/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/220222.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, February 22, 2022, Vol. 23, No. 32 Headlines G E R M A N Y CHEPLAPHARM ARZNEIMITTAL: Fitch Affirms 'B+' LT IDR, Outlook Stable THYSSENKRUPP AG: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable G R E E C E ALPHA SERVICES: Fitch Hikes LongTerm IDR to 'B', Outlook Positive EUROBANK SA: Fitch Raises LongTerm IDR to 'B+', Outlook Stable NATIONAL BANK: Fitch Raises LT IDR to 'B+', Outlook Stable PIRAEUS BANK: Fitch Raises LT IDR to 'B-', Outlook Positive I R E L A N D BBAM CLO III: Fitch Gives 'B-(EXP)' Rating to Class F Debt CAIRN CLO XV: Fitch Gives Final 'B-(EXP)' Rating to Cl. F Debt CAIRN CLO XV: Moody's Assigns (P)B3 Rating to EUR12MM Cl. F Notes HARVEST CLO XVIII: Moody's Affirms B1 Rating on EUR10.5MM F Notes I T A L Y PIETRA NERA: Fitch Affirms CCC Rating on Class E Debt [*] ITALY: Approves EUR8BB Aid Package Amid Soaring Energy Prices R U S S I A JSC R-PHARM: Fitch Assigns 'BB' LongTerm IDR, Outlook Stable T U R K E Y TURKEY WEALTH: Fitch Lowers LT IDRs to 'B+', Outlook Negative [*] Fitch Takes Ratings on 8 Turkish Cos. Amid Sovereign Downgrade U N I T E D K I N G D O M CLAVIS SECURITIES 2006-1: Fitch Cuts Rating 8 Tranches to 'B-' HIGH STREET: Owed Creditors GBP211 Million at Time of Collapse ICE: Collapse Hits NatWest's Foreign Currency Service LIVIA: Bought Out of Administration Following Pandemic Woes LONDON CAPITAL: Administrators Extend Investigation Process ST PETER'S COURT: Enters Administration, Durham Shelter to Close - - - - - ============= G E R M A N Y ============= CHEPLAPHARM ARZNEIMITTAL: Fitch Affirms 'B+' LT IDR, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has affirmed Cheplapharm Arzneimittel GmbH's (Cheplapharm) Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. Fitch has also assigned Cheplapharm's new term loan B (TLB) and revolving credit facility (RCF) senior secured ratings of 'BB-' with Recovery Ratings of 'RR3'. The proceeds are being used to refinance the company's EUR980 million TLB and EUR450 million RCF. The affirmation of the IDR reflects Fitch's view that financial risk remains unchanged, following the latest refinancing, with total debt/EBITDA projected to remain at 5.0x, combined with steady EBITDA margins of around 50% and free cash flow (FCF) margins of 30%. The Stable Outlook reflects Fitch's expectation that Cheplapharm will maintain the quality and risk profile of its product portfolio by investing all of its internally generated cash flows in new intellectual property (IP) rights, while maintaining its acquisition and financial policies. This will facilitate a stable operating and financial profile, in addition to the removal of near-term liquidity risks resulting from the refinancing transaction. The ratings for the company's old TLB and RCF were withdrawn as this debt has been redeemed as part of the refinancing. KEY RATING DRIVERS Incremental Debt Rating-Neutral: Fitch regards the refinancing as rating-neutral, with the net increase in senior secured debt of EUR500 million being used to fund M&A of around EUR335 million and partially prepay the nearly fully-drawn RCF of around EUR410 million used for recent product additions. The new products were acquired at enterprise value (EV)/EBITDA of less than 5.0x, in line with the company's acquisition record. This contributes to steady, strong EBITDA and FCF margins of 50% and 30%, respectively, which are consistent with the ratings. Combined with a projected total debt/EBITDA 5.0x, this supports the 'B+' IDR. Aggressive but Consistent Financial Policy: The decision by Cheplapharm to postpone its IPO in response to unfavourable market conditions and issue incremental debt to fund its business growth is aggressive, but fully consistent with its previous financial policy. Fitch expects the company will use the flexibility under its RCF, combined with internally-generated cash, to continue its fast-paced growth, prioritising inorganic growth over deleveraging. Defensive Operations: The rating is underpinned by Cheplapharm's defensive business profile, characterised by well-executed acquisitions of drug IP rights and active product life-cycle management. Fitch views positively Cheplapharm's predictable, albeit organically declining, revenue from late-stage drugs, enhanced by the addition of new products with comparable economic contribution and risk profile. Appropriate Leverage, No Deleveraging: Fitch projects total debt/EBITDA will remain within Fitch's rating sensitivity at about 5.0x. This is driven by the steady quality of Cheplapharm's organic portfolio and disciplined implementation of inorganic growth, based on the company's established acquisition and investment criteria. At the same time, apart from an IPO remaining an event risk, Fitch does not forecast any organic deleveraging as the company continues to favour M&A over deleveraging. More Debt-Funded M&A Expected: Fitch assumes that the company will use FCF, together with any availability under the committed RCF, to fund an estimated at EUR600 million-EUR700million a year of M&A. Larger acquisitions, which would require incremental funds exceeding the total committed debt capital, are also likely and an event risk. Without any commitment to deleveraging, the rating is driven by the company's disciplined approach to acquisitions and a stable organic portfolio. Acceptance of higher asset valuations, higher-risk product profiles or weaker integration would put the rating under pressure. Supportive Market Fundamentals: Cheplapharm benefits from a continuing strong supply of off-patent drugs to the market as innovative pharma companies look to streamline their product portfolios to concentrate on core therapies and implement their capital-allocation strategies. Fitch regards niche specialist pharmaceutical companies, such as Cheplapharm, as well-positioned to continue capitalising on these positive sector trends. DERIVATION SUMMARY Fitch rates Cheplapharm using Fitch's Ratings Navigator framework for pharmaceutical companies. The IDR reflects Cheplapharm's defensive business profile with resilient and predictable earnings, as well as high operating margins and strong cash flow generation, due to the company's asset-light business model. Cheplapharm is rated at the same level as Pharmanovia Bidco Limited (B+/Negative), although Pharmanovia has shown uneven operating performance and increased execution risks around its acquisition strategy and organic portfolio management. Fitch views Cheplapharm's credit profile as stronger than that of the specialist pharmaceutical company IWH UK Finco Ltd (B/Stable), warranting a one-notch difference. The rating differential reflects the former's higher operating and cash flow margins, combined with a more conservative financial profile as reflected in funds from operations (FFO) gross leverage of 5.0x-5.5x, against IWH's 5.5x-6.0x. Fitch also regards Cheplapharm as stronger than generics producer Nidda BondCo GmbH (B/Stable), despite its much smaller scale and more concentrated portfolio, which is mitigated by wide geographic diversification within each brand. Nidda BondCo's rating is burdened by high leverage, with a spike in expected FFO gross leverage to 9.0x-10.0x in 2021-2022, following recent operating underperformance amid the pandemic and the impact of debt-funded acquisitions. KEY ASSUMPTIONS -- Sales growth of around 55% in 2021, decelerating to around 8% by 2024; -- EBITDA margin stabilising at 50%-51% in 2022-2024, versus around 57% in 2021; -- Capex at around 1% of sales each year to 2024; -- Change in trade working-capital outflow of EUR100 million a year through to 2024; -- M&A of EUR1.2 billion in 2021-2022 and EUR600 million in 2023- 2024 at an EV/sales of 2.5x (EV/EBITDA of 5.0x). M&A will be funded by FCF, drawdowns of the RCF and from planned incremental debt proceeds of EUR500 million in 2022; -- No dividend payments through to 2024. KEY RECOVERY RATING ASSUMPTIONS In a distressed scenario, Fitch expects Cheplapharm would most likely be sold or restructured as a going concern (GC) rather than liquidated, given its asset-light business model. Fitch estimates a post-restructuring GC EBITDA at about EUR400 million (unchanged), which includes contribution from the recently signed but not yet closed drug IP acquisitions scheduled for completion in 1Q22-2Q22. Cheplapharm would also face debt-service and working-capital requirements as it takes over inventories following transfer of market authorisation rights, and makes smaller M&A to sustain its product portfolio to compensate for a natural sales decline. Fitch applies a distressed EV/EBITDA of 5.5x (unchanged), reflecting the underlying value of the company's portfolio of IP rights. After deducting 10% for administrative claims, the allocation of value in the liability waterfall results in a Recovery Rating of 'RR3' for the existing senior secured debt, including an upsized RCF of EUR545 million, which Fitch assumes will be fully drawn prior to distress, indicating a 'BB-' instrument rating with a waterfall-generated recovery computation (WGRC) of 56% (68% previously given a lower amount of debt before refinancing). RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade to the 'BB' rating category would require a sustained improvement of Cheplapharm's business scale with sales above EUR1 billion combined with a more diversified product portfolio, resilient operating and strong FCF margins, and reducing execution risks; -- A conservative leverage policy with total debt/operating EBITDA at or below 4.0x, or FFO gross leverage at about 4.0x. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Failure to complete the refinancing to secure funding for the near-term committed M&A; -- Unsuccessful management of individual pharmaceutical IP rights leading to material permanent loss of income and EBITDA margins declining towards 40%; -- Positive but continuously declining FCF; -- More aggressive financial policy with total debt/operating EBITDA sustainably above 5.5x, or FFO gross leverage above 6.0x (net of readily available cash: 5.5x). BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: Fitch views liquidity as comfortable, based on Cheplapharm's strong pre-M&A FCF of EUR350 million-EUR400 million a year until 2024. This, together with the upsized RCF of EUR545 million, will be sufficient to maintain and grow its earnings base as its organic portfolio declines. Cheplapharm benefits from a long-dated TLB, an RCF's and senior secured notes' maturities beginning in 2028 following the refinancing. In Fitch's assessment of freely available cash, Fitch deducts EUR20 million of minimum liquidity required for operations. ISSUER PROFILE Cheplapharm is engaged in the acquisition and management of off-patent branded legacy and niche drugs. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. THYSSENKRUPP AG: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable ----------------------------------------------------------------- Fitch Ratings has affirmed thyssenkrupp AG's (TK) Long-Term Issuer Default Rating (IDR) of 'BB-' with a Stable Outlook. Fitch also affirmed TK's senior unsecured notes' rating of 'BB-' with a Recovery Rating of 'RR4'. The ratings of TK reflect its low, albeit improving, and vulnerable cash flows, which are counterbalanced by its strong liquidity position, a conservative capital structure and a well-diversified business profile. The extensive measures taken by TK in recent years to restructure and / or sell off loss-making or under-performing businesses are yielding result, with core operating earnings and free cash flow (FCF) improving materially over the past 12 months. Fitch expects these improvements to continue in the short term, which, if accomplished, will likely lead to positive rating momentum. KEY RATING DRIVERS Improving Earnings and Cash Generation: Fitch expects improvements in TK's underlying earnings and FCF since 2020 will likely continue in the short-to-medium term to levels that may be strong for the rating. In financial year to September 2021, EBITDA and funds from operations (FFO) margins rose to 4% and 2.1%, respectively, from negative levels in the prior year, and Fitch believes that they could rise to around 6% and 4%, respectively, in the short-to-medium term. FCF, which has been negative for the past four years, is expected to be around break-even in FY22 before gradually rising to around 1% of revenue in the medium term. Cash Flows Remain Vulnerable: While the restructuring programme and extensive asset disposals are expected to lead to a long-term structural improvement in cost, expected improvement in margins is also highly reliant on steel price spreads remaining high and broadly favourable market dynamics in the sectors to which TK is most exposed to, such as automotive. Furthermore, threats to margins in the short term are also evident from bottlenecks in the global supply chain and the inflationary environment related to, for example, energy and transportation prices, the pass-through of which is often delayed or partial. Strong Capital Structure Sustainable: TK has a very strong balance sheet for the rating, as reflected by a net cash position and low debt of around EUR4 billion at end-1QFY22. Cash proceeds from the 2020 sale of its elevator business were used to fund considerable cash burn during the restructuring period and to repay a large portion of existing debt. Fitch believes the former has now ended, while future debt maturities are likely to be refinanced as the company has likely achieved its targeted capital structure. This means that financial flexibility, coupled with expected gross EBITDA and funds from operations (FFO) gross leverage of around 2x at end-FY22, will strongly support positive rating momentum in the near term. Steel Business Improvement Key: Profitability at TK's steel division, which accounts for about a quarter of total revenue, has been improving since 2020 due to high steel prices and considerable cost reduction. Its adjusted EBIT margin improved to 4.7% in 1QFY22, from 1.3% in FY21, and may gradually rise to the division's target of around 6% - 7% in the medium term, unless global steel prices see a sharp decline. The steel division remains under strategic review by management, and any partial or full divestment will likely have a rating impact, although Fitch's rating case at present does not include any change to the ownership of this business. Conservative Cash Deployment: Fitch expects management to maintain their conservative approach to cash deployment in the short-to-medium term regardless of FCF improvement. This includes Fitch's assumption that when TK reinstates dividend payment it is likely to be at a moderate level that will not place pressure on liquidity. Fitch expects capex to remain at materially above depreciation levels in the next four years as key modernisation is carried out, especially in the steel business, but for overall capex and working-capital discipline to be maintained over the medium-to-long term. Asset Disposals Gaining Pace: TK has made significant progress in exiting businesses that it no longer wants to own, grouped under the multi tracks segment, which reported cumulative EBIT losses of close to EUR900 million in FY20 and FY21. At end-1QFY22, TK had signed commitments to sell or close more than half of these businesses (by revenue). While the cash consideration from these disposals is unlikely to be significant, these sales should materially aid financial results, improve the overall business profile and increase management's focus on the remaining operations. DERIVATION SUMMARY TK's rating reflects a strong business profile with more diversified operations than steel-focused peers - in particular, the company's closest peer ArcelorMittal S.A. (BBB-/Stable). This reflects TK's capital goods businesses, which provide more earnings stability. ArcelorMittal is larger and more geographically diversified, vertically integrated into raw materials (iron ore) and has stronger credit metrics, notably a more resilient FCF margin and lower FFO gross leverage. Conversely, TK has greater exposure to volatile steel earnings, a larger fixed-cost base and lower production flexibility than capital-goods peers, including KION GROUP AG (BBB/Stable) and Atlas Copco AB (A+/Stable). These peers also have a greater proportion of total group sales from stable servicing and maintenance. KEY ASSUMPTIONS -- Low double-digit revenue growth in FY22 from continuing operations driven by the European steel division, followed by low single-digit growth for the next three years; -- EBITDA margin rising to over 6% in FY22 and remaining broadly stable to FY24, as a result of improvement in the operating cost structure, the disposal of under-performing businesses and a stabilisation of the global economic environment; -- Although TK is contemplating a separation of Steel Europe, we assume no divestment or deconsolidation of the European steel business in the short-to-medium term; -- Capex at around 4% - 4.5% of revenue per annum in the short to-medium term; -- No dividend payments in the short-to-medium term, due to uncertain timing of the potential reinstatement of dividend; -- All maturing debt to be refinanced. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- EBITDA margin above 8%; -- FFO margin above 6%; -- FCF margin above 1%; -- EBITDA/gross leverage below 2.5x; -- FFO gross leverage below 3.5x. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- EBITDA margin below 5%; -- FFO margin below 3%; -- Negative FCF on a sustained basis; -- Failed restructuring measures resulting in EBITDA/gross leverage and FFO gross leverage above 3.5x and 4.5x, respectively, on a sustained basis; -- Material deterioration in liquidity. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: As of end-1QFY22, TK had around EUR7.8 billion of Fitch-adjusted liquidity, consisting of about EUR6.2 billion of readily available cash and around EUR1.5 billion of undrawn long-term committed credit lines. Its EUR3 billion commercial paper programme and history of tapping capital markets on a regular basis also support liquidity. Although current liquidity is robust, Fitch expects slightly negative FCF to weigh on TK's liquidity until FY23. ISSUER PROFILE TK is a manufacturer of industrial components and a leading European supplier of flat steel. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =========== G R E E C E =========== ALPHA SERVICES: Fitch Hikes LongTerm IDR to 'B', Outlook Positive ----------------------------------------------------------------- Fitch Ratings has upgraded Alpha Services and Holdings S.A.'s (HoldCo) and Alpha Bank S.A.'s Long-Term Issuer Default Rating (IDR) to 'B' from 'CCC+' and Viability Rating (VR) to 'b' from 'ccc+'. The Outlook on the Long-Term IDRs is Positive. A full list of rating actions is below. The two-notch upgrade follows Alpha Bank's strong progress in reducing its stock of impaired loans in the last year, despite the challenges posed by the pandemic. The Positive Outlook reflects Fitch's expectation that additional asset-quality clean-up and an improvement in profitability will further reduce the level of capital encumbered by problem assets during 2022. The upgrade is underpinned by Fitch's view that although the operating environment for Greek banks remains challenging, it has materially improved, which Fitch has reflected in a two-notch upgrade of Fitch's operating environment score to 'bb-'/stable from 'b'/positive. Fitch expects Greek banks to benefit from a recovery of the Greek economy, accompanied by declining unemployment, and from continued normalised access to market funding. Combined with the Greek banks' accelerated asset quality clean-up, this should be supportive of new bank lending and overall business prospects. Fitch has withdrawn HoldCo's and Alpha Bank's Support Ratings and Support Rating Floors as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on 12 November 2021. In line with the updated criteria, Fitch has assigned HoldCo and Alpha Bank Government Support Ratings (GSR) of 'no support' (ns). KEY RATING DRIVERS IDRs AND VR Alpha Bank's IDRs and VR reflect the bank's improved asset quality, which remain weaker than European and Greek averages. The ratings also factor in the bank's significant restructuring, which positions it for a return to recurring profitability, as well as its strengthened funding and liquidity. Capitalisation levels remain above the sector average, despite material de-risking during 2021. The ratings of Alpha Bank and its parent HoldCo are equalised as the banking operations are managed in a highly integrated manner. The group is regulated on a consolidated basis, and Fitch views fungibility of capital between the HoldCo and the bank as high. Fitch expects liquidity and capital to be managed centrally at the group level and double leverage to remain below 120%. Alpha Bank's impaired loan ratio declined to about 20% (22.4% excluding EUR3.8 billion retained guaranteed senior notes from its non-performing loan securitisations) at end-September 2021 from 44% at end-2019, as the bank completed two large securitisations of about EUR14 billion of impaired loans making use of the Hellenic Asset Protection Scheme. Following these transactions, loan loss allowances coverage increased to more adequate levels at 55% at end-September 2021 (43% at end-2019). Fitch expects Alpha Bank's impaired loan ratio to decrease to low-teens by end-2021 and to high-single digit levels by end-2022, largely helped by additional impaired loan sales (some completed in 4Q21), curings and repayments, and dynamic loan expansion. Payment performance on loans under moratoria has been adequate to date. However, borrowers that that still benefited from step-up solutions or Gefyra state-support programmes at end-September 2021 (6.9% of gross loans) pose potential non-performance risks, particularly in the context of potential renewed health restrictions or if inflationary pressures place a greater burden on borrowers' creditworthiness. Alpha Bank's capitalisation levels are higher than most of its Greek peers, with a common equity Tier 1 (CET1 ratio) of 14.5% at end-September 2021 (fully-loaded 12.2%) pro-forma for the reduced risk-weighted assets (RWAs) from the securitisation of impaired loans in 4Q21. The bank completed a capital increase of EUR0.8 billion in July 2021 in order to accelerate the disposal of impaired loans and to fund new lending in the coming years. Fitch expects that Alpha Bank's CET1 ratio will remain at about 14% in the medium term as the bank's improving internal capital generation and additional capital-accretive actions will offset future regulatory changes, increasing RWAs from loan growth and further negative impacts from the asset-quality clean-up. Alpha Bank's capitalisation remains sensitive to the large proportion (albeit lower than the sector) of deferred tax credits (DTCs), which represented 55% of the bank's regulatory CET1 capital at end-September 2021. The amortisation of these DTCs will take a long time, although they should be absorbed by the bank's improved capacity to generate earnings. Encumbrance of CET1 capital by unreserved problem assets had decreased significantly to 77% at end-September 2021 (end-2019: 148%), but it still relatively high compared with other Greek banks. Further impaired loan sales and capital-strengthening measures will reduce Alpha Bank's capital encumbrance closer to higher-rated southern European banks in the short-term. Alpha Bank's exposure to Greek government debt (BB/Positive) is material at about 115% of CET1 capital at end-September 2021 and could negatively affect capital in case of significant credit spread widening. However, this risk is mitigated by the bank's amortised cost accounting for a significant share of these securities and the use of hedging strategies. Alpha Bank's significant de-leveraging has improved its ability to generate recurring earnings. After significant losses in 2021, Fitch expects the bank will restore operating profits in 2022 and improve these in the medium term, supported by lower loan impartment charges, growth in fee income and cost containment. Funding and liquidity have improved on the back of sustained growth in customer deposits, restored access to financial markets and extensive use of TLTRO-III funding from the ECB. Alpha Bank's liquidity remains prone to sudden changes in creditor sentiment, but Fitch believes the bank's improved credit profile and supportive stance from the ECB prevent cliff-edge risks. Alpha Bank's Short-Term IDR of 'B' is in line with the 'B' Long-Term IDR under Fitch's rating correspondence table. GSR Alpha Bank's GSR reflects Fitch's view that although external extraordinary sovereign support is possible it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign support. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The Outlook could be revised to Stable if the bank's planned impaired loan securitisations are delayed or inflows of new impaired loans are higher than Fitch currently expects. -- The ratings would likely be downgraded if renewed health restrictions or an inflationary shock materially weakened Greece's economic recovery prospects, resulting in asset quality pressures, with Alpha Bank reaching an impaired loan ratio above 15%, larger-than-expected credit losses reducing the operating profit/RWAs ratio below 0.5% on a sustained basis or material weakening of capitalisation, including encumbrance from unreserved problem assets. -- Downside pressure on the ratings could also stem from a sudden weakening of creditor sentiment, worsened access to financial markets or abrupt withdrawal of central bank support, pressuring the bank's liquidity position or the value of the debt securities portfolio. -- HoldCo's ratings could also be downgraded by at least one notch below those of the operating bank in case of a significant build-up of double leverage at HoldCo, changes in regulation scope, or more onerous restrictions on fungibility of capital and liquidity between the two entities, which Fitch does not expect. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The Positive Outlook on Alpha Bank's Long-Term IDR indicates that an upgrade is likely over the next 24 months if the economic environment in Greece remains supportive and the bank successfully executes its strategic plan, reducing impaired loan ratio to below 10%, improving operating profitability/RWAs above 1% while maintaining the CET1 ratio at about to 14% in the medium term. Improvement of loan loss coverage ratios would also be rating-positive. -- An upward revision of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank, which Fitch deems highly unlikely. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS DEPOSIT RATINGS Fitch has assigned long- and short-term deposits ratings of 'B+' and 'B', respectively. The long-term deposit rating is one notch above the Long-Term IDR because of full depositor preference in Greece and Fitch's expectation that Alpha Bank will comply with its final minimum requirement for own funds and eligible liabilities (MREL), which will be binding by end-2025. Based on the insolvency ranking in Greece, deposits rank senior to all senior debt. Alpha Bank's current resolution debt buffer is small but, Fitch expects it to grow as the bank issues senior debt. A larger equity- and resolution debt buffer will ultimately provide protection for depositors. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Factor that could, individually or collectively, lead to negative rating action/downgrade: -- The long-term deposit ratings could be downgraded if the bank's Long-Term IDR was downgraded. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The long-term deposit debt ratings could be upgraded if the bank's Long-Term IDR was upgraded. -- The long-term deposit ratings could also be upgraded if the bank intends to meet resolution buffer requirements without senior preferred debt issued at the operating company level or if Alpha Bank's resolution debt buffer excluding senior preferred debt issued at the operating company level exceeds 10% of RWAs on a sustained basis, both of which Fitch does not expect. VR ADJUSTMENTS The Operating Environment score has been assigned below the implied score due to the following adjustment reason: Sovereign Rating (negative) The Business Profile score has been assigned below the implied score due to the following adjustment reason: Business Model (negative) The Capitalisation & Leverage score has been assigned below the implied score due to the following adjustment reason: Reserve Coverage and Asset Valuation (negative) The Funding & Liquidity score has been assigned below the implied score due to the following adjustment reason: Liquidity Access and Ordinary Support (negative) BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. EUROBANK SA: Fitch Raises LongTerm IDR to 'B+', Outlook Stable -------------------------------------------------------------- Fitch Ratings has upgraded Eurobank S.A.'s Long-Term Issuer Default Rating (IDR) to 'B+' from 'B-' and Viability Rating (VR) to 'b+' from 'b-'. The Outlook on the Long-Term IDR is Stable. The two-notch upgrade reflects Eurobank's strong progress in reducing the stock of impaired loans in the last two years, despite the challenges posed by the pandemic, which has resulted in a significant decline in the level of capital encumbered by problem assets. As a result, recurring earnings prospects for Eurobank have also improved, albeit from modest levels. The upgrade is underpinned by Fitch's view that although the operating environment for Greek banks remains challenging, it has materially improved, which Fitch has reflected in a two-notch upgrade of Fitch's operating environment score to 'bb-'/stable from 'b'/positive. Fitch expects the Greek banks to benefit from a recovery of the Greek economy, accompanied by declining unemployment, and from continued normalised access to market funding. Combined with the Greek banks' accelerated asset quality clean-up, this should be supportive of new bank lending and overall business prospects. Fitch has withdrawn Eurobank's Support Rating and Support Rating Floor as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on 12 November 2021. In line with the updated criteria, Fitch has assigned Eurobank a Government Support Rating (GSR) of 'no support' (ns). KEY RATING DRIVERS IDRs AND VR Eurobank's IDRs and VR reflect its improved asset quality and capitalisation, although they remain weaker than European averages. The ratings also factor in the bank's restored ability to generate recurring earnings after the completion of the bulk of its de-risking and strengthened funding and liquidity. Fitch assesses Eurobank based on the credit profile of the consolidated banking group, which includes the holding company Eurobank Ergasias Services and Holdings S.A. Eurobank's impaired loan ratio declined to 7.6% (8.4% excluding EUR3.5 billion retained guaranteed senior notes from its non-performing loan securitisations) at end-September 2021 from 29% at end-2019, as the bank completed two large securitisations of close to EUR11 billion of impaired loans making use of the Hellenic Asset Protection Scheme. Following these transactions, loan loss allowances covered 71% of Eurobank's impaired loans at end-September 2021 (55% at end-2019), which is above the sector average. Including net foreclosed assets, the bank's problem assets ratio was below 10%, which is the lowest among Greek and Cypriot banks. Fitch expects Eurobank's impaired loan ratio to decrease to mid-single digit levels by end-2022, largely helped by organic work-outs, dynamic loan expansion and further smaller impaired loan portfolio sales or securitisations, which should offset moderate