/raid1/www/Hosts/bankrupt/TCREUR_Public/210923.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
Thursday, September 23, 2021, Vol. 22, No. 185
Headlines
F R A N C E
EUROPCAR MOBILITY: Moody's Ups CFR to Caa1, Outlook Remains Pos.
I R E L A N D
BROOM HOLDINGS: S&P Assigns 'B' LongTerm ICR, Outlook Stable
CAPITAL FOUR III: S&P Assigns Prelim. B- Rating on Cl. F Notes
ENERGIA GROUP: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
RRE 9 LOAN: Moody's Assigns (P)Ba3 rating to EUR18MM Class D Notes
I T A L Y
ALITALIA SPA: Oct. 4 Auction Set for Brand, ITA Expected to Bid
L U X E M B O U R G
MATADOR BIDCO: S&P Affirms 'BB-' LongTerm ICR, Outlook Negative
N E T H E R L A N D S
EDML 2018-1 BV: Moody's Affirms Ba3 Rating on EUR3.75MM G Notes
OCI NV: S&P Raises Issuer Credit Rating to 'BB+', Outlook Stable
P O R T U G A L
[*] Moody's Takes Actions on 6 Portuguese Banks
R U S S I A
VIM AIRLINES: Ex-Pres, Wife's Appeal in Bankruptcy Case Tossed
S L O V E N I A
ADRIA AIRWAYS: Bankruptcy Procedure to Be Concluded by 2024
S P A I N
FONCAIXA FTGENCAT 5: S&P Raises Class C Notes Rating to BB+
GRIFOLS SA: S&P Cuts ICR to 'BB-' on Debt-Funded Acquisition
U N I T E D K I N G D O M
AVRO ENERGY: Surging Gas Prices Prompt Collapse
DAILY MAIL: Fitch Lowers LT IDR to 'BB+', Off Watch Negative
EVCL: On Brink of Insolvency, In Talks Over Contingency Plans
FOOTBALL INDEX: Report Criticizes Gambling Commission, FCA
INTU METROCENTRE: Fitch Lowers Fixed Rated Notes to 'CC'
PEOPLECERT WISDOM: Fitch Assigns Final 'B' LT IDR, Outlook Pos.
POLO FUNDING 2021-1: Moody's Assigns (P)B2 Rating to Class D Notes
TWIN BRIDGES 2021-2: Moody's Assigns Ba3 Rating to Class X1 Notes
- - - - -
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F R A N C E
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EUROPCAR MOBILITY: Moody's Ups CFR to Caa1, Outlook Remains Pos.
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Moody's Investors Service has upgraded the ratings of France-based
car rental company Europcar Mobility Group S.A. ("EMG", or "the
company"), including the LT corporate family rating to Caa1 from
Caa2 and the probability of default rating to Caa1-PD from
Caa2-PD.
Concurrently, Moody's has assigned a B2 rating to the guaranteed
senior secured notes due 2026 at EC Finance plc ("the new fleet
notes"). The rating on the guaranteed senior secured notes due 2022
at EC Finance plc ("the existing fleet notes") has been upgraded to
B2 from B3 and will be withdrawn when these notes have been repaid
with proceeds from the new fleet notes.
The outlook on both entities remains positive.
RATINGS RATIONALE
The upgrade of the CFR to Caa1 reflects Moody's expectations that
EMG's trading in 2021 will outperform the rating agency's forecasts
set in April 2021 following completion of the corporate debt
restructuring. Moody's currently forecasts corporate EBITDA of
around EUR100 million in 2021 compared to slightly positive EBITDA
previously. This reflects some recovery in volumes compared to 2020
because travel restrictions were not as severe during the 2021
summer season, the period of time when EMG generates most of its
earnings and cash flow. The pricing environment in the last few
months has also been more favourable for car rental companies
because supply chain bottlenecks in the semiconductor industry have
led to lower car rental supply.
As a result of the higher EBITDA, Moody's forecasts lower negative
corporate free cash flow after interest of around EUR200 million in
2021 compared to a negative amount of over EUR300 million
previously. This lower cash flow consumption in 2021 will
strengthen liquidity compared to Moody's previous expectations and
was also a key factor supporting today's rating action.
Further positive rating action will be dependent on how quickly,
and the extent to which rental demand continues to recover. Moody's
expects the speed of any recovery will depend on how the pandemic
evolves over the next few quarters, namely whether new variants and
any rising infections mean travel restrictions continue or return
to being more severe.
In 2022, Moody's forecasts corporate free cash after interest will
remain negative at around EUR40 million based on revenue and
corporate EBITDA (before IFRS16) of around EUR2.5 billion and
EUR175 million respectively. Based on the aforementioned forecasts,
the rating agency forecasts Moody's-adjusted debt/EBITDA of 5.2x
and 4.2x in 2021 and 2022 respectively, and Moody's-adjusted
EBIT/interest of 0.9x and 1.2x in 2021 and 2022 respectively.
The future acquisition of EMG by a consortium of buyers led by
Volkswagen Financial Services AG (VW, A3 stable) will strengthen
EMG's credit quality over time because of VW's implicit support as
the majority shareholder through its Green Mobility joint venture.
The transaction will help Europcar deliver more successfully on its
strategic initiatives of transforming EMG into a leader of the
mobility sector and help EMG return to profitable growth once
travel conditions normalize. Despite its majority stake in the
joint venture, VW will not control EMG but will act together with
its partners Pon Holdings B.V. and Attestor Limited. The
transaction is subject to regulatory approval and the companies
expect to complete it in the first or second quarter of 2022.
LIQUIDITY
EMG's liquidity is adequate despite Moody's current forecasts of
negative corporate free cash flow after interest of around EUR200
million and around EUR40 million in 2021 and 2022 respectively.
However, the liquidity buffer in the event of a material deviation
to Moody's current cash flow forecasts could become tight, notably
during the winter months, which is a seasonal low point in terms of
the company's liquidity position.
As of June 30, 2021, the company had around EUR233 million of
unrestricted cash on its balance sheet (excluding cash intended to
finance the fleet). There is around EUR135 million of cash, which
resides at operating companies (notably in non-euro currency
countries) and is hardly transferable to Europcar Mobility Group
S.A. - the holding company. This cash needs to remain in the
operating companies to fund their day-to-day operations and capex;
part of consolidated cash-outs are therefore locally funded.
Consent from local fleet financing lenders could be required for
this cash to be transferred.
Liquidity is further supported by EUR129 million available under
the EUR170 million RCF and EUR175 million under the EUR225 million
fleet RCF, which could be used to fund the portion of fleet
purchases, which cannot be funded through the fleet notes or
securitized fleet debt.
The term loan and RCF include a financial maintenance covenant,
requiring cash flow cover to debt service to remain above 1.1x.
Moody's expects the company will maintain comfortable headroom
under this covenant.
Excluding local fleet securitization facilities, which in some
cases are renewed annually, the nearest debt maturities are the
term loan and RCF in June 2023.
STRUCTURAL CONSIDERATIONS
The new fleet notes are rated B2, two notches above the CFR,
because they have a second priority ranking, behind the Senior
Asset Revolving Facility (SARF), on some fleet assets and
receivables under buy-back agreements. The SARF and the fleet notes
are subject to a quarterly loan-to-value (LTV) maintenance test of
a maximum of 95%. The fleet notes, the SARF and other fleet
financing facilities do not have a claim on the operating
businesses.
The fleet notes benefit from guarantees by Europcar International
S.A.S.U. and Europcar Mobility Group S.A. The term loan and RCF
benefit from share pledges, as well as guarantees, by the majority
of Europcar's operating entities.
RATING OUTLOOK
The positive outlook reflects Moody's expectation that EMG's
operating performance will continue improving over the next 12-18
months, leading to credit metrics and a liquidity profile
commensurate with a B3 CFR. The positive outlook is also supported
by the likely acquisition of the company by a VW-led consortium,
which will further enhance the company's standalone credit
quality.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if continued recovery in earnings
lead to Moody's-adjusted (gross) debt/EBITDA below 5.5x and in
particular Moody's-adjusted EBIT/interest well above 1.0x, on a
sustainable basis, and the company maintains a solid liquidity
profile including positive corporate free cash flow after
interests.
The ratings could be downgraded if deteriorating operating
performance results in an unsustainable capital structure, such
that Moody's-adjusted EBIT/interest remains below 1.0x or free cash
flow is worse than anticipated by Moody's and this leads to a
deterioration in liquidity such that it becomes weak.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Equipment and
Transportation Rental Industry published in April 2017.
COMPANY PROFILE
Headquartered in Paris, France, Europcar Mobility Group S.A. is the
European leader in car rental services, providing short- to
medium-term rentals of passenger vehicles and light trucks to
corporate, leisure and replacement. It generated revenue of around
EUR1.8 billion in 2020.
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I R E L A N D
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BROOM HOLDINGS: S&P Assigns 'B' LongTerm ICR, Outlook Stable
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S&P Global Ratings assigned its 'B' long-term issuer credit rating
to Irish waste management services company Broom Holdings Bidco
Ltd.'s (Beauparc) EUR555 million term loan B (TLB) and EUR120
million revolving credit facility (RCF), with a recovery rating of
'3' on the debt indicating meaningful recovery prospects (50%-70%;
rounded estimate 50%) in the event of a default.
The stable outlook reflects S&P's view that continued organic
growth and execution of growth initiatives will result in S&P
Global Ratings-adjusted EBITDA margins of around 17.5%,
double-digit free operating cash flow (FOCF), and adjusted funds
from operations (FFO) to debt higher than 14.0% as of year-end
2022.
Macquarie European Infrastructure Fund 6 (MEIF6) acquired Beauparc,
an integrated waste-to-resource operator, via new entity Broom
Holdings Bidco Ltd., funded with a new EUR555 million term loan B
(TLB), which was upsized by EUR30 million during syndication, and
equity contribution of 59% (representing EUR840 million).
Beauparc has dominant market shares in Ireland along the waste
collection and processing value chain, and a regional footprint in
the U.K. The company is the undisputed market leader in Ireland,
with more than 2.6x and 3.6x the market shares of the nearest
competitor in waste collection and processing, respectively.
Beauparc is the only nationwide service operator, across 20
locations with a total processing capacity of 2.9 metric tons (MT)
per year, representing approximately one-third of the market's
total processing capacity. This provides it with a competitive
advantage, allowing it to secure a steady intake from third-party
collection companies that do not have the infrastructure to process
waste collection. The control of waste flows enables the business
to secure fixed-price offtake contracts with treatment operators
that are usually 10%-15% below market rates due to the steady waste
supply required for operational efficiency of treatment operators.
Beauparc serves about 265,000 households, benefiting from a
customer turnover rate below 0.5% and high route efficiencies.
Regarding the collection of residential waste, Ireland has a unique
market set up where collection companies have a contract directly
with the residential customer; this differs from a contract with
the local municipality as typically seen across Europe. This
enables Beauparc to secure fixed offtake contracts for solid
recovered fuels and refuse derived fuel, of which 98% of 2020
volumes are secured until 2027, only exposing the business to
approximately 30% spot price exposure in 2027. In addition,
operators benefit from pass-through mechanisms for the sale of
recyclable materials, which reduces margin volatility and protects
their favorable market positions. Besides the main waste-services
business, a smaller part of the operations (less than 10% of
EBITDA) is linked to utilities, where Beauparc mainly supplies
electricity and gas via its Panda Power brand to commercial and
residential customers across the country. While energy procurement
is forward-hedged one year at Panda Power, reducing the risk of
margin erosion, this part of the business offers further growth
opportunities by cross-selling to commercial and residential
waste-collection customers with a direct relationship with the
company.
S&P said, "Besides its strong market position in Ireland, Beauparc
has a regional footprint in the U.K., which we expect to increase
due to growth investments in existing and new facilities. This is
alongside anticipated acquisitions in the highly fragmented market,
where the three largest players hold only about 20% of the
collections and waste processing markets. We expect intake volumes
in the U.K. additionally provide stable earnings for the business,
since the company has long-term contracts with local authorities
(averaging more than five years) that secure a large element of its
processing tons. We believe the contracted intake volumes in the
U.K. pose some risk to the business regarding their renewal in a
more competitive and fragmented market, although we acknowledge
Beauparc's 75% rate in winning processing tenders since 2017. We
expect the U.K. business will expand further, due to planned growth
initiatives that should boost margins." These include a new plastic
recycling facility in Cotesbach, which started operating in June
2021; and a materials recycling facility (MRF) in Barkston, where
intake volumes of dry mixed recyclables are already contracted or
sourced inhouse.
Regulatory tailwinds across the EU and U.K. are linked to promoting
a circular economy. S&P believes Beauparc is well placed to benefit
from EU Environmental Directives promoting a circular economy, with
recycling target rates across the EU and the U.K. by 2025 and
beyond with the aim to also divert waste away from landfills. The
company, with its network of processing facilities, minimal
exposure to landfills with less than 1% of total output, and growth
plans to enhance its recycling capabilities--such as via the new
state-of-art MRF plant in Barkston or Cotesbach--should enjoy
positive market trends. Necessary compliance with stricter
environmental directives adds another layer of protection for
Beauparc versus potential new players, as well as smaller and less
sophisticated market participants. Furthermore, the process to
build and operate these types of facilities is lengthy and complex,
reducing the likelihood of increased competition in the
near-to-medium term.
Beauparc's business risk profile is constrained by the size of its
market in Ireland and limited geographic diversification, with
growth investments over the next three years facing risk of delays
and cost overruns. The company operates in markets alongside
numerous small and regional players and lacks size compared with
other European market participants such as Paprec (EUR234 million
EBITDA) or global companies like Waste Industries Inc. ($4.5
billion) or Republic Services Inc. ($3.0 billion). The market in
Ireland, with a population of close to 5 million, is significantly
smaller than in France, Spain, Italy, or Germany. Furthermore, we
forecast significant growth capital expenditure (capex) linked to
new facilities, capacity expansion, new waste value streams such as
medical waste, and higher-value output fuels across Ireland, the
U.K., and Netherlands over the next three years (around 10% of
sales per year), will support organic growth and increasing EBITDA
margins. The higher capex over that period is thus exposed to
timing risk, since the construction of new facilities may take
longer than expected due to their complexity. Besides growth capex,
we would expect further bolt-on acquisitions, particularly in the
U.K., to increase Beauparc's regional footprint, exposing it to
execution and integration risk. Nevertheless, S&P acknowledges the
company's integration of 19 acquisitions over the past 10 years.
The resilient performance in 2020 will likely continue on the back
of significant growth investments over the next three years.
Beauparc's 2020 performance was solid, with revenue and S&P Global
Ratings-adjusted EBITDA margins up about 4% and 250 basis points,
respectively, despite the pandemic, during which the business
continued operating as an essential service. Waste inflow volumes
even increased by about 5% as commercial customers' reduced
activity was offset by business with residential customers and
contracted third-party collection operators. Resilient gate fees
further supported performance last year, in addition to
contributions from acquisitions. This growth has been further
supported by the execution of growth initiatives targeting
higher-quality waste outflows, capacity expansion, and new waste
value streams. S&P forecasts S&P Global Ratings-adjusted debt to
EBITDA at 6.1x by the end of 2021 before gradually falling toward
5.1x in 2022 and 4.6x in 2023, with FFO to debt at 12.0%-16.0% over
the next three years, driven by modest volume and price increases.
This will be supported by the realization of planned growth
investments, such as the new recycling facility in the U.K. to
process plastic film into pellets of varying grades. Furthermore,
S&P believes the elevated capex of close to 10% of sales annually
over the next three years will limit significant FOCF to EUR15
million-EUR30 million.
S&P said, "We view financial policy as neutral and MEIF6 as a
strategic buyer rather than a financial sponsor. Therefore, we do
not assess Beauparc as a private-equity-owned business, due to
MEIF6's average investment holding period of 10-15 years versus the
three-to-six years typical for private equity firms. We would also
expect MEIF6 to continue supporting the company in future growth
initiatives if required, and not releverage the company to fund
dividends.
"The stable outlook reflects our view that continued organic growth
and execution of growth initiatives will result in S&P Global
Ratings-adjusted EBITDA margins of around 17.5%, positive
double-digit FOCF, and adjusted FFO to debt of around 14.0% as of
year-end 2022.
"We could lower the rating if Beauparc's operating performance is
weaker than expected, due to inability to deliver on growth
initiatives or significantly higher capex than forecast, resulting
in EBITDA margins below 16% and negative FOCF.
"We could revise the outlook to negative if the company attempted
significant debt-funded acquisitions, undertook material
shareholder distributions that significantly increased leverage, or
experienced substantially weaker liquidity.
"We could raise the rating if Beauparc's S&P Global
Ratings-adjusted FFO to debt increased beyond 16%, debt to EBITDA
of about 5.0x, and FOCF to debt reached at least 5.0% sustainably.
This would likely result from continuously strong operating
performance on the back of modest volume and pricing increases, as
well as full realization of growth initiatives, in line with
management's expectations."
CAPITAL FOUR III: S&P Assigns Prelim. B- Rating on Cl. F Notes
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S&P Global Ratings assigned its preliminary credit ratings to
Capital Four CLO III DAC's class A, B-1, B-2, C, D, E, and F notes.
At closing, the issuer will also issue unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The portfolio's reinvestment period will end approximately 4.5
years after closing.
The preliminary ratings assigned to the notes reflect our
assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization (OC).
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,797.29
Default rate dispersion 448.99
Weighted-average life (years) 5.11
Obligor diversity measure 96.17
Industry diversity measure 20.67
Regional diversity measure 1.28
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 375.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 107
Portfolio weighted-average rating
derived from its CDO evaluator 'B'
'CCC' category rated assets (%) 2.50
'AAA' target portfolio weighted-average recovery (%) 35.92
Covenanted weighted-average spread (%) 3.65
Covenanted weighted-average coupon (%) 4.50
Rating rationale
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
primarily comprise broadly syndicated speculative-grade senior
secured term loans and senior secured bonds. Therefore, we
conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR375 million par amount,
the covenanted weighted-average spread of 3.65%, the covenanted
weighted-average coupon of 4.50%, 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.
"We expect that the transaction's documented counterparty
replacement and remedy mechanisms will adequately mitigate its
exposure to counterparty risk under our counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"At closing, we consider that the transaction's legal structure
will be bankruptcy remote, in line with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-1 to D notes could withstand
stresses commensurate with higher rating levels than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned preliminary ratings on the
notes. The class A notes can withstand stresses commensurate with
the assigned preliminary ratings.
"For the class F notes, our credit and cash flow analysis indicates
a negative cushion at the assigned rating. Nevertheless, 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 key factors, including:
-- The available credit enhancement for this class of notes is in
the same range as other CLOs that S&P rates, and that have recently
been issued in Europe.
-- The portfolio's average credit quality is similar to other
recent CLOs.
S&P said, "We also compared our model generated break-even default
rate at the 'B-' rating level of 26.33% versus if we were to
consider a long-term sustainable default rate of 3.10% for 5.11
years (current weighted-average life of the CLO portfolio), which
would result in a target default rate of 15.84%.
"The actual portfolio is generating higher spreads versus the
covenanted threshold that we have modelled in our cash flow
analysis.
"For us to assign a rating in the 'CCC' category, we also assessed
(i) whether the tranche is vulnerable to non-payments in the near
future, (ii) if there is a one in two chances for this note to
default, and (iii) if we envision this tranche to default in the
next 12-18 months.
"Following this analysis, we consider that the available credit
enhancement for the class F notes is commensurate with the
preliminary 'B- (sf)' rating assigned.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
the class A, B-1, B-2, C, D, E, and F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
to five of the 10 hypothetical scenarios we looked at in our
publication.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
hazardous chemicals, waste and pesticides, ozone depleting
substances, endangered wildlife, controversial weapons, pornography
or prostitution, tobacco, gambling, payday lending, thermal coal,
oil and gas. 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."
Capital Four II is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by speculative-grade borrowers. Capital
Four CLO Management K/S will manage the transaction as a lead
manager and Capital Four Management Fondsmæglerselskab A/S as a
co-collateral manager.
Ratings List
CLASS PRELIM PRELIM SUB (%) INTEREST RATE*
RATING AMOUNT
(MIL. EUR)
----- ------ ---------- ------- -----------------------
A AAA (sf) 228.75 39.00 Three/six-month EURIBOR
plus 1.02%
B-1 AA (sf) 33.75 28.00 Three/six-month EURIBOR
plus 1.75%
B-2 AA (sf) 7.50 28.00 2.05%
C A (sf) 23.00 21.87 Three/six-month EURIBOR
plus 2.15%
D BBB (sf) 27.00 14.67 Three/six-month EURIBOR
plus 3.10%
E BB- (sf) 18.75 9.67 Three/six-month EURIBOR
plus 6.06%
F B- (sf) 11.25 6.67 Three/six-month EURIBOR
plus 9.07%
Sub NR 29.10 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event
occurs.
ENERGIA GROUP: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Energia Group Limited's Long-Term Issuer
Default Rating (IDR) at 'BB-'. The Outlook is Stable.
The rating affirmation reflects Energia's solid business mix with
high cash flow visibility and free cash flow (FCF) within the
restricted group, driven by a combination of capacity auctions,
renewables support schemes, power procurement at Ballylumford and
its regulated supply business in Northern Ireland (NI). Fitch views
the Huntstown 2 (H2) power plan outage and weak trading in the
supply business as temporary and Energia continues to perform
within Fitch's rating case.
The Stable Outlook reflects Fitch's expectations that Energia will
maintain a capital structure with up to 4.0x net debt / EBITDA at
the restricted group level. Energia's financial policy with large,
but not fully committed growth capex and flexible dividends, may
see a leverage spike although the ratio has been strong for the
rating. Fitch's forecast of an average funds from operations (FFO)
net leverage of 4.1x over FY22-FY26 (year end March) remains
consistent with a 'BB-' rating.
KEY RATING DRIVERS
Huntstown 2 Outage: Energia's H2 combined cycle gas turbine (CCGT)
plant has not been operational since 29 January 2021 due to a fault
identified at the main generator transformer. A new transformer has
subsequently been manufactured with the installation and final
commissioning expected during 3QFY22. Fitch continues to assume
negligible EBITDA contribution and a total cash impact of around
EUR15million in FY22. Fitch further included an interim payment of
EUR6million for business interruption and property damage insurance
into Fitch's FY22 forecasts.
Weaker Trading in 1QFY22: Market conditions and the outage at H2
caused EBITDA to decrease to EUR28.8 million in 1QFY22 from EUR36.9
million in 1QFY21. Higher market, carbon and gas prices have
primarily affected the customer-solutions business, resulting in a
EUR6.4 million loss in 1QFY22. However, the company has announced
the third tariff increase in Republic of Ireland (ROI). The
quarterly loss was offset by higher market prices for Hunstown 1
(H1) and the renewables segment. Given the uncertainty around
market conditions, Fitch forecasts FFO net leverage of 3.9x for
FY22 (3.0x in FY21) and an average of 4.1x to FY22-FY26.
Increasing Capex Intensity Planned: In recent years, Energia has
successfully developed 309MW of its own operational onshore
windfarms. It continues to progress at various stages of
development for a further 242MW of onshore wind, 224MW of solar,
50MW of battery storage and the construction of a 4MW bioenergy
plant, which is substantially completed. It is also in the
preliminary stages of developing a data centre adjacent to its
Huntstown campus and in July 2021, received draft foreshore
licences to investigate the feasibility of offshore wind generation
at sites in the North Celtic and South Irish seas.
Financial Policy Allows for Growth: Energia's restricted group's
operations are highly FCF-positive, but Fitch continues to assume
significant growth capex in line with Energia's ambitions in
Fitch's rating case with negligible EBITDA contribution. Fitch also
assumes the group will maintain on average up to 4.0x net debt /
EBITDA (restricted group), which is in line with Fitch's
sensitivities for the rating. However, slower execution of capex
may see Energia's leverage remaining strong for the rating, as was
the case since FYE19.
Solid Business Mix: Fitch estimates regulated and quasi-regulated
EBITDA of the restricted group to slightly remain above 60% on
average to FY26 (from around 57% in FY20 & FY21, when including
dividends from project subsidiaries). In FY24 the regulated PPB
contract will end but this will be offset by forecast higher
dividends from the renewables segment and near-term visibility on
capacity payments. Fitch considers favourably the hedge against
wholesale price swings that the customer-solutions business
provides to the group, despite the risks of adverse carbon prices,
lower margins and intense competition.
DERIVATION SUMMARY
Energia has a lower share of contracted earnings compared with Drax
Group Holdings Limited (Drax, BB+/Stable), but it is more
integrated and diversified. Fitch allows Energia's 4.5x FFO net
leverage for negative sensitivity at the 'BB-' level compared with
Drax's 2.8x at 'BB+', implying a broadly similar debt capacity for
a given rating.
ContourGlobal Plc (BB-/Stable) is a large generation holding
company also rated on the basis of a restricted group business and
financial profile, and has a slightly lower debt capacity than
Energia (FFO gross leverage 4.5x), due to limited vertical
integration, which is partially offset by larger size and
diversification. Techem Verwaltungsgesellschaft 674 mbH
(B/Negative), which is an energy services provider, has 8.0x FFO
gross leverage negative sensitivity at its 'B' rating, indicating a
higher debt capacity due to its high share of contracted revenues.
KEY ASSUMPTIONS
-- Supply margins for subsidiary Power NI and Energia of around
5% and 4% through the forecast, with regulation remaining in
place for residential supply in NI;
-- Average load factor of 27% for owned wind farms leading to an
EBITDA margin of around 75% on average through FY22-FY26, with
a similar EBITDA trend for the PPA portfolio;
-- Huntstown EBITDA based on existing capacity agreements and
Energia's guidance;
-- Negative working capital driven largely by the cessation of
PPB in FY24;
-- Capex of restricted group on average at around EUR70 million
per year, reflecting new growth projects such as the data
centre, storage and further onshore wind projects. Fitch
assumes only limited earnings contribution from growth capex;
-- Dividend flexible up to net debt/EBITDA of around 4.0x.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A decrease in restricted group's FFO net leverage to below
3.7x on a sustained basis;
-- A decrease in business risk, accompanied by an increase in
share of EBITDA from regulated and quasi-regulated assets to
above 65%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Large debt-funded expansion or deterioration in operating
performance, resulting in restricted group's FFO net leverage
above 4.5x and FFO interest cover below 3x on a sustained
basis;
-- A reduction of the proportion of regulated and quasi-regulated
earnings to below 50%, leading to a reassessment of maximum
debt capacity;
-- A material increase in Energia's super senior revolving credit
facility (RCF) could be negative for the senior secured
rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: As at 30 June 2021 Energia had around EUR192
million in available cash and cash equivalents (excluding around
EUR39million of restricted cash). It also has access to
EUR100million of undrawn liquidity on the cash portion of its RCF
expiring in September 2023.
Wind capacity assets and debt financed through project-finance
facilities are excluded from Fitch's debt calculation as the debt
is held outside the restricted group on a non-recourse basis. The
restricted group has no imminent short-term debt and its next
maturing debt - its GBP225 million senior secured notes - is due in
September 2024, followed by EUR350 million senior secured notes in
September 2025.
ISSUER PROFILE
Energia is an integrated electricity generation and supply company
operating across NI and ROI. Its generation assets include 309MW of
wind assets, 747MW of CCGTs while it further procures power under
contract with 600MW in NI.
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.
RRE 9 LOAN: Moody's Assigns (P)Ba3 rating to EUR18MM Class D Notes
------------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following provisional ratings to notes to be issued by RRE 9 Loan
Management DAC (the "Issuer"):
EUR242,000,000 Class A-1 Senior Secured Floating Rate Notes due
2036, Assigned (P)Aaa (sf)
EUR18,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2036, Assigned (P)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 80% ramped as of the closing
date and to comprise of predominantly corporate loans to obligors
domiciled in Western Europe. The remainder of the portfolio will be
acquired during the 4 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 4.6 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 will issue three classes of notes and subordinated notes due
2036, 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: EUR400,000,000
Diversity Score(1): 44
Weighted Average Rating Factor (WARF): 3300
Weighted Average Spread (WAS): 3.55%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 45.80%
Weighted Average Life (WAL): 9 years
=========
I T A L Y
=========
ALITALIA SPA: Oct. 4 Auction Set for Brand, ITA Expected to Bid
---------------------------------------------------------------
Vanni Gibertini at Airline Geeks reports that the change of the
guard between the historic Alitalia and the newly created ITA as
Italian flag carrier is less than a month away, but the situation
is far from defined.
Alitalia is going through its bankruptcy procedure and will stop
flying on Oct. 15. On the same date, the new state-owned carrier
Italia Trasporto Aereo (ITA) will take over some of its routes and
will begin its adventure with 52 aircraft and 2,800 employees,
putting it at roughly half the size of its predecessor, Airline
Geeks discloses.
The latest phase of Alitalia's bankruptcy is quite delicate as the
Alitalia brand has been put up for auction, and it will be awarded
to the best bidder. The European Commission did not allow ITA and
Alitalia to include the brand in the transfer of the assets that
built ITA's skeleton since one of the guiding principles of this
operation was the need for a clear break between the old company
and the new one, Airline Geeks states. However, ITA could really
use Alitalia's brand: it would save the new carrier a lot of time
and money exploiting the awareness that the green, white and red
'A' logo already has around the world, Airline Geeks notes.
Despite being evaluated approximately EUR150 million (US$175.9
million) on Alitalia's books, the brand is being put for auction at
a starting price of EUR290 million, plus 22% V.A.T. and related
fees, Airline Geeks discloses. Parties interested have until Sept.
30 to request access to the data room and until Oct. 4 to place a
binding offer with a EUR40 million advance, Airline Geeks states.
Should there be no offers during this period, there will be a
second auction with no minimum starting price, Airline Geeks
notes.
Of course, ITA appears to be the most obvious bidder for the
Alitalia brand: it certainly has more value to them than to anyone
else, but there could be other bidders that may take part in the
auction just to deprive ITA of a useful tool like an already
established brand and force them to start from the beginning or to
push the price higher in order to compel ITA to burn a higher
percentage of the EUR1.3 billion they have available to start
operations, from the total of
EUR3 billion earmarked for ITA by the Italian Government, according
to Airline Geeks.
But the auction of the Alitalia brand is not the only problem ITA
has to face just weeks before its inaugural flight. Negotiations
between the company and trade unions for the work contract of the
2,800 employees broke down earlier this week, and a strike has been
declared for Friday, Sept. 25, Airline Geeks recounts. The Unions
are trying to preserve as many jobs as possible for the almost
6,000 existing Alitalia employees who may or may not be called to
join the new ITA, and they are also requesting the same conditions
granted at Alitalia to remain in the new company, according to
Airline Geeks.
A new industrial action, however, is only going to weaken even
further a carrier whose operations are winding down and that is
already in a very dire financial situation. Italian financial
newspaper "Il Sole 24 Ore" reported that Alitalia's debts towards
Italian airports have already surpassed EUR100 million and have
reached "unsustainable levels, Airline Geeks states.
===================
L U X E M B O U R G
===================
MATADOR BIDCO: S&P Affirms 'BB-' LongTerm ICR, Outlook Negative
---------------------------------------------------------------
S&P Global Ratings affirmed its 'BB-' long-term issuer credit
rating on Matador Bidco S.a.r.l. and its 'BB-' issue rating on the
company's term loan B; the '4' recovery rating on the loan is
unchanged.
In July, Matador Bidco S.a.r.l., formed by private-equity sponsor
Carlyle, received its share ($96 million) of $250 million of
dividends in relation to its 38.5% stake in Spanish oil company
Compañia Española de Petroleos S.A.U. (CEPSA).
The negative outlook reflects the potential negative credit impact
of a lower-than-expected dividend from CEPSA.
Although the $250 million dividends in July is positive, S&P
continues to see some uncertainty regarding the amount of dividends
distribution from CEPSA by year-end.
In July 2021, Matador Bidco, received its share ($96 million) of
$250 million of dividends in relation to its 38.5% stake in Spanish
oil company Compania Española de Petroleos S.A.U. (CEPSA). S&P
said, "We believe this means that dividends will get back to at
least EUR350 million a year from 2021 onward, which corresponds to
the minimum amount stipulated by the shareholders agreement, a key
assumption in our credit analysis. Many oil and gas companies have
resumed dividends lately amid the improved environment compared
with 2020. However, we don't assume that there will be any
exceptional dividends to make up for 2020's lower-than-anticipated
dividends because we believe shareholders will be keen to continue
to protect CEPSA's cash flow position. In our view, the size of
additional dividends in 2021 remains uncertain amid volatile market
conditions, mostly linked to the pandemic, which can have further
significant effects on CEPSA's cash flow and commodity prices more
broadly. CEPSA has not yet communicated its plans for distributions
for 2021 and we see a chance that shareholders might agree to a
lower distribution. The lower-than-expected dividends last year of
about EUR200 million resulted in leverage of about 8x, due to the
global recessionary environment. Even if CEPSA pays only a EUR120
million dividend, it will be sufficient for Matador to pay its
annual debt services of about EUR50 million. However, lower
dividends will eventually increase Matador's leverage beyond our
threshold for the 'BB-' rating."
S&P said, "We believe Matador's key credit metrics should be
consistent with the rating from 2022 at the latest based on CEPSA's
resilient results and improved market conditions. We see potential
for dividends to go up to EUR450 million-EUR500 million in 2022 if
CEPSA's robust performance continues. That should lead to Matador's
leverage falling well below 4x, which we see as commensurate with
the rating. Positively, we believe cash generation will be strong
in 2021 at CEPSA, with EBITDA of close to EUR2 billion, up from
EUR1 billion in 2020. In the first six months of 2021, CEPSA posted
EBITDA of about EUR850 million, up about 33% year on year, while
its free operating cash flow got back to positive territory (about
EUR550 million versus negative EUR236 million in the same period in
2020). These increases were mainly from higher crude oil price
(more than 60%) affecting positively the upstream division, and the
chemicals segment's commercial excellence efforts and strong growth
from solid demand.
"Our rating on Matador continues to reflect supportive corporate
governance and financial policy, the private ownership structure,
and partial control over dividends. We assess the company's
corporate governance and financial policy as positive. Carlyle, via
Matador, shares control of CEPSA with Abu Dhabi's Mubadala
Investment Co. Matador holds 38.5% of CEPSA. It has some influence
on most key decisions, including those related to yearly dividends.
Any changes to financial and dividend policies require approval of
both shareholders, although Carlyle has only minority
representation on CEPSA's board. In that context, we believe that
Matador will have more control over dividends than peers in other
similarly structured transactions. An annual CEPSA dividend of
about EUR120 million is sufficient for Matador to cover its annual
liquidity needs and cash on hand covers liquidity needs for the
rest of 2021.
"The negative outlook reflects the potential negative credit impact
of a lower-than-expected dividend from CEPSA, which could increase
leverage above our expectations for the 'BB-' rating for a
prolonged period.
"With a dividend of EUR350 million, Matador's debt leverage will
average 4.5x in 2021, which we view as close to the maximum level
commensurate with the 'BB-' rating. We assume that this ratio will
improve after 2021 and approach 3.5x, although this remains
uncertain, given that CEPSA, similar to many other oil companies,
could limit dividends due to the pandemic.
"We could lower the rating if CEPSA's dividend distribution
decreased to a level that kept Matador's interest coverage ratio
below 3x or increased its debt to EBITDA to about 5x or more over a
prolonged period, without prospects of increasing interest coverage
above 3x or decreasing debt to EBITDA to at least 4x.
"Total annual dividends in 2021 below EUR350 million from CEPSA
could result in a downgrade. We would lower the rating if this
level is not met in 2021 and if we don't foresee Matador's leverage
falling well below 4x by year-end 2022.
"We could revise our outlook to stable in the next 6-12 months if
we believe that the shareholders will commit to maintaining annual
average dividends of at least about EUR400 million a year on
average in 2021-2022. This would require no deterioration in
CEPSA's stand-alone credit profile."
=====================
N E T H E R L A N D S
=====================
EDML 2018-1 BV: Moody's Affirms Ba3 Rating on EUR3.75MM G Notes
---------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of thirteen
Notes and affirmed the ratings of seven Notes in four Dutch RMBS
transactions. The rating action reflects the increased levels of
credit enhancement for the affected Notes and better than expected
collateral performance. Moody's affirmed the ratings of the Notes
that had sufficient credit enhancement to maintain their current
ratings.
Issuer: Cartesian Residential Mortgages 2 S.A.
EUR313.68M Class A Notes, Affirmed Aaa (sf); previously on Mar 11,
2020 Affirmed Aaa (sf)
EUR7.80M Class B Notes, Affirmed Aa1 (sf); previously on Mar 11,
2020 Upgraded to Aa1 (sf)
EUR7.80M Class C Notes, Upgraded to Aa2 (sf); previously on Mar
11, 2020 Upgraded to Aa3 (sf)
EUR6.93M Class D Notes, Upgraded to Aa3 (sf); previously on Mar
11, 2020 Upgraded to A2 (sf)
Issuer: Cartesian Residential Mortgages 3 S.A.
EUR180M Class A Notes, Affirmed Aaa (sf); previously on Jul 24,
2018 Definitive Rating Assigned Aaa (sf)
EUR5M Class B Notes, Upgraded to Aa1 (sf); previously on Jul 24,
2018 Definitive Rating Assigned Aa2 (sf)
EUR5M Class C Notes, Upgraded to Aa3 (sf); previously on Jul 24,
2018 Definitive Rating Assigned A2 (sf)
EUR4M Class D Notes, Upgraded to Baa1 (sf); previously on Jul 24,
2018 Definitive Rating Assigned Baa3 (sf)
Issuer: EDML 2017-1 B.V.
EUR233.9M Class A Notes, Affirmed Aaa (sf); previously on Mar 11,
2020 Affirmed Aaa (sf)
EUR3.8M Class B Notes, Affirmed Aa1 (sf); previously on Mar 11,
2020 Upgraded to Aa1 (sf)
EUR7.6M Class C Notes, Upgraded to Aa2 (sf); previously on Mar 11,
2020 Upgraded to A1 (sf)
EUR2.6M Class D Notes, Upgraded to A1 (sf); previously on Mar 11,
2020 Upgraded to A3 (sf)
EUR2.6M Class E Notes, Upgraded to Baa1 (sf); previously on Mar
11, 2020 Affirmed Baa3 (sf)
Issuer: EDML 2018-1 B.V.
EUR452.5M Class A Notes, Affirmed Aaa (sf); previously on Dec 16,
2020 Affirmed Aaa (sf)
EUR11.5M Class B Notes, Upgraded to Aa1 (sf); previously on Dec
16, 2020 Upgraded to Aa2 (sf)
EUR11M Class C Notes, Upgraded to Aa3 (sf); previously on Dec 16,
2020 Upgraded to A1 (sf)
EUR7M Class D Notes, Upgraded to A2 (sf); previously on Dec 16,
2020 Upgraded to A3 (sf)
EUR3M Class E Notes, Upgraded to Baa2 (sf); previously on Dec 16,
2020 Affirmed Baa3 (sf)
EUR2.5M Class F Notes, Upgraded to Baa3 (sf); previously on Dec
16, 2020 Affirmed Ba1 (sf)
EUR3.75M Class G Notes, Affirmed Ba3 (sf); previously on Dec 16,
2020 Affirmed Ba3 (sf)
RATINGS RATIONALE
The rating actions are prompted by decreased key collateral
assumptions, namely the portfolio Expected Loss (EL) assumption,
and for EDML 2018-1 B.V. the MILAN CE assumption, due to better
than expected collateral performance, as well as an increase in
credit enhancement for the affected Notes.
Moody's affirmed the ratings of the Notes that had sufficient
credit enhancement to maintain their current ratings.
Revision of Key Collateral Assumptions
As part of the rating action, Moody's reassessed its lifetime loss
expectation for the portfolios reflecting the collateral
performance to date.
The performance of all four transactions has been strong over the
past year, with low arrears levels and no defaults or losses since
closing. In Cartesian Residential Mortgages 2 S.A. there are no
loans more than 60 days in arrears, and 30 plus days arrears have
decreased over the past year from 0.77% to 0.12% of current pool
balance. In Cartesian Residential Mortgages 3 S.A. there are
likewise no loans more than 60 days in arrears, and 30 plus days
arrears have decreased over the past year from 0.91% to 0.38% of
current pool balance. In EDML 2017-1 B.V. there are no loans more
than 60 days in arrears, and 30 plus days arrears have decreased
over the past year from 0.30% to 0.25% of current pool balance. In
EDML 2018-1 B.V. 0.15% of the pool is more than 60 days in arrears,
and 30 plus days arrears have decreased over the past year from
0.26% to 0.15% of current pool balance.
For Cartesian Residential Mortgages 2 S.A. and Cartesian
Residential Mortgages 3 S.A. Moody's has decreased the expected
loss assumption as a percentage of original pool balance to 1.20%
from 1.50%. For EDML 2017-1 B.V. Moody's has decreased the expected
loss assumption as a percentage of original pool balance to 0.90%
from 1.30%. For EDML 2018-1 B.V. Moody's has decreased the expected
loss assumption as a percentage of original pool balance to 1.10%
from 1.30%.
Moody's has also assessed loan-by-loan information as a part of its
detailed transaction review to determine the credit support
consistent with target rating levels and the volatility of future
losses. As a result, for EDML 2018-1 B.V. Moody's has decreased the
MILAN CE assumption to 11.50% from 12.50%. For Cartesian
Residential Mortgages 2 S.A., Cartesian Residential Mortgages 3
S.A., and EDML 2017-1 B.V. Moody's has maintained the MILAN CE
assumption at 11.50%, 12.50%, and 11.50% respectively.
Increase in Available Credit Enhancement
Sequential amortization and, except in Cartesian Residential
Mortgages 3 S.A., non-amortizing reserve funds led to the increase
in the credit enhancement available in these transactions. In
Cartesian Residential Mortgages 2 S.A. the reserve fund is
non-amortising throughout the life of the transaction. In EDML
2017-1 B.V. and EDML 2018-1 B.V. the reserve funds can only start
to amortise down to a floor once, among other conditions, the
current pool balance drops below 50% of the original pool balance,
and have therefore not amortized yet since closing. In Cartesian
Residential Mortgages 3 S.A. the reserve fund has been amortising
since closing, and will continue to amortise down to a floor.
For instance, in Cartesian Residential Mortgages 2 S.A. the credit
enhancement for the Class C and D Notes increased to 11.4% and 8.1%
from 8.5% and 6.1% respectively since the last rating action in
March 2020. In Cartesian Residential Mortgages 3 S.A. the credit
enhancement for the Class B, C and D Notes increased to 12.0%,
8.7%, and 6.0% from 9.5%, 7.0%, and 5.0% respectively since the
last rating action in July 2018. In EDML 2017-1 B.V. the credit
enhancement for the Class C, D, and E notes increased to 6.0%,
4.5%, and 3.0% from 4.9%, 3.6%, and 2.4% respectively since the
last rating action in March 2020. In EDML 2018-1 B.V. the credit
enhancement for the Class B, C, D, E, and F notes increased to 11%,
8.1%, 6.3%, 5.6% and 4.9% from 9.9%, 7.4%, 5.7%, 5.0%, and 4.5%
respectively since the last rating action in December 2020.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
December 2020.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include: (i) performance of the underlying collateral that
is better than Moody's expected; (ii) an increase in available
credit enhancement; and (iii) improvements in the credit quality of
the transaction counterparties.
Factors or circumstances that could lead to a downgrade of the
ratings include: (i) an increase in sovereign risk; (ii)
performance of the underlying collateral that is worse than Moody's
expected; (iii) deterioration in the notes' available credit
enhancement; and (iv) deterioration in the credit quality of the
transaction counterparties.
OCI NV: S&P Raises Issuer Credit Rating to 'BB+', Outlook Stable
----------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
Netherlands-based OCI NV and its rating on its senior secured bonds
to 'BB+' from 'BB'.
The stable outlook reflects that S&P expects favorable market
trends will continue in the next 12 months, which should help OCI
maintain a FFO-to-debt ratio comfortably above 30% and generate
strong free operating cash flow (FOCF).
High selling prices amid strong market conditions will push up
OCI's EBITDA and lead to much lower-than-expected debt to EBITDA
(leverage) in 2021. S&P said, "We forecast S&P Global
Ratings-adjusted EBITDA will more than double to $1.8 billion-$1.9
billion in 2021 from $765 million last year, mainly due to a
significant increase in selling prices across ammonia, nitrogen
fertilizers, and industrial chemicals, including methanol. This
will push up FFO to debt to 37%-40% by end-2021, which is much
stronger than our previous expectation of 18%-22%. We expect the
strong market conditions to continue into 2022, with a potential
moderation from the second half of the year. This supports solid
EBITDA of $1.6 billion-$1.8 billion and strong credit metrics with
FFO to debt comfortably above 30%. Given the inherent cyclical
nature of the commoditized nitrogen fertilizer and methanol
industry, with high volatility in raw materials costs and selling
prices, we view 20%-30% FFO to debt on a weighted average basis as
commensurate with the current rating."
S&P said, "After several years of weak market conditions, strong
demand, tight supply, and rising natural costs have pushed up
prices for nitrogen fertilizers, and we anticipate these will
persist into 2022. High crop prices along with improved farm
economics and low inventory levels underpin strong agricultural
demand, which, together with recovering industrial demand and
limited new supply, is resulting in healthy nitrogen fundamentals.
In addition, the rise in natural gas prices has increased cash
costs and lowered operating rates for marginal producers,
supporting global nitrogen prices. Current high prices reflect a
cyclical upturn with above-mid-cycle conditions. Although this is
unsustainable in the long run, we believe the tight market
conditions are set to continue over 2021 and into 2022.
"We expect the methanol market outlook to remain positive.Strong
spot prices in the U.S. are supported by a low inventory level,
robust recovery in demand, and supply constrains due to planned and
unplanned outages as well as delayed supply additions. Other
supportive factors include rising usage of methanol-to-olefin (MTO)
plants, given higher gas and olefins prices, and recovering
downstream demand due to a gradual recovery in fuel consumption and
global industrial and construction activity. In the long term, we
expect methanol market fundamentals will remain favorable as demand
growth will exceed capacity growth."
Strong market conditions will support solid FOCF generation and a
continuous reduction in debt. Due to its access to low-cost natural
gas feedstock in the U.S. and very competitive long-term gas supply
agreements at Fertiglobe, OCI's margins are benefiting more from
higher selling prices in the currently rising natural gas price
environment than its European peers. S&P said, "We expect OCI's S&P
Global Ratings-adjusted EBITDA margin will increase to 36%-38% in
2021 from 22% last year, and remain at a high level of 33%-36% in
2022. Cash flow benefits from OCI's healthy profitability and focus
on efficient working capital management. In addition, since the
completion of extensive growth capital expenditure (capex)
programs, OCI's capex has reduced to 7%-8% of annual revenue, from
above 35% in 2015-2016 and 9%-10% in 2018-2019. We expect capex
will remain at about $300 million-$350 million in 2020-2021. As a
result, FOCF strengthened to $358 million in 2020, despite very low
selling prices, supported by higher sales volumes and a $168
million one-off cash inflow from the Fertiglobe closing settlement.
We expect FOCF will further increase to above $1 billion in 2021,
supporting a reduction in adjusted debt of about $500 million."
The recapitalization of Fertiglobe will contribute to a more
efficient capital structure and lower interest costs. The
recapitalization will result in a more efficient capital structure
at Fertiglobe, with $1.1 billion of new bridge financing, of which
$250 million will be used to repay existing debt. The remaining
$850 million will be special dividends paid to OCI (about $500
million) and ADNOC (about $350 million). S&P understands that OCI
intends to use the $500 million dividends from Fertiglobe to redeem
its $600 million 5.25% bond due in 2024 ($540 million outstanding).
This follows OCI's continuous efforts in past years to optimize its
capital structure and reduce interest costs through active
refinancing activities. S&P understands that the recapitalization
supports future growth of Fertiglobe, which is considering an IPO.
Despite of sustained dividend payments through the cycle,
Fertiglobe targets maintaining an investment-grade profile.
S&P said, "We expect OCI's financial policy will continue to focus
on cash flow generation and deleveraging.This is illustrated by the
group's clearly defined aim to use its FOCF to reduce gross debt
and reach a leverage target of reported net debt to EBITDA of about
2.0x through the cycle. The company expects to reach this target by
the end of this year, with net leverage at 2.1x as of June 2021.
Accordingly, OCI plans to start paying normal dividends from 2022.
We assume that future dividend payouts will depend on earnings and
cash flow generation, and be commensurate with the company's
leverage target and ambition to develop an investment-grade credit
profile. We expect OCI's financial policy will remain supportive
for the rating, especially under low-cycle market conditions with
weak credit metrics.
"The stable outlook reflects that we expect favorable market trends
will continue in the next 12 months, which should help OCI maintain
FFO to debt comfortably above 30% in 2022 and generate strong
FOCF.
"We could lower the rating if adjusted FFO to debt falls below 20%
with no prospects for near-term recovery. This could result from
prolonged weakening in market prices or material unexpected
operating setbacks. In addition, much weaker FOCF or a less
supportive financial policy than we expect regarding capex,
acquisitions, and shareholder distributions could constrain the
rating.
"We could raise the rating if FFO to debt improves to sustainably
above 30%, even at low market prices, in conjunction with continued
solid FOCF. An upgrade would also hinge on a supportive financial
policy and strong commitment from management to maintaining credit
metrics commensurate with a higher rating."
===============
P O R T U G A L
===============
[*] Moody's Takes Actions on 6 Portuguese Banks
-----------------------------------------------
Moody's Investors Service has taken rating actions on six
Portuguese banking groups. The rating agency has upgraded four
banks' long-term deposit ratings and one bank's senior unsecured
debt rating. It has also upgraded the long-term Counterparty Risk
Rating (CRR) of three banks and the Counterparty Risk (CR)
Assessment of three banks. At the same time, the rating agency has
upgraded the Baseline Credit Assessment (BCA) of one bank and
affirmed three others' BCAs; it has also changed the outlook on
three banks' long-term deposit ratings and on one bank's senior
unsecured debt ratings.
The rating actions were prompted by the upgrade of Portugal's
government bond rating to Baa2 from Baa3 on September 17, 2021.
They also reflect improvement in creditworthiness achieved by some
banks.
A list of the Affected Ratings is available at
https://bit.ly/39vLvhw
RATINGS RATIONALE
(1) PORTUGAL'S MACRO PROFILE REMAINS UNCHANGED AT MODERATE+
The rating actions follow the rating agency's decision to upgrade
Portugal's government bond rating to Baa2 from Baa3 with a stable
outlook.
This upgrade, however, has not triggered a change in Portugal's
Macro Profile of 'Moderate+', following Moody's assessment of the
negative impact of the pandemic on both the country's economy and
banks' performance. Portugal's GDP was reduced by 7.6% in 2020 and
its rebound already observed during H1 2021 will likely gather pace
in the second half of the year and in 2022, as vaccination roll-out
and a reduction of infection rates will underpin a sustained
recovery. However, some uncertainties remain as to the impact of
the pandemic on Portuguese banks' asset risk and profitability.
In maintaining Portugal's Macro Profile at 'Moderate+', Moody's has
also taken into account the challenging credit market conditions,
reflecting high levels of private sector debt - despite recent
improvements - and the banks' high exposures to corporate sector.
Moreover, although banks have improved their funding and liquidity
over recent years and also re-gained access to capital markets,
Portuguese banks remain sensitive to changes in market sentiment
and to market shocks.
(2) BANK-SPECIFIC CONSIDERATIONS
CAIXA GERAL DE DEPOSITOS, S.A. (CGD)
In upgrading CGD's BCA to baa3 from ba1, Moody's has considered the
bank's success in delivering on its 2017-2020 strategic plan, as
reflected in its enhanced capital levels and improved asset-quality
metrics. At end-June 2021, CGD's fully-loaded Common Equity Tier 1
(CET1) ratio stood at 18.9%, up from 16.8% a year earlier, while
its non-performing loan (NPL) ratio declined to 3.2% from 4.4% a
year earlier, which compares to a system average of 4.5%[1]. The
upgrade of the bank's BCA also reflects the bank's improved
recurrent profitability albeit modest, as well as its sound
liquidity and funding profile.
The one-notch upgrade of CGD's deposit ratings to Baa2/Prime-2 from
Baa3/Prime-3 and of its senior unsecured debt ratings to Baa2 from
Baa3 reflects (1) the upgrade of the bank's BCA and Adjusted BCA to
baa3 from ba1; (2) Moody's Advanced Loss Given Failure (LGF)
analysis, which results in an unchanged one-notch uplift for the
deposits and no uplift for senior unsecured debt; and (3) unchanged
moderate government support assumptions for CGD, as Portugal's
largest bank, which provide no uplift for deposits and one notch of
uplift for senior debt.
The upgrade of the government bond rating to Baa2 has lifted the
current constraint on CGD's CRA at Baa2(cr), resulting in a
one-notch upgrade for the bank's long-term CR Assessment to
Baa1(cr). As per Moody's methodology, a bank's CR Assessment will
typically not exceed the sovereign rating by more than one notch.
The outlook on CGD's long-term deposit and senior unsecured debt
ratings remains stable, reflecting Moody's assessment that CGD's
current ratings incorporate the rating agency's expected improved
performance for CGD´s credit profile over the next 12-18 months as
well as the issuance of bail-in-able debt to meet its minimum
requirement for own funds and eligible liabilities (MREL).
BANCO COMERCIAL PORTUGUES, S.A. (BCP)
The one-notch upgrade of BCP's deposit ratings to Baa2/Prime-2 from
Baa3/Prime-3 was driven by the higher rating uplift for the
deposits stemming from the upgrade of Portugal's sovereign bond
rating. In particular, this upgrade and the affirmation of the
senior unsecured debt ratings of Ba1 reflect (1) the affirmation of
the bank's ba2 BCA and Adjusted BCA; (2) Moody's Advanced LGF
analysis, which results in an unchanged two-notch uplift for
deposits and no uplift for senior unsecured debt; and (3) unchanged
moderate government support assumptions for BCP, as Portugal's
second-largest bank, which now provide one notch of rating uplift
for both deposits and senior unsecured debt ratings (from previous
no uplift and one notch of uplift respectively).
BCP's BCA of ba2 reflects the bank's improved asset-risk
indicators, although still weak, and its modest capital levels. The
bank's NPL ratio stood at 5.2% at the end of June 2021 (down from
7% a year earlier) and its CET1 ratio at 11.6%, down from 12.1% a
year earlier. BCP's risk profile is also constrained by the legacy
Swiss-franc mortgage loans in its Polish subsidiary portfolio
(around 5% of BCP's consolidated gross loans as of June 2021),
which still exposes the bank to high legal risks and will weaken
BCP's already weak bottom-line profitability further in 2021. BCP's
BCA also reflects its low reliance on wholesale funding and its
modest refinancing requirements as a result of continued
balance-sheet deleveraging
The outlook on BCP's long-term deposit and senior unsecured debt
ratings remains stable, reflecting Moody's view that the bank's
creditworthiness will be steady over the outlook horizon. The
current outlook already incorporates Moody's expectation that BCP
will continue to issue bail-in-able debt to meet its MREL
requirements.
BANCO SANTANDER TOTTA S.A. (BST)
The upgrade of BST's long-term deposit ratings by one notch to A3
from Baa1 follows the upgrade of Portugal's government bond rating
to Baa2, which has lifted the current constraint on the bank's
long-term deposit ratings at Baa1. As per Moody's methodology, a
bank's deposit rating will not typically exceed the sovereign
rating by more than two notches.
BST's long-term deposit ratings of A3 reflect (1) the bank's BCA of
baa3; (2) a high probability of affiliate support from Banco
Santander S.A. (Spain) (A2 stable/A2 stable; baa1), reflected in
one notch of uplift to the baa2 Adjusted BCA; and (3) the result
from Moody's Advanced LGF analysis that leads to two notches of
additional ratings uplift for the deposit ratings. Moody's assigns
a low probability of government support for BST, resulting in no
uplift for these ratings.
The upgrade of the government bond rating has also lifted the
current constraint on the BST's CRR at Baa1, resulting in a
one-notch upgrade to A3 for this rating. As per Moody's
methodology, a bank's CRR will not typically exceed the sovereign
rating by more than two notches.
NOVO BANCO, S.A. (NOVO BANCO)
The affirmation of Novo Banco's long-term deposit ratings at B2 and
its senior unsecured debt ratings at Caa2 reflect (1) the
affirmation of the bank's BCA at caa1; (2) the outcome of Moody's
Advanced LGF, which results in a two-notch uplift for the deposit
ratings and one-notch below the BCA for the senior unsecured debt
ratings; and (2) Moody's assumption of a low probability of
government support, which results in no further rating uplift.
Novo Banco's BCA of caa1 reflects the bank's solvency challenges,
with a declining but still-high level of impaired assets (NPL ratio
stood at a Moody's-calculated 8.8% at end-June 2021 down from 11.4%
a year earlier). It also reflects weak capital levels that have
been maintained above regulatory thresholds thanks to the
Resolution Authority's capital support mechanism in place since
2017. The bank's fully-loaded CET1 ratio stood at a modest 9.7% at
the end of June 2021. Novo Banco's BCA also reflects its weak
profitability levels, although Moody's expects the bank will be
able to restore its profitability following the restructuring of
its operations and the continued de-risking of its balance sheet.
The outlook on Novo Banco's long-term deposit and senior unsecured
debt ratings has been changed to positive, from stable, to reflect
Moody's assessment that the current negative adjustment for
corporate behaviour will be discontinued provided that Novo Banco
continues to meet its financial targets, confirms its return to
profitability and prove the existence of a sustainable franchise
over the outlook period, while maintaining an enhanced visibility
on its financial strategy. Moody's also notes that if the
aforementioned objectives are met, this could prompt a multi-notch
upgrade of Novo Banco's ratings.
BANCO BPI S.A. (BPI)
The upgrade of BPI's long-term deposit ratings by one notch to A3
from Baa1 follows the upgrade of the government bond rating to
Baa2, which has lifted the current constraint on the bank's
long-term deposit ratings at Baa1. As per Moody's methodology, a
bank's deposit rating will not typically exceed the sovereign
rating by more than two notches.
BPI's long-term deposit ratings of A3 and its issuer rating of Baa2
reflect (1) the affirmation of the bank's BCA at baa3; (2) a high
probability of affiliate support from its parent Spanish CaixaBank,
S.A. (A3 stable/Baa1 stable, baa3), which provides no uplift to the
bank's Adjusted BCA of baa3; and (3) the result from Moody's
Advanced LGF analysis that leads to a three-notch uplift for the
deposit ratings and a one-notch uplift for the issuer rating from
BPI's Adjusted BCA. Moody's assigns a low probability of government
support for BPI resulting in no uplift for these ratings.
The upgrade of the government bond rating has also lifted the
current constraint on BPI's CRR and CR Assessment at Baa1 and
Baa2(cr) respectively, resulting in a one-notch upgrade for both
the bank's CRR and CR Assessment to A3 and Baa1(cr), respectively.
As per Moody's methodology, a bank's CRR will not typically exceed
the sovereign rating by more than two notches, and a bank's CR
Assessment will not typically exceed the sovereign rating by more
than one notch.
BPI's baa3 BCA reflects the bank's better-than-average asset-risk
metrics with an NPL ratio of 1.8% at end-June 2021 (up from 2.4% a
year earlier). BPI's BCA also reflects its sound capital levels,
which are, however, constrained by the risks stemming from its
financial investment in Banco de Fomento Angola, S.A. (BFA, B3
stable, b3) in Angola (B3 stable). BPI reported a CET1 ratio of
14.3% at the end of June 2021, up from 13.8% a year earlier. The
BCA is also underpinned by the bank's modest profitability metrics
and an adequate funding and liquidity profile.
The outlook on BPI's long-term deposit ratings has been changed to
stable from positive and remains stable on the long-term issuer
ratings and incorporates Moody's expected performance for BPI´s
credit profile over the next 12-18 months
CAIXA CENTRAL DE CREDITO AGRICOLA MUTUO, CRL (CAIXA CENTRAL)
The upgrade of Caixa Central's long-term CR Assessment by one notch
to Baa1(cr) from Baa2(cr) follows the upgrade of the government
bond rating to Baa2, which has lifted the current constraint on the
bank's long-term CR Assessment at Baa2(cr). As per Moody's
methodology, a bank's CR Assessment will not exceed the sovereign
rating by more than one notch, or two notches, where the Adjusted
BCA is already above the sovereign rating, which is not the case
for Caixa Central.
Caixa Central's ratings reflect its key role within the Grupo
Credito Agricola (GCA), which is made up of a network of
cooperative banks with Caixa Central acting as the group's treasury
and issuing entity for the benefit of all member banks. Caixa
Central's long-term CR Assessment of Baa1(cr) reflects: (1) the
bank's standalone BCA and the Adjusted BCA of ba1; and (2) the
results from Moody's Advanced LGF analysis, which leads to three
notches of uplift for Caixa Central's long-term CR Assessment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Banks' standalone BCAs could be upgraded as a consequence of a
further material decline in the stock of problematic assets,
coupled with a sustained recovery of recurrent profitability
levels. The banks' BCAs could also be upgraded on the back of
stronger capitalization, measured by Moody's Tangible Common Equity
(TCE) on risk-weighted assets (RWA). Banks' BCAs could also be
upgraded as a result of a quicker than anticipated recovery of the
Portuguese economy, associated with a low impact of the pandemic on
Portuguese corporates and households, which would translate in a
higher macro profile.
Downward pressure on the banks' BCAs could develop as a result of a
significant increase in the stock of NPLs or other problematic
exposures beyond Moody's expectations or if banks failed to
maintain their risk-absorption capacity due to asset quality
weakening and/or additional provisioning efforts in excess of their
capital generation capacity.
As the banks' debt and deposit ratings are linked to the standalone
BCA, any change to the BCA would likely also affect these ratings.
The banks' deposit and senior unsecured debt ratings could also
experience upward or downward pressure from movements in the
loss-given-failure faced by these securities. In particular, banks'
deposit and senior unsecured debt ratings could be upgraded if
banks issue debt beyond Moody's expectations.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
===========
R U S S I A
===========
VIM AIRLINES: Ex-Pres, Wife's Appeal in Bankruptcy Case Tossed
--------------------------------------------------------------
RAPSI reports that the Ninth Commercial Court of Appeals has
dismissed an appeal filed by ex-president of VIM Airlines Rashid
Mursekayev and his wife Svetlana against a ruling declaring them
bankrupt, according to court records.
The Moscow Commercial Court declared the spouses bankrupt in late
May, RAPSI relates. The asset sale procedure was introduced in
their case for six months, RAPSI recounts.
Late in 2017, the Moscow Basmanny District Court arrested in
absentia yet another co-owner of VIM Airlines, Rashid Mursekayev
(husband of Svetlana Mursekayeva) on abuse of office charges, RAPSI
discloses.
In May 2020, Mr. Mursekayev and his wife filed a cassation appeal
against recovery of wages totaling to RUR28.9 million (over
US$450,000) which had been paid in excess to them, RAPSI recounts.
In late December 2019, Mr. Mursekayev and his wife were ordered to
return the overpaid funds, RAPSI states. The court therefore
declared salary orders as well as accounting and paying scale up
wages registered in March 2017 invalid upon an application lodged
by bankruptcy trustee Alexander Maksimov. Later, an appeals
instance upheld the ruling, according to RAPSI.
In July 2019, the court extended bankruptcy proceedings against VIM
Airlines for six months upon a motion by Mr. Maksimov, RAPSI
relates.
In April 2019, he filed claims to recover over RUR7.5 million
(about US$120,000) of overpaid salary and compensation for
employment agreement termination from 17 ex-managers of the air
carrier, RAPSI recounts. He also demanded invalidation of salary
orders as well as accounting and paying scale up wages from January
2018 to late March 2019 invalid and collection of compensation from
the former managers, RAPSI notes.
On September 26, 2018, the court declared VIM Airlines bankrupt on
the request of the company RNGO, RAPSI relays. Earlier in August,
the court granted an application filed by the company, including a
RUR3 billion (US$44 million) debt into the creditors' demands list,
RAPSI discloses.
On October 17, 2017, a criminal case was launched over premeditated
bankruptcy of VIM Airlines, RAPSI relates. In September of the
same year, the court returned a bankruptcy claim against the
airline back to the Deposit Insurance Agency (DIA), RAPSI recounts.
According to the court, due to the social tensions surrounding the
activities of the airline, the applicant decided to recall the
motion, RAPSI notes.
Investigators believe that certain top managers and owners of the
air carrier intentionally made losing bargains in 2016 and 2017
including those aimed at siphoning of assets abroad, RAPSI states.
The deals led to enormous financial outlay and undoubtedly resulted
in the company's failure to pay debts to creditors in full, RAPSI
says.
According to investigators, employees of VIM Airlines continued to
sell tickets to clients despite being aware that the airline was
not able to transfer passengers because there were not enough funds
to buy fuel, RAPSI relates. Investigators believe that the
employees embezzled more than RUR1 million (US$17,000), according
to RAPSI.
===============
S L O V E N I A
===============
ADRIA AIRWAYS: Bankruptcy Procedure to Be Concluded by 2024
-----------------------------------------------------------
EX-YU Aviation News reports that the bankruptcy procedure of
Slovenia's former national carrier, Adria Airways, will be
concluded within the next three years according to its
administrator, Janez Pustaticnik.
However, Mr. Pustatičnik, has approved only EUR87.7 million in
claims, EX-YU Aviation News discloses. Among them, the largest
claim at EUR6.6 million has been made by Lufthansa and Austrian
Airlines, EX-YU Aviation News notes.
Jet owner AeroCentury has four million euros in claims, while the
Rolls Royce Corporation has EUR2.2 million, EX-YU Aviation News
states.
According to EX-YU Aviation News, former Adria Airways employees
are demanding a total of EUR15.5 million in unpaid wages, to be
split among 550 employees.
Adria Airways' former CEO, Holger Kowarsch, who is under
investigation for his role in the collapse of the former national
carrier, has EUR67,600 in claims, while the carrier's former
Managing Director, Sven Kukemelk, is claiming EUR47,700, EX-YU
Aviation News relates.
Other claimants include Bank of America Merrill Lynch, EIC Aircraft
Leasing, Sasof III Aviation Ireland, 8900973 Canada, Fraport
Slovenija and Intesa Sanpaolo Bank, EX-YU Aviation News notes.
The administrator is hoping to raise the funds through the sale of
Adria Airways' remaining assets, EX-YU Aviation News discloses.
=========
S P A I N
=========
FONCAIXA FTGENCAT 5: S&P Raises Class C Notes Rating to BB+
-----------------------------------------------------------
S&P Global Ratings raised its credit ratings on Foncaixa FTGENCAT
5, Fondo de Titulizacion de Activos' class AG, B, and C notes. At
the same time, S&P has affirmed its rating on the class D notes.
S&P said, "We have used data from the June 2021 payment report and
the June 2021 investor report to perform our credit and cash flow
analysis. We have applied our European SME CLO criteria, our
structured finance sovereign risk criteria, and our revised
counterparty criteria."
Foncaixa FTGENCAT 5 is a single-jurisdiction cash flow CLO
transaction securitizing a portfolio of SME loans that CaixaBank,
S.A. originated in Spain. The transaction closed in November 2007.
Credit analysis
The underlying portfolio is relatively seasoned with a pool factor
(percentage of the pool's outstanding aggregate principal balance
compared with the closing date balance) of about 13%. According to
the servicer reports, cumulative defaults of 12 months account for
9.26% of the closing pool balance, up from 8.67% in S&P's 2019
review.
S&P has applied its European SME CLO criteria to determine the
scenario default rates (SDRs)--the minimum level of portfolio
defaults that we expect each tranche to be able to withstand at a
specific rating level--using CDO Evaluator.
To determine the SDR, S&P adjusted the archetypical European SME
average 'b+' credit quality to reflect the following factors:
country, originator, and portfolio selection.
S&P said, "Under our criteria, we rank the originator in this
transaction in the moderate category. Taking into account Spain's
Banking Industry Country Risk Assessment (BICRA) score of 4 and the
originator's average annual observed default frequency, we applied
a downward adjustment of one notch to 'b' from the 'b+'
archetypical average credit quality.
"Given that there are no major differences in the securitized
portfolio's creditworthiness compared with the originator's entire
SME loan book, we did not perform further adjustments to the
average credit quality. As a result, our average credit quality
assessment of the portfolio was 'b', which we used to generate our
'AAA' SDR.
"We have calculated the 'B' SDR, based primarily on our analysis of
historical SME performance data and our projections of the
transaction's future performance, taking into account the
concentration of the portfolio. We have reviewed the originator's
historical default data, and assessed market developments,
macroeconomic factors, changes in country risk, and the way these
factors are likely to affect the loan portfolio's creditworthiness.
We interpolated the SDRs for rating levels between 'B' and 'AAA' in
accordance with our European SME CLO criteria."
Recovery rate analysis
S&P said, "We applied a weighted-average recovery rate (WARR) at
each liability rating level by considering the asset type and its
seniority, the country recovery grouping, and the observed
historical recoveries in this transaction. We revised our recovery
assumptions to 60% from 65% at the 'B' level in line with the
historical rate achieved so far. In a benign economic environment,
we expect the recoveries to be around 60%, in line with the
historical observations."
Cash flow analysis
The class AG notes have paid down since S&P's previous review (to
EUR96.23 million from EUR162.31 million). The reserve fund,
initially funded by the issuance of the class D notes, is below its
required amount of EUR26.5 million (EUR23.72 million). The reserve
fund's required amount is still equal to the original amount since
it is not at the required amount and due to the breach of the
arrears ratio trigger. The reserve fund could amortize as soon as
it reaches the required amount and the arrears ratio is no longer
breached.
The amortization of the class AG notes and replenishment of the
reserve fund (thanks to excess spread) has increased the available
credit enhancement for all rated classes of notes.
S&P said, "We used the portfolio balance that the servicer
considered to be performing, the current weighted-average spread,
and the above weighted-average recovery rates. We subjected the
capital structure to various cash flow stress scenarios,
incorporating different default patterns and interest rate curves,
to determine the rating level, based on the available credit
enhancement for each class of notes under our European SME CLO
criteria."
Country risk
S&P said, "Our unsolicited long-term rating on Spain is 'A' and we
have performed our rating above the sovereign analysis under our
criteria to assess the transaction's ability to withstand a
sovereign default scenario. Under these criteria, we can rate a
securitization up to six notches above our foreign currency rating
on the sovereign if the tranche can withstand severe stresses."
Counterparty risk
Foncaixa FTGENCAT 5 is supported by an interest rate swap with
CaixaBank S.A. The swap provider hedges interest rate risk, covers
the weighted-average coupon on the notes, guarantees a spread of 50
basis points, and pays servicer replacement servicing fees. S&P
said, "Under our revised counterparty criteria, the resolution
counterparty rating (RCR) on CaixaBank S.A. is the applicable
rating type. Therefore, we've imputed a 'A-' RCR replacement
trigger given that the RCR is the floor supported rating under our
revised counterparty criteria."
S&P said, "Under our counterparty criteria, we consider the
combined strength of the contractual remedies to determine the
maximum supported rating on the structured finance notes for a
given derivative counterparty exposure. In a case where the
counterparty fails to replace itself within the remedy period after
its rating is lowered below the replacement trigger, the maximum
supported rating may remain above the counterparty's rating
depending on the strength of the collateral posting framework and
the issuer's ability to terminate the swap. Hence, in this
instance, even though the issuer did not replace CaixaBank when it
became an ineligible counterparty under the documentation, we rely
on the collateral posting commitment from CaixaBank to assess the
maximum supported rating."
Rating rationale
S&P said, "Based on the above considerations, we consider the
available credit enhancement for the class AG, B, and C notes to be
commensurate with higher ratings than those assigned acknowledging
that there are ongoing macroeconomic factors which could affect
future performance. We have therefore raised to 'AA+ (sf)' from 'AA
(sf)', to 'A (sf)' from 'A- (sf)', and to 'BB+ (sf)' from 'B+ (sf)'
our ratings on the class AG, B, and C notes, respectively. The
class D notes are still deferring interest payments on the notes,
and therefore we have affirmed our 'D (sf)' rating on this class of
notes."
Ratings List
CLASS RATING TO RATING FROM
RATINGS RAISED
AG AA+ (sf) AA (sf)
B A (sf) A- (sf)
C BB+ (sf) B+ (sf)
RATING AFFIRMED
D D (sf)
GRIFOLS SA: S&P Cuts ICR to 'BB-' on Debt-Funded Acquisition
------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Grifols S.A. to 'BB-' from 'BB'.
The negative outlook indicates that Grifols' operating performance
will likely remain under pressure over the next six months, with no
significant margin improvements expected due to persistent elevated
blood plasma costs amid COVID-19-related health concerns and
restrictions on donors' and health care workers' mobility, reducing
visibility on operating performance.
Grifols S.A. recently announced the acquisition of German
pharmaceutical company Biotest Aktiengesellschaft (Biotest) for a
total enterprise value of EUR2 billion, which will be funded
through a EUR2 billion unsecured bridge financing commitment.
S&P bases its downgrade on Grifols' more aggressive than expected
financial policy.
The group recently announced an agreement to acquire a 45.48% stake
in Biotest for approximately EUR810 million. Under the terms of the
transaction, Grifols will acquire Biotest's ordinary and preferred
shares for EUR43.00 and EUR37.00 respectively in cash. In a related
transaction, Grifols also entered into a share purchase agreement
to acquire Tiancheng International Investment Ltd.'s 45.48% stake
in Biotest for EUR1.1 billion. S&P said, "Overall, we understand
that the group will secure a EUR2 billion unsecured bridge
financing commitment to fund the acquisition, which we expect will
close by second-quarter 2022. We assume that Grifols will
successfully refinance the bridge loan in the future due to its
track record and good access to capital markets."
S&P said, "We consider this transaction transformational and
aggressive, since our adjusted leverage will likely remain above 5x
over the next two years, which is materially above our previous
base case.Although we consider that the group is acquiring a
margin-accretive asset that will improve revenue per blood liter
and boost its gross margins, we also note that most upside will be
from 2023 onward. In our view, the limited immediate top line or
EBITDA upside will prolong Grifols' deleveraging and weaken the
debt cash flow payback ratios compared with our previous base-case
scenario. We also consider Grifols' financial policy more
aggressive than expected as the group will increase its leverage
substantially compared with historical levels.
"Given the high degree of uncertainty over the recovery from
COVID-19, we expect only a modest recovery in Grifols' earnings in
2021 and 2022.Higher plasma costs and donor fees eroded Grifols'
margins, resulting in weaker operating performance in 2021. We
expect Grifols' operating environment to remain challenging in
2022, with still elevated plasma costs and volatile blood
collections due to continued restricted access to plasma. Although
we understand that the company will introduce a series of
cost-saving measures and cash-preservation initiatives such as
capital expenditure (capex) phasing, we believe that there is
limited profit visibility in 2022, which limits the group's
capacity to accommodate such a significant transaction."
The Biotest acquisition will improve Grifols' margins, network of
collection centers, and geographical diversity but upside will only
fully materialize from 2023. Biotest is a vertically integrated
European plasma player with 26 collection centers across Germany,
the Czech Republic, and Hungary and a strong pipeline of products
in hematology, infectious diseases, and immunology. S&P said, "In
our view, Biotest will improve Grifols' efficiency per liter of
plasma as the group is expected to launch two novel proteins, IgM
and Fibrinogen, in 2023 that will be obtained from currently unused
plasma fractions. The group expects that, coupled with operational
synergies, it can realize incremental EBITDA of EUR600 million by
2026. Although we expect these proteins to reinforce the group's
product pipeline, we do not rule out regulatory delays that could
postpone future gains, leading to deviations from our base case."
S&P said, "Following the proposed transaction, we expect Grifols to
post adjusted leverage of 5.5x-6.0x over the next two years.We
expect a marked deleveraging below 5x in 2023, once the upside of
the launch of IgM and Fibrinogen is reflected in the group's
operating performance. Similarly, the group should be able to post
more than EUR300 million in free operating cash flow (FOCF) over
the next two years thanks to cash-preserving measures such as capex
containment.
"Our debt calculations include Singapore sovereign wealth fund
GIC's $990 million investment in Biomat, a U.S.-based
plasma-collection company owned by Grifols. GIC will hold a
minority stake (23.8%) in Biomat USA by acquiring newly issued
nonvoting stock. We understand that starting 2023, GIC will have
the option to sell back to Grifols one of its nonvoting shares for
up to $52 million once a year and all its outstanding shares 15
years after transaction close. Under our Global Methodology, we add
the liability derived from a redeemable minority interest when the
redemption is outside of the issuer's control, or if the shares are
subject to a put option or other economically similar mechanism. We
believe that this transaction is akin to this scenario and
therefore we consider it largely credit neutral, since the proceeds
will be used to reduce debt.
"Our positive comparative rating analysis reflects the group's
strong FOCF capabilities.In our view, Grifols' solid cash
generation in excess of EUR300 million per year should allow future
deleveraging and provide more financial flexibility compared to
peers in the 'B+' category.
"Our negative outlook highlights the continuously challenging
operating environment in which Grifols operates, since access to
plasma remains restricted, mainly due to the collateral effects of
the COVID-19 pandemic. We believe that Grifols' operating
performance will remain under pressure over the next six months and
do not expect significant margin improvements due to persistent
elevated plasma costs, reducing visibility on operating
performance. As a result, and following the Biotest acquisition, we
expect that Grifols' adjusted leverage will remain above 5x in 2021
and 2022."
S&P could lower the rating if:
-- Grifols' leverage further deteriorates, remaining above 5.5x
for a protracted period.
-- Grifols' operating performance weakens such that the group
fails to maintain an adjusted EBITDA margin above 25%.
-- The groups embarks on further debt-financed acquisitions.
S&P could revise the outlook to stable if:
-- Grifols reduces leverage more quickly than we anticipate over
the next six months, so that adjusted debt to EBITDA remains close
to 5x; and
-- Visibility on the group's operating performance increases with
a marked recovery in blood donations and plasma cost
stabilization.
===========================
U N I T E D K I N G D O M
===========================
AVRO ENERGY: Surging Gas Prices Prompt Collapse
-----------------------------------------------
Nathalie Thomas, Jim Pickard and David Sheppard at The Financial
Times report that two energy companies with 835,000 customers
between them on Sept. 22 joined the expanding list of suppliers to
have gone bust in recent weeks, with UK ministers braced for
further collapses amid the crisis caused by spiralling gas prices.
Warwickshire-based Avro Energy, which had 2% of the British energy
supply market with 580,000 domestic customers, is the largest
supplier to have gone bust in at least the last decade, the FT
discloses. Newcastle-based Green supplied 255,000 households, the
FT notes.
Buying energy for that number of customers at current
"eye-watering" wholesale prices would cost the "best part" of GBP1
billion a year, the FT relays, citing a director at one larger
energy supplier, which will now come under pressure from regulators
to take on customers from those failed businesses.
Avro Energy and Green were the sixth and seventh suppliers to go
out of business in just six weeks, the FT relates.
Citizens Advice, the consumer charity, said 1.5 million households
had been affected by the supplier failures, according to the FT.
Green, which had more than 185 employees, blamed "unprecedented"
conditions in the wholesale gas and electricity markets as well as
"regulatory failings" for its inability to continue trading, the FT
discloses.
The company fought back against accusations by some officials and
members of parliament that struggling suppliers were guilty of "bad
business practices" and poor hedging strategies, saying a global
gas shortage had sent energy prices soaring, the FT relays.
The company blamed the method used to calculate the UK's energy
price cap, which protects 15 million households, as well as "other
factors outside of Green's control" such as coronavirus lockdowns
that increased domestic usage and forced it to purchase additional
energy on the spot markets, the FT notes.
According to the FT, Ofgem, the industry regulator, said customers
of Avro Energy and Green would continue to be supplied with
energy.
The government has been in talks with the energy sector over the
possibility of providing state-backed loans to larger suppliers
that agree to take over the customers of failed rivals, at a time
when wholesale costs have soared far above the level where adding
new customers can be profitable, the FT relates.
Under the "supplier of last resort" system, customers of collapsed
suppliers are transferred to other companies in a process overseen
by Ofgem, the FT discloses. Where that proves unviable, the
government has the power to appoint a special administrator, the FT
notes.
DAILY MAIL: Fitch Lowers LT IDR to 'BB+', Off Watch Negative
------------------------------------------------------------
Fitch Ratings has downgraded Daily Mail and General Trust plc's
(DMGT) Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BBB-'
and removed it from Rating Watch Negative (RWN). The Outlook is
Stable.
The rating actions follow the completion of the sale of DMGT's
insurance risk division, RMS, for approximately GBP1,425 million.
The disposal removes an important part of the group's B2B
analytical business, further shifting the mix of cash flows towards
more cyclically exposed parts of the business and lower-margin
consumer media activities.
Despite a strong balance sheet, including a healthy net cash
position, Fitch no longer believes the business mix and the pace of
portfolio management, which has focused on the sale of B2B assets,
supports an investment-grade rating.
KEY RATING DRIVERS
More Vulnerable Business After Sale: Fitch expects RMS to account
for about 29% of underlying operating profits (before corporate
costs) in its forecast for the financial year ending September
2021, with its scale and visible nature offsetting volatility in
other parts of the business. Following the disposal, DMGT comprises
consumer media, parts of which are exposed to eroding print
advertising and circulation trends; an events business that has
been materially affected by the pandemic, although Fitch expects
this to recover; and property information, the UK part of which is
dependent on transaction volumes and the property cycle.
Fitch viewed RMS as a key part of the B2B portfolio and a key
support for the rating. Its sale underlines management's strategy
of realising shareholder value through disposals, and confirms that
no individual business is strategically immune. In 2020, RMS was
the only portfolio business (of the continuing operations) to
deliver growth, representing 27% of continuing operations' cash OI
(EBITDA less capex), and reporting the second highest cash OI
margin across the business. Following the sale, Fitch forecasts the
B2B contribution to operating income will contract to 48% from 56%
and the group OI margin will reduce to about 12% in 2022, compared
with Fitch's estimate of 13.7% in 2019 (from the existing business
perimeter and before corporate costs), the last full year of
pre-pandemic reporting.
Pace of Disposals: The sale of RMS follows a series of disposals,
including that of the group's educational division and energy
information, and continues a pattern of value monetisation, selling
B2B assets that have shown solid margins and growth at high
valuations. In Fitch's view, this trend does not rule out further
disposals from within B2B activities. Fitch believes the remaining
portfolio assets have sound fundamentals but tend to be lower
margin or more cyclically exposed than recent disposals. Combined
with an increased propensity to trade portfolio assets, this
underlines Fitch's view that DMGT's risk profile is better
positioned at a high sub-investment grade level.
Balance Sheet Strength: DMGT's strong balance sheet, including its
net cash position, has been supportive of its rating, although
Fitch views its operating performance and the make-up of its
portfolio of businesses as primary rating drivers. Net cash (on a
pre-IFRS16 lease basis) was GBP294 million at June 2021. This will
rise materially following the disposal (Fitch estimates net
proceeds of about GBP1.15 billion after disclosed adjustments).
DERIVATION SUMMARY
DMGT's credit profile is supported by the group's B2B and consumer
media portfolio, measured financial policy and balance sheet
strength providing the flexibility to manage operational risks.
However, the medium- to long-term visibility of cash flow is
affected by uncertainties in the evolution of print circulation and
advertising, the likely need for continued investment in new
products and digital platforms. The company's active management of
its asset portfolio leads to more limited visibility of the scale
and scope of the business.
Higher-rated larger peers with greater leverage flexibility such as
RELX PLC (BBB+/Stable) and Thomson Reuters Corporation
(BBB+/Stable) have a higher proportion of subscription-based
revenue, little/lower exposure to print, and bigger discretionary
cash flows that support higher leverage or ratings.
KEY ASSUMPTIONS
-- Revenue to decline in FY21 by 7.9% following the disposal of
Hobsons and continued pressure in the events and media
businesses. Thereafter Fitch expects a recovery of 6.5% in
FY22 followed by low single digit growth thereafter;
-- EBITDA margins to decline to 11.3% in FY21 before steadily
increasing toward 14.5% by FY24;
-- Slightly negative working capital at around -1% of revenue per
year between FY21 and FY24;
-- Capex intensity of around 1.6% in FY21 growing steadily to
2.0% by FY24;
-- Dividends are expected to grow at 3% per year (Fitch has not
modelled a special dividend relating to a possible take
private of the group).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Funds from operations (FFO) net leverage sustained below 1.5x;
-- Pre-dividend free cash flow (FCF) margin above 5% on a
sustained basis;
-- Tangible improvement in the overall scale of the business,
along with a strengthening and visibility of operating
margins.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO net leverage sustained above 2x;
-- Pre-dividend FCF margin below 3% on a sustained basis;
-- Weakening consumer division operating profit trends, given the
importance of the consumer transition to online in the context
of a declining print news industry.
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
Strong Liquidity: At June 2021, the company reported net cash of
GBP294 million (excluding IFRS16 leases). Fitch expects the company
to continue to generate low single digit FCF margins from FY21 to
FY23. The RMS disposal will materially add to liquidity. At this
stage it is unclear how permanent this position might be, given the
possibility of a special dividend.
Fitch-adjusted cash at September 2020 was GBP387 million after
excluding restricted cash of GBP114 million. This relates to cash
made available to the pension scheme following the distribution of
its shareholding in Euromoney.
ISSUER PROFILE
DMGT is a diversified media and business services company with a
portfolio of businesses in the B2B and B2C sectors. B2B investments
include property information and events businesses. DMG Media is
the B2C business and most of the revenues in this business are
earned by the Daily Mail, Mail on Sunday and MailOnline news
portals.
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.
EVCL: On Brink of Insolvency, In Talks Over Contingency Plans
-------------------------------------------------------------
Business Sale reports that EVCL Chill, a distributor of chilled
foods to UK supermarkets including Sainsbury's and Asda, is poised
to enter insolvency.
According to Business Sale, early reports indicate that the
business is close to succumbing to a range of factors, including a
shortage of HGV drivers and supply chain challenges and costs.
The business, previously called NFT Distribution, has been a
subsidiary of logistics firm EV Cargo since being acquired out of
administration in early 2020. That deal was brokered by
administrators PwC, with the restructuring firm reportedly also
being lined up to handle this process, Business Sale states.
EVCL Chill, based in Alfreton, Derbyshire, is said to be in talks
with its major customers over contingency plans to help secure
supply continuity, Business Sale notes. The business is described
as being a key supplier in the ambient and chilled foods logistics
market.
The division's last available financial reports at Companies House
cover the year ending September 29, 2018, at which time the
business was still trading as NFT Distribution prior to its
administration and acquisition by EV Cargo.
For that year, the business reported post-tax losses of GBP29.1
million on revenues of close to GBP334 million, Business Sale
discloses. At the time, the company's total assets were valued at
GBP99.7 million, but its total liabilities of GBP164.4 million left
it with a total deficit of £64.6 million, according to Business
Sale.
As well as causing growing supply issues for the UK's supermarkets
and shoppers, driver shortages and rising supply chain costs are
also impacting logistics firms, Business Sale notes.
FOOTBALL INDEX: Report Criticizes Gambling Commission, FCA
----------------------------------------------------------
Shropshire Star reports that the betting industry watchdog and City
regulator have come under fire for failing to co-operate and act
quickly enough to scrutinize soccer trading platform Football Index
before its collapse.
According to Shropshire Star, an independent report into the
regulation of Jersey-based BetIndex, which ran the Football Index,
found that the Gambling Commission could have worked "faster to
better regulate" the service.
It also concluded that although the Financial Conduct Authority
(FCA) was never responsible for regulating the index, there were
"areas for improvement", including how long the FCA took to respond
to the requests from the Commission, Shropshire Star relates.
Football Index -- where investors could bet on the success of
footballers -- went into administration in March, leaving around
280,000 customers out of pocket by around GBP3.2 million,
Shropshire Star recounts.
A parliamentary group -- the All Party Betting & Gaming Group --
also launched an inquiry into the Commission earlier this week,
after it said it received numerous criticisms about the watchdog
from members of the industry, Shropshire Star discloses.
The Commission has pledged to make changes to the way it regulates
innovative digital gambling products in light of the Football Index
saga, Shropshire Star notes.
In April, former gambling minister John Whittingdale announced a
review into the circumstances surrounding the collapse of Football
Index, Shropshire Star recounts.
Payouts to customers were approved in June after the High Court
heard that BetIndex maintained a client money bank account for the
benefit of its customers under the terms of a trust, Shropshire
Star notes.
Judge Robin Vos was also told that there was about GBP4.5 million
in the account when BetIndex went into administration, Shropshire
Star states.
INTU METROCENTRE: Fitch Lowers Fixed Rated Notes to 'CC'
--------------------------------------------------------
Fitch Ratings has downgraded Intu Metrocentre Finance plc's (IMCF)
notes to 'CCsf' from 'CCCsf'. :
DEBT RATING PRIOR
---- ------ -----
Intu Metrocentre Finance plc
Fixed Rated Notes XS0994934965 LT CCsf Downgrade CCCsf
TRANSACTION SUMMARY
IMCF is a securitisation of an interest-only fixed-rate commercial
mortgage loan secured by the Metrocentre, a super-regional shopping
centre located 30 minutes from central Newcastle, as well as an
adjacent retail park. The CMBS comprises a single class of
fixed-rate notes with expected maturity in 2023. Following a
restructuring in 4Q20, the CMBS and underlying loan include a
payment-in-kind (PIK) component, whereby interest accrued is
capitalised. The current notes' balance is GBP498.6 million, up
from GBP485.0 million at closing. The GBP20 million liquidity
facility, provided by HSBC Bank plc, and available to the issuer to
cover senior costs and notes' coupon, has now been fully drawn.
A recent June 2021 valuation indicated that the collateral value
had fallen by a further 6.1% in the preceding six months,
increasing the reported loan-to-value (LTV) to 121%, from 111%, a
result of a further increase in rental yields. In contrast,
estimated rental value had increased by 9.0%, possibly suggesting
that the declining trend may have bottomed out. The relatively
limited fall in value contrasts markedly to the sharp value decline
in the previous three years, when the collateral lost more than 50%
of its value between 2017 and 2020.
Reported collection rates have improved markedly since
non-essential retail businesses were allowed to reopen in May 2021.
Net operating income has improved, reducing the expected reliance
on liquidity, at least as long as new restrictions are not
imposed.
KEY RATING DRIVERS
Interest Capitalisation Increases Refinancing Risk: The notes have
been restructured to include a 4.63% PIK coupon component, on top
of the original 4.12% "cash" coupon, resulting in a total coupon of
8.75%. The downgrade reflects Fitch's view that that increasing
outstanding notes balance (through interest capitalisation), to be
repaid at maturity, substantially increases refinancing risk making
a default of the notes probable.
Liquidity Risk: The transaction's GBP20.0 million liquidity
facility provided by HSBC has been fully drawn over the last two
semi-annual payment dates. Collection rates have improved and
contracted rent is sufficient to cover the debt service, but any
liquidity shock may cause a default of the notes.
Slow Path To Normalisation, Persisting Uncertainty: The re-opening
of all business activities over the past months has helped bolster
shopping centres like the Metrocentre, increasing footfall and
retailer trade. However, the Metrocentre is still facing issues
related to the retail downturn in the UK, having experienced a long
and deep period of rental value declines. It has faced the
challenge of key tenants falling into administration or using
company voluntary arrangements to restructure leases, and the
rising number of turnover-based leases, also in the UK retail
sector more generally, increases the risk of future rental income
volatility.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Intu Metrocentre Finance Plc current ratings: 'CCsf'
The change in model output that would apply with 0.8x cap rates is
as follows:
-- Intu Metrocentre Finance Plc: 'CCsf'
The change in model output that would apply with 1.25x rental value
declines is as follows:
-- Intu Metrocentre Finance Plc: 'CCsf'
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The ratings are unlikely to be upgraded in the short to medium
term.
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
Intu Metrocentre Finance plc
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 did not review the results
of a third party assessment conducted on the asset portfolio
information.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Intu Metrocentre Finance plc has an ESG Relevance Score of '4' for
exposure to social impacts due to a sustained structural shift in
secular preferences affecting consumer trends, which has a negative
impact on the credit profile, and is relevant to the rating in
conjunction with other factors.
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.
PEOPLECERT WISDOM: Fitch Assigns Final 'B' LT IDR, Outlook Pos.
---------------------------------------------------------------
Fitch Ratings has assigned PeopleCert Wisdom Limited (PeopleCert) a
final Long-Term Issuer Default Rating (IDR) of 'B' with a Positive
Outlook. Fitch also assigned the senior secured notes (SSN) issued
by PeopleCert Wisdom Issuer plc a final instrument rating of 'B+ '
with a Recovery Rating of 'RR3'.
The rating actions follow the full implementation of PeopleCert's
financial structure and the closing of the acquisition of Axelos
Ltd. (AXELOS). Changes to the financial documentation versus the
drafts previously received include minor differences in fees. The
impact of the modifications is not material and does not change
Fitch's previous rating assessment.
PeopleCert is an entity incorporated to merge PeopleCert Holdings
UK and AXELOS. PeopleCert Holdings UK is an examination and
awarding body for professional and language certifications, while
AXELOS is a manager and developer of intellectual property (IP)
around business certifications frameworks, including ITIL and
PRINCE2 products.
The ratings of PeopleCert reflect its modest scale and high
leverage that are balanced by its leadership in
business-certification product niches. The Positive Outlook
reflects Fitch's expectations that the company will lead ITIL and
PRINCE2 products into a new growth cycle, expand its scale and
improve profit margins, also due to the integration of AXELOS.
Fitch sees clear deleveraging prospects, with leverage falling
towards Fitch's sensitivity for an upgrade to 'B+' by 2023.
KEY RATING DRIVERS
High Leverage but Deleveraging Prospects: Fitch projects
PeopleCert's funds from operations (FFO) gross leverage,
post-acquisition of AXELOS, at above 7.0x in 2021, taking into
account AXELOS earnings contribution only for about half a year.
Fitch expects the metric to decline sustainably below 5.0x by 2023,
Fitch's upgrade sensitivity to 'B+', after about two years of
trading as a combined entity. The new debt package includes
euro-denominated SSNs equivalent to about GBP255 million, callable
after two years, and no revolving credit facility (RCF). The notes
proceeds, together with an equity injection of about GBP140
million, are being used to finance the acquisition of AXELOS,
refinance existing debt and cover transaction fees.
Training Value-Chain Positioning: PeopleCert mainly operates as an
awarding and examination body for professional and language
qualifications. Its portfolio includes widely adopted business and
IT qualifications such as ITIL and PRINCE2 as well as language
certificates such as SELT. Key clients are training organisations
and are primarily charged on the number of exams taken by their
students. It also provides on-line proctoring, accreditation,
training and several additional services. Additionally, it has a
business-to-consumer platform. IP rights ownership, experience in
exam design and broad market adoption of certifications create
barriers to entry.
Strategy Subject to Execution Risks: Management's strategy is to
strengthen project management and the IT portfolio, particularly
ITIL and PRINCE2, develop new markets and launch new certifications
and additional services. In languages, it plans to act as a market
disruptor. Fitch sees execution risks in its planned geographical
expansion and from fierce competition in languages, and thus
forecast conservative revenue growth. Its merger with AXELOS also
faces challenges, due to complexities in post-merger workstreams.
However, this is mitigated by management's deep knowledge of AXELOS
as PeopleCert Holdings UK had been the sole examination institute
for AXELOS's frameworks since 2018.
IP Drives Business Certifications: ITIL and PRINCE2 are the leading
accreditations in their respective sectors in English-speaking
countries. ITIL is the most adopted framework in IT, while PRINCE2
leads in project management ahead of competitor PMP. Both
qualifications experience cyclical trends, linked to new versions'
periodical launches, and have begun or are approaching a revamp
phase. Fitch conservatively estimates CAGR of about 7% in the
number of business certification exams for 2021-2025, below
historical growth in an upswing. For the same period, Fitch also
assumes mild pricing deflation, as a consequence of the new
currency mix resulting from its geographical expansion.
Ambitious Plan in Languages: Management expects significant growth
in languages up to 2025. Main growth pillars include exams such as
SELT, a key test for UK visas, as the company is one of the five
globally approved exam providers. Other activities include
expansion in ESOL and LTE exams, tenders with government bodies and
non-English language expansion. Fitch acknowledges market share
growth opportunities in this fragmented space, as manifested in
3.5x revenue growth for 2019-2020 for the division. However, Fitch
sees stiff competition from established competitors with strong
brands and hence project a revenue CAGR of 9% over 2021-2025 for
languages.
Debt Reduction, Dividend Payments: PeopleCert is a family-owned
business controlled by Byron Nicolaides and is exposed to key-man
risk. After the acquisition of AXELOS, the growth equity investor
FTV capital owns a minority stake and is represented on the board.
Fitch expects the owners to adopt a conservative stance on
leverage, reducing leverage to increase their equity value,
potentially monetising it through an IPO. However, Fitch expects
cash dividends to be paid annually, as permitted under the debt
documentation. Recourse to additional debt, including to fund
acquisitions, may be negative for PeopleCert's ratings.
AXELOS Acquisition Strategically Sound: Fitch believes the
acquisition of AXELOS is strategically sensible. As a joint venture
between UK government bodies and Capita Plc (Capita), AXELOS owned
and managed the frameworks of ITIL and PRINCE2. While PeopleCert
acted as the sole examination institute for AXELOS, the latter
retained the bare IP rights. The merger of the two companies allows
PeopleCert to integrate vertically, and to be in full control of
the qualification's frameworks. Controlling the entire value chain
from product design to pricing and commercial policies will be key
to supporting a relaunch of AXELOS's legacy portfolio.
Strong Cash Conversion: Fitch-defined EBITDA margin, adjusted for
IFRS 16, will be around 53% in 2022, once the integration is
completed, before rising over 57% by 2024. The growth in
profitability is supported by the elimination of commission costs,
previously payable to AXELOS from PeopleCerts pre-acquisition.
Neutral cash from working capital and around GBP5 million of yearly
capex feed into a post-dividend free cash flow (FCF) margin of over
15%.
Stability in Qualifications Markets: Fitch sees broad stability in
the education and qualifications markets. Trends in digital
transformation are also likely to support investments in technology
and process-management-related qualifications. Additionally, global
outsourcing of services towards developing countries will fuel
increase in demand for qualifications in new geographies.
Nevertheless, Fitch sees cyclicality in corporate-training budgets
that may become exposed to global shocks such as the spread of
coronavirus.
DERIVATION SUMMARY
PeopleCert is strongly positioned as an examination institute and
awarding organisation in certain niches related to IT and
project-management qualifications. Its revenue base is protected by
IP rights ownership for several qualification frameworks, while its
position in language-testing is one of a market challenger. It
competes in European and international markets with highly
diversified education content providers such as Pearson and several
academic bodies.
PeopleCert's ratings are based on the company's market position in
certain product niches, as well as widening EBITDA and FCF margins,
in particular following the acquisition of AXELOS. Also, they
reflect PeopleCert's high leverage, albeit with clearer
deleveraging prospects than that of 'B' rated peers. The company
compares well with Fitch-rated LBO and speculative-grade peers in
business services and education. Education peers such as Global
University Systems Holdings BV (GUSH, B/Stable) and GEMS Menasa
(Cayman) Ltd (B/Stable) have higher turnover scale and leverage,
but have lower EBITDA margins than PeopleCert, despite their high
earnings.
Within Fitch's wider business service portfolio, Fitch sees some
comparison with LBO peers in ERP services including Teamsystem
Holdings SpA (B/Stable) and Bock Capital Bidco B.V. (Unit 4,
B(EXP)/Stable), as well as with other services such as PolyStorm
Bidco AB (Polygon, B (EXP)/Stable). Fitch believes that ERP
providers' diversified customer base generates lower business risk,
as they also rely on a contract customer base versus PeopleCert's
IP-driven business model. Both Teamsystem and Unit 4 have higher
leverage. Fitch also sees comparability between PeopleCert and
Polygon, but the latter's EBITDA margins are considerably lower,
balanced by a portfolio of long-term contracts with customers.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Total revenue CAGR over 5% for 2021-2025;
-- CAGR of 7% for business exams and 8% for languages for 2021-
2025;
-- Moderate exam pricing deflation; pricing stability for
languages for 2021-2025;
-- EBITDA margin, adjusted for IFRS 16, at 57% in 2024 after
integration of AXELOS and cost savings;
-- Broadly neutral cash outflow from working capital to 2025;
-- Capex on average at about EUR5 million p.a. to 2025.
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that the combination of PeopleCert
and AXELOS would remain a going- concern in distress and through a
balance-sheet restructuring, rather than be liquidated in a
default. Most of its value is derived from its portfolio of
certification brands, its IP rights and certain goodwill from
relationships with clients and training organisations. The IP
rights portfolio is not part of the secured collateral, but
negative-pledge clauses are present in the SSN documentation.
Our analysis assumes a going-concern EBITDA of around EUR40
million, compared with projected LTM pro-forma (for merger) EBITDA
to December 2020 of EUR53 million. At this level of going-concern
EBITDA, which assumes corrective measures to have been taken, Fitch
would expect the company to still generate positive FCF, but for
the financial structure to become unsustainable due to increased
leverage, making refinancing challenging.
A restructuring may arise from financial distress related to
increased competition in the qualifications industry by established
peers or new entrants. This may include a decline in the
international prestige and applicability of qualifications such
ITIL or PRINCE2. Under this scenario, a reduction in pricing power
may hit both revenue and margins, affecting leverage.
Post-restructuring scenarios may involve acquisition by a larger
company to combine PeopleCert's IP portfolio and clients within an
existing platform.
After applying an enterprise value multiple of 5.0x to the
post-restructuring going-concern EBITDA, Fitch's waterfall analysis
generated a ranked recovery in the 'RR3' band after deducting 10%
for administrative claims. This indicates a 'B+'/'RR3'/69%
instrument rating for the SSNs. Fitch included in the waterfall
EUR1 million of local facilities that Fitch understands from
management are mainly borrowed from within the restricted group.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Operating leverage manifested in improving scale and higher
EBITDA margin post-integration;
-- FFO gross leverage below 5.0x, driven by revenue consolidation
in IT and project management and by higher revenue in
languages;
-- FFO interest coverage sustainably above 3.0x;
-- Consistent FCF generation with post-dividend FCF margins in
double digits.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Positive sensitivities not met within 18-24 months will lead
to the Outlook being revised to Stable;
-- FFO gross leverage higher than 6.5x, led by stagnation in
revenue and reduction in margins or recourse to debt-funded
acquisitions;
-- FFO interest coverage remaining below 2.0x;
-- Reduction of FCF margins towards low single digits.
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
Comfortable Liquidity: The combined entity benefits, post-merger,
from a growing buffer of cash on its balance sheet. Fitch expects
around GBP32 million for 2021, growing to around GBP65 million for
2023. It does not benefit from any RCF commitment.
Currency Mix Broadly Stable: PeopleCert's reporting currency is
sterling. Revenue in 2020 was almost equally divided between
sterling, euros and US dollars. The cost base is mainly variable
and euro-denominated. Fitch understands from management that the
cost currency mix will not change materially throughout the
business plan, as AXELOS's legacy cost base will be reduced. The
new SSNs are denominated in euros.
Fitch expects stability in the currencies involved. However, minor
mismatches can emerge as the company diversifies towards new
geographies such as India. Fitch believes that, should these
mismatches emerge, management will consider implementing hedging
policies.
ISSUER PROFILE
PeopleCert was founded by holdings related to Byron Nicolaides, the
key shareholder of PeopleCert Holdings UK Ltd, and by funds advised
by FTV Capital. The company mainly operates as an awarding and
examination body for professional and language qualifications. Its
portfolio includes widely adopted business and IT qualifications
such as ITIL and PRINCE2 as well as language certificates such as
SELT and LTE.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch adjusted EBITDA for the application of IFRS 16.
Sources of Information
The sources of information used to assess this rating were annual
audited accounts of the merged entities, the final version of the
debt documents, a rating agency presentation and a meeting with
management.
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.
POLO FUNDING 2021-1: Moody's Assigns (P)B2 Rating to Class D Notes
------------------------------------------------------------------
Moody's Investors Service has assigned the following provisional
ratings to Notes to be issued by Polo Funding 2021-1 PLC:
GBP [ ]M Class A Asset Backed Floating Rate Notes due July 2046,
Assigned (P)Aaa (sf)
GBP [ ]M Class B Asset Backed Floating Rate Notes due July 2046,
Assigned (P)Aa1 (sf)
GBP [ ]M Class C Asset Backed Floating Rate Notes due July 2046,
Assigned (P)Baa1 (sf)
GBP [ ]M Class D Asset Backed Floating Rate Notes due July 2046,
Assigned (P)B2 (sf)
Moody's has not assigned a rating to the subordinated GBP [ ]M
Class E Asset Backed Floating Rate Notes due July 2046 and neither
to the GBP [ ]M Class X Asset Backed Floating Rate Notes due July
2046.
RATINGS RATIONALE
The Notes are backed by a static pool of UK secured consumer loans
originated by Oplo HL Ltd (NR). This represents the first issuance
from this originator.
The portfolio consists of approximately GBP199.77 million of loans
as of July 2021 pool cut-off date. The liquidity reserve fund will
be funded at closing and will represent 2.25% of the Class A and B
Notes balance at closing; it will be replenished through the
interest waterfall and it will amortise in line with current
balance of the two notes.
The ratings are primarily based on the credit quality of the
portfolio, the structural features of the transaction and its legal
integrity.
According to Moody's, the transaction benefits from various credit
strengths such as a granular portfolio, high excess spread, static
portfolio and counterparty support through the back-up servicer
(Equiniti Gateway Limited (NR)), and independent cash manager
(Citibank N.A., London Branch (Aa3(cr)/ P-1(cr)). However, Moody's
notes that the transaction features some credit weaknesses such as
exposure to higher risk borrowers and higher operational risk than
a typical UK deal because OPLO HL Ltd is a small and new, unrated
entity acting as originator and servicer to the transaction.
Various structural mitigants have been included in the transaction
structure such as a back-up servicer, as well as estimation
language and an independent cash manager.
The English law governed loans in the pool are backed by second or
subsequent ranking equitable mortgages on properties, obtained by
way of unilateral notice, while the Scots law governed loans are
secured by way of standard security. Although this provides the
option of recourse against the borrowers property via a court order
of sale, Oplo's current collection practices do not typically
pursue repossession. Instead relying on recovery methods typically
seen on defaulted unsecured consumer loans.
Moody's determined the portfolio lifetime expected defaults of 15%,
expected recoveries of 20% and Aaa portfolio credit enhancement
("PCE") of 36% related to borrower receivables. The expected
defaults and recoveries capture Moody's expectations of performance
considering the current economic outlook, while the PCE captures
the loss Moody's expect the portfolio to suffer in the event of a
severe recession scenario. Expected defaults and PCE are parameters
used by Moody's to calibrate its lognormal portfolio loss
distribution curve and to associate a probability with each
potential future loss scenario in the ABSROM cash flow model to
rate Consumer ABS.
Portfolio expected defaults of 15% are higher than the EMEA
Consumer Loan ABS average and are based on Moody's assessment of
the lifetime expectation for the pool taking into account (i)
historic performance of the loan book of the originator, (ii)
benchmark transactions, and (iii) other qualitative considerations,
such as the product and short track record of the originator.
Portfolio expected recoveries of 20% are lower than the EMEA
Consumer Loan ABS average and are based on Moody's assessment of
the lifetime expectation for the pool taking into account (i)
historic performance of the loan book of the originator, (ii)
benchmark transactions, and (iii) other qualitative
considerations.
PCE of 36% is higher the EMEA Consumer Loan ABS average and is
based on Moody's assessment of the pool which is mainly driven by:
(i) evaluation of the underlying portfolio, complemented by the
historical performance information as provided by the originator,
and (ii) the relative ranking to originator peers in the EMEA
Consumer loan market. The PCE level of 36% results in an implied
coefficient of variation ("CoV") of 28.7%.
The principal methodology used in these ratings was "Moody's
Approach to Rating Consumer Loan-Backed ABS" published in September
2021.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of the notes
include significantly better than expected performance of the pool
together with an increase in credit enhancement of Notes.
Factors that would lead to a downgrade of the ratings include: (i)
increased counterparty risk leading to potential operational risk
of (a) servicing or cash management interruptions; and (ii)
economic conditions being worse than forecast resulting in higher
arrears and losses.
TWIN BRIDGES 2021-2: Moody's Assigns Ba3 Rating to Class X1 Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to Notes
issued by Twin Bridges 2021-2 PLC:
GBP459.34M Class A Mortgage Backed Floating Rate Notes due
September 2055, Definitive Rating Assigned Aaa (sf)
GBP36.05M Class B Mortgage Backed Floating Rate Notes due
September 2055, Definitive Rating Assigned Aa1 (sf)
GBP21.37M Class C Mortgage Backed Floating Rate Notes due
September 2055, Definitive Rating Assigned Aa3 (sf)
GBP16.02M Class D Mortgage Backed Floating Rate Notes due
September 2055, Definitive Rating Assigned A1 (sf)
GBP16.02M Class X1 Mortgage Backed Floating Rate Notes due
September 2055, Definitive Rating Assigned Ba3 (sf)
Moody's has not assigned ratings to the GBP10.68M Class X2 Mortgage
Backed Floating Notes due September 2055, GBP13.35M Class X3
Mortgage Backed Floating Notes due September 2055, GBP1.34M Class
Z1 Mortgage Backed Notes due September 2055 and the GBP5.34M Class
Z2 Mortgage Backed Notes due September 2055.
The Notes are backed by a pool of UK buy-to-let ("BTL") mortgage
loans originated by Paratus AMC Limited ("Paratus" as originator
and seller, NR). The securitised portfolio consists of 2,597
mortgage loans with a current balance of GBP534.1 million as of
August 31, 2021.
RATINGS RATIONALE
The ratings of the Notes are based on an analysis of the
characteristics and credit quality of the underlying BTL mortgage
pool, sector wide and originator specific performance data,
protection provided by credit enhancement, the roles of external
counterparties and the structural features of the transaction.
MILAN CE for this pool is 13.0% and the expected loss is 1.5%.
The expected loss is 1.5%, which is in line for the United Kingdom
BTL RMBS sector and is based on Moody's assessment of the lifetime
loss expectation for the pool taking into account: (i) the current
weighted average (WA) LTV of around 72.4%; (ii) the performance of
comparable originators; (iii) the expected outlook for the UK
economy in the medium term; (iv) the historic data does not cover a
full economic cycle (since 2015); and (v) benchmarking with similar
UK BTL transactions.
The MILAN CE for this pool is 13.0%, which is in line with the
United Kingdom BTL RMBS sector average and follows Moody's
assessment of the loan-by-loan information taking into account the
following key drivers: (i) the WA LTV for the pool of 72.4%, which
is in line with comparable transactions; (ii) top 20 borrowers
accounting for approx. 6.6% of current balance, (iii) the historic
data does not cover a full economic cycle; and (iv) benchmarking
with similar UK BTL transactions.
At closing, the transaction benefits from a non-amortising general
reserve which is equal to 1.0% of Classes A to D and Z1 Notes at
closing. The non-amortising general reserve fund consists of two
components - the first component is the liquidity reserve fund
which is equal to 1.0% of the outstanding balance of the Class A
and Class B notes and will amortise together with Class A and Class
B notes. The liquidity reserve fund will be available to cover
senior fees and costs, and Class A and B interest (in respect of
the latter, if it is the most senior class outstanding and
otherwise subject to a PDL condition). The second component is the
credit ledger which is a dynamic ledger that is sized at 1.0% of
Classes A to D and Z1 Notes at closing, minus the balance of the
liquidity reserve component. At closing, the credit ledger
component of the reserve fund will be residual and increase
throughout the life of the transaction as the liquidity reserve
fund amortises.
Operational Risk Analysis: Paratus is the servicer in the
transaction whilst U.S. Bank Global Corporate Trust Limited (NR)
will be acting as a cash manager. In order to mitigate the
operational risk, Intertrust Management Limited (NR) will act as
back-up servicer facilitator. To ensure payment continuity over the
transaction's lifetime the transaction documents incorporate
estimation language whereby the cash manager can use the three most
recent servicer reports to determine the cash allocation in case no
servicer report is available. The transaction also benefits from
approx. 4 quarters of liquidity based on Moody's calculations.
Finally, there is principal to pay interest as an additional source
of liquidity for the Class A Notes and Class B Notes.
Interest Rate Risk Analysis: 95.3% of the loans in the pool are
fixed rate loans reverting to BBR or three months LIBOR (only three
loans in the portfolio will revert to three months LIBOR). The
Notes are floating rate securities with reference to three months
compounded daily SONIA. To mitigate the fixed-floating mismatch
between the fixed-rate asset and floating liabilities, there will
be a scheduled notional fixed-floating interest rate swap provided
by National Australia Bank Limited (Aa2(cr)/P-1(cr)) and Natixis
(Aa3(cr)/P-1(cr)).
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
December 2020.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors that would lead to an upgrade of the ratings include: (i)
significantly better than expected performance of the pool together
with an increase in credit enhancement of Notes; or (ii) a
deleveraging of the capital structure.
Factors that would lead to a downgrade of the ratings include: (i)
an increase in the level of arrears resulting in a higher level of
losses than forecast; or (ii) economic conditions being worse than
forecast resulting in higher arrears and losses.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2021. All rights reserved. ISSN 1529-2754.
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