/raid1/www/Hosts/bankrupt/TCREUR_Public/210625.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, June 25, 2021, Vol. 22, No. 121
Headlines
B U L G A R I A
HUVEPHARMA EOOD: S&P Puts 'BB' ICR on Watch Pos. Amid IPO Plan
G E R M A N Y
CONSUS REAL ESTATE: Fitch Withdraws B Issuer Default Rating
RENK GMBH: Moody's Confirms B1 CFR & Alters Outlook to Stable
RENK GROUP: S&P Alters Outlook to Positive & Affirms 'B' ICR
TK ELEVATOR: New EUR200MM Loan Add-on No Impact on Moody's B2 CFR
TK ELEVATOR: S&P Upgrades LongTerm ICR to 'B', Outlook Stable
H U N G A R Y
CIB BANK ZRT: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
I R E L A N D
AQUEDUCT EURO CLO 3-2019: Fitch Gives 'B-(EXP)' Rating on F-R Notes
AURIUM CLO II: S&P Assigns B- Rating on Class F Notes
BANK OF IRELAND: Ireland Launches "Phased Exit" of Stake
LAST MILE: Moody's Assigns (P)B1 Rating to EUR13.37MM Cl. F Notes
PALMER SQUARE 2021-2: Moody's Assigns (P)B3 Rating to Cl. F Notes
PLATFORM BIDCO: Moody's Assigns First Time 'B3' Corp Family Rating
PLATFORM BIDCO: S&P Assigns 'B' LongTerm ICR, Outlook Negative
TORO EURO CLO 3: Fitch Affirms B- Rating on Class F Notes
VENDOME FUNDING 2020-1: Fitch Gives 'B-(EXP)' Rating to F-R Notes
I T A L Y
GUALA CLOSURES: Moody's Rates New EUR475MM Secured Notes 'B1'
GUALA CLOSURES: S&P Affirms 'B+' ICR, Off CreditWatch Negative
P O L A N D
INPOST SA: Fitch Assigns 'BB' LongTerm IDRs, Outlook Stable
INPOST SA: Moody's Assigns First Time 'Ba2' Corporate Family Rating
R U S S I A
CREDIT EUROPE BANK: Fitch Alters Outlook on 'BB-' LT IDR to Stable
GEOPROMINING INVESTMENT: Fitch Affirms 'B+' IDR, Outlook Negative
S W E D E N
VATTENFALL AB: S&P Rates New Hybrid Capital Securities 'BB+'
U K R A I N E
DTEK RENEWABLES: S&P Affirms 'B-' LongTerm ICR, Outlook Negative
U N I T E D K I N G D O M
GFG ALLIANCE: Negotiates Standstill Agreement with Credit Suisse
INSPIRED EDUCATION: S&P Rates New EUR80MM Loan Add-on 'B'
LONDON CAPITAL: Regulator Urged to Make Changes After Collapse
MORTIMER BTL 2021-1: Moody's Gives B3 Rating to Class X2 Notes
MORTIMER BTL 2021-1: S&P Assigns B+ Rating on X1 Notes
REGIS: Landlords Must Pay Substantial Portion of CVA Legal Costs
WYELANDS BANK: Gov't. Should Toughen Rules in Light of Collapse
[*] UK: Provided GBP12-Bil.+ in Financial Support to Exporters
X X X X X X X X
[*] BOOK REVIEW: Hospitals, Health and People
- - - - -
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B U L G A R I A
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HUVEPHARMA EOOD: S&P Puts 'BB' ICR on Watch Pos. Amid IPO Plan
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S&P Global Ratings placed its 'BB' ratings on
Bulgaria-headquartered animal health products and feed additives
manufacturer Huvepharma EOOD on CreditWatch with positive
implications.
S&P expects to resolve the CreditWatch in the next three months,
once the transaction completes and S&P evaluates the company's
business prospects and financial policy.
The CreditWatch placement follows the announcement of the planned
listing of Huvepharma. On June 14, Huvepharma's parent company
announced its intentions to list on the Amsterdam Stock Exchange.
The company expects to raise approximately EUR300 million in
primary proceeds, which it will use to pay down existing debt and
for accelerated investments in in-licensing technologies and
research. S&P said, "Assuming a successful placement, we estimate
that this could result in S&P Global Ratings-adjusted debt to
EBITDA of around 1.2x-1.3x, in line with the company's guidance of
below 1.5x. The company has a stated intention of maintaining
target net debt leverage of 2.0x or below, beyond the placement,
which supports a higher rating. We factor into our rating that the
company has ambitious plans to expand its vaccines portfolio, which
are still at an early stage. Huvepharma plans to deploy proceeds
from the IPO and use operating cash flows soon to fund sizable
growth capex, averaging EUR100 million per year between 2022 and
2024. This would likely constrain its free operating cash flow
(FOCF), and limit rating uplift to be commensurate with a 'BB+'
rating."
Huvepharma's performance in 2020 was broadly in line with our
forecasts. Underlying revenue growth, excluding negative foreign
exchange movements, was about 13.5% with an S&P Global
Ratings-adjusted EBITDA margin of 27%, which exceeded our
expectations. That said, overall FOCF (after working capital and
capex) was broadly neutral, weaker we expected (EUR30 million-EUR40
million). This was due primarily to higher capex of about EUR96
million as the company continues to invest in its footprint to
support ongoing product rollouts. This resulted in adjusted debt to
EBITDA of around 3.0x, which was slightly above S&P's base case for
the year but still commensurate with the 'BB' rating.
In 2020, Huvepharma amended and restated the terms of the debt
facilities (not rated) in its capital structure. S&P does not view
this as distressed because it did not make creditors worse off. The
company did it to extend maturities and support its future
investments to grow the business. Under the current capital
structure, Huvepharma does not face significant debt maturities
until 2026 when the EUR96 million capex facility from the European
Investment Bank is due.
New product rollouts are gathering momentum, supporting the
business's growth prospects. Huvepharma's good underlying revenue
growth and margin expansion in 2020 were supported by the full-year
effect from new feed additives product launches: Monovet in the
U.S. (fourth quarter [Q4] 2019) and Monimax in Europe in August
2020. Overall, the company launched 10 new products in 2020.
Monovet and Monimax are gaining strong market share in the
respective geographies. The company is also a net beneficiary so
far from the pandemic as customers are reportedly switching to
Huvepharma from Chinese suppliers on supply chain reliability
concerns. The company's strong performance in 2020 continued into
Q1 2021. Revenue growth stood at 11.2% on a 12-month rolling basis
with reported EBITDA margins reaching 30%, supported by continued
strong growth in feed additives and human health products from
existing active pharmaceutical ingredient (API) sales.
S&P said, "We expect to resolve the CreditWatch in the next three
months, once the transaction completes and we evaluate the
company's business prospects and financial policy. We think that a
successful listing will reduce adjusted debt leverage to
significantly below 2.0x, but that the company will progressively
deploy these proceeds for organic growth opportunities. We think
that sizable growth capex will constrain FOCF generation and will
likely limit the rating uplift to 'BB+', should the company
successfully complete the transaction."
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G E R M A N Y
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CONSUS REAL ESTATE: Fitch Withdraws B Issuer Default Rating
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Fitch Ratings has maintained CONSUS Real Estate AG's (Consus) 'B-'
Long-Term Issuer Default Rating (IDR) on Rating Watch Positive. The
rating has subsequently been withdrawn.
Fitch currently rates Consus on a standalone basis as this is how
the company has continued to operate legally, despite Adler Group
S.A. acquiring a share of about 94% in Consus last year. Adler
prepaid Consus's EUR450 million bond in May 2021, and is proposing
to bring the two entities closer by signing a domination agreement.
In Fitch's view, the likely legal consolidation of the two entities
could lead to an upgrade of Consus's IDR given Adler's indicative
'BB' rating category rating.
Consus's rating has been withdrawn for commercial reasons. Fitch
will no longer provide ratings or analytical coverage of Consus.
KEY RATING DRIVERS
Upgrade After Domination Agreement: Once Adler completes control of
Consus, Consus's rating can be closer to Adler's, under Fitch's
Parent and Subsidiary Linkage Rating Criteria. Fitch believes that
the refinancing of Consus's EUR450 million high-coupon bond in May
2021 brings that a step closer, though the domination agreement has
not yet been signed. Fitch understands that Adler has been routing
funding to Consus, reducing reliance on expensive mezzanine funding
and developer loans, thereby reducing the group's cost of debt.
Parent and Subsidiary Linkage: Under the legal, operational and
strategic linkage considerations in Fitch's criteria, the legal
ties are not considered strong until the domination agreement is in
place and related valuations undertaken, or Consus's debt is
guaranteed. At present, Consus's management has to treat Adler
transactions on an arm's-length basis. Fitch considers operational
ties as moderate and likely to be stronger when full integration
can proceed. The strategic importance of the entities to each other
is strong. With the current lack of strong legal ties, Fitch
continues to rate Consus on a standalone basis.
Complementary Consus Portfolio: The gross asset value (GAV) of
Consus's build-to-hold portfolio, held for Adler, was EUR1.3
billion at end-2020, with a projected gross development value (GDV)
of EUR4.7 billion. Once completed and let, this will give Adler a
wider Germany portfolio, tapping Berlin, Cologne, Dusseldorf,
Frankfurt am Main, Hamburg, Munich and Stuttgart with modern
(initially low maintenance) buildings. This complements Adler's
existing portfolio (end-March 2021 GAV: EUR8.5 billion).
Berlin Rent Freeze Unlawful: Berlin residential makes up 54% of
Adler's pre-Consus portfolio (by value, as at end-December 2020).
Germany's Federal Constitutional court ruled in April 2021 that the
Berlin state government's decision to enact the Berlin Rent Freeze
was unconstitutional and that rents are already adequately
regulated at the national level. The decision reverses about EUR1
million of loss of net rental income for Adler in 2020 and opens up
the possibility of demanding back rent from tenants that received
mandated rent relief.
Consus's BTS Assets: When about EUR1.8 billion of end-2020 GAV is
completed (projected GDV: EUR3.4 billion), certain developments are
be built-to-sell (BTS) to third-parties rather than acquired by
Adler. Once completed and purchased, this will crystallise capital
gains and enable Consus to reduce group leverage as disposal
proceeds are used to repay debt funding.
Indicative Transitionary Adler Capital Structure: Adler has a very
high leverage (end-2020: over 45x net debt/rental EBITDA basis; 94%
loan-to-value using income-producing assets) as it absorbed
Consus's non-income producing residential development programme
and, in bidding for the company, paid Consus's shareholders for
some of its development programme's capital gain to be realised.
Adler will improve the quality of its residential-for-rent
portfolio, diversifying it across Germany.
To create a meaningful profile of Adler's indicative residential
leverage metrics, Fitch has applied a 4.3% rental income yield to
Consus's GAV (as if already let, even for incomplete projects'
spend) to calculate the synthetic leverage Adler will have as a
residential-for-rent company with Consus's projects. After Consus's
BTS asset disposals to third-parties, Fitch expects Adler's
consolidated metrics to settle at about 20x net debt/rental EBITDA,
consistent with a 'BB' rating category. Interest cover would be
above 2x, but free cash flow would be negative for some time,
burdened by the development programme. This scenario also assumes
that third-party investors will buy the BTS assets, and at certain
values.
DERIVATION SUMMARY
Adler's residential income-producing portfolio of EUR8.6 billion at
end-December 2020 is bigger than the EUR3.5 billion UK-located
portfolio of Grainger Plc (BBB-/Stable) or the CHF2.0 billion
portfolio of Peach Property Group AG (BB-/Stable). Compared with
Akelius Residential Property AB (BBB/Stable) and its EUR12 billion
residential portfolio, Adler's portfolio is smaller and less
diversified than Akelius, which has a presence in cities across
Europe, the US and Canada.
Geographically, Peach is the closest peer with 100% of its
portfolio comprising German residential properties. Peach's assets
are located mainly in secondary cities in the North
Rhine-Westphalia region of Germany, while Adler has over 50% of its
GAV in Berlin. Higher exposure towards Berlin means that average
in-place rent per square metres (sqm), or market value per sqm is
higher for Adler. Other distinctive features of Adler's portfolio
compared with Peach is a lower vacancy rate of 3.4% at end-2020
(Peach: 7.9%) and rents that are below-market due to regulation.
Akelius has a 32% share of German residential properties, most of
which are located in Berlin and a high exposure to regulated
residential with below-market rents.
Adler's high end-2020 net debt/rental derived EBITDA at over 45x is
a legacy of past years' merger and acquisition activity as well as
Consus's development project debt. Fitch expects Adler's indicative
leverage to decrease to about 20x, aided by proceeds from disposal
of the BTS portfolio and rent inflow from completed BTH projects.
This indicative level of leverage is similar to Peach's net
leverage of about 19x and lower than 23x for Akelius and Grainger.
KEY ASSUMPTIONS
Fitch has not had access to updated Consus's figures to update the
rating case forecast for Consus including its intra-group
transactions.
Recovery Rating assumptions are not applicable due to the
withdrawal of the instrument rating.
RATING SENSITIVITIES
Rating sensitivities are no longer applicable given the rating
withdrawal.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Enhanced Liquidity: Consus's main debt as at end-December 2020
includes EUR1.4 billion development loans for specific projects,
and intra-group funding from Adler, a EUR120 million convertible
maturing November 2022 and the EUR450 million high-coupon secured
bond maturing 2024. The latter was repaid in May 2021 (the early
redemption date for the notes) from funds Adler has routed into
Consus to achieve a lower average cost of debt, realising financial
synergies within the group. To finance the notes' repayment, Adler
used funds from its April 2021 EUR500 million six-year fixed-rate
bond.
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.
ISSUER PROFILE
Consus is a real estate property developer operating in Germany.
RENK GMBH: Moody's Confirms B1 CFR & Alters Outlook to Stable
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Moody's Investors Service confirmed the B1 Corporate Family Rating
and B1-PD Probability of Default Rating of RENK GmbH. Moody's also
confirmed B1 rating of its existing EUR320 million guaranteed
senior secured notes issued by RENK GmbH (formerly Rebecca Bidco
GmbH), including the proposed EUR200 million tap to its existing
guaranteed senior secured notes. The outlook has been changed to
stable from ratings under review. This concludes the review for
downgrade initiated on May 5, 2021 following RENK's announcement to
acquire the Combat Propulsion Systems business ("CPS") and
Magnet-Motors GmbH from L3Harris Technologies, Inc. (Baa2,
stable).
The acquisition will be financed with a mix of cash from balance
sheet, EUR200 million of debt financings and EUR41.5 million of
equity. The completion of the transaction is subject to clearance
from relevant regulatory authorities and is expected to close
during the second half of 2021.
RATINGS RATIONALE
The confirmation of the B1 corporate family rating reflects RENK's
increased pro forma scale and broadened diversification into the US
market with the proposed acquisition. Pro forma revenue increases
by approximately 40% to about EUR0.8 billion. Pro forma gross
leverage is approximately neutral at 4.0x (Moody's adjusted debt /
EBITDA) in 2020, which has further improved following solid
operating performance in Q1-2021, resulting in Moody's adjusted
Debt /EBITDA of 3.6x as of last twelve months ended March 2021. The
proposed transaction reduces RENK's cash balance, however Moody's
expects the liquidity to be adequate, supported by the expectation
of positive free cash flow (FCF) generation in the next 12-18
months.
CPS is a US-based supplier of transmissions and engines for most of
the major tracked vehicle platforms of the US Army (e.g. Bradley,
AMPV, PIM, M88 Series, etc.), as well as on platforms of other NATO
allied government customers (e.g. Israeli Merkava and NAMER
platforms), with long standing relationships with the Ministries of
Defense and major OEMs. Barriers to entry are therefore
substantial. The strength of CPS competitive position is
demonstrated by its high profitability margins - EBITDA margin of
CPS stood at around 26% - 27% in the period 2018 - 2020. The
combined business is expected benefit from good growth
fundamentals, supported by the increasing need for modernization of
vehicle fleets, which supports its deleveraging prospects. In
addition, the potential for select technology transfers between
both businesses will allow RENK to strengthen its strategic
positioning for upcoming projects.
The ratings reflect the company's: (1) strong positions in niche
markets for military tracked vehicle transmissions and naval
gearboxes, which have high barriers to entry; (2) large defense end
market exposure, which will increase to approximately 64% of
revenue with the proposed acquisition; (3) good near-term revenue,
backed by a sizeable order backlog for the combined business
representing 1.7x of sales as of March-end 2021; (4) the increasing
maintenance intensity in the defense sector, supporting the demand
for the company's products; (5) solid margins in its defense
business, reflecting its various sole source positions, limited
competition and low product substitution risk; and (6) its long
relationships with Ministries of Defense and OEMs, underpinned by
its product expertise.
The ratings also reflect the company's: (1) improved, but still
modest scale of operations (EUR0.8 billion of revenues) that comes
with niche focus; (2) exposure to fixed price contracts, and
therefore weak execution or cost overruns could lead to significant
volatility in earnings and cash flow; (3) risk of warranty and
product liability claims; (4) some exposure to cyclical end
markets, such as oil & gas, energy generation and steel, through
its commercial division; (5) weak track record of FCF generation at
RENK standalone in the past, although on the improving trend in
2020 and Q1-21; and (6) adequate, but reduced liquidity cushion, in
the context of the general volatility of net working capital in the
defense project business.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Governance risks that Moody's considers in RENK's credit profile
include: i) private equity ownership, including a risk of further
debt-financed acquisitions, and ii) reliance on key individuals to
maintain strong OEM relationships and manage new contracts. Moody's
expects appropriate management incentives in place retain key staff
at the acquisition target.
LIQUIDITY
Moody's expects the company will maintain adequate liquidity. Cash
will be less than EUR30 million pro forma the proposed transaction
as of December-end 2020, however FCF is expected to be at least
EUR30 million over the next 12 months (including FCF of CPS since
January 2021 which will be retained by RENK at closing according to
the terms of the proposed transaction). In addition, the company
has access to EUR50 million super senior revolving credit facility
(RCF), which was fully undrawn as of March 2021. The RCF has a
springing net financial covenant, tested if more than 40% drawn.
Moody's expects RENK to ensure covenant compliance at all times.
STRUCTURAL CONSIDERATIONS
RENK's capital structure consists of a senior secured bond and a
super senior secured RCF. The senior secured notes are rated B1 and
are ranking behind the RCF with respect to recoveries upon
enforcement.
Both instruments are guaranteed by subsidiaries which account for
at least 80% of consolidated EBITDA and are secured by pledges over
shares in group companies and intercompany loans. Given the weak
collateral value of such assets in a potential default scenario,
the loss given default analysis treats these instruments as
unsecured.
OUTLOOK
The stable outlook reflects the high visibility in the company
revenues over the next 12-18 months. Moody's also expects the
company to maintain good contract execution and adequate liquidity.
The outlook incorporates the expectation that Moody's-adjusted
gross leverage will remain at around 4.0x, FCF/ Debt will improve
to high single digits over the next 12-18 months and that financial
policies will remain unchanged and commensurate with these leverage
levels.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A ratings upgrade requires a continued growth of backlog and
improvement in scale and business diversification through a higher
share of maintenance activities. It would also require that
Moody's-adjusted gross leverage reduces sustainably below 4.0x,
EBITA margins increase above 12% and free cash flow/ Debt improves
to the high single digit percentages.
The ratings could be downgraded if Moody's-adjusted gross leverage
rises sustainably above 5.0x, if EBITA margins reduce below 8%,
free cash flow turns negative and liquidity profile deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Aerospace and
Defense Methodology published in July 2020.
COMPANY PROFILE
Headquartered in Augsburg, Germany, RENK is a manufacturer of
high-quality gear units, automatic transmissions, slide bearings,
suspension systems, couplings, and test systems. Operating through
four business units: Vehicle Transmissions, Special Gear Units,
Standard Gear Units, and Slide Bearings, the company serves a
diverse set of end markets, with around half of its revenues in the
defense sector. In 2020 the company reported EUR550 million of
revenues.
RENK GROUP: S&P Alters Outlook to Positive & Affirms 'B' ICR
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S&P Global Ratings revised its outlook on German manufacturer RENK
Group to positive from stable and affirmed the 'B' issuer credit
rating on the company. At the same time, S&P affirmed the 'B' issue
rating on its debt. The '3' recovery rating is unchanged and
indicates our expectation for meaningful (50%-70%; rounded
recovery: 55%) recovery.
S&P said, "The positive outlook reflects our expectation that RENK
will successfully integrate the two acquisitions and the group will
sustain S&P Global Ratings-adjusted EBITDA margins above 15%, with
adjusted debt to EBITDA reducing gradually toward 4x, and adjusted
funds from operations (FFO) to debt of more than 15% over our
12-month rating horizon.
"Although RENK will undertake debt-financed acquisitions, we
estimate that the EBITDA contributions from the acquired companies
will strengthen the group's leverage metrics. The group intends to
acquire the Combat Propulsion Systems business in an asset deal and
Magnet-Motor GmbH in a share deal from L3Harris with the proceeds
of a EUR200 million add-on to its existing EUR320 million senior
secured notes (with a EUR50 million super senior revolving credit
facility (RCF) remaining). The transactions will total about EUR325
million, and we estimate the related fees will reach about EUR10
million. As of Dec. 31, 2020, RENK had about EUR138 million of cash
on its balance sheet. The EUR50 million RCF, which ranks super
senior to the notes, will be undrawn at closing. This debt increase
should be offset by the EBITDA contributions of these two
businesses.
"The positive outlook reflects our expectation that credit metrics
will improve in 2021-2022, propelled by healthy earnings and
continued deleveraging. Thanks to a strong order backlog,
particularly in the Vehicle Transmissions business, the group
managed to secure the majority of its revenue for 2021. We expect
that revenue will increase by about 50% in 2021. It decreased only
slightly by about 1.5% for full-year 2020 despite the COVID-19
economic fallout. The integration of CPS will further the exposure
of RENK's transmission business to the U.S. medium-weight class
market (30-50 tons) and the aftermarket contribution by CPS'
Engines business. We estimate S&P Global Ratings-adjusted leverage
of about 4.2x in 2021, before improving toward 3.7x in 2022. Our
measure of leverage in 2021 mainly includes approximately EUR520
million of secure senior notes, about EUR10 million of pensions,
and about EUR6 million of operating leases."
The CPS acquisition will help the group increase its geographic
diversification, lower RENK's exposure to the more volatile
industrial business, and shift toward defense. RENK's defense
business generated approximately half of group revenue in 2020. It
has a high profit share, a strong order book, and long lead times.
The defense business mainly comprises vehicle transmissions and
navy gearboxes, which benefit from exposure to end markets that are
exhibiting robust demand and growth prospects, alongside good
contract visibility and longevity. The group generated
approximately one-third of total revenue from aftermarket and
services activities, leading to recurring earnings at higher
margins than the rest of the business. The integration of CPS would
increase the Defense part of the revenue generation to about 64% on
a 2020 pro forma basis (versus 54% on a stand-alone basis).
Meanwhile, S&P estimates the integration of CPS would reduce the
European exposure of the group to approximatively 45% from 62%.
The nondefense business, however, has more challenging end markets.
RENK operates in civil marine, oil and gas, power, cement,
plastics, steel, wind, and mechanical/plant engineering. We think
demand in some of these markets is subdued or choppy, especially
because of the recent volatility in oil and gas markets and the
current high steel price.
S&P said, "We continue to think that high customer concentration
and potential warranty claims could threaten profitability. We
consider RENK as a tier 2 or 3 supplier, with high customer and
European geographic concentration and a recent history of subdued
profitability. The top-10 customers have contributed about 40%-45%
of revenue since 2014, with annual fluctuations because of RENK's
project-driven business model. Given the nature of RENK's business
model, warranty claims can arise in the ordinary course of
business. The annual impact on RENK's bottom line of previous
warranty claims has ranged between EUR5 million and EUR11 million
annually since 2017. Although there are currently no claims of this
size, new ones could hinder profitability. The decline in
profitability exhibited since 2017 is partly explained by one
warranty claim, the phase-out of gear unit activities in the wind
sector, and the increasing price pressure observed in commercial
end markets.
"We view RENK's management and governance as fair.The group has
clear strategic planning processes and good depth and breadth of
management. However, RENK is now owned by a private-equity sponsor.
Management will need to steer the business through a transformation
under the new ownership and establish a new track record in the
process.
"The group's short track record of integrating sizable acquisitions
weighs on its creditworthiness, in our view. We believe the group
has yet to fully demonstrate its ability to successfully merge
operations and improve profitability and credit metrics while
sustaining core operating performance through 2021. As such, we
apply a negative comparable ratings analysis to arrive at our 'B'
rating. We are also mindful that additional leverage improvements
could motivate the private-equity sponsor to pursue further
opportunistic mergers and acquisitions or shareholder returns."
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
S&P said, "The positive outlook reflects our expectation that RENK
will successfully integrate CPS, and that the group's profitability
and credit metrics will remain commensurate with our aggressive
financial risk assessment. This implies S&P Global Ratings-adjusted
EBITDA margins above 15%, adjusted debt to EBITDA reducing
gradually toward 4x, and adjusted FFO to debt of more than 15% over
our 12-month rating horizon.
"We could change the outlook to stable if FFO cash interest
coverage decreases below 2.5x because of operational setbacks or a
debt-financed financial policy or acquisitions. We could also take
a negative rating action if adjusted FOCF were to materially weaken
following high restructuring costs. This is because, in our view,
it would lead to a more highly leveraged capital structure,
specifically with debt to EBITDA exceeding 4.5x. We could also
lower the rating if the ratio of liquidity sources to uses were to
decrease to less than 1.2x or if the group proceeds with a dividend
recap.
"We could raise the rating if RENK strengthened debt to EBITDA
sustainably toward 4x, supported by positive FOCF and positive
industry trends and robust operating performance."
TK ELEVATOR: New EUR200MM Loan Add-on No Impact on Moody's B2 CFR
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Moody's Investors Service maintains ratings unaffected by the
proposed increase of EUR200 million (equivalent) EUR and USD
denominated add-on to the existing senior secured Term Loans B
(TLB, maturing 2027), issued by TK Elevator Midco GmbH and/or TK
Elevator U.S. Newco Inc., subsidiaries of German elevator and
escalator company TK Elevator Holdco GmbH ("TKE" or "group"). All
existing ratings, including the B2 corporate family rating, the
B2-PD probability of default rating, the B1 ratings on the
outstanding senior secured TLB and senior secured notes, and the
Caa1 ratings on the senior unsecured notes due 2028, remain
unchanged. The outlook on all ratings remains stable.
The proceeds from the TLB add-on will be used to partly redeem the
group's senior unsecured notes due 2028, issued by TK Elevator
Holdco GmbH, by around EUR165 million (equivalent), to pay an
applicable call premium (EUR5 million) and to maintain the
remaining funds (EUR30 million) as cash on the balance sheet.
RATINGS RATIONALE
The proposed EUR200 million (equivalent) senior secured TLB add-on
will rank pari-passu with the group's existing senior secured debt
instruments, consisting of a senior secured revolving credit
facility (EUR391 million drawn as of March-end 2021), EUR and USD
denominated senior secured TLB and senior secured fixed and
floating rate notes, due 2027.
The proposed add-on is in line with the B1 ratings on the existing
senior secured instruments and one notch higher than TKE's B2 CFR,
reflecting their priority ranking, together with trade payables,
versus material amounts of junior-ranking unsecured debt (notes,
short-term lease commitments, pension obligations). Although the
intention to partially redeem the senior unsecured notes by around
EUR165 million will somewhat lower the loss-absorption capacity of
the unsecured debt, the amount is not significant enough to alter
the indicated notching for the instrument ratings in Moody's
loss-given-default (LGD) assessment.
Moody's recognizes the transaction, which also includes a repricing
of TKE's existing USD and EUR TLB and is expected to result in
overall interest cost savings of a low double digit million EUR
figure per annum, due to assumed margin reductions on the TLB and
the partial refinancing of the higher-interest unsecured notes with
the proposed add-on. Moody's considers the transaction as overall
slightly credit positive for TKE given the immaterial amount of
newly raised debt, which only marginally affects TKE's gross
leverage. The group's B2 CFR and the stable outlook, therefore,
remain unchanged.
LIQUIDITY
TKE's liquidity is adequate, reflecting Moody's forecast of modest
positive FCF generation and no material debt maturities over the
next few years. As of March 31, 2021, TKE's cash and cash
equivalents amounted to EUR492 million and it had access to EUR601
million under its committed EUR992 million revolving credit
facility. These cash sources, together with the additional cash
raised through the proposed transaction, provide TKE more than
sufficient liquidity to cover its basic cash needs over the next
12-18 months.
The RCF is subject to one springing covenant (Senior Secured Net
Leverage Ratio), which basically needs to be tested when the
aggregate amounts outstanding under the facility exceed around 40%
of the total commitments. There is currently significant headroom
and Moody's expects TKE to ensure consistent adequate capacity
under it at all times.
RATIONALE FOR THE STABLE OUTLOOK
TKE's ratings, which Moody's affirmed in April 2021, remain weakly
positioned. The stable outlook reflects the group's adequate
liquidity position and Moody's expectation of consistent positive
FCF generation. The outlook is further predicated on an expected
de-leveraging (in terms of Moody's-adjusted gross debt/EBITDA) to
below 7.5x by the end of fiscal year ending September 30, 2023 (FY
2022/23) at the latest. Any signs of a delay in the de-leveraging
or weakening (negative) FCF generation, however, would lead to
imminent negative rating pressure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward pressure on the ratings appears currently unlikely,
considering TKE's very high leverage and the existence of a
substantial amount of PIK notes above the restricted financing
group, reflecting some risk of associated cash leakage over time.
However, TKE's ratings could be upgraded, if (1) the group's
targeted profitability improvements supported de-leveraging to
sustainably below 6.5x Moody's-adjusted debt/EBITDA, (2)
Moody's-adjusted FCF/debt ratios improved to at least 5%, (3) a
prudent financial policy was established, as shown by excess cash
flow being applied to debt reduction and no material shareholder
distributions.
Downward pressure on TKE's ratings would build, if (1) the group
failed to steadily reduce leverage towards 7.5x Moody's-adjusted
debt/EBITDA, (2) Moody's-adjusted free cash flow turned negative,
(3) its liquidity started to deteriorate.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Manufacturing
Methodology published in March 2020.
COMPANY PROFILE
Headquartered in Dusseldorf, Germany, TK Elevator Holdco GmbH is an
intermediate holding company of TKE, a leading manufacturer of
elevators and escalators with a presence in the Americas,
Europe/Africa and Asia regions. In last fiscal year ended September
30, 2020, the group generated EUR7.9 billion in revenue and
company-adjusted EBITDA of EUR1,048 million (13.2% margin).
TK ELEVATOR: S&P Upgrades LongTerm ICR to 'B', Outlook Stable
-------------------------------------------------------------
S&P Global Ratings raised its long-term issuer rating on
Germany-based TK Elevator Topco to 'B' from 'B-', its rating on the
senior secured debt to 'B+' from 'B', and its issue rating on the
senior unsecured debt to 'CCC+' from 'CCC'. The recovery ratings on
the senior secured and unsecured debt remain at '2' and '6',
respectively.
The stable outlook reflects S&P's expectation that TK Elevator will
continue to improve its operating performance over the next 12-18
months, improving its S&P Global Ratings-adjusted EBITDA margin
toward 14% and reducing leverage to below 8x by fiscal 2022
(excluding the PIK notes).
Solid operating performance during the corona pandemic supported by
resilient aftermarket business. Due to the COVID-19 pandemic,
airport, retail, and office space use declined significantly while
pandemic restrictions temporarily delayed construction progress and
TK Elevator's ability to perform its services in some markets.
However, these hindrances had only a limited effect on TK
Elevator's operating performance in fiscal 2020, resulting in about
flat revenue of about EUR7.9 billion, while EBITDA increased to
about EUR900 million from about EUR750 million in fiscal 2019,
thanks to implemented cost and efficiency measures. Compared with
the broader capital goods portfolio, the operating performance has
been very resilient, underlying the strength of the group's
business model. Besides technological capabilities and a solid
order backlog, TK Elevator's resilience stems from its aftermarket
business which benefits from higher margin than on equipment,
uptime being crucial for high- and mid-rise buildings and local
safety regulations.
Revenue to grow to about EUR8.4 billion on the execution of the new
installation order back log. S&P expects revenue development to
remain flattish in fiscal 2021 but gain momentum in fiscal 2022,
improving by about 5% to EUR8.4 billion. The growth will be fueled
by healthy growth of new installation and modernizations in Asia,
continuously high conversion rate from new installation to service,
and high service renewal rates and diminishing COVID-19
restrictions.
S&P estimates the EBITDA margin will continue to improve by more
than 200 basis points to about 14% in fiscal 2022 from 11.5% in
fiscal 2020. The group's reported EBITDA margins remain below those
of its global peers, at about 11.5% at fiscal 2020 compared with
14%-17% of peers, and it has a somewhat smaller scale than other
global elevator manufacturers. The expected catch-up in
profitability to about 13% in fiscal 2021 and about 14% by fiscal
2022, underpins our forecast of deleveraging.
The cost and efficiency measures included, among others, purchasing
measures, and reduction of headcount, complexity of products, call
back times, and churn rates. S&P said, "We estimate about EUR100
million of restructuring charges in fiscal 2021 and fiscal 2022. TK
Elevator has managed the carve-out process successfully with no
negative surprises, and the achieved profitability improvements
have been in line with expectations. We are confident that
management will be able to deliver on the planned margin
improvement by executing on the implemented measures. At the
moment, we estimate no material impact from material price increase
or shortages of semiconductors."
S&P Global Ratings-adjusted pro forma leverage for fiscal 2021
remains high, at estimated 9.0x to 9.5x (about 11.5x to 12x
including the PIK notes) in fiscal 2021 and below 8x (about 10x
including the PIK notes) by fiscal 2022. S&P said, "Our base-case,
adjusted EBITDA for fiscal 2021 is more than EUR1.0 billion and for
fiscal 2022 about EUR1.1 billion-EUR1.2 billion. We expect the
group to generate positive free operating cash flow (FOCF) of
EUR120 million-EUR170 million in fiscal 2021 and more than EUR200
million in fiscal 2022, but we do not net any cash held in our
credit ratio calculations due to the group's financial sponsor
ownership."
Planned refinancing is leverage neutral and desired lower interest
cost will modestly support the FOCF and interest coverage ratios.
TK Elevator's intention to repay 10% (about EUR165 million) of its
outstanding senior unsecured notes by issuing a EUR200 million new
senior secured TLB only marginally affects its debt to EBITDA
leverage. Together with the planned repricing of the existing TLBs,
S&P estimates annual interest savings of a low-double-digit million
amount, which will modestly support the cash flow generation and
interest coverage ratios. The transaction has no impact on our
recovery analysis, so the rating on the senior secured notes, now
at 'B+', remains one notch above the issuer credit rating and the
senior unsecured notes, now at 'CCC+', remains at two notches below
the issuer credit rating.
Positive free cash flow and reduced use of its revolving credit
facility (RCF) support the liquidity profile. On March 31, 2021,
the group held cash of about EUR500 million and had used about
EUR390 million of its EUR992 million RCF. The group cut utilization
of the RCF by about EUR220 million in the second quarter and S&P
expects it will be further reduced on the back of improving FOCF
generation over the next 24 months. The liquidity profile is
further supported by low working capital swings and the long-dated
maturity profile with sufficient covenant headroom.
S&P said, "The stable outlook reflects our expectation that TK
Elevator will continue to improve its operating performance over
the next 12-18 months by executing on its efficiency measures and
revenue expansion, improving its S&P Global adjusted EBITDA margin
toward 14%, and reducing leverage to below 8x by fiscal 2022
(excluding the PIK notes). We also incorporate our expectation of
increased FOCF generation of more than EUR200 million and a funds
from operations (FFO) cash interest coverage ratio of about 2x by
fiscal 2022.
"We could lower rating or revise the outlook to negative if the
group does not increase its revenue or EBITDA margins as expected,
resulting in debt to EBITDA (excluding PIK notes) of more than 8x
or an FFO cash interest ratio of less than around 2x by fiscal
2022. This could occur through a less effective cost reduction,
loss of service contracts, or increasing pricing pressure after the
recession abates."
S&P could also lower the rating or revise the outlook to negative
if:
-- The group cannot increase profitability and absolute EBITDA as
projected;
-- The EBITDA margin does not improve toward 14% by fiscal 2022;
-- It cannot generate sustainable positive FOCF;
-- FFO to cash interest coverage falls short of around 2x;
-- Liquidity deteriorates; or
-- The group undertakes debt-financed acquisitions.
Rating upside is very limited over the next 24 months owing to the
group's high leverage and financial sponsor ownership. Over the
longer term, we could raise the rating if debt to EBITDA reduces to
clearly below 7x, supported by further EBITDA margin expansion to
above 15% and an FFO cash interest coverage ratio of about 2.5x, as
well as a more conservative financial policy.
=============
H U N G A R Y
=============
CIB BANK ZRT: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Hungarian CIB Bank Zrt.'s (CIB Bank)
Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable
Outlook, and Viability Rating (VR) at 'bb'.
KEY RATING DRIVERS
IDRS AND SUPPORT RATING
CIB Bank's IDRs and Support Rating (SR) are driven by Fitch's view
of a moderate probability of support, if required, from the bank's
ultimate parent, Intesa Sanpaolo S.p.A. (ISP, BBB-/Stable). CIB
Bank's Long-Term IDR is notched down once from the parent's
Long-Term IDR. The Stable Outlook on CIB Bank mirrors that on ISP.
Our view of support considers CIB Bank's role as a strategically
important subsidiary of ISP, the bank's strong synergies and
operational integration with the parent and the potential
reputational damage for ISP should the subsidiary default. Given
CIB Bank's small size (about 1% of ISP's consolidated assets),
Fitch believes any required support would be immaterial relative to
the parent's ability to provide it.
VR
CIB Bank's VR reflects solid capitalisation, reasonable
underwriting standards, moderate levels of impaired loans and sound
funding and liquidity. Fitch's assessment of CIB Bank's standalone
profile also factors in the bank's franchise with about a 5% share
in domestic-sector assets, loan book concentrations and a moderate
profit generation ability. Fitch believes that the latter reflects
a business model that is less resilient to operating environment
risks than larger peers'.
Fitch believes that near-term uncertainty arising from the pandemic
on Hungarian banks' credit profiles is contained and lingering
risks are mitigated by the country's solid recovery prospects
underpinned by economic normalisation, an advanced vaccination
rollout and a low unemployment rate. Economic recovery is also
supported by solid bank lending momentum and strong levels of
support and stimulus from the authorities.
The continued blanket moratorium masks the underlying asset-quality
picture in Hungary, but Fitch considers that banks have solid
pre-impairment operating profitability and a reasonable reserve
cushion, which should allow them to absorb potential deterioration
in loan-book quality without any material weakening of
capitalisation. These factors underpin Fitch's revision of the
outlook on the operating environment assessment for Hungarian banks
to stable.
Sound loan-book quality (as reflected by a Stage 3 loans ratio at
about 3.3% at end-2020) is underpinned by a moderate-risk business
model, sound underwriting, prudent risk controls and adequate
coverage of bad debts by loan loss allowances. So far, the impaired
loan ratio has risen only modestly from an all-time-low 3.2% at
end-2019 as asset quality benefits from the blanket loan moratorium
and other government-support measures. Fitch's baseline scenario
expects the ratio to increase in the next two years, but to remain
below 5%, as new impaired loan inflows should be balanced by
recoveries, disposals and business growth.
Our profitability assessment captures the bank's moderate results,
which balance improving but weaker margins than peers' with solid
fees and commissions income. Fitch expects CIB Bank's operating
profitability to gradually recover, as underlying improvement in
the revenue generation is counterbalanced by above pre-pandemic
credit risk costs with dissipating recoveries from legacy problem
assets. Average operating profit in 2017-2020 was about 1.7% of
risk-weighted assets.
CIB Bank's capitalisation compares well with those of rated
domestic peers and is supported by accumulated capital buffers and
potential ordinary parent support from ISP. However, higher
single-name loan book concentrations than peers' weigh on Fitch's
assessment. At end-2020, its common equity Tier 1 (CET1) ratio
reached 20.5%, providing a sizable buffer above the regulatory
requirements. The bank's capital remains modestly encumbered by
unreserved impaired loans, as reflected by a net impaired
loans/CET1 capital ratio at below 2%.
CIB Bank is self-funded with generally stable and granular customer
deposits that represented 83% of total liabilities at end-2020. Its
healthy funding profile is reflected in a gross loans/deposits
ratio of about 70% at end-2020. Liquidity is well-managed and
supported by an abundant buffer of high-quality liquid assets. Its
liquidity coverage ratio was high at 225% at end-2020.
RATING SENSITIVITIES
IDRS and SR
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of ISP's Long-Term IDR or weakening of the
parent's propensity to support the bank;
-- A downgrade of CIB Bank's SR would require a multi-notch
downgrade of the parent's Long-Term IDR or a material
weakening of ISP's propensity to support CIB Bank.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of the parent's IDR, while maintaining a strong
propensity to support the Hungarian subsidiary.
VR
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Sharp increase in problem loans combined with erosion of
capitalisation, in particular if Fitch expects the impaired
loans ratio to increase close to 10%, leading to weaker
profitability that would be insufficient to absorb increased
credit costs.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- A broadening of the bank's franchise, coupled with decreasing
loan book concentrations.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performanc
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
CIB Bank's Long-Term IDR and SR are linked to the Long-Term IDR of
ISP.
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.
=============
I R E L A N D
=============
AQUEDUCT EURO CLO 3-2019: Fitch Gives 'B-(EXP)' Rating on F-R Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Aqueduct European CLO 3-2019 DAC's
refinancing notes expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
DEBT RATING
---- ------
Aqueduct European CLO 3-2019 DAC
A-R Loan LT AAA(EXP)sf Expected Rating
A-R Notes LT AAA(EXP)sf Expected Rating
B-1R LT AA(EXP)sf Expected Rating
B-2R LT AA(EXP)sf Expected Rating
C-R LT A(EXP)sf Expected Rating
D-R LT BBB-(EXP)sf Expected Rating
E-R LT BB-(EXP)sf Expected Rating
F-R LT B-(EXP)sf Expected Rating
X-R LT AAA(EXP)sf Expected Rating
TRANSACTION SUMMARY
Aqueduct European CLO 3-2019 DAC is a securitisation of mainly
senior secured loans (at least 90%) with a component of senior
unsecured, mezzanine, and second-lien loans. The note proceeds will
be used to redeem existing notes except for the subordinated notes
and to fund the current portfolio with a target par of EUR400
million. The portfolio is managed by HPS Investment Partners CLO
(UK) LLP. The CLO envisages a 4.6-year reinvestment period and an
8.6-year weighted average life (WAL).
KEY RATING DRIVERS
'B' Portfolio Credit Quality (Neutral): Fitch places the average
credit quality of obligors in the 'B' range. The Fitch-weighted
average rating factor (WARF) of the current portfolio is 34.08.
Recovery Inconsistent with Criteria (Negative): Over 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the portfolio is 64.28% under
Fitch's criteria and 66.27% under the recovery rate definition in
the transaction documents. As the recovery rate provision does not
reflect Fitch's latest rating criteria, assets without a recovery
estimate or recovery rate by Fitch can map to a higher recovery
rate than in Fitch's current criteria. To factor in this
difference, Fitch has applied a stress on the breakeven WARR of
1.5%, which is in line with the average impact on the WARR of EMEA
CLOs following the criteria update
Diversified Asset Portfolio (Positive): The indicative 10 largest
obligors' limit at 22.50% is higher than the top 10 obligors'
exposure at 13.22% of the portfolio. The transaction also includes
limits on the Fitch-defined largest industry at a covenanted
maximum 17.5% and the three-largest industries at 44.5%. These
covenants ensure that the asset portfolio will not be exposed to
excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.6-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Model-implied Ratings Deviation (Negative): The assigned ratings of
all classes are one notch above the model-implied rating (MIR). All
notes pass one notch below the assigned ratings based on the stress
portfolio with the maximum default rate shortfall at the target
rating at -2.50%. The deviation reflects the transaction's steady
performance, and the positive cushion across the capital structure
based on the current portfolio and the coronavirus baseline
scenario.
The class F notes' deviation from the MIR reflects Fitch's view
that the tranche displays a significant margin of safety given the
credit enhancement level at closing. The notes do not present a
"real possibility of default", which is the definition of 'CCC' in
Fitch's Rating Definitions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A 125% default multiplier applied to the portfolio's mean
default rate, and with this being subtracted from all rating
default levels, and a 25% increase of the recovery rate at all
rating recovery levels, would lead to a downgrade of up to
five notches for the rated notes, except the class A-R notes,
which are already at the highest rating on Fitch's scale and
cannot be upgraded.
-- At closing, Fitch uses a standardised stress portfolio
(Fitch's Stressed Portfolio) that is customised to the
specific portfolio limits for each transaction as specified in
the transaction documents. Even if the actual portfolio shows
lower defaults and losses (at all rating levels) than the
Fitch's Stressed Portfolio assumed at closing, an upgrade of
the notes during the reinvestment period is unlikely, given
the portfolio credit quality may still deteriorate, not only
by natural credit migration, but also by reinvestments.
-- After the end of the reinvestment period, upgrades may occur
in case of a better than initially expected portfolio credit
quality and deal performance, leading to higher credit
enhancement and excess spread available to cover for losses on
the remaining portfolio.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A 125% default multiplier applied to the portfolio's mean
default rate, and with the increase added to all rating
default levels, and a 25% decrease of the recovery rate at all
rating recovery levels, would lead to a downgrade of up to
five notches for the rated notes.
-- Downgrades may occur if the build up of the notes' credit
enhancement following amortisation does not compensate for a
higher loss expectation than initially assumed due to an
unexpected high level of default and portfolio deterioration.
Coronavirus Baseline Scenario
Fitch recently updated its CLO coronavirus stress scenario to
assume half of the corporate exposure on Negative Outlook is
downgraded by one notch instead of 100% (floor at 'CCC'). All
ratings can withstand the coronavirus baseline sensitivity.
Coronavirus Downside Scenario
The CLO coronavirus downside scenario assumes all corporate
exposure on Negative Outlook is downgraded by one notch (floor at
'CCC'). In this scenario, the class A to E notes' ratings would not
be affected while the class F notes would be one notch lower than
their current ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
AURIUM CLO II: S&P Assigns B- Rating on Class F Notes
-----------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Aurium CLO II DAC's class A-1, A-2, B, C, D, E, and F notes. At
closing, the issuer will also issue unrated subordinated notes.
Under the transaction documents, after a long first interest
period, the rated notes will pay quarterly interest unless there is
a frequency switch event. Following this, the notes will switch to
semiannual payment.
The portfolio's reinvestment period will end approximately
four-and-a-half years after closing, and the portfolio's maximum
average maturity date will be eight-and-a-half years after
closing.
The preliminary ratings assigned to the notes reflect S&P's
assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,716.90
Default rate dispersion 638.97
Weighted-average life (years) 4.67
Obligor diversity measure 113.40
Industry diversity measure 20.32
Regional diversity measure 1.31
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 5.24
Covenanted 'AAA' weighted-average recovery (%) 35.50
Covenanted weighted-average spread (%) 3.65
Covenanted weighted-average coupon (%) 4.25
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
be well-diversified on the effective date, primarily comprising
broadly syndicated speculative-grade senior secured term loans and
senior secured bonds. Therefore, we conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
collateralized debt obligations.
"In our cash flow analysis, we considered the EUR350 million par
amount, the covenanted weighted-average spread of 3.65%, the
covenanted weighted-average coupon of 4.25%, and the covenanted
weighted-average recovery rates for all rating levels. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category. Our cash flow
analysis considers scenarios where the underlying pool comprises
100% of floating-rate assets (i.e., the fixed-rate bucket is 0%)
and where the fixed-rate bucket is fully utilized (in this case
10%)."
Under the transaction documents, the issuer can purchase workout
loans, which are assets of an existing collateral obligation held
by the issuer offered in connection with bankruptcy, workout, or
restructuring of the obligation, to improve the related collateral
obligation's recovery value. The purchase of workout loans is not
subject to the reinvestment criteria or the eligibility criteria.
However, if the workout loan meets the eligibility criteria with
certain exclusions, it can be accorded defaulted treatment in the
principal balance and par coverage tests. The issuer's cumulative
exposure to workout loans that can be acquired with principal
proceeds is limited to 5% of the reinvestment target par balance,
while the cumulative exposure to those purchased with principal and
interest proceeds is limited to 10% of the reinvestment target par
balance.
The issuer may purchase workout loans using interest proceeds,
principal proceeds, or amounts in the supplemental reserve account.
The use of interest proceeds to purchase workout loans is subject
to all coverage tests passing and there being sufficient interest
proceeds to pay interest on all the rated notes, on the upcoming
payment date. The use of principal proceeds is subject to certain
conditions, including the following: the par coverage tests are
passed following the purchase, the manager has built sufficient
excess par in the transaction so that the collateral principal
amount is equal to or exceeds the reinvestment target par balance
after the acquisition, and the obligation is a debt obligation that
is pari passu or senior to the obligation already held by the
issuer.
In this transaction, if a non-principal funded workout loan for
which no credit is given in the par coverage tests, subsequently
becomes an eligible CDO, the manager can designate it as such and
transfer the market value of the asset to the interest or the
supplemental reserve account from the principal account. S&P
considered the alignment of interests for this re-designation and
took into account factors, including that either the reinvestment
criteria is met or the collateral principal amount is equal to or
exceeds the reinvestment target par balance after such designation,
and that the manager cannot self-mark the market value.
S&P said, "We expect that the transaction's documented counterparty
replacement and remedy mechanisms will adequately mitigate its
exposure to counterparty risk under our current counterparty
criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"We expect the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
the class A-1 to F notes. Our credit and cash flow analysis
indicates that the available credit enhancement for the class B, C,
and D notes could withstand stresses commensurate with higher
ratings 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.
"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-1 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.
"For the class F notes, our ratings analysis makes additional
considerations before assigning ratings in the 'CCC' category, and
we would assign a 'B-' rating if the criteria for assigning a 'CCC'
category rating are not met."
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
secto. 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 certain activities,
including, but not limited to, the following: tobacco, mining of
thermal coal, oil sands extraction, and production of controversial
weapons. 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. PRELIM. CREDIT INTEREST RATE*
RATING AMOUNT ENHANCEMENT
(MIL. EUR) (%)
A-1 AAA (sf) 187.000 38.00 Three/six-month EURIBOR
plus 0.93%
A-2 AAA (sf) 30.000 38.00 Three/six-month EURIBOR
plus 1.18%§
B AA (sf) 35.000 28.00 Three/six-month EURIBOR
plus 1.60%
C A (sf) 24.500 21.00 Three/six-month EURIBOR
plus 2.15%
D BBB (sf) 21.000 15.00 Three/six-month EURIBOR
plus 3.10%
E BB (sf) 17.500 10.00 Three/six-month EURIBOR
plus 6.08%
F B- (sf) 11.285 6.78 Three/six-month EURIBOR
plus 9.01%
Sub NR 23.700 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
§The index will be capped at 2.10%.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
BANK OF IRELAND: Ireland Launches "Phased Exit" of Stake
--------------------------------------------------------
Laura Noonan at The Financial Times reports that Ireland has
launched a "phased exit" of its stake in the country's
second-biggest lender Bank of Ireland, marking the first major sale
in four years of holdings the government was forced to take during
the financial crisis.
According to the FT, the government, which pumped almost EUR30
billion into Ireland's three biggest banks between 2009 and 2011,
said on June 23 that it would reduce its 13.9% stake in Bank of
Ireland over the next six months. The holding is worth about
EUR676 million at current market prices, the FT discloses.
"The main and only reason that we are doing this  .   .   .
 is because I'm very confident about the future of the Irish
economy," finance minister Paschal Donohoe told Newstalk Radio,
rejecting suggestions that he was trying to shore up public
finances that had been hit hard by the pandemic.
Since the global financial crisis, the Irish government has tried
to time the sale of its stakes in the banking sector to avoid
losses for taxpayers, the FT notes.
The number of Bank of Ireland shares sold will depend on market
conditions, the department of finance said, likening the strategy
to the one used by the UK government to sell down its 29.4% stake
in Lloyds Banking Group between 2014 to 2016, according to the FT.
The plan will be managed by Citigroup, the FT states.
The government did not say whether it intended to sell its entire
stake in the six months, the FT relays.
This will be the first sale of the government's ordinary shares in
Bank of Ireland, which avoided the fate of majority state ownership
after a 2011 investment by a consortium including former US
commerce secretary Wilbur Ross, Canadian investment firm Fairfax
Financial and real estate company Kennedy Wilson, the FT notes.
LAST MILE: Moody's Assigns (P)B1 Rating to EUR13.37MM Cl. F Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned the following provisional
ratings to the debt issuance of Last Mile Logistics Pan Euro
Finance DAC (the "Issuer"):
EUR240.40M Class A Commercial Mortgage Backed Floating Rate Notes
due August 2033, Assigned (P)Aaa (sf)
EUR44.83M Class B Commercial Mortgage Backed Floating Rate Notes
due August 2033, Assigned (P)Aa3 (sf)
EUR46.04M Class C Commercial Mortgage Backed Floating Rate Notes
due August 2033, Assigned (P)A3 (sf)
EUR67.85M Class D Commercial Mortgage Backed Floating Rate Notes
due August 2033, Assigned (P)Baa3 (sf)
EUR83.61M Class E Commercial Mortgage Backed Floating Rate Notes
due August 2033, Assigned (P)Ba2 (sf)
EUR13.37M Class F Commercial Mortgage Backed Floating Rate Notes
due August 2033, Assigned (P)B1 (sf)
Moody's has not assigned provisional ratings to the Class X Notes
due August 2033 of the Issuer.
Last Mile Logistics Pan Euro Finance DAC is a true sale transaction
backed by a EUR510.21 million loan.
RATINGS RATIONALE
The rating action is based on: (i) Moody's assessment of the real
estate quality and characteristics of the collateral; (ii) analysis
of the loan terms; and (iii) the expected legal and structural
features of the transaction.
The key parameters in Moody's analysis are the default probability
of the securitised loan (both during the term and at maturity) as
well as Moody's value assessment of the collateral. Moody's derives
from these parameters a loss expectation for the securitised loans.
Moody's total default risk assumption is medium for the loan. The
Moody's loan to value ratio (LTV) of the securitised loan at
origination is 78.5%. Moody's has applied a property grade of 2.0
for the portfolio (on a scale of 1 to 5, 1 being the best).
The key strengths of the transaction include: (i) the good quality
collateral comprising a portfolio of logistics/urban logistics and
light industrial properties; (ii) the strong tenant diversity;
(iii) the medium total default risk; (iv) the experienced sponsor
and asset manager; and (v) the positive impact of e-commerce trends
on logistics assets.
Challenges in the transaction include: (i) the weak release price
mechanism and covenants; (ii) the additional mezzanine debt that
increased the overall leverage; (iii) the lack of scheduled
amortisation; and (iv) the exposure to a country with a local
currency country risk ceiling (LCC) below Aaa.
The principal methodology used in these ratings was "Moody's
Approach to Rating EMEA CMBS Transactions" published in May 2021.
Factors that would lead to an upgrade or downgrade of the ratings:
Main factors or circumstances that could lead to an upgrade of the
ratings are generally: (i) an increase in the property values
backing the underlying loans; (ii) a decrease in the default
probability driven by improving loan performance or decrease in
refinancing risk.
Main factors or circumstances that would lead to a downgrade of the
ratings are generally: (i) a decline in the property values backing
the underlying loans; (ii) an increase in the default probability
of the combined loans; and (iii) a significant change to the
portfolio's exposure to Spain with a LCC at Aa1.
The action has considered the coronavirus pandemic's residual
impact on the portfolio's European countries economic activities
and the ongoing effect on the performance of real estate as the
economies continue on the path toward normalization. Economic
activity will continue to strengthen in 2021 because of several
factors, including the rollout of vaccines, growing household
consumption and accommodative central bank policy. However,
specific sectors and individual businesses will remain weakened by
extended virus restrictions.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
PALMER SQUARE 2021-2: Moody's Assigns (P)B3 Rating to Cl. F Notes
-----------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following provisional ratings to notes to be issued by Palmer
Square European CLO 2021-2 DAC (the "Issuer"):
EUR182,000,000 Class A-1 Senior Secured Floating Rate Notes due
2035, Assigned (P)Aaa (sf)
EUR35,000,000 Class A-2 Senior Secured Floating Rate Notes due
2035, Assigned (P)Aaa (sf)
EUR20,000,000 Class B-1 Senior Secured Floating Rate Notes due
2035, Assigned (P)Aa2 (sf)
EUR15,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2035,
Assigned (P)Aa2 (sf)
EUR24,500,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2035, Assigned (P)A3 (sf)
EUR22,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2035, Assigned (P)Baa3 (sf)
EUR18,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2035, Assigned (P)Ba3 (sf)
EUR9,500,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2035, Assigned (P)B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured obligations and up to 10%
of the portfolio may consist of senior unsecured obligations,
second-lien loans, mezzanine obligations and high yield bonds. The
portfolio is expected to be 80% ramped as of the closing date and
to comprise of predominantly corporate loans to obligors domiciled
in Western Europe. The remainder of the portfolio will be acquired
during the five-months ramp-up period in compliance with the
portfolio guidelines.
Palmer Square Europe Capital Management LLC ("Palmer Square") will
manage the CLO. It will direct the selection, acquisition and
disposition of collateral on behalf of the Issuer and may engage in
trading activity, including discretionary trading, during the
transaction's 4.5 year reinvestment period. Thereafter, subject to
certain restrictions, purchases are permitted using principal
proceeds from unscheduled principal payments and proceeds from
sales of credit risk obligations or credit improved obligations.
In addition to the eight classes of notes rated by Moody's, the
Issuer will issue EUR30,600,000 Subordinated Notes due 2035 which
are not rated.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Methodology underlying the rating action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR350,000,000.00
Diversity Score: 50
Weighted Average Rating Factor (WARF): 2900
Weighted Average Spread (WAS): 3.40%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 44.0%
Weighted Average Life (WAL): 8.5 years
PLATFORM BIDCO: Moody's Assigns First Time 'B3' Corp Family Rating
------------------------------------------------------------------
Moody's Investors Service has assigned a first-time B3 corporate
family rating and B3-PD probability of default rating to PLATFORM
BIDCO LIMITED, a new entity created for the acquisition of Valeo
Foods Group Ltd, an Irish producer and distributor of branded and
non-branded ambient food products. Concurrently, Moody's has
assigned B2 ratings to the EUR1,010 million senior secured first
lien term loan B and to the EUR180 million senior secured EUR/GBP
revolving credit facility borrowed by Platform Bidco. The outlook
on all ratings is stable.
Proceeds from the term loan together with equity contribution will
be used to finance the acquisition of Valeo by financial sponsor
Bain Capital, to repay the company's existing debt and to pay
transaction fees and expenses. The acquisition is pending
regulatory approvals and is expected to close in Q4 2021 (calendar
year).
"The B3 rating is supported by Valeo's leading position in selected
food categories, its pan-European presence, its portfolio of
well-recognised brands and its track record of positive free cash
flow generation and success at integrating acquisitions. These
strengths are offset by the company's high financial leverage and
our expectation that ongoing acquisitions might delay any
sustainable improvement in credit metrics," says Paolo Leschiutta,
a Moody's Senior Vice President and lead analyst for Platform
Bidco.
"However, the rating assumes that the company's Moody's adjusted
leverage will reduce below 8.0x over the next 12 to 18 months on
the back of cost savings and that any debt-funded acquisition
activity will not result in a prolonged deterioration in financial
leverage," adds Mr. Leschiutta.
RATINGS RATIONALE
The B3 CFR of Platform Bidco reflects Valeo's leading position in
the Irish food and UK honey and hand-cooked potato crisps markets,
its relatively good geographic diversification across Europe
compared to similarly rated companies and a portfolio of
well-recognised brands. The rating is also supported by a good
track record of generating positive free cash flow and integrating
acquisitions.
These strengths are offset by the company's high financial
leverage. Following the ownership change, Moody's anticipates that
the company's initial leverage, measured by Moody's adjusted debt
to EBITDA, will exceed 8.0x. The rating assumes, however, that the
company will strengthen its key credit metrics over the next 12 to
18 months on the back of operating margin improvements resulting
from cost savings opportunities. Albeit some of these savings will
derive from a number of optimisation measures through the
integration of assets acquired by Valeo over the last two years and
should be easily achieved, some others entail higher execution
risks and might take time to deliver full benefits. In addition,
over the next 12-18 months, the company will also have to incur
restructuring costs and investments to achieve these savings, which
will weigh on profitability and cash generation.
Moody's acknowledges the strong track record of Valeo's management
in managing commodity price volatility and in growing through
acquisitions while maintaining a stable financial leverage. The
rating agency, however, believes that current high commodity prices
and tough competition in some of the company's key markets, with
the associated price pressures, might slow down the improvement in
profitability. In addition, the company's appetite for acquisitions
might also prevent any structural improvement in credit metrics. In
this context, Moody's has assumed that the company's profitability
will only improve marginally over the next 12 to 18 months and that
its adjusted financial leverage will therefore remain above 7.0x
over the next two years.
Positively, Moody's notes that Valeo has remained relatively immune
to the Coronavirus pandemic and normalisation of consumption
patterns together with a gradual reopening of the food service
channel and the easing of mobility restrictions should support some
degree of top-line recovery over the next twelve months.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
In line with other food manufacturers, Valeo has modest
environmental and social risks which are mainly related to the
sustainability of procurement of certain raw materials and changes
in consumer preferences. Moody's expects these risks to remain
manageable, albeit Valeo's focus on some mature categories exposes
it to potential changes as consumers shift towards healthier food
offerings.
Moody's regards the coronavirus outbreak as a social risk given the
substantial implications for public health and safety. Renewed
prolonged lockdown measures, together with the potential for new
waves of cases globally, might affect the company's cash generation
over the coming six to 12 months.
Following the acquisition by Bain Capital, Moody's expects Valeo to
maintain a high level of tolerance for leverage, in line with
private equity ownership, as well as appetite for small,
debt-funded acquisitions. Moody's views the equity contribution
envisaged by the new transaction as modest in comparison to the
debt amount and in addition the rating agency notes that Valeo's
credit metrics continue to be distorted by a significant number of
acquisitions, which makes monitoring of underlying performance more
difficult.
LIQUIDITY
Platform Bidco's liquidity is adequate, underpinned by Valeo's
ability to generate positive FCF and its modest business and
working capital seasonality during the year. However, the initial
cash balance will be modest and while FCF generation is positive,
at around EUR20-40 million annually, it is small relative to the
amount of debt that the company carries (resulting in a FCF/Debt
ratio in the low-single-digit in percentage terms).
Liquidity is further supported by the extended debt maturity
profile, with no debt maturities until 2028. The new capital
structure includes a new EUR180 million revolving credit facility
maturing six months inside the Term Loan B and which contains one
financial covenant, which is tested only when the RCF is drawn more
than 40% with a maximum net senior secured leverage covenant of
10.0x, against the current 5.5x measured with the structuring
EBITDA.
The main EUR1.01 billion Term Loan B will mature in seven years,
while the EUR175 million second-lien tranche will mature in eight
years.
The available liquidity sources will adequately cover cash needs
over the next 12-18 months, although the company has assumed no
starting cash, which may imply some initial drawings under the
company's revolving credit facility.
STRUCTURAL CONSIDERATIONS
The B2 rating assigned to Platform Bidco's new EUR1.01 billion
senior secured term loan B and EUR180 million senior secured
revolving credit facility is one notch above the B3 CFR, as the
EUR175 million equivalent second lien facility and the potential
EUR100 million acquisition facility, which are subordinated to both
first lien facilities, provides enough loss absorption protection.
All facilities benefit from the same guarantee and security
packages, although with a different priority of claim.
Moody's has assumed a 50% family recovery rate, as it is standard
for capital structures that include first and second lien bank debt
with a springing covenant only. The security package includes
floating charge on assets of UK and Irish subsidiaries and
facilities are guaranteed by subsidiaries representing at least 80%
of the group's EBITDA.
Moody's understands that the equity contribution provided by funds
managed by Bain and entering the restricted group, will be in the
form of common equity and that, other than the three main bank
facilities mentioned above and approximately EUR19 million of
existing other financial liabilities that will be carried over,
there will not be any other significant financial debt.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the company's
Moody's-adjusted debt/EBITDA will reduce to below 8.0x over the
next 12-18 months and that the company will maintain a stable
operating performance, weathering potential volatility in raw
material prices and a prudent approach to future acquisitions with
multiples similar to past deals and successful integration.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure on the rating could arise over time if leverage
falls below 7.0x on a sustained basis, and the company demonstrates
its ability to maintain positive and growing FCF generation and
adequate liquidity.
Negative rating pressure could develop if operating performance
deteriorates or FCF turns negative on an ongoing basis, the company
engages in an aggressive acquisition policy leading to a prolonged
deterioration in leverage with Debt to EBITDA exceeding 8.0x on a
sustained basis, or in case of deterioration in liquidity.
LIST OF AFFECTED RATINGS
Issuer: PLATFORM BIDCO LIMITED
Assignments:
Probability of Default Rating, Assigned B3-PD
LT Corporate Family Rating, Assigned B3
Senior Secured Bank Credit Facilities, Assigned B2
Outlook Action:
Outlook, Assigned Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods Methodology published in February 2020.
COMPANY PROFILE
Platform Bidco Limited is a newly incorporated entity created for
the acquisition of Valeo Foods Group Ltd, an Irish leading producer
and distributor of branded and non-branded ambient food products.
The company operates primarily in Ireland, UK, Italy, the
Netherlands, the Czech Republic and Germany and owns well
recognised local brands including Jacob's, Rowse, Batchelors,
Odlums, Kettle Chips, Chef, Matthew Walker and Kelkin, which hold
leading market shares within their respective product categories.
In the financial year ended March 31, 2021, Valeo reported net
revenues of approximately EUR1.1 billion and EBITDA of EUR156
million, before exceptional items and proforma for the twelve
months contribution of recently completed acquisitions. Valeo was
founded in 2010 and is currently in the process of being acquired
by Bain Capital.
PLATFORM BIDCO: S&P Assigns 'B' LongTerm ICR, Outlook Negative
--------------------------------------------------------------
S&P Global Ratings assigned its 'B' long-term issuer credit rating
to Platform Bidco (parent company of Valeo group) and its 'B' issue
and '3' recovery ratings to its proposed EUR1.01 billion first lien
term loan.
The negative outlook reflects S&P's view of limited rating headroom
if Platform Bidco's financial ratios were to deteriorate markedly
from our base case. This could stem from high leverage
post-transaction and lingering uncertainty as to the speed of the
company's recovery post pandemic.
Valeo's diversity by products, brands, and customers will help
offset some geographical concentration. The company has a balanced
exposure to own brands (about 58% of total sales) and private label
business (42% of total sales). Approximately 50% of its branded
portfolio comprises "local heroes" that are either No. 1 or No. 2
in their respective categories in key markets (Ireland and the
U.K.). Valeo does not depend on any one particular brand, and
brands are spread across many categories including ambient
groceries, confectionary, savoury and sweet snacking, and others.
Moreover, no single customer accounts for more than 10% of sales,
with the top 10 clients accounting for about 50% of total business.
S&P said, "We view the overall product and category diversity--with
leading positions of most of the local brands in their niche
segments--as key credit strengths. The overall diversity of the
business helps offset some geographical concentration with the U.K.
and Ireland accounting for 75% of total revenues. In terms of
geographical growth prospects, we think that opportunities exist in
the U.K. and continental Europe. The company is a clear leader in
the grocery category in Ireland and further material further growth
in the country will be difficult. The U.K. is a large and very
dynamic and competitive consumer market, where Valeo would need to
invest further in its brand positioning, in our view."
Material cost savings should see steady deleveraging. The company
expects to achieve a close to EUR30 million EBITDA increase,
primarily coming from cost savings, by the end of fiscal year 2023
(ending March 31). Initiatives include a central procurement and
marketing system, as well as other efficiency measures linked to
the integration of recent acquisitions, particularly in the U.K.
S&P said, "While raw material cost inflation is a potential risk,
we assume that the company will be able to partly offset this
through price increases. Valeo does not use hedging instruments for
raw material prices, which could present some volatility to our
base case particularly for the private label business (42% of total
sales). However, it has long-standing relationships with its
clients. This should afford it some pass-through ability. In our
base case, we project adjusted EBITDA margins to improve to around
13.5%-14.0% in FY2022 (13% in FY2021) and 14.5%-15.0% in FY2023.
This should help debt reduction approach 7.0x by year-end 2023,
which supports the 'B' rating."
New contract wins and a recovery in the foodservice channel should
see organic revenue growth rebound in the coming 12-18 months. S&P
said, "For full years 2022 and 2023, we project organic net revenue
growth of close to 2.5%-3.0% on the back of the snacking and
confectionery divisions winning new contracts with some major
retailers in the U.K. and Germany. Moreover, as European countries
continue to gradually lift restrictions, we expect a broader
rebound in consumption in the impulse channel in retail and in the
foodservice segment (7% of net sales). We factor in a revenue
decline in Ireland (28% of gross revenues in FY2021) and the U.K.
grocery business (approximately one-third of the overall U.K.
business) of up to 6% and 4%-5%, respectively, in FY2022. This
reflects a normalization of consumption patterns after the
stockpiling of staple products we saw during the 2020 lockdowns, as
well as some normalization in consumption in the foodservice
segment."
There are pockets of growth potential across Valeo's product
categories. Valeo operates in large, relatively stable categories
such as confectionery and snacks. According to Euromonitor
International, the Western European confectionary and snacks
categories were valued at about US$54 billion and US$128 billion in
annual sales in 2020. The U.K. market has exhibited stronger value
growth and is where Valeo has been focusing most of its M&A
efforts. The U.K.'s confectionery, savory, and snacking markets
have grown by about a 2%-4% constant adjusted growth rate (CAGR) in
the past 10 years. While trends toward healthier lifestyles and
low-sugar content could mean lower growth for these products,
indulgence is not likely to disappear. This should support the
overall stability of Valeo's business. Moreover, its balanced
portfolio approach to own brands and private labels (a 58% to 42%
split), should also help mitigate competitive pressures.
The company has a good track record of positive annual free
operating cash flow (FOCF) generation. FOCF has been consistently
positive for five years, even noting an annual average spend of
about EUR140 million on acquisitions that have required integration
investments. Valeo's free cash flow profile benefits from a
well-invested asset base, with a balanced manufacturing footprint
of about 24 facilities across its main markets in the U.K.,
Ireland, Germany, Italy, and the Czech Republic. The company is
continuously investing in its footprint, but the business is
characterized by low capital expenditure (capex) intensity. S&P
said, "We project slightly higher capex of about EUR44
million-EUR45 million in FY2022-FY2023, of which around EUR27
million for maintenance, and the rest linked to recent contract
wins in the growing confectionery and snacking business. Assuming
minor working capital outflows, mainly reflecting the rebound in
overall revenue growth, we project positive FOCF of around EUR30
million-EUR40 million in FY2022, rising to EUR45 million-EUR50
million in FY2023."
S&P said, "We factor in a relatively high starting adjusted
leverage ratio and possible headwinds from the recovering phase
post pandemic. Post transaction closing, we project very high S&P
Global Ratings-adjusted debt to EBITDA of nearly 8.0x at the end of
this fiscal year ending March 31, 2022. This could reduce to
7.1.x-7.3x by end-FY2023 on planned cost-saving initiatives, new
contract wins, and a broader volume recovery in Valeo's
confectionery and snacking business. Demand for confectionery and
snacking products was hit during the lockdowns as consumers
prioritized essential staple product purchases. In FY2021,
excluding negative foreign exchange effects, pro forma gross
revenues (for full-year contribution of Germany-based Schluckwerder
and U.K.-based It's All Good) were down 1.6% year-on-year, partly
on pandemic-related subdued consumption of confectionery and
snacking products in the retail and foodservice channels. Valeo has
started the current financial year well, suggesting some recovery
is underway.
"Valeo's organic revenue growth has been low in recent years, but
we expect this will improve. For FY2019-FY2021, Valeo posted 0.5%
organic revenue growth (CAGR). While FY 2021 saw the effects of the
pandemic (impulse consumption was down especially in the snacking
category), organic growth had already slowed. Pro forma gross
revenue in FY2020 (for the Matthew Walker and Kettle Foods
acquisitions) excluding foreign exchange gains was down 0.6%, while
in FY2019 it was just over 1.0%. We understand that there has been
some sub-optimal contract rationalization within the overall
product portfolio linked to recent acquisitions, which has weighed
on results.
"We have not factored any acquisitions into our base case, but
considering the relatively high pro forma leverage we recognize
this as an event risk for the rating. We have not factored in
acquisitions because of uncertainties regarding their timing and
size. However, we anticipate they will remain part of Valeo's
overall growth strategy under its new ownership. Valeo was
established in 2010, following the merger of flagship Irish
consumer foods groups Origin Foods and Batchelors, under the
majority ownership of private equity group, CapVest Partners. It
was set up as an acquisition vehicle to lead the consolidation of
the fragmented consumer foods sector in its main U.K. and Irish
markets. It has completed 18 acquisitions since its formation and
has also expanded into Europe. Consequently, its revenues have
grown substantially, by almost 8.5x, and reported EBITDA by about
7.7x, since its formation. Valeo has acquired mainly snacking and
confectionery brands in the past five years, thereby expanding away
from traditional ambient groceries. Notable acquisitions include
Balconi (FY2016); Val D'Enza, Big Bear and Candy Plus (FY2018);
Tangerine (FY2019); Matthew Walker, Kettle Foods and Yellow Chips
(FY2020); and It's All Good and Schluckwerder (FY2021). We think it
will continue to focus on confectionery and snacking when it comes
to acquisitions." Valeo's strategy in recent years has been to
acquire leading and stable brands that will enhance its
profitability.
The free trade deal between the U.K. and the EU has removed
uncertainty and potential disruption risk. Despite some trade
frictions at the beginning of 2021, Valeo has not had supply chain
issues. Administration related to extra checks at ports has proved
only a minor hindrance. Valeo's Irish division imports some raw
materials from the U.K., while the U.K. operations have been
sourcing significant raw materials from the EU. The agreed free
trade tariff will not lead to price impacts from importing raw
materials from EU. In FY2020 and FY2021, Valeo's working capital
profile exhibited some volatility mainly because of inventory
build-ups in anticipation of possible outcomes of the trade talks.
The trade deal has materially limited Brexit-related risks
associated and should help smooth Valeo's working capital profile
and allow management to focus on executing its business plan and
integrating acquired assets.
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 negative outlook reflects our view of limited rating
headroom if Platform Bidco's financial ratios were to deteriorate
markedly from our base case. This could stem from high leverage
post-transaction and lingering uncertainty as to the speed of the
company's recovery post pandemic.
"We could consider lowering the rating if Valeo's credit metrics
deteriorated, translating, for example, into higher leverage than
anticipated or negative FOCF generation. This could arise, for
example, from rising competitive pressures, an inability to pass on
raw material price increases, or an inability to achieve envisaged
cost savings thereby pressuring profitability. Rating pressure
could also come from a more aggressive financial policy causing
slower deleveraging.
"We could consider revising the outlook to stable if the company
showed a longer track-record of profitable organic revenue growth
with continued positive FOCF that supported steady deleveraging.
Under this scenario, we would also expect Valeo to pursue a prudent
policy in terms of bolt-on acquisitions."
TORO EURO CLO 3: Fitch Affirms B- Rating on Class F Notes
---------------------------------------------------------
Fitch Ratings has upgraded Toro European CLO 3 DAC's class B-1-R,
B-2, B-3-R, C-1, C-2 and D notes, affirmed the other notes and
revised the Outlooks on the class E and F notes to Stable from
Negative.
DEBT RATING PRIOR
---- ------ -----
Toro European CLO 3 DAC
A-R XS2066751871 LT AAAsf Affirmed AAAsf
B-1-R XS2066752416 LT AA+sf Upgrade AAsf
B-2 XS1573949911 LT AA+sf Upgrade AAsf
B-3-R XS2066753737 LT AA+sf Upgrade AAsf
C-1 XS1573951818 LT A+sf Upgrade Asf
C-2 XS1575705287 LT A+sf Upgrade Asf
D XS1573953194 LT BBB+sf Upgrade BBBsf
E XS1573954085 LT BB-sf Affirmed BB-sf
F XS1573958235 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Toro European CLO 3 DAC is a cash flow CLO mostly comprising senior
secured obligations. The transaction has just exited its
reinvestment period and is actively managed by Chenavari Credit
Partners LLP.
KEY RATING DRIVERS
Reinvestment Period Exited: The upgrade of the class B-1-R, B-2,
B-3-R, C-1, C-2 and D notes reflects that the transaction has just
exited its reinvestment period and is expected to begin
deleveraging. In addition, the transaction's weighted-average life
(WAL) is shorter than at Fitch's last review. The manager continues
to reinvest according to the transaction's reinvestment criteria.
Resilient to Coronavirus Stress: The affirmations and upgrades
reflect the broadly stable portfolio credit quality of the
transaction since September 2020. Fitch recently updated its CLO
coronavirus stress scenario to assume that half of the corporate
exposure on Negative Outlook is downgraded by one notch, instead of
100%. The revision of the Outlooks on the class E and F notes to
Stable from Negative and Stable Outlooks on the other notes reflect
the resilience of the notes to the sensitivity analysis Fitch ran
in light of the coronavirus pandemic. The class A-R, B-1-R, B-2,
B-3-R, C-1, C-2 and D notes show cushions while the class E and F
notes showed small shortfalls under this sensitivity run. The
shortfalls on the class E and F notes are small and driven by the
back-loaded default scenario, which is not an imminent risk.
Stable Asset Performance: The transaction's metrics are similar to
those at the last review in September 2020. The transaction was
below par by 1.14% as of the investor report in May 2021. All
collateral quality tests, portfolio profile tests and coverage
tests were passing except the Fitch WARF test and weighted average
spread test. Exposure to assets with a Fitch-derived rating (FDR)
of 'CCC+' and below was 6.9% (excluding non-rated assets).
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors in the 'B'/'B-' category for the transaction. The WARF
as calculated by Fitch was 35.26 (assuming unrated assets are CCC)
above the maximum covenant of 34.00. The Fitch WARF would increase
by 0.99 after applying the coronavirus baseline stress.
High Recovery Expectations: Senior secured obligations plus cash
comprise 94.69% of the portfolio. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 17.31%, and no obligor represents more than 2.02%
of the portfolio balance.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the default rate (RDR) at all rating levels by
25% of the mean RDR and an increase in the recovery rate (RRR)
by 25% at all rating levels would result in an upgrade of up
to five notches, depending on the notes.
-- Except for the class A-R notes, which are already at the
highest rating on Fitch's scale and cannot be upgraded,
upgrades may occur in case of better-than-expected portfolio
credit quality and deal performance, leading to higher credit
enhancement and excess spread available to cover for losses in
the remaining portfolio. Further tranches may be upgraded as
the notes start to amortise, leading to higher credit
enhancement across the structure, and if the portfolio's
credit quality remains stable.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the RDR at all rating levels by 25% of the mean
RDR and a decrease of the RRR by 25% at all rating levels will
result in downgrades of up to five notches, depending on the
notes.
-- Downgrades may occur if the build-up of credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high
levels of default and portfolio deterioration. As the
disruptions to supply and demand due to the pandemic become
apparent, loan ratings in those sectors will also come under
pressure. Fitch will update the sensitivity scenarios in line
with the view of its Leveraged Finance team.
Coronavirus Downside Sensitivity
Fitch has added a sensitivity analysis that contemplates a more
severe and prolonged economic stress. The downside sensitivity
incorporates a single-notch downgrade to all FDRs on Negative
Outlook. For this transaction this scenario would result in at most
one-notch downgrades.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Toro European CLO 3 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
VENDOME FUNDING 2020-1: Fitch Gives 'B-(EXP)' Rating to F-R Notes
------------------------------------------------------------------
Fitch Ratings has assigned Vendome Funding CLO 2020-1 DAC's
refinancing notes expected ratings.
DEBT RATING
---- ------
Vendome Funding CLO 2020-1 DAC
A-1-R LT AAA(EXP)sf Expected Rating
A-2-R LT AAA(EXP)sf Expected Rating
B-R LT AA(EXP)sf Expected Rating
C-R LT A(EXP)sf Expected Rating
D-R LT BBB-(EXP)sf Expected Rating
E-R LT BB-(EXP)sf Expected Rating
F-R LT B-(EXP)sf Expected Rating
TRANSACTION SUMMARY
Vendome Funding CLO 2020-1 DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds.
Refinancing note proceeds will be used to refinance the existing
notes and to upsize the portfolio with an increased target par of
EUR400 million. The portfolio will be actively managed by CBAM CLO
Management Europe Limited. The collateralised loan obligation (CLO)
has a four-and-a-half-year reinvestment period and an
eight-and-a-half-year weighted average life (WAL).
KEY RATING DRIVERS
Above Average Portfolio Credit Quality (Positive): Fitch considers
the average credit quality of obligors to be in the 'B' category.
The Fitch weighted average rating factor (WARF) of the identified
portfolio is 32.3, below the maximum WARF covenant for assigning
expected ratings of 35.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 64.9%
(or 67.0%, based on 2018 methodology retained to determine Fitch
recovery rate), compared with the minimum WARR covenant for
assigning expected ratings of 64.5%. Fitch applied a 1.5% haircut
to this covenant in Fitch's modelling to reflect the outdated
definition.
Diversified Asset Portfolio (Positive): The transaction will have
several Fitch test matrices corresponding to two top 10 obligors'
concentration limits. The manager can interpolate within and
between two matrices. The transaction also includes various
concentration limits, including the maximum exposure to the three
largest (Fitch-defined) industries in the portfolio at 40%. These
covenants ensure the asset portfolio will not be exposed to
excessive concentration.
Portfolio Management (Positive): The transaction has a 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Deviation from Model-implied Rating (Negative): The expected
ratings class B, C, D, E and F notes are one notch higher than the
model-implied rating (MIR). The ratings are supported by the
significant default cushion on the identified portfolio at the
assigned ratings due to the notable cushion between the
transaction's covenants and the portfolio's parameters including a
higher diversity (136 obligors) for the identified portfolio.
The class F notes' deviation from the MIR reflects Fitch's view
that the tranche has a significant margin of safety given the
credit enhancement level at closing. The notes do not present a
"real possibility of default", which is the definition of 'CCC' in
Fitch's Rating Definitions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the default rate (RDR) at all rating levels by
25% of the mean RDR and an increase in the recovery rate (RRR)
by 25% at all rating levels would result in an upgrade of up
to four notches depending on the notes, except for the class
A-1 and A-2 notes, which are already at the highest rating on
Fitch's scale and cannot be upgraded.
-- At closing, Fitch uses a standardised stress portfolio
(Fitch's stressed portfolio) that was customised to the
portfolio limits as specified in the transaction documents.
Even if the actual portfolio shows lower defaults and smaller
losses at all rating levels than Fitch's stressed portfolio
assumed at closing, an upgrade of the notes during the
reinvestment period is unlikely, as the portfolio credit
quality may still deteriorate, not only by natural credit
migration, but also through reinvestments.
-- After the end of the reinvestment period, upgrades may occur
on better-than-expected portfolio credit quality and deal
performance, leading to higher credit enhancement and excess
spread available to cover for losses in the remaining
portfolio.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the RDR at all rating levels by 25% of the mean
RDR and a decrease of the RRR by 25% at all rating levels will
result in downgrades of no more than five notches depending on
the notes.
Coronavirus Baseline Stress Scenario
Fitch recently updated its CLO coronavirus stress scenario to
assume half of the corporate exposure on Negative Outlook is
downgraded by one notch instead of 100%. The Stable Outlooks on all
the notes reflect the default rate cushion in the sensitivity
analysis run in light of the coronavirus pandemic.
Coronavirus Downside Stress Scenario
Fitch has added a sensitivity analysis that contemplates a more
severe and prolonged economic stress caused by a re-emergence of
infections in the major economies. The potential severe downside
stress incorporates the following stresses: applying a notch
downgrade to all the corporate exposure on Negative Outlook. This
scenario shows resilience at the current ratings for all notes.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Vendome Funding CLO 2020-1 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
=========
I T A L Y
=========
GUALA CLOSURES: Moody's Rates New EUR475MM Secured Notes 'B1'
-------------------------------------------------------------
Moody's Investors Service has affirmed the B1 corporate family
rating and the B1-PD probability of default rating of Guala
Closures S.p.A., the world leader of plastic and aluminium closures
for the beverages industry. Concurrently, Moody's has assigned a B1
rating to the proposed EUR475 million guaranteed senior secured
notes due 2028 to be issued by Guala. The outlook on the ratings
remains negative.
Proceeds from the EUR475 million notes together with EUR18 million
cash will be used to refinance the existing EUR455 million senior
secured floating rate notes due 2024, to repay the drawings under
the existing super senior revolving credit facility (RCF), and for
transaction fees. The rating of the 2024 notes will be withdrawn
upon repayment. The transaction is necessitated by the change of
control clause under the existing bond indenture because funds
advised by private equity sponsor Investindustrial have become the
largest shareholder of the company with 94.9% of shares since June
7.
"The affirmation of Guala's B1 rating with a negative outlook
reflects the continued weakness in the credit metrics following a
decline in profitability in 2020, and a degree of uncertainty on
the pace of recovery in the company's operating performance in the
current year, to reduce leverage to a level more commensurate with
the B1 rating category," says Donatella Maso, a Moody's Vice
President -- Senior Analyst and lead analyst for Guala. "The
negative outlook also reflects the risk that the new shareholders
may pursue a more aggressive financial policy", adds Ms Maso.
RATINGS RATIONALE
While the proposed refinancing is broadly leverage neutral and
slightly improves the company's liquidity, the company's financial
leverage, as adjusted by Moody's, remains high at 6.4x based on
last twelve months ending March 2021 and pro forma for the
refinancing, which is well above the 5.0x guidance for the current
B1 rating. Moody's notes that some of this weakness is related to
adverse foreign exchange movements in 2020. However, the rating
agency expects that the company will reduce its gross leverage to
approximately 5.0x by the end of 2022.
Guala's leverage increased significantly in 2020 due the severe
impact of the pandemic on its operating performance. Social
distancing measures and travel restrictions adopted by many
countries resulted in lower demand for some of the company's
products and operational disruptions due to temporary factory
closures, in India and South Africa, and a higher level of
absenteeism. The impact was largely concentrated in the second
quarter of 2020, in the spirits segment, and in countries such as
India, Italy, South Africa, Spain and the UK. Due its presence in
emerging markets, the company also suffered from the translation
effect of weakening currencies. As a result, revenues in 2020
decreased by 5.7% and reported EBITDA by 13.7% because lower sales
volumes were not completely compensated by cost containment
initiatives promptly undertaken by the company. On a Moody's
adjusted basis, EBITDA decreased by 23% but free cash flow remained
positive. Management estimated that the impact on 2020 revenue and
EBITDA was around EUR42 million and EUR15 million respectively.
In Q1 2021, Guala continued to be negatively affected by the
pandemic, particularly in the European water and beverage sector,
since it heavily relies on on-premises consumption. However, the
company offset these weaknesses due to its diversified product
portfolio and geographic presence. As a result, revenue decreased
by only 5.2% in the quarter, and EBITDA remained in line with Q1
2020.
Moody's expects Guala's operating performance to gradually recover
during 2021 as Covid-related restrictions are eased and vaccination
campaigns progress. However, the rating agency forecasts that the
company's earnings will only return to the pre-pandemic levels in
2022 and its financial leverage will remain above 5.0x until that
time. While the demand from the away-from-home channel and the
travel retail segment will improve during 2021, business conditions
remain challenging and could derail the magnitude or timing of
earnings recovery. In some key countries, like India for example,
which accounts for 12% of revenue, the resurgence of Covid cases
negatively affected the performance in the country during the
second quarter of 2021. Furthermore, the company will have to
carefully manage the increasing raw materials, energy and freight
prices in absence of pass through provisions in its contract with
customers.
The company has recently had a change of ownership. The new owner,
Investindustrial VII L.P., has committed to a medium term net
leverage target of 3-3.5x, but will need to develop some track
record in this regard. The company has also demonstrated a strong
appetite for bolt on acquisitions in the past, a strategy which may
constrain future deleveraging.
LIQUIDITY
The rating is supported by an adequate liquidity profile. Pro forma
for the refinancing, the company will have EUR33 million of cash on
the balance sheet; full availability under its new EUR80 million
super senior RCF maturing in 2027; and no significant debt
maturities until 2028, when the senior secured notes are due.
Moody's also expects the company to continue to generate positive
free cash flow in the next 12 to 18 months. These sources of
liquidity are sufficient to cover intra-year working capital swings
because of seasonality, capital spending (excluding IFRS 16 lease
repayments) of 6%-7% of revenues per annum and dividends to
minority interests. Moody's expects that the squeeze out process
will be funded with cash equity by Investindustrial VII L.P.
STRUCTURAL CONSIDERATIONS
The B1 rating assigned to the new EUR475 million senior secured
notes is the same as the CFR as they represent the majority of the
debt in the capital structure. They will rank behind the EUR80
million super senior RCF and the debt sitting in non-guarantor
subsidiaries.
Both the notes and the super senior RCF are mainly secured against
share pledges of certain companies of the group. Moody's typically
views debt with this type of security package to be akin to
unsecured debt. As of March 2021, the notes benefitted from the
guarantees of subsidiaries representing, together with the issuer,
39% of consolidated revenue, 31% of consolidated adjusted EBITDA
and 47% of total assets, which Moody's considers as weak.
RATING OUTLOOK
The negative outlook reflects the uncertainty as to the pace of a
material recovery in Guala' earnings over the next 12-18 months,
which could result in credit metrics remaining sustainably outside
the guidance for the B1 rating. Failure to show improving operating
performance over the coming quarters might result in a rating
downgrade. The outlook also assumes that the company will not
embark in material debt funded acquisitions or shareholders
distributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, an upgrade is unlikely in the near
term. Over time, upward rating pressure could develop if Guala
increases its scale, maintains its profitability (measured as
EBITDA margin) in the high teens, with financial leverage (measured
as Moody's-adjusted debt/EBITDA) falling below 4.0x and with
FCF/debt staying above 5% both on a sustained basis, while
maintaining a good liquidity profile.
Downward rating pressure could arise if there is a prolonged
weakness in demand and Guala fails to show a clear improvement in
operating performance and metrics during 2021. Downward rating
pressure could arise if Moody's-adjusted (gross) debt/EBITDA
remains sustainably above 5.0x, free cash flow turns negative and
liquidity weakens, or there is evidence for a more aggressive
financial policy from its owners.
LIST OF AFFECTED RATINGS
Issuer: Guala Closures S.p.A.
Affirmations:
Probability of Default Rating, Affirmed B1-PD
LT Corporate Family Rating, Affirmed B1
Assignment:
BACKED Senior Secured Regular Bond/Debenture, Assigned B1
Outlook Action:
Outlook, Remains Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Packaging
Manufacturers: Metal, Glass and Plastic Containers Methodology
published in September 2020.
COMPANY PROFILE
Headquartered in Italy, Guala Closures S.p.A. is a global leader in
the production of safety closures for spirits and aluminium
closures for wine and a major global player in the production and
sale of aluminium closures for the beverage industry. The company
operates on five continents with 30 production facilities, and
employees over 4,800 people. For the 12 months ended March 2021,
Guala generated EUR564 million of revenue and EUR88 million of
EBITDA (on a Moody's adjusted basis).
GUALA CLOSURES: S&P Affirms 'B+' ICR, Off CreditWatch Negative
--------------------------------------------------------------
S&P Global Ratings affirmed its 'B+' issuer credit rating on
Italy-based Guala Closures SpA and removed it from CreditWatch,
where S&P placed it with negative implications on Feb. 11, 2021.
S&P also assigned its 'B+' issue rating to the proposed EUR475
million senior secured notes due 2028.
S&P said, "The stable outlook reflects our expectations that Guala
Closures' credit metrics will remain commensurate with the current
rating despite the change in ownership, with S&P Global
Ratings-adjusted debt to EBITDA marginally reducing to about 5.0x
by end-2022.
Private equity group Investindustrial has completed its tender
offer for Italy-based Guala Closures SpA and now holds a 94.9%
stake.
"We forecast that Guala Closures' credit metrics will continue to
support the current rating level, despite the change in ownership.
We expect adjusted debt to EBITDA will marginally reduce to about
5.0x at end-2022 from 5.2x at end-2021 as EBITDA generation
improves, supported by the recovery of the luxury products segment
and additional contribution from new products. We expect funds from
operations (FFO) to debt will increase to 13.5%-14.0% at end-2022
from about 12% at end-2021 due to EBITDA growth and a slight
decrease in cash taxes compared to 2021. Our one-notch positive
comparative rating adjustment reflects the relatively strong
positioning of credit metrics given Guala Closures' now highly
leveraged financial risk profile.
"We have reassessed Guala Closures' financial policy since it is
now a financial-sponsor-owned company. After the completion of
Investindustrial's tender offer, it now holds a 94.9% stake in the
company. We think financial sponsors typically follow aggressive
financial strategies that include debt-funded shareholder returns
and/or large acquisitions. That said, we understand that
Investindustrial does not plan to increase Guala Closures' current
debt leverage on a sustained basis, and we expect the sponsor to
support adjusted debt to EBITDA of about or below 5.0x. Indeed, we
note that any material increase in leverage beyond these levels due
to more aggressive financial policies than we anticipate would put
pressure on the ratings.
"We expect revenue to recover during 2021 and grow by 5%-6%,
approaching 2019 levels. We think the recovery will be supported by
demand for safety closures for spirits and roll-on closures for
wine as social distancing measures are gradually lifted. We
anticipate that EBITDA margins will increase toward 18% as volumes
sold recover. However, we forecast that the contribution of the
luxury segment (closures for spirits) will remain limited in 2021,
since a large proportion of such sales relate to duty-free shops at
airports and international travel remains limited.
"We forecast a temporary drop in free operating cash flow (FOCF)
generation undermined by higher expansionary capital expenditure
(capex). We think FOCF will remain below 2019 levels in 2021-2022
as the company increases capex to support additional capacity in
Europe--mainly in Italy--and new projects in the Americas and Asia.
We forecast FOCF of about EUR5 million in 2021 and EUR20 million in
2022."
Guala Closures plans to issue new EUR475 million senior secured
notes, since the change-on-control clause in the senior debt
agreement has been triggered. The company will use the new notes
due 2028 combined with cash on hand to repay the existing EUR455
million notes due 2024, EUR17 million of drawdown under the current
revolving credit facility (RCF), and cover transaction costs. The
company plans to raise a new EUR80 million super senior RCF to
enhance its liquidity profile. S&P said, "We assigned our 'B+'
issue rating to the proposed EUR475 million notes. We will withdraw
our issue and recovery ratings on the existing notes as soon as
they are repaid."
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 expectation that Guala
Closures' credit metrics will remain commensurate with the current
rating despite the change in ownership, with adjusted debt to
EBITDA marginally reducing to about 5.0x by end-2022.
"We could downgrade Guala Closures if its credit metrics
deteriorated, with adjusted debt to EBITDA increasing above 5.5x or
FOCF becoming negative on a sustained basis. This could stem from a
slower-than-expected recovery in the group's end-markets, a
deterioration in operating performance, or a more aggressive
financial policy with significant debt-funded acquisitions or
dividend payments.
"Although unlikely, we could upgrade Guala Closures if its adjusted
debt to EBITDA dropped below 4.5x and FOCF to debt improved to
above 5% on a sustained basis, with the company's financial policy
supporting these credit metrics."
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P O L A N D
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INPOST SA: Fitch Assigns 'BB' LongTerm IDRs, Outlook Stable
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Fitch Ratings has assigned InPost S.A. first-time Long-Term
Foreign- and Local-Currency Issuer Default Ratings (IDR) and its
upcoming EUR390 million senior unsecured instrument 'BB' ratings
and a National Long-Term Rating of 'BBB(pol)'. The Outlooks on the
IDR and National Rating are Stable.
The 'BB' rating reflects InPost's strong domestic position in
Poland, industry leading margin and high growth potential on the
back of an underpenetrated and fast-growing ecommerce market and
the company's disruptive technology, which drives operational
efficiency ahead of other means of parcel deliveries. It also
reflects the company's small scale, weak but improving
diversification and weak record outside its home market.
The Stable Outlook reflects the company's highly cash generative
business model, which will help deleveraging to within Fitch's
rating sensitivities by 2022, subject to successful implementation
of its international expansion plan as well as shareholders being
supportive of its financial policy. The company's financial policy
targets net debt to EBITDA of 2.0x-2.5x, which Fitch views as
achievable and consistent with the rating.
The acquisition of Mondial Relay S.A.S (MR; expected to close on 1
July 2021) and an aggressive international expansion plan, notably
in the UK, will increase scalability and higher growth potential
but also heighten execution risk, which may weaken the company's
deleveraging capacity.
KEY RATING DRIVERS
Shift to E-commerce Drives Growth: A structural change in consumer
behaviour towards e-commerce further accelerated during the
pandemic. Coupled with InPost's pioneering parcel delivery solution
through its nationwide automated parcel machine (APM) network, this
enables high earnings growth. Fitch expects the parcel delivery
market will continue to grow globally at a faster rate than the
general economy, fuelled by ecommerce penetration over
bricks-and-mortar retail.
Polish online sales had a CAGR of 20% during 2005-2019 and are
still relatively underpenetrated, accounting for just 13% of total
non-food retail sales compared with 27% for the UK and 16% for
France and Europe as a whole.
Highly Competitive Business Model: Fitch views APM delivery as a
faster, cheaper and greener delivery option than to-door or pick-up
and drop-off (PUDO) deliveries and the company will continue to
leverage its accumulated database, further enhancing its
operational efficiency. InPost is well-placed to benefit from
long-term growth of underlying consumer demands, which are highly
price elastic.
The declining trend of average parcel value will further strengthen
the company's position as the industry will continue to face
pricing pressure. Fitch forecasts the company's Fitch-adjusted
EBITDA margin (after lease-related payments) at around 25%, which
is significantly higher than other competitors in their low single
digits.
Strong Domestic Position: In 2020, around 35% of total business to
consumer (B2C) parcel volumes in Poland were delivered through APMs
for which the company has a dominant 98% market share. Including
the company's to-door business, which compliments the APM delivery
solution, InPost is the clear leader in the Polish B2C parcel
market with a 43% market share. The closest competitor is
state-owned Poczta Polska, with a market share of less than 20%.
The popularity of APM delivery was further accelerated when PUDO
stores were forced to shut during the pandemic. While some PUDO
demand will recover as the pandemic abates, Fitch believes many
customers will retain a preference for APM given the favourable
user experience.
Scale and Diversification Constrain Rating: InPost's small scale
and limited diversification both geographically and by type of
services relative to other global logistics players are key
constraints for its rating, although they represent strong growth
potential. Fitch estimates around 85% of EBITDA will be generated
from the Polish business during 2021-2024 on the back of a
well-established market position and stronger operating leverage,
leading to a higher margin.
The company's ambitious international expansion plan has high
execution risk, due to the more competitive environment and the
company's weaker established distribution network as well as
varying consumer preferences.
Acquisition Temporarily Weakens Leverage: The combined group,
including MR, generated around EUR1 billion of revenue on a
pro-forma basis in 2020, but the acquisition financing as well as
the inherently lower margin in MR's business will increase FFO net
leverage to around 3.5x at YE21, above Fitch's rating sensitivity
of 3.0x. However, Fitch expects the company to deleverage to within
Fitch's sensitivities by end 2022, thanks to the growing APM
market, economies of scale leading to higher margin and strong FCF
generation, despite large capex.
The company agreed to acquire MR at around EUR513.4 million
(representing around 8.2x last 12 months to February 2021 EBITDA
multiple).
High Execution Risk: A successful roll-out of the APM network in
the UK and France is important for InPost's medium-term credit
quality. Delivery solutions through APM network are in the nascent
stage in countries outside Poland and consumers' preference for APM
has a weak record. While the higher population density in the UK or
French urban areas may indicate strong momentum for growth, this
also comes with a more competitive and fragmented market, which
will increase the complexity of the company's implementation
strategy. This is somewhat mitigated by MR's existing customer base
(PUDO-based) and InPost's collaboration with Hermes, which has a
relatively strong presence in the UK.
Long-term Contracts Mitigate Concentration Risk: InPost's
seven-year minimum volume contract with Allegro Smart! provides
revenue visibility and mitigates customer concentration risk.
Allegro (including independent merchants on the Allegro platform)
accounted for 47% of InPost's revenue or 58% of parcel volumes in
2020. Allegro depends on InPost with around a 75% share at
checkout. Fitch views some degree of concentration risk as
inevitable due to the structure of the Polish ecommerce market,
where Allegro is by far the largest with a 33% market share. The
next largest player has less than 4%.
DERIVATION SUMMARY
Fitch assesses InPost's rating using Fitch's Generic Ratings
Navigator. Despite similarities in the nature of business,
comparability with other global logistics players such as Deutsche
Post (DP, BBB+/Stable) or La Poste (A+/Negative) is limited due to
InPost's significantly smaller scale, weak international presence
and lack of service offering diversification. In terms of debt
capacity, Fitch believes the company's business profile compares
well with some of Fitch-rated freight transportation companies such
as PJSC Freight One (BBB-/Stable) and GlobalTrans Investment Plc
(BBB-/Stable).
The two-notch difference with Freight One and GlobalTrans
Investment is driven mainly by the two companies' more conservative
capital structure with FFO adjusted net leverage below 1.5x, and
their more diversified and agile business model, somewhat offset by
a weaker operating environment and FX risk exposure. They share
similarities in customer concentration risk mitigated by minimum
volume contracts and InPost is growing at a similar scale to them.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Polish GDP to grow at 4.1% in 2021 and 4.7% thereafter;
-- InPost's volume to continue to grow at double digits on the
back of network expansion and fast-growing ecommerce;
-- UK business to gain momentum and break even by 2023;
-- Capex (including maintenance capex) on average PLN 900 million
annually over 2021-2024;
-- Although not in the company's projection, Fitch assumes
dividends paid from FY23 in line with the company's financial
policy of 2.0x-2.5x net debt/EBITDA.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO net leverage below 2.3x on a sustained basis, supported by
a more conservative financial policy;
-- Successful implementation of its international expansion
strategy supporting growth and diversification.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Negative FCF through the cycle due to lower operating margin,
high dividend pay-outs or new acquisitions;
-- FFO net leverage above 3.0x on a sustained basis.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
No Refinancing Risk until 2026: In January 2021, the company
entered into a senior facilities agreement for a PLN1,950 million
term loan and PLN800 million revolving credit facility, which can
be drawn in multi-currencies. Upcoming bonds to finance the MR
acquisition will mature 2027, so there are no material maturities
due until 2026 other than lease-related repayments. Fitch expects
the company to be FCF positive over the 2021-2024 rating horizon.
ISSUER PROFILE
InPost is a leading parcel delivery service in Poland, providing
package delivery services through its nationwide network of
'locker-type' APMs as well as to-door delivery and fulfilment
services.
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.
INPOST SA: Moody's Assigns First Time 'Ba2' Corporate Family Rating
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Moody's Investors Service has assigned a first-time Ba2 corporate
family rating and a Ba2-PD probability of default rating to InPost
S.A., a Poland-based provider of parcel delivery services for
e-commerce merchants and consumers. Concurrently, Moody's has also
assigned a Ba2 rating to the proposed EUR390 million guaranteed
senior unsecured notes and PLN800 million (approximately EUR170
million equivalent) guaranteed senior unsecured notes, both due
2027 to be issued by InPost. The outlook on the ratings is stable.
Proceeds from the new notes will be used to finance the acquisition
of French parcel operator Mondial Relay and to repay drawings under
the revolving credit facility (RCF).
"InPost's Ba2 rating reflects its solid financial profile, with
modest leverage and solid profitability, stemming from the
company's highly competitive business model based on parcel
delivery to Automated Parcel Machines (APM)," says Lorenzo Re, a
Moody's Vice President -- Senior Analyst and lead analyst for
InPost.
"The rating, however, also reflects the company's high customer
concentration, modest geographical diversification and some
execution risk related to its international expansion plans,
including the recent acquisition of Mondial Relay," adds Mr. Re.
RATINGS RATIONALE
The Ba2 CFR assigned to InPost reflects its strong financial
profile underpinned by its very high profitability and cash flow
generation capability.
InPost's business model has demonstrated improved efficiencies
through economies of scale as long as increasing density of its APM
network supports volume growth. The APM delivery model is much more
efficient and environmentally friendly than to-door delivery
because of the higher number of parcels that can be delivered
simultaneously to the same location. As a result, InPost's
Moody's-adjusted operating margin increased from 10.8% in 2019 to
25.3% in 2020, which is very high for the industry.
In addition, InPost has maintained a prudent financial policy, with
modest leverage and Moody's expects that InPost's Moody's adjusted
Debt/EBITDA will remain below 3.0x in 2021 pro forma for the
Mondial Relay acquisition. Continued solid EBITDA growth will
support further deleveraging, with leverage declining towards 2.0x
in the next 24 months.
Moody's expects that cash flow will also materially improve with
Cash Flow from Operations (CFO) increasing from PLN 1.3 billion in
2021 to more than PLN2.0 billion in 2023, which will allow to
comfortably cover for the expected PLN1.2 billion-1.4 billion of
annual capex to support further growth.
InPost's recent operating performance has been sound, with revenue
more than tripling in the last two years with its Moody's-adjusted
EBITDA increasing to PLN995 million in 2020 from PLN105 million in
2018, supported by solid growth in e-commerce in Poland and
increasing success of its APM delivery model, that has
progressively gained share and now represents 35% of total B2C
deliveries in the country. However, the company does not have a
long track record and its ability to replicate its business model
outside of Poland is still uncertain, because the UK network is
still in a ramp-up phase.
Growth has partly been driven by the successful partnership with
Allegro.eu SA, a leading shopping platform and marketplace in
Poland, where InPost has become the preferred delivery choice for
customers of the Allegro Smart platform. However, this also creates
a high degree of customer concentration, with Allegro representing
approximately 28% of 2020 sales, pro-forma for the acquisition,
although this is mitigated by the fact that part of the sales are
generated by several thousands of merchants that use Allegro as a
platform.
The rating factors some execution risk related to the acquisition
of French parcel delivery operator Mondial Relay and to the
international expansion into other markets. While the international
expansion will increase the group's scale, improve its business
profile and offer cross selling and synergy opportunities, Mondial
Relay displays lower margins than InPost, while the company's
international activities have been so far loss making because of
lack of scale. Moody's expects InPost's operating margin to drop to
around 22% in 2021 from 25% in 2020 owing to the consolidation of
lower margin Mondial Relay, but they will progressively improve as
the APM network is rolled-out and parcel volumes increase. However,
the pace of the improvement will largely depend on the adoption
rate of the APM delivery model by local customers and merchants, on
which visibility is modest.
The rating is constrained by InPost's modest scale and narrow
business focus compared to some international peers because of the
lack of diversification away from the B2C segment and the high
geographical concentration with more than 90% of revenue generated
in Poland and France, following the acquisition of Mondial Relay.
This is however mitigated by the company's solid market positions
in its core markets, as InPost is the largest parcel distribution
in the B2C segment in Poland with a 43% market share, while Mondial
Relay holds a 38% market share in the PUDO parcel delivery segment
in France.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
In line with other logistic companies, InPost is exposed to
environmental risks because of fuel utilization in the
transportation process. However, the out-of-home parcel delivery
business model is structurally more efficient than the to-door
delivery model, allowing for lower CO2 emissions, which reduces the
exposure to environmental risk for InPost. Moreover, the company is
already switching to zero emission vehicles for its fleet and plans
to have 300 such vehicles by the end of the year.
Moody's expects InPost to maintain a conservative financial policy,
with modest leverage and with dividend payments remaining subject
to leverage reduction from the initial level. However, the
company's major shareholder is private equity sponsor Advent, that
in line with private equity ownership, may have higher appetite for
shareholder distributions.
LIQUIDITY
InPost's liquidity is good, supported by approximately PLN300
million of cash pro-forma the transaction and the fully available
PLN800 million RCF maturing in 2026. Moody's expects InPost to
generate positive free cash flow of around PLN80 million in 2021
and PLN350 million in 2022, excluding dividend payments.
The SFA and the PLN denominated notes are subject to a maximum net
leverage maintenance covenant of 4.25x. Moody's expects that InPost
will maintain ample capacity under this covenant.
STRUCTURAL CONSIDERATIONS
The Ba2 rating assigned to the proposed EUR560 million equivalent
senior unsecured notes due 2027 is in line with the CFR, reflecting
the fact that these instruments rank pari passu among themselves
and with the rest of the group's senior unsecured debt, including a
PLN1.95 billion TLB and a PLN800 million RCF, both due in 2026. The
notes are unsecured and are guaranteed by all material subsidiaries
with a guarantor coverage of at least 80% of the group's EBITDA.
The PDR of Ba2-PD reflects Moody's assumption of a 50% family
recovery rate, consistent with a debt structure including both bank
debt and bonds.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the company
will continue demonstrating strong and profitable growth, with
operating margin in excess of 20%, while maintaining a modest level
of leverage, with Moody's adjusted debt/EBITDA remaining below
3.0x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the company's limited track record, concentration in terms of
product offering, customers and geographies, and execution risk
owing to the recent acquisition and potential for further M&A
activity, upward pressure on the rating in the near term is
limited, despite the expectation that the company's credit metrics
will strengthen over the next 12-24 months.
Overtime, upward pressure on the rating could develop if (1) the
company's business model strengthens, reducing concentration in
terms of products, customers and geographies, (2) it successfully
integrates Mondial Relay and continues to perform strongly, and (3)
its Moody's-adjusted debt/EBITDA improves sustainably below 2.0x.
Negative pressure on the rating could develop in case of (1) a
material deterioration in the company's operating performance with
operating margin reducing below 10%; (2) leverage increases
sustainably towards 3.5x; (3) free cash flow generation turns
negative on a sustained basis; (4) debt-funded acquisitions
evidence a more aggressive financial policy than reflected in the
rating; or (5) the company's liquidity profile deteriorates.
LIST OF AFFECTED RATINGS
Issuer: InPost S.A.
Assignments:
Probability of Default Rating, Assigned Ba2-PD
LT Corporate Family Rating, Assigned Ba2
BACKED Senior Unsecured Regular Bonds/Debentures, Assigned Ba2
Outlook Action:
Outlook, Assigned Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Surface
Transportation and Logistics published in May 2019.
COMPANY PROFILE
Headquartered in Poland, InPost S.A. is a provider of fulfillment
and delivery services to e-commerce merchants. The group focuses on
parcel delivery to Automated Parcel Machines (APM), i.e. lockers,
and operates a network of almost 12,000 APMs in Poland and 2,000 in
the UK and Italy. The company has recently acquired Mondial Relay,
a French parcel delivery operator, focused on the Pick-up Drop-Off
(PUDO) point delivery model, counting on a network of approximately
16,000 PUDO locations (11,000 in France and the rest in Benelux and
Iberia). In 2020, the company generated PLN2.5 billion (EUR554
million) of sales and PLN995 million (EUR219 million) of EBITDA
(Moody's adjusted).
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R U S S I A
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CREDIT EUROPE BANK: Fitch Alters Outlook on 'BB-' LT IDR to Stable
------------------------------------------------------------------
Fitch Ratings has revised Credit Europe Bank (Russia) Ltd's (CEBR)
Outlook to Stable from Negative, while affirming the bank's
Long-Term Issuer Default Rating (IDR) at 'BB-'.
KEY RATING DRIVERS
The IDR of CEBR is driven by its individual strength, as captured
in its Viability Rating (VR) of 'bb-'. The VR reflects CEBR's
fairly limited franchise in the concentrated Russian banking
sector, some imbalances in the bank's business model resulting in
volatile growth and cost of risk in recent years, and only moderate
financial metrics.
The revision of the Outlook to Stable reflects Fitch's view of
reduced asset-quality risks at CEBR, therefore limiting pressures
on profitability and capitalisation metrics. Fitch also believes
that the bank's pre-impairment operating profitability should be
sufficient to absorb potential asset-quality deterioration.
The revision of the Outlook on CEBR's IDR is also underpinned by
the stable outlook on Russia's operating environment. Fitch
believes that impact of the pandemic on the Russian economy
resulted in only a moderate weakening of Russian banks' asset
quality and profitability in 2020. Fitch expects Russia's real GDP
growth to recover to 3.7% in 2021 after a 3% contraction in 2020,
which should support sector performance in 2021.
Credit risk mainly stems from CEBR's loan book, which constituted
74% of total assets at end-1Q21, net of loan loss allowances
(LLAs). Impaired loans (Stage 3 + purchased and originated
credit-impaired under IFRS9) increased to 12% of gross loans at
end-2020 from 9% at end-2019 due to the pandemic, before moderating
to 10% at end-1Q21 on write-offs, mostly in unsecured consumer
loans. Coverage of impaired loans by total LLAs was a reasonable
73% at end-1Q21.
CEBR has significant exposure to the construction and real-estate
sector (33% of gross corporate loans at end-1Q21), where tenors are
usually long and repayments of some loans may only be ensured
through the sale of real-estate assets. In retail lending (67% of
gross loans at end-1Q21), CEBR focuses mainly on car loans (56% of
gross retail loans), which are fairly low-risk due to the
availability of liquid collateral. Unsecured consumer loans and
credit cards were equal to 122% of CEBR's Fitch Core Capital (FCC)
at end-1Q21.
CEBR's profitability was affected by weakening asset quality in
2020, with the cost of risk (4.4% of average loans) exceeding the
bank's pre-impairment profit (3.6% of average loans), resulting in
a negative return on average equity of 3%. The cost of risk
moderated to 2.8% in 1Q21 (annualised), although operating profit
to risk-weighted assets (RWAs) remained a modest 0.6% (2020: -0.7%;
2019: 1.8%).
Capitalisation was broadly stable at CEBR, with FCC-to-regulatory
RWAs equal to 15.1% at end-1Q21. Regulatory Tier 1 capital ratio
was somewhat weaker at 12.8%, although still comfortably above the
minimum required level of 8.5% (including a capital-conservation
buffer of 2.5%). Fitch does not expect material pressure on CEBR's
capitalisation in the medium term as moderate growth of RWAs is
expected to be offset by positive internal capital generation.
Customer deposits accounted for 85% of total liabilities at
end-1Q21 and mainly comprised price-sensitive retail term deposits
(69% of total). Wholesale funding (9% of liabilities) include
senior unsecured bonds maturing in 2022 and interbank borrowings.
Liquidity is adequate at CEBR with liquid assets (cash and
short-term interbank placements), net of interbank repayments
within the next 12 months, covering 17% of the bank's customer
accounts at end-1Q21.
SUPPORT RATING AND SUPPORT RATING FLOOR
CEBR's Support Rating of '5' and Support Rating Floor of 'No Floor'
reflect Fitch's view that support from shareholders or the Russian
authorities, although possible, cannot be relied upon in case of
need.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of CEBR's IDRs and VR would require material
improvements in the asset-quality and profitability metrics,
along with notable growth of the bank's franchise.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- CEBR's IDRs and VR could be downgraded if higher credit costs
lead to negative profitability and erosion of capital, with
the FCC ratio falling sustainably below 12% or the buffer over
the minimum required for the regulatory capital ratios falling
below 100bp.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
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.
GEOPROMINING INVESTMENT: Fitch Affirms 'B+' IDR, Outlook Negative
-----------------------------------------------------------------
Fitch Ratings has affirmed GeoProMining Investment Limited's (GPM)
Long-Term Issuer Default Rating (IDR) at 'B+' with a Negative
Outlook. Fitch has also affirmed Karlou B.V.'s - GPM's financing
vehicle - senior unsecured bond at 'B+' with a Recovery Rating
'RR4'.
The Negative Outlook reflects the risk of loss of some part of the
gold reserves at the Zod mine from ongoing negotiations between GPM
and the government of Azerbaijan (BB+/Stable) for access to the
mine. This could have a negative impact on the group's business
profile.
Barring a renewed conflict between Azerbaijan and Armenia, Fitch
forecasts GPM's funds from operations (FFO) gross leverage to
increase to 3.5x in 2021 before declining towards 2x in 2022 even
if GPM does not regain access to the other half of the Zod mine's
reserves. However, this would lead to re-assessment of the group's
business profile and put pressure on the rating.
The rating of GPM reflects its small scale of operations, its
medium-to high-cost position, and the concentration of its
activities in Russia and Armenia. The rating also reflects the
group's technological expertise in operating the Albion technology,
resulting in improved gold recovery; satisfactory product
diversification; and a long mine life of 15-18 years.
KEY RATING DRIVERS
Lower Gold Output in 2021: The Nagorno-Karabakh conflict had no
material impact on GPM's operations in 2020. However, Fitch has
revised down Fitch's expectations of GPM's gold production in 2021
to 92,000 oz from 125,000 due to lower grades achieved in the
Armenian part of the Zod mine. Fitch assumes that from 2022 onwards
gold output would average 140,000 oz.
Zod Mine Demarcation Ongoing: GPM's Zod mine is next to the
Azerbaijan-Armenia border, where the demarcation process is
ongoing. GPM is operating its processing facility at full capacity
and with full access to its equipment at Zod. Access to the eastern
part of the mine is blocked until the demarcation process is
finalised. A permanent loss of access to the Azeri part would have
a negative impact on GPM's mine life and business profile. Fitch
expects lower production in 2020 to increase GPM's FFO gross
leverage to 3.5x in 2021, before it declines to around 2x in
2022-2023 when the Verkhne-Menkeche mine starts generating cash.
Risk of Permanent Access Loss: GPM's management is working on a
back-up mining plan to allow the group to keep working on the
western part of the open-pit mine on a long-term basis. A permanent
loss of access to some parts of the Zod mine would lead to severe
decline in cash flows beyond GPM's bond maturity and four-year
rating horizon. It would lead to a reassessment of the business
profile as both scale and reserve life would be affected although
this is not Fitch's base case. There is no clear timeline for the
demarcation process and negotiations with the Azeri government.
Unique Technology Advantage: The Zod mine is part of GPM's
subsidiary GPM Gold, which has its ore-processing facility over 170
kilometres away in the town of Ararat. GPM Gold pioneered the
Albion technology at Ararat to process refractory ores from Zod's
deposits. Fitch expects GPM to operate the full mine after the
demarcation process due to the complementarity of assets. The
transportation and processing infrastructure would be expensive to
replicate and no other operator possesses the technology to
efficiently process the ores mined at Zod.
Ceasefire in Place: Armenia, Azerbaijan and Russia have signed a
ceasefire statement following the armed conflict in autumn 2020
between Azerbaijan and Armenia over the disputed region
Nagorno-Karabakh. Russia has installed a peacekeeping force of
almost 2,000 soldiers in the region for the next five years. GPM is
discussing with all relevant parties the terms and principles of
mining activities at Zod - both before and after the border
demarcation. A permanent loss of access to the eastern part, which
Fitch views as unlikely, might result in smaller operations and a
less diversified business profile of the group and hence a negative
rating action.
New Metal Aids Diversification, Scale: GPM will start producing
silver (currently a by-product at GPM Gold), lead and zinc from its
Verkhne-Menkeche site in Russia from 2021, after completion of a
processing facility. Fitch expects production from this mine to
significantly increase total output and improve product
diversification, adding around USD110 million of revenue by 2022,
based on Fitch's metals price assumptions.
Diversification into Iron Ore: GPM has recently acquired a 58.7%
controlling stake in a new iron ore and gold project Siberian
Goldfields, which holds an exploration and mining licence at
Zhelezny Kryazh site in the region of Chita in Russia. Fitch
estimates this project will add more than USD100 million in revenue
and more than USD50 million in EBITDA by 2024. Management expects
to produce 0.3mt of iron ore from this open-pit mine from 2022,
ramping up to around 1mt by 2023. In addition, GPM expects to mine
around 20koz gold in 2023, ramping up to above 55koz by 2025. Total
capex is estimated at around USD125 million for 2021-2025.
Small Scale but Satisfactory Diversification: GPM's small
operations generated USD161 million of Fitch- adjusted EBITDA and
149 koz of gold in 2020. This compares with higher production at
Nord Gold SE (BB/Positive; 1 moz) or PJSC Polyus (BB+/Stable; 2.8
moz). Despite satisfactory product diversification, the scale of
its operations constrains the rating.
Medium-to High-Cost Position: GPM Gold sits between the second and
the third quartiles of the gold cash cost curve. Its total cash
cost increased to USD685/oz at end-2020 from USD632/oz at end-2019
and its all-in sustaining costs (AISC) to USD903/oz from USD864/oz.
In 2021 Fitch expects a further rise in AISC to USD1,202/oz on
higher transportation and processing costs, plus a higher stripping
ratio, before it moderates to around 2020's levels as GPM will
access higher-grade ores.
GPM's EBITDA margin at the Agarak mill (a copper-molybdenum mine)
in Armenia was 27% in 2020 versus 38% at the Sakha region in
Russia, which includes Sarylakh and Sentachan (gold-antimony
mines). Fitch assesses the group's overall cash cost position at
between the second and third quartiles.
DERIVATION SUMMARY
GPM's operating profile is situated in between Petropavlovsk plc's
(B/RWN) and Nord Gold plc's (BB/Positive). While it is smaller than
its peers, its execution risk is lower and its financial structure
and liquidity are strong compared with 'B' rated peers'. Its cost
position and reserve life are comparable to Nord Gold's. Small
scale and dependence on a single mine constrain GPM's rating to the
'B' category.
KEY ASSUMPTIONS
-- Based on Fitch mid-cycle commodity price assumptions for gold,
copper and zinc until 2024;
-- Average EBITDA margin of 41% over 2021-2024;
-- Increase in royalties paid and resumption of mining on the
eastern part of the Zod mine from 2024;
-- Capex of USD65 million in 2021 and USD62 million in 2022-2024.
Fitch's Key Assumptions for Recovery Analysis
-- The recovery analysis assumes that GPM would be considered a
going-concern in bankruptcy and that it would be reorganized
rather than liquidated.
-- The going-concern EBITDA reflects the industry's mid-cycle
conditions and GPM's small scale.
-- An enterprise value (EV)/EBITDA multiple of 4x is based on
that used for other mining companies and incorporates GPM's
weaker operational profile.
-- Fitch's waterfall analysis includes senior unsecured debt in
the form of the USD300 million bond. Its USD9.3 million
shareholder loan is subordinated to senior unsecured debt.
-- After deducting 10% for administrative claims and taking into
account Fitch's Country-Specific Treatment of Recovery Ratings
Criteria, Fitch's waterfall analysis generated a ranked
recovery in the 'RR4' band, indicating a 'B+' rating for the
USD300 million bond.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO gross leverage sustained above 3.5x;
-- Permanent loss of access to some parts of gold reserves at the
Zod mine;
-- Commencement of material dividend payments or capex that is
more ambitious than Fitch's expectations, leading to inability
to generate positive free cash flow (FCF).
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The rating is on Negative Outlook, therefore making positive
rating action unlikely in the short term. However, the Outlook
may be revised to Stable on a resolution of the conflict and
restored access to gold reserves at the Zod mine provided that
FFO gross leverage remains below 3.5x on a sustained basis.
-- Significant improvement in scale while maintaining solid
credit metrics would be positive for the rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: GPM had a cash balance of USD37 million as of 1
January 2021. A USD90 million prepayment facility has been reduced
to USD25 million and remains undrawn, maturing in December 2021.
Fitch expects GPM to generate negative FCF in 2021, due to lower
output from the Zod mine. We, however, expect FCF to rise
substantially in 2022, as the processing facility at
Verkhne-Menkeche is scheduled to ramp up.
GPM has no significant upcoming debt maturities, until its USD300
million bond matures in June 2024. In 2022 the group will face
USD22 million maturities, including a USD9 million shareholder loan
due in 2022, an USD12 million loan from a minority shareholder of
Siberian Goldfields and a USD1 million secured bank loan.
ISSUER PROFILE
GPM is a diversified metals holding company with five operating
assets in Armenia and the far east of Russia. Its main asset is GPM
Gold, including the Zod gold mine and Ararat processing plant in
Armenia, which accounts for 60% of group revenues.
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 E D E N
===========
VATTENFALL AB: S&P Rates New Hybrid Capital Securities 'BB+'
------------------------------------------------------------
S&P Global Ratings assigned its 'BB+' long-term issue rating to the
2083, optionally deferrable, and subordinated hybrid capital
securities Vattenfall AB (BBB+/Stable/A-2) proposes to issue. The
hybrid amount remains subject to market conditions, but S&P expects
that the capital securities proposed to be issued, paired with the
SEK 3.5 billion hybrids issued May 26, 2021, will be used to
replace the company's original SEK 6 billion hybrids, with a first
call date in 2022.
S&P considers the proposed securities to have intermediate equity
content until their first reset date. This is because they meet our
criteria in terms of its ability to absorb losses and preserve cash
in times of stress, including through subordination and the
deferability of interest at the company's discretion in this
period.
Alongside the hybrid capital issuance, for a total SEK3.5 billion
(SEK500 million fixed tranche and SEK3 billion floating tranche),
Vattenfall launched a tender offer on its existing SEK3 billion
2077-NC-7 fixed-rate capital securities and SEK3 billion 2077-NC-7
floating-rate capital securities. S&P expects that the proceeds of
this new GBP issue will be used to refinance the remaining amount
of the abovementioned 2077-NC-7 fixed rate and 2077-NC-7 floating
rate capital structure, of which it still grants intermediate
equity content at the time of the first call date in 2022.
Vattenfall already issued SEK3.5 billion to prefinance the above
hybrid security in May 2021. According to S&P's estimates, after
this transaction, the overall amount of hybrid capital eligible for
intermediate equity credit will remain within the 15%
capitalization limit. On a preliminary basis, S&P expects a ratio
of 8%-10%.
S&P said, "Upon completion of the transaction, we will assign
intermediate equity content to the new hybrid instruments until the
first reset date set at least seven years after issuance; and we
will remove the equity content of any outstanding amount from the
above-mentioned 2077-NC-7 fixed-rate and 2077-NC-7 floating-rate
capital securities. Also, we continue to assess the other
outstanding hybrids as having intermediate equity content.
"We arrive at our 'BB+' issue rating on the proposed security by
notching down from our 'bbb' stand-alone credit profile (SACP) for
Vattenfall. We notch down from the SACP, versus the 'BBB+' issuer
credit rating on Vattenfall, because we believe the likelihood of
extraordinary government support from the Swedish state to this
security is low." The two-notch differential reflects:
-- One notch for subordination because S&P's long-term issuer
credit rating on Vattenfall is investment grade (that is, higher
than 'BB+'); and
-- An additional notch for payment flexibility, to reflect that
the deferral of interest is optional.
S&P said, "The notching down to rate the proposed security reflects
our view that the issuer is relatively unlikely to defer interest.
Should our view change, we may increase the number of notches we
deduct to derive the issue rating.
"In addition, to reflect our view of the intermediate equity
content of the proposed securities, we allocate 50% of the related
payments on the security as a fixed charge and 50% as equivalent to
a common dividend. The 50% treatment of principal and accrued
interest also applies to our adjustment of debt.
"Vattenfall can redeem the securities for cash at any time during
the six months before the first interest reset date, which we
understand will be 2028 and on any coupon payment date thereafter.
Although the proposed securities are due in 2083, they, can be
called at any time for tax reasons, rating methodology changes, or
upon a substantial repurchase event. If any of these events occur,
Vattenfall intends, but is not obliged, to replace the instruments.
In our view, this statement of intent mitigates the issuer's
ability to repurchase the notes on the open market. Vattenfall can
also call the instruments any time prior to the first call date at
a make-whole premium (make-whole call). We do not consider that
this type of make-whole clause creates an expectation that the
issues will be redeemed during the make-whole period. Accordingly,
we do not view it as a call feature in our hybrid analysis, even if
it is referred to as a make-whole-call clause in the hybrid
documentation.
"We understand that the interest to be paid on the proposed
securities will increase by at 25 basis points (bps) from 2033, and
a further 75 bps from 2048. We consider the cumulative 100 bps as a
material step-up, which is currently unmitigated by any binding
commitment to replace the instrument at that time. We believe this
step-up provides an incentive for the issuer to redeem the
instrument on its first reset date.
"Consequently, we will no longer recognize the instruments as
having intermediate equity content after its first reset date,
because the remaining period until its economic maturity would, by
then, be less than 20 years. However, we classify the instruments
equity content as intermediate until its first reset date, so long
as we think that the loss of the beneficial intermediate equity
content treatment will not cause the issuer to call the instruments
at that point. Vattenfall's willingness to maintain or replace the
instruments in the event of a reclassification of equity content to
minimal is underpinned by its statement of intent."
Key Factors In S&P's Assessment Of The Securities' Deferability
In S&P's view, Vattenfall's option to defer payment on the proposed
securities is discretionary. This means that Vattenfall may elect
not to pay accrued interest on an interest payment date because it
has no obligation to do so. However, any outstanding deferred
interest payment, plus interest accrued thereafter, will have to be
settled in cash if Vattenfall declares or pays an equity dividend
or interest on equally ranking securities, and if Vattenfall
redeems or repurchases shares or equally ranking securities. Still,
once Vattenfall has settled the deferred amount, it can still
choose to defer on the next interest payment date.
Key Factors In S&P's Assessment Of The Securities' Subordination
The proposed securities and coupons are intended to constitute the
issuer's direct, unsecured, and subordinated obligations, ranking
senior to their common shares and any obligations which rank or are
expressed by their terms to rank junior to the securities and
parity securities.
=============
U K R A I N E
=============
DTEK RENEWABLES: S&P Affirms 'B-' LongTerm ICR, Outlook Negative
----------------------------------------------------------------
S&P Global Ratings affirmed its 'B-' long-term issuer credit rating
on Ukraine-Based DTEK Renewables B.V.
The negative outlook indicates that S&P could lower the ratings
should liquidity deteriorate because of the company's expansion
plans, while arrear payments are still to be received.
Improved payment discipline from DTEK Renewables' guaranteed buyer
strengthens our view of stable future cash flows. Following the new
energy law enforced on Aug. 1, 2020, payments for the green tariff
from the guaranteed buyer have resumed in line with the
government's plan. This is a considerable improvement compared with
first-half 2020, when DTEK Renewables faced material delays in
payment collections. The new energy law has implemented several
measures to improve the guaranteed buyer's liquidity position and
to ensure timely payments to green producers until the end of the
green tariffs. S&P said, "We understand that DTEK Renewables'
management expects to receive the remaining EUR65 million (net of
value-added tax [VAT]) of arrears accumulated in 2020 by year-end
2021 and EUR160 million of funds from operations (FFO) for the
existing generation portfolio in 2021 if there is no disruption in
cash collection, which is our base case. However, given the track
record, we continue to monitor payment discipline in Ukraine's
emerging market environment."
S&P said, "We understand DTEK Renewables is committed to building
the entire 498MW Tiligul project by October 2022.DTEK Renewables
will first build 126MW by first-quarter 2022 followed by a gradual
increase in installed capacity until October 2022, when the entire
498MW is expected to be commissioned to benefit from green tariffs.
The total project investment is about EUR511 million and it is very
large compared to the company's existing asset base. Tiligul, once
fully built, should contribute about an additional EUR130 million
to annual EBITDA, compared with the S&P Global Ratings-adjusted
EUR220 million in the company's existing perimeter (0.950
gigawatts). This is in line with management's strategic plan when
the green bond was issued on Nov. 12, 2019. The project will,
nonetheless, use up the company's liquidity cash cushion.
"We believe Tiligul could present liquidity risk during
construction and might indicate a relatively aggressive financial
strategy. The company has already contracted equipment for the
entire project and aims to commission it by October 2022 to take
advantage of green tariffs. Although the first 126MW will be
financed with the remaining proceeds from the green bond, the
remaining 372MW is expected to be financed via operating cash flows
combined with additional financing, which management estimates at
EUR70 million-EUR100 million. We understand that management is
working on various options including a short-term shareholder loan
or a bridge loan to secure the financing, but exact terms have yet
to be contracted. Generally, we believe that access to funding for
an emerging market issuer like DTEK Renewables could be more
difficult compared to European peers. We also believe that the
exact amount and timing of the company's additional funding needs
may depend on any fluctuations in customer payments (including
repayment of the EUR65 million arrears), flexibility in cash
payments for capital expenditure (capex), and ongoing progress with
project execution, such as any cost overruns. With commissioning
expected by first-quarter 2022 for the first phase and October 2022
for the whole project, we see DTEK Renewables' liquidity tightening
with about EUR73 million of cash available on top of EUR41 million
on the debt service account, compared to annual debt amortization
of about EUR60 million-EUR70 million. This constrains our view on
DTEK Renewables' future liquidity and financial policy."
The negative outlook on DTEK Renewables reflects risks to liquidity
and financial policy related to Tiligul.
S&P would lower its rating on DTEK Renewables if the following
conditions are met:
-- The company can't secure sufficient financing to maintain some
liquidity cushion through the construction of the entire project;
-- It faces additional liquidity pressure, for example due to
construction risks, new delays in payment collection, large
dividends or loans to related parties, introduction of intra-group
cross-guarantees from the company to weaker group members, or
exposure to weak banks; and
-- The credit quality of parent DTEK B.V weakens, resulting in a
generalized group default or triggering debt restructuring at DTEK
Renewables, which is not our base-case scenario.
S&P would revise the outlook to stable if:
-- DTEK Renewables secures significant (more than 12 months) of
funding to cover liquidity gaps until construction of the entire
Tiligul project is completed;
-- S&P sees good progress on the construction of the entire
project; and
-- S&P continues to see undisrupted payment discipline from the
guaranteed buyer.
===========================
U N I T E D K I N G D O M
===========================
GFG ALLIANCE: Negotiates Standstill Agreement with Credit Suisse
----------------------------------------------------------------
Andrew Spence at InDaily reports that Sanjeev Gupta's GFG Alliance
says it has negotiated a six-week standstill agreement with Credit
Suisse while it finalizes the refinancing of its Australian
operations, which include the Whyalla steelworks.
Citibank is acting on behalf of Credit Suisse Asset Management,
which is looking to recover billions of supply-chain finance funds
globally after GFG's main financier Greensill was placed into
administration in March, InDaily discloses.
According to InDaily, the court action aims to wind up the
operations GFG's LIBERTY Primary Metals Australia (LPMA), including
the Whyalla Steelworks and a coking coal mine in NSW.
A directions hearing in the NSW Supreme Court was set for May 6 but
was deferred to July 5 after an eleventh-hour announcement by GFG
that it had agreed to a new financing deal to cover its Greensill
debt, InDaily notes.
At the time, a GFG Alliance spokesperson said the offer was subject
to customary conditions precedent and documentation, "a process
which has commenced and is expected to complete within four weeks",
InDaily recounts.
The deal is still yet to be finalized, InDaily states.
However, GFG put out another statement on June 23 saying it had
agreed to a formal standstill agreement with CSAM, InDaily
recounts.
"The six-week standstill agreement will enable GFG Alliance to
complete full refinancing of LPMA, expected to complete within this
time frame," InDaily quotes the GFG spokesperson as saying in the
statement.
"GFG Alliance and CSAM continue to work hard towards resolving GFG
Alliance's remaining exposure with CSAM-Funds following the
collapse of Greensill Capital.
Sanjeev Gupta and GFG Alliance's Restructuring and Transformation
Committee continue to make good progress on restructuring and
refinancing of the group with all creditors, supported by record
steel and aluminium prices, in addition to operational improvement
at its major plants", InDaily notes.
The Whyalla steelworks is the town's biggest employer with around
1200 workers and a further 600 work in the associated Middleback
Ranges mines nearby, InDaily states.
INSPIRED EDUCATION: S&P Rates New EUR80MM Loan Add-on 'B'
---------------------------------------------------------
S&P Global Ratings assigned its 'B' issue rating and '3' recovery
rating to Inspired Education Holdings Ltd.'s (B/Stable/--) proposed
EUR80 million add-on to its existing EUR715 million senior secured
term loan B due May 2026. The debt is being issued by the group's
financing subsidiary, Inspired Finco Ltd. The '3' recovery rating
indicates its expectation of meaningful recovery (50%-70%; rounded
estimate: 50%) in the event of a payment default.
Effectively, the proceeds will fund Inspired's GBP70 million
acquisition of Wey Education. Although this entirely debt-financed
transaction will cause a spike in leverage, the effect will be
largely mitigated by the group's above-budget trading performance
in the first three quarters of the 2021 financial year. While the
group's ancillary revenue still lags our forecast because of the
various restrictions imposed by the government in light of the
pandemic, overall, enrollment levels are almost back to
pre-pandemic levels. S&P said, "As a result, we forecast that the
group's 2021 leverage will be about 6.8x, which is above our
previous expectation of 6.5x, but lower than the 7.5x downgrade
trigger specified in our last publication.
Pro forma this refinancing transaction, Inspired's liquidity will
comprise EUR109 million cash and EUR85 million of undrawn revolving
credit facility. Over the next 12 months, S&P assumes that the
group would not undertake any debt-financed acquisitions that
exceed EUR30 million without raising fresh primary equity.
Issue Ratings--Recovery Analysis
Key analytical factors
-- The issue and recovery ratings on the multicurrency EUR795
million equivalent senior secured term loan due in 2026 are 'B' and
'3', respectively. S&P estimates recovery prospects at about 50%.
-- S&P's hypothetical default scenario assumes a material
deterioration in the private school sector due to overcapacity
arising from increased competition from new entrants and a
significant deterioration of foreign exchange rates in key emerging
markets.
-- The group owns real estate through its ownership of some of its
schools. These properties are not part of the security for the
credit facility. Instead, the security package comprises shares in
Inspired Finco and the group's material subsidiaries, pledges over
material bank accounts, and intercompany receivables.
-- The Inspired group has a network of 70 premium schools in 20
different countries and a track record of good profitability within
the private education sector. Therefore, we value the group as a
going concern.
Simulated default assumptions
-- Year of default: 2024
-- Jurisdiction: U.K.
Simplified waterfall
-- EBITDA at emergence: EUR84 million
-- Implied enterprise value multiple: 6.5x (a higher anchor
multiple than the standard multiple for business and consumer
services sector due to relative revenue visibility and good brand
name).
-- Gross enterprise value at default: EUR546 million.
-- Net enterprise value after administrative costs (5%) and
priority claims: EUR474 million.
-- Estimated first-lien claims: EUR893 million.
-- Recovery rating: 3 (rounded estimate 50%).
*All debt amounts include six months of prepetition interest.
LONDON CAPITAL: Regulator Urged to Make Changes After Collapse
--------------------------------------------------------------
Kevin Peachey at BBC News reports that the City regulator needs a
change of culture and more agility to prevent a repeat of the
London Capital and Finance (LCF) saga, MPs have said.
About 11,625 people invested a total of GBP237 million with LCF
before it collapsed into administration, BBC discloses.
A judge-led review criticized the Financial Conduct Authority (FCA)
for its failures in the case, BBC relates.
Now the Treasury Committee of MPs has said the FCA needs to get on
the front foot to protect consumers, according to BBC.
The committee has made a string of recommendations, primarily to
encourage a quicker change of culture at the regulator, and
speedier compensation for those who lost money, BBC relays.
Many people who put money in to LCF were first-time investors,
including inheritance recipients, small business owners or newly
retired, BBC notes.
They believed they were putting their money into safe, secure
fixed-rate ISAs, approved by the FCA. In fact, LCF was approved,
but the products -- which were high-risk mini-bonds -- were not,
BBC says.
LCF offered returns of around 8% on three-year mini-bonds, BBC
states.
The FCA ordered LCF to withdraw its marketing and, following
further investigation, then froze LCF's assets leading the company
to collapse into administration in January 2019, BBC recounts.
According to BBC, Former Court of Appeal judge, Dame Elizabeth
Gloster's review of the saga found that the FCA failed to
"effectively supervise and regulate" LCF before its collapse.
At the time, the regulator was run by Andrew Bailey, who is now the
governor of the Bank of England, BBC notes.
The Treasury Committee said that the regulation of mini-bonds and
compensation for victims should take place as soon as possible.
Many investors lost all their investment, but may now receive
one-off compensation.
Mel Stride, who chairs the Treasury Committee, said: "The collapse
of LCF is one of the largest conduct regulatory failures in
decades."
His committee has suggested that the FCA needed set a clear date
for completing changes that would move the culture on so the FCA is
a more proactive and agile regulator.
It also said there was evidence of an over-reliance on collective
responsibility, which made it hard to see who was accountable for
the FCA's actions.
MORTIMER BTL 2021-1: Moody's Gives B3 Rating to Class X2 Notes
--------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to Notes
issued by Mortimer BTL 2021-1 PLC:
GBP245.0M Class A Mortgage Backed Floating Rate Notes due June
2053, Definitive Rating Assigned Aaa (sf)
GBP16.8M Class B Mortgage Backed Floating Rate Notes due June
2053, Definitive Rating Assigned Aa1 (sf)
GBP9.8M Class C Mortgage Backed Floating Rate Notes due June 2053,
Definitive Rating Assigned Aa3 (sf)
GBP6.3M Class D Mortgage Backed Floating Rate Notes due June 2053,
Definitive Rating Assigned A1 (sf)
GBP2.1M Class E Mortgage Backed Floating Rate Notes due June 2053,
Definitive Rating Assigned A2 (sf)
GBP11.9M Class X1 Floating Rate Notes due June 2053, Definitive
Rating Assigned Ba1 (sf)
GBP5.6M Class X2 Floating Rate Notes due June 2053, Definitive
Rating Assigned B3 (sf)
RATINGS RATIONALE
The Notes are backed by a pool of prime UK buy-to-let ("BTL")
mortgage loans originated by LendInvest BTL Limited ("LendInvest",
NR). This represents the third rated RMBS issuance from
LendInvest.
The portfolio of assets amounts to approximately GBP 280 million as
of 17 May 2021 pool cut-off date. The subordination for the Class A
Notes is 12.5% excluding the Liquidity Reserve Fund that has been
funded to 1% of the balance of Class A to B Notes at closing.
The ratings are primarily based on the credit quality of the
portfolio, the structural features of the transaction and its legal
integrity.
According to Moody's, the transaction benefits from various credit
strengths such as a static structure and a relatively low
weighted-average loan-to-value ("LTV"). However, Moody's notes that
the transaction features some credit weaknesses such as an unrated
originator with a relatively short history in the BTL space also
acting as servicer and the absence of a balance guaranteed basis
swap. Various mitigants have been included in the transaction
structure such as an experienced delegated servicer, Pepper (UK)
Limited (NR), performing the servicing alongside LendInvest and the
presence of an interest rate swap. Furthermore, the transaction
includes a back-up servicer facilitator which is obliged to appoint
a replacement servicer upon servicer termination, with Pepper (UK)
Limited required to step-in upon that event.
Moody's determined the portfolio lifetime expected loss of 1.5% and
13% MILAN Credit Enhancement ("MILAN CE") related to borrower
receivables. The expected loss captures Moody's expectations of
performance considering the current economic outlook, while the
MILAN CE captures the loss Moody's expect the portfolio to suffer
in the event of a severe recession scenario. Expected defaults and
MILAN CE are parameters used by Moody's to calibrate its lognormal
portfolio loss distribution curve and to associate a probability
with each potential future loss scenario in the ABSROM cash flow
model to rate RMBS.
Portfolio expected loss of 1.5%: This is broadly in line with the
recent UK BTL RMBS sector average and is based on Moody's
assessment of the lifetime loss expectation for the pool taking
into account: (i) the collateral performance of Lendinvest
originated loans to date, with cumulative losses of 0% during the
past 3 years; (ii) very low CCJs in the pool; (iii) 16.0% of the
loans in the pool backed by multifamily properties; (iv) the
current macroeconomic environment in the UK and the impact of
future interest rate rises on the performance of the mortgage
loans; and (v) benchmarking with other UK BTL transactions.
MILAN CE for this pool is 13.0%, which is in line with other UK BTL
RMBS transactions, owing to: (i) the WA current LTV for the pool of
72.1%; (ii) top 20 borrowers constituting 9.3% of the pool; (iii)
static nature of the pool; (iv) the fact that all the loans in the
pool are interest-only; (v) the share of self-employed borrowers of
13.1%, and legal entities of 76.3%; (vi) 16.0% of the loans in the
pool backed by multifamily properties; and (vii) benchmarking with
similar UK BTL transactions.
Current Economic Uncertainty
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in the UK economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Principal Methodology
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
December 2020.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
Factors that would lead to an upgrade or downgrade of the ratings:
Significantly different actual losses compared with Moody's
expectations at close due to either a change in economic conditions
from Moody's central scenario forecast or idiosyncratic performance
factors would lead to rating actions. For instance, should economic
conditions be worse than forecast, the higher defaults and loss
severities resulting from a greater unemployment, worsening
household affordability and a weaker housing market could result in
a downgrade of the ratings. Deleveraging of the capital structure
or conversely a deterioration in the Notes available credit
enhancement could result in an upgrade or a downgrade of the
ratings, respectively.
MORTIMER BTL 2021-1: S&P Assigns B+ Rating on X1 Notes
------------------------------------------------------
S&P Global Ratings has assigned credit ratings to Mortimer BTL
2021-1 PLC's (Mortimer 2021-1) class A notes and class B-Dfrd to
X2-Dfrd interest deferrable notes.
Mortimer 2021-1 is a static RMBS transaction that securitizes a
portfolio of prime buy-to-let (BTL) mortgage loans secured on
properties in the U.K. LendInvest originated the loans in the pool
between August 2018 and May 2021.
At closing, the issuer used the issuance proceeds to purchase the
full beneficial interest in the mortgage loans from the seller. The
issuer grants security over all of its assets in favor of the
security trustee.
Credit enhancement for the rated notes consists of subordination
from the closing date and overcollateralization following the
step-up date, which will result from the release of the excess
amount from the liquidity reserve fund to the principal priority of
payments.
The transaction features a liquidity reserve fund to provide
liquidity in the transaction.
There are no rating constraints in the transaction under S&P's
counterparty, operational risk, or structured finance sovereign
risk criteria. It considers the issuer to be bankruptcy remote.
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Ratings List
CLASS RATING CLASS SIZE (% OF COLLATERAL)
A AAA (sf) 87.50
B-Dfrd AA (sf) 6.00
C-Dfrd A (sf) 3.50
D-Dfrd BBB+ (sf) 2.25
E-Dfrd BB+ (sf) 0.75
X1-Dfrd B+ (sf) 4.25
X2-Dfrd NR 2.00
Certificates NR N/A
NR--Not rated.
N/A--Not applicable.
REGIS: Landlords Must Pay Substantial Portion of CVA Legal Costs
----------------------------------------------------------------
Amy Flavell, Esq., -- amy.flavell@pinsentmasons.com -- and Stuart
Taylor, Esq., -- stuart.taylor@pinsentmasons.com -- of Pinsent
Masons, disclosed that the High Court in London has determined who
should pay the costs of the long-running litigation over Regis'
company voluntary arrangement (CVA), helpfully clarifying who had
been the successful parties.
The landlords had not succeeded in the majority of their case
against Regis, but were awarded some of their costs against the
company up to the date it fell into administration. As the claims
for relief against the nominees had failed to succeed, the
landlords were ordered to pay a substantial proportion of the costs
of the nominee respondents.
-- Ruling provides guidance as to when it would be appropriate
to award personal costs against a nominee or supervisor
-- The court considered no precedent to have been set by the
original decision
The Regis case had been running for over two years, unusually for a
CVA challenge, and had gone to trial notwithstanding the active
respondents questioning the utility of the application.
The judgment was unusual as one discrete issue was decided in favor
of the applicants, resulting in an order revoking the CVA, although
the majority of the vast range of issues pleaded were decided in
favor of the respondents. No relief was awarded against the
nominee/supervisor respondents. However, the landlord applicants
had still claimed that the nominees pay the costs of the
application, because it had succeeded on one limited ground against
the company.
In considering the liability of the nominees to meet any of the
landlords' costs by way of a personal costs award, the court was
clear that the application had failed against the nominees and that
it would not be appropriate to order any payment of the landlords'
costs. Although there had been a finding of breach of duty in one
limited respect the majority of issues where breach of duty had
been alleged were unsuccessful; and the breach found was on a
limited factual point only and was not sufficiently substantial to
merit a costs award. Rather, the substantial majority of costs
were awarded in favor of the nominees, reflecting their successful
defense of the relief claimed.
The landlords also claimed that the underlying judgment had set
useful precedent on certain issues, such as the 75% discount on
voting and whether a profit share fund had been adequate. The
court disagreed that any precedent had been set. The decision was
on a discrete factual point and the landlords had failed to
establish that the 75% voting discount was materially irregular.
Even if the court had made those findings, that would not have
justified the nominees shouldering the costs burden of the
landlords' desire to create a precedent.
While the court rejected all arguments that the
nominees/supervisors should meet any of the landlords' costs in
relation to the revocation of the CVA it ordered that Regis, which
is in administration, is liable to pay some of the landlords' costs
up to the date of its administration. These costs will be an
unsecured claim in the administration of the company.
The judgment recognizes the importance of careful consideration of
an application for personal costs against a nominee or supervisor
and recognizes the bar which is required to be met to obtain such
an order. It will therefore be welcome news for restructuring
professionals and those proposing CVAs.
WYELANDS BANK: Gov't. Should Toughen Rules in Light of Collapse
---------------------------------------------------------------
Huw Jones at Reuters reports that parliament should consider
toughening up the rules on who can take control of a bank in light
of what happened to Wyelands Bank following the collapse of
Greensill Capital, Bank of England Deputy Governor Sam Woods said
on June 23.
Steel tycoon Sanjeev Gupta's metals-to-finance empire GFG Alliance
took control of Wyelands Bank in 2016, Reuters recounts. Wyelands
financed GFG Alliance that was closely linked to financing company
Greensill Capital, which went bust earlier this year, Reuters
notes.
Mr. Woods, as cited by Reuters, said concerns emerged in 2018 over
the way Wyelands was lending to GFG.
"The more we dug the more concerned we became," Mr. Woods told
parliament's Treasury Select Committee.
The Bank alerted the National Crime Agency and the Serious Fraud
Office, and conducted a "dawn raid" in December 2019, Reuters
relates. Wyelands was forced to hand back GBP210 million of
deposits to around 4,000 savers in February this year, Reuters
recounts.
Mr. Gupta took over Wyelands under European Union rules which
allowed a change in control to proceed unless the regulator has
specific grounds for objecting, rules that remain in the UK since
Brexit, Reuters discloses.
Mr. Woods said the rules should be toughened by putting the "burden
of proof" on the person who wants to take control of a bank to show
they are suitable, Reuters notes.
Asked by a lawmaker if Mr. Gupta is a "fit and proper" person to
have owned a bank, Mr. Woods said the BoE has an enforcement
investigation which is looking at this issue among others,
according to Reuters.
Mr. Woods, who heads the BoE's banking supervision arm, said he was
still waiting to see where losses from Greensill "will land" but
was not concerned about any impact on the banks he regulates,
Reuters relays.
[*] UK: Provided GBP12-Bil.+ in Financial Support to Exporters
--------------------------------------------------------------
Daniel Thomas at The Financial Times reports that UK exporters have
been given more than GBP12 billion in state financial support to
keep Britain trading with the rest of the world through Brexit and
the pandemic.
UK Export Finance, the government's export credit agency, provided
British businesses with the highest level of financial support in
30 years in the 12 months to the end of March, the FT relays,
citing an annual report published on June 16. This is almost
treble the amount from the previous financial year, to help exports
to 77 countries, the FT notes.
According to the FT, the agency aims to support viable UK exports
with loan guarantees, insurance and direct lending to help them
win, fulfil and get paid for international business where there are
gaps in private sector provision.
UKEF provided more than GBP7 billion in support to companies
disrupted by the pandemic, such as Rolls-Royce, Ford, easyJet and
British Airways, with a mixture of trade guarantees and insurance
to encourage private sector lending to exporters, the FT
discloses.
It also helped exporters facing Brexit risks, for example providing
a GBP480 million guarantee on a GBP600 million commercial loan in
March 2021 after a carmaker committed operations to the UK, the FT
states.
UK exporters, especially smaller businesses, have complained about
extensive red tape and costs arising from trading with the EU after
Brexit, the FT relays.
Many have also warned that the trade deals struck by the government
have yielded little benefit so far, instead causing them to rejig
operations and move production and distribution overseas, according
to the FT.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Hospitals, Health and People
---------------------------------------------
Author: Albert W. Snoke, M.D.
Publisher: Beard Books
Softcover: 232 pages
List Price: $34.95
Order your personal copy today at
http://www.beardbooks.com/beardbooks/hospitals_health_and_people.html
Hospitals, Health and People is an interesting and very readable
account of the career of a hospital administrator and physician
from the 1930's through the 1980's, the formative years of today's
health care system. Although much has changed in hospital
administration and health care since the book was first published
in 1987, Dr. Snoke's discussion of the evolution of the modern
hospital provides a unique and very valuable perspective for
readers who wish to better understand the forces at work in our
current health care system.
The first half of Hospitals, Health and People is devoted to the
functional parts of the hospital system, as observed by Dr. Snoke
between the late 1930's through 1969, when he served first as
assistant director of the Strong Memorial Hospital in Rochester,
New York, and then as the director of the Grace-New Haven Hospital
in Connecticut. In these first chapters, Dr. Snoke examines the
evolution and institutionalization of a number of aspects of the
hospital system, including the financial and community
responsibilities of the hospital administrator, education and
training in hospital administration, the role of the governing
board of a hospital, the dynamics between the hospital
administrator and the medical staff, and the unique role of the
teaching hospital.
The importance of Hospitals, Health and People for today's readers
is due in large part to the author's pivotal role in creating the
modern-day hospital. Dr. Snoke and others in similar positions
played a large part in advocating or forcing change in our hospital
system, particularly in recognizing the importance of the nursing
profession and the contributions of non-physician professionals,
such as psychologists, hearing and speech specialists, and social
workers, to the overall care of the patient. Throughout the first
chapters, there are also many observations on the factors that are
contributing to today's cost of care. Malpractice is just one
example. According to Dr. Snoke, "malpractice premiums were
negligible in the 1950's and 1960's. In 1970, Yale-New Haven's
annual malpractice premiums had mounted to about $150,000." By the
time of the first publication of the book, the hospital's premiums
were costing about $10 million a year.
In the second half of Hospitals, Health and People, Dr. Snoke
addresses the national health care system as we've come to know it,
including insurance and cost containment; the role of the
government in health care; health care for the elderly; home health
care; and the changing role of ethics in health care. It is
particularly interesting to note the role that Senator Wilbur Mills
from Arkansas played in the allocation of costs of hospital-based
specialty components under Part B rather than Part A of the
Medicare bill. Dr. Snoke comments: "This was considered a great
victory by the hospital-based specialists. I was disappointed
because I knew it would cause confusion in working relationships
between hospitals and specialists and among patients covered by
Medicare. I was also concerned about potential cost increases. My
fears were realized. Not only have health costs increased in
certain areas more than anticipated, but confusion is rampant among
the elderly patients and their families, as well as in hospital
business offices and among physicians' secretaries." This aspect of
Medicare caused such confusion that Congress amended Medicare in
1967 to provide that the professional components of radiological
and pathological in-hospital services be reimbursed as if they were
hospital services under Part A rather than part of the co-payment
provisions of Part B.
At the start of his book, Dr. Snoke refers to a small statue,
Discharged Cured, which was given to him in the late 1940's by a
fellow physician, Dr. Jack Masur. Dr. Snoke explains the
significance the statue held for him throughout his professional
career by quoting from an article by Dr. Masur: "The whole question
of the responsibility of the physician, of the hospital, of the
health agency, brings vividly to mind a small statue which I saw a
great many years ago.it is a pathetic little figure of a man, coat
collar turned up and shoulders hunched against the chill winds,
clutching his belongings in a paper bag-shaking, tremulous,
discouraged. He's clearly unfit for work-no employer would dare to
take a chance on hiring him. You know that he will need much more
help before he can face the world with shoulders back and
confidence in himself. The statuette epitomizes the task of medical
rehabilitation: to bridge the gap between the sick and a job."
It is clear that Dr. Snoke devoted his life to exactly that
purpose. Although there is much to criticize in our current
healthcare system, the wellness concept that we expect and accept
today as part of our medical care was almost nonexistent when Dr.
Snoke began his career in the 1930's. Throughout his 50 years in
hospital administration, Dr. Snoke frequently had to focus on the
big picture and the bottom line. He never forgot the importance of
Discharged Cured, however, and his book provides us with a great
appreciation of how compassionate administrators such as Dr. Snoke
have contributed to the state of patient care today.
Albert Waldo Snoke was director of the Grace-New Haven Hospital in
New Haven, Connecticut from 1946 until 1969. In New Haven, Dr.
Snoke also taught hospital administration at Yale University and
oversaw the development of the Yale-New Haven Hospital, serving as
its executive director from 1965-1968. From 1969-1973, Dr. Snoke
worked in Illinois as coordinator of health services in the Office
of the Governor and later as acting executive director of the
Illinois Comprehensive State Health Planning Agency. Dr. Snoke died
in April 1988.
*********
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-
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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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