/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/210406.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, April 6, 2021, Vol. 22, No. 63 Headlines F R A N C E SISAHO INTERNATIONAL: Moody's Affirms B2 CFR on Profit Improvement G E R M A N Y FRESENIUS MEDICAL: Egan-Jones Keeps BB+ Senior Unsecured Ratings GREENSILL BANK: Customers Get EUR2.7BB in Deposit Protection Scheme I R E L A N D CVC CORDATUS XXI: Fitch Affirms Final B- Rating on Class F Notes ENDO INTERNATIONAL: Egan-Jones Keeps CCC+ Sr. Unsecured Ratings HARVEST CLO XX: Fitch Affirms B- Rating on Class F Notes PERRIGO COMPANY: Egan-Jones Keeps BB+ Senior Unsecured Ratings I T A L Y REPUBLIC OF ITALY: Egan-Jones Keeps BB+ Senior Unsecured Ratings R O M A N I A BLUE AIR: Plans to Issues Bonds, List Shares on LSE R U S S I A BANK FINTECH: Bank of Russia Terminates Provisional Administration ROSENERGO LTD: Bank of Russia Reveals OSAGO Policy Form Shortage RUSSIAN RAILWAYS: Fitch Assigns Final BB+ Rating to CHF250MM Notes S P A I N CODERE SA: Fitch Downgrades IDR to 'C' INSTITUT CATALA: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable U N I T E D K I N G D O M ATLANTICA SUSTAINABLE: Egan-Jones Keeps B- Sr. Unsecured Ratings DRAX GROUP: Fitch Affirms LT IDR & Sec Notes at BB+, Outlook Stable GFG ALLIANCE: Commodities Trading Houses Probe Web Domain Use IHUB OFFICE: COVID-19 Impact Prompts Administration LGC SCIENCE: S&P Alters Outlook to Stable, Affirms 'B' ICR LOIRE UK MIDCO 3: Fitch Affirms 'B+' LT IDR, Outlook Stable TRAFFORD CENTRE: Fitch Lowers 3 Class Notes to 'CCC' - - - - - =========== F R A N C E =========== SISAHO INTERNATIONAL: Moody's Affirms B2 CFR on Profit Improvement ------------------------------------------------------------------ Moody's Investors Service has affirmed the B2 corporate family rating of SISAHO International SAS, as well as its B2-PD probability of default rating and B2 backed senior secured debt rating, and maintained a negative outlook. RATINGS RATIONALE The affirmation of the ratings reflects improvements in SISAHO's profitability and cash generation and Moody's expectation that the group will sustainably reduce its leverage (Debt / EBITDA) ratio below 7x in the next 12 months. At the same time, the negative outlook reflects the continued uncertainties in the macroeconomic environment and the risk of slower pace of decrease in leverage than expected. SISAHO reported an EBITDA of EUR88 million in 2020, up 15% from 2019, despite negative impacts resulting from the breakthrough of the coronavirus pandemic. As a result, the Debt / EBITDA ratio decreased to 7.2x (on a proforma basis, reflecting the benefits of the Olympe plan, an expense reduction programme) from 7.6x in 2019. In addition, thanks to an increase in sales in 2020, Moody's expects SISAHO to continue to grow its EBITDA in 2021, and the leverage ratio to go down below 7x. At the same time, the group improved its cash generation, as evidenced by the positive figure reported in 2020 (EUR7 million net cash generation). While SISAHO is facing material cash payments related to past acquisitions, the group has been able to renegotiate the timing of some of these obligations. Hence, 2021 liabilities are now reduced to around EUR16 million (versus EUR29 million expected as of year-end 2019). Moody's expects the group to be in a position to sustainably generate cash in future years. The B2 CFR is also supported by SISAHO's strong franchise, notably in France and in some segments such as marine insurance, and a very good level of profitability, as evidenced by an EBITDA margin of 24% on average in the last three years. More negatively, Moody's mentions that the pace of decrease in leverage remains slow and SISAHO's leverage ratio is likely to remain in the top of the 6x-7x range in 12 months. The negative outlook therefore reflects the continued level of uncertainty in the macroeconomic environment and the fact that a lower than expected performance could impede the group's deleveraging. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The following factors could lead to a downgrade of SISAHO's ratings: (i) Gross debt-to-EBITDA (on a Moody's basis) remaining consistently above 7x or (ii) a deterioration in profitability, reflected in EBITDA margins consistently below 17%. A rating upgrade is unlikely given the negative outlook. However, the following factors could revert the outlook on SISAHO to stable: (i) Gross debt-to-EBITDA (on a Moody's basis) falling sustainably below 7x and (ii) the group maintaining strong EBITDA over 17%. LIST OF AFFECED RATINGS Issuer: SISAHO International SAS Affirmations: Long-term Corporate Family Rating, affirmed B2 Probability of Default Rating, affirmed B2-PD Backed Senior Secured Revolving Credit Facility, affirmed B2 Backed Senior Secured First Lien Term Loan Facility, affirmed B2 Outlook Action: Outlook remains Negative PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Insurance Brokers and Service Companies published in June 2018. ============= G E R M A N Y ============= FRESENIUS MEDICAL: Egan-Jones Keeps BB+ Senior Unsecured Ratings ---------------------------------------------------------------- Egan-Jones Ratings Company, on March 23, 2021, maintained its 'BB+' foreign currency and local currency senior unsecured ratings on debt issued by Fresenius Medical Care AG & Co. KGaA. Headquartered in Bad Homburg, Germany, Fresenius Medical Care AG & Co. KGaA offers kidney dialysis services and manufactures and distributes equipment and products used in the treatment of dialysis patients. GREENSILL BANK: Customers Get EUR2.7BB in Deposit Protection Scheme ------------------------------------------------------------------- Tom Sims at Reuters reports that Germany's private banking association said on April 5 that it had paid out around EUR2.7 billion (US$3.17 billion) to more than 20,500 Greensill Bank customers as part of its deposit guarantee scheme after the bank collapsed last month. According to Reuters, the banking association said only a few customers had yet to receive compensation under the protection fund, which protects individuals but not institutional investors. ============= I R E L A N D ============= CVC CORDATUS XXI: Fitch Affirms Final B- Rating on Class F Notes ---------------------------------------------------------------- Fitch Ratings has assigned CVC Cordatus Loan Fund XII DAC 's refinancing notes final ratings and revised the Outlook on the existing class E and F notes to Stable from Negative. CVC Cordatus Loan Fund XII DAC DEBT RATING PRIOR ---- ------ ----- A-1-R XS2325581481 LT AAAsf New Rating AAA(EXP)sf A-2-R XS2325582299 LT AAAsf New Rating AAA(EXP)sf B-1-R XS2325582885 LT AAsf New Rating AA(EXP)sf B-2-R XS2325583420 LT AAsf New Rating AA(EXP)sf C-R XS2325584071 LT Asf New Rating A(EXP)sf D XS1899142886 LT BBB-sf Affirmed BBB-sf E XS1899143934 LT BB-sf Affirmed BB-sf F XS1899143421 LT B-sf Affirmed B-sf X XS1899139403 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY CVC Cordatus Loan Fund XII DAC is a cash flow collateralised loan obligation (CLO). The proceeds of this refinancing are being used to redeem the old notes. The portfolio is managed by CVC Credit Partners European CLO Management LLP. The refinanced CLO envisages an unchanged reinvestment period ending in July 2023, and a 15-month weighted average life (WAL) extension. KEY RATING DRIVERS 'B' Portfolio Credit Quality: Fitch places the average credit quality of obligors in the 'B' range. The Fitch-weighted average rating factor (WARF) of the current portfolio is 32.94. High Recovery Expectations: The portfolio comprises 99.1% senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the portfolio as of 26 February is 64.24% based on Fitch's current criteria, and 65.73% based on the recovery rate provision in the transaction documents. The recovery rate provision in the transaction documents does not reflect the latest version of the CLOs and Corporate CDOs Rating Criteria so that assets without a recovery estimate or recovery rate by Fitch can map to a higher recovery rate than the criteria. To account for this, Fitch has applied a haircut of 1.5% to the WARR covenant considered in its stressed case portfolio analysis. The haircut is in line with the average impact on the WARR of EMEA CLOs following the criteria update. Diversified Asset Portfolio: The transaction has two Fitch matrices, updated upon refinancing, corresponding to two different maximum permissible exposures to the top 10 obligors of 18% and 23% (currently 17.38%), ensuring the portfolio remains sufficiently diversified throughout its life. The transaction also includes limits on the Fitch-defined largest industry at a covenanted maximum 17.5% and the three-largest industries at 40.0%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management: On the refinancing date, the issuer extended the WAL covenant by 15 months and the Fitch matrices have been updated. The transaction's reinvestment period ends in July 2023. The reinvestment criterion is similar to other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Affirmation of Junior Notes: The affirmation of the junior notes with Stable Outlook reflects stable performance and resilience to the coronavirus baseline scenario. The transaction was below par by 125bp as of the investor report on 26 February 2021. The transaction passed all portfolio profile tests, collateral quality tests and coverage tests. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 3.76% (excluding unrated assets). The revision of the Outlooks on the class E and F notes to Stable from Negative is a result of a sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook was downgraded by one notch, instead of 100%. All notes show resilience under this scenario. Deviation from Model-Implied Ratings Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, and to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The ratings of the class A-2-R, B-1-R, B-2-R, C-R, D, E and F notes are one notch higher than the model-implied ratings (MIR) derived under the stressed portfolio analysis. These notes show shortfalls up to 0.32%, 1.02%, 1.02%, 1.14%, 1.61%, 2.50%, and 4.89% at the assigned ratings, respectively, for the stressed portfolio. These shortfalls are the maximum observed where a note drives a specific matrix point and do not occur simultaneously. The ratings are supported by their credit enhancement, as well as a significant default cushion on the identified portfolio due to the notable cushion between the covenants of the transaction and the portfolio's parameters. The notes pass the assigned ratings with a significant cushion based on the identified portfolio and the coronavirus sensitivity analysis that is used for surveillance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A reduction of the default rate (RDR) at all rating levels by 25% and an increase in the recovery rate (RRR) by 25% at all rating levels would result in an upgrade of up to six notches depending on the notes, except for the class A-1-R and A-2-R notes, which are already at the highest rating on Fitch's scale and cannot be upgraded. -- At closing, Fitch will use a standardised stress portfolio (Fitch's stressed portfolio) that is customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses at all rating levels than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio credit quality may still deteriorate, not only by natural credit migration, but also through reinvestments. -- After the end of the reinvestment period, upgrades may occur on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factor that could, individually or collectively, lead to negative rating action/downgrade: -- An increase of the RDR at all rating levels by 25% and a decrease of the RRR by 25% at all rating levels will result in downgrades of no more than five notches depending on the notes. Coronavirus Potential Severe Downside Stress Scenario Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates a single-notch downgrade to all the corporate exposure on Negative Outlook. This scenario shows resilience at the ratings for all notes except the class F notes, which show a small shortfall. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY CVC Cordatus Loan Fund XII DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ENDO INTERNATIONAL: Egan-Jones Keeps CCC+ Sr. Unsecured Ratings --------------------------------------------------------------- Egan-Jones Ratings Company, on March 24, 2021, maintained its 'CCC+' foreign currency and local currency senior unsecured ratings on debt issued by Endo International Public Limited Company. EJR also maintained its 'C' rating on commercial paper issued by the Company. Headquartered in Dublin, Ireland, Endo International Public Limited Company provides specialty healthcare solutions. HARVEST CLO XX: Fitch Affirms B- Rating on Class F Notes -------------------------------------------------------- Fitch Ratings has assigned Harvest CLO XX DAC's refinancing notes, and revised the Outlooks on the existing class E and F notes to Stable from Negative. Harvest CLO XX DAC DEBT RATING PRIOR ---- ------ ----- A XS1843454809 LT PIFsf Paid In Full AAAsf A-R XS2310757989 LT AAAsf New Rating AAA(EXP)sf B-1 XS1843454122 LT PIFsf Paid In Full AAsf B-1-R XS2310759092 LT AAsf New Rating AA(EXP)sf B-2 XS1843453405 LT PIFsf Paid In Full AAsf B-2-R XS2310760009 LT AAsf New Rating AA(EXP)sf C XS1843452852 LT PIFsf Paid In Full Asf C-R XS2310761239 LT Asf New Rating A(EXP)sf D XS1843452183 LT PIFsf Paid In Full BBBsf D-R XS2310762047 LT BBBsf New Rating BBB(EXP)sf E XS1843451532 LT BBsf Affirmed BBsf F XS1843451375 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Harvest CLO XX DAC is a cash flow collateralised loan obligation (CLO). On the refinance closing date, the class A, B, C and D notes have been redeemed and re-issued at lower spreads. The class E and F notes have not been refinanced. The transaction is still within its reinvestment period and is actively managed by Investcorp Credit Management EU Limited. The weighted average life (WAL) covenant has been extended by one year to 7.1 years and the Fitch matrix was updated. KEY RATING DRIVERS Average Portfolio Credit Quality Fitch places the average credit quality of obligors in the 'B'/'B-' category. The Fitch weighted average rating factor (WARF) of the current portfolio is 35.19. High Recovery Expectations At least 98.8% of the portfolio comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the identified portfolio is 63.1%. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is no more than 16% and no obligor represents more than 2% of the portfolio balance. Portfolio Management On the refinancing date, the weighted average life (WAL) covenant has been extended by one year to 7.1 years and the Fitch matrix was updated. The transaction features a two-year reinvestment period. The reinvestment criterion is similar to other European transactions'. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Affirmation of Existing Notes The affirmation of the class E and F notes reflects the transaction's stable performance. As per the trustee report dated 26 February 2021, the transaction was below par by 1.8%, but was passing all the coverage, Fitch-related collateral-quality and portfolio-profile tests. The Outlook revision to Stable reflects the default-rate cushion in the coronavirus baseline scenario analysis Fitch ran in light of the coronavirus pandemic. When analysing the updated matrix with the stressed portfolio, the class F notes showed a maximum break-even default shortfall of -0.32%. However, the class F notes' rating is supported by comfortable default cushion based on both the current portfolio and the coronavirus baseline scenario, which are used for Fitch's surveillance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A 25% reduction of the mean default rate (RDR) across all ratings and a 25% increase in the recovery rate (RRR) across all ratings will result in an upgrade of no more than five notches across the structure, apart from the class A notes, which are already at the highest 'AAAsf' rating. -- The transaction has a reinvestment period and the portfolio is being actively managed. At closing, Fitch used a standardized stressed portfolio (Fitch's streseds portfolio) that is customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses at all rating levels than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio credit quality may still deteriorate, not only by natural credit migration, but also through reinvestments. -- After the end of the reinvestment period, upgrades may occur on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings will result in downgrades of between two and six notches across the structure. -- Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. As disruptions to supply and demand due to coronavirus for other vulnerable sectors become apparent, loan ratings in such sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its leveraged finance team. Coronavirus Baseline Scenario Fitch carried out a sensitivity analysis on the current portfolio to envisage the coronavirus baseline scenario. The agency notched down the ratings for half of assets with corporate issuers on Negative Outlook by one notch (floor at 'CCC'). This scenario shows rating resilience, with a substantial cushion across all the notes. Coronavirus Downside Sensitivity Fitch also considers a sensitivity analysis that contemplates a more severe and prolonged economic stress. The downside sensitivity incorporates a single-notch downgrade to all Fitch-derived ratings of assets with corporate issuers on Negative Outlook regardless of sector. Under this downside scenario, all classes pass the current ratings except for the class F notes, which show a marginal failure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. PERRIGO COMPANY: Egan-Jones Keeps BB+ Senior Unsecured Ratings -------------------------------------------------------------- Egan-Jones Ratings Company, on March 24, 2021, maintained its 'BB+' foreign currency and local currency senior unsecured ratings on debt issued by Perrigo Company PLC. Headquartered in Dublin, Ireland, Perrigo Company PLC engages in providing over-the-counter (OTC) self-care and wellness solutions. ========= I T A L Y ========= REPUBLIC OF ITALY: Egan-Jones Keeps BB+ Senior Unsecured Ratings ---------------------------------------------------------------- Egan-Jones Ratings Company, on March 22, 2021, maintained its 'BB+' foreign currency and local currency senior unsecured ratings on debt issued by the Republic of Italy. Italy is a European country with a long Mediterranean coastline. Its capital, Rome, is home to the Vatican as well as landmark art and ancient ruins. ============= R O M A N I A ============= BLUE AIR: Plans to Issues Bonds, List Shares on LSE --------------------------------------------------- Andrei Chirileasa at Romania-Insider.com reports that Romanian low-cost airline Blue Air will resume its plans put on ice during the pandemic. Blue Air CEO Oana Petrescu said in an interview the company plans to issue bonds within several months after it exits the pre-insolvency procedures, hopefully in July 2022, and to list its shares on the London Stock Exchange (LSE) within two to three years, Romania-Insider.com relates. Romania's biggest airline by the number of passengers transported, Blue Air, initiated last July the preventive agreement, a mechanism that gives a company facing cash flow problems a chance to avoid insolvency, Romania-Insider.com discloses. In the meantime, it received a EUR60 million loan from state-owned lender EximBank, guaranteed by the Government, Romania-Insider.com states. The size of the bond issue will be decided depending on the financial needs at that time, Romania-Insider.com notes. Blue Air's CEO explained the initial target (EUR40-EUR60 million) was designed for a project that is no longer valid, according to Romania-Insider.com. =========== R