/raid1/www/Hosts/bankrupt/TCREUR_Public/210528.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, May 28, 2021, Vol. 22, No. 101
Headlines
F I N L A N D
CITYCON OYJ: S&P Rates New Unsecured Subordinated Bond 'BB'
G E R M A N Y
DEUTSCHE LUFTHANSA: S&P Lowers Rating on 2075 Sub. Notes to 'CC'
GERMAN PROPERTY: Irish Pensions Authority Probes Pension Scheme
WEPA HYGIENEPRODUKTE: S&P Alters Outlook on 'BB-' ICR to Negative
I R E L A N D
ARBOUR CLO IX: S&P Assigns Prelim. B- Rating on Class F Notes
BERG FINANCE 2021: S&P Assigns BB- Rating on Class E Notes
HARVEST CLO XI: S&P Affirms B- Rating on Class F-R Notes
MADISON PARK XVI: S&P Assigns B- Rating on Class F Notes
N E T H E R L A N D S
BME GROUP: S&P Affirms 'B' ICR on Partly Debt-Funded Acquisitions
P O L A N D
SYNTHOS SA: S&P Assigns 'BB' LongTerm ICR, Outlook Stable
S E R B I A
HIP AZOTARA: Promist Completes Acquisition of Business
S P A I N
ACI AIRPORT: Fitch Lowers Rating on USD200MM Secured Notes to 'B+'
S W I T Z E R L A N D
VAT GROUP: S&P Raises ICR to 'BB+' on Solid Credit Measures
U N I T E D K I N G D O M
CD&R FIREFLY 4: S&P Affirms 'B' ICR on Dividend Recapitalization
FAMOUS BRANDS: To Release Delayed Annual Results on May 31
INSECT TECHNOLOGY: Goes Into Administration
RANGERS FC: Nicola Sturgeon Refuse to Help Insolvent Club
X X X X X X X X
[*] BOOK REVIEW: Mentor X
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F I N L A N D
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CITYCON OYJ: S&P Rates New Unsecured Subordinated Bond 'BB'
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S&P Global Ratings assigned its 'BB' issue rating to the proposed
unsecured subordinated hybrid notes to be issued by Finland-Based
real estate company Citycon Oyj. The issue rating on the proposed
notes is two notches below the 'BBB-' long-term issuer credit
rating on Citycon, reflecting its view of the notes' subordination
and optional interest deferability.
The completion and size of the transaction are subject to market
conditions, but S&P anticipates the latter at about EUR300 million.
Citycon plans to use most of the proceeds to repay commercial paper
and other short-term debt. The company will use a smaller portion
of the proceeds to fund its development projects in the next few
months, particularly the new Lippulaiva shopping center in the
Helsinki Metropolitan Area that will open in first-half 2022.
S&P said, "We classify the proposed notes as having intermediate
equity content until their first call dates, which will be at least
five years from the date of issuance, because they meet our
criteria in terms of their subordination, permanence, and optional
deferability during this period. Consequently, in our calculation
of Citycon's credit ratios, we will treat 50% of the principal
outstanding under the hybrid notes as debt rather than equity. We
will also treat 50% of the related payments on these notes as
equivalent to interest expenses. Both treatments are in line with
our hybrid capital criteria."
That said, pro forma the transaction, Citycon's hybrid
capitalization rate may exceed our 15% threshold. S&P will treat
any amount exceeding our threshold as debt and the related
dividends as interest in Citycon's S&P Global Ratings-adjusted
credit metrics.
S&P said, "If a company's asset or liability management or future
issuances ever take its hybrid capitalization rate well above our
15% threshold, we would likely consider the company's financial
policy as aggressive and its capital structure as too dependent on
hybrid instruments. In these circumstances, we may reconsider the
equity content of all a company's outstanding hybrid instruments.
"However, we understand that Citycon is committed to limiting the
hybrid component of its capitalization to 15% or less at year-end
2021. It also intends to keep hybrid instruments as a permanent
part of the capital structure and to retain sufficient equity
buffers to safeguard its credit profile.
"We believe that the transaction will improve Citycon's leverage by
2%-3%. Our base-case projection for full-year 2021 remains debt to
debt plus equity of 50%-55%, compared with 52.9% as of the first
quarter."
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G E R M A N Y
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DEUTSCHE LUFTHANSA: S&P Lowers Rating on 2075 Sub. Notes to 'CC'
----------------------------------------------------------------
S&P Global Ratings lowered its issue rating on Deutsche Lufthansa
AG's junior subordinated notes maturing in 2075 to 'CC' from
'CCC+'.
S&P's other ratings on Lufthansa, including its 'BB-/B' long- and
short-term issuer credit ratings and 'BB-' issue rating on the
company's senior unsecured debt, are unchanged.
The downgrade on the hybrid follows Lufthansa's announcement on May
19 that it will suspend coupon payments on the instrument until the
drawn silent participations are repaid and the shares held by the
government over the Economic Stabilisation Fund are sold. S&P
understands that Lufthansa's decision to suspend the coupon
payments is based on the EU Commission's view that these payments
constituted a violation of the state aid regulations of the EU
Temporary Framework, under which the EUR9 billion state aid package
was provided to Lufthansa last year, and not an unwillingness or
inability to pay. The potential nonpayment on the hybrid does not
affect our other ratings on the company.
S&P said, "We therefore view the next hybrid instrument's coupon
payment, which is due in February 2022, as highly susceptible to
deferral, which would lead to a 'D' rating on the hybrid under our
criteria unless we expect repayment to occur on or before the first
anniversary of the deferral date.
"We treat the hybrid bond as having 50% equity content. This is
supported by the residual time until the effective maturity
exceeding 15 years. We view February 2041 as the hybrid bond's
effective maturity, when its coupon steps up by a cumulative 100
basis points, and represents an incentive to call."
GERMAN PROPERTY: Irish Pensions Authority Probes Pension Scheme
---------------------------------------------------------------
Joe Brennan at The Irish Times reports that the Irish Pensions
Authority has confirmed that it is investigating potential "pension
scheme trustee issues" in relation to the collapse of Hanover-based
German Property Group (GPG), which resulted in 1,800 Irish
investors losing as much as EUR107 million.
GPG, formerly known as Dolphin Trust, collapsed last year after
taking EUR1.5 billion from investors in the Republic, the UK, Asia
and elsewhere since it was set up by businessman Charles Smethurst
in 2008, The Irish Times recounts. Mr. Smethurst's home was raided
by German police in March as part of an ongoing investigation into
suspected investment fraud, The Irish Times discloses.
Irish investments were administered by Wealth Options Trustees Ltd
(WOTL), based in Naas, Co Kildare. The investments were originally
distributed in the Republic by a Cork-based company, Dolphin IG,
through scores of brokers, who dealt with individual investors.
WOTL took over distribution in addition to administration in
mid-2018.
The Irish investments were channelled to the German group through
two special purpose vehicles (SPVs), MUT 103 and Dolphin MUT 116,
registered to the same address and each sharing the same directors
as WOTL: Eanna McCloskey and Brian Flynn, The Irish Times states.
MUT 103, an investment vehicle for EUR41.3 million of retail
savings, was put into liquidation in March, and Dolphin MUT 116,
responsible for EUR65.8 million of pension savings, entered
liquidation at the end of last month, The Irish Times relates.
The Pensions Authority only has authority to investigate WOTL, a
Revenue-approved pensioner trustee, in relation to Dolphin MUT 116,
the pensions vehicle, The Irish Times notes.
When GPG collapsed last year it was sitting on 70 properties,
mainly run-down and not developed, according to a report submitted
to the Bremen bankruptcy court by a preliminary insolvency
administrator, Gerrit Hoelzle, last October, The Irish Times
discloses.
When it first emerged in July 2019 that Dolphin Trust had missed
interest payments in the UK, WOTL issued a letter to brokers
highlighting how Irish investors were protected, saying it only
passed on money to Germany "when we have security in place for a
value in excess of the funds loaned", according to The Irish
Times.
When Dolphin Trust told WOTL in late 2019 it would miss interest
payments due to Irish investors, the Naas-based firm hired a number
of advisers, including law firm Dentons, to try to protect the
interests of investors in the Republic, The Irish Times states.
Dentons' advice provided to the High Court in March said the GPG
insolvency administrator believes that all of the loan claims of
the Irish MUTs -- which owe Irish investors EUR107 million --
against the German group's companies are "subordinated and
therefore the granted securities could be challenged", The Irish
Times notes.
The liquidation of GPG is expected to take years, The Irish Times
discloses.
WEPA HYGIENEPRODUKTE: S&P Alters Outlook on 'BB-' ICR to Negative
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S&P Global Ratings revised the outlook on Germany-based tissue
manufacturer WEPA Hygieneprodukte GmbH to negative from stable and
affirmed its 'BB-' ratings on the group and its EUR200 million
floating rate notes due 2026 and EUR400 million fixed rate notes
due 2027.
The negative outlook reflects the increased volatility in Wepa's
credit metrics due to the significant rise in raw material prices
in the first half of 2021, alongside expected delays to pass-on
higher prices to customers and ongoing challenges from COVID-19 in
the professional business.
The recent spike of raw material prices will weigh on Wepa's
operating performance over 2021-2022.Specifically, surging prices
for pulp, recycled paper and energy are likely to constrain Wepa's
profitability, and we expect the group's EBITDA margin, as adjusted
by S&P Global Ratings, to contract to 10.0%-10.5% over 2021-2022
from 13% in 2020. The solid global pulp demand in 2021,
particularly from sound post-COVID-19 recovery in China, pushed
Bleached Hardwood Kraft Pulp (BHKP) and Northern Bleached Softwood
Kraft (NBSK) prices up by roughly 50% and 35%, respectively, at
end-April 2021 compared with December 2020. S&P expects the
mismatch in pulp demand and supply to continue in the short term,
since additional pulp supply will only come at end-2021 and in the
second half of 2022. According to data provided by RISI market
research, average pulp prices in 2021 are expected to be 40%-45%
higher than 2020 and only marginally reduce the following year. S&P
said, "Furthermore, we assume tissue manufacturers, including
global players Essity (BBB+/Stable) and Kimberly Clark (A/Stable),
will leverage their solid branded portfolio to increase sales
prices. We understand Wepa is managing the increased volatility
through the existing inventory availability (including raw material
and semi-finished products) and hedging position covering
two-thirds of the annual internal pulp requirements." Therefore,
Wepa's reported EBITDA margin in first-quarter 2021 remained
relatively sound at about 11.6% slightly below the level reported
in fourth-quarter 2020 of about 11.9%. That said, pressure on
profitability is likely to intensify over the coming two quarters.
Recovery of the professional business could accelerate the rebound
of Wepa's performance. S&P projects that the group will implement a
two-step sales price increase from the second half of 2021. This
should help stabilize margins given the reducing hedging position.
At the same time, the strategic choice to delay price adjustment
will mitigate the strong competition in the consumer tissue
industry. This is because of the extraordinary tissue volumes
entering the retail segment given the ongoing challenges in the
professional business. In fact, some key professional channels
(including offices, restaurants, and hotels) are still subject to
COVID-19 restrictions, reducing the possibility for tissue
manufacturers to serve this segment. S&P estimates that, from the
second half of 2021, Wepa's performance should benefit from the
gradual reopening of this sector. More importantly, the recovery
will translate into a more balanced supply demand industry
environment in the WEPA's core European markets, including Germany
(39% of volumes).
