/raid1/www/Hosts/bankrupt/TCREUR_Public/220614.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, June 14, 2022, Vol. 23, No. 112
Headlines
A U S T R I A
AMS-OSRAM AG: Fitch Alters Outlook on 'BB-' IDR to Positive
C Y P R U S
GEOPROMINING INVESTMENT: Fitch Affirms & Withdraws 'B' IDR
G E O R G I A
BANK OF GEORGIA: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
PROCREDIT BANK: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
TBC BANK: Fitch Affirms LongTerm Issuer Default Rating at 'BB-'
G E R M A N Y
GAZPROM GERMANIA: Germany Draws Up Multibillion Rescue Package
I R E L A N D
ARDAGH METAL: Fitch Assigns 'BB' Rating on USD600MM Notes Due 2027
WILLOW PARK: Moody's Affirms B2 Rating on EUR13MM Cl. E Notes
L U X E M B O U R G
FINASTRA LIMITED: Fitch Cuts LongTerm IDR to 'B-', Outlook Negative
S P A I N
BBVA CONSUMER 2022-1: Moody's Assigns (P)Ba3 Rating to Cl. E Notes
T U R K E Y
TEB FINANSMAN: Fitch Affirms 'B/B+' LongTerm Currency IDRs
U N I T E D K I N G D O M
DERBY COUNTY FOOTBALL: Concerned Raised on Takeover Media Coverage
OAK FOREST: Three Directors Banned Over "Questionable Agreements"
TFS LOANS: Faces GBP800,000 Fine Over Lending Practices
WESTFIELD SPORTS: Enters Administration, Seeks Potential Buyers
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A U S T R I A
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AMS-OSRAM AG: Fitch Alters Outlook on 'BB-' IDR to Positive
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Fitch Ratings has revised the Outlook on ams-OSRAM AG's Long-Term
Issuer Default Rating to Positive from Stable and affirmed the IDR
and senior unsecured rating at 'BB-'. Fitch has also assigned the
company's senior unsecured rating a Recovery Rating of 'RR4'.
The revision of the Outlook to Positive reflects the continual
improvement in the company's capital structure over 2021 and 2022,
resulting from debt repayment and increased underlying earnings.
Fitch believes the company will continue to de-lever in the short
to medium term, improving its headroom under the 'BB-' rating, as
deployment of the expected strong cash generation is likely to be
prioritised towards debt repayment and reinvestment in the business
ahead of shareholder-friendly actions.
The ratings reflect the group's good market positions in the
sensors segment, sound cash generation capacity and strong
liquidity position. Fitch also notes the material de-risking of the
company's business profile over the past 12 months via the
successful implementation of synergies following the 2020 OSRAM
acquisition as well as the gradual disposal of underperforming or
non-core assets.
KEY RATING DRIVERS
Leverage Improvement to Continue: Fitch expects the company to
continue de-leveraging in the short to medium term, with both
leverage ratios expected to be around 3.0x at end-2023 and
gradually moving towards 2.5x in subsequent years. At these levels,
Fitch would consider the group's leverage metrics strong for the
rating, supporting the rationale for an upgrade. ams-OSRAM improved
its EBITDA and funds from operations (FFO) leverage ratios at
end-1Q22 to 3.5x and 4.3x, respectively, from 5x and 4.5x,
respectively, at end-2020, as a result of debt repayment and a
gradual rise in underlying earnings.
Successful Integration of OSRAM: ams-OSRAM has successfully
integrated OSRAM over 2021 and 1H22, which was a considerable
challenge for management given the scale of the 2020 purchase. Cost
savings are broadly on target, despite the challenges posed by the
present supply chain and inflation constraints, and the disposal of
non-core OSRAM assets will aid operating margin improvement. Fitch
expects that by end-2022, the company's portfolio realignment
actions will be close to complete, allowing management to fully
focus on extracting operational improvements and further strategic
steps.
Improved Diversification: ams-Osram considerably improved the
diversification of its end-market exposure through the OSRAM
acquisition and meaningfully reduced the share of revenue from the
cyclical consumer market. Chiefly related to touch-screen
electronics products, this market represented over 80% of total
revenue pre-OSRAM acquisition, but this will decline to around 30%
in 2022 with the automotive and Industrial & Medical end-markets
responsible for a broadly equal share of the remaining revenue.
Strong, Stable Earnings and Cash Flows: Fitch expects the company's
EBITDA margin (18% in 2021) to come under some short-term pressure
from supply chain constraints and cost inflation, which Fitch
expects to be partly offset by continuous synergy extractions and
the elimination of under-performing businesses. In the medium term,
Fitch expects this ratio to reach 20% and to continue to gradually
rise in subsequent years as the company focuses on cost reduction
and higher margin products. Similarly, the FFO margin (12.7% in
2021) is expected to rise to around 15% in the medium term and
towards 20% in the long term. Both these margins are already strong
for the current rating.
The company's ability to generate a sustained strong level of free
cash flow (FCF) will be key to an upgrade. The FCF margin was 6% in
2021 and is expected to remain broadly stable in the 5%-8% range
through the middle of the decade. Underpinning Fitch's assumptions
are the continued improvement in the operating cash flows, broadly
stable working capital flows, capex intensity of around 8% - 9% per
year and maintained shareholder return discipline, with no
dividends built into Fitch's rating case in the coming three to
four years.
Good Structural Dynamics in Semiconductor Market: ams-OSRAM is well
positioned to benefit from the good structural demand dynamics in
the semiconductor markets. Through its existing positions and
investment plans, the company stands to be a market leader in many
existing and future applications in the automotive, consumer,
industrial and medical sectors.
OSRAM Ownership Structure Not Rating Negative: The rating factors
in Fitch's assumption that ams's ownership stake in OSRAM will not
materially change from the current c.80% in the short to medium
term. This will lead to cash leakage from paying fixed dividends to
OSRAM minority shareholders of around EUR53 million from 2022 and
therefore lower margins (the EBITDA and FFO margin impact is
expected to be around 1%). This will result in a somewhat
structurally weaker financial profile, but in Fitch's view, it will
not have a negative impact on the rating.
DERIVATION SUMMARY
Ams-OSRAM's credit profile is broadly in line with that of
diversified industrial peers rated in the 'BB' category, given the
company's leading share in global automotive and sensor solutions,
reasonable geographic concentration and strong profitability and
cash flow generation. It compares favourably with US technological
'BB' category peers in profitability and cash flow margins, but has
higher leverage and customer concentration.
The closest peers in the diversified industrials sector are KION
GROUP AG and GEA Group AG (both BBB/Stable), which are larger and
more diversified, but have significantly lower profitability, with
EBITDA margins typically closer to around 10%. Leverage at KION and
GEA is usually in the range of 1x-2x, somewhat better than at
ams-OSRAM, and a key rating differentiator.
Microchip Technoloy Inc (BBB/Stable) has better profitability, at
35%-40%, relative to ams-OSRAM's mid-20%, and stronger FFO margins,
supporting a higher tolerance in leverage metrics, which are driven
by acquisitions. STMicroelectronics N.V. (BBB/Stable) has slightly
better FFO margins than ams-OSRAM but a materially lower leverage
profile, with gross and net leverage around 1x and 0x,
respectively.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
-- Revenue growth will be equally driven by the three segments:
Low double digits forecast for automotive growth, high double-
digit growth in consumer products and mid double digit
forecast for the industrial and medical segment;
-- Margin improvement stemming from synergies (EUR120 million +
EUR70 million from footprint) will be slower than expected,
caused by an offset from the increasing price from raw
materials, the supply chain disruption, demand tension;
-- R&D at around 14% of revenue and capex between 8% and 9% per
year between 2022 and 2025;
-- Disposals of non-core OSRAM assets to be completed in 2022 for
around EUR500 million;
-- Repayment of the USD320 million convertible bond in 2022;
-- No dividend payments in the short to medium term.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FCF margin above 5%;
-- Improved diversification of the customer base;
-- Gross debt / EBITDA under 3x;
-- Gross FFO leverage below 3x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FCF margin below 1%;
-- Gross debt / EBITDA above 4x;
-- FFO gross and net leverage above 4x and 3x, respectively.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: At end-1Q22, ams-Osram had EUR1.1 billion of
freely available cash, after adjusting for EUR100 million for
working capital swings and intra-year needs. The company also
benefits from a EUR800 million committed revolving credit facility
with a maturity of 2024 and two 12-month extension options. The
company keeps a high level of cash on its balance sheet as a
contingency in case the remaining OSRAM minority shareholders put
their shares to ams. The value of this potential pay-out is over
EUR860 million, although Fitch does not treat this portion of cash
as restricted, as it does not believe that a meaningful portion of
the minority shares will be put to ams.
In the short to medium term, Fitch expects the company's liquidity
to be boosted by the proceeds from numerous asset disposals, the
sale of a lot of which have already been announced, as well as good
FCF generation, which Fitch expects to be above 5% of revenue on a
sustainable basis.
Debt Structure: ams-OSRAM has a moderately well spread debt
maturity profile. The company has a total of EUR1.3 billion of
convertible bonds, with maturities in 2022, 2025 and 2027, a total
of EUR1.2 billion of senior notes maturing in 2025 and some smaller
promissory notes and unsecured bank facilities totalling around
EUR500 million. The 2022 maturity of the convertible bond (EUR285
million) is expected to be repaid out of cash reserves, while the
2025 maturities totalling EUR1.7 billion, are expected to be at
least partially refinanced. The company has also utilised around
EUR66 million of its EUR95 million factoring facility as at March
2022.
ISSUER PROFILE
Austria-based ams AG designs and manufactures high-performance
sensor solutions for applications requiring the highest level of
miniaturisation, integration, accuracy, sensitivity and lower
power. The company's products include sensor solutions, sensor ICs,
interfaces and related software for mobile, consumer,
communications, industrial, medical, and automotive markets.
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
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ams-OSRAM AG LT IDR BB- Affirmed BB-
senior unsecured LT BB- Affirmed RR4 BB-
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C Y P R U S
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GEOPROMINING INVESTMENT: Fitch Affirms & Withdraws 'B' IDR
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Fitch Ratings has affirmed GeoProMining Investment Limited's (GPM)
Long-Term Issuer Default Rating (IDR) at 'B+' with a Negative
Outlook. Fitch has simultaneously withdrawn all the ratings for
commercial reason.
