/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/220630.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Thursday, June 30, 2022, Vol. 23, No. 124 Headlines B U L G A R I A EUROINS INSURANCE: Fitch Lowers Insurer Financial Strength to B+ C Y P R U S BANK OF CYPRUS: S&P Affirms 'B+/B' ICRs, Outlook Positive F R A N C E CERELIA SA: S&P Lowers LongTerm ICR to 'B-', Outlook Stable I R E L A N D INVESCO EURO VIII: Moody's Assigns B3 Rating to EUR11.4MM F Notes VIRGIN MEDIA: Fitch Affirms LongTerm IDR at 'B+', Outlook Stable I T A L Y MOBY SPA: Majority of Bondholders Back Debt Restructuring K A Z A K H S T A N KASPI BANK: S&P Affirms 'B+/B' ICRs, Outlook Positive L U X E M B O U R G ROOT BIDCO: S&P Affirms 'B' ICR on Cosmocel Acquisition S P A I N ABENEWCO1: Spanish Government Rejects State Aid U N I T E D K I N G D O M CATH KIDSTON: Hilco Nears Takeover of Business ONE TO ONE MIDWIVES: Investigation Into Collapse Ongoing PRECISE MORTGAGE 2018-2B: Fitch Affirms 2 Tranches at BB+ QUINTO CRANE: Cranes Sold at Auction for GBP5.12 Million ROLLS-ROYCE FINANCE: Fitch Affirms 'BB-/B' Issuer Default Ratings [* ] UK: South West Firms May Go Bust as Cost of Living Rises - - - - - =============== B U L G A R I A =============== EUROINS INSURANCE: Fitch Lowers Insurer Financial Strength to B+ ---------------------------------------------------------------- Fitch Ratings has downgraded Euroins Insurance Group AD's (EIG) operating non-life insurers' Insurer Financial Strength (IFS) Ratings to 'B+' (Weak) from 'BB-' (Somewhat Weak) and removed them from Rating Watch Negative (RWN). The affected companies are Insurance Company Euroins AD, Insurance Company EIG Re AD and Euroins Romania Asigurare-Reasigurare S.A. The Outlook is Negative. The downgrade reflects a significant fall in its capital position following the restatement of EIG's 2020 results. The Negative Outlook reflects uncertainty over reserves adequacy and experience, and potential negative impact further restatements by EIG could have on the capital position of the company. The removal of RWN follows the rating action taken on EIG's majority owner Eurohold Bulgaria AD (Eurohold; see "Fitch affirms Eurohold Bulgaria at 'B'; Outlook Stable", dated 22 June 2022). The three insurers 'B+' IFS Ratings reflect EIG's 'Somewhat Weak' capitalisation and 'Weak' reserve adequacy. KEY RATING DRIVERS In its 2021 annual accounts, EIG restated the accounted IBNR (incurred but not reported) claims reserves for 2020, notably on its Romanian motor business. This implied a much lower capital position at end-2020 than formerly accounted. These restatements have significantly weakened EIG's capital position: Fitch's Prism Factor-Based (Prim FBM) capital model score was below the 'Somewhat Weak' category, based on preliminary evaluations, at end-2020, versus the former assessment of 'Adequate'. The Prism FBM score remained below the 'Somewhat Weak' category at end-2021, also based on a preliminary assessment, albeit materially improved within the category from the restated result for end-2020, largely due to a capital injection from the European Bank for Reconstruction and Development (EBRD, EUR30 million) and Eurohold (EUR12 million) in September 2021. Fitch views reserving as weak, reflecting historical reserve deficiencies and more recent restatements. Despite the significant increase in the restated claims reserves, Fitch believes that a longer-term record of less adverse reserve development is key to demonstrating the sufficiency of accounted claims reserves. 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. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Prism FBM improving to the 'Somewhat Weak' category combined with a stabilisation of reserve experience. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Further deterioration in EIG's capitalisation, driven by, for instance, further restatements; -- A downgrade of Eurohold's IDR. 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. DEBT RATING PRIOR ---- ------ ----- Insurance Ins Fin Str B+ Downgrade BB- Company EIG Re AD Euroins Romania Ins Fin Str B+ Downgrade BB- Asigurare-Reasigurare S.A. Insurance Ins Fin Str B+ Downgrade BB- Company Euroins AD =========== C Y P R U S =========== BANK OF CYPRUS: S&P Affirms 'B+/B' ICRs, Outlook Positive --------------------------------------------------------- S&P Global Ratings affirmed its 'B+/B' long- and short-term issuer credit ratings on Bank of Cyprus Public Co. Ltd. (BoC). S&P also affirmed the 'B-/B' ratings on nonoperating holding company (NOHC), Bank of Cyprus Holdings PLC. The outlook remains positive on both entities. In addition, S&P affirmed the resolution counterparty ratings at 'BB/B'. S&P said, "The positive outlook reflects the possibility that we could raise the ratings if BoC's asset quality remains healthy and financial performance continues to improve despite current macroeconomic uncertainties. The affirmation reflects the material improvements achieved by BoC, which has managed a 95% cumulative reduction of its stock of nonperforming exposures (NPEs) from a 2014 peak through a mix of market sales and organic efforts. NPEs represented 6.5% of gross loans at March 31, 2022, pro-forma for Helix 3, compared with 30% at year-end 2019. As a result, BoC enters a more challenging period in a stronger position than the recent past. "However, similar to its peers, BoC won´t be immune to the indirect effects of protracted inflation and high energy prices. In our view, some asset quality deterioration could eventually arise. Cyprus' tourism and business links with Russia are stronger than those of other EU members, and therefore the economic stress currently being experienced by Russia could somewhat affect the island's tourism sector recovery. BoC weathered the spill over effects from the COVID-19 pandemic, with just 4% of the moratorium loan book presenting some arrears and less than 1% classified as Stage 3. However, we expect that Stage 2 loans (representing about 19% of loans) could be the main source of further asset quality deterioration if macroeconomic conditions worsen." Adequate capitalization should provide a buffer to accommodate growth. Following seven years of de-risking its balance sheet and reducing highly risk weighted problem assets, BoC's capitalization has gradually strengthened. S&P said, "Our risk-adjusted capital (RAC) ratio stood at 8% at year-end 2021, pro-forma the Helix 3 transaction, compared with 7.1% at year-end 2020. We expect that BoC's capitalization will stay sustainably above 7% over the next 18 months, providing a cushion for the bank to moderately expand its loan book. We also anticipate that quality of capital will continue comparing favorably to that of Greek peers, which unlike BoC hold large amounts of deferred tax credits on their books." The bank's ample liquidity mitigates the potential risk of Russia-linked deposit outflows. At March 31, 2022, BOC had about EUR10.2 billion of liquid assets--40% of total assets, covering 58% of customer deposits--mainly in the form of cash and reserves at the central bank. This, coupled with retail funding fully financing the loan book (loan-to-deposit ratio of 58% at March 31, 2022), provides enough of a buffer to absorb potential customer deposit outflows related to Russian citizens or businesses, even if this is not our base case. BoC's Russia-linked deposits are limited at about 6% of customer deposits, which we consider manageable. BoC's efficiency should reduce the gap with peers over the next 12-18 months. Ongoing efforts to reduce costs through voluntary staff exit schemes and digital transformation should somewhat offset inflationary pressures, resulting in BoC's feeble efficiency gradually improving. S&P said, "We expect its cost-to-income ratio to reach 63% by year-end 2023, compared with about 70% calculated by S&P Global Ratings at March 31, 2022. In addition, BoC could benefit more than peers from