/raid1/www/Hosts/bankrupt/TCREUR_Public/220713.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
Wednesday, July 13, 2022, Vol. 23, No. 133
Headlines
G R E E C E
GREECE: Fitch Affirms 'BB' LongTerm Foreign Currency IDR
K A Z A K H S T A N
FORTEBANK JSC: S&P Raises ICR to 'BB-' on Strong Capitalization
L U X E M B O U R G
CULLINAN HOLDCO: Fitch Affirms BB- IDR & Alters Outlook to Negative
PEARL MORTGAGE 1: Fitch Lowers Rating on Class B Notes to 'B-'
R O M A N I A
KMG INT'L: Fitch Affirms B+ LongTerm IDR, Outlook Stable
S P A I N
INVICTUS MEDIA: Fitch Raises LongTerm IDR to 'CCC+'
SABADELL CONSUMO 2: Fitch Assigns 'BB(EXP)' on on Class F Debt
S W E D E N
SAS: To Resume Labor Negotiations with Pilot Unions to End Strike
SCANDINAVIAN AIRLINE: S&P Lowers ICR to 'D' on Chapter 11 Filing
STENA AB: S&P Affirms 'B+' ICR & Alters Outlook to Positive
T U R K E Y
TURKIYE: Fitch Cuts LongTerm Foreign Currency IDR to B, Outlook Neg
U N I T E D K I N G D O M
ALEXANDER DAVID: Enters Voluntary Liquidation Amid FCA Issues
APEX GROUP: S&P Affirms 'B-' ICR on Debt-Funded Acquisitions
CROSSFIELD LIVING: Goes Into Liquidation, Owes More Than GBP3.6MM
EUNISURE: Goes Into Liquidation Following Insolvency
HOUSE BY URBAN: More Details on Administration Released
MATALAN: S&P Lowers LongTerm ICR to 'CCC', Outlook Negative
PETROPAVLOVSK: Set to Go Into Administration Due to Huge Debts
STRATTON MORTGAGE 2020-1: Fitch Hikes Rating on Class F Debt to BB+
TWIN BRIDGES 2022-2: S&P Assigns Prelim. BB+ (sf) Rating in E Notes
UK PUNCH: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
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G R E E C E
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GREECE: Fitch Affirms 'BB' LongTerm Foreign Currency IDR
--------------------------------------------------------
Fitch Ratings has affirmed Greece's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'BB' with a Positive Outlook.
KEY RATING DRIVERS
Rating Drivers, Positive Outlook: Greece has high income per capita
that far exceeds both the 'BB' and 'BBB' medians. Governance scores
and human development indicators are among the highest of
sub-investment grade peers. These strengths are set against still
very high levels of non-performing loans (NPL) and very large
stocks of public and external debt. The Positive Outlook reflects a
sustained expected decline in public sector indebtedness, in the
context of still low average borrowing costs, despite the sharp
rise in government bond yields this year. Greek banks have made
substantial progress on asset quality improvement, sharply reducing
the level of NPLs in the banking sector.
High Public Indebtedness, Mitigants: Government debt as a share of
GDP declined to 193.3% by end-2021, and is projected to fall
further to 171.6% by 2024, driven by improving primary balances and
favourable growth-interest costs dynamics. Despite this decline,
the debt ratio in 2024 is still forecast to be among the highest of
Fitch-rated sovereigns, and more than 3x the 'BB' median. At the
same time, there are mitigating factors that support debt
sustainability. Greece's liquid asset buffer is substantial
(forecast to be 14.5% of GDP at year-end). The concessional nature
of the majority of Greek sovereign debt means that debt-servicing
costs are low and amortisation schedules are manageable.
Government bond yields have risen sharply this year, with the
10-year bond yield increasing from around 1.3% at end-2021 to
average around 4.0% in June 2022. However, the interest-to-revenue
ratio should rise only moderately (to 6% in 2024) and remain well
below the 'BB' median (forecast at 10% in 2024). The average
maturity of Greek debt is among the longest of any sovereign, at
around 20 years. Moreover the debt is mostly fixed rate, limiting
the impact of market interest rate rises.
Deficit Decline, Government Support: The government deficit
declined to 7.4% of GDP in 2021 from 10.2% in 2020, a faster
decline than Fitch expected at the time of the last review (when
Fitch expected a deficit of 9.7%). Fitch expects the deficit to
fall further this year, to 4.5% of GDP, but at a slower pace than
previously forecast. The decline in the deficit will be slowed by
the worsened macroeconomic outlook and government support to
mitigate the impact of the rise in energy prices, which the
government assumes will add around 1.4% of forecast GDP to the
deficit in 2022 (around two-thirds of the support in gross terms
will be recouped by the Emission Trading System and a windfall tax
on utilities). The deficit will decrease at a sharper pace over the
following two years, on the assumption that government support
related to energy prices is unwound to 1.8% of GDP by 2024 ('BB'
median forecast: 3.0%).
War Worsens Macroeconomic Outlook: The Greek economy expanded by
8.3% in real terms in 2021. However, the macroeconomic outlook has
worsened considerably in recent months, with the Russian invasion
of Ukraine exacerbating the rise in energy prices and affecting
business and consumer confidence, and high inflation impacting real
incomes and consumption dynamics. Direct trade links (including
tourism) between Greece and Russia and Ukraine are small. However,
Greece relies on Russia for around 40% of overall gas imports, and
is vulnerable to further price rises and potential energy supply
disruptions.
Other factors will support the economic outlook. The deployment of
funds related to Greece's National Recovery and Resilience Plan
will accelerate this year, boosting government investment and
overall demand, and tourism indicators point to a further recovery
in the sector. Fitch has revised down Fitch's real GDP growth
forecast for this year to 3.5%, from 4.1% at the January review,
and Fitch's forecast for 2023 (3.2% compared with 4.0% previously).
For 2024, Fitch expects a further, moderate slowdown in economic
growth to 2.8%.
Inflation Increases, Minimum Wage: Consumer price inflation has
risen sharply since August 2021, driven mainly by food and energy
prices. Annual inflation on the harmonised HICP measure increased
from 4.4% in December 2021 to 12.0% in June. Fitch expects
inflation to fall back in the second half of this year, so that it
will average 7.3% for the whole year. Fitch then expects inflation
to drop substantially, averaging 1.8% in 2023 and 1.0% in 2024. As
a response to increasing inflationary pressures, the Greek
government introduced two increases in the minimum wage this year.
The overall rise in the minimum wage is 7.5% compared with its
level at end-2021. The increases in the minimum wage will support
households' purchasing power, albeit with the risk of adverse
effects on labour demand and passthrough onto prices.
NPL Reduction, Capital Ratios: The overall level of domestic NPLs
fell sharply over the year to 1Q22, to EUR17.7 billion from EUR47.3
billion a year earlier. The NPL ratio declined to 12.1% from 30.3%
over the same period, reaching the lowest level since 2Q10. The
decline has been driven by securitisation operations by the four
systemic Greek banks, incentivised by the Greek government's
Hercules Asset Protection Scheme. This was the key driver of
positive rating actions by Fitch on Greek systemic banks. However,
the progress in NPL reduction affected profitability and bank
capitalisation negatively in 2021 through larger loan loss
provisions. Banks' capitalisation levels remain low compared with
other EU countries. The common equity Tier 1 capital ratio for the
Greek banking sector in 1Q22 (EBA estimates) was 12.4% (1Q21:
13.8%).
ESG - Governance: Greece has an ESG Relevance Score (RS) of '5[+]'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
Theses scores reflect the high weight that the World Bank
Governance Indicators (WBGI) have in Fitch's proprietary Sovereign
Rating Model. Greece has a medium WBGI ranking at 65.5 reflecting a
recent track record of peaceful political transitions, a moderate
level of rights for participation in the political process,
moderate institutional capacity, established rule of law and a
moderate level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Public Finances: Failure to reduce government debt/GDP over
the short term, for example due to higher than expected
deficits or weak economic performance.
-- Macro: Renewed adverse shocks to the Greek economy affecting
the economic recovery or Greece's medium-term growth
potential.
-- Structural Features: Adverse developments in the banking
sector increasing risks to the public finances and the real
economy, via the crystallisation of contingent liabilities on
the sovereign's balance sheet and/or an inability to undertake
new lending to support economic growth.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Public Finances: Confidence in a firm downward path for the
government debt/GDP ratio resulting from primary surpluses and
robust nominal GDP growth;
-- Structural: Continued progress on asset quality improvement by
systemically important banks, consistent with successful
completion of securitisation transactions and lower impairment
charges, and potentially leading to improved credit provision
to the private sector;
-- Macro: An improvement in medium-term growth potential and
performance, particularly if supported by the implementation
of the EU Recovery Plan and other structural reform;
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Greece a score equivalent to a
rating of 'BB+' on the Long-Term Foreign-Currency (LT FC) IDR
scale.
Fitch's sovereign rating committee adjusted the output from the
adopted SRM score to arrive at the final LT FC IDR by applying its
QO, relative to SRM data and output, as follows:
-- Structural: -1 notch, to reflect weaknesses in the banking
sector, including a very high level of NPLs, which represent a
contingent liability for the sovereign, and a constraint on
credit provision to the private sector;
-- Fitch has removed the +1 notch adjustment on public finances,
as in its view, the improvements in financing flexibility
since 2020 (driven by the inclusion of Greek bonds in the ECB
PEPP) are now reflected in the model output;
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Greece has an ESG Relevance Score of '5[+]' for Political Stability
and Rights as World Bank Governance Indicators have the highest
weight in Fitch's SRM and are therefore highly relevant to the
rating and a key rating driver with a high weight. As Greece has a
percentile rank above 50 for the respective Governance Indicator,
this has a positive impact on the credit profile.
Greece has an ESG Relevance Score of '5[+]' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and are therefore highly relevant to the rating and are a key
rating driver with a high weight. As Greece has a percentile rank
above 50 for the respective Governance Indicators, this has a
positive impact on the credit profile.
Greece has an ESG Relevance Score of '4[+]'for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver. As Greece has a percentile rank above 50 for the
respective Governance Indicator, this has a positive impact on the
credit profile.
Greece has an ESG Relevance Score of '4' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Greece, as for all sovereigns. As Greece has
a fairly recent restructuring of public debt in 2012, this has a
negative impact on the credit profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3'. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or to the way in which they
are being managed by the entity.
DEBT RATING PRIOR
---- ------ -----
Greece LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Country Ceiling BBB+ Affirmed BBB+
senior LT BB Affirmed BB
unsecured
senior ST B Affirmed B
unsecured
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K A Z A K H S T A N
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FORTEBANK JSC: S&P Raises ICR to 'BB-' on Strong Capitalization
---------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
Kazakhstani ForteBank JSC to 'BB-' from 'B+'. The outlook is
stable. At the same time, S&P affirmed the 'B' short-term rating on
the bank.
Additionally, S&P raised its Kazakhstan national scale rating on
ForteBank to 'kzA-' from 'kzBBB+'.
S&P said, "ForteBank capitalization strengthened, and we expect the
bank to operate with a higher capital buffer. We anticipate our
risk-adjusted capital (RAC) ratio will remain at around 8.0%-8.3%
in 2022-2023, supported by moderate business growth and good
earnings metrics. This indicates that the bank's capital buffer is
now a positive rating factor. ForteBank decided not to distribute
dividends in 2022, conserving higher capital buffers amid elevated
geopolitical and macroeconomic risks. However, we assume the bank
will likely return to distribution of about 50% of its profits as
dividends aftermath in the coming two years.
"We expect ForteBank will continue to be the fifth-largest bank in
Kazakhstan in terms of assets. The bank holds about 7% of the
market, leaning on its diversification between retail and corporate
customers on both sides of the balance sheet and sustainable new
business generation with an expected loan growth of 10%-15% to
retain its market share. For 2021, ForteBank posted Kazakhstani
tenge (KZT) 64 billion net consolidated profit (about $160
million), corresponding to a return on average common equity (ROAE)
of about 23.7%. For the first five months of 2022, ForteBank
reported about KZT30 billion net profit under national GAAP. We
expect the bank to continue generating solid earnings over 2022,
with ROAE hovering around 20%."
Recent management changes are unlikely to affect the bank's
strategy implementation. In June 2022, the bank's CEO, Mr. Reinis
Rubenis, and deputy CEO, Ms. Sholpan Nurumbet, resigned for
personal reasons. The acting CEO, Mr. Bekzhan Pirmatov, has been
with the bank's management team for several years. The transition
was smooth, suggesting that the leadership changes won't upset the
business dynamics or operational approach. In our view, the bank's
major shareholder, Mr. Bulat Utemuratov, supports the bank's
current strategy implementation.
ForteBank has significantly advanced the recovery of legacy problem
loans over the past five years. The bank has experienced an
increase in problem loans due to the economic fallout of the
COVID-19 pandemic. S&P said, "Nevertheless, we expect the bank's
asset quality will to continue to improve gradually over 2022-2023.