U S S I A =========== BANK FINTECH: Bank of Russia Terminates Provisional Administration ------------------------------------------------------------------ On March 31, 2021, the Bank of Russia terminated the activity of the provisional administration appointed to manage credit institution Commercial Bank FinTech (LLC) (hereinafter, the Bank). No signs of the Bank's insolvency (bankruptcy) have been established as a result of the provisional administration-conducted inspection of its financial standing. On March 16, 2021, the Arbitration Court of the City of Moscow issued a ruling on the forced liquidation of the Bank. Sergey Kuznetsov, a member of the Association of Leading Receivers Dostoyanie, was appointed as a liquidator. ROSENERGO LTD: Bank of Russia Reveals OSAGO Policy Form Shortage ---------------------------------------------------------------- The provisional administration appointed to manage National Insurance Group ROSENERGO, LTD (hereinafter, NIG-ROSENERGO, LTD) has revealed a shortage of OSAGO (compulsory motor third-party liability insurance) policy forms and recognised 8,663 forms as lost as of March 26, 2021 (the Register of Accountable OSAGO Forms attached). It should be noted that laws prohibit an insurance agent to conclude insurance, reinsurance and insurance broker agreements and introduce amendments to respective agreements increasing the insurance agent's liabilities beginning from the effective date of the insurance supervisory authority's decision on the revocation of the insurance agent's license. The insurance agreements concluded on behalf of NIG-ROSENERGO, LTD after the effective date of the insurance supervisory authority's decision on the revocation of the insurance agent's licence (December 3, 2020) using the accountable OSAGO forms listed in the register, among other forms, are invalid. RUSSIAN RAILWAYS: Fitch Assigns Final BB+ Rating to CHF250MM Notes ------------------------------------------------------------------ Fitch Ratings has assigned JSC Russian Railways' (RZD) CHF250 million perpetual callable loan participation notes (LPNs) a final 'BB+' rating. The LPNs are issued by RZD Capital P.L.C. on a limited recourse basis for the sole purpose of funding its CHF250 million loan to RZD. The proceeds of such a loan will be used by RZD for financing and/or refinancing the eligible green projects, namely projects for the acquisition of electric locomotives and/or trains used for passenger transportation. The noteholders will rely solely on RZD's credit and financial standing for the payment of obligations under the notes. RZD is Russia's monopolistic integrated railway operator. Fitch assesses the company's support score at 35 under its Government-Related Entities (GRE) Rating Criteria, which combined with its 'bbb+' Standalone Credit Profile (SCP) assessed under the Public Sector, Revenue-Supported Entities Rating Criteria, leads to RZD's Long-Term Issuer Default Rating (IDR) 'BBB' being equalised with the sovereign's. KEY RATING DRIVERS Bond Rating Reflects Deep Subordination: The notes are rated two notches below RZD's IDR given their highly subordinated nature, which yields very low recovery prospects in a liquidation or bankruptcy of the company. The notes will be extinguished in an insolvency resulting from a Russian court initiating supervision of or liquidation procedures against RZD. The notes rank senior only to the claims of equity shareholders. Equity Treatment: Fitch deems the notes as qualifying for a 50% equity credit (EC). It reflects structural equity-like characteristics of the instruments including their deep subordination, remaining effective maturity exceeding five years, full discretion to defer coupons for at least five years and limited events of default. EC is limited to 50% by the notes' deferred coupons being cumulative, which is a more debt-like feature of the instrument. The company is obliged to make a mandatory settlement of deferred coupon payments under certain circumstances, including dividend payments. Terms of the hybrid notes do not require RZD to repurchase them in the event of a change of control and do not contain material affirmative or negative covenants, which could negate EC. The allocated 50% EC implies that 50% of the notes is classified as RZD's debt, while Fitch treats coupon payments as 100% interest, which is reflected in the company's coverage metrics. Loan Terms: RZD Capital P.L.C. is applying the proceeds from each tranche of the notes solely for financing the corresponding loan to RZD. The notes will be redeemed by RZD Capital P.L.C. if the loan is repaid by RZD. The loan mirrors all main terms of the notes except for maturity. Effective Maturity Date: Fitch views the notes as perpetuals despite the loan being due in 2082, as the company may at its sole discretion, at any time and on any number of occasions, extend the loan's repayment date. The issuer has the option to redeem the notes in March 2027 or later. Fitch does not consider any of the call dates as an effective maturity date as neither of them are accompanied with a coupon step-up greater than 100bp. Once the effective maturity date becomes determinable either due to the company's intention to repay the note or due to other reasons, the 50% EC would change to 0% five years before the effective maturity date. DERIVATION SUMMARY The notes' rating of 'BB+' is two notches below RZD's IDR, which reflects the going-concern loss absorption capacity of the notes and their highly subordinated nature. The notes will be extinguished under certain insolvency scenarios, which is in line with Fitch's general expectations of very low recoveries for the majority of hybrid debt in case of insolvency. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- A positive change in RZD's ratings will be mirrored in the LPNs' rating. Factor that could, individually or collectively, lead to negative rating action/downgrade: -- A negative change in RZD's ratings will be mirrored in the LPNs' rating. ESG CONSIDERATIONS The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). BEST/WORST CASE RATING SCENARIO International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. CRITERIA VARIATION The analysis used to determine the rating of RZD's LPNs included a variation from the Public Sector, Revenue-Supported Entities Rating Criteria to determine the notching of the hybrid instruments relative to RZD's IDR and the allocation of EC. SUMMARY OF FINANCIAL ADJUSTMENTS Fitch allocates 50% EC to the СHF250 million perpetual LPNs and classifies 50% of the notes' outstanding value as equity. ========= S P A I N ========= CODERE SA: Fitch Downgrades IDR to 'C' -------------------------------------- Fitch Ratings has downgraded Codere SA's Issuer Default Rating (IDR) to 'C' from 'CC'. Fitch has also downgraded Codere Finance 2 (Luxembourg) S.A.'s EUR250 million super senior notes (SSN) to 'CC'/RR3 from 'CCC-'/RR3 and senior notes, which comprise a EUR500 million and a USD300 million tranche to 'C'/RR4 from 'CC'/RR4. The downgrade reflects Codere's decision to defer the interest payment due 31 March on the super senior notes (SSN), which constitutes conditions indicative of a 'C' rating under Fitch's Rating Definitions. Codere is pursuing its negotiations with bondholders to find an agreement on a sustainable capital structure. Fitch views that a restructuring, if agreed upon, is likely to qualify as a distressed debt exchange according to its criteria. KEY RATING DRIVERS Grace Period Entered for SSN: On 30 March, Codere filed a decision with the CNMV (Spanish Stock Market Regulator) to enter a grace period provided in the indenture documentation to the SSN to defer an interest payment due on 31 March. Under Fitch's Rating Definitions, these conditions are considered a 'Near default' situation and are commensurate with a 'C' IDR. Imminent Default: Covid-19 restrictions have disrupted Codere's business operations, significantly harming profitability and cash flow generation. This has led to an unavoidable liquidity crisis in April unless additional EUR100 million of funding is secured. However, Fitch views EUR100 million of additional liquidity as insufficient in the event of a slower trading recovery in 2H21, potentially requiring additional EUR100 million of funding by end-in 3Q21 or 4Q21 as assumed in Fitch's conservative rating case. Moreover, Fitch views a debt restructuring unavoidable in the short term to bring the capital structure back to sustainable levels, ahead of the debt maturities due in 2023. High Refinancing Risk: Refinancing risk will remain high, as Fitch does not expect a full recovery until 2023. Intermittent lockdowns and social distancing measures will continue putting pressure on upcycle trends as well as point-of-sale closures, trends that may continue until the majority of the population is inoculated. DERIVATION SUMMARY Codere's current financial profile allows for little rating comparability with peers within the gaming industry. Codere's business profile is currently positioned in the lower range of Fitch's rated gaming portfolio, with lower diversification into online business compared with Flutter (BBB-/Negative), Entain Plc (BB/Negative) and Sazka Group a.s. (BB-/Stable), as well as a weaker corporate governance score. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: Once the debt restructuring occurs, and Fitch has discussed the company's revised business plan with management and assessed its reasonableness, Fitch will establish new assumptions for its long-term forecasts for the company. Fitch's Key Recovery Assumptions: -- The recovery analysis assumes that Codere would remain a going concern in the event of restructuring and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim in the recovery analysis. -- Fitch assumes a post-restructuring EBITDA of EUR180 million, on which Fitch bases the enterprise value. -- Fitch assumes a distressed multiple of 4.5x, reflecting the group's comparative size, leading market positions and geographical diversification, with large exposure to Latin America. -- Fitch applies a blended Recovery Rating cap to calculate the final Recovery Rating in line with Fitch's methodology. Even though the company is headquartered in Spain, the group has exposure to countries with lower Recovery Rating caps, like Italy and most Latin American countries. -- Fitch's waterfall analysis generates a ranked recovery for super-senior creditors in the 'RR3' band, indicating a 'CC' instrument rating assigned to the super senior debt. The waterfall analysis output percentage on current metrics and assumptions is 52% for the super senior notes, as Fitch's recovery estimates are capped at 'RR3' after applying the blended cap. -- Under Fitch's recovery analysis the senior secured notes post restructuring result in a 'RR4', using a mid-point of 41% after applying the blended cap, indicating a debt instrument rating of 'C', in line with the IDR. This reflects their subordination to the SSN. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Fitch does not foresee an upgrade to 'CC' at present. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Completion of a distressed debt exchange leading to a downgrade (to 'RD') before re-rating the new capital structure post-restructuring. -- Company filing for insolvency proceedings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Insufficient Liquidity, Unavoidable Restructuring; Additional funding of EUR100 million would provide liquidity headroom for several months. However, Fitch believes that an additional EUR100 million funding would be required before end-2021 (previously expected in 2022) in the event of a slower recovery in 2H21 due to delays in global vaccination schemes, particularly in Latam, as assumed in Fitch's updated rating case. Fitch envisages a restructuring of the current capital structure will be unavoidable in the short term in light of a slower recovery towards pre-pandemic levels. ESG CONSIDERATIONS Codere has an ESG Relevance Score of '4' for Management Strategy, due to its focus on land-based operations and lack of meaningful online presence. This factor has a negative impact on the credit profile, as already reflected in the rating, and is relevant to the rating in conjunction with other factors. Codere had an ESG Relevance Score of '4' for Financial Transparency due to a recent case of defective financial accounting, which had a negative impact on the credit profile, and was relevant to the ratings in conjunction with other factors. Codere has since addressed this shortfall and the ESG Relevance Score for Financial Transparency has been changed to '3'. Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). INSTITUT CATALA: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Institut Catala de Finances' (ICF) Long-Term Issuer Default Ratings (IDR) at 'BB' with Stable Outlook. Fitch has also affirmed ICF's Short-Term Foreign-Currency IDR at 'B'. The long and short-term ratings on ICF's senior unsecured outstanding bonds and commercial paper (CP) programme have also been affirmed at 'BB' and 'B', respectively. Fitch views ICF as a government-related entity (GRE) of the Autonomous Community of Catalonia (BB/Stable), and equalises its ratings with those of Catalonia. This is based on the unchanged statutory, irrevocable and unconditional guarantee of ICF's financial obligations from Catalonia. ICF was founded in 1985 and is fully owned by the regional government of Catalonia. ICF's public missions are carried out by ICF and its dependent entities. ICF is in charge of facilitating access to financing to companies, especially SMEs, in Catalonia, fostering regional economic and social development, and complementing the activity of regional domestic banks. In 2015, ICF opted to become subject to state and European regulations for credit institutions and reinforce its independence from public administrations. KEY RATING DRIVERS Status, Ownership and Control: 'Strong' ICF is wholly owned by the regional government of Catalonia and benefits from a statutory explicit guarantee on its liabilities from the regional government. As a public entity, in case of dissolution its assets and liabilities would revert to the regional government. The entity has increased independent management since 2015, and the regional government now has only four representatives out of 11 on the board of directors. The three main commissions (Executive, Audit and Control, Remuneration and Appointment) comprise the majority of independent members. Eurostat classifies ICF as a financial institution (non-administrative body) of the regional government of Catalonia and therefore ICF's results and debt are not included in the regional government's national accounts. The regional annual budget law only sets limits on ICF's debt (the limit was EUR4 billion in 2020 vs. current debt level of only EUR1.4 billion in 2020). ICF's president is the Secretary of the Department of Vice-Presidency, Economy and Finance of Catalonia and the managing director is appointed by the regional government. Support Track Record: 'Very Strong' ICF's ratings are equalised with those of Catalonia, reinforced by the region's enhanced support for ICF via a statutory guarantee as a result of the 29 July 2011 amendment to the regional Decree Law 4/2002. ICF has not received capital injections from the regional government of Catalonia since 2013 and given the entity's current capital solvency, no capital injection is expected according to its statutes. Socio-Political Implications of Default: 'Moderate' ICF complements the activity of domestic banks. However, it has a specific model as it was created to channel public credit and foster Catalonia's economic and social development , in particular SMEs. SMEs in Catalonia accounted for 53% of total regional employment in December 2020. ICF has a market share of approximately 8.5% of lending to its relevant segment in Catalonia, and Fitch considers that the market is relatively concentrated. Since 2015, ICF has posted positive net results of a cumulative EUR81.3 million. ICF is an anti-cyclical entity, maintaining the concession of financing when private credit becomes more restricted. This is evidenced by the increased financing in 2020 compared with 2019 (up by EUR666 million), to support regional companies during the pandemic. Fitch's moderate assessment reflects that ICF's financial default would not endanger continued provision of its activity, since the company and its activities benefits from strong regional government support. Financial Implications of Default: 'Moderate' ICF had EUR326.3 million debt securities outstanding at the end of 2020, representing 23.5% of its outstanding debt. A default of ICF would have a negative impact on the image/creditworthiness of the regional government of Catalonia. Moreover, ICF is the second most indebted regional public entity because of its nature as a financial entity. Approximately 84% of the regional government's debt is currently in the form of state mechanisms, so Fitch considers that a hypothetical default of ICF would have only moderate implications for the regional government's funding. OPERATING PERFORMANCE In 2020, ICF generated a result before taxes of EUR6.1 million (EUR38.3 million in 2019), affected by higher provisions, while its outstanding loans and guarantees were valued at EUR2.2 billion, from total assets of EUR2.6 billion (EUR2.0 billion in 2019). Its coverage ratio was 130.9% in 2020, which is high compared with other credit institutions in Spain. DERIVATION SUMMARY Fitch views ICF as a GRE of the regional government of Catalonia and assigns it a score of 25 under its GRE rating criteria. This reflects a 'Very Strong' assessment on one rating factor (Support Record and Expectations), a 'Strong' assessment on one rating factor (Status, Ownership and Control) and a 'Moderate' assessment on two rating factors (Socio-Political Implications of Default and Financial Implications of Default). However, the statutory, irrevocable and unconditional guarantee allows us to override this and equalise ICF's rating with Catalonia's rating. SHORT-TERM RATINGS ICF is rated under Fitch's GRE Rating Criteria, and its Short-Term IDRs are equalised with the regional government's. DEBT RATINGS The senior unsecured outstanding debt and commercial paper programme are rated at the same level as ICF's 'BB' Long-Term IDR and 'B' Short-Term IDR. RATING SENSITIVITIES FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO NEGATIVE RATING ACTION/DOWNGRADE: -- ICF's IDR could be downgraded if Catalonia's IDR was downgraded. A weakening in Fitch's assessment of the guarantee from the regional government on ICF's liabilities could eventually lead to a downgrade depending on its Standalone Credit Profile. FACTOR THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO POSITIVE RATING ACTION/UPGRADE: -- ICF's IDR could be upgraded if Catalonia's IDR was upgraded. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Credit risk has reduced and ICF's solvency ratio according to Basel 3 was high at 43.8% at the end of 2020 (47.3% in 2019). At end-2020, liabilities with financial institutions reached EUR1.4 billion an increase versus EUR1.0 billion in 2019, due to a significant increase in financing activity to support regional companies through the pandemic. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS ICF's ratings are linked to the Autonomous Community of Catalonia's. ESG CONSIDERATIONS ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). =========================== U N I T E D K I N G D O M =========================== ATLANTICA SUSTAINABLE: Egan-Jones Keeps B- Sr. Unsecured Ratings ---------------------------------------------------------------- Egan-Jones Ratings Company, on March 24, 2021, maintained its 'B-' foreign currency and local currency senior unsecured ratings on debt issued by Atlantica Sustainable Infrastructure PLC. EJR also maintained its 'B' rating on commercial paper issued by the Company. Headquartered in the United Kingdom, Atlantica Sustainable Infrastructure PLC provides renewable energy solutions. DRAX GROUP: Fitch Affirms LT IDR & Sec Notes at BB+, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has affirmed Drax Group Holdings Limited's (Drax) Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook and Drax Finco plc's senior secured notes at 'BB+'. A full list of rating actions is at the end of this commentary. The affirmation reflects Fitch's expectation of positive free cash flow (FCF) generation in the absence of significant strategic growth projects (apart from the recent Pinnacle acquisition), underpinned by regulatory support, hedging of merchant price risk and increased contribution to quasi-regulated EBITDA on reinstatement of the UK capacity market. However, ahead of any regulatory support for carbon capture and storage (CCS), continued biomass cost reduction represents a more visible route for maintaining leverage within Drax's annual target of net debt/adjusted EBITDA of 2.0x. KEY RATING DRIVERS Solid Cash Flow Visibility: Around 80-90% of projected EBITDA is quasi-regulated and derived from incentives and long-term contracts, reducing the exposure to merchant power prices. There is good earnings visibility until 2027, despite lower expected income following the divestment of its gas and commercial closure of its coal assets in 1Q21. Near-term visibility is bolstered by a hedging policy on power of around two years forward for renewable obligation (RO) supported biomass units. Fitch expects the company to continue benefiting from favourable pricing in its contracts for difference (CfDs) with UK baseload electricity prices to remain well below the CfD strike price in the medium term. Sustained Positive FCF: Fitch expects funds from operations (FFO) net leverage to increase to around 3.1x by end-2021 driven by the Pinnacle acquisition. However, Fitch expects it to reduce to below the negative rating sensitivity in 2022 and to below 2.0x by 2024. This deleveraging will be supported by consistent positive FCF generation over the rating horizon, assuming no further significant acquisitions or growth plans. FCF remains strong despite the impact of the planned outage on the CfD biomass unit in 2021 and the impact of the pandemic (GBP60 million) in 2021 which mostly related to a reduction in demand and increased bad debts within the customers business. Drax has demonstrated the ability to deleverage post acquisitions in 2017 when it reduced FFO net leverage by 0.3x in 2018. Fitch expects management to take into account contracted cash flows, less predictable cash flows and future investment opportunities in defining dividend policy. Biomass Cost Reduction: Drax has made progress in its long-term decarbonisation strategy, disposing of its combined cycle gas turbines (CCGTs), commercial closure of its coal operations in 1Q21 and the Pinnacle acquisition, which is forecast to complete in April 2021. The acquisition should help Drax reduce the unit cost of biomass from GBP75/MWh from 2018 towards GBP60/MWh in the medium term, reducing the third-party requirement for biomass. In addition to scaling up self-supply for own consumption (with expansion expected), the acquisition provides a portfolio of long-term offtake contracts with Asian and European counterparties. Fitch expects Drax to explore options to further reduce biomass cost towards its 2027 target of GBP50/MWh. Long Term Threats: The current UK renewable subsidies schemes that support Drax's biomass generation (over 70% of generation in 2020) are set to expire in March 2027. Drax plans to offset this risk through biomass production expansion and unit cost reduction, full spectrum system support service offerings and investment opportunities in bioenergy carbon capture storage (BECCS) technology. The UK government announced a GBP1 billion CCS Infrastructure Fund in 2020 to establish CCS in at least two UK sites, the first by the mid-2020s, with a CfD or guaranteed power price for 10 to 15 years, to be confirmed by the UK government. There are several scenarios for CCS, but this support scheme could be available for Drax's BECCS. This would provide visibility beyond the current CfD expiry date in 2027. Generation Portfolio Transformation: Drax lost some diversification benefits from the commercial closure of its coal assets and gas divestments, but it continues to offer a full spectrum of system support services from its flexible and dispatchable sources. As a result, it is well positioned in an evolving UK energy market that has seen increased renewable capacity, underpinned by the UK government's target net zero greenhouse gas emissions by 2050. An increase in renewable generation led to an increase of demand for system support services, due to the system volatility from intermittent power generation. Merchant Price Risk: Around 20% of average gross margin over 2021-24 is exposed to wholesale price risk (directly and indirectly) under the RO scheme, with potential vulnerability to price volatility and an impact on cash flows. The majority of RO-supported biomass units are hedged around two years forward. DERIVATION SUMMARY Drax has substantially stronger credit metrics, a more conservative financial policy and a size advantage over Energia Group Limited (BB-/ Stable). Fitch estimates average FFO net leverage of 2.2x at Drax compared with 3.6x at Energia for 2021-2024. Drax also has substantially stronger credit metrics than SSE plc (BBB/Stable), but this is largely offset by SSE's presence in regulated grids at 55% of EBITDA and widely diversified earnings as the broadest based energy company in the UK. KEY ASSUMPTIONS -- Output projections are as per management, including a planned CFD unit outage in 2021; -- Power price assumptions for uncontracted ROC volumes are based on forward curves; -- UK CPI assumed at 0.9% in 2021, 1.6% in 2022 and 1.7% thereafter; -- UK RPI assumed at 1.4% in 2021, 2.3% in 2022 and 2.4% thereafter; -- Capacity market and ancillary services revenues are as per management; -- Supply margins expected to gradually recover to 1.0% by 2024; -- Pinnacle acquisition cost of GBP459 million and CCGT disposal proceeds of GBP188 million; -- Fitch dividend assumptions of GBP67 million in 2021, GBP72 million in 2022 and GBP100 million in 2023 to 2024. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Sustainably high proportion of contracted or quasi-regulated EBITDA, at least in line with the currently expected level, and with tangible progress towards long-term supported or commercially viable BECCS. -- FFO net leverage sustainably below 1.8x Factors that could, individually or collectively, lead to negative rating action/downgrade: -- FFO net leverage sustainably above 2.8x for example due to a major debt-funded acquisition. -- A change to the regulatory framework with a material negative impact on profitability and cash flow. -- A significantly lower share of EBITDA that is contracted or quasi-regulated, and failure to adapt the business profile ahead of the expiry of biomass CfDs in March 2027. ESG CONSIDERATIONS Drax has an ESG Relevance Score of '4' for Energy and Fuel Management. This reflects supply risk for its sizable biomass generation business and long and logistically complex environmental impact of the biomass supply chain from globally to the UK, potentially impacting capacity utilisation and cash flows. This has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: As at December 2020, cash and cash equivalents were at GBP290 million with access to a total committed undrawn amount of GBP392 million. In 1Q21 Drax disposed 2GW of CCGTs for a total cash consideration of GBP188 million and will acquire Pinnacle for around GBP460 million resulting in a net cash outflow of GBP271 million. Fitch expects Drax to be substantially FCF positive in view of modest capex and working capital requirements. Next debt repayment is GBP38.4 million in 2022, leaving the company in a strong liquidity position overall. GFG ALLIANCE: Commodities Trading Houses Probe Web Domain Use ------------------------------------------------------------- Cynthia O'Murchu, Robert Smith and Neil Hume at The Financial Times report that commodities trading houses have launched investigations after web domains resembling their own were registered to an email address of an employee at Sanjeev Gupta's metals empire. The FT discovered that the domains were registered with a Liberty House email address. Liberty House is Mr. Gupta's commodities trading and industrial group and part of his GFG Alliance conglomerate. The registrations include gunvorsg.com, a name that resembles Gunvor, one of the largest oil traders in the world, The FT discloses. London-based trading house Concord Resources said it would send a cease and desist letter to Liberty House over the registration of concordresources.net, The FT relates. In April 2017, the szmhgroups.com domain was registered, which resembles the szmh-group.com website of steel trader Salzgitter Mannesmann, The FT recounts. Salzgitter Mannesmann said it regarded the use of the domain by external parties as "misleading" and that it would investigate the matter to review options to "prevent the misuse" of the domain, according to The FT. The purpose of the registrations is unknown, The FT notes. It is also unclear if the corresponding websites were ever set up, but registering a domain allows the use of associated email addresses, The FT states. Until its collapse in March, Greensill Capital lent billions of dollars to Mr. Gupta's group on the basis of invoices, The FT discloses. The FT has since revealed that Greensill Capital's administrator has been unable to verify some of these invoices, with companies listed on the documents denying they had ever done business with Mr. Gupta. Mr. Gupta later told the FT that the company named on April 2, RPS Siegen GmbH, had only been "identified as a potential customer" and financing was