monetary policy tightening, since about 95% of its loan book is referenced to floating rates. To sustainably improve its bottom-line results the bank will need to keep credit provisions under control, because borrowers' repayment capacity could come under pressure and Cyprus' payment culture is feeble, especially in times of stress. We forecast cost of risk will stand above management's target, hovering at 80 basis points (bps)-100 bps over the next two years." S&P said, "The outlook remains positive, reflecting the possibility of an upgrade if economic risks appear manageable and we have more certainty that the recent improvement of the bank's risk profile is sustainable in the medium term. "We could raise the long-term issuer credit rating on BoC over the next 12 months if it sustains the improvement in its risk profile. This could happen if the bank maintains NPEs at close to current levels despite the knock-on effects of the pandemic and deteriorating macroeconomic environment, including protracted inflation. An upgrade would also depend on BoC's ability to improve its underlying profitability prospects. "We could revise the outlook to stable if BoC's credit quality appears likely to deteriorate much more than we currently anticipate. This would jeopardize its balance-sheet clean-up efforts from the previous recession." ESG credit indicators: E-2, S-2, G-3 =========== F R A N C E =========== CERELIA SA: S&P Lowers LongTerm ICR to 'B-', Outlook Stable ----------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit rating on Cerelia S.A. and issue rating on its senior debt instruments to 'B-' from 'B', with the '3' (50% prospects) recovery rating unchanged. The stable outlook reflects S&P's view that Cerelia can gradually deleverage over the next 12 months and fund its day-to-day operations in the short term. High cost inflation means Cerelia should report weaker-than-expected credit metrics and large negative FOCF in fiscal 2022. S&P said, "Cerelia's profitability is trending lower than our base-case projections because of the effects of high inflation on raw materials, like wheat and edible oil, but also packaging, energy, and labor costs. Although we understand the group hedged its commodity and energy exposure and started to increase prices last year, profitability has decreased significantly because of the time lag to implement increases in Western European markets. We think this affects most consumer food companies with high exposure to wheat, edible oil, and butter but particularly those selling private labels products such as Cerelia, which can't cut operating expenses like marketing or advertising compared to branded manufacturers. We forecast revenue growth of about 10%-15% in fiscal 2022 thanks to price increases but assume lower sales volumes due to the normalization of home consumption after COVID-19 lockdowns, which has yet to be fully offset by higher volumes from food service activities. Furthermore, the group is facing a slower-than-expected production ramp-up and higher-than-anticipated starting costs at its new U.S. plants producing waffles and dough products. This means we now forecast an S&P Global Ratings-adjusted EBITDA margin of 8.5%-9.0% in fiscal 2022, versus our previous base case of 11.5%-12.0%, and large negative FOCF of about EUR55 million-EUR60 million, versus EUR15 million-EUR20 million, due to larger working capital outflows and capital expenditure (capex). In turn, we expect high S&P Global Ratings-adjusted leverage of 11x-12x in fiscal 2022 versus our previous base case of 8.0x-8.5x. Our adjusted debt figure is gross debt and includes leases and factoring lines but excludes the shareholder loan." Financial covenant headroom should be replenished in the near term with the signing of a new loan and an equity injection from the sponsor. Low profitability and larger negative FOCF have led Cerelia to increase drawings under its EUR100 million revolving credit facility (RCF). At March 31, 2022, the RCF was 80% drawn and the financial covenants were tested, with the company's leverage at 7.38x versus a maximum of 9.0x. S&P said, "For June 30, 2022, we think Cerelia should also pass the covenant test, albeit with relatively tight (less than 15%) headroom. It should then repay most of the drawings in July and avoid covenant tests in the following quarters thanks to the new Pret Garanti par l'Etat (PGE; a French State guaranteed loan) and an equity injection from financial sponsor Ardian. That said, we believe that the current lack of access to debt capital markets and weak and volatile FOCF mean liquidity pressure could return, notably in case of a potential high impact, low probability event." S&P said, "In our view, Cerelia's operating performance should improve in fiscal 2023 supported by the effective pass through of cost increases, ramp-up of operations in North America, and contributions from recent acquisitions. We expect continued high revenue growth of about 15%, mostly led by price increases in Europe and North America. We also forecast an S&P Global ratings-adjusted EBITDA margin of 10.5%-11.5% in fiscal 2023 from 8.5%-9.0% in fiscal 2022 through price increases (with a time lag for retail customers) and the gradual ramp-up at the waffle and dough factory in the U.S. In addition, we factor earnings contributions from recently acquired businesses (Jus Rol and Knack & Back) although we understand some assets are yet to be approved by antitrust authorities in the U.K. This means credit metrics will slightly improve but FOCF will remain negative due to still-low profitability versus historical levels, with continued large working capital needs but decreasing capex as the largest expansion projects are likely delivered. We now forecast FOCF will remain negative at EUR10 million-EUR20 million next year. Adjusted debt leverage should decrease to about 8x-9x with funds from operations (FFO) cash interest rebounding to 2.0x-2.5x, in line with the 'B-' rating. "The stable outlook reflects our view that Cerelia's operating performance should gradually improve over the next 12 months, leading to a strengthening of credit metrics, which are currently at an elevated level for the rating. "Under our base case, we project adjusted debt leverage will reduce to 8x-9x in fiscal 2023 with FFO cash interest coverage rising above 2x. We think this could occur if Cerelia can gradually restore profitability by passing on substantial price increases to customers to meaningfully offset high raw materials costs. We also factor a slow improvement in EBITDA from North America due to the delayed ramp-up of U.S. waffle operations. "We could lower the ratings over the next 12 months if Cerelia's adjusted debt leverage remains at or above 10x and FFO cash interest remains below 2.0x. This could occur in case the group cannot withstand operating headwinds. "We would also have a negative view if liquidity weakens, which could be due to continued low profitability, and there is large negative FOCF because of an inability to control working capital movements. This would substantially reduce headroom under the financial debt covenants. "We could take a positive rating action if see adjusted debt leverage decreasing to 6x-7x, with FFO cash interest coverage of 3x-4x and FOCF turning positive. "We think this could occur if Cerelia's operating performance significantly exceeds our base-case projections. It could come from a faster-than-expected production and distribution ramp-up in North America, together with improved profitability in Europe thanks to significant and timely price increases offsetting continued high operating costs." ESG credit indicators: E-2, S-2, G-3 ============= I R E L A N D ============= INVESCO EURO VIII: Moody's Assigns B3 Rating to EUR11.4MM F Notes ----------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following definitive ratings to notes issued by Invesco Euro CLO VIII DAC (the "Issuer"): EUR248,000,000 Class A Senior Secured Floating Rate Notes due 2036, Definitive Rating Assigned Aaa (sf) EUR30,600,000 Class B-1 Senior Secured Floating Rate Notes due 2036, Definitive Rating Assigned Aa2 (sf) EUR11,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2036, Definitive Rating Assigned Aa2 (sf) EUR20,800,000 Class C Senior Secured Deferrable Floating Rate Notes due 2036, Definitive Rating Assigned A2 (sf) EUR27,200,000 Class D Senior Secured Deferrable Floating Rate Notes due 2036, Definitive Rating Assigned Baa3 (sf) EUR21,400,000 Class E Senior Secured Deferrable Floating Rate Notes due 2036, Definitive Rating Assigned Ba3 (sf) EUR11,400,000 Class F Senior Secured Deferrable Floating Rate Notes due 2036, Definitive Rating Assigned B3 (sf) RATINGS RATIONALE The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in Moody's methodology. Class F Notes are amortised partially through the interest waterfall. 20% of all remaining interest proceeds available for distribution to subordinated noteholders will be used to redeem the Class F Notes. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured obligations and up to 10% of the portfolio may consist of senior unsecured obligations, second-lien loans, mezzanine obligations and high yield bonds. The portfolio is expected to be 93% ramped up as of the closing date and to comprise of predominantly corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the six month ramp-up period in compliance with the portfolio guidelines. Invesco CLO Equity Fund IV L.P will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's five-year reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or credit improved obligations. In addition to the seven classes of notes rated by Moody's, the Issuer has issued EUR30,500,000 of Subordinated Notes which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2021. Moody's used the following base-case modeling assumptions: Par Amount: EUR400,000,000 Diversity Score: 48 Weighted Average Rating Factor (WARF): 2973 Weighted Average Spread (WAS): 3.95% Weighted Average Coupon (WAC): 5.00% Weighted Average Recovery Rate (WARR): 44.00% Weighted Average Life (WAL) (*): 8.075 years VIRGIN MEDIA: Fitch Affirms LongTerm IDR at 'B+', Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Virgin Media Ireland Limited's (VMI) Long-Term Issuer Default Rating (IDR) at 'B+' with Stable Outlook. Fitch has also affirmed its EUR900 million term loan B at senior secured rating of 'BB' with a Recovery Rating of 'RR2'. The rating reflects VMI's high leverage relative to investment-grade telecom peers', a high proportion of advertising revenue from free-to-air (FTA) channels and an intensely competitive domestic market. VMI also has a weak position in mobile compared with 'BB-' rated peers. Rating strengths include its leading cable position in Ireland, a well-converged customer base and strong EBITDA margins. The Stable Outlook reflects Fitch's expectation that net debt will be maintained by shareholder Liberty Global (LG) at around 5x EBITDA, in line with that of other telecom companies owned by LG. KEY RATING DRIVERS Fibre Rollout Increases Capex: At March-2022 VMI had rolled out fibre to the premises (FTTP) to over 40,000 locations but will need to accelerate to around 80,000 premises per quarter to reach its target of one million by 2024. Fitch has thus assumed increased capex toward 30% of revenue by 2023 from around 16% in 2021. The cost of rolling out FTTP is likely to be more expensive than upgrading the existing network to DOCSIS 4.0 but should bring better opportunities for wholesale-access revenue. Leading High-Speed Provider: Over 99% of the 956,300 premises passed by VMI's DOCSIS network are capable of gigabit speeds. This makes VMI's high-speed network the largest in Ireland as incumbent eir's FTTP network passed only 800,000 at end-March 2022 while Vodafone backed-JV SIRO and National Broadband Ireland were lower still. Upselling customers to ultrafast broadband packages is the industry's leading growth driver. According to Comreg, the share of broadband packages sold with speeds capable of over 100Mbps increased to 52% by March-2022 from 38% in March 2020. With the country's largest network capable of these speeds, VMI should be well placed to capture broadband revenue growth. Intensely Competitive Market: VMI faces stiff competition for FTTP customer growth as other operators accelerate the pace of build of their networks. Both eir and Siro will bring forward their expansion plans. The scale of the competing national FTTP builds means VMI will face increasing overlap in its fibre or gigabit-capable DOCSIS 3.1 footprint. VMI's new pricing for 12-month broadband packages over 500Mbps is currently around EUR10 higher per month than Sky, Vodafone and eir. It may therefore face greater levels of fixed-line churn and could lower its prices if competitor pricing is unchanged, putting pressure on EBITDA margins. Mobile Market Share Growing: VMI's market share of mobile subscribers in Ireland is currently less than 5% but subscriber number growth is expected to continue. It has grown its mobile subscribers to 131,600 in March 2022 from 86,100 in March 2019. VMI has adopted a fairly aggressive pricing strategy to acquire new customers with its 4G sim-only plan offer of EUR5 per month considerably lower than the equivalent packages offered by larger mobile operators. Growth in sim-only customers at this level is likely to support revenue growth in mobile but may be offset by lower blended average revenue per user of around EUR20 in 1Q22. Well-Converged Operator: VMI is the second-largest pay-TV operator in Ireland behind Sky. Fitch believes the scale of its TV base and the recent acquisition of premium European football rights provide a competitive advantage in a market where pay-TV penetration was high at 59% at March 2022. Traditional TV solutions like those offered by Sky and VMI continue to maintain market share relative to IPTV services offered by Vodafone and eir. Meaningful growth in mobile should offer greater potential for fixed- mobile convergence (FMC) at VMI. FMC typically leads to increased customer loyalty and may provide a buffer to companies operating in intensely competitive markets. DERIVATION SUMMARY VMI's ratings reflect its position as the leading cable operator in Ireland with the widest coverage of high-speed broadband homes passed in the country, more than domestic peer Eircom Holdings (Ireland) Limited (B+/Stable). VMI's leverage relative to that of other western European telecom operators such as Vodafone Group plc (BBB/Stable) is high and a constraint on the ratings. VMI has a lower EBITDA than other LG assets such as Telenet Group Holding N.V (BB-/Stable) and VodafoneZiggo Group B.V. (B+/Stable). VMI also has a much smaller scale in mobile than its peers with revenue from volatile FTA TV advertising representing a higher share of its total revenue base. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer -- Revenue stable to growing at low single digits in 2022-2025; -- Fitch-defined EBITDA margin to decline to 38% in 2022 and to before increasing to 39% by 2024; -- Capex at 26%-31% of sales over the next four years; -- Negative working capital at 1.5% of revenue. KEY RECOVERY RATING ASSUMPTIONS -- The recovery analysis assumes that VMI would be considered a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated; -- A 10% administrative claim; -- Fitch's GC EBITDA estimate of EUR140 million reflects Fitch's view of a sustainable, post-reorganisation EBITDA; -- An enterprise value (EV) multiple of 6x is used to calculate a post-reorganisation valuation and reflects a distressed multiple; -- Fitch estimates the total amount of debt claims at EUR1 billion, which includes full drawings on an available revolving credit facility (RCF) of EUR100 million. Fitch's recovery analysis indicates a 76% recovery for the senior secured debt, resulting in an instrument rating and a Recovery Rating of 'BB' and 'RR2' respectively. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Strong and stable free cash flow (FCF) generation and a more conservative financial policy resulting in FFO net leverage sustainably below 5.0x (equivalent to around 4.8x Fitch- defined net debt/EBITDA); -- Cash flow from operations less capex/gross debt consistently above 5%; -- No deterioration in the competitive or regulatory environment. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- FFO net leverage sustainably above 5.8x (equivalent to around 5.6x Fitch-defined net debt/EBITDA); -- Further intensification of competitive pressures leading to deterioration in operational performance. 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 Ample Liquidity: All of VMI's debt is long-dated with its EUR900 million term loan having a bullet maturity in 2029. VMI has access to an undrawn EUR100 million RCF. Fitch expects negative FCF generation over the next three years as it spends around EUR200 million rolling out FTTP to one million premises. Fitch expects net debt to be managed by LG at around 5x EBITDA. ISSUER PROFILE VMI is the largest cable operator in Ireland with a fully converged product offering covering fixed line and mobile. At more than 49% of homes passed in Ireland, VMI has the largest coverage of gigabit-capable broadband homes passed in Ireland through its DOCSIS 3.1 network. 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 ---- ------ -------- ----- Virgin Media LT IDR B+ Affirmed B+ Ireland Limited senior secured LT BB Affirmed RR2 BB ========= I T A L Y ========= MOBY SPA: Majority of Bondholders Back Debt Restructuring --------------------------------------------------------- Giulia Morpurgo at Bloomberg News, citing a statement on the Luxembourg Stock Exchange, reports that a majority of holders of Moby SpA's EUR300 million bonds due 2023 approved a proposal to restructure the debt. According to Bloomberg, 80% of the bondholders voted in favor of the proposal and 20% didn’t vote. The deal was agreed in January after almost two years of fights between bondholders and shareholders to control the business, Bloomberg relates. The plan includes EUR50 million injection from bondholders that will take a stake in a new unit that will own Moby’s fleet, Bloomberg discloses. The owner of MSC Gianluigi Aponte will also inject cash and take a stake in the business to allow for the payment of an old bill owed to the administrators of Tirrenia, Bloomberg states. =================== K A Z A K H S T A N =================== KASPI BANK: S&P Affirms 'B+/B' ICRs, Outlook Positive ----------------------------------------------------- S&P Global Ratings affirmed its 'BB-/B' long- and short-term issuer credit ratings on Kazakhstan-Based Kaspi Bank JSC. The outlook remains positive. At the same time, S&P affirmed its 'kzA' Kazakhstan national scale rating on Kaspi Bank. S&P asid, "Our analysis focuses on the consolidated accounts of Kaspi.kz (the group), the ultimate parent of Kaspi Bank. Kaspi Bank, together with its payment business, will likely continue to represent more than 70% of the group's operating revenue. We therefore view Kaspi Bank as a core entity of the group. "The long-term rating on Kaspi Bank is one notch higher than the stand-alone credit profile of the consolidated group, reflecting our view of the bank's high systemic importance in Kazakhstan, and our view of the Kazakh government as supportive of its banking system. Kaspi Bank is now the second largest domestic bank by retail deposits, with 20% market share, and the largest domestic bank by unsecured consumer loans. "The group's operating performance remains strong. The group's return on average equity (ROAE) has exceeded 80% over the past few years. We expect returns to stay at least at this level over the next two years because of commission income's high contribution to operating results. We note that this contribution is higher than for many regional peers. In 2021, Kaspi's annual net income hit a record of Kazakhstani tenge (KZT) 435.2 billion ($1 billion). Despite challenging operating conditions, Kaspi posted KZT103 billion ($221 million) net profit in Q1 2022. We note that the group continues to demonstrate strong growth in its payment and e-commerce segment, with monthly active customers reaching 11 million people and ROAE of 75%. The bank's stock of problem assets declined, with the share of Stage 3 loans at about 5% of the loan portfolio, down from 10% at year-end 2020. We anticipate credit costs will remain manageable at about 2% in 2022, despite challenging operating conditions and potential negative spillover effect to households' creditworthiness." An inflationary spike, together with the disruption of trade and logistic chains on the back of elevated geopolitical risks in the region, could disrupt borrowers' payment discipline and create additional provisioning needs for banks in the system. However, since economic fundamentals in the context of Kazakhstan's external buffers remain supportive, S&P considers that any deterioration in asset quality would likely be moderate and temporary. S&P said, "We expect Kaspi Group will preserve a moderate capital buffer. We anticipate our risk-adjusted capital ratio will remain at about 7% in 2022-2023, implying satisfactory capitalization by our measures. Despite the bank's very high profitability, with ROAE remaining above 75% over the next two years, we think the capital buffer will be limited due to the group's generous dividend policy. In April 2022, the group announced a buyback of its shares for up to $100 million, with the execution anticipated within the next several months. "The group's credit profile will continue benefit from sustainably strong earnings generation. We think the group's solid franchise across all platforms where it operates, its diversified business, and substantial fee and commission income--which is less volatile over the economic cycle--support its business stability. We also think the group's long track record of solid earnings generation will continue to support its capital and business flexibility. We expect the bank will preserve its stable funding profile dominated by customer deposits, as well as its ample liquidity position. "The positive outlook on Kaspi Bank reflects our expectations that it will sustain the improvements to its asset quality metrics, including lower credit losses than domestic peers', over the next six to 12 months. "We could upgrade the bank in the next six to 12 months if it maintains its sound asset quality indicators through expected challenging operating conditions, and if it continues to expand its franchise as planned, while maintaining its large market share in consumer finance business and payments. "We could revise the outlook back to stable if the bank failed to sustain recent improvements in asset quality metrics, with rising credit losses and nonperforming assets on the back of severe market turbulence. We could also take a negative rating action if we saw higher materialization of geopolitical risks, bringing financial losses or damaging Kaspi Bank's business franchise on the domestic market. Although unlikely, significant dividend distributions, leading to deterioration of the bank's capital position, could also prompt a negative rating action." ESG credit indicators: E-2, S-2, G-3 =================== L U X E M B O U R G =================== ROOT BIDCO: S&P Affirms 'B' ICR on Cosmocel Acquisition ------------------------------------------------------- S&P Global Ratings affirmed its 'B' long-term issuer credit rating on Root Bidco S.a.r.l. (Rovensa). S&P said, "The stable outlook reflects our expectation that Rovensa will increase its EBITDA to EUR155 million-EUR165 million and generate positive FOCF of more than EUR20 million in the next 12 months, leading to a swift reduction in adjusted debt to EBITDA to well below 7x by year-end fiscal 2023, which we view as commensurate with the rating." Rovensa recently signed an agreement to acquire Cosmocel and will finance the transaction via external debt and equity. Following the Cosmocel acquisition announced May 26, 2022, credit metrics will weaken due to higher debt, leading to no rating headroom. Cosmocel is a Mexico-based player in specialty bio-stimulants, biocontrol, and adjuvants with a leading position in the Americas. The transaction will result in additional financial debt. S&P said, "As a result, we estimate Rovensa's adjusted gross debt to EBITDA will weaken to clearly above 7x on a pro-forma basis for fiscal 2022. This compares with about 6.5x prior to the transaction and 6.1x-6.3x for fiscal 2022 in our previous forecast, indicating no rating headroom. We factor in about EUR150 million of pro-forma adjusted EBITDA for fiscal 2022. That said, and despite higher one-offs including integration costs, we expect continuous EBITDA increases to lead to a swift reduction in adjusted debt to EBITDA to well below 7x in fiscal 2023, which is commensurate with the current rating." S&P said, "We expect Rovensa's earnings will continue to increase, reflecting good organic growth potential, increasing profitability, and contributions from recent acquisitions. We expect the company will maintain above-GDP growth thanks to supportive industry fundamentals, resilient market demand, and expansion into higher-growth new businesses and regions through a series of acquisitions, especially Cosmocel. Following estimated organic growth of about 20% in fiscal 2022, mainly fueled by much higher raw material prices and successful pass-through to customers, we expect the combined business will continue to expand organically at about 5.5%-6.0% in fiscal 2023. Profitability is also improving due to a continuous portfolio shift toward higher-margin geographies and higher-value specialty products--such as bio-stimulants, adjuvants, and biocontrol businesses--through acquisitions and a focus on cost efficiency. We expect our adjusted EBITDA margin before the Cosmocel acquisition to increase to above 20% in fiscal 2022 from 17.1% in fiscal 2021, despite some supply chain disruptions, higher sales and marketing expenses to support growth initiatives, and increasing raw material prices and energy costs further exacerbated by the Russia-Ukraine conflict. With the addition of Cosmocel's higher-margin business, we expect Rovensa's pro-forma EBITDA margin will improve to about 22% and remain there in fiscal 2023 despite potential high one-off acquisition-related costs. The material increase in energy prices in Europe has a limited effect on Rovensa, since energy costs represent only about 1% of the total cost of goods sold. "We view the acquisition as a strategic fit for Rovensa and positive for the business risk profile. Cosmocel is a leading niche player in Mexico (No. 1) and the U.S. in production and distribution of bio-stimulants, adjuvants, and biocontrol solutions. This strategic step will increase Rovensa's scale and strengthen its competitive position in the biosolutions market, which is a strategic focus and has healthy growth potential and good margins. It will transform Rovensa into a leading niche player globally in biosolutions for sustainable agriculture, with a very broad and well-balanced portfolio. Cosmocel is highly complementary to Rovensa in its geographies and will help improve the company's diversification and accelerate its entry into Mexico and the U.S. market, which have good growth potential. Post transaction, Rovensa's exposure to Iberia will reduce to below 30% from below 40%. Cosmocel's good historical growth and high margins will support the above-GDP growth trend at Rovensa and contribute to a higher EBITDA margin. We note the potential for significant topline synergies from the acquisition, given limited crop overlap in Mexico and the complementary portfolios and distribution. Except small cost synergies, we have not included any topline synergies in our base case due to the uncertainty on the amount and timing of realization. We view this as potential upside for our credit metrics in the future. "We expect resilient positive free operating cash flow (FOCF). FOCF was negative in fiscal 2021 due to high one-off costs related to the change in the shareholder structure and refinancing transaction as well as the acquisition of Oro Agri. On a pro-forma basis including Cosmocel, we expect positive FOCF of about EUR10 million in fiscal 2022. Higher EBITDA will compensate for higher working capital, higher capital expenditure (capex), and higher interest costs under the post transaction capital structure. We expect FOCF will strengthen to above EUR20 million from fiscal 2023 thanks to increasing earnings and normalized working capital, notwithstanding potential one-off costs related to the integration. "Rovensa's acquisitive growth strategy remains a key risk to our deleveraging forecast. The Cosmocel acquisition, which we expected to be funded with a sizable debt element, will delay deleveraging by about two years. We understand that management has a clear focus on integration and synergy realization after the deal, as well as leverage reduction and cash flow. Currently, there is no plan for other large acquisitions. That said, further small bolt-ons are not ruled out in the coming years. In addition, integration risks, which are not uncommon for larger acquisitions like Cosmocel, could also lead to slower-than-expected deleveraging. The company has completed five bolt-on acquisitions over fiscals 2019-2021, resulting in total cash outflows exceeding EUR220 million, including earn-out payments. Rovensa has been highly selective in acquisitions and shown a track record of successfully integrating acquired companies. Acquisitions have contributed to higher growth and margins, although they have also led to higher debt and additional transaction-related and integration costs, which ultimately led to slower-than-expected deleveraging. "The stable outlook reflects our expectation that Rovensa will continue to increase EBITDA to EUR155 million-EUR165 million and generate positive FOCF of more than EUR20 million in the next 12 months. This should lead to a swift reduction in adjusted debt to EBITDA to well below 7x by year-end fiscal 2023, which we view as commensurate with the rating. The stable outlook also factors in our expectation of the seamless integration of the Cosmocel acquisition, as well as the company's focus on integration and deleveraging following the transaction. "Post-transaction, we forecast no rating headroom. We could therefore lower the rating if Rovensa faces adverse operational or commercial issues that hamper its EBITDA growth. We could also lower the rating if the company applies a more aggressive financial policy, such that its adjusted debt to EBITDA fails to swiftly improve to below 7x in the next 12 months, or if FOCF is less than EUR10 million. This could result from higher-than-anticipated one-off costs or further debt-financed acquisitions, significant market share losses, or increased pressure from competitors. If liquidity significantly weakens, it could also pressure the company's creditworthiness. "We consider rating upside as remote given the company's private equity ownership and still relatively limited scale. Over time, upside potential could materialize if Rovensa significantly reduces its leverage with adjusted debt to EBITDA sustainably below 5x, along with solid FOCF. An upgrade would also depend on a strong commitment from the owner to maintain leverage at a level commensurate with a higher rating." ESG credit indicators: E-2, S-2, G-3 ========= S P A I N ========= ABENEWCO1: Spanish Government Rejects State Aid ----------------------------------------------- Jesus Aguado at Reuters reports that the Spanish government has rejected state aid for Abenewco1, a unit of Spanish engineering and energy group Abengoa, moving it closer to bankruptcy proceedings. The company had requested a temporary state aid package worth EUR249 million (US$263 million) to stay afloat while it evaluates a takeover bid from Los Angeles-based private equity fund TerraMar Capital LLC worth EUR200 million, Reuters relates. According to Reuters, a source from Spain's state vehicle SEPI said that because the viability of the company and the repayment of the loan were not guaranteed, the firm was not subject to state aid. In a statement from Abengoa to Spain's stock market supervisor CNMV after the market close, Abengoa said that SEPI had informed Abeneweco1 that its request had been rejected as certain criteria of eligibility lacked sufficient accreditation, Reuters notes. It added that Abenewco1 board directors would meet in the following days to take the necessary actions in the interest of maintaining continued operations and safeguard the various stakeholders of the group, Reuters relays. The Seville-based business has borrowed heavily over the last decade to fund an aggressive expansion into clean energy from its traditional infrastructure projects, Reuters discloses. A proposed restructuring to tackle Abengoa's EUR6 billion debt mountain unravelled in February 2021 after the regional government of Andalusia withdrew an offer of EUR20 million in funding as part of a EUR250 million overall deal, Reuters recounts. Shares in Abengoa have been suspended from trading since July 2020, Reuters notes. In 2016, Abengoa avoided bankruptcy after striking a refinancing deal on debt worth EUR9 billion (US$10 billion), which handed creditors control of the company. The rejection of the state aid could now potentially make it one of the biggest bankruptcy proceedings in Spanish corporate history after real estate developer Martinsa-Fadesa in 2008, Reuters says. On June 27, Abengoa Chairman Clemente Fernandez said it could start working on a plan B if the request for aid was rejected, filing bankruptcy proceedings for some business units to at least exercise some damage control and save some key units, Reuters relays, citing newspaper Expansion. In February 2021, Abengoa started voluntary bankruptcy proceedings after its creditors refused to extend a deadline for negotiating a restructuring agreement, Reuters discloses. =========================== U N I T E D K I N G D O M =========================== CATH KIDSTON: Hilco Nears Takeover of Business ---------------------------------------------- Mark Kleinman at Sky News reports that Hilco, the specialist retail investor, is closing in on a takeover of Cath Kidston, the modern vintage brand recently put up for sale by the owner which bought it out of administration just two years ago. Sky News has learnt that Hilco, which has owned an array of prominent high street names over the last two decades, has been holding detailed talks about buying Cath Kidston from Baring Private Equity Asia (BPEA). It was unclear on June 28 whether other potential buyers remained in contention to gatecrash the deal, although one source suggested it was effectively Hilco's to lose, Sky News relates. The proposed transaction is said to be a solvent one, although further details were unclear, notes. Cath Kidston collapsed into administration in 2020 with the loss of nearly 1,000 jobs, Sky News recounts. BPEA recently instructed advisers at PricewaterhouseCoopers (PwC) to find a new owner for the now wholesale-led company, Sky News discloses. Cath Kidston, which was established by its eponymous founder in 1993, became a high street fixture with scores of standalone shops. Its fortunes were hit by the pandemic, however, forcing it into administration in April 2020, Sky News relays. BPEA, which took full control of Cath Kidston in 2016, struck a pre-pack insolvency deal which entailed the closure of its entire UK high street estate, according to Sky News. It still has fewer than a handful of stores in Saudi Arabia, Sky News states. ONE TO ONE MIDWIVES: Investigation Into Collapse Ongoing -------------------------------------------------------- Nathan Okell at Warrington Guardian reports that an investigation into the reasons why a pregnancy care service fell into administration is still ongoing -- close to three years on. It is almost three years since One to One Midwives collapsed in July 2019 while owing Warrington Hospital more than GBP1 million, Warrington Guardian discloses. With a shop on Sankey Street in the town centre, the service proved popular with Warrington women preferring a home-birth experience rather than a hospital-led pregnancy. Set up in 2010, it was contracted to provide care on the NHS for women who did not want a hospital-led pregnancy. However, the Warrington Guardian revealed in July 2020 that the company racked up millions of pounds of debt after not paying NHS bills from the outset, Warrington Guardian relates. When a woman in their care experienced a complication or illness, they were sent to A&E departments across the north west, often without their medical forms or information. Maternity units in Warrington, St Helens, Liverpool, Chester, Mid Cheshire and Wirral then took over the woman’s care and sent invoices to One to One Midwives for the cost of treatment. These bills were often not paid however, and hospitals were left with outstanding debts of more than GBP2.6 million, Warrington Guardian states. Warrington Hospital took over the care of hundreds of pregnant women within days following the collapse of One to One Midwives, Warrington Guardian recounts. It has been left with bills of more than GBP1 million from the failed firm, most of which (more than GBP800,000) was for the failure of One to One to pay the bill for services carried out at the hospital, Warrington Guardian states. According to Warrington Guardian, Simon Constable, chief executive of Warrington and Halton Teaching Hospitals NHS Trust, said in July last year: "We can confirm that the debt owed to this trust by the collapsed One to One Midwives is GBP877,691. "We moved swiftly to accommodate those women who were left without midwifery support with 48 hours’ notice, some of whom gave birth with us almost immediately and we were able to support their personal birth plans as far as clinically possible. "Feedback from women who transferred to the trust has been uniformly positive. "We were able to employ some of the midwives who were left without jobs, and who are continuing happy and fulfilling careers with us. "Beyond this we are unable to provide further comment as there is a formal investigation under way." NHS Wirral CCG was the lead commissioner for this service and therefore represented the position of all NHS commissioners contracted with One to One (North West) Limited, Warrington Guardian discloses. "An independent review into the circumstances that led to the organisation going into administration is ongoing and we will await the outcome of that work to ensure any further actions required are implemented appropriately," Warrington Guardian quotes a spokesman for NHS Wirral CCG, as saying. The independent inquiry was commissioned by NHS England and NHS Improvement North West Region, according to Warrington Guardian. PRECISE MORTGAGE 2018-2B: Fitch Affirms 2 Tranches at BB+ --------------------------------------------------------- Fitch Ratings has upgraded Precise Mortgage Funding 2018-2B PLC's (2018-2B) and Precise Mortgage Funding 2019-1B PLC's (2019-1B) class C and D notes and Precise Mortgage Funding 2020-1B PLC's class B, C and D notes. The remaining tranches have been affirmed and all tranches have been removed from Under Criteria Observation. DEBT RATING PRIOR ---- ------ ----- Precise Mortgage Funding 2019-1B PLC A1 XS1923736620 LT AAAsf Affirmed AAAsf A2 XS1923737354 LT AAAsf Affirmed AAAsf B XS1923737438 LT AAAsf Affirmed AAAsf C XS19237375110 LT AA+sf Upgrade AA-sf D XS1923737602 LT A+sf Upgrade BBB+sf E XS1923737867 LT BBB-sf Affirmed BBB-sf Precise Mortgage Funding 2020-1B PLC A1 XS2097423060 LT AAAsf Affirmed AAAsf A2 XS2097425354 LT AAAsf Affirmed AAAsf B XS2097426246 LT AAAsf Upgrade AA+sf C XS2097426329 LT A+sf Upgrade Asf D XS2097426832 LT Asf Upgrade BBBsf E XS2097426915 LT BB+sf Affirmed BB+sf X XS2097427301 LT BB+sf Affirmed BB+sf Precise Mortgage Funding 2018-2B Plc Class A XS1783215871 LT AAAsf Affirmed AAAsf Class B XS1783216093 LT AAAsf Affirmed AAAsf Class C XS1783216176 LT AAAsf Upgrade AA+sf Class D XS1783216333 LT AA+sf Upgrade Asf Class E XS1783216507 LT BBB-sf Affirmed BBB-sf TRANSACTION SUMMARY The transactions are securitisations of buy-to-let mortgages originated by Chartered Court Financial Services (CCFS), trading as Precise Mortgage in the UK. The portfolios are static and consist of mortgage loans from CCFS's Tier 1 product set, which is based on its strictest lending criteria. KEY RATING DRIVERS Updated Criteria: In its updated UK RMBS Rating Criteria published 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. Stable Asset Performance: The transactions' performance has been stable with one-month plus arrears at 0.53% (2018-2B), 0.24% (2019-1B) and 0.19% (2020-1B). This compares to equivalent statistics at the last reviews of 0.37% (2018-2B) , 0.21% (2019-1B) and 0.28% (2020-1B). Early stage arrears for 2018-2B have increased by 0.47% since the start of 2022, driven by a low number of borrowers entering into arrears as well as the decreasing current balance. The increase in credit enhancement (CE) and stable asset performance has contributed to the affirmations of the senior notes and upgrades of some of the junior notes. Turbo Amortisation Feature: On any interest payment date on or after the optional redemption date, any excess spread available will be diverted to principal available funds and used to pay down the notes. However, this item sits below potential subordinated hedging amounts in the revenue priority of payments. In the event of a default of the swap counterparty and the swap mark-to-market being in favour of the swap counterparty, excess spread to pay principal would be limited if at all available. For this reason, Fitch gives no credit to the turbo feature in investment grade scenarios (i.e. above 'BB+sf'). However, the swap for the 2018-1B transaction expires in March 2023 and therefore it is likely these notes will achieve a higher model-implied-rating at the next review. Fitch has reflected the expected rating impact by revising the Outlook on the class E notes to Positive from Stable. Limited Defaults: To date, only one repossession has taken place across all three transactions, leading to a low or zero constant default rate. Fitch incorporates prior performance into its ratings through a performance adjustment factor (PAF) applied to the foreclosure frequency (FF). The applied PAF is subject to a floor that reduces as a transaction's seasoning increases. At this review, Fitch has reduced the PAF for 2018-2B to 80% from 90%. This contributed 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 would be 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 notes susceptible to potential negative rating action, depending on the extent of the decline in recoveries. Fitch conducts sensitivity analyses by stressing both a transaction's base-case FF and RR assumptions, and examining the rating implications on all classes of issued notes. Fitch tested a sensitivity assuming a 15% increase in the WAFF and a 15% decrease in the WARR. The results indicate a three-notch adverse rating impact on 2018-2B and a two-notch adverse rating impact on the subordinated notes of the other two transactions. 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 levels 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 on the subordinated notes could be upgraded by one notch for 2020-1B and by up to two notches for 2019-1B. There would be no impact on 2018-2B. 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 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. Prior to the transactions 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 transactions closing, Fitch conducted a review of a small targeted sample of the originator'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. QUINTO CRANE: Cranes Sold at Auction for GBP5.12 Million -------------------------------------------------------- The Construction Index reports that cranes formerly belonging to hire company Quinto Crane & Plant have been sold at auction. According to The Construction Index, the 22 cranes in the catalogue realised a total of GBP5.12 million at the auction, held by Euro Auctions at its Anson Road site near Norwich Airport. Norwich-based Quinto went into administration last month, The Construction Index recounts. Local accountancy firm Price Bailey was appointed administrator and selected Euro Auctions to sell the inventory, The Construction Index relates. ROLLS-ROYCE FINANCE: Fitch Affirms 'BB-/B' Issuer Default Ratings ----------------------------------------------------------------- Fitch Ratings has affirmed Rolls-Royce & Partners Finance Limited's (RRPF) Long-Term Issuer Default Rating (IDR) at 'BB-'. The Outlook is Stable. At the same time, Fitch has affirmed RRPF's and RRPF Engine Leasing Limited's senior secured debt long-term ratings at 'BBB-'. RRPF is a joint-venture (JV) between UK-based Rolls-Royce plc (RR, BB-/Stable) and US-based leasing group GATX Corporation. Established in 1989, RRPF specialises in the leasing of spare aircraft engines (largely from RR) to around 60 airlines globally. RRPF is the world's largest lessor of RR engines. RR engines comprise over 90% of RRPF's total net book value (NBV), and 24% of RRPF's total portfolio is leased to RR. Consequently, RRPF's business model and franchise have strong links with RR. In Fitch's view, RRPF is important for RR's core civil aerospace business segment and aftermarket product offering. While the shareholder structure could complicate the provision of support, a shareholder agreement is in place to govern potential conflicts between JV partners. RRPF Engine Leasing Limited is a fully-owned UK-domiciled subsidiary of RRPF. RRPF has provided an unconditional and irrevocable guarantee on the notes issued by RRPF Engine Leasing Limited. KEY RATING DRIVERS IDRs RRPF's Long-Term IDR is based on Fitch's assessment of the company's standalone creditworthiness, which is constrained by the strong correlation between RR's and RRPF's risk profiles, including a cross-acceleration clause in RRPF's bond documentation. The Stable Outlook on RRPF's Long-Term IDR mirrors that on RR's IDR. Fitch believes that RR's propensity to support RRPF is high, but its ability to do so is constrained by its own rating. Cross-acceleration Clause: RRPF's debt includes a clause resulting in an event of default on all of RRPF's debt in case of a default of RR's debt. Specifically, should RR's borrowings (in excess of GBP150 million or 2% of RR's consolidated net worth) be subject to acceleration (as a result of an event of default at RR having been triggered), it would trigger an event of default at RRPF and give noteholders the provision to declare all outstanding notes to be immediately due and payable. As this applies to all of RRPF's debt, this results in a strong correlation between RR's and RRPF's default probabilities and constrains RRPF's Long-Term IDR. Resistant Standalone Profile: Contained leverage, predictable profitability, a long-dated funding profile, a sound record of stable utilisation rates and of profitable asset disposals underpin RRPF's standalone assessment. The assessment also reflects the monoline nature of RRPF's business model, revenue concentration by lessees and the overall modest size and cyclicality of the spare engine lease sector. Pandemic Recovery: RRPF's revenue profile benefits from long-dated leases to a diversified lessee base. Similar to peers, RRPF has granted lease deferrals during the pandemic but as of end-2021 these have significantly reduced. Cash collections have held up fairly well (above 80% of expected collections in 2020 and 2021) and net gains from asset disposals recovered significantly in 2021. Decent Profitability: Despite current challenges, RRPF's pre-tax income was an acceptable 1.8% of average assets in 2021. RRPF's sound revenue margin provides a buffer against potential impairment losses, protecting the company's capital base. Fitch believes impairments (specifically related to Russian exposures) will weigh on RRPF's near-term performance, with metrics weakening further in 2022 or potentially longer in case of a delayed recovery in the aviation sector. Good-quality Asset Base: RRPF has a leading franchise in its niche market and its credit profile benefits from the company's focus on 'Tier 1' engines, which are typically young and liquid in secondary markets (both limiting residual value risk). This underpins RRPF's utilisation rate, which remained strong above 90% (value-weighted) at end-2021. However, RRPF is concentrated on engines for wide-body aircraft (above 75% at end-2021), which in Fitch's view carry higher risks in a post-pandemic recovery. Contained Residual Value Risk: RRPF's residual value risk exposure is mitigated by independent engine valuations with total market values (excluding maintenance reserves) exceeding NBV and its focus on 'Tier 1' engines with a young average fleet age of 6.4 years. This is evident in RRPF's good disposal record over the past decade, with profits on disposals at 5%-9% of NBV. Acceptable Leverage: Balance-sheet leverage (defined as gross debt/tangible equity) was acceptable at end-2021 at 3.7x (3.9x at end-2020). Fitch expects leverage to remain broadly unchanged in 2022, absent higher-than-expected impairment charges. RRPF's leverage is subject to a maximum gross debt/tangible net worth covenant of 5.7x. Adequate Liquidity and Cash Generation: A long-dated, albeit secured, funding profile exceeding the average lease term underpins RRPF's liquidity. Since the outbreak of the pandemic, RRPF has been able to limit capital expenditure (which is largely discretionary) while liquidity benefits from limited forward commitments. Liquidity is further supported by sound cash generation and an undrawn revolving credit facility (RCF) comfortably covering RRPF's moderate liquidity needs. Limited Refinancing Risk: RRPF's funding base is well-diversified, although reliant on wholesale sources. Following the repayment of USD100 million of its US private placement notes in 1Q22, upcoming debt maturities are limited to USD300 million in 2023. RRPF maintains comfortable headroom on debt covenants including its EBITDA/interest expense covenant (set at a minimum of 2.75x versus actual 5.0x in 2021). SENIOR SECURED DEBT The affirmation of RRPF Engine Leasing Limited's RCF and senior secured US private placement notes reflects Fitch's expectation of outstanding recovery prospects for both the RCF and the notes, even under a stress scenario, where engine values drop materially. As per Fitch's criteria, secured debt of issuers with a sub-investment grade Long-Term IDR can be rated up to three notches above the Long-Term IDR on outstanding recovery expectations. Noteholders and RCF counterparties benefit from an identical security package (i.e. direct security interests over spare engines) and financial covenants include a requirement for outstanding debt not to exceed the lower of either the NBV of pledged spare engines or 80% of their externally appraised market value. The asset pool backing the liabilities is also subject to concentration limits regarding engine types, lessees and the proportion of off-lease engines. Fitch's expectations of outstanding recoveries are primarily underpinned by consistently low loan-to-market value ratios (LTV; defined as current market values/outstanding gross debt; broadly unchanged yoy at around 50% at end-2021 and remaining below 60% following the 2008 global financial crisis) and the fleet's young average age. This is supported by spare engines' typically better value retention (compared with aircraft assets) and more favourable depreciation profile (in particular during the first phase of their useful economic life).. RATING SENSITIVITIES IDRs Factors that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade of RR's IDR would trigger similar action for RRPF. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Given cross-acceleration clauses included in RRPF's debt terms, a downgrade of RR would likely lead to a downgrade of RRPF's Long-Term IDR; -- Absent a downgrade of RR, a significant increase in leverage or a material weakening of RRPF's franchise could also lead to a downgrade. SENIOR SECURED DEBT Factors that could, individually or collectively, lead to positive rating action/upgrade: As per Fitch's criteria, senior secured debt ratings of issuers with a sub-investment grade Long-Term IDR are capped at 'BBB-'. Consequently, any upgrade of the notes would be contingent of RRPF's achieving an investment-grade Long-Term IDR, which in Fitch's view is unlikely in the medium term; Factors that could, individually or collectively, lead to negative rating action/downgrade: --A downgrade of RRPF's Long-Term IDR would lead to a downgrade of RRPF's senior secured debt rating; -- A material increase in RRPF's LTV ratio or changes to the underlying security package indicating weaker recoveries would lead to narrower notching between RRPF's Long-Term IDR and the senior secured debt rating and a downgrade of the senior secured notes. In addition, indication that projected engine market value declines exceed Fitch's current expectations would lead to a downgrade of the notes. 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 ---- ------ ----- Rolls-Royce & Partners Finance Limited LT IDR BB- Affirmed BB- ST IDR B Affirmed B senior secured LT BBB- Affirmed BBB- RRPF Engine Leasing Limited senior secured LT BBB- Affirmed BBB- [* ] UK: South West Firms May Go Bust as Cost of Living Rises ------------------------------------------------------------- Andrew Arthur at BusinessLive reports that small businesses across the South West hit by the rising cost of living crisis have urged the Government to provide more support, with many fearing they could go bust. According to BusinessLive, inflation rose to a 40-year high on Wednesday, June 22, with the rate of rising consumer goods prices up from 9% in April to 9.1% in May. Economists at the Office for National Statistics said the increase was driven by record high petrol prices and steep food price rises, BusinessLive relates. It comes as energy bills rose by 54% for the average household at the beginning of April and will remain at this level until October, BusinessLive discloses. Forecasts released last week predict that the Government cap on energy bills could rise again from an already record high GBP1,971 to GBP2,980 in the autumn, BusinessLive states. The Bank of England has predicted that inflation will spike at more than 11% in October after the price cap is changed again, BusinessLive relays. Chancellor Rishi Suank, as cited by BusinessLive, said the Government and the Bank of England were acting to combat rising inflation. "I want people to be reassured that we have all the tools we need and the determination to reduce inflation and to bring it back down," BusinessLive quotes Mr. Sunak as saying. "Firstly, the Bank of England will act forcefully to combat inflation. Secondly, the Government will be responsible with borrowing and debt so we don’t make the situation worse and drive up people’s mortgage rates any more than they are going to go up. "Lastly, we are improving the productivity of our economy, improving the supply of energy we have and moving people off welfare and into work." ********* 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. 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