revenue mix. Indeed the rating agency projects that
revenues from Synamedia's largest and most profitable Video
Platform segment will continue declining in fiscal year 2021 driven
among others by the lower number of smartcard shipments due to the
gradual shift away from the traditional ways of accessing Pay-TV
via multiple set-top boxes per household. At this stage, Moody's
forecasts a stabilization of Synamedia's adjusted EBITDA in fiscal
year 2022 as the remainder of cost savings to flow through to
earnings in that year will be mostly offset by continued negative
revenue mix. Over time, Moody's believe that the Video Platform
revenues could stabilize while Video Network will continue to
experience sustained growth.
Synamedia benefits from an adequate liquidity position supported by
a cash balance of USD19 million as of 27 December 2020 and its
USD50 million RCF which was undrawn as of the same date. Synamedia
generated a negative FCF of USD38 million in fiscal year 2020 in
the context of a lower EBITDA and high separation and restructuring
charges, and Moody's projects FCF to remain negative at around
USD30 million in fiscal year 2021 as the improvement in EBITDA and
lower one-off charges will be more than offset by unfavourable
working capital movements. However, Moody's expects FCF to turn
positive from fiscal year 2022 based on the assumption that EBITDA
will stabilize at around fiscal year 2021 level, separation and
restructuring costs will be mostly phased out, and working capital
will normalize. Moody's notes that Synamedia has relatively modest
capital expenditures, which amounted to USD16 million in fiscal
year 2020 or 2.8% of group revenues.
Synamedia's Caa1-PD PDR, at the same level as the CFR, reflects the
company's debt structure including a mix of first lien and second
lien facilities. The B3 rating on the company's first lien term
loan and RCF, one notch above the Caa1 CFR, reflects the first lien
credit facilities' senior most position in the capital structure
and loss-absorbing cushion provided by the USD100 million second
lien term loan due 2026 ranking behind. The second lien term loan
is contractually subordinated in right of payment to the first lien
credit facilities.
RATING OUTLOOK
The positive outlook incorporates Moody's expectation that
Synamedia's revenue and FCF will improve in the second half of
fiscal year 2021 and fiscal year 2022 compared to prior year
periods thanks to a more moderate decline in revenue for its Video
Platform segment and a significant reduction in separation and
restructuring charges.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Synamedia's ratings could be upgraded if the company shows a track
record of revenue stabilization while maintaining its EBITDA margin
at above 20%, and adjusted free cash flow turns positive on a
sustained basis. The ratings could come under downward pressure if
the revenue decline accelerates or free cash flow remains negative
beyond fiscal year 2021 leading to a weaker liquidity position.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Diversified
Technology published in August 2018.
Headquartered in Staines, UK, Synamedia is a global provider of
video infrastructure technology comprised of NDS (security and
middleware solutions to global Pay TV operators), video processing
and cloud digital video recording (DVR) solutions.
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