impaired loan inflows. Payment performance on loans under moratoria that have already expired has been sound to date. However, borrowers that still benefit from active moratoria or Gefyra state-support programmes (8% of gross loans at end-September 2021) pose potential non-performance risks, particularly in the context of potential renewed health restrictions, inflationary pressures or changes in borrowers' financial conditions. Eurobank's common equity Tier 1 (CET1) ratio stood at 13.3% at end-September 2021 (12.3% on a fully-loaded basis), pro-forma for interim profits and the reduced risk-weighted assets (RWAs) from the securitisation of impaired loans in 4Q21. Fitch expects that Eurobank's CET1 ratio will remain at about 14% in the medium term as the bank's improving internal capital generation and additional capital-accretive actions will offset the pending regulatory impacts and increasing RWAs from loan growth. Similar to other Greek banks, Eurobank's capitalisation remains sensitive to the large proportion of deferred tax credits (DTCs), which represented 66% of the bank's regulatory CET1 capital at end-September 2021. The amortisation of these DTCs will take a long time, although they should be absorbed by the bank's improved capacity to generate earnings. Encumbrance of CET1 capital by unreserved problem assets decreased significantly to 27% at end-September 2021 (end-2019: 93%) and is now closer to higher-rated southern European banks. Eurobank's exposure to Greek government debt (BB/Positive) is material at about 90% of CET1 capital at end-September 2021, and could negatively affect capital in case of significant credit spread widening. However, this risk is mitigated by the bank's amortised cost accounting for a significant share of these securities. Eurobank's de-leveraging has improved its ability to generate recurring earnings and Fitch expects the bank will maintain operating profit/RWAs above 1% in 2021-2022 and gradually head to levels more commensurate with its risk profile. Eurobank's earnings should also benefit growth in fee income, contained costs, and unlike some of its peers, from positive contributions of its international operations. Eurobank's funding and liquidity have improved on sustained growth in customer deposits, restored access to financial markets and extensive use of the TLTRO-III funding from the ECB. Eurobank's liquidity remains prone to sudden changes in creditor sentiment, but Fitch believes the bank's improved credit profile and supportive stance from the ECB prevent cliff-edge risks. Eurobank's Short-Term IDR of 'B' is in line with the 'B+' Long-Term IDR under Fitch's rating correspondence table. GSR Eurobank's GSR reflects Fitch's view that although external extraordinary sovereign support is possible it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign support. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The ratings would likely be downgraded if renewed health restrictions or an inflationary shock materially weakened Greece's economic recovery prospects, resulting in asset quality pressures, with Eurobank reaching an impaired loan ratio above 10%, larger-than-expected credit losses reducing the operating profit/RWAs ratio below 1% on a sustained basis or material weakening of capitalisation, including encumbrance from unreserved problem assets. -- Downside pressure on the ratings could also stem from a sudden weakening of creditor sentiment, worsened access to financial markets or abrupt withdrawal of central bank support, pressuring the bank's liquidity position or the value of the debt securities portfolio. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade would depend on a further improvement of the operating environment and a continued reduction of Eurobank's asset-encumbrance from unreserved problem assets (impaired loan ratio below 5%, provided that the CET1 ratio is maintained at about 14%). Operating profit/RWAs above 1.25% on a sustained basis would also be rating-positive. -- An upward revision of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank, which Fitch deems highly unlikely. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS DEPOSIT RATINGS Fitch has assigned long- and short-term deposits ratings of 'BB-' and 'B', respectively. The long-term deposit rating is one notch above the Long-Term IDR because of full depositor preference in Greece and Fitch's expectation that Eurobank will comply with its final minimum requirement for own funds and eligible liabilities (MREL), which will be binding by end-2025. Based on the insolvency ranking in Greece, deposits rank senior to all senior debt. Eurobank's current resolution debt buffer is small but, Fitch expects it to grow as the bank issues senior debt. A larger equity- and resolution debt buffer will ultimately provide protection for depositors. SENIOR PREFERRED DEBT Eurobank's long-term senior preferred debt is rated in line with the bank's Long-Term IDR, reflecting Fitch's view that the probability of default on senior preferred obligations is the same as that of the bank. The Recovery Rating of 'RR4' reflects Fitch's expectation of average recovery prospects for senior preferred creditors, considering the completion of the bank's de-risking plan and expected build-up of resolution buffers. Eurobank's short-term senior preferred debt rating of 'B' is aligned with the bank's Short-Term IDR. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The long-term deposit and senior preferred debt ratings could be downgraded if the bank's Long-Term IDR was downgraded. -- The senior preferred debt ratings could also be downgraded if Fitch believes that recoveries for the bank's senior preferred creditors have weakened and become below-average (RR5) or poor (RR6). This could be the case if the bank's asset quality or capitalisation markedly deteriorates unexpectedly. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The long-term deposit and senior preferred debt ratings could be upgraded if the bank's Long-Term IDR was upgraded. -- The long-term deposit and senior preferred debt ratings could also be upgraded if the bank intends to meet resolution buffer requirements without senior preferred debt issued at the operating company level or if Eurobank's resolution debt buffer excluding senior preferred debt issued at the operating company level exceeds 10% of RWAs on a sustained basis, both of which Fitch does not expect. VR ADJUSTMENTS The Operating Environment score has been assigned below the implied score due to the following adjustment reason: Sovereign Rating (negative) The Business Profile score has been assigned below the implied score due to the following adjustment reason: Business Model (negative) The Capitalisation & Leverage score has been assigned below the implied score due to the following adjustment reason: Reserve Coverage and Asset Valuation (negative) The Funding & Liquidity score has been assigned below the implied score due to the following adjustment reason: Liquidity Access and Ordinary Support (negative) BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. NATIONAL BANK: Fitch Raises LT IDR to 'B+', Outlook Stable ---------------------------------------------------------- Fitch Ratings has upgraded National Bank of Greece S.A.'s (NBG) Long-Term Issuer Default Rating (IDR) to 'B+' from 'B-' and Viability Rating (VR) to 'b+' from 'b-'. The Outlook on the Long-Term IDR is Stable. The two-notch upgrade reflects NBG's strong progress in reducing the stock of impaired loans in the last two years, despite the challenges posed by the pandemic, which has resulted in a significant decline in the level of capital encumbered by problem assets. As a result, recurring earnings prospects for NBG have also improved, albeit from modest levels. The upgrade is underpinned by Fitch's view that although the operating environment for Greek banks remains challenging, it has materially improved, which Fitch has reflected in a two-notch upgrade of Fitch's operating environment score to 'bb-'/stable' from 'b'/positive. Fitch expects Greek banks to benefit from a recovery of the Greek economy, accompanied by declining unemployment, and from continued normalised access to market funding. Combined with the Greek banks' accelerated asset quality clean-up, this should be supportive of new bank lending and overall business prospects. Fitch has withdrawn NBG's Support Rating and Support Rating Floor as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on 12 November 2021. In line with the updated criteria, Fitch has assigned NBG a Government Support Rating (GSR) of 'no support' (ns). KEY RATING DRIVERS IDRs AND VR NBG's IDRs and VR reflect the bank's improved asset quality, although it remains weaker than European averages. The ratings also factor in the bank's stable capitalisation levels, improved ability to generate recurring earnings as it has completed most of its planned de-risking measures, and its good funding and liquidity. NBG's impaired loan ratio declined to 11.7% (12.9% excluding EUR3 billion retained state-guaranteed notes from its impaired loan securitisations) at end-September 2021 from 31% at end-2019. This was due to net impaired loan outflows and a large impaired loan securitisation of close to EUR6 billion using the Hellenic Asset Protection Scheme. Loan loss allowances covered 69% of NBG's impaired loans at end-September 2021 (53% at end-2019), which is above the sector average. Including net foreclosed assets, the bank's problem assets ratio was about 14% at end-September 2021, which is among the lowest for Greek and Cypriot banks. Fitch expects NBG's impaired loan ratio to decrease to mid-single digit levels by end-2022 as restructurings, dynamic loan expansion and residual impaired loan sales should offset moderate impaired loan inflows. To date, payment performance on expired moratoria has been sound, but borrowers that still benefit from forbearance measures or state support programmes pose potential non-performance risks. These accounted for 8% of gross loans at end-September 2021, and would particularly be at risk in case of renewed health restrictions or if inflationary pressures place a greater burden borrowers' creditworthiness. NBG had the highest common equity Tier 1 (CET1) ratio of Greek banks at 17.9% (fully-loaded: 15.7%) at end-September 2021, pro forma for interim profits and reduced risk-weighted assets (RWAs) from completing its impaired loan securitisation in 4Q21. Fitch expects that NBG's CET1 ratio will remain at about 16% in the medium term as the bank's internal capital generation will improve with earnings growth. Furthermore, capital-accretive measures (including the expected sale of the insurance business in 2022) will offset the impact from phasing-in of new prudential rules and RWA growth from loan expansion. Similar to other Greek banks, NBG's capitalisation remains sensitive to the large proportion of deferred tax credits (DTC), which represent the majority of the bank's regulatory CET1 capital (82% at end-September 2021). The amortisation of these DTCs will take a long time, although they should be absorbed by the bank's improved capacity to generate earnings. Encumbrance of CET1 capital by unreserved problem assets had decreased significantly to 33% at end-September 2021 (end-2019: 94%) and is now closer to higher-rated southern European banks). NBG's exposure to Greek government debt (BB/Positive) is substantial, at about 150% of CET1 capital at end-September 2021, and could negatively affect capital in case of significant credit spread widening. This risk is mitigated by the bank's amortised cost accounting for these securities. NBG's de-leveraging has improved its ability to generate recurring earnings and Fitch expects the bank will maintain operating profit/RWAs above 1% in 2021-2022 and gradually reach levels more commensurate with the bank's risk profile. NBG's earnings should also benefit from growth in fee income and cost-reduction measures, where the bank still has some scope to improve. NBG's funding and liquidity continued to improve with sustained deposit growth, restored access to financial markets and extensive use of the TLTRO-III funding from the ECB. NBG's liquidity is stronger than Greek peers but also remains prone to sudden changes in creditor sentiment. However, Fitch believes the bank's improving credit profile and the ECB's supportive stance prevent cliff-edge risks. NBG's Short-Term IDR of 'B' is in line with the 'B+' Long-Term IDR under Fitch's rating correspondence table. GSR NBG's GSR reflects Fitch's view that although external extraordinary sovereign support is possible it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign support. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: IDRs AND VR -- Fitch would likely downgrade the ratings if renewed health restrictions or an inflationary shock materially weakened Greece's economic recovery prospects, resulting in asset quality pressures, with NBG reaching an impaired loan ratio above 10%, larger-than-expected credit losses reducing the operating profit/RWAs ratio below 1% on a sustained basis or material weakening of capitalisation, including encumbrance from unreserved problem assets. -- Downside pressure on the ratings could also stem from a sudden weakening of creditor sentiment, worsened access to financial markets or abrupt withdrawal of central bank support, pressuring the bank's liquidity position or the value of the debt securities portfolio. Factors that could, individually or collectively, lead to positive rating action/upgrade: IDRs AND VR -- An upgrade would depend on a further improvement of the operating environment and a continued reduction of NBG's asset-encumbrance from unreserved problem assets (impaired loan ratio below 5%, provided that the CET1 ratio is maintained at about 14%). Operating profit/RWAs above 1.25% on a sustained basis would also be rating-positive. GSR -- An upward revision of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank, which Fitch deems highly unlikely. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS DEPOSIT RATINGS Fitch has assigned NBG long- and short-term deposits ratings of 'BB-' and 'B', respectively. The long-term deposit rating is one notch above the Long-Term IDR because of full depositor preference in Greece and Fitch's expectation that NBG will comply with its final minimum requirement for own funds and eligible liabilities (MREL), which will be binding by end-2025. Based on the insolvency ranking in Greece, deposits rank senior to all senior debt. NBG's current resolution debt buffer is small but, Fitch expects it to grow as the bank issues senior debt. A larger equity- and resolution debt buffer will ultimately provide protection for depositors. SENIOR PREFERRED DEBT NBG's long-term senior preferred debt is rated in line with the bank's Long-Term IDR, reflecting that the probability of default on senior preferred obligations is the same as that of the bank. The Recovery Rating of 'RR4' reflects Fitch's expectation of average recovery prospects for senior preferred creditors, considering the completion of the bank's de-risking plan and expected build-up of resolution buffers. NBG's short-term senior preferred debt rating of 'B' is aligned with the bank's Short-Term IDR. SUBORDINATED DEBT NBG's subordinated debt rating of 'B-'/'RR6' is two notches below the bank's VR, reflecting poor recovery prospects in case of a failure of the bank. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: DEPOSIT RATINGS, SENIOR PREFERRED DEBT, SUBORDINATED DEBT -- The long-term deposit and senior preferred debt ratings could be downgraded if the bank's Long-Term IDR was downgraded. -- The senior preferred debt ratings could also be downgraded if Fitch believes that recoveries for the bank's senior preferred creditors have weakened and become below-average (RR5) or poor (RR6). This could be the case if the bank's asset quality or capitalisation markedly deteriorates unexpectedly. -- The ratings of the subordinated notes are primarily sensitive to changes in NBG's VR. Factors that could, individually or collectively, lead to positive rating action/upgrade: DEPOSIT RATINGS, SENIOR PREFERRED DEBT, SUBORDINATED DEBT -- The long-term deposit and senior preferred debt ratings could be upgraded if the bank's Long-Term IDR is upgraded. -- The long-term deposit and senior preferred debt ratings could also be upgraded if the bank expects to meet resolution buffer requirements without senior preferred debt or if NBG's resolution debt buffer excluding senior preferred debt exceeds 10% of RWAs on a sustained basis, both of which Fitch does not expect. -- The ratings of the subordinated notes are primarily sensitive to changes in NBG's VR. VR ADJUSTMENTS The Operating Environment score has been assigned below the implied score due to the following adjustment reason(s): Sovereign Rating (negative). The Business Profile score has been assigned below the implied score due to the following adjustment reason(s): Business Model (negative). The Capitalisation & Leverage score has been assigned below the implied score due to the following adjustment reason(s): Reserve Coverage and Asset Valuation (negative). BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. PIRAEUS BANK: Fitch Raises LT IDR to 'B-', Outlook Positive ----------------------------------------------------------- Fitch Ratings has upgraded Piraeus Bank S.A.'s Long-Term Issuer Default Rating (IDR) to 'B-' from 'CCC+' and Viability Rating (VR) to 'b-' from 'ccc+'. The Outlook on the Long-Term IDR is Positive. The upgrade follows Piraeus's strong progress in reducing its stock of impaired loans in the last year despite the challenges posed by the pandemic. The Positive Outlook reflects Fitch's expectation that additional asset-quality clean-up and an improvement in profitability will further reduce the high level of capital encumbered by problem assets during 2022, which at Piraeus is higher than for other Greek banks. The upgrade is underpinned by Fitch's view that although the operating environment for Greek banks remains challenging, it has materially improved, which Fitch has reflected in a two-notch upgrade of Fitch's operating environment score to 'bb-'/stable from 'b'/positive. Fitch expects Greek banks to benefit from a recovery of the Greek economy, accompanied by declining unemployment, and from continued favourable normalised access to market funding. Combined with the Greek banks' accelerated asset quality clean-up, this should be supportive of new bank lending and overall business prospects. Rating Withdrawals Fitch has withdrawn Piraeus's Support Rating and Support Rating Floor as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on November 12, 2021. In line with the updated criteria, Fitch has assigned Piraeus a Government Support Rating (GSR) of 'no support' (ns). KEY RATING DRIVERS IDRs AND VR Piraeus's IDRs and VR reflect its weak capitalisation. Piraeus's 'b-' VR is one notch below the 'b' implied VR because its capitalisation and leverage, which Fitch scores at 'b-', have a strong impact on Fitch's overall view of the bank's credit profile. The ratings also reflect materially improved asset quality, although it remains weaker than its Greek peers, and the bank's significant restructuring, which puts it in a good position to return to recurring profitability, as well as its strengthened funding and liquidity. Fitch assesses Piraeus based on the credit profile of the consolidated banking group, which includes the holding company, Piraeus Financial Holdings S.A. Key Rating Driver 1 Piraeus had the weakest common equity Tier 1 (CET1) ratio of Greek banks at 11.3% (fully-loaded: 8.9%) at end-September 2021, pro forma for the completion of the Sunrise II impaired loan securitisation and the sale of Piraeus's merchant acquiring business. This is because the bank implemented a balance sheet clean-up after the capital increase of EUR1.4 billion in 2Q21. Fitch expects that Piraeus's CET1 ratio will return to about 13% by end-2022 as the bank implements additional capital-strengthening measures and returns to generating profits on a recurring basis. Similar to other Greek banks, Piraeus's capitalisation remains sensitive to a large proportion of deferred tax credits (DTCs), which represent nearly all of the bank's CET1 capital. The amortisation of these DTCs will take a long time, although they should be absorbed by the bank's improved capacity to generate earnings. Encumbrance of pro forma CET1 capital by unreserved problem assets has decreased substantially but remained very high at about 152% at end-September 2021 (end-2019: 240%). Further impaired loan sales and capital-strengthening measures should bring Piraeus's capital encumbrance closer to peers in the short-term. Piraeus's exposure to Greek government debt (BB/Positive) is significant, at about 300% of pro forma CET1 capital at end-September 2021, and could negatively affect capital in case of significant credit spread widening. However, this risk is mitigated by the bank's amortised cost accounting for a large share of these securities. Piraeus's impaired loan ratio significantly declined to 16.6% (19.2% excluding retained state-guaranteed notes from its impaired loan securitisations) at end-September 2021 from 49% at end-2019, mainly due to large impaired loan securitisations and sales of nearly EUR17 billion of impaired loans making use of the Hellenic Asset Protection Scheme. Loan loss allowances covered 39% of Piraeus's impaired loans at end-September 2021 (45% at end-2019), which is weaker than the sector. Including net foreclosed assets, the bank's problem assets ratio was about 24% at end-September 2021, which remains among the highest for Greek banks. Fitch expects Piraeus's impaired loan ratio to decrease to high-single digit levels by end-2022 as restructurings, dynamic loan expansion and additional impaired loan sales and securitisations should offset impaired loan inflows. Payment performance on loans under moratoria has been adequate to date. However, borrowers that still benefit from forbearance measures or state support programmes (about 5% of gross loans at end-September 2021) pose potential non-performance risks, particularly in the context of potential renewed health restrictions or if inflationary pressures place a greater burden on borrowers' creditworthiness. Piraeus's significant de-leveraging positions the bank to return to operating profitability, although it caused large losses and required large equity-and hybrid capital raises in recent years. Fitch expects Piraeus will record weak earnings in 2022 and that the bank's profitability will improve gradually in the medium term supported by lower loan impartment charges, with growth in fee income and cost-reduction measures, where the bank still has some scope to improve. Piraeus's funding and liquidity continued to improve with sustained deposit growth, restored access to financial markets across the capital structure and extensive use of central bank funding. Piraeus's liquidity remains prone to sudden changes in creditor sentiment. Fitch believes the bank's improving credit profile and the ECB's supportive stance prevent cliff-edge risks. Piraeus's Short-Term IDR of 'B' is in line with the 'B-' Long-Term IDR under Fitch's rating correspondence table. Key Rating Driver 2 GSR Piraeus's GSR reflects Fitch's view that although external extraordinary sovereign support is possible it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign support. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: IDRs AND VR -- The Outlook could be revised to Stable if the bank's planned impaired loan securitisations are delayed or if capitalization does not increase from current levels. -- The ratings would likely be downgraded if renewed health restrictions or an inflationary shock materially weakened Greece's economic recovery prospects, resulting in asset quality pressures, with Piraeus's impaired loan ratio reverting to levels above 18% and material weakening of capitalisation, including encumbrance from unreserved problem assets. -- Downside pressure on the ratings could also stem from a sudden weakening of creditor sentiment, worsened access to financial markets or abrupt withdrawal of central bank support, pressuring the bank's liquidity position or the value of the debt securities portfolio. Factors that could, individually or collectively, lead to positive rating action/upgrade: IDRs AND VR -- The Positive Outlook on Piraeus's Long-Term IDR indicates that an upgrade is likely over the next 24 months if the economic environment in Greece remains supportive and the bank successfully executes its strategic plan, reducing the impaired loan ratio towards 10% and lowering capital encumbrance by unreserved problem assets below 100% of CET1 capital, while improving the CET1 ratio to close to 13%. Improved internal capital generation would also be rating- positive. GSR -- An upward revision of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank, which Fitch deems highly unlikely. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS DEPOSIT RATINGS Fitch has assigned long- and short-term deposits ratings of 'B' and 'B', respectively. The long-term deposit rating is one notch above the Long-Term IDR because of full depositor preference in Greece and Fitch's expectation that Piraeus will comply with its final minimum requirement for own funds and eligible liabilities (MREL), which will be binding by end-2025. Based on the insolvency ranking in Greece, deposits rank senior to all senior debt. Piraeus's resolution debt buffer is moderate and Fitch expects it to grow from incremental issuance. A larger equity-and resolution debt buffer will ultimately provide protection for depositors. SENIOR PREFERRED DEBT Piraeus's long-term senior preferred debt is rated in line with the bank's Long-Term IDR, reflecting Fitch's view that the probability of default on senior preferred obligations is the same as that of the bank. The improved Recovery Rating of 'RR4', from 'RR5' previously, reflects Fitch's view that recovery prospects for senior preferred creditors are now 'average', instead of 'below average' because of the bank's de-risking plan and expected capitalisation. Fitch also expects protection available to senior preferred creditors to increase as Piraeus builds up larger resolution buffers. Piraeus's short-term senior preferred debt rating of 'B' is aligned with the bank's Short-Term IDR. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: DEPOSIT RATINGS, SENIOR PREFERRED DEBT -- The long-term deposit and senior preferred debt ratings could be downgraded if the bank's Long-Term IDR was downgraded. -- The senior preferred debt ratings could also be downgraded if Fitch believes that recoveries for the bank's senior preferred creditors have weakened and become below-average (RR5) or poor (RR6). This could be the case if the bank's asset quality or capitalisation markedly deteriorate. Factors that could, individually or collectively, lead to positive rating action/upgrade: DEPOSIT RATINGS, SENIOR PREFERRED DEBT -- The long-term deposit and senior preferred debt ratings could be upgraded if the bank's Long-Term IDR was upgraded. -- The long-term deposit and senior preferred debt ratings could also be upgraded if the bank expects to meet resolution buffer requirements without senior preferred debt issued at the operating company level or if Piraeus's resolution debt buffer excluding senior preferred debt issued at the operating company level exceeds 10% of risk-weighted assets on a sustained basis, both of which Fitch does not expect. VR ADJUSTMENTS The Viability Rating has been assigned below the implied Viability Rating due to the following adjustment reason(s): Weakest Link - Capitalisation and Leverage (negative). The Operating Environment score has been assigned below the implied score due to the following adjustment reason(s): Sovereign Rating (negative). The Business Profile score has been assigned below the implied score due to the following adjustment reason(s): Business Model (negative). The Funding & Liquidity score has been assigned below the implied score due to the following adjustment reason(s): Liquidity Access and Ordinary Support (negative). BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ============= I R E L A N D ============= BBAM CLO III: Fitch Gives 'B-(EXP)' Rating to Class F Debt ----------------------------------------------------------- Fitch Ratings has assigned BBAM CLO III DAC expected ratings. The assignment of final ratings is contingent on final documents conforming to the information used for the analysis. DEBT RATING ---- ------ BBAM CLO III DAC A LT AAA(EXP)sf Expected Rating B-1 LT AA(EXP)sf Expected Rating B-2 LT AA(EXP)sf Expected Rating C LT A(EXP)sf Expected Rating D LT BBB-(EXP)sf Expected Rating E LT BB-(EXP)sf Expected Rating F LT B-(EXP)sf Expected Rating Sub Notes LT NR(EXP)sf Expected Rating Z notes LT NR(EXP)sf Expected Rating TRANSACTION SUMMARY BBAM CLO III DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans, first-lien last-out loans and high-yield bonds. The portfolio will be actively managed by BlueBay Asset Management LLP. The transaction has a 4.6-year reinvestment period and an 8.6-year weighted average life (WAL). The note proceeds will be used to fund a portfolio with a target par amount of EUR400 million. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'/'B-'. The Fitch-calculated weighted average rating factor (WARF) of the identified portfolio is 25.04. High Recovery Expectations (Positive): Senior secured obligations comprise 90% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate (WARR) of the identified portfolio is 62.75%. Diversified Portfolio (Positive): The transaction has a concentration limit for the 10 largest obligors and fixed-rate assets at 20% and 10%, respectively. The transaction also includes various concentration limits, including a 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 4.6-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Modelling (Positive): The WAL used for the transaction's stressed portfolio analysis is 12 months less than the WAL covenant at the issue date. This reduction to the risk horizon accounts for the strict reinvestment conditions envisaged after the reinvestment period. These include passing both the coverage and the Fitch 'CCC' limit tests after reinvestment and a WAL covenant that progressively steps down, both before and after the end of the reinvestment period. In Fitch's opinion, these conditions would reduce the effective risk horizon of the portfolio during the stress period. 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 in the stressed portfolio would result in downgrades of no more than five notches. -- Downgrades may occur if the build-up of the notes' credit enhancement (CE) 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 RRR at all rating levels would lead to an upgrade of up to two notches for the rated notes, except the class A notes, which are already the highest rating on Fitch's scale and cannot be upgraded. -- Upgrades could occur after the end of the reinvestment period if the portfolio's credit quality and deal performance are better than expected, leading to higher CE 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. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CAIRN CLO XV: Fitch Gives Final 'B-(EXP)' Rating to Cl. F Debt -------------------------------------------------------------- Fitch Ratings has assigned Cairn CLO XV DAC expected ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. DEBT RATING ---- ------ CAIRN CLO XV DAC A LTAAA(EXP)sf Expected Rating B-1 LTAA(EXP)sf Expected Rating B-2 LTAA(EXP)sf Expected Rating C LT A(EXP)sf Expected Rating D LT BBB-(EXP)sf Expected Rating E LT BB-(EXP)sf Expected Rating F LT B-(EXP)sf Expected Rating M-1 LT NR(EXP)sf Expected Rating M-2 LT NR(EXP)sf Expected Rating TRANSACTION SUMMARY Cairn CLO XV is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine, and second-lien loans. Note proceeds are being used to fund a portfolio with a target par of EUR400 million. The portfolio is actively managed by Cairn Loan Investments II LLP. The collateralised loan obligation (CLO) has an approximately 4.6-year reinvestment period and an approximately 8.6-year weighted average life (WAL). KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors in the 'B' category. The Fitch weighted average rating factor (WARF) of the identified portfolio is 24.08. 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 62.97%. Diversified Portfolio (Positive): The expected rating analysis is based on a top 10-obligor limit at 20%, and a maximum fixed-rate asset limit at 10%. The transaction also includes various concentration limits, including a maximum exposure to the three-largest Fitch-defined industries in the portfolio at 40%. These covenants ensure the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has an approximately 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 (Positive): The WAL used for the transaction's matrix and stressed portfolio analysis is 12 months less than the WAL covenant at the issue date. This reduction to the risk horizon accounts for the strict reinvestment conditions envisaged by the transaction after its reinvestment period. These include, among others, passing both the coverage tests and the Fitch 'CCC' bucket limitation test, together with a progressively decreasing WAL covenant. These conditions, in the agency's opinion, reduces the effective risk horizon of the portfolio during stress periods. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings would result in downgrades of up to four 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 RDR across all ratings and a 25% increase in the RRR across all ratings would result in upgrades of up to three notches across the structure except for 'AAAsf' 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 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. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CAIRN CLO XV: Moody's Assigns (P)B3 Rating to EUR12MM Cl. F Notes ----------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following provisional ratings to notes to be issued by Cairn CLO XV Designated Activity Company (the "Issuer"): EUR248,000,000 Class A Senior Secured Floating Rate Notes due 2036, Assigned (P)Aaa (sf) EUR30,500,000 Class B-1 Senior Secured Floating Rate Notes due 2036, Assigned (P)Aa2 (sf) EUR10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2036, Assigned (P)Aa2 (sf) EUR24,200,000 Class C Senior Secured Deferrable Floating Rate Notes due 2036, Assigned (P)A2 (sf) EUR29,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2036, Assigned (P)Baa3 (sf) EUR19,800,000 Class E Senior Secured Deferrable Floating Rate Notes due 2036, Assigned (P)Ba3 (sf) EUR12,000,000 Class F Senior Secured Deferrable Floating Rate Notes due 2036, Assigned (P)B3 (sf) RATINGS RATIONALE The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in Moody's methodology. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured obligations and up to 10% of the portfolio may consist of senior unsecured obligations, second-lien loans, mezzanine obligations and high yield bonds. The portfolio is expected to be 90% ramped as of the closing date and to comprise of predominantly corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the six-month ramp-up period in compliance with the portfolio guidelines. Cairn Loan Investments II LLP will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's 4.6-year reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or credit improved obligations. In addition to the seven classes of notes rated by Moody's, the Issuer will issue EUR26,600,000 of M-1 Subordinated Notes due 2036 and EUR9,600,000 of M-2 Subordinated Notes due 2036 which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. 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 2021. Moody's used the following base-case modeling assumptions: Par Amount: EUR400,000,000 Diversity Score(*): 39 Weighted Average Rating Factor (WARF): 2925 Weighted Average Spread (WAS): 3.75% Weighted Average Coupon (WAC): 4.50% Weighted Average Recovery Rate (WARR): 43.0% Weighted Average Life (WAL): 7.6 years HARVEST CLO XVIII: Moody's Affirms B1 Rating on EUR10.5MM F Notes ----------------------------------------------------------------- Moody's Investors Service has upgraded the rating on the following notes issued by Harvest CLO XVIII DAC: EUR56,500,000 Class B Senior Secured Floating Rate Notes due 2030, Upgraded to Aaa (sf); previously on Oct 5, 2020 Affirmed Aa1 (sf) EUR33,500,000 Class C Senior Secured Deferrable Floating Rate Notes due 2030, Upgraded to A1 (sf); previously on Oct 5, 2020 Affirmed A2 (sf) Moody's has also affirmed the ratings on the following notes: EUR197,000,000 Class A-1 Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Oct 5, 2020 Affirmed Aaa (sf) EUR30,000,000 Class A-2 Senior Secured Fixed Rate Notes due 2030, Affirmed Aaa (sf); previously on Oct 5, 2020 Affirmed Aaa (sf) EUR22,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed Baa2 (sf); previously on Oct 5, 2020 Confirmed at Baa2 (sf) EUR21,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed Ba2 (sf); previously on Oct 5, 2020 Confirmed at Ba2 (sf) EUR10,500,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed B1 (sf); previously on Oct 5, 2020 Confirmed at B1 (sf) Harvest CLO XVIII DAC, issued in January 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly senior secured European and US loans. The portfolio is managed by Investcorp Credit Management EU Limited. The transaction's reinvestment period will end in April 2022. RATINGS RATIONALE The rating upgrades on the Class B and C notes are primarily a result of the benefit of the shorter period of time remaining before the end of the reinvestment period in April 2022. In light of reinvestment restrictions during the amortisation period, and therefore the limited ability to effect significant changes to the current collateral pool, Moody's analysed the deal assuming a higher likelihood that the collateral pool characteristics would maintain an adequate buffer relative to certain covenant requirements. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's used the following assumptions: Performing par and principal proceeds balance: EUR396,887,161 Defaulted Securities: EUR664,848 Diversity Score: 60 Weighted Average Rating Factor (WARF): 2973 Weighted Average Life (WAL): 4.73 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.67% Weighted Average Coupon (WAC): 3.63% Weighted Average Recovery Rate (WARR): 45.04% Par haircut in OC tests and interest diversion test: none The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. 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 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank and swap provider, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in May 2021. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the note, in light of uncertainty about credit conditions in the general economy. In particular, the length and severity of the economic and credit shock precipitated by the global coronavirus pandemic will have a significant impact on the performance of the securities. CLO notes' performance may also be impacted either positively or negatively by 1) the manager's investment strategy and behaviour and 2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to the following: Portfolio amortisation: Once reaching the end of the reinvestment period in April 2022, the main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analysed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. ========= I T A L Y ========= PIETRA NERA: Fitch Affirms CCC Rating on Class E Debt ----------------------------------------------------- Fitch Ratings has revised Pietra Nera Uno S.r.l.'s Outlook to Stable from Negative and affirmed the ratings. DEBT RATING PRIOR ---- ------ ----- PIETRA NERA UNO S.R.L. A IT0005324402 LT Asf Affirmed Asf B IT0005324410 LT BBB-sf Affirmed BBB-sf C IT0005324428 LT BBsf Affirmed BBsf D IT0005324436 LT Bsf Affirmed Bsf E IT0005324444 LT CCCsf Affirmed CCCsf TRANSACTION SUMMARY The transaction is a securitisation of three commercial mortgage loans originally totalling EUR403.8 million to Italian borrowers sponsored by Blackstone funds. The loans are all variable-rate (with variable margins) and secured on four Italian retail properties - a Sicilian shopping centre (Palermo loan) and three fashion retail outlet villages (two for the Fashion District loan and another for the Valdichiana loan). The transaction has a liquidity facility of EUR14.7 million available to cover interest on the class A and B notes and amortises in line with their aggregate balance. Since the last rating action in March 2021, EUR3.6 million of additional amortisation funds have been collected, bringing the total repaid since closing up to EUR8.4 million. Any deleveraging effect has been generally counteracted by a reduction in collateral value which, according to the latest valuation in November 2021, has decreased by 9.2% since March 2019 and 6.6% since closing. Despite debt yield improving across all three loans, two remain in cash trap, albeit with only small amounts reserved so far. Palermo is the only one no longer in cash trap mode, and Fitch expects the others to follow as business rebounds and tenants resume their operations, subject to the risk of a re-emergence of the pandemic in Italy. KEY RATING DRIVERS Stabilising Rental Prospects: Despite adverse footfall conditions, the underlying properties have maintained occupancy and contracted income fairly well, without any major deviation in performance after the initial impact of the pandemic. Collection rates across comparable properties have materially improved towards 80% on full invoiced amounts. The properties' updated valuation is the first since the onset of the pandemic and a significant correction was already anticipated in Fitch's ratings. Estimated rental levels (consisting of base and turnover rental amounts) are adequately supported by recent lettings, illustrating that the sector is transitioning out of the pandemic-induced turnover shock, reducing risk of an abrupt loss of income. Fitch has reflected this by resetting the ERV applied in Fitch's analysis at or close to the valuation-implied levels and revising the Outlook to Stable. Localised Uncertainty Remains: While income prospects are stabilising, all the properties have seen their exit yields (assumed in the valuation) rise, with the effect being most acute for the two properties in the south of the country. The Bari (Puglia) and Palermo assets have lost 8.3% and 13.3% of their value, respectively, since closing, reflecting weakness in investor appetite for properties in the less affluent areas. With investors still adjusting their view on the sector, liquidity and the related ability to refinance remain challenged. Pending visible improvement in occupancy, Fitch has maintained its property score for Puglia despite the long-awaited roll-out of phase II. Fitch has increased its base structural vacancy assumption for the Palermo asset to 9% from 7% to account for the higher risk premium, although this is broadly offset by improved ERV and debt dynamics. RATING SENSITIVITIES Factor that could, individually or collectively, lead to negative rating action/downgrade: -- Increase in vacancy and rent decline within the portfolio. The change in model output that would apply with 0.8x cap rates is as follows: -- 'A+sf' / 'Asf' / 'BBB+sf' / 'BB+sf' / 'B+sf' The change in model output that would apply with 1.25x rental value declines is as follows: -- 'A-sf' / 'BBB-sf' / 'BBsf' / 'B-sf' / 'CCCsf' Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Stabilisation of investor sentiment coupled with improved portfolio performance. KEY PROPERTY ASSUMPTIONS (all by market value): -- Total ERV: EUR41.1 million -- Depreciation: 10% -- 'Bsf' weighted average (WA) cap rate: 6.6% -- 'Bsf' WA structural vacancy: 16.3% -- 'Bsf' WA rental value decline: 5% -- 'BBsf' weighted average (WA) cap rate: 7.2% -- 'BBsf' WA structural vacancy: 17.8% -- 'BBsf' WA rental value decline: 7% -- 'BBBsf' WA cap rate: 7.8% -- 'BBBsf' WA structural vacancy: 20.2% -- 'BBBsf' WA rental value decline: 9% -- 'Asf' WA cap rate: 8.4% -- 'Asf' WA structural vacancy: 22.2% -- 'Asf' WA rental value decline: 11% 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. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Pietra Nera Uno S.R.L. has an ESG relevance score of '4' for Rule of Law, Institutional and Regulatory Quality, due to uncertainty of the enforcement process in Italy, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact Pietra Nera Uno S.R.L., either due to their nature or to the way in which they are being managed by Pietra Nera Uno S.R.L. [*] ITALY: Approves EUR8BB Aid Package Amid Soaring Energy Prices ----------------------------------------------------------------- Alessandro Speciale and Chiara Albanese at Bloomberg News report that Italy's government approved almost EUR8 billion (US$9 billion) in aid to shield consumers and companies from soaring energy prices that are weighing on the economic outlook. According to Bloomberg, Prime Minister Mario Draghi told reporters on Feb. 18 some EUR6 billion were allocated for energy aid, while other funds will support industries including the automotive sector. Mr. Draghi's administration had already allotted more than EUR10 billion to offset the energy price spike for consumers, Bloomberg discloses. While these measures are expanded in duration and size, the new package won't require expanding the country's deficit, but will be financed by Italy's better-than-forecast economic performance, Bloomberg notes. Italian energy regulators said that electricity bills could increase 131% in the first quarter and natural-gas bills are expected to rise by more than 90%, Bloomberg relates. =========== R U S S I A =========== JSC R-PHARM: Fitch Assigns 'BB' LongTerm IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has assigned Russia-based JSC R-Pharm a first-time Long-Term Issuer Default Rating (IDR) of 'BB' with a Stable Outlook. The rating of R-Pharm reflects its strong domestic market position as a supplier of essential therapeutic drugs to Russia's public healthcare sector with a diversified product portfolio of in-licenced, mostly patent-protected drugs and own generic and biosimilar products. This is balanced against concentration risks and corporate governance issues, which are only partly mitigated by the presence of international co-investors and the company's conservative financial risk profile. The Stable Outlook reflects Fitch's expectations of consistent operating performance of its core products translating into sustained positive free cash flow (FCF) and conservative financial metrics. KEY RATING DRIVERS Protected Russian Pharma Market: R-Pharm has a solid position as the second-largest integrated national distributor and manufacturer of critical drugs and medical products to public hospitals, which are funded by the federal drug-procurement programme. It further benefits from a portfolio of locally manufactured drugs, which is key to winning state drug tenders as the Russian government seeks to increase the share of essential medicine produced domestically. R-Pharm is also an important producer of Covid-19 drugs and vaccines, which underlines its relevance to the national public healthcare system. Diversified, Defensive Product Portfolio: R-Pharm's rating is adequately placed at the 'BB' level with sizeable operations of USD2.5 billion (based on estimated 2021 revenue) and a well-diversified product portfolio, including blockbuster