/raid1/www/Hosts/bankrupt/TCREUR_Public/210824.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, August 24, 2021, Vol. 22, No. 163
Headlines
B E L A R U S
BELARUSBANK: Fitch Affirms Then Withdraws 'B' IDR
F R A N C E
FAURECIA: Moody's Affirms Ba2 CFR & Alters Outlook to Negative
G E O R G I A
CARTU BANK: S&P Alters Outlook to Stable, Affirms 'B/B' ICRs
I R E L A N D
BARINGS EURO CLO 2019-1: Fitch Affirms B- Rating on Class F Notes
CIFC EUROPEAN IV: Moody's Assigns B3 Rating to EUR11.6MM F Notes
CONTEGO CLO VIII: S&P Assigns Prelim B- (sf) Rating to F-R Notes
HARVEST CLO XXIV: Fitch Assigns Final B- Rating on F-R Tranche
HARVEST CLO XXIV: Moody's Assigns B3 Rating to EUR11.4MM F Notes
OCP EURO 2020-4: S&P Assigns Prelim B- (sf) Rating to Cl. F Notes
I T A L Y
MONTE DEI PASCHI: Italian Government Mulls EUR3-Bil. Rights Offer
R U S S I A
CHELYABINSK PIPE: Moody's Withdraws Ba3 CFR Amid TMK Transaction
NKO KRASNOYARSK: Bank of Russia Ends Provisional Administration
TAJIKISTAN: S&P Affirms 'B-/B' Sovereign Credit Ratings
[*] RUSSIA: Share of Zombie Cos. in Industrial Sector is 10-15%
U N I T E D K I N G D O M
BLITZEN SECURITIES 1: Fitch Assigns B+ Rating on 2 Note Classes
BLITZEN SECURITIES 1: Moody's Gives B3 Rating to GBP14.3MM X Notes
FIREWOOD RESTAURANTS: Goes Into Liquidation, Fails to Pay Debts
GFG ALLIANCE: In Talks with White Oak to Refinance EU Operations
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B E L A R U S
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BELARUSBANK: Fitch Affirms Then Withdraws 'B' IDR
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Fitch Ratings has affirmed Belarusbank's (BBK) and Belinvestbank,
OJSC's (BIB) Long-Term Issuer Default Ratings (IDR) at 'B'. The
Outlooks are Negative. Simultaneously Fitch has withdrawn all the
ratings.
The rating action follows the EU sanctions imposed on Belarus,
which specifically name BBK and BIB, on 24 June 2021. Fitch has
withdrawn the ratings for both banks for the sanctions reason and
will no longer provide ratings or analytical coverage for these
banks. Fitch will review its decision should the sanctions be
removed.
KEY RATING DRIVERS
IDRS, SUPPORT RATINGS (SR) AND SUPPORT RATING FLOORS (SRF)
The affirmation of BBK's and BIB's IDRs, SRs and the SRFs reflects
Fitch's expectation that the Belarusian authorities will continue
to provide support to these banks, in case of need. In Fitch's
view, the authorities have a high propensity to provide support to
both banks, given majority state ownership, BBK's exceptional
systemic importance and policy role, and the record of support to
the banks to date.
The Negative Outlooks on the banks' 'B' Long-Term IDRs mirror that
on the Republic of Belarus (B/Negative) and reflect the sovereign's
potentially weaker financial position, which would undermine its
ability to provide support. The sovereign's external position
remains strained, with international reserves low in relation to
funding requirements, and the new EU sanctions restrict the
government's access to EU lenders. This, also in light of the
potential crystallisation of contingent liabilities from the large
public sector, could constrain financial flexibility of the
authorities to provide support, particularly in foreign currency,
in case of need.
VIABILITY RATINGS (VRS)
The affirmation of BBK's and BIB's 'b-' VRs reflects limited
changes to both banks' standalone credit profiles since the last
rating action in May 2021, while Fitch believes the sanctions'
impact on these bank's funding profiles should be manageable in the
near term. The restrictions effectively cut these banks off from
new borrowing in the EU debt capital markets and limit availability
of new credit with maturities over 90 days from EU counterparties.
Both banks' capital market activity in the EU has been limited to
date and EU funding as a share of liabilities is below 5% at BBK
and below 2% at BIB. Both banks have sufficient liquidity to cover
upcoming repayments of EU funding.
RATING SENSITIVITIES
Rating sensitivities do not apply as the ratings have been
withdrawn.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The IDRs are driven by potential support from the Belarusian
authorities.
ESG CONSIDERATIONS
BBK has an ESG relevance score of '4' for governance structure,
reflecting significant state-directed lending. This has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
The highest level of ESG credit relevance for BIB 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 to the
way in which they are being managed by the entity.
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F R A N C E
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FAURECIA: Moody's Affirms Ba2 CFR & Alters Outlook to Negative
--------------------------------------------------------------
Moody's Investors Service has affirmed the Ba2 corporate family
rating, Ba2-PD probability of default rating and Ba2 long-term debt
ratings of Faurecia and changed the outlook to negative from stable
following the announcement of Faurecia to acquire a majority stake
in HELLA GmbH & Co. KGaA (Hella) and launch a public tender offer
on all outstanding Hella shares.
RATINGS RATIONALE
On August 14, 2021, Faurecia announced that it has reached an
agreement with the Family pool shareholders of Hella to acquire its
60% stake at a price of EUR60 per share and to launch a public
tender cash offer for the remaining Hella shares at a price of
EUR60 per share paid through a mix of EUR3.4 billion of cash and up
to 13.58 million newly issued Faurecia shares. The transaction
represents an estimated total enterprise value of EUR6.7 billion
for 100% of Hella.
The affirmation of the rating reflects (1) the strong strategic
rationale of the transaction with a very good complementarity
between Faurecia and Hella from a product, geographical and
customer point of view, (2) a relatively low integration risk also
to a large extent linked to the limited overlap between the two
businesses, (3) the cost control culture of Faurecia that should
enable it to generate some cost synergies over time. Moody's also
note as positive Faurecia's reiterated commitment to its financial
policy of limiting net debt/EBITDA at below 2x and with the
ambition to reduce the combined group's leverage to below 1.5x by
2025.
Against these positives, the Ba2 also includes the material
financial impact of the transaction on Faurecia's balance sheet
with an expected EUR4.4 billion of debt raised for the financing of
the transaction at a point where global auto markets remain
challenging because of the accelerated shift towards
electrification, supply chain disruptions caused by the
semiconductor shortages as well as the general cyclicality and
price sensitivity of the auto supplier industry.
Moody's positively recognizes an improved business profile of the
combined group versus Faurecia's stand-alone positioning with a
combined product portfolio that is well equipped to address the
future megatrends of the automotive industry which mitigates the
temporary high leverage for the current rating level.
LIQUIDITY
The liquidity position of Faurecia will be solid, supported by a
healthy cash position pro forma of the closing of the transaction,
access to the undrawn revolving credit facilities of both Faurecia
and Hella, a manageable maturity profile and the expectation of
positive free cash flow generation for the combined group.
Most of the structurally senior debt at Hella might have to be
repaid from Hella's high cash position given a change of control
clause in the debt documentation. The acquisition debt will rank
pari passu with Faurecia's unsecured notes.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects the risk that Faurecia might not be
able to restore a credit profile commensurate with the Ba2 rating
within 12 to 18 months from closing of the transaction.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's would consider an upgrade to Ba1 should Faurecia
sustainably achieve EBITA margins above 6%, it continues to
generate positive FCF, indicated by FCF/debt in the low to
mid-single digits through the cycle and if the company can manage
its leverage ratio to a level below 3.5x debt/EBITDA on a
sustainable basis. An upgrade would also require Faurecia to
maintain a solid liquidity profile.
However, EBITA margin approaching 4% or recurring negative free
cash flow would put downward pressure on the ratings. Moody's would
also consider downgrading Faurecia's ratings if its leverage ratio
remained around or above 4.5x debt/EBITDA. Likewise, a weakening
liquidity profile could result in a downgrade.
ESG CONSIDERATIONS
Given the increased leverage following the acquisition, Corporate
governance has been a major driver of this rating action.
STRUCTURAL CONSIDERATIONS
Should Faurecia's rarting be downgraded, the structurally
subordinated debt of Faurecia versus the currently outstanding debt
of Hella might be notched down from the Ba2 CFR.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automotive
Suppliers published in May 2021.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Faurecia
Probability of Default Rating, Affirmed Ba2-PD
LT Corporate Family Rating, Affirmed Ba2
Senior Unsecured Regular Bond/Debenture, Affirmed Ba2
Outlook Actions:
Issuer: Faurecia
Outlook, Changed To Negative From Stable
COMPANY PROFILE
Headquartered in Paris, France, Faurecia is one of the world's
largest automotive suppliers for seats, exhaust systems and
interiors, with 2020 sales of EUR14.7 billion. Faurecia is listed
on the Paris Stock Exchange, with a free float of 85%. As of March
31, 2021, the remaining 15% was held by Exor N.V. (5.5%), Peugot
1810 (3.2%), BPI (2.4%), Dongfeng Motor Corporation (2.2%) and
other shareholders.
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G E O R G I A
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CARTU BANK: S&P Alters Outlook to Stable, Affirms 'B/B' ICRs
------------------------------------------------------------
S&P Global Ratings revised its outlook on Georgia-based Cartu Bank
to stable from negative and affirmed its 'B/B' long and short-term
issuer credit ratings on the bank.
The stable outlook reflects S&P's view that over the next 12 months
Cartu Bank will likely preserve its strong capital buffer, with the
risk-adjusted capital (RAC) ratio remaining sustainably above 10%,
and that it will gradually recover its problem assets, which,
nevertheless, will continue to substantially exceed the system
average.
New perpetual Tier 1 debt from the shareholder offset the pressure
on Cartu Bank's capital position last year. In 2020, the bank's
capital adequacy measured by our RAC ratio deteriorated to 11.4%
from 12.5% due to significant asset growth inflated by the
devaluation of the local currency, and weaker profitability hit by
higher new loan loss provisions. Nevertheless, the pressure on
capital was lower than S&P expected, as the shareholder provided
the bank with $10 million (Georgian lari [GEL] 16.8 million of
carrying value) of capital support by converting Tier 2
subordinated debt into perpetual Tier 1 subordinated debt. S&P's
view this new perpetual debt as having intermediate equity content
due to its ability to absorb losses while the bank remains a going
concern, and we include it in our calculation of the RAC ratio.
S&P said, "We anticipate that Cartu Bank will likely preserve its
creditworthiness thanks to its substantial capital buffer, with the
RAC ratio remaining sustainably above 10%.In our view, downside
risks for the bank's capital position have reduced and we expect
that the bank will preserve its RAC ratio sustainably above 10%
over the next 12-18 months. We take into account another $10
million of Tier 1 perpetual subordinated debt provided by the
shareholder in the first half of 2021. We also expect a gradual
recovery in profitability on the back of lower new loan loss
provisions in 2021-2022, after a material increase in the cost of
risk last year to 4.4% of the loan portfolio. At the same time, we
think that lending growth will be subdued and is unlikely to exceed
2.0%-4.0% on average over the next two years, because management
will continue to concentrate on recovering problem loans rather
than on growth. The bank distributed dividends of GEL20 million
earlier this year due to a recovery in earnings and slow asset
growth. We think that the bank might continue to distribute
dividends in the coming years, unless business volumes pick up, in
which case it may have to curtail dividends to preserve its capital
adequacy ratio. Although the bank has no formal dividend policy, we
expect that any future dividend distributions will not cause any
significant deterioration of capital. The National Bank of Georgia
(NBG) requires the bank to keep its regulatory total capital
adequacy ratio above 20.0% (25.8% as of July 1, 2021).
"Over the next two years, the bank's asset quality might improve
gradually, but it will remain weaker than the system average.We
expect that the bank might recover some of its problem assets by
selling repossessed collateral and stabilizing the financial
situation of some borrowers. In particular, we anticipate that the
stock of nonperforming assets, which include Stage 3, purchased or
originated credit impaired loans, and repossessed collateral, might
reduce to 35%-37% of the loan portfolio by year-end 2022 from 42%
at year-end 2020. The impact of the COVID-19 pandemic on the bank's
asset quality has been modest, with legacy problem loans that have
accumulated since 2012 representing the major portion of the
nonperforming loans. The small impact from the pandemic mainly
reflects the bank's low exposure to badly damaged sectors, such as
hospitality, and the lack of small-to-midsize enterprise and retail
lending. In the first half of 2021, the bank's asset quality
remained broadly stable, and we do not expect a post-pandemic
inflow of problem loans." Nevertheless, the bank's asset quality
remains much weaker than that of the wider banking system. This
reflects a much higher share of problem loans on the bank's balance
sheet compared with domestic peers (42% versus the 5.5%-6.0% system
average). It also reflects low provisioning coverage of just 30%
versus 50-60% for domestic peers, as well as a higher share of
loans denominated in foreign currency of around 67% as of mid-year
2021.
Cartu Bank will likely preserve its stable funding profile and high
liquidity buffer. The bank will continue to rely on relatively
stable customer deposits, with a predominance of corporate funds.
Although at year-end 2020, current accounts represented around 45%
of total customer funds, historically, they have been relatively
stable. The bank's liquidity buffer will likely remain high thanks
to the NBG's conservative policy. At mid-year 2021, the bank's
liquidity coverage ratio was 216% and its high-quality liquid
assets covered its current accounts by more than 100%.
S&P said, "The stable outlook on Cartu Bank reflects our opinion
that the bank will maintain its strong capitalization and stable
funding profile over the next 12 months. We also take into account
a gradual recovery of the bank's asset quality, which,
nevertheless, will remain weak compared with the system average.
"A negative rating action could follow if Cartu Bank's
capitalization drops to levels we would no longer consider strong,
with the RAC ratio declining below 10%. This might result from
faster asset growth than we expect and more aggressive dividend
distributions or materially higher loan loss provisions than we
envisage. Reduced customer confidence, resulting in a material
withdrawal of funds, could also trigger a negative rating action.
"A positive rating action is unlikely in our view in the 12 months.
However, we could consider a positive rating action if Cartu Bank
reduces its appetite for highly leveraged borrowers, while
decreasing problem loans on its balance sheet to levels comparable
with domestic peers' and maintaining strong capitalization."
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I R E L A N D
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BARINGS EURO CLO 2019-1: Fitch Affirms B- Rating on Class F Notes
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Fitch Ratings has affirmed Barings Euro CLO 2019-1 DAC's notes and
revised the Outlooks on the class E and F notes to Stable from
Negative.
DEBT RATING PRIOR
---- ------ -----
Barings Euro CLO 2019-1 DAC
A XS2031990828 LT AAAsf Affirmed AAAsf
B-1 XS2031991636 LT AAsf Affirmed AAsf
B-2 XS2031992287 LT AAsf Affirmed AAsf
C-1 XS2031992956 LT Asf Affirmed Asf
C-2 XS2031993509 LT Asf Affirmed Asf
D XS2031994143 LT BBB-sf Affirmed BBB-sf
E XS2031994739 LT BB-sf Affirmed BB-sf
F XS2031994812 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Barings Euro CLO 2019-1 DAC is a cash-flow CLO mostly comprising
senior secured obligations. The transaction is within its
reinvestment period and is actively managed by the collateral
manager.
KEY RATING DRIVERS
Outlooks Revised to Stable (Positive): Fitch has revised the
Outlook on the class E and F notes to Stable from Negative as the
agency has removed coronavirus baseline stress from its analysis.
The Stable Outlook reflects the low likelihood of downgrade.
Asset Performance Resilient to Pandemic (Neutral): Asset
performance has been stable since Fitch's last review in June 2021.
As per the trustee report dated 09 July 2021, the deal is below
target par by 2.1% due to four defaulted assets in the portfolio.
The transaction is passing all coverage tests, Fitch-related
collateral-quality and portfolio-profile tests, except the Fitch
weighted average rating factor (WARF) and Fitch 'CCC' limit test.
Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and
below is 9.25% excluding unrated assets, compared with a 7.50%
limit.
Average Credit-quality Portfolio (Neutral): Fitch assesses the
average credit quality of the obligors in the 'B'/'B-' category. As
of 14 August 2021, the Fitch WARF calculated by the agency was
35.39, above the maximum covenant of 34.00.
High Recovery Expectations (Positive): The portfolio comprises
98.6% of senior secured obligations. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The trustee reported Fitch weighted
average recovery rate (WARR) of the portfolio is 65.5%.
Diversified Portfolio (Positive): The portfolio is well-diversified
by obligor, country and industry. The top-10 obligor concentration
is 14.27% and no obligor represents more than 1.66% of the
portfolio balance.
Model Deviation for Class E and F (Neutral): The class E and F
notes' ratings are one notch higher than their model-implied
ratings (MIR). The current ratings are supported by the stable
asset performance since the last review and available credit
enhancement. The class F notes' deviation from the MIR reflects
Fitch's view that the tranche has a significant margin of safety
given their credit enhancement level. The notes do not present a
"real possibility of default", which is the definition of 'CCC' in
Fitch's Rating Definitions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- At closing, Fitch used a standardised stressed portfolio
(Fitch stressed portfolio) that was customised to the
portfolio limits as specified in the transaction documents.
Even if the actual portfolio shows lower defaults and smaller
losses (at all rating levels) than Fitch's stressed portfolio
assumed at closing, an upgrade of the notes during the
reinvestment period is unlikely, given the portfolio credit
quality may still deteriorate, not only by natural credit
migration, but also by reinvestments and also because the
manager has the possibility to update the Fitch collateral
quality tests.
-- After the end of the reinvestment period, upgrades may occur
on better-than-initially expected portfolio credit quality and
deal performance, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades may occur if the build-up of credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high
levels of defaults and portfolio deterioration.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Barings Euro CLO 2019-1 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
CIFC EUROPEAN IV: Moody's Assigns B3 Rating to EUR11.6MM F Notes
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Moody's Investors Service announced that it has assigned the
following definitive ratings to the notes issued by CIFC European
Funding CLO IV DAC (the "Issuer"):
EUR248,000,000 Class A Senior Secured Floating Rate Notes due
2035, Definitive Rating Assigned Aaa (sf)
EUR27,000,000 Class B-1 Senior Secured Floating Rate Notes due
2035, Definitive Rating Assigned Aa2 (sf)
EUR14,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2035,
Definitive Rating Assigned Aa2 (sf)
EUR26,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned A2 (sf)
EUR26,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned Baa3 (sf)
EUR20,200,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned Ba2 (sf)
EUR11,600,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured obligations and up to 10%
of the portfolio may consist of senior unsecured obligations,
second-lien loans, mezzanine obligations and high yield bonds. The
portfolio is expected to be 80% ramped up as of the closing date
and to comprise of predominantly corporate loans to obligors
domiciled in Western Europe. The remainder of the portfolio will be
acquired during the six month ramp-up period in compliance with the
portfolio guidelines.
CIFC Asset Management Europe Ltd ("CIFC") will manage the CLO. It
will direct the selection, acquisition and disposition of
collateral on behalf of the Issuer and may engage in trading
activity, including discretionary trading, during the transaction's
almost 5 year reinvestment period. Thereafter, subject to certain
restrictions, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
risk obligations or credit improved obligations.
In addition to the seven classes of notes rated by Moody's, the
Issuer has issued EUR17,450,000 Class Y Notes due 2035 and
EUR34,900,000 Subordinated Notes due 2035 which are not rated. The
Class Y Notes accrue interest in an amount equivalent to a certain
proportion of the subordinated management fees and its notes'
payment is pari passu with the payment of the subordinated
management fee.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Methodology underlying the rating action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR400,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 2983
Weighted Average Spread (WAS): 3.60%
Weighted Average Coupon (WAC): 4.50%
Weighted Average Recovery Rate (WARR): 44.00%
Weighted Average Life (WAL): 9.15 years
CONTEGO CLO VIII: S&P Assigns Prelim B- (sf) Rating to F-R Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Contego CLO VIII DAC's class A-R, B-1-R, B-2-R, C-R, D-R, E-R, and
F-R notes. The issuer will also issue unrated subordinated notes.
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans or bonds. The
portfolio's reinvestment period will end approximately four and
half years after closing, and the portfolio's maximum average
maturity date is eight and half years after closing. 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.
S&P said, "We consider that the portfolio on the effective date
will be well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow
collateralized debt obligations."
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,898.04
Default rate dispersion 436.53
Weighted-average life (years) 5.17
Obligor diversity measure 132.53
Industry diversity measure 18.37
Regional diversity measure 1.27
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 416
Defaulted assets (mil. EUR) 1.99
Number of performing obligors 161
Portfolio weighted-average rating
derived from S&P's CDO evaluator 'B'
'CCC' category rated assets (%) 0.24
'AAA' weighted-average recovery (%) 35.30
Weighted-average spread net of floors (%) 3.75
S&P said, "In our cash flow analysis, we modeled the EUR416 million
target par amount, the covenanted weighted-average spread of 3.60%,
the reference weighted-average coupon of 4.00%, and the actual
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% floating-rate assets (i.e., the fixed-rate bucket is
0%) and where the fixed-rate bucket is fully utilized (in this
case, 10%).
"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 documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
the class A-R, B-1-R, B-2-R, C-R, D-R, and E-R notes. Our credit
and cash flow analysis indicates that the available credit
enhancement for the class B-1-R, B-2-R, C-R, and D-R notes is
commensurate with higher ratings than those we have assigned.
However, as the CLO will have a reinvestment period, during which
the transaction's credit risk profile could deteriorate, we have
capped our assigned ratings on these notes.
"The class F-R notes' current break-even default rate (BDR) cushion
is negative at the 'B-' rating level. Based on the portfolio's
actual characteristics and additional overlaying factors, including
our long-term corporate default rates and recent economic outlook,
we believe this class is able to sustain a steady-state scenario,
in accordance with our criteria." S&P's analysis reflects several
factors, including:
-- The class F-R notes' available credit enhancement is in the
same range as that of other CLOs S&P has rated and that has
recently been issued in Europe.
-- S&P's BDR at the 'B-' rating level is 26.84% versus a portfolio
default rate of 16.04% if it was to consider a long-term
sustainable default rate of 3.1% for a portfolio with a
weighted-average life of 5.17 years.
-- Whether the tranche is vulnerable to non-payment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If S&P envisions this tranche to default in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F-R notes is commensurate with a
preliminary 'B- (sf)' rating.
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-R to E-R 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-R 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 the manger from investing in activities related to
extraction of thermal coil and fossil fuels, oil sands and
pipelines, civilian weapons or weapons of mass destruction,
endangered species, pornography, tobacco, payday lending, opioids,
illegal drugs, food commodity derivatives, palm oil and palm fruit
products, any unlicensed and unregistered financing, hazardous
chemicals, ozone-depleting substances, casinos or online gambling,
and oil exploration and oil extraction. Since the exclusion of
assets related to these activities does not result in material
differences between the transaction and our ESG benchmark for the
sector, no specific adjustments have been made in our rating
analysis to account for any ESG-related risks or opportunities."
Ratings List
CLASS PRELIM. PRELIM. SUB (%) INTEREST RATE*
RATING AMOUNT
(MIL. EUR)
A-R AAA (sf) 249.60 40.00 Three/six-month EURIBOR
plus 1.03%
B-1-R AA (sf) 24.70 29.74 Three/six-month EURIBOR
plus 1.70%
B-2-R AA (sf) 18.00 29.74 2.10%
C-R A (sf) 28.50 22.88 Three/six-month EURIBOR
plus 2.20%
D-R BBB- (sf) 30.80 15.48 Three/six-month EURIBOR
plus 3.20%
E-R BB- (sf) 22.80 10.00 Three/six-month EURIBOR
plus 6.06%
F-R B- (sf) 12.50 7.00 Three/six-month EURIBOR
plus 8.75%
Sub NR 29.35 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A—-Not applicable.
HARVEST CLO XXIV: Fitch Assigns Final B- Rating on F-R Tranche
--------------------------------------------------------------
Fitch Ratings has assigned Harvest CLO XXIV DAC reset final
ratings.
DEBT RATING
---- ------
Harvest CLO XXIV DAC
A-R LT AAAsf New Rating
B-1-R LT AAsf New Rating
B-2-R LT AAsf New Rating
C-R LT Asf New Rating
D-R LT BBB-sf New Rating
E-R LT BBsf New Rating
F-R LT B-sf New Rating
TRANSACTION SUMMARY
Harvest CLO XXIV DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Net proceeds
from the issuance of the notes have been used to redeem existing
notes (excluding the class Z and subordinated notes) and upsize the
portfolio to EUR400 million at the reset date. The portfolio is
actively managed by Investcorp Credit Management EU Limited. The
transaction has a 4.65-year reinvestment period and an 8.5-year
weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B'/'B-' category.
The Fitch weighted average rating factor (WARF) of the identified
portfolio, based on Fitch's Exposure Draft: CLOs and Corporate CDOs
Rating Criteria, is 25.23.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is
62.14%.
Diversified Asset Portfolio (Positive): The transaction includes
four Fitch matrices corresponding to two top 10 obligor
concentration limits at 15% and 26.5%, and two fixed-rate asset
limits of 0% and 10%. The transaction also includes various
concentration limits, including the maximum exposure to the three
largest (Fitch-defined) industries in the portfolio at 40%. These
covenants ensure that the asset portfolio will not be exposed to
excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.65-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Neutral): The WAL used for the transaction
stress portfolio and matrices analysis is 12 months less than the
WAL covenant, to account for structural and reinvestment conditions
post-reinvestment period, including the OC tests and Fitch 'CCC'
limitation passing post reinvestment, among others. This ultimately
reduces the maximum possible risk horizon of the portfolio when
combined with loan pre-payment expectations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the default rate (RDR) at all rating levels by
25% of the mean RDR and an increase in the recovery rate (RRR)
by 25% at all rating levels would result in an upgrade of up
to four notches depending on the notes, except for the class A
notes, which are already at the highest rating on Fitch's
scale and cannot be upgraded.
-- At closing, Fitch used a standardised stressed portfolio
(Fitch's stressed portfolio) that was customised to the
portfolio limits as specified in the transaction documents.
Even if the actual portfolio shows lower defaults and smaller
losses at all rating levels than Fitch's stressed portfolio
assumed at closing, an upgrade of the notes during the
reinvestment period is unlikely. This is because the portfolio
credit quality may still deteriorate, not only by natural
credit migration, but also by reinvestments, and also because
the manager can update the Fitch collateral quality test.
-- After the end of the reinvestment period, upgrades may occur
on better-than-expected portfolio credit quality and deal
performance, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the RDR at all rating levels by 25% of the mean
RDR and a decrease of the RRR by 25% at all rating levels
would result in downgrades of no more than five notches,
depending on the notes.
-- Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a
larger loss expectation than initially assumed due to
unexpectedly high levels of defaults and portfolio
deterioration.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Harvest CLO XXIV DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
HARVEST CLO XXIV: Moody's Assigns B3 Rating to EUR11.4MM F Notes
----------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to refinancing notes issued by Harvest
CLO XXIV Designated Activity Company (the "Issuer"):
EUR248,000,000 Class A Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
EUR23,000,000 Class B-1 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aa2 (sf)
EUR15,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2034,
Definitive Rating Assigned Aa2 (sf)
EUR25,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned A2 (sf)
EUR26,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Baa3 (sf)
EUR23,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Ba3 (sf)
EUR11,400,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
As part of this refinancing, the Issuer will extend the
reinvestment period to 4.5 years and the weighted average life to
8.5 years. It will also upsize the transaction from EUR250,000,000
to EUR400,000,000. The issuer will include the ability to hold
workout obligations. In addition, the Issuer has added base matrix
and modifiers that Moody's has taken 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 fully ramped as
of the closing date.
Investcorp Credit Management EU Limited ("Investcorp") 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-a-half-year reinvestment
period. Thereafter, subject to certain restrictions, purchases are
permitted using principal proceeds from unscheduled principal
payments and proceeds from sales of credit risk obligations 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:
Target Par Amount: EUR400,000,000
Diversity Score: 50
Weighted Average Rating Factor (WARF): 3110
Weighted Average Spread (WAS): 3.70%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 44.0%
Weighted Average Life (WAL): 8.5 years
OCP EURO 2020-4: S&P Assigns Prelim B- (sf) Rating to Cl. F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to the class
A to F European cash flow CLO notes issued by OCP Euro CLO 2020-4
DAC. At closing, the issuer will issue unrated subordinated notes.
The transaction is a reset of an existing transaction. The existing
classes of notes (rated) will be redeemed with the proceeds from
the issuance of the replacement notes on the issuance date.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will permanently switch to semiannual payments. The
portfolio's reinvestment period will end approximately three years
after closing.
S&P said, "We understand that at closing, the portfolio will be
granular in nature, and well-diversified across obligors,
industries, and asset characteristics when compared to other CLO
transactions we have rated recently. Therefore, we have conducted
our credit and cash flow analysis by applying our criteria for
corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, the covenanted weighted-average spread (3.85%), the
reference weighted-average coupon (3.85%), and the target minimum
weighted-average recovery rate as indicated by the collateral
manager. We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category. Our
credit and cash flow analysis indicates that the available credit
enhancement for the class B to E could withstand stresses
commensurate with 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 preliminary ratings assigned to the
notes.
"Under our structured finance ratings above the sovereign criteria,
we consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned preliminary rating levels."
Until the end of the reinvestment period on Jan. 22, 2024, the
collateral manager is allowed to 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 compares
that with the default potential of the current portfolio plus par
losses to date. As a result, until the end of the reinvestment
period, the collateral manager can, through trading, deteriorate
the transaction's current risk profile, as long as the initial
ratings are maintained.
S&P said, "At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for each
class of notes.
"The class F notes' current break-even default rate (BDR) cushion
is negative at the 'B-' rating level. Based on the portfolio's
actual characteristics and additional overlaying factors, including
our long-term corporate default rates and recent economic outlook,
we believe this class is able to sustain a steady-state scenario,
in accordance with our criteria." S&P's analysis reflects several
factors, including:
-- The class F notes' available credit enhancement is in the same
range as that of other CLOs S&P has rated and that have recently
been issued in Europe.
-- S&P's BDR at the 'B-' rating level is 27.88% versus a portfolio
default rate of 16.24% if we were to consider a long-term
sustainable default rate of 3.1% for a portfolio with a
weighted-average life of 5.24 years.
-- Whether the tranche is vulnerable to non-payment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If S&P envisions this tranche to default in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F notes is commensurate with a
preliminary 'B- (sf)' rating.
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. The results
shown in the chart below are based on actual weighted-average
spread, coupon, and recoveries.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
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 the manager from investing in activities related to United
Nations Global Compact (UNGC) violations, manufacture or marketing
of biological and chemical weapons, anti-personnel land mines or
cluster weapons, depleted uranium, nuclear weapons, white
phosphorus, manufacturing of civilian firearms, tobacco products,
mining or electrification of thermal coal, oil sand extraction, oil
exploration or storage facilities for oil, payday lending,
pornography or prostitution, opioids, hazardous chemicals,
pesticides and wastes, ozone-depleting substances or the extraction
of fossil fuels from unconventional sources, trades in endangered
or protected wildlife, and non-certified palm oil production. Since
the exclusion or limitation of assets related to these activities
does not result in material differences between the transaction and
our ESG benchmark for the sector, no specific adjustments have been
made in our rating analysis to account for any ESG-related risks or
opportunities."
Ratings List
CLASS PRELIM. PRELIM. SUB (%) INTEREST RATE*
RATING AMOUNT
(MIL. EUR)
A AAA (sf) 244.00 39.00 Three/six-month EURIBOR
plus 0.88%
B-1 AA (sf) 22.00 28.00 Three/six-month EURIBOR
plus 1.70%
B-2 AA (sf) 22.00 28.00 2.10%
C A (sf) 29.00 20.75 Three/six-month EURIBOR
plus 2.20%
D BBB- (sf) 25.00 14.50 Three/six-month EURIBOR
plus 3.20%
E BB- (sf) 18.00 10.00 Three/six-month EURIBOR
plus 5.94%
F B- (sf) 13.00 6.75 Three/six-month EURIBOR
plus 8.64%
Sub notes NR 31.00 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
MONTE DEI PASCHI: Italian Government Mulls EUR3-Bil. Rights Offer
-----------------------------------------------------------------
Lucca de Paoli at Bloomberg News reports that Italy is considering
a rights offer of as much as EUR3 billion for bailed out lender
Monte Paschi.
According to Bloomberg, the move could strengthen the bank's
finances and make it more attractive for a takeover by UniCredit.
The Finance Ministry's favored solution to meet UniCredit's demand
of a "capital neutral deal" is the sale of shares with pre-emptive
rights that help protect the stakes of current investors, Bloomberg
discloses.
The discount applied to the offer wouldn't be highly dilutive for
investors, Bloomberg notes.
Various amounts are still in discussion and the final size of the
rights offer would depend on the outcome of UniCredit's review of
Monte Paschi's books, Bloomberg states.
===========
R U S S I A
===========
CHELYABINSK PIPE: Moody's Withdraws Ba3 CFR Amid TMK Transaction
----------------------------------------------------------------
Moody's Investors Service has withdrawn Chelyabinsk Pipe Plant
PJSC's (ChelPipe) Ba3 corporate family rating, Ba3-PD probability
of default rating and outlook, which were placed previously under
review for downgrade, and downgraded the rating of the $300 million
backed senior unsecured loan participation notes (LPNs) issued by
Chelpipe Finance DAC for the sole purpose of financing a loan to
ChelPipe, which were placed previously under review for downgrade,
to B1. The outlook for Chelpipe Finance DAC has changed to stable
from ratings under review. This concludes ChelPipe's ratings review
that was initiated on March 15, 2021.
PAO TMK's (TMK) B1 ratings with a stable outlook have not been
affected by this rating action.
RATINGS RATIONALE
TMK completed acquisition of 86.54% shares in ChelPipe in a debt
financed transaction on March 16, 2021. On April 16, TMK initiated
a mandatory tender offer to acquire ChelPipe's remaining shares
from its minority shareholders, which resulted in the increase of
TMK's stake in ChelPipe to over 97%. On August 12, TMK sent a
request for a mandatory redemption of the remaining 2.37% shares of
ChelPipe from its minority shareholders. Based on the results of
the mandatory redemption, TMK plans to acquire 100% of shares in
ChelPipe by the end of 2021. Upon closing of the transaction
ChelPipe became a subsidiary of TMK with the current ownership
stake above 97%, which will increase to 100% over the next few
months. The acquisition resulted in ChelPipe becoming part of TMK
with the financial position, results of operations and cash flows
of ChelPipe being consolidated into the IFRS financial statements
of TMK. Following the acquisition, TMK is in the process of
integrating ChelPipe into TMK in order to maintain the operational
efficiency and flexibility throughout the entire TMK and achieve
the desired synergetic effect of the acquisition.
On July 8, as part of the integration process, TMK launched consent
solicitation to the holders of the 2024 $300 million backed senior
unsecured loan participation notes issued by Chelpipe Finance DAC
for the sole purpose of financing a loan to ChelPipe, seeking to
align the covenant packages with TMK's 2027 notes issued by TMK
Capital S.A. for the sole purpose of financing a loan to TMK, in
order to streamline the internal monitoring of the covenants while
providing the ChelPipe's noteholders with recourse to the assets of
the wider TMK group as well as to ensure that both instruments are
backed by substantially the same credit. Under this proposal, among
other things, TMK proposed to provide a guarantee pursuant to which
it will unconditionally and irrevocably, jointly and severally with
the existing guarantors under Chelpipe Finance DAC's notes,
guarantee the payment of all amounts under the loan agreement with
ChelPipe while also proposing to widen the reporting perimeter from
ChelPipe's consolidated financial statements to TMK's consolidated
financial statements. On August 3, 2021, this proposal to
ChelPipe's noteholders was duly passed. Although TMK is not
required to procure ChelPipe's consolidated financial statements
for ChelPipe's 2024 noteholders following this resolution, Moody's
estimates that TMK will nevertheless continue to publish ChelPipe's
consolidated financial statements for a certain period of time as
it has a number of other financial instruments currently
outstanding, where ChelPipe's consolidated financial statements are
required.
The B1 rating on the notes issued by Chelpipe Finance DAC is at the
same level as TMK's corporate family rating and TMK's publicly
rated debt instrument, which reflects Moody's view that the notes
rank pari passu with other unsecured and unsubordinated obligations
of TMK group.
There are no material debt instruments that are senior or
subordinated to the loan from Chelpipe Finance DAC to ChelPipe.
Moody's has decided to withdraw ChelPipe's CFR and PDR, following
completion of ChelPipe's acquisition by TMK and consent
solicitation results, because it believes ChelPipe has become an
integral part of TMK, the entities subject to the restrictions in
the financial and other covenants of ChelPipe were expanded, and
such restrictions now apply to entities within the wider TMK group,
rather than only to entities within the ChelPipe group. TMK
guaranteed ChelPipe's 2024 notes and ChelPipe's noteholders will
now rely on TMK group's credit quality to service and repay the
debt.
Moody's has decided to withdraw the ratings of ChelPipe due to
reorganization as ChelPipe has now become an integral part of the
TMK corporate family and shall not be rated on a standalone basis.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade Chelpipe Finance DAC's ratings if TMK were to
(1) reduce its leverage with Moody's-adjusted gross debt/EBITDA
trending toward below 3.5x; (2) generate sustainable positive
post-dividend free cash flow; and (3) maintain healthy liquidity.
Moody's could downgrade the ratings if (1) TMK were unable to
reduce its leverage, with Moody's-adjusted gross debt/EBITDA above
4.5x on a sustained basis; (2) TMK fails to generate positive free
cash flow on a sustained basis; or (3) TMK's liquidity were to
deteriorate. Chelpipe Finance DAC's ratings could be downgraded if
TMK will have much weaker than anticipated operating and financial
performance post acquisition of ChelPipe that results in negative
free cash flow generation.
The principal methodology used in these ratings was Steel Industry
published in September 2017.
NKO KRASNOYARSK: Bank of Russia Ends Provisional Administration
---------------------------------------------------------------
On August 20, 2021, the Bank of Russia terminated the activity of
the provisional administration appointed to manage OOO NKO
Krasnoyarsk Territorial Settlement Center (hereinafter, the
Company), according to the Bank of Russia's Press Service.
No signs of insolvency (bankruptcy) have been established as a
result of the provisional administration-conducted inspection of
the credit institution.
On August 6, 2021, the Arbitration Court of the Krasnoyarsk
Territory issued a ruling on the forced liquidation of the
Company.
Alexandr Kamensky, a member of Union of insolvency practitioners
Avangard, was appointed as a liquidator.
Further information on the results of the activity of the
provisional administration is available on the Bank of Russia
website.
The provisional administration was appointed by virtue of Bank of
Russia Order No. OD-915, dated
May 21, 2021, due to the revocation of the banking license of the
Company.
TAJIKISTAN: S&P Affirms 'B-/B' Sovereign Credit Ratings
-------------------------------------------------------
On Aug. 20, 2021, S&P Global Ratings affirmed its 'B-/B' long- and
short-term foreign and local currency sovereign credit ratings on
Tajikistan. The outlook is stable.
Outlook
The stable outlook reflects S&P's expectation that Tajikistan's
debt-service obligations will remain moderate in the next 12
months, owing to the still-high component of concessional borrowing
in the government's debt stock, which helps offset risks from its
still-weak fiscal and external performance.
Downside scenario
S&P could lower the ratings if the strain on Tajikistan's
government debt-servicing capacity were to significantly increase,
for example, as a result of sharply widening fiscal deficits, or
the government taking on substantial amounts of commercial debt.
Downward pressure on the rating may also build if current account
imbalances widen significantly, eroding foreign currency (FX)
reserves, or if geopolitical risks escalate.
Upside scenario
Conversely, S&P could consider an upgrade if it sees a sustained
improvement in Tajikistan's fiscal and external performance, as
evidenced by a sharp deceleration in the accumulation of government
debt and an external position closer to balance.
Rationale
The ratings on Tajikistan remain constrained by weak institutional
effectiveness and very low economic wealth as measured by per
capita GDP. The ratings are also constrained by Tajikistan's
historically weak external position, which has been characterized
by a large trade deficit due to the economy's still-narrow export
base and high dependence on imports, as well as its strong reliance
on workers' remittances from abroad.
S&P said, "Despite our expectation of contained fiscal deficits in
our forecast horizon through 2024, public finances will remain
weak, with high contingent liability risks stemming from
financially weak state-owned enterprises (SOEs). We estimate the
outstanding debt of SOEs at about 25% of GDP in 2021."
Tajikistan's government debt-service obligations will remain
moderate in the next 12 months, owing to the high component of
concessional borrowing in the government's debt stock. The first
principle payment on its only Eurobond issuance is not due until
2025. Support from multilateral development partners will help
maintain external liquidity and enable the authorities to meet
external and fiscal financing needs. S&P therefore expects FX
reserves (including gold) will remain broadly stable.
Institutional and economic profile: Growth prospects tilted to the
upside on recovering domestic demand and accelerated
industrialization
-- In contrast to most emerging markets, which registered economic
contractions, Tajikistan's economy expanded by 4.5% in 2020.
-- S&P projects growth will accelerate to 6% in 2021, supported by
a recovery in household consumption and investment in the
industrial sector.
-- The political landscape remains dominated by President Emomali
Rahmon, who has provided political and institutional stability.
However, decision-making is centralized and succession processes
are uncertain and untested.
-- Tajikistan's real GDP slowed to 4.5% in 2020, as restrictions
on labor mobility and economic activity weakened consumer demand,
reduced investment, and lowered remittance inflows. The government
implemented a range of containment measures in response to the
pandemic, including border closures; travel restrictions; and the
closure of non-essential businesses, which resumed operations in
June 2020.
S&P said, "We expect Tajikistan's economy will grow by about 6% in
2021, compared with our previous estimate of 5%, on preliminary
data suggesting a return to prepandemic growth rates in the first
half of this year. We forecast real GDP will average 6.5% over
2022-2024, supported by stronger household consumption and private
investment stemming from a gradual recovery in remittances and
foreign direct investment (FDI) over the medium term. On the supply
side, we expect the industrial sector will expand on account of new
capacity in the food processing, mining and metallurgy, and energy
sectors, while construction activity will recover from last year's
cuts to nondiscretionary spending."
As part of its National Development Strategy to 2030, Tajikistan
commenced the construction of the Rogun hydropower plant (HPP) in
2016 with an estimated cost of $4 billion. The project is of
strategic importance because its completion will ensure domestic
energy security and significantly increase export potential over
the medium term. However, given constraints on external funding, we
foresee delays to the original construction schedule, which was
expected to end in 2029. Other key investment projects in the
energy sector include the rehabilitation of Nurek, Kairakum, and
Golovnaya HPPs, which will be supported by multilateral development
partners and ensure the continued supply of low-cost electricity.
President Rahmon has dominated the political landscape since the
late 1990s, when a long civil war ended and the economy started to
recover from the substantial economic recession that followed the
collapse of the Soviet Union. The president has ultimate
decision-making power and is currently serving his fifth
consecutive term after re-election in October 2020. This highly
centralized decision-making can reduce policymaking predictability,
in our view, although it has also provided a high level of
political stability. The president's administration controls
strategic decisions and sets the policy agenda. Consequently, we
view accountability and checks and balances as weak. S&P said, "We
do not see immediate risks that would undermine policy
predictability, but we note that Tajikistan's political system has
yet to be tested in a succession process. We expect that poverty
reduction and social stability will remain the government's key
policy priorities."
Tajikistan has been embroiled in low-level conflict with
neighboring Kyrgyzstan for several years. In late April 2021, a
sporadic outbreak of violence involving citizens and the military
of both countries broke out at the Tajik-Kyrgyz border and was
resolved by a ceasefire in early May. Domestic security risks have
also been heightened by the Taliban taking control of two
Tajik-Afghan border crossings in June, Sher Khan Bandard and
Ishkashim, prompting President Rahmon to request military
assistance from the Russian-led Collective Security Treaty
Organization (CSTO) and to order the mobilization of 20,000 Tajik
troops along the southern border. In S&P's view, the potential
escalation of insurgent activity along the Tajik-Afghan border
remains a threat to Tajikistan's domestic stability.
Flexibility and performance profile: Weak external and fiscal
positions from a stock perspective, despite contained fiscal
deficits
-- Notwithstanding the strong performance in 2020, S&P expects the
current account deficit will widen in its forecast horizon through
2024.
-- General government debt is still moderate, but the high level
of debt at loss-making SOEs poses contingent risks to government
debt sustainability.
-- S&P continues to view monetary policy effectiveness as
relatively weak, given the country's shallow capital markets and
the central bank's relatively limited operational independence and
ongoing intervention in the FX market.
Tajikistan's external position improved materially in 2020, with
the current account registering a surplus of 4.6% of GDP on higher
gold prices, restrained imports, and lower remittance outflows. S&P
said, "We expect the current account will revert to a deficit of
1.4% of GDP in 2021 and average 4.2% over 2022-2024, largely due to
our assumption of declining export prices. Metals and mining
products will continue to play a dominant role in Tajikistan's
economy, contributing about 10% of GDP and 70% of total exports.
Gold accounts for over one-fifth of export earnings. We expect the
current account deficit will also widen due to the high
import-content of private consumption and investment as economic
activity accelerates. We nevertheless expect the deterioration will
be mitigated by relatively stronger remittance inflows from
Russia."
S&P said, "With expected persistent current account deficits, we
project Tajikistan's external debt net of liquid external assets
will rise to about 100% of current account receipts by 2024. We
expect external borrowing will be used for investment purposes,
financed mainly through government concessional borrowing from
multilateral development institutions and bilateral partners. We
estimate net FDI at 1% of GDP in 2021 and 2% over 2022-2024,
primarily in the form of direct equity. This will be supported by
Chinese investment in a broad array of sectors, including raw
materials, aluminum, metallurgy, and retail.
"We expect FX reserves will average seven months of prospective
current account payments over 2021-2022 before declining to six
months through 2024. The boost to FX reserves in 2021 will come
from Tajikistan's increased Special Drawing Rights (SDR) allocation
with the IMF, which we estimate at about 3% of GDP. Beyond 2021, we
assume FX reserves will fall on widening current account deficits
and the revaluation effect of lower gold prices. As of end-June
2021, S&P Global Ratings forecasts gold prices of $1,800 per ounce
(/oz) in 2021, $1,600/oz in 2022, and $1,400/oz over 2023-2024.
"We project the general government fiscal deficit will remain
contained at about 3% of GDP over 2021-2024, in line with 2020
levels. After cutting nonpriority recurrent expenses and
domestically financed non-Rogun HPP capital expenditure (capex) in
2020, the government intends to increase expenditure by almost 1%
of GDP in 2021 relative to the 2020 budget. This includes higher
capex to fund flagship public investment projects such as Rogun
HPP, as well as increased current expenditure following the
government's decision to raise public sector wages from Sept. 1,
2020. We also expect tax revenue will recover after subdued
economic activity and tax relief measures implemented throughout
2020 because of the pandemic."
The government remains committed to maintaining capex on Rogun HPP,
budgeting about Tajikistani somoni (TJS) 2.1 billion ($180 million;
2% of GDP) in 2021. This amount is expected to increase to TJS2.4
billion by 2024, depending on the availability of external
financing options. S&P understands that, under the IMF's rapid
credit facility, the government has committed to avoiding
nonconcessional borrowing until power purchase agreements related
to Rogun HPP have been signed, which S&P does not expect will be
finalized before 2022. Downside risks to the debt burden could stem
from higher-than-budgeted financing for Rogun HPP.
The government of Tajikistan issued its only commercial external
debt obligation, a $500 million Eurobond, in 2017 to fund the first
two turbines of the Rogun HPP. The bond was issued with a maturity
of 10 years, with principal payments of $83 million to be paid in
six equal semi-annual installments commencing in March 2025. Until
then, the government's commercial debt service relates to annual
interest payments on the bond of about $35.6 million, based on an
interest rate of 7.125%. S&P understands that the proceeds from the
Eurobond issuance have been fully utilized, and that the remainder
of the project will be funded through domestic sources and other
concessional external loans.
S&P said, "In line with our fiscal deficit projections, we expect
government net debt will moderate to about 44% of GDP by 2024, from
an estimated 42% in 2020. A high proportion of central government
debt, about 80%, is denominated in FX, which in our view increases
the risk to debt sustainability from sharp exchange-rate
depreciation. We expect sustained currency depreciation over the
forecast horizon will result in higher government debt accumulation
than implied by fiscal deficits. However, due to a high share of
concessional loans in the total debt stock, the cost of debt will
remain low, at about 4.0% of government revenue in 2021."
The National Bank of Tajikistan (NBT; the central bank) revoked the
licenses of two troubled banks, Tojiksodirotbank (TSB; 81%
government owned) and Agroinvestbank (AIB; 87%), in May 2021 due to
their deteriorating financial positions and managerial
shortcomings. Total deposits in the two banks as of April 2021
amounted to TJS1,106 million, for which the Individual Deposit
Insurance Fund is expected to pay out TJS207 million (19% of total
deposits). The remaining liabilities of the banks will be paid via
sales of the banks' assets. S&P does not expect there to be any
significant additional costs to the government due to the
liquidation process.
S&P said, "Our assessment of Tajikistan's public finances includes
significant contingent liabilities from SOEs. These enterprises
account for more than 30% of employment and 40% of GDP and are
regularly involved in quasi-fiscal activities. In our view, high
debt levels at loss-making SOEs, in particular in the energy
sector, pose contingent risks to the government. We estimate the
outstanding debt of SOEs to be about 25% of GDP in 2021. About 80%
of SOEs' total debt is at national power company Barki Tojik, which
also generates over 95% of SOEs' operating losses. The
second-largest debtor is aluminum company TALCO, which contributes
more than 10% of SOE debt. We understand that the government has
committed $1.5 billion for the financial recovery of BT over
2019-2025, which includes grants from the International Development
Association's Power Utility Financial Recovery Program, among other
multilateral partners.
"In response to inflationary pressures, the NBT raised its policy
rate by 100 basis points (bps) in August to 13%, following a
100-bps hike in April and 25-bps hike in February. We expect the
rate rise will have a limited impact on the weakening exchange rate
and inflation, which we project will remain elevated at 9.0% in
2021, from 9.4% in 2020, owing to higher food prices and possible
inflationary pressures from the increase in public sector wages.
Over the medium term, we expect inflation will remain contained
within the NBT's target range of 6%, plus or minus 2%, supported by
continued monetary tightening and slower expected somoni
depreciation."
Monetary policy effectiveness remains constrained by the country's
shallow capital markets, the central bank's relatively limited
operational independence, and frequent interventions in FX markets.
Over 2020, the somoni exchange rate in the parallel market came
under increased pressure due to a still-large trade deficit,
reduced remittance inflows, and depreciation of the national
currency of trading partners.
To minimize exchange rate pressures and provide FX liquidity to the
banking system, the central bank allowed the official rate to
depreciate by about 16.6% cumulatively to TJS11.30 per US$1. The
NBT also undertook $160.2 million (2.2% of 2020 GDP) of FX
interventions in 2020 and $137.9 million (1.8% of 2021 GDP) in the
first six months of 2021. S&P assumes that the somoni will continue
to depreciate by about 9% in 2021 and 6%-8% annually over
2022-2024. In S&P's view, the central bank will continue to
intervene in the domestic foreign exchange market in the event of
excessive exchange-rate volatility.
Tajikistan's banking system resilience indicators improved with the
liquidation of AIB and TSB, which formerly accounted for about half
of the sector's nonperforming loans (NPLs). In the absence of these
two banks, aggregate NPLs declined to 15% of total loans in June
2021 from 23% in 2020, while the share of total loans in FX fell to
34% of total loans from 40% over the same period. We note that the
NBT uses a relatively conservative reporting standard for NPLs,
recording loans overdue by more than 30 days instead of the more
internationally used 90-day measure. The NBT has also increased the
level of banking system oversight and tightened underwriting
standards in recent years. S&P said, "Notwithstanding these
improvements, we continue to view the banking system as being
broadly in line with those of regional peers, which, in our view,
exhibit high credit risk due to aggressive lending and underwriting
standards; low levels of household wealth; weak regulation and
supervision, reflecting the relatively low effectiveness of
supervision in the past and the potential for regulatory
forbearance; and nascent capital markets."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED
TAJIKISTAN
Sovereign Credit Rating B-/Stable/B
Transfer & Convertibility Assessment B-
Senior Unsecured B-
[*] RUSSIA: Share of Zombie Cos. in Industrial Sector is 10-15%
---------------------------------------------------------------
Cameron Jones at BNE Intellinews reports that the share of zombie
companies in Russian industry is 10-15%, according to the Centre
for Business Studies of the National Research University Higher
School of Economics (HSE).
"Zombies" are defined as ineffective, unprofitable industrial
organisations on the verge of bankruptcy that produce
non-competitive products.
The HSE's calculations are based on the results of monthly RosStat
surveys of managers of about 4,000 large and medium-sized
industrial enterprises from 82 Russian regions, BNE Intellinews
notes.
Zombie companies are often cheaper and easier to maintain as a
legal entity and managers prefer to keep them going rather than
liquidate them.
According to BNE Intellinews, in the manufacturing industry, the
share of enterprises that suffered a loss in 2019 was 23.1%, and in
2020 this figure increased to 25%, with the share of companies in a
pre-bankruptcy state approximately 15%
In January-May 2021 among large and medium-sized industrial
enterprises in the extractive industries, almost 38.9% of the total
were unprofitable, according to RosStat, while their share in
processing industries was lower -- 27.8%, BNE Intellinews
discloses. Among all industrial companies, the level varied from
10% to 15%, BNE Intellinews states. In construction and trade, the
share of zombie enterprises might be higher -- about 17-18%, BNE
Intellinews notes.
The decision to support these enterprises is largely political but
partly depends on why the enterprise has fallen on hard times and
what the prospects are for rescuing the business, BNE Intellinews
says. In light industry, an additional injection of a small amount
of working capital is enough for the company to pay off its debts
on taxes and wages, start working again and, due to a short
production cycle, recover.
At the moment there are no risks for the financial system
associated with zombie companies, as their share of bad loans
(loans of IV-V quality categories) is currently falling, BNE
Intellinews relays. Since the beginning of the pandemic until
August 1, the share of bad loans in the loan portfolio of borrowers
of large companies and small and medium-sized enterprises (SMEs)
decreased respectively by 2.1pp and 3.7pp and amounted to 8.1% and
13.6%, BNE Intellinews discloses.
For SMEs the problem of zombie companies is less urgent, as
unprofitable companies in this segment do not live long, according
to BNE Intellinews.
The pandemic has left many businesses in limbo between bankruptcy
and survival. In this period the financial position of companies
depended heavily on government support and bank loans. The share of
zombie enterprises in the context of an unstable market environment
carries risks for the economy of accumulating potential losses for
banks and creditors and can provoke a wave of non-payments
affecting many related industries, BNE Intellinews states.
State support measures in most cases only postpone insolvency,
since the slow pace of economic recovery does not allow returning
to the previous production turnover, which leads to the curtailment
of business, BNE Intellinews notes.
In the spring survey by CSR, 14% of companies said that their
counterparty-debtors showed signs of bankruptcy and in heavy
industry the share was 19%, BNE Intellinews discloses. However,
these may be temporary difficulties. The existence of zombie
companies can lead to ineffective distribution of budget funds
allocated for state support as they receive significant amounts of
government support to keep them afloat, BNE Intellinews states.
===========================
U N I T E D K I N G D O M
===========================
BLITZEN SECURITIES 1: Fitch Assigns B+ Rating on 2 Note Classes
---------------------------------------------------------------
Fitch Ratings has assigned Blitzen Securities No.1 PLC's (BS1)
notes final ratings.
DEBT RATING PRIOR
---- ------ -----
Blitzen Securities No.1 PLC
Class A XS2374596109 LT AAAsf New Rating AAA(EXP)sf
Class B XS2374597255 LT AAsf New Rating AA(EXP)sf
Class C XS2374597503 LT Asf New Rating A(EXP)sf
Class D XS2374597768 LT BBBsf New Rating BBB(EXP)sf
Class E XS2374597925 LT BB+sf New Rating BB+(EXP)sf
Class F XS2374598576 LT B+sf New Rating B+(EXP)sf
Class X XS2374608128 LT B+sf New Rating B+(EXP)sf
TRANSACTION SUMMARY
Blitzen Securities No.1 is a securitisation of a purchased
portfolio of owner-occupied performing mortgages originated by
Santander UK. The portfolio comprises only first-time buyers (FTB),
with original loan-to-values (LTVs) between 85% and 95%.
KEY RATING DRIVERS
High LTV Lending: The pool consists of loans originated with an LTV
above 85%. As a result, the weighted average (WA) current LTV is
higher than average for Fitch-rated RMBS at 87.4% and the WA
indexed current LTV is 80.5%. Fitch's WA sustainable LTV is also
high at 113.2%, resulting in a higher-than-average foreclosure
frequency (FF) and lower recovery rates than transactions with
lower LTV metrics.
High Concentration of FTBs: All borrowers in the collateral
portfolio are FTBs. Fitch considers that FTBs are more likely to
suffer foreclosure than other borrowers and considers their
concentration in this pool analytically significant. In a variation
to its criteria, Fitch has applied an upward adjustment of 1.3x to
each loan.
Robust Excess Spread: The WA margin on the class A to F notes is
0.71% (1.18% after the step-up date) with the class A notes margin
of 45bp over SONIA. The WA fixed rate paid on the portfolio is
2.57%, with a reversion margin of 3.25% over the Bank of England
Base Rate. Therefore, the transaction benefits from strong excess
spread, which can be used to clear any losses debited to the
principal deficiency ledger through the interest priority of
payments.
Fixed Interest Rate Hedging Schedule: All loans currently pay a
fixed rate of interest (reverting to the Santander Follow on Rate),
while the notes pay a SONIA-linked floating rate. The issuer
entered into a swap at closing to mitigate the interest rate risk
arising from the fixed-rate mortgages in the pool.
The swap features a defined notional balance that could lead to
over-hedging in the structure due to defaults or prepayments.
Over-hedging results in additional available revenue funds in
rising interest rate scenarios and reduced available revenue funds
in decreasing interest rate scenarios.
Minimum Warranty Threshold: The transaction has a minimum claim
threshold sized at GBP1 million and any claim under the loan
warranties is not payable by the issuer unless the aggregate amount
of the warranty claims exceeds this threshold. Once the aggregate
amount of these claims has exceeded the minimum claim threshold,
the seller will be liable under the warranties for the full amount
of the relevant claims.
In addition, the indemnities offered by the seller for any breach
of the representations and warranties are capped at 5% of the
portfolio balance at closing (around GBP30 million) and for 18
months after closing. These limitations are mitigated by the due
diligence performed as part of the current purchase and the absence
of material breaches in mortgage portfolios originated by Santander
and analysed by Fitch.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance driven by stable
delinquencies and defaults would lead to increasing credit
enhancement and potentially upgrades. Fitch tested an
additional rating sensitivity scenario by applying a decrease
in the FF of 15% and an increase in the recovery rate (RR) of
15%. The impact on the subordinated notes could be an upgrade
of up to one rating category.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The transaction is particularly sensitive to decreasing
interest rates and high prepayments, which will reduce the
excess spread generated in the transaction as the issuer pays
a fixed swap rate of 40bp on a notional schedule based on low
prepayment assumptions.
-- The transaction's performance may be affected by changes in
market conditions and the economic environment. Weakening
asset performance is strongly correlated to increasing levels
of delinquencies and defaults that could reduce credit
enhancement available to the notes.
-- Unanticipated declines in recoveries could also result in
lower net proceeds, which may make certain notes' ratings
susceptible to 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. Fitch tested an additional rating
sensitivity scenario by applying an increase in the FF of 15%
and a decrease in the RR of 15%, resulting in downgrades of
one to three notches across the structure.
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
The pool is wholly concentrated on FTBs with very little seasoning
as most of the loans have been originated since 2017. Fitch
considers that FTBs are more likely to suffer foreclosure than
other borrowers and considers their concentration in this pool as
analytically significant. In a variation to its criteria, Fitch has
applied an upward adjustment of 1.3x to each loan where the
borrower is an FTB instead of 1.1x, as per its criteria.
The impact of the criteria variation is one notch on the class B, C
and D 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 reviewed the results of a third party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Social Impact Rating Relevant: The transaction has an ESG Relevance
Score of '4' for Human Rights, Community Relations, Access &
Affordability due to the significant concentration of FTBs, which
are characterised by a higher credit risk profile compared with
other borrowers and may impact the credit risk of the transaction.
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.
BLITZEN SECURITIES 1: Moody's Gives B3 Rating to GBP14.3MM X Notes
------------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to Notes
to be issued by Blitzen Securities No.1 plc:
GBP484.7M Class A Mortgage Backed Floating Rate Notes due December
2062, Definitive Rating Assigned Aaa (sf)
GBP25.7M Class B Mortgage Backed Floating Rate Notes due December
2062, Definitive Rating Assigned Aa1 (sf)
GBP25.7M Class C Mortgage Backed Floating Rate Notes due December
2062, Definitive Rating Assigned Aa3 (sf)
GBP17.1M Class D Mortgage Backed Floating Rate Notes due December
2062, Definitive Rating Assigned A3 (sf)
GBP11.4M Class E Mortgage Backed Floating Rate Notes due December
2062, Definitive Rating Assigned Baa2 (sf)
GBP5.7M Class F Mortgage Backed Floating Rate Notes due December
2062, Definitive Rating Assigned Ba2 (sf)
GBP14.3M Class X Floating Rate Notes due December 2062, Definitive
Rating Assigned B3 (sf)
RATINGS RATIONALE
The Notes are backed by a pool of UK prime residential mortgages
granted to first-time buyers with original LTVs between 85% and 95%
originated by Santander UK plc
("Santander"(A1/P-1/Aa3(cr)/P-1(cr)). An investor acquired the pool
through a bidding process from Santander and will sell it to the
issuer. Santander will retain 5% of a randomly selected portion of
the portfolio.
The portfolio of assets amounts to approximately GBP570 million as
of the July 31, 2021 pool cutoff date. At closing the total credit
enhancement for the Class A Notes is 16.5% provided through
subordination and an amortising split reserve fund which will be
funded to 1.5% of the mortgage portfolio balance at closing.
The ratings are based on the credit quality of the portfolio, the
structural features of the transaction and its legal integrity.
Moody's determined the portfolio lifetime expected loss of 1.3% and
Aaa MILAN credit enhancement ("MILAN CE") of 10.0% related to
borrower receivables. The expected loss captures Moody's
expectations of performance considering the current economic
outlook, while the MILAN CE captures the loss Moody's expect the
portfolio to suffer in the event of a severe recession scenario.
Expected losses and MILAN CE are parameters used by Moody's to
calibrate its lognormal portfolio loss distribution curve and to
associate a probability with each potential future loss scenario in
the ABSROM cash flow model to rate RMBS.
Portfolio expected losses of 1.3%: This is higher than the UK Prime
RMBS sector and is based on Moody's assessment of the lifetime loss
expectation for the pool taking into account: (i) the higher WA
current LTV level of 87.5% in the portfolio compared to other UK
prime RMBS transactions; (ii) the fact that 100% of the mortgages
have been granted to first-time buyers; (iii) the collateral
performance of high LTV loans originated by Santander, as provided
by the originator; (iv) the current macroeconomic environment in
the UK and the impact of future interest rate rises on the
performance of the mortgage loans; and (v) benchmarking with other
UK prime transactions.
MILAN CE of 10.0%: This is higher than the UK Prime RMBS sector,
and follows Moody's assessment of the loan-by-loan information
taking into account the following key drivers: (i) the WA current
LTV for the pool of 87.5%; (ii) the fact that 100% of the mortgages
have been issued to first time buyers; (iii) the static nature of
the pool; (iv) the share of self-employed borrowers of 16.8%; (v)
the share of foreign National of 14.5%; and (vi) benchmarking with
similar UK Prime RMBS transactions.
The transaction benefits from a liquidity reserve fund and a
general reserve fund. The liquidity reserve fund is fully funded at
closing and is equal to 1.5% of the Class A and B Notes original
balance. The liquidity reserve fund is amortising, but will stop
amortising if the cumulative default rate on the portfolio is
greater than 5% of the aggregate balance on the closing date or
when the transaction reaches the first optional redemption date.
Once the Class B Notes have fully redeemed, the liquidity reserve
fund will be equal to zero. The liquidity reserve fund will cover
senior fees, interest on the Class A Notes at all time, and
interest on the Class B Notes provided the debit balance on the
Class B PDL does not exceed 25% of the Class B outstanding balance,
or without any condition if Class B is the most senior class
outstanding.
The general reserve fund is funded to 1.5% of Class C to F Notes
with a required amount of 1.5% of Class A to F Notes outstanding
balance minus the liquidity reserve fund required amount. It is
available to cover interest on the Class A Notes at all time,
interest on the Class B Notes provided the debit balance on the
Class B PDL does not exceed 25%, and interest on the Class C to F
Notes provided the debit balance on their respective class PDL does
not exceed 0%. For Class B to F, once they become the most senior
class outstanding, the General Reserve Fund will be available to
cover interest without any condition.
Operational Risk Analysis: Santander is the servicer in the
transaction. To help ensure continuity of payments in stressed
situations, the deal structure provides for: (i) a back-up servicer
facilitator (CSC Capital Markets UK Limited (NR)); (ii) liquidity
for the Class A and B Notes under certain conditions; (iii)
estimation language whereby the cash flows will be estimated from
the three most recent servicer reports should the servicer report
not be available; and (iv) principal to pay interest as a source of
liquidity for the Classes A to F which is available at all time for
Class A Notes, either when Class B PDL does not exceed 25%, or when
Class B Notes is the most senior class for Class B Notes, and when
the relevant class of Notes is the most senior class outstanding
for Class C to F Notes.
Interest Rate Risk Analysis: 100% of the loans in the pool are
fixed rate loans reverting to Bank of England base rate (BBR). The
Notes are floating rate securities with reference to daily SONIA.
To mitigate the fixed-floating mismatch between fixed-rate assets
and floating-rate liabilities, there will be a fixed-floating
interest rate swap with a scheduled notional provided by Banco
Santander S.A. (A3(cr)/P-2(cr)).
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Significantly different actual losses compared with Moody's
expectations at close due to either a change in economic conditions
from Moody's central scenario forecast or idiosyncratic performance
factors could lead to rating actions. Deleveraging of the capital
structure or conversely a deterioration in the Notes' available
credit enhancement could result in an upgrade or a downgrade of the
ratings, respectively.
FIREWOOD RESTAURANTS: Goes Into Liquidation, Fails to Pay Debts
---------------------------------------------------------------
Norman Silvester at Daily Record reports that a pizzeria business
owned by former Rangers and Scotland star Steven Naismith has gone
bust with thousands of pounds worth of debts.
Firewood Restaurants, based in Stewarton in Ayrshire, where
Naismith lives, was put into liquidation earlier this month, Daily
Record recounts.
The company ran the popular Oven diner in the town's Vennel Street,
where staff claim they are owed unpaid wages, Daily Record
discloses.
It closed due to a staff Covid outbreak on July 9 and didn't reopen
-- going into liquidation weeks later, Daily Record relates.
According to Daily Record, a winding-up order at Kilmarnock Sheriff
Court on Aug. 5 said the company was "unable to pay its debts".
Latest accounts for the year ending January 31, 2020, showed
Firewood owed around GBP218,000 to creditors, including bank loans,
suppliers and taxes, and only had GBP717 in the bank, Daily Record
states.
The debt figure included about GBP108,000 due to directors of the
business, which employed 19 staff, Daily Record notes. Assets,
including fixtures and fittings and IT equipment, were valued at
just GBP82,000, according to Daily Record.
"The figures listed in official documents were before Covid-19 led
to the lengthy shutdown of bars and restaurants so the current debt
figure may now be higher," Daily Record quotes a source as saying.
GFG ALLIANCE: In Talks with White Oak to Refinance EU Operations
----------------------------------------------------------------
Sylvia Pfeifer and Robert Smith at The Financial Times report that
Sanjeev Gupta's metals conglomerate GFG Alliance is in talks with
White Oak Global Advisors about refinancing his European
operations, in a deal that could end months of uncertainty for
thousands of steelworkers.
According to the FT, the San Francisco-based private finance group
has already stepped in to provide new funding for GFG's Australian
steel plant and associated mines but talks between the two have
recently broadened out to include other parts of Mr. Gupta's
empire, several people familiar with the situation have confirmed.
GFG's European assets include steel mills in Romania and the Czech
Republic. A potential deal, if agreed, could also see White Oak --
alongside the wider GFG group -- provide financing for Mr. Gupta's
beleaguered UK operations, the FT relays, citing two people
familiar with the talks.
The US finance group had offered to provide a GBP200 million loan
to the group's UK assets in the spring but those talks faltered
after the Serious Fraud Office announced it had launched a probe
into suspected fraud at Mr. Gupta's empire, the FT recounts. GFG
has denied wrongdoing and said it would co-operate with the
watchdog, the FT states.
The SFO probe and the collapse in March of its main financial
backer Greensill Capital plunged GFG into crisis earlier this year,
the FT relates.
A new financing package for the UK plants could see a combination
of fresh funding from White Oak as well as the GFG group, one
person, as cited by the FT, said, while cautioning that several
options were being considered. The person added along with other
steelmakers, GFG is benefiting from a global boom in commodities,
the FT notes. One option being discussed would involve the
creation of a separate trading entity to ensure transparency, the
FT discloses.
According to the FT, fresh financing would enable GFG's speciality
steel plants in Yorkshire, which have suffered from a lack of
working capital, to restart production.
Mr. Gupta, the FT says, is under pressure to agree new funding
after securing much-needed breathing space from creditors earlier
in the summer.
The industrialist won a reprieve from groups including Credit
Suisse over unpaid debts last month, the FT notes. The Swiss bank,
which is pursuing him for US$1.2 billion owed to its group of
supply-chain finance funds, agreed to delay legal action to force
some of Gupta's companies out of business to September, according
to the FT.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2021. All rights reserved. ISSN 1529-2754.
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