/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/220621.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 21, 2022, Vol. 23, No. 117 Headlines G E R M A N Y ADLER GROUP: Creditors in Talks with Management MV WERFTEN: Thyssenkrupp Marine to Take Over Wismar Shipyard R U S S I A YANDEX: Credit Swaps in Restructuring Credit Event, CDDC Rules S P A I N CELSA SPAIN: SEPI Approves EUR550-Million Loan GLOBAL HIPOTECARIO - CCM I: Fitch Affirms 'CC' Rating on D Notes HAYA HOLDCO 2: Moody's Assigns 'Caa2' CFR, Outlook Stable U K R A I N E [*] UKRAINE: EU to Finalize Details of EUR9BB Financial Package U N I T E D K I N G D O M BROOKFIELD SLATE III: S&P Assigns 'B' Ratings, Outlook Stable ELVET MORTGAGES 2019-1: Fitch Affirms 'B-' Rating on Class F Debt INVEXSTAR CAPITAL: Directors Face GBP100-Mil. Lawsuit Over Collapse KCA DEUTAG: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable - - - - - ============= G E R M A N Y ============= ADLER GROUP: Creditors in Talks with Management ----------------------------------------------- Laura Benitez at Bloomberg News reports that groups of Adler Group SA creditors are in talks with management as they race to ensure they'll get paid should the troubled landlord or one of its units default. Adler earlier met with a large group including Pacific Investment Management Co. and King Street that invested in Adler Group bonds, according to people familiar with the matter who described the discussions as constructive, Bloomberg relates. Another group, representing hedge funds such as GLG Partners that hold bonds issued by Adler Real Estate, is planning a meeting in coming weeks, according to the people, who asked not to be identified because the talks aren't public, Bloomberg notes. They want to discuss concerns that money is being moved out of the subsidiary and into other units of the landlord, Bloomberg discloses. The talks underscore mounting investor concerns about the financial position of the landlord, after large-scale asset sales and a forensic probe into allegations of fraud failed to stop a slide in its shares and bonds, Bloomberg states. Created through a controversial three-way merger two years ago, Adler has more than EUR7 billion in outstanding debt, issued in part by subsidiaries such as Adler Real Estate that were standalone companies before, Bloomberg recounts. Holders of those bonds are now worried that the parent is moving money out of their reach, after the holding company late last year took a EUR265 million (US$281 million) loan from a unit tied to Adler Real Estate, according to Bloomberg. Adler didn't disclose the loan until late March, prompting these investors to ask whether the money may have been used without proper approval to plug looming liquidity holes in other parts of the group, Bloomberg relays. The Adler Group -- http://www.adler-group.com-- is a German housing company. It has approximately 27,500 residential units throughout Germany in its core portfolio and a development pipeline of approximately 6,000 new flats in Germany's top cities. MV WERFTEN: Thyssenkrupp Marine to Take Over Wismar Shipyard ------------------------------------------------------------ Baird Maritime reports that defence firm Thyssenkrupp Marine Systems (TKMS) will take over the shipyard location of MV Werften in Wismar, Germany. According to Baird Maritime, TKMS intends to use MV Werften's Wismar facilities for the construction of submarines beginning in 2024 in fulfilment of an order placed by the German government for additional boats. The contract between TKMS and MV Werften concludes an open investment process for the Wismar shipyard lasting several months, Baird Maritime notes. The process followed in the wake of MV Werften's filing for bankruptcy in January of this year after it was unable to pay the salaries of around 2,000 of its employees for the month of December 2021, Baird Maritime relates. =========== R U S S I A =========== YANDEX: Credit Swaps in Restructuring Credit Event, CDDC Rules -------------------------------------------------------------- Luca Casiraghi at Bloomberg News reports that the Credit Derivatives Determinations Committee ruled that credit swaps on Yandex are in a restructuring credit event on US$1.25 billion of convertible notes, according to a statement on June 17. Bonds became repayable in full after a "delisting event" occurred, Bloomberg notes. Trading of Yandex shares on the Nasdaq was halted for several consecutive days in the wake of Russia's invasion of Ukraine, Bloomberg relates. CDDC accepted a question on Yandex after rejecting two previous questions on the company in recent weeks, Bloomberg discloses. Yandex is a Russian technology company that builds intelligent products and services powered by machine learning. ========= S P A I N ========= CELSA SPAIN: SEPI Approves EUR550-Million Loan ---------------------------------------------- Spain's News, citing elDiario.es, reports that the State Industrial Holding Company (SEPI) has approved a grant requested by the steel company Celsa Spain, the amount of which amounts to EUR550 million. According to Spain's News, the subsidy will be channeled through the granting of a participating loan amounting to EUR280.5 million and another ordinary loan of EUR269.5 million charged to the Solvency Support Fund for Strategic Companies (FASEE). Given that the amount of the participating loan is greater than EUR250 million, authorization by the European Commission is necessary before it is submitted to the Council of Ministers, Spain's News notes. The operation has been approved by the Management Board of the Solvency Support Fund for Strategic Companies after a process of "analysis of the economic and legal situation of the company, the impact it has suffered from COVID and CELSA's viability plan Spain (Barna Steel SA and its 13 operating Spanish subsidiaries), the restructuring of the debt with its creditors, as well as the prospects for the evolution of the company and the guarantees provided to ensure the return of the temporary public financial support that will be receive", as explained by SEPI in a statement, Spain's News relates. The aid comes after the unblocking by Deutsche Bank, one of the company's main creditors, after the telephone conversation between the Prime Minister, Pedro Sanchez, and the CEO of the German bank, Christian Sewing, regarding the rescue of Celsa, Spain's News states. GLOBAL HIPOTECARIO - CCM I: Fitch Affirms 'CC' Rating on D Notes ---------------------------------------------------------------- Fitch Ratings has upgraded AyT Colaterales Global Hipotecario, FTA Serie Caja Cantabria I's class D notes and AyT Colaterales Global Hipotecario, FTA Serie Vital I's class C notes and affirmed their remaining tranches. Fitch has also affirmed AyT Colaterales Global Hipotecario, FTA Serie BBK I, AyT Colaterales Global Hipotecario, FTA Serie BBK II, and AyT Colaterales Global Hipotecario, FTA Serie CCM I. DEBT RATING PRIOR ---- ------ ----- AyT Colaterales Global Hipotecario, FTA Serie CCM I Class A ES0312273248 LT AA+sf Affirmed AA+sf Class B ES0312273255 LT BB+sf Affirmed BB+sf Class C ES0312273263 LT CCCsf Affirmed CCCsf Class D ES0312273271 LT CCsf Affirmed CCsf AyT Colaterales Global Hipotecario, FTA Serie BBK II Class A ES0312273362 LT A+sf Affirmed A+sf Class B ES0312273370 LT CCCsf Affirmed CCCsf AyT Colaterales Global Hipotecario, FTA Serie BBK I Class A ES0312273008 LT A+sf Affirmed A+sf AyT Colaterales Global Hipotecario, FTA Serie Caja Cantabria I Class A ES0312273446 LT AAAsf Affirmed AAAsf Class B ES0312273453 LT A+sf Affirmed A+sf Class C ES0312273461 LT Asf Affirmed Asf Class D ES0312273479 LT BB+sf Upgrade B+sf AyT Colaterales Global Hipotecario, FTA Serie Vital I Class A ES0312273081 LT AAAsf Affirmed AAAsf Class B ES0312273099 LT A+sf Affirmed A+sf Class C ES0312273107 LT BBBsf Upgrade BB+sf Class D ES0312273115 LT CCCsf Affirmed CCCsf TRANSACTION SUMMARY The transactions are static securitisations of Spanish residential mortgages serviced by Kutxabank S.A. (Kutxabank, BBB+/Stable/F2 for AyT Colaterales Global Hipotecario, FTA Serie BBK I, AyT Colaterales Global Hipotecario, FTA Serie BBK II and AyT Colaterales Global Hipotecario, FTA Serie Caja Vital 1) and Unicaja Banco S.A. (Unicaja, BBB-/Stable/F3 for AyT Colaterales Global Hipotecario, FTA Serie Caja Cantabria I and CCM I). KEY RATING DRIVERS Performance Expectation, Credit Enhancement Trends: The rating actions reflect Fitch's expectation of broadly stable asset performance for the securitised portfolios, supported by a low share of loans in arrears over 90 days (below 1% of the current portfolio balance as of the latest reporting dates in all cases), very high portfolio seasoning of more than 15 years and low current loan-to-value ratios. However, downside performance risk has increased as the recent spike in inflation may put pressure on household financing, especially for more vulnerable borrowers. The rating actions also reflect Fitch's view that the notes are sufficiently protected by credit enhancement (CE) to absorb the projected losses commensurate with prevailing and higher rating scenarios. Fitch expects CE ratios for BBK I, BBK II, CCM I and Cantabria I to continue increasing for the senior notes due to the prevailing sequential amortisation of the notes. Fitch expects CE ratios for Vital I to remain broadly stable due to the pro-rata amortisation of the notes. PIR Constraints BBK I and BBK II Ratings: The maximum achievable rating for BBK I and BBK II is 'A+sf', due to unmitigated payment interruption risk (PIR) in the event of a servicer disruption. These transactions are exposed to a material open interest rate risk driven by the fixed-rate liabilities and floating-rate mortgages and the absence of a hedging mechanism, which is causing depletions of the cash reserves. As of the most recent reporting dates, the reserve funds stood at 76.7% and 46.0% of their target levels in BBK I and BBK II, respectively. While PIR is not an immediate risk in CCM I, considering its robust liquidity coverage, it could become a rating driver in the longer term, considering the negative excess spread dynamics due to floating rate assets and fixed rate liabilities with no hedging arrangement in place. The cash reserve has been gradually depleting since 2019 (currently at 80.4% of its target). Fitch expects this trend to continue, as reflected on the Negative Outlook on the class A notes' rating. Excessive Counterparty Exposure: Cantabria I's class C notes' rating is capped at the transaction account bank (TAB) provider rating (Banco Santander S.A., A-/Stable/F2, deposit ratings A/F1). The rating cap reflects the excessive counterparty dependence on the TAB holding the cash reserves, as the transaction's cash reserves held at this entity represents more than 50% of structural CE for this tranche and the sudden loss of these amounts could imply downgrades of the notes of 10 or more notches, in accordance with Fitch's criteria. Interest Deferability Caps Rating in CCM I: The maximum achievable rating for CCM I's class B notes is 'BB+sf' as per Fitch's criteria, reflecting the subordinated position of interest due amounts in the transaction waterfall of payments, due to a non-reversible trigger breach since 2016, linked to gross cumulative defaults. While no interest shortfall exists to date on class B notes, any subordination is deemed excessive as it could last for a long time until the senior class A notes are fully redeemed. ESG Considerations: BBK I and BBK II both have an Environmental, Social and Governance (ESG) Relevance Score of '5' for Transaction & Collateral Structure due to unmitigated PIR, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in a downward adjustment of the rating of at least one category. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- For senior notes rated 'AAAsf', a downgrade of Spain's Long- Term Issuer Default Rating (IDR) that could decrease the maximum achievable rating for Spanish structured finance transactions. This is because these notes are rated at the maximum achievable rating, six notches above the sovereign IDR. -- Long-term asset performance deterioration such as increased delinquencies or larger defaults, which could be driven by adverse changes to macroeconomic conditions, interest-rate increases or borrower behaviour. Higher inflation, larger unemployment and lower economic growth than Fitch's current forecast as disclosed in the Global Economic Outlook - June 2022 could impact borrowers' ability to pay their mortgage debt. -- For CCM I's class A notes, a weaker liquidity position that exposes the transaction to payment interruption risk in the event of servicer distress. -- For Cantabria I's class C notes, a downgrade of the TAB provider's deposit rating, as the notes' rating is capped at the bank's ratings due to excessive counterparty risk exposure. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The notes rated 'AAAsf' are at the highest level on Fitch's scale and cannot be upgraded. -- For mezzanine and junior notes, CE ratios increase as the transactions deleverage, able to fully compensate the credit losses and cash flow stresses commensurate with higher rating scenarios, all else being equal. -- For BBK I and BBK II's class A notes, improved liquidity protection against a servicer disruption event. This because the ratings are capped at 'A+sf', driven by an unmitigated payment interruption risk. -- For Cantabria I's class C notes, an upgrade of the TAB provider's deposit rating, as the notes' rating is capped at the bank's ratings due to excessive counterparty risk exposure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY AyT Colaterales Global Hipotecario, FTA Serie BBK I, AyT Colaterales Global Hipotecario, FTA Serie BBK II, AyT Colaterales Global Hipotecario, FTA Serie Caja Cantabria I, AyT Colaterales Global Hipotecario, FTA Serie CCM I, AyT Colaterales Global Hipotecario, FTA Serie Vital I Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pool[s] ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS BBK I and BBK II have an ESG Relevance Score of '5' for Transaction & Collateral Structure due to unmitigated PIR, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in a downward adjustment of the rating of at least one notch. 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. HAYA HOLDCO 2: Moody's Assigns 'Caa2' CFR, Outlook Stable --------------------------------------------------------- Moody's Investors Service has assigned a Caa2 corporate family rating and Caa2-PD probability of default rating to Haya Holdco 2 plc (Haya or the company) as well as a Caa2 instrument rating to the EUR368.4 million backed senior secured floating-rate notes due November 2025 issued by the company. The outlook on all ratings is stable. The proceeds of the notes were used, along with cash on balance, to refinance the existing senior secured fixed and floating-rate notes due November 2022 issued by Haya Finance 2017 S.A., a subsidiary of Haya Real Estate, S.A.U., which itself is a subsidiary of Haya. Concurrently, the rating agency has withdrawn the Caa2 CFR assigned to Haya Real Estate, S.A.U., while the PDR of Haya Real Estate, S.A.U. has been changed to Caa2-PD/LD from Caa3-PD. The "/LD" designation on the PDR reflects a limited default assignment by Moody's because the aforementioned refinancing is considered by Moody's to constitute a distressed exchange, a form of default under the rating agency's definitions. The /LD will remain for three business days, after which it will be withdrawn. The outlook has been changed to stable from negative and will also be withdrawn after three business days along with the PDR. The Caa2 instrument rating on the senior secured fixed and floating-rate notes issued by Haya Finance 2017 S.A. have also been withdrawn. RATINGS RATIONALE Haya's Caa2 CFR reflects Moody's concerns regarding the sustainability of the company's capital structure. Although the refinancing of Haya's existing senior secured notes due November 2022 has eliminated immediate refinancing risk, the rating agency has concerns regarding the sustainability of Haya's business model. This is because a continued deterioration in its assets under management (AuM) and the risk of erosion in profitability over time, also due to potential changes in product mix, could hinder the company's capacity to fulfill its debt obligations in the future. Here, Moody's note that Haya has recently lost two key contracts (with Liberbank and Sareb) and there is a possibility that the company may not successfully renew its contract (with Cajamar) in 2024. Furthermore, while the company's has won some new debt servicing mandates historically, these have been insufficient to offset the natural attrition in AuM. The Caa2 CFR also reflects (1) the difficulty of securing enough new business to offset the natural decline in Haya's AuM; (2) limited earnings visibility, as a large portion of its revenue is derived from one-off sales commissions where the sales decision lies with the company's clients; (3) a highly concentrated customer base, which exposes Haya to a high degree of contract renewal risk, including the need to renew the contract with Cajamar in 2024; and (4) an expected increase in leverage over time, towards 7x in 2023-24, which will make it difficult to refinance Haya's newly issued debt when it falls due in 2025. The weaknesses are partly mitigated by Haya's (1) scale, know-how and status as a large debt servicer in Spain; (2) a track record of new contract wins; and (3) expected positive free cash flow (FCF) generation of around 2% of total debt in 2023 and 2024, given relatively high EBITDA margins and relatively low capital spending needs. Although Haya's financial performance has improved when compared to the weak levels witnessed in 2020, Moody's expects that the company's financial performance