defensive drugs with a high share of patented original drugs enjoying stable demand. The portfolio is spread across large addressable markets of critical diseases such as oncology, virology/immunology and hospital specialty care including multiple sclerosis, nephrology, endocrinology and rheumatology, in addition to Covid-19 drugs and vaccines. Healthy Profitability: The quality of R-Pharm's well-managed product portfolio is reflected in EBITDA and funds from operations (FFO) margins of around 20%, which is strong for the rating and versus peers'. After a marked increase in capex to RUB11 billion-RUB12 billion in 2020-2021 in large-scale production of Covid-19 vaccines and drugs, Fitch estimates capital intensity will subside in the medium term to RUB5 billion or less a year, leading to sustainably positive FCF. This assumes R-Pharm's capital-allocation policy is based on a 50% target dividend payout, prioritising operational needs and comfortable liquidity. Concentration Risk: R-Pharm's business model is exposed to concentration risk in a single country, with dependence on state budgetary funds based on the government's national healthcare strategy and public drug-procurement policies. While Fitch does not see any immediate acute event risks, changes to the healthcare system and its funding could affect R-Pharm's position in the value chain, and put the rating under pressure. Conservative Credit Metrics: Fitch's rating case to 2025 assumes a conservative capital structure for R-Pharm with a projected debt/EBITDA of around 1.0x, which together with high double-digit EBITDA/interest leads to low financial risk. These strong credit metrics and a defensive business-risk profile support the 'BB' IDR, mitigating the company's concentration risk, as well as corporate governance and structure complexity. Cost Competitiveness Outweighs Market Risks: Fitch assesses R-Pharm's market risks as moderate with reasonable resilience and predictability, given stable to growing demand and a transparent pricing mechanism. By contrast, Fitch sees high risks associated with the rising costs of active pharmaceutical ingredients, which could put operating margins under pressure. This is due to high dependency of Russian pharma manufacturers on imported substances, currency-exchange risks and inflation, in combination with a limited ability to pass on increased production costs in state-organised auctions. IP Rights Outside Rated Group: The pooling of intellectual property (IP) rights in R-Pharm's sister company R-Pharm International LLC (RPI) and separating R-Pharm's Russian and international activities as well as commercial/production and research activities are neutral to the rating. This removes R&D risks from the rated entity, but also limits recourse to value associated with a potentially growing IP base. Fitch's rating case assumes that both entities are financed separately and with limited cross funding, but it adds legal and financial complexity to R-Pharm. Committed Government Funding: Fitch views the regulatory and funding environment underpinning Fitch's rating case as intact and defensive. Healthcare is one of the 12 national projects that form the Russian government's development strategy for 2019-2024, with total dedicated funds of RUB1.7 trillion (USD27 billion). Increased funds allocation to cancer-care programmes and the recent expansion of the Federal Targeted Drug Procurement Programme for treatment of high-cost nosologies to 14 from seven underline the government's commitment to continuing healthcare reforms with state funding. Supportive Sector Trends, Geopolitical and Economic Risks: R-Pharm's credit profile benefits from supportive underlying sector trends such as growing life expectancy and an increasing share of elderly population, in addition to the government's defined medium-term commitment to public hospital funding and transparent pricing. However, as a developing economy, Russia remains prone to periods of macro-economic and political instability, increased inflation and currency volatility, which may have an impact on R-Pharm's credit profile. Group Complexity, Governance Considerations: The 'BB' IDR is moderately constrained by R-Pharm's complex group structure with less than transparent, frequent and sizeable relationships with related parties. These include property pledges, guarantees and sureties provided in support of related parties' liabilities. In 2021, these guarantees amounted to RUB13 billion, which Fitch has treated as off-balance sheet debt by adding it to R-Pharm's on-balance sheet debt of RUB16.6 billion and including it in Fitch's credit metrics. Fitch acknowledges the economic rationale behind these related-party transactions, which Fitch believes have been conducted on an arm's length basis. However, Fitch sees residual risks of unforeseen material capital calls on R-Pharm arising from its credit support to related parties. At the same time, Fitch views the presence of an international investors' consortium with representatives of Mitsui Corporation on R-Pharm's board of directors with a veto right on any related-party transaction, as positive, mitigating weaker corporate governance and structure. Regulatory Risk: As one of the leading national drug distributors to the public hospital market, including its status as a manufacturer of Covid-19 vaccines and drugs, it fully benefits from the federal government's medium-term healthcare policies and priorities. This exposes R-Pharm to potentially adverse changes in the federal government policies and national regulation of the healthcare system. DERIVATION SUMMARY Fitch rates R-Pharm using Fitch's Ratings Navigator framework for pharmaceutical companies. Its credit profile is comparable with that of Grunenthal Pharma GmbH & Co KG's (Grunenthal; BB/Stable). Fitch views both companies as having broadly similar business risk profiles with cash-generative operations of decent scale and a mix of patent-protected and generic drugs. R-Pharm benefits from considerably wider product diversification, albeit solely reliant on state-funded drug-procurement policies, whereas Grunenthal's business risk arises from a more concentrated product portfolio and execution risks related to the management of a declining organic portfolio requiring mid-to-larger scale acquisitions. The rating of R-Pharm balances its business-risk profile with low financial risk, mitigating a weaker operating environment and somewhat weaker corporate- governance practices. This is compared with Grunental's higher leverage but clearly communicated conservative financial policy for a 'BB' rated pharma. R-Pharm benefits from greater scale and more resilient market positions than Cheplapharm Arzneimittel GmbH (Cheplapharm; B+/Stable). Both companies enjoy a diversified product portfolio and sound operating profitability. Fitch sees higher execution risk for Cheplapharm in managing declining late-stage drugs through M&A, which together with a higher leverage profile, including after its planned IPO, as justification of the rating differential between the two companies. Fitch rates R-Pharm several notches above its smaller-scale and much more leveraged peers in the European pharmaceutical market, such as Pharmanovia Bidco Limited (Atnahs B+/Negative), Roar Bidco AB (Recipharm; B/Positive), Cidron Aida Bidco Limited (Advanz; B/Stable), IWH UK Finco Ltd (Theramex; B/Stable) and European Medco Development 3 S.a.r.l (EMD 3; B/Stable). KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- Revenue to grow toward RUB232 billion in 2022 from estimated RUB195 billion in 2021, mainly driven by an anticipated doubling of Covid-19 vaccines sales. Revenue in 2023 to decline by mid-teens in percentage terms as sales of vaccines and Covid-19-related therapy drugs decelerate. Growth in revenue of core priority drugs at low single digits annually over 2022-2025; -- EBITDA margin increasing toward 26% in 2022 from an estimated 23% in 2021, with a gradual stabilisation toward 21% by 2024- 2025; -- Capex up to RUB6 billion in 2022, before normalising at around RUB3 billion annually over 2023-2025; -- Dividend payment of 50% of net profit in 2022-2023 in accordance with R-Pharm's dividend policy. Fitch factors in potential increase of the payout ratio toward 100% in 2024- 2025 as Fitch projects accumulation of high year-end liquidity in 2024-2025, in the absence of material new capex or M&A; -- Refinancing or extension of financial debt due 2024 in a similar amount and on comparable terms; -- No M&A to 2025; -- Guaranties to related parties' liabilities stable at RUB13 billion over 2022-2025. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Maturing business model with growing scale, in combination with maintaining wide product diversification and potentially geographic expansion; -- Stable EBITDA margins of above 20% and sustained positive FCF margins in mid-single digits; -- Improving corporate-governance practices, increased financial transparency and improved quality of disclosure; -- Conservative financial policy with debt/EBITDA remaining at or below 1.0x. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Evidence of operating weakness with customer losses, contracting sales or declining operating profitability to below 16%; -- Break-even FCF margin; -- More aggressive financial policy with increased shareholder distributions and growing unpredictable related-party transactions leading to larger guarantee obligations or cash calls on R-Pharm; -- Debt/EBITDA at more than 3.0x 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 Comfortable Liquidity: As per management's information, R-Pharm had RUB7.3 billion of on-balance sheet cash as of end-2021, which is sufficient to cover short-term debt maturities of RUB3.3 billion. This, in combination with projected largely positive FCF until 2025, leads to a comfortable liquidity position. Liquidity is further supported by the availability of RUB25.5 billion of uncommitted credit facilities, which is customary for the Russian bank market. We, however, exclude them from Fitch's liquidity analysis under Fitch's Corporate Rating Criteria. ISSUER PROFILE R-Pharm is one of the largest suppliers of drugs and medical products (including equipment) to the public hospital sector in Russia (about 95% of all sales). SUMMARY OF FINANCIAL ADJUSTMENTS Fitch includes total amount of guarantees provided by R-Pharm to related- and third parties' liabilities (2020: RUB14.5 billion) in R-Pharm's financial debt. ESG CONSIDERATIONS R-Pharm has an ESG Relevance Score of '4' for Group Structure, due to sizeable related-party transactions and Fitch's inability to assess their credit profiles, including any future funding requirements they may have on the rated group, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. R-Pharm has an ESG Relevance Score of '4' for Governance Structure, due to concentrated ownership and board of directors lacking independent members, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. R-Pharm has an ESG Relevance Score of '4' for Exposure to Social Impacts, as its position as one of the leading national drug distributors to the public hospital market exposes it to potential adverse changes in the federal government policies and national regulation of the healthcare system. This has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. JSC R-Pharm has an ESG Relevance Score of '4' for Financial Transparency, due to limited financial disclosure provided in the annual audited financial statements, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =========== T U R K E Y =========== TURKEY WEALTH: Fitch Lowers LT IDRs to 'B+', Outlook Negative ------------------------------------------------------------- Fitch Ratings has downgraded Turkey Wealth Fund's (TWF) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to 'B+' from 'BB-'. The Outlook is Negative, reflecting that of the sovereign. KEY RATING DRIVERS The rating actions follow the downgrade of Turkey's Long-Term IDRs to 'B+' from 'BB-'(see 'Fitch Downgrades Turkey to 'B+'; Outlook Negative' dated 11 February 2022) as TWF's ratings are equalised with that of the Turkish sovereign and hence sensitive to any rating action on the sovereign ratings. DERIVATION SUMMARY Under its Government-Related Entities (GRE) Rating Criteria, Fitch classifies TWF as a credit-linked entity to the Turkish government and equalises its ratings with the sovereign's ratings, based on its assessment of the strength of linkage with and incentive to support by Turkey. Fitch's assessment of 'Very Strong' status, ownership and control, support track record, and financial-implications of default, and 'Strong' socio-political implications of default leads to an overall government support score of 50 out of a maximum 60. This warrants an equalisation of TWF's IDRs with that of Turkey, irrespective of TWF's 'b' Standalone Credit Profile. RATING SENSITIVITIES Factor that could, individually or collectively, lead to negative rating action/downgrade: -- A downgrade of the sovereign would lead to a similar rating action for TWF. A weaker assessment of the overall support factors could result in TWF's ratings being notched down from the sovereign ratings. Factor that could, individually or collectively, lead to positive rating action/upgrade: -- An Outlook revision of the sovereign to Stable would lead to a corresponding change of TWF's Outlooks provided that likelihood of government support remains unchanged. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ISSUER PROFILE TWF is fully owned by Turkish state and acts as the strategic long-term investment arm of Turkey. TWF strategic objectives are aligned with the national economic objectives. As of FYE 2020, TWF portfolio includes 24 companies in 7 sectors, 2 licenses and 46 real estate properties. Those 24 companies operate mainly in five sectors including financial services, telecommunications and technology, transportation and aviation, energy and mining and agriculture and food. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS TWF's IDRs are credit-linked to Turkish sovereign ratings. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. [*] Fitch Takes Ratings on 8 Turkish Cos. Amid Sovereign Downgrade ------------------------------------------------------------------ Fitch Ratings has taken rating actions on eight Turkish corporate issuers following the downgrade of Turkey's sovereign ratings on February 11, 2022. Turkiye Sise ve Cam Fabrikalari AS (Sisecam) Fitch has downgraded Sisecam's Long-Term Foreign-Currency Issuer Default Rating (LT FC IDR) to 'B+' from 'BB-'. The Outlook on the IDR is Negative. Simultaneously, Fitch has downgraded Sisecam's senior unsecured rating to 'B+'/RR4 from 'BB-'. The downgrade follows the downgrade of Turkey's LT FC IDR, Long-Term Local-Currency IDR (LT LC IDR) and the Country Ceiling to 'B+' from 'BB-'. Fitch constrains Sisecam's LT FC IDR at Turkey's Country Ceiling due to its high exposure to the Turkish economy. The Negative Outlook reflects the likely correlation of future rating actions with changes to the sovereign rating, assuming that the Country Ceiling moves in line with the sovereign LT IDR. Ordu Yardimlasma Kurumu (OYAK) Fitch has downgraded OYAK's LT FC IDR to 'B+' from 'BB-'. The Outlook is Negative. The downgrade follows the downgrade of Turkey's LT FC IDR and Country Ceiling. Fitch constrains OYAK's LT FC IDR at Turkey's Country Ceiling due to its high exposure to the Turkish economy. The Negative Outlook reflects the likely correlation of future rating actions with changes to the sovereign rating, assuming that the Country Ceiling moves in line with the sovereign LT IDR. Arcelik A.S. Fitch has downgraded Arcelik A.S.'s LT FC IDR and senior unsecured rating to 'BB' from 'BB+'. The Outlook on the LT FC IDR is Negative. The LT LC IDR has been affirmed at 'BB+' with a Stable Outlook. The downgrade follows the downgrade of Turkey's LT FC IDR and Country Ceiling. Arcelik's LT FC IDR and senior unsecured rating are currently two notches above the Turkish Country Ceiling, reflecting the issuer's exporter nature providing structural enhancements that are required under Fitch's criteria. The Negative Outlook reflects the likely correlation of future rating actions with changes to the sovereign rating, assuming that the Country Ceiling moves in line with the sovereign LT IDR. The affirmation of the LT LC IDR reflects Fitch's unchanged assessment of the fundamental issuer-specific credit considerations. Turk Telekomunikasyon A.S. (TT) Fitch has downgraded TT's LT FC IDR to 'B+' from 'BB-' and senior unsecured rating to 'B+'/RR4 from 'BB-'. The Outlook on the LT FC IDR is Negative. The LT LC IDR has been affirmed at 'BB-' and the Outlook revised to Negative from Stable. The downgrade of the FC ratings follows the downgrade of Turkey's FC LT IDR and Country Ceiling. Fitch constrains TT's LT FC IDR at Turkey's Country Ceiling due to its high exposure to the Turkish economy. The Negative Outlook reflects the likely correlation of future rating actions with changes to the sovereign rating, assuming that the Country Ceiling moves in line with the sovereign LT IDR. Fitch allows TT's LT LC IDR to be one notch above Turkey's LT LC IDR given its resilient business model, effective hedging strategy, conservatively managed leverage and a strong record of access to international capital and loan markets. Turkcell Iletisim Hizmetleri A.S (Tcell) Fitch has downgraded Tcell's LT FC IDR to 'B+' from 'BB-' and senior unsecured rating to 'B+'/RR4 from 'BB-'. The Outlook on the IDR is Negative. The downgrade follows the downgrade of Turkey's LT FC IDR and Country Ceiling. Fitch constrains Tcell's LT FC IDR at Turkey's Country Ceiling due to its high exposure to the Turkish economy. The Negative Outlook reflects the likely correlation of future rating actions with changes to the sovereign rating, assuming that the Country Ceiling moves in line with the sovereign LT IDR. Emlak Konut Gayrimenkul Yatirim Ortakligi A.S. (Emlak Konut) Fitch has downgraded the Turkish residential developer Emlak Konut's LT FC and LC IDRs to 'B+' from 'BB-'. The Outlooks are Negative. The downgrade follows the downgrade of Turkey's LT FC and LC IDRs and Country Ceiling. Fitch constrains Emlak Konut's LT FC IDR at Turkey's Country Ceiling and the LT LC IDR at Turkey's LT LC IDR due to its high exposure to the Turkish economy. The Negative Outlook reflects the likely correlation of future rating actions with changes to the sovereign rating, assuming that the Country Ceiling moves in line with the sovereign LT IDR. Pegasus Hava Tasimaciligi A.S. Fitch has affirmed Pegasus's LT FC and LC IDRs at 'BB-'. The Outlooks are Negative. Fitch has affirmed Pegasus's foreign-currency senior unsecured bonds at 'BB-'. The affirmations follow the downgrade of Turkey's LT FC and LC IDRs and Country Ceiling. Pegasus's high hard currency revenues and readily accessible hard currency liquidity should enable it to service hard currency debt for a minimum of one year. This leads to Pegasus's LT FC IDR being a maximum one notch above Turkey's Country Ceiling of 'B+' under Fitch's Non-Financial Corporates Exceeding the Country Ceiling Rating Criteria. Fitch allows Pegasus's LT LC IDR to be a maximum one notch above Turkey's LT LC IDR, given its high share of revenue from international routes. Bosphorus Pass Through Certificates Series 2015-1A Fitch has affirmed Bosphorus Pass Through Certificates Series 2015-1A class A's long-term rating at 'BB'. The affirmation follows the downgrade of Turkey's LT FC IDR and Country Ceiling. Based on Fitch's Enhanced Equipment Trust Certificates (EETC) Criteria and the nature of the EETC structure and its collateral, Fitch deems there are offshore structural enhancements through the offshore liquidity facility from Paris-based BNP Paribas (A+/Stable) in this transaction, covering 18 months of debt service. This would mitigate transfer and convertibility risk and enables the Bosphorus rating to pierce the Country Ceiling under Fitch's Non-Financial Corporates Exceeding the Country Ceiling Rating Criteria by two notches. KEY RATING DRIVERS For full key ratings drivers and ESG considerations for each issuer, see the rating action commentaries (RACs) listed below: -- 'Fitch Affirms Sisecam at 'BB-'; Outlook Stable' dated 24 June 2021 -- 'Fitch Affirms Ordu Yardimlasma Kurumu (OYAK) at 'BB-'; Outlook Negative' dated 10 January 2022 -- 'Fitch Upgrades Arcelik to 'BB+'; Outlook Stable' dated 1 June 2021 -- 'Fitch Affirms Turk Telekom at 'BB-'; Outlook Stable' dated 17 November 2021 -- 'Fitch Affirms Turkcell at 'BB-'; Outlook Stable' dated 17 November 2021 -- 'Fitch Affirms Emlak Konut at 'BB-'; Outlook Stable' dated 13 October 2021 -- 'Fitch Assigns Pegasus First-time IDR at 'BB-'; Outlook Negative' dated 19 April 2021 For Bosphorus pass through certificates series 2015-1A class A see 'Fitch Revises Turkish Airline's Outlook to Stable; Affirms IDR at 'B'' dated 11 February 2022 and 'Fitch Publishes Turkish Airlines' Bosphorus Pass Through Certificates' 'BB' Rating' dated 19 May 2021. DERIVATION SUMMARY See relevant RACs for each issuer. KEY ASSUMPTIONS See relevant RACs for each issuer. For issuers with IDRs of 'B+' and below, Fitch performs a recovery analysis for each class of obligations of the issuer. The issue rating is derived from the IDR and the relevant Recovery Rating (RR) and notching, based on the going-concern enterprise value of the company in a distressed scenario or its liquidation value. Sisecam: -- The recovery analysis assumes that Sisecam would be a going concern in bankruptcy and that the company would be reorganised rather than liquidated. -- A 10% administrative claim is assumed. Going-Concern Approach -- The going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which Fitch bases the valuation of the company. -- The going-concern EBITDA is estimated at TRY5.2 billion. -- Fitch assumes an enterprise value multiple of 5x. With these assumptions, Fitch's waterfall generated recovery computation (WGRC) for the senior unsecured notes is in the 'RR1' band. However, according to Fitch's Country-Specific Treatment of Recovery Ratings Criteria, the Recovery Rating for Turkish corporate issuers is capped at 'RR4'. The Recovery Rating for senior unsecured notes is therefore 'RR4' with the WGRC output percentage at 50%. TT: -- The recovery analysis assumes that TT would be a going concern in bankruptcy and that the company would be reorganised rather than liquidated. -- A 10% administrative claim is assumed. Going-Concern Approach -- The going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which Fitch bases the valuation of the company. -- The going-concern EBITDA is estimated at TRY12.3 billion. -- Fitch assumes an enterprise value multiple of 4x. With these assumptions, Fitch's waterfall generated recovery computation (WGRC) for the senior unsecured notes is in the 'RR1' band. However, according to Fitch's Country-Specific Treatment of Recovery Ratings Criteria, the Recovery Rating for Turkish corporate issuers is capped at 'RR4'. The Recovery Rating for senior secured notes is therefore 'RR4' with the WGRC output percentage at 50%. Tcell: -- The recovery analysis assumes that Tcell would be a going concern in bankruptcy and that the company would be reorganised rather than liquidated. -- A 10% administrative claim is assumed. Going-Concern Approach -- The going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which Fitch bases the valuation of the company. -- The going-concern EBITDA is estimated at TRY10 billion. -- Fitch assumes an enterprise value multiple of 4x. With these assumptions, Fitch's waterfall generated recovery computation (WGRC) for the senior unsecured notes is in the 'RR1' band. However, according to Fitch's Country-Specific Treatment of Recovery Ratings Criteria, the Recovery Rating for Turkish corporate issuers is capped at 'RR4'. The Recovery Rating for senior secured notes is therefore 'RR4' with the WGRC output percentage at 50%. RATING SENSITIVITIES Sisecam: Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Fitch does not expect the ratings to be upgraded while they are constrained by Turkey's Country Ceiling. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A lowering of Turkey's Country Ceiling. -- Funds from operations (FFO) margin below 8%. -- FFO net leverage above 4.0x on a sustained basis. OYAK: Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Fitch does not expect the rating to be upgraded while it is constrained by Turkey's Country Ceiling. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Fitch-adjusted dividend interest coverage below 3.0x. -- Weakening in the credit quality of its portfolio, leading to a blended income stream assessment of 'b' or below. -- Fitch-adjusted LTV ratio sustained above 50 %. -- Decreased diversification of cash flow leading to increasing dependency on a single asset. Arcelik: Factor that could, individually or collectively, lead to positive rating action/upgrade: -- The ratings could be upgraded if Turkey's Country Ceiling was upgraded, in conjunction with an improvement in Arcelik's Standalone Credit Profile (SCP). Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A lowering of Turkey's Country Ceiling. -- Receivables-adjusted FFO net leverage above 3.5x. -- Substantial deterioration in liquidity. -- FFO margin below 6%. -- Consistently negative FCF. TT: Factor that could, individually or collectively, lead to positive rating action/upgrade: -- TT's LT FC and LC IDRs could be upgraded if Turkey's Country Ceiling or LT LC IDR were upgraded, respectively, assuming no change in TT's underlying credit quality. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- FFO net leverage above 4.0x on a sustained basis. -- Material deterioration in pre-dividend FCF margin, or in the regulatory or operating environments. -- Negative rating action on Turkey's Country Ceiling or LT LC IDR could lead to negative rating action on TT's LT FC and LC IDRs, respectively. -- Sustained increase in foreign-exchange (FX) mismatch between company's net debt and cash flows. -- Excessive reliance on short-term funding, without adequate liquidity over the next 12-18 months. Tcell: Factor that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade of the Country Ceiling, assuming no change in Tcell's underlying credit quality. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- FFO net leverage above 4.0x on a sustained basis. -- Material deterioration in pre-dividend FCF margin, or in the regulatory or operating environments. -- Sustained increase in FX mismatch between net debt and cash flows. -- A downgrade of Turkey's Country Ceiling. -- Excessive reliance on short-term funding, without adequate liquidity over the next 12-18 months. Emlak Konut: Factors that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade of the Country Ceiling or LT LC IDR. -- Reduced volatility of profits derived from the Turkish housing market. -- Consistently strong GDP growth, along with political stabilization. -- FFO gross and net leverage below 5x and 4.5x, respectively. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Deterioration of the operating environment and downgrade of the Country Ceiling. -- FFO gross and net leverage above 6x and 5.5x, respectively. -- Material change in the relationship with TOKI, causing deterioration in Emlak Konut's financial profile and financial flexibility. -- Deterioration in liquidity profile over a sustained period. Pegasus: Factor that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade is unlikely given the Negative Outlook on the IDR. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Negative free cash flow (FCF) through the cycle and FFO adjusted net leverage above 3.7x and/or FFO adjusted gross leverage above 5x on a sustained basis. -- FFO fixed charge cover below 1.5x. -- A downgrade of Turkey's Country Ceiling would be negative for the airline's LT FC IDR and a downgrade of Turkey's LT LC IDR would be negative for the airline's LT LC IDR. Bosphorus 2015-1 Class A: -- Positive rating action is not expected in the near term due to coronavirus-related pressures on the airline industry and collateral values. -- The rating is based on a bottom-up analysis and is notched up from Turk Hava Yollari Anonim Ortakligi's (Turkish Airlines or THY) IDR. An upgrade of THY's IDR or improvement in collateral values leading to a top-down analysis-driven rating could lead to an upgrade if the Country Ceiling was upgraded. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A downgrade of THY's IDR or of Turkey's Country Ceiling. -- A change in Fitch's expectation regarding the likelihood of affirmation or likely recovery. 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. Criteria Variation Bosphorus Pass Through Certificates Series 2015-1A's 'BB' rating includes a criteria variation from 'Non-Financial Corporates Exceeding the Country Ceiling Rating Criteria'. The criteria guide possible notch-uplift above Country Ceiling by a minimum number of years of hard currency (HC) debt service to be covered by 50% of HC EBITDA from exports or other offshore cash sources. The Bosphorus transaction benefits from a Paris-based (i.e. offshore) liquidity facility provider, which covers 18 months of debt service. Fitch views this, in effect, as providing protection against transfer and convertibility risk, similar to Fitch's criteria guidance. Fitch therefore allows Bosphorus's rating to exceed Turkey's 'B+' Country Ceiling by two notches. The 1.5x coverage of HC debt service requirement for a two-notch uplift is not met but this is mitigated by the fact the liquidity facility is dedicated to debt service of the EETC and cannot be used for other purposes. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =========================== U N I T E D K I N G D O M =========================== CLAVIS SECURITIES 2006-1: Fitch Cuts Rating 8 Tranches to 'B-' -------------------------------------------------------------- Fitch Ratings has upgraded Clavis Securities plc Series 2007-01 (Clavis 2007-1) class M2a and M2b notes and downgraded Clavis Securities plc Series 2006-01 (Clavis 2006-1) class A3a to B2a notes. All other notes have been affirmed. Clavis Securities plc Series 2006-01 has been removed from Rating Watch Negative (RWN). DEBT RATING PRIOR ---- ------ ----- Clavis Securities plc Series 2006-01 Class A3a XS0255457706 LT B-sf Downgrade Bsf Class A3b XS0255438748 LT B-sf Downgrade Bsf Class B1a XS0255425927 LT B-sf Downgrade Bsf Class B1b XS0255440728 LT B-sf Downgrade Bsf Class B2a XS0255426818 LT B-sf Downgrade Bsf Class M1a XS0255424441 LT B-sf Downgrade Bsf Class M1b XS0255439043 LT B-sf Downgrade Bsf Class M2a XS0255425414 LT B-sf Downgrade Bsf Clavis Securities plc Series 2007-01 Class A3a XS0302268361 LT AAAsf Affirmed AAAsf Class A3b Currency LT AAAsf Affirmed AAAsf Swap Obligation Class A3b XS0302269096 LT AAAsf Affirmed AAAsf Class AZa XS0302268445 LT AAAsf Affirmed AAAsf Class B1a XS0302270268 LT AA-sf Affirmed AA-sf Class B1b Currency LT AA-sf Affirmed AA-sf Swap Obligation Class B1b XS0302271829 LT AA-sf Affirmed AA-sf Class B2 XS0302270342 LT A-sf Affirmed A-sf Class M1a XS0302269682 LT AAAsf Affirmed AAAsf Class M1b XS0302270854 LT AAAsf Affirmed AAAsf Class M2a XS0302270185 LT AAAsf Upgrade AA+sf Class M2b Currency LT AAAsf Upgrade AA+sf Swap Obligation Class M2b XS0302271662 LT AAAsf Upgrade AA+sf TRANSACTION SUMMARY The transaction comprises non-conforming UK mortgage loans originated by GMAC-RFC. KEY RATING DRIVERS Short-Dated Notes Maturity: The Clavis 2006-1 pool includes loans with a maturity date later than the legal final maturity date of the class A3a and A3b notes with for an amount of GBP1.4 million. In Fitch's analysis, the ability of the transaction to make full repayments to the class A3a and A3b notes by the legal final maturity date is primarily constrained by Fitch's low prepayment-rate assumption. This assumption is not usually a key rating driver because the notes' legal final maturity dates usually extend beyond the scheduled loan maturity dates. Under Fitch's standard low prepayment-rate assumption, the class A3a and A3b notes are not fully repaid by legal final maturity. However, Fitch views that the notes still benefit from a margin of safety as applying prepayments in line with historical observed ones would allow repayment of the notes. The class A3a to B2a notes in Clavis 2006-1 were placed on RWN in September 2021, due to a change in the rating determination for notes with a model-implied rating (MIR) lower than 'B-sf'. Under Fitch's updated UK RMBS Rating Criteria Fitch will now determine a rating in the range of 'Csf' to 'B-sf' instead of up to 'B+sf' for notes with a MIR lower than 'B-sf'. Considering the margin of safety from which the notes benefit and the change to Fitch's UK RMBS Rating Criteria, Fitch has resolved the RWN on Clavis 2006-1's notes and downgraded them to 'B-sf'. Credit Enhancement Accumulation: Pro-rata conditions are currently being met in both transactions, due to their consistent performance. Their reserve funds are not amortising, due to floor achievement for Clavis 2006-1 and an irreversible performance trigger breach for Clavis 2007-1. As a result credit enhancement has been increasing in both transactions and is expected to rise further in the medium term. A 10% switch back to sequential amortisation is in place only in Clavis 2007-1, providing further expectations of credit enhancement build-up in near future, supporting the upgrade of the class M2a and M3b notes. Foreclosure Frequency Macroeconomic Adjustment: Fitch applied foreclosure frequency (ff) macroeconomic adjustments to the UK non-conforming sub-pools of the transactions, reflecting Fitch's expectation of temporary mortgage under-performance (see 'Fitch Ratings to Apply Macroeconomic Adjustments for UK Non-Conforming RMBS to Replace Additional Stress'). With the government's repossession ban ended, Fitch still sees uncertainty regarding borrowers' performance in the UK non-conforming sector where many borrowers have already rolled into late arrears over recent months. Borrowers' payment ability may also be challenged with the end of the coronavirus job-retention and self-employed income-support schemes. The adjustment is 1.58x at 'Bsf' while no adjustment is applied at 'AAAsf' as assumptions are deemed sufficiently remote at this level. Stable Asset Performance: After an increase in 1H21 to 7.6%, three-months plus arrears in Clavis 2006-1 dropped in 2H21 to 6.3% and remain below the non-conforming market average. Late-stage arrears in Clavis 2007-1 plateaued during the pandemic below Clavis 2006-1's levels and decreased slightly since 1Q21 to 4.5% from 5.4%. Early-stage arrears have remained consistently below the market average in both transactions and are currently at around 10%. Clavis 2006-1 has an ESG Relevance Score of '5' for Transaction & Collateral Structure to reflect the maturity risk related to the transaction structure and short-dated notes, which prevents the notes from achieving a 'AAAsf' rating. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The transactions' performance may be affected by changes in market conditions and economic environment. Weakening asset performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce credit enhancement available to the notes. -- Additionally, unanticipated declines in recoveries could also result in lower net proceeds, which may make certain notes susceptible to negative rating actions depending on the extent of the decline in recoveries. -- Fitch conducted sensitivity analyses by stressing each transaction's base-case FF and recovery rate (RR) assumptions, and examining the rating implications on all classes of issued notes. A 15% increase in weighted average FF (WAFF) and a 15% decrease in WARR indicate downgrades of three notches for the class M2, B1 and B2 notes in Clavis 2007-1 and a four-notch upgrade for all notes in Clavis 2006-1, due to an earlier switch to sequential amortisation in 'Bsf' category scenarios. -- There are a small number of owner-occupied interest-only loans that have failed to make their bullet payments at note maturity. The servicer has implemented alternative plans with these borrowers, which have recovered part of the amounts due since the last rating action in August 2021. If this trend reverses and grows to a significant number, Fitch may apply more conservative assumptions in its asset and cash flow analysis. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing credit enhancement and, potentially, upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the WAFF of 15% and an increase in the WARR of 15%. The results indicate upgrade of two notches for the class B1 and B2 notes in Clavis Securities 2007-1 and no impact on Clavis 2006-1. -- The prepayment or default of the loans maturing after the legal final maturity of the notes in Clavis 2006-1 could lead to meaningful upgrades across the structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third- party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Both Clavis transactions have an ESG Relevance Score of '4' for "Human Rights, Community Relations, Access & Affordability", due to a significant proportion of the pools containing owner-occupied loans advanced with limited affordability checks, which has a negative impact on the credit profiles, and is relevant to the ratings in conjunction with other factors. Clavis 2006-1 has an ESG Relevance Score of '5' for Transaction & Collateral Structure to reflect maturity risk related to transaction structure and short-rated notes, which prevents the notes from achieving a 'AAAsf' rating. This has a negative impact on the credit profile, and is highly 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 entities, either due to their nature or the way in which they are being managed by the entities. HIGH STREET: Owed Creditors GBP211 Million at Time of Collapse -------------------------------------------------------------- Aaron Morby at Construction Enquirer reports that Newcastle-based private rental flat developer The High Street Group collapsed into administration owing an estimated GBP211 million. According to Construction Enquirer, a report from administrators for the group, which built Newcastle's Hadrian Tower, revealed the huge estimated liabilities warning creditors it had still not received a full director's report. Tolent, which built the Hadrian Tower, is listed as one of the unsecured creditors, claiming GBP1.7 million, Construction Enquirer notes. Joint administrators SKSi and Insolve Plus said the developer's liabilities stood at GBP212 million, including GBP124 million owed to high net wealth investors helping to fund private rental scheme, and GBP87.7 million to unsecured creditors, Construction Enquirer discloses. The report put The High Street Group's assets at GBP136 million, but administrators said they were uncertain about how much of this sum can be realised at this stage because GBP135 million of this amount is in "inter-company receivables", Construction Enquirer states. The administrators are also investigating an arrangement between High Street Group and Hadrian Real Estate, which acquired some of its projects in the North East, Construction Enquirer relays. After successfully delivering the Hadrian Tower in Newcastle and Middlewood Plaza in Manchester around GBP12 million of surplus cash would have been generated, according to Construction Enquirer. But as Covid hit in March 2020, investors postponed all new projects, including Brett Wharf in Gateshead and Strawberry Place in Newcastle, Construction Enquirer recounts. The firm then saw a run on redemption requests from investors, forcing the company to stop early redemptions and cease paying interest payments, Construction Enquirer notes. During this period, Hadrian Real Estate was launched and an agreement was reached between High Street Group and Hadrian Real Estate to transfer some projects to the new development firm to pay down loans, Construction Enquirer relates. But a series of winding-up petitions followed leading to the appointment of administrators on Dec. 16, Construction Enquirer notes. ICE: Collapse Hits NatWest's Foreign Currency Service ----------------------------------------------------- Lucy White at The Daily Mail reports that NatWest customers have been unable to buy foreign currency from their bank for almost six months, after travel money provider Ice went bust. Ice, whose UK arm collapsed into administration last October, provided foreign currency for NatWest and its blue-blooded private bank Coutts, The Daily Mail relates. But since the firm shuttered, anyone trying to buy travel money from NatWest will have come away empty-handed, The Daily Mail notes. According to The Daily Mail, a spokesman said NatWest was hoping to offer the service again later this year. Ice, founded as a single site in 1973, was owned by five members of the entrepreneurial Tejani family. When it went bust, starved of income by the lack of travel, administrators from Teneo were appointed, The Daily Mail recounts. They were unable to find a buyer, so certain parts were sold back to the Tejanis to help recoup cash for its creditors -- including Barclays, one of its lenders, and the taxman, The Daily Mail discloses. But it was decided to shut all of Ice's UK branches, The Daily Mail discloses. LIVIA: Bought Out of Administration Following Pandemic Woes ----------------------------------------------------------- Edward Devlin at The Grocer reports that free-form snack brand Livia's has been bought out of administration by investment firm S-Ventures after struggling to stay afloat throughout the pandemic. Livia's was founded by Olivia Wollenberg in 2014 and supplied a range of vegan, gluten-free and dairy-free biscuits to the supermarkets, including Tesco, Sainsbury's, Waitrose, Ocado, Boots and Holland & Barrett. Despite rapid growth up to 2020, coronavirus lockdowns had a negative effect on sales, hitting out-of-home snacking, impulse buys and meal deal purchases, with the brand a favourite of office workers, The Grocer discloses. Clare Lloyd and Finbarr O'Connell of Smith & Williamson were appointed as joint administrators of the business on Feb. 17, The Grocer relates. Almost 1,400 crowdfunding backers, who invested GBP1.9 million in the company in 2020, will fail to see a return on their investment as a result, The Grocer notes. Its 2020 crowdfunding campaign on the Seedrs platform valued the business at GBP11.3 million. However, S-Ventures paid administrators just GBP355k for the brand, The Grocer states. Smith & Williamson said that despite Livia's distribution in UK retailers, instability caused by the pandemic meant it did not have sufficient working capital to continue trading in its existing form, according to The Grocer. Ms. Lloyd added the deal had saved the jobs of the business' staff and would allow Livia's the opportunity to "flourish" under new investment. S-Ventures highlighted that revenues at Livia's for the year ended September 30, 2020, were GBP1.6 million, with pre-tax losses of GBP1.4 million, The Grocer discloses. Unaudited accounts for the 12 months ended January 31, 2022 showed sales of GBP1.3 million, The Grocer relays, citing the firm. LONDON CAPITAL: Administrators Extend Investigation Process ----------------------------------------------------------- Richard Williams at Times Local News reports that the administrators tasked with finding out what happened to GBP237 million invested by more than 11,500 bondholders in Tunbridge Wells based London Capital & Finance (LCF) have extended the investigation process until 2024. According to the latest filings on Companies House, joint administrators Smith and Williamson and FRP Advisory said the administration of the mini-bond provider will now end on January 29, 2024, Times Local News discloses. This would mean the administration process would reach five years if the investigation lasts that long, Times Local News notes. LCF collapsed in January 2019 after the city watchdog, the Financial Conduct Authority (FCA), froze its bank accounts because of its marketing practices for minibonds, Times Local News recounts. Mr. Hume-Kendall eventually stepped down from the company but went on to become its largest borrower of funds through his business London Oli & Gas (LOG), which also collapsed after LCF fell into administration, Times Local News relays. The scandal is currently the subject of a High Court action in which Mr. Hume-Kendall and 12 others connected to LCF are being sued by the administrators for GBP178 million over alleged fraud, Times Local News discloses. Also being sued is Mr. Hume-Kendall's wife, Helen Hume-Kendall, Equestrian businessman Spencer Golding of Crowborough, former LCF CEO Andy Thompson, Hadlow Down businessman and former LOG director Elten Barker, Times Local News states. Former Conservative energy minister Charles Hendry is also among those named in the legal claim by administrator Smith & Williamson after he became a consultant for LCF, according to Times Local News. in filing their legal action, which is subject to reporting restrictions, Smith & Wiliamson have alleged that money from LCF investors went on horses, a helicopter and land for a holiday resort in the Dominican Republic, in what the administrator described as "highly suspicious transactions", Times Local News discloses. Mr. Hume Kendall and his wife Helen are also reported to have spent the proceeds on a membership of Annabel's private members' club in London's Berkeley Square, Times Local News states. The collapse of LCF is also the subject of an investigation by the Serious Fraud Office (SFO), which arrested five individuals connected with LCF in 2019, but have so far filed no charges, Times Local News notes. The SFO has also interviewed a number of people in the Kent and East Sussex area on suspicion of money laundering offences in connection with LCF's collapse, Times Local News discloses. Already, the costs connected with the administration of LCF has exceeded more than GBP7 million and are set to rise if the case drags on until January 2024, according to Times Local News. When LCF collapsed more than 11,000 bondholders lost investments including pension pots and life savings, Times Local News states. In April last year, the Treasury announced it will establish a scheme that will refund 80% of LCF bondholders' initial investment, Times Local News recounts. ST PETER'S COURT: Enters Administration, Durham Shelter to Close ---------------------------------------------------------------- Patrick Gouldsbrough at The Northern Echo reports that a homeless shelter in County Durham will be closing later this year after the company that own it fell into administration -- leaving dozens of veterans without accommodation. Since April 2011, St Peter's Court in Sacriston has provided 16 self-contained flats for veterans that have fallen on hard times -- caring for the people that served the country and teaching them to be independent of the service. However, on Feb. 17, it was announced that St Peter's Court would be entering into administration after going into financial difficulty while owning the facility, The Northern Echo relates. Iain Nairn and Mike Dillon, of Leonard Curtis Business Solutions Group, have been appointed Joint Administrators of the accommodation for ex-service personnel, The Northern Echo discloses. According to The Northern Echo, commenting, the Joint Administrators said that they were continuing to run the supported living accommodation for the residents across the various sites affected. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2022. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *