/raid1/www/Hosts/bankrupt/TCREUR_Public/210903.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, September 3, 2021, Vol. 22, No. 171
Headlines
G E R M A N Y
WIRECARD AG: British Businessman Arrested in Singapore
WITTUR INTERNATIONAL: Moody's Affirms 'B3' CFR, Outlook Negative
G R E E C E
SANI/IKOS GROUP: Fitch Assigns Final 'B-' LT IDR, Outlook Stable
I R E L A N D
BARINGS EURO 2015-1: Moody's Ups EUR12.4MM F Notes Rating to Ba3
CONTEGO CLO VIII: Moody's Assigns B3 Rating to EUR12.5MM F Notes
CONTEGO CLO VIII: S&P Assigns B- (sf) Rating on Class F-R Notes
JUBILEE CLO 2014-XIV: Fitch Affirms B- Rating on Class F Notes
RRE 7 LOAN: Moody's Assigns Ba3 Rating to EUR20MM Class D Notes
RRE 7: S&P Assigns BB- (sf) Rating to EUR20MM Class D Notes
SUEK SECURITIES: Fitch Rates Proposed Guaranteed Notes 'BB(EXP)'
I T A L Y
BANCA POPOLARE: Fitch Affirms BB+ LT IDR, Alters Outlook to Stable
BPER BANCA: Fitch Raises LT IDR to 'BB+', Outlook Stable
N E T H E R L A N D S
SANDY HOLDCO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
SANDY MIDCO: Moody's Assigns 'B2' CFR & Rates New Term Loan 'B2'
R U S S I A
SOVCOMBANK PJSC : Fitch Affirms 'BB+' LT IDRs, Outlook Stable
SUEK SECURITIES: Moody's Rates New Senior Unsecured Notes 'Ba2'
S P A I N
FTPYME TDA CAM 4: Fitch Affirms C Rating on Class D Tranche
MIRAVET SARL: Fitch Raises Class E Tranche to 'B'
U N I T E D K I N G D O M
C&C TRANSPORT: Director Banned for 12 Years for Stealing
CARILLION PLC: KPMG Accused of Providing False Audit Information
CODE HOVE: Director Banned for Tax Abuse Following Liquidation
FERGUSON MARINE: Most Challenging Business Turnaround in UK
STAR UK: S&P Affirms 'B-' ICR, Alters Outlook to Positive
X X X X X X X X
[*] BOOK REVIEW: Bankruptcy and Secured Lending in Cyberspace
[*] John Houghton Joins Greenberg's London Restructuring Practice
- - - - -
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G E R M A N Y
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WIRECARD AG: British Businessman Arrested in Singapore
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Stefania Palma and Mercedes Ruehl at The Financial Times report
that a British businessman who advised Wirecard in Asia has been
arrested and charged in Singapore for allegedly instructing another
company linked to the collapsed German payments group to forge a
letter.
Henry O'Sullivan, 46, allegedly instructed local firm Citadelle
Corporate Services to falsify a document, according to a charge
sheet seen by the FT.
Mr. O'Sullivan, who was arrested on Aug. 30 and appeared in court
on Sept. 1 on charges of abetment, asked R Shanmugaratnam,
Citadelle's Singaporean director, to issue a letter from Citadelle
to Dubai-based Wirecard subsidiary Cardsystems Middle East FZ, the
FT relays, citing the charge sheet.
According to the FT, the letter said there was a balance of EUR86.4
million in an escrow account held by Citadelle as of December 2016,
"when in fact Citadelle did not maintain the said account,"
according to the charge sheet. Authorities have not said who was
supposed to own the funds in the escrow account.
If convicted, Mr. O'Sullivan faces up to 10 years in jail, a fine,
or both, the FT notes.
The Briton is suspected of having multiple ties to Wirecard, the
German payments group that collapsed in June last year after
disclosing a EUR1.9 billion hole in its balance sheet, in one of
the largest accounting frauds in the country's history, the FT
discloses.
Mr. O'Sullivan entered at least one partnership with the company in
Asia and played a key role in some of the German group's deals,
according to documents seen by the FT. A hunting enthusiast and
prolific dealmaker, he also had ties to Jan Marsalek, Wirecard's
former chief operating officer and now a fugitive, the FT states.
Companies associated with Mr. O'Sullivan received large loans from
Wirecard. Loan documents by Wirecard Bank describe Mr. O'Sullivan
as "personally known to Wirecard executives and of impeccable
integrity", the FT says, citing the appendix of KPMG's forensic
audit into Wirecard.
The Briton's case has been adjourned to Sept. 8 and the judge
ordered he be remanded for one week at the Central Police Division
in Singapore, the FT discloses.
WITTUR INTERNATIONAL: Moody's Affirms 'B3' CFR, Outlook Negative
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Moody's Investors Service has affirmed the B3 corporate family
rating and B3-PD probability of default rating of German elevator
components manufacturer Wittur International Holding GmbH. Moody's
also affirmed the instrument ratings on the group's debt
facilities, including the B2 ratings on the EUR565 million backed
senior secured first-lien term loan B and EUR90 million backed
senior secured first-lien revolving credit facility (RCF), and the
Caa2 rating on the EUR240 million backed senior secured second lien
term loan, issued by Wittur Holding GmbH, a direct subsidiary of
the group. The outlook on all ratings remains negative.
RATINGS RATIONALE
RATIONALE FOR THE NEGATIVE OUTLOOK
The maintenance of the negative outlook primarily reflects Wittur's
very high financial leverage of 11.3x Moody's adjusted debt/EBITDA
as of last twelve months ended June 2021 (9.4x excluding one - off
items), which clearly exceeds the guidance for a B3 rating, and
Moody's concerns about the speed of Wittur's deleveraging to a more
sustainable level in combination with returning to at least
break-even free cash flow (FCF) generation in the next 12-18
months. During the first six months of 2021 the company's EBITDA
(as adjusted by Wittur) declined by around 7% due to the headwind
from higher raw material prices, which can only be passed on to
end-customers with a delay of several months. As a result, the
company reported roughly EUR22 million cumulative negative FCF
during the period (as defined and adjusted by Moody's, i.e.
including interest paid). The FCF generation was hit by lower
profitability, high exceptional items related to restructuring and
ERP system roll out, and a seasonal build-up of working capital in
the first half of the year, which Moody's expects will party
reverse by year-end 2021.
Moody's expects that Wittur's sales and EBITDA in the second half
of 2021 will continue to remain negatively impacted by raw material
price volatility, because of the contractual time lag to pass on
price increases to customers (around 3 months). Furthermore, the
earnings and cash flow will be burdened by high exceptional items
related to the restructuring and ERP rollout. This will lead to a
very high Moody's adjusted Debt / EBITDA of around 12x and negative
FCF of around EUR25- EUR30 million in 2021.
The agency sees the risk that credit metrics will remain below the
requirements for a B3 rating in the next 12-18 months. The
deleveraging depends on a substantial reduction of exceptional
items, which on average amounted to around EUR30 million per annum
in the 2018 -- 2020 period and accounted for substantial portion of
company adjusted EBITDA (30%), and the execution of efficiency and
cost structure improvements. Moody's recognizes that Wittur aims to
substantially reduce exceptional items from 2022 onwards, but also
takes into account the recent track record with high recurring
exceptional costs and aggressive financial policy due to the
gradual increase in gross debt in the past.
RATIONALE FOR THE RATINGS AFFIRMATION
The affirmation of Wittur's ratings primarily reflects the
company's adequate liquidity position with low refinancing risk in
the medium term, given that it will not face meaningful debt
maturities before 2026. As of the end of June 2021, the company
operated with EUR76 million of cash on the balance sheet, including
an undrawn EUR80 million of RCF. Moody's calculates that Wittur
would need to face a further substantial cash burn and substantial
EBITDA decline to breach the springing covenant in the revolving
facility agreement, which is tested when revolving facility drawn
loans less cash and cash equivalents exceed 40% of revolving
facility commitments. As such, the agency considers it unlikely
that Wittur will face issues with the covenant compliance in the
next 12-18 months.
Moody's positively notes Wittur's scale advantage versus direct
peers given its clear number one position globally, which enables
the company to take advantage of the outsourcing trend of
components by elevator producers, which also seek to diversify
their supplier base.
The rating agency also recognizes that Wittur has recently won
several contracts with large elevator manufacturers and is gaining
market share with small and medium-sized customers. Moody's expects
Wittur's revenues will exceed 2019 pre-pandemic levels by low
single digits in percentage terms in 2021, supported by the
economic recovery and market share gains, leading to further high
single digit revenue growth in 2022. In addition, Wittur has
implemented most of its planned restructuring program in the first
half of 2021 and continues to rollout the ERP system. Leaner cost
structure and benefits from ERP project could provide an uplift to
EBITDA generation in 2022, supporting deleveraging.
ENVIRONMENTAL SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
The governance issues Moody's deems most relevant for Wittur
comprise of relatively frequent changes in its top management in
recent years and a fairly poor track record of meeting its
forecasts. Another factor is its very aggressive financial policy,
illustrated by repeated incremental debt issuances during the last
five years, resulting in a consistently highly levered capital
structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could downgrade Wittur, if its (1) fails to bring leverage
towards 7.5x Moody's-adjusted debt/EBITDA in 2022 and clearly below
7.5x in 2023, (2) fails to return to at least break-even FCF
generation (as defined and adjusted by Moody's, i.e. including
interest paid) in 2022 and beyond, (3) liquidity were to
deteriorate.
An upgrade would require Wittur to (1) deleverage to below 6.5x
Moody's-adjusted debt/EBITDA, (2) improve free cash flow generation
with Moody's-adjusted FCF/debt ratios strengthening towards the
mid-single-digits, whilst maintaining a solid liquidity profile.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Manufacturing
Methodology published in March 2020.
PROFILE
Wittur International Holding GmbH is as a private-equity-owned
manufacturer of elevator components, based in Germany. Wittur
produces and sells elevator components such as automatic elevator
doors, lift cars, safety components, drives, elevator frames and
complete elevators to customers that include major multi-national
corporations as well as independent companies. In 2020, Wittur
generated EUR768 million in sales and company-adjusted EBITDA of
EUR108 million (14% margin).
Wittur is owned by funds advised by Bain Capital Europe Fund IV
L.P. and Canada's Public Sector Pension Investment Board ("PSP
Investments"), which acquired a 32% stake in Wittur from Bain
Capital in March 2019.
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G R E E C E
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SANI/IKOS GROUP: Fitch Assigns Final 'B-' LT IDR, Outlook Stable
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Fitch Ratings has assigned Sani/Ikos Group S.C.A. (Sani Ikos) a
final Long-Term Issuer Default Rating (IDR) of 'B-' with Stable
Outlook and its 5.625% senior secured notes due 2026 a long-term
'B-' rating with a Recovery Rating of 'RR4'.
The assignment of the final ratings follows the completion of the
notes issue and receipt of documents conforming to the information
previously received. The ratings are the same as the expected
ratings assigned on 12 July 2021.
The 'B-' IDR of Sani Ikos reflects its niche positioning in the
lodging business, as well as its materially smaller scale relative
to rated peers'. Business-profile strengths include stronger
resilience than peers' and an above-average rate of recovery
post-pandemic for the luxury all-inclusive hotel segment. However,
the financial profile remains under pressure from high leverage and
forecast negative free cash flow (FCF) within Fitch's four-year
rating horizon, due to a capital-intensive business model and an
ambitious growth plan that is envisaged to be largely debt-funded.
The rating for the senior secured notes assumes average recovery
expectations upon default, largely underpinned by the intrinsic
value of Sani Ikos's asset base. However as this is largely
pledged, the material share of structurally senior secured debt at
operating company (OpCo) in the capital structure constrains Sani
Ikos's own senior creditors' recoveries to the 'RR4' category.
KEY RATING DRIVERS
Niche Positioning, Small Scale: Sani Ikos operates 10 higher
upscale resorts, including five luxury all-inclusive hotels, which
remain a niche segment in Europe. The group's business scale
remains modest compared with NH Hotels' (NHH) or Radisson's, and is
more comparable in EBITDA with smaller operators like Alpha Group
(A&O). However, high hotel density (300 rooms or more with high
break-even occupancy) and above-average revenue per available room
(RevPAR) make Sani Ikos more operationally efficient than peers.
Niche positioning within its segment and limited competition or
price sensitivity support organic average daily rate (ADR) growth
for Sani Ikos, but at the same time limit its growth potential,
especially within Greece.
Limited Geographical Focus of Operations: Until Ikos Andalusia was
opened in 2021, Sani Ikos had operated exclusively in Greece. Even
with other projects in Iberia in the pipeline, 75% of rooms will be
in Greece. Limited geographical diversification exposes Sani Ikos
to potential travel restrictions, especially given the high
concentration of three core customer markets - the UK, Germany and
Russia. At the same time, its experience in Greece, however, allows
for more efficient operations that are important for maintaining
high customer satisfaction and loyalty, leading to superior ADR.
Diversification is also limited by purpose, with no business
travelers or events held in its facilities.
High Post-Transaction Leverage: The senior secured notes increase
debt by around EUR170 million, with proceeds largely used for
expansion capex. Fitch does not expect new assets to contribute to
operational cash flows until at least 2023. Together with Fitch's
assumptions of a moderate industry recovery in 2021-2022, this
means that Sani Ikos's funds from operations (FFO) adjusted gross
leverage will not be consistent with its rating, until at least
2023, when Fitch expects it to trend sustainably below 8x. However,
the demonstrated high cash flow-generating capacity of current
assets, as well as shareholders' commitment to provide additional
funds, support the company's deleveraging path in 2023-2025.
Seasonal Operations, High Profitability: Sani Ikos's resorts
generally operate six to seven months a year, with occupancies
close to 95% during the season (annualised occupancy at around
50%-60%). This high density allows for material optimisation of
costs, which are not easily scalable but highly variable
off-season, resulting in higher profitability than that of close
peers such as Mandarin Oriental and comparable with that of the
strongest peers in the sector such as Whitbread (BBB-/Stable).
Fitch expects Sani Ikos to return its EBITDA margins to
pre-pandemic levels of around 35% in 2022, when it expects to reach
its historically high levels of seasonal occupancy, optimised by
direct sales.
Moderate 2021 Exposure to Covid-19: The seasonal nature of Sani
Ikos's business model is leading to a recovery that is ahead of the
lodging market in 2021, since its hotels usually start operating in
April/May and were not affected by wide pandemic restrictions in
1Q21. Summer 2021 season has performed better than the industry
average despite travel restrictions in Sani Ikos's core markets,
but recovery is still dependent on a variety of external factors.
Sani Ikos was materially exposed to pandemic disruptions, which
resulted in an 85% decline in revenues and a steep EBITDA loss in
2020.
Fully-Owned Assets: Sani Ikos owns and manages 100% of its hotel
portfolio developed so far, which allows it full control over asset
development and day-to-day operations. According to management,
this approach helps ensure consistently high levels of service and
efficiency. Fitch expects that its fairly new real-estate portfolio
should allow Sani Ikos to keep maintenance capex at 3%-4% of
revenues (plus 2%-3% maintenance costs above EBITDA) in 2022 and
beyond, which Fitch views as low relative to sector peers'.
Sizable Expansion Programme: Sani Ikos has four hotels in the
development pipeline (two in Iberia and two in Greece), most of
which will be 100% owned like the rest of its current portfolio.
The pipeline assumes a 65% increase in rooms to a total of around
4,500 by 2025. Expansionary capex of around EUR440 million in
2021-2024 will largely be funded by debt. As this is discretionary
capex, each project may be postponed or paused. Aside from the gap
in cash inflows and outflows, an increasing shift to international
operations under the Ikos brand assumes some execution risks. So
far, management has opened only one resort outside of Greece - Ikos
Andalusia in April 2021. Its limited operational record makes it
difficult to assess the sustainability of its occupancy and ADR.
Debt Structure Affects Expected Bond Recoveries: All of Sani Ikos's
owned operating real estate (except Ikos Andalusia) is currently
mortgaged at OpCo level. In a distress liquidation, this adversely
affects the waterfall-generated recovery computation (WGRC) for
noteholders at Sani Ikos's level, whose claims Fitch deems as being
structurally subordinated to those of secured OpCo creditors, given
their lack of direct recourse to OpCo assets.
DERIVATION SUMMARY
Sani Ikos has limited scale compared with leisure peers such as
Meliá or Hyatt. Diversification is also constrained by its
seasonal focus on holiday destinations, against global peers like
Accor SA (BB+/Stable). The large capacity of resorts, premium
RevPAR during the season and freehold property structure allow for
excellent EBITDA margins of around 35% pre-pandemic, higher than
that of luxury operators such as Mandarin Oriental or Linblad. Sani
Ikos has proven its ability to resume activity in 2021 and to reach
satisfactory trading, as luxury operators and holiday destinations
are among the segments expected to recover at an accelerated pace
post-pandemic.
Similar to cruise operators, such as TUI Cruises GmbH
(B-/Positive), optimised density (occupancies above 94% when
operating) and an exclusive offering at Sani Ikos confer strong
demand with a high level of loyalty and advanced bookings. This
leads to good cash-flow predictability.
The asset-backed nature of the business (gross asset value of
EUR1.3 billion excluding any development land) leads to high cash
flow-based leverage (FFO lease-adjusted gross leverage of 8.5x
pre-pandemic), which is above that of other asset-heavy operators,
such as Host Hotels & Resorts, Inc. (BBB-/Negative), Whitbread PLC
(BBB-/Stable) or NH Hotel Group S.A. (B-/Negative), but still
displaying deleveraging capacity.
After a highly disrupted 2020, Sani Ikos's liquidity is now less of
a concern than for urban operators such as A&O (CCC). However, its
above-average portfolio asset quality requires significant capex,
while a largely encumbered asset base limits financial flexibility
from potential asset disposals.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Days of operation in line with management expectations,
increased ADR versus 2019 and average occupancies throughout
the season of around 70% for 2021, followed by normalization
of occupancies from 2022.
-- Extrapolated cost absorption rates from 2020 to 2021 plus a
certain margin for contingencies and P&L capex.
-- Progressive normalisation of EBITDA margins from 2022.
-- Total capex of around EUR480 million for 2021-2024, including
expansion capex of around EUR440 million.
-- Some moderate working-capital outflows in 2021 followed by
small inflows or neutral position in later years.
-- EUR48 million of equity proceeds to fund expansion.
-- EUR70 million (in addition to the bond) net debt proceeds to
fund future debt maturities and asset expansion.
Key Recovery Rating Assumptions:
-- A bespoke recovery analysis for Sani Ikos creditors reflects a
"traded asset valuation", more akin to a liquidation process,
backed by the substantial asset base, even though Sani Ikos
creditors would have no direct recourse to ring-fenced assets.
Senior noteholders could seize ownership of the main operating
entities by exercising share pledges, and attempt to sell the
SPVs that hold the assets (net of asset level debt that would
need to be redeemed upon change of control).
-- Fitch has assumed a 10% administrative claim.
-- Although under the liquidation scenario, OpCo level creditors
could seize their respective assets and obtain full recovery
before the remainder of the proceeds is distributed among
noteholders, Fitch assumes assets could be traded either
individually or in aggregate.
-- Real estate, valued externally at EUR1.3 billion as at end
1Q21 (excluding land under development) is given an advance
rate of 60%.
-- OpCo creditors first to receive their priority claim on asset
sales proceeds.
-- The WGRC of 50% for senior secured noteholders (previously
34%) assumes average recovery prospects upon default, hence no
notching from the IDR for the issued bond, resulting in a 'B-'
debt rating.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Visibility of FFO adjusted gross leverage trending below 6.5x;
-- Stable cash flow generation with free cash flow margin
trending towards negative single digits under current capex
assumptions; and
-- FFO fixed charge cover sustainably above 2.0x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Material delay in business recovery due to underperformance or
external restrictions, resulting in inability to recover
EBITDA margin of at least 30% in 2022;
-- FFO adjusted gross leverage forecast to remain above 7.5x
beyond 2023;
-- FFO fixed charge cover below 1.5x; and
-- Liquidity deterioration amid negative FFO generation, with
minimal headroom in available liquidity to cover business
requirements, interest and committed capex over the next 24
months.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Sani Ikos's cash position at end-August
2021 of EUR258 million (excluding any restricted cash deemed not
available for debt service) has been reinforced by the EUR300
million notes issue. After the bond issue, less than 25% of debt
matures in 2021-2025 (mainly OpCo debt).
Shareholders have committed to a contribution of EUR100 million
(mix of A shares, ordinary capital and shareholder loans) to be
used in case of a liquidity shortfall. A EUR20 million capital call
to the shareholders was issued by Sani Ikos in early June 2021 with
proceeds cashed-in. A EUR50 million financing package signed during
the pandemic (EUR30 million undrawn at May-2021) and financing
related to Ikos Andalusia have all been repaid with proceeds from
the bond placement.
ISSUER PROFILE
Sani Ikos is an integrated owner and hotel operator in the luxury
segment. It owns a portfolio of 10 beach-front resorts (nine in
Greece and one in Spain) with above-average RevPAR. All hotels are
seasonal and exhibit a high density (more than 300 rooms per
hotel).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
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BARINGS EURO 2015-1: Moody's Ups EUR12.4MM F Notes Rating to Ba3
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Moody's Investors Service has upgraded the ratings on the following
notes issued by Barings Euro CLO 2015-1 Designated Activity
Company:
EUR22,000,000 Class CR Senior Secured Deferrable Floating Rate
Notes due 2029, Upgraded to Aaa (sf); previously on Jan 21, 2021
Upgraded to Aa1 (sf)
EUR21,600,000 Class DR Senior Secured Deferrable Floating Rate
Notes due 2029, Upgraded to Aa1 (sf); previously on Jan 21, 2021
Upgraded to A2 (sf)
EUR31,200,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2029, Upgraded to Baa3 (sf); previously on Jan 21, 2021
Upgraded to Ba1 (sf)
EUR12,400,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2029, Upgraded to Ba3 (sf); previously on Jan 21, 2021
Affirmed B1 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR206,700,000 (current outstanding amount EUR57,439,817.34) Class
A-1R Senior Secured Floating Rate Notes due 2029, Affirmed Aaa
(sf); previously on Jan 21, 2021 Affirmed Aaa (sf)
EUR5,300,000 (current outstanding amount EUR1,472,815.82) Class
A-2R Senior Secured Fixed Rate Notes due 2029, Affirmed Aaa (sf);
previously on Jan 21, 2021 Affirmed Aaa (sf)
EUR26,400,000 (current outstanding amount EUR7,336,290.17) Class
A-3 Senior Secured Fixed/Floating Rate Notes due 2029, Affirmed Aaa
(sf); previously on Jan 21, 2021 Affirmed Aaa (sf)
EUR32,600,000 Class B-1R Senior Secured Floating Rate Notes due
2029, Affirmed Aaa (sf); previously on Jan 21, 2021 Upgraded to Aaa
(sf)
EUR10,600,000 Class B-2R Senior Secured Fixed Rate Notes due 2029,
Affirmed Aaa (sf); previously on Jan 21, 2021 Upgraded to Aaa (sf)
Barings Euro CLO 2015-1 Designated Activity Company, issued in
September 2015 and refinanced in October 2017, is a collateralised
loan obligation (CLO) backed by a portfolio of mostly high-yield
senior secured European loans. The portfolio is managed by Barings
(U.K.) Limited. The transaction's reinvestment period ended in
October 2019.
RATING RATIONALE
The rating upgrades on the Class CR, Class DR, Class E and Class F
Notes are primarily a result of the significant deleveraging of the
senior notes following amortisation of the underlying portfolio
since the last rating action in January 2021. Pre-payments and
sales account for a significant proportion of the amortisation.
The Class A-1R, Class A-2R and Class A-3 notes have paid down by
approximately EUR127.3 million (53.4%) since the last rating action
in January 2021 and EUR172.2 million (72.2%) since closing. As a
result of the deleveraging, over-collateralisation (OC) has
increased across the capital structure. According to the trustee
report dated July 2021 [1] the Class A/B, Class C, Class D and
Class E OC ratios are reported at 174.5%, 152.0%,135.0% and 116.1%
compared to January 2021 [2] levels of 146.3%, 133.9%, 123.6% and
111.2%, respectively. Moody's notes that the July 2021 principal
payments of approximately EUR39.4 million are not reflected in the
reported OC ratios.
The rating affirmations on the Class A-1R, A-2R, A-3, B-1R and B-2R
Notes reflect the expected losses of the notes continuing to remain
consistent with their current ratings after taking into account the
CLO's latest portfolio, its relevant structural features and its
actual over-collateralization levels, as well as applying Moody's
revised CLO assumptions.
Key model inputs:
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR220,423,609
Defaulted Securities: EUR9,101,753
Diversity Score: 42
Weighted Average Rating Factor (WARF): 3187
Weighted Average Life (WAL): 3.86 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.64%
Weighted Average Coupon (WAC): 5.20%
Weighted Average Recovery Rate (WARR): 44.31%
Par haircut in OC tests and interest diversion test: 1.71%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
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.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in May 2021. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the note,
in light of uncertainty about credit conditions in the general
economy. In particular, the length and severity of the economic and
credit shock precipitated by the global coronavirus pandemic will
have a significant impact on the performance of the securities. CLO
notes' performance may also be impacted either positively or
negatively by (1) the manager's investment strategy and behaviour
and (2) divergence in the legal interpretation of CDO documentation
by different transactional parties because of embedded
ambiguities.
Additional uncertainty about performance is due to the:
Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
CONTEGO CLO VIII: Moody's Assigns B3 Rating to EUR12.5MM F Notes
----------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to refinancing notes issued by Contego
CLO VIII Designated Activity Company (the "Issuer"):
EUR249,600,000 Class A Senior Secured Floating Rate Notes due
2034, Assigned Aaa (sf)
EUR24,700,000 Class B-1 Senior Secured Floating Rate Notes due
2034, Assigned Aa2 (sf)
EUR18,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2034,
Assigned Aa2 (sf)
EUR28,500,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned A2 (sf)
EUR30,800,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned Baa3 (sf)
EUR22,800,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned Ba3 (sf)
EUR12,500,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2034, 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 will issue the refinancing Notes in connection with the
refinancing of the following classes of Notes: Class A Notes, Class
B-1 Notes, Class B-2 Notes, Class C Notes, Class D Notes, Class E
Notes and Class F Notes due 2032 (the "Original Notes"), previously
issued on 1st September 2020 (the "Original Closing Date"). On the
refinancing date, the Issuer will use the proceeds from the
issuance of the refinancing notes to redeem in full the Original
Notes. The Original Notes were not rated by Moody's.
On the Original Closing Date, the Issuer also issued EUR29,350,000
of Subordinated Notes, which will remain outstanding and are not
rated by Moody's.
As part of this reset, the Issuer has increased the target par
amount by EUR116 million to EUR416 million and has extended the
reinvestment period to approximately 4.7 years and the weighted
average life to 8.5 years. It has also amended certain
concentration limits and minor features and has included the
ability to hold workout obligations. In addition, the Issuer has
included the 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 approximately 98% ramped as of
the closing date.
Five Arrows Managers LLP ("Five Arrows") 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
4.7-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.
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: EUR416 million
Defaulted Par: -
Diversity Score: 54
Weighted Average Rating Factor (WARF): 3177
Weighted Average Spread (WAS): 3.60%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 43.0%
Weighted Average Life (WAL): 8.5 years
CONTEGO CLO VIII: S&P Assigns B- (sf) Rating on Class F-R Notes
---------------------------------------------------------------
S&P Global Ratings assigned its 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 also issued 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 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 2,898.74
Default rate dispersion 436.11
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 sai,d "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 ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria
"The transaction's legal structure is 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 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
'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 Assigned
CLASS RATING* AMOUNT SUB (%) INTEREST RATE*
(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.
JUBILEE CLO 2014-XIV: Fitch Affirms B- Rating on Class F Notes
--------------------------------------------------------------
Fitch Ratings has upgraded Jubilee CLO 2014-XIV DAC, and revised
the Outlook on the class F notes to Stable from Negative.
DEBT RATING PRIOR
---- ------ -----
Jubilee CLO 2014-XIV DAC
Class A1-R XS1635062463 LT AAAsf Affirmed AAAsf
Class A2-R XS1635064758 LT AAAsf Affirmed AAAsf
Class B1-R XS1635066456 LT AAAsf Upgrade AA+sf
Class B2-R XS1635067694 LT AAAsf Upgrade AA+sf
Class C-R XS1635069716 LT AA+sf Upgrade A+sf
Class D-R XS1635071373 LT A+sf Upgrade BBBsf
Class E XS1114473652 LT BB+sf Upgrade BBsf
Class F XS1114491126 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Jubilee CLO 2014-XIV B.V. is a securitisation of mainly senior
secured loans (at least 90%) with a component of senior unsecured,
mezzanine, and second-lien loans and managed by Alcentra Limited.
KEY RATING DRIVERS
Increase in Credit Enhancement: The upgrades of the class B1-R,
B2-R, C-R, D-R and E notes reflects increase in credit enhancement
due to over EUR100 million in pay-downs since the last rating
action in September 2020. The transaction exited its reinvestment
period in January 2019 and the manager can now only reinvest
unscheduled principal proceeds and proceeds from credit-impaired
and -improved sales, subject to certain criteria, including the
weighted average life (WAL) test being satisfied following such
reinvestment. As of the July 2021 investor report the WAL of the
portfolio was 3.13 versus the maximum covenanted WAL of 2.3.
Fitch has revised the Outlooks on the class F notes to Stable from
Negative as it no longer runs the coronavirus baseline stress
scenario as a driver of the Outlook. The Stable Outlook reflects
Fitch's view that the class F notes display a limited margin of
safety given the current credit enhancement level. The class F
notes do not present a "real possibility of default", which is the
definition of 'CCC' in Fitch's Rating Definitions. For more details
see "Coronavirus Stress Scenario Removed in EMEA CLO Analyses"
dated 28 June at www.fitchratings.com.
Broadly Stable Asset Performance: The transaction's metrics are
broadly similar to those at the last rating action as of 25
September 2020. The Fitch 'CCC', which was failing at 8.6%, is now
passing at 6.1%. The WAL, which was and is still failing, was at
3.44 in September 2020 and is now at 3.13. The Fitch weighted
average rating factor (WARF), which was and is still failing, was
at 36.68 and is now at 36.79. The transaction was below par by 3.9%
and is now below par by 4.6%.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors in the 'B'/'B-' category for the transaction. The WARF
calculated by the trustee was 36.79, above the maximum covenant of
36.
High Recovery Expectations: Senior secured obligations comprise
99.3% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets.
Portfolio Becoming Less Diversified: As the transaction amortises,
the portfolio becomes increasingly less diversified. The portfolio
currently has 60 obligors, with the top 10 obligor concentration at
35.99% and no obligor representing more than 4.58% of the portfolio
balance. Fitch tested a scenario under which the first EUR60
million of smallest obligors is paid off with the largest obligors
remaining. While both the obligor concentration and the portfolio's
default rate rose due to increased correlation, this was offset by
the paydown of assets, resulting in no downward impact to the
model-implied ratings.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the default rate (RDR) at all rating levels by
25% of the mean RDR and a decrease of the recovery rate (RRR)
by 25% at all rating levels will result in downgrades of up to
five notches, depending on the notes.
-- Fitch has added a sensitivity analysis that contemplates a
more severe and prolonged economic stress. The downside
sensitivity incorporates a single-notch downgrade to all
Fitch-derived ratings (FDR)s on Negative Outlook. For this
transaction this scenario will result in at most a single
notch downgrade.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the RDR at all rating levels by 25% of the mean
RDR and an increase in the RRR by 25% at all rating levels
would result in an upgrade of up to two notches, depending on
the notes.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
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.
RRE 7 LOAN: Moody's Assigns Ba3 Rating to EUR20MM Class D Notes
---------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to notes issued by RRE 7 Loan
Management DAC (the "Issuer"):
EUR305,000,000 Class A-1 Senior Secured Floating Rate Notes due
2036, Definitive Rating Assigned Aaa (sf)
EUR20,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2036, Definitive Rating Assigned Ba3 (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 92.5% of the
portfolio must consist of secured senior loans or senior secured
bonds and up to 7.5% of the portfolio may consist of unsecured
senior loans, second-lien loans, high yield bonds and mezzanine
loans. The portfolio is expected to be approximately 97% ramped as
of the closing date and to comprise predominantly corporate loans
to obligors domiciled in Western Europe. The remainder of the
portfolio will be acquired during the 3.5 months ramp-up period in
compliance with the portfolio guidelines.
Redding Ridge Asset Management (UK) LLP ("Redding Ridge") will
manage the CLO. It will direct the selection, acquisition and
disposition of collateral on behalf of the Issuer and may engage in
trading activity, including discretionary trading, during the
transaction's 4.4 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 two classes of notes rated by Moody's, the
Issuer issued three classes of notes due 2036 and subordinated
notes due 2121, which are not rated.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Methodology underlying the rating action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR500,000,000
Diversity Score(1): 41
Weighted Average Rating Factor (WARF): 3270
Weighted Average Spread (WAS): 3.55%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 45.0%
Weighted Average Life (WAL): 9 years
RRE 7: S&P Assigns BB- (sf) Rating to EUR20MM Class D Notes
-----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to RRE 7 Loan
Management DAC's class A-1 to D notes. At closing, the issuer also
issued unrated subordinated notes.
This is a European cash flow CLO transaction, securitizing a
portfolio of primarily senior secured leveraged loans and bonds.
The transaction is be managed by Redding Ridge Asset Management
(UK) LLP.
The ratings assigned the notes reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
our counterparty rating framework.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will permanently switch to semiannual payment.
The portfolio's reinvestment period will end approximately 4.38
years after closing, and the portfolio's maximum average maturity
date is nine years after closing.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,783.24
Default rate dispersion 455.03
Weighted-average life (years) 5.24
Obligor diversity measure 143.19
Industry diversity measure 20.77
Regional diversity measure 1.25
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 500
Defaulted assets (mil. EUR) 0
Number of performing obligors 177
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.40
'AAA' covenanted weighted-average recovery (%) 36.95
Covenanted weighted-average spread (%) 3.55
Reference weighted-average coupon (%) 5.00
Workout obligations
Under the transaction documents, the issuer may purchase debt and
non-debt assets of an existing borrower offered in connection with
a workout, restructuring, or bankruptcy (workout obligations), to
maximize the overall recovery prospects on the borrower's
obligations held by the issuer.
The transaction documents limit the CLO's exposure to workout
obligations quarterly, and on a cumulative basis, may not exceed
10% of target par if purchased with principal proceeds.
The issuer may only purchase workout obligations provided the
following are satisfied:
Using principal proceeds or amounts designated as principal
proceeds, provided that:
-- The obligation is a debt obligation;
-- It is pari passu or senior to the obligation already held by
the issuer;
-- Its maturity date falls before the rated notes' maturity date;
-- It is not purchased at a premium; and
-- The class A-1, A-2, B, and C par value tests are satisfied
after the acquisition or the performing portfolio balance exceeds
the reinvestment target par balance.
Using interest proceeds, provided that:
-- The class C interest coverage test is satisfied after the
acquisition; and
-- The manager believes there will be enough interest proceeds on
the following payment date to pay interest on all the rated notes.
The issuer may also purchase workout obligations using amounts
standing to the credit of the supplemental reserve account.
In all instances where principal proceeds or amounts designated as
principal proceeds are used to purchase workout obligations:
-- A zero carrying value is assigned to the workout obligations
until they fully satisfy the eligibility criteria (following which
the obligation will be subject to the same treatment as other
obligations held by the issuer); and
-- All and any distributions received from a workout obligation
will be retained as principal and may not be transferred into any
other account.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. S&P said, "Therefore, we have conducted our credit
and cash flow analysis by applying our criteria for corporate cash
flow CDOs. As such, we have not applied any additional scenario and
sensitivity analysis when assigning ratings to any classes of notes
in this transaction."
S&P said, "In our cash flow analysis, we used the EUR500 million
target par amount, the covenanted weighted-average spread (3.55%),
the reference weighted-average coupon (5.00%), and the covenanted
weighted-average recovery rates at 'AAA' level 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 A-2 to D notes 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 ratings assigned
to the notes.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"The issuer will purchase part of the effective date portfolio from
another CLO via participations, which also comply with our legal
criteria. The transaction documents require that the issuer and CLO
seller use commercially reasonable efforts to elevate the
participations by transferring to the issuer the legal and
beneficial interests as soon as reasonably practicable.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our assigned ratings
are commensurate with the available credit enhancement for the
class A-1, A-2, B, C, and D notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A-1 to D 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 covenanted weighted-average
spread, coupon, and recoveries.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class D notes."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
controversial weapons, nuclear weapons, thermal coal, oil and gas,
pornography or prostitution, opioid manufacturing or distribution,
and hazardous chemicals. Accordingly, since the exclusion of assets
from these industries does not result in material differences
between the transaction and our ESG benchmark for the sector, no
specific adjustments have been made in our rating analysis to
account for any ESG-related risks or opportunities."
Ratings Assigned
CLASS RATING* AMOUNT SUB (%) INTEREST RATE§
(MIL. EUR)
A-1 AAA (sf) 305.00 39.00 Three/six-month EURIBOR
plus 1.02%
A-2 AA (sf) 50.00 29.00 Three/six-month EURIBOR
plus 1.60%
B A (sf) 42.50 20.50 Three/six-month EURIBOR
plus 2.05%
C BBB- (sf) 32.50 14.00 Three/six-month EURIBOR
plus 3.05%
D BB- (sf) 20.00 10.00 Three/six-month EURIBOR
plus 6.20%
Sub notes NR 58.50 N/A N/A
*The ratings assigned to the class A-1 and A-2 notes address
timely interest and ultimate principal payments. The ratings
assigned to the class B, C, and D notes address ultimate interest
and principal payments.
§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.
EURIBOR--Euro Interbank Offered Rate.
SUEK SECURITIES: Fitch Rates Proposed Guaranteed Notes 'BB(EXP)'
----------------------------------------------------------------
Fitch Ratings has assigned Ireland-based SUEK Securities Designated
Activity Company's proposed guaranteed notes an expected senior
unsecured rating of 'BB(EXP)'. The Recovery Rating is 'RR4'. The
assignment of final rating is contingent on the receipt of final
documentation conforming to information already received.
The notes will be used for the sole purpose of financing a loan to
JSC SUEK (BB/Stable) or group companies. The notes will be
unconditionally and irrevocably guaranteed by SUEK and its major
coal-producing entities. Fitch views the proposed guarantee
structure as comparable to that of SUEK's major existing debt
facilities including pre-export finance facility. The notes will
rank pari passu with all other unsubordinated and unsecured
indebtedness of SUEK.
The rating of SUEK is supported by its integrated mining, logistics
and energy-generation operations with a notable domestic market
share in each segment and its position among the leading thermal
coal exporters, its healthy margins, lower earnings volatility than
mining peers' and free cash flow (FCF) generation through the
cycle.
KEY RATING DRIVERS
Senior Unsecured Notes: SUEK will use proceeds to refinance its
outstanding debt. Gross debt is expected to remain unchanged
following the notes issue, but its debt maturity profile and
liquidity will improve. Bond terms are in line with market
standards, including an incurrence test at 3.5x net debt-to-EBITDA
(subject to usual carve-outs), negative pledge and limitation on
mergers and transactions with affiliates, which provide limited
protection to bondholders.
Earnings Recover: Fitch expects SUEK's EBITDA in 2021 to increase
around 40% yoy to USD2.5 billion on the back of robust thermal coal
demand and strong prices, together with energy-generation recovery.
Also, the group's contracted coal sales, covering over a third of
its 2021 export volumes, are supporting 2021 earnings. Fitch
projects SUEK's EBITDA (IFRS16-adjusted) at USD2.1 billion-USD2.2
billion mid-cycle.
Deleveraging Expected: Fitch expects that SUEK will use substantial
FCF generated during 2021-2022 for debt reduction, which will
decrease FFO gross leverage towards 3.0x-3.1x, from around 4x in
2019-2020. It has an internal net debt/EBITDA target of 2x-2.5x.
SUEK has headroom under its leverage sensitivities, has
demonstrated capex flexibility during downturns, and has not paid
material dividends since 2011.
Higher Leverage after Acquisitions: SUEK acquired Siberian
Generating Company LLC (SGK) from its shareholder, two ports from a
related party EuroChem Group AG, and purchased other generating
companies and railcar operators from third parties. The group has
spent over USD3.5 billion on debt-funded acquisitions in the past
four years, which transformed it into an integrated coal,
energy-generation and logistics company from a coal miner, reducing
its exposure to coal-price volatility.
Large Integrated Business: SUEK is one of the largest seaborne
thermal coal exporters globally and is the largest supplier of
thermal coal in Russia. In 2020, it exported half of its 101mt
output to the APAC and Atlantic markets. All of its export coal is
of high quality. Seventy per cent of its domestic coal sales are to
captive generating facilities. Most of SUEK's generation assets are
in Siberia, near its mining assets. The group's installed capacity
is 17.6GW, accounting for 6% of domestic electricity supply in
Russia and 20% in Siberia.
SUEK's logistics business consists of several ports and a
substantial railway fleet, mostly serving the group's coal segment.
The coal and logistics segments accounted for about two-thirds of
group EBITDA, with the remaining third coming from the power
division.
Stable Energy Segment: Energy sales are evenly split across
electricity, capacity and heat, and generate fairly stable cash
flow. Energy assets are consolidated under SGK. Capacity supply
agreements (CSA) cover 12% of SGK's capacities, which supports the
predictability of SGK's cash flows until 2024 when high CSA-driven
earnings end, leading to a reduction of the segment's EBITDA
towards USD600 million, from almost USD700 million in 2021-2023.
SUEK has already joined the CSA-2 programme covering another 16% of
its capacity.
Global Thermal Coal Market: Thermal coal remains a key energy
source, with a share of over 35% in global power generation. The
International Energy Agency estimated that demand for coal dropped
5% in 2020 against a 1.5% decline in energy consumption as cleaner
energy sources were prioritised. Demand is expected to recover by
2.6% in 2021 before flattening in the medium term.
Demand will grow in emerging markets, in particular in India,
Pakistan and Vietnam, where coal-fired power dominates generation,
while the share of coal in primary energy demand in China will
marginally decrease as it moves towards net zero. Given that the EU
and US now account for only 10% of global thermal coal demand,
contraction in these regions will have a limited impact on the
global market.
Energy-Transition Risks: SUEK's coal segment is exposed to
energy-transition risks. Its high-quality and low-cost coal, and
its plans to expand shipment capacities to Asia, will mitigate
reduced European demand driven by its leadership in the push for
clean energy. The group's APAC shipments vary across countries, and
benefit from the region's significant reliance on coal in
generation. SUEK's domestic market is less exposed to
energy-transition risks due to lagging regulation and a high share
of coal in the Siberian energy balance.
Competitive Cost Position: SUEK has low cash production costs,
underpinned by a high share of open-pit-mined coal, a weak Russian
rouble, and efficiency improvements. It is self-sufficient in
processing, washing and logistics infrastructure, with control over
80% of railcars and transhipment via its own ports. SUEK's mining
assets are farther from the group's export sea ports than global
mining peers', but the group's assets on average are positioned on
the lower part of the global cost curve by total business costs.
DERIVATION SUMMARY
SUEK is Russia's top thermal coal producer, operating 28 mines in
several regions, and one of the largest exporters of seaborne
thermal coal globally. SUEK has partial downstream integration into
26 coal-based and one gas turbine power plants, and operates five
sea ports and a large railcar fleet. SUEK is comparable with AO
Holding Company Metalloinvest (BBB-/Stable) in scale and
diversification, as both companies are among the top 10 global
producers of specific commodities. Metalloinvest, which produces
iron ore, has a better cost position and higher mine life than
SUEK, but the latter's operations are more diverse, with several
mines located across a number of Russian regions, while
Metalloinvest has two large mines in one region. Metalloinvest is
integrated in steelmaking, while SUEK's energy- and
power-generation segments contribute around one third to the
group's EBITDA.
PJSC Polyus (BB+/Stable) is the largest gold producer in Russia and
is among the lowest-cost gold producers with an ample large reserve
base. Polyus has similar scale to SUEK but is focused only on
mining. Both Polyus and Metalloinvest have superior profitability
to SUEK, but SUEK's energy generation ensures relatively stable
cash flow. FFO gross leverage is around 2.0x-2.5x for Metalloinvest
and Polyus. SUEK's higher leverage of 3x-3.5x reflects pressure
from low thermal coal prices beyond 2021 and recent M&A
activities.
Indonesian coal peers PT Bayan Resources Tbk (BB-/Stable) and PT
Indika Energy Tbk (BB-/Negative) are smaller with slightly above
30mt thermal coal production a year each, have lower mine life,
higher concentration on one key mine and are subject to mining
concessions renewal in the next three or four years. Bayan has a
stronger cost position, higher profit margins and low leverage.
Indika has an integrated business model across mining, engineering
and construction, although its mining operations are less
profitable. Indika's rating is on a Negative Outlook due to little
leverage headroom, with FFO net leverage at or above 3x.
Another Indonesian peer is PT Adaro Indonesia Tbk (BBB-/Stable),
the second-largest Indonesian thermal coal producer, with around
60mt production expected in 2021. Adaro is integrated in mining
services and logistics. The company's parent has a joint venture
that operates two small-scale new power stations, one of which is
to commence operations in 2021. High level of integration, similar
to SUEK's, provides high flexibility and reduces earnings
volatility. Adaro's FFO net leverage is around 2x-2.5x.
KEY ASSUMPTIONS
-- Thermal coal Newcastle 6,000 kcal/kg FOB at USD81/t in 2021,
USD70/t in 2022 and USD68/t in 2023 and USD66/t in 2024, in
line with Fitch's mid-cycle commodity price assumptions and
SUEK's hedges for 2021;
-- Domestic coal price growth at or slightly below rouble
inflation to 2024;
-- Energy segment EBITDA at USD600 million-USD700 million a year
over 2021-2024;
-- Coal sales volumes increase by high mid-single digits in 2021
2022 on mining expansion and sales to Asia, returning to
around 130 mt (including third-party coal) towards 2023-2024;
-- Capex around USD1 billion a year in 2021-2024;
-- USD/RUB exchange rate averaging 74.1 in 2021, 72.5 in 2022,
and 72 in 2023-2024;
-- No dividend payment and M&A outflows (including existing
commitments) totalling up to USD0.5 billion in 2021-2022;
-- Discretionary dividend and/or M&A outflows to result in around
2% to 3% post-M&A FCF margin in 2023-2024.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO gross leverage sustainably below 2.5x, combined with an
extended and smoother debt maturity profile.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Subdued coal markets, aggressive dividends or M&A driving FFO
gross leverage sustainably above 3.5x;
-- Negative FCF on a sustained basis;
-- EBITDA margin sustainably below 20%;
-- Failure to maintain liquidity ratio above 1x.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Liquidity Improves Post Transaction: At 30 June 2021 SUEK's
liquidity was tight with a reported USD1,685 million short-term
debt against an USD152 million cash balance, expected USD0.81
billion FCF over the next 12 months and USD1.05 billion unutilised
long-term committed credit facilities.
The expected bond issue will improve SUEK's liquidity as proceeds
are planned to be used for repayment of short-term maturities and
will make the group's debt maturity profile smoother. Historically,
SUEK's medium-term liquidity position has been fragile, as the
group has been reliant on its ability to refinance the upcoming
maturities of its front-loaded debt portfolio. It also has USD0.78
billion uncommitted long-term credit facilities.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
ISSUER PROFILE
SUEK is Russia's top thermal coal producer, operating 28 mines in
several regions, and one of the largest exporters of seaborne
thermal coal globally.
SUMMARY OF FINANCIAL ADJUSTMENTS
-- Fitch has reclassified leases of USD617 million as other
liabilities. Furthermore, Fitch has reclassified the USD168
million of depreciation of right-of-use assets and the USD63
million of interest on lease liabilities as lease expenses,
reducing Fitch-calculated EBITDA by USD231 million in 2020.
-- The amount payable for the acquisition of the Tuapse and
Murmansk bulk terminals of USD282 million was reclassified as
debt from other payables.
-- Fitch adjusted debt by the cross-currency swap hedging
liabilities, net of assets, of USD306 million.
=========
I T A L Y
=========
BANCA POPOLARE: Fitch Affirms BB+ LT IDR, Alters Outlook to Stable
------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Banca Popolare di
Sondrio's (Sondrio) Long-Term Issuer Default Rating (IDR) to Stable
from Negative and affirmed the IDR at 'BB+' and Viability Rating
(VR) at 'bb+'.
The revision of the Outlook reflects Fitch's view that the
pandemic-related downside risks for the bank's asset quality and
profitability have eased. Sondrio's performance in 1H21 and Fitch's
medium-term expectations for its performance should provide some
headroom to absorb moderate deterioration of its profitability and
asset quality that may arise from the remaining pandemic-related
risks to the economic recovery in Italy.
KEY RATING DRIVERS
IDRS, VR AND SENIOR PREFERRED DEBT
Sondrio's ratings reflect its still weak asset quality and modest
profitability. However, Fitch expects that the bank's average risk
appetite and its credible impaired loan strategy should mitigate
asset quality pressure from the pandemic, and that profitability
should benefit from loan impairment charges (LICs) remaining under
control and strategic initiatives aimed at improving earnings
generation.
The ratings also reflect the bank's satisfactory regulatory
capitalisation and Fitch's expectation that it will maintain
capital ratios with ample buffers over requirements. Sondrio
benefits from adequate franchises in its regions of operations,
which results in a stable customer deposit base, underpinning a
sound funding and liquidity profile.
Sondrio's asset quality is a rating weakness, with an impaired loan
ratio of around 7% at end-June 2021, which is higher than the
domestic industry average of around 6% and weak compared with
international peers. The impaired loans reserve coverage ratio of
over 62% at end-June 2021 is adequate for the bank's credit risks.
Fitch expects Sondrio's impaired loan ratio to remain under
control, even in case of a weaker-than-expected economic recovery
in Italy, as the bank should be able to compensate possible asset
quality deterioration once the government support measures
gradually unwind through a combination of sales and effective
workout. Furthermore, the bank's contained amount of loan moratoria
at end-June 2021, at below 4% of gross performing loans, and
better-than-expected performance of loan moratoria with limited
default rates to date should mitigate near- to medium-term risks.
Sondrio's operating profitability is modest by international
standards and compared with stronger domestic rated banks, despite
good cost efficiency. Its operating profit/risk-weighted assets
(RWA) recovered to around 2.0% in 1H21 from 0.7% in 2020, due to
re-established business activities, increased core revenue and the
positive contribution of securities investments. In 1H21, LICs
decreased by over 40% yoy (including 1H20 losses from the doubtful
loans disposal). The benign impaired loan inflows and improving
macroeconomic scenario allowed for some releases of provisions in
1H21, which could continue in the coming quarters and sustain the
bank's profits.
The improved 1H21 performance suggests that the bank is in a
position to benefit from the economic recovery in Italy. Fitch
expects profitability to stabilise at around 1% of RWA in the
medium term, benefiting from higher business volumes if the economy
rebounds in line with Fitch's current expectations, continuing use
of the Targeted-Longer Term Refinancing Operations (TLTRO)
facilities to mitigate pressure on the interest margin, a strategy
aimed at expanding wealth management activities and ongoing cost
efficiency.
Sondrio's capitalisation is satisfactory, with a common equity Tier
1 (CET1) ratio of 16.7% at end-June 2021, sustained by acceptable
earning generation and historically prudent dividend payouts, which
allowed to maintain ample buffers over regulatory requirements.
Capital encumbrance by unreserved impaired loans improved to below
28% at end-June 2021 from its peak of 74% at end-2016, and Fitch
expects it to remain under control, in line with Fitch's
expectations on asset quality. However, capitalisation remains at
risk from large exposure to Italian government bond holdings at
about 240% of CET1 capital at end-June 2021.
The bank's funding and liquidity profile is sound. Customer
deposits are a stable source of funding, benefiting from the bank's
adequate franchise in its home regions and strong client
relationships. Funding sources are increasingly diversified through
the bank's access to both secured and unsecured wholesale funding
markets. Liquidity remains sound, thanks to adequate buffers of
unencumbered eligible assets and access to ECB financing.
Sondrio's 'B' Short-Term IDR is the only option mapping to a 'BB+'
Long-Term IDR.
Sondrio's long-term senior preferred notes are rated in line with
the bank's Long-Term IDR. Fitch expects the bank to use senior
preferred debt to meet its minimum requirement for own funds and
eligible liabilities. Fitch also does not expect the bank to build
up buffers of subordinated and senior non-preferred debt in excess
of 10% of RWA, which is required under Fitch's criteria to rate
senior preferred debt above the Long-Term IDR.
DEPOSIT RATINGS
Sondrio's 'BBB-' long-term deposit rating is one-notch above the
bank's Long-Term IDR to reflect protection from lower-ranking
senior preferred and Tier 2 debt buffer, as full depositor
preference is in force in Italy. The one-notch uplift also reflects
Fitch's expectation that the bank will maintain these buffers,
given the need to comply with minimum requirement for own funds and
eligible liabilities. The short-term deposit rating of 'F3' is in
line with Fitch's rating correspondence table for banks with 'BBB-'
long-term deposit ratings.
SUBORDINATED DEBT
Tier 2 debt is rated two notches below Sondrio's VR to reflect poor
recovery prospects. No notching is applied for incremental
non-performance risk because write-down of the notes will only
occur once the point of non-viability is reached and there is no
coupon flexibility before non-viability.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating (SR) of '5' and Support Rating Floor (SRF) of
'No Floor' reflect Fitch's view that although external support is
possible, it cannot be relied upon. Senior creditors can no longer
expect to receive full extraordinary support from the sovereign in
the event that the bank becomes non-viable. The EU's Bank Recovery
and Resolution Directive and the Single Resolution Mechanism for
eurozone banks provide a framework for the resolution of banks that
requires senior creditors to participate in losses, if necessary,
instead of or ahead of a bank receiving sovereign support.
RATING SENSITIVITIES
IDRS, VR AND SENIOR PREFERRED DEBT
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- While rating upside is currently limited, a stronger and more
stable operating environment combined with improved asset
quality could be positive for the ratings. These factors would
have to be accompanied by more diversified income sources,
supporting sustained profitability enhancement.
-- Fitch would upgrade the long-term senior preferred debt by one
notch if resolution buffers were to be met with senior non
preferred debt and more junior instruments or if the size of
the combined buffer of junior and senior non-preferred debt is
expected to exceed 10% of RWAs on a sustained basis.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Sondrio's ratings remain sensitive to a significant weakening
of the operating environment in Italy, which would result in a
prolonged and substantial damage to the bank's asset quality
and earnings causing significant capital erosion, including
from higher-than-expected capital encumbrance from unreserved
impaired loans. The bank's ratings could be downgraded if we
expect its CET1 ratio to edge closer to 13% and its impaired
loan ratio deteriorates to above 10%, especially if these
result in capital encumbrance by impaired loans to increase
close to or above 50%, without the prospect of recovery in the
short term.
SR AND SRF
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support the bank. In Fitch's view, this is highly unlikely,
although not impossible.
DEPOSIT RATINGS
The deposit ratings would likely be downgraded if the bank's
Long-Term IDR was downgraded. The deposit ratings are also
sensitive to a reduction in the size of the senior and junior debt
buffers to below 10% of RWAs.
SUBORDINATED DEBT
The subordinated debt rating is primarily sensitive to changes in
the VR, from which it is notched. The rating is also sensitive to a
change in the notes' notching, which could arise if Fitch changes
its assessment of their non-performance relative to the risk
captured in the VR.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BPER BANCA: Fitch Raises LT IDR to 'BB+', Outlook Stable
--------------------------------------------------------
Fitch Ratings has upgraded BPER Banca S.p.A.'s (BPER) Long-Term
Issuer Default Rating (IDR) to 'BB+' from 'BB' and Viability Rating
(VR) to 'bb+' from 'bb'. The Outlook on the Long-Term IDR is
Stable.
The upgrade reflects BPER's improved asset quality and capital
encumbrance from unreserved impaired loans due to the execution of
the bank's non-performing loan de-risking strategy, as well as a
strengthened franchise. It also reflects improvements to both
business prospects and an overall financial profile, following the
acquisition of 620 branches from Intesa SanPaolo S.p.A. (IntesaSP,
BBB-/Stable) in 1H21.
The Stable Outlook reflects Fitch's expectation of an economic
recovery in Italy, the bank's adequate capital buffers and improved
asset-quality metrics, combined with the bank's commitment to
offset potential asset-quality deterioration with impaired loan
disposals.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT RATINGS
BPER's ratings are primarily driven by adequate capitalisation,
which combined with a material improvement in asset quality to
levels close to the peer average, results in reduced capital
encumbrance by unreserved impaired loans. The ratings also reflect
the strengthening of its second-tier multi-regional domestic
franchise following the acquisition of branches from IntesaSP,
which led to 40%-60% growth of BPER's customer base, branch
network, assets, customer deposits and indirect deposits. The
acquisition reinforced BPER's presence in some of Italy's
wealthiest northern regions, particularly in Lombardy, which should
support profitability prospects, although overall operating
profitability remains variable.
BPER's capitalisation reflects an adequate common equity Tier 1
(CET1) ratio of 14.5% at end-June 2021, with moderate buffers over
regulatory requirements. Capital encumbrance by unreserved impaired
loans became more manageable at 26% at end-June 2021, having
reduced from 59% at end-2019, but remained above stronger domestic
peers' and international standards. Fitch expects capital
encumbrance by unreserved impaired loans to remain broadly stable
in the medium term as possible asset-quality deterioration should
be mitigated by additional impaired loan disposals and internal
capital generation. Fitch's assessment of BPER's capitalisation
also reflects Fitch's expectation that the bank will maintain a
CET1 ratio target of around 13% in the medium term.
During 1H21, BPER's impaired loans fell below 6% of gross loans,
mainly due to non-performing loan disposals and to the
consolidation of the newly acquired branches, whose comparatively
lower impaired loan ratio improved the group's metric further by
nearly 1pp. Under Fitch's baseline scenario Fitch expects BPER's
impaired loan ratio to be maintained at 5.5%-6% over the next two
years as an expected increase in new non-performing loan inflows
due to the pandemic should be mitigated by improved credit
standards and workout activities and planned disposals of impaired
loans.
Fitch's expectation of a rebound in the domestic economy, fuelled
by next generation EU funds, and state- guaranteed loans,
accounting for nearly 8% of BPER's gross loan at end-June 2021,
should provide additional mitigation.
In 1H21, BPER's profitability was affected by a number of one-off
items including the bad-will allocation related to the acquisition
of branches from IntesaSP, integration costs and additional loan
impairment charges (LICs) aimed at accelerating the de-risking
process. Adjusted for these extraordinary items, profitability was
still fairly modest.
While operating margins will remain under pressure from low
interest rates and, to a lesser extent, intense competition, Fitch
expects BPER to benefit from its above-sector average revenue
diversification. Net commission income is already a healthy
contributor to total revenue and Fitch expects it to increase as
integration of new branches progresses. In the medium term, Fitch
also expects operating efficiency to improve on increased business
scale and a continued focus on cost-cutting opportunities.
BPER's already sound funding profile has strengthened further by
the acquisition of branches from IntesaSP, which increased its
deposit base, taking the bank's loans/deposits ratio to below 90%.
Access to wholesale channels, particularly for unsecured debt
issues, is less frequent than for larger and higher-rated domestic
peers. Liquidity is adequate, owing to ample cash balances
redeposited at the ECB and unencumbered eligible assets. Regulatory
liquidity ratios are also sound.
BPER's senior preferred notes are rated in line with the bank's
Long-Term IDR as Fitch expects these to be part of the bank's
resolution buffers and Fitch does not expect more junior buffers to
exceed 10% of risk-weighted assets (RWAs) on a sustained basis.
DEPOSIT RATING
BPER's Long-Term Deposit Rating is upgraded to maintain the
single-notch uplift above the bank's Long-Term IDR to reflect full
depositor preference in Italy and the protection that will accrue
to this debt from less preferred bank resolution debt and equity
buffers. This is because Fitch expects the bank will comply with
minimum requirement for own funds and eligible liabilities (MREL).
Fitch has upgraded BPER's Short-Term Deposit Rating, which is in
line with Fitch's rating correspondence table for banks with 'BBB-'
Long-Term Deposit Ratings.
SUBORDINATED DEBT
BPER's subordinated debt is notched down twice from the VR for loss
severity to reflect poor recovery prospects relative to senior
unsecured debt, given its subordination status.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating (SR) of '5' and Support Rating Floor (SRF) of
'No Floor' reflect Fitch's view that, although external support is
possible, it cannot be relied upon. Senior creditors can no longer
expect to receive full extraordinary support from the sovereign in
the event that the bank becomes non-viable. The EU's Bank Recovery
and Resolution Directive and the Single Resolution Mechanism for
eurozone banks provide a framework for the resolution of banks that
requires senior creditors to participate in losses, if necessary,
instead of or ahead of a bank receiving sovereign support.
RATING SENSITIVITIES
IDRs, VR and SENIOR DEBT
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of BPER's ratings is conditional on an improved
assessment of the bank's company profile, which could result
from an enlarged scale, consolidation of competitive
advantages and pricing power, or more diverse and stable
revenue generation. An upgrade would also require the bank's
operating profit / RWAs to improve sustainably towards the
1.5% threshold without increased risk-taking, and the impaired
loan ratio to fall below 4% in the medium term, while
maintaining a CET1 ratio of at least 13%.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- BPER's ratings are vulnerable to a significant weakening of
the operating environment in Italy, which would result in
prolonged and substantial damage to the bank's asset quality
and earnings, causing significant capital erosion, including
from higher-than-expected capital encumbrance by unreserved
impaired loans. The bank's ratings could be downgraded if the
CET1 ratio falls below 13% and/or the impaired loan ratio
grows above 8% without the prospect of recovery in the short
term.
DEPOSIT RATING
The Deposit Ratings would likely be downgraded if the bank's
Long-Term IDR is downgraded. The Deposit Ratings could also be
downgraded by one notch and be aligned with the IDRs, in the event
of a reduction in the size of the senior and junior debt buffers
that would result in lower protection of deposits so that they
would no longer have a lower probability of default relative to the
IDRs. However, Fitch views this unlikely in light of the bank's
need to comply with current and future MREL requirements.
SUBORDINATED DEBT
The subordinated debt rating is primarily sensitive to changes in
the bank's VR, from which it is notched. The rating is also
sensitive to a change in the notes' notching, which could arise if
Fitch changes its assessment of their non-performance relative to
the risk captured in the VR.
SR and SRF
An upgrade of the SR and upward revision of the SRF Floor would be
contingent on a positive change in the sovereign's propensity to
support the bank. In Fitch's view, this is highly unlikely,
although not impossible.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
=====================
N E T H E R L A N D S
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SANDY HOLDCO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
-------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' issuer credit
rating and stable outlook to Roompot's ultimate parent, Sandy
Holdco B.V., and a 'B' issue rating to the group's proposed senior
credit facilities to be issued by Sandy Bidco B.V.
At the same time S&P affirmed its 'B' rating on Roompot's owner,
Koos Holding Cooperatief U.A., and revised the outlook to stable
from negative.
The outlook is stable because S&P expects Roompot's operating
performance will recover from the pandemic this year, and the group
will successfully integrate Landal, leading to pro-forma adjusted
leverage of about 7x and negative to neutral reported FOCF in 2021,
before cash generation improves significantly from 2022.
Roompot is acquiring Landal, a carve-out of certain holiday park
businesses from Awaze, for EUR1.2 billion, which we believe will
enhance Roompot's scale, diversification, and positioning in the
Dutch holiday park market while offering significant cost synergies
over time.
The acquisition of Landal and refinancing of Roompot's existing
operating company (OpCo) and property company (PropCo) debt will be
financed by a new EUR1.05 billion term loan B (TLB) and a EUR671
million equity investment from shareholder Kohlberg Kravis Roberts
& Co (KKR).
Roompot's acquisition of Landal will be paid through the issuance
of new loan and equity injection.
Roompot announced its agreement to acquire Vacation Rental B.V. and
Landal GreenParks GmbH (together Landal), a carve out of certain
holiday park businesses from Awaze Ltd. (B-/Negative/--), on June
17, 2021. Roompot intends to issue a EUR1.05 billion TLB and will
receive a EUR671 million cash common equity injection from its
shareholder KKR to finance the acquisition of Landal and to
refinance Roompot's EUR443 million existing OpCo and PropCo debt,
including the Hooge Raedt bridge facility. The acquisition is
expected to close by the end of 2021, subject to customary
conditions.
This acquisition should enhance Roompot's competitive position in
the Dutch market. S&P said, "In our view the acquisition of Landal
will increase Roompot's scale, diversification, and positioning in
the niche but resilient Dutch holiday park market. We value the
group's well invested asset base in attractive locations with high
barriers to entry and significant real estate ownership valued at
about EUR1.3 billion. That said, the business model remains highly
seasonal with about 50% of EBITDA generated in the summer and while
improving, operating leverage is still high with about 70% of
revenue generated from owned or leased assets. However, we also
recognize that the group enjoys some flexibility to adjust costs
and capital spending (capex) and protect cash flow during times of
weak operating performance because holidays are booked and paid for
in advance and the capex cycle is relatively short."
Roompot has identified numerous synergies and cost optimization
opportunities through this acquisition. S&P anticipates Roompot
will successfully integrate Landal since the two businesses are
relatively similar in terms of product offering and market.
Moreover, Roompot has a good track record of growth integrating new
parks. Roompot has identified about EUR27 million in potential cost
synergies that it can achieve by 2024 from this acquisition, given
overlap in key areas including information technology, procurement,
and offices. Roompot has also identified operational improvement
opportunities at Landal, given the acquisition's currently inflated
cost structure. S&P forecasts its adjusted EBITDA margin to improve
to beyond 24% once synergies are fully realized, from about 21.6%
in pro forma 2021. Nevertheless, since the acquired operations are
larger than Roompot's stand-alone business, S&P cannot rule out
potential setbacks given it is the group's largest acquisition to
date. The rating could come under pressure, if under any such
scenario, the synergies are not timely recognized or the
restructuring costs increase significantly from its base case.
S&P said, "We anticipate the group's operating performance will
recover from the pandemic in 2021. Roompot managed the pandemic
disruption last year relatively better than most peers, notably
thanks to its mainly domestic customer base and efforts to monitor
costs to protect earnings and cash flow. Similarly, Landal showed
some resilience through the summer of 2020 when parks were open,
although it saw a greater impact from subsequent waves because of
the closure of central facilities in Dutch parks, such as swimming
pools and other activities typically offered to vacationers, and
closure of certain international parks, to which it is more exposed
than Roompot. Although revenue was down 9.1% at Roompot in 2020 and
13.2% at Landal, we anticipate the operating performance of the
combined entity will recover this year due to pent up leisure
demand, such that it will meet the pre-pandemic booking budget. As
of July 31, Roompot had 90% and Landal 85% of 2021 full-year,
pre-covid budget in the books, and booking levels for August and
September were above budget.
"Opening pro forma leverage of 7x is high but we expect the group
will generate material positive FOCF from 2022. The proposed
transaction will result in a highly leveraged capital structure
with opening pro forma leverage of about 7x. Our debt calculation
includes about EUR1.063 billion of consolidated financial debt and
is adjusted for about EUR350 million in operating lease
obligations. We forecast leverage will remain high at about
6.5x-7.0x in 2022 because of significant restructuring costs, but
that reported FOCF after leases should be about EUR20 million-EUR40
million in 2022. This is thanks both to relatively limited capex
needs, given recently completed refurbishment programs at Landal
and Roompot, and favorable working capital dynamics. We expect
credit metrics will subsequently improve and cash flow generation
increase as restructuring costs lessen and synergies are realized,
returning to comfortable levels for the 'B' rating category. That
said, we consider the group has limited headroom to absorb delays
in integrating Landal or operational setbacks, with higher
restructuring costs or lower realized synergies.
"We forecast liquidity to remain adequate, supported by a sound
cash position at closing and the upsized RCF. After the
transaction, we estimate the group will have EUR50 million of cash
available on the balance sheet. In addition, as part of the
transaction, it expects to upsize its RCF to EUR125 million from
EUR40 million to provide additional liquidity to the enlarged
group. The RCF will be undrawn at closing. We expect the group will
maintain adequate liquidity in the next 12 months, further
supported by positive FOCF generation.
"The stable outlook reflects our view that Roompot will recover
from the pandemic this year and successfully integrate Landal, with
operating performance and credit metrics at least in line with our
base case. We forecast leverage at 6.5x-7.0x and positive FOCF of
about EUR20 million-EUR40 million in 2022, before significant
improvements in the following years as the group rolls out its
growth plan, restructuring costs lessen, and synergies are
realized."
S&P could lower the rating in the next 12 months if Roompot were
unable to improve credit metrics in line with its base case. A
downgrade could occur from one or a combination of the following:
-- There is a sharper macroeconomic downturn or operational
setbacks associated with the integration of Landal, with higher
restructuring costs or delays achieving synergies, such that
adjusted leverage increases beyond 7x or FOCF remains neutral to
negative.
-- Roompot displays a more aggressive financial policy, reflected
in prolonged weaker credit metrics, debt-funded acquisitions, or
shareholder returns.
-- Liquidity weakening materially.
An upgrade is unlikely at this stage, given the financial sponsor
ownership. That said, S&P could consider an upgrade if Roompot's
business and financial standing strengthened markedly. Ratings
upside could follow successful integration of Landal with a
demonstrated track record of material scale and growth in earnings.
An upgrade would be contingent on leverage declining below 5x and
FOCF to debt increasing beyond 5% on a sustainable basis, with a
clear commitment from KKR to maintain conservative credit metrics
within these parameters for the long term.
SANDY MIDCO: Moody's Assigns 'B2' CFR & Rates New Term Loan 'B2'
----------------------------------------------------------------
Moody's Investors Service has assigned a B2 long term corporate
family rating and a B2-PD probability of default rating to Sandy
Midco B.V. (Roompot or the company), the top entity of the new
restricted group of Roompot. Concurrently, Moody's has assigned B2
ratings to the new guaranteed senior secured EUR1,050 million term
loan B with 7 years tenor and to the new guaranteed senior secured
EUR125 million revolving credit facility with 6.5 years tenor
issued by Sandy Bidco B.V., a sub-holding company of Sandy Midco
B.V. The outlook on all ratings is stable.
At the same time, Moody's has withdrawn the B2 CFR and B2-PD PDR
and stable outlook on Rose Beachhouse B.V., the former parent of
Roompot. The B2 ratings on the existing senior secured term loan B
and senior secured RCF will be withdrawn upon the completion of the
transaction.
The proceeds from the new senior debt facilities will be used
alongside material equity financing, to fund the proposed
acquisition of Vacation Rental B.V. and Landal GreenParks GmbH
(Landal), refinance the existing debt of Roompot, including Propco
debt and Hooge Raedt bridge, cover related transaction costs and
provide some cash overfunding. The transaction is expected to close
in Q4 2021, subject to customary regulatory approvals.
The B2 CFR balances the high Moody's-adjusted leverage expectation
of around 7.0x at closing against an enhanced business profile
underpinned by its leading position in the favourable Dutch holiday
resort market and significant synergy potential, which should
support earnings growth. The rating also reflects Moody's
expectation that the company will delever to levels more
commensurate with the B2 rating over the next 18 months, but relies
on a combination of expected price increases and park expansions.
The B2 rating continues to benefit from a significant real estate
asset base.
RATINGS RATIONALE
The B2 rating reflects Roompot's established position in the
holiday park market in the Netherlands, which will further
strengthen through the acquisition of Landal; the combined group's
enhanced offerings and footprint diversification, with strong
direct distribution capabilities; the positive fundamentals of the
Dutch holiday resort market, which should continue to drive
earnings growth; and the significant synergy potential from
Landal's acquisition. Roompot's rating also takes into account the
company's business resilience during previous economic downturns
and the strong pent-up demand since the easing of pandemic-related
restrictions; solid free cash flow (FCF), with structurally
negative net working capital and moderate maintenance capital
spending needs; and good liquidity, with a sizeable real estate
asset base.
At the same time, Roompot's rating is constrained by the company's
high pro forma Moody's-adjusted leverage estimated at around 7.0x
in 2021; weaker margins post-transaction given the dilutive effect
of the acquisition; and still-high business concentration in the
Netherlands, with some seasonality. Moody's also expects
significant execution risks over the next two to three years as
Roompot integrates Landal into its operations, and the company
remains vulnerable to new waves of pandemic-related restrictions,
which could delay the pace of leverage reduction.
Moody's estimates leverage to reduce to around 6.5x in the next 18
months and towards 6.0x before taking into account one-off
implementation costs. The deleveraging pace, however, is subject to
a combination of price increases from the continued demand & supply
imbalance and premiumisation as well as park expansions, including
the conversion of campsites into lodges. The current market
environment also creates challenges in assessing the ADR and
occupancy rate development over the next 12-18 months, which drives
a higher degree of uncertainty around Moody's assumptions.
Governance risks mainly relate to the company's private-equity
ownership which tends to tolerate a higher leverage, a greater
propensity to favour shareholders over creditors as well as a
greater appetite for M&A to maximise growth and their return on
investment.
Moody's has decided to withdraw the ratings for its own business
reasons.
STRUCTURAL CONSIDERATIONS
Upon completion of the transaction, Roompot's new capital structure
will consist of a EUR1,050 million senior secured term loan B and a
EUR125 million senior secured RCF, both rated in line with the CFR.
The instruments share the same security package, rank pari passu
and are guaranteed by a group of companies representing at least
80% of the consolidated group's EBITDA. The security, consisting of
shares, bank accounts and intragroup receivables, is considered as
limited. The B2-PD is at the same level as the CFR, reflecting the
use of a standard 50% recovery rate as is customary for capital
structures with all senior bank loans with a covenant-lite
documentation. Sandy Midco will be the top entity of the restricted
group, previously being Rose Beachhouse BV. As such the SHL
(treated previously as equity) that previously entered the
restricted group from Koos Holding to Rose Beachhouse B.V. will no
longer require any equity treatment given that these will represent
intercompany loans within the new restricted group.
LIQUIDITY
Roompot's liquidity position is good, supported by the expected
EUR50 million of cash on balance sheet post-closing of the
transaction, including a EUR125 million undrawn RCF. Moody's
expects these sources of liquidity, in addition to the expected
positive FCF, to provide ample headroom to cover working capital
swings and capital spending needs over the next 12-18 months.
Roompot and Landal benefit from a structural negative net working
capital from the advanced booking payments. Moody's also expects
maintenance capex to remain around 4.5% of revenue with lower
growth capex given the significant investments made over the last 6
years.
The debt structure is covenant-lite, with one springing maintenance
covenant on the RCF set at 9.0x senior secured net leverage tested
only when the RCF is drawn more than 40%. The company will likely
maintain ample headroom under this covenant over the next 12-18
months. The company will not have any major debt maturity until
2028. The combined group will also own around EUR1.3 billion of
real estate assets with many located in prime holiday locations by
the coast of the Netherlands.
RATING OUTLOOK
Roompot's B2 rating is currently weakly positioned. The stable
outlook reflects Moody's expectation that Moody's adjusted leverage
will trend towards 6.0x over the next 18 months (before one-off
implementation costs) supported by the favourable market trends,
parks expansion and the realisation of cost synergies. The stable
outlook is based on Moody's assumption that no significant new
waves of restrictions will arise. It also assumes that the company
will be able to maintain its prices substantially above 2019 levels
despite the likely normalisation in demand during the next summer
season.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely in the short-term, given the weak rating
position. Over time, upward rating pressure could arise if Moody's
adjusted debt/EBITDA falls sustainably below 5.0x, Moody's adjusted
FCF/debt moves in the high-single digits in percentage terms on a
sustained basis, whilst maintaining a good liquidity position. An
upgrade will also require a track record of a balanced financial
policy, including the absence of any excessive profit distributions
to shareholders or large debt-funded acquisitions.
Downward pressure on the rating could develop if Moody's adjusted
debt/EBITDA does not trend well below 6.5x by 2022, if Moody's
adjusted FCF materially weakens or the liquidity position
deteriorates. An aggressive financial policy, reflected by large
debt-funded acquisitions or distributions as well as changes in
strategy with regard to the real estate ownership, could increase
negative rating pressure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
COMPANY PROFILE
Roompot is a leading holiday park operator based in the
Netherlands. After the acquisition of Landal from Awaze, the
combined group will operate around 200 parks under a mix model
across 11 countries in Europe, notably the Netherlands, which will
remain its key market, Germany, Denmark, the UK and Austria.
Roompot was acquired by KKR from PAI Partners in July 2020.
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R U S S I A
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SOVCOMBANK PJSC : Fitch Affirms 'BB+' LT IDRs, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Russian-based PJSC Sovcombank's (SCB)
Long-Term Issuer Default Ratings (IDRs) at 'BB+'. The Outlook is
Stable.
KEY RATING DRIVERS
The affirmation of the ratings reflects limited changes to SCB's
credit profile since the last rating action in September 2020. The
ratings of SCB are driven by its intrinsic credit profile, as
measured by its 'bb+' Viability Rating (VR). The VR continues to
capture SCB's strong financial profile, as expressed by its sound
profitability, consistently low impaired loan ratios, and a
reasonable funding and liquidity profile. These strengths are
balanced with occasional shifts in SCB's business model in the
past, only moderate capital ratios, and somewhat higher risk
appetite than domestic peers'.
In Fitch's view, although most of SCB's financial metrics are
consistent with a higher rating, fast loan growth (including
through regular bank acquisitions) and certain franchise
limitations constrain the ratings to the sub-investment grade
range.
At end-2Q21, SCB's impaired loans (defined as Stage 3 loans under
IFRS 9) equaled to a low 2.3% of gross loans and were 1.6x covered
by reserves. Loan impairment charges (LICs) moderated to 1.4%
(annualised) of gross loans in 2Q21 from 3% in 2020, and Fitch
believes that LICs are likely to remain below 2% in 2021. The
quality of SCB's largest corporate loans is reasonable, in Fitch's
view, but a bit weaker than at higher-rated Russian peer banks. In
retail, secured lending prevails and down-payments on average are
reasonable, reducing risk, while SCB's exposure to unsecured
consumer finance lending is only a modest 1x common equity Tier 1
(CET1) capital.
At end-2Q21, net loans made up around half of SCB's assets, while
most non-loan exposures reside in SCB's sizeable bond portfolio,
equal to 3.2x CET1 capital at end-2Q21. A significant treasury
business gives rise to market risks, despite interest-rate risks on
these bonds being hedged. Most of the bonds are booked at fair
value, which may cause considerable volatility of earnings, as was
the case in 1Q20, for example. Credit quality of the bonds is
generally reasonable, but SCB's exposure to 'B'-rated and unrated
bonds (21% and 19%, respectively, of CET1 capital at end-2Q21) is
more significant than at most peers.
Another sign of SCB's higher risk appetite is the bank's rapid loan
expansion. In 1H21, SCB's gross retail and corporate loans grew 41%
and 32%, respectively, well above sector averages. This increase is
due to fast organic growth and the consolidation of Orient Express
Bank (OEB) - a distressed Russian retail bank purchased by SCB in
April, which is likely to merge into SCB by year-end. Fitch views
this acquisition as neutral for the ratings. SCB has an impressive
record of smooth bank mergers and OEB's loan book was deeply
provisioned pre-acquisition. Any residual risks from legacy
asset-quality problems should be limited relative to SCB's equity
and pre-impairment profit.
Robust profitability is SCB's key rating strength. SCB has a long
record of consistently stronger profitability than the sector
average. Pre-impairment profit is supported by wide margins (6.5%
in 2Q21, which was 220bp above the sector average) and equals to a
high 8% of gross loans, providing SCB with a strong loss-absorption
capacity. Annualised return on equity (ROE) was a strong 27% in
2Q21, which Fitch views as a sustainable target for the medium
term.
SCB's Basel III CET1 capital ratio was a moderate 10.3% at
end-2Q21. Fitch believes that despite its strong internal capital
generation capacity, SCB will continue to operate under moderate
capital buffers due to fast organic growth and/or M&A activities.
Fitch expects SCB's CET1 capital ratio to remain below 11% in the
medium term. At end-2Q21, headroom of SCB's regulatory capital
ratios over the statutory minimum (including buffers) were in the
50bp-100bp range, which is thin, in Fitch's view.
SCB is primarily deposit-funded (76% of end-2Q21 liabilities) and
its liquidity position is strong, as expressed by a low 83% gross
loans-to-deposits ratio.
SUPPORT RATING AND SUPPORT RATING FLOOR (SRF)
SCB's SRF of 'B+' and Support Rating of '4' reflect Fitch's view of
a limited probability of state support from the Russian
authorities, in case of need. This view is based on the record of
state support to privately-owned banks in Russia, as evident by the
bail-out of senior unsecured creditors at only three medium-sized
Russian private banks that failed in 2017, and the absence of any
current plans to introduce comprehensive senior creditor bail-in
provisions into Russian legislation.
However, the wide gap between SCB's 'B+' SRF and Russia's 'BBB'
sovereign rating captures SCB's private ownership and only moderate
systemic importance, as reflected by the bank's low 1.6% share in
sector assets at end-2Q21.
DEBT RATINGS
-- SCB's senior unsecured debt is rated 'BB+' and aligned with
SCB's IDR.
-- SCB's subordinated debt is rated 'BB-' and notched down twice
from the VR, reflecting higher loss severity than senior
unsecured obligations.
-- SCB's perpetual debt is rated 'B' and notched down four times
from the bank's VR, reflecting its deep subordination and
fully discretionary coupon payments.
-- All the above debt is issued through SovCom Capital DAC.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrades:
-- A positive rating action would require (i) higher capital
ratios, with the CET1 ratio being sustainably above 13%, which
is a threshold for a 'bbb' category capital score under our
Bank Rating Criteria; (ii) further franchise expansion; and
(iii) a record of lower risk appetite. The latter could be
manifested in lower asset growth, moderation of risks in SCB's
treasury business and a more limited appetite for bank
acquisitions.
Factor that could, individually or collectively, lead to negative
rating action/downgrades:
-- SCB's ratings could be downgraded if LICs increase sharply,
resulting in negative or close to negative net income for
several consecutive quarterly reporting periods.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
SUEK SECURITIES: Moody's Rates New Senior Unsecured Notes 'Ba2'
---------------------------------------------------------------
Moody's Investors Service has assigned a Ba2 rating to the proposed
backed senior unsecured notes to be issued by SUEK Securities DAC.
The outlook on SUEK Securities DAC is stable.
RATINGS RATIONALE
The issuer of the backed senior unsecured notes - SUEK Securities
DAC - is a designated activity company incorporated under the laws
of Ireland, a 100% subsidiary of SUEK JSC (SUEK, Ba2 stable). The
backed senior unsecured notes will be issued for the sole purpose
of financing a loan to SUEK, which is one of the operating
companies of SUEK group and is the ultimate parent company of the
group. SUEK will use the proceeds for refinancing of its
outstanding indebtedness. The backed notes constitute unsecured
obligation of SUEK and are unconditionally and irrevocably
guaranteed by SUEK and its other operating subsidiaries: JSC
SUEK-Kuzbass, LLC SUEK-Khakasia and JSC Tugnuisky Opencast Mine.
Therefore, the noteholders will rely solely on SUEK group's credit
quality to service and repay the debt.
The Ba2 rating of the proposed backed senior unsecured notes is at
the same level as SUEK's corporate family rating, which reflects
Moody's view that the notes will rank pari passu with other
unsecured and unsubordinated obligations of SUEK group. The group's
debt comprises primarily pre-export financing facilities raised at
the level of its subsidiary SUEK LTD and guaranteed by its other
subsidiaries; unsecured bank loans, some of which are guaranteed;
as well as rouble-denominated bonds issued by its subsidiary SUEK
Finance. Therefore, there are no material debt instruments that are
senior or subordinated to the obligation of SUEK Securities DAC.
SUEK's Ba2 rating factors in (1) the company's status as a global
thermal coal producer; (2) the company's competitive operating
costs on the back of the weak rouble and cost-efficiency measures
as well as the ability to manage its capital spending needs; (3)
integration into power generation, which reduces volatility of
financial metrics through the cycle; (4) its vast coal reserves and
high operational diversification, with 28 operating sites; (5) the
company's control over a considerable portion of its transportation
infrastructure (including ports and bulk terminals in Vanino,
Murmansk, Tuapse and Maly, and a large railcar fleet), which
improves stability and reduces costs of coal deliveries; (6) its
high quality of coal products, and diversified domestic and
international customer base; (7) its sustainable revenue from
domestic sales, which is not linked to seaborne benchmark prices;
and (8) the proximity of the company's mines to its power
generation customers in Russia.
At the same time, the rating takes into account (1) the high
sensitivity of SUEK's earnings and leverage to the volatile thermal
coal prices in seaborne markets and the rouble exchange rate; (2)
the company's exposure to thermal coal; (3) its sizeable railway
expenses, which mainly depend on the level of regulated cargo
transportation tariffs in Russia; (4) the company's reliance on
available credit facilities to maintain adequate liquidity; (5)
SUEK's history of fairly aggressive liquidity management, as the
company tends to address its large refinancing needs six to twelve
months before debt maturity dates, on the back of continued access
to domestic and international debt financing; (6) the risks related
to the company's concentrated ownership structure, although
mitigated by good corporate governance; and (7) the uncertainty
regarding the long-term development of carbon emission regulation,
which could weaken global demand for thermal coal.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on SUEK's backed senior unsecured notes reflects
Moody's expectation that the company will adhere to balanced
financial policies, maintain moderate leverage and continue to
generate positive post-dividend free cash flow.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's could upgrade the ratings if the company were to (1) reduce
its total debt and Moody's-adjusted total debt/EBITDA to below
2.0x; (2) generate positive post-dividend free cash flow; and (3)
maintain healthy liquidity and build a track record of addressing
its upcoming debt maturities in advance, on a sustainable basis.
Moody's could downgrade the ratings if (1) the company's
Moody's-adjusted total debt/EBITDA were to exceed 3.0x on a
sustained basis; (2) the company was unable to generate positive
post-dividend free cash flow; or (3) its liquidity were to
deteriorate materially.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Environmental, social, and governance factors will have a growing
impact on SUEK's credit quality. Moody's also believes that
investor concerns about the coal industry's ESG profile are
intensifying and coal producers will be increasingly challenged by
the access to capital issues in the future. A growing portion of
the global investment community is reducing or eliminating exposure
to the coal industry with greater emphasis on moving away from
thermal coal. The aggregate impact on the credit quality of the
coal industry is that debt capital will become more expensive over
this horizon, particularly in the public bond markets, which will
lead to much more focus on individual coal producers' ability to
fund their operations and articulate clearly their approach to
addressing environmental, social, and governance considerations.
Governance risks are an important consideration for all debt
issuers and are relevant to bondholders and banks because
governance weaknesses can lead to a deterioration in a company's
credit quality, while governance strengths can benefit a company's
credit profile. Similarly to its domestic peers, SUEK has a
concentrated ownership structure - Andrey Melnichenko is the
company's principal ultimate beneficiary. Concentrated ownership
structure creates the risk of rapid changes in the company's
strategy and development plans, revisions to its financial policy
and an increase in shareholder payouts that could weaken the
company's credit quality. The risk is mitigated by the company's
commitment to a conservative financial policy. Corporate governance
function is exercised through the oversight of independent members,
which make up five out of eight of the board of directors' seats,
as well as via relevant board's committees while the board is being
chaired by an independent director.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Mining published
in September 2018.
COMPANY PROFILE
SUEK is the holding company of one of the world's largest thermal
coal producers, one of Russia's largest producers of thermal coal,
electricity and heat as well as among top five gondola railcars and
port operators in Russia. The company operates 19 opencast mines,
eight underground mines and ten coal-washing plants in eight
geographical regions, mostly in Siberia and the Russian Far East,
as well as 27 power generation stations in Siberia. SUEK owns rail
infrastructure, rail rolling stock, the Vanino Bulk Terminal (a
coal terminal at Vanino in the Sea of Japan), the ice-free Murmansk
Commercial Seaport and Murmansk bulk terminal, a 55% stake in the
Maly Port in the Russian Far East, and Tuapse bulk terminal. In the
last twelve months ending June 30, 2021, the company generated
revenue of $7.6 billion and Moody's-adjusted EBITDA of $2.4
billion. The company's principal ultimate beneficiary is Andrey
Melnichenko.
=========
S P A I N
=========
FTPYME TDA CAM 4: Fitch Affirms C Rating on Class D Tranche
-----------------------------------------------------------
Fitch Ratings has upgraded three tranches of three Spanish SME
CDOs.
DEBT RATING PRIOR
---- ------ -----
Caixa Penedes PYMES 1 TDA, FTA
Class B ES0357326018 LT AAAsf Affirmed AAAsf
Class C ES0357326026 LT Asf Upgrade BBBsf
FT PYMES Santander 14
Series A ES0305381008 LT A+sf Affirmed A+sf
Series B ES0305381016 LT BB+sf Upgrade B+sf
Series C ES0305381024 LT CCsf Affirmed CCsf
FTPYME TDA CAM 4, FTA
B ES0339759039 LT A+sf Affirmed A+sf
C ES0339759047 LT Asf Upgrade BBBsf
D ES0339759054 LT Csf Affirmed Csf
TRANSACTION SUMMARY
The transactions are securitisations of Spanish SME loans.
KEY RATING DRIVERS
Improved Performance Outlook, Removal of Additional Stresses: The
upgrades and Stable Outlooks reflect the broadly stable asset
performance outlook driven by the low exposure to payment holiday
loans (between 1.5% of CAM 4 and 0.1% of Penedes), the low share of
loans in arrears over 90 days (less than 2.2% for all three
transactions) and the improved macro-economic outlook for Spain, as
described in Fitch's latest Global Economic Outlook dated June
2021.
The rating analysis reflects the removal of the additional stresses
in relation to the coronavirus outbreak and legal developments in
Catalonia.
Credit Enhancement (CE) Trends: The upgrades and affirmations
reflect Fitch's view that the notes are sufficiently protected by
credit enhancement (CE) to absorb the projected losses commensurate
with prevailing and higher rating scenarios.
Fitch expects structural CE for Penedes to increase, due to the
strictly sequential amortisation and currently non-amortising
reserve fund (RF). CAM 4's RF is replenishing and Fitch expects it
to reach its target and amortise to its floor within the medium
term, subject to the fulfilment of performance triggers. This could
lead to a decrease in CE for the class B and C notes. Additionally,
Fitch expects structural CE for Santander 14 to increase due to
strictly sequential amortisation and after the RF amortised to its
floor at the beginning of 2021.
Portfolio Concentration: Despite the high seasoning of Penedes and
CAM 4 (both transactions have a portfolio factor below 4%), both
portfolios are granular and well diversified among obligors and
industries. The highest concentration is in Penedes where the
largest single borrower group accounts for 3.4% of the portfolio
balance and the largest 10 borrower groups account for 16.7%. The
portfolios are diversified across industries with the top industry
business services (Santander 14), retail (CAM 4) and real estate
(Penedes).
Due to the fast amortisation profile of Santander 14's portfolio,
the largest obligors' concentration has increased and there is a
larger share of unsecured loans in the portfolio. The largest
single borrower group accounts for 2.5% of the portfolio balance
compared with 2.0% at Fitch's previous review, and the largest 10
borrower groups account for 13.1% compared with 9.7% previously.
Fitch views the increasing concentration as a potential risk factor
in an uncertain macroeconomic environment for SMEs with the phase
out of governmental Covid-19 measures. Fitch has factored this into
its rating analysis and deviated from the class B notes'
model-implied rating by two notches.
Counterparty Risk Cap: Santander 14's class A notes' rating is
capped at 'A+sf' as per Fitch's Structured Finance and Covered
Bonds Counterparty Rating Criteria, due to the account bank
replacement trigger being set at 'BBB' or 'F2'. Additionally
Penedes and CAM 4's class C notes' ratings are capped at Asf, the
issuer account bank provider's deposit rating (Societe Generale
S.A.), as their only source of structural CE are the RFs held at
the account bank.
Fitch views the exposure to payment interruption risk as fully
mitigated for Penedes, and up to 'A+sf' for CAM4 and Santander 14
as the RFs provide enough protection. Collections are swept at
least every two days, and the servicer and collection account bank
roles are performed by regulated financial institutions in a
developed market.
Interest Rate Exposure: Santander 14 is exposed to rising interest
rate scenarios as the portfolio contains 28% of receivables paying
fixed interest rates while the notes pay a floating coupon and
there are no hedging mechanisms. Fitch has accounted for this risk
and found available CE sufficient to mitigate it.
ESG Relevance Scores
FTPYME TDA CAM 4, FTA has an ESG Relevance Score of '5' for
"Transaction and Collateral Structure" due to the ratings being
capped at 'A+sf' as payment interruption risk is not sufficiently
mitigated. This is because the RF is well below target (so there is
a risk of liquidity shortfall in case of servicer default), which
has a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Spain's Long-Term Issuer Default Ratings (IDR)
that could lower the maximum achievable rating for Spanish
structured finance transactions. This is for the senior notes
rated at 'AAAsf', which is the maximum achievable rating in
the country at six notches above the sovereign IDR, in line
with Fitch's Structured Finance and Covered Bonds Country Risk
Rating Criteria.
-- For Penedes and CAM 4's class C notes, a downgrade of Societe
General S.A.'s long-term deposit rating as it is the SPV
account bank provider, and the notes' ratings are capped at
the bank's rating due to excessive counterparty risk exposure.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The class B notes in Penedes is already rated at the highest
level on Fitch's scale and cannot be upgraded.
-- Increases in CE ratios as the transactions deleverage to fully
compensate the credit losses and cash flow stresses that are
commensurate with higher rating scenarios, all else being
equal.
-- For Penedes and CAM 4's class C notes, an upgrade of Societe
General S.A. long-term deposit rating as it is the SPV account
bank provider, and the notes' ratings are capped at the bank's
rating due to excessive counterparty risk exposure.
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
FT PYMES Santander 14
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.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
Caixa Penedes PYMES 1 TDA, FTA, FTPYME TDA CAM 4, FTA
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pool[s] and the transaction[s]. 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.
Fitch did not undertake a review of the information provided about
the underlying asset pool[s] ahead of the transaction's [Caixa
Penedes PYMES 1 TDA, FTA, FTPYME TDA CAM 4, FTA] initial closing.
The subsequent performance of the transaction[s] over the years is
consistent with the agency's expectations given the operating
environment and Fitch is therefore satisfied that the asset pool
information relied upon for its initial rating analysis was
adequately reliable.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Penedes and CAM 4´s Class C notes' rating is capped at 'Asf', the
issuer account bank provider's deposit rating (Societe Generale
S.A.) as its only source of structural CE is the reserve fund held
at the account bank.
ESG CONSIDERATIONS
FTPYME TDA CAM 4, FTA has an ESG Relevance Score of '5' for
Transaction & Collateral Structure due to the ratings being capped
at 'A+sf' as payment interruption risk is not sufficiently
mitigated. This is because the RF is well below target (so there is
a risk of liquidity shortfall in case of servicer default), which
has a negative impact on the credit profile, and is highly relevant
to the rating, resulting in an implicitly lower rating
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.
MIRAVET SARL: Fitch Raises Class E Tranche to 'B'
-------------------------------------------------
Fitch Ratings has upgraded four tranches of Miravet S.a.r.l. and
affirmed one tranche. Fitch has also removed four tranches from
Rating Watch Positive (RWP). The Outlooks are Stable.
DEBT RATING PRIOR
---- ------ -----
Miravet S.A. R.L.
Class A XS2076149397 LT AAAsf Affirmed AAAsf
Class B XS2076149553 LT Asf Upgrade BBB+sf
Class C XS2076149637 LT BBBsf Upgrade BBsf
Class D XS2076149710 LT BBsf Upgrade Bsf
Class E XS2076149801 LT Bsf Upgrade CCCsf
TRANSACTION SUMMARY
The transaction is a static securitisation of seasoned and fully
amortising Spanish residential mortgages originated by Catalunya
Banc, Caixa Catalunya, Caixa Tarragona and Caixa Manresa, entities
that are fully owned by and integrated with Banco Bilbao Vizcaya
Argentaria, S.A. (BBVA, BBB+/Stable/F2).
KEY RATING DRIVERS
Increased Credit Enhancement (CE): Fitch expects CE for the notes
to continue increasing as the transaction applies fully sequential
amortisation. For example, CE for the class A notes had risen to
37.6% as of May 2021 from 33.5% as of the closing date in December
2019.
The upgrades of the class B to E tranches and Stable Outlooks on
all tranches follows the retirement of the Catalonia region and
coronavirus-related additional stress scenario analysis (see 'Fitch
Retires Additional Stress Scenario Analysis for Spanish RMBS Linked
to Catalonia Decree Law' and 'Fitch Retires UK and European RMBS
Coronavirus Additional Stress Scenario Analysis, except for UK
Non-Conforming' at www.fitchratings.com). In its analysis of the
transaction, Fitch applied assumptions set out in its European RMBS
Rating Criteria.
Re-performing Loans: Around 78% of the portfolio is linked to loans
with prior restructurings that had a weighted average clean payment
history of 8.2 years as of April 2021. The default rate of each
re-performing loan is derived from the assessment of the payment
record since the most recent date they were last in arrears and the
restructuring end date. The transaction has reduced the exposure to
arrears over 90 days to 10.5% (from 11.4% at August 2020) of the
current balance as of April 2021. These are subject to a
foreclosure frequency (FF) floor assumption of 60% under a 'B'
rating scenario.
High Geographic Concentration: The portfolio is highly exposed to
the region of Catalonia. Within the credit analysis, and to address
the regional concentration risk, Fitch applies higher rating
multiples to the base FF assumption to the portion of the portfolio
that exceeds 2.5x the population within this region, in line with
its European RMBS Rating Criteria.
Operational Risk Adequately Mitigated: The servicer migration to
Pepper Spanish Servicing (Pepper) from Anticipa Real Estate SLU
became effective in June 2021. The migration process occurred as
envisioned at closing and in Fitch's view, Pepper's servicing
capabilities are in line with the industry and compatible with the
ratings.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Spain's Long-Term Issuer Default Rating (IDR)
that could decrease the maximum achievable rating for Spanish
structured finance transactions. This is because the class A
notes are capped at the 'AAAsf' maximum achievable rating in
Spain, six notches above the sovereign IDR.
-- Long-term asset performance deterioration such as increased
delinquencies or larger defaults, which could be driven by
changes to macroeconomic conditions, interest rate increases
or borrower behaviour.
-- Fitch conducts sensitivity analyses by stressing both a
transaction's base-case FF and recovery rate (RR) assumptions,
and examining the rating implications for all classes of
issued notes. A 15% increase in the weighted average (WA) FF
and a 15% decrease in the WARR could result in downgrades of
up to seven notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Increase in CE ratios as the transaction deleverages, able to
fully compensate the credit losses and cash flow stresses
commensurate with higher rating scenarios, all else being
equal.
-- Improved asset performance driven by stable delinquencies and
defaults could lead to upgrades of the class B to E notes. A
decrease in the WAFF of 15% and an increase in the WARR of 15%
could imply upgrades of up to seven notches.
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
Treatment of Further Drawdowns
Fitch's credit analysis of the portfolio did not consider potential
further drawdowns of the underlying mortgages when estimating
portfolio loan-to-value (LTV) trends. This was substantiated by
there being no instances registered to the closing date since April
2015 as well as no evidence of any additional drawdowns granted
since closing until April 2021. This is driven by stringent
conditions that discourage debtors from requesting further
advances.
This variation to Fitch's European RMBS Rating Criteria, according
to which potential further advances should be considered during
asset analysis impacting WAFF and WARR outputs, has a model-implied
rating impact of one notch for the class A, C, D and E notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Prior to the transaction closing, Fitch conducted a review of a
small targeted sample of the originator's origination files and
found the information contained in the reviewed files to be
adequately consistent with the originator's policies and practices
and the other information provided to the agency about the asset
portfolio.
Overall, Fitch's assessment of the information relied upon for the
agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
===========================
U N I T E D K I N G D O M
===========================
C&C TRANSPORT: Director Banned for 12 Years for Stealing
--------------------------------------------------------
The Insolvency Service on Aug. 11 disclosed that Lisa Crawshaw, 46,
was a director of
Scunthorpe-based family haulage firm C&C Transport, from 2006 until
2020. She admitted to stealing over GBP1.7 million from the
business, using the money to buy horses and equestrian equipment.
Her fellow directors, including her brother, were completely
unaware of her actions, only discovering them when the business
started receiving letters from creditors when the company was
sold.
At her sentencing at Grimsby Crown Court in March 2021, Ms.
Crawshaw said she found buying horses "more addictive than drugs".
The company ceased trading in October 2018 but remained live on the
Companies House register until August 2020 when it went into
liquidation.
The disqualification undertaking, which runs for 12 years from June
29, 2021, means she must not directly or indirectly, become
involved, without the permission of the court, in the promotion,
formation or management of a company.
Jo Walker, lead investigator in the case said:
Ms. Crawshaw abused her position as a director of her company to
commit fraud, and the length of her disqualification period should
act as a deterrent to other directors who might be tempted to
exploit their position in a similar way.
CARILLION PLC: KPMG Accused of Providing False Audit Information
----------------------------------------------------------------
Michael O'Dwyer at The Financial Times reports that KPMG will face
a disciplinary tribunal over allegations that it provided false or
misleading information to the UK accounting regulator regarding its
audits of Carillion and another outsourcer.
The Financial Reporting Council announced a formal complaint
against the accounting firm and several individuals there,
including former partner Peter Meehan, who led KPMG's audits of
Carillion, the FT relates.
According to the FT, the regulator alleged that KPMG provided false
or misleading information or documents in connection with its
routine quality inspections of the audits of Carillion for the
financial year ending December 2016 and of Regenersis, another
outsourcer, for the year ending June 2014.
The FRC's complaint did not allege that KPMG or its staff committed
misconduct during the audits or that the financial statements of
Carillion or Regenersis, a London-listed IT company that later
renamed itself Blancco Technology Group, were not properly
prepared, the FT states.
Possible failings in the audits of Carillion's financial statements
are the subject of two other FRC investigations, whose results are
yet to be announced, the FT notes. Carillion's liquidators are
preparing a separate GBP250 million negligence claim against KPMG,
the FT discloses.
Carillion paid KPMG GBP29 million for its work for almost two
decades before the outsourcer collapsed in January 2018, the FT
recounts. It had liabilities of GBP7 billion and just GBP29
million of cash when it was placed into liquidation, fuelling
debate over how the UK audit sector and boardroom regulation could
be reformed to make them more effective, the FT notes.
The regulator's complaint, announced on Sept. 1, relates to
information supplied by KPMG to FRC inspectors during the
watchdog's annual retrospective checks on a random sample of
audits, the FT recounts.
In 2018, KPMG discovered potential problems with the information
provided to the FRC by its auditors, the FT relays. It suspended
Mr. Meehan, who left the firm in January 2021, and three others
after concerns were raised that documents provided to the watchdog
had been backdated, the FT discloses.
Following the discovery, the Big Four firm called in lawyers from
Linklaters, who found similar issues with the information supplied
to the FRC relating to the Regenersis audit, the FT recounts.
According to the FT, the FRC's complaint also named Stuart Smith,
the KPMG employee who led the Regenersis audit and is currently
suspended by the firm.
A decision by the FRC to proceed with a formal complaint and a
tribunal hearing indicated that it could not reach a settlement
with the firm or individuals accused of wrongdoing, the FT states.
The case is scheduled to be heard by a disciplinary tribunal in
January 2022, the FT notes.
CODE HOVE: Director Banned for Tax Abuse Following Liquidation
--------------------------------------------------------------
The Insolvency Service on Aug. 25 disclosed that Emad Abdolkhani
(31), from Hove, was the sole director of Code Hove Limited since
July 31, 2016, which traded the Barcode restaurant on Church Road
in Hove.
Code Hove, however, ceased trading in June 2018 and a winding-up
order was made against the company on October 30, 2019, following a
petition by the tax authorities.
The liquidation of Code Hove triggered an investigation by the
Insolvency Service into the conduct of Mr. Abdolkhani before
investigators uncovered that he had under-declared tax estimated to
be more than GBP60,000.
The company now owes over GBP200,000 in outstanding tax payments
together with penalties, charges and interest.
Further enquiries uncovered that Mr. Abdolkhani had failed to
record the company's sales accurately and under-declared the amount
of tax due in returns from September 2016.
The Secretary of State for Business, Energy and Industrial Strategy
accepted an undertaking from Mr. Abdolkhani after he did not
dispute that he failed to ensure that the company submitted
accurate VAT returns
His disqualification is effective from August 25, 2021, and Mr.
Abdolkhani is banned for 6 years from acting as a director or
directly or indirectly becoming involved, without the permission of
the court, in the promotion, formation or management of a company
Marc Symons, Deputy Head of Insolvent Investigations, said:
Directors must ensure their companies pay the correct taxes but
enquiries proved that Mr. Abdolkhani failed to do so while he ran
the company.
The restaurateur's ban should serve as a warning that if you fail
to fulfil your obligations and seek to gain an unfair advantage
over competitors, by failing to properly account and pay for your
tax, you could lose the protection of limited liability.
FERGUSON MARINE: Most Challenging Business Turnaround in UK
-----------------------------------------------------------
Douglas Fraser at BBC News reports that Ferguson Marine's shipyard
is probably "the most challenging business turnaround in the UK",
says Tim Hair.
Mr. Hair is the "turnaround director" at the Port Glasgow yard -- a
title that is neither manager nor chief executive, BBC discloses.
He insists this is because its requires a specific set of skills
for which he is being paid roughly GBP40,000 most months, BBC
notes.
"This is a very intensive place," BBC quotes Mr. Hair as saying.
"It's a functioning shipyard, but there is still a lot of work to
do."
Mr. Hair was recruited by the Scottish government when it took the
yard out of administration more than two years ago, BBC relates.
He was given instructions to stabilize operations, deliver on five
ships -- two of them large CalMac ferries and three of them much
smaller -- and then to prepare the yard for a sustainable future,
according to BBC.
Delivery of the ships is now more than four years later than first
contracted, BBC states.
The initial price was GBP97 million, according to BBC. To that,
the current management has added a cost of GBP110 million, BBC
notes.
According to BBC, a further GBP5 million or so due to Covid delays,
at more than six months, is being met from outside that budget, and
the Scottish government also lost GBP45 million in loans that it
sunk into the previous company.
STAR UK: S&P Affirms 'B-' ICR, Alters Outlook to Positive
---------------------------------------------------------
S&P Global Ratings revised its outlook to positive from negative
and affirmed all its ratings, including its 'B-' issuer credit
rating on Star UK Midco and Star US Bidco LLC.
S&P said, "The positive outlook indicates we could raise our
ratings over the next 12 months if we expect the company will
sustain S&P Global Ratings-adjusted debt to EBITDA below 6.5x and
generate solid free operating cash flow (FOCF).
"Solid aftermarket demand should continue to drive stable operating
performance. Although the COVID-19 pandemic temporarily reduced
demand for refined hydrocarbons during 2020, we believe few
facilities were shut down for an abnormal period. This drove steady
orders for replacement parts, which contribute most of Sundyne's
S&P Global Ratings-adjusted EBITDA. We believe a disruption to
global demand that significantly reduces the company's aftermarket
volume is unlikely over the next 12-24 months and expect low- to
mid-single-digit percentage revenue growth in the next year."
The turnaround in the global economy and improved oil prices should
support industry investment and Sundyne's backlog. Reduced demand
for refined hydrocarbons increased industry capacity and, with
COVID-19 pandemic-related restrictions on construction activity,
may have slowed new investment. As of June 30, 2021, Sundyne's
backlog--which predominantly comprises new equipment--was
moderately below its Sept. 30, 2020 peak. S&P said, "However, we
increasingly expect the 2021 recovery should support global
refining activity and capacity investment. We believe new equipment
orders will keep Sundyne's backlog stable or increase it
modestly."
The improving demand outlook will likely improve credit metrics in
2021. Amortization of inventory fair value step-up related to
Warburg Pincus' acquisition of Sundyne weakened S&P Global
Ratings-adjusted credit metrics in 2020. Since this expense will
not recur in 2021, and because we believe the economic and refined
hydrocarbon market outlook has improved, Sundyne will likely
improve credit metrics in 2021. Raw material inflation could
pressure profitability, but we believe Sundyne will pass most cost
inflation on to its customers and earn solid S&P Global
Ratings-adjusted EBITDA margins over the next year.
S&P said, "We view Sundyne's focus on hydrocarbon refining as a
weakness compared to other manufacturers. We expect the transition
to clean energy will gradually reduce demand for petrochemicals,
which could dampen refining activity over the next 5-10 years.
Sundyne is expanding its presence in chemical, industrial, and
alternative energy applications, including hydrogen, but we believe
the transition could weigh on product demand over the long term.
"The positive outlook reflects the potential that we could raise
our rating on Sundyne over the next 12 months if it maintains or
increases EBITDA and generates solid free cash flow such that S&P
Global Ratings-adjusted debt to EBITDA remains below 6.5x. We also
expect the company's financial policy will sustain such leverage."
S&P could raise its ratings on Sundyne if global economic growth
and refining activity continue to support demand for replacement
components for installed Sundyne pumps; new equipment investment
remains solid as evidenced by a stable to improving backlog; and it
believes:
-- S&P Global Ratings-adjusted debt to EBITDA will stay below 6.5x
on a sustained basis;
-- FOCF will remain solid; and
-- Acquisitions or shareholder rewards will not raise leverage
above 6.5x.
S&P could revise the outlook back to stable if economic growth
flags, reducing demand and backlog, or financial policy is more
aggressive, such that S&P expects:
-- S&P Global Ratings-adjusted EBITDA above 6.5x; or
-- FOCF significantly short of our forecast.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Bankruptcy and Secured Lending in Cyberspace
-------------------------------------------------------------
Author: Warren E. Agin
Publisher: Bowne Publishing Co.
List price: $225.00
Review by Gail Owens Hoelscher
Red Hat Inc. finds itself with a high of 151 5/8 and low of 20 over
the last 12 months! Microstrategy Inc. has roller-coasted from a
high of 333 to a low of 7 over the same period! Just when the IPO
boom is imploding and high-technology companies are running out of
cash, Warren Agin comes out with a guide to the legal issues of the
cyberage.
The word "cyberspace" did not appear in the Merriam-Webster
Dictionary until 1986, defined as "the on-line world of computer
networks." The word "Internet" showed up that year as well, as "an
electronic communications network that connects computer networks
and organizational computer facilities around the world."
Cyberspace has been leading a kaleidoscopic parade ever since, with
the legal profession striding smartly in rhythm. There is no
definition for the word "cyberassets" in the current
Merriam-Webster. Fortunately, Bankruptcy and Secured Lending in
Cyberspace tells us what cyberassets are and lays out in meticulous
detail how to address them, not only for troubled technology
companies, but for all companies with websites and domain names.
Cyberassets are primarily websites and domain names, but also
include technology contracts and licenses. There are four types of
assets embodied in a website: content, hardware, the Internet
connection, and software. The website's content is its fundamental
asset and may include databases, text, pictures, and video and
sound clips. The value of a website depends largely on the traffic
it generates.
A domain name provides the mechanism to reach the information
provided by a company on its website, or find the products or
services the company is selling over the Internet. Examples are
Amazon.com, bankrupt.com, and "swiggartagin.com." Determining the
value of a domain name is comparable to valuing trademark rights.
Domain names can come at a high price! Compaq Computer Corp. paid
Alta Vista Technology Inc. more than $3 million for "Altavista.com"
when it developed its AltaVista search engine.
The subject matter covered in this book falls into three groups:
the Internet's effect on the practice of bankruptcy law; the ways
substantive bankruptcy law handles the impact of cyberspace on
basic concepts and procedures; and issues related to cyberassets as
secured lending collateral.
The book includes point-by-point treatment of the effect of
cyberassets on venue and jurisdiction in bankruptcy proceedings;
electronic filing and access to official records and pleadings in
bankruptcy cases; using the Internet for communications and
noticing in bankruptcy cases; administration of bankruptcy estates
with cyberassets; selling bankruptcy estate assets over the
Internet; trading in bankruptcy claims over the Internet; and
technology contracts and licenses under the bankruptcy codes. The
chapters on secured lending detail technology escrow agreements for
cyberassets; obtaining and perfecting security interests for
cyberassets; enforcing rights against collateral for cyberassets;
and bankruptcy concerns for the secured lender with regard to
cyberassets.
The book concludes with chapters on Y2K and bankruptcy; revisions
in the Uniform Commercial Code in the electronic age; and a
compendium of bankruptcy and secured lending resources on the
Internet. The appendix consists of a comprehensive set of forms for
cyberspace-related bankruptcy issues and cyberasset lending
transactions. The forms include bankruptcy orders authorizing a
domain name sale; forms for electronic filing of documents;
bankruptcy motions related to domain names; and security agreements
for Web sites.
Bankruptcy and Secured Lending in Cyberspace is a well-written,
succinct, and comprehensive reference for lending against
cyberassets and treating cyberassets in bankruptcy cases.
[*] John Houghton Joins Greenberg's London Restructuring Practice
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Global law firm Greenberg Traurig, LLP has added John Houghton to
the firm's London office, where he will serve as Chair of the
LondonRestructuring & Bankruptcy Practice. Mr. Houghton is former
Global Co-Chair of the Restructuring & Special Situations Practice,
and former European Head of Restructuring & Special Situations, at
Latham & Watkins, where he practiced for nearly 20 years.
With an emphasis on complex cross-border matters, Mr. Houghton
focuses his practice on advising creditors, sponsors, insolvent
companies, directors, and insolvency practitioners on all areas of
international restructurings, insolvency, and corporate rescues. He
also advises parties seeking to fund into existing insolvencies and
restructurings or who are interested in acquiring distressed
businesses.
Mr. Houghton joins Ian Jack in London, who joined the firm in March
2020, and previously served as Co-Head of Global Restructuring &
Insolvency at Baker & McKenzie, as Greenberg Traurig further
strategically enhances its world class practice. As recently as
February 2021, 13-year Dentons veteran Oscar Pinkas, most recently
global group leader of that firm's restructuring, insolvency and
bankruptcy practice, joined Greenberg Traurig to Chair its New York
Restructuring & Bankruptcy Practice.
"We have been patiently building a world class restructuring and
bankruptcy practice, across the United States and around the
world," said Richard A. Rosenbaum, Greenberg Traurig's Executive
Chairman. "While markets and deals remain very strong, every
instinct tells us that we are not far from a time when our
restructuring, bankruptcy and disputes lawyers will be busier than
ever. Experience tells us that the time to build for the next
cycle is before it gets here, and that hiring top quality, seasoned
talent, and collaborating as a unified global team, are the keys to
being ready when it comes."
"It was the depth and breadth of the Greenberg Traurig
restructuring and bankruptcy, funds, real estate, corporate, M&A,
disputes and finance practices, and the now-mature and consistently
excellent European platform, that attracted me to the firm, as well
as the opportunity to build something very special in London," Mr.
Houghton said. "I am excited by the opportunity to work with
first-class professionals in five European markets, a fast-growing
London office, 30 U.S. offices including 300 lawyers in New York
and major offices in the strongest growth centers in the United
States -- Florida, Texas, California, Chicago, the Southwest and
beyond -- as well as Latin America, Asia and Israel."
Fiona Adams, Managing Shareholder of the firm's London office and
Co-Chair of the firm's Global Corporate Practice, said, "John
brings a wealth of experience and enhances our offering in the
restructuring space."
Shari Heyen and David Kurzweil, Co-Chairs of the firm's Global
Restructuring & Bankruptcy Practice, added, "He understands how to
proactively help clients resolve and take advantage of
opportunities that may arise in complex distress situations, and
has been a well-known global leader in the practice for many years,
especially in Europe."
Mr. Houghton received an LLM from University College London, and an
LLB from Brunel University. He has garnered many recognitions and
awards for his work. His accolades include The Legal 500 Hall of
Fame – Corporate Restructuring & Insolvency, and Leading
Individuals – Corporate Restructuring & Insolvency; Chambers
Europe Guide, "Restructuring/Insolvency – UK," ranked; and
IFLR1000, "Highly Regarded". He was previously a member of teams
that received the following recognitions: Acquisitions Monthly
magazine, "Restructuring Deal of the Year"; IFLR, Middle East
Awards, "Restructuring Deal of the Year"; American Lawyer Awards,
"Global Finance Deal of the Year: Restructuring (Europe)"; M&A
Advisor Turnaround Awards, "Chapter 11 Reorganization of the Year";
IFLR, European Awards, "Restructuring Deal of the Year"; Global M&A
Network, Turnaround Atlas Awards, "Global Restructuring Law Firm of
the Year"; and Acquisitions Monthly, "Restructuring Deal of the
Year."
About Greenberg Traurig's Restructuring & Bankruptcy Practice
Greenberg Traurig's internationally recognized Restructuring &
Bankruptcy Practice provides clients with deep insight and
knowledge acquired over decades of advisory and litigation
experience. The team has a broad and diverse range of experience
developing creative and effective solutions to the highly complex
issues that arise in connection with in- and out-of-court
reorganizations, restructurings, workouts, liquidations, and
distressed acquisitions and sales. Using a multidisciplinary
approach, the firm's vast resources and invaluable business
network, the team helps companies navigate challenging times and
address the full range of issues that can arise in the course of
their own restructurings or dealings with other companies in
distress.
About Greenberg Traurig
Greenberg Traurig, LLP (GT) -- http://www.gtlaw.com-- has
approximately 2200 attorneys in 40 locations in the United States,
Latin America, Europe, Asia, and the Middle East. GT has been
recognized for its philanthropic giving, diversity, and innovation,
and is consistently among the largest firms in the U.S. on the
Law360 400 and among the Top 20 on the Am Law Global 100. The firm
is net carbon neutral with respect to its office energy usage and
Mansfield Rule 3.0 Certified.
*********
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,
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
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Editors.
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