Wepa has limited flexibility under its higher expansionary
investment plan to mitigate the increased market volatility this
year. The group is investing in the construction of a more
efficient and sustainable tissue paper machine, converting line,
and rewinder in Poland to support the expansion in the Wepa
Professional unit. At the same time, WEPA's other main investments
are in the new paper machine in the U.K.--a particularly relevant
project considering it will reduce reliance on imports from
third-party paper suppliers in light of Brexit implications. S&P
acknowledges that the U.K. investment will start generating
cost-savings from 2022 with a positive impact on EBITDA of EUR10
million-EUR15 million thanks to lower external purchases and
logistic expenses. In addition, the company is investing in six new
converting lines in its core markets Netherlands, Germany, and
France. The planned investments will help Wepa improve its
environmental footprint.
Climbing capital expenditure (capex) will impact FOCF and translate
into 5.5x-6.0x peak in leverage. Wepa's capex plan is estimated to
peak at about EUR160 million in 2021 before sliding to EUR90
million-EUR100 million in 2022 and normalize near EUR60 million
from 2023, representing 4.0%-4.5% of total sales. This leads us to
estimate that Wepa's reported FOCF will be barely neutral in 2021
and at around EUR10 million in 2022. Our assumption for 2021
incorporates a material contribution from working capital inflows,
thanks to lower inventory following the increase at the end of 2020
in anticipation of the raw material price hikes. In addition, S&P
also considers a significant decrease of trade receivables given
higher utilization of the company's asset-backed security (ABS)
program, which will be partly used to finance the planned
investments. S&P said, "At the end of 2021 we assume EUR125
million-EUR130 million ABS will be outstanding (EUR60 million in
2020), which is higher than our previous base case. As a result,
S&P Global Ratings-adjusted debt to EBITDA is expected to
materially increase from 4.1x in 2020 to 5.5x-6.0x in 2021 before
approaching 5.0x by end-2022. The expected deleveraging next year
is mainly driven by solid top line recovery, stabilization of
EBITDA margin and material reduction of investments. Our adjusted
debt calculation for 2021 includes EUR600 million fixed and
floating rate notes, EUR125 million-EUR130 million ABS, about EUR25
million operating lease liability, and roughly EUR15 million cash
available on the balance sheet."
COVID-19 fallout caused increased volatility in WEPA's performance.
Wepa's reported sales in 2020 increased 0.8%, supported by a 4.7%
uptick in revenue in the consumer tissue division from the year
before. This is because consumers and customers stockpiled products
after governments imposed COVID-19-related lockdowns measures at
the end of the first quarter and in the last quarter of 2020. The
solid increase in the consumer division (about 76% of sales in
2020) enabled Wepa to compensate the decline in both the
professional segment (14% of sales) and B2B division (sale of
semifinished products) accounting for remaining 10% of total
group's sales. In particular, revenue in the professional business
declined 10.7% because of limited sales into key end-markets such
as hotels, restaurants, and offices. Despite the narrow top-line
growth in 2020, Wepa markedly improved its profitability metrics.
S&P acknowledge the 13% adjusted EBITDA Margin posted in 2020 is
not sustainable in the short to medium term, since it was mainly
linked to temporary favorable conditions, such as the stability of
pulp prices at lower levels than in 2019 and high selling prices
due to delays to renegotiate and adapt prices with retailers. Even
the differences from quarter to quarter were pronounced. In
first-quarter 2021, Wepa reported a sales contraction of about 24%
due to ongoing restrictions in the professional business as well as
lower demand in the retail channel following exceptional customer
stockpiling in 2020. While S&P expects the retail channel will
normalize following retailers destocking activities, it believes
that the performance in the professional business will remain
subdued, with sales dropping 10% in 2021 with partial sequential
recovery from the second half of the year.
Consumers' behavioral changes during the pandemic have supported
growth in home cleaning and personal hygiene goods. S&P said, "We
expect these habits will stick over the coming quarters, leading to
profitable growth in home cleaning and personal hygiene goods,
including tissue products. We believe affordability will remain
important for some consumers, as value for money could take
priority over premium positioning." This could favor private label
manufacturers such as Wepa, hinging on the group's ability to
provide timely customer service, both in the retail and
professional segments. The group's capacity to expand product
offering with sustainable products thanks to eco-friendly fiber
sourcing, plastic-free packaging, and hybrid products, will also be
key.
S&P thinks a more diversified product proposition will help WEPA
reducing its reliance on pulp price volatility. WEPA's investments
in recycled paper and hybrid product categories ensure long-term
sustainability and reduce reliance on price volatile virgin fibers.
At end-2020, these categories accounted for about 50% of total
revenues (46% in 2019) while pulp-based products accounted for the
remaining 50%. In 2020, WEPA extended its Satino brand portfolio in
the professional division with the addition of disinfectant
dispensers and pushing some environment-friendly products such as
cardboard dispensers. They will replace plastic-dispensers as well
as air dryers given concerns on whether they spread the COVID-19
virus.
S&P said, "We believe WEPA has no rating headroom to finance
sizable debt-funded transactions.In October 2020 WEPA completed a
share-based acquisition of Victor Guthoff & Partner GmbH (now Wepa
Category Solutions). This new division is involved in the
manufacturing and trading of private label products in categories
such as paper plates and cups, table cloths, wet wipes, and
biodegradable trash bags among others. In our view, this
transaction, alongside potential new deals could, accelerate Wepa's
strategy to amplify its product diversity and reduce leverage
volatility caused by raw material price increases. However, there
is very limited headroom under Wepa's current credit metrics to
pursue debt-funded acquisitions or to complete deals requiring
material restructuring costs. That said, we understand the group's
financial policy is unchanged, and its target net leverage remains
at 2.5x-3.5x (according to company adjustment), equivalent S&P
Global Ratings-adjusted debt to EBITDA of 4.0x-5.0x, which is in
line with the 'BB-' rating."
The negative outlook reflects the anticipated challenges to Wepa's
performance from increased volatility in the European tissue
market. This is due to the surge of raw material prices and ongoing
COVID-19-related difficulties in the professional business segment.
Moreover, Wepa has limited flexibility under its expansionary capex
program, resulting in limited FOCF over 2021-2022. Consequently,
S&P expects Wepa's leverage to temporarily increase toward
5.5x-6.0x range in 2021 before approaching 5.0x by 2022.
S&P said, "We could lower the rating in the next 18 months if we
believe that Wepa's debt to EBITDA will remain permanently in the
5.0x-6.0x range, as adjusted by S&P Global Ratings, with no
evidence of improvement to below 5.0x. This could happen if EBITDA
remains depressed due to intensified competitive pressure in the
consumer business segment or Wepa is unable to recover volumes in
the professional channel. We would also consider a downgrade if the
group pursued large-debt acquisitions.
"We could revise the outlook to stable if Wepa's credit metrics
improved such that S&P Global Ratings-adjusted debt to EBITDA
remained consistently below 5x. A positive rating action would also
depend on the group's ability to sustain solid positive FOCF thanks
to normalization of investments."
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ARBOUR CLO IX: S&P Assigns Prelim. B- Rating on Class F Notes
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S&P Global Ratings assigned its preliminary credit ratings to
Arbour CLO IX DAC's class X, A, B-1, B-2, C, D, E, and F notes. At
closing, the issuer will also issue unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The portfolio's reinvestment period will end approximately four and
a half years after closing, and the portfolio's weighted-average
life test will be approximately 8.5 years after closing.
The preliminary ratings assigned to the notes reflect our
assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization (OC).
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,761.11
Default rate dispersion 508.83
Weighted-average life (years) 5.24
Obligor diversity measure 162.61
Industry diversity measure 20.62
Regional diversity measure 1.23
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 400.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 195
Portfolio weighted-average rating
derived from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 2.50
'AAA' target weighted-average recovery (%) 35.69
Covenanted weighted-average spread (%) 3.60
Reference weighted-average coupon (%) 4.50
Workout obligation mechanics
Under the transaction documents, the issuer can purchase workout
obligations, which are assets of an existing collateral obligation
held by the issuer offered in connection with the obligation's
bankruptcy, workout, or restructuring, to improve its recovery
value.
The purchase of workout obligations is not subject to the
reinvestment criteria or the eligibility criteria. It receives no
credit in the principal balance definition, although where the
workout obligation meets the eligibility criteria with certain
exclusions, it is accorded defaulted treatment in the par coverage
tests. The cumulative exposure to workout obligations is limited to
10% of target par.
The issuer may purchase workout obligations using either interest
proceeds, principal proceeds, amounts in the collateral enhancement
account or the supplemental reserve account, or contributions. The
use of interest proceeds to purchase workout obligations is subject
to (i)the class D interest coverage test passing following the
purchase; and (ii) the manager determining there are sufficient
interest proceeds to pay interest on all the rated notes on the
upcoming payment date. The use of principal proceeds is subject to
the following conditions:
-- Each workout obligation is a debt obligation;
-- Each workout obligation ranks pari passu with or senior to the
relevant collateral debt obligation issued by the obligor that is
the subject of the restructuring insolvency, bankruptcy,
reorganization, or workout in connection with which the applicable
workout obligation is to be acquired;
-- Each of the par value tests and the reinvestment
overcollateralization test must be satisfied immediately after the
acquisition of each obligation;
-- Each obligation has a maturity date that does not exceed the
rated notes' maturity date;
-- Each obligation's par value is greater than or equal to the
applicable obligation's purchase price; and
-- The aggregate collateral balance is greater that the unadjusted
reinvestment target par amount following the purchase.
To protect the transaction from par erosion, any distributions
received from workout obligations that are either purchased with
the use of principal, with interest, or amounts in the supplemental
reserve account, collateral enhancement account, or contribution
but which have been afforded credit in the coverage test, will
irrevocably form part of the issuer's principal account proceeds
and cannot be recharacterized as interest.
Reverse collateral allocation mechanism
If a defaulted euro-denominated obligation becomes the subject of a
mandatory exchange for U.S.-denominated obligation following a
collateral allocation mechanism (CAM) trigger event, the portfolio
manager may sell the CAM obligation and invest the sale proceeds in
the same obligor (a CAM euro obligation), provided the obligation:
-- Is denominated in euros;
-- Ranks as the same or more senior level of priority as the CAM
obligation; and
-- Is issued under the same facility as the CAM obligation by the
obligor.
To ensure that the CLO's original or adjusted collateral par amount
is not adversely affected following a CAM exchange, a CAM
obligation may only be acquired if, following the reinvestment, the
numerator of the CLO's par value test, referred to as the adjusted
collateral principal amount, is either:
-- Greater than the reinvestment target par balance;
-- Maintained or improved when compared to the same balance
immediately after the collateral obligation became a defaulted
obligation; or
-- Maintained or improved compared to the same balance immediately
after the mandatory exchange that resulted in the issuer holding
the CAM exchange. Solely for the purpose of this condition, the CAM
obligation's principal balance is carried at the lowest of its
market value and recovery rate, adjusted for foreign currency risk
and foreign exchange rates.
Finally, a CAM euro exchanged obligation that is also a
restructured obligation may not be purchased with sale proceeds
from a CAM exchanged obligation.
