/raid1/www/Hosts/bankrupt/TCREUR_Public/211125.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, November 25, 2021, Vol. 22, No. 230
Headlines
F R A N C E
[*] FRANCE: Reforms Insolvency Legislation Amid Covid Crisis
G E R M A N Y
FRANKFURT-HAHN AIRPORT: Taps Falkensteg to Seek Investors
SAFARI BETEILIGUNGS: S&P Lowers ICR to 'CCC' on Refinancing Risk
I R E L A N D
BLACKROCK EUROPEAN XII: S&P Assigns Prelim 'B-' Rating on F Notes
BRIDGEPOINT CLO 3: Fitch Corrects November 23 Ratings Release
CIFC EUROPEAN V: Fitch Assigns Final B- Rating to Class F Tranche
DRYDEN 69 2018: Fitch Assigns Final B- Rating to Class F-R Tranche
DRYDEN 69 2018: Moody's Assigns B3 Rating to EUR12MM Cl. F-R Notes
HARVEST CLO XII: Fitch Raises Class F-R Notes to 'B+'
HAYFIN EMERALD III: Fitch Rates Class F-R Tranche Final 'B-'
HAYFIN EMERALD III: Moody's Assigns B3 Rating to EUR14.2MM F Notes
PIK SECURITIES: Fitch Rates USD525MM Sr. Unsec. Eurobond Final BB-
I T A L Y
PIAGGIO & C: S&P Upgrades Long-Term ICR to 'BB-', Outlook Stable
RIMINI BIDCO: Fitch Assigns FirstTime 'B+(EXP)' LT IDR
RIMINI BIDCO: Moody's Assigns First Time 'B2' Corp. Family Rating
RIMINI BIDCO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
K A Z A K H S T A N
BANK CENTERCREDIT: Moody's Upgrades Long Term Deposit Ratings to B1
N E T H E R L A N D S
NOBEL BIDCO: S&P Assigns 'B+' Issuer Credit Rating, Outlook Stable
R O M A N I A
AUTONOM SERVICES: Fitch Rates EUR48MM Sr. Unsec. Bonds Final 'B'
S W E D E N
TELEFONAKTIEBOLAGET LM: Moody's Affirms Ba1 CFR on Vonage Deal
U N I T E D K I N G D O M
BULB ENERGY: Collapse Highlights Failure of Retail Energy Sector
BULB ENERGY: Sequoia Trust Hits Back at Claims Over Valuation
GREENSILL CAPITAL: Lloyds to Continue Funding for NHS Pharmacies
PAYSAFE LTD: S&P Downgrades Long-Term ICR to 'B', Outlook Stable
RICHMOND UK: S&P Upgrades ICR to 'B-' on Improved Profitability
[*] UNITED KINGDOM: Company Insolvencies Up 63.6% in October 2021
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F R A N C E
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[*] FRANCE: Reforms Insolvency Legislation Amid Covid Crisis
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Laure Perrin, Esq., of Squire Patton Boggs (US) LLP, in an article
for The National Law Review, reports that in the context of the EU
Directive 2019/1023/UE of June 20, 2019 ("Directive") and in the
aftermath of the Covid crisis, France has reformed its insolvency
legislation. The purpose of the legislation is both to implement
the requirements of the Directive into the French legislation, but
also to tackle the consequences of the Covid crisis and endorse
some of the measures that have been taken in this respect and have
brought the number of insolvency proceedings to a historic low, as
well as other measures.
To do so, France has very recently published various pieces of
legislation to implement the required changes. In particular,
France has adopted a first set of legislation aiming at
implementing measures to assist companies in surpassing the
economic effects of the sanitary crisis. It has also adopted a
second set of legislation which amended Book VI of the French
Commercial Code concerning Insolvency.
The overall purpose of the reform is (i) to reinforce the
efficiency and speed of insolvency proceedings, by improving the
tools available to detect the difficulties of companies at an early
stage and offer prompt restructuring solutions to maintain the
activity of the companies concerned through preventive measures,
(ii) to simplify the procedures applicable and (iii) to ensure a
proper balance of the rights of all concerned parties by
reinforcing the powers of "interested parties" (i.e. creditors, but
also shareholders).
The reform is dense, but the main features are briefly presented
below.
Reinforcement of early preventive measures
The French legislation already contained various measures in this
respect. The reform has improved and expanded the existing tools on
the early detection of difficulties.
To do so it has (i) accelerated the alert mechanism, in particular
through an increased role of external auditors who can inform the
President of the Commercial Court, (ii) increased the powers of the
President of the Commercial Court for instance by allowing them to
undertake an investigation without having to wait for an audition
of the Director of the company concerned.
The reform also reinforced and clarified the provisions applicable
during the "conciliation" proceedings, a pre-existing confidential
pre-insolvency measure. It includes measures aiming at suspending
payment of receivables during the conciliation phase and preserving
securities granted during that period to creditors in case of
subsequent insolvency and/or failure of the conciliation measures.
To achieve greater transparency regarding the costs of the
conciliation, debtors must now file (with the assistance of their
conciliator) a statement of all conciliation-related costs, as well
as all costs related to the intervention of an ad hoc administrator
(including administrator/conciliator costs, but also lawyers,
financial experts etc.). To reinforce the confidentiality of
conciliation, third parties will only be able to obtain the
conciliation agreement should their opposition be declared
admissible.
Reinforcement and acceleration of safeguard proceedings
The measures concerning safeguard proceedings (one of the three
available insolvency proceedings under French law, in addition to
administration and liquidation proceedings) aim at increasing the
efficiency and speed of these proceedings, the purpose of which is
to assist in the restructuring of companies that are not yet
insolvent, but face serious financial difficulties.
In this respect, the reform has improved the "standard" safeguard
proceedings and enforced the following measures:
* The duration of the observation period (a period that
immediately follows the opening of insolvency proceedings and at
the end of which the situation of the company is reassessed) is
reduced from 18 to 12 months maximum (i.e. a 6 months period that
can be extended once by another 6 months), with any extension
limited to a "specially reasoned" request;
* Introduction of the possibility of establishing the list of
receivables based on statements of the accountants of the company's
external auditors;
* Payments under the restructuring plan that is adopted will be
subject to an annual minimum payment of 10% of the total claims
from the 6th year of the plan;
* Any classes/categories of "affected parties" constituted
during the safeguard proceedings are maintained in case the
proceeding is converted into administration proceedings;
* Introduction of a form of safeguard "privilege" (also
applicable for administration proceedings), whereby any creditor
that introduces "new money" will benefit from extra security that
can be paid in priority to other receivables (after salary
receivables);
* Introduction of the rule that "silence equals acceptance" from
creditors where there is a substantial amendment of the
restructuring plan (excluding cases where classes/committees of
"interested parties" are constituted and must be consulted);
The reforms also extends the scope of accelerated safeguard
proceedings pursuant to the Directive. While it maintains some of
the Covid related measures (removal of thresholds, possibility of
limitation to financial creditors, prior conciliation required;
solid plan required), it also added new features. In particular,
the duration of the proceedings has been reduced to 2 months
(extendable up to 4 months maximum); companies resorting to this
procedure are obliged to create classes/committees of "interested
parties" whatever their size. It is worth noting that any failure
to adopt the plan in the required time frame will result in the
termination of the proceedings (no conversion into administration
proceedings is possible). However, the companies concerned can
always file a new application for administration proceedings should
it actually become insolvent.
The introduction of classes of "affected parties": a reinforcement
of the rights of creditors and shareholders
This is again a provision stemming from the Directive. The reform
has removed the existing committees of creditors to create "classes
of affected parties", thus creating an entire new section in the
French Commercial Code in this respect (Title II, Chapter VI,
Section 3 of the French Commercial Code). The objective is that
more affected parties are involved in the early stages of the
restructuring plan, ensuring they have a say and preserve their
rights. While one of the objectives of the Directive was to
harmonise the legislation throughout Europe, the French legislator
has not gone as far as some common law countries or Germany in the
influence granted to creditors on the proceedings. France has
maintained a balance between the rights of the companies facing the
difficulties and those of creditors.
In accelerated safeguard proceedings and, for other proceedings, to
companies with 250 employees and over EUR20 million of turnover (or
over EUR40 million of turnover) it is compulsory for there to be
classes of "affected parties". Companies under that threshold can
voluntarily constitute classes, although this appears unlikely.
"Affected parties" are defined as parties likely to be impacted by
the restructuring plan. This include creditors (as was the case
before). They also include shareholders, which is a novelty under
French law.
The administrator decides the constitution of the classes based on
the nature of the receivables and objective criteria (defined by
the new commercial code as an "economic interest group"). As least
two classes must be constituted and must include affected parties
with security on the assets. All employee related receivables are
excluded from this new system.
Once constituted the classes can then vote on the proposed
restructuring plan (at a 2/3 majority of those voting). Only in
administration proceedings can competing restructuring plans be
proposed by creditors.
The Tribunal then endorses the plan as voted by the classes after
verifying that the best interests of all parties are respected.
If certain affected parties have voted against the plan, the court
must now check whether they obtain a payment that would be at least
equal to what they would be entitled to if the company went into
liquidation, there was an assignment of the business as a going
concern (i.e. the sale of the business of the insolvent company) or
the "best alternative solution". This means that Tribunal will now
need to assess the situation of each creditors that voted against
the plan.
If certain classes of affected parties have voted against the plan,
the Tribunal will have the power to impose the plan if at least one
class has voted in favour of the plan, applying the absolute
priority rule (i.e. checking if creditors of higher rank will be
fully paid before any other creditor can receive payment).
Other relevant provisions
The reform has also introduced new rules for holders of securities
and guarantors, some simply endorsing measures enacted as a
response to the Covid crisis. These new measures include (i) the
possibility of granting conventional securities on the assets of
the debtor, (ii) the possibility of disposing of certain assets not
necessary for the normal operation of the company, (iii) the
possibility of paying transporters after the opening of insolvency
proceedings, (iv) the possibility of obtaining a better position
for any injection of "new money" (as 2nd ranking security holder
after employee claims).
The order and decree also introduce an obligation on holders of
securities and guarantors to declare their receivables.
Finally, the reform contains a certain number of provisions on the
"second chance" given to directors of the insolvent company. Only
directors that have acted outside of their duties may be sanctioned
(prohibition to act as director of a company, financial sanctions).
Others, will have another opportunity to restart or continue
business while not being held accountable for the insolvency, even
if some of their decisions, in the normal course of business, have
caused their bankruptcy.
This reform entered into force on 1 October 2021, but is not
applicable to insolvency proceedings already pending at that
point.
While this reform contains a number of new measures, it is likely
to only affect a limited number of companies given the thresholds
imposed. Nevertheless, it preserves the existing applicable
procedure but re-balances the powers and rights of all involved or
"affected" parties.
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G E R M A N Y
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FRANKFURT-HAHN AIRPORT: Taps Falkensteg to Seek Investors
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The provisional insolvency administrator of the companies of the
Frankfurt-Hahn Airport Group, Dr Jan Markus Plathner, has
commissioned the renowned Duesseldorf-based M&A consultancy
Falkensteg to look for one or more investors for the German
Frankfurt-Hahn Airport Group or its assets including the property.
Investors have the option of acquiring all assets, units to be
defined or single assets. Among other things, Frankfurt-Hahn
Airport in Rhineland-Palatinate is comprised of various operating
properties and expansion areas, a 3,800-metre runway, as well as a
24-hour operating permit which enables flight operations around the
clock, 365 days a year.
Several airlines offer numerous connections in passenger traffic,
worldwide cargo connections are also in existence. At the airport,
hangars with a separate truck access road are available for air
cargo handling. Since 2017, the demand for air cargo has been
steadily increasing at Frankfurt-Hahn Airport. A total of around
233,000 tonnes were handled in 2020, making Frankfurt-Hahn the
number 4 in German air cargo, after the airports of Frankfurt am
Main, Leipzig/Halle and Cologne/Bonn, and well ahead of the air
traffic hub Munich. Frankfurt-Hahn is located in the middle of one
of the most important economic areas in Europe: the so-called "Blue
Banana", which stretches across western Europe from Marseille to
London via Switzerland, western Germany and the Benelux countries.
Falkensteg will conduct a broad market approach addressing national
and international investors in a public tender procedure.
Interested parties will be informed about Frankfurt-Hahn Airport by
means of a special data room.
Expressions of interest in participating in the sale process should
be submitted in writing to Falkensteg by 10:00 a.m. GMT on December
20, 2021, at the latest solely:
Falkensteg Corporate Finance GmbH
attn: Jonas Eckhardt (partner)
Knoebelstrasse 2
D-80538 Munich
Phone: +49 89 614 24 26 1
Fax: + 49 89 614 24 26 99
E-mail: hahnairport@falkensteg.com
SAFARI BETEILIGUNGS: S&P Lowers ICR to 'CCC' on Refinancing Risk
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S&P Global Ratings lowered to 'CCC' from 'CCC+' its issuer credit
rating on Safari Beteiligungs GmbH (Safari) as well as the issue
ratings on its EUR350 million senior secured notes.
The negative outlook indicates that S&P could lower the ratings
within the next 12 months if Safari does not make tangible progress
toward refinancing its notes and we see heightened likelihood of a
default event, including distressed exchange.
Effects of regulatory measures and potential pandemic-related
restrictions will continue to weigh on the group's performance and
credit metrics. Germany was in extended lockdown until June 2021,
which led to significant decrease in revenue for Safari in the
first half of 2021. From January to the beginning of June 2021, the
group experienced effectively a zero-revenue operating environment.
While arcades reopened in June with COVID-19 safety measures in
place, monthly revenue remained below prior periods, affected by i)
the European football championship; ii) regulatory impacts; and
iii) time to ramp up. Between June and mid-October 2021, Safari
reported revenue 16%-19% below corresponding monthly 2020 levels
(which were in turn below 2019 levels on aggregate). Furthermore,
the new Interstate Treaty that came into force in July 2021
requires the withdrawal of about 15% of Safari's
amusement-with-prize (AWP) machines by the end of 2022 and about
20% by 2026.