The stock of problem assets improved last year, with the share of
Stage 3 and POCI (purchased or originated credit-impaired) loans at
about 11% of the loan portfolio declining from 26% at year-end
2020. We anticipate the credit costs in 2022 will remain elevated
but not higher than the system-wide average of about 2%, reflecting
the challenging operating conditions and potential negative
spillover effect on borrowers' creditworthiness. An inflationary
spike, alongside the disruption of trade and logistic chains
stemming from the Russia-Ukraine conflict, could weigh on
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 remaining
supportive, we consider that any deterioration in asset quality
would likely be moderate and temporary."
ForteBank's systemic importance uplifts its creditworthiness, in
S&P's view. The long-term rating on ForteBank is one notch higher
than the stand-alone credit profile, reflecting its view of the
bank's moderate systemic importance in Kazakhstan, and the Kazakh
government as supportive towards its banking system. This is driven
by ForteBank being the fifth-largest domestic bank by retail
deposits, with about 5% market share.
The stable outlook on ForteBank reflects S&P's expectation that,
within the next 12-18 months, the bank will maintain its stable
capitalization and asset-quality metrics.
S&P could consider a downgrade or an outlook revision to negative
if the bank's asset quality weakens, or if it believes that rapid
business expansion and an aggressive dividend policy would weaken
the bank's capitalization with a RAC ratio dropping sustainably
below 7%.
Ratings upside looks remote over the forecast horizon. It would
hinge on the bank's stronger intrinsic creditworthiness and a
positive rating action on the sovereign.
ESG credit indicators: E-2, S-2, G-4
===================
L U X E M B O U R G
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CULLINAN HOLDCO: Fitch Affirms BB- IDR & Alters Outlook to Negative
-------------------------------------------------------------------
Fitch Ratings has revised Cullinan Holdco SCSp's (Graanul) Outlook
to Negative from Stable and affirmed its Long-Term Issuer Default
Rating (IDR) at 'BB-' and its senior secured rating at 'BB+'. The
Recovery Rating is 'RR2'.
The Negative Outlook reflects uncertainties related to recovery in
raw-materials supply, slower organic pace of de-leveraging with
leverage remaining above Fitch's negative sensitivity in 2022-2023
as well as lower flexibility in case of further disruptions in
production or supply chain. Establishing a well-defined financial
policy and a record of the company's commitment to conservative
credit metrics will be an important consideration for revising the
Outlook back to Stable.
The rating reflects Graanul's predictable cash flows underpinned by
medium-term take-or-pay contracts with investment-grade or high
sub-investment-grade utilities and by cost inflation pass-through
or fixed-price escalation provisions. Fitch expects that the
company will commit to de-leveraging due to weaker-than-previously
anticipated growth prospects and will balance M&A activities and
dividend pay-out with maintaining its credit profile.
The rating is constrained by Graanul's small size relative to that
of peers in the 'BB' rating category, customer concentration,
exposure to environmental and renewable-energy regulations and lack
of a clearly defined financial policy.
KEY RATING DRIVERS
Deleveraging to Be Delayed: Based on Fitch's revised assumptions
for growth, M&A and dividends, Fitch forecasts funds from
operations (FFO) net leverage to remain above Fitch's negative
leverage sensitivity of 4.3x in 2022-2023 and to decline to this
level only by 2024 while higher-than-forecast discretionary
spending can delay de-leverage even further. Slower earnings growth
not only limits Graanul's ability to deleverage organically but
also reduces headroom for further deterioration in the supply chain
or production.
Excess Cash for Distributions: Fitch forecasts Graanul's free cash
flow (FCF) generation to average EUR55 million per annum during
2022-2025. However, Fitch expects the company to maintain only a
moderate cash balance, with excess cash to be deployed for either
M&A or dividend distributions.
Supply-Chain Pressure Limits Production: Sanctions imposed on
Belarus and Russia due to the war in Ukraine substantially reduced
supply of wood pellets and wood fibre in the European market. While
Graanul sourced less than 10% of total raw materials from Belarus
(zero from Russia), stiff competition for raw materials in the
local market is currently constraining Graanul's production. As
alternative sources of supplies are limited and the outlook of the
raw material market in Europe remains uncertain, Fitch forecasts
Graanul's organic production at around 2.35mt-2.5mt per year over
2022-2025.
Cost Inflation Manageable: Following spike in energy and
raw-material prices, Graanul managed to re-negotiate improved terms
with customers, which should allow for recovery from weaker
profitability seen at the start of 2022. Due to strong spot markets
and amended contracts Fitch expects EBITDA per ton of pellet
produced to improve versus 2021 and partly offset lower sales.
Partial self-sufficiency in energy and heat production from six
owned CHP plants, combined with investment in fleet of vessels to
cover Graanul's 2022 shipping needs and a predominantly variable
cost base, also supports margin resilience.
Medium-Term Revenue Visibility: Approximately on average 80% of
Graanul's revenue is contracted on a take-or-pay basis with the
balance sold on the spot market. Graanul targets take-or-pay
contracts with a duration of three to five years in contrast to
peers such as Enviva Inc. (BB-/Stable), which has a weighted
average contract duration of 14.5 years. Shorter contracts allow
for more frequent pricing renegotiation, but, at the same time, may
reduce long-term earnings visibility.
Small Scale: Graanul's scale is small with an end-2021 EBITDA of
EUR124 million, despite a leading position in wood-pellet markets
in Europe. Fitch forecasts EBITDA to grow to around EUR140 million
by 2025, based on modest production growth and bolt-on
acquisitions. Potential growth can be higher if Fitch sees a
material improvement in raw-material availability.
Concentrated Customer Base: Graanul has a concentrated customer
base with the three-largest European off-takers, Drax Group
Holdings Limited (BB+/Stable), RWE AG (BBB+/Stable), and Orsted A/S
(BBB+/Stable), which currently account for the majority of its
contracted volumes. Customer concentration is not uncommon among
pellet producers who bid for large contracts that often result in a
significant share by a single customer in the total revenue mix.
Strong Renewal Rate: Renewal rates have historically been very
strong and Graanul has a long-lasting relationship of more than 10
years with its top-three customers. It is the largest European
wood-pellet supplier located in close proximity to its customers,
with an ability to provide sustainable bulk deliveries of
good-quality product, which supports future renewals.
Regulatory Risk: EU's proposed stricter regulation on the sources
of wood that can be used for pellet production is not expected to
materially affect certified pellet producers, such as Graanul, and
larger biomass utilities and Fitch regards current regulatory
framework in Europe as supportive. Regulatory risk remains as the
stability of sources of supply and treatment of biomass as
renewable energy is critical for Graanul's long-term business
prospects. However, recent developments in the European energy
markets linked to reduced gas supplies from Russia reinforce the
importance of biomass/renewable energy sources, making adverse
regulatory changes less likely.
Notching for Notes: Fitch rates the senior secured notes using a
generic approach for 'BB' category issuers, which reflects the
relative instrument ranking in the capital structure, in accordance
with Fitch's Corporates Recovery Ratings and Instrument Ratings
Criteria. The notes are secured by a share pledge of guarantors
comprising 85% of Graanul's EBITDA as of June 2021 and security
over assets in the US. The Recovery Rating of 'RR2' results in the
senior secured rating being notched up twice from the IDR.
DERIVATION SUMMARY
Graanul is the largest wood-pellet producer in Europe and competes
directly with the largest global pellet producer Enviva. Graanul is
smaller than Enviva and its forecast FFO net leverage of 4.9x at
end-2022 is higher than Enviva's 4.2x. Both companies use
take-or-pay contracts but Graanul prefers shorter-term durations
(three to five years) versus Enviva's weighted average of 14.5
years. Graanul's shorter contracts and proximity to European
customers result in stronger EBITDA margins of around 27% in 2021
versus Enviva's 22%, although Fitch expects temporary dilution of
Graanul's margins due to high raw material prices in 2022.
Sunoco LP (BB/Positive) is the largest fuel distributor in the US,
distributing around 8 billion gallons a year. In addition to
distributing motor fuel, Sunoco also distributes other petroleum
products such as propane and lubricating oil, and around 25% of its
volumes is sold under long-term contracts. Sunoco is larger than
both Enviva and Graanul and its leverage is forecast at 4.3x in
2022.
KEY ASSUMPTIONS
-- Capex on average EUR33 million per annum in 2022-2024;
-- Volume CAGR of 8.2% including M&A contribution in 2022-2025;
-- EBITDA CAGR of 6.7% including M&A contribution in 2022-2025;
-- EBITDA margin of 21% in 2022, 23% in 2023 and 24% in 2024-
2025;
-- M&A of EUR60 million per annum in 2023-2025;
-- Dividends of EUR20 million per annum in 2024-2025
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The Negative Outlook makes positive rating action unlikely at
least in the short term. Fitch may revise the Outlook to
Stable on improved visibility on raw-material supply and
swifter-than-expected deleveraging;
-- FFO net leverage or net debt/EBITDA consistently below 3.5x
would lead to a positive rating action;
-- Improvement in the business profile including scale, customer
diversification and contract duration.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO net leverage or net debt/EBITDA consistently above 4.3x;
-- Supply-chain issues, loss of contracts and/or material
reduction in share of contracted revenue leading to
deterioration of the financial profile;
-- Aggressive financial policy with debt-funded M&A or
substantial dividend distributions;
-- Adverse developments in regulation related to biomass energy.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: At end-1Q22 Graanul's liquidity was EUR134
million, including cash (EUR34 million) and an unused revolving
credit facility of EUR100 million. The company does not have
material debt maturities until its EUR630 million bond maturity in
2026.
ISSUER PROFILE
Graanul is the largest European wood pellet manufacturer and
second-largest globally, but due to a fragmented market, it
accounts for around 6% of global pellet production capacity and 8%
of global production.
SUMMARY OF FINANCIAL ADJUSTMENTS
-- Fitch increased reported 2021 debt by EUR15 million to reflect
EUR630 million bond amount payable at maturity and reduced it
by the amount of lease liabilities (EUR4.3 million)
-- Depreciation of right-of-use assets (EUR0.5 million) and
lease-related interest expenses (EUR47,000) reclassified to
cash operating expenses for the calculation of EBITDA and FFO.
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
---- ------ -------- -----
Cullinan Holdco SCSp
LT IDR BB- Affirmed BB-
senior secured LT BB+ Affirmed RR2 BB+
PEARL MORTGAGE 1: Fitch Lowers Rating on Class B Notes to 'B-'
--------------------------------------------------------------
Fitch Ratings has upgraded PEARL Mortgage Backed Securities 1
B.V.'s (PEARL 1) class S notes and downgraded the class B notes.
DEBT RATING PRIOR
---- ------ -----
PEARL Mortgage Backed Securities 1 B.V.
Class A XS0265250638 LT AAAsf Affirmed AAAsf
Class B XS0265252253 LT B-sf Downgrade Bsf
Class S XS0715998331 LT AAsf Upgrade A+sf
TRANSACTION SUMMARY
PEARL 1 is backed by a portfolio of prime Dutch residential
mortgage loans, made up of 100% NHG-guaranteed mortgage loans and
originated by de Volksbank N.V.
KEY RATING DRIVERS
Increasing Credit Enhancement: Credit enhancement (CE) available to
the notes has been increasing as the transaction amortises
sequentially. The upgrade of the class S notes is driven by the
increase in the CE to 3.4% currently from 2.9%.
Good Asset Performance: The underlying portfolio continues to
perform well, with loans in arrears for more than 90 days having
remained low, representing less than 0.4% of the current
outstanding balance (as of 31 May 2022). In addition, there have
been no foreclosures or realised losses reported to date for the
transaction.
Outstanding PDL Limits Junior Ratings: On any payment date after
the first optional redemption date (FORD), the notes can be
redeemed at notional amount minus the principal deficiency ledger
(PDL). A redemption at a lower amount than the outstanding notional
of the notes would constitute a default under Fitch's rating
definitions. In Fitch's analysis, Fitch has material PDL shortfalls
for the class B notes after the FORD in a 'B' rating scenario. This
limits the rating of the class B notes and results in the downgrade
of the class B notes.
ESG Influence: PEARL 1 currently has an ESG Relevance Score of '5'
[+] for human rights, community relations, access & affordability
due to the securitised assets having the benefit of an NHG
guarantee.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Unanticipated increases in the frequency of defaults or
decreases in recovery rates that could produce larger losses
than Fitch's base case;
-- Insufficient CE ratios to compensate for the credit losses and
cash flow stresses associated with the current ratings
scenarios, all else being equal.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Increase in CE ratios as the transactions deleverage that
fully compensates for the credit losses and cash flow stresses
that are commensurate with higher rating scenarios.
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 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.
Fitch did not undertake a review of the information provided about
the underlying asset pool ahead of the transaction's initial
closing. The subsequent performance of the transaction 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
PEARL 1 has an ESG Relevance Score of '5' [+] for human rights,
community relations, access & affordability due to the benefit of
NHG guarantee, which has a positive impact on the credit profile,
and is highly relevant to the rating.
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.
=============
R O M A N I A
=============
KMG INT'L: Fitch Affirms B+ LongTerm IDR, Outlook Stable
--------------------------------------------------------
Fitch Ratings has affirmed KMG International NV's (KMGI) Long-Term
Issuer Default Rating (IDR) at 'B+' with a Stable Outlook.
KMGI is a wholly-owned subsidiary of JSC National Company
KazMunayGas (KMG; BBB-/Stable), the national oil and gas company of
Kazakhstan. Under Fitch's Parent and Subsidiary Linkage (PSL)
Rating Criteria, it is rated two notches above its Standalone
Credit Profile (SCP) of 'b-', based on a bottom-up assessment
reflecting 'Medium' legal and operational and 'Low' strategic
incentives to support by KMG.
KMGI's SCP of 'b-' reflects the small scale of its refinery
capacity, volatile refining margins subject to cyclical raw
material prices and limited business integration despite ongoing
strategic investment in the retail segment as well as a high share
of short-term debt in its capital structure.
The Stable Outlook reflects Fitch's expectation that KMGI will be
able to maintain its largely stable funds from operations (FFO) net
leverage at around 3x in 2022-2026. It also reflects stable access
to credit lines with its relationship banks on the back of its
adequate domestic market position in Romania and ties with its
parent KMG.
KEY RATING DRIVERS
Limited Dependence on Russian Oil: KMGI sources around 75% of oil
feedstock from KMG in Kazakhstan. The Kazakh crude oil is currently
traded under Urals and Siberian Light being loaded into vessels at
ports in Russia. International sanctions against Russian oil do not
apply to the crude oil purchased from other countries including
Kazakhstan. In case of disruptions in transit of the oil through
Russia, KMGI will explore alternative sources such as Azerbaijan
and Africa. In this scenario, production volume is estimated to
decrease to approximately 80% of capacity.
Romania's High Self-Sufficiency in Gas: Imported Russian gas
accounts for 16% of total gas consumption in Romania, which is the
second-largest EU producer of gas with sizeable untapped resources
in the Black Sea and onshore. In the event of disrupted gas supply
from Russia, Fitch estimates little impact on KMGI's facility
operations.
Interrupted Refining Activity: Refining activities at Petromidia
were interrupted for 83 days after a fire in July 2021. Most of its
refinery units restarted operations after repair in September, but
the most affected unit, diesel hydrotreater, was restored only in
April 2022. As a result, KMGI´s processing volume of hydrocarbon
feedstock declined to 5.1mt, far below the normal level of 6.3mt.
The negative impact on 2021 EBITDA is estimated at USD35 million.
Repairment cost for the damaged facilities is estimated at USD29
million.
Low Urals Price to Boost EBITDA: Since the beginning of the war in
Ukraine, Urals has been traded at a discounted price and,
consequently Urals-dated Brent differential has widened to
unprecedented level above USD30/bbl (2019-2021 average
USD0.65/bbl). The increase of Urals-Brent differential far beyond
KMGI's hedge position triggered a hedging loss in 1H22. However,
Fitch expects KMGI to see an exceptionally strong refining margin
with EBITDA/bbl above USD4 in 2022 outweighing the hedging loss in
1H22.
Retail Operations to Grow: Romania has one of the lowest car
ownerships per capita in the EU, which provides KMGI with the
opportunity to capitalise on future growth. KMGI currently operates
more than 1,000 fuel stations in the country and will continue to
expand its domestic retail operations to further take advantage of
the higher premiums and stable earnings it provides in comparison
to cyclical refining margins. Since 2018, KMGI has added 40 gas
stations to their retail network and will build an additional 44
stations until 2024.
'b-' SCP: KMGI's SCP is constrained by negative free cash flow
(FCF). The company is also committed to purchase a 26.7% stake in
Rompetrol Rafinare (RRC) for USD200 million under an MoU. The
refinery generates the lowest refining margins and throughput
volume among Fitch-rated European peers and its purchase is being
financed by a high portion of short-term credit facilities (48% of
total debt at end-2021). The SCP is supported by ongoing
diversification into retail-fuel marketing and an improved
financial profile.
MoU Outlays Constrain Leverage: The Kazakh-Romanian Energy
Investment Fund, set up under the MoU with the Romanian State, has
an investment scope of up to USD1 billion within seven years to
2025. As of 2021, 32% of the investment target had been achieved
and Fitch sees a total enlarged capex plan for KMGI of
approximately USD662 million in 2022-2025, including two approved
projects costing USD315 million. They are the construction of a
power plant at the Petromidia refinery and expansion of the gas
station network mainly in Romania.
Moderate Linkage with Parent: Under Fitch's PSL Rating Criteria,
the legal incentive between KMGI and KMG is assessed as 'Medium',
underpinned by KMGI being a material subsidiary under a
cross-default clause, which can be triggered by a default of
KMGI´s debt exceeding USD200 million. KMGI shares brands with KMG
and also acts as the sole trader for KMG's crude volumes in Europe.
This supports 'Medium' operational links. Strategic incentive
between KMGI and KMG is deemed 'Low', considering its limited
competitive advantage and contribution to KMG EBITDA.
DERIVATION SUMMARY
KMGI's peer Turkiye Petrol Rafinerileri A.S (Tupras; B+/Negative)
is much larger and operates four medium-sized refineries across
Turkey with a total capacity of 564kboe/d and holds a 40% stake in
Opet, Turkey's second-largest fuel retailer. The gap of two notches
from KMGI's 'b-' SCP reflects Tupras' larger refinery capacity with
significantly lower concentration on a key asset. In addition,
KMGI's main refining asset, Petromidia, has a complexity (Nelson
complexity index of 10.4) that lags behind Tupras', which has a
Nelson index of 14.5, making it one of the most complex assets in
Europe and Middle East.
KMGI (refining capacity of 121kboe/d) is the smallest among the
Eastern European peer group including Polski Koncern Naftowy ORLEN
S.A. (PKN; BBB-/RWP, 894kboe/d after its expected merger with
LOTOS) and MOL Hungarian Oil and Gas Company Plc (BBB-/Negative,
380kboe/d). Relative to MOL and PKN with their vertical integration
of upstream assets and petrochemical businesses, KMGI has volatile
refining margins, which are subject to varying raw material prices
across the economic cycle.
KEY ASSUMPTIONS
-- Strong EBITDA/bbl of USD4.5/bbl in 2022 and average EBITDA/bbl
of USD2.1/bbl in 2023-2026;
-- Moderate increase in EBITDA in the retail segment to 2026,
reflecting expansion of fuel stations;
-- Enlarged capex totalling USD662 million under the MoU in 2022-
2025. Main investment plans include power plant and expansion
of retail network;
-- Outflows of USD200 million in 2023 for the committed purchase
of a 26.7% stake in RRC from the Romanian government. Fitch
assumes that KMGI will raise financing for the RRC stake
acquisition without KMG's support;
-- Dividends of USD15 million per year for the periods of 2022-
2023 and 2025-2026.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO net leverage and net debt EBITDA below 2.0x on a sustained
basis, coupled with improved liquidity and a higher share of
long-term debt;
-- Evidence of stronger ties between KMG and KMGI.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Deterioration in KMGI's liquidity and ability to refinance
debt;
-- Unremedied covenant breach;
-- FFO net leverage and net debt EBITDA above 4.0x and FFO
interest coverage below 2.0x on a sustained basis;
-- Negative FCF on a sustained basis;
-- Weaker ties with KMG leading to a reassessment of the two-
notch uplift to the SCP for parental support.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Limited Liquidity: At May 31 2022, KMGI held cash balances of
around USD142 million against short-term debt of USD490 million
(versus USD653 million of total debt) and forecast negative FCF of
around USD211 million in 2022. The company has available credit
lines totalling USD105 million, of which USD81 million is long-term
and committed due in January 2029.
KMGI also maintains a substantial amount of short-term uncommitted
credit lines, mainly for its trading activities, but Fitch does not
view them as a source of liquidity.
KMGI has relied on rolling over short-term credit facilities to
cover its liquidity requirements. The high proportion of short-term
debt in its capital structure is a constraint on the rating, even
though the company has a record of successful refinancing with its
relationship banks.
KMGI's USD240 million revolving credit facility (RCF) and USD120
million uncommitted credit line have a minimum interest coverage
(EBITDA/bank interest) covenant of 3.5x and a maximum bank debt
utilisation of USD1 billion, which is tested semi-annually.
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.
ISSUER PROFILE
KMGI incorporates three main business segments including (i)
refining and petrochemicals via controlling ownership 54.6% of RRC;
(the remaining 44.4% owned by the Romanian government), (ii)trading
and supply chain via KMG Trading, which manages feedstock supply
and sales of finished products, and (iii) retail and marketing with
over 1,000 gas stations in four countries - Romania, Moldova,
Bulgaria and Georgia.
DEBT RATING PRIOR
---- ------ -----
KMG International NV LT IDR B+ Affirmed B+
=========
S P A I N
=========
INVICTUS MEDIA: Fitch Raises LongTerm IDR to 'CCC+'
---------------------------------------------------
Fitch Ratings has downgraded Spanish sports and media entertainment
group Invictus Media S.A.U's (Imagina) Long-Term Issuer Default
Rating (IDR) to 'RD' (Restricted Default) from 'C', before
upgrading it to 'CCC+'.
The downgrade follows the company's announcement that it has
completed the restructuring of its debt, which Fitch views as a
distressed debt exchange (DDE). The restructuring agreement
included a EUR620 million capital injection by shareholder
Southwind group, with the majority of these funds planned for debt
repayment.
The subsequent upgrade to 'CCC+' reflects Fitch's view that, while
the restructuring has reduced total debt the company has
insufficient liquidity to service upcoming debt maturities and
refinancing in the short term is needed.
Fitch understands from management that Imagina is in the process of
refinancing its existing debt, which would extend maturities. Fitch
could consider an upgrade of the ratings on announcement of a
successful refinancing of existing debt given its fairly low
leverage and organic growth potential.
KEY RATING DRIVERS
Restructuring Equivalent to DDE: From 2021 Imagina deferred
interest and amortisation payments before paying them at the point
of the equity injection in 2022. The deferral of these payments was
necessary to avoid bankruptcy and represented a material reduction
in terms as deferral of these payments was not permitted under the
original documentation. This constitutes a DDE under Fitch's DDE
Rating Criteria.
Poorly Funded Liquidity: The debt restructuring allows Imagina to
stabilise its capital structure, to take advantage of future growth
opportunities and continue investment spending. After the planned
debt repayments Imagina still has outstanding EUR496 million senior
secured debt due. Fitch believes Imagina does not have sufficient
liquidity to service this debt without refinancing and extending
its maturities.
Refinancing Risk: Fitch believes the company is actively seeking to
refinance their remaining debt. Fitch has limited visibility on
either the company's progress or the likelihood of success with
respect to refinancing. Fitch's ratings reflect this uncertainty
and the risk of a liquidity crisis if the company is unsuccessful.
Successful refinancing would mean an improved liquidity position
and potentially a rating upgrade if the leverage and business-risk
profiles remain unchanged.
Modest Leverage: The injection of EUR620 million by Southwind Group
demonstrates their commitment to supporting the business. The
equity injection has resolved working-capital issues, unpaid debt
payments and is expected to significantly reduce Imagina's funds
from operations (FFO) gross leverage to below pre-pandemic levels.
Fitch expects FFO gross leverage to fall to 4.3x by end-2022, from
6.8x by end-2019. The company has ample leverage headroom at its
current rating.
Improved Business Mix: Fitch views the sports-rights business as
carrying higher operating risks than other business segments. This
reflected the possibility that the company may not be able to
monetise expensive sports rights. Since the pandemic it has
significantly reduced its exposure to owned rights with the
majority of sports-rights EBITDA coming from the La Liga
International Agency contract, which does not carry the same
monetisation risk. Imagina has also rebalanced the business model
away from sports rights. The loss of owned-rights, combined with
growth in the audio-visual services, content, innovation and
marketing services have reduced EBITDA contribution from sports
rights to 23% in 2021 from 43% in 2019.
Renewal Risk Remains: Imagina's longstanding relationship with La
Liga supports the likelihood of the renewal of its international
agency contract when it expires at the end of the 2023/24 season.
This is also supported by the company already having sold rights
beyond the expiry date of the current contract in the US and
Mexico. Failure to renew the contract would likely reduce EBITDA by
around EUR50 million-EUR60 million per year. This could lead to
increased leverage and constrain free cash flow (FCF) generation.
Exposure to contract renewal risk from such a large contract
decreases Fitch's visibility of future earnings and implies higher
business-model risk than that of peers with greater contract
diversification.
DERIVATION SUMMARY
Fitch assesses Imagina using Fitch's Ratings Navigator for
Diversified Media Companies and by benchmarking it against selected
Fitch-rated rights-management and content-producing peers, none of
which Fitch views as a complete comparator given Imagina's fully
integrated business model. Imagina's 'CCC+' rating reflects its
insufficient liquidity without a refinancing and extension of
maturities.
Imagina has a strong competitive position, and stronger regional,
rather than global, sector relevance but this is offset by high
dependence on key accounts (in particular the International La Liga
contract), a lower FCF base than peers'. Fitch believes Imagina has
a weaker business profile than Banijay Group SAS's (B/Stable)
driven by the former's high contract renewal risk.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
-- Revenue to decline 5%-7% in 2022 and 2023, reflecting the loss
of domestic sports rights in Spain and lower commissions
received on the international La Liga contract. This is
followed by low single-digit revenue growth to 2025;
-- Fitch-defined EBITDA margin to decline in 2022 to 10.4%,
driven by losses in the domestic and international sports
rights contracts before increasing through 2026 towards pre-
pandemic levels;
-- Capex around 5%-8% of revenue to 2025;
-- Working-capital outflows of aroundEUR5 million-EUR11 million
per year for 2022-2025.
KEY RECOVERY RATING ASSUMPTIONS
-- The recovery analysis assumes that Imagina would be considered
a going concern in bankruptcy and that the company would be
reorganised rather than liquidated;
-- A 10% administrative claim;
-- Post-restructuring going-concern EBITDA estimated at EUR105
million;
-- An enterprise value (EV) multiple of 4.5x is used to calculate
a post-reorganisation valuation;
-- These assumptions result in a recovery rate of 90% for the
senior secured instrument rating within the 'RR2' range and a
recovery rate of 56% for the second-lien instrument rating
within the 'RR3' range, resulting in two- and one-notch
uplifts of the respective instruments from the IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Improved liquidity profile driven primarily by a successful
refinancing of existing term debt with maturities extended
beyond the next four years;
-- FFO gross leverage consistently below 6.5x (equivalent to
around 6.0x Fitch-defined total debt / EBITDA).
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Inability to refinance or insufficient liquidity to cover
funding requirements over the next 12 to 24 months;
-- Negative FCF on a sustained basis.
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
Insufficient Liquidity: After the paydown of the outstanding
interest, amortisation and first lien debt repayments Imagina has
EUR496 million of senior secured debt outstanding. Without
refinancing and extending its maturities the company does not have
sufficient available liquidity to service this debt.
ISSUER PROFILE
Imagina is a Spanish-based vertically integrated global sports and
media entertainment group operating across the entire value chain
from rights management through content production using own
audio-visual capabilities in production, broadcasting and
transmission.
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
---- ------ -------- -----
Invictus Media LT IDR RD Downgrade C
S.A.U
LT IDR CCC+ Upgrade RD
Senior Secured LT B- Upgrade RR3 C
2nd Lien
senior secured LT B Upgrade RR2 CC
SABADELL CONSUMO 2: Fitch Assigns 'BB(EXP)' on on Class F Debt
--------------------------------------------------------------
Fitch Ratings has assigned Sabadell Consumo 2, FT expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already received.
DEBT RATING
---- ------
Sabadell Consumo 2, FT
Class A ES0305622005 LT AAA(EXP)sf Expected Rating
Class B ES0305622013 LT AAA(EXP)sf Expected Rating
Class C ES0305622021 LT AA-(EXP)sf Expected Rating
Class D ES0305622039 LT BBB+(EXP)sf Expected Rating
Class E ES0305622047 LT BBB-(EXP)sf Expected Rating
Class F ES0305622054 LT BB(EXP)sf Expected Rating
Class G ES0305622062 LT NR(EXP)sf Expected Rating
Class H ES0305622070 LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
This transaction is a static securitisation of a portfolio of fully
amortising general-purpose consumer loans originated by Banco de
Sabadell, S.A. (BBB-/Stable/F3) to Spanish residents. All the loans
are to existing Sabadell clients.
KEY RATING DRIVERS
Asset Assumptions Reflect Mixed Portfolio: The securitised
portfolio includes pre-approved loans (61% of portfolio balance)
and on-demand consumer loans (39%). Fitch calibrated asset
assumptions for each product separately and by considering their
unique product features.
Fitch has assumed base-case lifetime default and recovery rates of
4.5% and 17%, respectively, for the blended portfolio, given the
historical data provided by Sabadell, Spain's economic outlook and
the originator's underwriting and servicing strategies. For a 'AAA'
scenario, the lifetime default rate and the recovery rates are
20.2% and 9.3%, respectively.
Pro-Rata Amortisation: The class A to G notes will be repaid
pro-rata after the closing date unless a sequential amortisation
event occurs if cumulative defaults on the portfolio exceed certain
thresholds, a principal deficiency higher than 0.1% exists on any
payment date (except the first payment date), or loans in arrears
over 90 days exceed 5% of the portfolio balance. The portfolio is
static with no revolving period.
Fitch believes a switch to sequential amortisation is unlikely
during the first years after closing, given Fitch's
portfolio-performance expectations compared with defined triggers,
and the transaction's default definition of six months in arrears.
Fitch views the tail risk posed by the pro-rata paydown as
mitigated by a mandatory switch to sequential amortisation when the
outstanding portfolio balance falls below 10% of its initial
balance.
Servicing Disruption Risk Mitigated: Fitch views servicing
disruption risk as mitigated by liquidity provided in the form of a
cash reserve equal to 1.17% of the class A to G outstanding
balance, which would cover senior costs, net swap payments and
interest on these notes for more than two months, a period Fitch
views as sufficient to implement alternative arrangements upon
Banco Sabadell losing eligibility rating of 'BBB-', including
pre-funding of an additional third month of liquidity within 14
days and appointing a replacement servicer. Moreover, the trustee
operates as a back-up servicer facilitator.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A downgrade to Spain's Long-Term Issuer Default Rating (IDR) that
could lower the maximum achievable rating for Spanish structured
finance transactions would result in a corresponding action on the
class A and B notes. 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 reduced portfolio yield, which could be driven by
changes in portfolio characteristics, macroeconomic conditions,
business practices or the legislative landscape, could result in
negative rating action.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in upside and
downside environments. The results below should only be considered
as one potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Sensitivity to Increased Defaults:
Current ratings (class A/B/C/D/E/F): 'AAA(EXP)sf'/ 'AAA(EXP)sf'/
'AA-(EXP)sf'/'BBB+(EXP)sf' /'BBB-(EXP)sf' / 'BB(EXP)sf'
Increase defaults by 10%: 'AAA(EXP)sf'/ 'AA+(EXP)sf'/
'A+(EXP)sf'/'BBB+(EXP)sf' /'BB+(EXP)sf' / 'BB(EXP)sf'
Increase defaults by 25%: 'AAA(EXP)sf'/ 'AA+(EXP)sf'/
'A(EXP)sf'/'BBB-(EXP)sf' /'BB(EXP)sf' / 'B+(EXP)sf'
Increase defaults by 50%: 'AAA(EXP)sf'/ 'AA-(EXP)sf'/
'BBB+(EXP)sf'/'BB+(EXP)sf' /'BB-(EXP)sf' / 'CCC(EXP)sf'
Sensitivity to Reduced Recoveries:
Current ratings (class A/B/C/D/E/F): 'AAA(EXP)sf'/ 'AAA(EXP)sf'/
'AA-(EXP)sf'/'BBB+(EXP)sf' /'BBB-(EXP)sf' / 'BB(EXP)sf'
Reduce recoveries by 10%: 'AAA(EXP)sf'/ 'AAA(EXP)sf'/
'AA-(EXP)sf'/'BBB+(EXP)sf' /'BBB-(EXP)sf' / 'BB(EXP)sf'
Reduce recoveries by 25%: 'AAA(EXP)sf'/ 'AAA(EXP)sf'/
'AA-(EXP)sf'/'BBB+(EXP)sf' /'BB+(EXP)sf' / 'BB(EXP)sf'
Reduce recoveries by 50%: 'AAA(EXP)sf'/ 'AAA(EXP)sf'/
'AA-(EXP)sf'/'BBB+(EXP)sf' /'BB+(EXP)sf' / 'BB-(EXP)sf'
Sensitivity to Increased Defaults and Reduced Recoveries:
Current ratings (class A/B/C/D/E/F): 'AAA(EXP)sf'/ 'AAA(EXP)sf'/
'AA-(EXP)sf'/'BBB+(EXP)sf' /'BBB-(EXP)sf' / 'BB(EXP)sf'
Increase defaults by 10%, reduce recoveries by 10%: 'AAA(EXP)sf'/
'AA+(EXP)sf'/ 'A+(EXP)sf'/'BBB(EXP)sf' /'BB+(EXP)sf' / 'BB(EXP)sf'
Increase defaults by 25%, reduce recoveries by 25%: 'AAA(EXP)sf'/
'AA(EXP)sf'/ 'A(EXP)sf'/'BBB-(EXP)sf' /'BB(EXP)sf' / 'B(EXP)sf'
Increase defaults by 50%, reduce recoveries by 50%: 'AAA(EXP)sf'/
'A+(EXP)sf'/ 'BBB+(EXP)sf' /'BB(EXP)sf' /'B(EXP)sf' / 'NR(EXP)sf'
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
The class A and B notes are rated at the highest level on Fitch's
scale and cannot be upgraded.
For class C to F, increases in credit enhancement ratios as the
transaction deleverages to fully compensate the credit losses and
cash flow stresses commensurate with higher rating scenarios would
result in positive rating action.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in upside and
downside environments. The results below should only be considered
as one potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Sensitivity to Decreased Defaults and Increased Recoveries:
Current ratings (class A/B/C/D/E/F): 'AAA(EXP)sf'/ 'AAA(EXP)sf'/
'AA-(EXP)sf'/'BBB+(EXP)sf' /'BBB-(EXP)sf' / 'BB(EXP)sf'
Decrease defaults by 10%, increase recoveries by 10%: 'AAA(EXP)sf'/
'AAA(EXP)sf'/ 'AA(EXP)sf'/'A-(EXP)sf' /'BBB(EXP)sf' / 'BB+(EXP)sf'
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.
CRITERIA VARIATION
Our assessment of Sabadell Consumo 2's payment interruption risk
deviates from Structured Finance and Covered Bonds Counterparty
Criteria due to remedial actions not being fully in line with
criteria. The transaction holds two months of liquidity to cover
senior fees, net swap payments and notes' interest payments, with
remedial actions, including funding of additional liquidity, upon
Banco Sabadell losing its 'BBB-' Long Term IDR eligibility. Fitch's
criteria specify at least one month of liquidity with remedial
actions set at the loss of 'BBB' and 'F2' IDR.
Fitch deems the additional month of liquidity in the transaction
(two months) sufficiently compensates the additional risk from
remedial actions being established one notch lower (at BBB-) as
opposed to Fitch's criteria's 'BBB' and 'F2'.
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 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.
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.
===========
S W E D E N
===========
SAS: To Resume Labor Negotiations with Pilot Unions to End Strike
-----------------------------------------------------------------
Victoria Klesty at Reuters reports that embattled Scandinavian
airline SAS and unions representing pilots will resume negotiations
today, July 13, to try and agree a new labour deal to end a
one-week strike.
SAS has cancelled more than 1,200 flights since July 4 when talks
with many of its pilots over a new collective bargaining agreement
collapsed and they launched the crippling strike.
Henrik Thyregod, head of the Danish pilots union told Reuters he
was certain an outcome would be reached but was unsure of how long
the negotiations would take.
"I expect to discuss . . . a collective bargaining agreement so we
can get the pilots back in the cockpit and the passengers back in
the air," he said.
Spokespeople for SAS and the Norwegian and Swedish pilot unions
also confirmed the talks will resume but declined to elaborate on
the content or expected outcome.
The airline said on July 11 it had informed mediators that it
wishes to resume negotiations with the aim of "reaching a new
collective agreement".
"SAS understands that continued mediation requires concessions from
both parties and SAS is willing to take its responsibility in that
process," it said in a statement.
The loss-making carrier has estimated the strike, now in its ninth
day, is costing US$10 million to US$13 million a day.
The striking unions have been angered by SAS' decision to hire new
pilots through two relatively new subsidiaries instead of first
rehiring former employees dismissed during the pandemic, when
almost half of its pilots were let go.
Sydbank's chief analyst Jacob Pedersen, when asked about the
biggest point of contention, pointed to the rehiring and said
pilots want to ensure that SAS does not just create new
subsidiaries after entering into an agreement.
About Scandinavian Airlines
SAS AB is Scandinavia's leading airline. It has main hubs in
Copenhagen, Oslo and Stockholm, and flies to destinations in
Europe, USA and Asia. In addition to flight operations, SAS offers
ground handling services, technical maintenance and air cargo
services. SAS is a founder member of the Star Alliance, and
together with its partner airlines offers a wide network worldwide.
On the Web: https://www.sasgroup.net
SAS AB and its affiliates, including Scandinavian Airlines Systems
Denmark-Norway-Sweden and Scandinavian Airlines of North America
Inc., sought protection under Chapter 11 of the U.S. Bankruptcy
Code (Bankr. S.D.N.Y. Case No. 22-10925) on July 5, 2022. In the
petition filed by Erno Hilden, as authorized representative, the
Debtor SAS AB estimated assets between $10 billion and $50 billion
and liabilities between $1 billion and $10 billion.
Weil, Gotshal & Manges LLP is serving as global legal counsel and
Mannheimer Swartling Advokatbyra AB is serving as Swedish legal
counsel to SAS. Seabury Securities LLC and Skandinaviska Enskilda
Banken AB are serving as investment bankers, Seabury is also
serving as restructuring advisor. FTI Consulting is serving as
financial advisor. Kroll Restructuring Advisors is the claims
agent.
SCANDINAVIAN AIRLINE: S&P Lowers ICR to 'D' on Chapter 11 Filing
----------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Scandinavian Airline SAS AB to 'D' (default) from 'CC'.
S&P downgraded SAS to 'D' because the company and certain
subsidiaries filed for bankruptcy protection under Chapter 11 of
the U.S. Bankruptcy Code in New York. The move comes amid a pilot
strike that is estimated to lead to the cancelation of
approximately 50% of all scheduled SAS flights. The company is
seeking bankruptcy protection to accelerate its business and
financial transformation plan SAS FORWARD, which includes cutting
more than Swedish krona (SEK) 20 billion of debt or converting it
to equity, issuing at least SEK9.5 billion of new equity, and about
SEK7.5 billion of annual cost savings.
STENA AB: S&P Affirms 'B+' ICR & Alters Outlook to Positive
-----------------------------------------------------------
S&P Global Ratings revised its outlook on Stena AB to positive and
affirmed its 'B+' long-term issuer credit rating on the company.
S&P affirmed its 'BB-' issue ratings (recovery rating: '2') on the
company's senior secured debt issuances, and it affirmed its 'B+'
issue ratings (recovery rating: '4') on the company's senior
unsecured notes.
The positive outlook reflects S&P's expectation that adjusted debt
to EBITDA could stabilize below 6x in 2023 and trend toward 5x
thereafter.
S&P said, "We expect Stena Line's operating performance to continue
strengthening in 2022 and 2023 as a result of improved operating
leverage. Operating performance returned to pre-pandemic levels in
2021, and passenger volumes in Stena Line's network continue to
recover. We expect that trend will continue over 2022, since
passenger volumes in Stena's ferry network remain high ahead of Q2
and Q3, the quarters in which most personal travel takes place.
Travel restrictions affected Q4 2021, but passenger volumes were up
84% in Q1 2022, implying continued improvement. The structural
importance of the ferry operations in Northern Europe was
demonstrated during the height of the pandemic, although
competition remains intense. During the pandemic, management has
improved its operating cost position by closing less profitable
routes, such as Oslo–Fredrikshamn and Trelleborg–Sassnitz. This
lowered overheads and costs by about SEK1 billion and sustainably
improved margins. We therefore anticipate that ferry business will
continue to recover over 2022, so we forecast EBITDA will be SEK3.5
billion-SEK4.0 billion this year and SEK4.0 billion-SEK4.4 billion
in 2023, compared with SEK3.5 billion in 2021 and SEK1.5 billion in
2020. This assumes no further pandemic-related lockdowns. However,
we are mindful of the risk of lower GDP, which could alter the
expected development, since both travel and freight have strong
links to economic growth. Although not immune, Stena Line should
have limited exposure to bunker cost increase or inflation, at
least in the short term.
"We now expect the rig operations to meaningfully contribute to
Stena's EBITDA mix in 2022 and 2023, after low or negative
contributions in 2018-2021.However, the contract structure remains
short and therefore provides limited earnings visibility from 2023
onward. We view positively that Stena has signed contracts for
almost all available drilling days for 2022 at improving rates and
has three of the rigs on full contract for 2023, which gives good
short-term visibility. Recent charter rates have been signed well
above $300,000 per day, which is a substantial improvement compared
with approximately $235,000 per day in 2021 and $150,000-$175,000
per day in 2020. This will translate into a material improvement in
EBITDA in 2022, which we estimate at SEK600 million–SEK800
million. Although there are clear signs of improvement, as
demonstrated by the recent day rates signed, we think the industry
recovery is fragile since most exploration and production companies
appear reluctant to undertake large drilling campaigns at this
time. In a lower oil price scenario or economic recession, we would
expect the charter rates to moderate again."
Average tanker shipping rates are likely to recover in 2022.
Depressed tanker rates burdened the shipping division's profits in
2021. For example, weighted average clean product tanker earnings
were about $7,000 per day in 2021, but this has since improved to
about $28,600 per day year-to-date 2022, according to Clarkson
Research. Accordingly, S&P anticipates a gradual improvement in the
tanker business in 2022, with EBITDA generation of SEK1.5
billion-SEK2.0 billion as oil demand rebounds and new ship
deliveries slow down.
S&P said, "We think Stena's increased focus on roll-on-roll-off
(RORO) and real estate should support cash flow stability. We
understand Stena intends to continue focusing its investment on
real estate and RORO. We view this as a positive for its business
risk because the operations are more stable. Stena's real estate
operations have continued to deliver stable operating results,
including during the peak of the pandemic, contributing SEK1.5
billion-SEK1.6 billion of EBITDA in 2021. We anticipate moderate
improvement in 2022 and 2023 thanks to ongoing investments. In
addition, Stena recently took delivery of two RORO passenger ships
to the RORO division, with five other ships still on order, to be
delivered by 2025, for which Stena has signed long-term, five- to
10-year charter contracts for the vessels delivered and on order.
This implies a higher contribution from the RORO segment with
EBITDA increasing to about SEK650 million by 2023, according to our
base case."
Continued high investments will keep adjusted debt at SEK62
billion-SEK65 billion. Better earnings will strengthen Stena's
credit ratios while the company directs its investment toward the
more stable RORO and real estate segments, which supports the
outlook revision to positive. The RORO vessel orders, maintenance
capital expenditure (capex), and real estate investment lead us to
expect SEK8 billion-SEK9 billion in capex this year, significantly
up from SEK6.9 billion in 2021. S&P said, "Therefore, we expect no
moderation in absolute debt levels over 2022-2024, due to the
massive investments. Since earnings are set to increase, Stena's
credit ratios are likely to improve, with debt to EBITDA likely
falling below 6x, compared with our previous assumptions of
6.5x-7.0x in 2022. We view positively that capex has been directed
to Stena's less-risky operations, real estate and the RORO segment,
which might strengthen the business risk profile over 2023-2025. We
note that there is substantial flexibility in real estate capex,
which the company has planned to be about SEK2 billion. We also
think the investments should ultimately underpin the stability of
Stena's cash flow streams."
S&P said, "We note that Stena has an option to acquire a drilling
ship, which would likely cost about $350 million-$400 million. At
this stage, we have not included this investment in our base case;
however, we understand Stena would only exercise the option it if
the company could also secure the purchase with a long-term
contract while also taking other measures to lower investment risk.
We would likely see such a scenario as moderately positive, since
cash flow would be secured for a long time and the rig would turn
operational within a relatively short period. If Stena acquired the
rig without backing up the purchase with a long-term contract, we
could review the rating.
"The positive outlook reflects our expectation that Stena's EBITDA
will continue to increase over 2022 and 2023, factoring in
improving passenger traffic and drilling, boosted earnings of the
ferry business, and continued solid performance of the real estate
division. We forecast that adjusted debt to EBITDA could fall below
6x in 2022. Furthermore, we take into account Stena's strong
liquidity position, which provides a necessary cushion against its
volatile drilling and shipping businesses.
"We could raise the ratings on Stena by one notch in the next 12
months if we saw continued strong improvement in drilling,
shipping, and ferry operations, with other more resilient segments
performing as anticipated. We consider debt to EBITDA consistently
below 6x as commensurate with a higher 'BB-' rating. If we deemed
the business risk profile to have materially strengthened because
of a higher share of stable EBITDA from real estate and RORO
vessels, this could also lead to an upgrade.
"We view a negative rating action as unlikely over the next 12
months because the group's earnings should improve thanks to its
drilling business becoming less of a burden to EBITDA, for
example.
"However, we could consider a negative rating action if pressure
returns in the drilling segment, or if the ferry business fails to
recover in line with our base case on the back of re-emerged travel
restrictions or lower economic growth, for example. As such, we
could take a negative rating action if we forecasted adjusted debt
to EBITDA would increase to above 7.5x for an extended period.
"We could also consider a negative rating action if Stena's
liquidity deteriorated and this was not offset by improved credit
metrics. This could be the case if the company failed to secure new
financing well in advance of debt maturities, and instead used
available liquidity to make the payments. We note, however, that
liquidity headroom is currently ample."
ESG credit indicators: E-3, S-3, G-1
===========
T U R K E Y
===========
TURKIYE: Fitch Cuts LongTerm Foreign Currency IDR to B, Outlook Neg
-------------------------------------------------------------------
Fitch Ratings has downgraded Turkiye's Long-Term Foreign-Currency
Issuer Default Rating (IDR) to 'B' from 'B+'. The Outlook is
Negative.
KEY RATING DRIVERS
The downgrade of Turkiye's IDRs and the Negative Outlook reflects
the following key rating drivers and their relative weights:
High
Spiralling Inflation: Fitch forecasts annual inflation to average
71.4% in 2022, the highest of Fitch-rated sovereigns and its
trajectory remains highly uncertain due to increased risks of
backward indexation, rising expectations and additional lira
depreciation, as the exchange rate pass-through has increased in
both speed and magnitude. Inflation will average 57% in 2023, as
Fitch expects the overall policy mix to remain overly accommodative
at least until the 2023 elections.
Policies Increase Macro and External Risks: Guided by political
considerations, the central bank has maintained its policy rate at
14% since December 2021, despite rapidly rising inflation, the
impact of the war in Ukraine on commodity markets and tightening
monetary policy in most advanced economies. The government's focus
on maintaining high growth feeds FX demand, depreciation pressures
on the lira, decline in international reserves and spiralling
inflation, and discourages capital inflows to fund the higher
current account deficit.
Increasingly Interventionist Policies: Fitch considers that
selective macroprudential policies to reduce the pace of rapid
credit growth and tighter capital flow management measures do not
reduce risks to macroeconomic and financial stability. Moreover, as
exemplified by recent regulations conditioning corporates' access
to local currency credit depending on the level of their FX assets,
policies are becoming increasingly interventionist as well as
unpredictable. There is a risk that in the event of weaker
depositor confidence or a deterioration in the until-now resilient
access of banks and corporates to external financing, official
international reserves would come under pressure, as a significant
portion of banks' foreign currency assets is held in the central
bank.
Higher Financing Needs, Limited Inflows: Higher energy prices and
weaker external demand will result in a current account deficit of
5.1% of GDP in 2022 despite a recovery in tourism. Although net
errors and omissions have supported the balance of payments in
recent years, the limited visibility of their nature and resilience
maintains the risk of additional pressure on international reserves
ahead. External debt maturing over the next 12 months (end-April)
amounts to USD182 billion. Access to external financing for the
sovereign and private sector has a record of resilience, but
remains vulnerable to changes in investor sentiment, especially
given tighter global financing conditions and Turkiye's increased
funding costs. Turkiye's issuance of total USD5 billion in early
2022 and foreign-currency (FC) cash buffers reduce near-term
financing risks for the sovereign.
International Reserves Under Pressure: International reserves have
declined to USD101 billion (net reserves at USD7.5 billion) despite
FX deposit conversion and capital flow management measurements,
including surrender requirements for exporters. Fitch estimates
that the central bank net FX asset position turned slightly
negative in June and fell to minus USD64 billion when excluding FX
swaps, similar to December 2021 levels. Fitch forecasts
international reserves to decline to USD94 billion by end-2022 and
to USD88 billion in 2023, bringing reserve coverage of current
external payments to 2.7 months, below the forecast 'B' median of
3.8 months.
High Financial Dollarization: Currently, FC-denominated (56%) and
-linked deposits account for 71% of total deposits. In addition to
high dollarisation, banks are vulnerable to FX volatility due to
high external debt payments and the impact on asset quality (38% of
loans are FC-denominated). FX protected deposits (USD62 billion in
early July) not only create fiscal costs and FX linked contingent
liabilities for the sovereign, but also could add to domestic FX
demand in the event of reduced renewals.
Turkiye's 'B' IDRs also reflect the following key rating drivers:
High Revenue Growth Contains Deficits: Supported by strong revenue
growth, Fitch estimates that Turkiye's central government deficit
will reach 3.3% of GDP, outperforming the 3.5% 2022 budget target.
Fiscal risks are related to the impact of weaker economic activity
on revenues, expenditure pressures related to adjustment of
salaries and pensions due to high inflation, rising interest bill
and transfer to SOEs, most notably those in the energy sector.
Turkiye is increasingly reliant on the budget to reduce FX demand
and mitigate the impact of high inflation on the economy. Based on
official estimates, measures to ease the impact of inflation could
equal TRY241 billion (1.8% of 2022 forecast GDP). The final cost is
likely to be larger, as compensation for FX deposits alone could
reach 3.1% of GDP with the budget responsible for 1.4% of GDP using
Fitch's end-year exchange rate forecast of 20 lira per USD.
Moreover, the government's willingness to introduce new instruments
to reduce FX demand, such as revenue-linked securities, could
increase costs to the budget.
Declining Government Debt: After increasing to 42% of GDP in 2021,
Fitch forecasts general government debt to decline to 36% in 2022,
significantly below the forecast 62% for the 'B' median, reflecting
a high deflator, negative real rates for domestic debt and
continued real growth. Government remains vulnerable to currency
risk, as 67% of central government debt was FC-linked or
denominated at end-May, up from 39% in 2017.
Slower Growth: Despite adjustments to minimum wage, public sector
and pensions, Fitch expects consumption to slow given rising
inflation, a weaker exchange rate and weakening domestic
confidence. Weak EU growth will weigh on external demand. Fitch
forecasts growth to reach 4.5% in 2022, but to slow to 3.0% in 2023
and 2.9% in 2024, in the context of high inflation, tighter
financing conditions and slower global growth.
Elections Approaching, Challenging Diplomatic Balance: President
Erdogan has declared his candidacy for the next general elections
due by June 2023. Fitch expects the proximity of general elections
to heavily influence policy in the direction of supporting growth.
The six-party opposition alliance has yet to select a candidate.
The war in Ukraine has required Turkiye to manage a complex
diplomatic balance. Turkiye has maintained its support for the
territorial integrity of Ukraine and recently approved the NATO
candidacy of Sweden and Finland after initially raising objections
to the new entrants. Nevertheless, Turkiye has not joined sanctions
against Russia and maintains commercial and diplomatic relations.
ESG - Governance: Turkiye has an ESG Relevance Score (RS) of '5'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
Theses scores reflect the high weight that the World Bank
Governance Indicators (WBGI) have in Fitch's proprietary Sovereign
Rating Model. Turkiye has a medium WBGI ranking at 37 reflecting a
recent track record of peaceful political transitions, a moderate
level of rights for participation in the political process,
moderate but deteriorating institutional capacity due to increased
centralisation of power in the office of the president and weakened
checks and balances, uneven application of the rule of law and a
moderate level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Macro: Continuation of a policy mix that fails to reduce
macroeconomic and financial stability risks, for example an
inflation-exchange rate depreciation spiral or weaker
depositor confidence;
-- External Finances: Increased balance of payments pressures,
including sustained reduction in international reserves, for
example due to reduced access to external financing for the
sovereign or the private sector and/or sustained widening of
the current account deficit;
-- Structural features: A serious deterioration in the domestic
political or security situation or international relations
that severely affects the economy and external finances.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Macro: A credible and consistent policy mix that stabilises
confidence, improves predictability and reduces macroeconomic
and financial stability risks, for example by sustainably
reducing inflation;
-- External Finances: A reduction in external vulnerabilities,
for example due to sustained narrowing of the current account
deficit, increased capital inflows, improvements in the level
and composition of international reserves and reduced
dollarisation.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Turkiye a score equivalent to a
rating of 'BB' on the Long-Term Foreign-Currency (LT FC) IDR
scale.
{Fitch's sovereign rating committee adjusted the output from the
SRM to arrive at the final LT FC IDR by applying its QO, relative
to SRM data and output, as follows:
-- Structural: -1 notch, to reflect vulnerabilities in the
banking sector due to the significant reliance on foreign
financing and high financial dollarisation, and the risk that
developments in geopolitics and foreign relations, including
sanctions, and as well as of domestic social unrest, could
impact economic stability;
-- Macro: -1 notch, to reflect that risks of potential additional
macroeconomic and financial stability are not fully captured
by the SRM, as the current policy mix and potential reaction
to shocks could further weaken domestic confidence, reduce
reserves and lead to external financing and domestic liquidity
pressures;
-- External Finances: -1 notch, to reflect a very high gross
external financing requirement, low international liquidity
ratio, a weak central bank net foreign asset position, and
risks of renewed balance of payments pressures in the event of
changes in investor sentiment.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Turkiye has an ESG Relevance Score of '5' for Political Stability
and Rights as World Bank Governance Indicators have the highest
weight in Fitch's SRM and are therefore highly relevant to the
rating and a key rating driver with a high weight. As Turkiye has a
percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Turkiye has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and are therefore highly relevant to the rating and are a key
rating driver with a high weight. As Turkiye has a percentile rank
below 50 for the respective Governance Indicators, this has a
negative impact on the credit profile.
Turkiye has an ESG Relevance Score of '4'for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver. As Turkiye has a percentile rank /below 50 for the
respective Governance Indicator, this has a negative impact on the
credit profile.
Turkiye has an ESG Relevance Score of '4[+]' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Turkiye, as for all sovereigns. As Turkiye
has a track record of 20+ years without a restructuring of public
debt and captured in Fitch's SRM variable, this has a positive
impact on the credit profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3'. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or to the way in which they
are being managed by the entity.
DEBT RATING PRIOR
---- ------ -----
Turkey LT IDR B Downgrade B+
ST IDR B Affirmed B
LC LT IDR B Downgrade B+
LC ST IDR B Affirmed B
Country Ceiling B Downgrade B+
senior LT B Downgrade B+
unsecured
Hazine Mustesarligi Varlik Kiralama Anonim Sirketi
senior LT B Downgrade B+
unsecured
===========================
U N I T E D K I N G D O M
===========================
ALEXANDER DAVID: Enters Voluntary Liquidation Amid FCA Issues
-------------------------------------------------------------
Stuart Fieldhouse at The Armchair Trader reports that city of
London corporate finance boutique Alexander David Securities is
going into voluntary liquidation in the wake of a spate of issues,
the FCA confirmed on July 5.
The FCA had already ruled that the firm was "not a fit and proper
person in relation to the regulated activities which it carries on
or seeks to carry on", The Armchair Trader notes.
There had been seven decisions upheld by the UK Ombudsman against
the broker and it had failed to pay the Ombudsman GBP3,900 in fees,
The Armchair Trader states. There were still 32 open cases against
Alexander David Securities, most of which were either at the
investigation stage or had been referred to an Ombudsman for
decision, The Armchair Trader discloses.
According to The Armchair Trader, assuming an average claim value
of GBP41,858 for each claim based on previous cases, the total
claim value is estimated to be approximately GBP1,339,470. The
Ombudsman has previously upheld 85% of decisions against Alexander
David Securities, The Armchair Trader relays.
The FCA has imposed requirements on the corporate advisory firm,
which means it must not dispose of any assets without the written
consent of the UK regulator, The Armchair Trader recounts. Since
June 29, 2020, Alexander David Securities had not been permitted to
undertake any regulated activities, hold client money or assets nor
issue or approve for third parties any financial promotions, The
Armchair Trader notes.
The FCA, as cited by The Armchair Trader, said it was acting so
money would be available to pay compensation owed by ADSL,
including a so far unpaid redress awarded by the Financial
Ombudsman Service, to those given unsuitable pension advice.
Alexander David Securities was incorporated on November 30, 2006.
The firm was based in London and provided corporate finance
advisory services which included initial public offerings,
secondary fund raisings, mergers and acquisitions, and debt
offerings. Its clients comprised corporate entities and fund
managers. The firm had been authorised by the FCA to perform
regulated activities from January 30, 2008.
The FCA said it had become concerned that there was a present risk
of "a dissipation of the remaining assets of Alexander David
Securities to avoid paying complainants any redress", The Armchair
Trader relays. The reasons for the regulator’s concerns lay in
the fact that the balances in ADSL’s bank accounts had
substantially decreased from GBP2,388,041 as at December 16, 2021,
to GBP433,353 as at April 26, 2022, and that the broker had
continued to refuse to make full redress payments to its customers,
The Armchair Trader states.
Joint liquidators (BDO) have been appointed to wind up Alexander
David Securities for the benefit of its creditors and will be
writing to all known creditors shortly to explain what this means
and how to make a claim, The Armchair Trader relates. As part of
the wind up of the firm, the ombudsman will be contacting its
clients for permission to refer the issue to the Financial Services
Compensation Scheme, The Armchair Trader discloses.
APEX GROUP: S&P Affirms 'B-' ICR on Debt-Funded Acquisitions
------------------------------------------------------------
S&P Global Ratings affirmed its 'B-' long-term issuer credit
ratings on Bermuda-Based Apex Group Ltd. and its financing
subsidiaries. S&P also assigned its 'B-' issue rating and '3'
recovery rating to the proposed $300 million senior secured term
loan add-on in the proposed funding package.
The stable outlook reflects S&P's view that Apex will continue to
expand its revenue base by integrating its acquisitions while
increasing profitability, enabling the possibility of leverage
reduction from 2023.
Trust and corporate services provider Apex is acquiring
complementary service provider Maitland International Holdings PLC
(Maitland) and it has acquired MMC Group Holdings Ltd. (MMC).
S&P said, "The acquisitions of Maitland and MMC provide additional
geographic diversification and are in line with the group's
strategy, in our view.Apex completed the acquisition of MMC in
April 2022, and we expect the acquisition of Maitland to close in
the next three to six months. The two acquisitions provide Apex
with a meaningful presence in the fund administration markets in
South Africa, New Zealand, and Australia, which are markets in
which Apex does not materially operate. We see them as consistent
with the group's acquisition-led growth strategy.
"The acquisition funding package involves a material increase in
debt, which will delay the anticipated leverage reduction by at
least one year. Apex will fund the acquisitions with the issuance
of an incremental senior secured first-lien term loan of $300
million, and $220 million of preference shares that we view as
debt-like. With management-adjusted EBITDA of about $18 million for
the two businesses in 2021, we expect the acquisitions to delay any
material deleveraging until 2023 at the earliest. Furthermore, with
the acquisition of Sanne now expected to close in Q3 2022, we
expect the group to continue to incur meaningful exceptional costs
this year, which will delay any significant rise in adjusted EBITDA
margins, and is likely to result in negative free operating cash
flow (FOCF) for a further year. Although we consider Apex to be an
inherently cash-generative business with a sticky client base, its
large debt quantum and active mergers and acquisition strategy are
unlikely to result in significant leverage reduction or positive
FOCF generation that we would expect for a 'B' rating. We therefore
affirmed our 'B-' ratings on the group and its financing
subsidiaries."
The stable outlook reflects S&P's view that Apex will continue to
"expand its revenue base by integrating its acquisitions while
increasing profitability, enabling potential leverage reduction
from 2023. However, we view debt-funded acquisitions as a core part
of Apex's strategy, resulting in leverage that is likely to remain
at elevated levels."
S&P could lower the ratings if:
-- Apex records persistent negative FOCF, such that we view the
capital structure as unsustainable; or
-- S&P assesses the group's financial policy as increasingly
aggressive, with ongoing debt-funded acquisitions or shareholder
returns, resulting in persistent very high leverage without
prospects of meaningful leverage reduction.
S&P could raise the ratings if:
-- The group builds a track record of generating positive FOCF,
with S&P's calculation of funds from operations (FFO) cash interest
coverage remaining sustainably above 2.0x;
-- Adjusted debt to EBITDA falls materially and there is a strong
commitment from the financial sponsor to sustain lower leverage;
or
-- Apex diversifies further by increasing the contribution of
European Depositary Bank (EDB) and the banking services within the
group, while remaining well capitalized.
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Apex. Our assessment
of the company's financial risk profile as highly leveraged
reflects corporate decision-making that prioritizes the interests
of the controlling owners, in line with our view of the majority of
rated entities owned by private-equity sponsors. Our assessment
also reflects generally finite holding periods and a focus on
maximizing shareholder returns."
CROSSFIELD LIVING: Goes Into Liquidation, Owes More Than GBP3.6MM
-----------------------------------------------------------------
Jon Robinson at Liverpool Echo reports that Crossfield Living, a
construction company in Liverpool, has collapsed into liquidation
owning more than GBP3.6 million.
The move by Crossfield Living comes after its sister company also
collapsed in April, the ECHO notes.
Crossfield Living is now in creditors’ voluntary liquidation
following a court hearing on July 12, the ECHO discloses.
The business was established in 2017 as a sister company to
Crossfield Construction. Both companies were part of Crossfield
Group.
It was revealed in April that Crossfield Construction was set to be
dissolved having racked up debts of GBP5.9 million, the ECHO
notes.
Jason Greenhalgh and Paul Stanley of Begbies Traynor have now been
appointed as joint liquidators of Crossfield Living, the ECHO
relates.
Begbies Traynor said Crossfield Living ceased to trade on April 29
after it "faced significant financial pressure", the ECHO relays.
It added that "Covid restrictions, the soaring price of raw
materials and the loss of key contracts were some of the key
factors in its demise", the ECHO discloses.
According to a Begbies Traynor document seen by the ECHO,
Crossfield Living owes more than GBP3.6 million to its creditors.
EUNISURE: Goes Into Liquidation Following Insolvency
----------------------------------------------------
John Brazier at International Investment reports that the Financial
Conduct Authority (FCA) has confirmed UK-based life
insurance-broker Eunisure has gone into liquidation.
According to International Investment, in a release, the regulator
noted that the broker's directors have concluded that the business
is no longer financially viable and subsequently entered
insolvency.
The FCA stated that Roderick Graham Butcher of Butcher Woods has
been appointed as the liquidator, International Investment
discloses.
HOUSE BY URBAN: More Details on Administration Released
-------------------------------------------------------
Ben Butler at Insider Media reports that more details have been
released about the collapse of a modular housing company, which
resulted in more than 160 redundancies.
Teneo was appointed as administrator of House by Urban Splash, a
joint venture between shareholders, Japanese modular firm Sekisui
and Homes England, in May, Insider Media recounts.
Collectively known as US House Group, the companies placed into
administration are Urban Splash House Investments, Urban Splash
House, Urban Splash Modular, Port Loop Holdings, Port Loop and Port
Loop (Subco1), Insider Media relates.
At the time of Teneo's appointment, the Manchester-headquartered
group had 189 employees, with 152 working at the factory with the
majority of the remaining employees working at the development
sites, Insider Media discloses. However, following the
administration appointments, the companies' operations ceased with
immediate effect and 164 employees were made redundant at the time,
Insider Media relays.
Subject to its appointment, a small number of employees were
retained to assist the joint administrators in realising value from
the companies' assets, Insider Media notes
According to Insider Media, a statement of administrator's
proposals report said the group identified a potential funding
shortfall in early 2022, with the primary driver behind its funding
shortfall being the "under-performance" of its modular factory
facility, which had been making a loss for a "prolonged period".
It said the underperformance in the factory was attributed to under
utilisation and an inability to absorb overhead costs, and design
issues resulting in production defects and re-working the modular
units, the costs of which could not be passed onto the developer,
Insider Media notes.
The report, as cited by Insider Media, said that after the funding
shortfall was identified, it was clear that additional third party
funding would be required to support the business in the short to
medium term. The directors initially approached SHUK in their
capacity as shareholder and secured creditor in PLL, to discuss a
solution to the group's financial difficulties and funding
requirements, Insider Media discloses.
While the group was able to implement a number of cost saving
measures to ease the cash flow pressure in the immediate term and
despite a period of discussions with SHUK, it was unable to secure
the funding it required in the short to medium term, Insider Media
notes.
Once it became clear that the companies were unable to pay their
debts once they fell due, the directors of each of the companies
held a board meeting on May 9, 2022, to consider placing the
companies into administration, Insider Media relays.
Daniel Smith and Adrian Berry of Teneo were subsequently appointed
as joint administrators on
May 11, 2022, Insider Media discloses.
MATALAN: S&P Lowers LongTerm ICR to 'CCC', Outlook Negative
-----------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Matalan to 'CCC' from 'CCC+'. S&P also lowered its issue ratings on
the first-lien senior secured notes to 'CCC' (recovery rating '3'),
the second-lien secured debt to 'CC' (recovery rating '6'), and the
higher-ranking priority notes to 'B-' (recovery rating '1')
The negative outlook indicates that S&P could lower the ratings if
Matalan fails to address the refinancing of its maturating debt in
a timely manner, launches distressed exchange of its capital
structure, or faces a conventional default.
Matalan faces heightened refinancing risk because of weaker capital
markets. The group's GBP350 million senior secured notes mature in
January 2023 and its second-lien notes amounting to about GBP100
million (including accrued interest) are due in January 2024. S&P
thinks there is heightened risk in addressing the upcoming
maturities in the wake of the challenging macroeconomic conditions
and rising interest rates. This increases the risk that the group
may not be able to complete a successful refinancing and leaves the
group dependent on receptive credit markets to improve its
liquidity and meet its debt obligations. Matalan secured a
commitment for a GBP60 million super senior asset-backed term loan
(ABL) to refinance the July 2022 maturities relating to the
Coronavirus Large Business Interruption Loan Scheme (CLBIL), the
new priority notes, and the revolving credit facility (RCF). This
alleviates some of its short-term refinancing risk. However, during
a period of credit market volatility, Matalan's window for
completing a successful refinancing is shrinking because the
maturity date for its debt is approaching. S&P thinks Matalan could
struggle to refinance its debt on favorable terms if current market
conditions persist. Additionally, the group's GBP100 million
second-lien notes are trading at distressed levels, which increases
the likelihood that it may undertake a distressed exchange or
balance sheet restructuring to alleviate some of its debt burden.
Matalan exhibited good earnings growth and achieved stronger EBITDA
with lower leverage in fiscal 2022 than S&P's previous forecast.
Matalan achieved revenue of GBP1.03 billion and adjusted EBITDA of
GBP196 million in fiscal 2022. There was a material improvement in
the group's operating performance and Matalan achieved sales growth
of 38% in fiscal 2022 thanks to a consistent execution of its core
strategy and favorable evolution of its product mix.
Pandemic-related government-mandated closures caused disruption for
the group, but it was able to capitalize on its strong online
growth thanks to further customer migration across multiple
channels and a strong rebound in the U.K. apparel market. This
improvement reflects the group's greater resilience to tough market
conditions, including tight cost management and focus on cash
generation. Over the past few years, Matalan has implemented
measures to increase operating efficiency, including supply chain
automation, product optimization, incremental ranging, and the
store refurbishment program. These measures have led to improved
profitability.
S&P said, "We expect Matalan's profitability and cash generation to
continue the recent trend of steady improvement in fiscals
2023-2024 due to the efficiency and cash preservation measures
undertaken in fiscals 2021-2022. We forecast Matalan's revenue to
grow by 18%-20% in fiscal 2023 and about 8%-10% in fiscal 2024.
Growth in fiscal 2023 would come from online growth, modest growth
in its store estate, and the absence of lockdowns compared to
fiscal 2022. In fiscal 2023, we expect modest like-for-like store
sales growth stemming from incremental ranging, store space
optimization, price inflation, and greater stock availability. We
expect online sales to continue to grow following the migration to
the new Ingenuity online platform. We forecast that Matalan's
earnings will remain largely stable in fiscals 2023-2024,
supporting cash generation as the group continues to grow its
omnichannel capabilities. We also think the group's earnings will
benefit from cost efficiencies and operating expense reduction,
including rebased rent costs and productivity benefits from
automation achieved in fiscals 2021-2022.
"Inflation and supply chain pressures could jeopardize the group's
ability to refinance in the next few months and affect performance
over the next 12 months. We expect a higher inflationary
environment could lead to a decrease in demand and dampen the
improvement in Matalan's performance in the short to medium term.
Demand could moderate given a softer consumer spending environment
and overall lower discretionary purchases. Additionally,
competition in the apparel retailing industry remains intense and
we think affordability will be increasingly important to consumers.
We think the group is well positioned as a value player in the
industry, which should provide some cushion in a weaker
environment. Matalan has some flexibility to pass through cost
increases to consumers via selective price increases. However, we
note that the value-based customer that the group caters to will
also be the most price sensitive, and price increases could
diminish customer traffic. We expect Matalan to attempt to offset
cost inflation with efficiencies in its logistics, distribution,
and in-store operations. Supply chain constraints from
government-mandated shutdowns in Asia have affected Matalan's
performance, particularly in China, where it sources about 30% of
its products. This had a significant effect on product supply and
levels of stock flow, leading to lower delivered sales in Q4 fiscal
2022 and Q1 fiscal 2023. Management has attempted to resolve the
issues with logistics optimization, improved merchandising
strategy, and by working with short lead time suppliers with
multi-country supply options. However, we think there are still
risks associated with supply chain constraints, including increased
freight rates, which will weaken margins in the short term.
"In our view, migration of the group's existing web platform to
Ingenuity could offer significant upside if executed properly.As
the focus shifts to omnichannel, Matalan has announced a long-term
partnership with THG Ingenuity to migrate its existing online
platform to the high-performing Ingenuity platform. This would
result in significant website functionality improvements and
further enhance Matalan's data and analytics capabilities,
including enhanced personalization via a refreshed loyalty scheme,
better conversion levels, larger basket sizes, and improved
customer services. If executed successfully, the online re-platform
would support and accelerate extensive online growth via several
customer-focused features that would transform the user experience,
as well as via enhanced third-party brand partnerships. Although
this initiative should contribute positively to Matalan's operating
performance, there remains some execution risk. Matalan's growth in
the expanding online segment will also require frequent investments
in new systems, logistics, and distribution networks to maintain
its capabilities.
"Notwithstanding our expectation of the group's operating
performance to build on its recent expansionary trend over the next
12-24 months, the negative outlook reflects Matalan's
susceptibility to escalating refinancing risk of its largest bullet
maturity due in January 2023. If not addressed in good time, the
inability to pay back the GBP350 million senior secured notes would
constrain the group's liquidity position and lead to a further
downgrade.
"We could lower our ratings on Matalan if it does not make
meaningful progress toward a successful refinancing or if we think
it will encounter a liquidity crunch. We will lower the rating if
we think a payment default, a distressed exchange or similar debt
restructuring, or a conventional default are highly likely."
S&P could revise its outlook to stable if:
-- Matalan addresses its upcoming debt maturities by completing a
refinancing of its capital structure in good time and at par value;
and
-- Matalan's performance and market environment support earnings
growth, cash generation, and credit metrics improvement from fiscal
2022 levels.
ESG credit indicators: To E-2, S-2, G-3; From E-2, S-3, G-3
S&P said, "Social factors are now a neutral consideration in our
credit rating analysis of Matalan. Strict travel and mobility
restrictions during the pandemic resulted in extensive store
closures, which in turn led to a 34% contraction of group revenue
in fiscal 2021, while adjusted EBITDA more than halved and FOCF
turned negative. Matalan restored its earnings once restrictions
were lifted, and it has advanced its e-commerce reach, achieving
more than 55% growth in its online sales between fiscal 2020 and
fiscal 2022. We expect Matalan to expand its earnings and recover
its margins to pre-pandemic levels over the next two to three
years."
PETROPAVLOVSK: Set to Go Into Administration Due to Huge Debts
--------------------------------------------------------------
James Warrington at The Telegraph reports that a London-listed
Russian miner is set to collapse into administration after it was
left reeling by western sanctions.
According to The Telegraph, Petropavlovsk, which has seen its share
price collapse 94% this year, said it will file an application for
administration at the High Court.
It also requested the suspension of trading of its shares and
convertible bonds on the London Stock Exchange, The Telegraph
discloses.
Petropavlovsk has been struggling to repay nearly US$300 million of
debt to its largest lender Gazprombank due to sanctions imposed on
the Russian bank, The Telegraph states.
It has also suffered an exodus of advisers due to a ban on services
City firms can offer to Russian companies, The Telegraph notes.
The miner, as cited by The Telegraph, said it has received a
takeover offer from one party and an acquisition proposal from
another, but warned it was "highly unlikely" there would be any
return to shareholders if a deal goes ahead due to its high levels
of debt.
STRATTON MORTGAGE 2020-1: Fitch Hikes Rating on Class F Debt to BB+
-------------------------------------------------------------------
Fitch Ratings has upgraded Stratton Mortgage Funding 2020-1 PLC's
(Stratton) class B, C, D and F notes and affirmed the others. Fitch
has also removed the class B to F notes from Under Criteria
Observation (UCO). A full list of rating actions is below.
DEBT RATING PRIOR
---- ------ -----
Stratton Mortgage Funding 2020-1 PLC
A XS2215921748 LT AAAsf Affirmed AAAsf
B XS2215922043 LT AA+sf Upgrade AAsf
C XS2215922126 LT AAsf Upgrade Asf
D XS2215922399 LT A+sf Upgrade BBB+sf
E XS2215922472 LT BB+sf Affirmed BB+sf
F XS2215922639 LT BB+sf Upgrade B+sf
KEY RATING DRIVERS
Updated UK RMBS Criteria: In the update of its 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 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.
Fitch also reduced its foreclosure frequency (FF) assumptions for
loans in arrears based on a review of historical data from the UK
RMBS transactions it rates. The changes better align the
assumptions with observed performance in the expected case and
incorporate a margin of safety at the 'Bsf' level.
The updated criteria contributed to the rating actions.
Increasing CE: Credit enhancement (CE) has increased since the last
rating action due to sequential amortisation and the amortising
liquidity reserve fund that releases excess amounts as available
redemption receipts. The increased CE contributed to the rating
actions.
Expected Interest Deferral Limits Ratings: In Fitch's expected case
analysis, the class E and F notes are projected to defer interest
to an extent that Fitch deems to be excessive, as described in its
Global Structured Finance Rating Criteria. Consequently, the class
E and F notes' ratings are capped at 'BB+sf'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A deterioration in asset performance due to the increased cost of
living and energy prices in the UK could result in Fitch taking
negative rating action on the notes.
The transaction's performance may be affected by changes in market
conditions and economic environment. Weakening asset performance is
strongly correlated with 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 tested a 15% increase in
weighted average (WA) FF and a 15% decrease in the WARR. The
results indicate a negative rating impact of up to four notches.
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 WAFF of 15% and an increase in the WARR
of 15%. The results indicate a positive rating impact of up to five
notches.
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
Stratton Mortgage Funding 2020-1 PLC
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.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
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.
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
Stratton has an ESG Relevance Score of '4' for Customer Welfare -
Fair Messaging, Privacy & Data Security due to the pool exhibiting
an interest-only maturity concentration amongst the legacy
non-conforming OO loans of greater than 40%, which has a negative
impact on the credit profile, and is relevant to the rating[s] in
conjunction with other factors.
Stratton has an ESG Relevance Score of '4' for Human Rights,
Community Relations, Access & Affordability due to a significant
proportion of the pool containing OO loans advanced with limited
affordability checks, which has a negative impact on the credit
profile, and is relevant to the rating[s] in conjunction with other
factors.
Stratton has an ESG Relevance Score of '4' for Data Transparency &
Privacy due to exposure to transaction data and periodic recording,
which has a negative impact on the credit profile, and is relevant
to the rating[s] in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
TWIN BRIDGES 2022-2: S&P Assigns Prelim. BB+ (sf) Rating in E Notes
-------------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Twin
Bridges 2022-2 PLC's (TB 2022-2) class A, B, C-Dfrd, D-Dfrd, and
E-Dfrd notes. At the same time, TB 2022-2 will issue unrated class
Z1-Dfrd and Z2-Dfrd notes, and certificates.
TB 2022-2 is a static RMBS transaction that securitizes a portfolio
of BTL mortgage loans secured on properties in the U.K.
The loans in the pool were originated between 2015 and 2022, with
most originated in 2022, by Paratus AMC Ltd., a non-bank specialist
lender, under the Foundation Home Loans brand.
The collateral comprises first-lien U.K. BTL residential mortgage
loans made to both commercial and individual borrowers.
In contrast with the previous Twin Bridges 2022-1 PLC transaction,
there will be no prefunded amount.
The first interest payment date will be in December 2022.
The transaction benefits from liquidity support provided by a
nonamortizing reserve fund (broken down into a liquidity reserve
fund and a credit reserve), and principal can also be used to pay
senior fees and interest on the notes, subject to certain
conditions.
Credit enhancement for the rated notes will consist of
subordination and the credit reserve from the closing date and
overcollateralization following the step-up date. The
overcollateralization will result from the release of the excess
amount from the revenue priority of payments to the principal
priority of payments, after any subordinated swap payment amounts
are due (if any) are paid.
The transaction incorporates a swap to hedge the mismatch between
the notes, which pay a coupon based on the compounded daily
Sterling Overnight Index Average (SONIA), and the loans, which
primarily pay a fixed-rate interest before reversion.
At closing, the issuer will use the issuance proceeds to purchase
the full beneficial interest in the mortgage loans from the seller.
The issuer grants security over all its assets in favor of the
security trustee.
S&P said, "Our preliminary ratings on the class A and B notes
address the timely payment of interest and ultimate payment of
principal, although the terms and conditions of the class B notes
allow for the deferral of interest until they are the most senior
class outstanding. Our preliminary ratings on the class C-Dfrd,
D-Dfrd, and E-Dfrd notes address ultimate payment of principal and
interest while they are not the most senior class outstanding. TB
2022-2 will also issue unrated class Z1-Dfrd and Z2-Dfrd notes.
"There are no rating constraints in the transaction under our
counterparty, operational risk, or structured finance sovereign
risk criteria. We consider the issuer to be bankruptcy remote."
Preliminary Ratings
CLASS PRELIM. RATING* CLASS SIZE (%)
A AAA (sf) 83.00
B AA- (sf) 7.75
C-Dfrd A- (sf) 3.25
D-Dfrd BBB (sf) 1.50
E-Dfrd BB+ (sf) 1.00
Z1-Dfrd NR 3.50
Z2-Dfrd NR 1.00
Certificates NR N/A
NR--Not rated.
N/A--Not applicable.
UK PUNCH: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
---------------------------------------------------------
Fitch Ratings has affirmed UK Punch Pubs Group Limited's (Punch)
Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable
Outlook. Fitch has also affirmed Punch Finance plc's GBP600 million
bond's senior secured rating of 'B+'/RR2.
The ratings reflect Punch's 1,276 wet-led suburban, town- and
village-weighted UK pub portfolio. After lockdowns, drinks volumes
have quickly bounced back. So far in 2022, Punch's managed wet-led
pubs' monthly sales are above 2019 comparable periods. The leased &
tenanted (L&T) portfolio had beer price increases in April. In the
managed partnership (MP) operating model pubs, similar pub prices
and on-going premiumisation also helped increase drink sales.
Punch's portfolio is geographically diverse and the group's EBITDA
by outlet in the year to mid-August 2023 (FY23) is expected to be
roughly 50:50 L&T and MP.
In line with previous recessionary periods, Fitch expects
trading-down UK consumers to frequent pubs' low-cost socialising
venues, which have value-driven drink and food offers.
KEY RATING DRIVERS
Bounce Back in Volumes: As seen in the various post-lockdown
periods, pubs have recovered drink and food volumes quickly. Punch
management reports that its wet-led portfolio is outperforming the
UK pub industry's equivalent CGA Peach Coffer index due to Punch
benefiting from having a largely community-based pub estate. The
index quoted strong summer-to-November 2021 sales growth, reaching
near-2019 periods, but that fell during Christmas, before
increasing to an average 104% of 2019's comparators since January
2022.
There is some lag in returning to full profits due to restart-up
costs but as most of the cost base is variable, cash conversion is
high. In the L&T model, the publicans' payments of a fixed rent to
Punch has been maintained.
Conducive Portfolio Mix: Including the 56 Youngs pubs acquired in
July 2021, Punch's February 2022 1,276 UK pub portfolio is
primarily wet-led with some having 'value food' offerings rather
than 'premium food' by peers. Its predominantly suburban, town and
village pubs are conducive to today's environment of
less-frequented city centres and suburban working from home. The
city-centre pubs/night clubs of Stonegate and Wetherspoon have only
recently benefited from more workers returning to the cities for
work or play.
Manageable, Still Rising Cost Base: Without staff-intensive
kitchens for food sales, or city centre (non-local, more
competitive) staff costs, Punch's wet-led and community-based pubs
have suffered less from staff cost rises and availability. In the
MP model, where Punch historically incurs utility costs (at 3%-5%
of pub sales), the group's electricity contract expires in
September 2022 and could double in price. Gas has been fixed for
two years for the majority of the estate. In April 2022, similar to
peers, Punch increased its beer prices supplied to its L&T pubs by
5%. Drinks prices, together with premiumisation, have also
increased sales in its MPs. Further price increases will be
measured, given the likely effect on patronage volumes.
Operating Models' EBITDA/Pub: Using pre-pandemic datapoints,
Punch's managed pubs had yet to reach around GBP0.2 million
EBITDA/pub of peers' equivalents, although within the latest pub
conversions management targets a comparable range by expanding
capacity, including more food content. Punch's existing L&T
portfolio achieves a comparable GBP0.065 million EBITDA/pub, which
is in the same range as Enterprise Inn's large L&T portfolio (now
part of Stonegate) but lower than others (Greene King, for
example). Within the L&T model, publicans' rent to Punch (as
landlord) is a backbone 35% of this EBITDA/pub pre-pandemic, which
continued over the past two years.
Mainstay Growth with MP Conversions: Like its competitors, Punch
has targeted conversion of L&T pubs from its portfolio into its
managed model where the partner benefits from central purchasing
power and synergies from scale. Upon investing in more capacity,
expanded kitchens for upgraded food offerings and better amenities,
EBITDA/pub increases with a three to four year pay-back of planned
EBITDA improvement relative to Punch's share of capex. An initial
portfolio started in 2018 with GBP42.7 million of capex on 117
conversions (average GBP0.35 million spend).
Some of this increased EBITDA was captured in period 7 last 12
months to FY20 EBITDA but the annualised effect of this should flow
in FY23 under normalised operating conditions. For another tranche
of FY21-FY25 conversions, GBP37.5 million of capex on 178
conversions, management has targeted GBP15 million of increased
EBITDA. Punch's liquidity enables this plan to be funded.
Different MP Model: Punch's MPs are different to peers since they
(and planned conversions) have local staff employed by a
self-employed manager, who retains a 25% cut of pub revenue.
Consequently, Punch's central overheads are lower. Although MPs
continue to source drinks from Punch, they are independent rather
than branded. This mostly variable cost structure results in MP
profits flowing to Punch to remunerate its capital employed
historically or for recent conversion capex.
Highly Leveraged: With the GBP600 million 2026 bond issued in July
2021 and GBP70 million super-senior revolving credit facility
(RCF), of which GBP30 million was drawn at end-2021, Fitch
forecasts improving FY23 lease-adjusted net debt/EBITDAR at 7.2x
with free cash flow (FCF) and EBITDA growth, despite conversion
capex spend, reducing in future years (FY24: 6.6x). This leverage
funds a predominantly freehold-owned estate. Management has a
medium-term target of 6.5x leverage. Funds from operations (FFO)
fixed charge cover (including Punch's third-party operating lease
rents) is expected to go above 1.9x from FY23, which is strong for
the rating.
DERIVATION SUMMARY
Fitch rates Punch and Stonegate Pub Company Limited (IDR:
B-/Negative) under its global Restaurants navigator framework,
taking into account their predominantly wet-led operations, the
fixed rent remuneration from L&T, higher profit margins and a
significantly higher proportion of freehold property ownership,
which affects leverage.
Punch has the same 'B-' IDR as Stonegate, and has a portfolio of
1,276 pubs sites versus Stonegate's 4,500. Both are predominantly
wet-led estates. Although Punch's EBITDA/pub in L&T is comparable
with Stonegate's 2020 Enterprise Inn-acquired L&T portfolio's,
Punch's managed portfolio yields lower profits than Stonegate's,
reflecting the size of the average unit and drink sales per pub.
Punch's portfolio is less town centre-based than Stonegate, whose
city and late-night formats will have suffered from restricted
operational conditions during much of the pandemic, eroding their
high EBITDA/pub. Both companies' underlying strategy is to convert
under-utilised L&T pubs within their respective portfolios by
injecting new management and investing capex to increase EBITDA/pub
potential.
The difference in Outlook at the same 'B-' IDR reflects Punch's
stronger financial flexibility compared with Stonegate, with the
former's pub conversion programme being less hindered during the
pandemic period, and a satisfactory liquidity profile.
The potential for recovery in volumes and profits is more immediate
for pubs' localised service than hotels, for example, which rely on
international travel/holidays. During the pandemic, the UK
government's financial support for the domestic pub industry was
significant.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
-- Because FY21 and FY22 figures are distorted by disrupted
pandemic operating environments, including rent concessions to
L&T publicans, Fitch has overlayed its original 2021 plan of
growth, L&T conversions to MPs, and rates of growth expected
in a normalised FY22 and applied it to FY23, expecting post-
August 2022 to be a normalised operating period, albeit with
subdued consumers;
-- FY23 versus pre-pandemic L&T portfolio EBITDA growth is flat,
and a GBP5 million increase for the existing 115 MP portfolio,
getting closer to GBP0.2 million per pub of peers' managed
outlets. EBITDA increases occur for the L&T to MP conversions
that started in FY18, which have not proven their 12-month
contributions in normalised operating environments. The main
area of EBITDA growth from the January 2020 LTM starting point
is the MP conversions from L&T;
-- Including the EBITDA from the 56 Youngs pubs, and associated
capex intended to increase their profits further, group EBITDA
is expected to be GBP90 million in FY23;
-- Increase utility costs in FY23 from the expired electricity
contract (mainly for MP activities) adversely affecting FY23
and FY24;
-- Capex stabilising at GBP30 million - GBP35 million per year
through to FY24;
-- No dividend.
RECOVERY ASSUMPTIONS
The recovery analysis assumes that Punch would be liquidated in
bankruptcy rather than re-organised as a going concern. Fitch has
assumed a 10% administrative claim. The liquidation estimate
reflects Fitch's view of the value of pledged collateral that can
be realised in a sale or liquidation conducted during a bankruptcy
or insolvency proceedings and distributed to creditors.
Fitch used the freehold and long leasehold pubs' valuations
including an updated August 2021 third-party valuation for part of
the portfolio. These valuations are based on the fair maintainable
trade (FMT or profitability) of the pubs using 8x-12x multiples.
Punch has had a record of selling pubs and portfolio assets at, or
above, book value.
Fitch applied a standard 25% discount (75% advance rate) to the
updated valuations, replicating a distressed group having an around
20% reduction in EBITDA (replicating the FMT component of the
valuation). Punch's super-senior GBP70 million RCF is assumed to be
fully drawn on default.
Fitch's waterfall analysis generates a ranked recovery for the
senior secured bond in the 'RR2' category, leading to a 'B+'
instrument rating. This results in a waterfall generated recovery
computation (WGRC) output percentage of 87% (previously 80%) based
on current metrics and assumptions. This uplift is mostly
attributed to the acquired Youngs portfolio.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Lease-adjusted gross debt/EBITDAR leverage below 7.0x (net
equivalent below 6.5x);
-- Operating EBITDAR/interest paid + rents above 1.6x;
-- FCF margin at 2% to 5%;
-- Evidence that MP conversions are reaching targeted improved
EBITDA/pub, reflecting a successful strategy execution and
supportive trading environment.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Lease-adjusted gross debt/EBITDAR leverage above 8.0x (net
equivalent above 7.5x);
-- Operating EBITDAR/interest paid + rents trending towards 1.2x;
-- Negative FCF margin;
-- Weakened liquidity including significant drawdown of the RCF.
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
Satisfactory Liquidity: At end-February 2022, cash was GBP15
million plus GBP40 million undrawn under the GBP70 million
super-senior RCF. As cash builds, management expects to repay GBP10
million that was drawn under the RCF as an Omicron contingency.
Group liquidity is helped by future positive FCF (after
expansionary and maintenance capex) and before disposals proceeds.
The group may also acquire pubs, net of disposal activity.
With the recent new GBP600 million bond, there are no debt
maturities until 2026.
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.
ISSUER PROFILE
Punch owns 982 L&T and owns and operates 294 MP pubs across the UK
(as at end-February 2022).
DEBT RATING RECOVERY PRIOR
---- ------ -------- -----
Punch Finance plc
senior secured LT B+ Affirmed RR2 B+
Punch Pubs LT IDR B- Affirmed B-
Group Limited
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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-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
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