/raid1/www/Hosts/bankrupt/TCREUR_Public/210928.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, September 28, 2021, Vol. 22, No. 188
Headlines
A R M E N I A
ARMENIA: Fitch Affirms 'B+' Foreign Currency IDR, Outlook Stable
F R A N C E
REXEL SA: S&P Alters Outlook to Positive & Affirms 'BB/B' ICRs
I R E L A N D
AQUEDUCT EURO 5-2020: Fitch Gives 'B-(EXP)' Rating to F-R Notes
AQUEDUCT EUROPEAN 5-2020: S&P Assigns Prelim B- Rating on F-R Notes
HARVEST CLO X: S&P Assigns BB Rating on Class F-R Notes
NEUBERGER BERMAN 2: Moody's Gives B3 Rating to EUR9MM Cl. F Notes
NEUBERGER BERMAN 2: S&P Assigns B- Rating on Class F Notes
ST. PAUL XI: Fitch Affirms Final B- Rating on Class F Notes
TORO EUROPEAN 4: Moody's Cuts Rating on EUR10.5MM F-R Notes to B3
I T A L Y
SISAL GROUP: S&P Alters Outlook to Stable & Affirms 'B' ICR
L U X E M B O U R G
AZELIS HOLDING: Moody's Puts B3 CFR Under Review for Upgrade
COLOUROZ MIDCO: Moody's Puts Caa1 CFR Under Review for Upgrade
LUNA III: Fitch Gives 'BB+(EXP)' Rating to EUR1,250MM Term Loan
N E T H E R L A N D S
HUVEPHARMA INT'L: Moody's Ups CFR to Ba2 & Alters Outlook to Stable
R O M A N I A
ALPHA BANK: Moody's Alters Outlook on Ba2 Deposit Rating to Pos.
R U S S I A
HOME CREDIT: Fitch Raises LongTerm IDRs to 'BB', Outlook Stable
MAYKOPBANK JSC: Bank of Russia Ends Provisional Administration
NBCO FINCHER: Bank of Russia Cancels Banking License
OTP BANK: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable
ROSVODOKANAL LLC: Fitch Raises LT IDRs to 'BB', Outlook Stable
TINKOFF BANK: Fitch Raises LT IDRs to 'BB+', Outlook Stable
TRANSKAPITALBANK PJSC: Fitch Assigns 'B' LT IDR, Outlook Stable
S P A I N
ANFI SALES: Declared Bankrupt by Commerce Court in Las Palmas
GRIFOLS SA: Moody's Lowers CFR to B1, Outlook Negative
U N I T E D K I N G D O M
GREEN: Shell Energy to Take Over 255,000 Customers
MILLER HOMES: Fitch Affirms 'BB-' LT IDR & Alters Outlook to Pos.
MOTO VENTURES: Fitch Lowers GBP150MM Second Lien Debt to 'CCC'
PATISSERIE VALERIE: FRC Imposes GBP2.3MM Fine Over Audit Failures
S4 CAPITAL: S&P Assigns 'BB-' Issuer Credit Rating, Outlook Stable
TOGETHER ASSET 2021-1ST1: S&P Assigns BB Rating on X Notes
TWIN BRIDGES 2020-1: Moody's Affirms B1 Rating on Class X1 Notes
UK ISP ORIGIN: Migrates Customer Lines to TalkTalk's Platform
VICTORIA PLC: S&P Alters Outlook to Stable & Affirms 'BB-' ICR
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A R M E N I A
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ARMENIA: Fitch Affirms 'B+' Foreign Currency IDR, Outlook Stable
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Fitch Ratings has affirmed Armenia's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'B+' with a Stable Outlook.
KEY RATING DRIVERS
Armenia's 'B+' IDRs reflect strong per-capita income, governance
and business environment indicators relative to peers, as well as a
robust macroeconomic and fiscal policy framework and credible
commitment to reform that are underpinned by an IMF programme. Set
against these strengths are high public foreign-currency debt,
relatively weak external finances, and geopolitical tensions that
have the potential to reignite into military conflict.
Prime Minister Nikol Pashinyan's decisive win at the 20 June 2021
snap elections secured a parliamentary majority for his 'Civil
Contract' party and should resolve the domestic political crisis
that has ensued since the 6 November 2020 Russian-brokered
ceasefire agreement with Azerbaijan concluded the 44-day
Nagorno-Karabakh war. The election outcome refreshes the
government's mandate to pursue key structural reforms and tackle
corruption, and is a further endorsement of democratic-based
politics as the second elections to be widely acknowledged as free
and fair following the 2018 Velvet Revolution. The new government
has emphasised regional peace and commitment to the OSCE Minsk
group process to resolve the Nagorno-Karabakh dispute, a marked
softening in its tone from last year. Nevertheless, periodic border
incidents and minor infractions of the ceasefire agreement are
reminders of the possibility for renewed fighting to erupt and the
greater reliance on Russia for security in the region.
Public debt is high, with general government debt/GDP jumping 13pp
to peak at 67.4% (current 'B' median: 68%) at end-2020, due to the
fiscal impact of the pandemic and the Nagorno-Karabakh war's impact
on public finances, the fall in GDP and depreciation of the dram.
Fitch forecasts debt/GDP to fall to 60.2% in 2021 on strong nominal
GDP growth (13%), narrowing of the fiscal deficit, and
strengthening of the dram. Public debt/GDP should continue its
gradual downward trajectory to 55% by 2023, guided by the
government's commitment to its debt reduction fiscal rule, which
will be reinstated from 2022. Foreign currency debt is high at 81%
of total government debt in 2021 ('B' median: 63%), and heightens
sensitivity to exchange rate fluctuations.
Fitch forecasts the consolidated government deficit to narrow to
3.8% of GDP in 2021 (2020: 5.1%), and further to 2.0% by 2023.
Fiscal performance for 7M21 showed an outperformance relative to
both the government's and Fitch's forecasts at the last review. Tax
revenues rose by 10.5% yoy driven by higher VAT receipts from a
rebound in domestic consumption and foreign trade, while
investments and other expenditures were under-executed relative to
the budget at end-July. The deficit will be financed predominantly
by the USD750 million Eurobond proceeds raised in February 2021,
but deficit financing in 2022-23 will focus more on domestic
sources as the government seeks to reduce external debt and limit
vulnerability to dram depreciation.
Real GDP staged a strong, broad-based rebound in 2Q21 of 13.2% yoy,
driven by base effects, dynamism in construction, agriculture and
services, and supported by strong remittance inflows and continued
accommodative policies. Fitch forecasts real GDP growth to recover
to 5.5% in 2021 (2020: -7.4%), moderating to 5.3% in 2022 and 4.7%
in 2023. Risks to Fitch's forecasts are fairly balanced, with the
potential for faster economic recovery offsetting risks of renewed
economic restrictions from a potential further intensification of
the Covid-19 crisis in the context of Armenia's slow vaccination
roll-out (under 5% of the population was fully vaccinated by
mid-September).
Inflation accelerated to 8.8% yoy in August 2021, above the Central
Bank of Armenia's (CBA) target of 4.0%, driven primarily by global
pressures on food prices (15.1% yoy), rebounding demand from the
2020 recession, and bottlenecks in supply chains. Fitch forecasts
inflation to average 7.4% in 2021, moderating to average 5.0% and
4.0% in 2022-23 as supply chains and production adjust. The CBA has
raised its policy rate by a cumulative 300bp to 7.25% between
December 2020 and September 2021 in response to domestic inflation
pressures. An increase in banks' dram reserve requirements, aimed
at enhancing monetary transmission, has also had the effect of
tightening monetary conditions. An unexpected monetary tightening
by major central banks to curb rising global inflation could lead
to pressure on the CBA to further tighten rates.
External finances are a relative weakness compared with 'B' rated
peers. A long record of large current account deficits not financed
by foreign direct investment flows has resulted in high net
external debt (NXD), which Fitch forecasts at 55% of GDP at
end-2021 ('B' median: 20%).
The narrowing of the goods and services trade deficit in 1Q21,
growth in remittance inflows and tightening monetary conditions
have led to the dram/US dollar appreciating by 6% in 8M21. Fitch
forecasts the recovery of imports as economic activity rises to
contribute to a normalising of the current account deficit to
relatively high levels of 4.4% of GDP in 2021 and 5.0% in 2022
(2020: 3.8%). Government Eurobond proceeds, emigrant deposits, and
modest FDI inflows are expected to finance the deficit, and the
residual and a USD175 million-equivalent special drawing rights
allocation to raise official reserves to USD3.1 billion by end-2021
(end-2020: USD 2.6 billion).
ESG - Governance: Armenia has an ESG Relevance Score (RS) of '5' &
5[+]' respectively for both Political Stability and Rights and for
the Rule of Law, Institutional and Regulatory Quality and Control
of Corruption. Theses scores reflect the high weight that the World
Bank Governance Indicators (WBGI) have in Fitch's proprietary
Sovereign Rating Model. Armenia has a medium WBGI ranking at 48th
percentile reflecting a recent track record of peaceful political
transitions, a moderate level of rights for participation in the
political process, moderate institutional capacity, established
rule of law and a moderate level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- External Finances: A worsening of external imbalances,
potentially evidenced by higher NXD or wider current account
deficits, or emergence of external-financing pressures leading
to a fall in reserves and a rise in the interest burden.
-- Structural / Macro: Renewed escalation of the military
conflict with Azerbaijan over Nagorno-Karabakh or a
reintensification of domestic political instability that leads
to a weakening of macroeconomic and fiscal policy direction or
credibility.
-- Public Finances: A sustained upward trajectory in general
government debt/GDP over the medium term, for example due to a
structural fiscal loosening and/or further weakening in GDP
growth prospects.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Public Finances: Improved confidence in general government
debt/GDP returning to a firm downward path over the medium
term, for example due to a credibly defined fiscal
consolidation plan.
-- External Finances: A sustained improvement in external
indicators, for example lower NXD, improved current account
deficit or FDI inflows closer to the 'BB' median.
-- Structural: Further improvement of structural indicators such
as governance standards, leading to convergence towards the
'BB' peer median, and improvement in political stability.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Armenia a score equivalent to a
rating of 'B+' on the Long-Term Foreign-Currency (LT FC) IDR
scale.
Fitch's sovereign rating committee did not adjust the output from
the SRM to arrive at the final LT FC IDR.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure 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 three 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.
KEY ASSUMPTIONS
Fitch expects macroeconomic indicators to move in line with its
September 2021 Global Economic Outlook forecasts.
ESG CONSIDERATIONS
Armenia has an ESG Relevance Score of '5' for Political Stability
and Rights as World Bank Governance Indicators have the highest
weight in Fitch's SRM and are therefore highly relevant to the
rating and a key rating driver with a high weight. As Armenia has a
percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Armenia has an ESG Relevance Score of '5[+]' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and are therefore highly relevant to the rating and are a key
rating driver with a high weight. As Armenia has a percentile rank
above 50 for the respective Governance Indicators, this has a
positive impact on the credit profile.
Armenia has an ESG Relevance Score of '4'for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver. As Armenia has a percentile rank below 50 for the
respective Governance Indicator, this has a negative impact on the
credit profile.
Armenia has an ESG Relevance Score of '4[+]' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Armenia, as for all sovereigns. As Armenia
has a track record of 20+ years without a restructuring of public
debt and captured in Fitch's SRM variable, this has a positive
impact on the credit profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3'. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or to the way in which they
are being managed by the entity.
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F R A N C E
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REXEL SA: S&P Alters Outlook to Positive & Affirms 'BB/B' ICRs
--------------------------------------------------------------
S&P Global Ratings revised its outlook on Rexel to positive from
stable, and affirmed its 'BB/B' long- and short-term issuer credit
ratings on French-headquartered electrical components distributor
Rexel S.A.
The positive outlook reflects that S&P could raise the ratings on
Rexel in the next 12 months if its adjusted funds from operations
(FFO) to debt ratio remains above 20%, and debt to EBITDA
comfortably below 4.0x, while the company continues to perform well
and generate material free cash flow.
Rexel's revenue, which benefits from a strong recovery in the
renovation end-market, will exceed prepandemic levels in 2021.
Sales in first-half 2021 increased by about 20% on a same-day
basis, or about 17% on a reported basis, supported notably by the
healthy renovation end market and pass-through of suppliers' price
increases. However, volumes in North America were still 15% below
second quarter 2019 levels, which leaves room for further
improvement. S&P said, "We expect sales to increase by 12%-15% in
2021, driven by strong volumes and pricing impact, before
moderating to 2%-4% growth in 2022-2023. We also forecast adjusted
EBITDA margins of 7.0%-7.5% in 2021-2022, supported by strong
operating leverage, pass-through of raw material price increasing,
a positive business mix, and robust cost control." In the medium
term, Rexel might also benefit from the EUR750 billion European
recovery fund, as part of the fund is expected to target building
renovation. Rexel could also benefit from long-term mega trends
such as the energy transition from fossil fuels to electricity
consumption, building automation, and digitalization.
Digital sales are strongly increasing, which support the company's
strategy.Digital sales reached about 23% of the total, and even
represented 33% of sales in Europe in the first part of 2021. The
pandemic has pushed customers' adoption of digital channels. It
also helped Rexel ensure business continuity during the pandemic.
The company's push to digital sales also results in higher
profitability. S&P believes that Rexel's digital investment over
the past few years put the company in a good competitive position,
especially against smaller peers.
S&P said, "We expect the company to further reduce its financial
leverage.In 2020, Rexel's net financial leverage fell down
slightly, thanks to an important working capital release, the
cancelled dividend, the cash from the disposal of Gexpro Services,
and strong control on costs and capital expenditure (capex). It
also repaid its former senior notes due in 2024 and refinanced a
EUR500 million bond with EUR400 million in sustainability-linked
notes, leading to a gross debt reduction. In 2021-2022, we expect
FFO to debt to increase to 27%-30% from 20% in 2020 as EBITDA
materially improves and Rexel continues to generate material free
cash flow. We also expect annual capex of about 0.9% of sales, in
line with management's medium-term targets."
Rexel's revised financial guidelines suggest metrics that could
lead to an upgrade, but the company needs to build a track record
of credit metrics commensurate with the 'BB+' rating. In February
2021, Rexel released a medium-term capital allocation objective
consisting of:
-- Dividend payout of at least 40% of recurring net income;
-- Selective bolt-on acquisitions;
-- Potential share buybacks absent mergers and acquisitions (M&A);
and
-- Indebtedness ratio of about 2.5x.
S&P said, "The indebtedness ratio is equivalent to a S&P Global
Ratings-adjusted leverage of about 3.8x, and FFO to debt of about
20%. However, we need some track record from the company to
sustaining these metrics, as Rexel has never achieved FFO to debt
higher than 20%. In 2021-2022, we expect FFO to debt comfortably to
increase to 27%-30%; however, in our base-case scenario, we do not
assume any major share buybacks or large debt-funded M&A. We
understand that Rexel would most likely use financial leverage
headroom gained in 2021-2022 by pursuing bolt-on M&A, which could
sustain the company's business risk profile and operating
performance. If Rexel were to engage in aggressive shareholder
remuneration, we would need to reassess the company's ability and
willingness to preserve FFO to debt above 20% over the cycle.
"The positive outlook reflects that we could raise the ratings on
Rexel in the next 12 months if adjusted FFO to debt remains above
20% and debt-to-EBITDA comfortably below 4.0x, while the company
continues to perform well and generate material free cash flow.
"We would upgrade Rexel in the next 12 months if it builds a track
record of FFO to debt exceeding 20%, while maintaining debt to
EBITDA below 4.0x. Under this scenario, the company would need to
show commitment to maintaining these credit metrics, such that any
significant debt-funded M&A or shareholder remuneration would not
impair them.
"We could revise the outlook back to stable if Rexel 's FFO to debt
does not remain comfortably above 20%. This would likely happen if
the company pursued large, debt-financed acquisitions, or if its
shareholder remuneration increased beyond our base-case scenario."
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I R E L A N D
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AQUEDUCT EURO 5-2020: Fitch Gives 'B-(EXP)' Rating to F-R Notes
----------------------------------------------------------------
Fitch Ratings has assigned Aqueduct European CLO 5-2020 DAC's
refinancing notes expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
DEBT RATING
---- ------
Aqueduct European CLO 5-2020 DAC
A-R LT AAA(EXP)sf Expected Rating
B-1-R LT AA(EXP)sf Expected Rating
B-2-R LT AA(EXP)sf Expected Rating
C-R LT A(EXP)sf Expected Rating
D-R LT BBB-(EXP)sf Expected Rating
E-R LT BB-(EXP)sf Expected Rating
F-R LT B-(EXP)sf Expected Rating
TRANSACTION SUMMARY
Aqueduct European CLO 5-2020 is a securitisation of mainly senior
secured obligations (at least 90%) with a component of corporate
rescue loans, senior unsecured, mezzanine, second-lien loans and
high-yield bonds. The transaction originally closed in September
2020. The CLO's secured notes will be refinanced in whole on 20
October 2021 (the first refinancing date) from proceeds of new
secured notes. Net proceeds from the expected note issuance are
being used to fund a portfolio with a target par of EUR400 million.
The portfolio is managed by HPS Investment Partners CLO (UK) LLP.
The collateralised loan obligation (CLO) envisages a 4.5-year
reinvestment period and an 8.5-year weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B'/'B-' category.
The Fitch weighted average rating factor (WARF) of the identified
portfolio is 24.34.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is
64.79%.
Diversified Portfolio (Positive): The indicative maximum exposure
of the 10 largest obligors for assigning the expected ratings is
16% of the portfolio balance and maximum fixed rated obligations
are limited at 10% of the portfolio. The transaction also includes
various concentration limits, including the maximum exposure to the
three largest (Fitch-defined) industries in the portfolio at 40%.
These covenants ensure that the asset portfolio will not be exposed
to excessive concentration.
Portfolio Management (Positive): The transaction has a 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Neutral): The WAL used for the transaction
stress portfolio and matrices analysis is 12 months less than the
WAL covenant, to account for structural and reinvestment conditions
post-reinvestment period, including the overcollateralisation tests
and Fitch's 'CCC' limitation passing post reinvestment, among
others. Combined with loan pre-payment expectations, this
ultimately reduces the maximum possible risk horizon of the
portfolio.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A 25% increase of the mean default rate (RDR) across all
ratings and a 25% decrease of the recovery rate (RRR) across
all ratings would result in downgrades of up to five notches
cross the structure.
-- Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a
larger loss expectation than initially assumed due to
unexpectedly high levels of defaults and portfolio
deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings would result in an
upgrade of no more than three notches across the structure,
apart from the class A-R notes, which are already at the
highest rating on Fitch's scale and cannot be upgraded.
-- At closing, Fitch will use a standardised stressed-case
portfolio that is customised to the portfolio limits as
specified in the transaction documents. Even if the actual
portfolio shows lower defaults and smaller losses at all
rating levels than Fitch's stressed-case portfolio assumed at
closing, an upgrade of the notes during the reinvestment
period is unlikely, as the portfolio credit quality may still
deteriorate, not only by natural credit migration, but also
through reinvestments.
-- After the end of the reinvestment period, upgrades may occur
on better-than-expected portfolio credit quality and deal
performance, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
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
Aqueduct European CLO 5-2020 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
AQUEDUCT EUROPEAN 5-2020: S&P Assigns Prelim B- Rating on F-R Notes
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S&P Global Ratings assigned its preliminary credit ratings to
Aqueduct European CLO 5-2020 DAC's class A-R, B-1-R, B-2-R, C-R,
D-R, E-R, and F-R notes. At closing, the issuer will not issue
additional unrated subordinated notes in addition to the EUR36.1
million of existing unrated subordinated notes.
The transaction is a reset of an existing Aqueduct European CLO
5-2020 transaction, which originally closed in September 2020. The
issuance proceeds of the refinancing notes will be used to redeem
the refinanced notes pay fees and expenses incurred in connection
with the reissue.
Under the transaction documents, the rated loans and notes will pay
quarterly interest unless there is a frequency switch event.
Following this, the loans and notes will switch to semiannual
payment.
The portfolio's reinvestment period will end approximately four and
a half years after closing, and the portfolio's maximum average
maturity date will be eight and a half years after closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which we expect to be
bankruptcy remote.