will weaken going forward, on the back of declining AuM and transaction volumes. The rating agency forecasts revenue of around EUR185 million in 2022, EUR155 million in 2023, and around EUR135 million in 2024. Although management plans to reduce costs via operational restructuring, Moody's forecasts that company adjusted EBITDA will nonetheless decline towards around EUR60 million in 2022, EUR55 million in 2023, and EUR40-45 million in 2024. As a result, Moody's adjusted (gross) leverage is projected to rise from 5.3x as at December 31, 2021 (proforma the refinancing) towards 6.0x at December 2022 and 6.5x at December 2023. These levels would call into question the longer-term sustainability of Haya's company's capital structure, especially considering that the natural attrition in Haya's AuM base may not be compensated by new contract wins as well as the risk of unexpected contract losses in the future, which means that the company would have little business remaining. Haya is a private company that is majority-owned by funds managed by Cerberus Capital Management L.P., which hold a 72.5% equity stake in the company. The remaining equity is held by lenders under the senior secured floating-rate notes. As is often the case in highly levered, private equity-controlled deals, owners have a high tolerance for leverage/risk and governance is comparatively less transparent when compared to publicly-traded companies, often with relatively limited board diversification. Moody's has taken a negative view on the absence of any financial support from Haya's private equity shareholders as part of the recent debt refinancing. LIQUIDITY Haya's liquidity is adequate. As part of the refinancing, the company has agreed to hold a minimum of EUR25 million of cash on balance going forward, which is expected to cover operational liquidity needs. Moody's expect the company will generate between EUR5-10 million of FCF annually in 2023 and 2024. Any cash in excess of the EUR25 million minimum cash requirement will be used to prepay debt on a quarterly basis. There is no revolving credit facility as part of the capital structure, with the above-mentioned minimum cash balance viewed as sufficient to cover liquidity needs. STRUCTURAL CONSIDERATIONS The senior secured floating-rate notes due in November 2025 benefit from guarantees from entities representing 100% of the group's EBITDA and assets. The senior secured notes also benefit from a security package comprising a pledge over shares, bank accounts, credit rights under certain servicing contracts, receivables under insurance policies, and receivables under intercompany loans. The Caa2 rating on the senior secured notes is in line with the CFR, reflecting a 50% family recovery rate. RATING OUTLOOK The stable outlook reflects Moody's expectation that Haya will not experience any major contract losses and successfully service its debt obligations over the next 12-18 months, as well as expectations that the company will maintain liquidity at an adequate level on a sustained basis. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive rating pressure is unlikely at this stage, but could develop if Haya materially outperforms expectations, demonstrating an ability to win new business and renew its customer contracts on favorable terms, so as to grow its AuM; improves its operating performance on a sustainable basis, to levels that would remove concerns regarding the ability to meet debt obligations as they fall due; and maintains adequate liquidity. Negative rating pressure would likely arise if it becomes increasingly unlikely that Haya will successfully service its obligations as they fall due; or on the back of heightened concerns regarding the company's liquidity, particularly if it experiences further contract losses or a greater-than-expected decline in earnings or if recovery prospects are lower than implied by the current Caa2 CFR. LIST OF AFFECTED RATINGS Withdrawals: Issuer: Haya Real Estate, S.A.U. LT Corporate Family Rating, Withdrawn, previously rated Caa2 Issuer: Haya Finance 2017 S.A. Senior Secured Regular Bond/Debenture, Withdrawn, previously rated Caa2 Upgrades: Issuer: Haya Real Estate, S.A.U. Probability of Default Rating, Upgraded to Caa2-PD/LD from Caa3-PD Assignments: Issuer: Haya Holdco 2 plc Probability of Default Rating, Assigned Caa2-PD LT Corporate Family Rating, Assigned Caa2 BACKED Senior Secured Regular Bond/Debenture, Assigned Caa2 Outlook Actions: Issuer: Haya Real Estate, S.A.U. Outlook, Changed To Stable From Negative Issuer: Haya Finance 2017 S.A. Outlook, Changed To Rating Withdrawn From Negative Issuer: Haya Holdco 2 plc Outlook, Assigned Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Services published in November 2021. COMPANY PROFILE Headquartered in Madrid, Spain, Haya Real Estate, S.A.U. is an independent servicer of nonperforming real-estate developer (RED) loans and real estate owned (REO) assets on behalf of financial institutions in Spain. The company manages REDs and REOs with a gross book value of around EUR30 billion as at December 31, 2021. In the 12 months ended December 31, 2021, Haya generated revenue of EUR223 million and company-adjusted EBITDA of EUR65 million. ============= U K R A I N E ============= [*] UKRAINE: EU to Finalize Details of EUR9BB Financial Package --------------------------------------------------------------- Jorge Valero at Bloomberg News reports that the European Union is expected to finalize the details of a EUR9 billion (US$9.5 billion) financial package for Ukraine in the coming days to bolster the war-torn nation. The new macro-financial assistance program for Kyiv would consist of 25-year loans, with a 10-year grace period to reimburse the principal, three EU officials said, who added that interest payments would be covered by the EU budget, Bloomberg relates. According to Bloomberg, the proposal is likely to be ready later this week, the officials said, with EU leaders scheduled to meet Thursday, June 23, and Friday, June 24, in Brussels to discuss Ukraine's reconstruction plan and its bid for membership in the bloc. The aid plan would have to be approved by all 27 member states, Bloomberg notes. The financial package needs the backing of EU member states and the European Parliament. The commission is contacting member states to finalize some details related to the guarantees but remains confident that the first disbursement will take place this summer, an EU official said. The bloc originally aimed to complete the plan early this month since Ukraine's financial needs keep piling up. The people said under that timetable, the commission was planning to begin raising funds in the markets next month for a first transfer. The EU planned to transfer three or four more installments by the end of the year, although it would depend on the availability of the guarantees and Ukraine's financial needs, said the people, who asked not to be identified because the talks were private. EU officials said the financial package is expected to include some conditions that would take into account Ukraine's current circumstances and be related to reconstruction efforts and avoiding the misuse of funds. =========================== U N I T E D K I N G D O M =========================== BROOKFIELD SLATE III: S&P Assigns 'B' Ratings, Outlook Stable ------------------------------------------------------------- S&P Global Ratings assigned its 'B' long-term ratings to Cupa Group's intermediate parent company, Brookfield Slate Holdings III, and to the EUR480 million term loan B, with a '3' recovery rating. The stable outlook reflects S&P's view that Cupa will continue benefiting from supportive end-markets, while integrating recent acquisitions, with debt to EBITDA below 6.5x. Investment firm Brookfield Asset Management has acquired Cupa Group, a Spain-based manufacturer of premium slate roofing products that generated sales of about EUR400 million in 2021, from Carlyle Group Inc. As part of the transaction, Cupa raised a new term loan B and refinanced its capital structure. Investment firm Brookfield Asset Management, on May 31, 2022, closed the acquisition of Cupa Group from Carlyle, following an agreement struck in January 2022. As part of the transaction, Cupa Group issued: -- A EUR480 million term loan B. -- A EUR100 million revolving credit facility. S&P understands that part of the equity is made of preference shares, which meet its criteria for equity treatment. Cupa Group is the world's largest provider of premium roofing slate. It is also the second-largest specialist roofing distributor in the U.K., through its subsidiary Burton Roofing, behind SIG PLC (B+/Stable/--). S&P understands that most of the European slate market focuses on premium roofing slate tiles, where Cupa is present. Low-quality slate tiles are mainly produced outside Europe and may not be certified for the European market, which increases barriers of entry in S&P's view. In addition, most slate tiles are replaced by other slate tiles and tiles of the same colors, because roof composition is often protected by local regulation owing to historical and aesthetic norms. S&P said, "We believe that Cupa has good visibility and control over its raw materials. More than 80% of roofing slate reserves in the world are in Spain. Cupa manages the majority of Spain's slate reserves across 20 quarries and 24 plants. The quarries have over 75 years of average remaining life. We see the group's profitability as above average, with an EBITDA margin of over 22%, which is boosted by higher margins from the Cupa Slate operations. The slate manufacturing process does not generate significant energy costs, unlike clay or cement." Cupa's distribution business, means it benefits from vertical integration in the U.K. Cupa has sales of over EUR400 million and is one of the smallest rated companies in the building materials sector. The group has expanded in recent years through organic growth and bolt-on acquisitions, including Pizarras Gallegas, Proinor, Rinus, and Lomba. It serves mainly Western European countries, such as France, Germany, Spain, and the U.K. There is business concentration in slate tiles, which represent a large portion of EBITDA. S&P sees limited organic growth prospects, and even a slight decline, for the slate tiles market, given the stable renovation market, the mature penetration rate of slate, and the urbanization trend. Mitigating the limited scope and scale, Cupa is mainly exposed to the renovation end-market, which is less cyclical than the new building end-market. S&P said, "We forecast free operating cash flow (FOCF) of over EUR20 million in 2022-2023. We forecast capital expenditure (capex) of about EUR35 million in 2022 and EUR30 million in 2023. Annual maintenance capex represents about 6% of sales, which is slightly higher than the average for the building material sector, and relates mainly to clearance works in mining operations and machinery replacement. We do not assume material change in working capital requirements. "We view the financial risk profile as highly leveraged. Adjusted leverage at closing of Cupa's acquisition is about 6.3x, based on 2021 EBITDA. We forecast a slight reduction in 2022-2023, as EBITDA improves on pricing initiatives and due to synergies already realized at acquired entities. Although we do not deduct cash from debt in our calculation, owing to Cupa's private-equity ownership, we expect cash could be partly used to fund bolt-on mergers and acquisitions (M&A) or shareholder remuneration. In the next couple of years, the financial sponsor's commitment to maintaining financial leverage sustainably below 5.0x would be necessary for rating upside. "Cupa does not have material exposure to Russia or Ukraine. Sales in Russia and Ukraine are less than EUR1 million, and the company does not have suppliers from these countries. We expect limited direct disruptions from the conflict. Slate production is not energy intensive, and oil and gas represents a minor portion of Cupa's cost structure. In our view, consumer confidence could weaken in the medium term, and inflationary pressure could indirectly weigh on sales volumes." The final ratings are in line with S&P's preliminary ratings, which it assigned on April 7, 2022. The stable outlook reflects S&P's view that Cupa will continue to benefit from supportive end-markets while integrating its recent acquisitions, maintaining debt to EBITDA below 6.5x. S&P could lower the ratings if: -- The group experienced severe margin pressure or operational issues, leading to much lower FOCF and an adjusted-EBITDA margin below 18%. -- Adjusted debt to EBITDA remained above 6.5x over a prolonged period. -- Liquidity pressure arose. Cupa and its sponsor were to follow a more aggressive strategy with regard to higher leverage or shareholder returns. In S&P's view, the probability of an upgrade over its 12-month rating horizon is limited, reflecting the group's high leverage. Private equity ownership could increase the possibility of higher leverage or shareholder returns. For this reason, S&P could consider raising the rating if: -- Adjusted debt to EBITDA fell to consistently below 5x; -- Funds from operations (FFO) to debt increased to consistently above 12%; and -- Cupa and its owners showed commitment to lowering and maintaining leverage metrics at these levels. ESG credit indicators: E-2, S-2, G-3 S&P said, "Governance is a moderately negative consideration in our credit rating analysis of Cupa, as for most rated entities owned by private-equity sponsors. We believe the company's highly leveraged financial risk profile points to corporate decision-making that prioritizes the interests of the controlling owners. This also reflects generally finite holding periods and a focus on maximizing shareholder returns. Environmental and social factors have an overall neutral influence on our credit rating analysis. Cupa's carbon dioxide emissions are relatively limited compared with those of heavy building materials manufacturers. Unlike clay tiles or cement, the production of slate tiles requires minimal intermediary products, water, and gas." ELVET MORTGAGES 2019-1: Fitch Affirms 'B-' Rating on Class F Debt ----------------------------------------------------------------- Fitch Ratings has upgraded one tranche of Elvet Mortgages 2019-1 plc and two tranches of Elvet Mortgages 2020-1 plc. All other tranches have been affirmed. The Outlooks are Stable. DEBT RATING PRIOR ---- ------ ----- Elvet Mortgages 2020-1 plc Class A XS2176220429 LT AAAsf Affirmed AAAsf Class B XS2176220775 LT AAAsf Affirmed AAAsf Class C XS2176220858 LT A+sf Affirmed A+sf Class D XS2176220932 LT A+sf Upgrade BBB+sf Class E XS2176221070 LT A+sf Upgrade BB+sf Elvet Mortgages 2019-1 plc A XS2080552321 LT AAAsf Affirmed AAAsf B XS2080552594 LT AAAsf Affirmed AAAsf C XS2080552677 LT A+sf Affirmed A+sf D XS2080552750 LT A+sf Affirmed A+sf E XS2080552834 LT A+sf Upgrade BBB+sf F XS2080552917 LT B-sf Affirmed B-sf TRANSACTION SUMMARY The transactions are Atom Bank plc's second and third securitisation since starting its mortgage lending business in 2016. The portfolios comprise prime owner-occupied mortgage loans. KEY RATING DRIVERS Updated UK RMBS Criteria: In its updated UK RMBS Rating Criteria on 23 May 2022, Fitch updated its sustainable house price for each of the 12 UK regions. The changes increased the multiple for all regions other than the North East and Northern Ireland, updated house price indexation and updated gross disposable household income. The sustainable house price is now higher in all regions except Northern Ireland. This has a positive impact on recovery rates (RR) and consequently Fitch's expected loss in UK RMBS transactions. The updated criteria contributed to the rating actions. Capped Junior Notes: The class C, D and E notes of Elvet 2019-1 and Elvet 2020-1 are capped at 'A+sf' as they may defer interest at any time and lack sufficient liquidity support for a rating in the 'AAsf' category or above. The notes are exposed to payment interruption risk, which has limited their upgrades, in line with Fitch's Structured Finance and Covered Bonds Counterparty Rating Criteria. SVR Linked Rating Cap Removed: Fitch has removed its cap on Elvet 2020-1's class D and E notes. This was introduced to account for the notes' exposure to reductions in excess spread available to clear principal deficiency ledgers. Fitch no longer considers this rating cap necessary due to the increasing performance history of Atom Bank's standard variable rate (SVR), and the transactions' reduced dependence on excess spread. Strong Asset Performance: The transactions have continued to perform well, with arrears more than one month standing at 0.1% for both transactions. Constant default rates stood at 0.03% and 0.0% for Elvet 2019-1 and 2020-1 in March 2022, respectively. This performance reflects the prime nature of the collateral pool. There is no previous adverse credit, full income verification, full or automated valuation model property valuation and a clear lending policy. The limited history of origination and subsequent performance data are sufficiently mitigated through available proxy data and an originator adjustment of 1.1x applied in Fitch's analysis. CE Build-Up: Credit enhancement (CE) levels have continued to increase for both transactions due to strong asset performance. CE has risen to 23.0% and 20.2% for Elvet 2019-1's class A notes and Elvet 2020-1's class A notes, respectively, at the time of their latest interest payment dates. This has resulted in greater resilience to losses, contributing to the upgrades. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: The transactions' performance may be affected by changes in market conditions and economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce CE available to the notes. Additionally, unanticipated declines in recoveries could also result in lower net proceeds, which may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in recoveries. Fitch conducts sensitivity analyses by stressing both a transaction's base-case foreclosure frequency (FF) and RR assumptions, and examining the rating implications on all classes of issued notes. Fitch tested a sensitivity scenario by applying 15% increase in weighted average (WA) FF and a 15% decrease in WARR. The results indicate a rating impact of up to 12 notches for Elvet 2019-1 and six notches for Elvet 2020-1. Factors that could, individually or collectively, lead to positive rating action/upgrade: Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE and potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the FF of 15% and an increase in the RR of 15%. The ratings for the subordinated notes could be upgraded by up to 11 notches for Elvet 2019-1 and four notches for Elvet 2020-1. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 At the time of Elvet Mortgages 2019's closing, Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by PricewaterhouseCoopers LLP. The third-party due diligence described in Form 15E focused a comparison and re-computation of certain characteristics with respect to the mortgage loans and related mortgaged properties in the data file. Fitch considered this information in its analysis and it did not have an effect on Fitch's analysis or conclusions. Form ABS Due Diligence 15E was not provided to, or reviewed by, Fitch at the time of Elvet Mortgages 2020-1's closing. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Prior to the closing of Elvet 2019-1, Fitch conducted a review of a small targeted sample of Atom Bank plc's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS 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. INVEXSTAR CAPITAL: Directors Face GBP100-Mil. Lawsuit Over Collapse ------------------------------------------------------------------- Jonathan Browning, Harry Wilson and Donal Griffin at Bloomberg News report that the pair behind a London brokerage that collapsed, leaving banks with millions of dollars of losses, are facing a GBP100 million (US$125 million) lawsuit. Alberto Statti and Caterina De'Medici are facing a legal claim from the liquidators of Invexstar Capital Management, Bloomberg relays, citing a UK legal filing. The firm went bust in May 2015 having built up trading positions with a notional value of more than GBP1.25 billion, Bloomberg recounts. Mr. Statti and Ms. De'Medici have both denied the allegations in a defence document, Bloomberg notes. Banks including BNP Paribas SA, Morgan Stanley and Nomura Holdings Inc. were left with tens of millions of pounds of losses and had to bear the cost of closing out the firm's open trading positions, Bloomberg discloses. ING Groep NVand Mizuho Financial Group Inc. were also exposed to the firm's failure, Bloomberg states. According to Bloomberg, the liquidators said despite the size of its trading positions in corporate and sovereign bonds, Invexstar did not put on any off-setting positions, and did not have the funds to settle its trades. The liquidators claim Mr. Statti and Ms. De'Medici are alleged to have transferred about GBP6.7 million to a bank account in Mauritius shortly after the firm defaulted, something for which there was "no commercial purpose", Bloomberg relates. The liquidators allege Mr. Statti, 55, had day-to-day control over Invexstar and conducted much of its trading despite not being authorized by the UK financial regulator, while Mr. De'Medici, 44 and the firm's sole director, "did not exercise any oversight of his activities" or the company's management, according to Bloomberg. KCA DEUTAG: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed KCA Deutag Alpha Limited's (KCAD) 'B+' Long Term Issuer Default Rating following the group's announced acquisition of Saipem SpA's onshore drilling business (Saipem Onshore Drilling). The Outlook is Stable. Fitch has also affirmed the senior secured rating of the notes issued by KCA Deutag UK Finance plc at 'B+' with a Recovery Rating of 'RR4' based on the current capital structure. Fitch does not expect an impact on the senior secured rating from KCAD's new capital structure following the completion of the acquisition based on current assumptions. The acquisition will improve KCAD's business profile by increasing its size, diversification and exposure to the Middle East, mainly Saudi Arabia (A/Positive) and Kuwait (AA-/Stable), which enjoy low production costs. While KCAD's leverage will temporarily increase as the acquisition will mostly be debt-funded, its financial profile will remain commensurate with the current rating, particularly taking into account its improved business profile. The acquisition should also more than offset KCAD's operations in Russia, which Fitch estimates at 25% of revenue and EBITDA in 2020-2021. KCAD's 'B+' rating is constrained by the oilfield services (OFS) sector's high volatility, spare capacity and competition, the group's fairly modest scale, albeit set to improve post-acquisition, and its status as largely a one-service provider (onshore and offshore drilling). Rating strengths are KCAD's fairly conservative leverage, free cash flow (FCF)-generation capacity and geographical diversity of operations. KEY RATING DRIVERS Saipem Acquisition Strengthens Business Profile: Fitch estimates KCAD's acquisition of Saipem Onshore Drilling for USD550 million in cash and a 10% in the group's equity stake should increase its EDITDA by around 50%. The enlarged group will be fairly diversified with operations in the Middle East (more than 50% of revenue, mainly split between Saudi Arabia, Oman (BB-/Stable), and Kuwait), Europe and Latin America. Fitch assumes that the acquisition will close by year-end, as guided by KCAD. Leverage Remains in Check: After the transaction closes, Fitch conservatively expects funds from operations (FFO) net leverage to increase to 3.5x in 2023 and fall below 3x in 2024-2025 on projected positive FCF and continued improvement in operational performance (excluding Russia's cash flows). KCAD's net debt to EBITDA should remain below 3x in 2023, and should fall to or below 2x by 2024-2025. KCAD's financial policy is to maintain net debt to EBITDA at or below 2x. Russia Business Suspension: Around 20% of KCAD's owned drilling rigs, pre-acquisition, are located in Russia. In 2020 and 2021, Fitch estimates that Russia accounted for around a quarter of the group's revenue and EBITDA. While most rigs in Russia remain fully operational, in Fitch's rating case Fitch assumes that KCAD's Russian operations will not contribute to cash flows in 2022 and beyond. This will be more than offset by the upcoming acquisition and the group's increased operations in Oman. Utilisation Bottomed Out: Fitch expects that utilisation will keep improving on the back of stronger oil prices, relaxation of OPEC+ production restrictions and increasing drilling activity. Utilisation in the land business dropped sharply to about 50% in 2H20-1H21, from 73% in 1H20, driven by very low utilisation in non-core countries and regions, such as Europe, Africa and Iraq. In 4Q21-1Q22 utilisation improved to around 60%. Offshore Operations Moderately Improved: In early 2022 around 30% of KCAD's offshore rigs were stacked, compared with around 40% in 2020. Fitch expects utilisation to remain broadly stable in 2022-2023. KCAD's offshore operations are asset-light and have low operating leverage, making the group less exposed to the highly volatile offshore market versus peers. The long-term nature of most of its contracts in the segment also makes its performance more predictable. Order Book Offers Visibility: KCAD's order book provides some certainty to its medium-term performance. As at April 1 2022, its total backlog amounted to USD2.7 billion (plus an optional part of USD2.9 billion), compared with an annual Fitch-projected revenue of USD1.3 billion for 2022-2025, excluding Saipem Onshore Drilling. KCAD's revenue is more diversified by customer than peers', and Fitch estimates that post-acquisition KCAD's largest single customer, Saudi Arabian Oil Company (A/Positive), should contribute less than 25% to its revenue. Onshore Focus: KCAD's drilling operations are focused on onshore (around 60% of EBITDA in 2021, or around 75% post-acquisition and without Russia). KCAD's onshore fleet, excluding Russia and post-acquisition, will consist of around 137 rigs, including 36 rigs in Saudi Arabia, while all of its offshore platforms and jack-ups (31 units) are owned by KCAD's clients. DERIVATION SUMMARY Post-acquisition KCAD's scale as measured by Fitch forecasted 2023 EBITDA will be comparable to that of Canadian Precision Drilling Corporation (Precision, B+/Stable) and higher than that of UAE-headquartered ADES International Holding PLC (ADES, B+/Stable). KCAD, however, will be more geographically diversified than its two peers. Fitch projects KCAD's FFO net leverage to fall below 3x by 2024-2025, broadly comparable with that of ADES and Precision. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer: -- Acquisition of Saipem Onshore Drilling to be completed by end- 2022; -- Gradual improvements in onshore performance driven by improved oil prices and increased drilling activity, including in the Middle East; -- No dividend payments; -- Operations in Russia deconsolidated from 2022. KEY RECOVERY ANALYSIS ASSUMPTIONS -- The analysis is for the existing capital structure before the acquisition. -- The recovery analysis assumes that KCAD would be reorganised as a going concern in bankruptcy rather than liquidated. -- The going concern (GC) EBITDA reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which Fitch bases the enterprise valuation (EV). KCAD's going concern EBITDA of USD158 million (net of lease charges) excludes the company's operations in Russia and reflects a downturn followed by one year of moderate recovery. -- In a distressed scenario, Fitch believes that a 3.5x multiple reflects a conservative view of KCAD's EV. This reflects the structurally declining industry with pricing pressure, which is dependent on robust E&P budgets. -- Fitch ranks the super senior basket above the senior secured notes. -- After deduction of 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 senior secured notes. The WGRC output percentage on current metrics and assumptions is 50%. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Completion of Saipem Onshore Drilling's acquisition, coupled with continued market improvements and FFO net leverage sustainably falling to below 2.5x. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Large debt-funded acquisitions, sizeable capex or dividends leading to FFO net leverage consistently above 3.5x; -- Unexpected erosion in competitive position leading to significantly lower utilisation and/or daily rig rates. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: KCAD's liquidity is strong, with no debt maturities until 2025. Management expects that KCAD's acquisition of Saipem Onshore Drilling will be funded by a combination of a USD250 million backstop financing (pari passu with the senior secured notes); a new super senior USD275 million revolving credit facility (RCF), which will only partially be utilised and a source of liquidity for the enlarged group; a junior USD200 million payment-in kind facility and a USD25 million equity injection. According to KCAD, funding has largely been agreed and committed. ISSUER PROFILE KCAD is an international onshore and offshore drilling and engineering contractor to the oil and gas industry. 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 ---- ------ -------- ----- KCA DEUTAG ALPHA LIMITED LT IDR B+ Affirmed B+ KCA DEUTAG UK Finance plc senior secured LT B+ Affirmed RR4 B+ ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2022. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *