/raid1/www/Hosts/bankrupt/TCREUR_Public/210629.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, June 29, 2021, Vol. 22, No. 123
Headlines
A Z E R B A I J A N
MUGANBANK: S&P Hikes ICRs to 'B-/B' on Improved Liquidity
G E R M A N Y
ADLER MODEMARKTE: Zeitfracht Set to Acquire Business
AIR BERLIN: Insolvency Administrator to Sue Clearstream
ATHENA BIDCO: S&P Alters Outlook to Stable & Affirms 'B' LT ICR
DEMIRE DEUTSCHE: S&P Withdraws 'BB-' LT Issuer Credit Rating
I R E L A N D
PALMER SQUARE 2021-2: S&P Assigns Prelim. B- Rating on F Notes
PROVIDUS CLO III: Moody's Assigns (P)B3 Rating to Class F-R Notes
ST. PAUL'S VII: S&P Assigns B- Rating on Class F Notes
SUMMERHILL RESIDENTIAL 2021-1: S&P Assigns (P)B- Rating on G Notes
I T A L Y
ATLANTIA SPA: S&P Hikes LongTerm Rating to BB
DIOCLE SPA: S&P Raises ICR to 'B+' on Prudent Financial Policy
K A Z A K H S T A N
OIL INSURANCE: S&P Affirms 'B+' LongTerm ICR, Outlook Stable
L U X E M B O U R G
EURASIAN RESOURCES: Moody's Hikes CFR to B1, Outlook to Stable
N E T H E R L A N D S
HUVEPHARMA INT'L: Moody's Puts Ba3 CFR Under Review for Upgrade
N O R W A Y
NANNA MIDCO II: Moody's Raises CFR to B3, Outlook Stable
SECTOR ALARM: S&P Raises LongTerm ICR to 'B+', Outlook Stable
R U S S I A
BANK OTKRITIE: Moody's Affirms Ba2 LongTerm Debt Rating
S P A I N
MIRAVET SARL 2020-1: S&P Lowers Class E Notes Rating to 'B-'
NH HOTEL: Fitch Gives Final B+ Rating on EUR400MM Bonds
S W E D E N
DDM DEBT: S&P Assigns 'B' Issuer Credit Rating, Outlook Stable
U N I T E D K I N G D O M
AMIGO LOANS: Lender Extends Debt Waiver to Sept. 24
FINSBURY SQUARE 2019-2: Fitch Affirms CCC Rating on Class F Debt
GFG ALLIANCE: Confirms Series of Restructuring Steps
GREENSILL CAPITAL: FRC Launches Investigation Into Auditor
HURRICANE ENERGY: Court Refuses to Sanction Restructuring Plan
KELHAM HALL: Enters Administration Following Liquidation
NEPTUNE ENERGY: Moody's Affirms Ba3 CFR & Alters Outlook to Pos.
SAGA PLC: S&P Affirms 'B' LT Issuer Credit Rating, Outlook Stable
VIVO ENERGY: S&P Affirms 'BB+' ICR & Alters Outlook to Stable
- - - - -
===================
A Z E R B A I J A N
===================
MUGANBANK: S&P Hikes ICRs to 'B-/B' on Improved Liquidity
---------------------------------------------------------
S&P Global Ratings raised its long- and short-term issuer credit
ratings on Azerbaijan-based Muganbank to 'B-/B' from 'CCC+/C'. The
outlook is stable.
S&P said, "Muganbank improved its liquidity position, and we expect
it to maintain this in 2021-2022. Under our base-case assumptions,
the bank will maintain a liquidity cushion and is unlikely to
experience material customer deposit outflows in the next 12
months, based on its good track record of customer deposits
stability over the past six months. Despite the full retail deposit
guarantee's expiration on April 4, 2021, Muganbank's retail
deposits increased by about 10% from April 4 to mid-June 2021.
Retail deposit funding is complemented by continued funding from
financial institutions and government-related entities (GREs) under
government support programs, Central Bank support, and corporate
deposits.
"We believe that the operating environment in Azerbaijan supports
the bank's growth in 2021-2022. The operating environment for Azeri
banks is improving, with forecast real GDP growth of 2.4% in 2021
and an average of 4.7% over 2022-2023 after an economic contraction
in 2020 due to COVID-19.
"We expect Muganbank to show a small profit in 2021-2022. The new
strategy for 2021-2023 envisions a focus on credit and noncredit
products to small and midsize enterprises, and mortgage loans to
individuals, which will be financed predominantly by retail
deposits and funding from GREs and international financial
institutions under support programs. New business and the stability
of Muganbank's customer base will continue to depend on the
relationship and reputation of its controlling shareholder, and his
ability to support the bank with capital injections. The bank
undertook expense optimization in first-half 2021 and targets a
small profit in 2021 under IFRS following years of losses. In the
first five months of 2021, the bank recorded positive
preprovisioning and net income under local accounting standards.
"Nevertheless, the bank's capitalization remains very weak. We
expect the bank's capitalization, as measured by our risk-adjusted
capital (RAC) ratio, to remain at 1.7%-2.1% in 2021-2022, adjusted
for a negative earnings buffer. Positively, the bank's shareholder
injected a small amount of AZN5 million Tier 1 equity in
first-quarter 2021 to demonstrate his commitment to the bank
(versus total statutory reported capital of AZN93 million). As of
March 31, 2021, Muganbank complied with regulatory capital adequacy
ratios: The Tier 1 ratio was 15.4% versus the minimum of 5%, and
total capital adequacy ratio--18.9% versus the minimum of 10%. We
expect the bank to continue complying with local regulatory ratios
even when showing very low RAC ratios. A wide gap between the RAC
ratio and local regulatory ratios indicates higher provisions under
IFRS 9 versus regulatory provisions and consequently lower capital
figure.
"Muganbank's asset quality is weaker than peers', but we expect the
positive trend in nonperforming loan (NPL) reduction will continue.
We expect Stage 3 loans to reduce to about 15% in the next two
years from 17% as of May 31, 2021, through write-offs and sale to
other banks of legacy NPLs and better asset quality of new loans.
Nevertheless, the bank's asset quality will remain weaker than the
Azeri banking system average and a majority of international
peers.
"The stable outlook reflects our expectations that Azerbaijan's
recovering economy and Muganbank's new strategy could enable the
bank to increase franchise stability, maintain sufficient
liquidity, and achieve a small profit over the next 12 months."
A positive rating action is unlikely over the next 12 months.
A negative rating action could follow over the next 12 months if
Muganbank's new strategy does not result in its franchise's
profitable growth, or the improved trend in the bank's asset
quality from the past two years reverses. Although not S&P's
base-case scenario, it will view weakening liquidity from resumed
material deposit outflows negatively.
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G E R M A N Y
=============
ADLER MODEMARKTE: Zeitfracht Set to Acquire Business
----------------------------------------------------
Global Insolvency, citing Eminetra.com, reports that fashion
retailer Adler Modemarkte AG is ready to be acquired by
Berlin-based logistics company Zeitfracht, which has made a name
for itself by acquiring a bankrupt company.
According to Global Insolvency, Zeitfracht will provide urgently
needed new capital to companies in Haibach near Aschaffenburg.
Adlermode explained that the deal could take effect after the
bankruptcy proceedings scheduled for early July begin, Global
Insolvency notes.
The Adler fashion chain, which specializes in fashion for people in
their 50s and above, filed for bankruptcy in January, Global
Insolvency recounts. This is due to the forced closure of the
store during the pandemic and the resulting sluggish sales months,
Global Insolvency discloses.
Zeitfracht recently submitted an irrevocable takeover offer to the
company, which has 172 branches in Germany, Austria, Switzerland
and Luxembourg, Global Insolvency relays.
AIR BERLIN: Insolvency Administrator to Sue Clearstream
-------------------------------------------------------
Luxembourg Times reports that the insolvency administrator of Air
Berlin is set to sue Deutsche Boerse subsidiary Clearstream to
recover EUR497.8 million.
The complaint was due to be filed with a Frankfurt regional court
on June 25, said administrators for Air Berlin, which filed for
bankruptcy in 2017, Luxembourg Times relates.
According to Luxembourg Times, the administrator said Clearstream
Banking AG is "registered as a shareholder of the ordinary shares
of Air Berlin PLC in the shareholder register of Air Berlin PLC in
the UK". The unit held the shares "for investors who have acquired
entitlements to the shares of Air Berlin PLC and in securities
accounts", Luxembourg Times discloses.
Air Berlin PLC -- despite being a UK company -- was no longer
considered a foreign company after Brexit as its administrative
headquarters are in Germany, the administrator said in a statement,
arguing that it should be re-qualified as a German civil law
company, which would make Clearstream a "personally liable partner
of this company under civil law", Luxembourg Times notes.
According to Luxembourg Times, with the lawsuit, the insolvency
administrator intends to claim amounts determined in an insolvency
table. The court should also decide whether the Deutsche Boerse
subsidiary is obliged to make further payments to the bankruptcy
creditors, estimated at up to one billion euros, Luxembourg Times
says.
ATHENA BIDCO: S&P Alters Outlook to Stable & Affirms 'B' LT ICR
---------------------------------------------------------------
S&P Global Ratings revised its outlook to stable from negative and
affirmed its 'B' long-term issuer credit rating on P&I's parent
Athena BidCo GmbH.
The stable outlook reflects our view that P&I's revenue will
continue to increase 5%-7% in fiscals 2022-2023, mainly driven by
ongoing customer migration to its SaaS platform, while EBITDA
margins will improve to 54%-55%, leading to increased rating
headroom.
P&I's SaaS strategy is well on track. P&I's reported revenue
increased about 6.5% in fiscal 2021, thanks to bolt-on mergers and
acquisitions (M&A) and more than 100% growth in its cloud-based
LogaAll-in solutions, as existing and new customers migrate from
on-premise solutions to SaaS. The strong SaaS sales significantly
increased P&I's recurring revenue as a percentage of total revenue
to about 76% in fiscal 2021 from about 69% in fiscal 2020. S&P
expects recurring revenue will increase to about 80% of total
revenue in fiscal 2022 because of continued cloud adoption and
still-low penetration among existing customers. In April 2021, P&I
had migrated about 22% of its 4.9 million pay slips to the new
solution, compared with about 11% in April 2020. This leaves a
large opportunity for further top-line growth and margin expansion
considering the SaaS solution has a much higher price and better
margin than P&I's on-premise software.
Increasing EBITDA and meaningful FOCF have expanded headroom under
the current rating. P&I's S&P Global Ratings-adjusted leverage
decreased to 10.5x in fiscal 2021 (6.1x excluding PIK), compared
with 11.0x (6.7x excluding PIK) in fiscal 2020 thanks to EBITDA
growth, underpinned by sound top-line growth and margin expansion.
S&P said, "We expect leverage will further decrease toward 10x in
fiscals 2022 and 2023 on the back of EBITDA growth, leading to
increased headroom under our current downside trigger of 11x. We
think our rating on P&I is further supported by the company's
meaningful cash flow generation, thanks to limited working capital
and capital expenditure (capex) needs, and a large portion of
noncash-paying debt within the group structure." This will
contribute to expected FOCF of more than EUR40 million in fiscals
2022-2023, and FOCF to debt of more than 5% (9% excluding PIK).
P&I's lean operating structure leads to superior profitability
compared to that of peers. The company's S&P Global
Ratings-adjusted margin was about 53% in fiscal 2021, compared with
about 51.3% in fiscal 2020. This is much higher than the average
margin of 25%-30% among enterprise and commercial software peers.
S&P thinks P&I's strong profitability spurs from its lean operating
structure, with about 600 employees and less than 10% of staff in
sales and marketing. In addition, P&I's concentration in HR
software and operations mostly in German-speaking
countries--including Germany, Austria, and
Switzerland--significantly reduces costs in terms of local support
and product complexity compared to larger and more diversified
software providers. That said, S&P thinks its niche focus and
geographical concentration make it more susceptible to competition,
technological innovation, and local regulatory changes.
S&P said, "The stable outlook reflects our view that P&I's revenue
will continue to expand 5%-7% in fiscals 2022-2023, mainly driven
by ongoing customer migration to its SaaS platform, while EBITDA
margins will improve to 54%-55%, leading to increased rating
headroom.
"We could lower the rating if P&I faces difficulties with top-line
and EBITDA growth through the ongoing transition to SaaS,
up-selling, and price increases. This could be indicated by
challenges in migrating existing customers and higher churn, or in
new customer sales and growth. We could also lower the rating if
P&I pursues debt-funded shareholder returns or material M&A,
leading to adjusted debt to EBITDA exceeding 11x (6.7x excluding
PIK) and FOCF to debt decreasing materially below 5%.
"Rating upside is remote because of the highly leveraged capital
structure, and our expectation that the sponsor owner is unlikely
to pursue significant leverage reductions on a sustained basis.
However, we could raise the rating if P&I improves FOCF to about
10% of adjusted debt. This is most likely to materialize through
gross debt repayments combined with strong EBITDA growth. In
addition, we would require a firm financial policy commitment to
maintain metrics at this level."
DEMIRE DEUTSCHE: S&P Withdraws 'BB-' LT Issuer Credit Rating
------------------------------------------------------------
S&P Global Ratings has withdrawn its 'BB-' long-term issuer credit
rating on DEMIRE Deutsche Mittelstand Real Estate AG at DEMIRE's
request. The outlook was stable at the time of the withdrawal. At
the same time, S&P withdrew the 'BB' issue rating on the company's
senior unsecured bond due 2024.
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I R E L A N D
=============
PALMER SQUARE 2021-2: S&P Assigns Prelim. B- Rating on F Notes
--------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Palmer Square European CLO 2021-2 DAC's class A-1, A-2, B-1, B-2,
C, D, E, and F notes. At closing, the issuer will also issue
unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The portfolio's reinvestment period will end approximately 4.5
years after closing, and the portfolio's weighted-average life test
will be approximately 8.2 years after closing.
The preliminary ratings assigned to the notes reflect its
assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,704.64
Default rate dispersion 567.02
Weighted-average life (years) 5.35
Obligor diversity measure 134.16
Industry diversity measure 21.54
Regional diversity measure 1.56
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 350.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 157
Portfolio weighted-average rating
derived from its CDO evaluator 'B'
'CCC' category rated assets (%) 0
'AAA' weighted-average recovery (%) 37.29
Covenanted weighted-average spread (%) 3.40
Reference weighted-average coupon (%) 5.00
Rating rationale
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
primarily comprise broadly syndicated speculative-grade senior
secured term loans and senior secured bonds. Therefore, we
conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR350 million par amount,
the covenanted weighted-average spread of 3.40%, the reference
weighted-average coupon of 5.00%, and the covenanted
weighted-average recovery rates for all rated notes. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"Our cash flow analysis also considers scenarios where the
underlying pool comprises 100% of floating-rate assets (i.e., the
fixed-rate bucket is 0%) and where the fixed-rate bucket is fully
utilized (in this case, 10%)."
Palmer Square Europe Capital Management will manage the
transaction. An experienced manager of U.S. CLOs, this will be its
second reinvesting transaction in Europe. Following the application
of our structured finance operational risk criteria, S&P considers
the transaction's exposure to be limited at the assigned
preliminary ratings.
S&P expects that the transaction's documented counterparty
replacement and remedy mechanisms will adequately mitigate its
exposure to counterparty risk under our current counterparty
criteria.
S&P said, "Following the application of our structured finance
sovereign risk criteria, we consider the transaction's exposure to
country risk to be limited at the assigned preliminary ratings, as
the exposure to individual sovereigns does not exceed the
diversification thresholds outlined in our criteria.
"At closing, we expect that the transaction's legal structure will
be bankruptcy remote, in line with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-1 to E notes could withstand
stresses commensurate with higher rating levels than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on the notes.
Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
the class A-1, A-2 , B-1, B-2, C, D, E, and F notes.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement is commensurate with a lower
rating. However, after applying our 'CCC' criteria, we have
assigned a 'B-' rating to this class of notes." The uplift to 'B-'
reflects several key factors, including:
-- The available credit enhancement for this class of notes is in
the same range as other CLOs that S&P rates, and that have recently
been issued in Europe.
-- The portfolio's average credit quality is similar to other
recent CLOs.
-- S&P's model generated BDR at the 'B-' rating level of 25.89%
(for a portfolio with a weighted-average life of 5.35 years),
versus if it was to consider a long-term sustainable default rate
of 3.1% for 5.35 years, which would result in a target default rate
of 16.56%.
-- S&P also noted that the actual portfolio is generating higher
spreads and recoveries versus the covenanted thresholds that it has
modelled in its cash flow analysis.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
to E notes to five of the 10 hypothetical scenarios we looked at in
our publication, "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for each
class of notes."
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
extraction of oil and gas, thermal coal mining or the generation of
electricity using coal, oil sands, natural gas, nuclear generation,
or fossil fuels from unconventional sources; cluster munition,
anti-personal mines, biological, chemical, depleted uranium, and
nuclear weapons; radiological weapons and white phosphorus; illegal
drugs or narcotics, including recreational cannabis; pornography or
prostitution; tobacco or tobacco products; predatory lending or
payday lending; opioid manufacturing or distribution; and firearms.
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."
Ratings List
CLASS PRELIM PRELIMIN SUB (%) INTEREST RATE*
RATING AMOUNT
(MIL. EUR)
A-1 AAA (sf) 182.00 38.00 Three/six-month EURIBOR
plus 0.93%
A-2 AAA (sf) 35.00 38.00 Three/six-month EURIBOR
plus 1.30%§
B-1 AA (sf) 20.00 28.00 Three/six-month EURIBOR
plus 1.67%
B-2 AA (sf) 15.00 28.00 1.97
C A (sf) 24.50 21.00 Three/six-month EURIBOR
plus 2.07%
D BBB (sf) 22.00 14.71 Three/six-month EURIBOR
plus 3.00%
E BB- (sf) 18.00 9.57 Three/six-month EURIBOR
plus 5.96%
F B- (sf) 9.50 6.86 Three/six-month EURIBOR
plus 8.53%
Sub. NR 30.60 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
§EURIBOR cap 2.10%.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
PROVIDUS CLO III: Moody's Assigns (P)B3 Rating to Class F-R Notes
-----------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following provisional ratings to refinancing notes to be issued by
Providus CLO III Designated Activity Company (the "Issuer"):
EUR232,500,000 Class A-R Senior Secured Floating Rate Notes due
2034, Assigned (P)Aaa (sf)
EUR27,500,000 Class B-1-R Senior Secured Floating Rate Notes due
2034, Assigned (P)Aa2 (sf)
EUR10,000,000 Class B-2-R Senior Secured Fixed Rate Notes due
2034, Assigned (P)Aa2 (sf)
EUR26,300,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)A2 (sf)
EUR23,400,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Baa3 (sf)
EUR18,700,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Ba3 (sf)
EUR11,300,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2034, 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.
As part of this reset, the Issuer will extend the reinvestment
period to four and half years and the weighted average life to nine
years. It will also amend certain concentration limits, definitions
including the definition of "Adjusted Weighted Average Rating
Factor". The issuer will include the ability to hold workout
obligations. In addition, the Issuer will amend the base matrix and
modifiers that Moody's will take into account for the assignment of
the definitive ratings.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of secured senior loans or senior secured
bonds and up to 10% of the portfolio may consist of unsecured
senior loans, second-lien loans, high yield bonds and mezzanine
loans. The underlying portfolio is expected to be almost fully
ramped as of the closing date.
Permira Credit Group Holdings Limited ("Permira") will continue to
manage the CLO. It will direct the selection, acquisition and
disposition of collateral on behalf of the Issuer and may engage in
trading activity, including discretionary trading, during the
transaction's four and half years 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 and credit improved
obligations.
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:
Performing par and principal proceeds balance: EUR374,123,205
Diversity Score(*): 48
Weighted Average Rating Factor (WARF): 2900
Weighted Average Spread (WAS): 3.65%
Weighted Average Coupon (WAC): 3.75%
Weighted Average Recovery Rate (WARR): 44.00%
Weighted Average Life (WAL): 8.5 years
ST. PAUL'S VII: S&P Assigns B- Rating on Class F Notes
------------------------------------------------------
S&P Global Ratings assigned credit ratings to St. Paul's CLO VII
DAC's class A to F European cash flow CLO notes. The transaction
also has outstanding unrated subordinated notes.
The transaction is a reset of an existing transaction, which closed
in July 2018.
The proceeds from the issuance of the rated and additional unrated
notes will be used to redeem the existing rated notes. The issuer
will use the remaining funds to cover fees and expenses incurred in
connection with the reset. The portfolio's reinvestment period is
scheduled to end in December 2025.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments.
The portfolio's reinvestment period will end approximately 4.50
years after closing. The actual weighted-average life (WAL) of the
portfolio is 4.35 years, which is shorter than the reinvestment
period. We have considered the portfolio's extended WAL in S&P's
credit analysis.
The ratings 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 transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P weighted-average rating factor 2911.93
Default rate dispersion 730.93
Weighted-average life (years) without reinvestment 4.35
Weighted-average life (years) including reinvestment 4.50
Obligor diversity measure 106.50
Industry diversity measure 22.39
Regional diversity measure 1.29
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 8.24
Actual 'AAA' weighted-average recovery (%) 36.34
Covenanted weighted-average spread (%) 3.70
Covenanted weighted-average coupon (%) 4.00
Unique Features
Loss mitigation obligations
Under the transaction documents, the issuer can purchase loss
mitigation obligations, which are assets of an existing collateral
obligation held by the issuer offered in connection with
bankruptcy, workout, or restructuring of an obligation, to improve
the related collateral obligation's recovery value.
The purchase of loss mitigation obligations is not subject to the
reinvestment criteria or the eligibility criteria. It receives no
credit in the principal balance definition, although where the loss
mitigation loan meets the eligibility criteria with certain
exclusions, it is accorded defaulted treatment in the par coverage
tests. The transaction documents limit the CLO's exposure to loss
mitigation obligations that can be acquired with principal proceeds
to 10.0% of the adjusted collateral principal amount.
The issuer may purchase loss mitigation obligations using either
interest proceeds, principal proceeds, or amounts standing to the
credit of the collateral enhancement account. The use of interest
proceeds to purchase loss mitigation obligations is subject to the
manager determining there are sufficient interest proceeds to pay
interest on all the rated notes and that all coverage tests would
pass on the upcoming payment date. The usage of principal proceeds
is subject to the following conditions: (i) par coverage tests and
reinvestment test passing following the purchase; (ii) the manager
having built sufficient excess par in the transaction so that the
principal collateral amount is equal to or exceeds the portfolio's
target par balance after the reinvestment or otherwise not
purchased at a premium, or otherwise the amount of proceeds used
does not exceed the related obligation's principal balance; and
(iii) the obligation is a debt obligation that is pari passu or
senior to the obligation already held by the issuer.
To protect the transaction from par erosion, any distributions
received from loss mitigation loans that are purchased with
principal will irrevocably form part of the issuer's principal
account proceeds and cannot be recharacterized as interest. Any
distributions received from loss mitigations loans from all sources
of proceeds may only be transferred to their respective accounts so
long as they are above the amount that is afforded in the coverage
test.
Reverse collateral allocation mechanism
If a defaulted euro-denominated obligation becomes the subject of a
mandatory exchange for U.S.-denominated obligation following a
collateral allocation mechanism (CAM) trigger event, the portfolio
manager may sell the CAM obligation and invest the sale proceeds in
the same obligor (a CAM euro obligation), provided the obligation:
-- Is denominated in euros;
-- Ranks as the same or more senior level of priority as the CAM
obligation; and
-- Is issued under the same facility as the CAM obligation by the
obligor.
To ensure that the CLO's original or adjusted collateral par amount
is not adversely affected following a CAM exchange, a CAM
obligation may only be acquired if, following the reinvestment, the
numerator of the CLO's par value test, referred to as the adjusted
collateral principal amount, is either:
-- Greater than the reinvestment target par balance;
-- Maintained or improved when compared to the same balance
immediately after the collateral obligation became a defaulted
obligation; or
-- Maintained or improved compared to the same balance immediately
after the mandatory exchange which resulted in the issuer holding
the CAM exchange. Solely for the purpose of this condition, the CAM
obligation's principal balance is carried at the lowest of its
market value and recovery rate, adjusted for foreign currency risk
and foreign exchange rates.
Finally, a CAM euro exchanged obligation that is also a
restructured obligation may not be purchased with sale proceeds
from a CAM exchanged obligation.
The portfolio manager may only sell a CAM obligation and reinvest
the sale proceeds in a CAM euro obligation if, in the judgment of
the portfolio manager, the sale and subsequent reinvestment is
expected to result in a higher level of ultimate recovery when
compared to the expected ultimate recovery from the CAM
obligation.
Bankruptcy exchange
Bankruptcy exchange allows the exchange of a defaulted obligation
for any other defaulted obligation issued by another obligor. This
feature allows the manager to increase the likelihood in the value
of recoveries. The collateral manager may only pursue a bankruptcy
exchange when:
-- The received obligation has a better likelihood of recovery or
is of better value or quality than the exchanged obligation;
-- The received obligation is no less senior in right of payment
than the exchanged obligation;
-- The coverage tests are satisfied;
-- The aggregate principal balance of the obligations received in
bankruptcy exchanges since the issue date does not exceed 10.0% of
the target par amount;
-- The aggregate principal balance of the obligations received in
bankruptcy exchanges held by the issuer at that time does not
exceed 2.5% of the target par amount;
-- The bankruptcy exchange test is satisfied, i.e., the projected
internal rate of return of a received obligation obtained as a
result of a bankruptcy exchange exceeds the projected internal rate
of return of the related exchanged obligation in a bankruptcy
exchange; and
-- At the time of exchange, the exchanged obligation satisfies the
CLO's eligibility criteria, except certain provisions such as, for
example, a defaulted security, credit risk, or long-dated
obligation.
To protect the transaction from par erosion, any payment required
from the issuer connected with bankruptcy exchanges will be limited
to customary transfer costs and payable only from amounts on
deposit in the collateral enhancement account and/or any interest
proceeds. Otherwise, interest proceeds may not be used to acquire a
received obligation in a bankruptcy exchange if it would likely
result in a failure to pay interest on the rated notes on the next
succeeding payment date.
Rating rationale
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior-secured term loans and
senior-secured bonds. Therefore, S&P has conducted its credit and
cash flow analysis by applying its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR400.00 million
target par amount, the covenanted weighted-average spread (3.70%),
the covenanted weighted-average coupon (4.00%), and actual
weighted-average recovery rates for all rating levels. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"Under our structured finance sovereign risk criteria, the
transaction's exposure to country risk is sufficiently mitigated at
the assigned rating levels.
Until the end of the reinvestment period on December 21, 2025, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
The transaction participants' documented replacement provisions are
in line with S&P's counterparty criteria for liabilities rated up
to 'AAA'.
The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
S&P said, "Following our analysis of the credit, cash flow,
counterparty, operational, and legal risks, we believe our ratings
are commensurate with the available credit enhancement for the
class A to F notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B-1 to D notes
could withstand stresses commensurate with the same or higher
ratings than those we have assigned." However, as the CLO will be
in its reinvestment phase starting from closing, during which the
transaction's credit risk profile could deteriorate, we have capped
our ratings assigned 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 to E notes
to five of the 10 hypothetical scenarios we looked at in our
publication "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class E and F notes."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
production or marketing of controversial weapons, tobacco or
tobacco-related products, nuclear weapons, thermal coal production,
speculative extraction of oil and gas, pornography or prostitution,
or opioid manufacturing and distribution. 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."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and it is managed by Intermediate
Capital Managers Ltd.
Ratings List
CLASS RATING AMOUNT INTEREST RATE CREDIT
(MIL. EUR) (%) ENHANCEMENT (%)
A AAA (sf) 244.00 3mE + 0.89 38.95
B-1 AA (sf) 32.00 3mE + 1.65 28.44
B-2 AA (sf) 10.00 2.10 28.44
C A (sf) 24.00 3mE + 2.40 22.44
D BBB (sf) 28.80 3mE + 3.50 15.23
E BB- (sf) 21.20 3mE + 6.12 9.93
F B- (sf) 12.00 3mE + 8.55 6.93
Subordinated NR 43.99 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
SUMMERHILL RESIDENTIAL 2021-1: S&P Assigns (P)B- Rating on G Notes
------------------------------------------------------------------
S&P Global Ratings has assigned preliminary ratings to Summerhill
Residential 2021-1 DAC's class A to G-Dfrd Irish RMBS notes. At
closing, the transaction will also issue unrated class Z, R, X1,
and X2 notes.
Summerhill Residential 2021-1 is a static RMBS transaction that
securitizes a EUR298.9 million portfolio of performing and
reperforming owner-occupied and buy-to-let mortgage loans secured
over residential properties in Ireland.
The preliminary portfolio cutoff date is as of May 31, 2021,
however for S&P's credit analysis it has used the portfolio as of
end of April 2021.
The securitization comprises a purchased portfolio, which was
previously securitized in Shamrock Residential 2019-1 DAC. Irish
Nationwide Building Society, Bank of Scotland PLC, Bank of Scotland
(Ireland) Ltd., Nua Mortgages Ltd., and Start Mortgages DAC
originated the loans.
S&P said, "Our rating on the class A notes addresses the timely
payment of interest and the ultimate payment of principal. Our
ratings on the class B-Dfrd to G-Dfrd notes address the ultimate
payment of interest and principal." The timely payment of interest
on the class A notes is supported by the liquidity reserve fund,
which will be fully funded at closing to its required level of
0.50% of the class A notes' balance. Furthermore, the transaction
benefits from the ability to use principal to cover certain senior
items.
Pepper Finance Corporation (Ireland) DAC and Start Mortgages DAC,
the administrators, are responsible for the day-to-day servicing.
In addition, the issuer administration consultant, Hudson Advisors
Ireland Ltd., helps devise the mandate for special servicing, which
Start Mortgages and Pepper Finance are implementing.
At closing, the issuer will use the issuance proceeds to purchase
the beneficial interest in the mortgage loans from the seller. The
issuer grants security over all its assets in favor of the security
trustee. S&P considers the issuer to be bankruptcy remote under our
legal criteria.
There are no rating constraints in the transaction under S&P's
structured finance operational, sovereign, and counterparty risk
criteria.
Preliminary Ratings
CLASS PRELIM. RATING* CLASS SIZE (%)
A AAA (sf) 62.50
B-Dfrd AA (sf) 7.75
C-Dfrd A (sf) 6.25
D-Dfrd BBB (sf) 5.00
E-Dfrd BB (sf) 3.00
F-Dfrd B (sf) 1.50
G-Dfrd B- (sf) 1.50
Z NR 12.50
R NR 2.31
X1 NR N/A
X2 NR N/A
*S&P's ratings address timely receipt of interest and ultimate
repayment of principal on the class A notes and the ultimate
payment of interest and principal on the other rated notes.
Dfrd--Deferrable.
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
ATLANTIA SPA: S&P Hikes LongTerm Rating to BB
---------------------------------------------
S&P Global Ratings raised its long-term ratings on Atlantia SpA and
Autostrade per l'Italia (ASPI) by one notch to 'BB' from 'BB-'and
affirmed the 'B' short-term ratings.
S&P said, "We raised the issue ratings on Atlantia's and ASPI's
senior unsecured debt to 'BB' from 'BB-' and kept the recovery
ratings on this debt at '3'.
"We also raised our long- and short-term issuer credit ratings on
Aeroporti di Roma (AdR), Atlantia's almost fully owned operating
subsidiary, to 'BBB-/A-3' from 'BB+/B'.
"The outlook on Atlantia and ASPI is positive and indicates that we
could further raise the ratings once the settlement agreement on
ASPI's concession, including the approval of ASPI's economic and
financial plan, is agreed and signed with the grantor. The timing
and extent of rating upside may differ on the two companies,
depending on our view of their stand-alone creditworthiness,
including the potential legacy risks." The outlook on AdR is also
positive because it is linked to that on its parent Atlantia.
This is because the disposal of ASPI to the consortium consisting
of CDP Equity S.p.A. (51%), Macquarie European Infrastructure Fund
6 SCSp (24.5%), and Blackstone Group International Partners LLP
(24.5%) meets the framework agreement announced by the Italian
government in July 2020, which indicated ASPI would be in control
of CDP and potential other shareholders selected by CDP. Given the
close relationship between CDP and the government, S&P believes the
government has incentives to conclude such an agreement, although
the timing and final terms of the agreement is yet uncertain.
The settlement between ASPI and the grantor, the Italian Ministry
of Sustainable Infrastructure and Mobility (MSIM), is a condition
to the closing of the sale by Atlantia. S&P also assumes the
administrative proceeding launched by the grantor following the
collapse of Genoa bridge would be withdrawn at settlement as a
condition for the sale, lifting the risk of a termination of ASPI's
concession. This would remove the liquidity risk that a termination
may cause on ASPI, and in turn Atlantia, due to earlier repayment
clauses contemplated in some financing documentation in the event
of a termination.
S&P said, "The 'bb' SACP reflects ASPI's satisfactory business risk
profile covering one of the largest toll road networks (more than
3,000 kilometers [km]), together with our expectation that it will
be able to maintain fund from operations (FFO) to debt solidly
above 9%. At the same time, we factor in the consequences the
collapse of Genoa bridge still pose and legacy risk that could lead
to weaker contractual terms following changes introduced by the
Milleproroghe Decree. Despite its solid cash position, we assess
ASPI's liquidity as less than adequate to reflect that, until the
risk of a termination of ASPI concession is dissipated, bondholders
may ask an earlier repayment of the debt in the event of a
termination. Furthermore, our rating on ASPI is speculative grade,
so about EUR1.2 billion facilities by the European Investment Bank
(EIB) and EUR0.3 billion by CDP may be accelerated (even if this is
unlikely, in our view)."
At present we continue to assess Atlantia's credit risk on a
consolidated basis including ASPI because the disposal is subject
to several conditions and cannot be completed earlier than Nov. 30,
2021, and no later than March 31, 2022 (the long stop date).
As of March 2021, Atlantia guarantees about EUR3.8 billion of ASPI
debt and some of ASPI's debt contains change-of-control clauses.
Following the severing of such financing ties, S&P expects to
separate the two ratings. Potential positive rating actions on each
entity may then follow different paths in terms of timing and
magnitude.
S&P said, "At the moment, we don't have visibility yet on final new
ownership of ASPI. It has been reported that CDP consortium may
open up to some additional shareholders. Hence it is too premature
to assess ASPI's future financial policy and comment if it may
qualify as a government-related entity. This will depend on its
future business plan and future governance, as well as on CDP's
final ownership stake and our assessment of the likelihood of any
extraordinary government support (or negative intervention).
"Once the settlement agreement is finalized, including the approval
of the addendum to the concession and of the new economic and
financial Plan, we expect our rating on ASPI to be underpinned by
our view of its concession framework, legacy risk from the collapse
of the bridge, and the strengths of its credit metrics."
The terms of the disposal agreement contains risk-sharing of
indemnities between ASPI and the consortium. It is also too early
to estimate the outcome of ongoing criminal and civil proceedings.
Hence, S&P expects for a time that ASPI will continue to remain
exposed to certain legacy risk from the collapse of Genoa bridge.
Atlantia announced that proceeds may be used to grow and support
its subsidiaries and, at the same time, provide return to its
shareholders, with a potential EUR1 billion-EUR2 billion share
buy-back program and dividend distributions in the range of EUR600
million-EUR650 million per year in 2022-2024.
S&P said, "Although we expect Atlantia will remain a player in
transportation infrastructure, it is unclear at this stage what
acquisitions it will pursue directly or through its platforms (50%
plus one stake owned Abertis for toll roads and 99.4% owned
Aeroporti di Roma for airports). Nevertheless, we will decide how
to approach assessing Atlantia's credit risk after the ASPI
disposal, including using alternative consolidation methods, based
on the group's governance, the assets in its future portfolio, and
the access to portfolio companies' cash flow generation.
"A settlement agreement on ASPI would remove liquidity risks to
Atlantia, as well, while we would factor in the legacy risk and
indemnities approved in the context of ASPI disposal. These include
all pending or future claims for damages and fines from criminal
and civil proceedings up to EUR150 million and 75% of liabilities
over this amount, up to EUR459 million cap."
The collapse of Genoa bridge had significant ramifications. It
prompted the grantor to increase its scrutiny and focus on
maintenance, to promote safety, and it led increased scrutiny of
internal procedures and control by the two companies. New CEOs have
been appointed at both Atlantia and ASPI and independent directors
have been included in ASPI's board of directors. S&P expects its
assessment of management and governance to remain at fair on both
Atlantia and ASPI for some time. This signals that, despite the
envisaged settlement agreement is expected to terminate the
administrative proceeding that could lead to a termination of the
concession, the outcome of the ongoing criminal investigations
remains uncertain and it takes time to assess the effectiveness of
internal governance changes.
S&P said, "That said, the current rating action reflects that, in
our view, the approval of the ASPI disposal to CDP will usher in a
settlement on the ASPI concession and this improves the
relationship with the grantor, softening the risk that a
termination of the concession may lead to a liquidity event for
ASPI and, as a result, on Atlantia.
"This is because we continue to reflect a two-notch rating
differential between AdR and its almost 100% parent Atlantia. The
concession agreement includes regulatory oversight by requiring
three statutory auditors appointed by the Ministry of Economic
Affairs, Ministry of Finance, and Ministry of Sustainable
Infrastructure and Mobility (MSIM). Also, AdR must meet certain
conditions under its concession agreement with ENAC (The Italian
Civil Aviation Authority), including a debt service coverage ratio
of above 1.2x. This was not met in 2020 due to the traffic drop
driven by the COVID-19 pandemic but did not cause any consequences
on the concession because ENAC recognized the breach as due to
force majeure event. We continue to assess AdR's SACP at 'a-',
reflecting its strong balance sheet and competitive position as
Italy's largest airport operator, with a monopoly position in Rome.
In line with other European airports, AdR has been severely hit by
the COVID-19 pandemic and traffic remains about 80% below 2019
levels at present. Nevertheless, we expect the lifting of mobility
restrictions and increased vaccination rates to support its traffic
recovery, particularly in the domestic and European segment (23%
and 50% of total traffic, respectively). As a result we forecast
its FFO to debt will recover gradually toward 20% by 2022-2023.
"The delinkage of the ratings is based on the existence of a
shareholder agreement with key decisions requiring approval from
Abertis' other strategic shareholder ACS and Hochtief. We could
reassess our approach, once we have more visibility on Atlantia's
future strategy and should part of the EUR8 billion proceeds from
ASPI be allocated to Abertis."
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety
S&P said, "The positive outlook on Atlantia and ASPI indicates that
we could take a positive rating action on both companies once the
settlement agreement on the ASPI concession is finalized with the
grantor, which is a condition for the sale of ASPI to the CDP-led
consortium. The outlook on AdR is linked to that on its parent
Atlantia, given the current two-notch differential we allow in our
rating.
"We expect to delink our ratings on Atlantia and ASPI once the
existing guarantees and change-of-control clauses in place between
the two companies are severed, which requires a waiver from certain
creditors.
"Once separated, the timing and extent of the rating actions on
Atlantia and ASPI may differ and will depend on our visibility over
their future credit metrics, financial policy and strength of the
business and legacy risk.
"We could take a positive rating action on ASPI once the settlement
agreement is finalized with the grantor, reducing the risk of a
termination of ASPI concession and of debt acceleration, while
assuming FFO to debt to be solidly above 9%. Nevertheless, before
we could raise our rating on ASPI to investment grade, we would
require visibility on the final ownership and the financial policy
of the company, some visibility on the new regulatory framework
after the settlement, and manageable remaining legacy risk.
"We could take a positive rating action on Atlantia once the ASPI
disposal is finalized, which would lift the risk of any cross
defaults and debt acceleration. This would require visibility over
the use of ASPI proceeds (including to shareholders), and in
particular on the combination of potential asset acquisitions and
ability to access subsidiaries' cash flows. We expect to
incorporate the legacy risk related to the collapse of Genoa bridge
in our rating on Atlantia.
"We could raise our ratings on AdR in line with any positive rating
actions on Atlantia. This is because at present we rate AdR two
notches above the rating on its parent company. Nevertheless, we
may revise the differential between the two companies in the
future, if we believe that AdR's regulatory framework does not
provide the sufficient or same extent of protection for a higher
rating level.
"We could revise the outlook to stable on ASPI, even if a
settlement agreement is signed with the grantor, if we believe that
its liquidity would remain less than adequate, for example due to
some facilities that may be accelerated while the rating on ASPI
remains sub-investment grade. We could also revise the outlook to
stable if we need some more visibility on the legacy risk,
regulatory framework, or future credit metrics of the company.
"We could revise the outlook to stable on Atlantia, even if a
settlement agreement is signed on ASPI concession, if uncertainty
remains as to Atlantia's future investment strategy, financial
policy, and credit metrics.
"We could revise the outlook to stable on AdR if we revise the
outlook to stable on its parent company Atlantia."
DIOCLE SPA: S&P Raises ICR to 'B+' on Prudent Financial Policy
--------------------------------------------------------------
S&P Global Ratings raised itsr rating on Italy-based pharmaceutical
firm Diocle SpA (DOC Generici) to 'B+' from 'B'.
The stable outlook indicates expected continued EBITDA growth and
S&P's expectation that the sponsor will consistently support the
group's deleveraging trajectory such that adjusted debt to EBITDA
remains comfortably below 5.0x.
During 2021, operating performance and credit metrics should
continue improving, with S&P Global Ratings-adjusted EBITDA of
about EUR100 million, free operating cash flow (FOCF) of EUR45
million-EUR55 million, and adjusted debt to EBITDA within
4.0x-3.5x. S&P said, "We believe that DOC Generici's sales are set
to benefit from an increase in new prescriptions in the second half
of the year as the pandemic eases, the continued rollout of new
products thanks to a strong patent cliff pipeline and the ramp up
of its ophthalmology business. That said, we expect higher
operating expenses mainly related to commercial activities, as
mobility and social gathering restrictions are lifted, which should
weigh on the group's margins over 2021. Overall, we expect DOC
Generici will post an adjusted EBITDA margin of about 40%-41%."
S&P said, "We note that the group repaid a total of EUR47 million
of its EUR470 million senior secured floating rate notes in 2020,
which was the maximum amount allowed under the creditor agreement.
This, coupled with prudent merger and acquisitions (M&A) policy and
the absence of divided recapitalizations, has supported the
deleveraging trend of the group and is positive in our credit
assessment. We do not envisage any major extractions of cash by the
sponsor or any transformational acquisitions in 2021. The group is
finding it difficult to find M&A targets since it intends to keep
its operation within Italy and the financial sponsor appears to be
prioritizing debt reduction rather than dividend recaps. Therefore,
we do not rule out further debt repayments over the course of the
year since the group's cash generation remains strong.
"We expect DOC Generici will maintain adjusted debt to EBITDA below
4.0x over the next 12-18 months. Unexpected dividend
recapitalizations or aggressive M&A above our base cae over our
forecast horizon would place significant negative pressure on the
rating.
"With all of the group's commercialization and distribution efforts
taking place in Italy, the company remains heavily exposed to the
Italian generic market and potential changes in its regulatory
framework. Still, we understand that current regulation creates
effective barriers to entry for an industry where effective time to
market is pivotal. Therefore, the group has increased its market
share to 18.7% as of March 2021 compared with 18.3% as of March
2020.
"The stable outlook indicates that we expect the group will
generate continued EBITDA growth, supported by the stability of the
Italian regulatory environment, ramp-up of recently introduced
products, the launch of its ophthalmology and cardiovascular
ventures, and increasing generics penetration in Italy. The outlook
also reflects our expectation the sponsor will consistently support
the group's deleveraging trajectory and cash flow generation, such
that adjusted debt to EBITDA remains comfortably below 5.0x.
"We could lower the rating if the group's financial policy becomes
more aggressive than expected due to unexpected dividend
recapitalization or transformative M&A activity, driving leverage
above 5.0x. We also could lower our ratings if DOC Generici's
performance deviates from our base case so that the group fails to
successfully increase its EBITDA base or to post FOCF of at least
EUR45 million per year.
"We could raise the rating if we believe that the financial sponsor
would formally and strictly support the group's deleveraging
trajectory such that adjusted debt to EBITDA could remain
comfortably below 3.0x, supported by sustained FOCF."
===================
K A Z A K H S T A N
===================
OIL INSURANCE: S&P Affirms 'B+' LongTerm ICR, Outlook Stable
------------------------------------------------------------
S&P Global Ratings affirmed its 'B+' long-term insurer financial
strength and issuer credit ratings on Kazakhstan-based Oil
Insurance Co. JSC (NSK). The outlook is stable.
At the same time, S&P affirmed its 'kzBBB' national scale rating on
the company.
S&P said, "We affirmed our ratings on NSK because we expect the
company will gradually restore its solvency margin to 1.5x by
end-2021 from 1.24x as of June 1, 2021 (minimum regulatory margin
of 1x) through retained earnings and a moderated dividend policy.
In 2021, shareholders adopted a dividend policy that allows
dividend pay-outs only if the solvency margin exceeds 1.5x. This
should support predictability of capital management going forward,
which was previously one of our main doubts. If NSK cannot restore
the margin to this level organically, it can rely on shareholders'
capital support, although this is not our base-case scenario."
The company's operating performance remains volatile. In 2020, NSK
posted a combined (loss and expense) ratio of 94%, which was
supported by lower claims frequency and substantial premium inflow.
Despite the COVID-19 pandemic's effect on the insurance sector, NSK
achieved positive results in investments and underwriting in 2020.
However, the company's operating results deteriorated over the
first five months of 2021 on the back of increased losses. This was
mainly due to upward pressure on motor claims and an increase in
incurred but not reported loss reserves for compulsory insurance of
employers' liability following regulatory changes. Specifically,
the list of potential beneficiaries for this class was extended and
it now includes dependents up to 23 years old versus 18 years old
previously.
S&P said, "We expect the company's operating performance will
gradually improve due to economic revival. However, the technical
result will likely remain volatile, with a forecasted combined
ratio of about 104% in 2021 amid increased operating activity and
expected higher losses than in 2020. This volatility also partly
stemmed from the company's growth in 2020, by 22.6% in terms of
gross premium written or 12.4% in terms of net premium written. We
also think increasing competition in the market could put pressure
on topline results and acquisition costs, since large players are
better positioned to increase their market shares due to economies
of scale, better market position, and brand awareness. It will
become more difficult for NSK to compete in this environment. We
therefore expect the company will grow at about 10%, the market
average, in 2021-2022.
"According to our capital model, the company's total adjusted
capital was 3% redundant at the 'AA' confidence level in 2020
thanks to its shareholders' decision to pay zero dividends from the
net income of 2020--we previously expected additional distributions
of about Kazakhstani tenge (KZT) 0.8 billion.
"We expect NSK's capitalization to weaken to the 'BBB' category in
2021 from the 'AA' category in 2020 due to its increased loss
ratio." This remains neutral for the rating because the capital
assessment is capped by the company's relatively small absolute
size of capital compared with the global average, which makes it
more sensitive to any material one-off losses. The company aims to
build up capital to $25 million in the next five years, but it is
still far from achieving that level over the next two to three
years. NSK's capital totaled KZT6 billion (about $14 million) on
June 1, 2021.
The company is gradually improving the weighted-average credit
quality of its investment portfolio, with about 70%
investment-grade instruments in its portfolio as of April 1, 2021,
up from about 50% as of end-2020. Most of the company's investments
(78% on April 1, 2021) comprise Kazakhstan government and
quasi-government bonds, and bonds and deposits of Kazakhstan's
systemically important banks and government-related entities.
S&P does not think the recent appointment of new top management
will affect NSK's strategy because all the new members have been
working in the company for a long time and will continue to pursue
already-implemented risk management practices and strategy.
The stable outlook reflects S&P's expectation that, in the next 12
months, the company will be able to:
-- Sustain its competitive position;
-- Maintain its capital adequacy at least at the 'BBB' level based
on our model, complying with regulatory capital requirements and
restoring its solvency margin to 1.5x, despite the high competition
in the Kazakhstani P/C insurance market; and
-- Maintain its conservative investment policy.
S&P could lower its ratings in the next 12 months if NSK's:
-- Competitive position weakened, for example if its combined
ratio sustainably exceeded 100% due to prolonged deterioration of
operating performance, or if premium volumes materially declined,
signifying loss of market share;
-- Capital deteriorated for a prolonged period below the 'BBB'
level according to our capital model, due to weaker-than-expected
operating performance, investment losses, or higher-than-expected
dividend payouts; or
-- Regulatory solvency margin further deteriorated, approaching or
dropping below 1x, increasing the risk of regulatory intervention.
S&P sees a positive rating action as unlikely in the next 12
months, given the company's relatively small market share, volatile
operating performance, and low capital in absolute terms. Any
positive rating action would require a substantial improvement in
the company's operating performance and financial risk profile.
Specifically, NSK would need to maintain its combined ratio below
100%, asset quality at the 'BBB' category, and capital adequacy
based on S&P's capital model sustainably above 'BBB'. A positive
rating action would also depend on the improvement of NSK's
regulatory solvency margin with no risk of regulatory
intervention.
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L U X E M B O U R G
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EURASIAN RESOURCES: Moody's Hikes CFR to B1, Outlook to Stable
--------------------------------------------------------------
Moody's Investors Service has upgraded to B1 from B2 the long-term
corporate family rating and to B1-PD from B2-PD the probability of
default rating of Eurasian Resources Group S.a r.l. ("ERG" or "the
company"). Simultaneously, Moody's upgraded the company's baseline
credit assessment to b2 from b3. The outlook on all ratings has
been changed to stable from negative.
RATINGS RATIONALE
The upgrade of ERG's ratings primarily reflects Moody's view that
the company's leverage will decrease amid recovery in ferrochrome,
cobalt, copper, iron ore, aluminium prices, while continuing growth
of production and earnings following ramp up of Phase 2 of cobalt
and copper production at its Metalkol RTR processing production
facility in the Govt. of Democratic Republic of the Congo (DRC,
Caa1 stable) will augment this positive backdrop. In particular,
Moody's expects ERG's leverage to be at about or below 3.0x
Moody's-adjusted total debt/EBITDA in 2021-22 under a range of
pricing scenarios. Also, the company rescheduled or is in the
process of finalising rescheduling of substantial maturities under
its bilateral facilities with Sberbank (Baa3 stable) and Bank VTB,
PJSC (Baa3 stable), which are the company's two key relationship
lenders. Inter alia, the company rescheduled its payments under the
$3.3 billion outstanding facility with Bank VTB, PJSC until
December 2030 from 2023-24 and is currently finalising extension of
the maturities under its $3.7 billion outstanding facilities with
Sberbank until 2030 from 2025.
As the Kazakhstan government owns a 40% stake in ERG, Moody's
applies its Government-Related Issuers methodology. The company's
B1 CFR reflects a combination of (1) a baseline credit assessment
(BCA) of b2, which is a measure of the company's standalone credit
strength; (2) Kazakhstan's Baa3 foreign-currency rating; (3) the
high default dependence between ERG and the government; and (4) the
moderate probability of government support in the event of
financial distress.
ERG is exposed to a basket of commodities, which are favorably
positioned to benefit from the ongoing sustainability and carbon
transition trends. Recovery of stainless steel sector in Europe and
continuing strong demand for stainless steel in South-East Asia,
augmented by environmentally driven ferrochrome supply limitations
in certain regions of China (e.g. Inner Mongolia) contributed to
FeCr prices firming up in 2021. Principal driver for cobalt demand
is the rechargeable battery segment, where electric vehicles (EV)
represent the largest market. EV market will continue a strong
growth over the foreseeable future driven by sustainability and
carbon transition trends around the globe and supported by a
palette of stimuli in various countries. Average copper prices
started to strengthen since May-2020 after a prolonged decline
brought by the COVID-19 pandemic disruptions. The average price
reached $7,900 per tonne by the end of 2020 compared with $6,000 in
January 2020. The upward trend continued in 2021. Strong demand
growth and recovering global GDP as well as supply disruptions in
large producing countries such as Chile and Peru, which together
account for about 40% of world copper production, will support
prices above $7,500 per tonne in 2021. Moody's does not anticipate
major incremental capacity starting up in the coming years.
Producers face structural declines in ore grades, increasing
community opposition and larger capital spending requirements,
largely replacing declining production volumes with brownfield
projects. Aluminum prices on the London Metal Exchange (LME) have
rebounded since hitting multiyear lows in early 2020, reaching
pre-pandemic levels in the first quarter of 2021. Fundamentals have
improved, automotive production has picked up after coronavirus
related disruptions in 2020, and China's aluminum demand and output
have recovered with the country's significant infrastructure and
construction stimulus programs. Prices currently oscillate above
the higher end of Moody's medium-term $0.7/lb-$1.0/lb price
sensitivity. High iron ore prices in early 2021 are unsustainable,
but market fundamentals remain strong for 2021 based on supply
constraints and a lack of major expansion projects in store for the
coming years. Rising steel demand will sustain iron ore prices at
or above the higher end of Moody's medium-term $80-$125/ton price
sensitivity.
Moody's expects ERG's leverage, as measured by Moody's-adjusted
total debt/EBITDA, to decrease to about or below 3.0x as of
year-end 2021 from 4.1x a year earlier, due to expansion of EBITDA
driven primarily by higher ferroalloy, cobalt, copper, iron ore and
aluminium prices, continuing ramp up of high-margin copper and
cobalt production at the Metalkol RTR production facility and debt
reduction.
ERG's EBITDA and leverage remain sensitive to the volatile prices
of ferroalloys, cobalt, aluminium, copper and iron ore. Under its
base scenario, with prices for HCFeCr China CIF Shanghai of
$0.93/lb (2020: $0.7/lb), cobalt of $44,000 per tonne (2020:
$34,000 per tonne), aluminium of $2,000 per tonne (2020: $1,700 per
tonne), copper of $7,900 per tonne (2020: $6,181 per tonne), iron
ore (62%) of $140 per tonne (2020: $109 per tonne) Moody's expects
ERG's Moody's-adjusted EBITDA to recover to over $3 billion in 2021
(2020: $2.1 billion). As a result, leverage is likely to reduce to
2.6x and EBIT interest cover is likely to improve to around 5.0x as
of year-end 2021. Under a more conservative set of pricing
assumptions with prices for iron ore, copper and aluminium of $100
per tonne, $6,614 per tonne and $1,764 per tonne in 2021-22 Moody's
expects leverage, as adjusted by Moody's, to be sustained at around
or slightly higher than 3.0x in 2021-2022.
ERG's BCA takes into account (1) Moody's expectation that ERG's
Moody's-adjusted total debt/EBITDA will be sustained at or below
3.0x in 2021-22; (2) ERG's high-grade and long-reserve-life mining
assets in Kazakhstan; (3) the company's competitive cost structure,
owing to high-quality mines and efficient processing plants,
particularly in the core ferroalloys business; (4) its high degree
of vertical integration in the alumina/aluminium, ferroalloys and
iron ore concentrate/pellets value chains; (5) its good operational
and product diversification, with several operating mines and
processing facilities in Kazakhstan and, for copper and cobalt, in
the DRC; (6) its solid market position for ferrochrome globally,
and for iron ore and aluminium in EMEA; (7) its high share of
exports in total revenue (more than 90%); (8) its strong customer
base and moderate customer diversification, with 10 largest
customers representing 47% of sales; and (9) its improving
liquidity.
The BCA also factors in (1) high sensitivity of ERG's leverage and
liquidity to the volatile prices of commodities and high absolute
debt level; (2) the company's aggressive financial policy,
anticipating fairly high expansionary capital spending along with
dividend payouts, which are nevertheless tied to a number of
factors, including the level of net leverage, actual and forecasted
liquidity cushion, debt maturity profile, etc.; (3) high business
and event risks in the DRC; (4) execution risks related to the
company's development projects, which are common for mining
companies; (5) ERG's potential need to increase its debt to finance
development investment programme; and (6) uncertainty regarding the
outcome of the pending UK Serious Fraud Office (SFO) investigation
on Eurasian Natural Resources Corporation Ltd's (ERG's subsidiary)
past M&A transactions in Africa.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the company
will be able to sustain its leverage at about or below 3.0x-3.5x
over the next 12-18 months through a combination of EBITDA growth
and planned debt repayments, supported by favorable global demand
and prices for ferrochrome, cobalt, copper, aluminium and iron ore,
while maintaining healthy liquidity over the same period. The
stable outlook does not factor in the potential negative outcome of
the SFO investigation, which Moody's views as an event risk and
would assess separately if it were to occur.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade ERG's ratings if it were to upgrade the
company's BCA, which could be a result of (1) a reduction in the
company's total debt; (2) Moody's-adjusted debt/EBITDA being
sustained below 3.0x; (3) positive post-dividend free cash flow
generation on a sustainable basis; and (4) maintenance of healthy
liquidity and building of a track record of prudent liquidity
management. Although not currently anticipated, Moody's could also
consider an upgrade if it were to reassess the assumptions related
to the degree of support from, and dependence on, the Kazakhstan
government, based on potential new factors indicating stronger
support or lower dependence than currently factored in the rating.
The status of the SFO investigation would also be assessed and
taken into account at the time of an upgrade.
Moody's could downgrade the ratings if it were to downgrade the
company's BCA, which could be a result of (1) a deterioration of
pricing environment and market conditions for the company's key
commodities; (2) the company's Moody's-adjusted debt/EBITDA
increasing above 4.0x on a sustained basis; or (3) deterioration in
liquidity or liquidity management. A reassessment of the
probability of government support in the event of financial
distress (which currently provides a one-notch uplift to the
rating) to a weaker level would also exert negative pressure on the
rating. A negative outcome of the SFO investigation, resulting in
material fines and penalties and high reputational damage, could
also lead to a downgrade.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
ERG is exposed to environmental, social and governance issues
typical for a company in the mining sector. The environmental risks
include, but not limited to, air, soil and water pollution as a
result of the processes used in the mining, processing and smelting
of metals. Moody's generally views these risks, including water
shortages and man-made hazards, as very high for mining companies.
Such hazards may include wall collapses at the company's open-pit
mines, flooding, underground fires and explosions, and cave-in or
ground falls at underground mines. Another type of hazard common to
the mining industry is the collapse or leakage of tailings dams.
ERG's subsidiary ENRC is subject to the ongoing SFO investigation
with regard to its past M&A transactions and assets in Africa. The
timing and outcome of this investigation, which was opened in 2013,
are uncertain. Moody's views the potential negative outcome of the
investigation as an event risk, and, if it were to materialise,
Moody's would assess the impact on ERG accordingly. Since the time
of the alleged unlawful practices, ERG established a new management
team while its Board of Directors is comprised of five members,
including the founding shareholders and two representatives of the
government of Kazakhstan.
PRINCIPAL METHODOLOGIES
The methodologies used in these ratings were Mining published in
September 2018.
COMPANY PROFILE
Eurasian Resources Group S.a r.l. (ERG) is a vertically integrated
mining group with main operating assets in Kazakhstan, the DRC and
Zambia, and a number of development assets in Africa and Brazil.
The group is primarily focused on the mining and processing of
ferroalloys, iron ore, aluminium, copper and cobalt. ERG is one of
the world's largest ferrochrome producers and a major exporter of
iron ore in Kazakhstan. In 2020, ERG generated revenue of $5.4
billion. The Kazakhstan government is ERG's largest single
shareholder with a 40% stake. The company's two founding
shareholders, Mr. Machkevitch, Mr. Chodiev, and the heirs of Mr.
Ibragimov own in aggregate a 60% stake.
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N E T H E R L A N D S
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HUVEPHARMA INT'L: Moody's Puts Ba3 CFR Under Review for Upgrade
---------------------------------------------------------------
Moody's Investors Service has placed under review for upgrade the
Ba3 corporate family rating and the B1-PD probability of default
rating of Huvepharma International BV's. The outlook on the ratings
was changed to rating under review from positive.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The decision to place the ratings under review for upgrade reflects
the recent solid operating performance throughout the pandemic,
with a concurrent improvement in credit metrics. Furthermore,
Huvepharma announced [1] on June 14, 2021 that it intends to launch
an initial public offering (IPO) of Huvepharma B.V.'s shares and to
list on Euronext Amsterdam which, if it proceeds as planned, could
further improve the company's credit profile.
Huvepharma's operating performance continues to be solid. Revenue
growth accelerated to 12% in 1Q 2021 (7% in FY2020) with reported
EBITDA margins reaching a sound 30%. Moody's adjusted EBITDA
increased to EUR177 million in the last twelve months ending March
2021 from EUR160 million (Moody's adjusted) in FY 2020 and
leverage, measured as Moody's adjusted debt/EBITDA, declined to
3.0x, which is approaching Moody's guidance for a potential
upgrade. Moody's expects that Huvepharma will continue to grow its
sales at low double-digit annual rates in the next 18 months, while
maintaining its historically strong adjusted EBITDA margin at above
25%, supported by increasing market penetration of its latest
products on the markets where it already has strong market
positions, expansion in emerging markets, and the startup of new
vaccine production facilities.
The company has announced a potential offering of shares to be
listed on the Amsterdam exchange, which would raise proceeds of
approximately EUR300 million. The proceeds from the capital
increase would be used by the company to repay debt, accelerate its
expansion plans and to increase liquidity. As such, an IPO would be
expected to further improve the company's credit metrics.
The review process will focus on i) the future performance of the
company in coming months and the potential for further improvement
in metrics; ii) its financial policies, which could be shaped by a
potential IPO and were outlined in its announcement to launch an
offering and to list on Euronext Amsterdam, for example with
regards to a net leverage target of 2.0x or below, and its dividend
policy; and iii) its liquidity profile.
While Moody's recognizes the improvement in Huvepharma's credit
profile, the ratings remain constrained by the company's small size
compared with its peers and lack of diversification into the
companion animal segment.
Huvepharma's credit profile continues to reflect the company's (1)
cost efficient vertically integrated business model; (2) strong
positions in key niche segment and the favourable industry
fundamentals; (3) balanced geographical and product
diversification; and (4) proven ability to rapidly expand its
operations while preserving its high profit margin, primarily
through organic growth of the existing product portfolio and
continued new product development.
The B1-PD PDR reflects a higher-than-average family recovery rate
(65%), given the presence of an all-bank debt capital structure.
Before placing the ratings under review, Moody's had indicated that
upwards pressure could arise if the company were to (1) continue to
increase its scale and demonstrate robust operational performance;
(2) reduce its adjusted gross debt/EBITDA below 3.0x on a
sustainable basis while maintaining retained cash flow/net debt
above 20%; and (3) maintain a strong liquidity profile and positive
post-dividend FCF.
Prior to the ratings review process, Moody's had indicated that the
rating could be downgraded in the event of (1) a material
deterioration in the company's competitive position within its core
product lines; (2) a negative impact on its operating performance
owing to increasing regulatory risks; (3) aggressive debt financed
M&A deals or shareholder distributions; or (4) other related
developments that could weaken its liquidity position, or increase
its leverage, with adjusted gross debt/EBITDA trending towards 4.5x
and retained cash flow/net debt trending towards the low teens in
percentage terms on a sustained basis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Manufacturing
Methodology published in March 2020.
COMPANY PROFILE
Huvepharma International BV is a vertically integrated developer,
manufacturer and distributor of a wide range of health products for
livestock. The company sells its products in more than 100
countries, with Europe and North America being its key markets. In
the 12 months ended March 31, 2021, the company generated EUR604
million of revenue and EUR177 million Moody's adjusted EBITDA.
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N O R W A Y
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NANNA MIDCO II: Moody's Raises CFR to B3, Outlook Stable
--------------------------------------------------------
Moody's Investors Service has raised Nanna Midco II AS' ("Navico")
corporate family rating to B3 from Caa1 and its probability of
default rating to B3-PD from Caa1-PD. Moody's has also upgraded the
instrument rating of the $260 million guaranteed senior secured
term loan to B3 from Caa1 and the instrument rating of the $25
million guaranteed senior secured revolving credit facility to Ba3
from B1; both the term loan and the RCF maturing in 2023 were
issued by Navico Inc., a subsidiary of Nanna Midco II AS. The
rating outlook is stable.
RATINGS RATIONALE
The rating action reflects dramatically improved performance in
2020 and LTM Q1'21 with both revenue and EBITDA growing by 11.8%
and 59.2% in 2020, and by 61.6% and 260% in Q1'21, respectively.
This earnings growth was driven by increased demand for
boating-related products and services during the pandemic where
boating offered an attractive and socially distanced leisure
activity, as well as by gains in market share. The introduction of
the active-target live sonar in December 2020, along with an
expansion of the trolling motor portfolio with two new lengths
introduced in December 2020, drove the sales of the complete
"fishing-system" including several multi-function displays (MFD)
together with an active target sonar and a trolling motor. Further,
Moody's expects that strong performance will be sustained owing to
(i) continued strong demand based on an existing backlog of orders;
(ii) strong performance in Q1 and Q2 (so far); (iii) growing market
share; (iv) "re-discovered" interest in the industry.
Counterbalancing these strengths, Navico's liquidity, although
adequate and improved from prior year, is fully reliant on its
current cash balances and ability to generate cash-flow as it has
virtually no availability under its external facilities. At the end
of Q1'21, the company had $32.8 million cash compared with $19.7
million at YE'20 and $8.2 million at YE'19; the RCF and the AR
facility remain almost fully drawn although Navico expects to
reduce the balances on its revolving instruments in the near term.
In addition, sea freight costs have risen significantly over the
past year and delays are frequent for cargoes shipped by sea which
increasingly led Navico to use more expensive but reliable air
freight for its components and finished goods. Navico's production
is constrained to an extent by semiconductor shortages leading to a
build-up of inventory at its Ensenada facility in Mexico and the
increase in working capital. The company's concentrated
manufacturing capacity, as well as exposure to discretionary
spending, are credit challenges.
As a result of the recent positive earnings trends, Navico
experienced a very material improvement in leverage resulting from
the above strengthening in performance: to 4.3x in LTM March'21
from 7.5x in 2020 and 18.5x in 2019, and FCF/debt grew to 4.4% in
LTM March'21 from 2.1% in 2020 and negative 6.5% in 2019.
ESG CONSIDERATIONS
From the environmental perspective, for consumer durables
companies, such as Navico, one of the issues faced is sustainable
and environment-friendly manufacturing, which creates opportunities
for more innovative manufacturers and challenges in some specific
segments. Positively, Navico has recently hired a Chief
Sustainability Officer to bolster is efforts in this area.
Moody's views the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety. Navico's social risks also include exposure to local
community relations around its manufacturing facility in Mexico.
From a governance perspective, Navico is owned by West Street
Capital Partners VII, a fund managed by Goldman Sachs Asset
Management, and Altor Fund IV. The shareholders have a high
tolerance for leverage as indicated by the company's efforts to
raise incremental debt in the form of the AR facility rather than
reduce leverage through an equity infusion. Navico has experienced
a measure of senior management changes in 2019 and also added a new
CFO, Olivier Bellin, in 2020.
LIQUIDITY
Navico's liquidity is adequate despite having been pressured by the
material expansion in its WC as a result of growing sales; however,
it has significantly improved its liquidity position since the
downgrade to Caa1 in January 2020 when it only had approximately $8
million of cash and no RCF availability. At the end of Q1'21,
Navico reported $31.3 million of cash. The $25 million RCF was
fully drawn and the $20 million AR facility was almost fully drawn
($19.3 million).
STRUCTURAL CONSIDERATIONS
Navico's PDR at B3-PD, at the same level as the CFR, reflects
Moody's assumption of a 50% family recovery rate, which is typical
for capital structures including bank facilities with springing
financial maintenance covenants. The guaranteed senior secured term
loan is rated B3, at the same level as the CFR, reflecting the
relatively small size of the guaranteed super senior secured RCF,
which is rated Ba3, ranking ahead in the event of enforcement.
RATING OUTLOOK
The stable outlook reflects the company's strong positive earnings
momentum and Moody's expectation that Navico will be able to manage
its liquidity needs successfully particularly around its
inventories and working capital.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While Moody's does not anticipate further upward rating pressure in
the near term, positive rating momentum could arise over time if
(1) Navico demonstrates a consistent track record of sustained
recovery in earnings, (2) adjusted leverage decreases sustainably
to below 5.0x, (3) the company generates positive free cash flow,
and (4) the company further improves its liquidity including
addressing the upcoming debt maturities and enhancing its
availability under external liquidity sources.
Negative rating pressure could be triggered by any deterioration in
its liquidity position or challenges in trading, potentially
leading to an unsustainable capital structure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Durables Industry published in April 2017.
COMPANY PROFILE
Headquartered in Norway, Navico, which generated revenues of $427
million as of the LTM period to March 2021, is a developer and
manufacturer of specialist marine electronics, including navigation
and fish finding equipment, and value-added applications. The
company splits its operations in four brands: (1) Lowrance, (2)
Simard, (3) B&G and (4) C-Map. Navico is owned by West Street
Capital Partners VII, a fund managed by Goldman Sachs Asset
Management and Altor Fund IV.
SECTOR ALARM: S&P Raises LongTerm ICR to 'B+', Outlook Stable
-------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit and issue
ratings on security solutions provider Sector Alarm Holding AS
(Sector Alarm) and its debt to 'B+' from 'B'--the '3' recovery
ratings on the group's EUR590 million (Norwegian krone [NOK] 6
billion) term loan B (TLB) and EUR100 million revolving credit
facility (RCF) is unchanged.
The stable outlook reflects S&P's expectation that the company's
significant efforts in subscriber growth will result in a strong
annual revenue increase of 7%-10% through 2021-2022, with adjusted
EBITDA margin at 35%-37%, adjusted debt to EBITDA at below 5.5x,
funds from operations (FFO) to debt above 12%, and limited positive
FOCF.
Sector Alarm's resilience during the pandemic has resulted in fast
deleveraging.
Revenue increased 10% last year due to favorable foreign-exchange
changes (4% growth on a constant currency basis) and price and
customer base increases. New customer acquisition activities were
largely suspended during the lockdown period in some countries from
March to May 2020, as well as in the fourth quarter. This is
because social-distancing measures imposed in the markets where
Sector Alarm operates restricted the company's sales activities,
which are mainly door to door. However, Sector Alarm saw about 3%
growth in new customers (on a net basis). This trend continued in
first-half 2021, mainly in Ireland and Sweden, due to ongoing
COVID-19 related restrictions. Lower acquisition costs, coupled
with stringent cost controls, led to a 14% increase in adjusted
EBITDA and a faster-than-expected decrease in adjusted leverage to
5.3x in 2020 from 6.0x in 2019. This compared with our forecast of
5.6x-5.8x in December 2020. S&P expects further deleveraging in
first-half 2021, but forecast accelerated new customer additions
from the second half will likely mean leverage remains broadly
stable in 2021-2022.
The company recently entered the Italian market, further supporting
its target to expand into new, under penetrated European
countries.Sector Alarm has a proven ability to penetrate and scale
up existing and new European markets. Given the low industry
penetration in Europe (less than 12% of Sector Alarm's total
addressable market) compared to the U.S. (33%), this is likely to
drive strong growth. The company has a well-established position in
its key markets -- Norway, Sweden, and Ireland -- where penetration
is estimated at about 8%-14%. Since 2016, it has also entered new
markets (Finland, France, and Spain), which currently represent
about 10% of revenue. These countries also have lower penetrations
levels (3%-5%) and therefore higher growth prospects. S&P expects
net customer growth to be about 6% in 2021, supported by the
inclusion of Italy, continued expansion in Spain and France, and
further growth in the Northern European markets.
S&P said, "We believe that Sector Alarm's financial policy will
result in S&P Global Ratings-adjusted leverage consistently below
5.5x, despite increased investments in the next two years. We
anticipate that Sector Alarm will add about 80,000-90,000 new
customers per year in 2021-2022, which is likely to translate into
an annual NOK550 million-NOK700 million negative EBITDA impact.
This substantial subscriber growth will lead to a decrease in
EBITDA margin to 35%-37% in 2021 from about 41%, minimal FOCF, and
leverage of 5.3x-5.4x. However, we believe that it will support the
company's future market positioning in Europe and provide scale to
continue investing. We also expect the company's financial policy
will be focused on reinvesting cash flow into the business with no
dividends, and keeping leverage below 5.5x on an S&P Global
Rating-adjusted basis. Over time, as its scale and EBITDA
increases, we think leverage could decline to below 5x."
Sector Alarm's churn rates are best in-class. S&P expects Sector
Alarm's current nearly 6% attrition rates to remain stable. These
are considerably lower than its US peers' at 10%-15%, explained by
the lower mobility of households in Europe versus the U.S., and the
company's integrated business model. Notably, Sector Alarm has more
interaction with customers compared to rated peers in the U.S.,
where alarm companies are mainly focused on monitoring and often
outsource parts of the value chain. In recent years, U.S. peers
were exposed to higher market disruption from fast-expanding and
innovative smart-home offerings and consumers' adoption of digital
go-to-market strategies and do-it-yourself installations. These
could be potential threats for Sector Alarm too. However, given the
integrated offering in Europe, and the low level of penetration, no
sign of market disruption has been seen so far.
Sector Alarm's business is somewhat constrained by its limited,
albeit increasing, absolute scale. In S&P's view, scale is critical
in the alarm-monitoring industry to absorb the cost of adding and
replacing customers lost through attrition. This is because the
substantial cost involved in new customer acquisition reduces
earnings and cash flows from existing customers, which are
typically stable. Although Sector Alarm exhibited 10% growth in net
subscribers, its main competitor Verisure is still about 6.5x
larger in terms of subscribers and 8x larger in terms of revenue.
In S&P's view, with its larger scale, Verisure is better equipped
to absorb the dilution of earnings and cash flows from new customer
acquisition than Sector Alarm.
S&P said, "The stable outlook reflects our expectation that the
company will significantly invest in subscriber growth, resulting
in a strong annual revenue increase of about 7%-10% through
2021-2022, with an adjusted EBITDA margin of 35%-37%. We expect
these investments will result in adjusted debt to EBITDA below
5.5x, FFO to debt above 12%, and limited positive FOCF.
"We could lower the rating if adjusted debt to EBITDA increases to
above 5.5x, FFO to debt decreases to below 12%, or FOCF turns
negative. This could result from operational missteps or
faster-than-expected customer growth, leading to an EBITDA decline,
or if the company adopts a more aggressive financial policy with a
combination of debt-financed dividends or large acquisitions."
An upgrade is unlikely in the next 12 months given the expected
increased focus on new customer gains, leading to subdued EBITDA
margins and minimal FOCF. However, S&P could raise the rating if
adjusted debt to EBITDA is less than 4.5x, FFO to debt is above
20%, and FOCF to debt approaches 10%. An upgrade could also result
from EBITDA increasing significantly more than anticipated, leading
to a larger scale, and would need to be supported by a commitment
to a more conservative financial policy.
===========
R U S S I A
===========
BANK OTKRITIE: Moody's Affirms Ba2 LongTerm Debt Rating
-------------------------------------------------------
Moody's Investors Service affirmed Bank Otkritie Financial
Corporation PJSC's Ba2 long-term bank deposit and debt ratings, Ba1
long-term Counterparty Risk Ratings and Ba1(cr) long-term
Counterparty Risk Assessment and upgraded to b1 from b2 the bank's
Baseline Credit Assessment and Adjusted BCA. Concurrently, Moody's
affirmed the bank's Not Prime short-term deposit and Counterparty
Risk Ratings and the Not Prime(cr) short-term Counterparty Risk
Assessment. The outlook on the bank's long-term ratings remains
stable.
RATINGS RATIONALE
The affirmation of Otkritie's long-term ratings along with the BCA
upgrade recognizes the combination of drivers where the reduced
solvency risk is balanced with the increasing likelihood of the
bank's privatization and uncertainties stemming from the bank's
rapidly evolving business.
The upgrade of the bank's BCA recognizes the consistent
improvements in its solvency risk, even despite the economic
contraction in Russia in 2020. In particular, the ratio of problem
loans to gross loans dropped to 7.2% as of March 31, 2021 from 8.4%
as of December 31, 2019, benefiting from problem loan write-offs,
recoveries and the ongoing loan growth. While problem loans still
remain elevated, they remained well-covered by loan loss reserves
that amounted to 89% of problem loans. In addition to improvements
in the loan book, Otkritie gradually offloaded its chunky non-core
assets, such as equity investments into financial institutions,
substantially reducing asset revaluation risks. Another element
within the overall solvency improvements is the achievement of
sustained positive profitability metrics, with a return on average
assets at above 1% over the last three years, that Moody's is now
expecting to be preserved in 2021 and beyond.
Despite these improvements, Otkritie's BCA and long-term ratings
remain constrained by the bank's still evolving business model with
the ongoing rapid loan growth, following its state bail-out in
2017. While this growth is helping to reduce problem loan ratio,
increase revenue and improve operating efficiency, it presents high
uncertainty over the bank's asset performance, as it is taking
place amid the low-growth and highly competitive environment.
Because of Otkritie's systemic importance status and its full state
ownership, Moody's continues to incorporate a "very high"
probability of government support into the bank's Ba2 deposit and
senior unsecured debt ratings. However, following the upgrade of
the adjusted BCA to b1, these government support considerations now
translate into two notches (compared to three previously) of rating
uplift from the bank's Adjusted BCA of b1. Narrowing of the
government rating uplift recognizes increasing likelihood of bank
privatization, in accordance with its strategy, as well as the
relative positioning of the bank's long-term ratings within its
local peers with more matured businesses franchise.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A combination of lower risk from the ongoing rapid business
expansion with stronger operating performance for a prolonged
period of time could warrant a rating upgrade. In addition, Moody's
might also upgrade Otkritie's ratings in case of improvements in
operating conditions along with the corresponding upgrade of the
sovereign ratings, provided the bank's financial metrics remain
largely unchanged.
The bank's deposit ratings could be downgraded in case of the
sovereign rating downgrade of if the bank's financial profile were
to weaken. Particularly, a higher appetite for credit risk and/or a
much higher leverage could lead to a downgrade of the bank's BCA
and deposit ratings.
LIST OF AFFECTED RATINGS
Issuer: Bank Otkritie Financial Corporation PJSC
Upgrades:
Adjusted Baseline Credit Assessment, Upgraded to b1 from b2
Baseline Credit Assessment, Upgraded to b1 from b2
Affirmations:
Short-term Counterparty Risk Assessment, Affirmed NP(cr)
Long-term Counterparty Risk Assessment, Affirmed Ba1(cr)
Short-term Counterparty Risk Ratings, Affirmed NP
Long-term Counterparty Risk Ratings, Affirmed Ba1
Short-term Bank Deposit Ratings, Affirmed NP
Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, Outlook
Remains Stable
Long-term Bank Deposit Ratings, Affirmed Ba2, Outlook Remains
Stable
Outlook Action:
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in March 2021.
=========
S P A I N
=========
MIRAVET SARL 2020-1: S&P Lowers Class E Notes Rating to 'B-'
------------------------------------------------------------
S&P Global Ratings raised to 'A+ (sf)' from 'A- (sf)' and to 'BBB+
(sf)' from 'BBB (sf)' its credit ratings on Miravet S.a r.l.,
Compartment 2020-1's class B-Dfrd and C-Dfrd notes, respectively.
At the same time, S&P lowered to 'B- (sf)' from 'B (sf)' its rating
on the class E-Dfrd notes, and affirmed its 'AAA (sf)' and 'BB+
(sf)' ratings on the class A and D-Dfrd notes, respectively.
S&P said, "The rating actions follow the implementation of our
revised criteria and assumptions for assessing pools of Spanish
residential loans. They also reflect our full analysis of the most
recent information that we have received and the transaction's
current structural features.
"Upon expanding our global RMBS criteria to include Spanish
transactions, we placed our ratings on Miravet 2020-1's class
B-Dfrd, C-Dfrd, D-Dfrd, and E-Dfrd notes in this transaction under
criteria observation. Following our review of the transaction's
performance and the application of our updated criteria for rating
Spanish RMBS transactions, the ratings are no longer under criteria
observation."
Almost 80% of the portfolio has been restructured at least once
since origination. S&P said, "Out of this share, 14.3% is
considered reperforming under our definition, as they have been 90
or more days past due or restructured in the past five years, and
are current as of the cut-off date used in our analysis. While we
projected additional arrears at closing to consider the potential
risk of these loans defaulting in the future, we have now applied
our updated reperforming adjustments on a loan-by-loan basis. In
addition and in line with our criteria, these loans do not get
seasoning benefit in our analysis."
S&P said, "Our weighted-average foreclosure frequency (WAFF)
assumptions have increased at the 'B', 'BB', and 'BBB' ratings, and
decreased at higher ratings. Under our previous criteria, there
were different default probabilities at different rating categories
for loans in arrears. However, under our updated criteria, the
loans in 90+ days arrears bucket attract a 100% WAFF irrespective
of rating category, which is driving the different results across
rating categories. This is especially evident at the 'B' stresses,
where credit coverage increased to 1.71% from 1.48%. On the other
hand, the results also benefit from the calculation of the
effective loan-to-value (LTV) ratio, which is based on 80% original
LTV ratio and 20% current LTV ratio. Under our previous criteria,
we only used the original LTV ratio.
"Finally, under our updated criteria we only stress the
geographical concentration in excess of the threshold, while under
our previous criteria we stressed the entire concentration. This is
positive for this transaction, as the pool is highly concentrated
in Catalonia (73.5%), and we have therefore stressed a smaller
share compared with at closing.
"In addition, our weighted-average loss severity (WALS) assumptions
have decreased, due to the lower repossession market value decline
assumptions. However, this is partially offset by the increase in
our foreclosure cost assumptions."
Table 1
Credit Analysis Results
RATING WAFF (%) WALS (%) CREDIT COVERAGE (%)
AAA 49.23 21.20 10.43
AA 40.28 18.10 7.29
A 35.26 12.83 4.53
BBB 31.11 10.34 3.22
BB 26.51 8.74 2.32
B 23.18 7.36 1.71
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
As of February 2021, Miravet 2020-1's class A, B-Dfrd, C-Dfrd,
D-Dfrd, and E-Dfrd notes' credit enhancement has slightly increased
to 37.1%, 24.3%, 19.1%, 17.2%, and 15.4%, respectively, from 36.4%,
23.9%, 18.71%, 16.9%, and 15.11% at closing. The reserve fund is
also at target and represents 3.95% of the class A notes'
outstanding balance. It is floored at 3% of the class A notes'
initial balance.
As anticipated in the transaction documents, Pepper Spanish
Servicing S.L.U. replaced Anticipa Real Estate as servicer in May
2021. As the replacement has already occurred, S&P has removed from
its analysis the increasing servicing fee stated in the
documentation to incentivize replacement.
The transaction's performance is in line with our expectations at
closing. Loan-level arrears above 90 days increased to 10.75%,
compared with 9.7% as of closing. However, early arrears have
reduced as of the latest cut-off date.
Although none of the loans in the pool are under Spanish sectorial
or legal moratorium schemes, S&P's analysis considers the
transaction's sensitivity to the potential repercussions of the
coronavirus outbreak, like delays on recoveries and increased
defaults assumptions.
S&P said, "Our operational, sovereign risk, counterparty, and legal
risk analyses remain unchanged since closing. Therefore, the
ratings assigned are not capped by any of these criteria.
"Following our review, we have affirmed our 'AAA (sf)' rating on
the class A notes. We have also raised to 'A+ (sf)' from 'A- (sf)'
and to 'BBB+ (sf)' from 'BBB (sf)' our ratings on the class B-Dfrd
and C-Dfrd notes, and affirmed our 'BB+ (sf)' rating on the class
D-Dfrd notes. The class B-Dfrd, C-Dfrd, and D-Dfrd notes can
withstand our cash flow stresses at higher ratings than those
assigned. However, our revised ratings consider the uncertain
macroeconomic environment, the reperforming nature of the assets,
and the limited observed performance given that only two payment
dates have elapsed since closing.
"We have lowered to 'B- (sf)' from 'B (sf)' our rating on the class
E-Dfrd notes. Under our updated Spanish RMBS criteria, we have
assumed low CPR scenarios of 0.5% at all rating levels, whereas
under our previous criteria, we assumed high and expected CPR
scenarios at all rating levels and low CPR scenarios only at 'AA-'
and above. In addition, our credit coverage at the 'B' level
increased to 1.71% from 1.48%. Considering the negative excess
spread in the transaction, the class E-Dfrd notes do not pass our
'B' cash-flow rating level stresses in our low CPR scenarios.
However, considering the available credit enhancement of 15.4% for
this class of notes (which compares favorably to our expected loss
of 1.71%), the reserve fund is fully funded and arrears levels
remain relatively stable, we believe that the payment of ultimate
interest and principal on the class E-Dfrd notes is not dependent
upon favorable business, financial, and economic conditions."
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."
NH HOTEL: Fitch Gives Final B+ Rating on EUR400MM Bonds
--------------------------------------------------------
Fitch Ratings has assigned NH Hotel Group SA's (NHH; B-/Negative)
4% EUR400 million bond due 2026 a final senior secured rating of
'B+' with a Recovery Rating of 'RR2'.
The assignment of the final rating follows the completion of the
notes issue and receipt of documents conforming to the information
previously received. The rating is the same as the expected rating
assigned on 14 June 2021.
NHH's Long-Term Issuer Default Rating of 'B-' is constrained by the
consolidated credit profile of Thai-based Minor International Group
(Minor) that owns 94% of NHH. The Negative Outlook factors in
uncertainty over post-pandemic business normalisation at both NHH
and the wider Minor group level.
NHH's Standalone Credit Profile (SCP) is 'b', reflecting the
satisfactory deleveraging capacity of NHH, as evident in its
forecast positive free cash flow (FCF) from 2022, improved
liquidity, Fitch's assumptions of gradual revenue per available
room (RevPAR) recovery from 2H21 and stabilisation of credit
metrics at levels that are compatible with the current SCP.
KEY RATING DRIVERS
New Debt, Similar Covenants: The EUR400 million senior secured
notes address NHH's refinancing risk by 2023, when Fitch expects
operations to still be in the recovery phase, by extending debt
maturity a further three years to 2026. It will also support
current operations that continue to generate negative funds from
operations (FFO) in a hospitality sector that is depressed by the
pandemic. The new notes retain the same covenant package as NHH's
existing notes, which restrict cash upstream unless certain
leverage covenants are met.
Focus on Cash Preservation: NHH's recent drawdown of a EUR100
million shareholder loan from Minor supported liquidity as the
company continues to be challenged by negative operational cash
flows. This helped maintain cash at a healthy level: Fitch-adjusted
available cash is forecast to remain above EUR200 million at
end-2Q21. Apart from continuous cost management, further cash
savings are expected in 2021 from an announced contingency plan and
material reductions in capex, which Fitch now forecasts at just
slightly over EUR40 million versus EUR100 million previously.
Upcoming Asset Sale-Leaseback: Liquidity will also be supported by
the sale and leaseback of two of NHH's hotels for a total of around
EUR200 million. Fitch expects that NHH will use the proceeds to
either finance its operations or deleverage through a partial
revolving credit facility (RCF) prepayment. Fitch also acknowledges
the positive credit effect for NHH of lower capex and potentially
favourable leaseback terms under current difficult market
conditions.
Long-Lasting High Exposure to Covid-19: The pandemic disruption
will have a stronger impact on operations in 2021 than previously
forecast. Since Fitch does not currently envisage resumption of
business travel until the pandemic is contained, Fitch's occupancy
forecast for 2021 remains conservatively almost halved relative to
2019. The change in corporates' policies towards virtual meetings
could also lead to a permanent loss of a share of business travel,
increasing the challenges for management to reach pre-pandemic
occupancy levels.
Revenue Recovery on Slow Track: Fitch's projections incorporate
weak revenue assumptions for 2021, resulting in revenue that is
around 50% below 2019 levels. Structural changes in demand will
continue to put pressure on NHH's revenue in the long term. As a
result, a slower reopening of NHH's hotels amid a muted
lodging-market recovery forecast by Fitch will lead to RevPAR
lagging 2019 levels until at least 2024, when occupancy is expected
to recover in most lodging-market segments.
Actions Protecting Cost Base: NHH has demonstrated one of the
highest absorption rates of revenue declines among peers in 2020
and continues to deploy efficient measures to further reduce staff
and lease costs in 2021. Although Fitch views some of these
measures as temporary (extension of payment terms with suppliers,
rent waivers etc.), a portion of the cost-savings efforts (staff
optimisation, signed rent discounts) should continue supporting
operating margins post-pandemic and, consequently, help return
EBITDA margin to 2019 levels in 2024.
Moderate Parent-Subsidiary Ties: Fitch's assessment of ties between
NHH and Minor remains 'Moderate' due to independent liquidity and
treasury management demonstrated by the subsidiary, as well as
dividend restrictions that remain in place for a material part of
its external financing, including for the new notes. Fitch's
assessment is also supported by Minor's support through its recent
cash injection that underlines NHH's strategic importance for
Minor.
Parent's Ownership Constrains Rating: Minor's near full ownership
(94%) still assumes the possibility that the parent could decide to
access NHH's cash flows through a change in financial policy and
control of the board. NHH's rating is therefore constrained at
'B-', reflecting Minor's consolidated credit profile and the
moderate linkage between the two entities in line with Fitch's
Parent and Subsidiary Rating Linkage Criteria.
Higher Post-Pandemic Leverage: Fitch's rating case expects FFO
adjusted net leverage to remain high in 2021, before stabilising at
around 6.0x in 2023 with gradual deleveraging thereafter. Operating
leases remain a large burden on adjusted financial debt, especially
given the high share of fixed rents. This is mitigated by NHH's
efforts to renegotiate and cancel onerous leases along with rent
variability and NHH's introduction of a cap mechanism. However, the
majority of leases still do not have variability or a cap
mechanism.
A return to pre-crisis trading conditions, combined with a
continued focus on FCF generation and the support of a conservative
financial policy by the shareholder, could accelerate deleveraging
and support NHH's credit profile.
Financial Policy Still Uncertain: Minor has publicly established a
long-term target net leverage of around 2.5x for NHH. Despite
restrictions imposed by the bond and RCF documentation on
dividends, investments, guarantees or new loans, Fitch still views
the possibility of a change in financial policy as potentially
detrimental to NHH's credit quality in the long term. While the
pandemic could lead Minor to upstream more cash from NHH than
envisaged in Fitch's rating case, this remains unlikely given the
stringent covenants in place unless the majority of NHH's debt is
refinanced on looser terms.
DERIVATION SUMMARY
NHH is one of the 10 largest European hotel chains. It is
significantly smaller than global peers such as Accor SA
(BB+/Stable) or Meliá Hotels International by breadth of
activities and number of rooms. NHH focuses on urban cities and
business travellers, while Accor and Meliá are more diversified
across leisure and business customers.
NHH is comparable with Radisson Hospitality AB in urban
positioning, although Radisson is present in a greater number of
cities. NHH had an EBITDA margin of more than 17% in 2019, which is
above that of close competitor Radisson, but still far from that of
asset-light operators such as Accor or Marriott International, Inc.
NHH has been more severely hit by the pandemic due to an
asset-heavy structure and its urban positioning similarly to Alpha
Group's (CCC/RWN).
Pre-pandemic NHH's FFO adjusted net leverage of 5.0x (adjusted for
variable leases) at end-2019 was higher than that of peers due to a
large exposure to leases. NHH remains a more asset-heavy hotel
group than peers, although its use of management contracts was
around 13% of its hotel portfolio as of end-December 2020. NHH
benefits from some financial flexibility allowing some
asset-rotation strategies and easing of the cost base in a
disruptive scenario (as demonstrated by higher absorption rate than
peers), but it will remain highly leveraged post-pandemic versus
asset-heavy peers such as Whitbread PLC (BBB-/Stable).
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Revenue recovery in 2021 but still 50% behind 2019 levels,
driven by impaired RevPAR across all regions, followed by a
fuller recovery by 2024.
-- Negative EBITDA in 2021 as a result of still limited
occupancy. EBITDA margin to recover towards 14% by end-2023.
-- Around EUR350 million of aggregate capex for 2021-2024 to
cover maintenance capex, additional repositioning within the
portfolio, development of the current signed pipeline and some
additional limited expansion.
-- Dividend distribution in line with legal restrictions and
historical policy, only from 2024.
Recovery Assumptions:
The 'RR2' Recovery Rating for the EUR400 million senior secured
notes reflects Fitch's view of superior recovery prospects upon
default based on the collateral value for the notes and an EUR236
million RCF, which rank equally with each other. The collateral
includes Dutch hotels as properties that would be managed by NH
group operators, a share pledge on a Dutch hotel, share pledges on
Belgian companies owning hotels that are equally managed by NH
group operator companies and finally a share pledge on NH Italy
operating and owning the whole Italian group. This includes both
assets and operating contracts. The described collateral had a
market value of EUR1,319 million at May 2021 as evaluated by a
third-party appraiser.
The final distribution of recovery proceeds results in potentially
full recovery for senior secured creditors, including for senior
secured bonds, even after a conservative haircut of 45% to the
collateral valuation.
However, the Recovery Rating is constrained by Fitch's
country-specific treatment of Recovery Ratings for Spain, which
effectively caps the uplift from the IDR at two notches at
'B+'/'RR2' for the notes. The waterfall analysis output percentage
based on current metrics and assumptions remains capped at 90%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Improvement of the consolidated credit profile of Minor.
The following developments would be considered for an upward
revision of NHH's SCP but only provided that Fitch has reassessed
links with Minor as weak:
-- FFO lease-adjusted net leverage below 5.5x on a sustained
basis, due, for instance, to NHH's limited dividend
distribution.
-- EBITDAR/(gross interest + rent) sustainably above 1.3x.
-- Continued improvement in the operating profile via EBIT margin
and RevPAR uplift.
-- Sustained positive FCF.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Weakening of the consolidated credit profile of Minor so long
as Fitch assesses links between Minor and NHH as 'Strong' or
'Moderate'.
The following developments would be considered for a downward
revision of NHH's SCP and in the event of Minor displaying a
stronger SCP:
-- FFO lease-adjusted net leverage above 6.0x beyond 2021, due,
for example, to slow market recovery, or shareholder-friendly
initiatives such as increased dividend payments.
-- EBITDAR/(gross interest +rent) below 1.3x.
-- Weakening trading performance leading to EBIT margin
(excluding capital gains) trending toward 5% in 2021 and
thereafter.
-- Negative FCF.
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
Satisfactory Liquidity: As of end-March 2021 NHH's EUR242 million
RCF (to be extended until 2026) and undrawn EUR25 million of
unsecured facilities provide a healthy liquidity buffer, together
with EUR201 million of readily available cash on balance sheet (as
defined by Fitch). This cash, along with a syndicated loan for
EUR250 million (with maturity extended to 2026) and further
cash-preservation measures, including capex cutbacks, contingency
plans and the announced asset disposals, supports the rating
through Fitch's forecast crisis scenario.
A covenant waiver until end-2022, the completed refinanced bond and
maturity extension of the RCF to 2026 led to additional
restrictions on dividends in 2021 and 2022 and on capex for 2021.
The ownership of unencumbered assets (EUR1,115 million of
unencumbered assets as valued at end-June 2020 partially by a
third-party appraiser) provides additional financial flexibility,
in case of need.
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
NHH is one of the 10 largest European hotel chains and one of the
top 30 worldwide. The group operates as an urban hotel with a
diversified portfolio in the upscale segment. The hotel portfolio
comprises 355 hotels with 54,000 rooms in 29 countries in 2020,
including leased/owned hotels (representing roughly 87% of all
rooms) and managed hotels.
===========
S W E D E N
===========
DDM DEBT: S&P Assigns 'B' Issuer Credit Rating, Outlook Stable
--------------------------------------------------------------
S&P Global Ratings assigned its 'B' issuer credit rating to
Sweden-domiciled DDM Debt AB, the issuing entity of the larger DDM
group, which is consolidated under the Switzerland-based parent DDM
Holding AG. S&P also assigned its 'B' issue ratings to the group's
senior secured notes that have been the cornerstone of the
refinancing, with a '4' recovery rating (35% recovery prospects).
The stable outlook on DDM reflects its view that the group's
leverage and debt-service metrics will remain steady.
DDM group completed its refinancing as planned. DDM has been in the
process of refinancing about EUR123 million, which included EUR37
million secured notes maturing in 2021, EUR77 million secured notes
maturing in 2022, and EUR9 million drawn under a EUR27 million
revolving credit facility. In April, DDM issued EUR150 million
senior secured bonds maturing in 2026. As a result, the outstanding
senior secured bonds were redeemed on May 6, 2021. S&P said, "We
anticipate that an additional tap of the 2026 senior secured notes
is possible in second-half 2021. Additionally, we continue to view
DDM's financial risk profile as highly leveraged, given our
expectation that debt to statutory EBITDA will remain above 5.0x,
which is also in line with that of some of DDM's sector peers."
S&P said, "The stable outlook on DDM reflects our view that the
group's leverage and debt-service metrics will remain steady.
Specifically, we expect statutory debt to EBITDA will stay above
5x.
"We could lower the rating on DDM if we observed an overall
weakening in its franchise and financial discipline that led to a
more aggressive financial policy. This could materialize as a
sizable dividend distributions or an inorganic growth strategy that
prompted us to view a pronounced deterioration in the group's
already constrained financial risk profile.
"We could lower our ratings on the notes to 'B-' if DDM were to see
its book values markedly decline, through impairments or
amortization of the book, or if the group increased its priority
debt. Both scenarios would weaken recovery prospects, in our view.
"We currently regard an upgrade as unlikely. This is because we
note that DDM's revenue streams are less diversified. Also, because
of its secured portfolio focus, the group's financial metrics are
less stable than that of peers that have a larger revenue scope.
That said, we would view positively a meaningful improvement in the
group's statutory coverage."
===========================
U N I T E D K I N G D O M
===========================
AMIGO LOANS: Lender Extends Debt Waiver to Sept. 24
---------------------------------------------------
August Graham at PA reports that the company behind Amigo Loans has
been given an extra three-month lifeline from its lender as the
business tries to stave off collapse.
According to PA, the guarantor lender said that its bank had
extended the grace period it had given Amigo to Sept. 24. The
waiver was set to run out on Friday, June 25.
During this period, the bank will not take action if Amigo breaks
the conditions attached to the so-called securitization facility,
PA notes.
The amount available to Amigo through the facility was also slashed
to GBP100 million from GBP250 million, PA discloses.
Weighed down under a slew of customer complaints, Amigo has been
fighting for months to stay above water, PA relays.
The lender warned that it still faces insolvency after a High Court
decision to reject its plan to get out of the crisis, according to
PA.
Amigo's rescue scheme would have handed smaller-than-expected
compensation packages to customers with historical complaints, PA
says.
Earlier this month, after the decision, the business said that it
faces insolvency as it is unable to pay all the compensation claims
while also meeting its obligations to lenders, PA recounts.
According to PA, on June 25 Amigo said it is in talks with the City
watchdog, but that insolvency is still an option.
"Following the recent High Court judgment relating to Amigo's
proposed scheme of arrangement, the board of Amigo has reviewed
options with the Financial Conduct Authority and discussions are
ongoing," PA quotes the business as saying.
"This could result in a revised scheme of arrangement or
insolvency."
FINSBURY SQUARE 2019-2: Fitch Affirms CCC Rating on Class F Debt
----------------------------------------------------------------
Fitch Ratings has affirmed Finsbury Square 2019-1 (FSQ 19-1) and
Finsbury Square 2019-2's (FSQ 19-2) notes. Fitch has also upgraded
the class X notes of Finsbury Square 2019-3 (FSQ 19-3) and Finsbury
Square 2020-2 (FSQ 20-2) and affirmed the transactions' other
notes.
DEBT RATING PRIOR
---- ------ -----
Finsbury Square 2019-2 PLC
A XS2021448886 LT AAAsf Affirmed AAAsf
B XS2021449421 LT AA+sf Affirmed AA+sf
C XS2021449694 LT A+sf Affirmed A+sf
D XS2021449777 LT Asf Affirmed Asf
E XS2021449850 LT BBB+sf Affirmed BBB+sf
F XS2021449934 LT CCCsf Affirmed CCCsf
Finsbury Square 2019-3 PLC
A XS2053549056 LT AAAsf Affirmed AAAsf
B XS2053549130 LT AA+sf Affirmed AA+sf
C XS2053549304 LT A+sf Affirmed A+sf
D XS2053549569 LT Asf Affirmed Asf
E XS2053549643 LT A-sf Affirmed A-sf
F XS2053549726 LT CCCsf Affirmed CCCsf
X XS2053550492 LT BB+sf Upgrade BB-sf
Finsbury Square 2019-1 PLC
A XS1958604677 LT AAAsf Affirmed AAAsf
B XS1958607001 LT AA+sf Affirmed AA+sf
C XS1958607340 LT A+sf Affirmed A+sf
D XS1958607696 LT Asf Affirmed Asf
E XS1958608231 LT BBB+sf Affirmed BBB+sf
F XS1959398709 LT CCCsf Affirmed CCCsf
Finsbury Square 2020-2 PLC
A XS2190195649 LT AAAsf Affirmed AAAsf
B XS2190195722 LT AAsf Affirmed AAsf
C XS2190195995 LT A+sf Affirmed A+sf
D XS2190196027 LT A-sf Affirmed A-sf
E XS2190196290 LT BB+sf Affirmed BB+sf
F XS2190196373 LT CCCsf Affirmed CCCsf
X XS2190196456 LT BB+sf Upgrade Bsf
TRANSACTION SUMMARY
The transactions are securitisations of prime owner-occupied (OO)
and buy-to-let (BTL) mortgages originated by Kensington Mortgage
Company in the UK.
KEY RATING DRIVERS
Payment Holidays Reduced: The number of loans on payment holidays
in each of these transactions has decreased considerably since
mid-2020. Loans on payment holiday made up less than 2% of each
transaction as at the end of February. Fitch does not expect this
to increase given payment holiday applications related to Covid-19
are no longer possible. The reduction in the level of payment
holidays is credit positive as available revenues at each payment
date are higher than at the time of the last rating action
(relative to collateral balance). This is relevant in particular
for the class X notes that remain outstanding, given these notes
receive principal via available excess spread in the revenue
priority of payments.
The reduction in the number of loans on payment holiday, combined
with the amortisation of the notes since the previous rating action
have contributed to the upgrades of the class X notes in FSQ 19-3
and FSQ 20-2. Fitch caps excess spread notes at 'BB+sf'.
Worsening Asset Performance: All of the transactions have
experienced increasing arrears over the last 12 months. Higher
levels of arrears contribute to a higher weighted average
foreclosure frequency (WAFF), which may have an adverse impact on
the ratings.
Product Switches Limited: As part of its cash flow modelling, Fitch
incorporates product switches occurring up to the level of the
documented maximum permissible in each transaction. This reduces
the amount of revenue each transaction is expected to receive as
loan interest rates assumed for product switch loans are lower than
the present interest rates. In practice, Fitch observes that the
number of product switches retained in each pool is much lower and
further product switches are increasingly unlikely as the step-up
date in each transaction approaches (to be retained as collateral,
loans must have product switched before this date). Fitch notes
that the level of revenue reduction due to product switches will be
less severe than what is modelled, creating some rating headroom as
the step-up date approaches.
Coronavirus-related Alternative Assumptions: Fitch applied
alternative coronavirus assumptions to the mortgage portfolio (see
EMEA RMBS: Criteria Assumptions Updated due to Impact of the
Coronavirus Pandemic). The combined application of revised 'Bsf'
representative pool WAFF and revised rating multiples resulted in a
'Bsf' multiple to the current FF assumptions of 1.1x for the OO
sub-pools in each transaction and 1.2x for the BTL sub-pools and no
impact at 'AAAsf' for any sub-pool. The alternative coronavirus
assumptions are more modest for higher rating levels as the
corresponding rating assumptions are already meant to withstand
more severe shocks.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/upgrade:
-- The transactions' performance may be affected by changes in
market conditions and economic environment. Weakening asset
performance is strongly correlated with increasing levels of
delinquencies and defaults that could reduce credit
enhancement (CE) available to the notes.
-- Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain notes'
ratings susceptible to potential negative rating action
depending on the extent of the decline in recoveries. Fitch
conducts sensitivity analyses by stressing both a
transaction's base-case FF and RR assumptions, and examining
the rating implications on all classes of issued notes. We
tested a 15% increase in WAFF and a 15% decrease in weighted
average recovery rate (WARR). The results indicate an up to
two-notch adverse rating impact in FSQ 19-1 and FSQ 19-2 and
an up to three-notch adverse impact in FSQ 19-3 and FSQ 20-2.
Factor that could, individually or collectively, lead to positive
rating action/downgrade:
-- Stable to improved asset performance driven by stable
delinquencies and defaults would lead to increasing CE levels
and potential upgrades. Fitch tested an additional rating
sensitivity scenario by applying a decrease in the FF of 15%
and an increase in the RR of 15%. The ratings on the
subordinated notes could be upgraded by up to three notches in
FSQ 19-1, FSQ 19-2 and FSQ 19-3 and up to one notch in FSQ 20
2.
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.
CRITERIA VARIATION
Kensington may choose to lend to self-employed individuals with
only one year's income verification completed. Fitch believes this
practice is less conservative than that at other prime lenders. For
OO mortgages, Fitch applied an increase of 1.3x to the FF for
self-employed borrowers with verified income instead of the 1.2x
increase, as per its criteria. Excluding the criteria variation
results in no rating change to the notes.
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
pools and the transactions. There were no findings that affected
the rating analysis. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transactions' closing, Fitch reviewed the results of a
third-party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Prior to the transactions' closing, Fitch conducted a review of a
small targeted sample of Kensington's origination files and found
the information contained in the reviewed files to be adequately
consistent with the originator's policies and practices and the
other information provided to the agency about the asset
portfolio.
Overall and together with the 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.
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.
GFG ALLIANCE: Confirms Series of Restructuring Steps
----------------------------------------------------
Sylvia Pfeifer at The Financial Times reports that Sanjeev Gupta's
GFG Alliance has confirmed a series of restructuring steps as the
metals tycoon strives to refinance his sprawling conglomerate and
pay back creditors.
According to the FT, the company on June 28 said the restructuring
would allow it to "refocus its business, protect jobs and develop
further its remaining assets".
GFG said it was still looking for a buyer for its UK speciality
steel plant at Stocksbridge in South Yorkshire and announced the
departure of the managing director of its British steel operations,
Jon Ferriman, the FT relates.
GFG, whose assets span steel, aluminium and energy businesses
around the world, has been teetering on the brink since the
collapse of its main lender Greensill Capital in March, the FT
notes. It is also under investigation in the UK over suspected
fraud, the FT states.
The company on June 28 said it had reached a framework agreement
with Greensill Bank's administrators for "positive direct
engagement to achieve an amicable resolution", the FT relays.
The metals group last week reached a six-week standstill agreement
with Credit Suisse, one of its main creditors, on its Australian
steel and coal mining assets, the FT recounts.
GFG also announced it was exploring a possible sale or strategic
partnerships for two smaller Australian energy businesses,
including a solar farm, the FT discloses.
In addition, the group, as cited by the FT, said it was in talks
with interested parties to refinance its steel operations in
continental Europe, notably in Romania and the Czech Republic. It
said it would merge its steel activities in Belgium, Luxembourg and
Italy into the Romanian business, according to the FT.
GREENSILL CAPITAL: FRC Launches Investigation Into Auditor
----------------------------------------------------------
BBC News reports that the UK's accountancy watchdog has launched an
investigation into the auditor of Greensill Capital, the collapsed
financial backer of industrialist Sanjeev Gupta.
According to BBC, the Financial Reporting Council has begun a probe
into accountancy firm Saffery Champness.
It also announced an investigation into PwC, which audited
financial statements made by Wyelands Bank, BBC relates.
The bank was controlled by Mr. Gupta but also lent money to his
other firms.
The FRC said it was looking into Saffery Champness's audit of
Greensill Capital's financial statements for the year to December
31, 2019, BBC discloses.
The supply chain finance company went bust in March, raising
concerns over the future of GFG Alliance, the sprawling empire
controlled by Mr. Gupta and his family which owns the UK's Liberty
Steel, BBC recounts.
Following the collapse of Greensill, it emerged that the former
prime minister David Cameron had unsuccessfully lobbied senior
members of the government and former colleagues for loans on behalf
of the company.
Greensill's founder, Lex Greensill, was an adviser to the
government during Mr. Cameron's time as prime minister, BBC notes.
In May, the Serious Fraud Office announced an investigation into
"suspected fraud, fraudulent trading and money laundering in
relation to the financing and conduct of the business of companies
within the Gupta Family Group Alliance, including its financing
arrangements with Greensill Capital", BBC relates.
According to BBC, a spokesman for Saffery Champness said: "As
professional accountants, we owe a duty of confidentiality to
present and former clients and, with this matter the subject of
investigation, it would not be appropriate to comment at this time
save to say that Saffery Champness will of course be co-operating
fully with the FRC."
The FRC, as cited by BBC, said it was also examining PwC "in
relation to its audit of the consolidated financial statements of
Wyelands Bank for the year ended April 30, 2019".
There is no shortage of official enquiries into the collapse of
Greensill Capital and the affairs of one of its main clients, GFG
Alliance, the group of companies presided over by the metals tycoon
Sanjeev Gupta, BBC states.
Parliamentary select committees are doing a post mortem on the
former, and trying to work out the future of the latter as part of
a wider probe of the future of the steel industry, BBC discloses.
The Serious Fraud Office is investigating suspected fraud,
fraudulent trading and money laundering within GFG, including its
relationship with Greensill, BBC relays.
The FRC has also begun an inquiry into PwC's auditing of Wyelands
Bank, part of the GFG network, BBC says. Wyelands has been under a
shadow for some time, BBC notes. It is expected to be sold or
wound up after Mr. Gupta said he would not provide any more
funding, according to BBC.
HURRICANE ENERGY: Court Refuses to Sanction Restructuring Plan
--------------------------------------------------------------
Nathalie Thomas at The Financial Times reports that Hurricane
Energy, the oil and gas producer once considered a bright hope for
the UK North Sea, has failed to push through a controversial
financial restructuring that would have virtually wiped out its
shareholders.
According to the FT, the UK's High Court ruled on June 28 it would
not sanction the plan, which would have handed control to
Hurricane's bondholders in exchange for forgiving US$50 million of
debt and extending the maturity date on a further US$180 million of
bonds due to be repaid in July next year.
The plan had been extremely unpopular with shareholders, including
activist fund Crystal Amber, Hurricane's second-largest investor
with a stake of more than 11%, the FT states.
However, management led by chief executive Antony Maris had argued
it was a "necessary step" to secure Hurricane's future following
production disappointments, warning it would not be in a position
to repay its US$230 million of bonds next year, the FT notes.
The Aim-listed company had hoped to open a new frontier in UK
waters by producing oil from "fractured basement" rock formations
-- naturally occurring fissures in the granite that lies below the
softer sandstone from which most other North Sea hydrocarbons are
extracted, the FT relates.
However, Hurricane admitted last year that it was unable to sustain
intended production rates from its flagship Lancaster field west of
the Shetland Islands and parted ways with its founder and former
chief executive Robert Trice, the FT recounts.
A hearing on the proposed restructuring, which would have left
shareholders with just 5% of the company's equity, was held at the
High Court last week, the FT relays.
In a lengthy judgment handed down on June 28, Mr. Justice Zacaroli,
as cited by the FT, said "despite the fact that there is projected
to be a shortfall between available cash and the sum required to
redeem the bonds at maturity", there was a "reasonable
possibility . . . it could be bridged".
He added there was "no other sufficient ground of urgency" for the
bonds to be restructured now.
Hurricane said it was "considering all options, including an
appeal", and warned that bondholders had "certain rights under the
terms of the convertible bonds that, if enforced, could result in
an acceleration of the convertible bonds and ultimately an
insolvent liquidation of the company", according to the FT.
KELHAM HALL: Enters Administration Following Liquidation
--------------------------------------------------------
Business Sale reports that Kelham Hall Ltd, the company behind
Victorian wedding venue Kelham Hall in Nottinghamshire, has called
in administrators after entering liquidation.
According to Business Sale, a statement released by the owners on
Kelham Hall's website stated that the popular wedding venue has now
ceased trading and appointed professional administrators to help
manage its future, including the many weddings and events that are
scheduled to be held at the site in the coming year.
According to the statement, suppliers and those who have booked
events at Kelham Hall have been notified that the company has gone
into liquidation and that they have cancelled any future
reservations, Business Sale discloses.
The statement read: "Please be advised that Kelham Hall Limited
ceased trading on Wednesday 23rd June as a result of the continuing
effects of the Covid-19 pandemic. The mortgagee has now taken
possession of the property and the campsite and fishing pegs are
closed."
It added: "Insolvency practitioners have been appointed to place
the company into liquidation and they will be in contact with all
creditors in due course."
NEPTUNE ENERGY: Moody's Affirms Ba3 CFR & Alters Outlook to Pos.
----------------------------------------------------------------
Moody's Investors Service changed Neptune Energy Group Midco Ltd.'s
(Neptune, the company) outlook to positive from stable;
concurrently, Moody's has affirmed the Ba3 corporate family rating
and the Ba3-PD probability of default rating, as well as the B1
assigned to the Neptune Energy Bondco Plc's USD850 million
guaranteed senior unsecured notes due 2025. The outlook of Neptune
Energy Bondco Plc was also changed to positive from stable.
RATINGS RATIONALE
The outlook change reflects Moody's expectation that the recent
improvements in the oil and gas prices, a moderate shift of the
strategy towards organic development, rather than transformational
acquisitions, and a more favorable regulatory environment in Norway
will sustain Neptune's production profile, operating profitability
and cash flow generation in 2021 and 2022.
In 2020, Neptune achieved a Moody's Adjusted EBITDA of $800
million, as low prices were not offset by operating efficiencies,
and a production of approximately 143kboepd, in line with the
guidance provided by the company. In addition, Neptune reduced
capex to around $750 million compared to an original budget of
approximately $1,100 million, in order to protect its cash flow and
liquidity position in a low price environment and suspended its
$200 million dividend payment related to 2020.
Since the abandonment of the acquisition of the Edison E&P's North
Sea assets in May 2020, Neptune has increasingly focused on the
development of its existing assets. In 2021, it achieved first
production in the Merakes field (Indonesia) and in the Gjoa P1
(Norway), which will contribute to a combined production for
approximately 19 kboepd and it expects first production from the
Duva field in Norway to come on stream in Q3 2021. The growth in
the production will continue in 2022 and 2023, when the resumption
of the production at the LNG facility of Snohvit (closed for
repairs until March 2022, but whose contribution is covered by
business interruption insurance) , and new projects in Norway and
in the UK will lead to an increase in production at plateau of
approximately 50 kboepd. These projects will lead to an expected
production of around 200kboepd in 2023, while Moody's expects a
moderate increase, from the current levels, in the run-rate of
production already towards the end of 2021 or in early 2022.
The temporary Norwegian petroleum tax regime (Norway represents
approximately half of the company's footprint), enacted in June
2020, also supports the growth plans of the company, while allowing
it to maintain its leverage moderate and cash flow generation
broadly positive until 2023.
In 2021, Moody's expects Neptune's production to remain broadly
stable around the mid-point of the 140-155 kboepd guidance provided
to the market. Taking into account the group's current hedge book
and assuming an average Brent price of $55/barrel, NBP of 40
pence/therm and opex of $11.5/boe, Moody's estimates that Neptune
will generate a Moody's Adjusted EBITDA of $1,400 million and a
Free Cash Flow of $130 million in 2021 after (i) $950 million of
capex, as the company will continue to invest in the development of
its reserves, (ii) a $280 million dividend and (iii) $40 million
for bolt-on acquisitions, as Moody's expects the company to engage
in small bolt-on acquisitions while it prioritize the development
of its available reserves.
The free cash flow generated should be largely used to repay part
of the $1.1 billion Reserve Based Lending (RBL) facility
outstanding at year-end 2020 and, together with the significant
growth in EBITDA, will allow Neptune to keep Moody's-adjusted gross
leverage well below 2.0x at year-end 2021.
The Ba3 rating also continues to reflect the geographic
diversification of the company's footprint and the predominant bias
towards gas production, which carries a lower carbon transition
risk compared to oil production. Moody's continues to positively
view the relatively high degree of operatorship, which provides
good operational flexibility, in particular in times of low oil and
gas prices.
LIQUIDITY
Neptune's liquidity profile is good. Following the redetermination
of the RBL facility completed in March 2021, the borrowing base
amount was confirmed at around $2.3 billion for the following 12
months, and Neptune currently retains liquidity headroom of
approximately $1,200 million including cash and undrawn RBL debt
availability. The facility starts amortising in April 2022 and
matures in 2024.
STRUCTURAL CONSIDERATIONS
The B1 rating assigned to Neptune Energy Bondco Plc's senior
unsecured notes, which is guaranteed by some of the operating
subsidiaries, reflects the fact that the notes are senior
subordinated obligations of the respective guarantors and
subordinated to all existing and future senior obligations of those
guarantors, including their obligations under the RBL facility.
In addition, the notes are structurally subordinated to all
existing and future obligations and other liabilities (including
trade payables) of Neptune's subsidiaries that are not guarantors.
RATINGS OUTLOOK
The positive outlook reflects Moody's expectation that Neptune will
continue to grow its production profile, while managing
conservatively its balance sheet and securing a substantial part of
its production with commodity hedges.
Moody's also expects the company to continue to apply its free cash
flow generation primarily to debt reduction, while maintaining a
healthy liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if the company delivers the expected
improvement in terms of its production profile to levels well above
150 kboepd, while keeping adjusted total debt to EBITDA below 2.5x
and retained cash flow (RCF) to total debt above 30% on a
sustainable basis and maintaining strong liquidity.
The ratings could be downgraded should (i) the group's liquidity
profile weaken amid sustained negative FCF generation; (ii)
leverage increase so that adjusted total debt to EBITDA remains
above 3.5x and/or RCF to total debt falls below 20% for a prolonged
period; and (iii) the production profile and/or reserve life of the
company significantly deteriorate.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Independent
Exploration and Production Industry published in May 2017.
CORPORATE PROFILE
Headquartered in London (UK), Neptune Energy Group Midco Ltd.
(Neptune) is the holding company of a medium-sized independent
exploration and production oil and gas group, with hydrocarbon
resources located mainly in the Norwegian, UK and Dutch sectors of
the North Sea (66% of 2020 production) as well as in Germany, North
Africa (Egypt and Algeria) and the Asia Pacific region (Indonesia,
Australia).
Neptune is owned by three main shareholders namely China Investment
Corporation (49.0%), Carlyle Group (30.6%) and CVC Capital Partners
(20.4%), while management holds the remaining 1%. In 2020, Neptune
reported average production of 143.8 kboepd split between natural
gas (including LNG) for 75% and oil for 25%. It generated revenues
of $1.6 billion and EBITDAX of $940 million. At year-end 2020, it
had 1P and 2P and reserves of 392 and 601 mmboe respectively.
SAGA PLC: S&P Affirms 'B' LT Issuer Credit Rating, Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit rating
on U.K.-based insurance services and travel operator Saga PLC and
'B' issue and '3' recovery ratings on the existing debt facilities.
S&P also assigned 'B' issue ratings and a '3' recovery rating to
the new proposed senior unsecured notes.
The stable outlook reflects S&P's view that while the recovery in
the group's travel business will be modest in fiscal year (FY)
ending Jan. 31, 2022, the current rating level remains underpinned
by resilience in the insurance business and sound liquidity over
the next 12 months.
On June 22, 2021, Saga PLC announced its intention to issue a new
GBP250 million senior unsecured note with a 2026 maturity. With the
proceeds, Saga will seek to repay its GBP70 million term loan and
redeem GBP100 million of the existing GBP250 million unsecured note
close to par value through a tender offer. This will effectively
extend the bulk of its corporate debt maturities from 2023/2024 to
2025/2026 and add about GBP76 million of liquidity on the balance
sheet, post transaction costs. The transaction will also see the
GBP100 million revolving credit facility's (RCF's) maturity
extended by two years, to 2025 from 2023, and further amendments on
the covenant to provide headroom. If the existing 2024 senior
unsecured note is not redeemed before March 1, 2024, then the
maturity on the RCF becomes due on that date.
Saga's travel businesses accounted for over half of its revenue
before the pandemic, compared with 15% in FY2021. Given the virus'
high transmissibility, particularly in enclosed spaces, the group's
travel businesses have been suspended since March 2020. Although
Saga has taken actions to reduce its cost base, including ship
operating costs, these measures were insufficient to prevent the
travel revenue decline from affecting FY2021's S&P Global
Ratings-adjusted EBITDA, despite resilient performance from the
insurance business. The decline in adjusted EBITDA, and the
increase in debt over the past two years to fund the acquisition of
two new cruise ships, resulted in a significant debt-to-EBITDA
increase in the past fiscal year, spiking at 16.8x in FY2021.
S&P said, "As such, although the group's target demographic
(over-50s in the U.K.) has high vaccination levels at the time of
writing, we expect a modest resumption of travel in financial
FY2022, since many popular destinations remain partially or fully
closed to tourists. We understand that the group has some level of
flexibility in selecting cruise itineraries as country-specific
restrictions fluctuate, and it generally benefits from strong
retention rates and customer loyalty. This supports the group's aim
of a resumption in cruise operations in June/July FY2022, and tour
operations in September FY2022. Nevertheless, we do not expect the
cruise ships to be operating at full capacity, with travel revenue
unlikely to return to pre-pandemic levels until FY2023 at the
earliest, and leverage reaching 4.6x-5.0x and 3.5x-3.9x in FY2023
and FY2024 respectively, compared with 11.6x-12.0x in FY2021.
"The group has a strong home and motor insurance brokerage
franchise, and an effective underwriting business among U.K.
over-50s. That said, we expect weaker renewals pricing when
Financial Conduct Authority proposals to restrict differentials
between renewing and new business customers are implemented.
Although Saga has taken some actions to counter this, such as the
introduction of three-year fixed premiums, we anticipate that
operating profits from the group's insurance business could decline
as much as 25% over the next two years. We therefore do not expect
to see a meaningful reduction in leverage before FY2023."
Post transaction, the GBP250 million issuance will bolster the cash
position to about GBP150 million. Management continues to take a
proactive approach to mitigating the pandemic-related uncertainty
as the transaction follows the GBP140 million equity raise in
September 2020, and the successful covenant negotiation in March
2021. In addition, the liquidity position is further supported
given the extension of the debt maturities and the reversion to
modest capital expenditure (capex) levels following the purchase of
two cruise ships over the past two years. S&P expects this will
limit negative FOCF generation in FY2022 to GBP20 million-GBP40
million, before reverting to positive figures in FY2023-FY2024 with
FOCF of about GBP85 million-GBP105 million.
S&P said, "The stable outlook reflects our view that while the
recovery in the group's travel business will be modest in FY2022,
the current rating level remains underpinned by resilience in the
insurance business and sound liquidity over the next 12 months.
"We could lower the ratings if Saga's operations face a further
downturn beyond our expectations. Specifically, if we expect
sustained negative FOCF, leading to liquidity constraints, or tight
headroom under the group's revised covenants.
"We could raise the ratings on a higher degree of certainty in the
recovery in ratios with profitability reverting to historical
levels. Specifically, if we expect debt to EBITDA to be sustained
at about 5.0x or lower."
VIVO ENERGY: S&P Affirms 'BB+' ICR & Alters Outlook to Stable
--------------------------------------------------------------
S&P Global Ratings revised its outlook on Vivo Energy PLC to stable
from negative and affirmed its 'BB+' ratings on the group, as well
as on its senior unsecured debt.
The stable outlook reflects S&P's view that Vivo will keep
recovering and posting a sound operating performance while
maintaining its moderate financial policy, supporting debt to
EBITDA of less than 1.5x, over the next 12 months.
Vivo's performance in 2020 exceeded our expectations and S&P now
forecasts a quicker rebound in 2021.
Following the easing of pandemic-related restrictions, Vivo's
trading performance rebounded in the second half of 2020, driven by
its retail segment. S&P said, "We expect this trend to continue in
2021, underpinned by the expansion of the sites network by about
90-110 units, and by robust margin contributions, with retail
EBITDA growing to $230 million-$250 million at the end of the year,
in line with pre-pandemic levels. We anticipate further upside in
2022, as vaccine penetration increases and volumes exceed 6 billion
liters (compared to 5.9 billion liters in 2019). At the same time,
we forecast a slower recovery of commercial EBITDA, to around $90
million-$120 million in 2021, due to the loss of a large supplying
contract and ongoing challenges for the aviation industry."
However, as this is historically a lower-margin business the
dilutive effect at group level will be lower. Broadly, earnings are
set to expand with group-level EBITDA reaching $380 million-$420
million, comparable to 2019.
Cash flow generation should remain resilient despite the capital
expenditure (capex) required to improve the network and increased
shareholder distributions. In the fiscal year (FY) ending Dec. 31,
2020, the group posted a 17% decline in revenues, which resulted in
$367 million S&P Global Ratings-adjusted EBITDA, down EUR49 million
year-on-year. It also posted neutral free operating cash flow
(FOCF) after leases due to a deterioration in working capital. S&P
said, "However, we now expect Vivo to report FOCF after leases of
$110 million-$150 million in FY2021 given the second-half 2020
recovery. This reflects our expectation of a working capital
release of $30 million-$60 million and a normalized capex budget of
about $160 million per year, over the medium term, to fund its
network expansion and refurbishment. Combined with our anticipation
of an unchanged dividend-payout ratio, this should translate into
an additional $70 million-$75 million of cash per year on the
balance sheet."
The group's relatively weaker coverage metrics and potentially
more-generous shareholder remunerations limit rating upside. Vivo's
coverage ratios will remain relatively high over the medium term,
in S&P's view, with FFO cash interest coverage not exceeding 7.0x.
This reflects relatively high interest payments locally--the group
borrows at the operating companies' level to fund local operations
in local currency--and tax bills, historically 35%-40% of pre-tax
income. Additionally, although Vivo has not indicated any further
change in financial policy, S&P sees some risk that shareholder
remuneration might become more generous as cash accumulates on the
balance sheet.
Vivo is widely exposed to macroeconomic risks but has a fairly
robust track record of managing them. Vivo's operations are spread
across 23 African countries, which generally carry higher risks
than more developed countries. These risks could arise from:
-- Volatile political settings, which could influence regulated
fuel prices and the tender processes to obtain concessions. Oil
prices are regulated in 20 countries where Vivo operates.
-- Volatile foreign exchange (FX) movements and possible
restrictions on transfers of capital.
-- An economic recession caused by the default of a sovereign.
-- Potential accumulation of trade receivables at local
governments.
Vivo is also potentially exposed to volatile commodity prices,
particularly oil. This could affect its working capital and
profitability if it were not able to pass on price increases to
customers. S&P has not seen this to date, however.
Mitigating these risks, the group's essential offering protects it
from large demand swings, even in a depressed macroeconomic
environment. Its good geographical diversification--no single
country accounts for more than 25% of revenues--also partially
offsets its FX risk exposure and regulatory risk. With FX risk in
particular, while a portion of Vivo's earnings is subject to local
currency volatility--most on-site transactions are in local
currency--more than half of its earnings are denominated in
currencies that are pegged either to the euro or dollar, or a
combination of the two. S&P also understands that the group has
efficient cash upstreaming mechanisms and keeps a large part of its
cash on balance sheet denominated in USD. Most governments in
Vivo's countries of operation regulate petrol prices and, in many
cases, they pass increases/decreases onto consumers, which
translates into generally stable margins on petrol sales.
Unlike western peers, the group's exposure to the transition to
electric vehicles is limited. In most of the countries where Vivo
operates, oil and its derivatives are still the main source of
energy. Due to the lack of significant carbon-free alternatives,
generally lower engine efficiencies, and young and growing
populations, we expect demand for petrol to remain high. This
contrasts with the secular decline in demand for fossil fuels in
western countries.
S&P said, "The stable outlook reflects our view that the group's
operating performance will continue recovering over the next 12
months, with earnings and credit ratios gradually converging to
pre-pandemic levels. The outlook also reflects our expectation of a
moderate financial policy supporting debt to EBITDA of less than
1.5x."
S&P could raise the ratings by one notch to 'BBB-' if Vivo
maintains its market-leading position as a fuel retailer in Africa
and continues to post sound operating results without any setbacks.
An upgrade would also require a meaningful improvement in
profitability and cash generation; prudent management of working
capital and capex; and a demonstrated track record of limited
earnings volatility, such that:
-- Adjusted FFO cash interest coverage exceeds 9.0x; and
-- Adjusted debt to EBITDA remains below 1.5x on a sustainable
basis.
A positive rating action would also hinge on Vivo adhering to a
conservative financial policy with regard to shareholder
distributions.
S&P Said, "We would consider a downgrade if Vivo experienced
unexpected operational setbacks, weakening profitability and
earnings such that FOCF to debt declined below 25% for a prolonged
period and debt to EBITDA exceeded 1.5x. This could arise, for
example, from adverse regulatory changes or persistent FX
volatility in several countries. We could also lower the rating if
Vivo adopted a more aggressive financial policy and undertook large
debt-funded acquisitions or debt-funded shareholder returns."
*********
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.
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