-- The transaction's counterparty risks, which we expect to be in
line with our counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2712.74
Default rate dispersion 593.76
Weighted-average life (years) 5.06
Obligor diversity measure 123.04
Industry diversity measure 19.74
Regional diversity measure 1.34
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.50
Covenanted 'AAA' weighted-average recovery (%) 36.39
Covenanted weighted-average spread (%) 3.61
Covenanted weighted-average coupon (%) 4.00
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
be well-diversified on the effective date, primarily comprising
broadly syndicated speculative-grade senior secured term loans and
senior secured bonds. Therefore, we conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
collateralized debt obligations.
"In our cash flow analysis, we used the EUR400 million target par
amount, the actual weighted-average spread of 3.61%, the covenanted
weighted-average coupon of 4.00%, and the actual weighted-average
recovery rate for all rating levels. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for the
class A-R, B-1-R, B-2-R, C-R, D-R, E-R, and F-R notes. Our credit
and cash flow analysis indicates that the available credit
enhancement for the class B-1-R, B-2-R, C-R, D-R, and E-R notes
could withstand stresses commensurate with higher rating levels
than those we have assigned. However, as the CLO will be in its
reinvestment phase starting from closing, during which the
transaction's credit risk profile could deteriorate, we have capped
our preliminary ratings assigned to the notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A-R to E-R
notes to five of the 10 hypothetical scenarios we looked at in our
publication, "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F-R notes."
Environmental, social, and governance (ESG) 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 certain activities,
including, but not limited to, the following: development,
production and manufacture of weapons of mass destruction, illegal
drugs or narcotics, pornographic material or prostitution-related
activities, payday lending, trade in, production or marketing of
hazardous chemicals, trades in endangered or protected wildlife,
tobacco or tobacco products, and opioids. Accordingly, since the
exclusion of assets from these industries does not result in
material differences between the transaction and our ESG benchmark
for the sector, no specific adjustments have been made in our
rating analysis to account for any ESG-related risks or
opportunities."
Ratings List
CLASS PRELIM. PRELIM. CREDIT INTEREST RATE*
RATING AMOUNT ENHANCEMENT
(MIL. EUR) (%)
A-R AAA (sf) 248.00 38.00 Three/six-month EURIBOR
plus 1.03%
B-1-R AA (sf) 26.00 28.50 Three/six-month EURIBOR
plus 1.70%
B-2-R AA (sf) 12.00 28.50 1.95%
C-R A (sf) 29.00 21.25 Three/six-month EURIBOR
plus 2.00%
D-R BBB- (sf) 27.00 14.50 Three/six-month EURIBOR
plus 3.00%
E-R BB- (sf) 20.00 9.50 Three/six-month EURIBOR
plus 5.91%
F-R B- (sf) 11.00 6.75 Three/six-month EURIBOR
plus 8.45%
Subordinated NR 36.10 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
HARVEST CLO X: S&P Assigns BB Rating on Class F-R Notes
-------------------------------------------------------
S&P Global Ratings raised its credit ratings on the class C-R, D-R,
E-R, and F-R notes in Harvest CLO X DAC. At the same time, S&P
affirmed its ratings the class B-R notes.
The rating actions follow the application of S&P's global corporate
CLO criteria and our credit and cash flow analysis of the
transaction based on the August 2021 trustee report.
S&P's ratings address timely payment of interest and ultimate
payment of principal on the class B-R, C-R, and D-R notes and the
ultimate payment of interest and principal on the class E-R and F-R
notes.
Since S&P's previous review:
-- The weighted-average rating of the portfolio remains at 'B'.
-- The portfolio has become less diversified, as the obligors
decreased to 63 from 111.
-- The weighted-average life of the portfolio decreased to 3.13
years from 4.35 years.
-- The percentage of 'CCC' rated assets has increased to 18.13%
from 1.86%.
-- The scenario default rate has decreased for all rating
scenarios as the pool becomes more concentrated with continued
deleveraging.
Portfolio Benchmarks
CURRENT PREVIOUS REVIEW
SPWARF 3,042.55 2,686.66
Default rate dispersion (%) 857.39 591.62
Weighted-average life (years) 3.13 4.35
Obligor diversity measure 50.01 84.44
Industry diversity measure 16.34 17.40
Regional diversity measure 1.34 1.38
SPWARF--S&P Global Ratings weighted-average rating factor.
On the cash flow side:
-- The reinvestment period for the transaction ended in November
2018. The class A-R notes have redeemed and the class B-R notes
have been deleveraged by EUR594,000, which S&P expects to
continue.
-- No class of notes is deferring interest.
-- All coverage tests are passing as of the August 2021 trustee
report.
Transaction Key Metrics
CURRENT PREVIOUS REVIEW
Total collateral amount (mil. EUR)* 177.71 350.95
Defaulted assets (mil. EUR) 1.77 0.00
Number of performing obligors 63 111
Portfolio weighted-average rating B B
'CCC' assets (%) 18.13 1.86
'AAA' WARR (%) 36.08 37.37
WAS (%) 3.57 3.93
*Performing assets plus cash and expected recoveries on defaulted
assets.
WARR--Weighted-average recovery rate.
WAS--Weighted-average spread.
S&P said, "Following these developments, our model results show
that the class C-R, D-R, E-R, and F-R notes benefit from a level of
credit enhancement that is typically commensurate with higher
rating levels than those previously assigned. We have therefore
raised our ratings on these classes of notes.
"As the class B-R notes are still able to withstand the stresses we
apply at the currently assigned rating, based on their available
credit enhancement, we have affirmed our rating on this class of
notes."
On a standalone basis, the results of the cash flow analysis
indicated a higher rating than that currently assigned for the
class F-R notes. The transaction has started to amortize and we
have seen some proceeds used to deleverage. However, the manager
can still reinvest unscheduled redemption proceeds and sale
proceeds from credit-impaired and credit-improved assets. Such
reinvestments (as opposed to repayment of the liabilities) may
decrease these notes' level of credit enhancement, which may put
pressure on the notes given the position in the waterfall and the
current macroeconomic conditions.
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. Accordingly, since there are no
material differences compared to our ESG benchmark for the sector,
no specific adjustments have been made in our rating analysis to
account for any ESG-related risks or opportunities."
Ratings List
CLASS AMOUNT TO FROM CREDIT INTEREST RATE
(MIL. RATING RATING ENHANCEMENT (%)
EUR) AS OF
PREVIOUS
REVIEW (%)
B-R 55.71 AAA (sf) AAA (sf) 68.65 35.97 3/6-month
EURIBOR plus
1.50%
C-R 30.40 AAA (sf) AA (sf) 51.55 27.31 3/6-month
EURIBOR plus
2.00%
D-R 23.60 AA+ (sf) A (sf) 38.27 20.59 3/6-month
EURIBOR plus
2.85%
E-R 29.20 BBB+ (sf) BB+ (sf) 21.84 12.27 3/6-month
EURIBOR plus
5.00%
F-R 12.40 BB (sf) B (sf) 14.86 8.73 3/6-month
EURIBOR plus
6.00%
EURIBOR--Euro Interbank Offered Rate
NEUBERGER BERMAN 2: Moody's Gives B3 Rating to EUR9MM Cl. F Notes
-----------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to notes issued by Neuberger Berman
Loan Advisers Euro CLO 2 DAC (the "Issuer"):
EUR181,500,000 Class A Senior Secured Floating Rate Notes due
2034, Assigned Aaa (sf)
EUR23,000,000 Class B-1 Senior Secured Floating Rate Notes due
2034, Assigned Aa2 (sf)
EUR10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2034,
Assigned Aa2 (sf)
EUR21,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned A2 (sf)
EUR19,500,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned Baa3 (sf)
EUR15,800,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2034, Assigned Ba3 (sf)
EUR9,000,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2034, Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured obligations and up to 10%
of the portfolio may consist of senior unsecured obligations,
second-lien loans, mezzanine obligations and high yield bonds. The
portfolio is expected to be 90% 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 four-month ramp-up period in compliance with the
portfolio guidelines.
Neuberger Berman Europe Limited 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 seven classes of notes rated by Moody's, the
Issuer has issued EUR540,000 Senior Preferred Return Notes due
2034, EUR400,000 Subordinated Preferred Return Notes due 2034,
EUR1,000,000 Performance Notes due 2034 and EUR26,500,000
Subordinated Notes due 2034 which are not rated. The Senior
Preferred Return Notes and the Subordinated Return Notes accrue
interest in an amount equivalent to a certain proportion of the
senior and subordinated management fees and its notes' payment is
pari passu with the payment of the senior and subordinated
management fee.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Methodology underlying the rating action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR300,000,000
Diversity Score: 48
Weighted Average Rating Factor (WARF): 2885
Weighted Average Spread (WAS): 3.45%
Weighted Average Coupon (WAC): 3.50%
Weighted Average Recovery Rate (WARR): 44.25%
Weighted Average Life (WAL): 8.5 years
NEUBERGER BERMAN 2: S&P Assigns B- Rating on Class F Notes
----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Neuberger Berman
Loan Advisers Euro CLO 2 DAC's class A, B-1, B-2, C, D, E, and F
notes. At closing, the issuer also issued unrated subordinated
notes.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior-secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,774.23
Default rate dispersion 446.10
Weighted-average life (years) 5.32
Obligor diversity measure 127.42
Industry diversity measure 20.98
Regional diversity measure 1.37
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 300
Defaulted assets (mil. EUR) 0
Number of performing obligors 143
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 2.82
'AAA' weighted-average recovery (%) 36.65
Weighted-average spread net of floors (%) 3.60
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans or bonds. The
portfolio's reinvestment period ends approximately 4.5 years after
closing, and the portfolio's maximum average maturity date is 8.5
years after closing. Under the transaction documents, the rated
notes pay quarterly interest unless there is a frequency switch
event. Following this, the notes will switch to semiannual
payment.
S&P said, "We consider that the target portfolio on the effective
date will be well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans. Therefore,
we have conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow collateralized debt obligations.
"In our cash flow analysis, we modeled the EUR300 million target
par amount, the covenanted weighted-average spread of 3.45%, the
reference weighted-average coupon of 3.50%, and the covenanted
weighted-average recovery rates. 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.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"We consider the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class A,
B-1, B-2, C, D, E, and F notes. Our credit and cash flow analysis
indicates that the available credit enhancement for the class B-1,
B-2, C, and D notes is commensurate with higher ratings than those
we have assigned. However, as the CLO will be in its reinvestment
period, during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on these notes.
"The class F notes' current break-even default rate (BDR) cushion
is negative at the 'B-' rating level. Based on the portfolio's
actual characteristics and additional overlaying factors, including
our long-term corporate default rates and recent economic outlook,
we believe this class is able to sustain a steady-state scenario,
in accordance with our criteria." S&P's analysis reflects several
factors, including:
-- The class F notes' available credit enhancement is in the same
range as that of other CLOs S&P has rated and that have recently
been issued in Europe.
-- S&P's BDR at the 'B-' rating level is 24.37% versus a portfolio
default rate of 16.49% if it was to consider a long-term
sustainable default rate of 3.1% for a portfolio with a
weighted-average life of 5.32 years.
-- Whether the tranche is vulnerable to nonpayment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If S&P envisions this tranche to default in the next 12-18
months.
Following this analysis, S&P considers that the available credit
enhancement for the class F notes is commensurate with a 'B- (sf)'
rating.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
to E notes to five of the 10 hypothetical scenarios we looked at in
our publication, "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"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) factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit the manger from investing in activities that are United
Nations Global Compact violations, and activities related to the
manufacture of controversial weapons, civilian firearms, tobacco,
thermal coal or coal extraction, oil sands extraction, utilities
with expansion plans that would increase their negative
environmental impact, and services to physical casinos and/or
online gambling platforms. Since the exclusion of assets related to
these activities does not result in material differences between
the transaction and our ESG benchmark for the sector, no specific
adjustments have been made in our rating analysis to account for
any ESG-related risks or opportunities."
Ratings List
CLASS RATING AMOUNT SUB (%) INTEREST RATE*
(MIL. EUR)
A AAA (sf) 181.50 39.50 Three/six-month EURIBOR
plus 1.03%
B-1 AA (sf) 23.00 28.50 Three/six-month EURIBOR
plus 1.70%
B-2 AA (sf) 10.00 28.50 2.10%
C A (sf) 21.00 21.50 Three/six-month EURIBOR
plus 2.20%
D BBB (sf) 19.50 15.00 Three/six-month EURIBOR
plus 3.10%
E BB- (sf) 15.80 9.73 Three/six-month EURIBOR
plus 6.06%
F B- (sf) 9.00 6.73 Three/six-month EURIBOR
plus 8.97%
Sub NR 26.50 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
ST. PAUL XI: Fitch Affirms Final B- Rating on Class F Notes
-----------------------------------------------------------
Fitch Ratings has assigned St. Paul's CLO XI DAC refinancing notes
final ratings and affirmed the class E and F notes.
DEBT RATING PRIOR
---- ------ -----
St. Paul's CLO XI DAC
A XS2007338192 LT PIFsf Paid In Full AAAsf
A-R XS2388195120 LT AAAsf New Rating
B-1 XS2007338275 LT PIFsf Paid In Full AAsf
B-1-R XS2388195633 LT AAsf New Rating
B-2 XS2007338945 LT PIFsf Paid In Full AAsf
B-2-R XS2388195807 LT AAsf New Rating
C-1 XS2007339679 LT PIFsf Paid In Full Asf
C-1-R XS2388196102 LT Asf New Rating
C-2 XS2007340255 LT PIFsf Paid In Full Asf
C-2-R XS2388196441 LT Asf New Rating
D XS2007340768 LT PIFsf Paid In Full BBB-sf
D-R XS2388196870 LT BBB-sf New Rating
E XS2007341576 LT BB-sf Affirmed BB-sf
F XS2007341816 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
St. Paul's CLO XI Designated Activity Company is a cash flow
collateralised loan obligation (CLO) actively managed by
Intermediate Capital Managers Limited. The reinvestment period is
scheduled to end in January 2024. At closing of the refinance, the
class A-R to D-R notes have been issued and the proceeds used to
refinance the existing notes. The class E, F and the subordinated
notes have not been refinanced.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B'/'B-' category.
The Fitch weighted average rating factor (WARF) of the current
portfolio is 25.44.
High Recovery Expectations (Positive): Over 90% of the portfolio
comprises senior secured obligations. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The Fitch weighted average recovery
rate (WARR) of the portfolio is 62.77%.
Diversified Portfolio (Positive): The indicative top 10 obligors
and maximum fixed rate asset limit for this analysis is 20.0% and
15.0%, respectively. The portfolio is more diversified with 160
issuers versus 110 issuers modelled in the transaction's stressed
portfolio. The transaction also includes various concentration
limits, including the maximum exposure to the three largest
(Fitch-defined) industries in the portfolio at 40%. These covenants
ensure that the asset portfolio will not be exposed to excessive
concentration.
Portfolio Management (Neutral): The transaction has a 2.35-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. The weighted average life
covenant has been extended by 12 months to 7.43 years and the
matrix was updated concurrently at closing. Fitch's analysis is
based on a stressed-case portfolio with the aim of testing the
robustness of the transaction's structure against its covenants and
portfolio guidelines.
Cash Flow Analysis (Neutral): The weighted-average life (WAL) used
for the transaction stress portfolio and matrices analysis is 12
months less than the WAL covenant, to account for structural and
reinvestment conditions post-reinvestment period, including the OC
tests and Fitch 'CCC' limitation passing post reinvestment, among
others. This ultimately reduces the maximum possible risk horizon
of the portfolio when combined with loan pre-payment expectations.
Affirmation of Existing Notes: The class E and F notes have been
affirmed based on the existing criteria. Both tranches show a
sizeable cushion on the current portfolio analysis.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A 25% increase of the mean default rate (RDR) across all
ratings and a 25% decrease of the recovery rate (RRR) across
all ratings would result in downgrades of up to five notches
cross the structure.
-- Downgrades may occur if the build-up of credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high
levels of defaults and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings will result in an
upgrade of no more than five notches across the structure,
apart from the class A-R notes, which are already at the
highest rating on Fitch's scale and cannot be upgraded.
-- At closing, Fitch used a standardised stressed portfolio
(Fitch's stressed portfolio) that was customised to the
portfolio limits as specified in the transaction documents.
Even if the actual portfolio shows lower defaults and smaller
losses (at all rating levels) than Fitch's stressed portfolio
assumed at closing, an upgrade of the notes during the
reinvestment period is unlikely as the portfolio credit
quality may still deteriorate, not only through natural credit
migration, but also through reinvestments as the manager can
update the collateral quality tests.
-- Upgrades may occur after the end of the reinvestment period on
better-than-expected portfolio credit quality and deal
performance, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
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
St. Paul's CLO XI DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
TORO EUROPEAN 4: Moody's Cuts Rating on EUR10.5MM F-R Notes to B3
-----------------------------------------------------------------
Moody's Investors Service has taken a variety of rating actions on
the following notes issued by Toro European CLO 4 Designated
Activity Company:
EUR19,500,000 Class B-1-R Secured Floating Rate Notes due 2030,
Upgraded to Aa1 (sf); previously on Jun 25, 2020 Affirmed Aa2 (sf)
EUR13,000,000 Class B-2-R Secured Fixed Rate Notes due 2030,
Upgraded to Aa1 (sf); previously on Jun 25, 2020 Affirmed Aa2 (sf)
EUR15,000,000 Class B-3-R Secured Floating Rate Notes due 2030,
Upgraded to Aa1 (sf); previously on Jun 25, 2020 Affirmed Aa2 (sf)
EUR10,500,000 Class F-R Secured Deferrable Floating Rate Notes due
2030, Downgraded to B3 (sf); previously on Jun 25, 2020 Confirmed
at B2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR240,000,000 Class A-R Secured Floating Rate Notes due 2030,
Affirmed Aaa (sf); previously on Jun 25, 2020 Affirmed Aaa (sf)
EUR25,000,000 Class C-R Secured Deferrable Floating Rate Notes due
2030, Affirmed A2 (sf); previously on Jun 25, 2020 Affirmed A2
(sf)
EUR20,750,000 Class D-R Secured Deferrable Floating Rate Notes due
2030, Affirmed Baa2 (sf); previously on Dec 8, 2020 Upgraded to
Baa2 (sf)
EUR26,500,000 Class E-R Secured Deferrable Floating Rate Notes due
2030, Affirmed Ba2 (sf); previously on Jun 25, 2020 Confirmed at
Ba2 (sf)
Toro European CLO 4 Designated Activity Company, issued in
September 2014, and refinanced in July 2017 is a collateralised
loan obligation (CLO) backed by a portfolio of mostly high-yield
senior secured European loans. The portfolio is managed by
Chenavari Credit Partners LLP. The transaction's reinvestment
period ended in July 2021.
RATINGS RATIONALE
The rating upgrades on the Class B-1-R, B-2-R and B-3-R Notes are
primarily the benefit of the transaction having reached the end of
the reinvestment period in July 2021. In light of reinvestment
restrictions during the amortisation period, and therefore the
limited ability to effect significant changes to the current
collateral pool, Moody's analysed the deal assuming a higher
likelihood that the collateral pool characteristics would maintain
an adequate buffer relative to certain covenant requirements. In
particular, Moody's assumed that the deal will benefit from a
shorter amortisation profile than it had assumed at the last rating
action in December 2020.
The downgrade to the rating on the Class F notes is due to the
deterioration of some of the key credit metrics of the underlying
pool since the last rating action in December 2020. According to
the trustee report dated August 2021[1] the weighted average spread
and diversity score are reported at 3.73%, and 48.36 compared to
November 2020[2] levels of 3.94% and 53.37 respectively. The August
2021[3] reported trustee adjusted collateral principal amount is
EUR393.85m below the target par of EUR400 million.
The affirmations on the ratings on the Class A-R, C-R, D-R and E-R
Notes are primarily a result of the expected losses on the notes
remaining consistent with their current ratings after taking into
account the CLO's latest portfolio, its relevant structural
features and its actual over-collateralization (OC) levels.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR393.62 million
Defaulted Securities: EUR1.16 million
Diversity Score: 48
Weighted Average Rating Factor (WARF): 3069
Weighted Average Life (WAL): 4.01 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.69%
Weighted Average Coupon (WAC): 3.50%
Weighted Average Recovery Rate (WARR): 44.75%
Par haircut in OC tests and interest diversion test: none
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
The action has considered the coronavirus pandemic's residual
impact on European economic activity and the ongoing effect on the
performance of underlying loans as the economy continues on the
path toward normalization. Economic activity will continue to
strengthen in 2021 because of several factors, including the
rollout of vaccines, growing household consumption and
accommodative central bank policy. However, specific sectors and
individual businesses will remain weakened by extended virus
restrictions.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in May 2021. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
notes, in light of uncertainty about credit conditions in the
general economy. In particular, the length and severity of the
economic and credit shock precipitated by the global coronavirus
pandemic will have a significant impact on the performance of the
securities. CLO notes' performance may also be impacted either
positively or negatively by: (1) the manager's investment strategy
and behaviour; and (2) divergence in the legal interpretation of
CDO documentation by different transactional parties because of
embedded ambiguities.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
=========
I T A L Y
=========
SISAL GROUP: S&P Alters Outlook to Stable & Affirms 'B' ICR
-----------------------------------------------------------
S&P Global Ratings has affirmed its 'B' issuer credit rating on
Italy-based Sisal Group, the 'B+' issue rating on the EUR125
million super senior revolving credit facility (RCF), and the 'B'
issue rating on the EUR275 million senior secured notes.
S&P said, "The stable outlook reflects our view that the group will
successfully complete its demerger in November 2021 and recover its
trading levels this year, such that free operating cash flow (FOCF)
after lease payments will be at least neutral in 2021, before
improving notably in 2022.
"Following Sisal Group's demerger announcement, we are changing our
scope of analysis to the gaming business only."
On July 29, Sisal Group announced it would demerger its 70%
shareholding in Mooney Group, to be transferred to the new entity
SG2 S.p.A. The new entity will be 100% owned by the direct parent
of Sisal Group, Schumann Investments S.A., an investment vehicle of
financial sponsor CVC Capital Partners. The transaction is expected
to complete by November 2021. As a result, the payment business
headed by Mooney Group will no longer be a subsidiary of Sisal
Group. This is the final step of the corporate reorganization
initiated in 2019 with the objective to make the payment business
completely independent from the activities related to the gaming
business. Consequently, S&P is changing its scope of analysis to
the gaming perimeter only, which includes Sisal Group and its
gaming operating subsidiaries.
S&P said, "As a result of the demerger, we have revised down our
assessment of Sisal Group's business strength. Because the payment
activity will not form part of the rated group, Sisal Group's scale
of operation will reduce, with expected stand-alone gaming pro
forma revenue to amount to EUR620 million-EUR640 million in 2021
versus EUR868 million in 2019 on a group consolidated basis
(including Money Group). In addition, diversification will lessen
given the group will become a pure gaming operator and it will not
benefit anymore from the margin stability, high profitability, and
positive organic growth prospects of the payment business. As such,
we now assess Sisal Group's business risk profile at weak (from
fair previously), in line with its closest peer, the Italian gaming
operator Gamma Bidco."
Operating performance has proven relatively resilient through the
crisis and we expect some trading recovery this year. Despite the
COVID-19 restrictions affecting the Italian gaming market last
year, Sisal Group has proven relatively resilient, thanks to the
strong performance of the online channel and the ramp-up
contribution of its international business. Sisal Group reported
gaming revenue and management EBITDA of EUR524 million and EUR176.1
million in 2020, down 20% and 12.5%, respectively, compared with
2019. Margins benefited from an increased contribution of the
higher-margin online segment. While subsequent waves of the virus
continued to impact retail activity in first-half 2021, Sisal Group
continued to report sound operating performance with gaming revenue
of EUR263.6 million and management EBITDA and EUR99.5 million in
the first half 2021, up 26.2% and 49.2%, respectively, over the
first half of 2020. The group re-opened its retail network in June
2021 and it is now fully operational. S&P expects the operating
performance will continue to recover in the second half of the year
and it forecasts pro forma S&P Global Ratings-adjusted leverage of
about 2.7x and neutral FOCF after leases in 2021, before a
significant improvement in 2022, assuming the group faces no
further COVID-related lockdowns or restrictions.
S&P said, "Leverage is low but we expect the capital structure to
evolve in the near term.In our view, with Sisal Group owned by CVC
Capital Partners, we do not believe it is likely that the gaming
business will maintain S&P Global Ratings-adjusted leverage below
3x in the long term, so we continue to apply an FS-6 financial
policy modifier to the group's credit profile. In fact, Sisal Group
and its shareholder have announced that they are considering
strategic options, including transactions in the capital markets.
We also note that the EUR125 million super senior RCF will mature
in September 2022 and the EUR275 million bond is due in July 2023.
We expect the capital structure will evolve in the near term as
refinancing approaches. We will re-evaluate the company's credit
standing as soon as the company's strategy and financial policy is
set."
Liquidity remains adequate. Sisal Group managed its liquidity well
during the crisis last year, implementing cost efficiency
initiatives to protect earnings and cash flow while paying in
September 2020 the EUR111 million second installment for the new
NTNG concession with cash on hand and RCF drawings. Cash burn is
limited since the beginning of the year, and the group reported it
had EUR119 million of available cash and liquidity on June 30,
2021. S&P expects the group will maintain adequate liquidity in the
next 12 months, further supported by cash flow recovery and
assuming successful refinancing of the upcoming debt maturities.
S&P said, "The stable outlook reflects our view that Sisal Group
will successfully complete its demerger by November 2021, such that
the payments and gaming businesses will become completely
independent from each other. We expect Sisal Group's gaming
activity will continue to recover from the pandemic during 2021,
resulting in at least neutral FOCF after lease payments in 2021,
before significant improvement in 2022."
S&P could lower the rating on Sisal Group if the group's credit
metrics weaken beyond its base case, including as a result of one
or a combination of the following factors:
-- Credit metrics decline significantly versus S&P's base case,
with FOCF after lease payments remaining negative.
-- Liquidity deteriorates materially and refinancing risk
increases.
-- Financial policy becomes more aggressive, if evidenced through
sustained weaker credit metrics, debt-funded acquisitions, or
shareholder returns.
An upgrade would require clarity on the group's long-term financial
policy and capital structure, which could occur once the group
completes the re-evaluation of the strategic options it recently
announced. An upgrade based on its current scope of consolidation
would be contingent on S&P Global Ratings-adjusted leverage
remaining below 4x and FOCF to debt increasing beyond 10% on a
sustainable basis, with a clear commitment to maintain conservative
credit metrics within these thresholds in the long term.
===================
L U X E M B O U R G
===================
AZELIS HOLDING: Moody's Puts B3 CFR Under Review for Upgrade
------------------------------------------------------------
Moody's Investors Service has placed B3 corporate family rating and
B3-PD probability of default rating of Azelis Holding SARL, as well
as the B2 ratings of the loan facilities that have been issued by
Azelis Finance SARL and Azelis UK Holdings Ltd. under review for
upgrade.
RATINGS RATIONALE/ FACTORS THAT COULD LEAD TO AN UPGRADE OR A
DOWNGRADE OF THE RATINGS
The placement of Azelis' ratings under review for upgrade has been
triggered by the company's initial public offering (IPO) process,
which is very likely lead to a substantial and sustained
improvement in its credit quality, primarily due to a significant
reduction of its overall debt load. Moody's expect that, as part of
the IPO, all currently rated debt instruments will be fully repaid,
and that Azelis' ratings will be withdrawn following the successful
consummation of the entire IPO process.
Positive pressure on the B3 CFR could develop if Azelis improved
its leverage towards Moody's adjusted gross debt to EBITDA of 6x,
while maintaining EBITDA margins above 8% and consistently
generating positive FCF. Negative pressure on the rating could
arise should a significant deterioration in operating performance
and extended period of negative FCF generation lead the group to
exhibit heightened leverage for a prolonged period of time,
including Moody's adjusted gross debt to EBITDA exceeding 7x, and a
weakened liquidity profile.
LIST OF AFFECTED RATINGS
On Review for Upgrade:
Issuer: Azelis Finance SARL
Senior Unsecured Bank Credit Facility, Placed on Review for
Upgrade, currently B2
Issuer: Azelis Holding SARL
Probability of Default Rating, Placed on Review for Upgrade,
currently B3-PD
LT Corporate Family Rating, Placed on Review for Upgrade,
currently B3
Issuer: Azelis UK Holdings Ltd
Senior Unsecured Bank Credit Facility, Placed on Review for
Upgrade, currently B2
Outlook Actions:
Issuer: Azelis Finance SARL
Outlook, Changed To Rating Under Review From Positive
Issuer: Azelis Holding SARL
Outlook, Changed To Rating Under Review From Positive
Issuer: Azelis UK Holdings Ltd
Outlook, Changed To Rating Under Review From Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Distribution &
Supply Chain Services Industry published in June 2018.
COMPANY PROFILE
Headquartered in Luxembourg, Azelis is one of the world's leading
distributors of specialty chemicals and food ingredients. In 2020
the company generated revenue of around EUR2.2 billion.
COLOUROZ MIDCO: Moody's Puts Caa1 CFR Under Review for Upgrade
--------------------------------------------------------------
Moody's Investors Service has placed ColourOz Midco's (Flint) Caa1
corporate family rating and Caa1-PD probability of default rating
on review for upgrade. Concurrently Moody's placed the Caa1 rating
of the senior secured first lien term loan B, the senior secured
first lien revolving credit facility (RCF) and the Caa3 senior
secured second lien term loan credit facilities of COLOUROZ
INVESTMENT 1 GMBH on review for upgrade. At the same time, Moody's
has placed the Caa1 rating of FDS Holdings BV's senior secured
first lien term loan on review for upgrade. The outlooks on Flint,
COLOUROZ INVESTMENT 1 GMBH and FDS Holdings BV have been changed to
ratings under review from negative.
RATINGS RATIONALE/FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The rating action follows the company's announcement that it has
reached an agreement to sell its flexographic printing plates,
sleeves and prepress business (XSYS) to funds managed by private
equity firm Lonestar. The transaction is expected to close in
Q4-2021 or Q1-2022.
Moody's expects the sale of XSYS to result in significant cash
proceeds to Flint. The company's debt agreements contain provisions
that oblige it to apply at least 90% of net disposal proceeds to
reduce its senior secured 1st lien facilities. Significant debt
reduction in combination with sustainable improvements in
underlying performance as a result of the company's restructuring
efforts in recent years will likely result in a capital structure
in line with a B3 rating, namely leverage below 7x debt-to-EBITDA
in combination with positive free cash flow generation and
maintenance of an adequate liquidity profile.
The review will focus on the impact of the XSYS disposal on the
remaining company's capital structure and business profile. Moody's
assumes that the XSYS business generates EBITDA margins higher than
the margins of Flint RemainCo and that the XSYS EBITDA and cash
generation has been less volatile relative to the rest of Flint's
businesses. However, meaningful deleveraging, an increased
strategic focus and the company's recent performance improvements
can potentially offset the negative impact of the XSYS disposal.
The review will also focus on Flint's financial policy going
forward including its plans for further debt reduction, leverage
targets and M&A policy.
After the disposal, Flint will generate around 85% of its
profitability (based on company's consolidated EBITDA) from the
packaging market, which is now predominantly exposed to the
resilient and growing Food & Beverage end markets, with the
remainder from the print media market, which continues to be in
structural decline although Flint's publication business has
stabilized as a smaller portion of the company benefitting from a
right-sized cost base. In recent years Flint's results have been
negatively impacted by high restructuring charges, not only to
adjust the cost structure of its print media business to the
structural decline but also to improve profitability of its
packaging business.
STRUCTURAL CONSIDERATIONS
Currently the senior secured 1st lien term loan and senior secured
1st lien RCF are rated in line with the corporate family rating
family rating and the senior secured 2nd lien term loan instruments
are rated two notches below the corporate family rating. Depending
on the magnitude of debt reduction and the relative mix of first
and second lien debt, Moody's may rate the first lien facilities
one notch above the corporate family rating upon conclusion of the
review.
LIQUIDITY PROFILE
Flint's liquidity profile is expected to be adequate following the
sale of XSYS. As of 30 June 2021, the company had around EUR150
million of cash on balance sheet and around EUR98 million of
availability under its EUR103 million RCF (to be reduced following
the XSYS disposal in line with the provisions of the facilities
agreement) and full availability under a $55 million ABL (Asset
Based Lending) facility provided by its shareholders. The company's
RCF is subject to financial covenants when over 35% drawn, which
Moody's expects to be met at all times during the next 12-18
months. Flint is also subject to a minimum liquidity covenant
(introduced following the debt maturity extension), set at EUR60
million and tested on a monthly basis. The company's liquidity on
June 30, 2021 was EUR308 million.
In the light of changes in the company's business profile because
of the XSYS disposal, rating guidelines will be updated following
the conclusion of the ratings review.
LIST OF AFFECTED RATINGS:
Issuer: COLOUROZ INVESTMENT 1 GMBH
Placed On Review for Upgrade:
Senior Secured Bank Credit Facility, currently Caa3
Senior Secured Bank Credit Facility, currently Caa1
Outlook Actions:
Outlook, Changed To Ratings Under Review From Negative
Issuer: ColourOz MidCo
Placed On Review for Upgrade:
LT Corporate Family Rating, currently Caa1
Probability of Default Rating, currently Caa1-PD
Outlook Actions:
Outlook, Changed To Ratings Under Review From Negative
Issuer: FDS Holdings BV
Placed On Review for Upgrade:
Senior Secured Bank Credit Facility, currently Caa1
Outlook Actions:
Outlook, Changed To Ratings Under Review From Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemical
Industry published in March 2019.
COMPANY PROFILE
Headquartered in Luxembourg, ColourOz MidCo (Flint) is one of the
largest global producers and integrated suppliers of inks, with a
wide range of support services for the printing industry, along
with well-established positions in most of its key markets. Flint
manufactures and sells printing inks and other print process
consumables predominantly for the packaging industry (75% of
revenue) but also the print media market (25% of revenue). Proforma
the sale of XSYS the company generated revenue of around EUR1.5
billion.
LUNA III: Fitch Gives 'BB+(EXP)' Rating to EUR1,250MM Term Loan
----------------------------------------------------------------
Fitch Ratings has assigned Luna III S.a.r.l's (Luna) proposed
EUR1,250 million term loan (TLB) an expected senior secured rating
of 'BB+(EXP)' with a Recovery Rating of 'RR2'. Its expected
Long-Term Issuer Default Rating (IDR) of 'BB(EXP)' has been
affirmed with a Stable Outlook.
Luna's 'BB(EXP)' IDR reflects a post-acquisition capital structure,
which implies a re-leverage above Fitch's negative sensitivity of
5.2x for 2021-2022. The company's strengths are a stable and
predictable revenue stream backed by long-term waste contracts with
municipalities with limited volume and price risk, largely in
Spain. The business is complemented by shorter-term and more
volatile contractual revenue with industrial and commercial (I&C)
counterparties.
The Stable Outlook reflects Fitch's expectations of a return of the
heightened initial leverage metrics to within Fitch's guidelines by
2023, failure of which may result in a negative rating action.
The TLB lenders will benefit from pledges over the shares of
guarantors (summing up to around 80% of consolidated EBITDA),
material bank accounts and inter-company receivables, hence their
uplift of one notch versus the expected IDR.
The final ratings are subject to the acquisition of Urbaser S.A.
(Sociedad Unipersonal) by Platinum Equity from China Tianying, Inc
(CNTY) and the final capital structure conforming to Fitch's
expectations. The final instrument rating is subject to receiving
final debt documentation confirming the information already
received. Luna, a vehicle set up by Platinum Equity, will become
the sole parent of Urbaser after its acquisition.
Fitch has simultaneously withdrawn the 'BB+(EXP)'/'RR2' expected
senior secured rating for the previously proposed EUR1,630 million
term loan, following its re-sizing and revised proposed capital
structure.
KEY RATING DRIVERS
TLB Resized Lower: The announced EUR1,630 million term loan
syndication was postponed in early August. Luna is now proposing a
new debt structure that increases roll-over debt from Urbaser
(including finance leases and unsecured working-capital facilities)
and, consequently, resizes the syndicated TLB down to EUR1,250
million. The financing documents for the TLB will remain the same,
with some creditor-friendly provisions added to capture investor
feedback.
Similar Net Debt: The new proposal represents only a small decrease
in net debt quantum (as reported by Fitch excluding leases), with
more debt at the operating companies being rolled over. Structural
subordination of holding company (holdco) lenders is sufficiently
mitigated by guarantors representing 80% of the consolidated group
EBITDA.
Transaction-driven Re-leverage: The transaction values Urbaser at
EUR3.3 billion in enterprise value. Based on the proposed capital
structure post-acquisition, Luna will support part of the equity to
fund the acquisition and sizable transaction fees on its balance
sheet. The initial re-leverage is partially offset by the
monetisation of several carve-out adjustments related to entities
that will fall outside the rating scope post-acquisition and will
be sold back to CNTY before completion, and of subordinated loans
granted to the same entities. The carve-outs have a mildly positive
effect on Luna's credit risk profile.
Deleverage to Guidelines by 2023: The acquisition implies an
increase in Luna's consolidated net debt (Fitch-adjusted, excluding
leases) of around EUR400 million compared with current debt at
Urbaser group (pre-transaction), leading to a peak in funds from
operations (FFO) net leverage at 5.6x by 2022. Fitch forecasts Luna
to return to within Fitch's rating sensitivity by 2023 on
consistent deleveraging, on the back of a strong contract backlog,
moderate new contract wins and capex, operating improvements and no
dividend payments. Fitch views the execution risk of its business
plan as manageable.
Shareholder Support is Key: Platinum has indicated to Fitch its
commitment to deleverage from the high 4.2x net debt/restructuring
EBITDA (as adjusted by the shareholder) at transaction closing, but
has given no target. Fitch believe Platinum will pursue
deleveraging to strengthen the capital structure during its
investment horizon of four-to-five years. Fitch expects support to
be manifested in the absence of dividend payments and financial
support for opportunistic M&A, which Fitch does not factor into
Fitch's rating case.
Resilient Business Model: Luna has a resilient business model as an
integrated waste operator that provides good cash flow stability
and revenue predictability in the medium term. Long-term contracts
with municipalities for waste collection, waste treatment and water
management accounted for 78% of total EBITDA in 2020. The remainder
is largely composed of waste operations with I&C customers, which
are short-term in contracts and intrinsically more volatile. Luna
has limited exposure to commodity risk.
Limited Revenue Volatility: Revenue has proven to be resilient
through the economic cycle, including during Covid-19, with some
limited volatility largely associated with waste-treatment volumes,
as waste-management fees are defined on per tonne basis, and prices
are revised largely in line with the CPI (or linked to main cost
references) on an annual basis.
Long-Term Contractual Base: Urbaser's backlog of contracts by
end-2020 covered almost six years of revenues, with an average
standard contract duration of around seven years for waste
collection and 12 years for waste treatment. Contract renewal rate
on average was 87% in 2014-2020 (2020: 86%), reflecting Urbaser's
strong market position, high barriers to entry and valued
technological capabilities in waste treatment.
Positive Current Trading: Urbaser has reported positive trading
until July 2021 with revenues and EBITDA growing by EUR115 million
(9%) and EUR29 million (11%), respectively, from a year ago.
Improvement is mostly in the urban services line due to a positive
net churn in contracts. In waste treatment, normalisation of demand
from a Covid-related low and a recovery of commodity prices are
also supportive of revenues. January-July 2021 results are
signalling an outperformance of the company's 2021 budget. Excess
revenue over budget should be partially recurring given its
contractual nature.
Recent Contract Wins: Among other international urban services
contracts in India and Ecuador, Urbaser has recently been awarded
with two lots valued at EUR0.5 billion pertaining to the street
cleaning concession contract of the City of Madrid, which has a
contract duration of six years.
DERIVATION SUMMARY
Luna's IDR is supported by a strong business profile that compares
favourably with most peers', while higher leverage weighs on the
waste operator's 'BB' rating.
Fitch sees local competitor, FCC Servicios Medioambiente Holding
S.A.U. (FCC MA; BBB-/Stable), as the closest peer for Luna. Fitch
sees lower business risk for FCC MA due to its stronger integrated
market position in Spain and the better credit quality of its
international operations, which are partially offset by Luna's
higher margins. However, Luna's new strategy of refocusing on
organic growth and developed countries will narrow the
debt-capacity differential between the two. Currently, FCC MA's
significantly lower leverage explains the bulk of the two-notch
difference.
Compared with the top-three US operators, Waste Management, Inc
(BBB+/Stable), Republic Services, Inc (BBB/Stable) and Waste
Connections, Inc (BBB+/Stable), Luna shares similar operational
stability through exclusive municipal long-term contracts, although
the scale of all three US peers is larger (by 5x-8x). Their
entrenched position in the US, collectively garnering more than one
third of the country's market share, also allows for stronger
profit margin and pricing power. However, Luna is less exposed to
I&C end-customers and to commodity risk. In addition to better
business risk, US peers have significantly lower leverage and
maintain positive free cash flow (FCF) generation due to the mature
US market.
Compared with integrated global leaders like Veolia Environement
S.A. (BBB/Stable), Luna is significantly smaller and less
geographically diversified. Luna also lacks meaningful
diversification into low-risk water activities that is a credit
strength for Veolia. However, Veolia has worse credit metrics than
Luna. Overall, the difference in ratings reflect Luna's weaker
business risk that is not entirely offset by a slightly better
financial profile.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Acquisition to close before end-2021. In August the European
Commission approved the acquisition of Grupo Urbaser by
Platinum. Clearance from other regulatory bodies in various
geographies is still pending;
-- Proposed capital structure as shared by the company. This is
based on the signed agreement with CNTY for the transaction's
purchase price and related carve-outs and the proposed debt
structure post-transaction;
-- Stable waste volumes and price growth to 2025, in line with
CPI forecasts and foreign exchange of countries of operations;
-- Renewal rate of 83.6% for waste collection contracts and 90%
for waste treatment to 2025;
-- New contract awards only in 2021-2022, adding on average EUR65
million of revenue in these two years;
-- EBITDAR margin on average at around 19% for 2021-2025 (urban
services: 15%; waste treatment: 28%);
-- Capex on average at EUR231 million per year for 2021-2025;
-- No M&A to 2025;
-- No dividend distributions to 2025; and
-- Restricted cash of EUR40.4 million linked to project-finance
reserve accounts, overseas blocked cash and working-capital
needs.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Deleveraging leading to FFO net leverage below 4.4x and FFO
interest coverage above 3.5x on a sustained basis;
-- Positive-to-neutral FCF.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Failure to deleverage below 5.2x by 2023 would be negative for
the rating;
-- FFO interest coverage below 2.5x on a sustained basis;
-- Material changes to concession or public contracts
agreements/regulatory framework, to the extent such changes
are not financially favourable.
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
Healthy Liquidity Post-Transaction: At transaction closing, Luna's
liquidity position and debt structure will be enhanced by the
long-term structure of the proposed financing package. In addition,
Fitch expects around EUR640 million of Urbaser's existing debt
(excluding lease liabilities), largely project-finance debt, to be
rolled over at closing.
Expected cash at closing (October 2021) of EUR250 million (before
usual adjustments made by Fitch) and available committed credit
facilities of EUR340 million maturing in 2027 are sized to cover
Luna's capex plan until 2025. Luna is a highly cash-generative
business, so notwithstanding the high capex in 2021-2022 and in the
absence of dividends payments and M&A, cash would be accruing on
balance sheet from 2022. Its EUR1,250 million term loan has a
bullet structure and maturity in 2028.
Improved Debt Structure: Post-transaction, around 60% of the debt
will be placed at the holdco level. As per the proposed senior
facilities documentation, the senior facilities will be guaranteed
by material subsidiaries jointly representing around 80% of
consolidated EBITDA. The draft financing documentation is
covenant-lite, providing limited covenant protection to creditors,
in Fitch's view.
ISSUER PROFILE
Urbaser is a leading Spanish integrated waste management company
providing domestic waste collection and street cleaning services
(42% of consolidated 2020 EBITDA) as well as solid waste-treatment
activities (54%) largely to municipalities and secondarily to I&C
clients. Around 66% of the business is domestic, with the remainder
in France, Nordics, Latam and the Middle East.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
=====================
N E T H E R L A N D S
=====================
HUVEPHARMA INT'L: Moody's Ups CFR to Ba2 & Alters Outlook to Stable
-------------------------------------------------------------------
Moody's Investors Service has upgraded to Ba2 from Ba3 the
corporate family rating and to Ba3-PD from B1-PD the probability of
default rating of Huvepharma International BV. The outlook on the
ratings was changed to stable from rating under review.
The rating action concludes the review process initiated by Moody's
on June 23, 2021.
RATINGS RATIONALE
The upgrade to Ba2 reflects Huvepharma's continued solid operating
performance with a concurrent improvement in credit metrics, as
well as Moody's expectation that the company will continue in its
trajectory of profitable growth, while maintaining a prudent
financial policy.
Huvepharma's sales continued to grow at a solid rate of 8.6% in H1
2021 (7.3% in FY2020) with the reported operating margin increasing
to 24.5% from 21.2% in H1 2020. Moody's adjusted EBITDA increased
to EUR177 million in the last twelve months ending June 2021 from
EUR160 in FY 2020 and leverage, measured as Moody's adjusted
debt/EBITDA, declined to 3.1x.
Moody's expects that leverage will further reduce to below 3x in
2021, because of continued earnings growth and gradual repayment of
debt. The agency forecasts that Huvepharma will continue to grow
its sales at low double-digit annual rates in the next 18 months,
with its EBITDA margin remaining between 25% and 30%, supported by
increasing market penetration of its latest products on the markets
where it already has strong market positions, expansion in emerging
markets, and the startup of new vaccine production facilities.
Moody's anticipates that free cash flow (FCF) generation will
remain negative in 2021, mainly because of a resumption of dividend
payments in 2021 (including EUR30 million already paid in H1 2021).
However, the improvement in profitability should boost cash flow
generation starting from next year and Moody's expects FCF to turn
moderately positive notwithstanding the still high capital spending
of around EUR115 million to support capacity expansion.
The rating assumes that the company will maintain a prudent
financial policy, in line with its target of 2.0x reported net
leverage. In particular, Moody's expects that Huvepharma's future
dividend payout will remain limited to 10%-20% of profits.
While Moody's recognizes the improvement in Huvepharma's credit
profile, the ratings remain constrained by the company's small size
compared with its peers and lack of diversification into the
companion animal segment. Huvepharma's credit profile continues to
reflect the company's (1) cost efficient vertically integrated
business model; (2) strong positions in key niche segment and the
favourable industry fundamentals; (3) balanced geographical and
product diversification; and (4) proven ability to rapidly expand
its operations while preserving its high profit margin, primarily
through organic growth of the existing product portfolio and
continued new product development.
The Ba3-PD PDR reflects a higher-than-average family recovery rate
(65%), given the presence of an all-bank debt capital structure.
LIQUIDITY
Huvepharma's liquidity is adequate, supported by strong operating
cash flow, EUR26 million of cash on its balance sheet, and access
to an EUR170 million RCF, of which EUR101.1 million was drawn as of
June 2021. The company has relatively low debt maturities through
year-end 2022. However, the company's FCF is expected to be
negative in 2021, mainly because of the decision to reinstate the
dividend payments, as well as capital spending for growth. As a
result, Moodys'expects that the company will continue to maintain
drawings under the RCF.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the company
will sustain its robust and profitable growth, resulting in
positive FCF and pursue a balanced financial policy with adjusted
gross leverage remaining sustainably below 3.0x over the next 18
months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upwards pressure could arise if the company were to (1)
significantly increase its scale and demonstrate robust operational
performance; (2) reduce its adjusted gross debt/EBITDA to below
2.0x on a sustainable basis; and (3) maintain a strong liquidity
profile and positive FCF, with FCF/debt above 10%.
The rating could be downgraded in the event of continued weak cash
flow generation, with FCF /debt remaining below 5% or a material
deterioration in the company's leverage, with adjusted gross
debt/EBITDA remaining above 3.0x as a result of a deterioration in
its operating performance, debt financed M&A or increased
shareholder distributions.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Manufacturing
published in September 2021.
Huvepharma International BV is a vertically integrated developer,
manufacturer and distributor of a wide range of health products for
livestock. The company sells its products in more than 100
countries, with Europe and North America being its key markets. In
the 12 months ended June 30, 2021, the company generated EUR613
million of revenue and EUR177 million Moody's adjusted EBITDA.
=============
R O M A N I A
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ALPHA BANK: Moody's Alters Outlook on Ba2 Deposit Rating to Pos.
----------------------------------------------------------------
Moody's Investors Service has affirmed the Ba2 long-term and Not
Prime (NP) short-term deposit ratings of Alpha Bank Romania S.A.
(ABR) and changed the outlook on the long-term deposits to positive
from stable. Concurrently, Moody's has affirmed the bank's Baseline
Credit Assessment and Adjusted BCA at b1, its Counterparty Risk
Assessment (CR Assessment) at Ba1(cr)/NP(cr) and its Counterparty
Risk Ratings (CRRs) at Ba1/NP.
The rating action was triggered by the rating action on ABR's
parent bank, Alpha Bank S.A. (Alpha Bank).
RATINGS RATIONALE
AFFIRMATION OF RATINGS
ABR's Ba2 long-term deposit ratings continue to reflect the bank's
b1 BCA and two notches of uplift from Moody's Advanced Loss Given
Failure (LGF) analysis, which indicates a very low loss given
failure for deposits.
The affirmation of ABR's b1 BCA reflects its unchanged strong
capital buffers, with the Moody's-adjusted tangible common equity
(TCE) ratio at 20.2% as of year-end 2020; declining non-performing
loans at 5.0% of total loans as of end-2020; its improved liquidity
buffers at 30.7% of tangible banking assets as of December 2020;
and robust growth in customer deposits that have also translated
into reduced reliance on intragroup funding to 8% of total assets,
down from 53% in 2015. These strengths are balanced against still
high asset risks, stemming from its sizeable exposure to the
cyclical commercial real estate sector and foreign currency
lending, weaker-than-peers profitability metrics, as well as a high
(54%) share of foreign currency deposits and sizeable exposures to
more confidence-sensitive corporate deposits.
The rating agency further notes that although ABR's operations are
distinct from those of its parent and independently funded, Alpha
Bank's still weak credit profile remains a source of contagion and
a constraining factor to ABR's BCA.
OUTLOOK CHANGE TO POSITIVE
The positive outlook on ABR's long-term deposit ratings follows
improvements in parent Alpha Bank's credit profile. In Moody's
view, ongoing improvements in Alpha Bank's standalone credit
profile could somewhat cushion the potential contagion risks from
existing links between ABR and its parent Alpha Bank, such that it
would allow ABR's BCA to be positioned at ba3, in line with its
standalone financial profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
ABR's ratings could be upgraded following a combination of ABR
maintaining its improved operating performance, including its
sizeable capital buffers and contained level of non-performing
loans, and a further improvement in Alpha Bank's credit profile as
evident by an upgrade of the parent's BCA. A higher uplift
resulting from Moody's Advanced LGF analysis owing to additional
volume of senior or subordinated instruments, which would increase
the loss-absorption buffer for depositors translating into lower
losses in resolution, could also result in an upgrade of the bank's
deposit ratings.
ABR's ratings could be downgraded following a weakness in its
standalone credit profile that may result from deteriorating
operating conditions placing pressure on its asset quality and
profitability metrics. The bank's long-term deposit ratings could
also be downgraded due to changes in the its liability structure,
which would potentially reduce the loss-absorption buffer for
depositors, resulting in a lower uplift following the application
of Moody's Advanced LGF analysis.
LIST OF AFFECTED RATINGS
Issuer: Alpha Bank Romania S.A.
Affirmations:
Long-term Counterparty Risk Ratings, affirmed Ba1
Short-term Counterparty Risk Ratings, affirmed NP
Long-term Bank Deposits, affirmed Ba2, outlook changed to Positive
from Stable
Short-term Bank Deposits, affirmed NP
Long-term Counterparty Risk Assessment, affirmed Ba1(cr)
Short-term Counterparty Risk Assessment, affirmed NP(cr)
Baseline Credit Assessment, affirmed b1
Adjusted Baseline Credit Assessment, affirmed b1
Outlook Action:
Outlook changed to Positive from Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
===========
R U S S I A
===========
HOME CREDIT: Fitch Raises LongTerm IDRs to 'BB', Outlook Stable
---------------------------------------------------------------
Fitch Ratings has upgraded Russia-based Home Credit & Finance Bank
Limited Liability Company's (HCFB) Long-Term Issuer Default Ratings
(IDRs) to 'BB' from 'BB-'. The Outlook is Stable.
KEY RATING DRIVERS
The ratings of HCFB are driven by its intrinsic creditworthiness,
as reflected by its Viability Rating (VR) of 'bb'. The upgrade of
the ratings reflects an extended record of resilient asset quality
and performance, including through the economic downturn in 2020.
HCFB's strong profitability provides a good loss absorption buffer
for loan impairment charges (LICs), which can be volatile due to
the bank's high exposure to the cyclical Russian consumer-finance
market. Net unsecured loans accounted for 74% of total assets and
3.0x of equity at end-1H21. HCFB's large capital and liquidity
buffers are a rating strength.
The impact from the pandemic on HCFB's loan quality was contained.
The impaired loans origination ratio (increase in impaired loans
over the period plus write-offs divided by average performing
loans) decreased to 3% in 1H21 (2020: 7%). Impaired loans (Stage 3
under IFRS) were a low 3.4% of gross loans at end-1H21 (down from
4.3% at end-2020), due to write-offs. Stage 2 loans declined to
13%, after peaking at 17% at end-1H20 amid the pandemic. Most of
its stage 2 loans (80%) were performing, which reduces credit
risks. Fitch views these loan-quality metrics as reasonable and
believe that they are sustainable for the medium term.
HCFB's profitability is strong, supported by low LICs (0.3% of
average loans in 1H21; partly due to upfront provisioning in 2020)
and healthy margins (14%), which benefit from the bank's
consumer-lending focus. Fitch believes that a 'normalised' level of
annual LICs at HCFB should be around 3%-4% of average loans, as
reported LICs are understated by recoveries on previously
written-off loans. These recoveries have been 2%-3% of average
loans annually since 2016 and should come to an end over the long
term. Therefore, LICs are likely to increase to the level of
impaired loans origination ratio (3%-4%).
At the same time, impairments should still be covered by HCFB's
healthy pre-impairment profit, which was 8% of average loans in
1H21 (annualised). HCFB's return on average equity (ROAE) has
exceeded 20% since 2017, except in 2020 when it declined to 12%.
At end-1H21, HCFB's Fitch Core Capital (FCC) was a high 24% of
IFRS-based Basel 1 risk-weighted assets (RWAs). Regulatory capital
ratios are tighter, given punitive statutory risk-weighting of
retail loans and an operational risk charge. The bank's
consolidated core Tier 1 (N20.1) ratio of 11.3% at end-1H21 was
above the regulatory minimum of 7% including buffers. Fitch expects
capital ratios to remain stable, as profit retention should be in
line with planned loan growth, and further tightening of regulatory
risk-weights should force the bank to maintain a large capital
buffer.
HCFB is mainly deposit-funded with an emphasis on granular retail
deposits (79% of liabilities at end-1H21), which are
price-sensitive but have proven to be stable through the cycle as
most are covered by state deposit insurance. HCFB's liquidity
buffer (cash, short-term bank placements and unpledged bonds)
covered a reasonable 32% of customer accounts at end-1H21.
Liquidity additionally benefits from fast loan turnover.
HCFB's perpetual additional Tier 1 notes, issued through Eurasia
Capital SA, are rated at 'B-', four notches below the bank's VR.
The notching reflects higher loss severity relative to senior
unsecured creditors, and non-performance risk due to the option to
cancel coupon payments at HCFB's discretion. The latter is more
likely if capital ratios fall below the minimum capital
requirements with buffers. This risk is reasonably mitigated by
HCFB's resilient profitability and reasonable headroom over capital
minimums, including buffers.
HCFB's Support Rating of '5' and Support Rating Floor of 'No Floor'
reflect Fitch's view that the propensity of the Russian authorities
to provide support to HCFB cannot be relied upon given the bank's
small size and lack of systemic importance.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- HCFB's ratings could be downgraded if LICs increase
significantly above Fitch's expectations, resulting in a
negative or close to negative performance for several
consecutive quarterly reporting periods. Lower capital ratios,
due to a combination of higher growth and/or higher dividend
pay-outs, would also result in a downgrade.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- A positive rating action would require a diversification of
the bank's business model and revenue structure, and a
meaningful expansion of the franchise. An extended record of
low impairment losses and strong profitability, while
maintaining adequate capital buffers, would also be credit
positive.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
MAYKOPBANK JSC: Bank of Russia Ends Provisional Administration
--------------------------------------------------------------
The Bank of Russia, on Sept. 24, 2021, terminated the activity of
the provisional administration appointed to manage the credit
institution JSC MAYKOPBANK (hereinafter, the Bank), according to
the Bank of Russia's Press Service.
The provisional administration established circumstances suggesting
that the Bank's former management and owners performed activities
aimed at withdrawing liquid assets through lending to borrowers
with dubious creditworthiness or incapable of meeting their
obligations to the Bank (not conducting any real business
activity).
The provisional administration and the Bank of Russia have filed
complaints with the law enforcement bodies regarding the facts
revealed.
According to the assessment of the provisional administration, the
value of the Bank's assets is insufficient to fulfil its
obligations to creditors in full.
On September 9, 2021, the Arbitration Court of the Republic of
Adygeya recognised the Bank as insolvent (bankrupt) and initiated a
bankruptcy proceeding against it. The State Corporation Deposit
Insurance Agency was appointed as receiver.
Further information on the results of the provisional
administration's activity is available on the Bank of Russia
website.
Settlements with the Bank's creditors will be made in the course of
the bankruptcy proceeding as the Bank's assets are sold (enforced).
The quality of these assets is the responsibility of the Bank's
former management and owners.
The provisional administration was appointed by virtue of Bank of
Russia Order No. OD-537, dated April 2, 2021, following the
revocation of the Bank's banking licence.
NBCO FINCHER: Bank of Russia Cancels Banking License
----------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-2001, dated
September 24, 2021, cancelled the banking licence of Moscow-based
non-banking credit organisation FINCHER (limited liability company)
NBCO FINCHER (LLC) (Registration No. 3486-K). The credit
institution ranked 350th by assets in the Russian banking system,
according to the financial statements as of Sept. 1, 2021.
The licence of the NBCO FINCHER (LLC) was cancelled following the
request of the credit organisation submitted to the Bank of Russia
after the decision of the general shareholders' meeting on its
voluntary liquidation (in accordance with Article 61 of the Civil
Code of the Russian Federation). The licence was cancelled in
accordance with Article 23 of the Federal Law 'On Banks and Banking
Activities.'
Based on the reporting data provided to the Bank of Russia, the
credit organisation has sufficient assets to satisfy creditors'
claims.
A liquidation commission will be appointed to the NBCO FINCHER
(LLC).
The NBCO FINCHER (LLC) is not a member of the deposit insurance
system.
OTP BANK: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has upgraded Russia-based Joint Stock Company OTP
Bank's (OTP) Viability Rating (VR) to 'bb' from 'bb-', while
affirming the bank's Long-Term Issuer Default Ratings (IDRs) at
'BB+' with Stable Outlook.
KEY RATING DRIVERS
OTP's IDRs and Support Rating are driven by potential support from
the parent, Hungary-based OTP Bank Plc, in case of need. This is
based on the strategic importance of the Russian market for the
parent bank, OTP's 98% ownership, high level of integration, common
branding and reputational risk for the parent in case the
subsidiary defaults.
The standalone creditworthiness of OTP is reflected in its VR of
'bb', which captures the bank's large capital buffers and adequate
asset quality and performance. These strengths are balanced with
OTP's exposure to the cyclical Russian consumer finance market with
net unsecured loans accounting for 45% of total assets and 1.9x of
equity at end-1H21.
The upgrade of the VR reflects the bank's resilient asset quality
and performance in recent years, including through the economic
downturn in 2020. The rating action also captures the bank's strong
capitalisation and reasonable profitability, which Fitch views as
sufficient to absorb higher loan impairment charges (LICs), which
can be volatile due to the bank's focus on consumer lending.
OTP's impaired loans were a high 11% of gross loans at end-1H21
(slightly down from 12% at end-2019) but were 1.6x covered by total
loan loss allowances (LLAs). Stage 2 loans added a notable 11% of
gross loans at end-1H21 (unchanged from 2019). The majority of
these loans were performing, which reduces credit risks. The
impaired loans origination ratio (increase in impaired loans over
the period plus write-offs divided by average performing loans) in
the retail portfolio was a low 2.4% in 1H21 (annualised), down from
6% in 2020.
Operating profit improved to 2.1% of regulatory risk-weighted
assets (RWAs) in 1H21 from a weak 0.1% in 2020 (2019: 1.7%). This
was mainly driven by moderated LICs (2.4% of average loans in 1H21,
down from 6.3% in 2020) and lower cost of funding following a
decline in market interest rates. Fitch expects annual LICs to be
around 3%-4% of average loans in the medium term, but these should
still be covered by the bank's pre-impairment profit (equal to 7%
of average loans in 1H21). Profitability is undermined by high
operational expenses, as reflected by a 65% cost/income ratio and a
10% cost/assets ratio. This is because the bank books the costs of
its sister microfinance company but does not consolidate its
revenues.
The Fitch Core Capital (FCC) was 12% of regulatory RWAs at end-1H21
but Fitch believes that capitalisation is stronger than the capital
ratio would suggest. This is because of high regulatory RWA density
(RWAs are equal to 180% of total assets), due to punitive
risk-weights on unsecured retail loans in Russia and a high
operational risk charge. OTP's equity/assets ratio was a high 24%
at end-1H21, implying low balance-sheet leverage. OTP's regulatory
consolidated core tier 1 capital ratio (N20.1) was 12% at end-1H21,
which was above the statutory minimum of 7% including buffers.
OTP is mainly funded by customer deposits (85% of total
liabilities), with a predominant share of retail accounts (64% of
total deposits), which Fitch views as stable. A large share of
current accounts (51% of total customer funds), including from
corporates and SMEs, results in low funding costs (2.7% in 1H21).
OTP's liquidity buffer (cash, interbank and securities eligible for
repo) was reasonable, covering 17% of customer accounts at
end-1H21. Liquidity is additionally supported by an unused credit
line from the parent bank (26% of total customer accounts at
end-1H21) and fast turnover of OTP's loan book.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- OTP's IDRs could be downgraded in case of a weakening of the
parent's propensity or ability to provide support to the
Russian subsidiary.
-- The VR could be downgraded if LICs increase significantly
above Fitch's expectations, resulting in a negative or close
to negative performance for several consecutive quarterly
reporting periods. Weaker capitalisation due to a combination
of higher growth and/or higher dividend pay-outs could also
trigger a downgrade of the VR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- OTP's IDRs could be upgraded if OTP Bank Plc's ability to
provide support improves.
-- An upgrade of the VR would require a better diversification of
the bank's business model and a stronger franchise. A
continuing record of low LICs and improved profitability while
maintaining large capital buffers could result in an upgrade.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
OTP's IDRs are driven by support from OTP Bank Plc.
ESG CONSIDERATIONS
OTP has an ESG Relevance Score of '4' for Group Structure due to
contingent risks related its sister microfinance company, which has
a negative impact on the credit profile, and is relevant to the
ratings 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.
ROSVODOKANAL LLC: Fitch Raises LT IDRs to 'BB', Outlook Stable
--------------------------------------------------------------
Fitch Ratings has upgraded ROSVODOKANAL LLC's (Rosvodokanal)
Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR)
to 'BB' from 'BB-'. The Outlook is Stable.
The upgrade reflects Rosvodokanal's enlarged size while maintaining
low leverage, an increasing number of water channels operated under
concession agreements (in four out of eight cities) leading to
increased revenue and earnings visibility, and also reasonable
long-term tariffs growth.
The ratings also reflect lower protection under rental agreements
than concessions, as the former accounts for about half of total
EBITDA, an evolving regulatory framework and adequate liquidity.
The group's position as one of the leading private water and waste
water companies in Russia, operating under long-term concession and
rental agreements signed with local authorities is also
incorporated in the ratings. Despite growth in EBITDA over the past
six years, the group is limited in size relative to 'BB' rated
Russian companies'.
KEY RATING DRIVERS
Strong Financial Metrics: Fitch expects Rosvodokanal's credit
metrics to remain strong with funds flow from operations (FFO) net
leverage (excluding connections fees) at slightly below 2x on
average over 2021-2024. This is well below Fitch's negative rating
sensitivity of 3x and the group's bank loan covenant of
consolidated net debt/EBITDA of under 3x. Fitch's expectations
incorporate healthy tariff growth on average at slightly above
inflation and negative free cash flow (FCF) on the back of
investments, especially in the regions where Rosvodokanal operates
under concession agreements (Tyumen, Voronezh, Arkhangelsk and
Orsk).
Leading Private Water Utility: Rosvodokanal is Russia's leading
private water and wastewater operator that runs water and
wastewater assets in eight cities in Russia, supplying about 550
million cubic meters of water annually to about six million
customers. Rosvodokanal has expanded its portfolio over the last
three years, with its acquisition of RVK-Tsentr at end-2019, which
operates water and sewage pipelines in the City of Arkhangelsk
(0.35 million citizens) under concession agreements till 2066 and
conclusion of a concession agreement in April 2021 with the City of
Orsk (0.23 million citizens) till 2070.
Better Cash Flow Visibility in Concessions: Its concession
agreements in Arkhangelsk foresee RUB18.6 billion investments in
2018-2066, approved tariffs till 2032 with an average annual
indexation of about 4%, repayment of local authorities' outstanding
payable of RUB900 million in equal instalments in 2019-2028 and
RUB186 million guarantees for local authorities' outstanding debt
repayment. Fitch has included guarantees as off-balance sheet
obligations in 2021-2024. The concession agreement in Orsk foresees
RUB3.2 billion investments in 2021-2069 and approved tariffs till
2035 with an average annual indexation of about 4.4%.
Long-Term Tariffs: Rosvodokanal operates under long-term tariffs,
which are approved for 2020-2024 for all of its water channels,
except Arkhangelsk, for which tariffs are approved till 2032 and
Orsk till 2035. The tariffs are approved on average at close to the
CPI rate or above it in case of large investment implementation.
Despite the approval of long-term tariffs, the regional regulator
has the right to revise tariffs annually. Tariffs may also not be
completely free from political pressure. The Federal Antimonopoly
Service decreased tariffs in Barnaul, Orenburg and in Tyumen in
2019.
Higher Tariff Visibility in Concessions: Concession agreements
under which the group operates in four out of eight regions are
typically signed for 25 to 49 years, providing tariff visibility
for five to 15 years, and involve clear cooperation with local
municipalities. In the remaining regions it operates under rental
agreements, which are higher-risk in nature than concessions and
under which some assets are leased under short-term agreements and
renewed annually.
Capex Drives Negative FCF: Fitch expects Rosvodokanal to continue
to generate healthy cash flows from operations averaging about
RUB5.3 billion a year over 2021-2024. However, Fitch anticipates
FCF to be negative on the back of investments averaging about
RUB6.4 billion a year over the same period and dividend payments of
RUB300 million in 2021 and at 25% of net income thereafter.
Negative FCF may add to funding requirements.
Expansion Strategy: Rosvodokanal's strategy envisages further
expansion into several Russian cities with at least 200,000
residents via concession auctions. Fitch would view an expansion of
the business profile without significant deterioration of credit
metrics as credit-positive. Under concession auctions, bidders are
selected based on a mix of proposed tariff growth, planned
investments and expected efficiencies in their business plans.
Therefore, Fitch does not expect M&A outflows.
Consolidated Approach: Fitch rates Rosvodokanal based on its
consolidated profile, since it is centrally managed through the
parent company, which fully owns seven out of eight water channels
representing over 80% of its EBITDA in 1H21. Debt is raised at opco
(63%; syndicated bank debt and other bank loans) and holdco (37%;
local bonds and one loan) levels. A syndicated loan from five banks
was raised by five water channels (Orenburg, Barnaul, Krasnodar,
Tyumen and Voronezh), with each benefiting from a surety issued by
intermediate holding company RVK-Invest. The syndicated loan
includes a cross-default clause. Bond proceeds were on-lent through
inter-company loans to companies within the group.
DERIVATION SUMMARY
A less mature regulatory environment and lack of asset ownership
are the key factors justifying the one-to four-notch differences
between Rosvodokanal's ratings and those of central European peers,
Aquanet S.A. (BBB+/Stable, Standalone Credit Profile (SCP) bbb),
Miejskie Wodociagi i Kanalizacja w Bydgoszczy Sp. z o.o. (MWiK;
BBB/Stable, SCP bbb-) and Czech Severomoravske vodovody a
kanalizace Ostrava a.s. (SmVaK; BB+/Stable), although the peers
have higher leverage. Aquanet, MWiK and SmVaK are owners of their
assets and benefit from more mature regulation, while Rosvodokanal
leases or manages its assets under concession, and its tariffs are
less predictable.
Rosvodokanal is rated two notches higher than Georgia Global
Utilities JSC (GGU; B+/Stable), due to the latter's higher-risk
business profile that combines a regulated water utility business
and a fairly higher-risk renewable electricity business. Compared
with GGU, Rosvodokanal has stronger asset quality, a larger size,
greater geographical diversification and a longer record of
favourable regulation, which is partially offset by GGU's asset
ownership and supportive regulation under the regulatory asset
base-principle of its water utilities business. GGU's renewable
electricity business in the merchant power segment is exposed to
higher volume and price risks than Rosvodokanal's regulated
business.
Rosvodokanal's financial profile is strong compared with peers',
and the group has comfortable leverage headroom within its ratings.
The ratings of Aquanet and MWiK are notched up once from their SCPs
to reflect links with their main shareholders, assessed under
Fitch's Government-Related Entities (GRE) Rating Criteria, while
Rosvodokanal, SmVaK and GGU are rated on a standalone basis.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- About 1.4% increase in volumes in 2021, mainly due to the
consolidation of Orsk water channel from April 2021. This is
followed by a moderate organic decline in water and wastewater
volumes of less than 1% annually in 2022-2024, due to
efficiency measures and expansion of water metering;
-- Average tariff growth for water and wastewater services at
around 6% annually in 2021-2024, due mainly to the
implementation of investments under concession agreements;
-- Inflation at between 4.1% and 5.6% annually in 2021-2024, and
operating expenses increasing slightly below inflation;
-- Capex for 2021-2024 in line with management expectations;
-- Dividend payments of RUB300 million in 2021 and at 25% of net
income in 2022-2024; and
-- Subsidies from regional budgets for capex in 2021 close to
management expectations.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Further increase in the share of concession agreements,
coupled with maintenance of low leverage.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Significant deterioration of credit metrics on a sustained
basis (FFO net leverage (excluding connection fees) above
3.0x) due to, for example, insufficient tariff growth to cover
cost increases, or high borrowing costs not compensated by
capex cuts;
-- A sustained reduction in cash generation through worsening
operating performance, deteriorating cash collection or
cancellation of rental agreements.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: At end-1H21 cash and equivalents of RUB4.1
billion and uncommitted credit lines from a syndicate of banks
(RUB5.3 billion) and from major Russian banks individually (RUB5.3
billion) were sufficient to cover short-term debt of RUB1.2 billion
and Fitch-expected negative FCF one year ahead of about RUB2
billion. Fitch expects uncommitted credit lines to be available to
Rosvodokanal. At end-1H21 all outstanding loans were denominated in
Russian roubles.
In 2020 Rosvodokanal refinanced almost all its debt with a
lower-interest RUB3.7 billion syndicated loan from five banks
maturing in 2027 and a RUB3 billion bond at 7.15% at RVK-Invest
level maturing in 2030 with a put option in 2024. Debt maturities
are evenly distributed over 2021-2023.
ISSUER PROFILE
Rosvodokanal is Russia's leading private water and wastewater
operator with 23% market share among private operators, serving
about six million customers in Russia and supplying around 550
million cubic metres of water annually.
SUMMARY OF FINANCIAL ADJUSTMENTS
-- Impairment of intangible, tangible and financial assets,
effect of change in rent payments, gains on inventory changes
and write offs, return of stamp duty, gains of write-off of
accounts payable gains on disposal of assets, gains on
repayment of written-off accounts receivables and others are
excluded from EBITDA calculation.
-- Lease is not part of debt and lease service costs are part of
operating expenditure.
-- FFO-based ratios are adjusted by deducting revenue from
connection fees from FFO as connection fee relates to
investing activities.
TINKOFF BANK: Fitch Raises LT IDRs to 'BB+', Outlook Stable
-----------------------------------------------------------
Fitch Ratings has upgraded Russia-based Tinkoff Bank's Long-Term
Issuer Default Ratings (IDRs) to 'BB+' from 'BB'. The Outlooks are
Stable.
KEY RATING DRIVERS
Tinkoff's 'BB+' IDRs are driven by its intrinsic credit strength
and continue to reflect its robust performance, strong execution,
adequate capital position and granular funding base. These
strengths are balanced with Tinkoff's significant exposure to high
risk/high return consumer lending, which translates into
consistently higher impaired loan ratios and cost of risk compared
with Russian universal and corporate banks, and a record of
aggressive appetite for growth.
The upgrade of the IDRs reflects the following factors.
In Fitch's view, in recent years Tinkoff has materially expanded
and strengthened its franchise, supported by the growth of its
client base and ongoing business diversification. By end-2Q21, its
active client base increased to 11.5 million (a 50% yoy increase),
which is the third largest in Russia, while the growth of
non-credit business remained ahead of retail loan growth. A gradual
shift of Tinkoff's business mix towards non-credit segments is
positive for the ratings, as non-credit earnings should be more
stable and less prone to impairment risks. Fitch has upgraded
Tinkoff's Company Profile score to 'bb'.
Fitch believes that credit risks stemming from Tinkoff's exposure
to unsecured consumer finance lending have moderated over the past
few years. Fitch previously noted the potential cyclicality of
Tinkoff's asset quality and earnings due to the bank's business
focus on Russian consumer finance lending, which Fitch continues to
view as a volatile market. However, at end-2Q21, net unsecured
retail loans decreased to 42% of Tinkoff's total assets or 3.1x
IFRS equity, while the net credit card portfolio, which Fitch views
as the major source of credit risk, decreased to 26% and 1.7x,
respectively. Other assets are either secured retail loans, which
Fitch views as lower-risk products in Russia, or non-loan exposures
of strong credit quality.
In Fitch's view, the improved asset structure significantly reduces
the vulnerability of Tinkoff's capital to potentially cyclical loan
quality in the consumer finance business. For these reasons, Fitch
has upgraded Tinkoff's Asset Quality and Capitalisation scores to
'bb' and 'bb+', respectively.
Tinkoff has an extended record of robust profitability, including
through the downturn of the broader economy in 2020, which Fitch
views as a test of the resilience of Tinkoff's business model to
cyclical swings in Russia's economic environment. The share of
non-credit revenues was 44% in 6M21, and Fitch expects it to exceed
50% in 2022. Fitch has upgraded Tinkoff's Earnings and
Profitability score to 'bbb', which is among the highest in Russia,
due to the improved revenue structure, and because over the last
decade Tinkoff's profitability ratios have consistently been higher
than any other Fitch-rated Russian bank.
Tinkoff's 1H21 results were strong, as expressed by an annualised
44% return on equity, and Fitch expects these returns to be
sustained in the medium term. Pre-impairment performance is
supported by high yields in retail lending (27% in 1H21) and by
strong net fee income (equal to 8% of gross loans). In 1H21,
Tinkoff's annualised pre-impairment profit covered a high 18% of
average gross loans, providing the bank with strong loss-absorption
capacity.
Fitch expects performance to remain strong, but potential pressure
may stem from an ongoing sector-wide margin compression in consumer
finance, due to intense competition and higher market saturation,
and Tinkoff's elevated cost base. The bank's 2023 strategy
envisages an expansion of the active client base to 16.5 million,
and fast business growth in 1H21 has already translated into higher
costs (including customer acquisition expenses).
The higher cost base was to some extent compensated in 1H21 by
lower loan impairment charges (LICs; annualised 4% of average loans
in 6M21), but in the near term Fitch believes that a more
sustainable level of LICs for Tinkoff is around 5%-6%. The ratio of
impaired loans (defined as Stage 3 loans under IFRS 9) to gross
loans was above 10% in 2Q21, but these were 1.2x covered by
reserves.
At end-2Q21, Tinkoff's Basel III CET1 ratio was a solid 15.7%.
Regulatory capital ratios were lower due to punitive statutory
risk-weights applied to retail loans in Russia, but Fitch views
regulatory capitalisation as reasonable. At end-2Q21, Tinkoff's
Core Tier 1 ratio was 320bp above the statutory minimum (including
buffers). In September, the bank placed a new USD600 million issue
of perpetual bonds (equal to 4% of statutory risk-weighted assets),
and this will further support regulatory Tier 1 and total capital
ratios. Fitch expects capital ratios to be stable in the near term
as fast business growth is in line with the bank's strong internal
capital generation, while further tightening of regulatory
risk-weights in retail lending (from October 2021) will induce the
bank to keep reasonable capital buffers.
At end-2Q21, Tinkoff was 85% deposit-funded. Fitch views Tinkoff's
deposit base as stable, as around 70% of its liabilities are
granular on-demand accounts of retail clients and SMEs. In 1H21,
Tinkoff's cost of customer funding was only 40bp higher than at
Sberbank. Liquidity is ample, as expressed by a low 82% ratio of
gross loans to deposits.
DEBT RATINGS
Tinkoff's perpetual additional Tier 1 notes have been upgraded to
'B', four notches below the bank's VR. The notching reflects (i)
higher loss severity relative to senior unsecured creditors; and
(ii) non-performance risk due to the option to cancel coupon
payments at Tinkoff's discretion. The latter is more likely if
capital ratios fall into the buffer zone, although this risk is
reasonably mitigated by Tinkoff's stable financial profile and a
record of maintaining reasonable headroom over minimum capital
ratios.
SUPPORT RATING AND SUPPORT RATING FLOOR
Tinkoff's Support Rating (SR) of '5' and Support Rating Floor (SRF)
of 'No Floor' reflect Fitch's view that support from either the
bank's private shareholders or the Russian authorities, although
possible, given the bank's large retail client base, could not be
relied upon in all circumstances due to Tinkoff's still modest
overall market shares in system deposits.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Asset Quality and Performance: A sharp increase of LICs
significantly above Fitch's expectations, resulting in a
negative or close to negative performance for several
consecutive quarterly reporting periods.
-- Capitalisation: A material reduction of capital ratios due to
a combination of fast business growth and higher dividend
payouts.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Company Profile: A further expansion of Tinkoff's franchise
and further business diversification, if this results in the
share of non-credit revenues being sustained above 50% and net
unsecured retail loans being less than 2x equity.
-- Asset Quality and Performance: A longer record of stable
trends in loan quality and continuously strong profitability.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
TRANSKAPITALBANK PJSC: Fitch Assigns 'B' LT IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has assigned Public Joint-Stock Company
Transkapitalbank (TKB) a Long-Term Issuer Default Rating (IDR) of
'B' with Stable Outlook and Viability Rating (VR) of 'b'.
KEY RATING DRIVERS
IDRs and VR
TKB's IDRs are driven by its intrinsic credit strength, as
expressed by its VR. The VR reflects TKB's modest franchise in the
concentrated Russian banking sector, residual risks related to the
ongoing financial rehabilitation of Investtorgbank (ITB), the
considerable level of non-provisioned impaired loans, significant
foreclosed assets and modest core capitalisation. The VR also
factors in a balanced funding structure, reasonable liquidity and
adequate pre-impairment profitability. TKB's VR is one notch below
the 'b+' implied rating due to the weakest link adjustment,
reflecting the capitalisation and leverage key rating driver,
assessed by Fitch at 'b'.
TKB's profile is affected by the rehabilitation of ITB (its assets
made up 49% of the group's total assets at end-1H21), which failed
in 2015. The rehabilitation is under a framework that was used by
the authorities before a new scheme with Central Bank of Russia
(CBR) participation through the banking sector consolidation fund
was introduced in 2017. TKB was selected as an agent bank for ITB's
rehabilitation and the group received a total of RUB72.4 billion of
cheap (0.51% annual interest rate) deposits from the Deposit
Insurance Agency (DIA) in 2015-2018. The DIA deposits will mature
in 2030, when completion of the rehabilitation is targeted, and the
funds have been invested in Russian sovereign bonds (OFZs). The
group recognised about RUB45 billion in fair value gains in its
IFRS accounts on the cheap DIA deposits and built up provisions at
ITB. However, Russian accounting standards do not allow for the
booking of fair value gains, which explains negative regulatory
capital at ITB and low regulatory consolidated capital ratios.
Impaired loans (defined as Stage 3 and purchased or originated
credit-impaired loans under IFRS9) accounted for a high 31% of
total gross loans at end-1Q21, due to the deeply impaired loan book
at ITB. Excluding ITB's legacy book, the ratio was estimated at
10%. Consolidated impaired loans were only 80% covered by total
loan impairment reserves, as according to management there are
reasonable recovery prospects in some cases due to availability of
hard collateral. In particular, retail mortgage loans made up 17%
of total impaired loans. The Stage 2 loans ratio was a moderate 3%,
pandemic-driven restructuring in the form of credit holidays was
low, and most borrowers returned to payments schedules in 1H21.
Net loans made up only 39% of total consolidated assets at
end-1Q21, while securities represented 37%. Investments in
securities are of low credit risk, given they are predominately
sovereign and rated corporate bonds. Bonds accounted for as held to
maturity represented 65% of the total, and market price
fluctuations are neutral for their balance sheet value. The
remaining bonds are mostly in the available for sale category and
given the long duration of the OFZs portfolio, TKB's exposure to
market risk is higher than peers.
Bond market prices decreased in 1H21 after recent key rate hikes by
the CBR, and TKB reported a high RUB1.2 billion negative
revaluation through other comprehensive income, which consumed 70%
of net income in the period.
Capitalisation is a rating weakness. The regulatory consolidated
common equity Tier 1 ratio was 5.6% at end-1H21, below the 7%
required minimum including buffers (the requirement without buffers
is lower at 4.5%). The Tier 1 ratio was higher at 8.8% (8.5%
minimum requirement, 6% excluding buffers) due to RUB9.5 billion
equivalent perpetual subordinated debt included in additional Tier
1 capital. The group has a waiver on non-compliance with minimum
requirements during the rehabilitation period. The consolidated
Fitch Core Capital (FCC) to Fitch-adjusted regulatory risk weighted
assets ratio was 7.8% at end-1H21.
Impaired loans net of reserves together with foreclosed assets
equaled 74% of FCC. Core pre-impairment profit (net of bond price
fluctuations) was estimated by Fitch at 3.5% of average net loans
in 1H21 (annualised) and the bank could increase the coverage of
impaired loans to 100% with two years of pre-impairment profits.
TKB's funding is well balanced. About half of the group's funding
is in the form of granular retail deposits, while DIA funds (which
are accounted for at fair value in IFRS accounts) made up 13% of
the total at end-1Q21. The bank actively repos OFZs on the market
(with the National Clearing Centre) and direct repo operations
account for an additional 18%. Repo funding is largely short-term
but this is neutral for liquidity, in Fitch's view, as in case of
market deterioration OFZs can be refinanced with the CBR, albeit at
a higher cost. Liquid assets (cash and equivalents and non-pledged
bonds) net of short-term interbank liabilities covered customer
accounts by a reasonable 19% at end-1H21.
SUPPORT RATING FLOOR AND SUPPORT RATING
TKB's Support Rating of '5' and Support Rating Floor (SRF) of 'No
Floor' reflect Fitch's view that extraordinary support from the
state authorities cannot be relied upon given the bank's limited
systemic importance.
On 17 August 2021, Fitch published an Exposure Draft setting out
proposed changes to its Bank Rating Criteria. Should the final
criteria be adopted in line with the Exposure Draft, TKB's SRF
would be replaced by a Government Support Rating, which would
likely be assigned at the level of 'No Support'.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- TKB's ratings could be downgraded if asset quality
deterioration, mark-to-market losses, lending growth above
internal capital generation, or an uptick in loan impairment
charges result in a significant weakening of capitalisation.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating action would require considerable progress in
the rehabilitation of ITB in combination with substantially
lower capital encumbrance by unreserved impaired loans and
foreclosed assets.
VR ADJUSTMENTS
The Operating Environment score of 'bbb-' has been assigned above
the 'bb' category implied score due the following adjustment
reason: Macroeconomic Stability (positive).
The Company Profile score of 'b+' has been assigned below the 'bb'
category implied score due to the following adjustment reason:
Business Model (negative).
The Funding and Liquidity score of 'bb' has been assigned below the
'bbb' category implied score due to the following adjustment
reason: Deposit Structure (negative).
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.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
=========
S P A I N
=========
ANFI SALES: Declared Bankrupt by Commerce Court in Las Palmas
-------------------------------------------------------------
The Canary reports that the Commerce Court number 1 in Las Palmas
de Gran Canaria agreed to declare necessary bankruptcy for tourism
companies Anfi Sales SL and Anfi Resorts.
According to The Canary, there will be an appeal against that
judgement heard before the Provincial Court, although it will not
be suspensive, that is to say it will not impede the judgement.
Judge Alberto Lopez Villarrubia accepted the request made last year
by the company Isla Marina SL. to declare the companies bankrupt,
The Canary recounts. The debtors -- part of the Anfi group under
the control of the Santana Cazorla Group -- have been suspended in
their powers of administration and disposition of assets, meaning
they are no longer free to make decisions pertaining to those two
companies, nor can they dispose of any assets belonging to those
companies, powers now assumed by the administrators: Par Conditio
SLP, The Canary states.
During the procedure, three expert reports were provided on the
financial and business situation of Anfi Sales and Anfi Resorts,
made by Jose Manuel Arias, Sergio Roque and Addvante Forense &
Concursal SLP, The Canary notes. In summary, handing down his
judgement, the magistrate endorsed the latter, which highlighted
the lack of liquidity and solvency within the companies, The Canary
relays. He also referred to the fact that already in 2019 the Anfi
Group had requested additional financing from the bank, to
refinance the syndicated loan contract that it signed at the time,
a request that resulted in a negative response, The Canary
discloses. In conclusion, Addvante Forense & Concursal SLP's
expert report estimated that the unserved debt amounted to EUR56.6
million at the end of 2019, without without sufficient liquidity to
deal with it and without possibility of new financing, according to
The Canary.
The judge concluded in any case that the expert opinion presented
by Isla Marina -- that of Addvante Forense & Concursal SLP --
proved bankruptcy, that is, the inability to comply with expired
and enforceable obligations, The Canary states. Regarding the
argument that the companies own a large amount of real estate,
already designated in the judicial executions in process, the
magistrate pointed out that this does not serve to prove that the
companies are solvent, since the mere fact of handing over its
tangible fixed assets shows that there is no capacity to deal with
debts in an ordinary way, The Canary relates. Moreover, it de
facto supposes an early liquidation of assets to enable payment,
The Canary notes.
The Anfi Sales and Anfi Resorts' insolvency declaration aims at
avoiding the liquidation of a company, to seek an orderly exit that
attends to the payment of any debtors and guarantees, as far as
possible, the continuity of a company, according to The Canary.
GRIFOLS SA: Moody's Lowers CFR to B1, Outlook Negative
------------------------------------------------------
Moody's Investors Service has downgraded the corporate family of
Grifols S.A. to B1 from Ba3 and its probability of default rating
to B1-PD from Ba3-PD. At the same time, Moody's has downgraded the
senior secured ratings of Grifols, Grifols World Wide Operations
Ltd. and Grifols World Wide Operations USA, Inc. to Ba3 from Ba2
and Grifols' senior unsecured rating to B3 from B2. The outlook is
negative.
RATINGS RATIONALE
The downgrade to B1 and negative outlook reflect the announcement
of Grifols' debt-funded acquisition of Biotest AG (Biotest) for an
enterprise value of about EUR2.0 billion, which will further
increase Grifols' already high leverage. Biotest is a German
company that specializes in innovative hematology and clinical
immunology solutions. Pro forma the acquisition, Moody's-adjusted
debt/EBITDA amounts to 6.8x for the 12 months ended June 30, 2021
and Moody's would expect the company's leverage to improve to below
6.0x for it to be more comfortably positioned in the B1 rating.
The downgrade also considers the effects of the COVID pandemic that
are continuing and Moody's expectation that the low US plasma
collection volumes of H1 2021 and high donor fees will continue to
affect Grifols' revenue and cash flows in the next 12 to 18 months,
keeping its leverage elevated. Finally, the downgrade to B1 also
incorporates evidence of Grifols' more aggressive financial policy:
the company has recently undertaken several debt and cash funded
acquisitions, and some share buybacks, at a time when its leverage
was already high, and which have also reduced the company's
available liquidity.
Under its ESG framework Moody's regards the coronavirus outbreak
and the effects that this has had on plasma collections as a social
risk and the company's more aggressive financial policy as a
governance risk.
The Biotest acquisition will add two promising products to Grifols
portfolio, which will improve its profitability if they are
successfully launched. Both products, IgM and fibrinogen, are still
in phase 3 clinical trials and their launch is only expected in
late 2023-early 2024, meaning additional EBITDA contributions from
these products will take time. With these products, Grifols will
produce and sell plasma proteins that are currently not used at a
marginal additional cost, and it expects to increase its gross
margin to 50% by 2026 from 45% currently. Biotest will also add 26
plasma collection centers located in Europe and a fractionation
site in Germany, and improve Grifols' geographic spread. However,
Grifols is funding Biotest acquisition with debt, initially through
a bridge facility that will eventually be refinanced with long-term
senior unsecured debt instruments.
Grifols' B1 CFR still reflects its good market position and
vertical integration in human blood plasma-derived products;
favorable fundamental drivers supported by growing healthcare
spending in emerging markets, better diagnostics and new products;
high barriers to entry because of regulation, customer loyalty and
capital intensity; as well as good safety track record.
LIQUIDITY
Grifols' liquidity weakened during H1 2021 and is now considered as
adequate rather than good. The company used cash on its balance
sheet and made drawings under its USD1.0 billion revolving credit
facility (RCF) due 2025 to fund about EUR500 million in
acquisitions and a EUR125 million share buyback programme. The
USD990 million proceeds from the GIC transaction, which is expected
to close in Q4 2021, will repay the drawings under its RCF, and
allow Grifols to regain some liquidity, but Moody's projects that
free cash flow will be negative in 2021 by about EUR150 million and
still slightly negative in 2022.
There are no significant debt maturities until 2025. The RCF is
subject to a leverage covenant (net debt/EBITDA at a maximum of 7x)
that is activated if drawings exceed 40%. According to Moody's
projected net debt/EBITDA, Grifols would be limited in its ability
to draw more than 40% under the RCF in 2021 and part of 2022.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects Moody's view that Grifols may not be
able to improve its leverage below 6.0x in the next 12 to 18
months, considering the ongoing effects from the pandemic, the need
to integrate various acquired companies and its active strategy to
expand its plasma collection network. A stabilization of the
outlook is, however, likely if there is evidence that the company
is committed to reducing leverage and strengthening its balance
sheet, cash flow generation and liquidity.
STRUCTURAL CONSIDERATIONS
Grifols reported EUR7.7 billion in financial debt as of June 30,
2021, to which EUR2.0 billion will be added to fund the Biotest
acquisition, bringing total debt to about EUR9.7 billion on a pro
forma basis. This comprises a mix of senior secured debt
instruments (term loans, RCF and notes) rated Ba3, one notch above
the CFR, and senior unsecured debt instruments (notes and bridge
facility to fund Biotest) that are ranked behind the senior secured
debt in the waterfall and are rated B3, two notches below the CFR.
All these instruments benefit from guarantees of subsidiaries
representing about 70% of Grifols' EBITDA. The senior secured debt
instruments benefit from collateral which includes among others
certain tangible and intangible assets and plasma inventories.
The B1-PD PDR is in line with the B1 CFR, assuming a 50% corporate
family recovery rate appropriate for debt structures comprising
bank and bond debt.
In June, Grifols announced that GIC, the sovereign wealth fund of
Singapore, will invest USD990 million to acquire a minority stake
in its US subsidiary Biomat USA. Under the terms of the
transaction, an affiliate of GIC will hold a 23.8% minority stake
in Biomat USA through the acquisition of newly issued non-voting
stock of Biomat USA and Biomat Newco, the parent company of Biomat
USA. Considering the transaction and terms of the non-voting stock,
the agency has treated these non-voting shares as debt. As part of
the GIC transaction, Grifols has also obtained consent from lenders
and bondholders to remove Biomat USA from the guarantor pool of
existing debt instruments.
ESG CONSIDERATIONS
The COVID pandemic, which Moody's have considered as a social risk
under Moody's ESG framework, has increased plasma collection prices
and reduced supply with Grifols' plasma collection declining by
about 15% in 2020. Plasma collection levels remained low in H1
2021. Considering a gradual recovery in plasma collection and the 9
to 12-month time lag between collection and sale of plasma-derived
products, Grifols' revenue and profits will continue to be affected
in H2 2021 and 2022.
With regards to governance, Grifols has a high tolerance for
leverage, a history of debt-funded acquisitions and some material
related party transactions. This has been further illustrated by
the acquisitions announced by the company since the beginning of
2021, totaling about EUR2.5 billion, all debt or cash funded, at a
time of already elevated leverage.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade is unlikely over the next 12 months in light of
the negative outlook. Over time, the rating agency could upgrade
Grifols' rating if it achieves a Moody's-adjusted debt/EBITDA ratio
of less than 5.0x and cash flow from operations (CFO)/debt of more
than 10%. A positive rating action would also require that Grifols
commits to maintaining a financial policy commensurate with a
higher rating.
Conversely, Moody's could downgrade Grifols if it looks unlikely
that it will be able to bring its Moody's-adjusted debt/EBITDA down
to below 6.0x by the end of 2023; if its Moody's adjusted free cash
flow is forecast to stay negative beyond 2022; or if its liquidity
becomes weak. Further evidence that the company is adopting more
aggressive financial policies could also lead to negative rating
pressure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Medical Product
and Device Industry published in June 2017.
COMPANY PROFILE
Grifols, headquartered in Barcelona, Spain, is a global healthcare
company that is primarily focused on human blood plasma-derived
products and transfusion medicine. Its Bioscience division involves
the extraction of proteins from human blood plasma and the use of
these proteins to produce and distribute therapeutic medical
products to treat a range of rare, chronic and acute conditions.
Grifols also supplies devices, instruments and assays for clinical
diagnostic laboratories. It generated EUR5.3 billion in revenue and
EUR1.3 billion in Moody's-adjusted EBITDA in 2020.
===========================
U N I T E D K I N G D O M
===========================
GREEN: Shell Energy to Take Over 255,000 Customers
--------------------------------------------------
BBC News reports that Shell Energy has been appointed as the new
supplier for 255,000 domestic gas and electricity customers of
Green, which collapsed nearly a week ago.
According to BBC, the small number of business customers on the
books will also be moved.
Those affected have been advised by the regulator Ofgem not to take
any action until the transfer is completed, BBC states. They can
then shop around but are unlikely to find any cheaper deals, BBC
notes.
Six suppliers have gone bust recently, affecting nearly 1.5 million
customers, BBC discloses.
Green ceased trading on Sept. 22 -- the same day as another
supplier, Avro -- as firms buckle under spiking wholesale gas
prices, BBC relates.
MILLER HOMES: Fitch Affirms 'BB-' LT IDR & Alters Outlook to Pos.
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Fitch Ratings has upgraded Miller Homes Group Holdings plc's senior
secured rating to 'BB+'/RR2 from 'BB'/RR2. Fitch has also affirmed
the company's Long-Term Issuer Default Rating (IDR) at 'BB-'
revising the outlook to Positive from Stable. All ratings have been
removed from UCO.
The upgrade of the senior secured rating reflects Fitch's
application of its updated Corporates Recovery Ratings and
Instrument Ratings Criteria. The rating was placed 'under criteria
observation' (UCO) following the publication of the updated
criteria on 9 April 2021.
The positive outlook on the IDR reflects Fitch's expectations of
higher output volumes driving a steady cash flow generation in the
next 24 months, with funds from operations (FFO) gross leverage
projected to reduce to below 2.5x by end-2023. The rating action is
supported by Miller Homes' good sales visibility underpinned by its
mid-market homes and the solid housing demand in the UK regions
where the company operates.
KEY RATING DRIVERS
Regional Homebuilder: Miller Homes is a medium-sized UK
housebuilder focused on central Scotland, northern England, the
Midlands and, to a lesser extent, southern England. The company
specialises in single-family homes with an average selling price
(ASP) in 2020 of GBP261,000. The products offered are highly
standardised, although the company recently launched a product
range that allows greater personalisation of interiors.
Solid Trading Performance: Miller Homes' activity quickly rebounded
after a subdued 2020 due to the pandemic. In the six months to
end-June 2021 the company reported strong business performance with
1,910 homes completed in the period. This output is more than
double that in the same period of 2020 and 13% ahead of the
pandemic-unaffected 1H19. Sales in 1H21 (GBP525 million) were
higher than 1H20 (142%) and 1H19 (35%) supported by the ASP, which
increased by 15% to GBP280,000 in the period.
Sales Visibility: Sales visibility is good with the order book
standing at GBP707 million at end-1H21 (2020: GBP560 million). This
equates to over eight months of sales coverage based on the current
trading figures or around 2,525 units based on the 1H21 ASP. The
GBP17 million acquisition of Wallace Land and Investments Limited -
a regional land promoter - in May 2021 added 17,500 plots to Miller
Homes' strategic landbank, which comprised 37,802 plots at
end-1H21. Combined with the consented landbank (14,382 plots,
equivalent to 4.1 years of supply), these represents 14.9 years of
supply based on the last 12 months' completion volumes.
UK Housing Market Undersupplied: The UK housing market continues to
be under-supplied, as the amount of the newly built homes keeps
falling significantly short of the annual 300,000 units the
government expects. In the 12 months to end-March 2020, there were
243,770 newly completed homes. Fitch expects Miller Homes to
benefit from this inherent undersupply, particularly in regions
away from London where the structural housing need is conducive to
a less volatile market. In 1H21 Help to Buy-backed reservations
have reduced to 19% of the total (1H20: 38%).
Active Capital Management: Miller Homes reshaped its capital
structure over the last four years aided by its consistent free
cash flow generation. In 2018 the company bought back and cancelled
GBP20 million of its senior secured notes and repaid GBP43.5
million of its intercompany loan.
In July 2020, Miller Homes issued a GBP160 million private
placement with the proceeds partially used to redeem GBP110 million
floating notes. This allowed the company to extend its debt
maturities, with the GBP404 million fixed notes maturing in 2024
and GBP51 million floating notes maturing in 2023. In March 2021
the company repaid GBP100 million of its shareholders loan (1H21:
GBP49 million outstanding). Although not included in Fitch's
previous forecast, the voluntary repayment did not adversely impact
the ratings.
Leverage Expected to Reduce: At end-2020, FFO gross leverage had
risen to 4.6x. This was due to the combination of the tap issue
resulting in additional GBP50 million debt and operating results
hit by the first year of the pandemic. Fitch forecasts leverage to
gradually reduce by end-2021 to within the rating sensitivities for
the current rating as the homes sales already resumed in 1H21.
Fitch projects FFO gross leverage to reduce further to below 2.5x
over the next 24 months as the demand for Miller Homes' products is
likely to remain strong.
Recovery Ratings Criteria Update: The instrument rating for Miller
Homes' senior secured notes are based on Fitch's rating grid for
issuers with 'BB' category IDRs. Miller Homes' senior secured
ratings are viewed as a category two first-lien, which translates
into a two-notch uplift from the IDR of 'BB-'.
DERIVATION SUMMARY
Miller Homes' focus outside London and the South-East differs from
that of The Berkeley Group Holdings plc (BBB-/Stable). Miller
Homes' outputs are typically single-family homes with an ASP not
dissimilar to England's ASP (GBP267,000 in 2020). Berkeley's homes
are often part of large conurbations that accommodate
neighbourhoods of 1,000 to 5,000 units, with a selling price
averaging more than GBP700,000 in the past four years, the highest
among its UK peers. In their last respective fiscal year, the two
UK housebuilders had similar volumes (Miller Homes: 2,620 units;
Berkeley: 2,825), well below the largest UK housebuilders, which
deliver more than 15,000 units a year.
The Spanish housebuilders AEDAS Homes, S.A. and Via Celere
Desarrollos Inmobiliarios, S.A. (both 'BB-'/Stable) focus on the
most affluent areas within their domestic market and the products
offered (apartments of large condominiums) share similarities with
Berkeley. Irrespective of the geographic focus and the product
range, Spanish and UK-based housebuilders' funding requirements are
comparable, with both relying only on a small purchaser deposit
(5%-10% for the UK and up to 20% for Spain) to fund land and
development costs in the period up to completion.
Miller Homes' financial profile well compares with that of Aedas
and Via Celere. The two Spanish housebuilders launched their
inaugural notes issue in 2021, while Miller Homes issued its
inaugural senior notes in 2017 (GBP425 million in October, recently
tapped for an additional GBP50 million). The deleveraging paths of
the three companies were slightly hampered by the pandemic, and for
some entities recent M&A activity, but Fitch expects FFO gross
leverage to be restored within Fitch's guidance in the next 12-18
months for all three.
KEY ASSUMPTIONS
-- Top-line growth mainly driven by volumes, increasing to over
4,000 units by 2023, with a selling price averaging GBP273,000
over the next four years;
-- Net land and development spend included in working capital
totalling GBP400 million in 2021-2024;
-- Existing debt (GBP455 million) refinanced at maturity;
-- Fitch assumes that the remaining GBP49 million shareholder
loan is repaid in 2022;
-- No dividends distribution in the next four years.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO gross leverage below 2.5x on a sustained basis;
-- Maintaining order book/development work in progress (WIP)
around or above 100% on a sustained basis (June 2021: 233%);
-- Positive FCF on a sustained basis;
-- The senior secured rating of 'BB+' will stay the same if the
IDR is upgraded to 'BB'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO gross leverage above 3.5x on a sustained basis;
-- Order book/development WIP materially below 100% on a
sustained basis, indicating speculative development;
-- Distribution to Bridgepoint shareholders that would lead to a
material reduction in cash flow generation and slower
deleveraging;
-- Land bank/gross debt ratio below 1.0x.
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
Good Liquidity: At 1H21 Miller Homes' liquidity was ample. It
comprised GBP227 million of cash and GBP151.5 million undrawn
revolving credit facility whose size was increased by GBP21.5
million in 2020. At end-June 2021 the gross debt comprised two
senior secured notes totalling GBP455 million, maturing in October
2023 (GBP51 million) and October 2024 (GBP404 million)
respectively.
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.
MOTO VENTURES: Fitch Lowers GBP150MM Second Lien Debt to 'CCC'
--------------------------------------------------------------
Fitch Ratings has downgraded Moto Ventures Limited's (Moto) GBP150
million second-lien debt to 'CCC' from 'CCC+' with a Recovery
Rating of 'RR6' under its new Corporate Recovery Ratings and
Instrument Ratings Criteria, and removed the rating from Under
Criteria Observation (UCO), where they were placed on 9 April
2021.
Fitch has also affirmed Moto's Long-Term Issuer Default Rating
(IDR) at 'B-'. The Outlook is Stable.
The downgrade of the second lien rating reflects Fitch's change in
criteria in respect of the revised distressed enterprise value
(EV)/EBITDA multiples used to derive the instrument rating under
the agency's going-concern (GC) approach. Fitch applies a maximum
regional recovery multiple (7.0x) for EMEA-based credits according
to the new criteria, which is lower than the 7.5x multiple used
previously.
The IDR continues to reflect high refinancing risks with maturities
within the next six to 12 months. In Fitch's view this is mitigated
by Moto's underlying robust business model, steady earnings and
sufficient liquidity, as reflected in the Stable Outlook.
Successful refinancing along with continued business recovery in
line with rating case could be positive for the rating.
Moto reported recovery ahead of Fitch's expectations in 2Q21. Fitch
expects funds from operations (FFO) adjusted gross leverage to
return to around 8.0x in 2021 and FFO fixed charge cover to revert
comfortably to above 2.0x. If the recovery halts, is materially
weaker than planned or there is no progress on refinancing of its
debt structure by end-2021, this will likely have a negative impact
on the rating.
KEY RATING DRIVERS
Change in Recovery Multiple: Fitch has revised downwards the
distressed multiple for recoveries under the GC approach to 7.0x
against 7.5x used previously. This is the maximum multiple in EMEA
under the new criteria, which reflects less robust business
features relative to, for example, toll road operators, as well as
the lower transparency of insolvency valuation outside the U.S.
Otherwise, the still high multiple, at a premium to other
retailers, reflects Moto's overall solid business model and
demonstrated stable operating-risk profile. The stable profile is
reflected in historically steady EBITDA, and Fitch's expectations
of a recovering Fitch-defined EBITDA margin towards a healthy 13%
by 2022.
High Leverage: Fitch now expects an improvement in FFO adjusted
gross leverage at slightly above 8x in 2021, in line with the
rating. Fitch forecasts that it could reduce towards 7.0x, which
would be commensurate with a 'B' rating, in 2022. Moto has
reinstated its growth capex given signs of recovery and Fitch
expects dividend reinstatement when cash flow and financing
arrangements permit. The pandemic exacerbated already high leverage
metrics following a period of expansionary capex and favourable
shareholder remuneration.
High Refinancing Risk: Fitch believes that Moto's refinancing risk
remains high, with upcoming debt maturities from March 2022, amid
high leverage and continuing post-pandemic recovery. Nevertheless,
Fitch believes a robust business model with stable underlying
earnings and cash generation capability support Moto's ability to
refinance its debts. Moto also retains a number of refinancing
options, supported by its largely protected, long-dated
infrastructure-like asset base.
Quasi-Infrastructure Asset, Stable Operations: The rating remains
supported by Moto's intrinsically stable business model, given its
exposure to less discretionary motorway travel retail (although
still linked to GDP and traffic volumes), its largest national
network of motorway service areas (MSAs), a favourable regulatory
environment, and a well-managed franchise portfolio. This is
reflected in structurally stable operating cash flow generation and
low underlying maintenance needs, which support Moto's credit
profile.
Better-than-Expected 2021 Forecasts: Fitch has upgraded its 2021
EBITDA forecast for Moto to around 20% below the 2019 level (vs.
40% below previously). This is on the back of encouraging 2Q21
performance with fuel volumes and turnover ahead of 2019 levels,
while non-fuel revenues were still 15% below 2019 levels. Fitch
forecasts recovery over the reminder of 2021 to be supported by
staycations in summer and from traffic picking up in autumn. Fitch
expects overall 2021 non-fuel revenues to be 17% below 2019 levels,
compared with a drop of almost 40% in 2020. The slight unknown is
how the return to office will materialise and how will this affect
traffic and Moto's operations.
Fuel Volumes to Increase: Fitch now expects 2021 fuel volumes to
slightly exceed 2019 levels, while fuel margin will remain below
2019 levels, amid fuel-mix changes. Fitch expects full margin fuel
volume recovery in 2022 to help spur margin recovery. Fitch
anticipates fuel margin to remain broadly flat at around the GBP40
million mark in 2022-2024, supported by its cost-plus pricing
model. Moto has historically been able to manage its margin via
price increases.
Steady Longer-Term Recovery: Fitch expects non-fuel 2022 revenues
(excluding catering and forecourt) to remain around 3% below 2019
levels on a like-for-like basis, due to slow GDP recovery, followed
by single-digit growth in the following three years. Fitch expects
catering to reach 2019 levels in 2022, with gross margin supported
by its growing investment in catering amenities, which Moto
operates under franchises from retailers, such as Greggs, Burger
King, and WH Smith. The strategic locations, revenue mix and
continued effort in productivity improvement are contributing to
profitability that is ahead of peers'.
DERIVATION SUMMARY
Moto's rating remains anchored around a robust business model -
which has been temporarily disrupted by the lockdowns caused by the
pandemic - as underlined by a long-dated infrastructure-like asset
base. Fitch expects Moto's performance to be fairly resilient
through the cycle, reflecting the less-discretionary nature of
motorway customers. Most of these features are also present in
Autobahn Tank & Rast GmbH, Germany's largest MSA operator.
Following the volume recovery in 2Q21, Fitch expects Moto's FFO
adjusted gross leverage at around 8x in 2021, which is commensurate
with its current rating. Continued recovery and refinancing of its
approaching debt maturities could be positive for the rating,
depending on the debt structure.
Tank & Rast follows a landlord-tenant model whereby it sub-leases
its sites in exchange for monthly fixed- and variable-lease
payments, with most operating costs passed on to tenants. This
provides high revenue and profit visibility. Capex intensity is
low, translating into healthy FCF generation. This compares with
Moto's owner/operator business model, which provides high
flexibility to manage and control all commercial activity at its
sites, but leads to lower profit margins and weaker FCF than Tank &
Rast's.
EG Group Limited (B-/Stable) is significantly larger, but similarly
relies on non-fuel operations to improve margins, and exhibits high
leverage. EG Group has better geographical diversification than
Moto, which has concentration in the UK even though it remains
strategically positioned in more protected motorway locations,
(albeit motorway traffic was most affected during the pandemic).
Strategic locations with a more captive customer base help Moto
generate higher profit margins at 13% vs. around 5%-7% for EG
Group.
Both Moto and EG Group have pursued aggressive financial policies
that influence their ratings. For Moto, this was reflected in
regular dividend distributions, which are allowed by a lock-up
mechanism in its debt documentation and were partly covered by FCF.
EG Group has followed an aggressive debt-funded M&A strategy that
relies on synergy realisation to ensure long-term deleveraging.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Trading to normalise to 2019 levels in 4Q21, following a good
summer performance amid a high level of staycation in the UK.
-- No further lockdowns incorporated into Fitch's forecasts.
-- Overall non-fuel sales in 2021 at 17% below 2019 levels, and
1% below in 2022, and 3% above in 2023, excluding contribution
of new sites.
-- Fuel volumes up 2% in 2021 and 7% in 2022, compared with 2019,
driven by improved bunker volumes following a new contract
with BP and normalisation of fuel volumes in 2H21 as
restrictions ease. Fitch anticipates subdued volume growth in
the following years excluding new sites.
-- Fuel margin per litre expected on average to remain close to
the current level.
-- Non-fuel margin expected to return to 2019 levels by 2022.
-- Increased capex supporting new site development and catering
network expansion, at around GBP50 million per year.
-- No dividends.
-- Refinancing of existing debt at market prevailing rates in
2022.
Fitch's Key Recovery Rating Assumptions:
The recovery analysis assumes that Moto would be reorganised as a
GC in bankruptcy rather than liquidated. This is despite Moto's
strong asset backing. Better recovery expectations by preserving
the business model, as opposed to liquidating its balance sheet,
reflect Moto's structurally cash-generative business and
well-managed franchise portfolio. Fitch has assumed a 10%
administrative claim.
Fitch assumes a GBP92 million post restructuring GC EBITDA,
unchanged from Fitch's previous analysis. The GC EBITDA is based on
a stressed scenario reflecting adverse operating-environment
developments weighing on sales-growth prospects and higher
operating costs. It includes the new site of Rugby but excludes any
further additional sites.
Fitch has revised the EV/EBITDA multiple to 7.0x (from 7.5x), which
is aligned with the maximum EMEA regional multiple under Fitch's
new Corporate Recovery Ratings Criteria. Fitch believes the 7.0x
multiple reflects the infrastructure-like asset nature, a
regulatory framework that creates barriers of entry, strategic
locations and captive customers that drive a steady business model
with robust profitability through the cycle, while also reflecting
some correlation to GDP. The multiple of 7.0x is at a premium
against the 5.5x multiple used for more traditional petrol station
operators, such as EG Group.
Moto's second lien notes rank behind a sizeable amount of GBP600
million of first-lien bank debt - this includes a GBP450 million
term loan B, Moto's GBP60 million revolving credit facility (RCF)
that is assumed fully drawn and around GBP90 million assumed drawn
under its capex facility in 2021 (versus GBP79 million drawn by
end-2020).
Our waterfall analysis generated a ranked recovery in the 'RR6'
band, indicating a 'CCC' instrument rating for the GBP150 million
second lien notes, two notches below Moto's Long-Term IDR. The
waterfall analysis output percentage on current assumptions is 0%
(13% previously).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Good visibility of recovery to pre-Covid-19 gross profit
margins and sales in non-fuel activities together with
additional positive contribution from new sites driving EBITDA
sustainably above GBP100 million;
-- Decline in FFO adjusted gross leverage to 7.5x or below on a
sustained basis - this compares with the 6.0x 'B' median under
Fitch's Corporate Generic Navigator, reflecting Moto's
specific infrastructure-like business model;
-- FFO fixed charge cover of 2.5x or higher on a sustained basis;
and
-- Completed refinancing of debt facilities.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Lack of progress towards debt refinancing or maturities
extension by end-2021;
-- Tightening liquidity amid further pandemic impact hampering
prospect of activity rebound in 2021;
-- FFO adjusted gross leverage increasing to above 9.0x on a
sustained basis; and
-- FFO fixed charge cover weakening to below 1.5x on a sustained
basis, along with deteriorating liquidity buffer amid new
coronavirus-related lockdowns.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Fitch views Moto's liquidity as
satisfactory, as activity has returned close to 2019 levels in the
latest months. Fitch anticipates Moto's cash position to remain
above GBP30 million through the year, with access to the additional
GBP50 million RCF.
Moto was able to secure a GBP50 million RCF in April 2020, which
was added to the current TLB documentation. Reported cash balance
at end-2020 was GBP26 million, of which around GBP5 million was
restricted, against no scheduled maturities in 2021.
ISSUER PROFILE
Moto is the largest MSA operator in the UK based on the number of
locations and revenue.
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.
PATISSERIE VALERIE: FRC Imposes GBP2.3MM Fine Over Audit Failures
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BBC News reports that accountancy firm Grant Thornton has been
fined GBP2.3 million for failures in its audits of collapsed cake
chain Patisserie Valerie.
According to BBC, regulator the Financial Reporting Council said
the fine was for audits carried out between 2015 and 2017.
It said Grant Thornton had "missed red flags" and failed to
"question information provided by management."
Grant Thornton admitted to not following audit rules, BBC notes.
It must report annually to show how it is improving, BBC states.
David Newstead, who carried out the audits, was also fined
GBP150,000 for his role in signing off the accounts, BBC relates.
According to BBC, the fine was originally GBP4 million, but was
adjusted for aggravating and mitigating factors and discounted to
GBP2.34 million.
Mr. Newstead's GBP150,000 fine was adjusted to GBP87,750 for the
same reasons, BBC states. In addition, he has been banned from
carrying out audits for three years, according to BBC.
In October 2018, Patisserie Holdings announced that its board had
been notified of potentially fraudulent accounting irregularities,
BBC recounts.
The company subsequently entered into administration, leading to
the closure of 70 stores and more than 900 job losses, BBC
discloses.
The collapse followed the discovery of a huge black hole in the
firm's accounts, eventually valued at GBP94 million, BBC relays.
After it went into administration, the cafe chain was found to have
overstated its cash position by GBP30 million and failed to
disclose overdrafts of nearly GBP10 million, BBC recounts.
In June 2019, five people were arrested and questioned over the
alleged accounting fraud, BBC relays, citing the Serious Fraud
Office.
A civil case had previously been launched against Grant Thornton by
liquidators at FRP Advisory, claiming the auditor was negligent,
BBC notes.
S4 CAPITAL: S&P Assigns 'BB-' Issuer Credit Rating, Outlook Stable
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S&P Global Ratings assigned its 'BB-' long-term issuer credit
rating to S4 Capital PLC, and its 'BB-' issue rating with a '3'
recovery rating (rounded recovery estimate of 65%) to the term loan
and revolving credit facility (RCF).
S&P said, "The stable outlook reflects our expectation that S4
Capital will continue to grow organically and through acquisitions
while maintaining S&P Global Ratings-adjusted debt to EBITDA at
3x-4x.
"The ratings are in line with the preliminary ratings we assigned
on July 19, 2021.
"Our rating considers S4 Capital's limited scale and track record
in a fragmented and competitive advertising market. S4 Capital PLC
is a U.K.-based digital advertising and marketing company. It
competes with traditional advertising holding companies (WPP, IPG,
Publicis, and Omnicom) and larger integrated consulting and
technology companies such as Accenture, Capgemini, and smaller
players in the creative and tech space. S4 Capital was created in
May 2018 by Sir Martin Sorrell, the founder and former CEO of WPP,
as a combination of content production company MediaMonks and data
and digital provider Mighty Hive. We therefore consider there to be
a limited track record of it operating as an integrated company at
this stage. S4 Capital has since been growing at a rapid pace and
maintained high organic revenue growth rates and strong cash
conversion during COVID-19. This compared well with traditional
advertising companies. In the first half of 2021, S4 Capital's
revenue increased by 56% on a like-for-like basis, as it continued
to win new clients such as Amazon Fashion, FIFA, Toblerone, and
others. However, it is still a small player in a very fragmented
and competitive industry, with S&P Global Ratings-adjusted EBITDA
that we forecast to increase to about GBP95 million in 2021 (from
GBP56 million in 2020)."
Favorable growth prospects in digital advertising and S4 Capital's
experienced management support its business profile. S&P said, "S4
Capital operates in the digital advertising industry, which we
expect will remain the most rapidly growing area in advertising
overall. The pandemic further accelerated this growth. We forecast
that in the U.S. it will increase by 25% in 2021 and 12% in 2022.
In our view, S4 Capital is well positioned to capture this growth
as it operates an integrated business, with opportunities to
cross-sell its service offerings. In addition, it serves clients in
growing industries such as technology (which accounts for more than
half of its client portfolio). We view its simpler and more
efficient operating structure favorably compared with that of
advertising holding companies that are less integrated. We also
think that Mr. Sorrell's experience in the industry and
relationships with clients will help S4 Capital to win and retain
business."
S&P said, "We think that S4 Capital may find it difficult to
maintain rapid organic and inorganic growth over the long term.
Owing to its still-limited track record of operating as an
integrated company and small size and scale compared with more
established competitors, we believe S4 Capital might face
challenges to win larger new contracts that encompass a broader
range of services required by large corporations. It also remains
to be seen whether S4 Capital will be able to establish and
maintain long-lasting relationships with its key clients and grow
the volume of business that it does with them.
"We also factor in the risk of losing clients or contracts, which
is common in the advertising industry. Currently, the company's top
5 clients represent 36% of its revenue. As the company grows its
"Whopper" clients (those that generate more than $20 million of
revenue), we expect that concentration of revenue by client might
increase. These risks are partly mitigated by the fact that S4
Capital works on a variety of mandates with each client and is less
exposed to single large contracts. Its client base is also well
diversified across industries. Still, we view S4 Capital's earnings
as less stable and predictable compared with subscription-based
businesses in the media industry."
Lastly, it might become increasingly difficult for S4 Capital to
maintain its rapid growth through acquisitions, as it might face
challenges in finding attractive targets at appropriate valuations
and successfully integrating them.
S&P said, "We expect acquisition-related expenses will continue to
weigh on S4 Capital's profitability. As a digital advertising and
marketing company, S4 Capital is asset light and has low fixed
costs. About 70% of costs relate to personnel and could be adjusted
during periods of downturn. We also think S4 Capital has lower
administrative and operating costs compared with advertising
holding groups due to its simpler operating structure and
digital-only focus. As the group's business continues to grow, this
could translate into stronger profitability compared with peers in
the media industry. However, we expect that over the forecast
period its S&P Global Ratings-adjusted EBITDA margin will remain
broadly in line with peers at about 16%. This is because we assume
it will continue doing bolt-on acquisitions and include integration
and other acquisition-related expenses in our calculation of
adjusted EBITDA.
"We expect S4 Capital will maintain S&P Global Ratings-adjusted
leverage in the 3x-4x range. We understand the group's financial
policy assumes growth through acquisitions that it will fund with
debt and equity, while maintaining relatively modest financial debt
on balance sheet. S4 Capital raised a EUR375 million term loan B
and GBP100 multicurrency RCF in July 2021. As a result, we expect
in 2021 the group's net debt to EBITDA (by the company's
definition) will be about 0.3x, translating into S&P Global
Ratings-adjusted leverage of around 4.4x. In our calculation of
adjusted debt, we do not net off cash because we expect the company
will use it to fund new acquisitions. We also include contingent
considerations for past acquisitions and financial leases in
adjusted debt. We expect S4 Capital's adjusted leverage could
reduce as it will grow revenue and EBITDA and will continue
generating positive free cash flow. We understand S4 Capital's
financial policy assumes that leverage might temporarily increase
to a maximum of 1.5x-2.0x net debt to EBITDA to accommodate
acquisitions, which would translate into S&P Global
Ratings-adjusted leverage of 4.5x-5x. However, we understand such
increase would be only temporarily, and leverage would
progressively reduce thereafter.
'We expect S4 Capital will generate positive and improving free
cash flow in 2021-2022. This will be on the back of increasing
EBITDA, modest working capital outflows, and moderate capex.
Compared with traditional advertising holding groups, we estimate
that S4 Capital has lower working capital needs and a smaller
intra-year working capital swing as it focuses on digital
advertising. We forecast that in 2021-2022 there will be modest
working capital outflows as the company grows its business and
assuming that some clients, for example BMW and Mondelez, might
have longer payment terms relative to technology companies. We
estimate reported free operating cash flow (FOCF) after lease
payments of around GBP55 million in 2021 and around GBP60 million
in 2022. In our base case, we assume the company will fund half of
new acquisitions with cash on balance sheet and the rest with
equity. We do not expect S4 Capital to pay dividends over the
forecast period.
"We observe key man and governance risks. We believe that Mr.
Sorrell's experience of, and relationships in, the media industry
will help the group to win and retain new business. At the same
time, his departure from the company could pose risks to the rapid
growth trajectory."
Mr. Sorrell is the executive chairman and owns 10% of the group's
listed shares and a special class B share that provides him with
enhanced rights. In S&P's view, this gives him a significant degree
of control over decision-making in the company that is not offset
by an independent board. The B share gives him powers to:
-- Ensure no shareholder resolutions are proposed (save as
required by law) or passed without his consent;
-- No executives within the group are appointed or removed without
his consent;
-- Appoint one director or remove or replace such director from
time to time; and
-- Ensure no acquisition or disposal with market value greater
thank GBP100,000 occurs without his consent.
These powers are mitigated by the board of directors, which
includes 15 members, eight of which are independent non-executives,
and covers a breadth of experience. In addition, the company has an
incentive share scheme in place, allowing the holders of incentive
shares to earn up to 15% of the five-year growth in the company's
value if certain hurdles are met. At the moment, the holders of
these shares are Mr. Sorrell and Scott Spirit, chief growth
officer. S&P understands that upon certain conditions being met,
these incentive shares could be exchanged for S4 Capital's common
stock.
S&P said, "The stable outlook reflects our expectation that S4
Capital will continue to rapidly grow organically and through
bolt-on acquisitions over the next 12 months, and will successfully
integrate acquisitions such that it will maintain S&P Global
Ratings-adjusted EBITDA margin at around 16%. The outlook assumes
it will maintain debt to EBITDA at 3x-4x and funds from operations
(FFO) to debt around 20%. We note that there is limited headroom
under the stable outlook."
S&P could lower the rating over the next 12 months if:
-- S4 Capital's financial policy becomes more aggressive than S&P
currently expects, with sizable debt-funded acquisitions or
shareholder remuneration leading to S&P Global Ratings-adjusted
leverage increasing to and remaining above 4x for a prolonged
period and FFO to debt below 20%.
-- The company is unable to deliver revenue and EBITDA growth in
line with S&P's base case due to increased competition, loss of
contracts, or it faces challenges while integrating acquisitions,
which would translate into weaker credit metrics.
Although unlikely in the near term, S&P could raise the rating if:
-- S4 Capital gains scale, business diversity, and track record
within the digital advertising space, and wins additional large
contracts, whilst growing organically and smoothly integrating
acquisitions; and
-- S&P Global Ratings-adjusted debt to EBITDA declines sustainably
below 3x, FFO to debt is above 30%, and the company generates
substantially positive FOCF.
An upgrade would also hinge on S&P's view of S4 Capital's financial
policy being supportive of the improved credit metrics, with
limited prospects of releveraging through debt-funded acquisitions
or material shareholder distributions.
TOGETHER ASSET 2021-1ST1: S&P Assigns BB Rating on X Notes
----------------------------------------------------------
S&P Global Ratings has assigned credit ratings to Together Asset
Backed Securitisation 2021-1ST1 PLC's class A notes and to the
interest deferrable class B-Dfrd to X-Dfrd notes. At closing, the
issuer also issued unrated class Z and residual certificates.
The transaction is a static RMBS transaction, which securitizes a
portfolio of up to GBP318 million first-lien mortgage loans, both
owner-occupied and BTL, secured on properties in the U.K. Product
switches and loan substitution are permitted under the transaction
documents.
Together Personal Finance Ltd., Together Commercial Finance Ltd.,
Blemain Finance Ltd., and Harpmanor Ltd. originated the loans in
the pool between 2015 and 2021. Of the pool, approximately 9.6% of
the loans were previously securitized in Together Asset Backed
Securitization 2017-1 PLC, which was called before the closing
date.
S&P considers the collateral to be nonconforming based on the
prevalence of loans to borrowers with adverse credit history, such
as prior county court judgments and previous mortgage arrears.
Of the pool, 22% (by current balance) of the mortgage loans have
been granted payment holidays historically due to COVID-19. Only
0.2% (by current balance) of the mortgage loans are currently under
payment holidays.
Credit enhancement for the rated notes consists of subordination, a
nonamortizing reserve fund, and overcollateralization following the
step-up date, which will result from the release of the excess
spread amounts from the revenue priority of payments to the
principal priority of payments.
Liquidity support for the class A notes is in the form of an
amortizing liquidity reserve fund. The nonamortizing reserve fund
can provide liquidity support to the class A to C-Dfrd notes.
Principal can also be used to pay interest on the most-senior class
outstanding (for the class A to C-Dfrd notes only).
There are no rating constraints in the transaction under our
counterparty, operational risk, or structured finance sovereign
risk criteria. S&P considers the issuer to be bankruptcy remote.
Ratings
CLASS RATING* CLASS SIZE (MIL. GBP)
A AAA (sf) 283.029
B-Dfrd AA+ (sf) 7.950
C-Dfrd A+ (sf) 11.130
X-Dfrd BB (sf) 11.130
Z NR 15.902
Residual certs NR N/A
*S&P's ratings address timely receipt of interest and ultimate
repayment of principal on the class A notes, and the ultimate
payment of interest and principal on the other rated notes.
NR--Not rated.
N/A--Not applicable.
TWIN BRIDGES 2020-1: Moody's Affirms B1 Rating on Class X1 Notes
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of fifteen notes
in Twin Bridges 2017-1 Plc ("Twin Bridges 2017-1"), Twin Bridges
2018-1 PLC ("Twin Bridges 2018-1"), Twin Bridges 2019-1 PLC ("Twin
Bridges 2019-1"), Twin Bridges 2019-2 PLC ("Twin Bridges 2019-2"),
Twin Bridges 2020-1 PLC ("Twin Bridges 2020-1"), and Twin Bridges
2021-1 PLC ("Twin Bridges 2021-1"). The rating action reflects
better than expected collateral performance and, except for Twin
Bridges 2021-1, the increased levels of credit enhancement for the
affected notes.
Moody's affirmed the ratings of the notes that had sufficient
credit enhancement to maintain their current ratings.
Issuer: Twin Bridges 2017-1 Plc
GBP237.8M Class A Notes, Affirmed Aaa (sf); previously on Jan 22,
2021 Affirmed Aaa (sf)
GBP20.3M Class B Notes, Affirmed Aaa (sf); previously on Jan 22,
2021 Upgraded to Aaa (sf)
GBP17.4M Class C Notes, Upgraded to Aaa (sf); previously on Jan
22, 2021 Upgraded to Aa1 (sf)
GBP5.8M Class D Notes, Upgraded to Aa1 (sf); previously on Jan 22,
2021 Upgraded to Aa2 (sf)
Issuer: Twin Bridges 2018-1 PLC
GBP246M Class A Notes, Affirmed Aaa (sf); previously on Mar 27,
2019 Affirmed Aaa (sf)
GBP15M Class B Notes, Upgraded to Aaa (sf); previously on Mar 27,
2019 Affirmed Aa1 (sf)
GBP16.5M Class C Notes, Upgraded to Aa1 (sf); previously on Mar
27, 2019 Affirmed Aa2 (sf)
GBP13.5M Class D Notes, Upgraded to Aa2 (sf); previously on Mar
27, 2019 Upgraded to Aa3 (sf)
Issuer: Twin Bridges 2019-1 PLC
GBP271.6M Class A Notes, Affirmed Aaa (sf); previously on May 17,
2019 Definitive Rating Assigned Aaa (sf)
GBP16.5M Class B Notes, Upgraded to Aaa (sf); previously on May
17, 2019 Definitive Rating Assigned Aa1 (sf)
GBP18.1M Class C Notes, Upgraded to Aa1 (sf); previously on May
17, 2019 Definitive Rating Assigned A1 (sf)
GBP13.2M Class D Notes, Upgraded to Aa2 (sf); previously on May
17, 2019 Definitive Rating Assigned A2 (sf)
Issuer: Twin Bridges 2019-2 PLC
GBP249M Class A Notes, Affirmed Aaa (sf); previously on Oct 8,
2019 Definitive Rating Assigned Aaa (sf)
GBP15M Class B Notes, Upgraded to Aaa (sf); previously on Oct 8,
2019 Definitive Rating Assigned Aa1 (sf)
GBP15M Class C Notes, Upgraded to Aa1 (sf); previously on Oct 8,
2019 Definitive Rating Assigned A1 (sf)
GBP12M Class D Notes, Upgraded to Aa3 (sf); previously on Oct 8,
2019 Definitive Rating Assigned A2 (sf)
Issuer: Twin Bridges 2020-1 PLC
GBP290.1M Class A Notes, Affirmed Aaa (sf); previously on Jul 27,
2020 Definitive Rating Assigned Aaa (sf)
GBP22.8M Class B Notes, Upgraded to Aaa (sf); previously on Jul
27, 2020 Definitive Rating Assigned Aa1 (sf)
GBP17.4M Class C Notes, Upgraded to Aa2 (sf); previously on Jul
27, 2020 Definitive Rating Assigned Aa3 (sf)
GBP8.8M Class D Notes, Upgraded to A1 (sf); previously on Jul 27,
2020 Definitive Rating Assigned A2 (sf)
GBP7.6M Class X1 Notes, Affirmed B1 (sf); previously on Jul 27,
2020 Definitive Rating Assigned B1 (sf)
Issuer: Twin Bridges 2021-1 PLC
GBP385.875M Class A Notes, Affirmed Aaa (sf); previously on Mar 3,
2021 Definitive Rating Assigned Aaa (sf)
GBP30.375M Class B Notes, Affirmed Aa1 (sf); previously on Mar 3,
2021 Definitive Rating Assigned Aa1 (sf)
GBP15.75M Class C Notes, Affirmed Aa2 (sf); previously on Mar 3,
2021 Definitive Rating Assigned Aa2 (sf)
GBP16.875M Class D Notes, Upgraded to A1 (sf); previously on Mar
3, 2021 Definitive Rating Assigned A3 (sf)
GBP13.5M Class X1 Notes, Affirmed B2 (sf); previously on Mar 3,
2021 Definitive Rating Assigned B2 (sf)
The subject transactions are static cash securitisations of
buy-to-let (BTL) mortgage loans extended by Paratus AMC Limited
(Paratus, NR) to borrowers in the UK.
RATINGS RATIONALE
The rating action is prompted by decreased key collateral
assumptions, namely the portfolio Expected Loss (EL) and, for Twin
Bridges 2017-1, Twin Bridges 2018-1 and Twin Bridges 2019-1, the
MILAN CE assumptions due to better than expected collateral
performance, as well as an increase in credit enhancement for the
affected tranches except for Twin Bridges 2021-1.
Key Collateral Assumptions:
As part of the rating action, Moody's reassessed its lifetime loss
expectation for the portfolio reflecting the collateral performance
to date.
The performance of the transactions has been better than expected.
90 days plus arrears as a percentage of current balance in Twin
Bridges 2017-1, Twin Bridges 2018-1, Twin Bridges 2019-1, Twin
Bridges 2019-2, Twin Bridges 2020-1, and Twin Bridges 2021-1 are
currently standing at 0.42%, 0.30%, 0.12%, 0.04%, 0.24% and 0%,
respectively, with the pool factor at 50.8%, 84.0%, 87.5%, 90.5%,
96.3%, 98.0%. The underlying loan portfolios have incurred no
losses since closing. In addition Moody's considered the
performance of more seasoned transactions with similar collateral
characteristics in the UK during its review.
Moody's assumed the expected loss of 1.5% as a percentage of
current pool balance for all six transactions, due to better than
expected collateral performance. This corresponds to an expected
loss assumption as a percentage of the original pool balance of
0.8%, 1.3%, 1.3%, 1.4%, 1.4% and 1.5% for Twin Bridges 2017-1, Twin
Bridges 2018-1, Twin Bridges 2019-1, Twin Bridges 2019-2, Twin
Bridges 2020-1, and Twin Bridges 2021-1, down from the previous
assumptions of 1.8%, 2.5%, 2.5%, 2.2%, 2.2%, and 2.0%,
respectively.
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, Moody's has decreased the MILAN CE assumptions
to 13% for Twin Bridges 2017-1, Twin Bridges 2018-1 and Twin
Bridges 2019-1 from 14%, and maintained the MILAN CE assumptions at
13% for Twin Bridges 2019-2, Twin Bridges 2020-1, and Twin Bridges
2021-1.
Increase in Available Credit Enhancement
Sequential amortization and non-amortizing reserve funds led to the
increase in the credit enhancement available in these
transactions.
In Twin Bridges 2017-1, the credit enhancement for Classes C and D
increased to 12% and 8.6% from 10.6% and 7.6% since the last rating
action in January 2021.
In Twin Bridges 2018-1, the credit enhancement for Classes B, C and
D increased to 17.9%, 11.3% and 6.0% from 15.2%, 9.6%, 5.1% since
the last rating action in March 2019.
In Twin Bridges 2019-1, the credit enhancement for Classes B, C, D
increased to 16.6%, 10.3%, and 5.7% from 14.5%, 9.0% and 5.0% since
closing.
In Twin Bridges 2019-2, the credit enhancement for Classes B, C, D
increased to 15.5%, 10.0%, and 5.5% from 14.0%, 9.0% and 5.0% since
closing.
In Twin Bridges 2020-1, the credit enhancement for Classes B, C, D
increased to 13.0%, 7.8%, and 5.2% from 12.5%, 7.6% and 5.0% since
closing.
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; (iii) improvements in the credit quality of the
transaction counterparties; and (iv) a decrease in sovereign risk.
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.
UK ISP ORIGIN: Migrates Customer Lines to TalkTalk's Platform
-------------------------------------------------------------
UK ISP Origin Broadband, which since August has been attempting to
appoint an administrator to help tackle over GBP20 million in
losses, has informed ISPreview.co.uk that all of their customer
lines are being migrated on to TalkTalk's platform (previously they
used a mix of platforms), who are indirectly also Origin's new
owner.
Arguably, the current problems could be traced back to 2018 when
Origin was rescued by creditors after hitting problems with
"substantial bad debts", ISPreview.co.uk discloses. A Company
Voluntary Arrangement (CVA) was reached to help resolve this, which
allows a company with debt problems or that is insolvent to reach a
voluntary deal with its business creditors (i.e. paying them back
over a fixed period), ISPreview.co.uk discloses. But clearly that
alone wasn't enough to fix everything, ISPreview.co.uk notes.
Since August, Origin has twice filed a Notice of Intention (NoI) to
appoint an administrator, ISPreview.co.uk recounts.
According to ISPreview.co.uk, Greg Connell, MD of InfolinkGazette,
said earlier this month: "Clearly the directors were unable to
clear all the hurdles and get the Administrator appointment over
the line, which normally indicates a problem with creditors,
shareholders or charge holders. The company is controlled by Faro
Capital Ltd, who not surprisingly hold a fixed and floating
charge."
The latest development is that the ownership of Origin Broadband
has now swapped to a company called OB Telecom Limited, which is
trading as Origin Broadband and was only incorporated in
July 2021 (previously Origin was associated to Origin Broadband Ltd
and Origin Broadband Services), ISPreview.co.uk relates.
By the looks of it, the debt itself will stay with Origin's old
company, which is suspected to go into administration soon,
ISPreview.co.uk notes.
VICTORIA PLC: S&P Alters Outlook to Stable & Affirms 'BB-' ICR
--------------------------------------------------------------
S&P Global Ratings revised its outlook on Victoria PLC to stable
from negative and affirmed its 'BB-' long-term issuer credit and
issue ratings.
The stable outlook indicates S&P's expectation that the group's
operating performance will remain resilient despite raw materials
cost inflation, such that it reaches an S&P Global Ratings-adjusted
EBITDA margin of 17%-18% and a large FOCF base in the next 12-18
months.
Demand for Victoria's products has remained resilient during the
pandemic and S&P anticipates continued consumer demand in the next
12-18 months.The company achieved 6.6% revenue growth during fiscal
2021 (ended March 31, 2021) thanks to the recovery in customer
demand for flooring products after initial lockdowns in Europe and
Australia, introduction of new products, and integration of recent
acquisitions. S&P said, "We think that Victoria's growth prospects
are supported by customers spending more time at home and focusing
on home improvement projects. In our view, the company is well
positioned to benefit from supportive market demand thanks to its
portfolio of brands covering all price points, strong distribution
relationships with small independent and do-it-yourself (DIY)
retailers, and ability to bring new products to the market.
Overall, we forecast revenue growth in the 30%-35% range (about 10%
organic growth) in fiscal 2022, considering price increases and the
revenue contribution from recent and potential new acquisitions,
followed by about 7%-10% in fiscal 2023."
S&P said, "We expect raw material price inflation could increase
profit margin volatility, which the company can partly offset
thanks to its efficient purchasing strategy and pricing
actions.Victoria uses raw materials that can be prone to price
volatility in the production of carpets, ceramic tiles, and other
flooring solutions; including synthetic yarn, polyurethane foam,
and natural gas. The company uses a combination of spot and forward
purchasing for its main raw materials to secure its sourcing in
advance. Therefore, it has time to adjust pricing to protect
margins. We also consider that the company has a diversified raw
material base, thanks to its operations across the soft and
hard-flooring markets, reducing the effects of price volatility for
a specific raw material on margins. In addition, we estimate that
Victoria can rely on continued strong demand for home improvements
in Europe, Australia, and North America, strong relationships with
dealers and retailers, and its mid-to-high-end price positioning on
a large range of products to implement regular price increases and
protect its margins. We forecast that Victoria should maintain an
S&P Global Ratings-adjusted EBITDA margin of about 17%-18% in
fiscals 2022 and 2023, in line with 18.2% in fiscal 2021.
"We forecast annual FOCF of at least GBP50 million, considering
capacity expansion projects and working capital absorption this
year.We anticipate about GBP50 million in capital expenditure
(capex) during fiscal 2022, considering delays to some investments
in fiscal 2021, planned capacity expansion projects, and new
production lines at the Italian factory. We forecast capex will
return to normal levels of about GBP40 million-GBP45 million from
fiscal 2023 onward. In addition, we expect the company's working
capital requirements to reach about GBP10 million-GBP15 million in
fiscals 2022 and 2023 considering the need to integrate inventories
from recent acquisitions, higher inventory costs due to raw
material inflation, and higher receivables from forecast rising
demand. We anticipate that Victoria will achieve FOCF of close to
GBP50 million in fiscal 2022 and about GBP70 million-GBP75 million
in fiscal 2023.
"In our view, Victoria will integrate its recent acquisitions well
thanks to its extensive experience, but the acquisitive growth
strategy has execution risks that could increase credit metric
volatility.Victoria has invested about GBP160 million in
acquisitions since the beginning of fiscal 2022, which it
anticipates will contribute about GBP27 million of EBITDA. We take
into account the company's successful track record in integrating
small flooring businesses, as illustrated by the 20 acquisitions
realized since 2012, combined with a stable or improving EBITDA
margin. Moreover, we view the management team's stability as a
supportive factor. However, we think that the company's strategy to
seek external growth opportunities has execution risks should it
pursue larger targets or accelerate the pace of acquisitions, with
integration costs potentially larger than planned. That said, we
estimate that the company mitigates those risks by targeting small
to midsize size firms in profitable categories and paying
reasonable multiples.
"The stable outlook reflects our view that Victoria's solid
customer demand, pricing power to navigate raw material price
inflation, and experience in integrating acquisitions should allow
continued strong revenue growth, an adjusted EBITDA margin of
17%-18%, and strong positive FOCF.
"At the current rating level, we expect Victoria to maintain
adjusted debt leverage of 4.0x-4.5x in the next 12-18 months,
supported by a consistent financial policy toward acquisitions and
annual FOCF of GBP50 million-GBP75 million.
"We could take a negative rating action if adjusted debt to EBITDA
rises to close to 5.0x on a prolonged basis. This could happen due
to intense competition from low-cost producers in the ceramic tiles
business segment, resulting in lower growth prospects and depressed
profit margins. Integration setbacks from recently acquired
businesses could also result in lower profitability and higher
working capital requirements. In addition, we would view negatively
a deviation toward a more aggressive financial policy such that
large debt-financed acquisitions could depress credit metrics on a
prolonged basis.
"We could take a positive rating action if the company materially
improves its adjusted debt to EBITDA compared with our base case
such that it remains comfortably in the 3.0x-4.0x range on a
sustained basis, combined with FOCF exceeding current levels. This
could happen in case of stronger-than-anticipated demand for soft
flooring and ceramic tiles in Europe and Australia, combined with
greater-than-anticipated synergies achieved from recent
acquisitions."
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2021. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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The TCR Europe subscription rate is US$775 per half-year,
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contact Peter Chapman at 215-945-7000.
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