S&P said, "In our view there is growing default risk, given
refinancing execution risk associated with the group's upcoming
maturities. We forecast that Safari's S&P Global Ratings-adjusted
EBITDA will drop to EUR20 million-EUR25 million in 2021, from EUR55
million in 2020 and EUR118 million in 2019. We expect a strong
rebound in 2022 but still only to about 70% of 2019 EBITDA because
of the regulatory impacts, and this also assumes no material
additional COVID-19 restrictions put in place in Germany. In this
context we view there being increasing refinancing risk associated
with Safari successfully executing a refinancing of its EUR350
million senior secured notes.
"Despite the refinancing risk, the group has near-term operational
liquidity. We now view the group's liquidity as weak, because of
the substantial bullet maturities due in around 12 months' time.
That said, Safari's liquidity has been supported by nearly EUR80
million of state aid received in April, May, and November 2021.
With EUR73 million of cash on balance sheet at the end of June
2021, and a fully drawn RCF, Safari has sufficient liquidity to pay
its about EUR25 million interests due in the next 12 months and
does not face imminent liquidity stress until the debt financing
comes due.
"The negative outlook reflects that we could lower the rating
within the next 12 months, should Safari not make significant
timely progress in refinancing its debt financing. It incorporates
our view that Safari's current capital structure is unsustainable,
and the group may face difficulties refinancing at par, given
continued impacts from the pandemic, as well as the effects on
profitability from regulation in the long term."
S&P could lower the ratings within the next 12 months if:
-- Safari does not make timely tangible progress toward the
refinancing of its notes and we see heightened likelihood of a
default event, including distressed exchange;
-- The group announces or pursues a restructuring or a debt
exchange that we view as distressed or takes any other action we
view as a selective default;
-- The group misses an interest payment when due.
S&P said, "We could consider ratings upside if we no longer
believed the company was likely default, through a distressed
exchange offer or a conventional default, over the subsequent 12
months. In particular, we could raise the ratings if Safari
presents a credible refinancing plan and demonstrates tangible
progress toward the refinancing of its notes at par and continues
to meet other continuing obligations such as interest costs."
Environmental, social, and governance (ESG) credit factors for this
change in credit rating/outlook and/or CreditWatch status:
-- Health and safety
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I R E L A N D
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BLACKROCK EUROPEAN XII: S&P Assigns Prelim 'B-' Rating on F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
BlackRock European CLO XII DAC's class A, B-1, B-2, C-1, C-2, D, E,
and F notes. At closing, the issuer will also issue unrated
subordinated notes.
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 S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with S&P's counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,925.49
Default rate dispersion 470.37
Weighted-average life (years) 5.60
Obligor diversity measure 129.92
Industry diversity measure 23.71
Regional diversity measure 1.27
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 400
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 (%) 2.50
'AAA' weighted-average recovery (%) 36.38
Weighted-average spread net of floors (%) 3.87
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 4.6 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 understand that at closing the portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we modeled the EUR400 million target
par amount, the covenanted weighted-average spread of 3.70%, 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 preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
each class of notes.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1, B-2, C-1, C-2, D, and E notes
is commensurate with higher ratings than those we have assigned.
However, as the CLO will have a reinvestment period, during which
the transaction's credit risk profile could deteriorate, we have
capped our assigned preliminary 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 has recently
been issued in Europe.
-- S&P's BDR at the 'B-' rating level is 29.76% versus a portfolio
default rate of 17.36% if it was to consider a long-term
sustainable default rate of 3.1% for a portfolio with a
weighted-average life of 5.60 years.
-- Whether the tranche is vulnerable to non-payment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If S&P's envision this tranche to default in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F notes is commensurate with a
preliminary 'B- (sf)' rating.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
to E notes to five of the 10 hypothetical scenarios we looked at in
our publication, "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, Social, And Governance (ESG) Credit Factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
tobacco or tobacco products, development or production of
controversial weapons, and extraction of thermal coal and fossil
fuels from unconventional sources, or other fracking activities.
Since the exclusion of assets related to these activities does not
result in material differences between the transaction and our ESG
benchmark for the sector, no specific adjustments have been made in
our rating analysis to account for any ESG-related risks or
opportunities."
Ratings List
CLASS PRELIM. PRELIM. SUB (%) INTEREST RATE*
RATING AMOUNT
(MIL. EUR)
A AAA (sf) 246.00 38.50 Three/six-month EURIBOR
plus 0.94%
B-1 AA (sf) 29.00 28.75 Three/six-month EURIBOR
plus 1.75%
B-2 AA (sf) 10.00 28.75 1.90%
C-1 A (sf) 18.40 21.65 Three/six-month EURIBOR
plus 2.10%
C-2 A (sf) 10.00 21.65 Three/six-month EURIBOR
plus 2.65%/ 2.10%**
D BBB- (sf) 27.60 14.75 Three/six-month EURIBOR
plus 3.10%
E BB- (sf) 20.20 9.70 Three/six-month EURIBOR
plus 6.16%
F B- (sf) 11.80 6.75 Three/six-month EURIBOR
plus 8.85%
Sub NR 31.27 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
BRIDGEPOINT CLO 3: Fitch Corrects November 23 Ratings Release
-------------------------------------------------------------
This rating action commentary replaces the version published on 23
November, to correct the asset manager name in Transaction Summary
to Bridgepoint Credit Management Limited.
Fitch Ratings has assigned BridgePoint CLO 3 DAC expected ratings.
The assignment of final ratings is contingent on final documents
conforming to the information used for the analysis.
DEBT RATING
---- ------
Bridgepoint CLO 3 DAC
Class A LT AAA(EXP)sf Expected Rating
Class B LT AA(EXP)sf Expected Rating
Class C LT A(EXP)sf Expected Rating
Class D LT BBB-(EXP)sf Expected Rating
Class E LT BB-(EXP)sf Expected Rating
Class F LT B-(EXP)sf Expected Rating
Subordinated Notes LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Bridgepoint CLO 3 DAC is a securitisation of mainly senior secured
loans (at least 90%) with a component of senior unsecured,
mezzanine, and second-lien loans. The note proceeds will be used to
fund an identified portfolio with a target par of EUR400 million.
The portfolio will be managed by Bridgepoint Credit Management
Limited. The CLO envisages a 4.6-year reinvestment period and an
8.6-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 24.7, below that of the indicative maximum Fitch WARF
covenant at 26.5.
Strong Recovery Expectation (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 63.9%,
above that of the indicative minimum Fitch WARR covenant at 61.0%.
Diversified Portfolio (Positive): The top 10 obligors limit and
maximum fixed rate asset limit for the expected rating analysis is
23% and 10%, respectively. The transaction also includes various
concentration limits, including the maximum exposure to the three
largest (Fitch-defined) industries in the portfolio at 45%. These
covenants ensure that the asset portfolio will not be exposed to
excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.6-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 is 12 months less than the WAL covenant to account
for strict reinvestment conditions after the reinvestment period,
including the OC tests and Fitch 'CCC' limit passing together with
a linearly decreasing WAL covenant. This ultimately reduces the
maximum possible risk horizon of the portfolio when combined with
loan pre-payment expectations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A 25% increase of the mean default rate (RDR) across all
ratings and a 25% decrease of the recovery rate across all
ratings would result in a downgrade of up to five notches.
-- 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 would result in
upgrades of up to four notches across the structure except for
'AAA' rated notes, which are already at the highest rating on
Fitch's scale and cannot be upgraded.
-- 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 for 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.
SUMMARY OF FINANCIAL ADJUSTMENTS
No published financial statements were used in the rating analysis
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
Bridgepoint CLO 3 DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
CIFC EUROPEAN V: Fitch Assigns Final B- Rating to Class F Tranche
-----------------------------------------------------------------
Fitch Ratings has assigned CIFC European Funding CLO V DAC final
ratings.
DEBT RATING PRIOR
---- ------ -----
CIFC European Funding CLO V DAC
Class A XS2390489198 LT AAAsf New Rating AAA(EXP)sf
Class B-1 XS2390489784 LT AAsf New Rating AA(EXP)sf
Class B-2 XS2390489602 LT AAsf New Rating AA(EXP)sf
Class C XS2390490105 LT Asf New Rating A(EXP)sf
Class D XS2390490360 LT BBB-sf New Rating BBB-(EXP)sf
Class E XS2390490527 LT BB-sf New Rating BB-(EXP)sf
Class F XS2390490790 LT B-sf New Rating B-(EXP)sf
Class Y XS2390490873 LT NRsf New Rating NR(EXP)sf
Subordinated Note LT NRsf New Rating NR(EXP)sf
XS2390491251
TRANSACTION SUMMARY
CIFC European Funding CLO V DAC is a securitisation of mainly
senior secured loans (at least 90%) with a component of senior
unsecured, mezzanine, and second-lien loans. The note proceeds have
been used to fund the identified portfolio with a target par of
EUR400 million. The portfolio is managed by CIFC Asset Management
Europe Ltd. The CLO has a 4.75-year reinvestment period and a
nine-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 24.7.
Strong Recovery Expectation (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 63.3%.
Diversified Portfolio (Positive): The top 10 obligors limit and
maximum fixed rate asset limit is at 20% and 10%, respectively. The
transaction also includes various concentration limits, including
the maximum exposure to the three largest (Fitch-defined)
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.75-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 is 12 months less than the WAL covenant to account
for strict reinvestment conditions after the reinvestment period,
including the OC tests and Fitch 'CCC' limit passing together with
a linearly decreasing WAL covenant. This ultimately reduces the
maximum possible risk horizon of the portfolio when combined with
loan pre-payment expectations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the default rate (RDR) at all rating levels by
25% of the mean RDR and a decrease of the recovery rate (RRR)
by 25% at all rating levels will result in downgrades of no
more than five notches, depending on the notes.
-- 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 reduction of the RDR at all rating levels by 25% of the mean
RDR and an increase in the RRR by 25% at all rating levels
would result in an upgrade of up to four notches depending on
the notes, except for the class A notes, which are already at
the highest rating on Fitch's scale and cannot be upgraded.
-- After the end of the reinvestment period, upgrades may occur
on better-than-initially expected portfolio credit quality and
deal performance, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
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.
SUMMARY OF FINANCIAL ADJUSTMENTS
No published financial statements were used in the rating analysis
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
CIFC European Funding CLO V DAC
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.
DRYDEN 69 2018: Fitch Assigns Final B- Rating to Class F-R Tranche
------------------------------------------------------------------
Fitch Ratings has assigned Dryden 69 Euro CLO 2018 DAC final
ratings.
DEBT RATING PRIOR
---- ------ -----
Dryden 69 Euro CLO 2018 DAC
A-1 XS1984216009 LT PIFsf Paid In Full AAAsf
A-2 XS1984217072 LT PIFsf Paid In Full AAAsf
A-3 XS1984218120 LT PIFsf Paid In Full AAAsf
A-R XS2401732040 LT AAAsf New Rating AAA(EXP)sf
B-1 XS1984218807 LT PIFsf Paid In Full AAsf
B-1-R XS2401733287 LT AAsf New Rating AA(EXP)sf
B-2 XS1984219441 LT PIFsf Paid In Full AAsf
B-2-R XS2401733873 LT AAsf New Rating AA(EXP)sf
C-1 XS1984220456 LT PIFsf Paid In Full Asf
C-1-R XS2401733790 LT Asf New Rating A(EXP)sf
C-2 XS1984221348 LT PIFsf Paid In Full Asf
C-2-R XS2403533008 LT Asf New Rating A(EXP)sf
D XS1984222155 LT PIFsf Paid In Full BBB-sf
D-R XS2401733956 LT BBB-sf New Rating BBB-(EXP)sf
E XS1984222585 LT PIFsf Paid In Full BB-sf
E-R XS2401734418 LT BB-sf New Rating BB-(EXP)sf
F XS1984222742 LT PIFsf Paid In Full B-sf
F-R XS2401734335 LT B-sf New Rating B-(EXP)sf
TRANSACTION SUMMARY
Dryden 69 Euro CLO 2018 DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds have been used to redeem existing notes, which fund a
portfolio with a target par of EUR400 million. The portfolio is
actively managed by PGIM Loan Originator Manager Limited and
co-managed by PGIM Limited. The collateralised loan obligation
(CLO) has a 4.7-year reinvestment period and a nine-year weighted
average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality: Fitch places the average credit
quality of obligors in the 'B'/'B-' category. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 26.43.
High Recovery Expectations: 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 60.93%.
Diversified Asset Portfolio: The top 10 obligor and fixed-rate
asset limits for the transaction are 27% and 20%, respectively. The
transaction will also have various concentration limits, including
the 10 largest obligors limit and the maximum exposure to the three
largest (Fitch-defined) industries in the portfolio at 45%. These
covenants ensure that the asset portfolio will not be exposed to
excessive concentration.
Portfolio Management: The transaction has a 4.7-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. The
transaction includes a one-year Fitch test matrix, which the
manager may adopt if the aggregate collateral balance is above
reinvestment target par after one year has passed.
The difference between the maturity date and the WAL test date is
3.9 years. This may restrict the transaction's ability to extend
its WAL date by 12 months during a partial refinancing under
Fitch's methodology. Fitch would apply a stress if the difference
between the maturity date and the WAL test date was less than three
years.
Cash-flow Modelling: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls, and the
various structural features of the transaction, as well as to
assess their effectiveness, including the structural protection
provided by excess spread diverted through the par value and
interest coverage tests
Fitch's analysis of the matrices is based on a stressed-case
portfolio with an eight-year WAL. Fitch determined the
transaction's structure and reinvestment conditions after the
reinvestment period, including satisfaction of the coverage tests
and Fitch WARF test, were sufficient to reduce the WAL used for the
transaction's stress portfolio by 12 months under the agency's CLOs
and Corporate CDOs Rating Criteria.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the rating default rate (RDR) at all rating
levels by 25% of the mean RDR and a 25% decrease of the
recovery rate at all rating levels would lead to a downgrade
of up to four notches for the notes.
-- Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a
larger loss expectation than initially assumed due to
unexpectedly high levels of defaults and portfolio
deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the RDR at all rating levels by 25% of the mean
RDR and a 25% increase of the recovery rate at all rating
levels, would lead to an upgrade of up to four notches for the
notes, except the class A notes, which are already at the
highest rating on Fitch's scale and cannot be upgraded.
-- After the end of the reinvestment period, upgrades may occur
in case of a better-than-initially expected portfolio credit
quality and deal performance, leading to higher credit
enhancement and excess spread available to cover for 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
Dryden 69 Euro CLO 2018 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.
DRYDEN 69 2018: Moody's Assigns B3 Rating to EUR12MM Cl. F-R Notes
------------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to refinancing notes issued by Dryden
69 Euro CLO 2018 DAC (the "Issuer"):
EUR248,000,000 Class A-R Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
EUR14,000,000 Class B-1-R Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aa2 (sf)
EUR18,000,000 Class B-2-R Senior Secured Fixed Rate Notes due
2034, Definitive Rating Assigned Aa2 (sf)
EUR12,000,000 Class C-1-R Mezzanine Secured Deferrable Floating
Rate Notes due 2034, Definitive Rating Assigned A2 (sf)
EUR14,000,000 Class C-2-R Mezzanine Secured Deferrable Fixed Rate
Notes due 2034, Definitive Rating Assigned A2 (sf)
EUR29,000,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Baa3 (sf)
EUR25,000,000 Class E-R Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Ba3 (sf)
EUR12,000,000 Class F-R Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
As part of this reset, the Issuer has extended the reinvestment
period to 4.7 years and the weighted average life to 9 years. It
also has amended certain concentration limits, definitions
including the definition of "Adjusted Weighted Average Rating
Factor" and minor features. The issuer has included the ability to
hold loss mitigation obligations. In addition, the Issuer has
amended the base matrix and modifiers that Moody's took into
account for the assignment of the definitive ratings.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of secured senior loans or senior secured
bonds and up to 10% of the portfolio may consist of unsecured
senior loans, second-lien loans, high yield bonds and mezzanine
loans. The underlying portfolio is expected to be fully ramped as
of the closing date.
PGIM Loan Originator Manager Limited ("PGIM") will continue to
manage the CLO. It will direct the selection, acquisition and
disposition of collateral on behalf of the Issuer and may engage in
trading activity, including discretionary trading, during the
transaction's 4.7 years reinvestment period. Thereafter, subject to
certain restrictions, purchases are permitted using principal
proceeds from unscheduled principal payments and proceeds from
sales of credit risk obligations and credit improved obligations.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Target Par Amount: EUR400,000,000
Diversity Score: 52
Weighted Average Rating Factor (WARF): 3130
Weighted Average Spread (WAS): 3.85%
Weighted Average Coupon (WAC): 4.25%
Weighted Average Recovery Rate (WARR): 41.50%
Weighted Average Life (WAL): 9 year
HARVEST CLO XII: Fitch Raises Class F-R Notes to 'B+'
-----------------------------------------------------
Fitch Ratings has upgraded the class B-1R, B-2R, C-R, D-R, E-R and
F-R notes of Harvest CLO XII DAC and removed the notes from Under
Criteria Observation. Fitch also affirmed the class A-1R notes. The
Rating Outlooks for all the classes remain Stable.
DEBT RATING PRIOR
---- ------ -----
Harvest CLO XII DAC
A-1R XS1692039206 LT AAAsf Affirmed AAAsf
B-1R XS1692040980 LT AA+sf Upgrade AAsf
B-2R XS1692041525 LT AA+sf Upgrade AAsf
C-R XS1692042259 LT A+sf Upgrade Asf
D-R XS1692043067 LT BBB+sf Upgrade BBBsf
E-R XS1692043737 LT BB+sf Upgrade BBsf
F-R XS1692044388 LT B+sf Upgrade B-sf
TRANSACTION SUMMARY
Harvest CLO XII DAC is a cash flow CLO mostly comprising senior
secured obligations. The portfolio is actively managed by
Investcorp Credit Management EU Limited. The transaction was reset
in October 2017 and exited its reinvestment period in November
2021.
KEY RATING DRIVERS
CLO Criteria Update
The upgrades reflect mainly the impact of the recently updated
Fitch CLOs and Corporate CDOs Rating Criteria (including, among
others, a change in the underlying default assumptions). The
upgrade analysis was based on a scenario that assumes a one-notch
downgrade on the Fitch Issuer Default Rating (IDR) Equivalency
Rating for assets with a Negative Outlook (Negative Outlook
scenario) on the driving rating of the obligor.
Deviation from Model-implied Rating
The assigned ratings for the class B-1R, B-2R and F-R notes are one
notch lower than the model implied ratings, while the assigned
rating for D-R notes is two notches lower than the model implied
rating. The rating deviation reflects the small breakeven default
rate cushion at the model-implied ratings, which could erode if the
portfolio performance deteriorated.
Reinvestment Period Exited
The transaction has exited its reinvestment period in November 2021
and no amortization has yet occurred. The manager is currently able
to reinvest unscheduled principal proceeds and sale proceeds from
credit risk and credit improved obligations subject to certain
restrictions. In the process of reinvesting, the portfolio's
quality may deteriorate toward the covenanted levels. In Fitch's
view, the breakeven default rate cushion at the upgraded ratings is
sufficient to mitigate the risk of portfolio deterioration due to
trading activity.
Portfolio Performance
Asset performance has been stable since last review in February of
2021. As per the report dated Sept. 30, 2021, the transaction is
passing all coverage and collateral quality tests except for the
weighted average spread (WAS) test and Fitch maximum weighted
average rating factor (WARF) test. Exposure to assets with a
Fitch-derived rating (FDR) of 'CCC+' and below was 6.3%, which is
below 7.50% test limit. There is one defaulted asset in the
portfolio, with a principal balance of EUR1.1 million.
Asset Credit Quality
'B'/'B-' Portfolio: The Fitch WARF reported by the trustee was
33.86 in the Sept. 30, 2021 monthly report, above the maximum
covenant of 33.50. The Fitch-calculated WARF for the portfolio
under the updated CLOs and Corporate CDOs Rating Criteria was
24.97, which is in the 'B'/'B-' category.
Asset Security
Senior secured obligations make up 98.90% of the portfolio. Fitch
views the recovery prospects for these assets as more favorable
than for second-lien, unsecured and mezzanine assets. Fitch WARR of
the current portfolio is 61.40% as per the report, exceeding the
test limit of 61.10%.
Portfolio Concentration
The portfolio is well-diversified across obligors, countries and
industries. The trustee reports that the top 10 obligors represent
13.67% of the portfolio balance with no obligor accounting for more
than the 2.5% limit. The top-Fitch industry and top three Fitch
industry concentrations are also within the defined limits of 15.0%
and 35.0%, respectively.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the default rate (RDR) at all rating levels by
25% of the mean RDR and a decrease of the recovery rating
(RRR) by 25% at all rating levels in the Negative Outlook
scenario will result in downgrades of no more than three
notches depending on the notes.
-- Downgrades may occur if the build-up of credit enhancement
following amortization does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high
level of default and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the RDR at all rating levels by 25% of the mean
RDR and an increase in the RRR by 25% at all rating levels in
the Negative Outlook scenario would result in an upgrade of up
to three notches depending on the notes.
-- Except for the class A-1R notes, which is already at the
highest 'AAAsf' rating, upgrades may occur in case of better
than expected portfolio credit quality and deal performance,
leading to higher credit enhancement and excess spread
available to cover for losses on 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
Harvest CLO XII 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.
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.
HAYFIN EMERALD III: Fitch Rates Class F-R Tranche Final 'B-'
------------------------------------------------------------
Fitch Ratings has assigned Hayfin Emerald CLO III DAC final
ratings.
DEBT RATING PRIOR
---- ------ -----
Hayfin Emerald CLO III DAC
A XS2030549393 LT PIFsf Paid In Full AAAsf
A-R LT AAAsf New Rating
B-1 XS2030550649 LT PIFsf Paid In Full AAsf
B-1-R LT AAsf New Rating
B-2 XS2030551456 LT PIFsf Paid In Full AAsf
B-2-R LT AAsf New Rating
C XS2030552181 LT PIFsf Paid In Full A+sf
C-R LT Asf New Rating
D XS2030552850 LT PIFsf Paid In Full BBB-sf
D-R LT BBB-sf New Rating
E XS2030553155 LT PIFsf Paid In Full BB-sf
E-R LT BB-sf New Rating
F XS2030553239 LT PIFsf Paid In Full B-sf
F-R LT B-sf New Rating
X XS2030548668 LT PIFsf Paid In Full AAAsf
TRANSACTION SUMMARY
Hayfin Emerald CLO III DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds have been used to redeem the existing notes and buy
additional assets to fund a portfolio with a target par of EUR500
million. The portfolio will be actively managed by Hayfin Emerald
Management LLP. The collateralised loan obligation (CLO) has a
five-year reinvestment period and a nine-year weighted average life
(WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors in the 'B'/'B-' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 24.84.
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
64.74%.
Diversified Portfolio (Positive): The indicative top-10 obligor
limit and fixed-rate asset limit for the expected rating analysis
is 22.5% and 11.5%, respectively. The transaction also includes
various concentration limits, including a maximum exposure to the
three-largest Fitch-defined industries in the portfolio at 42.5%.
These covenants ensure that the asset portfolio will not be exposed
to excessive concentration.
Portfolio Management (Neutral): The transaction has a five-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.
Reduced Risk Horizon (Neutral): Fitch's analysis of the matrices is
based on a stressed-case portfolio with an eight-year WAL. Under
the agency's CLOs and Corporate CDOs Rating Criteria, the WAL used
for the transaction stress portfolio was 12 months less than the
WAL covenant to account for structural and reinvestment conditions
after the reinvestment period, including the OC tests and Fitch
'CCC' limitation passing after reinvestment.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the rating default rate (RDR) at all rating
levels by 25% of the mean RDR and a 25% decrease of the
recovery rate at all rating levels would lead to a downgrade
of up to four notches for the notes.
-- Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a
larger loss expectation than initially assumed due to
unexpectedly high levels of defaults and portfolio
deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the RDR at all rating levels by 25% of the mean
RDR and a 25% increase of the recovery rate at all rating
levels, would lead to an upgrade of up to four notches for the
notes, except the class A notes, which are already the highest
rating on Fitch's scale and cannot be upgraded.
-- After the end of the reinvestment period, upgrades may occur
in case of a better-than-initially expected portfolio credit
quality and deal performance, leading to higher credit
enhancement and excess spread available to cover for 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
Hayfin Emerald CLO III 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.
HAYFIN EMERALD III: Moody's Assigns B3 Rating to EUR14.2MM F Notes
------------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to refinancing notes issued by Hayfin
Emerald CLO III DAC (the "Issuer"):
EUR310,000,000 Class A Senior Secured Floating Rate Notes due
2035, Definitive Rating Assigned Aaa (sf)
EUR36,300,000 Class B-1 Senior Secured Floating Rate Notes due
2035, Definitive Rating Assigned Aa2 (sf)
EUR15,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2035,
Definitive Rating Assigned Aa2 (sf)
EUR31,200,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned A2 (sf)
EUR35,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned Baa3 (sf)
EUR24,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned Ba3 (sf)
EUR14,200,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the rating(s) is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
As part of this reset, the Issuer has increased the target par
amount by EUR100 million to EUR500 million. In addition, the Issuer
has amended the base matrix and modifiers that Moody's has taken
into account for the assignment of the definitive ratings.
On the original closing date, the Issuer also issued EUR1.0 million
of Class M Notes and EUR37.8 million of Subordinated Notes, which
will remain outstanding. The terms and conditions of the Class M
Notes and Subordinated Notes have been amended in accordance with
the refinancing notes' conditions. The Class M Notes accrue
interest in an amount equivalent to the senior and subordinated
management fees and its notes' payments rank senior to payment of
interest and principal on the rated notes with regards to the
senior management fee component and junior to the payment of
interest and principal on the rated notes with regards to the
subordinated management fee component.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of secured senior loans or senior secured
bonds and up to 10% of the portfolio may consist of unsecured
senior loans, second-lien loans, high yield bonds and mezzanine
loans. The underlying portfolio is approximately 85% ramped as of
the closing date. As the ramp-up period may continue until March
25, 2022 and since it may take another 20 business days for the
collateral administrator to issue the effective date report, an
effective date rating event is likely to occur on the first payment
date on April 15, 2022 unless the ramp-up period will terminate
early. In case of an effective date rating event, the issuer will
apply interest proceeds in order to partially redeem the rated
notes on the first payment date.
Hayfin Emerald Management LLP will continue to manage the CLO. It
will direct the selection, acquisition and disposition of
collateral on behalf of the Issuer and may engage in trading
activity, including discretionary trading, during the transaction's
five-year reinvestment period. Thereafter, subject to certain
restrictions, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
risk obligations and credit improved obligations.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Target Par Amount: EUR500,000,000
Defaulted Par: EUR0 as of October 04, 2021
Diversity Score(*): 52
Weighted Average Rating Factor (WARF): 2974
Weighted Average Spread (WAS): 3.60%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 43.0%
Weighted Average Life (WAL): 9.0 years
PIK SECURITIES: Fitch Rates USD525MM Sr. Unsec. Eurobond Final BB-
------------------------------------------------------------------
Fitch Ratings has assigned PIK Securities DAC's (PIK DAC) USD525
million senior unsecured Eurobond due 2026 a final senior unsecured
'BB-' rating. The notes are guaranteed on a senior unsecured
debt-ranking basis by LLC PIK-Corporation (BB-/Stable) and pending
corporate approvals, will be additionally guaranteed by Public
Joint Stock Company PIK-specialized homebuilder (BB-/Stable).
Failure to provide this additional guarantee within 100 days from
the notes issue will entitle noteholders to request a redemption of
the notes.
The notes will be used to finance the group's international
expansion and rank pari passu with all other senior unsecured debt
of LLC PIK-Corporation, a 100%-owned sub-holding of PJSC
PIK-specialised homebuilder.
KEY RATING DRIVERS
Better Than Expected Performance: PIK's 2020 revenue grew 37% yoy,
driven by favourable market conditions for the homebuilding
industry in Russia despite the pandemic. Profitability remained
healthy with mid-teens average sales price growth. The EBITDA
margin was 24.5% and the funds from operations (FFO) margin reached
19%. In 1H21, similar to other large market players, PIK reported
material revenue growth of 38% yoy, with healthy profitability.
This supports Fitch's expectation of strong revenue and FFO
generation in 2021.
Government Support of Residential Market: The group's customers
primarily rely on the mortgage market. PIK's share of sales backed
by purchasers' mortgage loans reached 76% in 2020 and 77% in 9m21.
To support the homebuilding industry during the pandemic the
government introduced a mortgage programme in April 2020, with a
subsidised interest rate of 6.5% for loans of up to RUB12 million.
However, on 01 July 2021 the limit was reduced to RUB3 million and
the interest rate has increased to 7%.
In addition, the Central Bank of Russia has gradually increased the
refinancing rate from a record low 4.25% (August 2020- mid-March
2021) to the current 7.50%, which drives increased interest rates
in the market. Nevertheless, Fitch believes the volume of
purchasers with mortgage loans will remain high within PIK's
portfolio as interest rates remain lower than before 2020.
Increased Prices, Strong Demand: The Russian homebuilding industry
benefited from the pandemic in 2020 and 1H21 as the subsidised
mortgage rates and rouble depreciation during 2020 boosted demand.
The undersupplied market allowed homebuilders to increase sales
prices. PIK's average selling price growth was 15% yoy in 2020 and
25% yoy in 1H21, before being slightly constrained in 3Q21 with
average selling price rise of 16%, a trend in line with the market.
These price increases helped PIK mitigate profitability reductions
caused by higher prices for building materials in 2021. Fitch views
the increase as unsustainable and expect it to stabilise in the
short term with only single digit rises.
Moderate Leverage: PIK's FFO leverage improved to 1.9x as at
end-2020 (end-2019: 2.6x) backed by strong sales and solid FFO
generation. Fitch expects FFO leverage to increase to 2.3x at
end-2021, temporarily exceeding Fitch's negative rating sensitivity
of 2.0x, due to large working capital outflows driven by the
ongoing transition to the new escrow scheme. The new issuance will
only increase total debt by up to 10%, so will not materially
change Fitch's projections. Management expects that by 2023 most
projects will be executed under the escrow scheme, which should
normalise working capital volatility and improve leverage metrics.
Fitch's rating case indicates FFO leverage below 2.0x by 2023.
New Market Opportunities: PIK is gradually expanding its presence
in regions outside Moscow and certain international markets, as
well as construction of suburban housing and industrial parks. PIK
is active in the fee development business, which accounted for
about 13% of group revenues in 2020 and will likely contribute
about 17% in 2021-2024 on average.
Under this business, PIK charges construction fees, but typically
does not incur land purchase expenses. This part of the business
provides the group with stable but lower profitability than its
core business. Over 30% of the group's revenue is expected to be
driven by non-core business (including fee development) from 2022,
which Fitch views positively as it indicates earnings
diversification.
Leading Market Position: The group benefits from its strong market
share, solid record and experience. PIK is the largest homebuilder
in the fragmented Russian market. The group's construction volume
as at beginning of October 2021 of 5.9 million sqm is almost two
times higher than its closest peer, PSJC LSR Group (B+/Stable). PIK
successfully pioneered online sales of apartments in 2020. The
majority of PIK's sales are now online.
Concentrated Portfolio: About 80% of the group's portfolio by
selling area is concentrated in Moscow and the Moscow region. This
is the most lucrative residential market in Russia and is
characterised by higher disposable income and sustainable demand.
PIK primarily specialises in the construction of affordable mass
market residential areas using PIK-produced prefabricated parts.
Fitch views PIK's exposure to the mass market segment as a
negative, as it can be vulnerable to macroeconomic swings.
Successful SPO: PIK raised RUB36.3 billion through a secondary
public offering (SPO), which closed on 1 October 2021. The group
will use the proceeds to repay debt and expand the business. The
transaction will not materially change the shareholding structure.
Fitch views the SPO positively as it should help PIK keep leverage
metrics in line with Fitch's expectations.
DERIVATION SUMMARY
PIK Group is the largest residential developer in Russia. Its peers
include PJSC LSR Group, Miller Homes Group Holdings plc
(BB-/Positive), Neinor Homes, S.A. (BB-/Stable) and Berkeley Group
Holdings plc (BBB-/Stable). The operating and regulation
environments differ across EMEA, making direct comparison
difficult.
Under the newly implemented regulation, Russian homebuilders fund
land and construction costs mostly with debt and receive the full
amount of cash from homebuyers upon completion of the project. This
drives differences in cash flow volatility across EMEA markets
where the French market is considered to be the most regulated and
better for developers' cash flow cycle.
PIK is much bigger than LSR, Miller Homes and Neinor and the group
had a stronger financial profile with FFO gross leverage of 1.9x as
at end-2020 versus 4.5x of LSR, 3.6x of Neinor and 4.5x of Miller
Homes. Due to expected large working capital outflow, Fitch expects
PIK's FFO gross leverage to temporarily exceed the negative
sensitivity of 2.0x in 2021-2022. Fitch expects this to fall below
2.0x by 2023 which would be commensurate with the 'BB' mid-point of
2.5x as per the EMEA Homebuilders Navigator and will be better than
LSR's leverage metrics.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Ongoing considerable revenue growth of about 24% yoy in 2021-
2022. Further constrained revenue growth of 9% in 2023-2024;
-- EBITDA margin of about 22%-24% over 2021-2024;
-- Further large working capital outflow of over RUB120 billion
in 2021, which will gradually improve from 2022 due to the
switch to escrow accounts;
-- Issue of USD525 million notes due on 2026;
-- Dividends payment of RUB30 billion per year;
-- No M&A.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch-defined FFO gross leverage sustainably below 1.0x
(netting escrow cash with relevant project development debt);
-- Sustainable improvement of financial metrics leading to EBIT
margin above 25%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Fitch-defined FFO gross leverage sustainably above 2.0x
(netting escrow cash with relevant project development debt);
-- Deterioration of market environment leading to a decrease of
the EBIT margin below 15%.
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: Fitch-defined readily available cash of RUB88
billion at end-2020 sufficiently covered debt repayments of RUB34
billion within the next 12 months. Fitch expects material negative
FCF in 2021 of about RUB82 billion, due to large working-capital
outflow, but take into account that liquidity is supported by
off-balance sheet cash in escrow accounts, which is used for debt
repayment once the relevant project is commissioned. At end-June
2021, cash in escrow accounts was RUB163 billion, up from RUB90
billion reported at end-2020.
The company is currently not exposed to foreign-exchange (FX) risk,
as all debt is raised in Russian roubles. Following the Eurobond
issue Fitch expects FX risk to be hedged with future revenue
generation from international projects and by using hedging
instruments.
ISSUER PROFILE
PJSC PIK-specialised homebuilder is the leading homebuilder in
Russia, specialising in the mass-market segment primarily in Moscow
and Moscow region. The company's construction volume is almost
twice as large as its close peer, PJSC LSR Group's.
ESG CONSIDERATIONS
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.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch nets escrowed cash with relevant project development loans
drawn, given that escrowed cash is foremost dedicated to the
development loan. Fitch does not treat net excess escrowed cash as
nettable against debt elsewhere in the group. As at end-2020 Fitch
deducted RUB90,303 million from the debt.
=========
I T A L Y
=========
PIAGGIO & C: S&P Upgrades Long-Term ICR to 'BB-', Outlook Stable
----------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit and issue
ratings on Italy-based scooter manufacturer Piaggio & C. SpA and
its EUR250 million senior unsecured notes to 'BB-' from 'B+'.
The stable outlook reflects S&P's expectation that Piaggio will
continue its solid operating performance and maintain its market
share and leading positions in the Western European scooter market,
with S&P Global Ratings-adjusted FFO to debt remaining above 20%
over 2021 and 2022.
Piaggio showed robust sales performance through the first nine
months of 2021 thanks to strong market demand for two-wheelers and
light commercial vehicles and recent product launches. Piaggio's
total sales reached 430,600 units in the first nine months of 2021,
an increase of 21.7% versus the same period last year although
still under the 479,200 sold in the first nine months of 2019.
Europe, the Middle East, and Africa (EMEA) and the Americas'
two-wheeler segments exhibited volume growth of 15% in the period,
with nearly 40% growth in Asia-Pacific. Piaggio has maintained its
leading position in the European scooter market, with a market
share of 23.1% this year. The company's sales to the Indian
two-wheeler market also showed a substantial recovery of nearly 85%
in the period, while sales of commercial vehicles in India
contracted a further 14%, reflecting continued COVID-19 related
challenges there. Piaggio plans to launch 11 new products during
2021, which has boosted average prices. Total revenue per unit sold
for year-to-date 2021 is 9% higher than the same period in 2020. As
such, group revenue for year-to-date 2021 was EUR1.3 billion, 33%
higher than 2020 and 10% higher than 2019. S&P now forecasts 2021
full-year revenue of EUR1.6 billion-EUR1.7 billion, a level Piaggio
has not reached since 2007.
Higher earnings and lower net debt will result in improved credit
metrics for Piaggio in 2021 and 2022. Piaggio's margins in
third-quarter 2021 were hit by higher costs for raw materials, air
freight, and expenses related to a recall campaign due to faulty
components from a supplier. S&P said, "Although we expect the
recall-related expenses to be reimbursed, we believe higher input
costs will continue to challenge margins over the coming quarters,
lasting at least into 2022. We anticipate Piaggio will effectively
manage its cost base and pricing such that margins are maintained
in line with levels seen in recent years at about 11.5%-12.0% for
2021-2022. As such, we now expect Piaggio to generate S&P Global
Ratings-adjusted EBITDA of about EUR200 million-EUR210 million per
year in 2021 and 2022, up from our previous forecast of EUR190
million-EUR200 million. Additionally, Piaggio has effectively
lowered its adjusted net debt position over the past 18 months.
During first-quarter 2020, Piaggio's adjusted net debt peaked at
EUR728 million as a result of a large working capital buildup amid
COVID-19 fallout. However, by third-quarter 2021, S&P Global
Ratings-adjusted debt had reduced to EUR595 million. Although we
expect some cash usage in fourth-quarter 2021, we anticipate
Piaggio's net debt for the full year will be EUR610 million-EUR620
million. We include in our calculation EUR120 million-EUR130
million of off balance sheet working capital arrangements. We
anticipate Piaggio will maintain this level of adjusted debt in
2022. As such, adjusted FFO to debt is now forecast to be 20%-25%
for 2021 and 2022, up from 18.1% in 2020."
Large shareholder returns could drag on the company's leverage. S&P
said, "We anticipate FOCF of EUR40 million-EUR50 million per year
in 2021 and 2022, which is supportive of the rating. However, the
lack of a clear dividend policy somewhat constrains our view on
Piaggio's ability to deleverage. For 2021, Piaggio made dividend
payments of about EUR40 million, consisting of a final dividend on
2020 profits of 2.5 eurocents and an interim dividend for 2021
profits of 8.5 eurocents. For 2022, we anticipate total cash
dividend payments above EUR50 million and therefore see some risks
that adjusted discretionary cash flow (DCF) could turn negative in
2022. That said, we positively note that Piaggio did lower its
dividend to 6.3 eurocents per share during a challenging 2020, from
15 eurocents in 2019."
S&P said, "Piaggio's ample liquidity cushion supports the rating.
Over the next 12 months started Oct. 1, 2021, we estimate Piaggio's
liquidity sources to uses ratio will be 1.49x. The group's
liquidity position is supported by a cash balance of about EUR199
million and the availability of about EUR205 million of undrawn
committed lines and revolving credit facilities (RCFs).
Additionally, Piaggio signed a new EUR75 million Schuldschein loan
in October 2021, and we expect the proceeds will be put toward
upcoming debt maturities. We also note that Piaggio's EUR187.5
million RCF will come due in July 2023. We expect that the company
will proactively address the maturity of its long-term committed
lines to ensure continued ample liquidity buffers. Under our
forecast, Piaggio's factoring of nonrecourse receivables and
reverse factoring of trade payables will remain steady at EUR100
million and EUR235 million, respectively.
"The stable outlook reflects our expectation that Piaggio will
maintain its solid operating performance, market share, and an S&P
Global Ratings-adjusted EBITDA margin of about 11.5%-12.0% in
2021-2022, notwithstanding the ongoing operating challenges related
to rising costs. This will translate to adjusted FFO to debt above
20% in 2021 and 2022. Our stable outlook is also based on the
expectation that the company will maintain ample liquidity buffers
over time, extending the availability of its committed lines well
ahead of maturity.
"We could downgrade Piaggio if its operating performance is weaker
than we currently anticipate. Under this scenario, Piaggio could,
for example, prove unable to pass through rising costs to its
customers, causing adjusted FFO to debt to fall below 20% and DCF
to turn materially negative in 2022. Moreover, Piaggio's inability
to ensure liquidity sources cover uses sustainably above 1.2x over
time will immediately pressure the rating.
"We could raise our rating on Piaggio if it improves its operating
and financial performance on a sustained basis, which could be the
result of a materially stronger price-volume mix. This would
translate in adjusted FFO to debt approaching 30%. At the same
time, Piaggio would need to consistently generate FOCF to debt of
more than 10%, while keeping DCF positive and adhering to a
financial policy to maintain metrics at these levels."
RIMINI BIDCO: Fitch Assigns FirstTime 'B+(EXP)' LT IDR
------------------------------------------------------
Fitch Ratings has assigned Rimini BidCo (RDM) a first-time
Long-Term Issuer Default Rating (IDR) of 'B+(EXP)' with a Stable
Outlook and a senior secured rating of 'BB-(EXP)' with Recovery
Rating of 'RR3'.
The assignment of final ratings is contingent on the receipt of
final documentation conforming materially to information already
received and details regarding the amount, security package and
tenor.
RDM's IDR is constrained by limited geographical diversification
and product range, as well as forecast high leverage. Rating
strengths are a leading position in the European recycled
carton-board market, long-term relationships with customers as well
as resilient demand for paper packaging, as 62% of revenue comes
from the food industry.
The Stable Outlook reflects expected solid operating performance
supported by stable demand for paper packaging and continued
positive free cash flow (FCF) generation, which will provide the
group with deleveraging capacity.
KEY RATING DRIVERS
Niche Market: RDM is focused on the white-lined chipboard (WCL) and
solid board, a relatively niche packaging sub-market with growth
potential because such products are made from sustainable recycled
paper. The group has a defined pan-European multi-mill business
model and has consolidated its position by making acquisitions
outside Italy. It is concentrated in Europe, which is a rating
constraint.
Resilient Business Profile: RDM benefits from exposure to the
non-cyclical food industry, which contributes 62% of revenue, while
the rest is non-food. This contributes to resilient revenue
generation, as observed during the pandemic in 2020, when revenue
declined slightly only 2.8% while its EBITDA margin increased to
11.7% from 9.7% in 2019. The business profile's resilience is also
demonstrated by strong cash conversion over time and high FCF
margin at a four-year average of 3.7%, in line with Fitch's
investment-grade peers'.
Moderately Leveraged Capital Structure: Prior to its buyout, RDM
had followed a clear deleveraging path and ended 2020 with a funds
from operations (FFO) gross leverage of 1.3x. Fitch estimates the
metric will increase to beyond 5x at the LBO's closing, before
trending toward a still high 4x by 2024. This is partially
explained by a largely debt-financed Eska acquisition in 2H21,
which is also expected to be refinanced in the buyout. One or more
strategic debt-funded acquisition of a similar size to Eska would
worsen the leverage metric.
Pass-Through Costs Mitigate Short-Term Purchase Orders: RDM
operates with mainly short-term purchase orders, which compares
less favourably with peers working on long-term agreements as
short-term contracts do not have an embedded pass-through mechanism
of costs. However, customer churn rate is low and RDM has
demonstrated its ability to pass through incremental input costs
over time. High customer retention is attributed to its long-term
relationships and the quality of its product.
Sustained Positive FCF: Fitch forecasts a sustained FCF margin of
3%-5% from 2022, which should provide deleveraging capacity,
supported by expectation of both improving revenue and EBITDA
margin, due to recent acquisitions and no dividend payment. RDM's
FCF margin has historically stood at a healthy 3%-6%, with capex at
around 4% of revenue.
M&A-Driven Growth Strategy: RDM's growth is mostly achieved by M&A,
such as the group's two mills in Spain via acquisitions of
Barcelona Carton (2018) and Paprinsa (2020). The strategy increases
RDM's proximity to key European converters and underpins the
group's multi-mill business model. With the acquisition of Eska and
divestment of La Rochette, RDM has refined its product portfolio to
only recycled carton board and expanded its global reach to the US.
Fitch deems the recent acquisitions credit- positive given's Eska's
higher profitability than RDM's, and that they will help enrich the
group's product and reposition RDM towards higher-margin
end-markets.
DERIVATION SUMMARY
RDM is small in scale compared with other Fitch rated packaging
peers such as Amcor plc (BBB/Stable), Smurfit Kappa Group plc
(BBB-/Stable), CANPACK S.A. (BB/Stable), Ardagh Group S.A.
(B+/Stable), and Titan Holdings II B.V. (B/Stable). The group's
business profile is also weaker than higher-rated peers', due to
geographical concentration in Europe and a strong focus on two
paper-board products.
Operating profitability is somewhat weaker than peers'. RDM posted
an EBITDA margin of 8%-12% versus peers' 14%-18% and an FFO margin
of around 8% versus peers' 8.5%-12%. Nevertheless, RDM's FCF
margin, mostly above 3% in the past four years, compares favourably
with that of peers and is commensurate with Fitch's expectation for
an investment-grade company's. Fitch expects FCF margin to remain
above 3% from 2022, despite pressure from working capital and
non-recurring transaction costs in 2021.
The group's gross leverage is expected to be 5x-6x over the next 12
- 24 months, due to a large debt quantum, partly arising from the
buyout. It is less leveraged than Ardagh Group S.A. (approximately
8x-9x over 2022-2023) but still sits at the higher end of Fitch's
spectrum. Higher-rated peers like Smurfit Kappa and CANPACK have
leverage of 2x-3x. Fitch forecasts strong cash flow generation
would enable RDM to deleverage rather swiftly in the absence of
dividend distribution.
KEY ASSUMPTIONS
-- Revenue CAGR of around 1.4% per year in 2021-2024, including
acquisitions and divestment made during 2021;
-- EBITDA margin trending toward 12% by 2024, boosted by a
greater share of luxury packaging and cost-saving initiatives;
-- Full pass-through of raw-material price increases;
-- Capex on average at 3.8% revenue in 2021-2024;
-- Small bolt-on acquisitions during 2023 and 2024, totalling
EUR100 million, all cash-funded;
-- No dividend distribution over 2021-2024;
-- Continuing use of factoring line.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO gross leverage below 4.5x on a sustained basis;
-- Improvement in geographical and product diversification;
-- FCF margin above 3% on a sustained basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO gross leverage above 6.0x on a sustained basis;
-- Neutral to negative FCF margin on a sustained basis.
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: Fitch deems internal liquidity, comprising cash
and bank deposits, more than sufficient after RDM's senior notes
placement. Operational working-capital needs are low and not
seasonal. Historically, annual working-capital swing is less than
1% of annual sales. RDM's liquidity position is further supported
by strong cash flow generation and a revolving credit facility of
EUR75 million. The group had receivable factoring in the past and
is contemplating future use post debt- issue.
Bullet Debt Repayment: Post-refinancing debt structure
predominantly consists of senior secured notes due in 2026, plus
RCF utilisation and some local bank financing. Debt maturity is
distant and Fitch views refinancing risk as low. Good cash
conversion, disciplined borrowing history, and the sponsor's
expected exit strategy via a secondary sale would support a
deleveraging path and value preservation with RDM. Nevertheless,
more bolt-on and/or larger strategic acquisitions than anticipated
could lead to deteriorating leverage and coverage metrics.
ISSUER PROFILE
RDM, founded in 1967 and headquartered in Milan, is a leading
European producer and distributor of recycled paper board mainly
for the packaging industry. RDM employs around 1,990 people and
operates nine carton-board mills, five specialised sheeting and
distribution centres and nine sales offices across western Europe.
ESG CONSIDERATIONS
RDM has an ESG Relevance Score of '4+' [+] for Exposure to Social
Impacts, due to consumer preference shift from plastic to paper and
cardboard packaging, which has a positive 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.
RIMINI BIDCO: Moody's Assigns First Time 'B2' Corp. Family Rating
-----------------------------------------------------------------
Moody's Investors Service has assigned a B2 corporate family rating
and B2-PD probability of default rating to Rimini BidCo S.p.A, a
holding company of European producer of recycled paper board Reno
de Medici S.p.A. (RDM). Concurrently, Moody's has assigned a B2
instrument rating to the proposed EUR445 million senior secured
floating rate notes. The outlook on the ratings is stable.
RATINGS RATIONALE
The rating is mainly supported by (1) its leading market positions
as #2 producer of recycled carton board in Europe and its global
market leader position in solid board; (2) resilient demand as the
majority of sales are derived from non-cyclical end-markets such as
food & beverage; (3) multi-mill business model across key European
geographies provides diversification and a greater proximity to
customers as well as production flexibility; (4) sustainability
tailwind for recycled paper-packaging with a substitution potential
against plastic packaging and (5) track-record of sustainably
positive FCF generation in the past.
However, the rating is constrained by (1) the high starting
leverage ratio on a pro-forma basis following the recent LBO and
temporary earnings pressure resulting from the exceptional increase
in input costs in 2021; (2) high volatility in raw materials
(recycled fiber) and a time-lag before selling prices can be
adopted, resulting in significant swings in profitability; (3)
significant costs inflation (energy, logistics) more recently; (4)
some uncertainty in regards to minorities squeeze-out process; and
(5) integration of recent acquisitions (Eska Group and Paprinsa in
2021) and an event risk related to potential further acquisitions
targeting either horizontal diversification (paper mills) or
entrance into downstream activities (packaging converters).
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation of the profit
margin normalisation in 2022 and Moody's adjusted gross leverage
ratio declining below 6x. Furthermore, the stable outlook is
conditional upon RDM maintaining an at least adequate liquidity
profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could arise if:
Moody's-adjusted gross debt/ EBITDA below 4.5x on a sustained
basis;
Moody's-adjusted retained cash flow/ debt above 15%;
Sustainably positive free cash flow generation;
Conversely, negative rating pressure could arise if:
Moody's-adjusted gross debt/ EBITDA above 6.0x on a sustained
basis;
Moody's-adjusted retained cash flow/ debt below 10%;
Negative free cash flow leading to a deterioration in liquidity
profile;
LIQUIDITY
Moody's view the liquidity profile of RDM following the proposed
financing as relatively tight, but still adequate. This is
reflected in EUR5 million of unrestricted cash complemented by
EUR75 million of undrawn revolving credit facility (RCF) at the
deal closure and Moody's expectation of a positive free cash flow
generation in the coming 12-18 months. The RCF with 4.5 years to
maturity contains a springing covenant set at 8x senior secured net
leverage ratio tested quarterly (not tested in the first three
quarters) only when the facility is more than 40% drawn. Moody's
view these sources as sufficient to cover any cash flow seasonality
and organic investment requirements of the company.
STRUCTURAL CONSIDERATION
Moody's rate senior secured notes issued by Rimini BidCo S.p.A at
B2, in line with the corporate family rating. This is primarily
because senior secured debt constitutes most of the company's
outstanding liabilities, and there is only a EUR75 million super
senior revolving facility that ranks ahead of the bonds in Moody's
loss given default waterfall. The size of the facility however is
too small to cause the notching of the bonds below the CFR. The RCF
and the senior secured notes share the same collateral package,
consisting of shares in all material operating subsidiaries of the
group, representing at least 80% of consolidated EBITDA.
ESG CONSIDERATIONS
Moody's believe environmental and social risks of RDM are broadly
similar to those of the paper and forest products industry's
environmental and social risks that Moody's consider to be
moderately negative. They mainly reflect RDM's manufacturing
process with exposure to waste and pollution risks and health and
safety issues. These risks are mitigated to a degree by the
company's commitment to reduce carbon emissions per ton of its
saleable production (-15% in 2025, -30% in 2030 vs 2020) as well as
to lower the waste water discharge (-10% in 2025, -20% in 2030 vs
2020) and increase the share of waste sent for recovery (81.5% in
2025, 90% in 2030 vs 73% in 2020).
The governance related risks mainly reflect the fact that RDM will
be owned by funds managed by the private equity company Apollo
Global Management. The private equity business model typically
involves an aggressive financial policy and a highly leveraged
capital structure to extract value. Private equity owned companies
tend to be less transparent when it comes to disclosure of
financial and business performance related information. RDM's high
starting leverage indicates a higher tolerance for financial risk.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Paper and
Forest Products Industry published in October 2018.
PROFILE
Headquartered in Milan, Italy, Reno de Medici S.p.A. is the leading
European producer and distributor of recycled paper board. The
company operates nine mills across five European countries with a
total capacity of 1.5 million tons per year. In the last twelve
months ended June 2021, RDM generated around EUR813 million of
revenue, pro-forma recent acquisitions and disposals. The company
is now in the process of being acquired by private-equity funds
managed by Apollo Global Management that would take the company
private and delist it from the stock market.
RIMINI BIDCO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
-------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit rating to Italy-Based Rimini Bidco SpA (Reno de Medici). S&P
also assigned a preliminary 'B' issue rating to the proposed notes
due 2026.
In October 2021, private equity firm Apollo Global Management
acquired a majority stake in recycled paper board producer Reno de
Medici (RDM). Apollo has now launched a tender offer for all the
remaining shares of the company.
Apollo plans to finance the acquisition by issuing
sustainability-linked five-year, senior secured, floating-rate
notes for EUR445 million through Rimini Bidco SpA. It also plans to
raise a new EUR75 million revolving credit facility (RCF).
S&P said, "The stable outlook indicates that we forecast RDM will
generate positive, but modest, FOCF and will reduce its S&P Global
Ratings-adjusted leverage to about 5.3x-5.7x during the next 12
months. That said, we expect negative free operating cash flow
(FOCF) and high debt leverage of about 9.0x this year.
"Our ratings on RDM are supported by its leading market positions,
exposure to fairly stable end-markets and low capital expenditure
(capex) needs. RDM has strong market positioning in the white-lined
chipboard and solidboard markets. It also sells more than 60% of
its products to the noncyclical food industry, which is fairly
stable and still growing, albeit at a modest pace. In our view, the
trend toward improved sustainability could benefit the company by
encouraging the use of recycled fibers instead of virgin fibers or
other substrates for some packaging products. We consider that RDM
has a well-invested and streamlined asset base, and relatively low
maintenance capex needs."
RDM operates without long-term contracts with its customers, which
explains the lack of indexation to changes in raw material prices.
While RDM has usually been able to pass higher input costs onto
customers, the time lag has depended on its order backlog. This has
historically resulted in some exposure to changes in raw material
prices and a certain degree of volatility in EBITDA margins.
S&P said, "Our business risk profile is undermined by RDM's lack of
vertical integration, limited scale, and high reliance on Europe in
terms of revenue and asset base. Our assessment also reflects the
commoditized nature of the products and RDM's modest profitability,
compared with peers in the forest and paper products industry.
"RDM's financial risk profile is based on its credit metrics and
its financial sponsor ownership. We forecast debt to EBITDA of
about 9.0x and funds from operations (FFO) to debt of about
6.3%-6.8% at year-end 2021, following input price increases which
are passed onto customers with a lag. In calculating S&P Global
Ratings-adjusted debt, we include about EUR45 million of factoring
liabilities, EUR33 million of pension liabilities, and EUR16
million of operating leases. We forecast that adjusted leverage
will decrease to about 5.3x-5.7x by year-end 2022 as pricing trends
for recovered paper normalize, which will support an improvement in
profitability. Similarly, we anticipate that FFO to debt will
improve to about 12.5% by the end of 2022. In our experience,
financial sponsors typically follow aggressive financial strategies
that include debt-funded shareholder returns or large acquisitions.
Therefore, we factor into our financial risk profile assessment
that RDM is controlled by a financial sponsor.
"We forecast the decline in FOCF in 2021 will be temporary. The
spike in recycled paper and energy costs in 2021 is likely to
undermine FOCF generation. RDM successfully implemented five price
increases in 2021, but with an average time lag of three months,
which will erode the company's profitability in the current year.
COVID-19-related restrictions caused a shift in capex in 2020 and
into 2021, which will also weigh on FOCF. Accordingly, we forecast
negative FOCF of about EUR5 million–EUR10 million in 2021
(compared with positive FOCF of EUR53 million in 2020). As
profitability recovers due to a normalization in input costs trends
in 2022, we expect FOCF to improve to about EUR25 million-EUR30
million.
"The final ratings will depend on our receipt and satisfactory
review of all the final transaction documentation. Accordingly, the
preliminary ratings should not be construed as evidence of the
final ratings. If S&P Global Ratings does not receive the final
documentation within a reasonable time frame, or if the final
documentation departs from the materials reviewed, we reserve the
right to withdraw or revise our ratings. Potential changes include,
but are not limited to, the finalization of the debt documentation;
use of debt proceeds; maturity, size, currency denomination and
conditions of the debt facilities; financial and other covenants;
security; and ranking.
"The stable outlook indicates that we forecast RDM will generate
positive, but modest, FOCF and will reduce its adjusted leverage to
about 5.3x-5.7x during the next 12 months. That said, we expect
negative FOCF and high debt leverage of about 9.0x this year."
S&P could lower the rating if
-- FOCF was negative on a sustained basis;
-- Leverage remained above 7x; or
-- S&P's assessment of RDM's financial policy indicated that there
was an elevated risk of leverage increasing as a result of
aggressive shareholder strategies, such as large debt-funded
acquisitions or dividend payments.
S&P could raise the rating if:
-- Debt to EBITDA decreased below 5x on a sustained basis;
-- RDM sustainably generated material FOCF; and
-- The group's financial policy supported such credit metrics.
===================
K A Z A K H S T A N
===================
BANK CENTERCREDIT: Moody's Upgrades Long Term Deposit Ratings to B1
-------------------------------------------------------------------
Moody's Investors Service upgraded Bank CenterCredit's (BCC)
long-term local and foreign-currency deposit ratings to B1 from B2,
its Baseline Credit Assessment (BCA) and Adjusted BCA to b3 from
caa1, its long-term Counterparty Risk Assessment (CR Assessment) to
Ba3(cr) from B1(cr), its long-term local and foreign-currency
Counterparty Risk Ratings (CRRs) to Ba3 from B1 and its junior
subordinated foreign-currency debt rating to Caa2(hyb) from Caa3
(hyb). The bank's Not Prime short-term deposit ratings and CRRs and
its Not Prime(cr) short-term CR Assessment were affirmed.
Concurrently, Moody's upgraded BCC's long-term national scale bank
deposit rating to Ba2.kz from Ba3.kz and its long-term national
scale CRR to Baa3.kz from Ba1.kz.
RATINGS RATIONALE
The upgrade of BCC's ratings reflects the recent improvements in
the bank's asset quality and profitability, strengthening of its
capital and liquidity buffers and stability of its deposit base. At
the same time, the BCA remains constrained by the large amount of
sub-standard loans (Stage 3 and Stage 2 under IFRS 9) and non-core
assets (mainly repossessed collateral) relative to the bank's
capital cushion.
According to unaudited IFRS, the bank's share of problem loans
(Stage 3 under IFRS 9) decreased to 18.5% as of June 30, 2021 from
25.6% as of year-end 2019, reflecting a combination of problem loan
restructuring, write-offs and recoveries. Meanwhile, BCC's ratio of
tangible common equity to risk-weighted assets (TCE/RWA ratio)
increased to 10.7% from 8.6% over the same 18-months period. The
bank's capital adequacy was supported by two capital injections
from shareholders (KZT4.3 billion in 2020 and KZT2.4 billion in
April 2021), capitalization of substantial earnings and contained
balance sheet growth over the period.
As a result of these improvements, BCC's ratio of gross problem
loans to the sum of loan loss reserves and tangible common equity
declined to 85% as of June 30, 2021, while it had exceeded 100%
until the middle of 2020. The current level of this ratio still
indicates that the bank's overall solvency position remains weak.
However, BCC is now in compliance with the regulator's latest
assessment of its need for loan loss reserves, having created,
ahead of schedule, all the reserves prescribed by the National Bank
of Kazakhstan's Asset Quality Review (AQR) from early 2020.
Lower credit costs have recently translated into improved
bottom-line profitability, as BCC posted an annualized return on
average assets of 0.7% in H1 2021, without any significant one-off
items affecting the result. Moody's expects the bank's
profitability to remain at a similar level in the next 12-18
months. The bank's more diversified loan book, with an increased
share of low-risk mortgages and lower concentration on the largest
corporate loans, will support its asset-risk profile going forward
and help keep credit costs contained.
BCC's funding profile is constrained by the historical volatility
of its customer deposits, with significant outflows seen in 2019.
However, since then the bank's deposit base has grown steadily,
while its deposit concentration and dependence on quasi-sovereign
depositors have significantly reduced. The risks stemming from
potential deposit volatility are additionally mitigated by the
bank's solid buffer of liquid assets, which accounted for a 38% of
tangible banking assets as of June 30, 2021.
HIGH GOVERNMENT SUPPORT
BCC's B1 long-term deposit ratings continue to benefit from two
notches of uplift due to a high probability of government support,
which reflects (1) the bank's significant market share (5.6% in
total banking assets and 5.8% in retail customer deposits as of
October 1, 2021); and (2) the government's willingness to support
the bank, as recently demonstrated by the National Bank of
Kazakhstan including BCC in its capital recovery programme.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
BCC's ratings could be upgraded, if the bank further improves its
asset quality, strengthens its capital buffer and sustains solid
profitability.
BCC's ratings could be downgraded, if the bank's asset quality
deteriorates and its capital buffer declines, with risks stemming
from Stage 2 loans and non-core assets.
LIST OF AFFECTED RATINGS
Issuer: Bank CenterCredit
Upgrades:
Adjusted Baseline Credit Assessment, Upgraded to b3 from caa1
Baseline Credit Assessment, Upgraded to b3 from caa1
Long-term Counterparty Risk Assessment, Upgraded to Ba3(cr) from
B1(cr)
Long-term Counterparty Risk Ratings, Upgraded to Ba3 from B1
NSR Long-term Counterparty Risk Rating, Upgraded to Baa3.kz from
Ba1.kz
Junior Subordinated Regular Bond/Debenture, Upgraded to Caa2 (hyb)
from Caa3 (hyb)
Long-term Bank Deposit Ratings, Upgraded to B1 from B2, Outlook
Remains Stable
NSR Long-term Bank Deposit Rating, Upgraded to Ba2.kz from Ba3.kz
Affirmations:
Short-term Counterparty Risk Assessment, Affirmed NP(cr)
Short-term Counterparty Risk Ratings, Affirmed NP
Short-term Bank Deposit Ratings Affirmed NP
Outlook Action:
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
=====================
N E T H E R L A N D S
=====================
NOBEL BIDCO: S&P Assigns 'B+' Issuer Credit Rating, Outlook Stable
------------------------------------------------------------------
S&P Global Ratings assigned its 'B+' long-term issuer credit rating
to Nobel Bidco B.V. [Philips Domestic Appliances (Philips DA)] and
a 'B+' issue credit rating with a '3' recovery rating to the
company's TLB and senior secured debt.
S&P said, "The stable outlook reflects our forecast that Philips
DA's operating performance will remain resilient, so that the S&P
Global Ratings-adjusted EBITDA margin remains above 10% and that
adjusted debt to EBITDA is at 5.0x-6.5x in the next 12-18 months.
"The ratings are line with the preliminary ratings we assigned on
June 1, 2021."
On March 25, 2021, Netherlands-based Koninklijke Philips N.V.
announced an agreement to sell its domestic appliances business,
Philips Domestic Appliances (Philips DA), to investment firm
Hillhouse Capital for a total value of EUR4.4 billion including a
brand licensing agreement for 15 years.
Nobel Bidco B.V. is the legal entity owned by Hillhouse Capital
that acquired Philips DA, and the transaction closed on Sept. 2,
2021.
Philips DA's brand is well established, and the company focuses on
being a technological front-runner in the industry. Philips DA's
brand has strong power within the small appliances industry. The
company's good brand reputation, innovative product features which
capture key trends, its long brand history, and investment in
advertising and promotion underpin S&P's satisfactory assessment of
Philips DA's business risk. However, despite an international
presence, North America and China are the main markets where
Philips DA plans to expand its presence. The company has a clear
strategy to revamp its Chinese distribution toward the online
channel and regain its typical market share in that country.
In our view, Philips DA has a lower risk of product obsolescence
than other small appliance brands. S&P attributes this to the
company's consumer-centric approach and product mix, which is
segregated between flagship products--innovative market
front-runners that can command premium prices--and more
competitively priced staple appliances. The company relies on the
Philips brand licensed from Philips under the 15-year brand license
agreement, because it accounted for approximately 90% of total
sales in 2020, even though it operates through other brands, such
as Walita, Preethi, Saeco, and Gaggia.
Philips DA has a track record of organic growth, with resilient
profitability, but the company's strategy will weigh on margins
over the next two years. During 2009-2019, Philips DA's revenue
achieved 4%-6% sales growth. However, the company experienced a
4%-6% nominal sales decline in 2020, due to COVID-19,
underperformance, and repositioning of the China business. The
company posted a solid 15.5% S&P Global Ratings-adjusted EBITDA
margin. We understand that Philips DA has an ambitious new strategy
to achieve profitable growth that will require higher investment in
advertisement and promotion in 2021-2022, which will result in
depressed profitability in the next two years.
The strategy rests on:
-- Boosting the growth of its flagship premium products;
-- Optimizing the core value-for-money products portfolio to
achieve higher efficiency;
-- Rationalizing and optimize the fill rate of stock-keeping units
to increase cost savings;
-- Pushing more direct-to-consumer (D2C) sales and direct digital
consumers;
-- Upgrading its go-to-market model to support the online
platforms; and
-- Turning around the Chinese operation through a shift toward
online offerings.
As a result, the S&P Global Ratings-adjusted EBITDA margin should
decrease in the next two years to 10.5%-12.5% before bouncing back
to about 14% in 2023.
Chinese operations have been challenged in the past few years, but
S&P believes Philips DA can turn them around with the support of
its financial sponsor, which has a strong focus and successful
experiences in the country. Competitive pressure challenged China
revenue in the past years, which resulted in declining sales in
recent years. Philips DA's strategic plan to focus its efforts on
bringing innovations in key products while building a pull-focused
D2C market model will support our sales forecasts in the coming
years. In addition to these initiatives, by capitalizing on Philips
DA's strong brand awareness, the company expects to return sales to
the 2019 level (about EUR250 million) by 2025. And higher
penetration of its premium products should boost profitability for
the region even more.
Philips DA is adequately diversified across geographies and product
groups, although it still lacks scale relative to industry peers.
The company benefits from good product diversification across all
segments of the small appliances industry: kitchen appliances (34%
of total sales), coffee (26%), garment care (17%), floor care
(14%), air care (7%), and other (2%). Similarly, the company's
operations are not concentrated in any individual country. The
countries that provide the largest share of company revenue are
Germany, Netherlands, and India, representing approximately
one-third of total sales. S&P furthermore considers that Philips
DA's large exposure to emerging markets (more than half of sales)
supports growth prospects, given the favorable macroeconomic trends
in these markets with increase GDP per capita, rising middle
classes, and growing populations. However, relative to industry
peers, such as French SEB and Swedish Electrolux, Philips DA's
revenue and EBITDA bases are much smaller.
Philips DA operates in a relatively resilient industry that even
during the pandemic continued to benefit from positive
macroeconomic trends, and we expect that this will continue in the
near term. Macroeconomic trends, such as increases in population
and a global increase in GDP per capita, will translate into
positive underlying demand across all segments of the domestic
appliance market. S&P said, "We note that healthier lifestyles and
digitalization trends have emerged during COVID-19 and we
considered Philips DA's commercial strategy to coincide well with
these trends. Philips DA's ability to bring innovation to its
products will be critical to outperform the market's growth, but
the company has a proven track record in this field with nearly 30%
of sales coming from new products in 2020. The company's healthy
product pipeline, with more than 30 new products lined up for
launch in the short term, also supports our base case." The company
also benefits from a global research and development footprint
(with sites in Netherlands, Austria, Italy, Brazil, Hong Kong,
China, India, and Singapore) with a deep knowledge of local
markets, enabling Philips DA to create innovative products and
solutions that fit consumer trends and needs.
S&P said, "Strong cash flow conversion and supportive financial
metrics also support our current rating, with EUR75 million-EUR100
million of FOCF expected in the next 12-24 months. We anticipate
that debt to EBITDA at the transaction's close will be about 5.5x
with our adjustments and should increase slightly in 2022 on the
back of separation costs, higher level of operating expenditure,
and some capital expenditure (capex) deployed to support the
company's strategy, including higher advertisement and promotion
spending and various initiatives to boost D2C sales. This will
enable Philips DA to reap in 2023 the full benefits of its large
investments in 2021 and 2022. FOCF generation in 2021 and 2022 will
be hampered by these investments, but should remain healthy at
EUR75 million-EUR100 million in the next two years before reaching
EUR150 million in 2023. In our base case, we assume royalty
payments of approximately EUR70 million-EUR80 million in the next
three years. Positively, we forecast our adjusted EBITDA interest
coverage ratio at sustainably above 3.0x.
"The stable outlook reflects our expectation that Philips DA will
continue to post adjusted EBITDA margins of above 10% in the next
12-18 months and that adjusted debt to EBITDA will remain at
5.0x-6.5x, with EBITDA interest coverage above 3.0x.
"We expect the company's performance will continue to benefit from
a track record of operational execution and management continuity.
Moreover, the favorable price mix contribution stemming from higher
sales of flagship products will support margins and translate into
a positive FOCF generation of EUR75 million-EUR100 million.
"We could lower our rating if Philips DA experienced significant
operational challenges in China stemming from unsuccessful
implementation of its commercial strategy and shift toward online
channel. This will translate into the company's failure to stay on
track toward deleveraging to 5x and EBITDA interest coverage
decreasing below 3x."
=============
R O M A N I A
=============
AUTONOM SERVICES: Fitch Rates EUR48MM Sr. Unsec. Bonds Final 'B'
----------------------------------------------------------------
Fitch Ratings has assigned Autonom Services S.A.'s EUR48 million
senior unsecured bonds due November 2026 (ISIN ROF1QD89E0Z9) a
final rating of 'B'. Fitch has also upgraded Autonom's EUR20
million bonds due November 2024 (ISIN ROQJ7UBXL253) issue rating to
'B' from 'B-' and removed it from Rating Watch Positive. Fitch has
assigned both issues a Recovery Rating of 'RR5'.
The final rating of the senior secured bonds follows a review of
the final terms and conditions, conforming to information already
received when Fitch assigned the expected rating.
The net proceeds are being used to finance fleet growth and
gradually replace Autonom's senior secured debt.
KEY RATING DRIVERS
SENIOR UNSECURED DEBT
The bonds' rating is notched down once from Autonom's Long-Term
Issuer Default Rating (IDR) of 'B'. This reflects below average
recoveries for senior unsecured creditors. This is due to a still
large share of secured funding at end-2021 (expected to be about
55% of total funding), to which senior unsecured creditors are
contractually subordinated.
Fitch now notches Autonom's senior unsecured debt rating down once,
rather than twice, from the company's Long-Term IDR. This is driven
by the increasing proportion of unsecured borrowing leading to
lower asset encumbrance and consequently higher recovery
prospects.
IDRs
Autonom's Long-Term IDR reflects its company profile as a Romanian
car lessor providing operating leasing and to a lesser extent,
short-term rentals to domestic SMEs. Autonom's franchise is small
but growing and benefits from increasing leasing penetration rate
in Romania. Autonom's modest size, concentrated franchise and
monoline business model limit rating upside.
The recent affirmation of Autonom's IDR reflected Fitch's
incrementally higher tolerance for leverage (forecast gross debt to
tangible equity at 5.7x at end-2021, from 4.3x at end-1H21), given
a record of more resilient asset quality and high internal capital
generation capacity.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The senior unsecured debt rating could be upgraded following
an upgrade of Autonom's Long-Term IDR or following an upward
revision of recovery expectations, for example due to a lower
share of secured debt.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Autonom's Long-Term IDR would be mirrored in a
downgrade of the senior unsecured debt rating.
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
Autonom has an ESG Relevance Score of '4' for key-person risk. The
longstanding management team, articulated medium-term strategy and
intention to adopt managerial best practices somewhat mitigate
key-person risks in relation to its founders and less developed
corporate governance, which is in line with other privately-held
peers.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of 3. This means that
other 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.
===========
S W E D E N
===========
TELEFONAKTIEBOLAGET LM: Moody's Affirms Ba1 CFR on Vonage Deal
--------------------------------------------------------------
Moody's Investors Service has changed to stable from positive the
outlook on the ratings of Telefonaktiebolaget LM Ericsson
(Ericsson), a leading global provider of telecommunications
equipment and related services to mobile and fixed network
operators. Concurrently, Moody's has affirmed the company's Ba1
corporate family rating, its Ba1-PD probability of default rating,
and the Ba1 senior unsecured long-term debt ratings.
On November 22, Ericsson announced [1] the agreement to acquire
Vonage Holdings Corp (Vonage). With around $1.4 billion revenue and
$200 million EBITDA expected in 2021, Vonage is a global
communications platform which provides communication services
through cloud-connected devices.
Ericsson has offered $21 per Vonage's share, implying a total
acquisition price of approximately $6.2 billion (Enterprise Value),
or an EV / EBITDA multiple close to 30x (based on 2021 expected
EBITDA). The transaction will be funded with a combination of
existing cash and cash equivalent investments. The acquisition
received the unanimous approval of Vonage's Board of Directors and
is expected to close in the first half of 2022, subject to
shareholder and regulatory approvals.
"We have changed the outlook on Ericsson's ratings to stable from
positive given that following the cash-funded acquisition of
Vonage, it will take the company longer than previously expected to
reach a net cash positive position. The transaction is fully
priced, and there is execution risk associated with Ericsson's
ability to scale up the acquired business and the ability to
generate revenue synergies," says Ernesto Bisagno, a Moody's Vice
President - Senior Credit Officer and lead analyst for Ericsson.
"However, we also recognize that Vonage's acquisition will give
Ericsson access to a global communication platform in a high growth
market and will enhance its enterprise business," adds Mr Bisagno.
RATINGS RATIONALE
The outlook change to stable from positive factors in that the
acquisition of Vonage will delay the potential for Ericsson to
achieve a Moody's adjusted net cash position beyond 2023 and
initially dilute Ericsson's operating margins by 20-30 basis points
(or 110 basis points including higher amortization on acquired
intangible assets), owing to the lower margins of the target. The
transaction is fully priced, and there is execution risk associated
with Ericsson's ability to scale up the acquired business and the
ability to generate revenue synergies. While the contribution from
Vonage can mitigate the cyclicality of Ericsson's business in a
downturn, this contribution remains fairly small at this stage.
This is partially offset by the potential for Ericsson to
accelerate revenue growth, given that Vonage operates in a
high-growth market. The acquisition will also give Ericsson access
to a global communications platform which, combined with Ericsson's
strong position in 5G mobile networks, should accelerate its
enterprise business and generate revenue synergies of around $0.4
billion by 2025. Ericsson guided that the transaction will be EPS
and free cash flow (before M&A) accretive from 2024 onwards.
In 2022, Moody's expects stronger revenue growth in the
high-single-digit range reflecting the contribution from Vonage and
lower headwinds from China. The rating agency also expects Ericsson
to maintain operating margins within its 12%-14% EBIT margin
guidance (excluding Vonage), driven by a reduction of the operating
loss in the DS segment. However, the acquisition of Vonage will
have a modest negative impact on 2022 operating margin of around
20-30 basis points (or 110 basis point points including higher
amortization on the acquired intangible assets).
Assuming increased dividends over 2021-22, reflecting improved
earnings and some volatility in working capital cash management,
Ericsson would generate an average Moody's-adjusted FCF of SEK17
billion each year. As a result, Moody's anticipates additional
improvements in Ericsson's credit metrics, with Moody's-adjusted
gross debt/EBITDA trending towards 1.7x in 2022.
Assuming Vonage's acquisition will complete in H1 2022,
Moody's-adjusted net debt/ EBITDA will increase towards 1.1x in
2022 (0.4x in September 2021), which is higher than the previous
estimate of 0.2x prior to the Vonage acquisition.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Moody's has factored into its decision to change the outlook the
governance considerations associated with the company's financial
strategy and risk management. This deal is the largest acquisition
in Ericsson's history and it is entirely cash funded. While the
acquisition will not have impact on Moody's gross leverage, it will
reduce cash on balance sheet and delay the potential for Ericsson
to achieve a net cash position.
LIQUIDITY
The acquisition of Vonage will reduce existing cash and investments
by around SEK56 billion. Ericsson's liquidity will remain good,
reflecting (1) its cash and cash equivalents balance of SEK46
billion as of September 2021, in addition to SEK15 billion of
short-term fixed-income investments, and another SEK26.7 billion in
long-term investments; (2) $2.0 billion revolving credit facility
(fully undrawn as of September 2021), maturing in June 2028
(renewed in September 2021 and which includes an interest margin
linked to sustainability targets), with no financial covenants or
significant adverse change conditions for drawdowns; (3) positive
FCF generation after dividends; and (4) limited short-term debt
maturities.
Ericsson made significant debt repayments in the last quarters
including a $684 million bilateral loan repaid in Q4 2020 and a
EUR500 million bond in Q1 2021. Short-term maturities mainly
include the $1 billion bond due in May 2022.
STRUCTURAL CONSIDERATIONS
Ericsson's probability of default rating of Ba1-PD incorporates the
use of a 50% family recovery rate assumption, reflecting a capital
structure comprising both bank debt and bonds. All of Ericsson's
debt instruments, including its $2.0 billion revolving credit
facility, are senior unsecured, have investment-grade style
documentation and have no financial covenants. All of Ericsson's
rated bonds have a Ba1 rating, at the same level as Ericsson's Ba1
corporate family rating.
RATIONALE FOR STABLE OUTLOOK
Despite the expected increase in Moody's adjusted net debt in 2022,
the stable outlook reflects Moody's expectations that Ericsson's
operating performance will continue to improve driven by a
combination of positive organic growth in revenue, additional
improvements in the DS segment, and increased contribution from 5G
contracts.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could develop if Ericsson makes
progress in the turn-around of the DS segment, successfully scales
up the Vonage business, and maintains a sustainably robust
competitive position and technological leadership despite the loss
of market shares in China. Quantitatively, an upgrade would require
operating margins (Moody's-adjusted) to increase towards 15%,
strong FCF generation after shareholder distributions, and a
sustained solid liquidity profile and a strong balance sheet with a
net cash position (on a Moody's-adjusted basis).
Downward rating pressure could develop if there is a deterioration
in operating performance or large debt-financed acquisitions, such
that its Moody's-adjusted operating margin drops below 8%, its
Moody's-adjusted debt/EBITDA increases sustainably above 2.5x, or
its FCF turns negative and liquidity deteriorates.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Telefonaktiebolaget LM Ericsson
Probability of Default Rating, Affirmed Ba1-PD
LT Corporate Family Rating, Affirmed Ba1
Senior Unsecured Regular Bond/Debenture, Affirmed Ba1
Outlook Actions:
Issuer: Telefonaktiebolaget LM Ericsson
Outlook, Changed To Stable From Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Diversified
Technology published in August 2018.
COMPANY PROFILE
With net sales of SEK231 billion and Moody's-adjusted EBITDA for
the 12 months ended September 30, 2021 of SEK40.2 billion, Ericsson
is a leading provider of telecommunications equipment and related
services to telecom operators globally. Its equipment is used in
more than 180 countries, and around 40% of the global mobile
traffic passes through its systems. In 2020, Ericsson's Networks
division contributed 71% of the group's net sales, followed by DS
at 16%, Managed Services at 10% and its Emerging Business and Other
segment at 3%.
The largest shareholders are Investor AB (Aa3 stable) with 22.8% of
voting rights and AB Industrivarden with 19.3%.
===========================
U N I T E D K I N G D O M
===========================
BULB ENERGY: Collapse Highlights Failure of Retail Energy Sector
----------------------------------------------------------------
Nathalie Thomas and Jim Pickard at The Financial Times report that
Bulb became the 23rd victim of the sharp rise in energy prices
since the summer, affecting 3.7 million customers in total.
Up until now, affected households have been quickly transferred to
rivals under an industry rescue scheme, financed by a levy on
bills, the FT discloses. But Bulb's size -- with 1.7 million
customers, it is the biggest supplier to fail in 20 years -- means
it will enter "special administration", the first use of the
mechanism since it was introduced in 2011, the FT notes.
Bulb, the FT says, will be run by administrators on behalf of the
government until it is sold, restructured or its customers are
transferred to its other suppliers. he taxpayer will foot the
bill, which is expected to run into hundreds of millions of pounds,
the FT states.
With more failures of energy suppliers anticipated this winter,
analysts have warned that the total cost to the Treasury and energy
bill payers would run into billions of pounds, according to the
FT.
The crisis has prompted consumer groups, politicians and industry
executives to call for urgent action in a sector that had 50
domestic suppliers at the end of June, the FT discloses.
"When the country's seventh-largest supplier fails, serious
questions must be asked about the state of the market and how it's
regulated," the FT quotes Gillian Cooper, head of energy policy for
Citizens Advice, as saying.
Industry executives have long argued that the regime is too light
touch for failing to assess the liquidity of new entrants
sufficiently and whether their financial model could withstand
price shocks, the FT discloses. Suppliers are bound by a price cap
covering about 15m households that is reviewed twice a year, which
has restricted their ability to pass on the rising wholesale energy
costs to customers, the FT states.
The regulator Ofgem reviews the cap twice a year, with the next
change not due until April, the FT notes.
Meanwhile, ministers have made it clear that they do not intend to
intervene, according to the FT.
Larger suppliers in particular have long complained that regulators
and politicians had encouraged a "race to the bottom" on energy
prices, the FT relates. Amid a clamour from politicians to cut
energy bills, the regulator has since early in the past decade
encouraged new entrants to break the power of what were then known
as the Big Six suppliers: British Gas, EDF, Eon, ScottishPower,
Npower and SSE, the FT states. The last two have since exited the
market, the FT notes.
But the newcomers often took on customers at a loss to win market
share, the FT says. Many gambled that wholesale energy prices
would not rise and had inadequate hedging strategies to protect
themselves, the FT discloses.
Some suppliers are pushing for much tighter regulation akin to the
financial services sector, the FT states. That would include more
rigorous checks on financial models and protection of customer
credits, according to the FT.
But industry executives also want ministers and the watchdog to
recognise that they need to be able to make a sustainable profit
and complain that the price cap is too inflexible, the FT
discloses. Figures from Ofgem data show the biggest suppliers on
aggregate were unprofitable last year, according to the FT.
BULB ENERGY: Sequoia Trust Hits Back at Claims Over Valuation
-------------------------------------------------------------
Jessica Tasman-Jones at Portfolio Adviser reports that Sequoia
Economic Infrastructure has hit back at claims it should have
slashed Bulb Energy's valuation in its portfolio in the months
leading up to the energy supplier's collapse.
This week, the GBP1.9 billion investment trust was forced to update
markets on its GBP55 million loan to Bulb Energy after the company
went into administration, which it said it had learnt about via a
press article, Portfolio Adviser relates.
The energy supplier is the largest yet to collapse due to rising
wholesale gas prices and the first to do so through the special
administration regime, which was created in 2011 to ensure the
continuity of energy supply to consumers during administration,
Portfolio Adviser notes. The special administrator will have
access to government funds to continue energy supply for Bulb's 1.7
million customers, Portfolio Adviser states.
Sequoia Economic Infrastructure (SEQI) argues collateral is in
excess of the loan amount, Portfolio Adviser says. The senior
ranking debt is secured against the assets of Bulb and its parent
company Simple, although under the special administration regime
secured lenders to Bulb are unable to enforce their security while
the administration process is ongoing, according to Portfolio
Adviser.
The regulatory filing said Simple has "substantial assets" that are
collateral for the loan and sit outside the special administration
process, Portfolio Adviser notes. Nevertheless, Sequoia Economic
Infrastructure has not yet told shareholders how the situation will
affect the investment trust's net asset value of which Bulb
represents 2.9%, Portfolio Adviser relates.
In an analyst note issued on Nov. 23 in response to Sequoia's
update, Stifel questioned why Sequoia Economic Infrastructure had
not reduced its valuation for Bulb Energy in the months leading up
to its collapse, Portfolio Adviser discloses.
Stifel, Portfolio Adviser says, issued a sell rating against
Sequoia Economic Infrastructure in September specifically
referencing Bulb, which at the time was in talks with its bankers
to secure new sources of funding after the sharp rise in energy
prices. It believed its premium, which was then 11%, looked
expensive, Portfolio Adviser states.
But Sequoia Economic Infrastructure has hit back at Stifel,
Portfolio Adviser relays.
"The monthly asset valuation process is taken extremely seriously
both by the investment adviser and by SEQI's independent board,"
the investment trust said in a statement to Portfolio Adviser. "An
important part of the process is the monthly review of all
valuations by suitably qualified independent financial
professionals, with further half yearly assessment by auditors.
Taking all its realisations since inception, SEQI has a
demonstrable track record of achieving higher than the mark from
the realisations that have taken place, including underperforming
or distressed assets."
Sequoia Economic Infrastructure's portfolio is independently valued
by PwC and audited and reviewed by KPMG.
The board of the investment trust said it would support the
investment adviser to "ensure a fair outcome for all parties
including our shareholders that include retail investors, funds
managing individuals' savings and pensions and other investors",
Portfolio Adviser relates.
Stifel suggested a 50% provision would reduce Bulb's contribution
to NAV to 1.5%, according to Portfolio Adviser. "While the
portfolio remains highly diversified, our main concern is whether
there are any other names in the portfolio where a provision has
been 'delayed'."
GREENSILL CAPITAL: Lloyds to Continue Funding for NHS Pharmacies
-----------------------------------------------------------------
Tom Metcalf at Bloomberg News reports that Lloyds Banking Group Plc
reversed a decision to withdraw support from a Greensill Capital
project after David Cameron lobbied a member of the board earlier
this year, the Financial Times said, citing people familiar with
the matter.
Cameron lobbied James Lupton, a director of Lloyds who was
appointed to the House of Lords in 2015 by Cameron, in January,
Bloomberg News recounts. Lloyds had previously indicated it would
withdraw its funding from Greensill's supply-chain financing of NHS
pharmacies, Bloomberg News notes. According to Bloomberg News, the
FT said the lender reconsidered its decision and agreed to continue
its involvement. Greensill collapsed in March, Bloomberg News
relates.
"The decision to continue this facility in January 2021 was made on
the usual commercial basis and in recognition of the importance of
maintaining this facility for the NHS during the height of the
pandemic," Bloomberg News quotes a spokesperson for Lloyds as
saying. "This program ended following the administration of
Greensill, with the bank repaid in full. There were no losses to
the NHS, the pharmacies supplying them or Lloyds Banking Group."
Greensill's failure has prompted reviews into financial regulation
and rules around lobbying, Bloomberg News discloses. The firm's
implosion in March was one of the most spectacular of recent years,
sending shock waves through European finance and sparking
investigations and inquiries in several countries, Bloomberg News
relates. The company, founded by Lex Greensill, filed for
insolvency after an insurance partner didn't renew coverage on
loans Greensill made to key customers, Bloomberg News relays.
Former U.K. Prime Minister Cameron was an adviser to the firm and
has faced criticism for lobbying linked to his well-paid role at
the company, Bloomberg News notes.
PAYSAFE LTD: S&P Downgrades Long-Term ICR to 'B', Outlook Stable
----------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
global provider of payment solutions and e-wallets Paysafe Ltd. to
'B' from 'B+'. S&P also lowered its issue rating to 'B' on
Paysafe's first-lien debt facilities, based on an unchanged
recovery rating of '3' (50%-70%; rounded estimate: 60%).
S&P said, "The stable outlook reflects our expectation of
single-digit organic growth in volumes in 2021 and 2022, of 4%-5%
and 8%-9% respectively, resulting in S&P Global Ratings-adjusted
leverage of about 8.2x in 2021 and 7.1x in 2022, and free operating
cash flow (FOCF) to debt of 2.7%-3.2% in 2021, and 5.5%-6.0% in
2022.
"We expect Paysafe's weaker operating performance to lead to S&P
Global Ratings-adjusted leverage remaining well above our rating
downside triggers for an extended period. The downgrade reflects
our expectation of high leverage beyond 2021, coupled with
lower-than-expected FOCF generation, breaching our respective
triggers of 5.5x and 5%. Following the weaker-than-expected
performance of the company's digital wallet segment in
third-quarter 2021, the company revised downward its guidance for
2021 and 2022. We have adjusted our base case forecasts to reflect
expectations of continued challenges in Paysafe's digital wallet
segment. We adjusted downward the top-line revenue growth to a
slower rate of 4%-5% in 2021 and 7%-8% in 2022, with adjusted
EBITDA generation of about $340 million and $370 million
respectively after restructuring costs and expensing capitalized
development costs of about $70 million. With this revision we now
expect Paysafe to de-lever at a significantly slower pace than
previously expected, with adjusted debt to EBITDA of 8.2x and 7.1x
in 2021 and 2022. We also expect a lower generation of FOCF in
2021, resulting in FOCF to debt of about 3.5%, with potential
recovery above 5% only in first-half 2023."
Resetting the digital wallet segment will be key to Paysafe's
operating performance recovery. The somewhat subdued growth rates
expected over the medium term can be in most part attributed to the
digital wallet segment. Revenue from the segment is expected to
decline about 15%-18% in 2021, and a further approximately 11% in
2022, in our base-case scenario. This is because of the increased
payment alternatives from Paysafe's merchants, the mature European
gaming markets, and the European wave of regulation on the gaming
sector. S&P does not expect a quick recovery in the short term,
because it will depend on the successful execution of the company's
strategy and external factors including further regulation and
general market trends. However, the return to double-digit growth
rates sustainably above 10% overall for Paysafe is supported by the
eCash and integrated processing segments (two other main segments),
with some benefit from the Viafintech and PagoEfectivo acquisitions
that closed in 2021, with SafetyPay expected in fourth-quarter
2021.
The leverage target should lead to significant debt reduction,
although the risk of future mergers and acquisitions (M&A) remains.
S&P said, "We understand that Paysafe is still committed to
achieving its long-term target of net leverage of 3.5x (reflecting
about 4.5x on an adjusted basis), which was set after the company's
listing. To achieve this target, significant debt reduction will be
necessary. That said, we think Paysafe will continue to seek M&A
opportunities in the longer term as part of its growth strategy,
and we see these as likely to be predominantly debt-funded given
its share price and track record so far. However, we do not see any
immediate M&A targets, and we think the company is focused at
present on stabilizing its digital wallet segment.'
S&P said, "The stable outlook reflects our expectation of
high-single-digit revenue growth in 2022, supporting a reduction of
adjusted leverage below our downside trigger of 8.0x in 2022.
"We could lower the rating if Paysafe's adjusted leverage were to
rise above 8.0x with no substantial deleveraging expected, and if
FOCF to debt dropped to 1%-2% with little upside. This could happen
if Paysafe pursues further significant debt-funded acquisitions.
"We could raise the rating by one notch if Paysafe's operating
performance were to rebound, returning to high-double-digit growth
by 2022, resulting in a reduction in adjusted leverage consistently
below 5.5x and FOCF to debt rising to comfortably above 5%."
RICHMOND UK: S&P Upgrades ICR to 'B-' on Improved Profitability
---------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
U.K.-based holiday parks operator Richmond UK Holdco Ltd.,
operating under the brand name Parkdean Resorts (PdR), to 'B-' from
'CCC+'. S&P also raised the issue rating on PdR's first-lien debt
to 'B' from 'B-'.
S&P said, "The stable outlook reflects our view that demand for
holiday sales and holiday home sales will remain strong over the
next 12 months. It also incorporates our forecast that adjusted
leverage will remain below 7.5x, with free operating cash flow
(FOCF) after lease payments at breakeven.
"The staycation trend has meaningfully improved PdR's credit
metrics, which we think the group will be able to sustain. After
the easing of COVID-19 pandemic-related lockdowns in the U.K.,
there has been resurgent demand for leisure travel, and staycation
demand has risen as the government has continued imposing
additional quarantine and testing requirements on those taking
international holidays. Customer demand remains strong for PdR
against the backdrop of the pandemic. Its key strength is its
location next to the U.K. coast and areas of outstanding natural
beauty that attract domestic leisure tourists. Taking into
consideration the tailwinds of improved occupancy rates, higher
average weekly rates, and reduced VAT rates for the hospitality
sector, we now forecast PdR's EBITDA to exceed 2019 levels by about
45% in 2021, reaching about GBP145 million. PdR's credit metrics
remain in the highly leveraged category; however, they are showing
material improvement. We now forecast adjusted debt to EBITDA to be
about 7.0x in 2021 compared to 9.6x in 2019. Although the benefits
of reduced VAT rates and some of the pricing upside arising from
the international travel restrictions in 2021 will not recur in the
future, we forecast the trend in the volumes of holidays sold to
remain solid because we expect the staycation trend to persist for
at least the next year."
Management's efficiency measures are also contributing to improved
profitability. These measures include strategic plans to increase
holiday sales via a direct online booking channel, reduce
off-season price discounts, invest in the Springboard program to
improve park offerings, centralize the pricing of holiday home
sales, and introducing a digital sales channel in that segment. The
group has invested in technology and has a dedicated analytical
team to consolidate its data. This means the group has access to a
complete, accurate, and timely picture of all its assets on its 67
estates, so it can systematically identify growth opportunities
through new pitch development and infill--a key part of its growth
plan. It is completing the Wi-Fi-enabled park connectivity project
across most of its parks and we expect it to implement three major
platform upgrades effective by Q1 2022. These involve digitizing
the sales process, people processes including payroll, and managing
on-park accommodation and maintenance operations. These measures
could further improve efficiencies, customer service quality, and
working capital management.
Cash receipts relating to business interruption have helped the
group to pay down its RCF. PdR is the only operator among our rated
European leisure portfolio that received payments under its
insurance policy for the business interruption caused by the
pandemic. The group largely used the GBP57.5 million of cash
receipts to pay down its RCF, which reduced the group's leverage.
Capital expenditure (capex) will remain elevated in 2022, backed by
positive results and return on the first phase of growth capex.
Total capex will remain elevated at about GBP80 million in 2021,
compared to GBP70 million in 2020. The returns on the investment
made on the initial seven Springboard parks have exceeded
management's expectations and could lead the group to expand the
Springboard program to additional parks. Demand for holiday homes
has remained robust, leading management to acquire more parks. S&P
said, "We forecast capex to remain elevated at above GBP70 million
in 2022, thereby reducing the group's FOCF, which we forecast to be
modestly negative. We consider sustained and materially negative
FOCF to weigh on the rating and could expose the group to
value-diluting capex."
S&P siad, "The stable outlook reflects our view that demand for
holiday sales and holiday home sales will remain strong over the
next 12 months on the continuing trend for staycations, but we
expect the benefit of dynamic pricing to normalize. The outlook
also incorporates our view that management's efficiency measures
and financial policy actions will remain consistent with our
forecast of adjusted debt to EBITDA remaining below 7.5x and
breakeven FOCF after lease payments."
S&P could consider a negative rating action if:
-- The group's operating performance dropped materially due to
macro headwinds such as inflationary pressures, reduced consumer
discretionary spending, or restrictions to travel;
-- Any debt-financed shareholder return or change in capital
structure caused debt to EBITDA to rise sustainably beyond 8.0x;
-- The Springboard capex and other growth capex did not generate
the expected returns and FOCF remained materially negative for the
next 12 months and affected the group's liquidity; or
-- The group made no material progress in its refinancing, with
the RCF maturing in March 2023, increasing pressure on the group's
liquidity.
S&P siad, "Although unlikely over the next 12 months, we could take
a positive rating action if the group reduced adjusted debt to
EBITDA to below 6.5x while improving FOCF to debt to about 5%. This
could occur if operating performance materially exceeded our
expectations, capex normalized, and PdR generated sustained
positive FOCF. An upgrade would also hinge on greater visibility on
Onex's financial policy and successful refinancing of the upcoming
debt maturity."
Environmental, social, and governance (ESG) credit factors for this
change in credit rating/outlook and/or CreditWatch status:
-- Health and safety
[*] UNITED KINGDOM: Company Insolvencies Up 63.6% in October 2021
-----------------------------------------------------------------
William Telford at BusinessLive reports that the number of
companies opting to go into liquidation in the South West is rising
as bosses see a gloomy future now Government Covid support is
ending, a leading insolvency expert says.
According to BusinessLive, figures published by the Insolvency
Service reveal an increase of more than 60% in corporate
insolvencies nationally compared to this time last year.
Corporate insolvencies fell overall by 3% in October 2021 to a
total of 1,405 compared to September's total of 1,449 -- but
increased by 63.6% compared to October 2020's figure of 864,
BusinessLive discloses.
Philip Winterborne, chair of insolvency and restructuring trade
body R3 in the South West, said the month-on-month fall in
corporate insolvencies was driven by a reduction in the number of
Creditors' Voluntary Liquidations, BusinessLive relates.
But he stressed there are still twice as many companies entering
this procedure as at this time last year, and nearly 20% more than
in 2019, BusinessLive notes.
*********
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