The Negative Outlook reflects the risk of loss of some gold
reserves at the Zod mine from ongoing negotiations between GPM and
the government of Azerbaijan (BB+/Stable) for access to the mine
and the company's increased exposure to a weakened operating
environment in Russia.
While GPM can withstand the loss of some gold reserves through
diversification and expansion in new projects in Armenia and
Russia, Fitch believes operational and execution risk is set to
increase as a result of the development of new projects and the
company's growing presence in Russia (ramp-up of Verkhne-Menkeche
mine and development of Zhelezny Kryazh mine), where the operating
environment may have a negative impact on its business and
financial profiles.
The rating of GPM reflects its small but increasing scale of
operations, its medium-to-high cost position, and the concentration
of its activities in Russia and Armenia. The rating also reflects
its technological expertise in operating the Albion technology,
resulting in improved gold recovery, satisfactory product
diversification, and a long mine life of 15-18 years.
The rating has been withdrawn for commercial reason. Fitch will no
longer provide rating or analytical coverage of GPM.
KEY RATING DRIVERS
Acquisition Could Prove Transformative: In early 2022 GPM acquired
80% of JSC Industrial Company, which directly owns the majority of
shares of JSC ZMMC, a holder of a license for exploration and
mining of copper and molybdenum ore in Zangezur region of Armenia.
Fitch estimates a consolidation of the new asset in 2022 will
improve GPM's scale and leverage profile, significantly increasing
GPM's EBITDA and reducing funds from operations (FFO) gross
leverage towards 2.5x in 2022 and 2x in 2023 but will add to the
execution risk.
Lower Gold Output in 2021: The Nagorno-Karabakh conflict decreased
GPM's gold output in 2021 by 43% to 84,000oz, due to lower grades
achieved in the Armenian part of the Zod mine, and significantly
reduced EBITDA by 24% yoy to USD121 million. Fitch now expects
GPM's gold production to average 100,000oz in 2022-2023. Post 2023
and absent any agreement, output will significantly decrease and
will depend on the new grades of gold.
Zod Mine Demarcation Ongoing: GPM's Zod mine is next to the
Azerbaijan-Armenia border, where the demarcation process is
ongoing. GPM is operating its processing facility at full capacity
and with full access to its equipment at Zod. Access to the eastern
part of the mine is blocked until the demarcation is finalised. A
permanent loss of access to the Azeri part would have a negative
impact on GPM's mine life and business profile. However, its cash
flow generation ability will be supported by a launch of new
projects in Russia (Verkhne-Menkeche and Jelezniy Kriaj) and by the
consolidation of the Zangezur copper-molybdenum asset.
Unique Technology Advantage: The Zod mine is part of GPM's
subsidiary GPM Gold, which has its ore-processing facility over 170
kilometres away in the town of Ararat. GPM Gold pioneered the
Albion technology at Ararat to process refractory ores from Zod's
deposits. The transportation and processing infrastructure would be
expensive to replicate and no other operator possesses the
technology to efficiently process the ores mined at Zod.
New Metal Aids Diversification, Scale: GPM commissioned its new
project on the Verkhne-Menkeche site in Russia at end-2021 and
production of silver, zinc and lead will ramp up in 2H22. Fitch
expects production from this mine to significantly increase total
output and product diversification, adding around USD70 million of
revenue by 2022 and USD126 million in 2023 or around 30%-35% to
total EBITDA, based on Fitch's metals price assumptions. Its newly
acquired Zangezur copper-molybdenum asset will increase copper and
molybdenum sales and significantly increase GPM's EBITDA once
consolidated from 2022.
Diversification into Iron Ore: GPM has recently acquired a 63.7%
controlling stake in a new iron ore and gold project Siberian
Goldfields, which holds an exploration and mining licence at the
Zhelezny Kryazh site in Russia's Chita region. Fitch estimates this
project will add more than USD100 million in revenue and more than
USD50 million in EBITDA by 2024. Management expect to produce 0.3
million tonnes (mt) of iron concentrate from this open-pit mine
from 2022, ramping up to around 1mt by 2023.
In addition, GPM expects to mine around 20,000oz gold in 2023,
ramping up to above 55,000oz by 2025. Total capex is estimated at
around USD125 million for 2022-2025.
Small Albeit Growing Scale; Satisfactory Diversification: GPM's
small operations generated USD121 million of Fitch-adjusted EBITDA
and 84,000 oz of gold in 2021. This compares with a much higher
production at Nord Gold PLC (1 million oz) or PJSC Polyus (2.8
million oz). New projects and consolidation of the Zangezur mine
and processing plant will significantly improve GPM's scale.
Medium-to-High Cost Position: GPM Gold sits between the second and
the third quartiles of the gold cash cost curve. GPM's EBITDA
margin at the Agarak mill (a copper-molybdenum mine) in Armenia was
51% in 2021 versus 56% at the Sakha region in Russia, which
includes its gold-antimony mines of Sarylakh and Sentachan. Fitch
assesses GPM's overall cash cost position at between the second and
third quartiles.
DERIVATION SUMMARY
GPM's operating profile is closest to GCM Mining Corp (B+/Stable).
It is most similar in scale to GCM but significantly smaller than
First Quantum Minerals Ltd. (B+/Positive) and smaller than Nord
Gold. Its financial structure is stronger compared with 'B' rated
peers'. Its cost position and reserve life are superior to those of
GCM.
KEY ASSUMPTIONS
-- Fitch mid-cycle commodity price assumptions for gold, copper
and zinc;
-- Increase in royalties paid, and mining only on the Armenian
side in 2022-2025;
-- Capex of USD50 million in 2022 and USD90 million in 2023 (pre-
consolidation of the Zangezur asset).
Fitch's Key Assumptions for Recovery Analysis
-- The recovery analysis assumes that GPM would be considered a
going-concern in bankruptcy and that it would be reorganised
rather than liquidated;
-- The going-concern EBITDA reflects the industry's mid-cycle
conditions and GPM's expansion projects;
-- An enterprise value (EV)/EBITDA multiple of 4x incorporates
GPM's weaker operational profile and its exposure to Russian
operating environment;
-- Fitch's waterfall analysis includes senior unsecured debt in
the form of the USD300 million bond. Its USD9.2 million
shareholder loan is subordinated to senior unsecured debt. All
other debt is assumed to be senior to the bonds;
-- After deducting 10% for administrative claims and taking into
account Fitch's Country-Specific Treatment of Recovery Ratings
Rating Criteria, Fitch's waterfall analysis generated a
waterfall-generated recovery computation (WGRC) in the 'RR4'
band, indicating a 'B+' rating for the bond. The WGRC output
percentage on current metrics and assumptions is 50%.
RATING SENSITIVITIES
Not applicable due to withdrawal of ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Fitch expects GPM to generate positive free
cash flow (FCF) in 2022, due to higher output from the Zod mine and
as the processing facility at Verkhne-Menkeche is scheduled to ramp
up in 2H22. According to management, GPM had enough liquidity as of
end-May to cover an upcoming June coupon payment of USD11.6
million.
GPM has no significant upcoming debt maturities, excluding
related-party loans (which Fitch expects GPM will be able to
refinance) until its USD300 million bond matures in June 2024. In
2022 GPM secured a USD120 million project finance loan to finance
the development of its new iron ore-gold mine.
ISSUER PROFILE
GPM is a diversified metals company with operating assets in
Armenia and the far east of Russia. It produces concentrates
including gold, copper, antimony, molybdenum and silver.
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
---- ------ -------- -----
GeoProMining
Investment Limited LT IDR B+ Affirmed B+
LT IDR WD Withdrawn B+
ST IDR B Affirmed B
ST IDR WD Withdrawn B
Karlou B.V.
senior unsecured LT B+ Affirmed RR4 B+
senior unsecured LT WD Withdrawn B+
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G E O R G I A
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BANK OF GEORGIA: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed JSC Bank of Georgia's (BOG) Long-Term
Issuer Default Rating (IDR) at 'BB-', with a Stable Outlook and
Viability Rating (VR) at 'bb-'.
Fitch has withdrawn the bank's Support Rating of '5' and Support
Rating Floor of 'No Floor' as they are no longer relevant to
Fitch's coverage following the implementation of its updated
criteria in November 2021. Fitch has assigned BOG a Government
Support Rating (GSR) of 'no support' (ns).
KEY RATING DRIVERS
BOG's 'BB-' IDR is driven by the bank's standalone profile, as
captured by its VR. The affirmation of the VR at 'bb-' reflects the
bank's market leading franchise, sound financial metrics and
adequate capital buffers. It also considers the bank's highly
dollarised balance sheet and rapid loan growth, particularly in
consumer lending. The Short-Term IDR has been affirmed at 'B' in
line with the mapping to the Long-Term IDR.
Risks to Operating Environment: Georgia's operating environment is
sensitive to external shocks, given the economy's reliance on
commodity exports and remittances (particularly from Russia). Fitch
has revised Georgia's GDP growth estimates for 2022 to 3.2% from
5.8%. The war in Ukraine and resultant international sanctions on
Russia will cause the Russian economy to contract, putting pressure
on Georgia's economy through trade, remittances and tourism
channels. Dollarisation in the banking sector is high, as is
Georgia's external debt. A robust regulatory and legal framework
adds to the Georgian banking sector's resistance to operating
environment pressure.
Strong Domestic Franchise: BOG operates a universal banking model
in Georgia, providing loans to consumers (predominantly mortgages),
corporates, and SMEs and micro enterprises. Deposits are the core
source of funding (71% of end-2021 liabilities), supplemented by
wholesale borrowing largely from international financial
institutions (IFI). The bank's scale (end-2021: 36% of sector
loans) and strong financial metrics provide sufficient headroom to
navigate through a potential deterioration in the Georgian
operating environment.
Diversified Loan Book: BOG has a balanced loan book with 44% of
loans to households, 33% to corporates and 23% to micro and SMEs.
FX-adjusted loan growth increased to 20% in 2021 (2020: 10%). Post-
pandemic recovery was particularly rapid in the consumer lending.
The 25 largest corporate loans amounted to a moderate 107% of Fitch
Core Capital (FCC)).
At end-2021, 52% of loans were foreign-currency (FC) denominated,
broadly in line with the market average. The majority of borrowers
are not hedged, which increases asset quality risks in the case of
local currency weakening. The share of FC lending has been
declining in retail (33%), helped by the regulatory tightening.
Limited supply of long-term lari funding is slowing down
de-dollarisation of the sector.
Asset Quality Pressures: Impaired (Stage 3) loans ratio decreased
to 4.2% at end-2021 (end-2020: 5.2%) and Stage 2 loans ratio
improved to 7.1% (end-2020: 9.3%). The improvements stem from
accelerated loan growth and post-pandemic recovery. However, asset
quality risks have increased, given heightened macroeconomic
uncertainty and significant exposures to vulnerable sectors such as
real estate and construction (9% of gross loans at end-2021) and
tourism (6%). Impaired loans were only moderately covered by loan
loss allowances at 60% reflecting the bank's reliance on
collateral.
Strong Profitability: Operating profit improved to 4.3% of
risk-weighted assets (RWA) in 2021 from 2.4% in 2020 driven by an
increase in net interest income and minimal loan impairment charges
(LIC). Fitch expects profitability to remain reasonable, but to
moderate in 2022, as operating costs increase (due to inflation)
and the net interest margin stabilises. Robust pre-impairment
profitability (2021: 5.3% of average loans) provides a sound buffer
to absorb LIC, which Fitch expects to increase in 2022, driven by
macroeconomic risks.
Healthy Solvency Metrics: BOG's FCC ratio remained stable at 15.0%
at end-2021, with internal capital generated used to support
increased loan growth.
At end-2021, BOG's regulatory common equity Tier 1 (CET1), Tier 1
and total capital ratios were 13.2% (end-2020: 10.4%), 15.0%
(end-2020: 12.4%) and 19.3% (end-2020: 17.6%), respectively. The
ratios were comfortably above the current minimum requirements as
BOG has already restored pre-pandemic buffers. The bank was
therefore permitted to pay dividends on 2021 earnings. Fitch's
assessment of the bank's capitalisation also factors in a further
moderate increase in requirements from 2023, sensitivity to
local-currency depreciation, and also potential asset quality
weakening.
Stable Funding and Liquidity: BOG is largely funded by customer
deposits (end-2021: 71% of non-equity funding), of which a material
60% was in FC. Deposits were split between retail (60%) corporate
(36%), and state institutions (4%). Refinancing risks are
manageable, given sufficient liquidity coverage of upcoming
wholesale funding maturities, uninterrupted access to IFI funding
and committed undrawn long-term loan facilities. The
loans-to-deposits ratio has remained stable in recent years
(end-2021: 117%; end-2018: 116%) with liquidity normalising from
higher levels in 2020 when lending growth slowed and deposits
increased.
The 'ns' GSR reflects Fitch's view that resolution legislation in
Georgia, combined with constraints on the ability of the
authorities to provide support (especially in FC), mean that
government support, although still possible, cannot be relied
upon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
BoG's ratings are primarily sensitive to a material deterioration
in the operating environment or a severe setback to the economic
outlook. The VR could be downgraded in the case of significant
asset quality deterioration (for example an impaired or problematic
loan ratio increasing to 10%), coupled with pressure on earnings
(for example operating profit/RWAs below 1%), particularly if this
was combined with an erosion of capital buffers to below 100bp over
regulatory minimums or a significant increase in encumbrance by
unreserved problem loans.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A material improvement in the operating environment, including
a return to solid economic growth, a reduction in the bank's
dollarisation and proven resilience to macroeconomic
volatility would result in an upgrade.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
BOG's senior unsecured debt rating is aligned with the bank's
Long-Term IDRs, reflecting Fitch's view that the probability of
default on these instruments is the same as that for the bank.
The bank's additional Tier 1 (AT1) notes are rated at 'B-', three
notches below BOG's VR. This reflects (i) two notches for the
notes' high loss severity due to their deep subordination; and (ii)
one notch for additional non-performance risk relative to the VR,
given fully discretionary coupon omission.
The AT1 notes will be written down if the CET1 ratio falls below
5.125% or the bank is subject to intervention by the NBG.
The trigger for mandatory coupon omission is if any of BOG's
regulatory capital ratios (CET1, Tier 1 or total) falls below the
minimum level plus the combined Pillar 1 buffers of capital
conservation (now 2.5%), countercyclical (0%) and systemic
importance (2.5%) - i.e. the trigger levels are now 9.5% CET1,
11.0% Tier 1 and 13.0% total. Based on BOG's capital ratios at
end-2021, the headroom above these trigger levels was the lowest
for the CET1 ratio, but still significant at 375bp.
The National Bank of Georgia could also impose restrictions on
coupon payments if banks breach minimum capital ratios including
Pillar 1 and Pillar 2 buffers. At end-2021, the minimum required
ratios including all applicable buffers for BOG were 11.5% CET1,
13.6% Tier 1 and 17.7% total. The headroom above those levels was
the lowest for the Tier 1 ratio at 133bp.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- BOG's senior unsecured debt rating is sensitive to changes in
the bank's Long-Term IDR;
-- The AT1 notes' rating is sensitive to changes in the bank's VR
or in Fitch's assessment of non-performance risk.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- BOG's senior unsecured debt rating is sensitive to changes in
the bank's Long-Term IDR;
-- The AT1 notes' rating is sensitive to changes in the bank's VR
or in Fitch's assessment of non-performance risk.
VR ADJUSTMENTS
The operating environment score of 'bb-' has been assigned above
the implied score of 'b' due to following adjustment reasons:
Regulatory and Legal Framework (positive).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DEBT RATING PRIOR
---- ------ -----
JSC Bank of Georgia LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Viability bb- Affirmed bb-
Support WD Withdrawn 5
Support Floor WD Withdrawn NF
Government Support ns New Rating
senior unsecured LT BB- Affirmed BB-
subordinated LT B- Affirmed B-
PROCREDIT BANK: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Rating has affirmed ProCredit Bank (Georgia)'s (PCBG)
Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable
Outlook and Viability Rating (VR) at 'bb-'.
Fitch has withdrawn PCBG's Support Rating of '3' as it is no longer
relevant to the agency's coverage following the publication of its
updated Bank Rating Criteria on 12 November 2021. In line with the
updated criteria, Fitch has assigned PCBG a Shareholder Support
Rating (SSR) of 'bb+'.
KEY RATING DRIVERS
The affirmation of PCBG's IDRs and SSR reflects Fitch's view that
ProCredit Holding AG & Co. KGaA (PCH, BBB/Stable) will continue to
have a high propensity to provide support to its Georgian
subsidiary, given its importance to the group, full ownership,
common branding, strong integration and a record of capital and
liquidity support.
Fitch caps PCBG's ratings at one notch above the 'BB' Georgian
sovereign rating to reflect the country risks that domestic banks
are exposed to. In Fitch's view, in case of extreme macroeconomic
and sovereign stress, these risks could limit PCBG's ability to
service its obligations or the parent's propensity to continue
providing support, or both. The Outlook on PCBG's IDRs mirrors that
on the sovereign.
Operating Environment Risks: Georgia's operating environment is
sensitive to external shocks given the economy's reliance on
commodity exports and remittances (particularly from Russia). Fitch
has revised Georgia's GDP growth estimates for 2022 to 3.2% from
5.8%. Dollarisation in the banking sector is high, as is Georgia's
external debt. A robust regulatory and legal framework adds to the
Georgian banking sector's resistance to operating environment
pressure.
Benefits of Group's Business Model: PCBG's VR balances the risks
stemming from the volatile Georgian operating environment, and
bank's very high balance-sheet dollarisation, with the expertise of
the group in the SME sector, and sound risk appetite resulting in
above-sector-average asset quality. These features, complemented by
the group's distinctive corporate culture ensured a resilient
performance during the pandemic.
Asset Quality at Moderate Risk: The impaired loan ratio improved to
2.4% at end-2021 from 3.1% at end-2020. Stage 2 loans remained
relatively stable increasing to 5.8% at end-2021 from 5.4% at
end-2020. PCBG's asset quality has been strong relative to peers
through the cycle. However, asset quality risks have increased due
to heightened macroeconomic uncertainty. Fitch views the real
estate and construction (16%) and tourism (8%) sectors as more
vulnerable and these could drive a deterioration of asset quality
in 2022-2023. Impaired loans were well covered by total loan loss
allowances (LLAs) at 96% at end-2021 and 57% by specific LLAs.
Improved Operating Profitability: Operating profitability improved
to 4.1% of risk-weighted assets (RWA) in 2021 from 2.1% in 2020,
largely driven by higher net interest income and a reversal of
impairment charges. Fitch expects profitability to remain
reasonable, but to weaken in 2022, as operating costs rise (due to
inflation) and net interest income growth is modest. Adequate
pre-impairment profitability (2021: 3.4% of average loans) provides
a sufficient buffer to absorb loan impairment charges (LIC), which
Fitch expects to increase in 2022 driven by macroeconomic risks.
Healthy Capitalisation: PCBG's Fitch Core Capital ratio improved to
22% at end-2021 from 18.3% at end-2020, driven by muted loan
growth, healthy profit and a GEL33 million (EUR9 million) capital
injection from the parent, albeit offset by GEL49 million dividend
distribution.
PCBG's regulatory common equity Tier 1 and total capital ratios of
16.5% and 19% at end-1Q22 had buffers over the minimum requirements
of about 700bp and 300bp, respectively. Fitch expects asset growth
or capital distribution to reduce currently strong buffers.
However, PCBG's capitalisation benefits from access to ordinary
support from the parent.
Stable Funding Profile: PCBG is mainly funded by customer deposits
(end-2021: 65% of non-equity funding), of which a large 79% was in
foreign currency. Deposits are split between retail (51%),
corporate (42%) and institutions (7%) and depositor concentrations
are modest. Wholesale funding is significant, but refinancing risks
are manageable, given sufficient liquidity coverage of upcoming
wholesale funding maturities, intragroup funding from PCH, and
attained additional IFI lending in 1H22. The loans-to-deposits
ratio of 134% at end-2021 is weaker than the sector average but has
been slowly improving in recent years, helped by deposit growth.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
PCBG's support-driven IDRs could be downgraded if Georgian country
risks materially increase or if Fitch revises down the support
assessment from the parent. PCBG's VR could be downgraded in the
case of a loosening of its risk appetite, combined with higher
growth, leading to a significant deterioration in its asset quality
metrics. A significant reduction in liquidity buffers, particularly
in foreign currency, could also increase pressure on the rating.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
PCBG's support-driven IDRs could be upgraded if Georgia's sovereign
rating was upgraded. An upgrade in the VR is unlikely and would
require an improvement in the operating environment, but also a
larger and more diversified franchise.
VR ADJUSTMENTS
The operating environment score of 'bb-' is above the implied score
of 'b' due to following adjustment reason: 'Regulatory and Legal
Framework' (positive).
The capital and leverage score of 'bb-' is below the implied score
of 'bbb' due to the following adjustment reason: 'Size of Capital
base' (negative).
The funding and liquidity score of 'bb-' is above the implied score
of 'b' due to the following adjustment reason: 'Liquidity access
and ordinary support' (positive).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DEBT RATING PRIOR
---- ------ -----
ProCredit Bank
(Georgia) LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Viability bb- Affirmed bb-
Support WD Withdrawn 3
Shareholder Support bb+ New Rating
TBC BANK: Fitch Affirms LongTerm Issuer Default Rating at 'BB-'
---------------------------------------------------------------
Fitch Rating has affirmed TBC Bank JSC's Long-Term Issuer Default
Rating (IDR) at 'BB-' with a Stable Outlook, and Viability Rating
(VR) at 'bb-'.
Fitch has withdrawn TBC Bank's Support Rating and Support Rating
Floor as they are no longer relevant to the agency's coverage
following the publication of its updated Bank Rating Criteria on
November 12, 2021. In line with the updated criteria, Fitch has
assigned TBC Bank a Government Support Rating (GSR) of 'ns'.
KEY RATING DRIVERS
TBC's 'BB-' IDR is driven by the bank's standalone profile, as
captured by its VR. The affirmation of the VR at 'bb-' reflects the
bank's market leading franchise, sound financial metrics and
adequate capital buffers. It also considers the bank's highly
dollarised balance sheet and rapid loan growth over the past few
years. The Short- Term IDR was affirmed at 'B' in line with the
mapping to the Long-Term IDR.
Risks to Operating Environment: Georgia's operating environment is
sensitive to external shocks, given the economy's reliance on
commodity exports and remittances (particularly from Russia). Fitch
has revised Georgia's GDP growth estimates for 2022 to 3.2% from
5.8%. The war in Ukraine and resultant international sanctions on
Russia is weighing on economic growth, and has put pressure on
Georgia's economy through trade, remittances and tourism channels.
Dollarisation in the banking sector is high, as is Georgia's
external debt. A robust regulatory and legal framework adds to the
Georgian banking sector's resistance to operating environment
pressure.
Strong Domestic Franchise: TBC operates a universal banking model
in Georgia, providing loans to consumers (predominantly mortgages),
corporates, and micro and small & medium enterprises (MSME).
Deposits are the core source of funding (end-2021: 74% of
non-equity funding), supplemented by wholesale borrowing largely
from international financial institutions (IFIs). The bank's scale
(end-2021: 39% of sector loans) and strong financial metrics
provide sufficient headroom to withstand a moderate deterioration
in the Georgian operating environment.
Diversified Loan Portfolio: TBC has a diverse loan book, across
corporates (39%), MSME (24%) and retail (37%) borrowers.
FX-adjusted loan growth increased to 18% in 2021 (2020: 9%) as the
Georgian economy recovered from the pandemic. The 25 largest group
exposures amounted to a moderate 86% of Fitch Core Capital (FCC).
At end-2021, 54% of loans were foreign-currency (FC) denominated
(end-2020: 59%), broadly in line with the market average. The
majority of borrowers are not hedged, which increases asset quality
risks in the case of local-currency weakening. The share of FC
lending has been declining in retail (43%), helped by the
regulatory tightening. Limited supply of long-term lari funding is
slowing down de-dollarisation of the sector.
Asset Quality Risks: TBC's impaired (Stage 3) loans ratio decreased
to 3.1% at end-2021 and Stage 2 to 11.5% from 6.1% and 16.2%,
respectively, at end-2020. Nevertheless, asset quality risks have
increased, given heightened macroeconomic uncertainty and the
bank's significant exposure to vulnerable sectors such as real
estate (9%), hospitality, restaurants & leisure (8%) and
construction (6%). Impaired (Stage 3) loans were only moderately
covered by total loan loss allowances at 78%, reflecting the bank's
reliance on collateral.
Strong Profitability Through the Cycle: Operating
profit/risk-weighted assets (RWA) improved to 4.8% in 2021 (2020:
2.0%) driven by higher net interest income and lower impairment
charges. Fitch expects profitability to moderate in 2022, but
remain reasonable, as operating costs increase (due to inflation)
and the net interest margin stabilises. TBC's strong pre-impairment
operating profitability (2021: 5.7% of average loans) provides a
sound buffer to absorb credit losses, which Fitch expects to
increase in 2022 amid operating environment challenges.
Healthy Solvency Metrics: TBC's FCC ratio increased to 16.3% at
end-2021 from 14.1% at end-2020, driven by improved profitability.
At end-2021, TBC's regulatory common equity Tier 1 (CET1), Tier 1
and total capital ratios were 13.7% (end-2020: 10.4%), 16.7%
(end-2020: 13.0%) and 20.3% (end-2020: 17.1%), respectively. The
ratios were comfortably above the minimum requirements and TBC has
restored pre-pandemic buffers. Fitch's assessment of the bank's
capitalisation also factors in a further moderate increase in
requirements from 2023, sensitivity to local-currency depreciation,
and potential asset quality weakening.
Stable Funding and Liquidity: TBC is largely funded by customer
deposits, of which a material 63% was in FC. Deposits were split
between retail (55%), corporate (39%) and state institutions (6%).
Refinancing risks are manageable, given sufficient liquidity
coverage of upcoming wholesale funding maturities, uninterrupted
access to IFI funding and undrawn long-term loan facilities. The
loans-to-deposits ratio remains adequate, having marginally
improved in recent years and is in line with peers (end-2021:
116%).
The 'ns' GSR reflects Fitch's view that resolution legislation in
Georgia, combined with constraints on the ability of the
authorities to provide support (especially in FC), mean that
government support, although still possible, cannot be relied
upon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
TBC's ratings are primarily sensitive to a material deterioration
in the operating environment or a severe setback to the economic
outlook. The VR would be downgraded if the bank's asset-quality
metrics deteriorated materially (for example, the impaired loans
ratios rising to 10%), if profitability weakened significantly
(operating profit/RWAs below 1%), particularly if this was combined
with capital buffers falling below 100bp over minimum regulatory
capital requirements or a significant increase in encumbrance by
unreserved problem loans.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A material improvement in the operating environment, including
a return to solid economic growth, a reduction in the bank's
dollarisation and proven resilience to macroeconomic
volatility would result in an upgrade of TBC's VR.
OTHER DEBT AND ISSUER RATINGS:
KEY RATING DRIVERS
TBC's senior unsecured debt rating is aligned with the bank's
Long-Term IDR, reflecting Fitch's view that the probability of
default on these instruments is the same as that for the bank.
The bank's additional Tier 1 (AT1) notes are rated at 'B-', three
notches below TBC's VR. This reflects (i) two notches for the
notes' high loss severity due to their deep subordination; and (ii)
one notch for additional non-performance risk relative to the VR,
given fully discretionary coupon omission.
The AT1 notes will be written down if the CET1 ratio falls below
5.125% or the bank is subject to intervention by the National Bank
of Georgia (NBG).
The NBG could also impose restrictions on coupon payments if banks
breach minimum capital ratios including all (Pillar 1 and Pillar 2)
buffers. At end-2021, the minimum required ratios including all
applicable buffers for TBC were 11.7% CET1, 14.0.% Tier 1 and 18.4%
total capital ratio.
OTHER DEBT AND ISSUER RATINGS:
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- TBC's senior unsecured debt rating is sensitive to any
negative changes in the bank's Long-Term IDR;
-- The AT1 notes' rating is sensitive to any negative changes in
the bank's VR or in Fitch's assessment of non-performance
risk.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- TBC's senior unsecured debt rating is sensitive to any
positive changes in the bank's Long-Term IDR;
-- The AT1 notes' rating is sensitive to any positive changes in
the bank's VR.
VR ADJUSTMENTS
The operating environment score of 'bb-' has been assigned above
the implied score of 'b' due to following adjustment reasons:
Regulatory and Legal Framework (positive).
The asset quality score of 'b+' has been assigned below the implied
score of 'bb' due to the following adjustment reasons: Underwriting
Standards & Growth (negative).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DEBT RATING PRIOR
---- ------ -----
TBC BANK JSC
LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Viability bb- Affirmed bb-
Support WD Withdrawn 5
Support Floor WD Withdrawn NF
Government Support ns New Rating
senior unsecured LT BB- Affirmed BB-
subordinated LT B- Affirmed B-
=============
G E R M A N Y
=============
GAZPROM GERMANIA: Germany Draws Up Multibillion Rescue Package
--------------------------------------------------------------
Guy Chazan and Gill Plimmer at The Financial Times report that
Berlin is putting together a multibillion euro rescue package for
Gazprom Germania, the subsidiary of the Russian gas giant that was
taken over by the German authorities last month, according to
people familiar with the matter.
According to the FT, as part of the bailout, Germany's state-owned
development bank KfW would provide Gazprom Germania with a EUR5
billion-EUR10 billion loan, the people said, while emphasising that
talks were ongoing.
Using taxpayers' money to bail out a company that is still
officially owned by Gazprom, the Kremlin-controlled energy company,
could prove controversial in Germany, the FT notes.
But the unit plays an important role in Germany's energy supply,
and as such, officials consider it is in the national interest to
restore it to financial health, the FT states.
The German government seized control of Gazprom Germania and its
subsidiaries in early April, placing them under the trusteeship of
the Bundesnetzagentur, the federal energy regulator, the FT
recounts.
The move was triggered by a change in the entity's ownership
structure that violated Germany's strict law on foreign investment
in critical infrastructure, the FT relays.
Gazprom Germania owns a number of gas storage facilities in
Germany, including the country's largest, Rehden; the gas
distribution company, Wingas, which supplies major industrial
consumers in Germany; and a UK trading division GM&T.
Russia struck back against the seizure of control of Gazprom
Germania in May by reducing the volumes of gas it supplies to the
company, forcing it to buy gas in the spot market instead, often at
higher prices, the FT discloses.
According to the FT, a spokesman for the Bundesnetzagentur said all
state agencies were "working intensively to ensure that [Gazprom
Germania] can continue to operate". Asked about the loan, he said
the BNA would not comment on speculation. The German government
declined to comment, as did the KfW.
The decision to bail out Gazprom Germania is expected to enable
GM&T to restart deals, the FT states. GM&T is a major trader of
gas, liquefied natural gas and power, buying from sources including
Norway and the North Sea and selling worldwide.
Before the German takeover, the UK government had been on standby
to take over GM&T and Gazprom Energy amid fears that one or both
could collapse, the FT notes.
Gazprom Energy had also been considering a rebrand as it sought to
distance itself from its Russian owners after the invasion of
Ukraine, the FT discloses. It is not expecting to revert to
Russian ownership, the FT relays, citing two people close to the
company.
=============
I R E L A N D
=============
ARDAGH METAL: Fitch Assigns 'BB' Rating on USD600MM Notes Due 2027
------------------------------------------------------------------
Fitch Ratings has assigned Ardagh Metal Packaging Finance plc's and
Ardagh Metal Packaging Finance USA LLC.'s joint USD600 million 6%
green notes due on 2027 a final senior secured rating of 'BB' with
a Recovery Rating of 'RR1'.
The new notes rank pari passu with senior secured notes of about
USD1.1 billion issued by the same co-issuers. Their proceeds,
together with Ardagh Metal Packaging S.A.'s (AMP) perpetual
preferred share issue of EUR250 million, will primarily fund AMP's
large capex programme.
AMP's 'B' Issuer Default Rating (IDR) is aligned with and based on
the consolidated credit profile of Ardagh Group S.A. (Ardagh). This
reflects 'open' legal and access and control linkages between AMP
and Ardagh under Fitch's Parent and Subsidiary Linkage (PSL) Rating
Criteria.
KEY RATING DRIVERS
Material Capex Programme: AMP has enlarged its capex programme by
about USD250 million versus Fitch's previous forecast to enhance
its global production capacity. The company plans to spend about
USD1.5 billion for 2022-2023. This will erode free cash flow
generation (FCF) in the medium term, putting AMP in a weaker
position than higher-rated peers with typical FCF margins of 3%-5%
on average. The capex will, however, allow AMP to capitalise on a
structural increase in demand for beverage cans while also
increasing its share of specialty cans to over 60% by 2024 from 45%
in 2021. Fitch expects this will support revenue growth in the
mid-teens in the medium term, its operating profitability and
competitive position.
Rising Leverage: Fitch expects AMP will start to pay dividends in
2022, leading to an outflow of USD240 million, which Fitch expects
to be sustained in further years. Combined with larger capex, this
will put additional pressure on AMP's FCF. As a result of AMP's
debt and preferred share issue to fund this material capex
programme, Fitch forecasts fund flows from operations (FFO) gross
leverage will reach 6.2x by end-2022 versus about 4.6x expected
previously. Nevertheless, Fitch forecasts strong deleveraging to
about 5.2x in 2023 and 4.5x in 2024, although still exceeding
Fitch's previous expectation of 3.6x for 2023.
Weakening Standalone Credit Profile (SCP): Fitch has revised lower
AMP's SCP to 'bb-' from 'bb' due to the expected material rise in
leverage. Fitch continues to view AMP's business profile as strong,
characterised by its leading market position, geographical
diversification, and exposure to favourable non-cyclical
end-markets with a strong pass-through cost mechanism embedded into
contracts with long-dated customer relationships. However,
following the new debt issue and announced dividend policy, Fitch
believes the financial profile more adequately positions AMP's SCP
at 'bb-'.
Parent and Subsidiary Linkage: Fitch has applied its PSL Criteria
and has taken the stronger subsidiary-and-weaker parent approach.
Ardagh as majority shareholder controls AMP's strategic decisions,
with significant governance overlap in board of directors. In
addition, Ardagh provides AMP with services including IT, financial
reporting, insurance and risk management, but also financing and
treasury management via long-term service agreements.
Consolidated Approach: AMP's debt financing is separate from
Ardagh's, with no cross-guarantees or cross-default provisions and
separate security packages. However, the effective control by the
parent, with covenant-lite high-yield documentation with limited
effective caps on cash outflows leads to Fitch's assessment of
'open' access and control and 'open' legal ring-fencing. AMP's
rating is therefore aligned with Ardagh's IDR and based on the
group's consolidated credit profile.
Preferred Shares Equity Treatment: The instrument is perpetual with
an ability to defer the 9% annual preferred dividend. Fitch assigns
50% equity credit to the instrument using Fitch's Corporate Hybrids
Treatment and Notching Criteria, as any deferred dividend is still
payable upon redemption. In Fitch's view the common dividend
stopper is a strong incentive not to defer, as this would prevent
Ardagh from extracting dividends from AMP. The preferred shares
represent a limited part of AMP's overall capital structure. A
change in structure, including materiality, could lead to a
reassessment of Fitch's analysis and, ultimately, a different
treatment.
Solid Global Market Position: AMP is among the largest global metal
beverage can producers with exposure to stable end-markets. It
benefits from high operational flexibility through its global
network of manufacturing facilities that are located close to its
customers. Its market position, long-term partnership with
customers, and capital-intensive business act as moderate-to-high
entry barriers.
Healthy and Resilient Profitability: AMP benefits from resilient
revenue and cashflow generation from the non-cyclical beverage
end-market and increased sustainability awareness and demand for
metal beverage cans. Its Fitch-defined EBITDA margin of 14% in
2019-2021 is comparable with that of packaging peers such as Silgan
Holdings Inc. and Amcor plc. Resilient profitability is supported
by the contractual ability to pass on cost increases to customers,
mitigating volatility in raw-material prices. However, currently
high inflationary pressure across the group constrains additional
margin improvement. Fitch forecasts the EBITDA margin at around at
13% in 2022 and 14% by 2025.
Narrow Product Diversification: AMP has a diversified global
footprint with about 45% of revenue generated in North America in
2021, 45% in Europe and 10% in Brazil. However, its SCP is
constrained by a narrow product mix as AMP is a pure metal beverage
can producer. This is mitigated by growing sustainability awareness
of regulators and customers supporting AMP's niche in metal cans
that will be strengthened by its ambitious capex programme.
DERIVATION SUMMARY
AMP is one of the leading metal beverage can producers globally.
Its business profile is weaker than that of higher-rated peers such
as Smurfit Kappa Group plc (BBB-/Stable), Berry Global Group, Inc
(BB+/Stable) and Silgan Holdings Inc. (BB+/Stable). AMP has smaller
scale of operations and lower customer diversification, but this is
offset by its leading position in the growing beverage can sector,
and expected strong cash flow generation.
AMP compares favourably with CANPACK (BB/Stable) and Titan Holdings
II B.V. (B/Stable), which are focussed on food and beverage metal
packaging similar to AMP. AMP has higher scale versus both peers,
but shares these entities' limited product diversification.
While AMP's direct metal can-producing peers are larger in revenue,
such as Ball Corporation at USD13.8 billion (2021) and Crown
Holdings at USD11.4 billion (2021), AMP has similar market
positions and compares well in terms of its SCP. All three
companies had strong annual revenue growth in 2021 of over 15%.
Like its main direct peers, AMP maintained its operating
profitability, proving its resilience during 2021.
Similar to Fitch-rated peers, AMP has healthy and resilient
profitability with an expected FFO margin of about 10% during
2022-2025. This compares well with that of Amcor, Smurfit Kappa,
Titan Holdings II B.V. and Berry Global while being slightly below
CANPACK's over 10%. However, its material capex programme
accompanied by planned dividend payment will pressure AMP's FCF
generation in the medium term. This puts the company in a weaker
position versus higher-rated peers such as Amcor, Berry Global
Group, Silgan and Smurfit Kappa with sustained positive FCF
generation . Both AMP and CANPACK are expected to see negative FCF
margins in the medium term, owing to large investment programmes.
AMP's leverage remains weaker than higher-rated peers', with
forecast FFO gross leverage at about 6.2x at end-2022 following the
debt issue. This is reflected in its IDR and SCP differentials with
the higher-rated peers'.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
-- Mid-teens growth of revenue during 2022-2025;
-- EBITDA margin at about 13% in 2022, rising to about 14% by
2025;
-- Issuance of preferred shares of up to EUR250 million in 2022
at 50% equity credit;
-- Annual preferred dividends payments of about USD25 million
p.a. to 2025;
-- Ongoing rise of capex totalling about USD1.5 billion during
2022-2023;
-- Additional USD850 million of new debt in 2022-2024 to fund
capex;
-- Dividend payments of about USD240 million p.a. to 2025;
-- Share buyback of USD100 million p.a. in 2022 and 2023;
-- No M&A to 2025.
Fitch's Key Recovery Rating Assumptions
-- The recovery analysis assumes that AMP would be reorganised as
a going-concern (GC) in bankruptcy rather than liquidated;
-- Fitch's GC value available for creditor claims is estimated at
about USD2.8 billion, assuming GC EBITDA of USD600 million.
The GC EBITDA is higher than Fitch's previous estimate in
February 2021 based on structurally higher EBITDA derived from
capacity investments. The GC EBITDA reflects distressed
EBITDA, which incorporates the potential loss of a major
customer, secular decline or ESG-related adverse regulatory
changes related to AMP's operations or the packaging industry
in general. The GC EBITDA also reflects corrective measures
taken in a reorganisation to offset the adverse conditions
that trigger a default;
-- A 10% administrative claim;
-- An enterprise value (EV) multiple of 5.5x EBITDA is used to
calculate a post-reorganisation valuation. The multiple is
based on AMP's global market leading position in an attractive
sustainable niche with resilient end-market demand. The
multiple is constrained by a less diversified product offering
and some commoditisation within packaging;
-- Fitch deducts about USD168 million from the EV, relating to
AMP's highest usage of its factoring facility, in line with
Fitch's criteria;
-- Fitch estimates the total amount of senior debt claims at
USD3.6 billion, which includes senior secured notes of USD1.7
billion (equivalent) and senior unsecured notes of USD1.6
billion (equivalent);
-- After deducting priority claims, the principal waterfall
results in 'RR1'/100% for the senior secured notes and in
'RR4'/50% for the senior unsecured notes;
-- As the majority of revenue and security under the notes is
generated in group A countries under Fitch's criteria, Fitch
not capping the senior secured notes' Recovery Rating, despite
Ardagh being domiciled in Luxembourg.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of Ardagh's IDR from an improved consolidated
credit profile;
-- Weakening of operational and legal ties between Ardagh and
AMP.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Ardagh's IDR.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: As at end-2021, AMP reported Fitch-defined
readily available cash of USD379 million, which was adjusted for
USD81 million to cover intra-year working-capital needs. Following
the issue of secured and unsecured notes in 2021 for a total of
about USD2.7 billion, AMP has no material scheduled debt repayments
until 2028.
Fitch-adjusted short-term debt is represented by a drawn factoring
facility of about USD160 million. This debt self-liquidates with
factored receivables. In addition, AMP has an undrawn asset-based
lending facility of USD325 million due in 2026, which supports its
liquidity position.
AMP's planned capex of about USD1.5 billion during 2022 and 2023
will erode FCF in the medium term and will be financed with
additional new debt. In the absence of the additional debt, AMP's
current liquidity is not sufficient to proceed with planned capex.
ISSUER PROFILE
AMP is one of the largest producers of metal beverage cans globally
with current production capacity of over 40 billion cans p.a. AMP
has 24 production facilities located in US (9), Europe (12) and
Brazil (3).
ESG CONSIDERATIONS
AMP has an ESG Relevance Score of '4' for management strategy and
group structure due to the complexity of the group structure and
funding strategy, which has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DEBT RATING RECOVERY PRIOR
---- ------ -------- -----
Ardagh Metal
Packaging
Finance USA LLC
senior unsecured LT B Affirmed RR4 B
senior secured LT BB Affirmed RR1 BB
senior secured LT BB New Rating RR1 BB(EXP)
Ardagh Metal
Packaging S.A. LT IDR B Affirmed B
Ardagh Metal
Packaging
Finance plc
senior unsecured LT B Affirmed RR4 B
senior secured LT BB Affirmed RR1 BB
senior secured LT BB New Rating RR1 BB(EXP)
WILLOW PARK: Moody's Affirms B2 Rating on EUR13MM Cl. E Notes
-------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Willow Park CLO Designated Activity Company:
EUR40,750,000 Class A-2A Senior Secured Floating Rate Notes due
2031, Upgraded to Aa1 (sf); previously on Nov 30, 2017 Definitive
Rating Assigned Aa2 (sf)
EUR12,000,000 Class A-2B Senior Secured Fixed Rate Notes due 2031,
Upgraded to Aa1 (sf); previously on Nov 30, 2017 Definitive Rating
Assigned Aa2 (sf)
EUR22,750,000 Class B Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to A1 (sf); previously on Nov 30, 2017
Definitive Rating Assigned A2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR239,000,000 Class A-1 Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Nov 30, 2017 Definitive
Rating Assigned Aaa (sf)
EUR21,250,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Baa2 (sf); previously on Nov 30, 2017
Definitive Rating Assigned Baa2 (sf)
EUR25,250,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba2 (sf); previously on Nov 30, 2017
Definitive Rating Assigned Ba2 (sf)
EUR13,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed B2 (sf); previously on Nov 30, 2017
Definitive Rating Assigned B2 (sf)
Willow Park CLO Designated Activity Company, issued in November
2017, is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Blackstone Ireland Limited. The
transaction's reinvestment period will end in July 2022.
RATINGS RATIONALE
The rating upgrades on the Class A-2A, A-2B and B Notes are
primarily a result of the benefit of the shorter period of time
remaining before the end of the reinvestment period in July 2022.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR401.3m
Defaulted Securities: none
Diversity Score: 58
Weighted Average Rating Factor (WARF): 2892
Weighted Average Life (WAL): 4.32 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.45%
Weighted Average Coupon (WAC): 3.49%
Weighted Average Recovery Rate (WARR): 45.07%
Par haircut in OC tests and interest diversion test: 0.04%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank and swap providers,
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:
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.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: Once reaching the end of the reinvestment
period in July 2022, the main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales 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.
===================
L U X E M B O U R G
===================
FINASTRA LIMITED: Fitch Cuts LongTerm IDR to 'B-', Outlook Negative
-------------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Issuer Default Rating
(IDR) for Finastra Limited and related entities to 'B-' from 'B'.
Fitch has also downgraded the company's senior secured first lien
revolver and term loan to 'B+'/'RR2' versus prior 'BB-'/'RR2' and
second lien term loan to 'CCC'/'RR6' from 'CCC+'/'RR6'. The Rating
Outlook is Negative. Gross leverage remains elevated and is high
for Fitch-rated technology companies, although its highly
recurring, software revenue base provides support for higher
leverage.
Fitch's ratings and Outlook reflect Finastra's high leverage and
lack of sustained positive FCF generation. The ratings also reflect
its market position as a fintech software vendor to many leading
banks globally, revenue growth that Fitch expects could be in the
low-single-digit range in the coming years, and high EBITDA
margins.
KEY RATING DRIVERS
Inconsistent Fundamentals: Fitch views Finastra's results as
inconsistent in recent years and the company has not proven an
ability to consistently grow its revenue and/or profits. It also
has not yet achieved sustained positive FCF on a Fitch-defined
basis. Revenue and EBITDA declined 1% and 11%, respectively, on a
constant currency reported basis for the nine-month YTD period
through February 2022.
Fitch expects results may continue to be choppy in the coming
quarters due to weaker upfront sales (customers shifting to
recurring, software as a service/SaaS, model plus likely some deal
pushouts) and macro uncertainty causing some customers to pause
spending. Fitch believes the company may also be ceding some share
in certain areas of its business. YTD trends were impacted by
softer Upfront and Services revenue, which is partially due to an
ongoing shift to SaaS that could accelerate growth in the future.
YTD EBITDA has also been impacted by growth investments.
High Leverage: Fitch calculates gross debt/EBITDA at February 2022
was 8.6x and will likely remain high in the 8.0x-9.0x range or
higher through FY 2024. Fitch does not project any material
deleveraging, although EBITDA growth and amortization payments
could help in the coming years. Leverage metrics could worsen
further if macro conditions deteriorate and rising interest rates
will pressure coverage metrics. Finastra has a sizeable $4.2
billion term loan maturity in June 2024, which presents refinancing
risk if weak market conditions and/or execution challenges persist.
Fitch expects it could seek to refinance this debt by early 2023.
End-Market Concentration: Finastra derives nearly all of its
revenue from financial institutions and will be impacted over time
by fluctuations in banking activity. This risk is heightened
currently due to macro uncertainty. Rising interest rates across
the U.S. and Europe could benefit tech outsourcing since higher
rates benefit banks' profitability, although higher rates may also
impact demand for certain areas of its business such as lending
software. Sector concentration also exposes Finastra to sector
consolidation trends underway. Offsetting industry concentration
risk is product diversification, limited customer concentration
(largest customer is less than 1% of revenue) and meaningful
geographic diversity across North America, Europe, Asia and the
Middle East.
Favorable Outsourcing Trends: Fitch expects banks will continue to
outsource certain functions to third-party software providers to
focus on core competencies and to reduce costs. Finastra's various
software applications are used across a broad array of functions in
retail and corporate banking, including treasury/capital markets,
internet/mobile banking, and payments. Key products include Loan IQ
(commercial lending), LaserPro (mortgage lending), Kondor SFX (FX
trading), among others. Its products are open and modular and can
fit into a bank's existing infrastructure, working with either its
own systems or with other third-party software.
FCF Constrained by Leverage: Fitch believes Finastra operates a
highly recurring business model but significant debt and material
capex requirements has led to negative FCF that is unlikely to
become positive in the near-term. This could normalize over time if
the private equity owner exits either via an IPO, sale or
recapitalization. Fitch projects EBITDA in the high-$600 million
range over the next few years. However, interest expense, capex and
cash taxes that comprise $500 million to $600 million per year
combined will consume much of this before considering working
capital or other cash costs.
M&A Risk: Fitch does not expect Finastra to engage in significant
M&A activity in the near term given limited financial/cash flow
flexibility and macro-related uncertainty. The company made several
small bolt-on acquisitions in fiscal years 2018 to 2021 (as well as
divestitures for approximately $275 million), following the
combination of Misys and D&H. Over the long term, Fitch expects
Finastra could consider additional M&A as an avenue to expand its
geographic footprint and product offerings.
DERIVATION SUMMARY
Finastra's ratings are supported by a business model driven by a
high mix of recurring revenue, stable/high retention rates, high
EBITDA margins, and underlying secular growth drivers with
financial institution customers outsourcing more of their IT needs.
The company has a stable market position providing software and
solutions to large, mid-sized and small banks and financial
institutions. Offsetting some of these positive attributes is high
financial leverage that limits operating flexibility and will
likely lead to continued negative FCF in the coming years.
Finastra competes in parts of its business with Fitch-rated
Fidelity National Information Services, Inc. (FIS; BBB/Stable). FIS
operates a much larger business, with revenue and EBITDA near $14
billion and $6.5 billion, has a more diversified product and
customer mix, and operates with much lower gross leverage that
Fitch estimates will be near 3.0x or below in the coming years.
Materially higher leverage versus other Fitch-rated fintech peers
signal a much lower IDR is warranted.
Fitch also rates numerous high-yield software companies that share
fundamental characteristics with Finastra (e.g., revenue growth,
industry competitive dynamics, leverage) even though these issuers
are not direct industry peers. Finastra is well positioned relative
to other high-yield software issuers rated by Fitch in terms of
market position, margins, and scale. However, its negative FCF and
high gross debt/EBITDA position the issuer fairly in the 'B-'
rating category relative to other comparable issuers.
KEY ASSUMPTIONS
-- Core revenue grows in low single-digit percentage range while
non-core revenue continues to decline over the ratings
horizon;
-- EBITDA margins remain in the high-30% range in the coming
years;
-- Capex remains near 10% of revenue, or at a similar level to
fiscal years 2020 to 2022;
-- Gross debt/EBITDA remains high and above 8.0x, with any debt
reduction in the next few years likely to come from modest
amortization and reducing the revolver with available cash
flows;
-- Recovery Analysis -- For entities rated 'B+' and below - where
default is closer and recovery prospects are more meaningful
to investors - Fitch undertakes a tailored, or bespoke,
analysis of recovery upon default for each issuance. The
resulting debt instrument rating includes a Recovery Rating or
published 'RR' (graded from RR1 to RR6), and is notched from
the IDR accordingly. In this analysis, there are three steps:
(i) estimating the distressed enterprise value (EV); (ii)
estimating creditor claims; and (iii) distribution of value.
Fitch assumed Finastra would emerge from a default scenario
under the going concern approach versus liquidation.
Key assumptions used in the recovery analysis are as follows:
-- Going concern EBITDA -- Fitch estimates going concern EBITDA
near $600 million, or ~15% below LTM reported EBITDA of $710
million. This assumes the company experiences revenue/EBITDA
pressures in its core business and/or greater than expected
deterioration in its non-core businesses. Offsetting some of
these potential pressures are a business that is highly
recurring and an extremely diversified customer base;
-- EV Multiple -- Fitch assumes a 7.0x multiple, which is in-line
with Fitch's assessment of historical trading multiples, M&A
in the sector, and historic bankruptcy emergence multiples
Fitch has observed in the technology, media and telecom
sectors.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch could stabilize the IDR at 'B-' if operating
fundamentals, including revenue growth, EBITDA margins and
positive FCF, improve;
-- Gross leverage, Fitch-defined as total debit with equity
credit/operating EBITDA, sustained below 7.5x;
-- FCF leverage, Fitch-defined as CFO less capex/total debt with
equity credit, sustained above 3%;
-- Interest coverage, or operating EBITDA/interest paid,
sustained above 2.0x;
-- Sustained EBITDA growth and/or improving FCF generation could
also position the issuer for a higher rating.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Gross leverage sustained above 9.0x;
-- FCF leverage sustained below 0%;
-- Interest coverage sustained below 1.5x and/or further
reduction in liquidity that pressures financial flexibility;
-- Signs of refinancing risk with upcoming maturities could also
lead Fitch to reassess the rating.
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
Limited Liquidity: Finastra's liquidity is supported by the
following as of its latest quarter-end, February 2022: (i) a USD
$385 million senior secured revolving credit facility (matures in
March 2024; capacity declines to $375 million after October 2022)
that had $300 million outstanding as of February 2022, and (ii) $84
million of readily available cash on its balance sheet. The company
had negative FCF (negative $43 million) for the TTM period through
February 2022, and Fitch projects the company will continue to burn
FCF in the near-term. Finastra has limited sources of liquidity
given its high leverage and high outstanding revolver balance,
which increases liquidity risk if end markets were to deteriorate
more than expected and/or it experiences other execution issues.
Debt Profile: Finastra's debt structure consists of first lien,
senior secured debt ($385 million revolver capacity and $4.2
billion of term loans at February 2022) as well as second lien
senior secured term loans ($1.25 billion outstanding). Its revolver
expires in March 2024 and its capacity declines to $375 million
starting after October 2022.
Fitch believes the company could look to amend/extend the facility
in the coming quarters. Amortization consists of USD36 million
annually on the U.S. dollar first-lien term loan and EUR8.5 million
annually on the Euro term loan. The first lien term loan matures in
June 2024. There are no principal repayments due on the second-lien
credit agreement, which is due in June 2025.
ISSUER PROFILE
Finastra Limited is a fintech company that provides mission
critical financial software in areas such as lending (mortgages,
consumer, commercial), retail banking, payments and treasury. The
company serves approximately 8,500 customers, largely consisting of
financial institutions and banks although it also serves some
non-banks/corporates, in 130 countries. Finastra's predecessor
(Misys) was founded in 1979 and was publicly listed before Vista
Equity Partners Fund IV acquired the company in June 2012 in a
going private transaction.
ESG CONSIDERATIONS
ESG Influence: Finastra has an ESG Relevance Score of '4' for
Governance Structure due to its current ownership structure whereby
private equity holders have meaningful board influence, resulting
in management's choice to pursue high leverage, a key factor in
Fitch's rating analysis.
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
---- ------ -------- -----
DH Corporation/
Societe DH LT IDR B- Downgrade B
senior secured LT B+ Downgrade RR2 BB-
Senior Secured LT CCC Downgrade RR6 CCC+
2nd Lien
Finastra Group LT IDR B- Downgrade B
Holdings Limited
senior secured LT B+ Downgrade RR2 BB-
Finastra Europe LT IDR B- Downgrade B
S.a r.l.
senior secured LT B+ Downgrade RR2 BB-
Senior Secured LT CCC Downgrade RR6 CCC+
2nd Lien
Finastra USA, Inc. LT IDR B- Downgrade B
senior secured LT B+ Downgrade RR2 BB-
Senior Secured LT CCC Downgrade RR6 CCC+
2nd Lien
Finastra Limited LT IDR B- Downgrade B
=========
S P A I N
=========
BBVA CONSUMER 2022-1: Moody's Assigns (P)Ba3 Rating to Cl. E Notes
------------------------------------------------------------------
Moody's Investors Service (has assigned the following provisional
ratings to Notes to be issued by BBVA CONSUMER AUTO 2022-1 FONDO DE
TITULIZACION (the "Issuer"):
EUR1,038M Class A Floating Rate Asset Backed Notes due Feb 2036,
Assigned (P)Aa2 (sf)
EUR30M Class B Floating Rate Asset Backed Notes due Feb 2036,
Assigned (P)A3 (sf)
EUR24M Class C Floating Rate Asset Backed Notes due Feb 2036,
Assigned (P)Baa2 (sf)
EUR48M Class D Floating Rate Asset Backed Notes due Feb 2036,
Assigned (P)Ba1 (sf)
EUR30M Class E Floating Rate Asset Backed Notes due Feb 2036,
Assigned (P)Ba3 (sf)
Moody's has not assigned any ratings to the following Notes to the
EUR30M Class F Floating Rate Asset Backed Notes and EUR5.5M Class Z
Floating Rate Asset Backed Notes due Feb 2036.
RATINGS RATIONALE
The transaction is a static cash securitisation of auto loans
extended to obligors in Spain by Banco Bilbao Vizcaya Argentaria,
S.A. ("BBVA") (A3 SU, A2 LT Bank Deposits, A3(cr)/P-2(cr)) with the
purpose of financing new or used vehicles via car dealers
(prescriptores). BBVA also acts as asset servicer, swap
counterparty, collection and issuer account bank provider.
The provisional portfolio of underlying assets consists of auto
loans originated in Spain, with fixed rates and a total outstanding
balance of approximately EUR1,360 million. The final portfolio will
be selected at random from the provisional portfolio to match the
final Note issuance amount.
As of May 4, 2022, the provisional pool cut had 116,512 loans with
a weighted average seasoning of 16.1 months. Loans are used for the
purpose of new (38.9%) or used (61.1%) car acquisition. 61.4% of
the loans do not have any security over the vehicle and hence the
servicer cannot repossess it in order to increase recoveries. 52.3%
of the portfolio contain a "reserva de dominio" clause, meaning
that the vehicles can be registered at the seller's option on the
Registro de Bienes Muebles, the Spanish moveable goods register and
38.6% of the loans have been already registered in the Chattel
Registry.
Moody's have received a breakdown of vehicles by engine type.
Diesel cars have a share of 38.3% of the outstanding portfolio
balance, petrol cars 41.3%, Unknown 15.5% and AFVs/ Hybrids 4.9%.
The transaction benefits from credit strengths such as the
granularity of the portfolio, the excess spread-trapping mechanism
through 6 months artificial write off mechanism, the high average
interest rate of 6.34% and the financial strength and
securitisation experience of the originator.
Moreover, Moody's notes that the transaction features some credit
weaknesses such as a complex structure including interest deferral
triggers for junior notes, pro-rata payments on all classes of
notes from the first payment date, and the high linkage to BBVA.
Various mitigants have been put in place in the transaction
structure such as sequential redemption triggers to stop the
pro-rata amortization. Commingling risk is partly mitigated by the
transfer of collections to the issuer account within two days and
the high rating of the servicer.
Hedging: All the loans are fixed-rate loans, whereas the notes are
floating-rate liabilities. As a result, the issuer is subjected to
a fixed-floating interest-rate mismatch. To mitigate the
fixed-floating rate mismatch, the issuer has entered into a swap
agreement, with BBVA. Under the swap agreement, (i) the issuer pays
a fixed rate of [ ]%, (ii) the swap counterparty pays 3M Euribor +
[ ]% (floored at 0), (iii) the notional as of any date will be the
outstanding balance of Classes A-F.
Moody's analysis focused, amongst other factors, on: (i) an
evaluation of the underlying portfolio of auto loans and the
eligibility criteria; (ii) historical performance provided on
BBVA's total book and past consumer loan ABS transactions; (iii)
the credit enhancement provided by subordination, excess spread and
the reserve fund; (iv) the liquidity support available in the
transaction by way of principal to pay interest; and (v) the
overall legal and structural integrity of the transaction.
MAIN MODEL ASSUMPTIONS
Moody's determined a portfolio lifetime expected mean default rate
of 4.5%, expected recoveries of 35.0% and a portfolio credit
enhancement ("PCE") of 14.0% for both the current and substituted
portfolios of the issuer. 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
its ABSROM cash flow model to rate consumer ABS transactions.
The portfolio expected mean default rate of 4.5% is in line with
the Spanish auto loan transactions and is based on Moody's
assessment of the lifetime expectation for the pool taking into
account: (i) historic performance of the loan book of the
originator, (ii) strict criteria requiring the long seasoning of
the loans during the revolving period, (iii) benchmark
transactions, and (iv) other qualitative considerations.
Portfolio expected recoveries of 35% are higher than Spanish auto
loan average and are based on Moody's assessment of the lifetime
expectation for the pool taking into account: (i) historic
performance of the loan book of the originator, (ii) benchmark
transactions, and (iii) other qualitative considerations such as
quality of data provided and asset security provisions.
The PCE of 14.0% is lower than other Spanish auto loan peers and is
based on Moody's assessment of the pool taking into account the
relative ranking to originator peers in the Spanish consumer loan
market. The PCE of 14.0% results in an implied coefficient of
variation ("CoV") of 58.4%.
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 or circumstances that could lead to an upgrade of the
ratings of the Notes would be: (1) better than expected performance
of the underlying collateral; or (2) a lowering of Spain's
sovereign risk leading to the removal of the local currency ceiling
cap.
Factors or circumstances that could lead to a downgrade of the
ratings would be: (1) worse than expected performance of the
underlying collateral; (2) deterioration in the credit quality of
BBVA; or (3) an increase in Spain's sovereign risk.
===========
T U R K E Y
===========
TEB FINANSMAN: Fitch Affirms 'B/B+' LongTerm Currency IDRs
----------------------------------------------------------
Fitch Ratings has affirmed TEB Finansman A.S.'s (TEB Cetelem)
Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B' and
Long-Term Local-Currency IDR at 'B+'. The Outlooks are Negative.
The ratings reflect the high propensity of TEB Cetelem's ultimate
parent, BNP Paribas S.A. (BNPP, A+/Stable), to provide support in
case of need, given the ownership, integration and TEB Cetelem's
role within the BNPP group.
KEY RATING DRIVERS
TEB Cetelem's IDRs are driven by potential support from BNPP. In
Fitch's view, BNPP's propensity to support TEB Cetelem, is closely
aligned with that of supporting sister bank, Turk Ekonomi Bankasi
A.S. (TEB Bank, B/Negative). This is based on common brand
association between the two and reputational damage in the event of
a subsidiary default, notwithstanding differences in their
respective legal structures. The Outlook on TEB Cetelem's Long-Term
IDRs is aligned with that on TEB Bank, and the wider Turkish
banking sector. It reflects that on the Turkish sovereign.
The affirmation of TEB's National Rating with a Stable Outlook
reflects Fitch's view that the company's creditworthiness in local
currency relative to other Turkish issuers is unchanged.
TEB Cetelem's loan book is entirely Turkish lira-denominated. Asset
quality metrics are strong, with an impairment ratio of 1.4% at
end-2021 (4.3% at end-2019). It is underpinned by a favourable
dynamic in loan-to-value ratios as currency depreciation supports
asset valuation in liras. TEB Cetelem's performance in 2020-2021
was affected by the net interest margin narrowing. However, a
slight improvement in performance resulted in TEB Cetelem's return
on average assets increasing to 1.5% at end-2021 (from 1.3% a year
before), which leaves an adequate cushion against potential
deterioration of asset quality and increase in impairment costs.
TEB Cetelem's leverage (gross debt/tangible equity) increased to
7.2x at end-2021 from 6.8x a year before, largely driven by an
inflation of the balance sheet in lira terms (leading to a 17%
increase in gross debt). Its leverage ratio remains comfortably
below the regulatory minimum of 33x, although Fitch deems this to
be loose.
TEB Cetelem retains uninterrupted access to wholesale funding
despite operating environment challenges. This is helped by
association with a strong parent and backed by funding limits from
the group itself.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The ratings are sensitive to adverse changes in Fitch's view of the
ability and willingness of the parent, BNPP, to provide support in
case of need. For example, government intervention or divesture or
diminishing of importance of the Turkish market for BNPP could be
negative for the ratings. In addition, a downgrade of TEB Bank
would likely lead to a downgrade of TEB Cetelem's ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating action on Turkey's Long-Term IDRs would likely
lead to similar action on TEB Cetelem's Long-Term IDRs, as
would an upgrade of TEB Bank. Upgrades of the Long-Term IDRs
are unlikely in the short term, given the Negative Outlooks;
-- The Long-Term Local-Currency IDR is sensitive to changes in
Turkey's Country Ceiling (B+);
-- The National Rating is sensitive to changes in TEB Cetelem's
Long-Term Local-Currency IDR and changes in the company's
creditworthiness relative to other Turkish issuers.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DEBT RATING PRIOR
---- ------ -----
TEB Finansman A.S. LT IDR B Affirmed B
ST IDR B Affirmed B
LC LT IDR B+ Affirmed B+
LC ST IDR B Affirmed B
Natl LT AA(tur) Affirmed AA(tur)
Shareholder Support b Affirmed b
===========================
U N I T E D K I N G D O M
===========================
DERBY COUNTY FOOTBALL: Concerned Raised on Takeover Media Coverage
------------------------------------------------------------------
Tom Pegden at BusinessLive reports that the joint administrators of
Derby County Football Club say they have taken legal advice over
what they say is the growing level of inaccurate reporting about
their efforts to find a buyer for the troubled club.
Quantuma, as cited by BusinessLive, said they were ready to talk to
anyone with the potential cash to take the club on amid growing
unrest at the length of time the process was taking.
Derby County FC went into administration last autumn and had 21
points docked as a result of their finances, pushing them down into
League One next season, BusinessLive recounts.
Delays in finding a new owner intensified on June 10 when their
preferred bidder -- US businessman Chris Kirchner -- missed a
deadline to show he had the cash to complete a deal, BusinessLive
relates.
Conversations were continuing with Mr. Kirchner but have now been
opened again to other interested parties with ex-Newcastle Mike
Ashley also interested, BusinessLive discloses.
The EFL subsequently told Quantuma that -- with time running out
before the 2022/23 fixture list is published -- it wanted to be
party to all correspondence and discussions between the
administrators and potential bidders, so that it could negotiate
directly with them, BusinessLive relays.
According to BusinessLive, in a statement, the joint administrators
said they were "concerned at the growing level of inaccurate
reporting on the circumstances surrounding a takeover of the
club".
They said: "The level of inaccuracies being reported is divisive
and is unnecessarily driving both a rumour mill and growing
anxiety, uncertainty, and ill feeling amongst supporters."
"The joint administrators are deeply disappointed to note that this
has led to a tirade of unfounded abuse being levelled at the joint
administrators and their staff.
"The joint administrators wish to clarify a number of the
inaccuracies being reported as follows:
"The joint administrators confirm that, to date, they have received
no payment for their work, and indeed have accrued substantial out
of pocket expenses which the firm is currently funding.
"The joint administrators wish to confirm they are engaging with a
number of parties who have expressed a desire to acquire the club.
"As confirmed in [Friday's] update, Mr. Kirchner is one of those
parties, as he continues to seek to provide us with satisfactory
evidence that he is in a position to complete the acquisition of
the club.
"At this stage, the joint administrators will not be naming any of
the other parties they are engaging with. However, they understand
some of those parties may wish to go public of their own accord."
About Derby County Football Club
Founded in 1884, Derby County Football Club is a professional
association football club based in Derby, Derbyshire, England. The
club competes in the English Football League Championship (EFL, the
'Championship'), the second tier of English football. The team
gets its nickname, The Rams, to show tribute to its links with the
First Regiment of Derby Militia, which took a ram as its mascot.
Mel Morris is the owner while Wayne Rooney is the manager of the
club.
On Sept. 22, 2021, the club went into administration. The EFL
sanctioned a 12-point deduction on the club, putting the team at
the bottom of the Championship. Andrew Hosking, Carl Jackson and
Andrew Andronikou, managing directors at business advisory firm
Quantuma, had been appointed joint administrators to the club.
OAK FOREST: Three Directors Banned Over "Questionable Agreements"
-----------------------------------------------------------------
Sally Hickey at FTAdviser reports that three company directors of
Oak Forest Partnership, Ronald Albert Popely, 70, Darren James
Popely, 52, Stephen William Dickson, 64, have been banned after
entering into "questionable agreements" that put several million
pounds of investor money at risk.
According to FTAdviser, Messrs. Ronald and Darren Popely and Mr.
Dickson, as directors of Oak Forest, had bought and refurbished
Hever Hotel in Edenbridge, Kent, before offering people the
opportunity to invest in hotel rooms.
Over three years, the directors leased 82 rooms to investors for
GBP8.9 million, promising a return of 10% of the purchase price
every year for 10 years, as well as to buy back rooms after five
years at the original purchase price, FTAdviser discloses.
But the partnership went into insolvency in February 2017, with
creditors claiming GBP14.8 million in the liquidation, FTAdviser
recounts.
The Insolvency Service uncovered that the directors had entered
into three "questionable" agreements that had benefited the company
and left investors being owed millions, FTAdviser relates.
The agreements included payments of GBP20.6 million, including
GBP7.1 million paid to connected companies, FTAdviser notes.
The secretary of state for business, energy and industrial strategy
accepted disqualification undertakings from all three directors,
which prevents them from directly, or indirectly, becoming involved
in the promotion, formation or management of a company, without the
permission of the court.
Liquidators are still establishing whether funds, or recovery of
funds, is a viable option, according to FTAdviser.
TFS LOANS: Faces GBP800,000 Fine Over Lending Practices
-------------------------------------------------------
Sam Barker at Mirror reports that high-cost lender TFS Loans has
been handed a GBP800,000 fine by for not doing proper checks that
customers could pay back loans.
According to Mirror, high-cost lender TFS Loans has been handed a
GBP800,000 fine by for not doing proper checks that customers could
pay back loans.
The firm fell into administration in February following claims of
"unaffordable lending", Mirror recounts.
TFS would lend between GBP3,000 and GBP15,000 for one to five years
at between 30% and 70% interest, with a representative APR of
39.9%.
But now TFS Loans has been slapped with a massive GBP811,900 fine
by the Financial Conduct Authority (FCA) over its lending
practices, Mirror relates.
The FCA has fined TFS for breaking its rules on how lenders should
operate, Mirror states.
The financial regulator found several issues with how TFS treated
customers between November 2, 2015 and April 10, 2018, Mirror
relays.
But the fine cash will not go to customers - instead, it will go to
the Treasury, Mirror notes.
According to Mirror, a statement on the TFS website said: "The
administrators of TFS Loans are in the process of devising a
methodology for dealing with customers who may have suffered a loss
as a result of TFS Loans' lending practices.
"Such customers may be eligible for redress."
TFS customers will have to wait a bit before their claim can be
heard.
That is because the administrators of TFS, Opus Restructuring, are
now working out how this can be done.
The TFS website said the wait is because Opus are still designing a
claims system, Mirror relays.
The administrator Opus Restructuring has said customers should
continue to repay their loans, according to Mirror.
WESTFIELD SPORTS: Enters Administration, Seeks Potential Buyers
---------------------------------------------------------------
Bev Holder at Stourbridge News reports that an internationally
renowned Kingswinford sportscar company that has been pioneering
the development of self-driving vehicles has gone into
administration.
Mark Bowen of MB Insolvency has been appointed as administrator of
Westfield Sports Cars Limited and Westfield Autonomous Vehicles
Limited, a notice says on the website of Westfield Sportscars based
in Dudley Road, the News relates.
According to the News, it's understood the company ceased trading
on Wednesday, June 8, and Mr. Bowen of Worcestershire based MB
Insolvency was appointed as administrator the following day but the
reason for the firm's demise has not been given.
Mr. Bowen told the News there has already been an "encouraging
level of interest shown in the company's remaining assets" and he
added: "We're liaising with a number of parties at the moment to
see if anybody is interested in the assets and possibly trying to
resurrect something here."
It is not known how many jobs have been lost as a result of the
closure of the long-running company, which has sold more than
13,000 of its British-made sportscars across the world since 1983
and which had been steering forward the development of the
autonomous vehicle industry -- with its revolutionary
carbon-cutting driverless electric pods which had been picked up to
ferry passengers at Heathrow Airport, the News notes.
*********
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,
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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.
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