/raid1/www/Hosts/bankrupt/TCREUR_Public/220512.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, May 12, 2022, Vol. 23, No. 89
Headlines
A R M E N I A
ASCE GROUP: S&P Assigns 'B-' Long-Term ICR, Outlook Positive
E S T O N I A
ODYSSEY EUROPE: Moody's Affirms 'Caa1' CFR, Alters Outlook to Pos.
F I N L A N D
CITYCON OYJ: Fitch Affirms & Then Withdraws 'BB+' LongTerm IDR
F R A N C E
IQERA GROUP: S&P Alters Outlook to Stable, Affirms 'B+' ICR
G E R M A N Y
VEONET GMBH: S&P Assigns 'B' Issuer Credit Rating, Outlook Stable
WITTUR INTERNATIONAL: S&P Alters Outlook to Neg., Affirms 'B-' ICR
I R E L A N D
ALBACORE EURO IV: S&P Assigns B- (sf) Rating to Class F Notes
ALME LOAN IV: Moody's Affirms B2 Rating on EUR12.65MM F-R Notes
BLACKPOOL DEVELOPMENTS: Aidan Heffernan Appointed as Liquidator
DRYDEN 91 2021: Moody's Assigns B3 Rating to EUR14.25MM F Notes
I T A L Y
ATLANTIA SPA: Fitch Affirms 'BB' Rating on EUR10BB EMTN Programme
L U X E M B O U R G
LOARRE INVESTMENTS: Moody's Gives (P)Ba3 Rating to EUR850MM Notes
N E T H E R L A N D S
DTEK RENEWABLES: Fitch Lowers LongTerm IDRs to 'C'
S P A I N
AUTO ABS 2022-1: Moody's Assigns (P)B1 Rating to Class E Notes
FT SANTANDER 2016-2: Moody's Affirms Ba1 Rating on Class E Notes
GENOVA HIPOTECARIO X: Fitch Affirms 'B-' Rating on Class D Debt
PAX MIDCO: S&P Alters Outlook to Positive, Affirms 'CCC+' ICR
S W I T Z E R L A N D
CLARIANT AG: Moody's Confirms 'Ba1' CFR & Alters Outlook to Stable
U N I T E D K I N G D O M
BOPARAN HOLDINGS: Moody's Cuts CFR & Sr. Sec. Notes Rating to Caa1
CMS ENVIRO: Enters Administration, Taps Alvarez & Marsal
CVC CORDATUS XXIII: Fitch Assigns B- Rating on Class F Debt
JOHN W DAVIES: SRA Intervenes Following Liquidation
REACH ALIVE: Sole Director Banned Following Liquidation
RH WHOLESALE: Director Suspended Following Liquidation
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A R M E N I A
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ASCE GROUP: S&P Assigns 'B-' Long-Term ICR, Outlook Positive
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S&P Global Ratings assigned its 'B-' long-term issuer credit rating
to ASCE Group OJSC.
The positive outlook reflects the likelihood of an upgrade if the
company secures financing for its capital expenditure (capex)
project, acquires and imports the necessary equipment, and
introduces financial policy while performing in line with S&P's
base case.
ASCE is a small, single-asset steelmaker in Armenia, producing
mainly steel rebars for the domestic economy, with S&P Global
Ratings-adjusted EBITDA of Armenian dram (AMD) 17.4 billion (about
$35 million) at year-end 2021.
The company plans to expand its capacity, which will lead to
temporary leverage build-up and funds from operations (FFO) to debt
falling to 30%-40% in 2022-2023 from about 52% in 2021.
ASCE's business is constrained by reliance on a single asset and
exposure to steel price volatility and the regional construction
sector, which is only partially offset by strong profitability. The
company operates a single electric arc furnace, currently producing
about 110,000 tons of steel products. S&P said, "We understand that
current capacity is limited at 175,000 tons, but even at this
level, we see company as still exposed to greater risks of
operational disruption compared to peers with diversified asset
profiles. Moreover, we highlight the company's reliance on the
local electricity grid, which exposes it to operational disruptions
in case of occasional blackouts. ASCE's production profile
currently constitutes mostly rebars for the construction industry,
which accounted for 69% of revenue at year-end 2021. We understand
that the company could export a large percentage of its production
to Georgia. Moreover, the company's capacity expansion program
could support business risk profile improvement if growth is
accompanied by higher product diversity. We understand that ASCE
aims to increase the share of grinding balls, used in the mining
industry, and wire rods to 50% of revenue by 2025. ASCE is the only
steel producer in Armenia and the key rebar supplier for the
economy, which otherwise need to import at higher prices. It
benefits from certain vertical integration, including scrap
supplies via sister company Metexim. ASCE is the main scrap
purchaser in Armenia, where high tariffs and a further ban imposed
on scrap exports allow it some control over purchase prices. These
factors support strong profitability, with an EBITDA margin of
40%-50%. We expect higher capacity utilization to somewhat offset
higher energy costs and inflationary pressure, ensuring an EBITDA
margin above 40%."
S&P said, "Our rating is constrained by unregulated related-party
transactions and the limited predictability of financial decisions.
In our view, despite ASCE's formal status as a publicly traded
company with International Financial Reporting Standard (IFRS)
reporting, its governance standards are evolving. The company's
ultimate beneficiary, the Harutyunyan family, controls directly or
via a holding company 98.7% of its shares, while Mikhail
Harutyunyan is chairman of the board of directors. We believe the
current board composition, including the company's owner, two
managing directors, and one independent director, provides the
family full control over strategy and financial policy. Moreover,
we understand the family owns the majority of ASCE's outstanding
bonds, which further strengthens its control. We acknowledge that
historically the company prioritized investments over dividends.
Still, ASCE does not have a formal policy stipulating maximum
leverage. It also does not have a dividend policy, which creates
uncertainty over distributions in the forecast period and
consequently for leverage. Based on the communication from the
company's management and shareholders, we understand it does not
plan any borrowings apart from those related to the capex project,
or any dividends before the project is completed. Formalization of
financial policy targets and a track record of consistent
communication from management could support improvement of ASCE's
credit profile. Apart from ASCE, the Harutyunyan family controls a
scrap collector, supplying about 40% of materials to ASCE, and a
trading company, that realizes all its finished products. Without
contracts that govern related-party deals at arm's-length, we see
the risk of higher volatility of cash movements between entities.
Although related parties do not report under IFRS and are not
consolidated with ASCE, the company has provided available
financial information on these entities and we understand there is
no debt at related parties, except for a shareholder loan provided
to the trader. Moreover, we positively note a track record of
stable terms between ASCE and related parties."
Securing a long-term bank loan is important to maintain adequate
liquidity. ASCE plans to invest about $25 million in further
production expansion, increasing capacity to 250,000 tons from the
current 175,000 tons. S&P understands the company is negotiating a
loan with an international bank to finance the projects, and
expects the government to subsidize the interest rate. Although
theoretically, the company could finance the project from operating
cash flow and available sources, we think this could create
liquidity risk. This explains the importance of raising long-term
debt, which should allow ASCE to maintain a liquidity cushion.
S&P said, "Our financial risk profile assessment captures the
inherent volatility of the steel industry and temporary leverage
build-up, with FFO to debt falling to 30%-40% in 2022-2023 as the
company raises debt to finance capex. ASCE plans to attract a loan
of AMD10.0 billion with a subsidized interest rate to cover its
capex program, which, combined with local bonds and loans
outstanding of about AMD22.4 billion, should result in adjusted
debt rising to AMD32.4 billion. This is because we do not net cash
given our assessment of the business risk profile. At the same
time, we expect continued production growth, as ASCE ramps up
following a recent electric arc furnace upgrade, to offset
moderating global steel prices amid easing supply bottlenecks. We
forecast average EBITDA of AMD14 billion-AMD17 billion in the next
two years, which, combined with leverage build-up, will result in
FFO to debt falling to 30%-40% from about 52% at year-end 2021. Our
financial risk profile assessment is also adjusted down to capture
currently favorable market conditions, like for other steel
producers we rate; risk of reliance on single asset; and dependance
on the construction industry. These factors could all potentially
lead to a meaningful EBITDA decline in in a recessionary
environment.
"The positive outlook reflects the likelihood that we will raise
the rating on ASCE if it attracts long-term debt to finance its
capex project, while introducing more formal financial policy
commitments, creating predictability over debt levels and
shareholder distributions. We expect no changes in transaction
terms with related parties that could result in a material loss of
cash at ASCE, nor any material leverage accumulation at related
parties. We also expect EBITDA of AMD14 billion-AMD17.5 billion in
2022-2023, with ramped up production offsetting expected lower
steel prices. We assume the company will maintain a strong EBITDA
margin of above 40% as capacity utilization compensates for higher
energy costs and inflation.
"Rating upside does not depend on achieving a stronger business
risk profile assessment and lower leverage. We could raise the
rating if the company secures a long-term loan to finance its capex
project, acquires, and imports equipment, while formalizing its
financial policy commitments. In addition, we expect FFO to debt to
stay above 30%, as per our base case."
S&P could revise outlook to stable if:
-- ASCE fails to introduce a public financial policy and follows
more aggressive practices, leading to higher-than-assumed debt
accumulation because of higher capex or dividend distributions.
-- The company generates weaker EBITDA as a result of a more
severe steel price drop than currently assumed, or margin erosion
due to a change in settlement terms between related parties.
ESG credit indicators: E-3, S-2, G-4
S&P said, "Governance factors are a negative consideration in our
credit analysis of ASCE, like many other corporates we rate in the
Commonwealth of Independent States region, where we see governance
risks as elevated. In addition, related-party relationships are not
formally regulated. Compared with those of larger public peers in
emerging markets, corporate practices are still assessed as
developing and allow shareholders full control over strategy and
financial policy. Environmental factors are a moderately negative
consideration, similar to steel-from-scrap producing peers. We
positively note reuse of scrap as a production source but steel
production itself is characterized by high energy intensity from
nonrenewable sources."
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E S T O N I A
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ODYSSEY EUROPE: Moody's Affirms 'Caa1' CFR, Alters Outlook to Pos.
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Moody's Investors Service has affirmed Odyssey Europe Holdco
S.a.r.l.'s ("Olympic", "the company" or "the group") long term
corporate family rating at Caa1 and its probability of default
rating at Caa1-PD. Concurrently, Moody's also affirmed the
instrument ratings on the amended and restated senior secured notes
(SSNs) due 2025 at Caa1. At the same time, Moody's has changed the
outlook to positive from negative.
The rating action follows the announcement on April 26 of the
completion of the company's restructuring transaction.
The restructuring transaction involved the following: (1) the
extension of the maturity of the EUR200 million senior secured
notes from May 15, 2023 to December 31, 2025; (2) the contribution
to the group of the online and Lithuanian land-based activities
that had been transferred to outside of the restricted group in
June 2020; (3) a share pledge followed three months later by the
contribution to the group of a land-based activity in Croatia; (4)
the funding of the repayment of the EUR25 million fully drawn
revolving credit facility (RCF) from shareholding entities outside
of the restricted group; as well as (5) changes to the interest
rate and amendments of certain senior secured notes covenants.
RATINGS RATIONALE
The affirmation of the CFR to Caa1 and the change in outlook to
positive reflect the removal of refinancing risks following the
completion of the restructuring transaction, combined with an
improved liquidity profile. Moody's also expects that credit
metrics will improve in the next 12-18 months and that these could
be more commensurate with a B3 CFR, namely Moody's gross adjusted
leverage improving to sustainably below 6x, a Moody's-adjusted
EBIT/interest ratio comfortably above 1.0x and positive free cash
flow (FCF).
This rating action is balanced by Olympic's still high leverage in
2022 and uncertainties around the pace of the group's recovery in
cash flow generation. At the end of 2022 Moody's estimates leverage
will still be elevated at around 7x.
The restructuring transaction is a positive development for
Olympic's credit profile because it addressed the company's
previously upcoming debt maturities - the EUR25 million fully drawn
RCF due in December 2022 and the EUR200 million senior secured
notes due in May 2023. There are now no significant debt maturities
before 2025.
Moody's forecasts a pronounced strengthening as of 2023 in the
company's earnings, liquidity and leverage because the cash and
earnings of its online and Lithuanian land-based businesses will be
transferred back to the restricted group as part of the
restructuring. In addition, Moody's expects the company will
benefit from the reopening of its land-based business in Latvia and
Estonia following closures due to covid.
There is, however, some uncertainty with regards to the speed of
the recovery in earnings and leverage. This is due to significant
downside risks associated with the Russia and Ukraine military
conflict, namely a weaker global macroeconomic environment as well
as inflation, including rising energy prices. There is also a
degree of uncertainty as to whether there may be further
covid-related restrictions that could once again require closures
of the company's land-based business if cases begin to increase
again in Europe.
The terms of the restructuring transaction are evidence that
Olympic's new general partner, the consulting firm Berkeley
Research Group, will adopt more conservative financial policies and
a more balanced approach towards creditors than the previous
general partner, Novalpina Capital (Novalpina). The assets, which
have been transferred back to within the restricted group, and the
equity contribution to fund the repayment of the RCF, support the
company's capital structure, liquidity and recovery for creditors
to a greater degree. The Berkeley Research Group has managed the
stake in Olympic since August 2021 following Novalpina, which
adopted much more aggressive financial policies.
Governance was considered a key rating driver in line with Moody's
ESG framework. Moody's considers the terms of the restructuring
transaction as evidence, namely the reinsertion of more
conservative financial policies.
STRUCTURAL CONSIDERATIONS
The senior secured notes rating is Caa1 and probability of default
rating (PDR) is Caa1-PD, in line with the corporate family rating
(CFR), reflecting Moody's assumption of a 50% recovery rate as is
customary for capital structures that include both senior secured
notes and bank debt.
LIQUIDITY
Olympic's liquidity is adequate, benefitting post-restructuring
from the cash and cash flow of the assets that are reincorporated
to within the group. Moody's currently forecasts FCF to turn
positive from the third quarter of 2022 onwards. Olympic has no
significant debt maturity before 2025.
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook reflects Moody's expectation that Olympic's
operating performance will continue to improve in the next 12-18
months leading to credit metrics and a liquidity profile
commensurate with a B3 CFR.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if the recovery in earnings is
expected to lead to a Moody's-adjusted leverage sustainably below
6x and a Moody's-adjusted EBIT/interest ratio comfortably above
1.0x, while the company maintains a solid liquidity profile with
positive free cash flow generation.
The ratings could be downgraded if: (i) cash flow generation
remains negative and liquidity deteriorates, (ii) the company faces
unfavourable restrictions or regulatory changes in its main country
of operation.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Gaming
published in June 2021.
COMPANY PROFILE
Odyssey Europe Holdco S.a.r.l. (Olympic) is a European gaming group
with leading positions in the Baltic region, in Estonia and Latvia,
and operations in Slovakia and Malta. In the end of 2021 the
company had a total of 76 casinos (24 in Estonia, 47 in Latvia,
four in Slovakia and one in Malta). In 2021, Olympic reported
EUR45.7 million in revenue and EUR-3.3 million in adjusted EBITDA
(non-IFRS 16 basis).
In August 2021, the management of the stake in Olympic was
transferred from Novalpina Capital to the consulting firm Berkeley
Research Group. The company had been acquired by the funds managed
by Novalpina Capital in 2018 following which it was delisted from
the Tallinn Stock Exchange.
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F I N L A N D
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CITYCON OYJ: Fitch Affirms & Then Withdraws 'BB+' LongTerm IDR
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Fitch Ratings has affirmed Citycon Oyj's Long-Term Issuer Default
Rating (IDR) at 'BB+', its senior unsecured rating at 'BB+' and its
subordinated debt rating at 'BB-'. All ratings are simultaneously
withdrawn.
Fitch has withdrawn Citycon's ratings for commercial reasons. Fitch
will no longer provide ratings or analytical coverage of the
company.
Fitch downgraded Citycon's IDR on April 22, 2022 when the company
was assessed under the agency's updated Parent and Subsidiary
Linkage (PSL) Criteria. Fitch's assessment of Citycon's Standalone
Credit Profile remained unchanged at 'bbb-'.
KEY RATING DRIVERS
Stronger Linkage with Gazit: Gazit Globe Ltd's (Gazit) ownership
has increased to 52% following the Citycon-initiated share
repurchases. This followed the reduced ownership stake of Canadian
pension fund CPPIB and the end of the shareholder agreement between
Gazit and CPPIB. Gazit has a weaker financial profile than
Citycon.
PSL Assessment: Fitch now rates Citycon on a consolidated plus two
notches approach under its PSL Criteria. Fitch has assessed
Citycon's legal ring-fencing as 'porous' based on self-imposed
restrictions, which include less restrictive 65% loan-to-value
(LTV) type bond covenants and restrictions on intercompany lending
in private funding documents but does not limit dividends, prohibit
a change in financial policy, a change in board composition, or
restrict a further increase in Gazit ownership (via change of
control clauses).
Fitch has assessed access and control as 'insulated' including
Citycon's board independence (currently six out of eight members),
separate listing in Finland's high-regulation environment with
protections for minorities, the large minority ownership (48%), and
Citycon's independent funding and cash management.
Lippulaiva Development Completed: In April 2022, Citycon completed
Lippulaiva, its key development project. The centre, in the
Helsinki area, illustrate the type of mixed-use, well-connected,
necessity-based urban centre Citycon targets. Lippulaiva is
expected to add EUR21 million in annualised net rental income when
fully let and was 90% pre-let at opening.
The medium-sized 44,000 sqm centre includes 45% food retail
(Prisma, K-Supermarket and Lidl) and 11% public-sector and
healthcare tenants in addition to cafes, restaurants and services.
The centre includes office and residential components and is well
connected by public transport. These residential projects will be
Citycon's first in-house residential development in line its
mixed-use strategy to increase its share of residential.
Operational Recovery: Citycon's operating performance gradually
improved during 2021 with tenant sales growing 3.8% and 7.6% in
4Q21 which more than offset a 1.6% yoy decline in footfall despite
the 2020 comparator being largely unaffected by the pandemic in
1Q20. In 4Q21, footfall increased by 8.2% and the end-2021
occupancy rate improved to 94.2%. The rental market has not yet
fully recovered and like-for-like rental growth was negative in all
regions for 2021. Citycon benefits from exposure to necessity-based
tenants, such as grocery, and some public-sector tenants.
Continued Non-Core Disposals: Fitch expects Citycon to continue to
sell non-core assets in line with its strategy to concentrate on
medium to large-size assets and recycle capital from smaller
centres into mixed-use development and redevelopment projects and
residential. In 1Q22, Citycon completed the sale of two centres in
Norway (Buskerud and Magasinet) for EUR145 million confirming its
latest appraised book value. The centres were sold at a 5.2% yield.
This follows a total EUR253 million of disposals during 2021, of
which EUR69 million was used to repurchase shares.
High Cash Flow Leverage: End-2021 net debt/EBITDA leverage remained
elevated at 12.4x (end-2020: 12.2x) including the pandemic's impact
on rental income. Fitch forecasts Citycon's standalone leverage to
improve to 10.4x in 2022 (using annualised rents) driven by the
completion of its key development project Lippulaiva and trend
towards 10x. This includes Fitch's expectation for Citycon to
balance developments by asset disposals. Management targets an LTV
ratio of 40%-45% which is consistent with this leverage profile.
Fitch expects the EBITDA net interest cover to remain comfortable
at about 3x.
Portfolio Focused on Capital Cities: Citycon's sizeable retail
property portfolio (EUR4.4 billion at share) is pan-Nordic, which
provides geographical diversification across five countries
including Estonia. Most assets are in the growing Nordic capital
regions or in the second-largest city in each country (e.g.
Gothenburg, Tampere and Bergen), which have higher disposable
income per capita than their country average and benefit from
urbanisation.
The assets are typically grocery-anchored shopping centres, with a
lower weighting in fashion and a broader necessity-based retail
offer rather than a "destination" venue, and good access to public
transport. The country mix consists of stable highly rated
countries with positive growth prospects.
DERIVATION SUMMARY
Citycon has a sizeable retail property portfolio, although smaller
than higher-rated Unibail-Rodamco-Westfield SE (IDR:
BBB+/Negative), Hammerson plc (IDR: BBB/Negative) or The British
Land Company PLC (IDR: A-/Stable). Its shopping centres are
convenience, grocery-led (grocery-anchored) assets similar to IGD
SIIQ S.p.A. (IDR: BBB-/Stable) rather than the destination shopping
centres of the type Unibail and Hammerson primarily own. Many are
adjacent to transport hubs to benefit from high footfall, but not
all visitors will be weekend high-spend consumers.
Citycon's portfolio is in more developed countries with higher
disposable income per person than eastern European peers, such as
Atrium European Real Estate Limited (IDR:BB/Rating Watch Negative)
or NEPI Rockcastle plc (IDR:BBB/Positive).
The group's leverage, which was above 12x in 2021 and should settle
at about 10x in 2024, is higher than Hammerson (below 9x). All
property companies benefit from comfortable interest cover ratios,
as their average cost of debt are low.
Fitch has not applied the one-notch uplift to Citycon's senior
unsecured rating. Its portfolio mix includes smaller and more
regional assets, which are considered less liquid than UK or French
peers where Fitch has applied it.
KEY ASSUMPTIONS
-- No further adverse impact from the pandemic on rental income.
Reflecting the group's short average lease length and low
growth in rents, Fitch assumed flat rents for expiring rental
contracts in 2022 (2023: +0.5%) whereas indexation on the rest
of the portfolio is assumed as a 1.5% CPI increase.
-- Annualised rental contribution from disposals is deducted from
rental income in the year they occur to reflect the full
impact on recurring rental income in year-end net debt/EBITDA
metrics. An annualised EUR21 million of Lippulaiva rental
income comes on stream in 2022.
-- Between EUR100 million and EUR150 million of capex a year
(including Lippulaiva final stages and residential spend)
partly funded by disposals or other measures. Some excess
proceeds may be used for debt reduction or accretive share
repurchases. The company is also able to sell building rights
on residential developments.
-- EUR5 million of dividends/interest income on shareholder loans
from joint ventures a year.
-- Cash dividends average 70% of funds from operations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Improvements in the consolidated profile of Gazit and Citycon,
including reduced consolidated leverage.
-- Stricter ring-fencing provisions (including dividends and
financial policy metrics) in Citycon's key long-dated public
finance documents.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Deterioration in the consolidated profile of Gazit and
Citycon, including increased consolidated leverage;
-- Examples of weaker ring-fencing provisions in new debt
including private financing documents;
-- Gazit ownership increasing to 60% (leading to a weaker 'access
and control' assessment under the PSL criteria);
-- A deterioration in Citycon's Standalone Credit Profile to 'BB'
driven by net debt/EBITDA rising above 11.5x.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: At end-2021, Citycon had EUR55 million in
cash and EUR500 million in undrawn committed credit facilities
(maturing in June 2024) comfortably covering the next debt maturity
which comprises EUR80 million of bonds maturing in 2023. The
group's average debt maturity increased to 4.2 years at end-2021
from 3.8 years at end-2020 before taking into account the perpetual
hybrid bond. The average cost of debt increased to 2.47% from
2.39%.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity. For more information on Fitch's ESG
Relevance Scores, visit www.fitchratings.com/esg. Following the
rating withdrawal Fitch will no longer provide ESG Relevance Scores
for Citycon.
DEBT RATING PRIOR
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Citycon Oyj
LT IDR BB+ Affirmed BB+
LT IDR WD Withdrawn BB+
senior unsecured LT BB+ Affirmed BB+
senior unsecured LT WD Withdrawn BB+
subordinated LT BB- Affirmed BB-
subordinated LT WD Withdrawn BB-
Citycon Treasury B.V.
senior unsecured LT WD Withdrawn BB+
senior unsecured LT BB+ Affirmed BB+
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F R A N C E
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IQERA GROUP: S&P Alters Outlook to Stable, Affirms 'B+' ICR
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S&P Global Ratings revised its outlook on France-based iQera Group
SAS to stable from negative. At the same time, S&P affirmed its
'B+' issuer credit rating on iQera.
S&P said, "We also affirmed our 'B+' issue credit rating on the
group's senior secured notes. The recovery rating on the notes
remains '4', indicating our expectation of average recovery
(30%-50%; rounded estimate: 40%) in the event of a payment
default.
"We expect iQera's adjusted debt to EBITDA to further decrease
below 5x by end-2023. In 2021, this ratio decreased to a
still-elevated 6.1x from a peak of 6.6x in 2020. We expect this
deleveraging trajectory to continue, with adjusted debt to EBITDA
reaching 5x in 2022 and dropping below 5x on a sustainable basis
thereafter. This would stem from growing attributable operating
profit and stable gross debt. We estimate that iQera's collection
performance will remain solid in line with recent years, such that
revenue growth will mostly come from a higher volume of new
nonperforming loan (NPL) portfolios acquired." Moreover, iQera's
lower usage of coinvestor financing in the acquisition of new debt
portfolios will increase the attributable share of the group's
revenue, all else equal.
With its entrenched position on the French debt market, iQera is
well positioned to reap the benefits of an NPL portfolio inflow.
NPL portfolios could materialize following the peak of the COVID-19
pandemic and the release of supporting measures that kept credit
risk artificially muted across Europe. However, uncertainty remains
on the timing and amount of new NPL formation. Moreover, the
increased regulatory scrutiny around the International Financial
Reporting Standard 9 provisioning models and the change in
prudential regulation in Europe on the provisioning of NPLs makes
it more costly for banks to keep NPLs on their books, and thereby
more appealing to sell them to third parties such as iQera. S&P
Said, "Another supporting factor is our assessment that the
European DDP market trends could also benefit iQera, since we do
not yet consider France to be a mature market and we expect French
banks to gradually sell more NPL portfolios."
iQera's modest size in the European context will continue to
constrain the group's competitive position, although it benefits
from its servicing activity diversification. The company is
comparatively small in the DDP sector from an Estimated Remaining
Collections (ERC) perspective, and it has a limited geographical
presence, operating solely in France and Italy. Compensating this
lack of diversification is the group's strong position in a large
debt market (France) and a growing position in another (Italy). S&P
estimates that iQera will continue diversifying revenue sources
with the ramping up of its Italian debt activities. Leveraging on
its knowledge from servicing activities in Italy, iQera acquired
its first Italian debt portfolio in December 2021. As of 2021,
Italy contributes to 40% of the group's servicing revenue and 14%
of total revenue. iQera's activities comprise both debt collection
and debt servicing activities that can provide diversification
benefits though the cycle. For example, during the pandemic,
iQera's servicing revenue maintained its level while collections
contracted on a quarterly basis. Servicing revenue contributes
steadily to iQera's revenue (36% of total revenue as of 2021) and
will continue to grow at historical levels over the coming years.
S&P said, "We do not think the cyberattack suffered in May 2021
will have lasting consequences. According to the company, the
incurred loss was only EUR3 million, and continued higher activity
demonstrates that iQera did not lose its clients' trust. Following
the incident, we understand iQera accelerated its existing
multi-year IT plans to deliver significant progress, such as
strengthening its governance and processes around IT security and
data protection. iQera also invested in its IT infrastructure and
increased IT staff numbers. We will continue to monitor the
situation."
The group will maintain its historically disciplined investment
approach and prudent liquidity management. iQera is usually
selective on its portfolio acquisition and passes on debt
portfolios on sale that do not meet the standards in terms of
risk/reward profile, resulting in above-average collection
performance across debt cohorts compared to due diligence (or
growth money multiples) and leading to regular positive ERC
revaluations. S&P said, "We expect iQera will continue to grow its
ERCs in the coming years without weakening its underwriting
standards. We expect iQera to acquire these portfolios with some of
its substantial liquid cash reserve, which amounts to EUR138
million cash available at end-2021 (excluding restricted cash). We
also note iQera's significant debt maturity concentration in
September 2024, and we expect the group will apply the same
cautious approach by planning its refinancing well ahead of this
date."
S&P said, "Our stable outlook reflects our expectation that iQera
will reduce its adjusted debt to EBITDA to about 5x by end-2022 and
below 5x on a sustainable basis by end-2023 from 6.1x at end-2021.
This would stem from growing attributable operating profits as
coinvestor financing fades out, a ramping up of Italian activities,
and stable gross debt. The outlook also reflects our expectation
that iQera will maintain its investment discipline following the
pandemic's peak in a distressed debt market that could see an
inflow of new NPLs. The group is well positioned to take advantage
of this environment in its core French market. We factor in that
the company will address its significant debt maturity
concentration in end-September 2024 more than 12 months in advance,
in line with its conservative liquidity management track record.
"We could lower our rating on iQera if the company's gross debt to
adjusted attributable EBITDA remained above 5x on a sustained
basis. We could also take a negative rating action if iQera's
competitive position in the French distressed debt market
materially deteriorated.
"We do not expect upside for the rating in the next 12-24 months
given the group's relatively small size compared to European peers,
high leverage, and financial sponsor ownership."
=============
G E R M A N Y
=============
VEONET GMBH: S&P Assigns 'B' Issuer Credit Rating, Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings assigned its 'B' long-term issuer credit rating
to German-based ophthalmology group Veonet GmbH and its 'B' issue
rating and '3' recovery rating to the company's term loan B (TLB)
and revolving credit facility (RCF).
The stable outlook reflects S&P's views that Veonet will expand
profitably, leveraging on scale while generating solid free
operating cash flow (FOCF) and comfortable fixed interest charge
ratios.
Ontario Teachers' Pension Plan Board and PAI have acquired leading
pan-European group of ophthalmology clinics Veonet from Nordic
Capital.
The company issued EUR545 million seven-year term loan B, a GBP210
million seven-year term loan B and a EUR170 million eight-year
euro-equivalent second-lien term loan to support the transaction.
There is also a EUR150 million revolving credit facility (RCF) and
two first- and second-lien capital expenditure (capex) facilities
totalling EUR100 million, all undrawn at close. After the
transaction, S&P expects Veonet's adjusted leverage will be 7.9x
and 6.6x in 2022 and 2023, respectively.
Veonet has rapidly expanded, making it the leader in the fragmented
European ophthalmology market. Over the past three years, the
company passed from being a local Southern German ophthalmology
service provider of EUR60 million-EUR70 million EBITDA to a
pan-European player doubling its size (pro forma company
adjustments). Veonet focuses on four main markets with stable
regulatory systems. Germany represents the largest contributor,
with about 44% of sales in the fiscal year ending Dec. 31, 2021,
with the U.K. in second place at about 27%. Switzerland and the
Netherlands represent 15% and 14% of sales, respectively. In all
markets, Veonet has established itself as a leading ophthalmology
player, being the no. 1 or no. 2 private provider in its regions,
building its reputation as a trusted partner for health care
authorities and public and private insurers. The fragmentation of
the European ophthalmologist market and tight competition has made
the company's strategy to keep on building in size and gain market
share a key differentiator. Veonet has the majority of the total
outpatient U.K market, 37% of the total Dutch market, and about 8%
and 7% of the total German and Swiss markets, respectively. The
consolidation, in our view, allowed the company to gain operational
efficiencies and become the provider of choice ripping off the
benefits of an increasing outsourcing trend to independent
outpatient providers, especially in the U.K. S&P expects pro forma
sales for 2022-2023 at EUR550 million-EUR600 million, S&P Global
Ratings-adjusted EBITDA of EUR140 million-EUR160 million, and
EBITDA margins of 25%-27% on average.
An ambitious growth strategy in the U.K., with an easy-to-replicate
industrial model, will be key to continue building on
profitability. Given the attractive market growth rates, fragility
in the U.K. health care system, unmet demand, and greenfield
whitespace in the country, Veonet has the potential to
significantly benefit, as an independent service provider, from
certain underlying dynamics. Before the pandemic, the National
Health Service (NHS) depended heavily on independent service
providers (ISPs) like Veonet to address shortages and
undertreatment of some eye-related conditions like cataracts,
outsourcing about 27% of the total cataract procedures in 2019. The
difficulties were exacerbated during COVID-19, which created a huge
backlog of undertreatments. Outsourcing passed to about 40% in
2021. S&P believes the NHS will not expand its capacity and
continue relying on trusted ISPs to serve the unmet demand with a
potential to further increase penetration to about 52% by 2026.
Veonet, through its quality service, has built strong relationships
with clinical commissioning groups and the NHS to have access to
the growing patient flow and clear the backlog. More recently,
certain procedures like intravitreal injections (IVIs) that were
exclusively the domain of the NHS given its urgency and
criticality, are beginning to be outsourced too. The potential for
ISPs' penetration in IVI procedures could pass to 10%-25% in 2026
from 6% in 2021, giving Veonet a further push opportunity in its
sales growth. S&P expects growth in the U.K. to average 16%-17% per
year over 2022-2026. The company has also identified significant
whitespace in the U.K., planning to open additional greenfield that
could represent EUR60 million-EUR65 million additional sales by
2026. Finally, the standardized operations due to the greenfield
nature of the U.K. business allows for higher profitability versus
other markets, making it highly attractive.
The critical nature of eye-related conditions and mix in regulatory
systems give the company earnings stability. The European
ophthalmology market, with projected growth trends of about
4.5%-5.5% per year, is a very attractive market driven by an aging
population with an increasing incidence in sight-threatening eye
conditions like cataracts and age-related macular degeneration and
an urgent need for treatment. Veonet operates in strategic
treatment areas split into cataracts surgical services (about 40%),
IVI (20%), other surgical procedures (10%), and consultations for
diagnosis (30%). Some of the conditions suffered by patients such
as wet age-related macular degeneration, which can result in
unreversible blindness, represents a recurring and stable revenue
stream given the usual treatment through IVIs consists of
six-to-eight injections per year. The mix in regulatory systems
with different reimbursement procedures provides a shield from
changing regulations. Also, the internal referral systems, like in
Switzerland and Germany, through consultations allows for stable
and highly predictable revenue. In Germany, 75% of total demand is
through internal referrals.
S&P considers the industry's barriers to entry high. This is
because of the regulatory requirements in each market that set
conditions such as licenses, which are required in Germany as a
prerequisite for reimbursement, or restrictions on the limit of
physicians per region like in Switzerland. Longstanding
relationships are also necessary to negotiate reimbursement budgets
in the Netherlands or to receive patient flow transferred from the
public system like in the U.K. All of these represent hurdles for
new market entrants. In certain countries like in the U.K., an
initial investment is needed before having all official approvals,
providers need to spend on staff, and clinics should be running
before receiving official approval from the public system to
operate.
Exposure to tariff cuts remain a risk. Although most markets have
stable regulatory systems, tariff cuts and regulatory changes could
become issues. In Switzerland, a new TARMED Suisse (the Swiss
tariff system) was introduced in 2018, which reduced reimbursement
for several ophthalmology procedures including cataract and IVI
operations and caused a 10% reduction in cataract reimbursement.
The TARDOC proposal that would replace the TARMED tariff could
represent a further reduction of 10% in cataract tariffs in the
next three-to-five years, potentially pressuring sales in the Swiss
market. However, these tariff cuts, when enacted, did not
materially affect the company's profitability.
Financial sponsor ownership and an expansion strategy limit the
case for pronounced deleveraging. S&P said, "We anticipate the
company will continue its consolidation and expansion strategy to
build on market share and maintain its leadership position. The
financial sponsor ownership, high start adjusted-leverage level
above 5x, and growth strategy make rapid deleveraging unlikely.
Deleveraging will be conditional on the company's ability to
execute a spotless growth plan and seamless integrate all bolt-ons
and clinics. We expect that as Veonet expands in scale and
profitability, it will absorb extraordinary costs linked to bolt-on
or acquisitions linked to opening of new clinics. Therefore, we
expect leverage to be about 8x in 2022, 6.6x in 2023, and around 6x
in 2024."
The 'B' rating reflects the company's asset-light model with solid
cash flow. Before Veonet's expansion strategy, the company had
already benefited from a good cash conversion of 70%-80% on
average. Considering the expansion phase, S&P assumes a moderate
cash absorption to support organic top-line growth with a peak in
capex from 2022-2023. Veonet has low maintenance capex of about
2.4% of sales on average that, together with a disciplined capex
plan after 2022 when greenfield expansion will slow down, will
translate into solid cash conversion. S&P expects FOCF of EUR40
million-EUR50 million in 2023.
S&P said, "The stable outlook reflects our view that Veonet will
post sustainable profitable growth. In our base-case scenario, we
assume a seamless execution of its expansion plan in the U.K as
well as ongoing organic growth in its clinics in Germany,
Switzerland, and the Netherlands. We therefore assume a robust
top-line growth with profitability building up in 2022 and 2023. We
assume S&P Global Ratings-adjusted debt to EBITDA will be high, at
7.9x in 2022, but will improve to below 7x as early as in 2023 if
Veonet delivers on its expansion plan.
"We would lower the rating over the next 12 months if Veonet fails
to execute its top-line growth strategy, which would mean delays in
ramping up the new greenfield sites or regulatory hurdles in
operating them. We also believe that cuts in tariffs or a
regulatory change in any of its current markets could hamper the
company's profitable growth. As well, failure to deliver positive
free cash flow and an inability to quickly deleverage below 7x
could lead us to consider a negative rating action."
An upgrade would depend on reducing adjusted leverage to below 5x
as well as a supportive financial policy. Also, a prerequisite for
a positive rating action would be increasing sales and EBITDA, in
particular in the U.K., the most important growth market for the
group.
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our rating analysis of Veonet, as is the case for
most rated entities owned by private-equity sponsors. We believe
the group's highly leveraged financial risk profile points to
corporate decision making that prioritizes the interests of the
controlling owners. This also reflects the generally finite holding
periods and a focus on maximizing shareholder returns."
WITTUR INTERNATIONAL: S&P Alters Outlook to Neg., Affirms 'B-' ICR
------------------------------------------------------------------
S&P Global Ratings revised its outlook on elevator component maker
Wittur International to negative from stable and affirmed its 'B-'
ratings on the company, its EUR90 million revolving credit facility
(RCF), and its EUR565 million term loan B.
The negative outlook reflects S&P's view that prolonged inflation
of raw material prices, combined with Wittur's time lag in
adjusting prices, could continue to exert pressure on the company's
financial performance, resulting in lower margins and weaker
leverage ratios than anticipated.
High raw material prices and inability to simultaneously adjust
product prices have significantly subdued Wittur's profitability,
weakening its credit metrics in 2021. Wittur's operating
performance did not improve as anticipated during 2021, owing to
the negative impact of the pandemic and rising raw material prices.
The S&P Global Ratings-adjusted EBITDA margin fell to 6.2% in 2021,
220 basis points lower than the previous year, mainly due to a
contractual delay in making price adjustments in response to
significant raw material price increases (a time lag of four to six
months). In addition, margins were hampered by ongoing
restructuring, including footprint optimization, and an enterprise
resource planning (ERP) project. Higher revenue (+8.7%) was unable
to offset margin pressure, resulting in a leverage ratio of 18.4x
in 2021 up from 13.7x in 2020, which is higher than previously
expected. Lower profitability, combined with increased inventory
and higher receivables, resulted in negative FOCF of EUR57.0
million. 2021 figures were also adversely affected by delayed
projects.
S&P said, "Despite price increases and early signs of margin
recovery, continuously high raw materials prices and a stretched
supply chain dampen Wittur's prospects for 2022, putting pressure
on our 'B-' rating. S&P Global Ratings-adjusted EBITDA is expected
to increase to EUR75 million-EUR85 million in 2022, equating to
adjusted EBITDA margins of 8.5%-9.5%, with profitability gaining
momentum in the second half of the year. The increase in margins
will primarily stem from price increases in Europe and North
America with a time lag following higher raw material prices, as
well as volume effects in India. We also anticipate a reduction in
structural costs as a result of business optimization. Although we
forecast margins improving to 9.5%-10.5%, the recovery will be
notably slower, with Wittur underperforming versus our previous
base-case forecast by about 50 basis points over the next 12-18
months. In 2022, we expect leverage to remain above 11x and FFO
interest coverage lower than 1.5x, before improving to 9.5x-10.5x
and about 1.5x, respectively in 2023. Additional risk could arise
from slower-than-expected growth in China's construction market as
a result of COVID-19-induced lockdowns, since China accounts for
about 35% of Wittur's revenue. Although the group's direct exposure
to Russia and Ukraine is low (approximately 1% of total sales),
Wittur's operations could be significantly affected by permanently
elevated raw material prices (particularly of steel) and potential
scarcity of raw materials resulting from the conflict. On the other
hand, we saw a strong order intake of EUR859 million (+11.7% year
on year) in 2021, which we expect will boost revenue by 6.5%-7.5%
to EUR890 million-EUR900 million in 2022.
"Cash flow generation will improve but remain constrained over the
next 12 months. Wittur's lower profitability than anticipated also
translates into negative cash flow. In contrast to our previous
forecast, we now expect FOCF to remain negative in 2022 at EUR5
million-EUR15 million. While we anticipate positive working capital
of EUR5 million to EUR10 million in 2022, these surpluses will be
offset by increased capital expenditure (capex) of approximately
EUR30 million-EUR40 million, including for research and development
(R&D), modernization, and continued investment in the global ERP
project. The group's high annual interest expense of more than
EUR50 million also weighs on cash flow. Based on improved
profitability, lower capex, and a generally improved business
environment, we expect FOCF to break even or turn slightly positive
in 2023. We understand that part of the capex is discretionary and
will be adjusted if operating cash flow is weaker than
anticipated.
Liquidity remains adequate, benefiting from a long-dated debt
maturity profile, more than EUR80 million of cash and cash
equivalents, and the EUR70 million undrawn RCF at year-end 2021.
The current rating level is supported by Wittur's sufficient
liquidity position. As of Dec. 31, 2021, the group's liquidity
sources more than covered its cash outlays for the following 12-18
months. Wittur's liquidity is underpinned by its accessible cash
balance of about EUR80 million and about EUR70 million available on
its RCF. In addition, the group has a long-dated debt maturity
profile, with no material maturities until 2026. We also withdrew
our 'CCC' issue rating on the EUR225 million subordinated debt that
has already been refinanced but was not reflected in the ratings
list Wittur had drawn EUR20 million of its EUR90 million RCF by the
end of 2021. We expect that the group will start to repay the
drawings in the second half of 2022. The leverage covenant is
tested only if the RCF is drawn net of cash by more than 40%, which
we don't expect under our base case.
"The negative outlook reflects our view that Wittur's operating
performance and credit metrics might be unable to recover as
expected, with at least neutral FOCF generation and FFO cash
interest coverage higher than 1.5x. Such a scenario could
materialize if inflationary environment persists for a prolonged
time or softer demand from end markets, particularly China.
"We could lower the ratings if the company's liquidity deteriorates
or operating and financial performance is weaker than expected,
such that the capital structure becomes unsustainable. These
scenarios could materialize following a contraction of EBITDA and
weaker cash generation amid the tough industry conditions."
More specifically, S&P could lower the ratings if:
-- Debt to EBITDA does not reduce toward 8x-9x;
-- FFO cash interest coverage remains below 1.5x into 2023;
-- RCF availability reduces further; or
-- The group is unable to generate positive FOCF over the next
12-18 months.
S&P said, "We could revise the outlook to stable if Wittur's
financial performance markedly recovers over the next 12-18 months,
such that EBITDA margins are comfortably above 10.0% and FOCF turns
positive, enabling the company to reduce its RCF drawings. Debt to
EBITDA improving toward 8x to 9x and FFO cash interest coverage
sustainably above 1.5x would be prerequisites for a stable
outlook."
ESG credit indicators: E-2, S-2, G-3
=============
I R E L A N D
=============
ALBACORE EURO IV: S&P Assigns B- (sf) Rating to Class F Notes
-------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to AlbaCore EURO CLO
IV DAC's class A loan and class A, B-1, B-2, C, D, E, and F notes.
At closing, the issuer issued EUR34.40 million of unrated
subordinated notes.
Under the transaction documents, the rated loans and notes pay
quarterly interest unless there is a frequency switch event.
Following this, the loans and notes will switch to semiannual
payment.
The portfolio's reinvestment period will end approximately three
years after closing, and the portfolio's maximum average maturity
date will be seven and a half years after closing.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2871.04
Default rate dispersion 445.36
eighted-average life (years) 5.29
Obligor diversity measure 118.71
Industry diversity measure 23.86
Regional diversity measure 1.14
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 2.45
Covenanted 'AAA' weighted-average recovery (%) 35.49
Covenanted weighted-average spread (%) 3.99
Covenanted weighted-average coupon (%) 4.96
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. We consider that the portfolio will be well-diversified on the
effective date, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we conducted our credit and cash flow analysis by
applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR450 million target par
amount, the covenanted weighted-average spread of 3.99%, the
covenanted weighted-average coupon of 4.96%, and the portfolio's
weighted-average recovery rates for all the other rating levels.
"We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
loan and class A, B-1, B-2, C, D, E, and F notes. Our credit and
cash flow analysis indicates that the available credit enhancement
for the class B-1, B-2, C, D, and E notes could withstand stresses
commensurate with higher ratings than those we have assigned.
However, as the CLO will be in its reinvestment phase starting from
closing, during which the transaction's credit risk profile could
deteriorate, we have capped our ratings assigned to the notes.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement could withstand stresses that
are commensurate with a 'CCC' rating. Based on the portfolio's
actual characteristics and additional overlaying factors, including
our long-term corporate default rates and the class F notes' credit
enhancement, this class is able to sustain a steady-state scenario,
in accordance with our criteria." S&P's analysis further reflects
several factors, including:
-- The class F notes' available credit enhancement is in the same
range as that of other CLOs S&P has rated and that have recently
been issued in Europe.
-- S&P's model-generated portfolio default risk at the 'B-' rating
level is 26.75% (for a portfolio with a weighted-average life of
5.29 years) versus 16.40% if we were to consider a long-term
sustainable default rate of 3.1% for 5.29 years.
-- Whether the tranche is vulnerable to nonpayment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If we envision this tranche to default in the next 12-18
months.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
loan, and the class A to E notes to five of the 10 hypothetical
scenarios we looked at in our publication, "How Credit Distress Due
To COVID-19 Could Affect European CLO Ratings," published on April
2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance (ESG) factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to certain activities,
including, but not limited to, the following: development,
production, maintenance, trade or stock-piling of weapons of mass
destruction, or the production or trade of illegal drugs, illegal
narcotics or recreational marijuana, the speculative extraction of
oil and gas, thermal coal mining, marijuana-related businesses,
production or trade in controversial weapons, hazardous chemicals,
pesticides and wastes, ozone depleting substances, endangered or
protected wildlife of which the production or trade is banned by
applicable global conventions and agreements, pornographic
materials or content, prostitution-related activities, tobacco or
tobacco-related products, gambling, subprime lending or payday
lending activities, weapons or firearms, and opioids. Accordingly,
since the exclusion of assets from these industries does not result
in material differences between the transaction and our ESG
benchmark for the sector, no specific adjustments have been made in
our rating analysis to account for any ESG-related risks or
opportunities."
Ratings List
CLASS RATING AMOUNT CREDIT INTEREST RATE*
(MIL. EUR) ENHANCEMENT (%)
A AAA (sf) 206.60 40.76 Three/six-month
EURIBOR plus 1.12%
A loan AAA (sf) 60.00 40.76 Three/six-month
EURIBOR plus 1.12%
B-1 AA (sf) 44.00 28.76 Three/six-month
EURIBOR plus 2.60%
B-2 AA (sf) 10.00 28.76 3.00%
C A (sf) 30.40 22.00 Three/six-month
EURIBOR plus 3.40%
D BBB- (sf) 30.50 15.22 Three/six-month
EURIBOR plus 4.60%
E BB- (sf) 21.70 10.40 Three/six-month
EURIBOR plus 6.90%
F B- (sf) 14.60 7.16 Three/six-month
EURIBOR plus 9.36%
Sub NR 34.40 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
ALME LOAN IV: Moody's Affirms B2 Rating on EUR12.65MM F-R Notes
---------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by ALME Loan Funding IV DAC:
EUR43,600,000 Class B-R Senior Secured Floating Rate Notes due
2032, Upgraded to Aaa (sf); previously on Nov 5, 2021 Upgraded to
Aa1 (sf)
EUR28,200,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to Aa3 (sf); previously on Nov 5, 2021
Upgraded to A1 (sf)
EUR24,250,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to A3 (sf); previously on Nov 5, 2021
Upgraded to Baa1 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR275,900,000 (current outstanding amount EUR268,403,280.63)
Class A-R Senior Secured Floating Rate Notes due 2032, Affirmed Aaa
(sf); previously on Nov 5, 2021 Affirmed Aaa (sf)
EUR35,200,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba2 (sf); previously on Nov 5, 2021
Affirmed Ba2 (sf)
EUR12,650,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed B2 (sf); previously on Nov 5, 2021
Affirmed B2 (sf)
ALME Loan Funding IV DAC, issued in January 2016, and refinanced in
January 2018 is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Apollo Management International LLP. The
transaction's reinvestment period ended in January 2022.
RATINGS RATIONALE
The rating upgrades on the Class B-R, C-R and D-R Notes are
primarily a result of the transaction having reached the end of the
reinvestment period in January 2022 and the deleveraging of the
Class A-R Notes following amortisation of the underlying portfolio
since the last rating action in November 2021. The Class A-R Notes
have paid down by approximately EUR7.5 million (2.72%) in the last
12 months.
The affirmations on the ratings on the Class A-R, E-R and F-R Notes
are primarily a result of the expected losses on the notes
remaining consistent with their current ratings after taking into
account the CLO's latest portfolio, its relevant structural
features and its actual over-collateralization (OC) levels.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile than it
had assumed at the last rating action in November 2021.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR441.68 million
Diversity Score: 55
Weighted Average Rating Factor (WARF): 2848
Weighted Average Life (WAL): 4.74 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.58%
Weighted Average Coupon (WAC): 3.88%
Weighted Average Recovery Rate (WARR): 45.62%
Par haircut in OC tests and interest diversion test: 0.0%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in May 2021. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the note,
in light of uncertainty about credit conditions in the general
economy. In particular, the length and severity of the economic and
credit shock precipitated by the global coronavirus pandemic will
have a significant impact on the performance of the securities. CLO
notes' performance may also be impacted either positively or
negatively by (1) the manager's investment strategy and behaviour
and (2) divergence in the legal interpretation of CDO documentation
by different transactional parties because of embedded
ambiguities.
Additional uncertainty about performance is due to the following:
The main source of uncertainty in this transaction is the pace of
amortisation of the underlying portfolio, which can vary
significantly depending on market conditions and have a significant
impact on the notes' ratings. Amortisation could accelerate as a
consequence of high loan prepayment levels or collateral sales by
the collateral manager or be delayed by an increase in loan
amend-and-extend restructurings. Fast amortisation would usually
benefit the ratings of the notes beginning with the notes having
the highest prepayment priority.
Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings. Moody's tested for a possible
extension of the actual weighted average life in its analysis. The
effect on the ratings of extending the portfolio's weighted average
life can be positive or negative depending on the notes'
seniority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
BLACKPOOL DEVELOPMENTS: Aidan Heffernan Appointed as Liquidator
---------------------------------------------------------------
The Irish Times reports that creditors recently appointed
accountant Aidan Heffernan of Hitchmough Kinnear and Company as
liquidator of Blackpool Developments, a property firm part-owned by
businessmen Clayton and Neil Love.
The company developed Blackpool Shopping Centre in Cork, which was
sold for EUR116 million in 2014, to clear liabilities to one of its
main creditors, the State's National Asset Management Agency
(Nama), The Irish Times recounts.
Creditors appointed Mr. Heffernan as liquidator at a meeting on May
6th, The Irish Times relays, citing documents filed with the
Companies Registration Office.
The company's most recent accounts show that it had liabilities of
EUR33.65 million at the end of 2020. It also held investment
properties valued at EUR4.6 million, The Irish Times discloses.
Accounts for previous years state that Blackpool Shopping Centre
had been its main asset and source of income, The Irish Times
notes.
DRYDEN 91 2021: Moody's Assigns B3 Rating to EUR14.25MM F Notes
---------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to notes issued by Dryden 91 Euro CLO
2021 DAC (the "Issuer"):
EUR307,500,000 Class A Senior Secured Floating Rate Notes due
2035, Definitive Rating Assigned Aaa (sf)
EUR14,500,000 Class B-1 Senior Secured Floating Rate Notes due
2035, Definitive Rating Assigned Aa2 (sf)
EUR28,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2035,
Definitive Rating Assigned Aa2 (sf)
EUR30,000,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned A2 (sf)
EUR35,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned Baa3 (sf)
EUR32,000,000 Class E Mezzanine Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned Ba3 (sf)
EUR14,250,000 Class F Mezzanine Secured Deferrable Floating Rate
Notes due 2035, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured obligations and up to 10%
of the portfolio may consist of senior unsecured obligations,
second-lien loans, mezzanine obligations and high yield bonds. The
portfolio is expected to be 97% ramped up as of the closing date
and to comprise of predominantly corporate loans to obligors
domiciled in Western Europe. The remainder of the portfolio will be
acquired during the five month ramp-up period in compliance with
the portfolio guidelines.
PGIM Loan Originator Manager Limited ("PGIM") will manage the CLO.
It will direct the selection, acquisition and disposition of
collateral on behalf of the Issuer and may engage in trading
activity, including discretionary trading, during the transaction's
three-year reinvestment period. Thereafter, subject to certain
restrictions, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
risk obligations or credit improved obligations.
In addition to the seven classes of notes rated by Moody's, the
Issuer issued EUR45,900,000 of Subordinated Notes which are not
rated.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Methodology underlying the rating action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR500,000,000
Diversity Score: 49
Weighted Average Rating Factor (WARF): 3109
Weighted Average Spread (WAS): 4.05%
Weighted Average Coupon (WAC): 4.70%
Weighted Average Recovery Rate (WARR): 40.50%
Weighted Average Life (WAL): 7.20 years
=========
I T A L Y
=========
ATLANTIA SPA: Fitch Affirms 'BB' Rating on EUR10BB EMTN Programme
-----------------------------------------------------------------
Fitch Ratings has affirmed Atlantia SpA's EUR10 billion euro
medium-term note (EMTN) programme's senior unsecured rating of 'BB'
and Aeroporti di Roma SpA's (AdR) Long-Term Issuer Default Rating
(IDR) of 'BBB-' and removed the ratings from Rating Watch Positive
(RWP). Fitch has also affirmed Abertis Infraestructuras S.A.'s
(Abertis) 'BBB' Long-Term IDR. All Outlooks are Negative.
RATING RATIONALE
Atlantia
The rating action follows the recently-announced intention of
Atlantia's controlling shareholder to launch a voluntary tender
offer of the company's shares (VTO), and to use the cash proceeds
from the imminent disposal of its main Italian toll road business
to repay the acquisition debt.
The rating is affirmed at 'BB' as, under a scenario of full
acceptance of the VTO, Fitch sees the group's metrics as consistent
with a 'BB+' conso/'BB' Holding company ratings.
The Negative Outlook considers the lack of visibility on how the
group will fund the planned growth once the cash from the
Autostrade per l'Italia SpA (ASPI) disposal is used for the VTO.
The Negative Outlook also considers the uncertainties about
Abertis's governance given the evolution of the relationship
between Atlantia shareholders and Actividades de Construcción y
Servicios, S.A. (ACS) group. In this respect, the VTO is a response
to a possible takeover of Atlantia from ACS.
Abertis
Abertis's 'BBB' rating reflects the geographically diversified
portfolio of core and mature assets and the relatively high
leverage profile in the context of a weighted average life of its
portfolio of around 12 years.
The rating - which reflects the standalone credit profile of the
Spanish-based toll road group - remains commensurate with the
maximum two-notch distance from the Atlantia group credit profile.
This is premised on the open ring-fencing features of Abertis debt
documentation and insulated access and control of Abertis
shareholder's agreement. Fitch is following the Stronger Subsidiary
path under the Parent and Subsidiary Linkage Rating Criteria.
The Outlook on Abertis is Negative as current and expected group
leverage is high and above 6x until 2023 in the Fitch Rating Case
(FRC). Traffic is recovering (the 2021 actual level was 5% below
the 2019 level, the 1Q22 level was 2% above 1Q19), but the slowdown
in GDP growth compared to last year's expectations is creating
uncertainties about medium-term traffic evolution. There is also
low visibility on the dividend policy from 2023. As discussed above
on Atlantia, the VTO could also add uncertainties to the governance
of the group.
AdR
The 'BBB-' rating on AdR considers its strong linkages with
Atlantia and the latter's consolidated credit profile of 'BB+'
given the porous ring-fencing features of AdR concession agreement
and open access and control. Atlantia has substantially full
ownership and operational control of AdR and governs its financial
and dividends policy. Nonetheless, the 'BBB-' rating on AdR
considers also the limited insulation of the Rome-based airport
from Atlantia, resulting in the IDR being one notch above
Atlantia's 'BB+' consolidated rating.
AdR's debt has no material ring-fencing features although the
airport concession agreement provides some moderate protection
against material re-leveraging of the asset. The Negative Outlook
on the entity reflects the corresponding outlook on Atlantia
Group.
ASPI
Fitch has not taken action on ASPI's 'BB+'/RWP IDR. ASPI still
remains part of Atlantia group but Fitch views its credit quality
is still commensurate with a 'BB+'/RWP rating as all the conditions
precedent to its sale to a CDP-led consortium of investors have
been complied with and the disposal is scheduled for May 5, 2022.
KEY RATING DRIVERS
VTO on Atlantia Shares
On April 14, a newly created SPV (BidCo) launched a EUR12.7 billion
tender offer aimed at acquiring all of the outstanding ordinary
shares of Atlantia, other than the shares already held by Sintonia
SpA (Sintonia) in Atlantia. BidCo is backed by Sintonia and funds
managed by Blackstone (BIP) via an intermediate holding company
(HoldCo).
The offer aims to delist Atlantia shares from Milan stock exchange
and, Fitch believes, ultimately proceed with a merger or reverse
merger so that ATL/BidCo/HoldCo will be become the only entity, and
Sintonia and BIP will hold direct stakes in the entity resulting
from the merger or reverse merger.
The success of BidCo's VTO is conditional on certain conditions
including achieving a number of shares tendered to the offer
exceeding 90% of Atlantia's share capital (threshold condition).
However, BidCo has stated that it could waive the threshold
condition and proceed in any case with the delisting by a merger of
Atlantia into BidCo.
The VTO is the latest development over the ownership of Atlantia.
In March 2022, ACS had approached Sintonia on a possible deal with
international financial investors, ultimately aiming to break up
the Italian infrastructure group. On April 7, Sintonia declined the
offer in light of its strategic orientation, aiming to preserve the
integrity of the Atlantia group and give further impetus to its
activities. While still possible, Fitch believes Sintonia's
existing 33% stake in Atlantia reduces the chances of a rival offer
(including the one from ACS).
VTO Funding and Implications for Atlantia Creditors
BidCo will meet the financial commitment to honour the VTO by a mix
of equity/shareholder loans by BIP and debt injected at HoldCo
level from a pool of financing banks which have already provided a
commitment letter for up to EUR8.2 billion. The debt will be
largely taken out via extraordinary distributions from Atlantia or
merger involving BidCo/HoldcCo and Atlantia, which will soon be
cash rich after the imminent disposal of ASPI's stake.
According to Fitch's preliminary calculations, and assuming 100%
acceptance, group leverage post- transaction will peak in 2022
above 8x under the FRC. Organic growth will sustain a progressive
deleverage in 2023-2024, but net debt/EBITDA will remain
sustainably above 7x under the FRC.
Fitch views the transaction as being credit negative as it
ultimately results in a swap of ASPI's resilient and sizeable cash
flow generation with a return of capital to shareholders only. That
leaves Atlantia's existing creditors with a reduced pool of assets
and cash flow to rely on to service debt. There is also low
visibility as to how shareholders will want to address Atlantia's
investment and financial policies.
Shareholder Agreement
BidCo is ultimately owned by Sintonia/BIP which entered into a
shareholder agreement to govern Atlantia. In essence, Sintonia will
control Atlantia, although this is limited to ordinary matters and
as long as changes to the to-be-agreed five-year business plan are
within a certain threshold.
Sintonia will appoint Atlantia's chairman, vice-chairman and CEO
and will have control on Atlantia's board. However, BIP's approval
will also be required for several matters, including changes in the
financial and investment policy, M&As, financing agreements,
regulatory interactions, ESG policies and related party
transactions.
Sintonia and BIP have agreed an investment policy to guide
Atlantia's growth strategy. The focus is both on acquiring new
projects and companies and on preserving the existing group asset
base through concession extension. Initiatives could be funded with
a mix of internally generated cash, additional debt and new equity
injections from shareholders, depending on the value of the
transaction. However, there is no visibility on how this policy
will affect the group credit profile.
The parties have also defined a financial policy for Atlantia. The
aim is to achieve, as soon as possible, investment grade metrics
for Atlantia and group subsidiaries, although the agreement does
not provide visibility as to how shareholder will achieve the
target. The agreement lacks detailed references to a dividend
policy for Atlantia Holding company and its subsidiaries.
Rating Approach
Fitch assesses Atlantia based on its consolidated credit profile.
This approach considers Atlantia's majority stakes in other
subsidiaries, operational control, as well as limited restrictions
on subsidiaries' debt. The consolidated approach also considers
Atlantia's access to the cash flow generation of most subsidiaries
through control of their dividend and financial policies and
therefore has the ability to re-leverage these assets if needed.
While Fitch analyse the consolidated credit profile, Fitch also
maintain a focus on Atlantia Holding to reflect the higher
probability of default of Atlantia's debt in relation to that of
its consolidated credit profile. Based on the existing debt set-up
at Atlantia Holding (EUR2.75 billion in gross debt) and the
expected dividend stream from subsidiaries, Fitch rates Atlantia
debt one notch below the consolidated credit profile. Fitch
believes that robust interest coverage, fairly good financial
flexibility, and appropriate Atlantia Holding liquidity, mitigate a
high leverage at Atlantia Holding and the restrictions embedded in
Abertis's governance.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Atlantia
A failure to deleverage to below 7x by 2024 under the FRC. Fitch
may re-assess this ratio trigger and associated debt capacity if
the businesses risk profile or average concession tenor adversely
change.
A sustained move towards large-scale, debt-funded acquisitions.
A material increase in Atlantia Holding debt from Fitch's current
expectation, a deterioration in Atlantia Holding liquidity below
the next 12 months, or a reduction in group balance sheet
flexibility, could add pressure to Atlantia Holding debt and lead
to a widening of the notching from the group credit profile.
Abertis
A failure to improve Fitch-adjusted leverage to below 6.0x by 2024
under the FRC.
AdR
A negative rating action on Atlantia group, provided the strength
of the linkages with the parent remains unchanged.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Atlantia
Greater visibility on the group's future growth plans, capital
structure, financial policy as well as governance at Abertis,
coupled with a clearer path to traffic recovery could lead to a
revision of the Outlook to Stable.
Abertis
A clearer view on medium-term traffic evolution, governance and
dividend policy, combined with an evolution of consolidated net
debt-to-EBITDA at least in line with the FRC and consistently below
6.0x by 2024, could lead to the Outlook being revised to Stable.
AdR
Positive rating action on Atlantia group, provided the strength of
the linkages with the parent remains unchanged.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
Criteria Variation
The analysis includes a variation from the "Rating Criteria for
Infrastructure and Project Finance" to determine the notching of
Abertis's hybrid instruments relative to Abertis's IDR, and the
application of Equity Credit (EC).
Fitch allocates hybrids to the following categories: 100% equity,
50% equity and 50% debt, or 100% debt. The decision to use only
three categories reflects Fitch's view that the allocation of
hybrids into debt and equity components is a rough and qualitative
approximation, and is not intended to give the impression of
precision.
The focus on viability means Fitch will typically allocate EC to
instruments that are subordinated to senior debt and have an
unconstrained ability for at least five years of consecutive coupon
deferral. To benefit from EC, the terms of the instrument should
not include mandatory payments, covenant defaults, or events of
default that could trigger a general corporate default or liquidity
need. Structural features that constrain a company's ability to
activate equity-like features of a hybrid make an instrument more
debt-like.
Hybrid ratings are notched down from the IDR. The notches represent
incremental risk relative to the IDR, these notches are a function
heightened risk of non-performance relative to other (eg. senior)
obligations. Hybrids that qualify for equity credit are (deeply)
subordinated and typically rated at least two notches below the
IDR.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
===================
L U X E M B O U R G
===================
LOARRE INVESTMENTS: Moody's Gives (P)Ba3 Rating to EUR850MM Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional rating to
EUR850,000,000 senior secured notes due 2029 ("the notes"), to be
issued by Loarre Investments S.a r.l. ("Loarre" or "the issuer"):
EUR850,000,000 Senior Secured Notes due 2029, Assigned (P)Ba3
The notes are backed primarily by revenues from 8.2% of
audio-visual rights ("AV rights") commercialized by La Liga
Nacional de Futbol Profesional ("LaLiga", not rated) in respect of
matches of the first- and second-tier league ("Primera Division"
and "Segunda Division") competitions of Spanish professional
football. In addition, the notes are backed by revenues from
additional activities ("non-AV activities") such as sponsorships
and licences, infrastructural maintenance and technological
solutions.
The issuer, which is fully owned by entities controlled by CVC
Capital Partners ("CVC" or "the sponsor", not rated), acquires the
entitlement to approximately 8.2% of LaLiga's AV rights and non-AV
activities, through an investment of EUR1.99bn (the "investment"),
to fund the development of the participating clubs and to increase
the value of LaLiga's business in general. The issuer is a private
limited liability company (societe a responsabilite limitee)
incorporated and domiciled in Luxembourg.
RATINGS RATIONALE
The provisional rating of the notes is based on: (1) Moody's
assessment of LaLiga's credit quality as a standalone entity, (2)
the issuer's estimated initial and covenanted debt leverage ratios,
and (3) the credit strengths and challenges of the transaction.
LaLiga was founded in 1984 as a private law non-profit organisation
representing the Primera Division and Segunda Division leagues in
Spanish professional football, with a total of 42 member clubs.
LaLiga's main responsibilities are to organize and promote
professional official football competitions, to commercially
exploit the competitions and to commercialize the AV rights of the
professional football competitions. The commercialization of AV
rights for the professional football competitions is regulated by
the Royal Decree 5/2015 of the Ministry of Education, Culture and
Sports of the Government of Spain.
Loarre entered into agreements to invest in LaLiga's activities in
the context of "LaLiga Impulso", a plan for the future development
of LaLiga's competitions and the participating clubs. The
Investment comprises:
(1) EUR1,929.4mn investment through a silent partnership agreement
("SPSA") with LaLiga, pursuant to which Loarre acquired an
entitlement to approximately 8.2% of LaLiga's AV rights until year
2071. LaLiga will on-lend most of this investment amount to the
participating clubs for investing in digital and commercial
capabilities, infrastructure and the fan experience, and to repay
debt and fund player expenses such as transfer fees and wages.
(2) EUR64.8mn purchase of a 8.2% capital participation in LaLiga
Group International, S.L. ("LGISL"), which is jointly owned with
LaLiga (which owns the remaining 91.8%), and will provide certain
business management and consulting services to LaLiga. The
dividends entitlement pursuant to this capital participation in
LGISL entitles Loarre to revenues from LaLiga's non-AV activities.
The EUR850m notes issuance will provide a portion of the total
Investment, while the remaining EUR1.2bn will be funded through an
equity commitment letter between the sponsor and the issuer.
Loarre will disburse the investment to LaLiga in instalments, with
around EUR633mn having been disbursed to date. The remaining
EUR1.3bn disbursements will be made between June 2022 and June
2024, i.e., after the issuance of the notes.
Loarre's main asset is its entitlement to revenues from LaLiga's
activities, consequently the notes benefit from several of LaLiga's
credit strengths, which include:
(1) Robust market position in Spain with virtually no national
competitors, as LaLiga has exclusive rights to commercialize the AV
rights of matches of the Primera División and Segunda División
leagues, which are the top Spanish professional football
competitions, and rank among the top within the global sports
entertainment market.
(2) Strong and predictable revenue stream, based on broadcasting
revenues secured by long-term contracts (3-5 years long).
(3) Strong financial control as well as disciplinary powers on
LaLiga's member clubs, including controls on debt limits for
individual clubs, salary caps on football players, and the right to
set off unpaid debts of clubs against the AV rights owed to them.
Conversely, the notes are also exposed to credit challenges of
LaLiga, such as:
(1) LaLiga's currently strong governance may become more difficult
to manage in the future, in the context of a complex transaction
that also sparked some division between some of the larger clubs
and the smaller ones, given three of the largest member clubs did
not participate in Loarre's Investment and issued legal actions
against it.
(2) Reduced demand for LaLiga if the European Super League
(proposed in 2021 as a closed competition for only 12 of the
world's top football clubs) or similar competitive format
reactivates, which could lead to reduced interest in LaLiga and
therefore to a reduction in the value of the AV rights.
(3) LaLiga relies heavily on Movistar (Telefonica S.A., Baa3
stable) as its main broadcasting counterparty; it currently
represents around 90% of domestic rights revenues and 61% of total
broadcasting revenues. The agreement with Movistar was renewed in
December 2021 for the next five seasons, starting in the 2022/2023
season.
Furthermore, the nature of the investment and the terms of the
transaction documents expose the notes to additional credit risks:
(1) The issuer is much more leveraged than LaLiga: Loarre's debt
load (most of it consisting of the notes) is several times higher
than LaLiga's, however Loarre's debt is backed by only a small
fraction of LaLiga's revenues. Thus, Loarre's debt equals around 6
times its current estimated annual operating revenues, in contrast
to only about 4% of revenues for LaLiga as a standalone entity.
(2) Refinancing risk: The structure does not provide a mechanism to
repay the notes' principal at maturity from the issuer's cashflows.
Neither are there any early amortisation or cash trap features to
address financial deterioration during the life of the transaction.
As such, the structure is entirely reliant on the ability to
refinance at maturity, exposing the notes to the risk of reduced
liquidity and interest rates increases and therefore negatively
impacting the value of the issuer's entitlement to LaLiga's
revenues at the time of refinancing.
(3) The issuer is not completely bankruptcy-remote: Under the
equity commitment letter CVC is still required to disburse around
EUR1.3bn of the remaining Investment between June 2022 and June
2024, with the failure to do so entitling LaLiga to claim damages
under the SPSA. In addition, there is no requirement that all
material agreements entered into by the issuer should contain
limited recourse/non-petition language.
(4) Termination of the SPSA: Under certain scenarios the SPSA may
be terminated, which would trigger an unwinding of the transaction,
without the requirement of having sufficient proceeds to fully
repay the notes.
(5) While Moody's understands that the issuer does not expect to
diversify its investment portfolio in the short to medium term, the
transaction documents allow the issuer to invest in other sports
industry businesses that may be not related to LaLiga's
activities.
The fact that CVC holds several roles in Loarre's transaction,
including that of the Issuer's owner and the equity investor, may
weaken the transaction's governance due to weaker checks and
balances as compared to a typical structured finance setup, which
in addition may introduce misalignment of interests in the
transaction, whereby the issuer might agree to actions to benefit
the equity holders that could be detrimental to Noteholders.
Moody's regard this as a governance risk under Moody's ESG
framework.
PRINCIPAL METHODOLOGY
The methodologies used in this rating were "Operating Company
Securitizations Methodology" published in April 2020.
Factors that would lead to an upgrade or downgrade of the rating:
Factors that could lead to an upgrade of the rating include: (1) an
improvement of LaLiga's credit quality, and (2) a significant
improvement in the value of LaLiga's AV rights and non-AV
activities and/or significant reduction of Loarre's leverage
ratios.
Factors that could lead to a downgrade of the rating include: (1) a
deterioration of LaLiga's credit quality, (2) a significant
deterioration in the value of LaLiga's AV rights and non-AV
activities and/or significant increase of Loarre's leverage ratios,
and (3) any material change of terms deemed detrimental to the
notes, in particular the investment in other businesses with lower
credit quality that those related to LaLiga's activities.
=====================
N E T H E R L A N D S
=====================
DTEK RENEWABLES: Fitch Lowers LongTerm IDRs to 'C'
--------------------------------------------------
Fitch Ratings has downgraded DTEK Renewables B.V.'s Long-Term
Foreign- and Local-Currency Issuer Default Ratings (IDR) and senior
unsecured rating to 'C' from 'CCC'.
The downgrade reflects Fitch's understanding that the company has
obtained lenders' agreement to use debt service reserve accounts to
pay interest and debt repayments due in March in order to preserve
other remaining liquidity and reflecting the moratorium on
foreign-currency payments issued by the National Bank of Ukraine
(NBU). Fitch believes that this only delays non-payment or
distressed debt exchange (DDE) and consider it 'near default' as
defined for a 'C' rating. Today, the company also published a
consent solicitation to its bondholders, that, if approved, Fitch
may view as DDE.
KEY RATING DRIVERS
Severe Operational Disruptions: Russia continues with air, ground
and sea attacks across multiple fronts close to the areas where
part of DTEK Renewables' assets are located. The company's
windfarms have stopped operations due to grid connection
disruptions or by managerial decision. Solar farms continue to
generate electricity, but face low level of settlements by the
guaranteed buyer.
Strained Cash Flows: During March and early April 2022, payments
from the guaranteed buyer under the feed-in-tariff only reached
about 17% of the amounts due. DTEK Renewables has curtailed its
capex (suspended the construction of its Tiligul wind farm project)
and cut operating expenditure. However, Fitch estimates that cash
flow generation and remaining liquidity is insufficient to service
the company's debt. Resumption of settlements by the guaranteed
buyer will depend on how the military situation will develop
further.
Moratorium on Foreign-Currency Payments: NBU's moratorium on
cross-border foreign-currency payments is limiting the DTEK
Renewables' ability to service its foreign-currency obligations
other than from cash holdings outside of Ukraine. These are mostly
on dedicated debt service (for loans) or interest reserve accounts
(for bonds). Fitch expects these accounts to cover debt service for
several months.
Receivables from Guaranteed Buyer: As of mid-April 2022, the
guaranteed buyer's outstanding debt to DTEK Renewables was about
EUR33.5 million (excl. VAT), including EUR24.8 million for
electricity supplied in 2021 and EUR8.7 million for electricity
supplied in the first four months of 2022. Considering currently
low cash collection rates in Ukraine's energy market, Fitch does
not expect a near-term recovery of these receivables. Improved cash
inflow or any proceeds from the company's insurance claims may also
be used for other expenses ahead of debt service, also reflecting
NBU's moratorium.
Tiligul Wind Farm Project Suspended: The company has suspended its
Tiligul wind project with projected capacity of 500 MW (compared
with the company's existing 950MW). Until 22 April 2022, DTEK
Renewables had spent EUR390 million (UAH12,415 billion) on the
project, partly financed from the previously remaining Eurobond
proceeds of EUR127 million and other sources.
DERIVATION SUMMARY
DTEK Renewables' 'C' IDRs denote its near default position where a
default or default-like process has begun.
KEY ASSUMPTIONS
-- No near-term production by wind farms with limited cash
collections on the revenues from the solar plants.
-- Fitch assumes debt service is limited to the liquidity already
outside Ukraine.
KEY RECOVERY RATING ASSUMPTIONS
-- The recovery analysis assumes that DTEK Renewables would be a
going concern in bankruptcy and that the company would be
reorganised rather than liquidated.
-- A 10% administrative claim is assumed.
-- The assumptions cover the guarantor group only.
Going-Concern Approach
-- The going-concern EBITDA estimate reflects Fitch's view of a
sustainable, post-reorganisation EBITDA level upon which Fitch
bases the valuation of the company.
-- The going-concern EBITDA of Orlovsk wind farm, Pokrovsk solar
plant and Trifanovka solar plant of about EUR37 million.
-- Fitch assumes an enterprise value multiple of 3x.
Fitch's waterfall analysis generated a waterfall generated recovery
computation for the notes in the 'RR5' band, indicating a 'C'
instrument rating.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade is unlikely at this point as Fitch does not expect
DTEK Renewables to pay its interest and debt repayments beyond
the liquidity available on the debt service reserve accounts,
thus leading to debt restructuring or payment default. Post-
restructuring or DDE, the company could have a higher rating;
-- Military operations ending, allowing resumption of normal
business operations with improved cash collection and
liquidity position as well as the lifting of NBU's moratorium.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Execution of a DDE or non-payment of due interest or
principal, would result in a downgrade to 'RD';
-- The IDR would downgraded to 'D' if DTEK Renewables enters into
bankruptcy filings, administration, receivership, liquidation
or other formal winding-up procedures, or ceases business.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
ISSUER PROFILE
DTEK Renewables owns and operates wind and solar power generation
capacity of 950MW in Ukraine.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DEBT RATING RECOVERY PRIOR
---- ------ -------- -----
DTEK Renewables Finance B.V.
senior unsecured LT C Downgrade RR5 CCC
DTEK LT IDR C Downgrade CCC
Renewables B.V.
LC LT IDR C Downgrade CCC
=========
S P A I N
=========
AUTO ABS 2022-1: Moody's Assigns (P)B1 Rating to Class E Notes
--------------------------------------------------------------
Moody's Investors Service has assigned the following provisional
ratings to Notes to be issued by Auto ABS Spanish Loans 2022-1,
FT:
EUR [ ]M Class A Floating Rate Asset Backed Notes due February
2032, Assigned (P)Aa2 (sf)
EUR [ ]M Class B Floating Rate Asset Backed Notes due February
2032, Assigned (P)A3 (sf)
EUR [ ]M Class C Floating Rate Asset Backed Notes due February
2032, Assigned (P)Baa2 (sf)
EUR [ ]M Class D Floating Rate Asset Backed Notes due February
2032, Assigned (P)Ba1 (sf)
EUR [ ]M Class E Floating Rate Asset Backed Notes due February
2032, Assigned (P)B1 (sf)
Moody's has not assigned a rating to the EUR [] M Class F Fixed
Rate Asset Backed Notes due February 2032.
RATINGS RATIONALE
The transaction is a 7 months revolving cash securitisation of auto
loans extended to obligors in Spain by PSA Financial Services
Spain, E.F.C, S.A. (NR) ("PSA Finance") ultimately owned by Banque
PSA Finance (A3/P-2) ("Banque PSA").
The securitised portfolio of underlying assets consists of auto
loans distributed through the PSA Group auto dealers and will have
a total amount of EUR700.0 million.
As of April 2022, the provisional pool had 77,781 non-delinquent
contracts with a weighted average seasoning of 1.7 years. The loans
in the portfolio finance new cars (87.3%) and used cars (12.7%)
granted to private individuals.
The portfolio is collateralised by 42.6% amortising loans and 57.4%
balloon loans, which consist of equal installments during the life
of the loan and a larger balloon payment at loan maturity. In the
case of balloon loans, the borrower can either pay the final
balloon payment at contract maturity, trade the vehicle in against
the purchase of a new vehicle or return the vehicle to the lender
with no further obligation. PSAG Automoviles Comercial Espana, S.A.
(NR) ("PSAG"), ultimately owned by Stellantis N.V. (Baa3), has
agreed to buy back the vehicle from the borrowers at a price equal
to the balloon installment. In the event the borrower returns the
vehicle to the lender and PSAG is unable to buy it back, the issuer
would be exposed to the residual value ("RV") risk arising from the
potential shortfall between the realisable market value of the
vehicle versus the final balloon payment.
As of closing date the transaction has a total exposure to RV risk
of 46.51% of total principal cash flows. The proportion of balloon
loans that can be included in the pool is limited to 58% of the
total Outstanding Balance of the Non-Defaulted Receivables.
According to Moody's, the transaction benefits from credit
strengths such as (i) the granularity of the portfolio, (ii) the
high excess spread available to the transaction, (iii) PSA
Finance's experience as a consumer finance lender in the auto
market, (iv) financial strength of the originator's parent company
and (v) a swap agreement to mitigate interest rate risk provided by
Banco Santander S.A. (Spain) (A2/P-1 Bank Deposit; A3(cr)/P-2(cr)).
However, Moody's notes that the transaction features some credit
weaknesses such as (i) the presence of a 7 months revolving period
which adds uncertainty to the portfolio credit quality, (ii) the
exposure to RV risk and (iii) a complex structure with pro-rata
amortisation on all classes of notes after the end of the revolving
period.
Moody's analysis focused, amongst other factors, on (i) an
evaluation of the underlying portfolio of loans; (ii) historical
performance information of the total book of the originator and
past ABS transactions; (iii) the credit enhancement provided by
subordination and the reserve fund; (iv) the liquidity support
available in the transaction through the reserve fund; and (v) the
overall legal and structural integrity of the transaction.
MAIN MODEL ASSUMPTIONS
Moody's determined the portfolio lifetime expected defaults of
2.5%, expected recoveries of 40% and portfolio credit enhancement
("PCE") of 11.0%. The expected defaults and recoveries capture
Moody's expectations of performance considering the current
economic outlook, while the PCE captures the loss Moody's expect
the portfolio to suffer in the event of a severe recession
scenario. Expected defaults and PCE are parameters used by Moody's
to calibrate its lognormal portfolio loss distribution curve and to
associate a probability with each potential future loss scenario in
Moody's ABSROM cash flow model to rate Auto ABS.
Portfolio expected defaults of 2.5% are in line with the Spanish
Auto ABS average and are based on Moody's assessment of the
lifetime expectation for the pool taking into account (i) historic
performance of the book of the originator; (ii) other similar
transactions used as a benchmark; and (iii) other qualitative
considerations.
Portfolio expected recoveries of 40.0% are in line with the Spanish
Auto ABS average and are based on Moody's assessment of the
lifetime expectation for the pool taking into account (i) historic
performance of the book of the originator; (ii) benchmark
transactions; and (iii) other qualitative considerations.
PCE of 11.0% is below the Spanish Auto ABS average and is based on
Moody's assessment of the pool taking into account (i) a degree of
uncertainty considering the depth of data Moody's received from the
originator to determine the expected performance of the portfolio;
(ii) benchmark transactions; (iii) the revolving period of 7
months; and (iv) the relative ranking to the originators peers in
the Spanish auto ABS market.
In case a PSAG does not meet its obligation to guarantee the
contracted residual values, the transaction would be fully exposed
to residual value (RV) risk. Moody's applies its RV risk assessment
to evaluate this risk. The Aa1 (sf) baseline RV haircut in this
Spanish auto loan portfolio, after adjustment for its specific
characteristics, is 38.5%. The RV haircut considers (i) the
robustness of the RV settings; (ii) the concentration of the RV
maturities; and (iii) the portfolio composition. The haircut is in
line with the EMEA Auto ABS average. Moody's RV analysis results in
an RV credit enhancement of 13.2% for the Aa2 (sf) rated Notes,
taking into account (i) the RV haircut; (ii) the maximum RV
exposure during the revolving period; and (iii) the guarantee from
PSAG.
METHODOLOGY
The principal methodology used in these ratings was 'Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS' published in
September 2021.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings include a
significantly better than expected performance of the pool together
with an increase in credit enhancement of the Notes and an upgrade
of Spain's local country currency (LCC) rating.
Factors that may cause a downgrade of the ratings include a decline
in the overall performance of the pool, a significant deterioration
of the credit profile of the originator or a downgrade of Spain's
local country currency (LCC) rating.
FT SANTANDER 2016-2: Moody's Affirms Ba1 Rating on Class E Notes
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of one Note in
Cars Alliance Auto Loans Germany v 2019-1 and three Notes in FT
Santander Consumer Spain Auto 2016-2. The rating action reflects
the increased levels of credit enhancement for the affected Notes
and better than expected collateral performance.
Moody's affirmed the ratings of the Notes that had sufficient
credit enhancement to maintain their current ratings.
Issuer: Cars Alliance Auto Loans Germany v 2019-1
EUR950M Class A Asset Backed Floating Rate Notes, Affirmed Aaa
(sf); previously on Jul 7, 2021 Affirmed Aaa (sf)
EUR25.7M Class B Asset Backed Floating Rate Notes, Upgraded to Aaa
(sf); previously on Jul 7, 2021 Upgraded to Aa1 (sf)
Issuer: FT Santander Consumer Spain Auto 2016-2
EUR552.4M Class A Notes, Affirmed Aa1 (sf); previously on Jul 7,
2021 Affirmed Aa1 (sf)
EUR26M Class B Notes, Upgraded to Aa1 (sf); previously on Jul 7,
2021 Upgraded to Aa3 (sf)
EUR35.8M Class C Notes, Upgraded to Aa3 (sf); previously on Jul 7,
2021 Upgraded to A2 (sf)
EUR19.5M Class D Notes, Upgraded to A3 (sf); previously on Jul 7,
2021 Upgraded to Baa2 (sf)
EUR16.3M Class E Notes, Affirmed Ba1 (sf); previously on Jul 7,
2021 Affirmed Ba1 (sf)
Cars Alliance Auto Loans Germany v 2019-1 is a cash securitisation
of loan agreements entered into for the purpose of financing
vehicles to private obligors in Germany by RCI Banque (Baa2/P-2
Bank Deposits; Baa1(cr)/P-2(cr)), acting through its German Branch
("RCI Banque Germany"). RCI Banque is ultimately owned by Renault
S.A. (Ba2/NP). The originator, RCI Banque S.A., Germany also acts
as the servicer of the portfolio during the life of the
transaction.
FT Santander Consumer Spain Auto 2016-2 is a cash securitisation of
auto loans granted by Santander Consumer EFC SA ("Santander
Consumer"), owned by Santander Consumer Finance S.A. (A2/P-1 Bank
Deposits; A3(cr)/P-2(cr)), to private and corporate obligors in
Spain. Santander Consumer is acting as originator and servicer of
the loans while Santander de Titulizacion, S.G.F.T., S.A. (NR) is
the Management Company.
Maximum achievable rating is Aa1 (sf) for structured finance
transactions in Spain, driven by the corresponding local currency
country ceiling of the country.
RATINGS RATIONALE
The rating action is prompted by an increase in credit enhancement
available for the affected Notes and better than expected
collateral performance.
Moody's affirmed the ratings of the Notes that had sufficient
credit enhancement to maintain their current rating.
Increase in Available Credit Enhancement
Sequential amortization and, in FT Santander Consumer Spain Auto
2016-2, a non-amortising reserve fund, led to the increase in the
credit enhancement available in these transactions.
In Cars Alliance Auto Loans Germany v 2019-1, the credit
enhancement for the Class B Notes upgraded in the rating action
increased to 11.8% from 8.3% since the last rating action in July
2021.
In FT Santander Consumer Spain Auto 2016-2, the credit enhancement
for the Class B, C, and D Notes upgraded in today's rating action
increased to 20.4%, 11.8%, and 7.1%, from 14.8%, 8.5%, and 5.1%,
respectively, since the last rating action in July 2021.
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.
In Cars Alliance Auto Loans Germany v 2019-1, the performance has
been stable since closing. 60 days plus arrears currently stand at
0.23% of current pool balance, and cumulative defaults currently
stand at 0.53% of original pool balance plus replenishments.
Moody's default assumption for the current portfolio remains
unchanged at 3.0% of the current balance, translating into a lower
default assumption of 1.47% of the original balance plus
replenishments. Moody's maintained the assumption for the portfolio
credit enhancement of 10.5%, and the fixed recovery rate assumption
of 40%.
The delinquency rates in FT Santander Consumer Spain Auto 2016-2
have edged higher but remain at relatively low levels, with 90 days
plus arrears standing at 2.0% of the current portfolio balance.
Cumulative defaults currently stand at 0.51% of original pool
balance plus replenishments.
For FT Santander Consumer Spain Auto 2016-2, Moody's has decreased
the default assumption for the current portfolio from 5% to 4% of
the current balance, translating into a lower default assumption of
1.58% of the original balance plus replenishments. Moody's
maintained the assumption for the portfolio credit enhancement of
16%, and the fixed recovery rate assumption of 30%.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan-and Lease-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 and (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.
GENOVA HIPOTECARIO X: Fitch Affirms 'B-' Rating on Class D Debt
---------------------------------------------------------------
Fitch Ratings has affirmed AyT Genova Hipotecario VII, FTH and AyT
Genova Hipotecario X, FTH. Fitch has revised the Outlook on two
tranches of Genova X to Stable from Negative.
DEBT RATING PRIOR
---- ------ -----
AyT Genova Hipotecario VII, FTH
Class A2 ES0312343017 LT AAAsf Affirmed AAAsf
Class B ES0312343025 LT AA-sf Affirmed AA-sf
Class C ES0312343033 LT BB+sf Affirmed BB+sf
AyT Genova Hipotecario X, FTH
Class A2 ES0312301015 LT A+sf Affirmed A+sf
Class B ES0312301023 LT A+sf Affirmed A+sf
Class C ES0312301031 LT BBB+sf Affirmed BBB+sf
Class D ES0312301049 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
The transactions are backed by Spanish residential mortgages
serviced by CaixaBank, S.A. (BBB+/Stable/F2).
KEY RATING DRIVERS
Performance Outlook and Criteria Changes: The Stable Outlooks on
the notes reflect the broadly stable asset performance outlook
Fitch has for securitised portfolios. Performance is driven by a
low share of loans in arrears over 90 days (less than 1% of the
current portfolio balance as of the latest reporting period) and
the improved macro-economic outlook for Spain, as described in
Fitch's latest Global Economic Outlook dated March 2022.
The rating actions also reflect the removal of the additional
stresses in relation to the coronavirus outbreak and legal
developments in Catalonia as announced on July 22, 2021.
Ratings Limited by Counterparty Provisions: The maximum achievable
rating for Genova Hipotecario X is limited by the contractual
counterparty provisions. Remedial actions to mitigate counterparty
risk will only be in place upon the relevant counterparty being
downgraded below 'BBB+' and 'F2'. According to Fitch's Structured
Finance and Covered Bonds Counterparty Risk Rating Criteria, this
limits the notes' maximum achievable rating to 'A+sf'.
Payment Interruption Risk Mitigated: Fitch views the transactions
as sufficiently protected against payment interruption risk. In a
scenario of servicer disruption, liquidity sources would provide a
sufficient buffer to adequately cover senior fees, swap payments
and interest payment obligations in the relevant rating scenarios
while an alternative servicing arrangement was implemented.
CE to Expected to Increase: For Genova VII, Fitch expects
structural credit enhancement (CE) to slightly increase in the
short term, given the current sequential amortisation. However, the
transaction is expected to switch to pro-rata amortisation if the
interest rate continues to rise. In this case, CE will stay stable
and only slightly increase due to the reserve fund being at its
floor. For Genova X Fitch expects CE to be stable amid prevailing
pro-rata amortisation together with the amortising reserve fund
until it reaches its floor (EUR5.25 million).
ESG Factors
Genova Hipotecario X has an ESG Relevance Score of '5' for
'Transaction Parties and Operational Risk' due to counterparty
eligibility thresholds, limiting the maximum achievable rating to
two categories below the maximum achievable rating in the country.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Long-term asset performance deterioration such as increased
delinquencies or larger defaults, which could be driven by changes
to macroeconomic conditions, interest rate increases or borrower
behaviour.
For the junior notes of both transactions, if negative Euribor
persists in the long term, as the payments under the transactions'
respective interest rate swap agreements are non-floored and could
result in continued negative excess spread.
For Genova VII's class A2 notes, a downgrade of Spain's Long-Term
Issuer Default Rating (IDR) that could decrease the maximum
achievable rating for Spanish structured finance transactions. This
is because these notes are rated at the maximum achievable rating,
six notches above the sovereign IDR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Genova VII's class A2 notes are rated at the highest level on
Fitch's scale and cannot be upgraded. Genova X's class A2 and
B notes are at their highest achievable rating and cannot be
upgraded unless counterparty provisions are amended.
CE ratios increase as the transactions deleverage able to fully
compensate the credit losses and cash flow stresses commensurate
with higher rating scenarios, in addition to adequate counterparty
arrangements.
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
AyT Genova Hipotecario VII, FTH, AyT Genova Hipotecario X, FTH
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transaction's initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
AyT Genova Hipotecario X, FTH has an ESG Relevance Score of '5' for
Transaction Parties & Operational Risk due to counterparty
eligibility thresholds, which has a negative impact on the credit
profile, and is highly relevant to the rating, limiting the maximum
achievable rating to two categories below the maximum achievable
rating in the country.
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.
PAX MIDCO: S&P Alters Outlook to Positive, Affirms 'CCC+' ICR
-------------------------------------------------------------
S&P Global Ratings revised its outlook on concession catering
operator Pax Midco Spain (Areas) to positive from negative and
affirmed its 'CCC+' long-term issuer credit and issue ratings on
the group.
The positive outlook reflects the possibility of a one-notch
upgrade if the group can restore its credit metrics in line with
our base-case assumptions while maintaining adequate liquidity.
The first half of fiscal 2022 showed encouraging recovery in all
segments, paving the way to the normalization of operations.
The top line reached EUR645 million, only 20% below fiscal 2019
results and progressively closing the gap versus pre-COVID-19
levels, mainly driven by the leisure segment, followed by motorways
and railways. During the first half of the year, Areas managed to
outperform its budget by 12%, highlighting the group's prudent
approach during its forecasting exercise. In terms of
profitability, the group reached EUR128 million of company reported
EBITDA. Retreated from the AENA minimum annual guarantee (MAG)
relief amounting to EUR133 million accounted for in the first
quarter, the group managed for the first time in the past two years
to exhibit an almost break-even EBITDA, pre-IFRS-16 according to
company definition, reaching negative EUR5 million. Considering the
company's high interest expense coupled with pick-up in capital
expenditure (capex), Areas' free operating cash flow remains
negative but contained, paving the way to the recovery.
S&P said, "We forecast normalizing operating performance over
2022-2024, supported by general recovery and continued tight cost
management. In our base-case scenario, we forecast the group's top
line to recover to about three-quarters of 2019 levels by end-2022,
with a full recovery by 2024. Areas will benefit from its
diversified business model in rail, road and air travel,
translating in a stronger resilience of the company against other
peers. During the pandemic, the group enacted cost-reduction
initiatives, of which some will be recurrent and help the business
recover its profitability level quicker than its top line. Areas
made significant improvements in efficiency, IT rationalization,
and labor reorganization. While 2022 and 2023 recovery prospects
are blurred by a still-uncertain environment characterized by
geopolitical tensions, rising commodity prices, and continuing
COVID-19-related disruptions (for instance, with the ongoing
lockdowns in China), all of which could affect the group on both
its topline and cost structure, we still foresee a recovery in
earnings. At the same time, we note the pressure on margins and,
particularly, cash flow due to rapidly rising energy and personnel
costs and the phasing out of relief on concession fee payments
granted during the height of the pandemic disruption. As passenger
traffic gains momentum and revenue evens out across locations, we
consider that Areas will gradually raise its EBITDA margin to
pre-pandemic levels and better absorb operating costs' inflation.
We estimate that by end-2024, the group will reach annual revenues
of EUR1.8 billion-EUR2.0 billion and S&P Global Ratings-adjusted
EBITDA margin of 21.0%-22.0% (post IFRS-16).
"We expect full recovery of motorway traffic in 2022, taking at
least two additional years for railways and air traffic. We think
that the disruption to rail, road, and air passenger traffic caused
by the COVID-19 omicron variant will be short-lived, and that
positive traffic momentum will resume in second-quarter 2022,
picking up pace in the summer. We recently revised our forecast of
airline traffic owing to the rapid spread of omicron cases
depressing passenger volumes in the first quarter of 2022. We now
anticipate European airline traffic in 2022 will reach 50%-65% of
the 2019 level rather than 60%-75% as of November 2021, 70%-85% in
2023 and 85%-95% in 2024. Both rail and road passenger traffic were
more resilient during the pandemic but we only we expect a quicker
recovery for motorways, namely returning to pre-pandemic levels by
2022, but we do not expect long distance travel to recover to 2019
levels before 2024. Nevertheless, the recovery of passenger traffic
depends heavily on general health conditions. Also, rising fuel and
personnel costs will make travel more expensive, stalling the
prospects of passenger traffic reaching its 2019 level sooner than
2024 globally. Even if the recovery expectations of air and rail
traffic for 2024 are relatively uncertain, we believe airport and
railway operators will accommodate more flexible contractual terms
to allow travel retailers to operate sustainably, because they are
a key avenue of earnings for them, as demonstrated during the
pandemic.
"The concession fee structure and accounting will affect the
historical comparability of some of Areas' credit metrics. We
estimate total concession fees will account for 10%-12% of Areas'
revenue in 2022, and 18%-19% in 2023 and 2024. These expectations
include MAG relief and savings. In addition, although we expect
that the variable component of concessions fees will take a higher
share versus MAG payments compared with the pre-pandemic split for
the next three years, we believe it will normalize by 2024. While
variable payments are included in operating expenses, MAG payments
are treated as akin to leases in the audited accounts and under our
methodology. A higher share of variable fees will constrain
operating profitability margins over our 2022-2024 forecast period.
Considering both antagonist accounting effects, we expect the
EBITDA margin to be distorted over the next three years. At the
same time, Areas' credit metrics will reflect the likely lower
level of lease liabilities on its balance sheet, representing
capitalized MAGs. In our forecast, we estimate relatively stable
adjusted debt of EUR2.3 billion-EUR2.5 billion over 2022-2024.
However, depending on the timing of the contract wins, losses, and
renewals; and the terms of the concession contracts prevailing at
any one time, the group's lease liability position can change
significantly by year."
The air passenger traffic and travel retail path to recovery
depends on the pandemic, geopolitical developments, and their
economic effects. S&P Global Ratings acknowledges a high degree of
uncertainty about the extent, outcome, and consequences of the
military conflict between Russia and Ukraine. Irrespective of the
duration of military hostilities, sanctions and related political
risks are likely to remain in place for some time. Potential
effects could include dislocated commodities markets--notably for
oil and gas--supply chain disruptions, inflationary pressures,
weaker growth, and capital market volatility. As the situation
evolves, S&P will update its assumptions and estimates
accordingly.
Liquidity will remain sufficient over the next three years, but the
absence of positive operating free cash flow and the capital
structure's sustainability remain a risk. Throughout the pandemic,
the company managed to keep solid liquidity to continue operating
the business without any liquidity shortage. Coupled with tight
cash management, the group issued a couple of state-backed loans
totaling about EUR215 million of additional funds. S&P Said, "With
operations returning to solid levels, we believe that a liquidity
crunch is unlikely. Nevertheless, considering absolute EBITDA only
returning to pre-pandemic levels in 2023-2024 together with
additional debt raised, Areas' capital structure will remain under
pressure, although on the deleveraging path, over the next three
years with financial leverage (defined as financial debt divided by
pre-IFRS-16 EBITDA) only decreasing below 9x in 2024. We expect
negative free operating cash flow in the EUR75 million-EUR75
million range after full concession payments in 2022 and EUR30
million-EUR50 million in 2023, marginally depleting cash balances,
before operations normalize in 2024 with about break-even free cash
flow. Until the group demonstrates a material and sustainable
recovery of its pre-IFRS 16 EBITDA, we see risks of the capital
structure becoming unsustainable. That said, the group term loan B
is only due in 2026, giving time to the company to improve leverage
metrics, even if full recovery is not fully met by 2024. The
deleveraging would rely on a full sector recovery and prudent
financial policy from the sponsor."
S&P said, "The positive outlook reflects our expectation that
Areas' operating performance will continue to recover in fiscal
2022, on overall traffic recovery as well as continued tight cost
management, enabling deleveraging toward 7.0x-8.0x (excluding the
EUR133 million MAG relief related to fiscal years 2020 and 2021)
and its liquidity will stay adequate. At the same time, the
reported FOCF after full concession payments, albeit still negative
in fiscal 2022 and fiscal 2023, will consistently improve and reach
almost break-even by fiscal 2024.
"We could raise our rating if the company performs in line with our
base-case assumptions over the coming 12 months, with a clear path
to deleverage sustainably below 8.0x in the following 12 months
with prospects of FOCF after full concession payments turning
positive by 2024, thereby underpinning long-term sustainability of
the capital structure. This would happen if traffic continued to
recover, and Areas adjusted its costs mitigating inflationary
pressures. An upgrade is also contingent on the group maintaining
adequate liquidity."
S&P could consider a negative rating action in the next 12 months
if:
-- Areas' operating performance doesn't recover in line with S&P's
base-case assumptions, due to economic headwinds from the
Russia-Ukraine conflict in the form of inflationary pressures
reducing leisure travel, higher energy bills, or new travel
restrictions;
-- FOCF after full concession payments is weaker than anticipated
and remains negative for a prolonged period, weakening the group's
liquidity position and putting additional strain on its capital
structure; or
-- S&P viewed Areas as unlikely to be able to refinance as its
maturities draw closer, or if it were to launch a restructuring
transaction it considered distressed. This could include a company
voluntary agreement or buying back portions of its debt
instruments.
ESG credit indicators: To E-2, S-3, G-3; From E-2, S-4, G-3
S&P said, "Social factors are now a moderately negative
consideration in our credit rating analysis of Areas. Because of
strict travel and mobility restrictions during the pandemic, the
group encountered a revenue decrease of 46% in fiscal 2020 and 56%
in fiscal 2021 versus fiscal 2019, with S&P Global Ratings-adjusted
EBITDA at EUR97 million in fiscal 2020 and EUR183 million in fiscal
2021 leading to severely negative FOCF in both years. Considering
the recovery of air, rail, and motorway traffics, we expect the
group to return to pre-pandemic EBITDA margin level and positive
FOCF by 2024." At the same time, although the extreme disruption
due to the pandemic is a likely one-off, the group's higher
reliance on air passenger traffic compared with the general retail
sector increases its exposure to global or regional disease
outbreaks, terrorist attacks, and other health and safety risks.
=====================
S W I T Z E R L A N D
=====================
CLARIANT AG: Moody's Confirms 'Ba1' CFR & Alters Outlook to Stable
------------------------------------------------------------------
Moody's Investors Service confirmed the Ba1 corporate family rating
of Clariant AG, the Ba1-PD probability of default rating and the
Ba1 ratings assigned to its CHF160 million senior unsecured Swiss
Bonds due in 2024 and CHF175 million senior unsecured Swiss Bonds
due in 2022. The outlook has been revised to stable from ratings
under review.
This rating action concludes the review for downgrade initiated on
February 23, 2022.
RATINGS RATIONALE
The rating action follows Clariant's announcement[1] that the
investigation of accounting issues related to provisions and
accruals has been concluded. Clariant's Board of Directors has
determined the need for a restatement of the 2020 financial
statements and corrections to the quarterly reporting of key
financial data for 2020 and 2021. However, Clariant's guidance from
the announcement of the investigation in February 2022, that the
results of the investigation will not impact the cash and cash
equivalents reported in the years under review, has been affirmed.
Moody's stated previously that a confirmation of the Ba1 ratings is
likely if the investigation is concluded swiftly thus preventing
the company from losing access to the debt and equity markets; and
if the financial effect remains as limited.
Clariant stated that the preliminary corrected 2020 figures result
in a continuing operations EBITDA of CHF597 million compared to the
previously reported CHF578 million and a corresponding EBITDA
margin of 15.5% compared to the previously reported 15.0%. Clariant
also expects a continuing operations EBITDA of CHF708 million for
2021 and a corresponding EBITDA margin of 16.2%. Despite lower
reported EBITDA in Q2 2021 and Q3 2021 than prior to the results
restatement, Clariant indicated that it ended the year 2021 with
strong revenue and EBITDA generation in Q4 2021 with revenue of
CHF1,242 million and company's reported EBITDA of CHF203 million.
Based on Clariant's preliminary sales and EBITDA for 2021, the
rating agency projects that the company's Moody's-adjusted EBITDA
to Debt metric has improved to 3.8x at the end of 2021 compared to
an estimated 4.2x in 2020. As such, Clariant was at the end of 2021
more adequately positioning within the Ba1 rating especially after
Clariant received in January 2022 proceeds of CHF615 million from
disposal of the pigments segment. Moody's decision to confirm the
Ba1 ratings was also supported by Clariant's continued access to
the equity market as the company was granted an extension by the
Swiss regulator to publish the Integrated Report 2021, including
restated 2020 figures, by no later than June 15, 2022.
However, the correction of quarterly key financial data and the
requirement to restate the 2020 consolidated financial statements
clearly indicate governance and internal control deficiencies,
which the company has started to address. The rating agency also
highlights the risk that potential legal proceedings related to the
accounting issues could have a negative financial impact in future
years.
While Clariant ended the year 2021 with strong financial results
and also indicated a good start into 2022 with sales growth in Q1
2022, which will have a positive impact on the company's
profitability despite variable cost increases and supply chain
uncertainties, Moody's believes that short term prospects for 2022
are more mute due to heightened geopolitical risks driven by
Russia's invasion of Ukraine. The rating agency understands that
Clariant's direct exposure to Russia and Ukraine is very small but
expects the company to be impacted by rising raw material and
energy cost. Accordingly, Moody's has downward adjusted its base
case projections with Clariant's Moody's adjusted EBITDA for 2022
now forecasted at CHF725 million compared to the previous forecast
of CHF777 million. However, this still represents earnings growth
compared to 2020 and 2021.
RATIONALE FOR STABLE OUTLOOK
The stable outlooks is driven by Moody's view that Clariant's is
more adequately positioned in the Ba1 rating at the end of 2021 and
that it will be able to pass on rising raw material and energy cost
thereby preventing a decline of its Moody's adjusted EBITDA
generation in 2022-23. The stable outlook also assumes that
Clariant will successfully strengthen its governance and control
procedures.
LIQUIDITY
Moody's considers Clariant to have strong liquidity with an
estimated current cash position of over CHF1 billion including the
CHF615 million from the Pigments transactions. In addition, the
company has a CHF445 million committed revolving credit facility
maturing in December 2023. This facility was undrawn at the last
reporting date on June 30, 2021. Moody's understands that the
company retains full access to the credit facility despite the
delayed publication of audited financial statements.
ESG CONSIDERATIONS
Corporate governance considerations were among the key drivers of
this action, reflecting the conclusion of the internal
investigation into accounting issues. Despite the conclusion and
the limited financial impact from the restatement of the 2020
consolidated financial statements and the quarterly unaudited key
financial data for Q1 2020 – Q3 2021, Moody's considers the
weakness of Clariant's controls and processes, which led to over-
or understated provisions or accruals, as highly negative under the
rating agency's governance assessment. Moody's will monitor the
effectiveness of the remedial actions currently initiated by
Clariant.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Sustained positive free cash flow (FCF) generation, leading to a
permanent reduction in the company's leverage and improvement in
financial metrics, including retained cash flow (RCF)/net debt in
the mid-20s in percentage terms and Moody's-adjusted total debt/
EBITDA below 3.0x, would support an upgrade to an investment-grade
rating. Tangible evidence of improved governance and internal
control processes and procedures would also be required for an
upgrade to investment grade.
The Ba1 rating would face downward pressure if Clariant increases
its leverage significantly, with Moody's-adjusted gross debt/EBITDA
above 4x and RCF/adjusted net debt below 20% on a sustained basis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemical
Industry published in March 2019.
COMPANY PROFILE
Headquartered in Muttenz, Switzerland, Clariant AG (Clariant) is a
leading international specialty chemicals group with three core
businesses: Care Chemicals, Catalysis and Natural Resources. As of
LTM June 2021, excluding discontinued operations, Clariant
generated Moody's-adjusted EBITDA of CHF653 million on revenue of
CHF3.95 billion.
===========================
U N I T E D K I N G D O M
===========================
BOPARAN HOLDINGS: Moody's Cuts CFR & Sr. Sec. Notes Rating to Caa1
------------------------------------------------------------------
Moody's Investors Service has downgraded UK-based food manufacturer
Boparan Holdings Limited's (Boparan or the company) corporate
family rating to Caa1 from B3 and probability of default rating to
Caa1-PD from B3-PD. Concurrently, Moody's downgraded the ratings on
the GBP50 million backed senior secured notes and the GBP475
million backed senior secured notes issued by Boparan Finance plc
to Caa1 from B3. The outlook on all ratings was changed to stable
from negative.
RATINGS RATIONALE
The downgrade of Boparan's ratings to Caa1 reflects the increased
challenges to improving its weak credit metrics due to the more
difficult operating environment with high inflation, cost increases
and squeezed consumers.
The company's operating performance has significantly deteriorated
over the last 12 months and continued cost pressures in the sector
create uncertainty around the timing and ability of the company to
achieve a sustained recovery in EBITDA and cash flow generation.
The company's Moody's adjusted EBITDA fell to GBP66 million in last
twelve month (LTM) to January 2021 (Q2 fiscal 2022) compared with
GBP82 million in the fiscal year 2021, ending July, and with GBP107
million in fiscal 2020, pro-forma for the Fox's Biscuits disposal.
This reduction was driven by higher input costs and labour
shortages, which have been negatively affecting the food production
sectors this year.
Moody's recognises that the company has executed a number of
measures to restore profitability and cash flow generation
including price increases, efficiency savings and SKU optimisation.
As a result, the rating agency expects significant improvement in
the company's EBITDA in Q3 and Q4 with total Moody's adjusted
EBITDA recovering to approximately GBP70- GBP80 million in fiscal
2022 following only GBP17 million in the first half of the year.
However, following the start of Russia-Ukraine military conflict,
prices for the key feed ingredients, including wheat, corn and soya
have significantly increased from already high levels. This may
create additional pressure on the company's margins and delay or
constrain EBITDA recovery in fiscal 2023. More positively,
Boparan's poultry operations benefits from a degree of protection
from higher input prices because approximately 70% of UK poultry
sales have contractual pass-through arrangements for key poultry
feedstock including currency impact, albeit with a time-lag of
approximately one quarter. Moody's understands that the company has
been working with its customers to allow for quicker pass-throughs
and achieve further price increases.
In addition, rising inflation and increasing risks of economic
slowdown in the UK and EU has dented consumer confidence and may
negatively affect population's purchasing power and consumption.
Although Moody's expects demand for poultry, which is one of the
cheapest sources of protein, to be reasonably resilient, there is a
risk of consumers trading down to less processed and less
profitable SKUs.
As a result of the weaker operating performance the company's
Moody's-adjusted leverage, measured as adjusted debt to EBITDA
reached 11.3x in January 2022. This compares to around 7x leverage
in fiscal 2020 pro forma for the Fox disposal and refinancing. The
rating agency expects Boparan's leverage to remain elevated in
fiscal 2022 at 8x-9x before gradually improving towards 7x in
fiscal 2023. Other credit metrics are expected to remain weak over
the next 12-18 months, with EBITA/Interest remaining below 1x and
negative free cash flow after pension contributions. The company's
EBIT margin deteriorated to -2% LTM Q2 fiscal 2022 on a
Moody's-adjusted basis. Moody's expects this margin to recover to
around 1%-1.5% in the next 12-18 months, a still low level which
reflects the highly commoditised nature of the poultry industry.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
The poultry sector is exposed to avian flu outbreaks, campylobacter
and food scares. Historically Boparan's production was disrupted by
outbreaks of this nature which also resulted in the need for
additional investments to ensure health and safety. The coronavirus
pandemic also added extra challenges to the business as Boparan
needs to maximise output to meet increased demand while ensuring
social distancing measures are followed and all employees are
safe.
The company's owner, Ranjit Boparan, is directly involved in
running the business and in the past has held several different
positions within the group, including CEO, President and, most
recently, a Commercial Director for the UK Poultry business.
LIQUIDITY
Boparan's liquidity is seen as relatively weak. The company had
GBP55 million cash on its balance sheet as of January 2022 and also
had access to GBP25 million undrawn portion of the GBP80 million
super senior revolving credit facility (RCF). The main cash
outflows include approximately GBP50 million annual interest,
GBP30-35 million of pension contributions in fiscal 2023, GBP40-45
million annual capital expenditures, including leases. Moody's also
notes significant working capital fluctuations within the year and
expect approximately GBP10-15 working capital outflow per annum,
resulting in total negative free cash flow after pensions of
approximately GBP30-40 million during in fiscal 2023.
The backed senior secured notes are covenant-lite while the RCF
benefits from a minimum EBITDA covenant of GBP75 million which is
temporary reduced to GBP50 million until April 2022. The covenant
is tested on a quarterly basis and Moody's expects the headroom to
be limited in Q3 and Q4 of fiscal 2022.
STRUCTURAL CONSIDERATIONS
The group's debt capital structure consists of GBP475 million of
backed senior secured notes and GBP50 million backed senior secured
mirror notes due November 2025 rated in line with the CFR at Caa1
and a GBP80 million super senior RCF as well as the GBP10 million
super senior term loan both due in January 2025. All the
instruments are issued on a senior pari passu basis, secured with
the floating charge on the UK poultry business and guaranteed by
operating subsidiaries accounting in aggregate for around 90% of
EBITDA as of the issuance date. However, the RCF and the term loan
benefit from a first priority on enforcement pursuant to the
intercreditor agreement, and hence are effectively senior to all
the group's other debt including the notes.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectations that Boparan will
gradually improve its profit and cash flow generation over the next
12-18 months as well as its liquidity position.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded in case of sustained improvement in
operating performance, leading to (1) a Moody's-adjusted
debt/EBITDA reducing sustainably below 7x; (2) a Moody's-adjusted
EBITA interest coverage comfortably above 1x; and (3) an improved
liquidity profile including positive free cash flow generation
after pension contributions.
Conversely, the ratings could be downgraded in the event of
continued deterioration in operating performance and/or liquidity,
including further deterioration in free cash flow generation after
pension contributions. Moody's will also consider downgrading the
ratings if is an increasing likelihood of debt restructuring or
refinancing risk.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Protein and
Agriculture published in November 2021.
PROFILE
Boparan Holdings Limited is the parent holding company of 2 Sisters
Food Group, one of UK's largest food manufacturers with operations
in poultry and ready meals among other things. The group reported
revenues of GBP2.6 billion in its fiscal 2021.
CMS ENVIRO: Enters Administration, Taps Alvarez & Marsal
--------------------------------------------------------
Grant Prior at Construction Enquirer reports that building envelope
specialist CMS Enviro Systems has gone into administration.
According to Construction Enquirer, joint administrators from
Alvarez & Marsal are now in charge of the business which traded as
CMS Group from its head office in Cumbernauld.
Latest accounts filed at Companies House show for the year to March
31, 2020, CMS had a turnover of GBP45.3 million generating a
pre-tax profit of GBP407,602 compared to GBP39 million and GBP4.1
million, respectively, the year before, Construction Enquirer
discloses.
The company employed 324 staff in 2020.
CVC CORDATUS XXIII: Fitch Assigns B- Rating on Class F Debt
-----------------------------------------------------------
Fitch Ratings has assigned CVC Cordatus Loan Fund XXIII DAC final
ratings.
DEBT RATING
---- ------
CVC Cordatus Loan Fund XXIII DAC
A-1 XS2441239618 LT AAAsf New Rating
A-2 XS2455336169 LT AAAsf New Rating
B-1 XS2441239881 LT AAsf New Rating
B-2 XS2441240038 LT AAsf New Rating
C XS2441240202 LT Asf New Rating
D XS2441240467 LT BBB-sf New Rating
E XS2441240624 LT BB-sf New Rating
F XS2441240970 LT B-sf New Rating
Subordinated XS2441241275 LT NRsf New Rating
X XS2441239451 LT AAAsf New Rating
TRANSACTION SUMMARY
CVC Cordatus Loan Fund XXIII DAC is a securitisation of mainly
senior secured obligations (at least 90%) with a component of
senior unsecured, mezzanine, second-lien loans and high-yield
bonds. Note proceeds have been used to purchase a portfolio with a
target par of EUR500 million.
The portfolio is actively managed by CVC Credit Partners Investment
Management Limited (CVC). The collateralised loan obligation (CLO)
has an approximately 4.5-year reinvestment period and an
eight-and-a-half-year weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors in the 'B'/'B-' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 25.47.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is
60.94%.
Diversified Portfolio (Positive): The transaction includes four
Fitch matrices, two of which were effective at closing. These
correspond to a top 10 obligor concentration limit at 23%, two
fixed-rate asset limits of 7.5% and 15.0%, and an 8.5-year WAL. The
other two can be selected by the manager at any time from one year
after closing as long as the portfolio balance (including defaulted
obligations at their Fitch collateral value) is above the
reinvestment target par and corresponds to a top 10 obligor
concentration limit at 23%, two fixed-rate asset limits of 7.5% and
15.0%, and a 7.5-year WAL.
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 the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has an
approximately 4.5-year reinvestment period and includes
reinvestment criteria similar to those of other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction's
matrix and stressed portfolio analysis is 12 months less than the
WAL covenant. This reduction to the risk horizon accounts for the
strict reinvestment conditions envisaged by the transaction after
its reinvestment period. These include, among others, passing the
coverage tests, Fitch WARF test and the Fitch 'CCC' bucket
limitation test, together with a progressively decreasing WAL
covenant. In the agency's opinion, these conditions reduce the
effective risk horizon of the portfolio during stress periods.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings
would result in a downgrade of up to four notches.
Downgrades may occur if the loss expectation is larger than
initially assumed, due to unexpectedly high levels of defaults and
portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the RDR across all ratings and a 25% increase in
the RRR across all ratings would result in up to two notches
upgrade across the structure except for 'AAAsf' rated notes, which
are already at the highest rating on Fitch's scale and cannot be
upgraded.
Upgrades may occur on better-than-expected portfolio credit quality
and deal performance, leading to higher credit enhancement and
excess spread available to cover for losses in the remaining
portfolio.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
DATA ADEQUACY
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.
JOHN W DAVIES: SRA Intervenes Following Liquidation
---------------------------------------------------
John Hyde at The Law Society Gazette reports that the SRA has
intervened into south Wales firm John W Davies Legal Ltd that had
entered liquidation.
The regulator said its intervention was necessary to protect the
interests of clients and former clients of the company, which had
offices in Newport and Chepstow, The Law Society Gazette relates.
The intervention also applies to the firm's sole remaining
director, Danielle Evans, The Law Society Gazette notes.
According to Companies House records, the firm was placed into
voluntary liquidation in March and a resolution to wind up the
business was made soon after, The Law Society Gazette states.
A statement of affairs published by liquidator Ruth Ellen, of
insolvency practice Maxwell Davies, stated that John W Davies Ltd
had work in progress worth around GBP389,000 at the time of going
out of business, but this is expected to realize nothing, The Law
Society Gazette discloses.
Based on the assets of the business, there will be just GBP17,000
available for preferential creditors -- not enough even to cover
the wage arrears, holiday pay and pension payments owed to staff,
which come to around GBP28,000, The Law Society Gazette says.
The total owed to unsecured creditors comes to GBP1.22 million, of
which around GBP500,000 is due to trade creditors, GBP280,000 is
outstanding professional indemnity insurance and GBP204,000 is
unsecured claims from employees, The Law Society Gazette
discloses.
On its website, John W Davies Solicitors said that it was no longer
authorised and regulated to carry out reserved legal activities
from January 31 this year, The Law Society Gazette notes.
According to The Law Society Gazette, the firm said: "The decision
to close the practice has come because of several factors, the
increase in running costs, particularly the professional indemnity
insurance premium which has increased significantly and the ripple
effect of Covid-19."
John W Davies Solicitors was founded in 1927 and claimed to be the
oldest, established law firm in south Wales of its original name.
It specialised in residential and commercial conveyancing, family
law, wills, probate and trusts.
REACH ALIVE: Sole Director Banned Following Liquidation
-------------------------------------------------------
The Insolvency Service on May 11 disclosed that Eunice Gill
Dzodzome (32) was appointed sole director of Reach Alive Limited at
the same time the company was incorporated in September 2015.
Trading from premises in Bow, East London, Reach Alive provided
financial consultancy services but entered into creditors'
voluntary liquidation in July 2021.
Reach Alive's insolvency, however, triggered an investigation by
the Insolvency Service before investigators uncovered that Eunice
Dzodzome had submitted a false Bounce Back Loan application.
To be eligible to claim a Bounce Back Loan, businesses were
required to have been trading by March 1, 2020 and continuing to
trade when submitting the application.
However, at the time Eunice Dzodzome applied for a bounce back loan
on August 17, 2020, Reach Alive was not trading and dormant
accounts were filed for the year ending September 2020.
On the application, Eunice Dzodzome stated her company had been
trading when it was dormant, while also exaggerating a GBP200,000
turnover when accounts for the year ending September 2019 revealed
turnover was closer to GBP19,000.
Further enquiries found that Eunice Dzodzome's company Reach Alive
Ltd received a GBP45,000 Bounce Back Loan of which she transferred
GBP40,000 into her personal account, which she invested in
cryptocurrency. Of the remaining loan, GBP2,000 was paid to Eunice
Dzodzome as a director's loan and GBP3,000 used as an advance
payment towards her company's liquidation.
Investigators concluded that Eunice Dzodzome breached the
conditions of the government-backed loan that should have been used
to support the business through the pandemic and not for personal
use.
On April 12, 2022, the Secretary of State for Business, Energy and
Industrial Strategy accepted an 11-year disqualification
undertaking from Eunice Dzodzome.
Effective from May 3, 2022, Eunice Dzodzome is disqualified from
acting as a director of a company and from directly, or indirectly,
becoming involved in the promotion, formation or management of a
company, without the permission of the court.
Lawrence Zussman, Deputy Head of Insolvent Investigations, said:
"Eunice Dzodzome blatantly abused the Government's bounce back
loan, which was meant to provide a vital lifeline to businesses
during the pandemic so they could bounce back."
"Eleven years is a substantial amount of time to be removed from
the corporate area and the severity of Eunice Dzodzome's
disqualification should serve as a stark warning to others that we
will tackle those offenders who think they can abuse their
responsibilities and ultimately the taxpayer."
RH WHOLESALE: Director Suspended Following Liquidation
------------------------------------------------------
The Insolvency Service on May 11 disclosed that Roy Hayes from
Manchester appeared at Manchester Magistrates Court on April 22,
2022, where he received a 6-month sentence, suspended for two
years.
He was also ordered to pay GBP3,600 in costs, GBP115 victim
surcharge and was given an additional 4-year disqualification.
The court heard that Mr. Hayes (72) was the director of RH
Wholesale Limited, which traded as a meat wholesaler.
RH Wholesale, however, entered into liquidation in August 2016 with
outstanding debts owed to creditors worth more than GBP92,000.
Mr. Hayes was required to deliver up the company's books and
records to the Liquidator. But the wholesaler failed to do so and
blamed it on having left the paperwork at RH Wholesaler's trading
premises before the landlord disposed of them.
This was denied by the landlord and without the company records,
the liquidator was unable to verify what happened to the company's
tangible assets, debts worth GBP120,000 and confirm the accuracy of
the company's balance sheet.
Mr. Hayes accepted a 6-year director disqualification in January
2018 but due to the criminal nature of his misconduct was later
charged with one count against the Insolvency Act 1986.
Julie Barnes, Chief Investigator for the Insolvency Service, said:
"All company directors have legal responsibilities when going
through insolvency procedures, including delivering up company
books and records, and it was Roy Hayes' obligation that he
dutifully carried them out."
"However, Roy Hayes flagrantly disregarded his duties and his
sentence should serve as a warning that we will investigate and
prosecute such offenders and bring them to justice."
*********
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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or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
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