provided on that basis. Invoice-based financing propelled the rise of Mr. Gupta's GFG Alliance, a loose collection of family-owned businesses that employ 35,000 people around the world and is now in jeopardy, The FT relates. The Liberty House email address was also used to register dozens of web domains for companies that the steel tycoon has insisted are independent, The FT says. This offers further indications that a network of companies -- nominally controlled by the metals magnate's friends and business associates -- may be deeply enmeshed with Mr. Gupta's troubled steel empire, according to The FT. IHUB OFFICE: COVID-19 Impact Prompts Administration --------------------------------------------------- Business Sale reports that a company that operated serviced offices across Birmingham and Manchester has announced that it has fallen into administration. According to Business Sale, iHub Office revealed that it had experienced "significant financial challenges" as a result of the COVID-19 pandemic, which forced many tenants to give up their office space and work from home. In its statement, iHub Office announced that it had appointed Arvindar Jit Singh and Rajnesh Mittal, partners at business advisory firm FRP, as joint administrators of the firm and has subsequently ceased trading, Business Sale relates. Joint administrator Rajnesh Mittal added that the office space specialist was one of many companies that has been severely affected by the ongoing COVID-19 lockdown restrictions, Business Sale notes. He added that iHub has now been forced to cease trading as it has been unable to meet its financial obligations, according to Business Sale. "The COVID-19 pandemic has had a significant impact on firms of all types," Business Sale quote Mr. Mittal as saying. "The increase in people working from home has put substantial pressures on the serviced offices industry over the past year." "iHub Office has been unable to meet its financial obligations and has become insolvent. We're now focused on ensuring efficient communication with creditors as part of our statutory duties and working with the staff at iHub Office to help them access the appropriate redundancy support." LGC SCIENCE: S&P Alters Outlook to Stable, Affirms 'B' ICR ---------------------------------------------------------- S&P Global Ratings revised its outlook on U.K.-Based LGC Science Group Ltd. (Loire UK Midco 3 Ltd.) to stable from negative. S&P affirmed the 'B' long-term issuer credit rating on the group and the related 'B' issue and '3' recovery ratings on its secured term loans. S&P also assigned 'B' issue ratings and a '3' recovery rating to the new proposed term loans. S&P said, "The stable outlook reflects our expectation that LGC will continue to build on its outperformance in a post-pandemic environment and benefit from higher EBITDA margins and lower leverage, relative to previous years. We expect that our leverage metrics will remain commensurate with the 'B' rating level over FY2022-FY2023." The outlook revision to stable from negative indicates that LGC's leverage post dividend recapitalization will remain below historical levels, supported by strong growth in the EBITDA base over FY2022 and FY2023. LGC benefited from its recurring revenue business model, in addition to very strong growth attributable to COVID-19-related tailwinds, notably in its genomics division. LGC has supported the pandemic response through the provision of testing instrumentation and quality control solutions to laboratories and regulatory agencies, among others. Despite some headwinds in the applied sciences end-market, with quality assurance standards across food safety and equine drug testing underperforming, the group as a whole substantively overperformed our base case. S&P estimates statutory revenue growth of 36% and S&P Global Ratings-adjusted EBITDA margins improving to 39.3% in FY2021, relative to 24.3% in FY2020. Growth in the EBITDA base also supports adjusted debt to EBITDA of 8.9x-9.2x (and 6.5x-6.8x without the payment-in-kind [PIK] securities) in FY2022. For comparison, in FY2020, the group recorded adjusted leverage of 10.5x. Funds from operations (FFO) cash interest coverage will remain in excess of 2.5x over FY2021-FY2023 in our base case. S&P understands from management that the dividend is opportunistic and reflects the strong outperformance rather than a change in financial policy, with recurring dividend payments. The proposed transaction's sources will see a total of GBP533 million, including GBP37 million cash on balance sheet and new term loan facilities amounting to GBP496 million-equivalent, deployed to fund the GBP300 million dividend, among other uses. As part of the proposed transaction, LGC will also repay drawings under its multicurrency revolving credit facility (RCF), leaving full capacity under its GBP265 million RCF. The group will also repay about GBP70 million of PIK note facility and prefund two quarters of PIK cash interest on the remaining PIK note. S&P said, "We estimate that the capital structure will retain about $628.2 million of PIK at end-FY2021. We view the PIK note, which has a pay-cash-if-you-want toggle (cash interest of 9.5%), as debt-like, and we understand from our discussions with management that the cash prefunding is exceptional and not to be expected on a recurrent basis. As such, we continue to project accrued interest (10.25% per year) over the coming years, and consider that the PIK does not weigh on LGC's cash flow." S&P said, "While we continue to expect development capital expenditure (capex) as the group executes on its growth strategy, projected FOCF generation is expected to accelerate relative to historical years. Although financial policy remains a constraint to the creditworthiness of the group, in that high mergers and acquisitions (M&A) related exceptional costs could stress FOCF generation beyond our forecast, we believe that we have factored in a margin of safety within our base case. Our base case estimates FOCF at about GBP80 million in FY2021 and GBP60 million average in FY2022-FY2023. Furthermore, we view LGC as an inherently cash-generative business absent of growth investments. As such, the group could reduce its acquisition and capital spending if unanticipated pressures were to arise. Although historical performance has shown that, in the past, management could tolerate slightly negative FOCF if it were to grow the business, the growing size and profitability of the business limits this risk, in our view. "The stable outlook reflects S&P Global Ratings' expectations that LGC will continue to build on its outperformance in a post-pandemic environment and benefit from higher EBITDA margins and lower leverage relative to previous years. We expect that our net leverage metrics will remain commensurate with the 'B' rating over FY2022-FY2023." S&P could take a negative rating action on LGC if: -- FOCF became negative for a prolonged period; -- Adjusted FFO cash interest coverage declined to below 2.0x; or -- The group underperforms, or more aggressive shareholder actions cause the capital structure to become stretched so that S&P sees a heightened risk of it becoming unsustainable. S&P could raise the ratings if: -- There were a change in financial policy such that S&P had a track record of adjusted debt to EBITDA falling to about 5.0x on a sustained basis; or -- The group improved its scale and competitive standing, with a track record of adjusted EBITDA margins sustained at a high level. LOIRE UK MIDCO 3: Fitch Affirms 'B+' LT IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed UK-based global life science tools and services provider Loire UK Midco 3 Limited's (LGC Group) Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. Fitch has also affirmed the final rating of senior secured debt issued by Loire Finco S.a.r.l at 'B+'/'RR4'. The 'B+' IDR reflects the resetting of LGC Group's leveraged profile after the proposed dividend recapitalisation (recap). This follows a better-than-expected operational and financial performance during the Covid-19 pandemic, which balanced modest scale, scientific barriers to entry and a strengthening focus on testing activity during the pandemic. The affirmation also supports Fitch's view that LGC Group will continue to be an active, but selective, consolidator in the fragmented global life science tools markets. However, the rating remains underpinned by structural organic growth prospects for the life science and healthcare testing industries, high barriers to entry, as well as strong profitability and free cash flow (FCF) generation. The Stable Outlook reflects Fitch's expectation of steady underlying operations, driven by sustainable organic revenue growth stemming from the launch of new product lines, which is further enhanced by acquired revenue. These support cash flow-based deleveraging and resilience to the expected fading demand in coronavirus-related testing once the pandemic is over. KEY RATING DRIVERS Pandemic Led to Business Growth: LGC Group's financial profile has benefited from the additional impetus on testing caused by the pandemic, as per Fitch's expectations. The group is firmly positioned in its main markets in Europe and the US to generate additional revenue from measurement, reference tools and testing projects required to support public health policies on coronavirus diagnosis. In fact, higher coronavirus-related revenue over the year more than offset any temporary underperformance in certain business activities adversely affected by government restrictions due to the pandemic. Coronavirus-related activity at end-FYE21 (the financial year that ends March 2021) is expected to contribute to about 25% of group revenue and to more than one third of group EBITDA. Dividend Recap Resets Leverage: Fitch views the proposed dividend recap, taking place just a year under the ownership by the Cinven-Astorg consortium, as a reaction to LGC Group's much-better-than-expected operational and financial performance during the pandemic. In effect, Fitch views the dividend recap as way to reset the leverage level to the original level expected by the management for this point in the cycle, before considering the impact of the pandemic. Hence, Fitch views the proposed transaction as a resetting of the financial leverage in line with previous guidance. Fitch assumes that the larger size of the business and stronger cash conversion/profitability offer the opportunity towards a more aggressive inorganic growth strategy to strengthen LGC Group's market position in higher-growth market segments. As a result, Fitch has revised Fitch's acquisition capital expenditure (capex) assumption upwards by GBP155 million and included a cumulative GBP335 million of cash-funded bolt-on acquisitions over the next three years. Defensive Business Risk Profile: Fitch's rating recognises LGC Group's strong position in the structurally growing routine and specialist life science and healthcare testing markets, which are characterised by long-standing and embedded customer relationships. Fitch views these strong and diverse customer relationships, the critical contribution of LGC Group's products to its client workflow and the group's focus on and reputation for quality as significant barriers to entry that underpin LGC Group's robust business model. Strong Profitable Growth and FCF: The strong traits of LGC Group's business profile have translated into sector-leading organic revenue growth of close to 10%, stemming from both positive volume and price effects. Fitch's rating case forecasts EBITDA margins of 38% in 2021, including organic & inorganic growth and additional Covid-19-related testing. Fitch anticipates EBITDA margin pressure from 2023towards 35%, due to an adverse product mix from a reduced demand in higher-margin Covid-19 testing activity, which may not quickly be fully absorbed by higher demand in other end-markets. Superior profitability will translate into an FCF margin towards 15% over the next three years, despite high capex assumed at about 6.5% of sales for growth and product quality and non-recurrent capex requirements of GBP20million-30 million in 2021-2022 to increase production capabilities to support future growth. Leverage and Size Are Constraints: LGC Group remains small, despite its growth, particularly relative to Fitch-rated peers. Fitch estimates funds from operations (FFO) adjusted gross leverage of 6.0x in 2021, adjusted for the new capital structure after the proposed dividend recap, as the group has de-leveraged by about 2.0x from the opening leverage of 7.9x in 2020, mainly driven by EBITDA growth. LGC Group's high leverage and aggressive financial policy, however, are mitigated by its defensive business profile and satisfactory FCF generation with expected deleveraging to 5.2x by end-2024. Fitch's projected improvement in FCF margins provides some financial flexibility for the group's acquisition growth strategy and deleveraging capacity. Fitch's rating case assumes FFO adjusted gross leverage to fall to 5.6x by 2023, which anchors Fitch's Stable Outlook. Moderate Execution Risks: Fitch believes that LGC Group will continue its acquisitive strategy as this is central to value creation, particularly from the sponsors' perspective. Fitch's view of moderate execution risks reflects the broad scope of potential acquisitions and subsequent integration, and reflects LGC Group's positive record as a consolidator in the fragmented industry. High Recurring Revenue Streams: LGC Group has shown a long-term sticky customer base, as reflected in recurring revenue of about 95% and is supported by its reputation for premium quality and strong scientific credentials. High barriers to entry in core niche markets, due to regulatory approvals and the critical non-discretionary nature of LGC Group's products contribute to visibility over customer retention and revenue. Positive Sector Fundamentals: LGC Group is firmly positioned to capture favourable growth in life sciences, healthcare and measurement sciences, driven by rising volumes and innovation, and supported by stricter regulatory requirements on testing in a growing number of applications. In the short term, additional revenue is expected from supporting government and industry projects on global coronavirus testing and diagnosis. DERIVATION SUMMARY Fitch rates LGC Group using its Medical Devices Navigator framework. LGC Group's rating is constrained by the group's modest size and significant financial leverage, particularly relative to that of larger US peers in the life sciences and diagnostics sectors. These US peers are generally rated within the 'BBB' category, including Bio-Rad Laboratories Inc. (BBB/Stable), Thermo Fisher Scientific Inc. (BBB+/Stable), PerkinElmer Inc. (BBB/Stable) and Agilent Technologies Inc. (BBB+/Stable). In Fitch's peer analysis, LGC Group shows a similar EBITDAR margin in the high 30% range to some of the larger peers with a similar FCF generation, reflecting its strong business model rooted in niche positions that are underpinned by scientific excellence. In addition, LGC Group has good organic growth, supplemented by consolidation opportunities in the fragmented global life sciences tools market. LGC Group's defensive business risk attributes are offset by smaller scale and higher leverage versus the abovementioned peers', which places the group's rating in the highly speculative 'B' category. Its financial risk profile is more comparable to that of European healthcare leveraged finance issuers such as Synlab Bondco PLC (B+/Stable) and Curium Bidco S.a.r.l (B/Stable). All three issuers share a defensive business risk profile and deploy financial leverage to accelerate growth in a consolidating European market. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- Revenue growth of more than 18% CAGR in 2020-2024, driven by organic and expansionary revenue. Fitch assumes organic growth to continue at about 10% CAGR in 2020-2024 in line with historical trends, though Covid-19-related business is expected to fade in 2023-2024. -- Gross margin of 67% by 2022, gradually declining to 64% by 2024 due to product mix and lower Covid-19 testing demand. -- EBITDA margin of about 39% in 2022, gradually declining to about 36% by 2024 in line with gross margin trends. -- Working capital to remain stable at 2% of sales per year. -- Capex at an average of about 6% of sales per year, of which maintenance capex remains stable at about 2% of sales per year in line with historical trend. -- Fitch assumes additional cash funded bolt-on acquisitions over the rating period of a total aggregated value of GBP335 million. Fitch Key Recovery Assumptions: -- The recovery analysis assumes that LGC Group would remain a going concern in the event of restructuring and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim in the recovery analysis. -- Fitch assumes a post-restructuring pro-forma EBITDA of GBP160 million on which Fitch bases the enterprise value. -- Fitch assumes a distressed multiple of 6.5x, reflecting the group's premium market positions, geographical diversification and sound reputation. -- Fitch's waterfall analysis generates a ranked recovery for senior creditors in the 'RR4' band, indicating a 'B+' instrument rating assigned to the senior secured facilities, in line with the IDR. The waterfall analysis output percentage on current metrics and assumptions is 50% for the senior secured loans. Fitch assumes LGC Group's multi-currency revolving credit facility (RCF) would be fully drawn in a restructuring, ranking pari passu with the rest of the senior secured debt. Fitch also views the US dollar-denominated payment in kind (PIK) as an equity instrument, sitting outside the restricted group, despite the proposed cash interest payments allowed under the 'PIK-if-You-Want' structure. Should there, however, be continued cash PIK interest payments for this instrument leaving the restricted group, Fitch may need to reconsider the equity treatment of this debt and also adjust leverage and debt service coverage ratios accordingly. For the avoidance of doubt, Fitch views the proposed PIK cash interest treatment as part of this dividend recap as a one-off event risk RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Fitch views LGC's size and scale as constraining factors to its rating at this stage, limiting its upgrade potential. For an upgrade, greater global scale and higher diversification without adversely impacting brand reputation would be required, in combination with more conservative financial policies, leading to: -- FFO-adjusted gross leverage below 5x on a sustained basis; -- FFO fixed-charge coverage (FCC) above 3.5x on a sustained basis; -- Superior EBITDA margins remaining above 30% and successful integration of accretive M&A; -- Greater global scale and higher diversification without adversely affecting brand reputation. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- FFO-adjusted gross leverage above 6.5x on a sustained basis from 2022; -- FFO FCC below 3.0x; -- Lower organic growth due to market deterioration or reputational issues resulting in market-share loss; -- EBITDA margins trending towards 25%; -- Aggressive M&A hampering profitability, deleveraging and liquidity profile. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: LGC Group has a comfortable liquidity profile under Fitch's rating case based on cash-on-balance sheet within a range of GBP60 million-70 million over the next two years after assuming aggressive bolt-on acquisitions. It has a fully available RCF of GBP265 million for general corporate purposes, which Fitch assumes as undrawn under Fitch's rating-case projections. FFO FCC under Fitch's rating-case projections is estimated at 4.3x in 2021, trending towards 4.8x by 2024. LGC Group's liquidity buffer remains healthy for ongoing business operations, including intra-year working capital swings of about GBP20 million. The proposed dividend recapitalisation will be funded with a new add-on Term Loan B debt of GBP496 million equivalent (Term Loan B is denominated in euros and US dollars) and additional GBP37 million outstanding cash in order to distribute GBP300 million to the Cinven-Astorg consortium and a partial repayment of the PIK instrument by GBP70 million, in line with the permitted allowance under the current documentation. This is coupled with a GBP23 million of two quarters of prefunded cash interest payment on the dollar-denominated PIK notes to avoid a prepayment penalty fee. However, Fitch sees these payments as part of the dividend recapitalisation and, therefore, will be treated for this occasion as an event risk. In the event interest payments on the PIK instrument would become more recurrent, this would trigger a review of Fitch's treatment of the PIK instrument as equity in accordance with Fitch's current Corporate Rating Criteria. SUMMARY OF FINANCIAL ADJUSTMENTS Fitch has restricted GBP10 million of cash in line to reported non-available cash on balance sheet. Fitch has adjusted operating leases under IFRS16, according to its Corporate Rating Criteria. A multiple to rents of 8x has been used to calculate the operating lease debt. ESG Commentary Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3' - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. TRAFFORD CENTRE: Fitch Lowers 3 Class Notes to 'CCC' ---------------------------------------------------- Fitch Ratings has downgraded the Trafford Centre Finance Ltd's class B and D notes, affirmed the class A notes, and removed all classes from Rating Watch Negative (RWN). DEBT RATING PRIOR ---- ------ ----- The Trafford Centre Finance Ltd Class A2 6.50% LT A+sf Affirmed A+sf Secured Notes due 2033 XS0108039776 Class A3 Floating Rate LT A+sf Affirmed A+sf Secured Notes Due 2038 XS0222488396 Class B 7.03% LT BBB-sf Downgrade BBB+sf Secured Notes due 2029 XS0108043968 Class B2 Floating Rate Secured Notes Due 2038 XS0222489014 LT BBB-sf Downgrade BBB+sf Class B3 Fixed rate LT BBB-sf Downgrade BBB+sf notes XS1031629808 Class D1(N) Floating Rate LT CCCsf Downgrade B+sf Secured Notes Due 2035 XS0222489873 Class D2 8.28% LT CCCsf Downgrade B+sf Secured Notes due 2022 XS0108046474 Class D3 Fixed rate LT CCCsf Downgrade B+sf notes XS1031633313 TRANSACTION SUMMARY The transaction is a securitisation of a GBP676 million fixed-rate commercial mortgage loan secured on the Trafford Centre a super-regional shopping centre in the north-west of England, four miles west of Manchester city centre. The long-dated loan financing is tranched into three series, with a combination of bullet and scheduled amortisation arranged in a non-sequential fashion and mirrored by the CMBS. The issuer has a liquidity facility to cover interest and some principal obligations across the capital structure. The class A3, B2 and D1(N) notes are floating-rate, swapped at the issuer level. The downgrades reflect further deterioration in market conditions for UK dominant regional shopping centres, reflected in steady falls in market rents and steep increases in rental yields. This indicates the extent of the shock triggered by the coronavirus and related containment measures, not only on tenants' operating conditions and financial health, but also on lease conventions and consumer behaviour, which are reflected in the Negative Outlooks. By June 2020, the Trafford Centre, had lost about 39% of market value in less than two years, 22% in the preceding 12-month period. Estimated rental value (ERV) was down almost 8.4% over six months. The former sponsor company, Intu, fell into administration. Shares in a subsidiary company (owning the Trafford Centre) were acquired by the former junior lender, CPPIB in December 2020. The change of control is positive insofar as new ownership arguably strengthens the borrower's incentive to invest in the mall (considering also the former sponsor's financial distress). Change of control via a credit bid implies that at the time, the mall's market value was below the balance of outstanding loans (senior and junior) and related swaps secured on the property. Judging by the performance of peer properties, Fitch estimates the value of the Trafford Centre has fallen a further 15-20% since the last reported valuation in June. At the time, the ERV had fallen to GBP84million, but Fitch haircuts it to GBP73 million to reflect observed lettings. Since then, Fitch has indexed this lower estimate down by a further 7% to GBP68 million to reflect additional weakening implied by wider market data. The property has been affected by the retail downturn underway in the UK, including key tenants falling into administration or using company voluntary arrangements (CVA) to restructure leases. In addition, collections have fallen into arrears and been otherwise constrained. The new sponsor has provided the borrower with financial support to help it perform under its debt service obligations in addition to operating costs. However, there is no certainty of ongoing parental support and so until net operating income (NOI) recovers, the class A ratings will be constrained by the rating of the liquidity facility provider, Lloyds Bank plc (A+/Negative), which provides an GBP80 million liquidity facility. KEY RATING DRIVERS Pandemic Shock to Retail Property: Fitch expects a sustained impact on retail property from the shift in consumer preferences towards online spending, supported by an expansion in logistics capability and institution of remote working routines. Many retailers' and households' finances have deteriorated, while a moratorium on evictions currently in place until June 2021 could be extended. Together with the threat of CVA and the necessity to accept turnover forms of rent, this has reduced landlord bargaining power, which Fitch reflects in lower stressed income. Market yields in the sector rising well above the long-term average have resulted in higher cap rates in all rating scenarios. Rebound Expected, Collections Constrained: Non-essential retail is expected to open on 12 April, and optimism of a rebound in footfall and spending over the summer may explain the improving picture of collections (albeit based on lagging and varied metrics). However, with the risks of further shocks on collections, Fitch caps stressed NOI in all Fitch's rating scenarios at one-third of 'Bsf' NOI for the next three months and at two-thirds for the following three months thereafter, with short-term pressure alleviated after the full six months has elapsed in the projection. By assuming borrower default, this test assumes unpaid loan interest adds to borrower indebtedness. Liquidity Risk: The severe weakness in retail property operating conditions creates a direct credit dependency on the liquidity facility provider, which caps the rating of the class A notes at Lloyds' rating. Fitch finds the liquidity facility adequate to cover interest payments due on the notes in the corresponding rating stresses. Class A Control: The class A investors would wield substantial control over a workout, if a senior loan default was enforced. In the more severe scenario consistent with the class A notes' rating, Fitch assumes a protracted workout is optimal to the controlling class, because following loan acceleration (pending liquidation), amortisation of class A principal and decay of senior swap liabilities can more than offset the continued provision of liquidity towards junior debt service. In more benign scenarios consistent with the class B and D notes' ratings, Fitch assumes an earlier liquidation prior to the 2024 as class B and D bullet payments are more protective of the class A collateral position. RATING SENSITIVITIES Current ratings: 'A+sf' / ' A+sf' / 'BBB-sf' / ' BBB-sf'/ ' BBB-sf' / 'CCCsf' / 'CCCsf' / 'CCCsf' The change in model output that would apply with 0.8x cap rates is as follows: 'A+sf' / ' A+sf' / 'A+sf' / ' A+sf'/ ' A+sf' / 'BBB-sf' / ' BBB-sf' / ' BBB-sf' The change in model output that would apply with 1.25x cap rates is as follows: 'Asf' / 'Asf' / 'CCCsf' / ' CCCsf'/ ' CCCsf' / 'CCCsf' / 'CCCsf' / 'CCCsf' The change in model output that would apply with 1.25x rental value declines is as follows: 'A+sf' / 'A+sf' / 'BB+sf' / ' BB+sf'/ ' BB+sf' / 'CCCsf' / 'CCCsf' / 'CCCsf' Coronavirus Downside Scenario Sensitivity Fitch has added a coronavirus sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies, before a slow recovery begins in 2H2021. Under this severe scenario, Fitch reduces the estimated rental value by 10%, with the following change in model output: 'Asf' / 'Asf' / 'B+sf' / 'B+sf'/ 'B+sf' / 'CCCsf' / 'CCCsf' / 'CCCsf' Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Improvement in portfolio performance confirmed by a third party valuation. Factor that could, individually or collectively, lead to negative rating action/downgrade: -- Further increase in vacancy and rent decline within the portfolio. KEY PROPERTY ASSUMPTIONS (all by market value) Depreciation: 5% -- 'Bsf' cap rate: 7.0% -- 'Bsf' structural vacancy: 12.6% -- 'Bsf' rental value decline: 2% -- 'BBsf' cap rate: 7.3% -- 'BBsf' structural vacancy: 13.5% -- 'BBsf' rental value decline: 4.0% -- 'BBBsf' cap rate: 7.7% -- 'BBBsf' structural vacancy: 15.3% -- 'BBBsf' rental value decline: 6.0% -- 'Asf' cap rate: 8.0% -- 'Asf' structural vacancy: 16.2% -- 'Asf' rental value decline: 8.0%'AAsf' cap rate: 8.4% -- 'AAsf' structural vacancy: 17.1% -- 'AAsf' rental value decline: 18.0% BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The Trafford Centre Finance Ltd Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS The Trafford Centre Finance Ltd's notes' ratings are directly linked to the rating of Lloyds, the liquidity facility provider. A change in Lloyds' rating, would automatically result in a change in the rating on the Trafford Centre Finance Ltd's notes. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2021. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. 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