The portfolio manager may only sell a CAM obligation and reinvest
the sale proceeds in a CAM euro obligation if, in the portfolio
manager's view, the sale and subsequent reinvestment is expected to
result in a higher level of ultimate recovery when compared to the
expected ultimate recovery from the CAM obligation.
Rating rationale
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
primarily comprise broadly syndicated speculative-grade senior
secured term loans and senior secured bonds. Therefore, we
conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million par amount,
the covenanted weighted-average spread of 3.60%, the reference
weighted-average coupon of 4.50%, and the target portfolio
weighted-average recovery rates for all rated notes. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"Our cash flow analysis also considers scenarios where the
underlying pool comprises 100% of floating-rate assets (i.e., the
fixed-rate bucket is 0%) and where the fixed-rate bucket is fully
utilized (in this case, 15%). In latter scenarios, the class F
cushion is negative. Based on the portfolio's actual
characteristics and additional overlaying factors, including our
long-term corporate default rates and the class F notes' credit
enhancement (6.50%), we believe this class is able to sustain a
steady-state scenario, where the current market level of stress and
collateral performance remains steady. Consequently, we have
assigned our 'B- (sf)' rating to the class F notes, in line with
our criteria.
"We expect that the transaction's documented counterparty
replacement and remedy mechanisms will adequately mitigate its
exposure to counterparty risk under our current counterparty
criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"At closing, we consider that the transaction's legal structure
will be bankruptcy remote, in line with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-1 to E notes could withstand
stresses commensurate with higher rating levels than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on the notes.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
the class X, A, B-1, B-2, C, D, E, and F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class X to E notes
to five of the 10 hypothetical scenarios we looked at in our recent
publication. The results shown in the chart below are based on the
covenanted weighted-average spread, coupon, and recoveries.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
weapons, pornography or adult entertainment, coal, oil sands, food
commodity derivatives, tobacco, palm oil, and making or collection
of pay day loans or any unlicensed and unregistered financing.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, no specific adjustments have been
made in our rating analysis to account for any ESG-related risks or
opportunities.
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Ratings List
CLASS PRELIM RELIMINARY SUB (%) INTEREST RATE*
RATING AMOUNT
(MIL. EUR)
X AAA (sf) 1.50 N/A Three/six-month EURIBOR
plus 0.28%
A AAA (sf) 246.00 38.00 Three/six-month EURIBOR
plus 0.80%
B-1 AA (sf) 22.00 29.49 Three/six-month EURIBOR
plus 1.60%
B-2 AA (sf) 20.00 29.49 2.00%
C A (sf) 28.00 22.74 Three/six-month EURIBOR
plus 2.30%
D BBB (sf) 25.00 15.74 Three/six-month EURIBOR
plus 3.25%
E BB- (sf) 21.00 10.00 Three/six-month EURIBOR
plus 5.79%
F B- (sf) 12.00 7.49 Three/six-month EURIBOR
plus 8.29%
M NR 0.25 N/A N/A
Sub NR 30.20 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
BERG FINANCE 2021: S&P Assigns BB- Rating on Class E Notes
----------------------------------------------------------
S&P Global Ratings assigned credit ratings to Berg Finance 2021
DAC's class A to E notes. At closing, Berg Finance 2021 also issued
unrated class X1 and X2 certificates (the class X certificates).
The transaction is a securitization of two loans originated between
March 2021 and April 2021 by Goldman Sachs Bank Europe SE to
facilitate the refinancing of commercial real estate. The Big
Mountain loan has a balance of EUR148.3 million. The loan is
secured by 25 predominantly office properties in France and the
Netherlands. The balance on the Sirocco loan is EUR150.8 million.
It is secured by four office buildings located in Austria, the
Netherlands, Finland, and Germany.
As part of EU, U.K., and U.S. risk retention requirements, the
issuer and the issuer lender (Goldman Sachs), entered into a
EUR15.5 million (representing 5% of the aggregate principal amount
of the notes and the issuer loan) issuer loan agreement. The issuer
lender advanced the issuer loan to the issuer on the closing date.
The issuer applied the issuer loan proceeds as partial
consideration for the purchase of the Big Mountain and Sirocco
loans.
Berg Finance 2021 also issued an additional EUR11.2 million of
class A notes, the proceeds of which, together with a portion
(EUR590,000) of the issuer loan, is held in cash in the transaction
account. These funds serve as a liquidity reserve in lieu of a
traditional liquidity facility. The total note issuance is
therefore larger than the outstanding loan balance.
S&P's ratings on the notes reflect its assessment of the underlying
loans' credit, cash flow, and legal characteristics, and an
analysis of the transaction's counterparty and operational risks.
Ratings
CLASS RATING* AMOUNT (MIL. EUR)
A AAA (sf) 160.0§
B AA- (sf) 43.4
C A- (sf) 29.4
D BBB- (sf) 36.5
E BB- (sf) 26.0
X1 NR N/A
X2 NR N/A
*Our ratings address timely payment of interest and payment of
principal not later than the legal final maturity.
§Includes EUR11.2 million to fund the issuer liquidity reserve.
NR--Not rated.
N/A--Not applicable.
HARVEST CLO XI: S&P Affirms B- Rating on Class F-R Notes
--------------------------------------------------------
S&P Global Ratings assigned its preliminary credit rating to
Harvest CLO XI DAC's class A-R-R notes. At the same time, we
affirmed our ratings on the class B-1-R, B-2-R, B-3-R, C-R, D-R,
E-R, and F-R notes.
On May 25, 2021, the issuer refinanced the original class A-R notes
by issuing replacement notes of the same notional.
The replacement notes are largely subject to the same terms and
conditions as the original notes, except for the following:
-- The replacement class A-R-R notes have a lower spread over the
Euro Interbank Offered Rate (EURIBOR) than the original notes.
-- The portfolio's maximum weighted-average life has been extended
by 15 months.
-- The new non-call period will end on Feb. 25, 2022.
The rating assigned to Harvest CLO XI's refinanced notes reflects
our assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes permanently switch to semiannual payment.
The portfolio's reinvestment period will end in June 2021.
S&P said, "In our cash flow analysis, we used a EUR389.8 million
adjusted collateral principal amount, a weighted-average spread of
3.6%, a weighted-average coupon of 4.35%.
"We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category."
Elavon Financial Services DAC is the bank account provider and
custodian. The transaction's documented counterparty replacement
and remedy mechanisms adequately mitigate its exposure to
counterparty risk under our current counterparty criteria.
S&P said, "Following the application of our structured finance
sovereign risk criteria, we consider the transaction's exposure to
country risk to be limited at the assigned preliminary ratings, as
the exposure to individual sovereigns does not exceed the
diversification thresholds outlined in our criteria.
"We consider that the transaction's legal structure to be
bankruptcy remote at closing, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our rating is
commensurate with the available credit enhancement for the class
A-R-R notes. We have therefore assigned our 'AAA (sf)' rating to
these refinanced notes. At the same time, we have affirmed our
ratings on the class B-1-R, B-2-R, B-3-R, C-R, D-R, E-R, and F-R
notes. Our credit and cash flow analysis indicates that the
available credit enhancement for the class B-1-R to E-R notes could
withstand stresses commensurate with higher ratings than those we
have assigned. However, as the CLO is in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on the notes."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets for which the obligor's primary business activity
is related to the following industries: oil and gas, controversial
weapons, ozone depleting substances, endangered or protected
wildlife, pornography or prostitution, tobacco or tobacco products,
and payday lending. Accordingly, since the exclusion of assets from
these industries does not result in material differences between
the transaction and our ESG benchmark for the sector, no specific
adjustments have been made in our rating analysis to account for
any ESG-related risks or opportunities."
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Harvest CLO XI is a broadly syndicated CLO managed by Investcorp
Credit Management EU Ltd.
Ratings List
RATINGS ASSIGNED
CLASS RATING AMOUNT REPLACEMENT ORIGINAL SUB(%)
(MIL. EUR) NOTES NOTES
INTEREST RATE* INTEREST RATE
A-R-R AAA (sf) 242.42 3-month EURIBOR 3-month EURIBOR 37.40
plus 0.65% plus 0.92%
RATINGS RATING AMOUNT NOTES INTEREST RATE
AFFIRMED (MIL. EUR)
B-1-R AA (sf) 19.16 Three-month EURIBOR plus 1.5%
B-2-R AA (sf) 10.00 2.15%
B-3-R AA (sf) 20.00 Three-month EURIBOR plus 1.50%
C-R A (sf) 22.58 Three-month EURIBOR plus 2.10%
D-R BBB (sf) 20.64 Three-month EURIBOR plus 3.20%
E-R BB (sf) 22.12 Three-month EURIBOR plus 5.10%
F-R B- (sf) 11.33 Three-month EURIBOR plus 6.55%
Sub NR 45.60 Excess
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
MADISON PARK XVI: S&P Assigns B- Rating on Class F Notes
--------------------------------------------------------
S&P Global Ratings assigned credit ratings to Madison Park Euro
Funding XVI DAC's class X, A, B-1, B-2, C-1, C-2, D, E, and F notes
and class A loan. At closing, the issuer also issued EUR43.10
million of unrated subordinated notes.
S&P said, "We consider that the target portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans. Therefore, we have
conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow CDOs."
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,736.35
Weighted-average life (years) 4.99
Obligor diversity measure 138.43
Industry diversity measure 21.99
Regional diversity measure 1.21
Weighted-average rating B
'CCC' category rated assets (%) 0.71
'AAA' weighted-average recovery rate 36.14
Weighted-average spread (net of floors; %) 3.51
S&P said, "Under our structured finance sovereign risk criteria, we
consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned ratings.
"In our cash flow analysis, we modelled the EUR540 million target
par amount, the reference weighted-average spread of 3.40%, the
reference weighted-average coupon of 4.50%, and the
weighted-average recovery rates calculated using our criteria on
the expected effective date portfolio, as indicated by the
collateral manager. We applied various cash flow stress scenarios,
using four different default patterns, in conjunction with
different interest rate stress scenarios for each liability rating
category."
The portfolio manager may, at any time, and without regard to the
eligibility criteria, acquire workout obligations to enhance and
protect the recovery value of a defaulted obligation from the same
obligor. All funds required for the purchase of such obligations,
may be paid out of the supplemental reserve account, the interest
account, or the principal account.
Regarding the principal account, the portfolio manager may only use
it if each of the class A/B, C, and D par value tests are
satisfied, or if the total collateral balance remains above the
reinvestment target par balance immediately after the purchase. All
distributions associated with such purchases will be deposited in
the principal account.
Workout obligations will not be taken into account for determining
satisfaction of any of the coverage tests, portfolio profile tests,
or collateral quality tests. Only workout obligations purchased
with principal proceeds will be given the following credit:
-- For the adjusted collateral principal amount, workout
obligations that satisfy all of the eligibility criteria will be
deemed to be collateral debt obligations; and
-- For the par value tests, workout obligations that satisfy
certain of the eligibility criteria will be deemed to be defaulted
obligations only if each par value test is passing without giving
any credit to any such workout obligation.
Elavon Financial Services DAC is the bank account provider and
custodian. S&P considers its documented replacement provisions to
be in line with its counterparty criteria for liabilities rated up
to 'AAA'.
S&P considers the issuer to be bankruptcy remote, in accordance
with our legal criteria.
The CLO is managed by Credit Suisse Asset Management Limited. Under
S&P's "Global Framework For Assessing Operational Risk In
Structured Finance Transactions," published on Oct. 9, 2014, the
maximum potential rating on the liabilities is 'AAA'.
S&P said, "Our credit and cash flow analysis shows that the class
B-1, B-2, C-1, C-2, D, and E notes benefit from break-even default
rate (BDR) and scenario default rate cushions that we would
typically consider to be in line with higher ratings than those
assigned. However, as the CLO will have a reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our ratings on the notes.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for each class
of notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A loan and A
to E notes to five of the 10 hypothetical scenarios we looked at in
our publication "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020. The results
shown in the chart below are based on the actual weighted-average
spread, coupon, and recoveries.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to activities that are
identified as not compliant with international treaties on
controversial weapons or to activities which evidence severe
weaknesses in business conduct and governance in relation to the
United Nations Global Compact Principles. Moreover, assets that
relate to tobacco, pornography and/or prostitution, gambling, and
thermal coal are excluded. Since the exclusion of assets related to
these activities does not result in material differences between
the transaction and our ESG benchmark for the sector, no specific
adjustments have been made in our rating analysis to account for
any ESG-related risks or opportunities."
Ratings List
Class Rating Amount Interest rate* Credit
(mil. EUR) enhancement
X AAA (sf) 2.70 3M EURIBOR + 0.30% N/A
A-notes AAA (sf) 164.40 3M EURIBOR + 0.79% 39.00%
A-loan AAA (sf) 165.00 3M EURIBOR + 0.79% 39.00%
B-1 AA (sf) 43.865 3M EURIBOR + 1.60% 28.50%
B-2 AA (sf) 12.835 1.825% 28.50%
C-1 A (sf) 26.45 3M EURIBOR + 2.15% 21.75%
C-2 A (sf) 10.00 2.25% 21.75%
D BBB (sf) 36.45 3M EURIBOR + 3.20% 15.00%
E BB- (sf) 28.35 3M EURIBOR + 6.02% 9.75%
F B- (sf) 14.85 3M EURIBOR + 8.39% 7.00%
Sub notes NR 43.10 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
3M--Three month.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
=====================
N E T H E R L A N D S
=====================
BME GROUP: S&P Affirms 'B' ICR on Partly Debt-Funded Acquisitions
-----------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit rating
on distributor BME Group Holding BV (BME) and assigned its 'B'
issue and '3' recovery ratings to the proposed EUR200 million term
loan B (TLB) add-on, in line with the existing EUR1.220 billion
TLB, EUR230 million term loan A, and EUR195 million revolving
credit facility (RCF).
The negative outlook reflects the risk that leverage could remain
above our 6.5x downside trigger beyond 2021.
BME's performance started strong this year, with reported revenue
and normalized EBITDA that increased organically 2% year over year
(5% including the Detering acquisition) and 50% year over year (60%
including the Detering acquisition) in first-quarter 2021,
respectively, in line with the sector. This stemmed from resilient
renovation demand in its core markets, particularly in the
Netherlands, Belgium, Austria, and Switzerland, as well as tangible
progress in BME's commercial, procurement, and other efficiency
initiatives during the quarter. S&P said, "We anticipate the
pick-up in building materials distribution activity will continue
for fiscal 2021, stemming from the current healthy backlogs in
residential renovation and civil infrastructure construction and
notwithstanding the uncertain shape of the European economic
recovery and some persistent business restrictions. However, we
expect the weak performance in the group's do-it-yourself (DIY)
stores and general builders merchants segment in Germany in the
first quarter will only improve gradually, partially offset by
favorable trading conditions in France and for sanitary, heating,
and plumbing products. We note that the group's DIY segment was
negatively affected by COVID-19 restrictions in Germany in
first-quarter 2021 and it is expected to gradually recover when
these are lifted."
The group recently announced two bolt-on acquisitions of Mahler
Group in southern Germany and Grupo BMV in Spain. In addition, the
company is purchasing the remaining stake of Maxmat that is
currently accounted for under the equity method. All three
acquisitions are on top of the still-ongoing acquisition of SGBD NL
announced early this year. S&P said, "We anticipate the
transactions will be completed in second-half 2021. The total
investments are expected to reach EUR350 million, financed from the
proposed EUR200 million TLB add-on and cash on the balance sheet.
We perceive some inherent execution risk surrounding the company's
ability to integrate and achieve synergies on the proposed
acquisitions while needing to further deliver on its operating
targets. Considering the proposed acquisitions, we now forecast
adjusted EBITDA will reach EUR320 million-EUR330 million in fiscal
2022, translating to S&P Global Ratings-adjusted debt to EBITDA of
near 6.5x. As such, we believe there will be no rating headroom for
underperformance that could come from weaker than expected
operating results within the group's current perimeter,
unsuccessful achievement of integration and synergies from the
proposed acquisitions, and a lack of progress on key strategic
initiatives."
The addition of Mahler and Grupo BMV is expected to slightly
improve BME's footprint as it currently does not have any
operations in Southern Germany and Spain. Although Mahler's
business model is relatively similar to the group, the addition of
Grupo BMV is expected to further improve its product offerings in
plasterboard and insulation, which have positive growth prospects.
Maxmat is the second-largest DIY player in Portugal and has
positioned itself as a hard discounter, offering a rich assortment
of private-label products including paints, construction materials,
bathrooms and kitchens, and storage and hardware. Maxmat has an
attractive EBITDA margin of about 12% compared to the group's
current about 6%. At the same time, the addition of SGBD NL will
strengthen the company's market positioning in the Netherlands, in
S&P’s view. Overall, the proposed acquisitions are relatively
material in terms of size, representing about 20% of BME's fiscal
2020 revenue and EBITDA. The company is projecting about EUR14
million in synergies over the next 18 months, primarily from
procurement, centralizing cost savings, and pricing framework.
Given the limited track record of successful integration processes
and achieved synergies, its base case includes only a portion of
the anticipated synergies.
The company completed the disposal of its Swiss real estate assets,
generating about 94.5 million Swiss francs (about EUR81 million).
Of this, about EUR40 million was used for a special dividend
payment to shareholders in first-quarter 2021. The company is
planning to lease back part of these assets and assume an increase
of about EUR30 million in lease liabilities in fiscal 2021. We
believe this would further maximize shareholder returns. At the
same time, the private-equity-sponsor ownership of the group and
the uncertainty as to whether Blackstone will sustainably support
the group's deleveraging trajectory weigh on our assessment. That
said, we expect annual forecast free operating cash flow (FOCF) of
EUR70 million-EUR150 million over the next 12-18 months.
The negative outlook reflects the risks that BME's leverage could
remain above our 6.5x downside trigger beyond 2021 if its operating
margins decline or it plans on further debt-funded transactions. A
deterioration in construction activity or lower renovation demand
due to degrading macroeconomic conditions could also lead to some
pressure.
We could lower the rating if BME's financial policy becomes more
aggressive or its operating performance declines such that adjusted
debt to EBITDA remains above 6.5x beyond 2021. This could stem
from:
-- Further debt-funded shareholder returns or sizable mergers and
acquisitions;
-- Higher-than-expected debt adjustments related to the proposed
acquisitions;
-- Unexpected integration issues, higher restructuring costs, or
an unexpected contraction in European construction activity; or
-- The company not progressing on its operating initiatives,
leading to lower EBITDA.
Weaker-than-anticipated FOCF could also lead to rating pressure.
S&P could revise the outlook to stable in the next 12 months if
BME's track record of operating performance and financial policy
support sustainable leverage below 6.5x. This could stem from:
-- The company delivering further efficiency gains;
-- The successful integration and delivery of targeted synergies
from Mahler Group, Grupo BMV, Maxmat, and SGBD NL; or
-- Repayment of some of BME's sizable debt from FOCF generation.
===========
P O L A N D
===========
SYNTHOS SA: S&P Assigns 'BB' LongTerm ICR, Outlook Stable
---------------------------------------------------------
S&P Global Ratings assigned its 'BB' long-term issuer credit and
issue ratings to Synthos S.A. and its proposed EUR500 million
senior secured notes.
The stable outlook reflects S&P's view that current positive
business trends should facilitate deleveraging in 2021, with
continuously solid free operating cash flow (FOCF) and balanced
investment spending and dividends leading to adjusted debt to
EBITDA below 3x beyond 2021 under normalized market conditions.
Synthos' operating performance was hit hard by COVID-19 in
second-quarter 2020, followed by a faster-than-expected recovery
since the third quarter. The pandemic hurt market demand and led to
lower volumes, but it also indirectly contributed to record low
monomer quotations for butadiene and styrene and squeezed upstream
margins on own production (butadiene-naphtha spread and
styrene-benzene spread) in second-quarter 2020. However, the swift
recovery in second-half 2020 stemmed from recovering volumes,
improving monomer pricing and upstream margins, and a better
product mix with a higher volume contribution from new Invento
(grey expanded polystyrene [EPS]) products used in construction end
markets that have remained resilient during the pandemic. As a
result, revenue declined by 19% to PLN5.1 billion in 2020 and
adjusted EBITDA was down by 14% to PLN656 million, better than our
previous expectation of a 20%-25% EBITDA decline. With the positive
trend in market demand and especially monomer quotation continuing
into 2021, our adjusted EBITDA increased by more than 25% to about
PLN830 million for the 12 months to March 31, 2021.
The debt-financed acquisition will increase adjusted debt,
including additional pensions, by PLN1.8 billon. On May 21, 2021,
Synthos signed an agreement to purchase Trinseo's synthethic rubber
business, based in Schkopau, Germany, for an enterprise value of
about $480 million (PLN1.78 billion, including PLN1.67 billion cash
and PLN110 million pension liabilities). S&P said, "We expect the
transaction, which is subject to customary closing conditions and
regulatory approvals, to close late 2021. On a pro forma basis as
of March 2021, the PLN1.67 billion cash payment for the acquisition
will be financed with a PLN1.45 billion drawdown under its existing
revolving credit facility (RCF), which will be upsized by EUR150
million to EUR500 million and amend to come due in 2028, along with
PLN220 million cash proceeds from the EUR500 million (PLN2.33
billion) proposed bond issuance. We expect Synthos will partly
replace the drawings under the RCF with operating cash flow until
the closing of the acquisition. Synthos will use the majority of
the new bond to refinance the EUR443 million outstanding senior
secured term loans and pay about EUR10 million of transaction fees
and expenses. We note that Synthos has received access to
shareholder support of a potential PLN450 million equity injection,
which will ensure that pro forma net leverage post transaction (as
reported by the company) will remain within the stated target of
less than 2.5x. We view this as credit positive, but we have not
reflected the potential equity injection in our base case because
it is still not decided and is dependent on whether Synthos' could
generate sufficient cash from operations. An equity injection would
result in swift deleveraging following the closing of the
acquisition."
The acquired assets will contribute to nearly 20% of group EBITDA
on a pro forma basis. The asset deal includes the transfer of the
Schkopau-based rubber manufacturing and research and development
facilities, comprising emulsion styrene butadiene rubber (ESBR,
about 36% of target's sales) and functionalized solution styrene
butadiene rubber (SSBR, 64% of sales). S&P expects the purchased
assets will generate PLN1.5 billion-PLN1.8 billion in sales and
PLN220 million-PLN250 million of EBITDA before synergies in 2021.
Management expects this will add synergies of at least PLN60
million from 2022.
S&P said, "Despite the acquisition, we forecast a recovery of
credit metrics in 2021 due to much stronger industry conditions.We
estimate a rise in leverage to 3.8x adjusted debt to EBITDA from
2.6x for the last 12 months ended March 2021, reflecting the
acquisition on a pro forma basis. We expect a swift deleveraging to
2.5x-2.7x adjusted debt to EBITDA on a pro forma basis by year-end
2021 without equity injection, and 2.2x-2.4x with equity injection.
We anticipate that recovering market demand and much higher monomer
prices will result in a material EBITDA increase to PLN1.4
billion-PLN1.5 billion in 2021 including acquired assets (PLN1.2
billion-PLN1.3 billion for Synthos stand-alone). For the auto
sector, which is a key demand driver for butadiene products, we
forecast 7%-9% growth in global light-vehicle sales in 2021 and
2022, after a close to 20% decline last year. However, sales will
remain below 2019 levels in 2022, although we note that the
majority of Synthos' rubber sales is driven by the more resilient
tire replacement market. Moreover, we expect monomer quotations and
spreads for styrene will decline in 2022-2023 due to significant
capacity additions in Asia. This will be partly offset by volume
increases after the acquisition, an improving product mix that will
also benefit from the purchased assets' SSBR margins (which are
higher than Synthos' SSBR margins), and cost savings from
restructuring projects completed in 2020 (including the closure of
one EPS plant in France). As a result, EBITDA will decrease to
PLN1.25 billion-PLN1.35 billion in 2022-2023 in our base case.
"We expect last year's resilient FOCF will carry into 2021. Despite
considerable earnings declines, FOCF remained solid at PLN511
million in 2020, only slightly lower than the PLN545 million in
2019. This stems primarily from the group's efforts to reduce
capital expenditure (capex) to about PLN218 million and a refocus
on working capital management. The latter is supported by lower
inventory levels due to lower raw material prices. In addition,
Synthos benefited from a one-off tax inflow of PLN89 million in
2020. We expect FOCF will remain healthy in 2021 at above PLN300
million, albeit lower than last year. Higher EBITDA will partly
compensate for higher tax payments, capex, transaction costs, and
working capital outflows as volumes and prices pick up.
"That said, large growth capex will cut into FOCF over 2022-2023,
which will also lead to higher leverage. We expect FOCF to weaken
significantly in 2022-2023 due to much higher capex of PLN600
million-PLN800 million in both years for Synthos on a stand-alone
basis, of which more than 85% relates to strategic projects. The
acquisition of rubber assets will also increase maintenance capex
by about PLN100 million. We understand that Synthos plans to invest
in environmentally friendly energy sources, primarily a combined
cycle gas turbine (CCGT) plant, as well as capacity expansion
including a new butadiene unit and extruded polystyrene (XPS)
lines, the latter of which are benefiting from rising demand for
high performance insulation materials in the construction sector.
As a result, debt to EBITDA could increase to just below 3x in
2022-2023, indicating limited rating headroom. However, we take
into consideration the potential PLN450 million equity injection,
which could reduce adjusted debt to EBITDA by about 0.3x in our
calculation. We also note that more than 50% of growth capex,
except for energy projects, is not committed, and the group has a
strong track record of cutting or postponing growth capex if
needed."
Synthos' strong market position as one of Europe's leading rubber
and polystyrene producers supports its business risk profile. The
group also enjoys long-standing relationships with large tire
producers, as well as a degree of diversification due to the
different cycles that rubber and polystyrene are subject to.
Moreover, Synthos benefits from a vertically integrated production
process, a large share of synthetic rubber sales contracted under
formulas on a cost-plus-fee basis, a monthly repricing mechanism
for close to 90% of styrenics sold, and low operating leverage with
a variable cost share of above 80%. All of these factors lead to
higher cost efficiency and stronger EBITDA margins than those of
most of its European peers. Furthermore, we note that Synthos has
been focusing on moving the portfolio toward a higher grade of
commoditized products with higher margins, like neodymium
polybutadiene rubber (NdBR), new EPS grey, XPS, dispersion, and
agro-chemical products. However, Synthos' business is constrained
by its moderate size, highly commoditized product portfolio, large
earnings exposure to highly volatile raw materials prices derived
from crude oil (especially butadiene and styrene), as well as its
exposure to cyclical end markets, such as tire and construction.
The acquisition will increase Synthos' size, strengthen its
competitive position in the global synthetic rubber market, and
provide potential for significant synergies.Post-acquisition,
Synthos' global share in the synthetic rubber market will increase
to about 9% from 5%. The acquired assets will add production
capacities of 200 kilotons (kt) per year for SSBR and 130 kt per
year for ESBR, making Synthos the largest SSBR producer (about 12%
market share from 3% pre-acquisition) and the third largest ESBR
provider globally (about 9% market share from 6% pre-acquisition).
In addition, the target's SSBR business focuses on functionalized
SSBR, which is mainly used for high-performance tires, such as for
electrical vehicles, and low-resistance tires. This business
benefits from above-average market growth and much higher margins
than the traditional, more commoditized ESBR business. There is
potential for significant synergy realization, including cost
synergies from combined procurement, for example; higher margins
due to target's SSBR products of new grades; higher capacity
utilization at acquired facilities, which have suffered from
restructuring measures and the pandemic in recent years; and
additional volumes from cross-selling opportunities. This is
subject to typical implementation risks for such an integration
process post-acquisition.
There is some uncertainty around dividend policy, but this is
mitigated by the company's leverage target and captured in our
financial risk assessment. According to management, future dividend
payments will accommodate the company's net leverage target of
2.0x-2.5x. The readiness of the shareholder to provide a PLN450
million equity injection if required demonstrates that the
shareholder is committed to this leverage target. Dividends are
restricted by a net leverage covenant of 2.75x in the bond offering
memorandum. S&P said, "Hence, despite some uncertainty about
dividend policy, we do not expect adjusted leverage to weaken
beyond 4x due to aggressive shareholder distributions. There is a
track record of negative discretionary cash flow (DCF) due to high
dividends in the past. We saw increased uncertainty surrounding
financial policy after the company was taken private in first-half
2018, followed by a very high dividend payment, which consumed most
rating headroom built through years of good performance. We
recognize that no dividend was paid in 2019 under challenging
market conditions. This helped to balance about a 26% decline in
adjusted EBITDA and a moderate weakening in leverage to 3.0x from
2.7x in 2018. However, the PLN300 million dividend payment in the
first half of 2020, amid very tough industry conditions, increased
uncertainty about the timing of financial policy actions to counter
market uncertainty. Positively, liquidity has remained solid even
after the dividend payment. We assume no dividends in the next few
years before reported leverage recovers to below 2.5x."
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
S&P said, "The stable outlook reflects our view that industry
conditions, especially butadiene and styrene prices, will recover
from lows seen last year, supporting a deleveraging to 2.5x-2.7x
adjusted debt to EBITDA by 2021 on a pro forma basis including full
year contribution of newly acquired assets. We also expect FOCF
will remain solid in 2021.
"We could lower the rating if Synthos' profitability and cash flow
significantly weaken, leading to adjusted debt to EBITDA
deteriorating to above 4x under low cycle conditions, or leverage
above 3x under mid-cycle market conditions. This could result from
a material weakening of industry conditions, for example; a marked
and prolonged drop in butadiene and styrene prices; or a material
decline in rubber demand due to declining demand from the auto
sector. Much higher-than-expected investments or shareholder
distributions would also pressure the rating.
"We do not currently envisage an upgrade given the highly
commoditized nature of Synthos' product portfolio, its large
exposure to styrenics industry cycles, and uncertainty surrounding
its dividend policy. Increased product and asset diversification
and a strong commitment from the shareholder to maintain leverage
sustainably below 2.0x adjusted debt to EBITDA and positive DCF
could lead to an upgrade."
===========
S E R B I A
===========
HIP AZOTARA: Promist Completes Acquisition of Business
------------------------------------------------------
Radomir Ralev at SeeNews reports that Serbian company Promist has
completed the acquisition of insolvent fertilisers maker HIP
Azotara from the Serbian government for RSD650 million (US$6.7
million/EUR5.5 million), local media reported.
"If we strike a strategic partnership with foreign partners, or
reach a strategic agreement with the state on the price of natural
gas, we plan to launch the entire production process, starting with
ammonia synthesis," news agency Tanjug quoted on May 26 the
commercial director of Promist, Danilo Tomasevic, as saying.
Mr. Tomasevic also said the company intends to move the storage of
fertilisers to Azotara from the former glass factory in Pancevo
which Promist bought earlier, SeeNews notes.
Earlier this month, Promist placed the sole bid in a public auction
for HIP Azotara's assets, SeeNews relates.
=========
S P A I N
=========
ACI AIRPORT: Fitch Lowers Rating on USD200MM Secured Notes to 'B+'
------------------------------------------------------------------
Fitch Ratings has downgraded the ratings of ACI Airport SudAmerica,
S.A.'s (ACI) approximately USD 200 million in senior secured notes
between series 2015 and 2020 to 'B+' from 'BB+'. The ratings have
been placed on Rating Watch Negative.
The three-notch downgrade reflects meaningfully worse-than-expected
traffic performance and the expectation of a lengthier traffic
recovery, which has resulted in projected financial performance no
longer commensurate with a 'BB+' rating. It also reflects Fitch's
expectation that the issuer's liquidity will significantly
deteriorate during 2021 under Fitch's current traffic projections,
resulting in liquidity needs in 2022.
The Rating Watch Negative reflects the heightened risk of a payment
default on the rated debt beginning as early as May 2022, where
additional sources of liquidity and/or compensations shall be
needed, including potential capital injections from sponsors,
concession fee renegotiations with the grantor and additional
commercial contracts. The Rating Watch will be resolved once Fitch
receives more information regarding the progress obtaining needed
liquidity to meet debt service payments in 2022. Should the issuer
fail to sufficiently mitigate this risk over the upcoming months,
additional multi-notch downgrades are likely.
RATING RATIONALE
The ratings are driven by Carrasco International Airport's (MVD)
strategic but modest traffic base and its strong O&D share of
passenger traffic, coupled with a fully amortizing and fixed rate
debt. The airport's traffic has been negatively impacted by the
pandemic, particularly due to its high exposure to international
traffic, which has pressured its financial margins and liquidity
position. Despite the rated debt's structural subordination to
Puerta del Sur S.A.'s (PDS or the OpCo) debt, the likelihood of
dividends' lock out is considered low under Fitch's projections in
2022 and due to a waiver granted by OpCo noteholders for 2021
dividends. The series 2020 notes will also benefit from a springing
guarantee from the OpCo after its notes mature in 2022.
Under Fitch's rating case, which assumes a passenger recovery of
25% of 2019 levels in 2021 and 61% of 2019 levels in 2022, the
project is expected to meet debt service obligations in 2021 with
cash-on-hand, but be dependent on additional liquidity sources of
approximately USD 14 million in order to meet obligations in 2022.
This dependence on additional liquidity is expected to continue
into 2024, until the project's cash flows are sufficient to cover
debt service payments starting in 2025. Debt service coverage
ratios (DSCRs) between 2025 and 2031 (excluding 2032 as an outlier
year) gradually strengthen over time and average 1.2x.
Under Fitch's severe sensitivity case, which reflects a slower
traffic recovery, the airport is also expected to be able to meet
2021 debt service with cash-on-hand, but have a larger shortfall of
approximately USD 18 million in 2022 to pay debt service which
similarly continues into 2024. DSCRs between 2025 and 2031 are
slightly weaker than in the rating case but yield a similar average
of 1.18x. The projection of liquidity shortfalls within one year is
consistent with a lower rating, but the current ratings reflect the
airport's status as a strategically important asset of Uruguay and
the expectation that ACI will make progress on mitigating this
liquidity risk over the coming months.
KEY RATING DRIVERS
Main Uruguayan Airport, Modest Catchment Area [Revenue Risk -
Volume: Midrange]:
Located in Uruguay's capital city of Montevideo, MVD is the main
international gateway to Uruguay with approximately 85% of the
country's flights and a catchment area with 3.4 million people. As
a result, its traffic has historically mostly been from
international passengers traveling from Argentina, Chile, Brazil,
and Spain. MVD is almost exclusively an O&D airport with less than
1% of passengers transferring to other destinations. The carrier
concentration is considered moderate, with LATAM Airline Group S.A.
(Latam; rated 'D(cl)') accounting for 33% of passengers.
Inflation and Exchange Adjusted Tariffs [Revenue Risk - Price:
Midrange]:
Revenues are 95% denominated in USD, mostly in the form of
regulated passenger tariffs adjusted by a global index that
considers foreign exchange and inflation rates. Tariffs cannot
decrease under the concession adjustment scheme, and increases must
be approved by the Uruguayan government pursuant to a decree. No
increase in tariffs is assumed over the life of the concession in
Fitch's cases. Commercial revenues derived from the airport's
duty-free, restaurant, among other concessions are not regulated
but are also influenced by traffic patterns.
No Significant Investments Needed [Infrastructure Development &
Renewal: Stronger]:
The airport's current capacity of 4.5 million passengers per year
is well below Fitch's rating case forecast of 2.3 million
passengers by the concession's end. Under the amended concession
agreement, which extended the term of the concession through 2033,
the new taxiway construction (USD10 million) was extended until the
end of the concession. No other significant mandatory investments
are needed in the remaining concession term. Additional investments
related to the SISCA System are fully funded by the new Security
Fee charged from the users since February 2018 and, therefore, are
neutral to the rating.
Subordinated Debt, Limited Reserves [Debt Structure: Midrange]:
ACI's notes are structurally subordinated to the OpCo's debt and
subject to dividend distribution tests of 1.25x for December 2020
and 1.40x for December 2021 until the OpCo notes' maturity in
October 2022. However, this covenant has been waived for
distributions made between October and December 2021.Both of ACI's
notes are fixed-rate and fully amortizing over the life of the
debt. The 2020 notes have a springing guarantee, which requires
Puerta del Sur (the OpCo) guarantee this debt service following the
maturity of the OpCo notes (excluding the bank loan), expected to
occur in 2022. The 2015 notes do not have such springing guarantee.
Majority of ACI's debt will not have a debt service reserve account
(DSRA) until after May 2023, though the 2015 notes currently
benefit from a six-month DSRA from an irrevocable standby letter of
credit.
Financial Summary
Under Fitch's rating case, which assumes a passenger recovery of
25% of 2019 levels in 2021 and 61% of 2019 levels in 2022, the
project is expected to meet debt service obligations in 2021 with
cash-on-hand but be dependent on additional liquidity sources of
approximately USD 14M in order to meet obligations in 2022. This
dependence on additional liquidity is expected to continue into
2024, until the project's cash flows are sufficient to cover debt
service payments starting in 2025. DSCRs between 2025 and 2031
(excluding 2032 as an outlier year) gradually strengthen over time
and average 1.2x.
PEER GROUP
Sociedad Concessionaria Operadora Aeroportuaria Internacional, S.A.
(OPAIN), the concessionaire of El Dorado International Airport in
Bogota (rated BB+/Negative Watch), serves as a peer for ACI in
Fitch's LATAM airport portfolio. Both airports are the main
gateways in their respective countries and are currently
experiencing pressured financial performance which has not been
sufficiently relieved by their respective concession grantors.
OPAIN has a stronger traffic profile than ACI with less dependence
on international traffic, which has allowed for a quicker traffic
recovery. Though both airports show DSCRs below 1x under Fitch's
rating case, OPAIN doesn't present any liquidity shortfalls, which
explains its higher rating.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Failure to secure liquidity which sufficiently mitigates
default risk starting in 2022.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Success securing liquidity which sufficiently offsets near
term payment default risk over the next several months could
lead to removal of the Negative Watch and a return to a Stable
Outlook.
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.
CREDIT UPDATE
In 2020, traffic performance was 27% of 2019 levels, substantially
lower than rating case expectations of 50% and severe downside case
expectations of 40% during Fitch's last surveillance review in May
2020. Like most airports in Fitch's LATAM airport portfolio, the
second quarter of 2020 was the worst performing quarter in terms of
traffic. ACI's traffic levels gradually recovered from this point
onwards, but at a much slower rate than other airports. Fitch
believes this is primarily because ACI's traffic base is almost
entirely international, serving passengers from South America and
Europe, which have been subject to traffic restrictions during the
pandemic.
During the first quarter of 2021, actual traffic performance was
also beneath Fitch's expectations at about 8% of 2019 levels, due
to new COVID-19 outbreaks. Cases surged in January following the
year-end holidays in South America and many South American
countries have continued to see COVID-19 outbreaks, with cases
increasing in March and April. Due to this, trends similar to those
seen in 1Q21 are expected to continue for the upcoming months.
Compared to Fitch's rating case projections, 2020 revenues were
approximately 28% beneath expectations, due to lower traffic
volumes. Operating expenses were also about 22% lower than Fitch's
rating case projections, due to the airport's cost-cutting
measures, the depreciation of the Uruguayan peso (since majority of
airport costs are denominated in Uruguayan pesos), and lower
concession fees which are influenced by passenger levels. Cash flow
available for debt service ultimately underperformed Fitch's rating
case projections by 12%, mostly due to lower revenues which were
not fully compensated by lower operating expenses.
Due to the payment-in-kind (PIK) option, ACI was able to
comfortably pay its debt service in 2020 without drawing on its
cash balances. Total cash available at ACI as of December 2020 was
equivalent to approximately USD 5.1 million, lower than Fitch's
rating case expectations of approximately USD 7 million.
Due to depressed traffic levels during 1Q21, PDS's revenues were
slightly lower than its operating expenses, leading to a negative
EBITDA. Given current traffic expectations, similar financial
performance, or a slightly positive EBITDA, could be expected for
2Q21. Fitch understands that ACI's cash balances as of March 2021
have remained relatively consistent with December 2020 levels.
PDS obtained a waiver from senior lenders in December 2020 to forgo
the dividend distribution test. This waiver will allow PDS to make
dividend distributions to ACI between November 8th and December
31st 2021, so long as it complies with other debt covenants. ACI is
anticipated to make its May 29th debt service payment with
cash-on-hand.
PDS also obtained a loan for USD 10 million during 2Q21, which is
anticipated to be used to pay 2021 OpCo debt service of about USD
9.9 million. This loan includes a two-year grace period for
principal payment, meaning that PDS has the option to only pay
interest until April 2023. This loan does not contain any
distribution covenants and will rank pari passu with the series
2020 notes after the OpCo notes mature in October 2022, activating
the springing guarantee.
FINANCIAL ANALYSIS
At present, Fitch is not differentiating between its base and
rating case assumptions, given the level of uncertainty about
future traffic performance. Due to actual traffic performance,
Fitch decreased its traffic projections in its rating and severe
downside cases. Rating case traffic in 2021 and 2022 has been
assumed to be equal to projections received by management, equal to
about 25% of 2019 levels in 2021 and 61% of 2019 levels in 2022.
Thereafter, rating case traffic levels reach 85% of 2019 levels in
2023, until fully recovering to 2019 levels in 2024. These traffic
levels are much lower than those previously assumed in Fitch's
rating case, at 80% of 2019 levels by 2021, 95% by 2022, and fully
recovering to 2019 levels by 2023.
Fitch has continued to include a severe downside case within its
financial analysis for ACI, though it has not continued to do so
for certain other airports in its portfolio. This is due to the
heightened uncertainty concerning future traffic performance for
ACI due to its international traffic concentration, which increases
its traffic's dependence on the lifting of travel restrictions, as
well as other countries' economic recoveries and vaccination
distribution timelines. The severe sensitivity case represents a
slower recovery than the rating case. Traffic levels under this
case were revised downwards to levels slightly below the new rating
case at: 20% of 2019 levels in 2021, 50% in 2022, 75% in 2023, 90%
in 2024, 95% in 2025, and growing at 2% thereafter.
Opex and capex assumptions were also revised downwards to reflect
the airport's success in cost-cutting in 2020 and certain variable
expenses which vary with traffic, as well as limited mandatory
capex works needed over the near-term. Macroeconomic assumptions
such as inflation and FX were also updated in line with Fitch's
Sovereigns group's forecasts. Cash balances were updated to
consider levels as of the end of 2020.
Previously, Fitch had expected that ACI would need to draw on cash
balances to meet debt service obligations in 2022 under the rating
case, but cash balances were anticipated to be sufficient to make
payments in full. Under the current rating case, ACI will require
approximately USD 14 million in additional resources to make all
debt service payments in 2022, and an additional USD 6 million to
make payments between 2023 and 2024. Cash flows available for debt
service are expected to be sufficient to pay debt service starting
in 2025, but at very narrow levels at first, which gradually
strengthen with time. The average DSCR between 2025 and 2031 is
1.2x.
Under the severe sensitivity case, ACI is also dependent on
additional resources, but to a greater extent. In 2022,
approximately USD 18.6 million in additional liquidity would be
required to make debt service payments, followed by approximately
USD 6 million between 2023 and 2024. The average DSCR between 2025
and 2031 is slightly weaker at 1.18x.
Currently anticipated liquidity needs starting in 12 months are
inconsistent with a rating in the 'B' category. However, the issuer
has been successful in mitigating liquidity gaps in the past,
evidenced by the exchange offer executed in May 2020. Stronger
DSCRs towards the end of the projection period also demonstrate
that there is still value in the airport's concession agreement
though short-term debt serviceability has been compromised by the
pandemic. Fitch expects the issuer to make progress to mitigate
this risk in the following months. However, should the issuer fail
to mitigate payment default risk starting in 2022 in the upcoming
months, additional multi-notch downgrades are likely.
SECURITY
The security package supporting the series 2020 notes is typical
for project financings and includes a pledge of 100% of the shares
of the OpCo and a covenant to issue a guarantee from the entity; a
pledge of 100% of the shares of Cerealsur S.A. (intermediate
HoldCo), direct owner of PDS's shares, and a guarantee from the
entity; all of the issuer's property; and all present and future
payments, proceeds and claims of any kind with respect to the
foregoing.
The series 2020 notes include a springing guarantee covenant, which
requires the OpCo to issue a guarantee of the rated debt following
the payment in full of the OpCo debt in October 2022. The rated
debt will therefore become pari passu with all senior unsecured
debt at the OpCo because of the guarantee. The series 2015 notes
benefit from the same security package as the series 2020 notes but
do not have a springing guarantee covenant.
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 W I T Z E R L A N D
=====================
VAT GROUP: S&P Raises ICR to 'BB+' on Solid Credit Measures
-----------------------------------------------------------
S&P Global Ratings raised its long-term issuer rating on Swiss
manufacturer VAT Group to 'BB+' from 'BB'.
The stable outlook reflects S&P's expectation that VAT Group will
benefit from a strong rebound in the semiconductor market and
deliver positive FOCF, funds from operations (FFO) to debt of more
than 60%, and debt to EBITDA of less than 1.5x in the medium term.
The upgrade reflects the strong momentum in the semiconductor
market and longer-term business stability. S&P expects VAT Group's
performance in 2021 will enable it to meet urgent demand stemming
from the growing semiconductor market and current semiconductor
chip shortages. The short-term cyclical demand, along with current
market conditions, will allow the group to deliver about 20% growth
in 2021 and 11%-12% in 2022. S&P thinks demand in the semiconductor
market will start to diminish in 2023. However, compared to
previous cyclical downturns, it anticipates that longer-term market
fundamentals will allow for a smoother recovery. These include
structural changes in the semiconductor industry, with applications
requiring more semiconductor content. The COVID-19 pandemic has led
to technological expansion within the industry, reflecting
increasing demand for memory storage, data-centric applications,
automation, and artificial intelligence. These trends will remain
over at least the short term. VAT Group's 2020 performance
demonstrated how the group's end markets offset unprecedented
volatility. Although automotive sector growth has almost stopped,
there was unprecedented growth in advanced computing and smartphone
artificial intelligence, which experienced high demand. VAT Group
posted 21.4% sales growth in 2020, a full recovery from the sharp
decline in demand in 2019, when sales fell by about 18%.
S&P said, "We expect stable EBITDA margins of about 31% for 2021
and 32% for 2022, up from 29.8% in 2020.Increasing volumes and the
group's flexible cost base should support these margins. We view
positively that VAT Group has been able to maintain good EBITDA
margins of 27% in 2019 and 30% in 2020. In our view, this
performance compares well with that in the 2008 financial crisis,
when VAT Group's EBITDA margin only reached 23%. The group aims to
maintain a reported EBITDA margin of 30%-35%, which we think is
achievable in the longer term." VAT Group is transforming its
operational footprint and migrating to countries where the
operating costs are lower. The group benefits from a highly
variable cost structure, owing to a high share--about 60%--of
variable costs, further supported by the higher-margin service
division, which represents about 18.8% of sales.
VAT Group should weather persisting risks relating to escalating
raw material prices and a lack of components. About 60% of the
group's products have no electronics, so they are immune to these
shortages and price increases. VAT is mostly exposed to aluminum,
of which the group managed to secure supply at the end of 2020,
which should last comfortably through 2021. S&P notes that VAT
could still face supply chain issues, considering this is an
industry-wide problem, although the group continues to monitor
those risks on the ongoing basis. The introduction of new products,
representing about 5% of the group's exposure, is the area more
susceptible to supply chain issues.
S&P said, "We expect VAT Group's S&P Global Ratings-adjusted FFO to
debt to remain comfortably above 60% over the cycle. We think the
group will still have exposure to the inherently volatile
semiconductor and display industries. These industries directly
affect VAT Group's EBITDA generation because about 70% of its
topline relates to capital expenditure (capex) on semiconductor,
display, and solar products. Over 2019, VAT Group's EBITDA fell by
about 30% from 2018 levels, which we regard as typical for volatile
businesses. We think this volatility will be less pronounced from
2021 onward, and credit metrics will not fall short of our
expectations, even when the cycle turns. That said, VAT's FFO to
debt has not been below 60% since 2019. It is currently 66.5%, with
limited headroom but in line with the rating requirement.
"Despite generous shareholder distributions, we expect strong free
operating cash flow (FOCF) of CHF150 million-CHF160 million in
2021, improving to CHF190 million-CHF200 million in 2022. FOCF
includes about CHF40 million because the group is catching up with
increased volumes and intends to improve productivity. We also
incorporate increased working capital requirement of about CHF 25
million in 2021 and CHF 15 million in 2022. Over the pandemic, VAT
Group has paid normal dividends of CHF120 million, notwithstanding
somewhat limited visibility on cash flow. The group's financial
policy is to distribute dividends of up to 100% of cash flow after
capex and debt repayments, provided its reported net debt to EBITDA
remains at about 1.0x. This suggests that management could adapt
dividend distributions to changing market conditions without
putting pressure on the current rating. We also think VAT Group
will consider reducing the payout if an appropriate acquisition
target materializes."
VAT Group has limited scale and diversification compared with its
peers in the wider capital goods industry, which constrains its
business risk assessment. The group's revenue base of CHF692.4
million in 2020 is low compared with companies such as ASM
International N.V. (CHF1.4 billion as of December 2020), Qorvo Inc.
(CHF3.1 billion as of March 2019), and MKS Instruments Inc. (CHF1.8
billion as of December 2019). VAT Group also has weaker business
characteristics--such as its small scale, lower product diversity,
and exposure to cyclical industries--than its peers'.
S&P said, "The stable outlook reflects our expectation that VAT
Group will benefit from a strong rebound in the semiconductor
market. We also assume the group will deliver FFO to debt of at
least 60% and debt to EBITDA no higher than 1.5x through the cycle
thanks to sustained medium-term growth. Positive FOCF generation is
a prerequisite for the current rating. The stable outlook also
reflects our expectation that VAT Group will demonstrate
flexibility in its financial policy, balancing shareholder
remuneration and strategic acquisitions.
"We could consider downgrading VAT Group if it is unable to
compensate for the sharp cyclical decline, with FFO to debt falling
sustainably below 60% and debt to EBITDA exceeding 1.5x. This could
happen if VAT Group faces a material drop in EBITDA and negative
FOCF. A more aggressive financial policy would also put pressure on
the rating, as would larger debt-financed acquisitions without
adjustments to the dividend payout.
"We see an upgrade as remote at this point. However, we would
consider raising the rating on VAT Group if it significantly
improves the scale and scope of its product portfolio and
diversifies its business such that margin volatility reduces over
the industry cycle, while also maintaining profitability levels. An
upgrade would also depend on the group maintaining its leading
position in the vacuum valve market and continuing to follow a
supportive financial policy."
===========================
U N I T E D K I N G D O M
===========================
CD&R FIREFLY 4: S&P Affirms 'B' ICR on Dividend Recapitalization
----------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit rating
on U.K.-based CD&R Firefly 4 Ltd. (Motor Fuel Group or MFG). S&P
also assigned a 'B' issue-level rating and a '3' recovery rating to
the company's proposed incremental senior secured term loan, and
affirmed the ratings on the existing term loan facilities. In
addition, S&P assigned a 'CCC+' issue rating and a '6' recovery
rating to the company's proposed incremental second-lien loan.
The stable outlook reflects S&P's expectation that positive
business trends and MFG's resilient profitability should facilitate
a gradual deleveraging toward 6.5x over the next 12-18 months.
The proposed transaction will effectively add about GBP305 million
of financial debt (GBP322 million, minus a GBP17 million repayment
of the second-lien liabilities) to the group's capital structure,
causing leverage to return toward 7.0x at the end of 2021--adding
about 1.0x of leverage compared with a no-transaction scenario. S&P
said, "We think the increase in borrowing would erode the rating
headroom accumulated through the strong operating performance of
the past few quarters, constraining the group's near-term financial
flexibility. However, we expect MFG to continue to grow its earning
base over the medium term, supported by the positive reopening and
vaccination outlook, and the management's strong track record,
which will result in leverage declining to 6.5x by the end of
2022."
Its company owned franchise operated (COFO) model--whereby the
company owns the majority (about 85% freehold estate) of the sites
and 100% of the fuel sales, and collects a franchise fee for the
nonfuel activities--results in a flexible cost structure, with low
periodic rental payments and a relatively modest workforce that
averages less than one employee per site (most of the sites'
personnel are employed by third-party franchisees, rather than
MFG). This proved to be particularly helpful during the lockdown
periods, as the company was still able to achieve a positive
reported EBITDA each month throughout 2020 (and the beginning of
2021), despite the decline in footfall and fuel volumes. At the
same time, following the completed execution of the MRH
acquisition, and the addition of a few sites each year, MFG is the
largest PFS operator in the U.K., even after the potential tie-up
between EG Group and the ASDA forecourt business. This makes MFG
one of the oil majors' largest corporate clients in the U.K., which
will help it to negotiate better supply terms over the medium term.
These factors underpin our revision of the business risk profile to
fair from weak.
This transaction follows a previous approximately GBP390 million
dividend recapitalization executed in November 2019 and is
commensurate with our assessment of the group's financial policy of
regular cash returns to its financial sponsor owners. However, we
believe that the downside risk is now more limited than 18 months
ago. Since that time, the group has achieved timely execution of
the integration of the MRH business acquired in 2018, delivered
about GBP35 million in synergies, outperformed its budget, and
proved the resiliency of its business model throughout the
pandemic. As a result, S&P believes the group's exposure to
integration risk has substantially reduced--the company is
targeting "small-ticket" site acquisitions--while the management's
solid track record and experience will leave less room for
execution and operational setbacks.
Thanks to an increase in fuel margins per liter, MFG's status as an
essential retailer, and a change in the habits of consumers--who
now tend to favor convenience stores (c-stores) over large
supermarkets--the group weathered the pandemic well, despite the
decline in fuel volumes and food-to-go (FTG) revenue. Reported
EBITDA grew by about 17% in 2020 leading to a positive free cash
flow generation and a deleveraging to 6.2x S&P Global
Ratings-adjusted debt to EBITDA. We believe earnings could further
expand in 2021, albeit at a slower pace, supported by persistently
high fuel margins per liter and the gradual easing of restrictions.
Despite the increase in oil prices from the trough of
second-quarter 2020, S&P expects fuel margins to remain above the
pre-pandemic level throughout the forecast period, at about 8.5
pence-9.0 pence per liter, due to ongoing structural changes in the
U.K. retail fuel market and reduced competition. At the same time,
the gradual easing of restrictions, which will accelerate after May
17, 2021, will bring more customers back to MFG's forecourts,
increasing fuel volumes and nonfuel revenue. Therefore, S&P expects
reported EBITDA to reach GBP310 million-GBP340 million in fiscal
year (FY) ending Dec. 31, 2021, and GBP325 million-GBP355 million
in FY2022, with reported free operating cash flow (FOCF) after
leases sustainably above GBP100 million per year.
Amid the U.K. government's ban on new petrol and diesel cars from
2030, MFG has recently announced its plans to roll out EV super
chargers across its network, targeting the opening of 40-50 EV hubs
per year, with the first opened in February 2021. Such a project
would be funded by internally generated cash flow and would
favorably position MFG in the transition toward e-mobility. In
addition, it would counterbalance the secular decline in fuel
volumes that is expected over the next decade and would build on
MFG's strong track record in executing its strategic initiatives.
Having said that, delays in the adoption of EVs or changes in the
regulatory environment could slow down the process. Moreover, the
eventual financial impact of EV charging infrastructure on MFG's
top line and earnings is still uncertain. A longer wait to charge
the vehicle--compared with the time it takes to fill the
tank--could compel customers to spend more on the forecourt's
offerings, increasing cross-selling opportunities. However, EVs can
also be charged at home, which could reduce traffic and customer
footfall at the forecourts.
S&P said, "The stable outlook indicates our expectation that
positive business trends and MFG's resilient profitability should
facilitate a gradual deleveraging toward 6.5x over the next 12-18
months. However, until then, the rating headroom following the
transaction is low. Throughout the forecast period, we expect MFG
will maintain stable FOCF generation notwithstanding an uplift in
capital expenditure (capex) funding the rollout of EV
super-chargers, as fuel volumes and nonfuel activities recover."
S&P could downgrade MFG if it considers that deleveraging toward
6.5x by end of 2022 is unlikely, or if FOCF and liquidity weaken.
This could happen if:
-- Changes in the U.K. fuel market fundamentals result in a
compression of fuel margins per liter;
-- The company is unable to roll out nonfuel activities as per
current plans or cannot control its site cost base;
-- The capex allocated for the rollout of EV increased beyond our
expectations, resulting in an erosion of internally generated cash;
or
-- MFG undertakes further debt-funded opportunistic acquisitions
or shareholder remuneration.
Although unlikely in the next 12 months because of deleveraging
already incorporated into our base case, S&P could raise the rating
if MFG reduces adjusted debt to EBITDA sustainably below 5.0x, with
strong and growing FOCF. This could occur if the company:
-- Expands its sites network and raises the share of higher-margin
nonfuel operations without a major capital outflow beyond S&P's
forecast;
-- Demonstrates the ability to preserve its earnings base and cash
generation despite the changes affecting the passenger vehicle
fleet in the U.K.;
-- Allocates some of its internally generated cash to debt
repayment; and
-- Commits to a financial policy commensurate with stronger credit
metrics.
FAMOUS BRANDS: To Release Delayed Annual Results on May 31
----------------------------------------------------------
Katharine Child at BusinessDay reports that Famous Brands, owner of
Steers and Wimpy, has announced it will release its delayed annual
results on Monday, May 31.
The debt-laden company that also owns Turn n Tender, Lupa Osteria
and Mugg & Bean restaurants, was initially expected to release the
annual financial results on May 25, BusinessDay discloses.
Famous Brands Limited is a public company listed on the
Johannesburg Stock Exchange (JSE) in South Africa. Its head
offices are in Midrand, Johannesburg. The company is Africa's
leading quick-service and casual dining restaurant franchisor. The
company's global footprint of franchised stores spreads across the
world, totaling 2782 stores (2017): South Africa 2270, Swaziland 6,
Mauritius 21, Mozambique 3, Zimbabwe 9, Malawi 11, Angola 7, Zambia
42, Botswana 35, Namibia 50, Kenya 7, Ghana 1, Ethiopia 1, Nigeria
125, Sudan 6, Oman 1, UAE 8, Saudi Arabia 1, Egypt 5, Greece 1,
Ireland 6 and United Kingdom 166 (2017). Besides its core business
activities of quick service and casual dining, the company is also
involved in manufacturing and logistics with a focus on owning and
managing the back-end supply chain of its restaurants.
INSECT TECHNOLOGY: Goes Into Administration
-------------------------------------------
Jane Byrne at Feednavigator.com reports that The Insect Technology
Group Holdings UK Limited (ITG), AgriProtein's parent company, has
entered into administration.
Administrator, UHY Hacker Young, was appointed to manage the
business and property of ITG Limited in February this year,
Feednavigator.com discloses.
RANGERS FC: Nicola Sturgeon Refuse to Help Insolvent Club
---------------------------------------------------------
Martin Williams at The Herald reports that Nicola Sturgeon refused
to intervene to help the Rangers Football - a Scottish professional
football club based in Glasgow - when it financially imploded
saying the Scottish Government did not want to be seen as
partisan.
David Whitehouse of Duff and Phelps told of the approach to the
then Deputy First Minister as he and Paul Clark, who were joint
administrators of Rangers when it financially imploded in 2012,
were being sued for GBP56.8 million by oldco liquidators BDO which
says their flawed cost-cutting strategy meant creditors lost
millions from the handling of the club's financial implosion, The
Herald discloses.
The action comes nine years after the Craig Whyte-controlled
Rangers business fell into administration and then liquidation
leaving thousands of unsecured creditors out of pocket, including
more than 6,000 loyal fans who bought GBP7.7 million worth of
debenture seats at Ibrox, The Herald notes.
Mr. Whitehouse, as cited by The Herald, said that the approach came
for financial help to secure the future for the club after the
business went into administration before being later plunged into
liquidation.
But Mr. Whitehouse, 55, a Duff and Phelps managing director and
insolvency practitioner said she did not want to intervene,
according to The Herald.
Mr. Whitehouse and Mr. Clark are defending the action in the Court
of Session claiming the liquidators expected a "bonkers" strategy
of a 'fire sale' of Rangers which would have "effectively shut the
club down for good", The Herald discloses.
The claim comes nine years after the Craig Whyte-controlled Rangers
business fell into administration and then liquidation in 2012
after he was at the helm for just nine months leaving thousands of
unsecured creditors out of pocket to the tune of millions,
including more than 6000 loyal fans who bought GBP7.7 million worth
of debenture seats at Ibrox, The Herald states.
The assets including Ibrox and training ground Murray Park were
sold to the Charles Green-fronted Sevco consortium for GBP5.5
million while the oldco was heading into liquidation, The Herald
relays.
According to The Herald, Mr. Whitehouse, Mr. Clark, Mr. Whyte and
Mr. Green, and three others were were subjected to criminal
proceedings in relation to fraud allegations in the wake of Craig
Whyte's disastrous purchase of Rangers from Sir David Murray for
GBP1 in May 2011 and its subsequent sale before a judge dismissed
all charges.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Mentor X
-------------------------
The Life-Changing Power of Extraordinary Mentors
Author: Stephanie Wickouski
Publisher: Beard Books
Hard cover: 156 pages
ISBN: 978-1-58798-700-7
List Price: $24.75
Order this Book: https://is.gd/EIPwnq
Long-time bankruptcy lawyer Stephanie Wickouski at Bryan Cave
impressively tackles a soft problem of modern professionals in an
era of hard data and scientific intervention in her third published
book entitled Mentor X. In an age where employee productivity is
measured by artificial intelligence and resumes are prescreened by
computers, Stephanie Wickouski adds spirit and humanity to the
professional journey.
The title is disarmingly deceptive and book browsers could be
excused for assuming this work is just another in a long line of
homogeneous efforts on mentorship. Don't be fooled; Mentor X is
practical, articulate and lively. Most refreshingly, the book
acknowledges the most important element of human development: our
intuition.
Mrs. Wickouski starts by describing what a mentor is and
distinguishes that role from a teacher, coach, role model, buddy or
boss. Younger professionals may be skeptical of the need for a
mentor, but Mrs. Wickouski deftly disabuses that notion by relating
how a mentor may do nothing less than change the course of a
protege's life. Newbies to this genre need little convincing
afterwards.
One of the book's worthiest contributions is a definition of mentor
that will surprise most readers. Mentors are not teachers, the
latter of which impart practical knowledge. Instead, according to
Mrs. Wickouski, her mentors "showed me secrets that I could learn
nowhere else. They showed me how doors are opened. They showed me
how to be an agent of change and advance innovative and
controversial ideas." What ambitious professional doesn't want more
of that in their life?
The practicality of the book continues as Mrs. Wickouski outlines
the qualities to look for in a mentor and classifies the various
types of mentors, including bold mentors, charismatic mentors, cold
and distant mentors, dissolute mentors, personally bonded mentors,
younger mentors, and unexpected mentors. Mentor X includes charts
and workbooks which aid the reader in getting the most out of a
mentor relationship. In a later chapter, Mrs. Wickouski provides an
enormously helpful suggestion about adopting a mentor: keep an open
mind. Often, mentors will come in packages that differ from our
expectations. They may be outside of our profession, younger, less
educated, etc . . . but the world works in mysterious ways and Mrs.
Wickouski encourages readers to think about mentors broadly. In
this modern era of heightened workplace ethics, Mrs. Wickouski
articulates the dark side of mentors. She warns about "dementors"
and "tormentors" -- false mentors providing dubious and sometimes
self-destructive advice, and those who abuse a mentor relationship
to further self-interested, malign ends, respectively. She
describes other mentor dysfunctions, namely boundary-crossing,
rivalry, corruption, and a few others. When a mentor manifests such
behaviors, Mrs. Wickouski counsels it's time to end the
relationship.
Mrs. Wickouski tells readers how to discern when the mentor
relationship is changing and when it is effectively over. Those
changes can be precipitated by romantic boundaries crossed,
emergence of rivalrous sentiment, or encouragement of unethical
behavior or corruption. Mrs. Wickouski aptly notes that once
insidious energies emerge, the mentorship is effectively over. At
this point, certain readers may say to themselves, "Okay, I've got
it. Now I can move on." Or, "My workplace has a formal mentorship
program. I don't need this book anymore." Or even, "Can't modern
technology handle my mentor needs, a Tinder of mentorship, so to
speak?"
Mrs. Wickouski refutes that notion. She analyzes how many mentoring
programs miss the mark. In one of the best passages in the book,
Mrs. Wickouski writes, "Assigning or brokering mentors negates the
most critical components of a true mentor–protege relationship:
the individual process of self-awareness which leads a person to
recognize another individual who will give the advice singularly
needed. That very process is undermined by having a mentor assigned
or by going to a mentoring party." She does not just criticize; she
offers a solution with three valuable tips for choosing the right
mentor and five qualities to ascertain a true mentor in the
unlimited sea of possibilities.
Next, Mrs. Wickouski distinguishes between good advice and bad
advice. She punctuates that discussion with many relevant and
relatable examples that are easy to read and colorfully enjoyable.
This section includes interviews with proteges who have had
successful mentorships. The punchline: in the best mentorships, the
parties harmoniously share personal beliefs and values. Also
important, the protege draws inspiration and motivation from the
mentor. The book winds down as usefully as it started: Mrs.
Wickouski interviews proteges, asking them what they would have
done differently with their mentors if they could turn back the
clock. A common thread seems to be that the proteges would have
gone deeper with their mentors -- they would have asked more
questions, spent more time, delved into their mentors' thinking in
greater depth.
The book wraps up lightly by sharing useful and practical
suggestions for maintenance of the mentor relationship. She answers
questions such as, "Do I invite my mentor to my wedding?" and "Who
pays for lunch?"
Mentor X is an enjoyable read and a useful book for any
professional in any industry at, frankly, any point in time.
Advanced individuals will learn much from the other side, i.e., how
to be more effective mentors. Mrs. Wickouski does a wonderful job
of encouraging use of that all knowing aspect of human existence
which never fails us: proper use of our intuition.
About The Author
Stephanie Wickouski is widely regarded as an innovator and
strategic advisor. A nationally recognized lawyer, she has been
named as one of the 12 Outstanding Restructuring Lawyers in the US
by Turnarounds & Workouts and as one of US News' Best Lawyers in
America. She is the author of two other books: Indenture Trustee
Bankruptcy Powers & Duties, an essential guide to the legal role of
the bond trustee, and Bankruptcy Crimes, an authoritative resource
on bankruptcy fraud. She also writes the Corporate Restructuring
blog.
*********
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
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Information contained herein is obtained from sources believed to
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