/raid1/www/Hosts/bankrupt/TCREUR_Public/220301.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, March 1, 2022, Vol. 23, No. 37
Headlines
G E O R G I A
GEORGIA: S&P Affirms BB/B Sovereign Credit Ratings, Outlook Stable
I R E L A N D
BARINGS EURO 2019-1: Fitch Gives Final B Rating to Class F-R Notes
EIRCOM: S&P Affirms 'B+' LongTerm ICR & Alters Outlook to Stable
N E T H E R L A N D S
STEINHOFF INT'L: Kirkland & Ellis Advises Creditors on Settlement
R U S S I A
EXIMBANK OF RUSSIA: Moody's Withdraws Ba1 LongTerm Deposit Rating
PROMSVYAZBANK PJSC: S&P Puts 'BB/B' ICRs on CreditWatch Negative
RUSSIA: S&P Cuts Foreign Curr. Sovereign Credit Ratings to 'BB+/B'
SBERBANK: European Arm Faces Failure Following Russia Sanctions
[*] RUSSIA: Banks Assure Enough Liquidity to Meet Demands
[*] RUSSIA: Central Bank Takes Steps Following Western Sanctions
[*] RUSSIA: EU, US, UK, Allies Agree to Exclude Banks From Swift
S E R B I A
SERBIA: Fitch Affirms 'BB+' LT Foreign Currency IDR, Outlook Stable
S W E D E N
QUIMPER AB: Moody's Affirms 'B2' CFR & Alters Outlook to Positive
T U R K E Y
TAKASBANK: Fitch Lowers LongTerm IDRs to 'B+', Outlook Negative
U K R A I N E
UKRAINE: Fitch Lowers LongTerm Foreign Currency IDR to 'CCC'
UKRAINE: Moody's Puts B3 Issuer Rating Under Review for Downgrade
UKRAINE: More Than US$1 Billion Needed for Aid Operations
UKRAINE: S&P Lowers Sovereign Credit Ratings to 'B-', On Watch Neg.
U N I T E D K I N G D O M
FRANKSTON DOLPHINS: Completely Debt Free Following Administration
TOWD POINT 2019-GRANITE 5: Moody's Hikes Cl. F Notes Rating From B1
TRULY TRAVEL: Broke Law by Failing to Refund Customers on Time
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G E O R G I A
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GEORGIA: S&P Affirms BB/B Sovereign Credit Ratings, Outlook Stable
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S&P Global Ratings, on Feb. 25, 2022, revised its outlook on the
long-term ratings on Georgia to stable from negative. At the same
time, S&P affirmed its 'BB/B' long- and short-term foreign- and
local-currency sovereign credit ratings on Georgia.
Outlook
S&P said, "The stable outlook reflects Georgia's strong ongoing
economic recovery and the potential for foreign exchange earnings,
especially tourism, to strengthen faster than we currently expect.
This is balanced against Georgia's weak external position on a
stock basis and elevated domestic political uncertainty, which we
expect will persist over the next 12 months and could, in a
downside case, negatively affect reform momentum and investor
sentiment."
Upside scenario
S&P could raise the ratings on Georgia over the next 12 months if
exports recovered faster than we anticipate, leading to an
accumulation of additional central bank foreign exchange reserves
and reducing the country's balance of payments vulnerabilities,
while Georgia's fiscal performance proved stronger than S&P's
currently project.
Downside scenario
S&P could revise the outlook to negative or lower the ratings if
the key tourism sector's recovery proved substantially slower or
the government deviated significantly from the projected fiscal
consolidation path. Pressure on the ratings could also build if
domestic political uncertainty and confrontation between the ruling
party and opposition significantly escalated, with detrimental
consequences for the reform agenda, investor sentiment, and the
growth outlook. A significant escalation of regional geopolitical
confrontation could also pose risks.
Rationale
The outlook revision primarily reflects Georgia's strong economic
recovery momentum amid recuperating export earnings, and a further
increase in central bank foreign exchange reserves in 2021.
According to high-frequency data, real GDP increased 10.6% in 2021,
following the 6.8% pandemic-led contraction in 2020, with the
economy thus already exceeding the pre-pandemic output level. This
compares with our expectation in February 2021 of only 4% growth
for 2021 when we assigned the negative outlook. Domestic
consumption and export rebound underpinned this stronger outturn.
Although S&P expects growth to moderate, S&P still projects it to
remain strong, averaging 4.5% annually through 2025. Consequently,
it forecasts that Georgia will register growth rates exceeding the
outturn for other regional peers. Nevertheless, there are risks,
including from Russia's invasion of Ukraine, the impact of which is
difficult to quantify at the moment.
Georgia's foreign export earnings continue to recover as well. S&P
estimates that, expressed in U.S. dollar terms, current account
receipts increased by 18% in 2021, supported by goods exports
growth including agriculture, mineral water, metals, and used car
re-exports, but also some recovery within the key tourism
sector--which nevertheless remained at only about 40% of 2019
levels. Given the receding risks from the pandemic and improving
outlook for international travel, S&P forecasts a further
improvement in Georgia's tourism industry prospects in 2022,
although a full recovery to the pre-pandemic peak will likely take
several years.
The ratings on Georgia remain constrained by low income levels and
high balance-of-payments vulnerabilities, including the economy's
import dependence and sizable external liabilities. S&P also
considers that high levels of dollarization constrain monetary
policy flexibility to some extent.
Close to 80% of Georgia's general government debt--although
contracted on concessional terms--is denominated in foreign
currency. S&P said, "Net general government debt increased by about
12% of GDP because of the pandemic, but the fiscal imbalances are
moderating, and we expect it will stabilize at the current 50% of
GDP through 2025. This is notably lower than our expectations of
net general government debt stabilizing at close to 60% of GDP,
when we assigned the negative outlook in February 2021."
The ratings are supported by Georgia's relatively strong
institutional arrangements, particularly when compared with those
of peers in the Commonwealth of Independent States, as well as by
Georgia's floating exchange-rate regime and the availability of
timely, concessional financing from international financial
institutions.
Institutional and economic profile: Strong recovery from a 6.8%
contraction in 2020
-- S&P forecasts that Georgia's growth will average a strong 4.5%
over the medium term, with the key tourism sector still taking
several years to recover to pre-pandemic levels.
-- Nevertheless, the structure of the economy remains fairly
basic, with prevalence of low value-added goods exports.
-- Georgia's institutional settings are stronger than those of
other regional sovereigns, but S&P considers that there is some
backsliding on previous reforms, and that domestic political
volatility will likely remain elevated in the run-up to the next
general election in 2024.
S&P said, "In 2021, Georgia's economic growth notably exceeded our
previous expectations, with output expanding by 10.6% in real terms
according to available high-frequency data. As such, we estimate
that Georgia's real GDP already exceeded the pre-pandemic peak."
Growth was broad-based, with most sectors expanding. Although there
is no quarterly breakdown of real GDP available by expenditure, the
central bank (National Bank of Georgia; NBG) estimates that
domestic consumption and net exports have been the key contributors
to this strong outcome.
Before the pandemic, the tourism sector played an important role
for the Georgian economy, with direct and indirect contributions
estimated at close to 12% of GDP in 2019. As in other countries,
tourism in Georgia came to an almost complete standstill in 2020,
with net travel revenue recorded in the balance of payments
dropping to just $360 million in 2020 from $2.6 billion in 2019.
Although the sector picked up, notably in 2021, S&P estimates
travel revenue at close to $1 billion, still substantially lower
than the pre-pandemic peak. Historically, Russia has been a key
tourism source country for Georgia, but direct flights between the
two remain suspended following the escalation of bilateral
political tensions in 2019. For now, it remains unclear when direct
flights could resume, which would represent a drag on the recovery.
Geopolitical and security risks stemming from Russia's invasion of
Ukraine are also high but the implications are difficult to
quantify at the moment.
Nevertheless, in S&P's base case, it considers that, as global
pandemic risks moderate and international travel prospects
strengthen, the Georgian tourism sector should recover further in
2022, although it will likely take several years to return to the
2019 levels. The Georgian authorities expect this rebound by 2025,
but there could be risks to their projections. Overall, S&P
forecasts real GDP growth at 5% in 2022 and expect similar rates to
be sustained over the medium term.
That said, Georgia's GDP per capita remains modest by a global
comparison, estimated at $4,800 in 2021. This continues to
constrain the sovereign ratings. The economy's structure also
remains comparatively basic, with a prevalence of low value-added
goods exports. For instance, copper ores, used cars, and
wine/mineral water each constitute about 15% of the goods export
basket. Agriculture also remains an important economic sector,
accounting for a significant portion of employment, but
characterized by low productivity levels, according to IMF
estimates.
Like other countries, Georgia experienced a surge in COVID-19 cases
related to the spread of the omicron variant at the beginning of
2022. In January and February, the daily recorded cases
significantly exceeded the highs recorded during the previous waves
of infections. That said, new daily cases appear to have peaked and
are now declining. Most restrictions have already been lifted and
we see a limited economic impact from this latest wave compared
with previous ones. Georgia's vaccination rates remain below the
world averages, with 40% of the population receiving at least one
dose of the vaccine compared with the global average of 62% as of
mid-February 2022. Availability was an issue at the beginning of
the rollout but vaccine hesitancy has subsequently emerged as a key
constraint.
In S&P's view, Georgia's institutional settings are broadly
stronger than those in other countries in the region. The country
has gone through a series of key reforms in the 2000s, resulting in
significant improvements in institutional checks and balances,
quality of governance, and ease of doing business. S&P also
considers that macroeconomic policymaking has been comparatively
strong and benefited Georgia over the past few years.
Nevertheless, there appears to be signs of at least partial
backsliding on previous democratic reforms and attempts by the
ruling Georgian Dream-Democratic Georgia (GDDG) party to secure its
incumbent position. GDDG secured a victory in the 2020 general
election but the eight opposition parties, led by the United
National Movement, subsequently refused to acknowledge the results,
citing electoral irregularities, and did not take seats in
parliament. Under the EU mediated deal, a consensus was reached
briefly before the deal collapsed in July 2021, with the opposition
parties not participating in parliamentary proceedings through most
of 2021.
GDDG subsequently secured a victory in the October 2021 local
elections, taking 19 of the 20 mayoral positions, including one in
the capital Tbilisi. Ahead of the election, former Georgian
president and founder of the opposition United National Movement,
Mikheil Saakashvili, returned to the country from a multi-year
exile and was arrested upon arrival, which triggered public
protests.
In December 2021, GDDG also pushed ahead with a controversial
appointment of supreme court judges before a more comprehensive
review of the judiciary, which was criticized by the opposition and
the EU. The authorities in 2021 also decided not to take a EUR75
million instalment of macrofinancial assistance from the EU, with
the EU explicitly noting that Georgia has not been able to fulfill
the necessary conditions for receiving such funding, particularly
related to the quality and accountability of the judicial system.
Positively, the episodes of domestic political volatility do not
appear to have substantially affected Georgia's economic growth or
broad economic policy direction. Georgia is in discussion with the
IMF over a potential new arrangement, with the primary aim of
better anchoring domestic economic policy. As such, the IMF program
is likely to come without any immediate funding disbursements.
S&P said, "We continue to see challenges from regional geopolitical
developments. The status of the Tskhinvali region (South Ossetia)
and the autonomous republic of Abkhazia will likely remain a source
of dispute between Georgia and Russia. However, we do not expect a
material escalation of the dispute over the medium term."
Flexibility and performance profile: Balance of payments risks are
moderating but the pandemic still leaves Georgia's fiscal and
external stock positions weaker over the medium term
-- Georgia's external position remains vulnerable but imbalances
are moderating and we expect the current account deficit to reduce
to under 7% of GDP by 2025 as tourism continues to recover.
-- Net general government debt should stabilize at a moderate 50%
of GDP over the medium term.
-- Georgia maintains a degree of monetary policy flexibility,
which nevertheless remains constrained by elevated dollarization
levels.
Historically, Georgia's balance of payments position has been weak.
The country recorded persistent current account deficits before the
pandemic. As tourism revenue dropped abruptly in 2020, the deficit
widened significantly and reached 12% of GDP, up from 5.5% of GDP
in 2019.
According to high-frequency data, export performance firmed up in
2021, both for goods and for services. S&P estimates that the
current account deficit narrowed to 10% of GDP and forecast that it
will moderate slightly further over the forecast horizon,
particularly as tourism continues to recover, reaching 7% of GDP by
2025.
In S&P's view, Georgia's headline current account deficits somewhat
overstated its balance of payments vulnerabilities in the past.
Before 2020, most of the recurrent current account deficits were
consistently financed through net foreign direct investment
inflows, including in the tourism and energy sectors. Debt-creating
flows became a key financing source since the onset of the
pandemic, but these have mostly been from official bilateral and
multilateral sources, characterized by favorable conditions. S&P
expects that, as fiscal deficits moderate and the tourism sector
recovers, current account deficits will once again moderate and be
predominantly covered by net foreign direct investment inflows over
the medium term. In addition, the limited amount of portfolio flows
means that Georgia is somewhat less vulnerable to the monetary
policy tightening by developed market central banks, including the
U.S. Federal Reserve.
The NBG's foreign exchange reserves have continued to increase in
nominal U.S. dollar terms, rising to $4.3 billion (24% of GDP) at
the end of 2021 from $3.5 billion (20% of GDP) at the end of 2019.
These have been supported by foreign borrowing, mostly from
international financial institutions, but also by the IMF's extra
allocation of special drawing rights (SDR) to member countries
which, in Georgia's case, amounted to SDR 202 million (about $280
million, or 1.5% of GDP).
Georgia's fiscal performance weakened significantly during the
pandemic due to support measures implemented by the government as
well as revenue losses. The headline general government deficit
widened to 9.4% of GDP in 2020, but subsequently reduced to 6.6% of
GDP in 2021. The government expects the deficit to reduce further
in 2022, which S&P considers realistic, and it projects a deficit
of 4.5% of GDP. The adopted budget contains several discretionary
spending measures, including additional social support provision
and increases in pensions. Nevertheless, rising revenue on the back
of continued economic growth and the discontinuation of most
COVID-19-related support measures should underpin fiscal
consolidation.
S&P said, "We forecast that net general government debt will
stabilize at close to 50% of GDP over the medium term, up 12
percentage points from 2019 levels. Positively, the structure of
public debt remains favorable. Over 80% of government debt is
external but it is almost entirely to official bilateral and
multilateral creditors, with long maturities and low interest
rates. Georgia's key external creditors include the World Bank,
Asian Development Bank, European Bank for Reconstruction and
Development, and the European Investment Bank. Georgia has only one
commercial Eurobond outstanding, of $500 million, which was issued
in April 2021 to replace a maturing issue from 2011 of the same
size.
"We forecast that Georgia's interest payments will remain at a
manageable 6% of revenue through 2025, while total public external
debt payments will amount to between $400 million and $600 million
(2.0%-2.5% of GDP) annually. This compares with the NBG's foreign
exchange reserves of $4.3 billion (24% of GDP) as of year-end
2021.
Inflation in Georgia has been accelerating through 2021 and reached
almost 14% year-on-year in December 2021-January 2022. A key
contributor was food prices, while a Georgia-specific one-off base
effect, in the form of an energy subsidy that was introduced but
later reversed, also played a role. Given the strong carryover
effect for inflation from 2021, S&P expects the annual average to
remain elevated in 2022 at 7%. Nevertheless, inflation should
moderate thereafter and decline toward the 3% NBG target over the
medium term.
NBG has been steadily tightening monetary policy in response to
price pressures in 2021. The key rate increased by a cumulative 250
basis points over 2021. Because S&P expects upward price momentum
to ease, room for significant further tightening of policy is
probably more limited. That said, significant uncertainties
persist, particularly related to global inflation developments and
their passthrough to Georgia.
Georgia's banking sector is stable and recovering from the impact
of the pandemic. Banking system profitability has rebounded
following the release of provisions created in 2020, and asset
quality appears to have stabilized after deteriorating in 2020. The
share of loans past due for more than 90 days stood at 1.9% as of
December 2021. However, nonperforming loans under the local
definition--that is, those of borrowers whose credit quality has
deteriorated sharply--increased from 4.4% to 8.2% of the total loan
book over 2020, before falling to 5.2% in December 2021.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED; OUTLOOK ACTION TO FROM
GEORGIA (GOVERNMENT OF)
Sovereign Credit Rating BB/Stable/B BB/Negative/B
Senior Unsecured BB BB
Transfer & Convertibility Assessment BBB- BBB-
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BARINGS EURO 2019-1: Fitch Gives Final B Rating to Class F-R Notes
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Fitch Ratings has assigned Barings Euro CLO 2019-1 DAC's
refinancing notes final ratings.
DEBT RATING PRIOR
---- ------ -----
Barings Euro CLO 2019-1 DAC
A XS2031990745 LT PIFsf Paid In Full AAAsf
A-R XS2445168151 LT AAAsf New Rating
B-1 XS2031991552 LT PIFsf Paid In Full AAsf
B-1-R XS2445168235 LT AAsf New Rating
B-2 XS2031992105 LT PIFsf Paid In Full AAsf
B-2-R XS2445168318 LT AAsf New Rating
C-1 XS2031992873 LT PIFsf Paid In Full Asf
C-2 XS2031993418 LT PIFsf Paid In Full Asf
C-R XS2445168409 LT Asf New Rating
D XS2031994069 LT PIFsf Paid In Full BBB-sf
D-R XS2445168581 LT BBB-sf New Rating
E XS2031994739 LT PIFsf Paid In Full BB-sf
E-R XS2445168664 LT BB-sf New Rating
F XS2031994812 LT PIFsf Paid In Full B-sf
F-R XS2445168748 LT B-sf New Rating
Z XS2445169043 LT NRsf New Rating
TRANSACTION SUMMARY
Barings Euro CLO 2019-1 DAC is a securitisation of mainly senior
secured loans (at least 92.5%) with a component of senior
unsecured, mezzanine, and second-lien loans. The note proceeds have
been used to fund an identified portfolio with a target par of
EUR400 million. The portfolio is managed by Barings (U.K.) Limited.
The CLO envisages a 4.64-year reinvestment period and an 8.5-year
weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 25.
Strong Recovery Expectation (Positive): At least 92.5% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 64.98%
Diversified Portfolio (Positive): At closing, the matrices are
based on a top 10 obligor limit of 20%, and maximum fixed-rate
asset limits of 7.5% and 15%, respectively. The forward matrix,
which is set at one year after closing, is based on a top 10
obligor limit of 20% and maximum fixed rate limit of 15%. The
manager can elect the forward matrix at any time one year after
closing if the aggregate collateral balance is at least above the
target par.
The transaction also includes various concentration limits,
including the maximum exposure to the three largest (Fitch-defined)
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.64-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash flow Modelling (Neutral): The WAL used for the transaction
stress portfolio and matrices analysis is 12 months less than the
WAL covenant to account for structural and reinvestment conditions
after the reinvestment period, including the satisfaction of the OC
tests and Fitch 'CCC' limit, together with a linearly decreasing
WAL covenant. In Fitch's opinion, these conditions would reduce the
effective risk horizon of the portfolio during a stress period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A reduction of the rating default rate (RDR) at all rating
levels by 25% of the mean RDR and a 25% increase of the
recovery rate at all rating levels, would lead to an upgrade
of up to four notches for the rated notes, except the class A
notes, which are already the highest rating on Fitch's scale
and cannot be upgraded.
-- After the end of the reinvestment period, upgrades may occur
in case of a better-than-initially expected portfolio credit
quality and deal performance, leading to higher credit
enhancement and excess spread available to cover for losses in
the remaining portfolio.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An increase of the RDR at all rating levels by 25% of the mean
RDR and a 25% decrease of the recovery rate at all rating
levels would lead to a downgrade of up to two notches for the
rated notes.
-- Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a
larger loss expectation than initially assumed due to
unexpectedly high levels of defaults and portfolio
deterioration.
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
Barings Euro CLO 2019-1 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
EIRCOM: S&P Affirms 'B+' LongTerm ICR & Alters Outlook to Stable
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S&P Global Ratings revised its outlook on Irish telecom group
Eircom to stable from positive and affirmed its 'B+' long-term
ratings.
The stable outlook reflects our expectation that Eircom will
maintain S&P Global Ratings-adjusted debt to EBITDA of 4.5x-5.5x
with sound positive free operating cash flow (FOCF) after leases.
Eircom is selling a 49.9% minority stake in its core fixed network
to Infravia in a bid to accelerate fiber and fiber-to-the-home
(FTTH) deployment across its footprints to about 1.9 million
premises by 2027.
Eircom's halved economic ownership in its fixed network somewhat
dilutes its overall profile at this stage. Eircom agreed to sell to
French investment firm Infravia a 49.9% stake in its fixed network,
which houses its FTTH and legacy copper infrastructure (1.3 million
fiber-to-the-cabinet [FTTC] premises passed, 675,000 FTTH premises
passed, and 100,000 ADSL premised passed). The new entity, FibreCo,
will act as a passive infrastructure vehicle aiming at deploying
FTTH to about 1.2 million additional homes and businesses across
Ireland with the total footprint to reach 1.9 million FTTH premises
passed by 2027. While this will allow Eircom to accelerate its
fiber rollout and mitigate commercial risk, S&P doesn't expect any
material debt repayment and the planned transaction means that
Eircom will give away through dividends half of the margin it makes
on retail and wholesale revenue. In addition, the transaction could
reduce Eircom's network differentiation. S&P expects to adjust
Eircom's ratios for the minority ownership.
The partial control Eircom will keep on its fixed network and full
control over its wholesale entity, together with its ambitious
fiber rollout plan, should underpin its competitive advantage in
fixed services. FibreCo will operate under an open-access model
whereby it will allow the use of its infrastructure by Eircom's
wholesale subsidiary, open eir. Open eir will then provide active
FTTH services to Eircom as well as Vodafone and Sky, which have
historically leased Eircom's fixed DSL/FTTC network as they do not
have their own fixed infrastructure in Ireland. Since FibreCo's
revenue is expected to be based on the end-penetration, it won't be
guaranteed by Eircom. Given that Eircom will fully consolidate the
joint venture, this means that forecast revenue will mostly be
affected by the sales volumes achieved by Eircom. This transaction
also comes at a time when fixed broadband's competitive environment
and a low market share in pay-TV has weighed on Eircom's overall
market share and revenue. This follows Eircom's declining market
shares in both mobile and fixed, from 17.8% mobile customer market
share in third quarter 2020 to 15.8% in third quarter 2021 and from
44.9% retail and wholesale fixed revenue share in to 42.8% over the
same period, according to data from comreg, the Irish telecom
regulator.
Cash-funded dividend payments and growing profitability of its
fiber joint venture will maintain Eircom's proportionate adjusted
leverage at about 5x. S&P continues to see the potential for
organic deleveraging through profitability and cash flow
optimization, and it acknowledges the group's financial policy of
net consolidated and proportionate leverage target of 3.5x-4.0x.
However, the use of accruing cash flows for annual dividends,
including the distribution of joint venture proceeds to its
shareholder, together with our proportionate adjustment on its
ratios, will maintain its proportionate adjusted debt to EBITDA at
about 5x.
S&P said, "Our outlook on Eircom is stable. We expect S&P Global
Ratings-adjusted debt to EBITDA to remain at 4.5x-5.5x with sound
positive FOCF after leases.
"We would lower the rating if Eircom's profitability and FOCF after
leases were to weaken, with adjusted debt to EBITDA increasing
above 5.5x.
"We may raise the rating if Eircom continues gaining market share
across all of its segments, while at the same time maintaining
sound profitability and solid FOCF after leases. Any rating upside
would hinge on Eircom maintaining its adjusted gross debt to EBITDA
sustainably below 4.5x."
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STEINHOFF INT'L: Kirkland & Ellis Advises Creditors on Settlement
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Kirkland & Ellis advised an ad hoc group of the major third party
financial creditors of the Steinhoff retail conglomerate on the
highly complex, multi-jurisdictional settlement of c.EUR10 billion
litigation proceedings. This follows the restructuring of c.EUR9
billion third party financial indebtedness in 2019 in respect of
which Kirkland advised an ad hoc group of convertible bondholders.
Kirkland's engagement has spanned four and a half years, beginning
with the initial discovery of serious accounting irregularities
that were disclosed in December 2017. The Steinhoff group has
operations in South Africa, Europe, the US and Oceania. The parent
company is listed on the Frankfurt Stock Exchange with a secondary
listing on the Johannesburg Stock Exchange.
The settlement -- among the most complex of its kind -- was
implemented pursuant to a Dutch law suspension of payments plan, a
South African 'section 155' scheme of arrangement and a series of
bilateral contractual arrangements. The restructuring of the
group's financial indebtedness also involved a Chapter 11 process
(in respect of a US subsidiary), an English scheme of arrangement
and two parallel UK company voluntary arrangements.
The Kirkland team was led by litigation partner Richard Boynton,
restructuring partners Sean Lacey and Thomas Jemmett, restructuring
associate Arwyn Davies and litigation associate Noah
Stewart-Ornstein. The team was assisted by Bowmans in South
Africa, led by James McKinnell and Loyens Loeff in Netherlands, led
by Vincent Vroom.
Steinhoff International Holdings NV's registered office is located
in Amsterdam, Netherlands.
===========
R U S S I A
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EXIMBANK OF RUSSIA: Moody's Withdraws Ba1 LongTerm Deposit Rating
-----------------------------------------------------------------
Moody's Investors Service has withdrawn the following ratings of
Eximbank of Russia:
Long-term Bank Deposit Ratings of Ba1
Short-term Bank Deposit Ratings of NP
Long-term Counterparty Risk Assessment of Baa3(cr)
Short-term Counterparty Risk Assessment of P-3(cr)
Long-term Counterparty Risk Ratings of Baa3
Short-term Counterparty Risk Ratings of P-3
Baseline Credit Assessment of b1
Adjusted Baseline Credit Assessment of b1
At the time of the withdrawal, the bank's long-term deposit ratings
carried a stable outlook and the bank's issuer outlook was also
stable.
RATINGS RATIONALE
Moody's has decided to withdraw the ratings for its own business
reasons.
PROMSVYAZBANK PJSC: S&P Puts 'BB/B' ICRs on CreditWatch Negative
----------------------------------------------------------------
S&P Global Ratings placed its 'BB/B' long- and short-term foreign
and local currency ratings on Promsvyazbank PJSC (PSB) on
CreditWatch with negative implications. S&P also suspended the
ratings on PSB.
The U.S. Department of the Treasury's Office of Foreign Assets
Control (OFAC) introduced sanctions against Promsvyazbank PJSC
(PSB) among other Russian entities, on Feb. 22, 2022.
The recent sanctions on the Russian economy may pressure PSB's
credit quality.
Despite its inclusion on OFAC's Specially Designated Nationals and
Blocked Persons (SDN) list, we consider the probability of PSB
defaulting in the next 12 months relatively low.
The bank is focused on servicing the Russian defense sector,
meaning most of its business is conducted in Russia and in local
currency. Therefore, S&P has limited its rating action to a
CreditWatch negative placement, reflecting its view that the
sanctions on the Russian economy and the bank's counterparties
could weaken PSB's financial profile.
S&P suspended its ratings on PSB because it has been included on
OFAC's SDN list.
S&P will consider the suspension status of the ratings on PSB and
might reinstate them if the OFAC sanctions are lifted, all else
being equal.
RUSSIA: S&P Cuts Foreign Curr. Sovereign Credit Ratings to 'BB+/B'
------------------------------------------------------------------
S&P Global Ratings, on Feb. 25, 2022, lowered its foreign currency
sovereign credit ratings on Russia to 'BB+/B' from 'BBB-/A-3' and
its local currency ratings to 'BBB-/A-3' from 'BBB/A-2'. S&P also
revised downward its transfer and convertibility assessment to
'BBB-' from 'BBB'.
At the same time, S&P placed its ratings on Russia on CreditWatch
with negative implications.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009
"EU CRA Regulation"), the ratings on Russia are subject to certain
publication restrictions set out in Art 8a of the EU CRA
Regulation, including publication in accordance with a
pre-established calendar. Under the EU CRA Regulation, deviations
from the announced calendar are allowed only in limited
circumstances and must be accompanied by a detailed explanation of
the reasons for the deviation. In this case, the reason for the
deviation is the risk of substantial macroeconomic fallout from a
new round of international sanctions on Russia. The next scheduled
publication on the sovereign rating on Russia is on May 27, 2022.
CreditWatch
S&P expects to resolve the CreditWatch placement in the next 90
days once it has more clarity on the full macroeconomic
repercussions of the existing sanctions and the evolution of the
geopolitical conflict, including visibility on the risk of new
restrictions. The negative implications of the CreditWatch indicate
the possibility that S&P could lower its ratings on Russia during
that period.
Rationale
The downgrade follows the abrupt escalation of Russia's military
intervention into Ukraine, which has prompted a series of stringent
economic and financial sanctions from the U.S., EU, and U.K.
governments, among others. In our view, the sanctions announced to
date could carry significant negative implications for the Russian
banking sector's ability to act as a financial intermediary for
international trade.
Apart from the immediate disruptions to economic activity that the
sanctions could cause, second-round effects on domestic confidence
could also be substantial. Some of these might be difficult to
contain even in the face of Russia's currently strong public and
external balance sheets, as well as its conservative macroeconomic
management. Under some scenarios, escalating geopolitical tensions
could also trigger countermeasures from the Russian government that
could worsen the impact.
S&P believes the uncertainty surrounding the extent of the military
conflict poses additional risks. Continued military escalation
could result in a new round of strong sanctions. Under some
scenarios, this could disrupt part of commodity trade or undermine
the Russian government's technical ability or willingness to ensure
timely debt service.
Environmental, social, and governance (ESG) credit factors for this
change in credit rating/outlook and/or CreditWatch status:
Other governance factors
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
DOWNGRADED; CREDITWATCH/OUTLOOK ACTION
TO FROM
RUSSIA
Sovereign Credit Rating
Foreign Currency BB+/Watch Neg/B BBB-/Stable/A-3
Local Currency BBB-/Watch Neg/A-3 BBB/Stable/A-2
Senior Unsecured BBB-/Watch Neg BBB
Senior Unsecured BB+/Watch Neg BBB-
Transfer & Convertibility
Assessment BBB- BBB
SBERBANK: European Arm Faces Failure Following Russia Sanctions
---------------------------------------------------------------
Tom Sims, Alexandra Schwarz-Goerlich, Lawrence White, Kirsten
Donovan, Daria Sito-Sucic, Huw Jones, and Frank Siebelt at Reuters
report that the European arm of Sberbank, Russia's biggest lender,
faces failure, the European Central Bank (ECB) warned on Feb. 28,
after a run on its deposits sparked by the backlash from Russia's
invasion of Ukraine.
Western allies have taken unprecedented steps to isolate Russia's
economy and financial system, including sanctioning its central
bank and excluding some of its lenders from the SWIFT messaging
system, used for trillions' of dollars of transactions, Reuters
relates.
Sberbank Europe and two other subsidiaries were set to fail, after
"significant deposit outflows" linked to "geopolitical tensions",
Reuters quotes the ECB as saying. Austria's Financial Market
Authority imposed a moratorium on Sberbank Europe, which is based
in the country.
Separately, Deutsche Boerse, the German stock exchange operator,
said that it was suspending from trading a number of securities
from Russian issuers with immediate effect. The list includes
Sberbank and VTB Bank, Reuters notes.
"We've triggered a run on this kind of bank," Hans-Peter Burghof, a
professor at the University of Hohenheim, as cited by Reuters,
said.
Banks and their lawyers are scrambling to assess the impact of the
wave of sanctions, which prompted Russia's central bank to more
than double its main interest rate on Feb. 28 and introduce some
capital controls to try and stabilize the rouble, Reuters
discloses.
The market turmoil came as Russian invasion forces seized two small
cities in southeastern Ukraine and the area around a nuclear power
plant, as Moscow's diplomatic and economic isolation deepened,
Reuters relays. Russia calls its actions in Ukraine a "special
operation".
Investors fear that European banks with heavy exposure to Russia
and Ukraine will need to make hefty provisions for the drop of the
valuation of their assets in the region, Reuters relays.
The ECB's warning extended to Sberbank subsidiaries in Croatia and
Slovenia, Reuters states. Sberbank is majority owned by Russia,
Reuters notes.
According to Reuters, the lender said in a statement that several
of its subsidiaries saw "significant outflow of client deposits
within a very short time" and that it was in close contact with
regulators.
Sberbank's branches in Slovenia were closed until Wednesday, and
services temporarily limited to card transactions with a withdrawal
limit of 400 euros a day, the Slovenian central bank said on Feb.
28, Reuters recounts.
The Croatian central bank said depositors at Sberbank, which has
about a 2% share of the country's banking market, would be allowed
to withdraw just under 1,000 euros a day, Reuters relates.
Sberbank Europe said in November it had reached a deal to sell its
subsidiaries in Croatia, Slovenia, Hungary, Serbia and Bosnia and
Herzegovina to a group including Serbia's AIK bank, Reuters
discloses. Serbian regulators gave their consent on Feb. 28, the
only ones yet to do so, according to Reuters.
[*] RUSSIA: Banks Assure Enough Liquidity to Meet Demands
---------------------------------------------------------
Andrey Ostrouk at Reuters reports that Russian banks sanctioned by
the West have enough liquidity to meet clients' demands and are
doing everything possible to calmly make it through this volatile
period, the banks said in a joint statement on Feb. 25.
The banks said there were no restrictions at their ATMs or
branches, Reuters relates.
[*] RUSSIA: Central Bank Takes Steps Following Western Sanctions
----------------------------------------------------------------
Reuters reports that Russia's central bank more than doubled its
key policy rate on Feb. 28 and introduced some capital controls as
it scrambled to shield the economy from unprecedented Western
sanctions that sent the rouble tumbling to record lows.
According to Reuters, the main interest rate will rise to 20%, its
highest this century, from 9.5% to counter the risks of the
rouble's rapid depreciation and higher inflation, which threaten
Russians' savings.
"External conditions for the Russian economy have drastically
changed," the central bank said, as cited by Reuters, adding that
the hike "will ensure a rise in deposit rates to levels needed to
compensate for the increased depreciation and inflation risk".
The monetary authority also ordered companies to sell 80% of their
foreign currency revenues, increased the range of securities that
can be used as collateral to get loans and temporarily banned
Russian brokers from selling securities held by foreigners, Reuters
discloses. It did not specify which securities the ban applies to,
Reuters notes.
The emergency measures put the central bank on the frontline
defending Russia against a campaign by Western allies to isolate it
economically following Moscow's invasion of Ukraine, Reuters
notes.
The central bank has itself been targeted, with the West seeking to
restrict its ability to deploy US$640 billion of forex and gold
reserves and cut Russia's major banks off the SWIFT financial
network, making it hard for lenders and companies to make and
receive payments, Reuters states.
The rouble plunged nearly 30% to an all-time low versus the dollar
on Monday, Feb. 28, Reuters relays.
According to Reuters, Britain on Feb. 28 banned any transactions
with the Russian central bank, finance ministry and wealth fund,
and said it would prevent Russian companies from issuing
transferable securities and money market instruments in the United
Kingdom.
The steps by the Russian central bank bolster other measures
announced on Feb. 27, including an assurance that the central bank
would resume buying gold on the domestic market, Reuters notes. It
will also launch a repurchase auction with no limits and ease
restrictions on banks' open foreign currency positions, according
to Reuters.
Finance Minister Anton Siluanov said the government was ready to
strengthen commercial banks' capital base if required, Reuters
relates.
Russians queued outside ATMs on Feb. 27, worried the sanctions
could trigger cash shortages and disrupt payments, Reuters
recounts.
"A bank run has already started in Russia over the weekend . . .
and inflation will immediately spike massively, and the Russian
banking system is likely to be in trouble," Reuters quotes Jeffrey
Halley, Asia-based senior market analyst at OANDA, as aying.
Nomura analysts said in a note to clients that fresh reprisal
measures by the West against Russia were likely to have wider
global implications, according to Reuters.
"These sanctions from the West are likely to eventually hurt trade
flows out of Russia (around 80% of FX transactions handled by
Russian financial institutions are denominated in USD), which will
also hurt the growth outlook of Russia's key trading partners
including Europe and lead to greater inflationary pressures and
risk of stagflation, we think," they wrote.
The Russian business operations of other Western corporations are
also in the spotlight, Reuters notes.
The Russian central bank in several announcements on Feb. 27 sought
to ensure financial stability. It said it would resume buying gold
on the domestic market from Feb. 28, Reuters relays.
Customers of sanctioned banks would be unable to use their bank
cards outside Russia, it said, and cards issued by the sanctioned
banks would not work on Google Pay or Apple Pay, Reuters relates.
It also ordered market players to reject attempts by foreign
clients to sell Russian securities, a document showed.
That could complicate plans by the sovereign wealth funds of Norway
and Australia to wind down exposure to Russian-listed companies,
Reuters states.
It said the banking system remained stable, with bank cards working
as normal and customers able to access their funds, Reuters
relates.
According to Reuters, the central bank said it would substantially
increase the range of securities that can be used as collateral to
get central bank loans and temporarily ease restrictions on banks'
open foreign currency positions after the sanctions.
The measure, allowing banks suffering from "external circumstances"
to keep positions above the official limits, will be in place until
July 1, it said in a statement, Reuters notes.
[*] RUSSIA: EU, US, UK, Allies Agree to Exclude Banks From Swift
----------------------------------------------------------------
BBC News reports that the European Union, US, UK and allies have
agreed to exclude a number of Russian banks from Swift, an
international payment system used by thousands of financial
institutions.
According to BBC, the move aims to hit the country's banking
network and its access to funds via Swift, which is pivotal for the
smooth transaction of money worldwide.
Swift is the global financial artery that allows the smooth and
rapid transfer of money across borders. It stands for Society for
Worldwide Interbank Financial Telecommunication.
Created in 1973 and based in Belgium, Swift links 11,000 banks and
institutions in more than 200 countries.
At this stage, it is not known which Russian banks will be removed
from Swift, BBC notes. This is expected to become clear in the
coming days.
The statement from EU, the US, the UK and others said the move
would "ensure that these banks are disconnected from the
international financial system and harm their ability to operate
globally", BBC relates.
The aim is for Russian companies to lose access to the normal
smooth and instant transactions provided by Swift, BBC discloses.
Payments for its valuable energy and agricultural products will be
severely disrupted, BBC states.
According to BBC, banks would be likely to have to deal directly
with one another, adding delays and extra costs, and ultimately
cutting off revenues for the Russian government.
Some nations -- such as Germany, France and Italy -- had been
reluctant to take action against Russia's use of Swift, BBC
relays.
Russia is the European Union's main provider of oil and natural
gas, and finding alternative supplies will not be easy. With
energy prices already soaring, further disruption is something many
governments want to avoid, according to BBC.
Companies owed money by Russia would have to find alternative ways
to get paid, BBC notes. The risk of international banking chaos is
too large, say some people, BBC relays.
Alexei Kudrin, Russia's former finance minister, suggested being
cut off from Swift could shrink Russia's economy by 5%, according
to BBC.
===========
S E R B I A
===========
SERBIA: Fitch Affirms 'BB+' LT Foreign Currency IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed Serbia's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook.
KEY RATING DRIVERS
Policy Credibility Supports Stable Outlook: Serbia's rating is
supported by its credible macroeconomic policy framework and
prudent fiscal policy, and somewhat stronger governance, human
development and GDP per capita compared with 'BB' medians. Set
against these factors are Serbia's greater share of
foreign-currency (FC) denominated public debt and higher net
external debt than peer group medians, as well as a high degree of
banking sector euroisation.
Planned Fiscal Consolidation: The general government deficit
narrowed 3.8pp in 2021 to 4.2% of GDP ('BB' median 5.2%) driven by
a rebound in tax revenue, and unwinding of pandemic support. Fitch
projects the deficit will fall to 3.1% in 2022, as robust tax
revenue growth and phasing out of remaining pandemic measures more
than offset moderate election-related transfers and energy
subsidies. Fitch forecasts a further narrowing to 1.8% of GDP in
2023, anchored by new fiscal rules, which Fitch anticipates will be
agreed with the IMF in 2H22.
Public Debt Stabilises: Fitch forecasts general government
debt/GDP, which stabilised in 2021 at 57.5%, will steadily fall to
52.5% at end-2023, below the projected 'BB' median of 56.0%. Fitch
assumes that the majority of new debt issued this year is domestic,
reflecting more challenging external financing conditions, and that
the IMF SDR allocation (1.3% of GDP) is fully used in 1H22. Access
to Euroclear settlement will provide a modest boost to demand for
public debt from 1Q23. The average maturity of central government
debt has lengthened to 8.3 years from 6.1 years at end-2019, but
the FC share has edged up to 71.5%, well above the peer group
median of 50.4%.
Moderate Trend Growth, Inflationary Pressure: Economic growth
rebounded strongly in 2021 by 7.5%, driven by domestic demand, and
Fitch forecasts it slows to 4.3% in 2022 due to base effects and
cooling real wage growth. Growth is projected to moderate to 3.8%
in 2023 (in line with the projected 'BB' median), slightly above
Fitch's assessment of Serbia's trend rate. Growth potential is
constrained by Serbia's weak demographics, low productivity growth,
and skills mismatches, which Fitch expects will exert more of a
drag from next year. Inflation accelerated to 8.2% in January but
core inflation is more contained at 4.1%. Fitch forecasts inflation
falls to 4.6% at end-2022, just above the upper bound of the
National Bank of Serbia's target range, and to 3.1% at end-2023,
but upside risks to Fitch's forecast have increased.
Stable External Finances: The current account deficit is projected
to widen to an average 5.1% of GDP in 2022-2023 ('BB' median 2.2%)
from 4.4% in 2021, partly due to strong investment growth fuelling
imports. However, this is expected to remain covered by net FDI,
averaging 5.4% of GDP in 2022-2023 (from 6.8% in 2021). Serbia's
foreign exchange reserves were resilient to the pandemic shock,
ending 2021 at 5.3 months of current external payments and Fitch
forecasts a slight fall to 5.0 at end-2023, near the projected 'BB'
median of 5.1 months. Net external debt fell to an estimated 31% of
GDP in 2021 from 44% in 2015, but this still compares unfavourably
with the peer group median of 18%, and Fitch does not project
further convergence in the coming years.
Economic Policy Continuity: President Vucic and his SNS party are
set for a commanding victory in April's presidential and
parliamentary elections. Fitch anticipates consolidation of the
macroeconomic policy framework, underpinned by renewal in June of
the IMF Policy Coordination Instrument, but only gradual progress
in structural reforms including ones to improve weak SOE governance
and public sector inefficiencies. The opposition, which remains
highly fragmented, has announced it will end its election boycott
and contest the elections, and Fitch considers there is a low risk
of social protests undermining the stability of the
administration.
Slow EU Accession Progress: Serbia opened an EU cluster in
December, the first time for two years that a new chapter was
opened. Fitch sees limited political impetus for substantial reform
in the most problematic areas of rule of law and Kosovo, resulting
in a long delay to the target accession date of 2025. Measures to
tackle corruption and organised crime, improve media representation
and freedom of expression, and reform the judiciary are likely to
be constrained by entrenched vested interests, notwithstanding a
referendum in January, in which proposals to increase the
independence of judicial appointments were approved. Serbia's World
Bank Governance Indicator percentile ranking has fallen to 46.8
from 50.1 over the last two years. EU accession remains an
important cornerstone of government policy, but further drift could
lead to a weakening over time in the still-solid public support for
accession.
Sound Banking Sector Fundamentals: The non-performing loan ratio
fell to 3.4% in November, from 3.7% at end-2020 (and 17% at
end-2016) with a robust provisions rate, of 58%. Common equity Tier
1 capital is high at 20.6%, and around 87% of the sector (by
assets) is foreign-owned, reducing contingent liability risk.
Return on equity strengthened to 7.9% in 11M21, liquidity has
remained adequate, and credit growth was steady at 10%, helped by
extension of a credit guarantee scheme. The share of FC-denominated
deposits has gradually fallen to 60% but is still well above the
'BB' median of 18%.
ESG - Governance: Serbia has an ESG Relevance Score of '5' for both
Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption, as
is the case for all sovereigns. These scores reflect the high
weight that the World Bank Governance Indicators (WBGI) have in
Fitch's proprietary Sovereign Rating Model (SRM). Serbia has a
medium WBGI ranking, at the 47th percentile, reflecting a moderate
level of rights for participation in the political process,
moderate institutional capacity, established rule of law and a
moderate level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Public Finances: A sustained increase in general government
debt/GDP over the medium term - for example, due to a
structural fiscal loosening and/or weaker GDP growth prospects
- or a sharp rise in the debt and interest burdens due to
currency depreciation.
-- External Finances: An increase in external vulnerabilities,
for example, from acute financing pressures or a worsening of
imbalances, leading to a fall in FX reserves, or higher
external debt and interest.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Public Finances: Fiscal consolidation that puts general
government debt/GDP on a firm downward path over the medium
term.
-- Macro: An improvement in medium-term growth prospects that
increase the pace of convergence in GDP per capita with higher
rated peers; for example, due to structural reforms.
-- External Finances: Reduction in external vulnerabilities; for
example, from a smaller share of foreign currency government
debt, lower banking sector euroisation, and a fall in overall
net external debt/GDP.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Serbia a score equivalent to a
rating of 'BB+' on the Long-Term Foreign-Currency (LT FC) IDR
scale.
Fitch's sovereign rating committee did not adjust the output from
the SRM to arrive at the final LT FC IDR.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Serbia has an ESG Relevance Score of '5' for Political Stability
and Rights as WBGI have the highest weight in Fitch's SRM and are
highly relevant to the rating and a key rating driver with a high
weight. As Serbia has a percentile below 50 for the respective
Governance Indicator, this has a negative impact on the credit
profile.
Serbia has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
WBGI have the highest weight in Fitch's SRM and are therefore
highly relevant to the rating and are a key rating driver with a
high weight. As Serbia has a percentile rank below 50 for the
respective Governance Indicators, this has a negative impact on the
credit profile.
Serbia has an ESG Relevance Score of '4' for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
WBGI are relevant to the rating and a rating driver. As Serbia has
a percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Serbia has an ESG Relevance Score of '4' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Serbia, as for all sovereigns. As Serbia has
a fairly recent restructuring of public debt in 2004, this has a
negative impact on the credit profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3'. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or to the way in which they
are being managed by the entity.
===========
S W E D E N
===========
QUIMPER AB: Moody's Affirms 'B2' CFR & Alters Outlook to Positive
-----------------------------------------------------------------
Moody's Investors Service has affirmed Quimper AB's (Ahlsell) B2
corporate family rating, the B2-PD probability of default rating
and B2 instrument ratings, consisting of the outstanding equivalent
EUR18.5 billion senior secured first lien term loan B and a SEK2.25
billion senior secured first lien revolving credit facility (RCF).
The outlook changed to positive from stable.
RATINGS RATIONALE
The positive outlook reflects Ahlsell's strong results in 2021 that
supported the improvement of credit metrics ahead of Moody's
expectations, as well as the company's track record of good
operating performance, leading position in Sweden and balanced end
market exposure that will continue to drive earnings growth over
the next 12-18 months. At the same time, the rating action also
takes into consideration increasing geopolitical tensions that
could dent the economic conditions in Europe, as well as event risk
related to shareholder distributions and mergers or acquisitions
(M&A).
Ahlsell reported strong results in 2021, including 12% revenue
growth and a record high operating profit margin of around 9% (7.4%
in 2020). These results have been supported by strong underlying
demand within all major product and customer segments, increasing
operational leverage and the company's ability to pass through
price increases to customers. The results combined with debt
repayments in February 2021 have supported a strong improvement in
credit metrics, including the reduction of debt/EBITDA to 4.7x from
5.7x in 2020 and Free Cash Flow (FCF) to Debt of around 10% meeting
Moody's upgrade triggers.
Moody's expects credit metrics will remain strong over the next
12-18 months, including leverage below 5.0x. Performance will be
supported by mid-to-high single digit revenue growth reflecting an
average price increase of around 6% in 2022 and solid demand from
the industrial, infrastructure and renovation end markets that will
offset softer market conditions in the new built segment after the
strong recovery in 2021. Despite the positive demand fundamentals,
the rating agency believes there is increasing risk that rising
geopolitical tensions could dent economic outlook in Europe and
negatively affects demand for Ahlsell's product.
Moody's forecast assumes Ahsell will maintain its operating profit
margin between 8.5% to 9% over the next 12-18 months as the company
will manage to offset rising costs with price increases and
operating efficiencies. The rating agency also expects that Ahlsell
will continue to generate positive FCF that will be used to fund
the external growth strategy of the Group to further consolidate
its market position in the Nordics region.
The B2 rating is further supported by (1) Ahlsell's leading market
positions in the heating, ventilation and air conditioning (HVAC),
electricals and tools and supplies segments in Sweden; (2) higher
profitability compared to peers in the distribution industry mainly
reflective of strong market position in Sweden, which reported 13%
EBITA margin in 2021 and maintained an EBITA margin above 10% over
the past nine years; (3) a solid liquidity profile with a superior
track record to generate positive FCF with only 1 year of negative
FCF since 2006 and (4) Moody's expectations that Ahlsell is well
positioned to benefit from higher demand for energy efficient
renovation coming from EU Green Deal climate goals.
At the same time, the rating is constrained by (1) low but
improving single digit EBITA margins in Norway and Finland, mainly
due to a lack of sufficient scale; (2) Ahlsell's significant
exposure to cyclicality of some of its end markets, such as new
construction and industrial production, to some extent mitigated by
the company's overall broad end market exposure and its ability to
outgrow the market historically; (3) event risk associated with the
private equity ownership by CVC Capital Partners, which delisted
the company in 2019.
LIQUIDITY
Ahlsell's liquidity is good, supported by cash balance of SEK4.5
billion at December 2021 and by a SEK2.25 billion undrawn revolving
credit facility maturing in 2025. There are intra-year working
capital swings, where there generally is a build-up in Q1-Q3 and a
subsequent release in Q4, all expected to be covered by internally
generated cash flows. Moody's expects ample covenant headroom,
given the maintenance covenant stipulating that first lien net
leverage (as defined in the facility documentation) must be lower
than 9x whenever 40% or more of the RCF has been utilised.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Moody's considers the impact of ESG factors when assessing
companies' credit quality. Social risks are not material for
Ahlsell. Environmental issues are a benefiting factor to Ahlsell's
credit profile, given the focus of European governments around
energy efficiency of buildings. The company's end markets will
continue to benefit from the regulatory push for renovation of
building stock for the foreseeable future.
In terms of governance, Ahlsell is a private company owned by the
private equity firm CVC Capital Partners. The financial policy is
fairly aggressive, as illustrated by the high starting leverage
following LBO, but with a stated commitment to deleverage the
balance sheet. Over the past years, the company's growth strategy
has been largely organic and supplemented by several bolt-on
acquisitions funded by positive FCF. While Moody's forecasts
exclude transformational merger or acquisition (M&A) or shareholder
dividend distributions, the rating agency believes there is
increasing event risk associated with aggressive financial policy
moves considering the strong cash flow generation.
STRUCTURAL CONSIDERATIONS
In Moody's loss-given-default (LGD) assessment, the group's senior
secured first lien term loan and the senior secured RCF rank pari
passu with each other and share the same security interests and
guarantees of entities of the group representing at least 80% of
consolidated EBITDA. Given the weak collateral value of the
security (consisting mainly of share pledges, bank accounts,
intercompany receivables) these facilities rank first together with
unsecured trade payables, pension obligations and short-term lease
commitments at the level of operating entities. The first lien debt
facilities are rated B2, in line with the CFR.
OUTLOOK
The positive outlook reflects Moody's expectations that Ahlsell
will maintain around 8%-9% operating margin (Moody's adjusted) and
record mid-to-high digit revenue growth in the next 12-18 months,
which will translate into Moody's-adjusted debt / EBITDA below 5.0x
and FCF /Debt of around 10%. The forward view does not incorporate
any debt-funded acquisitions or shareholder distributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive ratings pressure would arise should (1) debt/EBITDA remain
below 5.25x on a sustained basis, (2) operating margins remain in
high single digits in percentage terms or above and (3) FCF/debt
remain in high single digits in percentage terms.
Conversely, downward pressure could be exerted on the rating if (1)
Ahsell' operating performance weakens such that its
Moody's-adjusted debt/EBITDA rises above 6.5x on a sustained basis,
(2) operating margin decline below 7%, (3) FCF/Debt decline below
3% or (4) liquidity deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Distribution &
Supply Chain Services Industry published in June 2018.
COMPANY PROFILE
Headquartered in Stockholm, Sweden, Quimper AB (Ahlsell) is a
pan-Nordic wholesale distributor providing professional users with
a wide assortment of goods and services in the HVAC, electricals
and tools and supplies segments. The company is active in all four
Nordic countries, with Sweden generating 66% of revenue, Norway
19%, Finland 12%, and Denmark and other regions 2%. The company is
owned by funds affiliated with CVC Capital Partners. In 2021, the
company reported revenue of SEK36.9 billion and EBITDA of SEK4.7
billion.
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T U R K E Y
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TAKASBANK: Fitch Lowers LongTerm IDRs to 'B+', Outlook Negative
---------------------------------------------------------------
Fitch Ratings has downgraded Istanbul Takas ve Saklama Bankasi
A.S.'s (Takasbank) Long-Term Foreign- and Local-Currency Issuer
Default Ratings (IDRs) to 'B+' from 'BB-' with Negative Outlooks.
Fitch has also placed Takasbank's 'b+' Viability Rating (VR) on
Rating Watch Negative (RWN).
The rating actions follow the downgrade of Turkey's sovereign
rating ('Fitch Downgrades Turkey to 'B+'; Outlook Negative') and
the subsequent downgrade of Turkey's largest banks ('Fitch
Downgrades 22 Turkish Banks; Outlook Negative').
Fitch has withdrawn Takasbank's Support Rating and Support Rating
Floor as they are no longer relevant to its coverage following the
publication of its updated Non-Bank Financial Institutions Rating
Criteria on 31 January 2022. Fitch has assigned Takasbank a
Government Support Rating (GSR) of 'b+'.
KEY RATING DRIVERS
The downgrade of Takasbank's Long-Term IDRs reflects the weaker
ability of the Turkish sovereign to support Takasbank. Takasbank's
Long-Term 'B+' IDRs and 'b+' GSR reflect Fitch's view of a high
propensity of support from the Turkish sovereign, in case of need.
Takasbank's GSR is higher than most commercial systemically
important domestic banks. This is because, in Fitch's opinion,
Takasbank has exceptionally high systemic importance for the
Turkish financial sector. Contagion risk from Takasbank's default
would be considerable, given the bank's inter-connectedness with
the wider Turkish financial sector as Turkey's only central
counterparty clearing house (CCP).
The affirmation of the National Long-Term Rating at 'AAA(tur)' with
Stable Outlook reflects Fitch's view of Takasbank's unchanged
creditworthiness relative to other domestic issuers.
The RWN on Takasbank's VR primarily reflects Fitch's view that
Takasbank's credit and counterparty risk exposures, notably in its
treasury activities, have increased following the VRs of some of
its largest counterparties being placed on RWN, reflecting their
exposure to ongoing market volatility, weak policy credibility,
high inflation and the ensuing risks to financial stability.
When resolving the RWN on Takasbank's VR, Fitch will assess the
impact from increased risks in the operating environment on
Takasbank's credit profile, in particular its resilience to absorb
a further deterioration of commercial bank credit quality. Fitch
expects to resolve the RWN in the next six months.
Takasbank's VR is underpinned by the bank's dominant franchise as
the country's only clearing house. In the context of the weak
operating environment, it is further supported by sound
counterparty-risk management, limited direct credit risk in its CCP
activities (supported by sound risk controls and availability of
adequate default-management resources), as well as decent
capitalisation and a reasonable liquidity profile. However, the VR
also reflects considerable concentration risk in its CCP activities
and incremental credit risk appetite in its non-CCP activities,
notably its extensive treasury activities with Turkish
counterparties.
At end-2021, Takasbank's Tier 1 ratio was 19.1% (end-2020: 22.9%),
supported by strong retained profits, no loss events and low risk
weights of assets. Cash and equivalents and sovereign securities
accounted for 86% and 11% of total assets, respectively. Fitch uses
its Bank Criteria to assess Takasbank's capitalisation and leverage
metrics given the absence of corporate debt.
Profitability remained sound, reflected in a return on average
equity ratio of 31% in 2021 (2020: 23%), primarily driven by
treasury interest income (44% of total revenue) and CCP commissions
(23%). Fitch believes that market volatility will support
Takasbank's commission income and will largely balance the adverse
impact of decreasing interest rates on Takasbank's profitability.
Takasbank is Turkey's only CCP and is majority-owned by Borsa
Istanbul, Turkey's main stock exchange. Borsa Istanbul is in turn
majority-owned by the Turkey Wealth Fund (B+/Negative). It operates
under a limited banking licence, and is regulated by three Turkish
regulatory bodies: Central Bank of Turkey, Banking Regulation and
Supervision Agency and the Capital Markets Board.
ESG Influence
Takasbank has an ESG relevance score of '4' for governance
structure, reflecting potential government influence over the
board's strategy and governance effectiveness.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Negative rating action on Turkey's sovereign rating would be
mirrored in Takasbank's IDRs.
-- Deterioration in the credit profiles of Takasbank's main
commercial bank counterparties would put pressure on
Takasbank's VR.
-- A material operational loss or a materially increased risk
appetite, for example, in the bank's treasury activities,
particularly to lower credit-quality counterparties, would
also put pressure on Takasbank's VR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating action on Turkey's sovereign rating would
likely be mirrored in Takasbank's IDRs.
-- A stabilisation or improvement of the credit profiles of
Takasbank's main commercial bank counterparties could lead to
an affirmation of Takasbank's VR as could further evidence
that its credit profile remains resilient to ongoing market
volatility.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Takasbank's ratings are driven by Turkey's sovereign ratings.
ESG CONSIDERATIONS
Takasbank has an ESG Relevance Score of '4' for Governance
Structure due to potential government influence over the board's
strategy and governance, which has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
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U K R A I N E
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UKRAINE: Fitch Lowers LongTerm Foreign Currency IDR to 'CCC'
------------------------------------------------------------
Fitch Ratings, on Feb. 25, 2022, downgraded Ukraine's Long-Term
Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'B'.
Fitch typically does not assign Outlooks or apply modifiers to
sovereigns with a rating of 'CCC' or below.
EU CALENDAR DEVIATION DISCLOSURE
Under EU credit rating agency (CRA) regulation, the publication of
sovereign reviews is subject to restrictions and must take place
according to a published schedule, except where it is necessary for
CRAs to deviate from this in order to comply with their legal
obligations. Fitch interprets this provision as allowing us to
publish a rating review in situations where there is a material
change in the creditworthiness of the issuer that Fitch believes
makes it inappropriate for us to wait until the next scheduled
review date to update the rating or Outlook/Watch status. The next
scheduled review date for Fitch's sovereign rating on Ukraine is 22
July 2022 but Fitch believes that developments in the country
warrant such a deviation from the calendar and Fitch's rationale
for this is set out in the first part (High weight factors) of the
Key Rating Drivers section below.
KEY RATING DRIVERS
The downgrade reflects the following key rating drivers and their
relative weights:
HIGH
The military invasion by Russia has resulted in heightened risks to
Ukraine's external and public finances, macro-financial stability
and political stability. Russia has launched missile and ground
operations across multiple fronts, including Kyiv. There is high
uncertainty over the extent of Russia's ultimate objectives, the
length, breadth and intensity of the conflict, and its aftermath.
MEDIUM
The invasion represents a severe negative shock to a broad-range of
key credit metrics. Ukraine has fairly low external liquidity
relative to sovereign external debt service of USD4.3 billion in
2022, and expected capital outflows will further weaken its
external financing position.
The shock to domestic confidence is expected to have a severe
impact on economic activity and the currency, fuelling inflationary
pressure and macro-economic volatility. Public finances would
additionally be impacted by greater military expenditure, and the
ability to roll over domestic debt will be severely constrained.
Developments markedly increase the risk of bank deposit outflows
and an increase in the dollarisation ratio. There is a high
likelihood of an extended period of political instability, with
regime change a likely objective of President Putin, creating
heightened policy uncertainty and potentially also undermining the
willingness of Ukraine to repay debt.
Ukraine's 'CCC' rating also reflects the following rating drivers:
Until now, Ukraine has had a credible macroeconomic policy
framework (underpinned by exchange rate flexibility, commitment to
inflation-targeting, and prudent fiscal policy), record of
multilateral support, favourable human development indicators, a
net external creditor position of 9% of GDP, and low public debt.
Set against these factors are geopolitical risk, weak governance
indicators, low external liquidity, and risks to policy
implementation.
ESG - Governance: Ukraine has an ESG Relevance Score (RS) of '5'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
These scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in Fitch's proprietary Sovereign Rating
Model (SRM). Ukraine has a low WBGI ranking at the 32nd percentile,
reflecting the Russian-Ukrainian conflict, weak institutional
capacity, uneven application of the rule of law and a high level of
corruption.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Increased signs of a probable default event, for instance from
severe external liquidity stress and reduced capacity of the
government to access external financing.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Structural: De-escalation of conflict with Russia reducing
vulnerabilities to Ukraine's external finances, fiscal
position and macro-financial stability.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
In accordance with its rating criteria, Fitch's sovereign rating
committee has not utilised the SRM and QO to explain the ratings in
this instance. Ratings of 'CCC' and below are instead guided by the
rating definitions.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Ukraine has an ESG Relevance Score of '5' for Political Stability
and Rights as WBGI have the highest weight in Fitch's SRM and are
highly relevant to the rating and a key rating driver with a high
weight. The invasion by Russia has undermined political stability.
As Ukraine has a percentile below 50 for the respective Governance
Indicator, this has a negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
WBGI have the highest weight in Fitch's SRM and in the case of
Ukraine weaken the business environment, investment and reform
prospects; this is highly relevant to the rating and a key rating
driver with high weight. As Ukraine has a percentile rank below 50
for the respective Governance Indicators, this has a negative
impact on the credit profile.
Ukraine has an ESG Relevance Score of '4[+]' for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
WBGI is relevant to the rating and a rating driver. As Ukraine has
a percentile rank above 50 for the respective Governance Indicator,
this has a positive impact on the credit profile.
Ukraine has an ESG Relevance Score of '4' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Ukraine, as for all sovereigns. As Ukraine
has a fairly recent restructuring of public debt in 2015, this has
a negative impact on the credit profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3'. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or to the way in which they
are being managed by the entity.
UKRAINE: Moody's Puts B3 Issuer Rating Under Review for Downgrade
-----------------------------------------------------------------
Moody's Investors Service has placed the Government of Russia's
Baa3 long-term issuer (domestic and foreign currency) and senior
unsecured (domestic and foreign currency) ratings as well as the
P-3 Other Short Term (domestic currency) rating on review for
downgrade. At the same time, Moody's has placed the Government of
Ukraine's B3 foreign- and domestic-currency long-term issuer
ratings and foreign-currency senior unsecured rating on review for
downgrade.
These reviews were triggered by Russia's further military operation
in Ukraine which started on February 24, 2022. These events
represent a significant further elevation of the geopolitical risks
that Moody's had previously highlighted, which is being accompanied
by additional and more severe sanctions on Russia, potentially
including those that could impact sovereign debt repayment.
The ultimate severity of the impact of new sanctions on Russia's
credit profile will depend on their scope, the sectors targeted and
the degree of coordination between Western countries. With respect
to Ukraine, an extensive conflict could pose a risk to the
government's liquidity and external positions given Ukraine's
sizeable external maturities in the coming years and the reliance
of its economy on foreign-currency funding.
A List of Affected Credit Ratings is available at
https://bit.ly/3HtnXZt
MOODY'S PLACES RUSSIA'S Baa3 RATINGS ON REVIEW FOR DOWNGRADE
Moody's has placed the Government of Russia's Baa3 long-term issuer
(domestic and foreign currency) and senior unsecured (domestic and
foreign currency) ratings as well as the P-3 Other Short-Term
(domestic currency) rating on review for downgrade.
The decision to place the ratings on review for downgrade reflects
the negative credit implications for Russia's credit profile from
the additional and more severe sanctions being imposed.
The review period will allow Moody's to evaluate the scale of the
military conflict and the impact of further sanctions including
their scope, the sectors targeted and the degree of coordination
between Western countries and ultimate severity of their impact on
Russia's credit profile. In this context, Moody's will also take
into account the degree to which Russia's substantial buffers are
able to mitigate the disruption brought about by the new sanctions
and protracted military conflict. Moody's will look to conclude the
review when these credit implications become more clear,
particularly when the impact of further sanctions takes shape in
the coming days or weeks.
Serious concerns around Russia's ability to manage the disruptive
impact of new sanctions on its economy, public finances and
financial system may result in a downgrade of the ratings. However,
in the low likelihood that Moody's concluded that significant new
economic and financial sanctions were to have a very limited impact
on Russia's economy and financial buffers, one possible outcome of
the review will be to confirm Russia's ratings with a negative
outlook.
Russia's local- and foreign-currency country ceilings remain
unchanged at Baa1 and Baa2, respectively. The two-notch gap between
the local-currency ceiling and the sovereign rating reflects the
relatively large footprint of the government in the economy and
financial system, relatively strong reliance on a common revenue
source from the commodity sector and elevated political risk, which
is set against moderate policy predictability and limited external
imbalances. The one-notch gap between the foreign-currency ceiling
and the local-currency ceiling reflects low external debt and a
moderately open capital account, which reduce the incentives to
impose transfer and convertibility restrictions.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
RATIONALE FOR INITIATING THE REVIEW FOR DOWNGRADE ON RUSSIA's Baa3
RATINGS
The imposition of severe and co-ordinated sanctions that materially
disrupt the economy, public finances and the financial system for a
sustained period and therefore could impair Russia's ability to
service and refinance its debt would pose immediate risks to the
credit profile. For example, sanctions that hinder Russian banks'
access to foreign currencies or international payment systems, such
as SWIFT, would likely have a material impact on the economy and
financial system. The sanctioning of large Russian banks will
effectively block the institutions from participating in the global
financial system and make it exceptionally difficult to engage in
international transactions. There remains some uncertainty around
the effectiveness of any workarounds in such a scenario. Russian
banks may also struggle to find counterparties to help facilitate
cross-border transactions given the compliance risk of dealing with
a sanctioned entity.
Despite ample liquidity relative to forthcoming external debt
repayments and a clear track record on the part of Russia to
service its debt, new sanctions which restrict the ability of
Russian financial institutions to transact with foreign
counterparties could result in a scenario where there are technical
challenges to executing cross-border payments in a timely manner,
including potentially for sovereign debt payments. Sanctions that
lead to delays in the repayment of debt obligations may result in a
default under Moody's definition and a downgrade of the ratings.
Moody's considers this to be an unlikely scenario as sanctions by
Western countries are likely to include exceptions for sovereign
debt payments. Recently announced sanctions by the United States
(US, Aaa stable) on sovereign debt that apply only to new debt
issuance support this view.
While Russia´s ability to respond to and operate under sanctions
has strengthened over the past years given its accumulated buffers
and an enhanced policy toolkit, the scope of sanctions will likely
be much more severe than Moody's previously anticipated, reducing
the effectiveness of these buffers. Fiscal buffers are substantial,
with reserves in the National Wealth Fund amounting to around 11%
of GDP at end-2021. Furthermore, the accumulation of large
foreign-exchange buffers has strengthened the country's external
position. Foreign-currency reserves excluding gold, which stood at
$469 billion at the end of January 2022, are more than three times
external debt repayment needs for 2022 and cover almost the entire
stock of external debt.
Russia's low borrowing needs and large pool of domestic savings
will help limit the negative effects of an extension of sovereign
debt sanctions to the secondary market, although wide-spread
financial sector disruption could impact the functioning of
Russia's sovereign debt market. In a severe scenario where all
foreign investors are forced to sell their holdings of local- and
foreign-currency denominated sovereign debt, pushing up annual
funding requirements for the Russian government to around 7% of
GDP, Moody's estimates the domestic banking sector to have the
capacity to absorb these higher levels of sovereign debt.
Furthermore, the central bank has demonstrated its willingness to
provide additional liquidity support to the financial sector if
needed.
That said, significant new economic and financial sanctions, adding
to the persistent sanctions environment which Russia has faced
since the annexation of Crimea in 2014, would further weigh on
Russia's economic and fiscal strength. Financial sector sanctions
could disrupt trade flows and payments for Russia's oil and gas
exports which are important for government revenues. New economic
sanctions, including controls on access to key imports needed to
modernise the economy and support a further diversification in its
export mix away from hydrocarbons, or measures targeting Russia's
key export sectors such as energy, would weigh on Russia's already
low growth potential and generally slow real disposable income
growth.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Russia's ESG Credit Impact Score is moderately negative (CIS-3),
reflecting high exposure to environmental risks, moderate exposure
to social risks, and a moderately negative governance issuer
profile score, in part mitigated by financial resilience which is
underpinned by the government's very low debt burden and very
strong debt affordability.
Moody's assesses Russia's exposure to environmental risks as high
(E-4 issuer profile score), reflecting high exposure to carbon
transition risk given the important role played by hydrocarbons for
exports and government revenue. While global transition towards
lower consumption of hydrocarbons will proceed over several
decades, Russia is likely to see the impact from a shift in
policies in the near term as other countries begin to position
their economies to reach their own carbon-neutral targets. Russia
also faces moderate risks from the management of waste and
pollution which can lead to regional tensions.
Exposure to social risks is moderately negative (S-3 issuer profile
score), driven by highly unfavorable demographic trends, which
limit Russia's growth potential. A rapidly shrinking population of
young workers is likely not only to weigh on the country's
aggregate labour input but also reduce the economy's dynamism.
Russia also faces moderate social risks from relatively low income
growth and uneven access to basic services.
The influence of governance on Russia's credit profile is
moderately negative (G-3 issuer profile) and risks are mainly
related to weaknesses in the rule of law, property rights and
control of corruption, reflected in relatively lower scores on
international surveys compared with rating peers. However, the
governance profile is supported by credible monetary policy and an
effective fiscal rule that limits government spending-induced
economic volatility.
GDP per capita (PPP basis, US$): 28,053 (2020 Actual) (also known
as Per Capita Income)
Real GDP growth (% change): -2.7% (2020 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 4.9% (2020 Actual)
Gen. Gov. Financial Balance/GDP: -4% (2020 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: 2.4% (2020 Actual) (also known as
External Balance)
External debt/GDP: 31.4% (2020 Actual)
Economic resiliency: ba1
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On February 24, 2022, a rating committee was called to discuss the
rating of Russia, Government of. The main points raised during the
discussion were: The issuer's economic fundamentals, including its
economic strength, have not materially changed. The issuer's
institutions and governance strength have not materially changed.
The issuer's fiscal or financial strength, including its debt
profile, has not materially changed. The issuer's susceptibility to
event risks has materially increased.
FACTORS THAT COULD LEAD TO AN UPGRADE OF RUSSIA'S RATINGS
Given the review for downgrade, an upgrade of Russia's ratings is
remote. The ratings could be confirmed with a negative outlook if
Moody's concluded with a low likelihood that significant new
economic and financial sanctions were to have a very limited impact
on Russia's economy, fiscal buffers and financial sector.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF RUSSIA'S RATINGS
Russia's ratings would likely be downgraded if Moody's concluded
that new severe and co-ordinated sanctions imposed by Western
countries on Russia were likely to result in a sustained disruption
to the economy, public finances and financial stability, which
could impair the government's ability to service and refinance its
debt.
In particular, sanctions which restrict the ability of Russian
banks to transact with foreign counterparties, or vice-versa, would
result in a scenario where there are challenges to executing
cross-border payments in a timely manner, including potentially for
sovereign debt payments. In line with Moody's definition, a missed
payment on interest or principal, which is not cured within the
grace period, would typically be classified as a default and, in
such an event, Russia's sovereign rating would likely be downgraded
by a number of notches. A B1 sovereign rating would be consistent
with the expectation of a full recovery for investors (relative to
par plus accrued interest) once the restrictions to timely
repayment are lifted or addressed. An expectation of a lower than
full recovery could result in a lower rating than B1.
Moody's would consider repositioning Russia's ratings upwards only
once any missed payment has been fully cured and Moody's is
confident that a similar missed payment event would not reoccur.
The default event would imply that the credit profile is unlikely
to be consistent with an investment-grade rating.
Furthermore, new severe economic and financial sanctions, or an
extensive conflict which has negative spillovers on Russia's
economy, materially weighing on Russia's economic and fiscal
strength and rapidly eroding its fiscal and external buffers, could
result in a downgrade.
The publication of this rating action deviates from the previously
scheduled release dates in the UK sovereign calendar published on
www.moodys.com. This action was prompted by Russia's further
military operation in Ukraine which started on February 24, 2022
and crystallised significant political event risks for the
Government of Russia.
MOODY'S PLACES UKRAINE'S B3 RATINGS ON REVIEW FOR DOWNGRADE
Moody's has placed the Government of Ukraine's B3 foreign- and
domestic-currency long-term issuer ratings and foreign-currency
senior unsecured rating on review for downgrade.
The decision to place the ratings on review for downgrade was
caused by Russia's further military operation in Ukraine. Sizeable
external maturities in the coming years and the broader reliance of
the economy on foreign-currency funding pose a risk to Ukraine's
government liquidity and external position. Material downward
credit pressure on Ukraine's ratings would develop unless the
disruption was to be short lived and significant external financial
support was provided to shore up the country's financing position.
While Ukraine benefits from improved fiscal and external buffers,
these would likely be insufficient in the event of a prolonged
conflict.
The review period will allow Moody's to assess the scale, duration
and spillover effects of the conflict on Ukraine's credit profile.
Moody's will assess the extent to which the conflict leads to
sustained economic and fiscal damage, and the implications for
government liquidity and the external position. Moody's will also
assess the extent to which Ukraine can secure international
financing support and the degree to which this can help to mitigate
liquidity pressures. Moody's will look to conclude the review when
these credit implications are more evident, particularly as the
impact of the conflict becomes clearer in the coming days or
weeks.
Ukraine's local- and foreign-currency ceilings remain unchanged at
B2. The one-notch gap between the local-currency ceiling and the
sovereign rating reflects the low predictability of government and
institutions and elevated domestic political and geopolitical risks
which create considerable policy uncertainty; external
vulnerabilities remain elevated. The foreign-currency ceiling is
aligned to the local-currency ceiling, reflecting weak policy
effectiveness, already limited capital account openness and
elevated external indebtedness with limited foreign exchange
reserves.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
RATIONALE FOR INITIATING THE REVIEW FOR DOWNGRADE ON UKRAINE'S B3
RATINGS
The conflict poses a material risk to Ukraine's government
liquidity and external position given sizeable external maturities
in the coming years and the broader reliance of its economy on
foreign-currency funding. While Ukraine benefits from improved
fiscal and external buffers relative to the 2014-15 crisis, these
would likely be insufficient in the event of a prolonged conflict
to shore up liquidity risks given reduced funding options, foreign
investor outflows and mounting pressure on the external position.
The review period will allow Moody's to assess the extent to which
the conflict leads to sustained economic and fiscal damage as well
as prolonged disruption to the financial sector. The military
escalation will severely affect confidence and economic activity in
Ukraine. The spread of the conflict beyond eastern Ukraine to other
regions in the country will have more material negative economic
consequences given the resulting disruption to the country's
industrial and agricultural productive capacity. A higher fiscal
deficit and a weaker currency would lead to a substantial increase
in the government debt burden from around 55% of GDP at the end of
2021.
Foreign-currency reserves at the end of January 2022 reached their
highest level since September 2012, standing at $27.5 billion or
around 4 months of import cover according to Moody's definition,
although reserves will come under increasing pressure at a time of
reduced foreign-currency inflows, particularly as the country's
financing options reduce amid heightened borrowing costs and a
sustained depreciation of the hryvnia.
The review period will also allow Moody's to assess the extent to
which international financial support, through international
financial institutions and/or bilateral official assistance, can
help to offset liquidity pressures stemming from the government's
external refinancing needs of $6.1 billion in 2022 and between $2-6
billion (1-3% of GDP) each year over the next decade. Ukraine was
able to access substantial financial support in the wake of the
military conflict in 2014-15, including a $17 billion programme
with the International Monetary Fund, which gives Moody's
confidence that international partners stand ready to provide
financial assistance. Some international partners have already
announced financing commitments since tensions started mounting,
including a EUR1.2 billion package from the European Union (EU, Aaa
stable) and bilateral loans from the United States, the United
Kingdom (Aa3 stable), Canada (Aaa stable) and Denmark (Aaa
stable).
Moody's expects borrowing costs on international capital markets to
remain prohibitive for at least as long as the further conflict
lasts. Government bond spreads have spiked above 2,000 basis
points, compared to less than 500 basis points at the end of 2020.
While the domestic market has been a key source of funding, local
banks are unlikely to have the capacity to support the government
amid financial sector disruption from the conflict and the risk of
significant deposit withdrawals. Banks already hold 75% of
outstanding domestic bonds, representing 26% of their total
assets.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Ukraine's ESG Credit Impact Score is highly negative (CIS-4),
reflecting moderately negative exposures to environmental and
social risks, and a very weak governance profile. The latter,
together with moderate wealth levels, helps to explain Ukraine's
relatively low resilience to E and S risks.
Ukraine is moderately exposed to environmental risks. These include
physical climate risks, carbon transition and the weak preservation
of natural capital, reflected in its low agriculture yields despite
its abundance of very fertile black soil, which explains its E-3
issuer profile score. Its exposure to physical climate risk is
exacerbated by the importance of the agricultural sector (both in
terms of economic contribution and employment), which makes the
country's exports vulnerable to climate change and adverse weather
events. Ukraine's exposure to carbon transition comes from the fact
that transit of gas from Russia to Europe via Ukraine provides a
valuable source of foreign-exchange revenue.
Exposure to social risks is moderate (S-3 issuer profile score) and
reflects unfavourable demographics and risks related to labour and
income, with relatively high youth unemployment, as well as weak
health outcomes, and this is despite favourable educational
attainment. A persistent demographic drag will likely constrain
Ukraine's scope for strengthening its economic competitiveness.
Ukraine has a very highly negative governance profile score (G-5
issuer profile), reflecting weaknesses in the rule of law and
widespread corruption, which hinders the business environment and
disrupts access to concessional financing, as well as a track
record of sovereign defaults.
GDP per capita (PPP basis, US$): 13,129 (2020 Actual) (also known
as Per Capita Income)
Real GDP growth (% change): -3.8% (2020 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 5% (2020 Actual)
Gen. Gov. Financial Balance/GDP: -5.7% (2020 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: 3.4% (2020 Actual) (also known as
External Balance)
External debt/GDP: 80.8% (2020 Actual)
Economic resiliency: b2
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On February 24, 2022, a rating committee was called to discuss the
rating of Ukraine, Government of. The main points raised during the
discussion were: The issuer's economic fundamentals, including its
economic strength, have not materially changed. The issuer's
institutions and governance strength have not materially changed.
The issuer's fiscal or financial strength, including its debt
profile, has not materially changed. The issuer's susceptibility to
event risks has materially increased.
FACTORS THAT COULD LEAD TO AN UPGRADE OF UKRAINE'S RATINGS
Given the review for downgrade, an upgrade of Ukraine's ratings is
remote.
Ukraine's B3 ratings would likely be confirmed at their current
level with a negative outlook if disruption arising from the
conflict was to be short-lived, resulting in only limited economic
and financial disruption and significant external financial support
was provided to shore up the country's financing position.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF UKRAINE'S RATINGS
Ukraine's ratings could be downgraded if Ukraine's ability to
refinance its large external debt maturities was impaired as a
result of a prolonged conflict. Such a scenario would likely entail
a significant degree of uncertainty around the extent to which the
international community's financial support can mitigate liquidity
risks. Furthermore, a reduction in the capacity of Ukraine to repay
its obligations as a result of significant economic and fiscal
damage arising from the conflict could lead to a downgrade.
The publication of this rating action deviates from the previously
scheduled release dates in the UK sovereign calendar published on
www.moodys.com. This action was prompted by Russia's further
military operation in Ukraine which started on February 24, 2022
and crystallised significant political event risks for the
Government of Ukraine.
The principal methodology used in these ratings was Sovereign
Ratings Methodology published in November 2019.
UKRAINE: More Than US$1 Billion Needed for Aid Operations
---------------------------------------------------------
Michelle Nichols and Doina Chiacu at Reuters report that U.N. aid
chief Martin Griffiths said on Feb. 25 that more than US$1 billion
will be needed for aid operations in Ukraine over the next three
months as hundreds of thousands of people are on the move after
Russia invaded its neighbor.
"We're going to need to use cash for the delivery of assistance,
and we're going to need to use that cash safely. We're looking
obviously at the impact of sanctions on our operations," he told
reporters.
UKRAINE: S&P Lowers Sovereign Credit Ratings to 'B-', On Watch Neg.
-------------------------------------------------------------------
S&P Global Ratings, on Feb. 25, 2022, lowered its long-term foreign
and local currency sovereign credit ratings on Ukraine to 'B-' from
'B'. S&P affirmed the 'B' short-term foreign and local currency
ratings. It also lowered the national scale rating to 'uaBBB-' from
'uaA'. S&P placed all these ratings on CreditWatch with negative
implications. At the same time, S&P revised its transfer and
convertibility assessment on Ukraine to 'B-' from 'B'.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009
"EU CRA Regulation"), the ratings on Ukraine are subject to certain
publication restrictions set out in Art 8a of the EU CRA
Regulation, including publication in accordance with a
pre-established calendar. Under the EU CRA Regulation, deviations
from the announced calendar are allowed only in limited
circumstances and must be accompanied by a detailed explanation of
the reasons for the deviation. In this case, the reason for the
deviation is the risk of significant macroeconomic fallout from the
military intervention into Ukraine. The next scheduled publication
on the sovereign rating on Ukraine is on March 11, 2022.
CreditWatch
The CreditWatch negative speaks to the multiple risks to Ukraine's
economy, balance of payments, public finances, and financial and
political stability stemming from Russia's military assault.
S&P said, "We expect to resolve the CreditWatch placement within 90
days. We could lower the ratings further should the uncertainty
posed by the conflict lead to a drain on Ukraine's external
liquidity or a rise in contingent liabilities from its commercial
banking system. The rating might also come under pressure should we
expect military actions to prevent the authorities from servicing
commercial debt."
Rationale
The ratings on Ukraine are constrained by the country's low per
capita income and developing institutions. On the other hand,
stronger macroeconomic management since 2015 and relatively high
foreign currency reserves support the sovereign ratings. The
implementation of macroeconomic reforms in recent years has helped
the government access commercial debt markets and receive
concessional funding from international financial institutions.
However, the decision by Russia to launch a military attack on the
country has added significant downside risks to the economic
outlook, with the potential for negative confidence effects and
governance disruptions putting commercial debt servicing at risk,
in our view.
Ukraine's GDP, unlike many other European countries', proved
relatively resilient to the COVID-19 pandemic during both 2020 and
2021. However, escalating tensions with Russia, followed by the
Russian attack on Ukraine, have upended the gradually improving
economic outlook. Ukraine now faces the possibility of disruption
to key economic sectors, such as its significant agricultural
exports and gas pipeline network.
S&P said, "The negative economic effects from the unpredictable and
unevenly matched military conflict are, at this point, difficult to
quantify but will weigh on Ukraine's creditworthiness, in our view.
We see a heightened risk of cyberattacks on Ukraine with the aim of
inflicting damage on its official and private-sector IT
operations."
In 2022, the government has received commitments and guarantees of
concessional funding and grants that include:
-- A $1 billion guarantee from the U.S. government;
-- A EUR1.2 billion emergency macrofinancial assistance program
from the EU;
-- A loan for budgetary purposes of up to $500 million from the
Canadian government, in addition to a $120 million loan that was
announced on Jan. 21, 2022;
-- A $500 million guarantee from the U.K. government to support
Ukraine and mitigate the economic effects of Russian aggression;
-- EUR300 million in financial aid from Germany; and
-- $100 million in emergency loans from Japan.
This comes on top of Ukraine's $5 billion Stand-By Arrangement with
the IMF, agreed upon in June 2020 and extended until end-June 2022.
Given these external financing credits and grants, S&P calculates
that all of Ukraine's external and domestic financing requirements
are fully funded for 2022, although commercial markets are
essentially closed. However, there are risks that the conflict
could prevent the Ukrainian government from utilizing these funds.
Ahead of the military conflict, S&P estimated nonperforming loans
in the Ukrainian banking system would decline to about 25% by
year-end 2022 from 30% at end-2021. However, given the substantial
expected fallout of the military conflict on the private sector,
the outlook for asset quality is likely to move in the opposite
direction, while confidence could also weigh on banks' liquidity
positions.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
DOWNGRADED; CREDITWATCH/OUTLOOK ACTION; RATINGS AFFIRMED
TO FROM
UKRAINE
Sovereign Credit Rating B-/Watch Neg/B B/Stable/B
Ukraine National Scale uaBBB-/Watch Neg/-- uaA/--/--
Transfer & Convertibility
Assessment B- B
Senior Unsecured B-/Watch Neg B
Senior Unsecured D D
===========================
U N I T E D K I N G D O M
===========================
FRANKSTON DOLPHINS: Completely Debt Free Following Administration
-----------------------------------------------------------------
Brodie Cowburn at The Bayside News reports that in 2016, the
Frankston Dolphins looked dead and buried after going into
administration and being booted from the VFL. Six years on, the
club is completely debt free and posting healthy surpluses.
The Frankston VFL side released its annual report for 2021 last
month, The Bayside News relates. The report revealed that the club
posted a surplus of just more than US$400,000 last year, The
Bayside News discloses.
According to The Bayside News, in the report, club treasurer James
van Beek confirmed that the club had officially paid all its debts,
thanks in part to a $270,000 government grant received because of a
COVID-19 lockdown. He said that the board has agreed to direct the
grant funding to the repayment of the club's ATO debt, The Bayside
News notes.
"As of November 1, 2021, the club had repaid in full the US$286,964
that was still owing 12 months ago. In another major coup for the
club, the provisions of the deed of company arrangement entered on
November 17, 2016, have been satisfied in full and a final dividend
has been paid as advised by Worrells on April 13, 2021," The
Bayside News quotes Mr. van Beek as saying.
TOWD POINT 2019-GRANITE 5: Moody's Hikes Cl. F Notes Rating From B1
-------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of three notes
in Towd Point Mortgage Funding 2019-Granite 5 plc. The rating
action reflects better than expected collateral performance and the
increased levels of credit enhancement for the affected notes.
Moody's affirmed the ratings of the notes that had sufficient
credit enhancement to maintain their current ratings.
GBP65.7M Class A Notes, Affirmed Aaa (sf); previously on Jun 1,
2021 Affirmed Aaa (sf)
GBP4.5M Class B Notes, Affirmed Aa1 (sf); previously on Jun 1,
2021 Upgraded to Aa1 (sf)
GBP9.7M Class C Notes, Affirmed Aa1 (sf); previously on Jun 1,
2021 Upgraded to Aa1 (sf)
GBP6.0M Class D Notes, Upgraded to Aa1 (sf); previously on Jun 1,
2021 Upgraded to Aa3 (sf)
GBP6.7M Class E Notes, Upgraded to Aa1 (sf); previously on Jun 1,
2021 Upgraded to Baa2 (sf)
GBP5.2M Class F Notes, Upgraded to A1 (sf); previously on Jun 1,
2021 Upgraded to B1 (sf)
The portfolio of underlying assets is comprised of UK unsecured
personal loans which were initially originated by Landmark
Mortgages Limited (formerly Northern Rock plc). These loans were
part of the "Together" mortgage linked unsecured personal loan
product or as a "Mortgage Plus Unsecured Loan" product offered to
borrowers at or about the same time as they took out a secured
mortgage loan. All of the loans are unsecured and do not share or
benefit from any security provided by the borrowers in respect of
any linked mortgage loan.
RATINGS RATIONALE
The rating action is prompted by a decrease of key collateral
assumptions due to better than expected collateral performance and
the increase in credit enhancement for the affected tranches.
Increase in Available Credit Enhancement
Sequential amortization led to the substantial paydown of Class A
to GBP10.35 million from GBP29.4 million, resulting in an increase
in the credit enhancement available in this transaction since the
last rating action in June 2021. The credit enhancement for the
Classes D, E and F, which were affected by today's rating action,
increased to 67%, 60% and 55% from 56%, 50% and 45% of total note
balance, and to 59%, 50% and 43% from 47%, 40% and 34% of sum of
notes A to Z1 respectively since the last rating action in June
2021. Benefiting from ample excess spread, Class Z1 PDL was cleared
on every IPD since issuance.
Revision of Key Collateral Assumptions
As part of the rating action, Moody's reassessed its default
probability and recovery rate assumptions for the portfolio
reflecting the collateral performance to date.
Total delinquencies with 90 days plus arrears increased slightly to
19.1% of current pool balance from 17.6% since the last rating
action. Cumulative losses currently stand at 6.0% of original pool
balance.
The current default probability assumption is 25.26% of the current
portfolio balance, which translates into a decrease of the default
probability assumption on original balance to 22.23% from 23.22%.
Moody's maintained the assumption for the recovery rate at 5% and
the portfolio credit enhancement of 50%.
Moody's notes that the asset assumptions apply to the portfolio
excluding the 19.1% of the pool that are delinquent for more than 4
months. At closing, the Class Z2 Notes (NR) were issued to fund the
purchase of defaulted loans.
Counterparty Exposure
The rating actions took into consideration the notes' exposure to
relevant counterparties, such as servicer and account banks.
Moody's considered that the lack of liquidity available to Classes
B to F notes may lead to a payment disruption in the event of
servicer default. The ratings of the Classes B to E notes are
constrained at Aa1 (sf) by financial disruption risk.
The principal methodology used in these ratings was 'Moody's
Approach to Rating Consumer Loan Backed ABS' published in September
2021.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) performance of the underlying collateral that
is better than Moody's expected, (2) an increase in available
credit enhancement, (3) improvements in the credit quality of the
transaction counterparties and (4) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in sovereign risk, 2) performance
of the underlying collateral that is worse than Moody's expected,
(3) deterioration in the notes' available credit enhancement and
(4) deterioration in the credit quality of the transaction
counterparties.
TRULY TRAVEL: Broke Law by Failing to Refund Customers on Time
--------------------------------------------------------------
Competition and Markets Authority on Feb. 28 disclosed that the
High Court agreed with the Competition and Markets Authority (CMA)
that Truly Travel Ltd and Alpha Holidays Ltd -- which traded as
Teletext Holidays and Alpharooms respectively -- breached the
Package Travel and Linked Travel Arrangements Regulations (PTRs).
These required them to refund customers for package holidays that
were cancelled due to the COVID-19 pandemic within 14 days.
The CMA sought a declaration from the High Court in this case to
highlight the importance of travel firms respecting consumers'
refund rights. The CMA wants to ensure that people can book
package holidays with confidence, knowing that their legal rights
will be respected if their holiday is cancelled due to unavoidable
circumstances outside their control.
This court action follows a significant programme of consumer
protection law enforcement work by the CMA in the package travel
sector, which has secured hundreds of millions of pounds in refunds
for people whose holidays were cancelled due to the COVID-19
pandemic.
Because Truly Travel and Alpha Holidays have been placed into
liquidation, Teletext Holidays or Alpharooms package travel
customers with outstanding refunds are encouraged to submit a claim
to the Travel Trust Association (TTA), which is now responsible for
these. The court decision does not affect this.
Andrea Coscelli, Chief Executive of the CMA, said:
"This should be a wake-up call to any business that thinks that it
doesn't need to honour customers' refund rights. [The] ruling
confirms the CMA's view that Teletext Holidays and Alpharooms broke
the law by not providing the refunds customers were due within 14
days for cancelled package holidays.
"While this ruling comes after these firms have been placed in
liquidation, we hope the decision will make it easier for people to
get their money back for a cancelled holiday in the future.
Customers of Teletext Holidays and Alpharooms with outstanding
refunds should get in touch with the Travel Trust Association."
The CMA launched court action against Truly Holdings, and its
subsidiaries Truly Travel Ltd and Alpha Holidays Ltd, last year,
over outstanding refunds owed to customers. Truly Holdings had
previously signed formal commitments, known as undertakings,
requiring them to use all reasonable endeavours to pay outstanding
refunds to passengers in an agreed schedule, and to ensure that all
refunds due for cancelled package holidays going forward were paid
within 14 days. When the CMA found that Truly Holdings was not
fully abiding by these undertakings, the CMA took the company to
court.
The court claim for refunds was stayed -- paused indefinitely --
after the firms entered liquidation, but the CMA continued to seek
a declaration from the court that these companies broke the law.
This has resulted in the ruling made on Feb. 28.
*********
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
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Information contained herein is obtained from sources believed to
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